Category Archives: Uncategorized

Why Buffett Doesn’t “Get” Bitcoin”

(Republishing this post from late last year, since Buffett just called Bitcoin ‘rat poison squared’)

Warren Buffett is the most famous name in stock investing, the second richest person in the world, and a leading expert in valuing companies and securities. He also is a big investor in banks, including Wells Fargo, Goldman Sachs, and Bank of America. So he has a lot of vested interest in the current monetary and financial system.

He recently said that bitcoin is in a bubble, which may well be true. He also said “You can’t value bitcoin because it’s not a value-producing asset”. This is not correct. Bitcoin can be valued, but not like a security or a company, which is what Buffet does so well.

As we have written elsewhere, bitcoin is a currency, money, a cryptocurrency. Some will say it is a digital asset, like a digital gold. We say it is Money 3.0 (fiat is Money 2.0, gold and silver coins were Money 1.0).

Do these have value? They are just paper with symbols, special printing and special threads and even holograms.

$$ €€ ££ ¥¥

Yes, money is intended to be a store of value, a medium of exchange, a unit of account.

Bitcoin is a unit of account in a secure, distributed ledger. It has been a much better store of value than fiat currency in recent years.

In fact in 2014, Buffet said “It’s a mirage”. The value of a single bitcoin has increased 16 times since late October, 2014 to about $5800 today. (currently $9300)

Money is valued by what you can exchange it for, its utility. It is valued against other currencies. Bitcoin is valued the same way, and by the vitality of the bitcoin economy.

Within the cryptocurrency world, bitcoin is the reference benchmark, just as the US dollar is globally. Bitcoin gets valued every day, every minute against all major fiat currencies and against hundreds of cryptocurrencies. Like those currencies it has an economy and a turnover (or velocity) of the currency.

One thing we don’t normally think of with respect to cryptocurrencies is interest, or dividends. It is possible to lend out bitcoin for interest, as one can do with dollars, euros, or even gold. But bitcoin has effectively thrown off two special dividens this year, in the form of forks of the bitcoin blockchain. These are known as Bitcoin Cash (forked in August) and Bitcoin Gold (forked in October). Collectively, those two are worth close to $500, representing over 8% dividend rate to date during 2017, based on the current bitcoin price.

And for someone who bought at the beginning of the year, when bitcoin was under $1000, the dividend is around 50%. Not shabby, and a reasonable reward for the volatility.

Bitcoin is a technology for internet money, network money independent of any government, and can be a bit hard to fathom for the newcomer. Buffett has always said he does not understand technology.

Bitcoin’s future value? It all depends on how the economy around bitcoin develops, but it will be quite an adventure.

NIRP Prep at Jackson Hole

Looks like the Fed is greasing the skids for negative interest rate policy (NIRP) while simultaneously threating to raise the Funds rate one or more times before year end. Getting the tail gunner in position. Here’s Vice Chairman Stanley Fischer being interviewed by Tom Keene of Bloomberg (empashis mine).
MR. KEENE: What did you learn about negative rates in the crucible of the markets? What have you learned in the last number of months?

DR. FISCHER: Well, we’ve learned that the central banks which are implementing them – there were four or five of them – basically think they’re quite successful and are staying with their approach, possibly with the exception of Japan. They’re thinking it through, and they have said they’ll come back to try and make negative rates work better. So we’re in a world where they seem to work. I think one of the most interesting developments I’ve seen in theory is a paper that says, yes, they work up to a certain point and then they become counterproductive.

MR. KEENE: Precisely. Yes, that’s a critical point. I mean we have within the interviews of Bloomberg Surveillance that Francine Lacqua and I have had, Olivier Blanchard [former Bank of England Governor during the crisis and a friend] calls them an outright scam. Granted, he’s not a public official anymore, I understand that. There is a raging debate about the efficacy of negative interest rates for central banks, for governments, and again for banking itself. What about the efficacy of negative rates for savers and the people of these different nations?

DR. FISCHER: Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that, and we have to make trade-offs in economics all the time, and the idea is, the lower the interest rate the better it is for investors.

MR. KEENE: What did you learn about negative rates in the crucible of the markets? What have you learned in the last number of months?

DR. FISCHER: Well, we’ve learned that the central banks which are implementing them – there were four or five of them – basically think they’re quite successful and are staying with their approach, possibly with the exception of Japan. They’re thinking it through, and they have said they’ll come back to try and make negative rates work better. So we’re in a world where they seem to work. I think one of the most interesting developments I’ve seen in theory is a paper that says, yes, they work up to a certain point and then they become counterproductive.

