{"id":102075,"date":"2017-02-13T10:09:54","date_gmt":"2017-02-13T15:09:54","guid":{"rendered":"http:\/\/countingpips.com\/?p=102075"},"modified":"2018-06-20T09:13:23","modified_gmt":"2018-06-20T13:13:23","slug":"is-bitcoin-foreshadowing-something-scary","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/02\/is-bitcoin-foreshadowing-something-scary\/","title":{"rendered":"Is Bitcoin Foreshadowing Something Scary?"},"content":{"rendered":"<div id=\"inves-3351134346\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">February 13, 2017<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <img loading=\"lazy\" decoding=\"async\" class=\"attachment-home-th size-home-th wp-post-image\" style=\"display: block; margin-bottom: 5px; clear: both;\" src=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/02\/0217_bitcoin_feature.jpg\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" srcset=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/02\/0217_bitcoin_feature.jpg 580w, https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/02\/0217_bitcoin_feature-300x155.jpg 300w\" alt=\"Is Bitcoin Foreshadowing Something Scary?\" width=\"580\" height=\"300\" \/><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" style=\"float: left; max-width: 85px;\" src=\"https:\/\/duip7hn7nchpo.cloudfront.net\/editor-circle-louis-basenese.jpg\" alt=\"Louis Basenese\" width=\"85\" height=\"100\" \/>Bitcoin was the largest gainer among currencies last year, gaining 120%.<\/p>\n<p>It was the biggest currency winner in 2015, too, with a tidy 37% upward ascent.<\/p>\n<p>The foremost cryptocurrency is off to a volatile start in 2017 with China recently blocking bitcoin withdrawals.<\/p>\n<p>That being said, I\u2019m not writing today to recommend that you buy Bitcoin.<\/p>\n<p>Rather, I\u2019m interested in knowing why investors continue to pile in.<\/p><div id=\"inves-313338885\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>Some of the potential explanations include\u2026<\/p>\n<ul>\n<li>Are the upward gains strictly being driven by overspeculation?<\/li>\n<li>Did the smart money see the Trump presidency coming a mile away and immediately began diversifying beyond the dollar?<\/li>\n<li>Is the conflict brewing in the South China Sea likely to erupt in war?<\/li>\n<li>Is Bitcoin\u2019s rise further validation of a cashless society?<\/li>\n<li>Is the price rising because the supply of bitcoins is shrinking?<\/li>\n<\/ul>\n<p class=\"centered\"><img loading=\"lazy\" decoding=\"async\" class=\"centered aligncenter\" src=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/02\/totalbitcoin_chart.png\" alt=\"Total number of Bitcoins over time\" width=\"540\" height=\"446\" \/><\/p>\n<p>My gut is telling me that it\u2019s the latter.<\/p>\n<p>Once we hit 21 million bitcoins, there won\u2019t be anymore \u201cmined\u201d (i.e. \u2014 created).<\/p>\n<p>As I write, 15.5 million bitcoins have been created.<\/p>\n<p>So the supply is nearly set \u2014 for life, that is.<\/p>\n<p>However, you\u2019ll notice that another possible justification for Bitcoin\u2019s rise is missing from my list.<\/p>\n<p>It\u2019s a big one, too.<\/p>\n<p>I\u2019m concerned that Bitcoin\u2019s strength is foreshadowing a major stock market correction.<\/p>\n<p>So I asked my senior analyst, Martin Hutchinson, to handicap the odds of a market crash.<\/p>\n<p>Of course, I was hoping Martin would declare such a crash as a 50:1 long shot.<\/p>\n<p>Nope. Unfortunately, Hutchinson set pretty scary odds.<\/p>\n<p>Did Hutchinson set the odds at 10:1? 5:1? 1:1?<a name=\"video\"><\/a><\/p>\n<p>Click below to find out.<\/p>\n<p>Ahead of the tape,<\/p>\n<p>Louis Basenese<br \/>\nInvestment Director, <em>Wall Street Daily<\/em><\/p>\n<hr \/>\n<p><script src=\"\/\/fast.wistia.com\/assets\/external\/E-v1.js\" async><\/script><\/p>\n<div class=\"wistia_responsive_padding\" style=\"padding: 56.88% 0 0 0; position: relative;\">\n<div class=\"wistia_responsive_wrapper\" style=\"height: 100%; left: 0; position: absolute; top: 0; width: 100%;\">\n<div class=\"wistia_embed wistia_async_cjz7qelm90 videoFoam=true\" style=\"height: 100%; width: 100%;\"><\/div>\n<\/div>\n<\/div>\n<hr \/>\n<p><strong>Question:<\/strong> Hi, there. I have with me today <em>Wall Street Daily\u2019s<\/em> distinguished senior analyst Martin Hutchinson. Martin is a former U.S. Treasury adviser and Citibank VP. Martin is <em>Wall Street Daily\u2019s<\/em> go-to analyst on geomacro issues too, and how they impact markets. Today Martin has a big one. I asked Martin to handicap a possibility of a major market correction over the next few weeks. With so much uncertainty hanging over the world, I thought it was prudent to understand the risks.<\/p>\n<p>What are you seeing out there, Martin?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> We have to start by looking at the valuation of the market, and it\u2019s pretty high right now. The Standard &amp; Poor\u2019s 500 price-earnings ratio is at 25.7. That\u2019s not quite an all-time high. It got higher than that during the depression of \u201908\u2013\u201909, when all the earnings disappeared. But it\u2019s pretty close for a nondepression. And then the Robert Shiller cyclically adjusted price-earnings ratio is even higher, at 28.4. That\u2019s Yale Professor Robert Shiller\u2019s measure that looks at the earnings adjusted over the business cycle.