RANCHO SANTANA, NICARAGUA – Yesterday, we wrote about business as usual.
Despite the sound and fury of the last 12 months, nothing much has changed.
The U.S. is a little further advanced toward the final stages of becoming a degenerate empire. Saddled with the cost of keeping its legions all over the world… and the cost of supporting 70 million retiring baby boomers, it is headed for bankruptcy.
According to the bipartisan Simpson-Bowles budget commission, Washington needs a tax revenue base equal to 21% of GDP to cover its costs.
The new tax bill – or what we know of it so far – will raise revenue equal to about 17% of GDP. This will leave the feds with a $1 trillion-a-year shortfall.
That means trillion-dollar deficits… as far as the eye can see.
Empires are cyclical, not eternal. They go up… up… and up. Then, having gone up too far, they go down… down… down, usually ending in military defeat or bankruptcy – often both.
It’s business as usual that brings them down. We’ll return to that tomorrow.
First, we want to give you two updates. The first is from the farm in Argentina. The second is on bitcoin.
In Argentina, our lawyer, Pancho, went to powwow with the originarios.
As long-term Diary sufferers know, some of the locals – high up in the mountains and far from reality – say they are remnants of the Diaguita people, a group of Indians long considered extinct.
They don’t speak the language or know any Diaguita customs, and the chief’s mother was from Germany… but the government gave the local people money to pretend to be protected indigenous people; some took the bait.
As originarios, they claim the land they live on, even though it has been titled to other people for three hundred years.
“I met with them,” says our man on the scene. “But it was a waste of time. I told them that if they didn’t take down that fence they put on your land, I would take them to court.
“They aren’t really originarios, and I think I can get a court to agree. But you never know. And we’re trying to work it out as amicably as we can. They’re not bad people… but they have some pretty bad ideas.”
Another update… about bitcoin.
The enigma asset rose $2,000 in the last 24 hours, bouncing back from last week’s sell-off.
One of our sons is a math whiz. Lately, he’s been studying the breathtaking world of options on bitcoin.
Yes, you can buy options on bitcoin, dear reader. But it is not for the faint-of-heart.
“You have to realize,” explains our in-house expert, “these options are priced in bitcoin, not dollars. You buy them with bitcoin and you sell them with bitcoin.
“If you’re buying a bitcoin call option, and the price goes up, you win from the trade. But you earn even more than you’d earn by just buying bitcoin. You get leverage to the underlying asset, in other words. And if you exercise your call option, you end up owning an independent form of money, not a stock, like with regular options.”
We’re not sure we do.
But the 27-year-old has made $1,000 in the last six days.
“I’m just experimenting, trying to understand how it works,” he explains.
“You know, everybody says the blockchain technology [the secure, decentralized ledger bitcoin and other cryptos are built around] will be useful in lots of different fields.
“They say blockchain technology is where the real money will be made. They’ve been talking about using it for property titles, contracts, and all sorts of things.
“But it doesn’t seem to work. Or there’d be some successful applications by now. As far as I know, there are none. Blockchain seems to work only for cryptocurrencies, where they don’t have to connect back to the real world of titles and contracts.”
“And even there, I have my doubts. People say bitcoin is money. But whether it is real money or not is only something you can know later – if it starts to be widely used. There’s no such thing as theoretical money. It either works as money or it doesn’t.
“I like bitcoin,” he continues.
“Using small amounts of money, you can get some serious leverage. But it’s like a math challenge. It’s a very illiquid market. It means that the options are probably priced incorrectly.
“No matter what you think about bitcoin, there is probably money to be made. I assume that the market maker is a math genius who has figured it out. I assume they’re the smart money. I don’t know. But it’s fun to play with it. It’s like a game.”
At least, it’s fun on the upside.
“You can buy a call option for $2,000, based on the price of bitcoin going to $30,000 by the end of March. It seems crazy, because the price would have to go over $32,000… or about a 100% gain… to make money on that trade.
“But you never know. We’re in uncharted territory.”
This territory might be uncharted, but it feels familiar: boom… bubble… bust.