MR. KEENE: Precisely. Yes, that’s a critical point. I mean we have within the interviews of Bloomberg Surveillance that Francine Lacqua and I have had, Olivier Blanchard [former Bank of England Governor during the crisis and a friend] calls them an outright scam. Granted, he’s not a public official anymore, I understand that. There is a raging debate about the efficacy of negative interest rates for central banks, for governments, and again for banking itself. What about the efficacy of negative rates for savers and the people of these different nations?

DR. FISCHER: Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that, and we have to make trade-offs in economics all the time, and the idea is, the lower the interest rate the better it is for investors.

Fischer, Yellen, and Dudley making tradeoffs in Jackson Hole

Paraphrasing:

Well screw the savers, you’ll just have to grin and bear it, we have to make trade-offs in favor of (wealthy) investors. You know, the kind that have significant net worth in equities. Not savers or workers, homeowners, or car buyers, or students with loans. Investors are what matter. That’s who they work for.

John Mauldin in his September 4th newsletter “Monetary Mountain Madness” was angrier than I’ve ever seen (read) him, “They are sacrificing mom-and-pop middle America, the hard workers who have played by the rules and retired and saved and now want to live out their lives enjoying their grandkids and a little well-deserved relaxation, and they find they can’t do that because the Federal Reserve thinks that protecting Wall Street and wealthy investors and bankers is more important.” This sentiment is from a Republican who derives his income mainly from welloff investors. Basically he says they are putting NIRP in their toolkit in advance of the next recession.

You might want to hold on to some of your positive coupon bonds.

An open letter to White people who tire of hearing about slavery when they visit slave plantations: especially Suzanne Sherman.

Dear Ms. Sherman, When I read your reflection in The American Conservative I was so sorry to hear that you had mistaken the museum at Thomas Jefferson’s Monticello for a monument to the Declaration of Independence. This mistake clearly caused much despair to you, and I suspect, to your unwitting children, who later found themselves flung […]

http://thenegrosubversive.com/2016/04/23/an-open-letter-to-white-people-who-tire-of-hearing-about-slavery-when-they-visit-slave-plantations-especially-suzanne-sherman/

If The World Were 100 People — TwistedSifter

If the population of the world was only 100 people, what would society look like? Produced and written by Gabriel Reilich with animation by Jake Infusino. Produced by Good Magazine.

via If The World Were 100 People — TwistedSifter

Inching closer to a US recession, while Yellen is eager to hike

Today we got the Minutes from the December 15-16 FOMC meeting where the Fed hiked interest rates.  That in itself is not terribly interesting and there is not much news in the Minutes to shock the markets. Nonetheless it is another day of tightening of US monetary conditions – stronger dollar, lower inflation expectations, lower […]

http://marketmonetarist.com/2016/01/06/inching-closer-to-a-us-recession-while-yellen-is-eager-to-hike/

The Citadel Is Breached: Congress Taps the Fed for Infrastructure Funding

In a landmark infrastructure bill passed in December, Congress finally penetrated the Fed’s “independence” by tapping its reserves and bank dividends for infrastructure funding. The bill was a start. But some experts, including Congressional candidate Tim Canova, say Congress should go further and authorize funds to be issued for infrastructure directly. For at least a […]

http://ellenbrown.com/2016/01/16/the-citadel-is-breached-congress-taps-the-fed-for-infrastructure-funding/

Crude Oil Dips Below $30

At its low for the day Tuesday, WTI crude oil for February delivery traded at $29.93 before settling at $30.25. That’s the first time WTI crude has traded below $30 a barrel since 2003. Through the first seven trading days of 2016, crude prices have dropped 18%. We’ve already noted today that the U.S. Energy […]

http://feedproxy.google.com/~r/typepad/RyNm/~3/NVA5Qr7TLu4/

Inching closer to a US recession, while Yellen is eager to hike

Today we got the Minutes from the December 15-16 FOMC meeting where the Fed hiked interest rates.  That in itself is not terribly interesting and there is not much news in the Minutes to shock the markets. Nonetheless it is another day of tightening of US monetary conditions – stronger dollar, lower inflation expectations, lower […]

http://marketmonetarist.com/2016/01/06/inching-closer-to-a-us-recession-while-yellen-is-eager-to-hike/

Europe’s Market Gift, With Hints of More Quantitative Easing

If there is one thing that central bankers and politicians have proven over and over since the Great Recession, it is that they will do almost whatever they can get away with to steer the economy and the financial markets higher.

http://247wallst.com/economy/2015/10/22/europes-market-gift-with-hints-of-more-quantitative-easing/

More Deflation in the Air via CPI

September’s Consumer Price Index (CPI) was weak enough that consumers can consider it deflationary.

http://247wallst.com/economy/2015/10/15/more-deflation-in-the-air-via-cpi/