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To everyone laughing at me right now…

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Copped a few mean digs this week. This is my response.

Right now, I'm giving people a good laugh. I'm a proper comedian.

It's one of the things that happens when you put yourself out there. People want to take you down.

This week, it's all about the crash in cryptos.

“How's your crypto portfolio doing now, Jon?”

“How much did you lose this week, Jon?”

“What tip have you got this week Giaan? Got a crypto pick that's not going through the floor?”

Hardee har har.

And look, I can put on my compassionate zen hat. Some people have so little going on in their lives that laughing at B-grade celebrities on the internet is the only way they can get their kicks.

Really, I should be trying to give them more things to laugh about.

“Hey guys. This week I broke a nail opening the sun roof on my merc. That'll teach me for buying sports cars.”

What? Not funny?

Oh no, that's right. It's only funny when it makes you feel better about your own life.

There's nothing intrinsically funny about my suffering here. Watching other people suffer is only enjoyable when it makes you feel better about your own pathetic life.

Sad.

The other thing I'd say is that while every do-nothing is laughing about the crash in cryptos, the stock market quietly shed $4 trillion dollars worth of value.

Sure, it's no match in percentage terms, but that's like 11 times the dollar value loss in a single day.

And you might say, well, if the crypto market was that size, the losses would have been so much larger.

And to that I would say, if the crypto market was that size, (and really, it's probably a matter of when, not if) but if the crypto market was that size it would be a whole lot more stable.

With size comes stability. That's just the nature of the beast.

The reason why the crypto market is prone to such volatility is precisely because it is small. And it's small because it is still early days. Early, early days.

The final thing I'd say on that is also that, so far, I haven't lost any money on cryptos. As I keep saying, you've got to be in it for the long haul.

And I haven't lost money on any holdings yet, because I haven't sold any yet. Sure, I'm sitting on some paper losses right at this point in time. But check back in at the end of the year.

And the reason why I haven't booked any losses yet is because I don't need to sell. I don't have any stop losses in place.

Why? Because even if I loose everything I've put into crypto, it doesn't touch me.

Do you get that? I've got more than your net worth invested in cryptos, and it's still play money to me, ya stupid wage monkey.

Oh look at me go. Sorry. Arguing with people on the internet again.

But seriously, if you're feeling gleeful now because a single month's market movements have justified your cowardly inaction, you can eat a fat greek sausage.

Maybe cryptos aren't for you. Fine. Awesome. But if you need people to lose money in order for you to feel good about your relationship to the market and your relationship to risk, then you seriously need to have a look at yourself.

(Of course it's the same story for the people who did make money out of cryptos. There was a lot of people crowing about their genius when really all they did was get on a train at the right time…. So I can understand where some of the resentment is coming from.)

And look, I get it. I really do.

We've engineered a system that makes all of us feel insecure. We're indoctrinated into a competitive schooling system that makes some of winners, but most of us losers, and it does that at a very young age.

Then we enter a culture where some of the most creative and brilliant minds on the planet get sucked into the marketing industry – an mega-industry whose sole purpose is to amplify and feed on our insecurities.

And then we're so tied to the machine that the only way we know how to express ourselves and demonstrate our worth to others and most importantly to ourselves, is through flashy material possessions.

We are sick to the core and most of us have no idea.

So when people laugh at others for having a crack and losing some money, I can see it as just another symptom of this crazy system we've got going on.

But seriously, if you're in the market, if you're into or out of cryptos, whatever you're into, you've got to be doing it for you. You can't be measuring your success against others.

There is just no winning that game. You will never be free.

And if you can't be free, then what's the fricking point?

All the money in the world won't save you.

What this year will be about?

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Let’s step back from the numbers for a bit. What is this year going to be about?

Welcome to the new year everybody.

It’s a pleasure to have you with us. I’m going to do my best to keep you one step ahead of the property market, as I’ve done for the past 4 years. I’m going to try and help you triangulate the keys to your own greatness, as I’ve done with the NoBS blogs for the past three years.

And this year, if you’re keen, I’m going to try and help you navigate the exciting Wild West of the crypto market.

So with this first blog of the new year, I wanted to step back and get a view of the bigger picture. Try and finger the key theme that’s going to hang all these threads together.

Less data, more philosophy.

To do that, I need to introduce you to Francois.

Francois is an old man who owns three VHS recorders.

I don’t actually know him. I’m mates with his son. It was son who told me the story.

At some point around the turn of the millennium, François decided that he was done keeping up with technology. He’d seen a lot of change in his lifetime already. So when the writing was on the wall for VHS, when it was clear that the whole world was moving to DVD, and then beyond, François chose something else.

François chose to stay behind.

“Let the world have their DVDs. I have VHS. I like it. I know how it works. It will do me fine.”

And so when the electronic shops had their final clearance sales of VHS players, François bought three, figuring that three should be enough to see out his days.

To those of us living in the high-definition Netflix universe, François’ decision seems ridiculous. But François doesn’t know any different, so he doesn’t care.

And in a way I can get where he’s coming from. It’s hard work keeping up with the times. And it’s only getting harder as the pace of change accelerates.

So in a way I can respect a decision to just hop off the train. Happiness is relative. François is happy in his Netflix ignorance, so good on him.

So right now, at the start of 2018, it feels to me like we’re at a train station, with the train just about to depart. You’ve got a choice. Do you stay on it, or just hop off.

I’ll respect you either way. Either choice is valid.

2018 will be a year like no other. (Every year is different, but there’s something in the air around 2018).

The investing universe is changing. The most obvious face of that is the crypto-revolution.

