The market drop, recession fears, bitcoin, and the Greater Fool Theory

[Decourcy]

Well then, why would you even begin to spout off on currencies issued by government? People just move on to the next thing.

That was my point…
The only difference between crypto and other currencies is who issues it. Not sure how you took that as “spouting off”.

[peb]

That was my point…
The only difference between crypto and other currencies is who issues it. Not sure how you took that as “spouting off”.

No, there is a big difference between crypto and other currencies. First and foremost, other currencies have a central bank managing the money supply. Obviously this does not always work perfectly, buts its the best system come up with so far. Crypto currencies have wild valuation swings that make them wholly unsuitable for anyone to actually use them as money. Other currencies are actually used as a medium of exchange and as a store of value. Doesn't work perfect, and central banks and governments can certainly screw it up, but not to the extent that relying solely on traders to provide stabilization of value. I could go on and on. But to say the only difference is who issues it is really off base.

I find it interesting that the people who are really into crypto currency are often young and on the political left. Its like they don't trust the institution they often advocate to expand its power.

[Norman Bernstein]

I am definitely looking at short term, the last few days.

Isn't that a bit masochistic?

Just one more check of my theory about the final washout of the market may be near.

From your lips, to God's ear!

Certainly I am not implying having high dividend, large-cap stocks is a bad thing right now. But back to my theory: if I look at DON, an etf of large-cap high dividend stocks, it hovered aroudn 41-45 since the beginning of the year until about 10 days ago. At that time it had a short term peak of about 44. Over the last 7 trading days it fell to 38. Thats a 13% drop in a very short time, it had two very large gap down days. My point is that its a sign of people just giving up on the market in general and selling everything. That is what happens when the market is approaching a bottom or forming a bottom in a bear market.

Was DON substantially different than the market as a whole? I suspect that a lot of people have some dividend stocks in their portfolio, without consciously concentrating on dividend stocks. When fear overrides greed, everyone and everything becomes a participant. It's the only explanation, IMHO, especially when corporate profits are very strong, and unemployment is very low... two indicators that contradict, to a degree, high inflation.

OTOH, I will add that this bear market has been in effect for 6 months. That would be a typical duration of a the downside of a market, but there is a LOT of variability there.

I hope you're right about that.

I ordinarily don't get my hair mussed up during market downturns, but I'm stuck in an extraordinary position right now. We have signed a P&S for a new house, to be built in an over-55 community, and expected to be complete in March of 2023. The cost of the new house is only a little bit higher than the value of our existing home, but I was expecting that the ancillary costs for things like closing, commissions, some new furniture, etc., would cost me an extra hundred thou or so... and that money was expected to come out of my taxable portfolio, for the sake of the lower tax bite. Naturally, my taxable portfolio has dropped about as much as my IRA's, so it could put me in a bit of a bind...

...but March of 2023 is a long way off, and recessions and bear markets are far shorter than bull markets. If you're right, there ought to be a substantial recovery by late this year, which would help a great deal.

.

[Decourcy]

No, there is a big difference between crypto and other currencies. First and foremost, other currencies have a central bank managing the money supply. Obviously this does not always work perfectly, buts its the best system come up with so far. Crypto currencies have wild valuation swings that make them wholly unsuitable for anyone to actually use them as money. Other currencies are actually used as a medium of exchange and as a store of value. Doesn't work perfect, and central banks and governments can certainly screw it up, but not to the extent that relying solely on traders to provide stabilization of value. I could go on and on. But to say the only difference is who issues it is really off base.

I find it interesting that the people who are really into crypto currency are often young and on the political left. Its like they don't trust the institution they often advocate to expand its power.

Fractional banking means there is no basis for currency value other than trust and desire. Bitcoin and others can be used just the same, and in some cases are. There are places you can buy things with Bitcoin. More internationally I would say than roubles at the moment.


The value fluctuations are the result of speculators. Same thing that’s driven fuel cost and grain cost up.

btw, most of the crypto enthusiasts I know are on the right and 20-50.

[Norman Bernstein]

I find it interesting that the people who are really into crypto currency are often young and on the political left. Its like they don't trust the institution they often advocate to expand its power.

I'd have to disagree... I think the appeal of crypto has more to do with the wide publicity and exposure of young entrepreneurs who manage to become overnight multimillionaires... the idea that big rewards are the result of big risks. They're not paying attention to the fact that big risks invariably go along with big failures... and those are not publicized.

[Canoez]

Fractional banking means there is no basis for currency value other than trust and desire. Bitcoin and others can be used just the same, and in some cases are. There are places you can buy things with Bitcoin. More internationally I would say than roubles at the moment.