<\/p>\n<p>I like to take a long-term view of the market and look at its price compared with February 1995, which is where monetary policy changed: It became much looser. The Dow Jones industrial index then was at 4,000, which was not a trough. It was 45% above the 1987 peak. Now, if you inflate that 4,000 Dow by the rise in nominal GDPs since 1995 \u2014 nominal GDPs have gone from 7,400 to 18,900. If you inflate the Dow by that, it should now be at 10,100, and of course, it\u2019s twice that equilibrium level at the present.<\/p>\n<p><strong>Question:<\/strong> Martin, are you suggesting that the Dow could potentially be valued at twice the level it should be?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> I think that\u2019s right. It\u2019s been very inflated because of this long, long period of ultra-low interest rates. We\u2019ve got one bull factor for the market, which is that policy\u2019s a bit better now, at least as far as the market\u2019s concerned. Deregulation under President Trump should help a bit and get productivity growth going faster, but there are a lot of factors that make it much more negative and make one more worried about a potential drop.<\/p>\n<p><strong>Question:<\/strong> If you don\u2019t mind, Martin, could you share some of those key factors with our listeners today?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> Yes. The first is the possibility of a rise in interest rates. Janet Yellen looks keener on raising interest rates than she was before the election. I think if she just does what she said she was going to do, she\u2019s going to go from a 0.5% federal funds rate to 1.25% percent this year \u2014 three interest rate rises. That\u2019s more than doubling the short-term interest rate. The market\u2019s been inflated by very low rates, so raising like that is liable to cause it to drop, and probably drop pretty sharply.<\/p>\n<p>The second one is a possibility of an international crisis. We\u2019ve got a number of areas that are simmering pretty close to crisis. The most dangerous, I think, is probably the South China Sea, and so that would, obviously, cause the market to drop. The third area is the excessive budget deficits, which are likely to be caused by President Trump, because he wants to do a big infrastructure spend, and we\u2019ve already got budget deficits of $500 billion a year and we\u2019re pretty well at the top of the cycle. If we get budget deficits higher than that, it\u2019s quite likely that they would crowd out the bond market and push long-term interest rates up themselves. That in itself would damage the stock market.<\/p>\n<p><strong>Question:<\/strong> Martin, if you don\u2019t mind, I asked you at the top if you would be willing to stick your neck out on this and handicap the possibility of a major market correction. Are you still willing to do that with us today?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> I think so, yes. The cyclical recession is likely, because the longest expansion is 10 years \u2014 1991\u20132001. And we get to that from a June 2009 trough to June 2019, I think a recession before then is very, very likely. I put a chance of a big stock market drop before the end of 2018 as being more than 2:1.<\/p>\n<p><strong>Question:<\/strong> More than 2:1? That\u2019s enough that it sounds like our listeners out there should be taking action, or some type of protective measures. What do you suggest?<\/p>\n<p><strong>Martin Hutchinson:<\/strong> The way I like to protect against big stock market drops is long-dated puts on the Standard &amp; Poor\u2019s Chicago Board auctions exchange, SPX. For example, the December 2019 1,300 series of puts are currently trading at $38.50, and that would mean that $3,850 (you buy 100 times the index with each put) would get you the right profit until December 2019 if the SPX goes below 1,300.<\/p>\n<p>That looks a long way down. The SPX is currently at 2,293, but in 2009, it bottomed at 676, so it\u2019s very likely if we get a big bear market, it\u2019ll go way through 1,300, and then, of course, those puts will become extremely valuable.<\/p>\n<p><strong>Question:<\/strong> Thanks for your time today, Martin.<\/p>\n<p><strong>Martin Hutchinson:<\/strong> Great. Pleasure being with you.<\/p>\n<p><strong>Question:<\/strong> This is <em>Wall Street Daily<\/em> signing off.<\/p>\n<p>Good Investing,<\/p>\n<p>Martin Hutchinson<br \/>\nSenior Analyst, <i>Wall Street Daily<\/i><\/p>\n<p>The post <a href=\"https:\/\/www.wallstreetdaily.com\/2017\/02\/13\/bitcoin-foreshadowing-something-scary\/\" rel=\"nofollow\">Is Bitcoin Foreshadowing Something Scary?<\/a> appeared first on <a href=\"https:\/\/www.wallstreetdaily.com\" rel=\"nofollow\">Wall Street Daily<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com Bitcoin was the largest gainer among currencies last year, gaining 120%. It was the biggest currency winner in 2015, too, with a tidy 37% upward ascent. The foremost cryptocurrency is off to a volatile start in 2017 with China recently blocking bitcoin withdrawals. That being said, I\u2019m not writing today to recommend that [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-102075","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102075","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=102075"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102075\/revisions"}],"predecessor-version":[{"id":102085,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102075\/revisions\/102085"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=102075"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=102075"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=102075"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}