It feels to me like Godzilla is slowing emerging from the ocean, and the whole world is in kerfuffle because we’ve caught sight of his nostrils.

But there’s a lot more yet to come.

And this is already impacting all other asset classes. They say people are leaving gold for the safe harbour of Bitcoin (though there isn’t anypart of any of that story that makes any sense to me.)

I think we’ll see it in property too. For a few years we’ve seen a lot of the world’s rogue cash – cash set free by the incredibly easy monetary policy settings around the world – we’ve seen that rogue cash find its way into Australian property.

And for a while there, Aussie property, with the promise of security AND double digit returns was incredibly enticing.

Cyptos don’t give you security but they do give you the promise of triple digit returns!

To rogue international money, that’s going to be an attractive offer.

So the Australian property market is changing too. I think the strategies that worked in recent years might need a bit of an overhaul.

And that’s all before we try to somehow account for the x-factor of exponential technology. The tech landscape is in rapid transition right now. (I mean, they added 4 new elements to the periodic table just in 2017!)

Exponential tech is going to be throwing up all sorts of surprises, and some of those are going to be incredibly profitable.

So this is the reality we have in 2018 – Flux. Everything is in flux. Every asset class, every strategy, even our technological reality.

Staying ahead of this wave will be work. You will have to paddle hard (or read the blogs of someone else who is paddling hard.) You will need to keep an open and mind and be flexible with your game plan.

Or, you can be like François. You can say, you know what, I’ve done pretty well. I get stocks and I get buy and hold property. I’m good. You guys go on ahead. I’m just going to stay here.

And that is totally valid. If you’re in a financial position where you can just do that, why not? Take it easy. You’ve earnt it.

If not – if you want to get on this wave and maybe make some incredible money this year, then I need you to swim hard. There’s a lot to get on top of. There’s a lot to learn.

The only thing I would say is this. It’s easier to stay on the train than it is to get back on later.

If you’re not down with the basics of crypto1.0, crypto 2.0 will be confusing. Crypto 7.0 (which is maybe only 5-10 years down the track) will be totally baffling.

So that’s what I reckon this year will be about. We’ll need to work hard to stay ahead of the curve, but if we can, we could make some serious money.

Like, the kind of returns that we’ve never seen before, or even dreamed was possible.

I’m serious about that. This year could be huge.

So come along for the ride. It’ll be a wild one.

Toot toot!

Crytpos + Property = A portfolio for all seasons?

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Everything you need to know about the coming crypto futures market, and why should still hold property.

So you all know I’m getting excited about crypto currencies right now. No secrets there.

Does that mean I’ve fallen out of love with property?

Hardly. I still love property. I’m still committed. We’re just experimenting with a more open, less rigid relationship for a while.

There’s enough love to go around.

No, seriously. I’m still all-in on property. And the crypto madness just means I’m even more committed.

And yes, I said crypto-madness. If you think that this is a sane and normal market, then you, in my professional opinion, are nuts.

Like most hysteria runs, there’s a core of truth and a veneer of hype.

(The trick is knowing which is which.)

Seriously, the more I skill up, the more I realise that this isn’t a space you shouldn’t be wandering blind into.

(If you want a reputable guide, I know a guy… Actually, I paid him several thousands of dollars to personally mentor me – you can get access to him for free – Find out how here)

But Bitcoin in particular, and cryptos in general, are pushing into territory where they’re soon going to be “systemically important.”

And by that I mean, once they’ve been around long enough and people realise they’re not a fad, people are going to start demanding that their fund managers take a position.

Soon, all the institutional money houses in the world will have a crypto fund. Might take a few years, but we’re not far off.

After that, it’s kind of hard to see how it plays out. But once we start talking about serious money – and by serious I mean money that has been in the same hands for centuries – once they start getting involved (if they’re not already) the market can get a little weird.

And given authorities haven’t really caught up with the crypto reality, and are still arguing about whether its an asset or a currency or a contractual arrangement, then you have the prospect of serious money with very little oversight or control.

Imagine ten T-rex’s on a basketball court, while the umpire is trying to decide what the definition of ‘ball’ is.

Oh man it’s going to be wild.

But I hope that prospect is as exciting as it is terrifying for you. There’s going to be serious money to be made for people who know what they’re doing.

(And for people who know how to tell the difference between a T-rex and a bison).

And now people are saying that the big switch has started now that the first Bitcoin futures market has been created on the Chicago exchange.

(Yesterday there were only 22 traders active on the exchange, so it might be a while before we see solid action.)

The argument goes that this will allow the big money to hedge their positions, which they’ll want to do since Bitcoin is so volatile, and therefore it’s going to open the flood gates to a serious onslaught of serious money.

(T-Rexes everywhere).

I think that argument is probably true in the longer run. But in the shorter run there’s some serious risks.

So imagine you own a serious stack of Bitcoin. No one knows for sure who owns what, but the general feeling in the market is that there is a good chunk concentrated in a small number of hands.

So imagine you wanted to close out your position. You’ve had a good run. Maybe like the Winklevoss twins you’ve made a billion dollars, and you think that’s good enough.

Now if you have a serious amount, then when you try to sell it all you’re going to push down the price. The more you sell, the lower the price goes, until the final coins you’re selling get you way less than the ones at the beginning.

Is there anything you can do?

Yes. Hedge.

That is, make a bet on the futures market that Bitcoin will go down. Arrange it so the further it goes, the more you make.

Structure it properly, and for every dollar you lose on the price, you make a dollar on the bet. Effectively you can sell all your Bitcoin at the current price, even if the price ends up falling 40%.