Considering all the things a government does with regard to money, monetary policy and control, I'd say that there are large differences.

[peb]

Fractional banking means there is no basis for currency value other than trust and desire. Bitcoin and others can be used just the same, and in some cases are. There are places you can buy things with Bitcoin. More internationally I would say than roubles at the moment.


The value fluctuations are the result of speculators. Same thing that’s driven fuel cost and grain cost up.

btw, most of the crypto enthusiasts I know are on the right and 20-50.

I do agree that crypto enthusiasts have migrated to the right the last couple of years, I should have pointed that out.

As for companies accepting bitcoin or other currency for purchases, I looked into that in detailed a year or so ago. I doubt things have changed. Yes, they accept a purchased in bitcoin, but they always price their product/service based on dollars, euros, etc and the price in bitcoin changes day to day along with the current market price of the bitcoin. Beyond a little bit of reserve, they seem to all be converting their bitcoin immediately into their local currency also. So it is NOT really using bitcoin for businiess purposes. Things may have changed here and there, but that is the gist of it. Its a marketing gimmick to make them seem like they are "keeping up with the times".

[Norman Bernstein]

I do agree that crypto enthusiasts have migrated to the right the last couple of years, I should have pointed that out.

As for companies accepting bitcoin or other currency for purchases, I looked into that in detailed a year or so ago. I doubt things have changed. Yes, they accept a purchased in bitcoin, but they always price their product/service based on dollars, euros, etc and the price in bitcoin changes day to day along with the current market price of the bitcoin. Beyond a little bit of reserve, they seem to all be converting their bitcoin immediately into their local currency also. So it is NOT really using bitcoin for businiess purposes. Things may have changed here and there, but that is the gist of it. Its a marketing gimmick to make them seem like they are "keeping up with the times".

You have hit the nail on the head. Crypto will never really be 'currency' until one Bitcoin is described as being worth 'one Tesla Model 3', rather than being worth $60,000.

[Paul Pless]

I'd have to disagree... I think the appeal of crypto has more to do with the wide publicity and exposure of young entrepreneurs who manage to become overnight multimillionaires... the idea that big rewards are the result of big risks. They're not paying attention to the fact that big risks invariably go along with big failures... and those are not publicized.

crypto would have no value today but for black markets
especially drug cartels

[Canoez]

^^^^
As you're clearly pointing out, crypto isn't really a currency - it is an "investment", and an "investment" that's value is based on "faith", not anything substantive.

It seems like a game of musical chairs - but in the short term, not like government-backed currency.

[peb]

Isn't that a bit masochistic?

Yes it is. And while I do not do short term market timing, I am not a buy and hold investor either. So watching these things, despite the pain it causes myself is part of how I work.

From your lips, to God's ear!

Well, from a purely selfish standpoint, I would not mind seeing another 10% drop or so. The bigger the washout, the more likely I can make up what I lost the early part of the year. Huge washouts, ala 2008, I can deal with. Its those 10-15 percent corrections (which come more often) which mess up my style of investing (depending on overall macro-conditions).

Was DON substantially different than the market as a whole? I suspect that a lot of people have some dividend stocks in their portfolio, without consciously concentrating on dividend stocks. When fear overrides greed, everyone and everything becomes a participant. It's the only explanation, IMHO, especially when corporate profits are very strong, and unemployment is very low... two indicators that contradict, to a degree, high inflation.

My point is that large cap dividend stocks have been substantially different than the market as a whole until the last few trading days. The last week, they have not been. Thats when fear is overriding greed and people are selling the good with the bad. I know this because my portfolio has naturally transitioned to defensive stocks (think large cap dividend stocks) over the last few months, and I have taken a good hit the last few days. Was just wondering if you had seen the same.

I ordinarily don't get my hair mussed up during market downturns, but I'm stuck in an extraordinary position right now. We have signed a P&S for a new house, to be built in an over-55 community, and expected to be complete in March of 2023. The cost of the new house is only a little bit higher than the value of our existing home, but I was expecting that the ancillary costs for things like closing, commissions, some new furniture, etc., would cost me an extra hundred thou or so... and that money was expected to come out of my taxable portfolio, for the sake of the lower tax bite. Naturally, my taxable portfolio has dropped about as much as my IRA's, so it could put me in a bit of a bind...

...but March of 2023 is a long way off, and recessions and bear markets are far shorter than bull markets. If you're right, there ought to be a substantial recovery by late this year, which would help a great deal.

