Is Bitcoin broken?

Bitcoin, Ethreum, Ripple and a number of other crypto currencies have had a terrible week. Some of these digital dollars have lost 25% overnight, if not more. Today Bitcoin, itself, is down almost 50% from that level. Those who warned that this mania would come to a tragic end are crowing now. Are they right? Last July, I wrote my first column on the phenomena of crypto currencies. Since then, Bitcoin vaulted to historic highs, briefly touching $20,000 on December 17. Since then clients, friends, relatives and yes, even my mother-in-law, have asked me if I thought crypto currencies were a good investment. The answer will always depend on the price I’m willing to pay for something. Until now, I have simply sat back and watched as the mania unfolded. Today Bitcoin is down almost 50% from the highs. Many financial historians have compared the run-up (and decline) in crypto currencies to the great Tulip Bulb Mania of the 17th Century. Back then, one tulip bulb in Holland was said to be worth ten times the annual income of a skilled craftsman. The craze ended in disaster for one and all. Since even I am not old enough to remember the Tulip Bulb craze, let’s look instead at the Dot Com boom and bust. I do see a lot of similarities between the insatiable demand for anything with Bitcoin, crypto or Block chain in the name today, and companies in the early 2000’s that doubled and tripled simply by changing their name to something “techy.” The question to ask is whether or not crypto currencies represent anything more than...

Melt-up continues

It’s been the best two weeks for the U.S. markets in decades. Investors seemingly can’t get enough stocks in their portfolios, no matter how high the indexes climb. Ain’t it grand? Over the past few weeks, I have explained in detail that the stock market is in “melt-up” mode. You may think it’s crazy, or that the gains are a result of excessive exuberance. You may even be sitting there with your arms crossed, pointing your finger at me and predicting this is all going to end badly for investors. That’s fine, provide as many opinions as you like, but stay invested in the meantime. Some ask me how you can have the U.S. dollar declining, while interest rates and stocks climb at the same time. Then there are the commodities—gold, basic materials, mines and metals—all moving up with stocks. Is there, in fact, anything except bond prices that are down? Some of the movements can be explained by expectations that inflation will be rising in the future, based on the added stimulus of the Republican tax reform. The rise in interest rates anticipates what the Fed might do as a result of rising inflation (raise rates faster than expected). The lower dollar may also signify that bond investors may be able to get a better return on their money by investing in foreign markets outside the U.S. Of course, all of the above trends can reverse on a dime next week, since no one really knows what impact the tax cuts will actually have on the economy. The interesting thing I have noticed since the beginning of the...

The cost of MAGA

It is the guiding principle behind the Trump Administration, but to “Make America Great Again” the U.S. may have to break some eggs. Are you ready for that? “MAGA” is much more than a marketing gimmick. Almost every day, we uncover additional evidence of how the President and his supporters in Congress are dismantling regulations, taxes, and on the foreign front, trade deals. For example, while the president professes to have “a great relationship” with China and admires its president, Xi Jinping, at the same time, he is working behind the scenes to apply more pressure to our sometime-friend, sometime-nemesis. This week we will have surely upset China when the House passed two bills that will make it easier for high-ranking Taiwanese officials to exchange visits with counterparts in the U.S. The second bill would promote Taiwan’s participation in the World Health Organization. Mainland China has long held a policy of “One China” (since 1949). The Communist government considers Taiwan a rebel province, which will one day be reunified with the mainland, even if that means applying military force. The U.S. actions this week threaten that stance and could invite some kind of retaliation from the mainland. Certainly China does not separate trade relations from geo-political concerns. To them, it is all one and the same. Therefore their response could be in the economic sphere or in the political realm (less pressure on North Korea). On the trade front, many global trade economists believe that 2018 will be the year when Trump takes the gloves off when it comes to China. In December, Trump unveiled his national security plan...

“Look! Up in the Sky! It’s a Bird…It’s a Plane… It’s the Stock market!”

The Dow Jones Industrial Average gained a thousand points in a month. In just the first three days of 2018, all three U.S. averages hit consecutive record highs. Overseas indexes did even better. Japan, for example, was up more than 3% on its first trading day of the year. Emerging markets continue to make new highs, while European bourses continue to climb. Those who expected the markets to tank in the New Year have thus far been wrong. How long can this last? Short sellers, convinced that stocks just have to come down, bet on a market decline and have had their head handed to them on a daily basis. Undeterred, they point to the “overbought” indicators that have been flashing red for weeks now. Investor sentiment numbers continue to climb to nose-bleed levels as well, which is usually a contrary indicator. Still, the markets climb higher. There is an old saying among traders that ‘the markets can remain irrational, longer than you can remain solvent.” It is something that all investors should not forget. We are experiencing a melt-up and if one is on the bull train, remain on it. If, on the other hand, you still have that yearly cash bonus, practice a little patience. There will come a time when you can put that new money to work, just not quite yet. We are in a period of goldilocks-type conditions that one rarely sees in the stock market. We have low, even historically low, interest rates given the growth rate of the global economy. Negative interest rates in a large part of the world are coupled...

Beware the tax hit from mutual funds

Plenty of investors will be faced with an unpleasant surprise. Any day now, one or more of the mutual funds that you own will be sending out their capital gain distributions for the year.  The tax hit could be quite large this year. Many investors are not aware that mutual fund companies are required to distribute at least 95% of their capital gains to investors each year. Given the double-digit gains in the stock market last year, those gains could be an unwelcome liability when tax time rolls around. At this late date, there is little one can do about it, other than pay the piper, but this year you can take steps to minimize 2018’s potential tax liability. Since the tax reform act did not change capital gains taxes, you can expect that short-term capital gains (less than 12 months) will be taxed at the same rate as your income tax bracket. Long-term capital gains, however, will continue to be taxed at 15%. The job of most mutual fund managers is to buy low and sell high. That’s what creates track records, which, in turn, attracts investors to their funds. But mutual funds are just like individuals when it comes to capital gains. Anytime a mutual fund sells a security, no matter what the asset, that gain is taxable. And since mutual funds are considered pass-through entities, they are required to pass along to you any of these taxable gains. In the grand scheme of things, capital gains distributions could be considered a luxury problem since we want the mutual fund we are invested in to turn a...