(Fun fact – No Bitcoin will ever be exchanged in these futures markets. It’s totally derivative. It’s just like betting on horses. You don’t actually buy the horse. You just bet on how it will race. Yes. Isn’t the modern financial system wonderful?)

And so yes, the futures market may make the market more attractive to big players.

But it may also make it possible for the T-Rex’s to close out their positions and send the price tumbling.

Just saying.

I expect it could be a bumpy ride.

But if Bitcoin weathers the storm (I feel it will), and then the serious money gets involved, soon enough, Bitcoin becomes too big too fail.

That is, if anything happens to Bitcoin – a better, more functional currency is created for example – then the entire financial system is at risk.

What happens then? Where do you want to have your money?

a) – under a mattress

or

b) in property.

I’ve said it before and I’ll say it again. In a financial system that is 99% fiction and derivatives of fiction, property is the most solid ground you can stand on.

So that’s going to be my strategy.

I initially invested thousands of dollars in several different newsletters and then I joined a high-end mastermind and paid a small fortune to get involved and access to the knowledge required. My mantra is knowledge first – money second.

Find out who my hired-gun mentor is tonight on this special webinar masterclass – book your seat here.

I’m going to ride the wild waves and make as much money as I can.

But I’m going to make sure I’m pulling a good chunk of that money back out and moving it over to property.

Property, as always, is the key to inter-generational wealth.

Just ask T-Rex.

Jon

P.S. I’ve just done the numbers. $2000 invested in 2017 with the top 20 Cryptocurrencies returned $74,357. No trading, No in and out of deals – just frigging BUY and HOLD – but you’ve got to know what to buy and how long to hold.

That information you can get access to tonight with our Bitcoin – Crypto webinar

NO B.S. FRIDAY: It had to happen. You can now buy property in Bitcoin.

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Bitcoin and property are completely different assets, but that’s what makes it special.

The internet’s been all a chatter this week with some bloke who’s willing to accept Bitcoin as part payment for his house.

And now here I am giving his property in The Basin, Vic another plug. Check it out. Looks like some pretty sweet digs.

My first thought when I saw this was that it was bound to happen sooner or later. Crypto-currencies are here to stay. I’m still undecided about hitching my wagon to Bitcoin in particular, but crypto-currencies as a concept? Forget it. The genie is out of the bottle. They’re not going anywhere.

My second thought was that this guy is a marketing genius. With a vague promise to maybe possibly accept some bitcoins as part of his deal, he’s secured national TV coverage and wall to wall print.

…For free! I’ll take my hat off to that kind ROI any day of the week.

Domain was first to break the story:

“A vendor selling a family house in Melbourne’s outer east is willing to accept Bitcoin as payment, in what could be the first cryptocurrency property transaction in Australia.

… Rob, who did not want his surname printed, is an experienced builder who buys, renovates and flips houses. He first bought into Bitcoin earlier this year, but had watched the cryptocurrency market evolve over the past decade.

His latest project, 1411 Mountain Highway, The Basin, is up for sale, with its listing declaring the “owner is agreeable to accept part payment in Bitcoin”.

“I see cryptocurrency at the moment as like the early days of the internet dot com era,” Rob told Domain.

He believes marketing the property as Bitcoin-friendly could be the deciding factor in someone’s ability to purchase the house.

“If it came down to two or three people, and both had their maximum borrowing capacity at a certain amount, and one has bitcoin — because the banks don’t look at Bitcoin as an asset — that could be something that could get them across the line.”

If it happens, I’ll be curious to know how they manage settlement. Even over a short settlement like 30 days, the price of Bitcoin can vary a lot. Who carries the risk on that one?

But there’s a second leg to this story.

There was a bit of chatter about the deal on one of our forums and it turns out Rob is a student of Dymphna’s!

Classy play, Rob. You’re doing us proud.

I should have known Dymphna’s fingerprints would be on this one. At her Next 10 event she talked a lot about the disruptive power of crypto-currencies, and the impact the block chain would have on the property market.

If you missed the event, we’re in the process of compiling a bit of a best of. It’s no easy task condensing a full day packed full of info down into 50 minutes or something like that, but we’ll get there.

So stay tuned for that one.

So where to from here? Are we going to see a rush of properties on to the market, quoting prices in Bitcoin?

That’s not really where I see it going. I think there’s a bit of a mismatch of vibrations right now between cryptos and property. The crypto space is very dynamic. Prices are all over the shop.

Property on the other hand is steady and predictable. 10% in a year is a big move. Some days Bitcoin does that before morning tea time.

So their different vibrational natures – their frequencies – means there are challenges in marrying them up. Until the price of cryptos settles, and it will have to eventually, then they’re not natural bed-partners.

But that also means they can be playing different roles in your wealth strategy.

Property is a steady, long run play.

Cryptos however can be your fortune makers. The volatility means that if you’re ahead of the curve, you can make easy money timing your entry and exits… if, of course, you know what you’re doing.

(Or you’ve got someone in your ear who does.)

New entrants into the coin space can also offer huge asymmetric risks. They cost you peanuts to buy, but can deliver 1,000% 10,000% gains in an incredibly short time.

So this is something I’m starting to take a serious interest in. As Rob was saying, Bitcoin’s been on the scene for a while, but these are still very early days in the block chian revolution.

And I’m keen to take you all along for the ride with me. I’m involved in a high-end mastermind group, and I’ve got a couple of mates there who are crushing it right now. Like making insane returns. Serious bananas.

They’re not up for sharing all of their trade secrets, but I have convinced them to open the game up for us. Even just a fraction of their knowledge is going to put you miles ahead of the curve.

