Bitcoin – The Bull that refuses to back into its cage

Bitcoin is now trading above the ceiling predicted to be its cap – it is the bull that remains uncontrollably volatile but unashamedly confident.

bitcoin-2643159__340  In a previous post, I explored how Bitcoin worked and explained the functionality of the centralized ledger. This week I have a new question. Why do people have faith in a currency that has no tangible resource backing it? Traditional currencies use gold, what does Bitcoin have? Hope? I will supply two reasons I find particularly compelling that may explain sudden interest for Bitcoin, however bear in mind that there a multitude of factors, and there is no monocausal reason for the sudden growth of Bitcoin.

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Firstly, financial commentators have commented on the magnitude of growth Bitcoin would experience if it were to be backed by a finite resource like gold. Bitcoin is a currency that has no tangible resource dictating its value. Its value is based precisely in what people think it is worth (or will be worth). Currently, Bitcoin is not backed by gold, or any other finite resource, but what if it were?

Standpoint Research’s Ronnie Moas reported that there is $200 T tied to cash, stocks and bonds. He stated:

“I am not excited about putting my money into any of those – If 1% of that $200 trillion finds its way into crypto in the next 10 years, you will be looking at a 2 trillion-dollar valuation – 10 times what it is today”

A theme common with cryptocurrencies. People are investing on the whim that it “could be” massive.

Secondly, trading Bitcoin may become safer – and hence attract attention from more conservative hedge fund managers. The more investors, the more Bitcoin will grow. Last week, the world’s largest exchange operator by market value (CME Group) has announced it is readying plans to offer futures on Bitcoin.

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This will give momentum to cryptocurrencies’ move away from the fringes of finance. But more importantly, the Chicago–based trading venue said it intended to add Bitcoin to its stable of futures on interest rates, stock indices, commodities, and currencies by the end of the year.

If hedge fund managers can long and short different prices, they can hedge against volatility. Currently, Bitcoin does not allow this. If it were to, which the CME have suggested, then Bitcoin becomes more attractive to less risky investors – once again increasing the amount of investment, and the “normativity” of the currency.

These two points share something. Both signpost to us that Bitcoin is doing well because people think it will do even better in the future. The potentiality for the currency is very high. And, although now there is little tangibility to Bitcoin besides hope and (somewhat) empty prediction, it seems that in the near future Bitcoin could become a global phenomenon.

What can we learn from companies shutting down online stores?

Starbucks has recently shut down its online stores. As a pioneer in sales and marketing strategy, Starbucks may be telling us something about the way businesses will have to operate soon. Since jumping onto the Central Perk culture from hit TV-series – Friends, they have revolutionized food and beverage in the last few years by making customers pay and pre-order using their smartphones. Their culture of fast coffee purchases using smartphones was influential enough to inspire credit card companies to produce cards the contactless cards we all have today. Starbucks are always ahead of the game.

 

Starbucks has been a innovator of trends for the last decade
Starbucks has been a innovator of trends for the last decade

 

In the last few years, companies have shifted from high-street retailers to online websites, selling their goods using only their web-client as a means to interact. It is easier for the client, it is cheaper for the company, and it means that people have better access to goods and services. So why have Starbucks shut down their site and discontinued online selling?

Starbucks’ new campaign strives to get people to leave their houses and come into their stores as opposed to surfing their products at home. Their CEO stated that he wants Starbucks to be an “experiential destination.” Customers can surf the net and check out their products using the app, but cannot buy anything without entering a store. This means you can order a coffee on the app and pop in and grab it, but you cannot have anything sent to your house. There must always be some physical interaction with the brand.

This is an interesting move. Why is it that we are seeing this shift back to high street retailers? What is it that companies value in such strategic shifts? Firstly, it allows companies to compete with giants like Amazon, who have a large market share, and sell the products of others. When we think about it, Starbucks would be extinct if Amazon found a way to sell their coffee online. This revolution would hit Amazon hard if Starbucks managed to make a trend of “experiential destinations,” as Amazon do not have a place where customers can come in. If this becomes a trend, it will make companies with a physical presence shine.

Secondly, it makes their product more valuable. Nike and other fashion companies have saturated the market with their goods, they are no longer seen as special. The consumer engagement is lower and people care less and less about high-quality Nike products. They are also available on Amazon. It is more than likely that Nike will swiftly follow suit, and emulate the synthesis of internet marketing and in-store experience. This could be the future for all big companies that sell goods online.

If successful, this business model will have a significant impact any company whose business model is focused in online sales. It will give power back to retailers, and will hinder “middle men” like Amazon. But before all this, they are going to have to convince the world that experiential destinations are successful.

 

 

Starbucks is a place we can work in or relax
Starbucks is a place we can work in or relax

(Please note: James O’Leary does not currently hold a position in: Amazon, Nike, or Starbucks. Henry James International does not currently own a position in: Amazon, Nike, or Starbucks)

 

Does Apple’s New iPhone Launch Signpost A Slowing Of America’s Economy?