My gut feel is that you will be ok if the cash is not needed until next March. Or close to ok. Of course, thats assuming its a cash purchase, or almost a cash purchase. I do not expect mortgage rates to be lower in a year than they are now. But my thinking on interest rates might be a bit clouded right now based on expecting the future to continue recent history (a psychological hurdle that I believe it is impossible for any investor to get over completely).

[peb]

You have hit the nail on the head. Crypto will never really be 'currency' until one Bitcoin is described as being worth 'one Tesla Model 3', rather than being worth $60,000.

And also, when a company like Tesla pays their employees in crypto, pays some of their suppliers in crypto, perhaps establishes retirement plans in crypto. Those employees paid in crypto leave it in crypto and and pay their rent and buy groceries with the crypto checking account. It is SO FAR from being a useable currency that its actually laughable.

Think of it this way, the only time people are concerned about dollars to euro conversion rates are when they are travelling, or they are doing international contracts or happen to be forex traders. At any give time, I could not tell you the price of dollars to euros within 3 or 4 percent (which is its yearly trading range) and I watch most markets fairly carefully. Cryptos are valued in dollars by all the people who trade in them, all the time. Its all they care about, because they are just traders of the "currency", they are not users of the currency.

[Too Little Time]

My Schwab platform doesn’t provide a one week chart… it provides last quarter, last three months, year to date, one year, and since 1/1/2009, which I guess is when this particular software development started. On the first four time periods mentioned, I’m down about half as much as the S&P 500

I ordinarily don't get my hair mussed up during market downturns, but I'm stuck in an extraordinary position right now. We have signed a P&S for a new house, to be built in an over-55 community, and expected to be complete in March of 2023. The cost of the new house is only a little bit higher than the value of our existing home, but I was expecting that the ancillary costs for things like closing, commissions, some new furniture, etc., would cost me an extra hundred thou or so... and that money was expected to come out of my taxable portfolio, for the sake of the lower tax bite. Naturally, my taxable portfolio has dropped about as much as my IRA's, so it could put me in a bit of a bind...

The S&P500 has returned 14.5% annualized since 1/1/2009 - the date you ignored. For good reason. I believe you said something about underperforming in the past. But you still performed much better than you would have predicted on 1/1/2009.

So, you have much more than you thought you would have had back then. And you want people to think you have real financial issues. You are up not down. And you are showing a lot of "entitlement".

Even in the short term, most investors are well ahead since 1/1/2020. Cherry picking is just rude to those who are actually have financial issues.

[Norman Bernstein]

.
My gut feel is that you will be ok if the cash is not needed until next March. Or close to ok. Of course, thats assuming its a cash purchase, or almost a cash purchase. I do not expect mortgage rates to be lower in a year than they are now. But my thinking on interest rates might be a bit clouded right now based on expecting the future to continue recent history (a psychological hurdle that I believe it is impossible for any investor to get over completely).

It's a bit more complicated than that. Because of my wife's Parkinson's condition, I need to be able to buy the new house before putting my current home up for sale... the new home needs to be fully set up for her needs before anything else. I expected to buy the new house for cash, and was figuring on getting some very short term financing (two months, maybe three) to make it possible... a bridge loan, or even a mortgage that I pay off almost immediately. I had assumed that a bridge loan would be possible, but my accountant tends to doubt their availability. The other possibility is to take a mortgage, with no pre-payment penalty, that would be fully paid off with the proceeds of the sale of my existing home. This is a case where my concentration on IRA investing has hurt me, because the non-IRA portion of my holdings isn't big enough to pull this off without outside funding. Another possibility exists: borrowing the money from my IRA, which, if repaid within 60 days, invokes no penalty or tax. That is a risky proposition, of course.

One other possibility exists. There's been a trend in the past year of investors buying single family homes to use as rental properties... and they pay in cash. I could conceivably sell to them, and then lease my existing home for a couple of months until we were ready to make the final move. This possibility is attractive because it beats off the commission costs, and the rental expense would probably be close to, if not lower, than the closing costs for a mortgage.

[Rigadog]

Why just for the "poor"?

Watch the first video TED talk

[Rigadog]

No, there is a big difference between crypto and other currencies. First and foremost, other currencies have a central bank managing the money supply. Obviously this does not always work perfectly, buts its the best system come up with so far. Crypto currencies have wild valuation swings that make them wholly unsuitable for anyone to actually use them as money. Other currencies are actually used as a medium of exchange and as a store of value. Doesn't work perfect, and central banks and governments can certainly screw it up, but not to the extent that relying solely on traders to provide stabilization of value. I could go on and on. But to say the only difference is who issues it is really off base.