So put December the 13th into your diary. I’m going to get them in and run a crypto webinar. I’ll bed down the details soon, but for now, keep that Thursday night open.

And let’s all make some serious coin.

Can you see cryptos and property getting into bed together?

NO B.S. FRIDAY: Maybe people are the problem

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Bitcoin is headed for its GFC moment. We probably shouldn’t be surprised.

I generally like to think of myself as an optimist. I’m definitely a glass-half-full kind of guy.

And when I’m looking at the amazing stuff Dymphna’s digging up for her Next 10 event (last chance for tix folks!), generally I get pretty pumped. The future looks like it will be an amazing time to be alive.

But then humanity still gives me things that are face-palm worthy.

And I look at all the technology on offer and I think, it doesn’t really solve our fundamental problem – because our problem is us.

Until they invent technology that stops people being greedy, being idiots, or being both, any technology we come with can only ever be a work-around for our most fundamental problems.

There’s a saying that I’ve always loved and hated in equal measure: “From the crooked timber of humanity, no straight thing was ever made. (Immanuel Kant).

I love it because it captures the dilemma perfectly. I hate it because it’s a bit depressing. And I hate it because part of me believes that it could be true.

So take the theft this week of $US31 million worth of Tether tokens. Yep, some hacker ran off with $31m worth of digital currency.

(Build a better bank, they’ll build a better bank robber).

It first caught my attention because it gave the price of Bitcoin a solid (but temporary) whump, but also for the controversy that followed around Tether’s response.

Effectively, Tether froze the funds and suspended the Tether back-end wallet service.

Sounds reasonable. But enter Cornell professor Emin Gun Sirer:

“Tether quietly did a hard fork to blacklist a specific address and freeze funds. Three questions: 1. Who controls the Omni ledger and who can perform these kinds of operations? 2. Why was this address blacklisted? 3. Which other addresses are next in line?”

So sure, maybe it’s ok to blacklist addresses of bad guys. But who says who is a bad guy and who isn’t?

And this is one of the big tensions with digital currencies. They’re outside the system and unpoliceable, which is great, but they’re also outside the system and unpoliceable, which is not so great.

It depends on whether you like the extra-system results you get.

And in all the hype of the promise of post-state economics, how many people participating in Tether knew that Tether could freeze their accounts on a whim?

I mean, of course, they wouldn’t unless it was absolutely necessary. But that’s what the Gestapo said about wire-tapping.

The thing is though, this story doesn’t stop there.

Tether is an interesting beast. It was founded by one of the child actors in The Mighty Ducks, which is irrelevant but I just can’t get that fact out of my head.

In theory, Tether’s tokens are pegged to the USD. 1USDT = 1USD. They do this to facilitate trade on coin exchanges, so people can trade with each other without having to come back into the conventional money system until they need to.

Very useful. With a market capitalization of about $675 million, tether is the world’s 20th most-valuable virtual currency

However, while we know for sure how many USDTs there are in circulation, we don’t know how much backing they actually have.

Some people have been wondering if they’re fully backed at all.

Some people have been wondering if maybe Tether has actually been running an elaborate ponzi scheme.

“Print” more tokens, sell them at a higher price, use the proceeds to sure up your reserves for previously issued tokens.

What could go wrong?

But not only that, some people wonder if Tether is deliberately manipulating the price of Bitcoin.

This guy reckons if you track the issuance of Tether tokens, it lines up with times that the Bitcoin price was looking shaky.

They’ve got the motive. If the Bitcoin price falls, their ponzi scheme comes apart. So they have a strong interest in keeping the price moving higher.

Now I don’t know how much weight to give any of this. I don’t have a lot of skin in the game, so it’s just an interesting show.

But as I’m reading this, it’s all sounding familiar.

Say that your money is backed by something, when it’s not. Print more to line your own pockets and keep the whole show rolling on. When things go wrong, blame some rouge agents and freeze the funds of ordinary folks.

Sound familiar?

This is exactly the Wall Street business model. This is exactly what gave us the GFC!

*face-palm.

Oh crooked, crooked timber. Can’t you do anything right?

I don’t know. I guess people are good, on balance. The good apples out number the bad.

But given the incredible tech coming down on us (seriously, you’ve got to check out the Next 10 event to get your head around it), even just a handful of bad apples could seriously derail the whole species.

Don’t give a monkey a hand gun. Don’t give a human a quantum computer and the ability to genetically modify viruses.

Oh boy.

What ever happens, we’re in for a hellava ride.

You be the judge. Get along to the Next 10 event this weekend and tell me if we should be worried or not.

The real estate singularity will destroy stock markets

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Soon, there’ll only be one game in town.

When people ask me where to put their money for the long run, I say property. Every time.

That makes me a property optimist.

But it’s also true to say that I’m a pessimist about nearly every other asset class. That’s actually probably more true, over the long, long run.

And so when I’m backing property, it’s not that I’m saying that it’s going to necessarily create a lot of value. It’s that I see other assets destroying value.

And the real estate singularity (as Dymphna and I call it – make sure you check out her Next 10 event) is not so much about real estate rising to the top of the asset heap. It’s about real estate being the only asset left standing.

Now to understand what the singularity is, I need to slow down and pick up some basic economics so we’re all on the same page.

Ok, so in Economics 101 they talk about three factors of production: Land, Labour and Capital. Everything that gets produced in an economy draws on these three factors.

It’s pretty broad brush obviously. Capital includes machines but also includes entrepreneurial capital, and land includes the things that come from the land, like fish from the sea, or iron ore from the ground.

But let's leave that to the side for the moment.