 

iphoneWith stock indexes reaching an all-time high, the big tech stocks – FANGs (Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG), and Apple (AAPL)) – may have lost their mojo. The most recent setback to one of the major tech companies is Apple (AAPL). According to Barrons, their new iPhone and Apple Watch are not going to meet sales expectations.

The exact reasoning for APPL’s plummet in sales is relatively unclear, but we can gather something from recent international trade relations. Firstly, China has been investing less in the American economy year by year. This is not of direct fault of APPL, but of China’s decision to cut down on outsourcing and invest more in its own domestic products. The price of copper also took a hit earlier this month due to China’s moderating demands which shows it is not a tech-centred issue.

It has also been evident that the iPhone 8 has been subject to slander on all social media platforms. Every time the Facebook and Twitter community decide they do not like a product, it has a direct negative effect on the sales of that product. It symbolizes that their clients are not happy with their products. APPL have since admitted having poor sales. They have also publicly acknowledged problems with their watch.

Of course, just because one tech company is underperforming, we should not begin to worry about the future of the American Stock Market. However, when FANGs struggle, we cannot throw caution to the wind. These stocks represent a large portion of market capitalization, and it most definitely will be a concern for the S&P 500 and Nasdaq.

On the surface, the American market seems strong due to stock prices chugging higher, regardless of APPL’s recent decline. But analysts are persistently pointing toward a low reading of Chicago Board options Exchange Volatility Index (VIX). The VIX, commonly understood as the fear index, signposts to us the volatility of the market. If it is low, then there is little fear of for investors looking to invest. The index is currently high. This means, although stock prices are rising, the market at any second could be volatile. Risks that were once safe, become high-risk. It makes for an uncomfortable climate that investors tend to avoid.

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Apple’s sales to China have underperformed, but this should not necessarily spook investors. It means that other regions will have to outperform expectations. It is possible that demand is coming from elsewhere, and that due to the September hit on the Copper industry, Apple realized China would underperform regardless, and thus changed their target location. In other words, lower sales to China is not directly related to the outcome of the market. We could see a resurgence of APPL shares shortly, when the iPhone is released.

According to Michael Khan, APPL and FANGs decline does not spell the end for the American market. It seems that in the current financial climate, the failings of APPL’s most recent product is being supported by other facets of the market. The market could remain stable, bearing in mind its normal fluctuations. Unless there is some major political shift in congress, or a major international confrontation – everything should level itself out.

(Please note: James O’Leary does not currently hold a position in: Amazon, Alphabet, Netflix, or Twitter; and Henry James International does not currently own a position in:. Amazon, Alphabet, Netflix, or Twitter)

(Please note: James O’Leary currently holds a position in Apple and Facebook; and Henry James International currently owns a position in Apple and Facebook ).

December Debt – The Price of Christmas in 2016

With less than a week to go until Christmas, many families and industries are going into overdrive in an effort to have everything ready for the holidays. Last week saw freezing temperatures across much of the US, in contrast with a warmly welcomed recovery from the oil and gas sector. Good news too for the financial sector, with Novembers Bank of America Merrill Lynch survey showing fund managers’ allocations to banking stocks had leapt up, with a net 31% overweight, up from net 25% last month. But how is this Christmas going to be financially for the average Joe? Studies suggest the outlook may be quite different.

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According to global performance-management company, Gallup, the average American adult will spend around $785 on gifts this Christmas, up from the $728 they planned to spend in 2015. This fits in with the gradual upward trajectory in Christmas spending seen over the last few years, but is still a long way off from the $900 average seen just before the recession hit. These are, however, only average spends, 54% of those who took the Gallup survey said they planned to spend between $500 and $1000 this Christmas.

Last year 78% of those buying gifts for Christmas did not expect to borrow to fund these purchases, but this year it may be a different story. In a poll run earlier this year by the Associated Press and the NORC Center for Public Affairs Research it was discovered that two thirds of Americans say they would have difficulty in find $1000 to cover an emergency, even in higher-income households. So, where are Americans finding this money to cover Christmas gifts?

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An article published on NerdWallet this week states that overall US household debt has grown by 11% in the last decade, with a considerable chunk of that being credit card debt. Another article in Magnify Money from January last year claimed that holiday debt added almost $1000 to American households’ debt.

And for those Americans who do not use their credit card, there are a pool of loan companies who go into overdrive to offer Christmas loans to families to help cover their holiday expenses. These tend to be glorified payday loans with extortionate rates of interest, which may leave individuals in so much debt that they are still paying it off next Christmas. What it means to be building an American Christmas on debt remains to be seen. Let’s hope that the USA achieves a 3% GDP rate of growth in 2017 and that middle-class America receives the gift that an expanding economy gives – an increase in disposable income and a brighter future.

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For questions regarding anything in this article, or all other investment matters, please do not hesitate to reach out to us via telephone on 917-951-5170 or by email at info@hj-intl.com.