A little fairy falls down dead
December 1, 2017

Mint - Blain's Morning Porridge

Whenever a child says "I don't believe in fairies", there's a little fairy somewhere that falls right down dead…

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary freely available to all qualified investors on an unsolicited basis. It is not investment advice…

Interesting day's play in prospect as US tax reform sees the wheel coming loose on the final lap… will they, won't they make it across the line later today? It's complex procedural stuff you can read all about on the wires, but the likelihood is the gains we've made over recent days in anticipation of a massive tax giveaway to US corporates might just have been premature.

Yet again I've read "stretched valuations" on half a dozen market wraps this morning. What does that mean? Too many "commentators" recycling each other's market notes perhaps? Without the palliative boost of a US tax gift, markets will struggle to maintain their current froth. 

Interesting article in the Financial Times this morning. UK Fund Manager Neil Woodford is warning of bubbles, the unintended consequences of monetary experimentation, the dangers of misunderstanding risk, inflated asset prices and valuations. (To be fair, he didn't say "stretched valuations.) Woodford is a contrarian, and since the market has started to believe everything it is told his investment star has waned – but the article is well worth a read.

How about this for a timely quote: "There is always a subset of the market which falls out of favour as investors clamour for the fashionable stocks of the day, providing the fuel to power the bubble on through the final leg of its journey before it bursts," said Woodford.

(Darn… On the basis everyone else tells me it's going to tumble, I put more of the US electric car maker (that makes very few cars) into my pension yesterday… !)

Meanwhile, despite apparently being the most ignorant analyst ever to pontificate about German politics (according to a couple of German readers), I've been asked a couple of times what's going to happen re Chancellor Angel Merkel. Many folk believe she's history – but don't take my word for it. The coalition talks are struggling. Again check out Merkel Fatigue on the front page of the Pink Un!

Meanwhile, time for a Friday rant. I just don't understand Bitcoin (BC). A young chap – actually a senior executive at a massive US company making "bright shiny new things" (which I've also defined in the past as a tax avoidance scheme with a tech company attached) – thinks I am a dinosaur because I so don't get BC. He's a good chap, but a rabid libertarian prone to spouting corporate nonsense about sharing/caring workplaces while paying the guys who actually make the phones pennies.

I've never understood the why of BC. I get the relevance of blockchain distributed ledgers in their potential for improving the logistics of financial markets, but don't really understand why a revolution in bean-counting has caused such a speculative bubble. I can only assume that other people are a blithely unaware of whatever BC is as I am..

So I asked my young tech-savvy chum to explain why BC is such a marvellous thing.

He told me it's got innumerable advantages over real "fiat" money. It's decentralized, it separates control of money from the state, it's a supranational currency that can't be inflated away or quantitatively eased, it's mathematically and cryptographically elegant, it's censorship resistant, it's finite.. blah blah blahbitty blah blah..

Whoa! Stop! I asked what any of the above actually means, and how any of that mumbo-jumbo improves on what real money does? But he couldn't. He just kept puking monetary voodoo till I told him to stop making himself sound silly.

I then explained to him that BC doesn't have any of the obvious characteristics of money and seems a far less attractive option than ready dosh or a bank account: 

·         BC is not a store of value (i) – its extreme volatility means it's profoundly speculative;

·         It's not an alternative store of value (ii) – it's intangible unlike gold, cars or art;

·         It's not safe, secure or easy to trade – repeated frauds, digital theft and exchange black-outs make it speculative;

·         It's not a medium of exchange – shops may claim you can pay for the groceries in BC, but has anyone? The price of flats denominated in BC changes in line with the dollar price and volatility means you would be sectioned if you ever did buy a Pret sandwich with a BC;

·         It's useless as a unit of account – assets are valued in real money terms;

·         It's useless as a hedge due to its volatility.

And then I asked him to explain what a cryptocurrency is or what it does. Again he talked tosh. So what do I think it is?

Most obviously and famously it's a simple way to transact on the black economy or evade taxes. But, even Russian criminals, ISIS and gangstas don't particularly want paid in BC anymore because of the volatility. Although I'm told BC is more traceable than cash, big deal. Cash needs to be laundered. 

The underlying BC blockchain is only able to deal with a limited number of transactions - a fraction of what a credit card can run. So the whole ledger will block in times of stress (as it apparently did earlier this week). So it's never going to be a real alternative to cash.

And, yes, we've all heard about the taxi-driver who was paid in BC and now owns a Rolls Royce. Tosh. None of the current buyers of BC bought them because they grasp or understand the libertarian gibberish about separating cash from the state, or how the "blockchain frees finance". They are buying BC because they expect to make free money from the everlasting tulip mania. Yes, and how I wish I'd bought it years ago – but I would have sold a long time ago.