Each of these factors has an income stream attached to it. Labour receives wages, capital receives profits, and land receives rents.

The singularity in real estate is where the wages and profit streams are destroyed, and rents are the only income stream left standing.

How is that going to happen?

Robots.

Well, automation and computing, to be more precise.

Think about IBM’s Watson. Watson’s “brain” holds all 5.5 million articles in Wikipedia, growing at 20,000 per month, and each fact contained in it can be “remembered” at any time, more quickly than the human brain can remember what it had for breakfast.

And that’s just one of the things it can do.

Combine huge amounts of data with massive processing capabilities and machine learning (where the computer coordinates it’s own process of trial and error) and you have the potential for an intelligence (even a wisdom) the likes of which the world has never seen before.

And right now in Australia, Watson is helping banks with compliance. It is checking advice documentation and phone recordings for whether advisers have followed the rules (Watson can check every single one, rather than the random samples that are checked now).

Centralise that process and you pretty much don’t need auditors or even APRA.

This is coming for every aspect of our lives.

Soon your house will be reading your facial cues to gauge your mood, and then adjusting the lighting and music accordingly.

It might have also realised that you need a new fridge.

It dispatches an order.

On-demand, solar-powered robots will be trawling over our rubbish tips for scrap metal. Autonomous trucks will take the metal to a factory, also operated by robots, to 3D print you a new fridge, from designs independently developed by a computer.

The fridge will then be delivered to your door by an autonomous truck, or autonomous drone, and your house will let the robots come in and install it.

And not a human hand nor human mind will have been involved.

The implications for wages are pretty clear. Humans are quickly becoming out-dated technology. We’re about to become as valuable as CD players.

Wages are going to zero.

But what about profit income? Well, it’s under huge pressure too.

Think about that fridge story. If all the robots and computers are powered by free energy coming from the sun, and the materials used are harvested for free from rubbish tips, the marginal cost of each product is effectively nothing.

In competitive markets (and markets are going to get more and more competitive as barriers are torn down), then prices are pushed towards marginal cost.

The price of your fridge might only be a few dollars.

How much profit margin can you make on a $2 fridge?

The reality is more likely to be a volumes-based fridge business – that tries to pick up 5c on every 50c fridge, and make money by selling millions of them.

And the 5 people involved in that company, once everything from accountants to sales has been automated, might make a decent wage.

Of course, rents suffer too in this story. If companies can’t make money, they’re not paying for retail or commercial space.

But there’s still a lot of non-economic activity that has to happen somewhere. People need houses to live in, even if they don’t have jobs.

So in time, the economy will be drawn towards a singularity, where the only factor of production generating any income is land.

Land is the last man standing.

We probably won’t get there of course. An economy where wages and profits have been destroyed simply won’t function in the way we understand it. It’d need a complete overhaul.

But every step we take towards the singularity is value positive for real estate. The more wages income and profit income is destroyed, the more valuable, and relatively scare, rental income becomes.

Theoretically, since prices are relative, in the singularity, wages and profit incomes go to zero, and rental income goes to infinity.

As rental income goes to infinity, so does the asset price.

As I said, we won’t ever get there. It’s like trying to enter a black hole.

But there’s a long, long way from here to there. And every step will see the price of land increase.

And that’s why I’m holding property for the long run.

And this is all before I’m touching on the 7 mega-trends Dymphna has identified. If you want to be ready for the future, her Next 10 event is an absolute must!

Part II: Bet the House On Bitcoin!?!

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Last week it was Bitcoin Basics, this week I tell you why it’s awesome… or could be…

This week I’m going to tell you why you should mortgage your house and sink it all into Bitcoin.

I’m not really telling you that. That’s not my actual advice. I’m just doing it to see what the arguments are. I started this journey as a bit of a Bitcoin sceptic, but I’ll try put that all aside here and see what the cryptocurrency actually has going for it.

So it’s not really me. If it helps, imagine me in lederhosen and speaking with a German accent.

(stop touching yourself.)

So why is Bitcoin awesome?

The first thing to remember is that Bitcoin is a currency. It’s a form of money. It’s something you use to buy goods and services.

There are some teething problems that make that function a little buggy right now. Bitcoin doubled in value in August, and that’s not something currencies normally do.

But we’re in the adoption phase. In time, Bitcoin will become fully adopted and its price will stabilise.

And when we’re talking about currencies, remember it’s price really points to relative value. What is the Aussie dollar worth against the Yen? What is the Bitcoin worth against the USD?

And remember that all the currencies on earth at the moment are increasing in quantity. Governments are printing more of them each year. The number of Bitcoin is growing too but at a much slower rate. And ultimately, the number of Bitcoins that can ever exist is fixed. You technically can’t make any more of them.

This dynamic alone means that Bitcoin must continue to appreciate against all other ‘inflationary’ currencies.

But if Bitcoin becomes a truly global currency – it’s already traded around the world, and is legal tender in Japan – then there is some seriously huge upside to people who get in early.

Right now, on current pricing, the total value of all the Bitcoins in existence is about US$70bn.

That’s a lot, but it’s also nothing. In Japan, M2 – the supply of money – is worth about US$10 trillion. In the US, M2 is worth $13 trillion.

So say Bitcoin expands to be a currency on par with the Yen – accounting for the same amount of global transactions. That would imply a coefficient of expansion of 135x. Or if it grew to be the same as the US dollar, that would imply a coefficient of expansion of 194x.

Let me spell that out so you know exactly what I mean. If you mortgage the house now and put $1m into Bitcoin, then when it grows to rival the US dollar – which could be only a decade, who knows? Then when that happens, your Bitcoin holdings will be worth $194 million US dollars.

