BALTIMORE – On Tuesday, we made $4,000 per hour when bitcoin rose.

Then, on Wednesday, we lost $5,000 per hour when it fell.

Whee!

Look for an on-the-scene report from our in-house crypto expert below…

In the meantime…

Last-Ditch Effort

The top news story we’re following is the GOP tax bill in the Senate.

As near as we can tell, Republicans are desperate to pass a bill with the word “taxes” in it before the end of the year.

They failed to repeal Obamacare. Failed to hold the debt ceiling. Failed to rein in either welfare or warfare spending. Failed to bring the Fed under control.

In every contest with the Swamp… the Swamp won.

The tax bill is a last-ditch effort. This time, they’ve lined up the sun, moon, and stars on their side. The gods themselves have been bribed with loopholes and tax credits.

And they’ve made their “reform” so agreeable for everyone in the Swamp and the Deep State… it’s gotta, gotta, gotta pass.

Then, at least the Republicans can go home and claim to have passed a “tax bill.”

Peter and Paul

By the way, we’re in favor of it…

The main feature (as of Thursday, come this morning… we’re not so sure) is to drop corporate taxes from 35% to 20%. That’s great if you’ve got a corporation… and we’ve got one!

But don’t expect it to “stimulate” the economy… or help the middle class.

No money is cut from federal spending. So the GOP bill just robs Peter to pay Paul. By 2027, experts guess that it will raise taxes on the middle class by $5 billion and lower them on the rich – people who earn $1 million or more – by $5 billion.

Naturally, the rich Pauls are all for it.

These are the same Pauls who have gotten almost all the wage and wealth increases of the last 10 years. They’re probably the only group in America that don’t need more money… and won’t use the extra money to hire, consume, construct (or anything else that allegedly “stimulates” an economy).

Instead, they’ll put it to work in the financial markets… just as they’ve done for the last 10 years.

But the financial world has changed. The Earth has turned a full 180 degrees. Now, for the first time in at least 30 years, gravity from central banks pulls against credit.

The U.S., Europe, and China have all announced credit “tightening” cycles.

Instead of adding to the supply of credit (money)… they say they’ll be trimming it. Instead of buying bonds, they’ll be selling them.

So instead of driving interest rates down, the combination of more federal borrowing to accommodate cuts… along with the Fed selling bonds… will mean higher, not lower, rates ahead.

Bond Vigilantes

If this is true, we will meet some old friends from the 1960s and 1970s.

“Crowding out,” for example, was what used to happen when the feds borrowed too much money.

They sucked up the available credit, leaving the private sector to scramble for what was left. This caused higher interest rates and brought a feedback loop of recession and correction that forced the feds to back off.

And soon, we should run into the “bond vigilantes,” too.

Remember them?

They used to ride out, guns blazing, at the first sign of trouble. Because they knew that too much government spending and borrowing would drive down bond prices.

So they dumped bonds… and forced up yields (which move in the opposite direction to bond prices)… whenever the feds left the reservation; this, too, caused the feds to reconsider.

Yes, dear reader, it could be just like the old days. The pool of bond buyers is suddenly tightening up.

The U.S. is leading this trend. This year, U.S. stocks have lagged other major overseas stock markets. Most likely, they will continue to underperform… and probably crash as the Fed’s teeth begin to bite.

FoMo

But this is the Advent Season… with Christmas fast approaching.

We are in a jolly mood, made sillier by the rally in bitcoin. Where else can you add a zero to your investment in a single year?

And so… let’s turn to our in-house expert – our eldest son, Will Bonner, who recently attended the Consensus crypto event in New York City. Will:

The caliber of the crowd was the highest that I’ve seen at a conference. Think of 1,700 Winklevoss twins (the Harvard grads who were early investors in Facebook).

It was not a typical tech conference. There were people there formerly of the Yale and Harvard Endowments… State Street… PricewaterhouseCoopers… and Google… along with VCs, hedge funds, and family offices.

This is the hottest area of finance. I didn’t really realize the level of enthusiasm brewing at the institutional level.

One major theme was that the coming launch of crypto futures and derivatives will bring an avalanche of big, serious money and support the launch of crypto ETFs which bring in “mom and pop,” too.

But these people also want to disrupt Wall Street. They resent the big banks and centralized control of money.

The geek and tech-libertarian money was first. Now the small hedge funds, high-net-worth individuals, and family offices are getting in. Money managers are under pressure to get in, too. They’re feeling intense FoMo (fear of missing out) right now.

