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Market prognostications & soundbites

As was foretold Bitcoin has taken a bit of a reversal, from a January 10th high of $20,049, it now trades around $7,200 -- which is a rather substantial correction.  One journalist had the nerve to ask:  "How far can it go", the short answer is that it can go all the way to zero. At zero, Bitcoin would represent a real economic loss, since "mining" bitcoins is not a free enterprise.  It probably will not be the case, still there are some interesting information on the price rise and subsequent fall of Bitcoin:  (i) Two Bitcoin owners were responsible for 90% of the Bitcoin price rise between US$ 45 and US$ 1,000, (ii) Bitcoins are still being mined by Russian and Chinese "Coinfarms" although the economics are starting to be less interesting, (iii) the sovereign currencies are working hard a delegitimizing bitcoins (standard when you run a monopoly) -- but then Bitcoin has a lot to answer for.  40% of all Bitcoins have never been traded...and are owned by 1,000 individuals...

It didn't take a Ph.D. to figure out that Bitcoin was an unsustainable bubble that was entirely based on "this is the greatest thing ever...trust me, I know" -- these things hardly ever end up well!  But it is not that important.  The truth is that eventually, a cryptocurrency will establish itself, maybe another 5 years, who knows.  The point is that government, under the pretext of trying to stop terrorism, have created massive currency controls (try transferring more than $10,000).  Money will find a way to be free! 

On other matters this morning two different "prognosticators" indicated the following soundbites:

(a)  The market correction is almost over (3.6% on the past week) (Evercore)
(b)  The market could fall another 20% (Blackstone)

I wish I was joking, but the reality is that no one knows where and when the market will fall (it will, eventually), will it be a 5% correction (which is not unheard) or a massive +20% correction?  The fact of the matter is that on purely technical grounds the market is massively overbought.  P/E's are in the stratosphere, profit levels are at percentages never seen before (really, average historical profits are in the range of 5/6%, not 8/9%.  Both the above firms (Evercore & Blackstone) are very serious players.  Both sound believable, although this morning it looked like we got a "dead cat bounce"

The problem is that those who have used fundamental technical analysis that insists the market is overbought have been getting killed. 

Last year (last summer) one analyst predicted that the market correction would start on February 14/18 -- we are getting very close to those dates right now.  There is a "feeling" among the pros that this 7 year rally is getting long in the teeth.  That wages are rising, because labor is getting tight (ish).  The facts are that some workers never returned to the labor force after 2008 -- participation rates are low, but for some professions, there is a real tightness (e.g truckers, pilots etc) that is now starting to show up in wage negotiations. 

Anyway -- good times




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