I know, right?

And if Bitcoin grows to become THE dominant currency in the world, becoming the main form of money across the globe..? Forget it. Too many zeros to even make sense of.

This is the upside potential of Bitcoin. That’s why even though we’ve seen some crazy growth numbers in recent months, we’ve barely started.

This is still the ground floor. The doors to the elevator/rocketship haven’t closed yet.

Now critics would say, “But Bitcoin isn’t real. It’s not a real thing.”

But show me a currency that is real.

Take the Aussie dollar. That used to have gold standing behind it. You could take your money and trade it in for gold.

Not any more. The only thing supporting the Aussie dollar is the Aussie government, and the only thing supporting its price is a shared understanding of its value.

It’s nothing but an agreement. It’s nothing but a social contract.

But don’t stop there. Go back to gold. What’s gold actually worth? Take away all the social contracts and shared understandings around gold and what have you got? Not much. Some shiny rocks.

Go back in time and offer a cave man a 5kg bar of solid gold. What will he give you for it? A bite of his mammoth, at best?

There isn’t a money alive today that is ‘real’ in the sense that Bitcoins critics like to use it.

The US dollar isn’t ‘real’ and it’s worth $13 trillion.

But then don’t all currencies need a government to give them legitimacy?

That used to be true. Track the history of money and money emerged under the protection of city states. Once a structure emerged that had a monopoly on violence and could enforce its own rules, then money emerged to facilitate trade.

Money needed someone to enforce the rules around money. It simply died without it.

But this is the genius of the block-chain.

Trust doesn’t come from some authority structure. Trust is built into technology itself.

The value of Bitcoin is set in an open market, and the distributed ledger of the block-chain ensures that no one can mess with the results. What the market says, is.

So the integrity of the Bitcoin currency is the integrity of the block-chain, which is a communal and collective effort hard-wired into the technology.

And if anything, compared to conventional currencies where the supply is controlled by governments on the basis of policy, whim or self-interest, Bitcoin is far and away a more transparent and predictable entity.

In turn, that transparency and predictability gives it value – and we’ve barely scratched the surface of that value.

Finally, it is true that there are other cryptos out there, and the crypto ecosystem is becoming crowded. Bitcoin is still the biggest fish in the pond, but there are others who want to take its place.

But like most things in life, there is a first-mover advantage. Bitcoin was out of the gates before most cryptos were even concepts. It is established. It has set the standard.

And if you want to buy one of the other cryptos, these days you have to pretty much go through Bitcoin to get to all of them.

But how many cryptos does the world really need? Consumers want one – they don’t want the hassle of managing hundreds of currencies. That’s the mess we’ve got now.

So I see Bitcoin consolidating its domination of the space, and setting sail for $200 trillion.

So toot-toot. Time to get on board.

(No, not really.)

What do you think? Have I covered it? I know I’ve got a few Bitcoin traders in the readership here… What other arguments are there for Bitcoin?

Also, for the people who do have Bitcoin (Karan Goda – keen to hear your thoughts) are you holding for the long run, or are you cashing out at a certain price? What price?

NEXT TIME – I flip it all on its head and tell you why to avoid Bitcoin like the plague. You can then tell me which argument is more persuasive.

What pros am I missing?

Bankrupt hedge fund guru wishes he bought property

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If a bear dies in the woods, is anybody listening?

This week, the world lost a great bear. Hedge Fund guru Hugh Hendry is closing his fund.

Hugh Hendry is a bit of a legend in managed fund circles. With a name like Hugh Hendry, he was always destined for funds management, politics or porn. He chose the lesser of three evils.

In 2002 he launched Eclectica – a contrarian fund for people with more money than all of us combined. At the time, the fund attracted a lot of attention… and a lot of money.

And in the early years, it made good money. It made great money. And the contrarian strategy saw Hendry and co. well positioned to ride out the GFC.

But since the GFC, its returns have been disappointing to say the least. 2011 was its best year, but even then it only posted 8.6%, only slightly bettering the market.

Every other year, however, it underperformed the market substantially.

And 8 months into this year, already down 10%, Hendry decided to throw in the towel. The great bear howled its last howl, rolled over and died.

Essentially Hendry’s bet – that the radical money-printing experiment that followed the GFC was only going to end in tears – turned out to be wrong.

The theory was impeccable. The case was well argued. The mechanisms were obvious. It was just never true.

And ultimately, in his farewell letter, Hendry capitulates completely. The nightmare scenarios of the GFC just never came true, and right now, the economy looks pretty good.

Right now, Hendry “is not bearish on anything.”

In fact, the outlook is positively sunny.

“If anything we feel more convinced that our thesis of a healing global economy is understated: for the first time in an age all parts of the world are enjoying synchronised economic momentum and I can’t see it ending for some time…

… The implications of a sustained bout of economic growth are good for you. It’s good because it should continue to underwrite a continuation in the positive performance of global equities. I would stay long. It’s also good because I can’t see interest rates rising abruptly to interrupt the upward path of equities. And commodities have already acknowledged the upturn in the fortunes of the global economy and are likely to trend higher still. That’s a lot of good news.”

Oh, how the mighty have fallen.

For the record, Hendry still maintains that the markets are broken. Quantitative Easing created massive disruptions and misallocations of capital. However, the fallout from these misallocations has been largely contained, and the real economy is recovering and gathering steam.

And if the economy keeps doing well, time, ultimately, heals all wounds.

The GFC might still get a rehash at some point, but to Hendry, it doesn’t look like it will be soon.