I find it interesting that the people who are really into crypto currency are often young and on the political left. Its like they don't trust the institution they often advocate to expand its power.

Actually I don't think it's beloved by the so-called "Left" I'd say it's those of a Libertarian bent who are drawn to it. I am not among them but it think it's a fascinating technology. And yes, Bitcoin is wasteful of energy that's one reason I favor ETH as they are transitioning to "Proof of Stake" vs "Proof of Work", uses a fraction of the energy to verify and secure the blockchain.

[Rigadog]

The real value of Crypto isn't as a currency but as a facilitator of decentralized finance (DeFi) and "Smart Contracts". Think Ethereum as a "World Computer" with lots of applications and software being built on its framework. Ether is the currency attached to Ethereum which is basically software.

[Canoez]

The real value of Crypto isn't as a currency but as a facilitator of decentralized finance (DeFi) and "Smart Contracts". Think Ethereum as a "World Computer" with lots of applications and software being built on its framework. Ether is the currency attached to Ethereum which is basically software.

I have a very difficult time seeing that perspective.

[peb]

It's a bit more complicated than that. Because of my wife's Parkinson's condition, I need to be able to buy the new house before putting my current home up for sale... the new home needs to be fully set up for her needs before anything else. I expected to buy the new house for cash, and was figuring on getting some very short term financing (two months, maybe three) to make it possible... a bridge loan, or even a mortgage that I pay off almost immediately. I had assumed that a bridge loan would be possible, but my accountant tends to doubt their availability. The other possibility is to take a mortgage, with no pre-payment penalty, that would be fully paid off with the proceeds of the sale of my existing home. This is a case where my concentration on IRA investing has hurt me, because the non-IRA portion of my holdings isn't big enough to pull this off without outside funding. Another possibility exists: borrowing the money from my IRA, which, if repaid within 60 days, invokes no penalty or tax. That is a risky proposition, of course.

One other possibility exists. There's been a trend in the past year of investors buying single family homes to use as rental properties... and they pay in cash. I could conceivably sell to them, and then lease my existing home for a couple of months until we were ready to make the final move. This possibility is attractive because it beats off the commission costs, and the rental expense would probably be close to, if not lower, than the closing costs for a mortgage.

Ok, I get that. I would look for some sort of bridge loan before a mortgage that I plan to pay off immediately, as closing costs on mortgages are considerable. I suspect a bank will work with you.

I think you last possibility is not that out of the question. You don't even care if they pay their cash, if the investor takes a loan from the bank, you still get the cash immediately. It sounds like a doable plan.

Good luck, I know things have gotten tough caring for your wife, I pray it all goes smoothly.

[peb]

The real value of Crypto isn't as a currency but as a facilitator of decentralized finance (DeFi) and "Smart Contracts". Think Ethereum as a "World Computer" with lots of applications and software being built on its framework. Ether is the currency attached to Ethereum which is basically software.

Which can be implemented completely by central banks and the dollar, euro, yen etc just have a purely digital version. No different than cash now. Its much better in the long run.

[peb]

Actually I don't think it's beloved by the so-called "Left" I'd say it's those of a Libertarian bent who are drawn to it. I am not among them but it think it's a fascinating technology. And yes, Bitcoin is wasteful of energy that's one reason I favor ETH as they are transitioning to "Proof of Stake" vs "Proof of Work", uses a fraction of the energy to verify and secure the blockchain.

I would say, up til about 2 years ago, everyone I knew who was into bitcoin trading was on the left. They were not libertarians. The libertarian and the interest from the right has been more of a recent phenomenon.

[Rigadog]

I have a very difficult time seeing that perspective.

Did you watch any of the videos that I posted or Google the potential of Blockchain?

Here's a case for multiple uses in the utility industry

https://www.mckinsey.com/business-fu...op-clean-power

[Andrew2]

There was a tyro cruiser on a UK yachting site about to set off with little experience and a small boat. All financed on his Bit coin 'investments' and being able to maintain internet contact while staying away from marinas as costly.
Been a bit quiet recently...

[John Meachen]

crypto would have no value today but for black markets
especially drug cartels

For better or worse,I have never studied economic theory but I suspect the quote contains the kernel of the truth.A parallel economy,outside the scrutiny or control of the normal regulatory authorities might be the perfect way for illicit transactions to occur.Whether there is honour among thieves or not is an irrelevance if blockchain technology supports the assertion that a transaction has taken place with a token of some value that both sides respect the existence of.The interesting part comes when one attempts to extract the alleged equivalent of the cryptocurrency in a more generally accepted form.It sort of reminds me of the old saw about poker games-If you don't know which one is the mug,its you.