I keep asking… aside from the chance to bet on a greater fool buying it from me at a higher cost, what is it BC offers? I still don't get it. 

What I can understand is why the likelihood the authorities will clamp down if they perceive a threat. And what's not cryptocurrency about the dollar, the pound or the euro? Most exist as digital ones and zeros in bank accounts. Money is no longer backed by gold, but we trust money specifically because it is backed by the "promise to pay" of Government. Folk have confidence in the system – and anything denting monetary confidence will be crushed.

BC holders beware. Does anyone have confidence that the libertarian techy-crackpot/get-rich-quick shysters behind new cryptocurrencies will not run at the first sign of trouble? 

The news the US tax authority (IRS) has demanded detailed info on 14,355 Coinbase customers who made BC transactions over $20,000 should be a wake-up call to the greater fools. 

I'm told we can "uninvent" BC or the other cryptocurrencies. The possibilities and opportunities they create (which I still don't actually understand – tell me one thing a BC can get you that a dollar can't), have created insatiable demand. Apparently BC miners now use more electricity than Ireland running their mining programmes. And I'm told its going mainstream because accountancy firms are now willing to be paid in BC. 

Apparently a new challenger bank, Revolut, will enable its 1 million depositors to put cryptocurrencies in their accounts. Really? 

The only facts I can perceive are that BC is environmentally bad in producing lots of unnecessary carbon emissions, and it's encouraging accountants to think they are hip. Sad. 

What I perceive is its some kind of massive bubble scheme sucking in the gullible. Some people have got very very rich…and will be laughing themselves all the way to a bank to count their dollars…I doubt they will be counting BCs.

Or perhaps I've got this completely wrong? Clearly BC is flawed but is there mileage in the successive cryptocurrencies? In which case why would you buy them? If each cryptocurrency is replaced by something new and more evolved…then you don't want to hold anything that will prove obsolete and valueless down the road…?

If in doubt.. walk away… If you don't understand the risks.. don't invest.

And if I'm wrong – please explain to me why..

Have a great weekend. As it's now officially Advent there will be holiday themed quotes each morning. Usual rules apply – if you recognize it you get eternal glory for being first! 

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

Whenever a child says "I don't believe in fairies", there's a little fairy somewhere that falls right down dead…

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary freely available to all qualified investors on an unsolicited basis. It is not investment advice…

Interesting day's play in prospect as US tax reform sees the wheel coming loose on the final lap… will they, won't they make it across the line later today? It's complex procedural stuff you can read all about on the wires, but the likelihood is the gains we've made over recent days in anticipation of a massive tax giveaway to US corporates might just have been premature.

Yet again I've read "stretched valuations" on half a dozen market wraps this morning. What does that mean? Too many "commentators" recycling each other's market notes perhaps? Without the palliative boost of a US tax gift, markets will struggle to maintain their current froth. 

Interesting article in the Financial Times this morning. UK Fund Manager Neil Woodford is warning of bubbles, the unintended consequences of monetary experimentation, the dangers of misunderstanding risk, inflated asset prices and valuations. (To be fair, he didn't say "stretched valuations.) Woodford is a contrarian, and since the market has started to believe everything it is told his investment star has waned – but the article is well worth a read.

How about this for a timely quote: "There is always a subset of the market which falls out of favour as investors clamour for the fashionable stocks of the day, providing the fuel to power the bubble on through the final leg of its journey before it bursts," said Woodford.

(Darn… On the basis everyone else tells me it's going to tumble, I put more of the US electric car maker (that makes very few cars) into my pension yesterday… !)

Meanwhile, despite apparently being the most ignorant analyst ever to pontificate about German politics (according to a couple of German readers), I've been asked a couple of times what's going to happen re Chancellor Angel Merkel. Many folk believe she's history – but don't take my word for it. The coalition talks are struggling. Again check out Merkel Fatigue on the front page of the Pink Un!

Meanwhile, time for a Friday rant. I just don't understand Bitcoin (BC). A young chap – actually a senior executive at a massive US company making "bright shiny new things" (which I've also defined in the past as a tax avoidance scheme with a tech company attached) – thinks I am a dinosaur because I so don't get BC. He's a good chap, but a rabid libertarian prone to spouting corporate nonsense about sharing/caring workplaces while paying the guys who actually make the phones pennies.