I find this all fascinating because it still feels like the contrarian mindset is the dominant mindset.. (I know. Ironic)

Most people still don’t trust the economic recovery – we’re still calling it a recovery. It all feels fragile. The ghosts of the GFC still linger and are now rubbing shoulders with Trump and Kim Jong Un.

It can’t end well.

But how long does it take for confidence to take hold?

How many years of “recovery” do we have to see? How low does the unemployment rate have to go? How many contrarian hedge funds have to keel over and die?

More and more the tone of commentary is brightening. More and more people are saying, you know what, maybe things aren’t that bad. Maybe the economy has got legs.

Given this emerging shift in sentiment, I would actually say that the worst is probably behind us. The global economy is gearing up for a solid spell.

This is all great news for Australia – as a small open economy, our fortunes flow with the world. And if it’s true as Hendry thinks that, “commodities… are likely to trend higher still,” then it is fantastic news for Australia.

These past five years have been a bit of a battle for Australia, mostly because our major trading partners, apart from China, have been struggling.

But what happens if they all start finding form?

What happens to Australian growth rates – rates that are already the envy of the world? What happens to the unemployment rate? What happens to wages?

And what happens to property prices?

Just look at how well property has done with all the headwinds under the sun being thrown at it.

Now imagine what happens if it starts getting some tailwinds. Imagine what happens if incomes start gathering speed again.

In my mind, if Hendry’s thesis plays out and the global economy continues to go from strength to strength, it is very hard to see property prices decelerating.

In that scenario, the only way is up.

Mark my words.

The other point I’d make is that sentiment always flows this way. At first, there’s only a few dissenting voices, like Hendry. In time, the herd capitulates and the contrarian view becomes the dominant view.

And by then, your opportunity to make real money has passed you by.

There are no guarantees in this game, but my bet is that Hendry won’t be the last bear to cop it in the neck this cycle.

The mood is shifting.

Mark my words.

Where do you think we're heading (globally speaking)? It's it's black clouds and storms ahead or bright skys and tailwinds?

New opportunities everywhere.

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Should you be getting into marijuana stocks?

There’s a big market here, but one big swing factor.

There are two new big-dogs in the world today and I’m talking about emerging (hype-driven) opportunities.

One of them is Bitcoin, I’m researching everything to do with that market and will be reporting back my finding within the next two weeks.

The other is marijuana. Let’s begin…

In Japan, the Emperor wears hemp.

He has done for centuries. The hemp plant – of which ‘marijuana’ (the plant you smoke to get you ‘high’) is just one strain – has had a long and fruitful connection with humanity.

Hemp oil was being used by the ancient Egyptians as a medicine.

NASA was using marijuana to help astronauts unwind from a tough day on the space station.

(No, I just made that last bit up.)

But then marijuana (and with it hemp) went out of favour. It became a prohibited substance. The hemp industry got shut down.

(Many people say it was Dupont and the cotton industry that got hemp shut down – mounting a massive scare campaign about the dangers of marijuana.)

Whatever the case, it’s been illegal for about a century.

But now, it seems, the tide has turned. In America, there are now more states where marijuana is legalised to some degree or another than there are where it isn’t.

It’s a radical social experiment, but one that is creating a billion dollar industry in the process.

And for people in the right place at the right time, a small fortune.

This chart here has some of the big success stories. If you put just $100 into some of these companies just three years ago, you could be banking some incredible returns.

One company turned $100 into $35,500 for you! Nice!

Of course, not everyone’s a winner. The alcohol industry for example. They’re not stoked about it. Alcohol and marijuana seem to be in competition with each other.

In states where marijuana is legal, pot sales are growing exponentially, while booze sales are flat or falling.

Take this chart from Washington state.

Quarterly marijuana sales have boomed from $23.6m just a few years ago to over $300m today.

Some people are saying that the marijuana industry is going to be bigger than the manufacturing industry in the US by 2020. It’s pretty huge.

And the stereotype is that marijuana is for teenage boys with their X-box and Dominos pizza.

But if you break it down and look at who is actually using legal weed shops in the US, it’s a surprisingly broad cross section of the community.

It’s only very slightly tilted towards males, and it’s tilted towards younger cohorts (25-34) but not massively.

To me, that looks like an industry that’s got legs.

Ultimately the American experiment is a case study in how governments can make or break a market.

Sometimes government regulation is a good thing. I personally prefer to live in a world where there isn’t an open market for personal nuclear weapons. I support government regulation in that industry.

However, and I know this will come as a surprise to many of my readers, the government isn’t always perfect.

It doesn’t always make great decisions. Often, it actually makes very bad decisions in order to protect the interests of the rich and powerful.

(I know! It was a shock to me too. I’m sorry. I really should have made sure you were sitting down first.)

So is all hell going to break loose if we legalise marijuana? It seems unlikely. Marijuana has been down the priority list for the police for a while. It has never been particularly expensive or difficult to get.

And we’ve got by.

And some argue that there’s a signalling effect here. That if we legalise marijuana we’re telling kids that it’s ok to get off your face.

That’s kind of the message we started sending when we legalised alcohol again if you’re using that logic. And if you’re taking moral guidance from the government you probably need to have a good long chat with your priest.

So personally, I see this having a very small impact on the fabric of society.

So if you’re ok with the moral dimensions, and I more or less am, then the question is, where is the money?

This is a tricky one. We’re really looking for the government to make a market here. There are a number of Australian companies getting ready to launch when Australia finally starts down the path towards legalisation.

But the government is sending mixed messages here. Some days it looks like their stance is softening. Other days, it looks like it could be years down the track.