[Canoez]

Did you watch any of the videos that I posted or Google the potential of Blockchain?

Here's a case for multiple uses in the utility industry

https://www.mckinsey.com/business-fu...op-clean-power

It isn’t blockchain that I take issue with, it is the use of cryptocurrency in combination with blockchain. We’re there a “digital dollar” or “digital Euro” or the like that operated with the blockchain, sure. Ethereum? No thanks.

[Rigadog]

But blockchain tech like anything else aint free, hence the Crypto tied to it. Money is a way of keeping score.

[Canoez]

The problem here is that the cryptocurrency has been shown to be pretty volatile. One entity of the other on the end of a deal could be in for huge losses depending on the negotiation of the deal and the duration. If the blockchain tech costs $$$, pay for it as a service in $$$.

[Too Little Time]

I ordinarily don't get my hair mussed up during market downturns, but I'm stuck in an extraordinary position right now. We have signed a P&S for a new house, to be built in an over-55 community, and expected to be complete in March of 2023. The cost of the new house is only a little bit higher than the value of our existing home, but I was expecting that the ancillary costs for things like closing, commissions, some new furniture, etc., would cost me an extra hundred thou or so... and that money was expected to come out of my taxable portfolio, for the sake of the lower tax bite. Naturally, my taxable portfolio has dropped about as much as my IRA's, so it could put me in a bit of a bind...

I was out bicycling today and had free time on my hands. That is always a bad situation. But ...

Going from a position that (imagined) capital losses are not important to one where they cause concern is strange. It just ruins what has been a poor argument all along.

But there is a behavioral issue also. It seems appropriate to consider 3 situations. It is convenient to run them all from 1/1/2009 to the current date.

1) A tout comes up at the start of the time period and offers to get a 14% annualized return over that time period. Most investors would think the offer was too good to be true.

2) Sitting back and watching one's investments grow at a constant 14% annualized rate for the entire time period. Most investors would be proud of that performance.

3) Watching investing history unfold as it has with the final result being a 14% annualized rate. Many here think 14% is devastating.

Human behavior is just terrible. It has caused many to lose much of their investments in boom times. Even if the invest in the best investment options. Human behavior makes people work hard at producing loses.


In another thread someone asked about investments or investors that earned 20% in the long term. I ran across a video about that: https://www.youtube.com/watch?v=00bbc9eZ994&t=2s There are some kind words about the early crypto investors toward the end.

[Landrith]

I know that Wall Street is an industry and its product was about the only thing America produced or exported from the 1990's onward. But exceptional, underline "exceptional" returns like 20% to a small investor are not real. I bought into the idea as late as three years ago , foreseeing the predictable inflationary end of a fiat currency cycle and before even overdrive government spending to shield Americans from the Covid19 pandemic, the shares of stock should be held onto and would keep their value even as the dollar declined.

Those real declines in purchasing power of the fiat dollar have left retired people sucking wind. We have seen 20% declines in purchasing power of the dollar for real commodities retired people consume in single months. Despite what the US government I can no longer vouch for the business models or sustainability of publicly traded American corporations during hyperinflation. I understand that many "blue chip" companies will through their political influence continue to have their stock prices propped up, but in the end that is what is accelerating the economic crash and will take it to the ultimate deepest level.

I know everything that is wrong with bitcoin and the other cryptos, but bitcoin hucksters will be able to point to Wall Street shortly and benefit from the good will of not being a Dow Jones or Fortume 100 stock. It is hard now to tell which is the greater fraud.

[WI-Tom]

I know that Hernando de Soto has advocated for creating and tracking property ownership for the poor by use of blockchain technology.

Kim Stanley Robinson's book "The Ministry for the Future" (a novel about how the UN might deal with climate change once things get bad enough) has blockchain as an integral part of cleaning up corruption in international banking. I admit I don't understand how that might work, but I bet he does.

From Goodreads:

From legendary science fiction author Kim Stanley Robinson comes a vision of climate change unlike any ever imagined.

Told entirely through fictional eye-witness accounts, The Ministry For The Future is a masterpiece of the imagination, the story of how climate change will affect us all over the decades to come.

Its setting is not a desolate, post-apocalyptic world, but a future that is almost upon us - and in which we might just overcome the extraordinary challenges we face.

It is a novel both immediate and impactful, desperate and hopeful in equal measure, and it is one of the most powerful and original books on climate change ever written.

Tom