I've never understood the why of BC. I get the relevance of blockchain distributed ledgers in their potential for improving the logistics of financial markets, but don't really understand why a revolution in bean-counting has caused such a speculative bubble. I can only assume that other people are a blithely unaware of whatever BC is as I am..

So I asked my young tech-savvy chum to explain why BC is such a marvellous thing.

He told me it's got innumerable advantages over real "fiat" money. It's decentralized, it separates control of money from the state, it's a supranational currency that can't be inflated away or quantitatively eased, it's mathematically and cryptographically elegant, it's censorship resistant, it's finite.. blah blah blahbitty blah blah..

Whoa! Stop! I asked what any of the above actually means, and how any of that mumbo-jumbo improves on what real money does? But he couldn't. He just kept puking monetary voodoo till I told him to stop making himself sound silly.

I then explained to him that BC doesn't have any of the obvious characteristics of money and seems a far less attractive option than ready dosh or a bank account: 

·         BC is not a store of value (i) – its extreme volatility means it's profoundly speculative;

·         It's not an alternative store of value (ii) – it's intangible unlike gold, cars or art;

·         It's not safe, secure or easy to trade – repeated frauds, digital theft and exchange black-outs make it speculative;

·         It's not a medium of exchange – shops may claim you can pay for the groceries in BC, but has anyone? The price of flats denominated in BC changes in line with the dollar price and volatility means you would be sectioned if you ever did buy a Pret sandwich with a BC;

·         It's useless as a unit of account – assets are valued in real money terms;

·         It's useless as a hedge due to its volatility.

And then I asked him to explain what a cryptocurrency is or what it does. Again he talked tosh. So what do I think it is?

Most obviously and famously it's a simple way to transact on the black economy or evade taxes. But, even Russian criminals, ISIS and gangstas don't particularly want paid in BC anymore because of the volatility. Although I'm told BC is more traceable than cash, big deal. Cash needs to be laundered. 

The underlying BC blockchain is only able to deal with a limited number of transactions - a fraction of what a credit card can run. So the whole ledger will block in times of stress (as it apparently did earlier this week). So it's never going to be a real alternative to cash.

And, yes, we've all heard about the taxi-driver who was paid in BC and now owns a Rolls Royce. Tosh. None of the current buyers of BC bought them because they grasp or understand the libertarian gibberish about separating cash from the state, or how the "blockchain frees finance". They are buying BC because they expect to make free money from the everlasting tulip mania. Yes, and how I wish I'd bought it years ago – but I would have sold a long time ago.

I keep asking… aside from the chance to bet on a greater fool buying it from me at a higher cost, what is it BC offers? I still don't get it. 

What I can understand is why the likelihood the authorities will clamp down if they perceive a threat. And what's not cryptocurrency about the dollar, the pound or the euro? Most exist as digital ones and zeros in bank accounts. Money is no longer backed by gold, but we trust money specifically because it is backed by the "promise to pay" of Government. Folk have confidence in the system – and anything denting monetary confidence will be crushed.

BC holders beware. Does anyone have confidence that the libertarian techy-crackpot/get-rich-quick shysters behind new cryptocurrencies will not run at the first sign of trouble? 

The news the US tax authority (IRS) has demanded detailed info on 14,355 Coinbase customers who made BC transactions over $20,000 should be a wake-up call to the greater fools. 

I'm told we can "uninvent" BC or the other cryptocurrencies. The possibilities and opportunities they create (which I still don't actually understand – tell me one thing a BC can get you that a dollar can't), have created insatiable demand. Apparently BC miners now use more electricity than Ireland running their mining programmes. And I'm told its going mainstream because accountancy firms are now willing to be paid in BC. 

Apparently a new challenger bank, Revolut, will enable its 1 million depositors to put cryptocurrencies in their accounts. Really? 

The only facts I can perceive are that BC is environmentally bad in producing lots of unnecessary carbon emissions, and it's encouraging accountants to think they are hip. Sad. 

What I perceive is its some kind of massive bubble scheme sucking in the gullible. Some people have got very very rich…and will be laughing themselves all the way to a bank to count their dollars…I doubt they will be counting BCs.

Or perhaps I've got this completely wrong? Clearly BC is flawed but is there mileage in the successive cryptocurrencies? In which case why would you buy them? If each cryptocurrency is replaced by something new and more evolved…then you don't want to hold anything that will prove obsolete and valueless down the road…?

If in doubt.. walk away… If you don't understand the risks.. don't invest.

And if I'm wrong – please explain to me why..

Have a great weekend. As it's now officially Advent there will be holiday themed quotes each morning. Usual rules apply – if you recognize it you get eternal glory for being first! 

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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