The pattern applies to many things, empires as well as markets.
More to come…
Further Reading: As regular readers know, Bill is skeptical of cryptocurrencies. But as his “in-house expert” showed, money is still being made in these crypto assets.
Bill’s top technology expert has found a way for investors to potentially make 21 times their money with this crypto explosion… without ever buying a single bitcoin. Details here.
By Chris Lowe, Editor At Large, Bonner & Partners
Bitcoin isn’t the only asset going up in 2017.
Today’s chart tracks the gains for the S&P 500 for each year of the current bull market.
As you can see, this year is on track to be the third-best year for the S&P 500 going back to the start of the bull market in 2009.
So far in 2017, the index is up 18%.
That compares with a gain of 30% in 2013 and a gain of 24% in 2009 – the first- and second- best years of this bull market.
– Chris Lowe
The Problem With Bitcoin Whales
Holders of large amounts of bitcoin are often called whales. Some estimates say about 40% of the bitcoin market is held by 1,000 people. And these market makers have the potential to crater bitcoin’s price if they sell even a portion of their holdings.
The Steepest Rate Hike Since 2006
After the financial crisis, central banks slashed key interest rates. But now, a decade later, monetary tightening may be returning. And Wall Street economists are warning investors to get ready.
Is Bitcoin a Bubble?
As Bill’s “in-house crypto expert” mentioned, the cryptocurrency market is still booming. But what’s causing crypto mania? More importantly, is it a bubble? Bill’s top technology expert, Jeff Brown, has the answers.
Yesterday’s Diary, “The GOP Tax Bill Is a Deep State Scam,” has gotten some readers thinking…
I challenge your statement, “And the Deep State is more in charge than it was under Bush or Obama.” Obama and the Bushes were all “Establishment and Deep State” and worked in tandem with (and used) the bureaucrats who really run the nation. Their complicity wasn’t vetted by the press or the Washington Establishment.
Trump, on the other hand, while adding some swamp denizens to his own cadre, is so vilified by the Deep State, the liberal press, and the political hierarchy that their efforts to bring him down or “resist” are highly visible. They do not just passively resist; they are active and working visibly to undermine Trump’s efforts to reduce the nation’s regulatory morass and judiciary appointments.
– Doug L.
Same typical Bonner whimsy about where we are headed. Bill ought to be on the cover of Time, cited for harassing politicians.
– Bert M.
Meanwhile, are today’s economists quietly ruining the economy?
I read your essay on economists being morons. I am a Harvard Ph.D. economist, now a lawyer. Adam Smith, John Stuart Mill, and Henry George never believed such nonsense. Nor do I. Nor did Eugen von Böhm-Bawerk. The current zero interest policy will end in disaster.
– Terry D.
To be fair to economists, whom you described as believing they “can assemble ‘data,’ manipulate rates and rules, stimulate an economy, or calm it down… and thereby make things better,” the same “convenient thoughts for someone who is looking to get money, power, and status without adding to the world’s wealth,” also apply to politicians, bureaucrats, and voters. It’s just that the voters and the economists should know better.
– Sandra K.
Of all of your letters that you have published, I have finally decided to respond to this one. I do not normally do this, but your acumen compels me to reply. Yes, all the economists are morons, those in power who decide our fate and those of our children.
You have alluded to the fact that they reside in our universities, but this problem begins much earlier than that, in our public school systems and private as well. At the elementary school level, all students are taught that they are “special” and entitled to a privileged position that, in reality, they have neither inherited nor earned.
I know, as I am a substitute teacher at the elementary and middle school levels. Today, I admonished an elementary vice principal for her school’s lack of instilling basic principles after she confronted me for having the audacity to raise my voice to gain the attention of the students.
I believe that it all has to do with your premise of “Positive Knowledge” which is really positive nothing. Everyone needs to be aware of what is happening in our educational system. To quote the Roman emperor, Tiberius, on his educating the fledgling Caligula as his heir, “I am raising a viper for Rome.” How many vipers are we raising in our defunct educational system?
– Chad G.
This could be “the biggest speculation in history”…
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