As I’m sure you know, it’s cash-flow that kills most start-ups. For marijuana stocks in Australia that could mean a whole lot of stranded companies with state of the art infrastructure and nowhere to deploy it.

And the longer the Australian government drags it out, the more opportunity there is for foreign companies to fully gear up and get ready to expand.

I mean, let’s say Australia doesn’t open the door until well after 2020. By that stage, the American marijuana industry will be starting to consolidate. Large players will start to emerge. They’ll have developed all the tools they need – technology, business models, finance partners.

They’ll come into the market full guns blazing, just as our little Aussie battlers are trying to get off the ground.

They’ll probably get slaughtered.

And right now, it seems that the government is going the wrong way for people interested in backing Aussie companies. I know a hemp farmer up in Northern NSW. They’d been gearing up production of low-THC (the stuff that gets you high), high-CBD (the stuff that has medicinal properties) crops.

The government had been moving towards making CBDs legal.

But then the Therapeutic Goods Association surprised everyone and said, actually, no, CBDs will remain illegal. You have until October to wrap things up.

It looks like they’re stuffed.

So this is the danger here. If you’re investing strategy relies on the stroke of some bureaucrat’s pen, your strategy is built on an institution that has been corrupted time and time again.

So there’s a substantial amount of risk there.

And that’s one of the reasons why the returns are so high. Can you predict what the government’s going to do in two or three years? Sometimes it’s a coin toss.

So look, yes, there are potentially some huge returns to be made out of the marijuana industry. I’m looking at some options myself.

But be aware of the risks. The government was happy to hang a whole bunch of hemp growers out to dry. They’re not going to give a toss about your investments.

That’s not to say it’s not worth it. But marijuana stocks belong in the risky tail of your portfolio, I reckon.

Have you made money from the marijuana hype? Are you sold on it, or are you staying well clear?
Do you think it’s a bubble about to burst, similar to techwreck2000?

Whispers of the next boom

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Warning – the economy might actually be a whole lot stronger than we thought.

Okay, little bit of a news flash.

You know that “moderation” in house prices we’ve been waiting for? That little bit of a pause we were expecting to let reality catch up? That softening, that slow-down, that plateauing?

Might not be coming.

In fact, in as much as there was a slow down / pause / time-out in the naughty corner, it might already be behind us.

And the next boom might only be a few months away.

How do I know this?

Well, I don’t. Not for sure. Some economists will tell you they have a crystal ball, but sooner or later the market comes along and gives them a swift kick to the crystal balls and their reputations shatter.

But, you’re always operating with less than perfect information.

And the thing that really jumped out at me was this report from the economists at CBA.

They were taking a look at the labour market data, and I was shocked at how strong recent months had been.

In my mind I’m still assuming that the labour market is still softening, wages growth is weak, and there’s little fire coming from that sector of the economy.

But that’s not what the data says at all.

In fact, if you believe the last four months, the economy is gearing up for another bull run.

And I know a lot of my readers are a canny bunch, and don’t put too much stock in the “official” numbers. And they’re right to be sceptical. So when they say the unemployment rate is 6%, you have to take that with a large grain of salt.

That said, the trends are useful. If the unemployment rate is going down, from whatever number it is, then house prices are normally growing.

So even if I don’t believe (or care about) the exact levels, I am watching trends.

And as I said, right now, the trends are actually pretty promising.

The take home chart from the CBA report is this one. It compares employment growth with GDP:

You can see that they tend to move together – which makes sense: you need to employ people to make stuff.

But right now a gap has opened up. Employment growth is heading north. We’ll have to wait and see what GDP does.

So the gap will probably close pretty soon, based on past experience. But which way? Will employment correct, or will the economy bounce?

Again, hard to say for sure, but the employment data is looking pretty solid.

Because when you break it down, all the signs are good.

Like the split between part time and full-time employment growth. We’ve actually seen a switch-out, with full-time employment growth picking up, at the expense of part time employment growth.

That’s a good thing. Firms tend to employ people part time when things are tentatively picking up, and when the future seems more certain, start employing people on a full time basis.

And when you break it down by state, it’s also looking strong across the board.

Victoria continues to lead the way (“spectacular” was the word CBA used), but growth is also holding up in NSW, and there’s been a quick bounce back in Queensland.

And even in the smaller states, and even in WA, we’ve seen employment growth pick up strongly in the past four months.

This is especially good news for WA. I can hear the pollies across the Nullarbor breathing a huge sigh of relief. Employment growth has picked up, and the unemployment rate has dropped significantly.

Perhaps WA has turned the corner?

So it’s all looking pretty solid.

Surprisingly solid even.

But look, I don’t want to lay my crystal balls on the line here. These are early days, and you can’t be too certain about which way trends are going until they’ve had time to properly establish themselves.

But by then, everyone knows about them.

So the scenario I want to flag is that the economy has actually got more traction than we thought. That’s going to keep feeding through to employment growth, and that in turn will help drive property demand and property prices.

Property price growth moderated over the first half of this year (though Sydney and Melbourne are still pushing at double digits), but maybe that’s all we get. Maybe once the rubber hits the road and the economy really gets going, we’ll start pushing back towards 10, 12 percent growth.

And when you look at the population growth data, that’s not so far fetched.

Of course, it could all still get derailed by something. Trump could bomb someone or China could get the wobbles. But in the absence of any sort of shock, you’d have to think that the most likely scenario is continued growth from here.

Economies do move in cycles after all.

We might not be quite ready to lock it in, but we need to start thinking and planning for it.

So watch out! Good times ahead.

What’s the feeling in your crystal balls?