The US Treasury’s New Plan

The US Treasury issued a new plan this month that would increase the share of shorter-term debt and decrease longer term debt.

This is remarkable. One would think with interest rates at historic lows the plan would be to continue pushing out debt obligations.  This is what the treasury has been doing since 2009.

Besides bad debt management it also risk pushing the yield curve negative.

Shaded areas indicate rescission. Every time the yield goes negative a recession is not far behind. This is logical. Banks borrow short and lend long. When the yield curve goes negative, it is no longer profitable for banks to do this and their loan portfolios stop expanding.
As I have stated in a previous post the greatest bull runs happen just as the yield curve begins to compress. However this policy could push the yield curve negative fast depending on how they execute it.

 

Lies About Bitcoin

“It is money”.
No it is not. No one thinks of prices in terms of bitcoin. When people think of prices they think in dollars. Bitcoin has 30 to 40% price swings in a week. I assure you if the dollar ever had these price swings, over time, dollars would no longer be considered money.

“It is a way to escape the government monopoly of fiat currencies”
It is not. If you think this is true please consult with Ross Ulbricht. We know nothing about the origin of bitcoin. It is entirely possible elements within a government have created bitcoin. There was always talk about eliminating cash and having it all digital completely ending privacy over all transitions. Bitcoin plays right into Ken Rogoff “Lets eliminate cash” crowd.

“It is limited in supply and not centrally managed”
True but irrelevant. While Bitcoin is limited in supply there are hundreds of other cryptocurrencies popping up. Cryptocurrencies can be generated endlessly.

This will not end well for those involved.

Tom, Dick and Harry Call a Top

There is a book called “Extraordinary Popular Delusions and the Madness of Crowds”, written by Charles MacKay in 1841. The thesis of the book is that the majority is mostly wrong. When it comes to investing, there are always wrong. If they ever rewrite this book, there will be a special chapter dedicated to bitcoin called “Digital Tulip Mania”.

The number one investment rule is this:
“Parabolic moves end in tears”

Below is the monthly price of bitcoin for your consideration.

Print it out. Now compare it to the NASDAQ in 2001. Silver in 2011. Tulips in the 1600’s.

Can bitcoin go to 15K? 20K? 50K? Sure why not. Never underestimate the madness of people. However, the folks buying it now will never get out in time. They will hold on to it all the way to zero. Idiotic celebrities are tweeting about it. Everyone I know is asking me about it. When every Tom, Dick and Harry is telling you to buy, it’s not. It’s time to sell. When they say “This time is different”. It’s not. It’s just another top.

State of the US Economy

Two words: BOOM PHASE.
I am not a cheerleader for the bears or the bulls. Stocks go up and they go down. There are cycles. The perma-bears have been wrong. Very wrong. Since 2011 I have heard them talk about the next recession. Saying there will be another recession is not very insightful. Of course there will be another recession. Most people know this. Very few don’t know this. Janet Yellen is on record saying recession are events of the past. I want to be there when the eggs splat on her face.

Why is a recession not imminent?
First, the yield curve isn’t inverted. It has compressed, but not inverted. Interestingly enough, most of stock market gains comes just as the yield curve compresses (10 year compresses to 6 month interest rate). This is an interesting phenomena that I will dedicate a post to another time.

Second, Corporate profit growth is strong. Earnings per share of S&P500 has had good momentum since 2015.

Third, money supply growth has been elevated. Recessions usually occur when money supply growth has collapsed.

Fourth, all indicators such as business sentiment, fed national financial conditions index, etc. have been constructive to good economic growth and higher stock prices.
Fifth, the US dollar has been tame. I watch the US dollar very closely. It is a key variable to understanding what is happening.

We are in the later stages of the bull market. Most of the gains will be made right now. I have positioned myself and readers of the site to benefit from the coming bull market.

When I believe a recession is looming I will say so. The indicators above will turn negative. At which point we will go to cash and wait.