It is still early days. The entire crypto market is currently worth about $300 billion. That’s just 2.25% of the value of the gold market… and just 0.05% of the U.S. dollar supply.

Although there may be a bubble short term, bitcoin has already blown up and reflated four times.

The Chinese completely “shut-down” the crypto trade… prices recovered within 48 hours. There’s now a bitcoin satellite, so anyone with a dish can access the crypto markets from anywhere in the world, completely bypassing the internet. An EMP (electromagnetic pulse) attack could take down every computer in the U.S., and cryptos would still exist, unphased…

Also, there are reportedly 4 million bitcoins which are lost or locked up forever… reducing the overall supply to 17 million…

And by the way, crypto assets are being used to de-risk portfolios because they are uncorrelated to all other asset classes.

I think this is one of the biggest things to consider about cryptos. It was a major theme of the conference… Cryptos are a bet against the current financial system and asset bubble.

If you have not done so, I would highly encourage you to take a look at Satoshi Nakamoto’s original bitcoin white paper.

Will may be right. Here at the Diary, we’ve been wrong about a great many things. And we might be wrong again.

But we regard bitcoin not as an asset class… but as an entertainment class. Slapstick comedy for the Bubble Epoch.

It’s fun to watch. But don’t forget to duck when they start throwing pies.

Regards,

Signature

Bill

P.S. “Not so fast, Dad,” adds the scion of the clan. “If everything does go to hell in a handbasket, bitcoin is more likely to be a lifeline than a joke. It sells for as much as a 50% premium in Zimbabwe and Venezuela, currently $15,000+. Real money. Its price has spiked during localized financial crises like we saw in Cyprus and India… Just wait till the VIX goes crazy.

“You make a lot of money in bitcoin. But you earn it. It really is the Wild West. You’ve got to withstand 60%+ downdrafts, constant attacks by the financial elite (Jamie Dimon and Joseph Stiglitz), regulatory threats, and bad press about theft and criminality…

“It’s easy for us because we have a comparatively trivial amount of money invested. And at this point, it would take an 80% loss to touch our principal… We don’t sweat about it.

“It’s a veritable gold rush…

“Trump’s German grandfather set up a saloon and brothel in the Klondike. He sold out and deposited that money in a bank in Brooklyn, the foundation of the family fortune…”

MARKET INSIGHT: GOLD BACK TO 2015 LEVELS

By Chris Lowe, Editor At Large, Bonner & Partners

Gold is back to where it was at the start of 2015.

That doesn’t mean there hasn’t been plenty of volatility between then and now.

Chart

Gold investors experienced a drawdown – a peak-to-trough fall – of 18% between July and December of 2016.

They then experienced a rise of 20% between December, 2016 and September of this year.

And then another drawdown of 6% between September and October.

But volatility is about all investors have gotten over nearly three years. Despite all these ups and downs, gold is right back where it was in January of 2015.

Chris Lowe

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MAILBAG

In the mailbag, readers consider if money makes you dumb

You’re exactly right that too much money dulls your senses. In fact, money is the most dangerous substance in the world. The world is now full and becoming fuller with super-wealthy idiots, people who have the means to be super-healthy in every way, but still eat garbage “comfort food.” I’m 70 and have been on the path of super health for almost 50 years to the exclusion of chasing money. Now, I am indeed super healthy, but financially poor.

– Tom L.

You are too humble; give yourself more credit for being tenacious, talented, and smart enough to know what to do with your good fortune and circumstances. Yes, money can buy comfort and status, yet what binds money to money is who’s in, who’s out. It’s very social out there, very exclusive at all levels. This, I’d argue, is what money ultimately causes to happen. The whole birds-of-a-feather thing, which can be the most hurtful thing of all, status on steroids. I love your last line, “Sometimes it just gets in the way.” My goodness, how true.

– Michael C.

I have just finished reading your Diary post, “Can You Live Well on Social Security Alone?” for the third time.

A great article, to be sure, and maybe one of your best. Please continue to share your wisdom in this area with those of us in great need. The tail-chasing continues for those that are not enlightened; I find myself needing this reminder more often than not.

– Lynn G.

Meanwhile, bitcoin remains a popular subject.

Are you kidding? You don’t know why bitcoin goes up? Look at Venezuela and Zimbabwe today, where bitcoin is at $15,000–$17,000 when we are “ONLY” at $11,000. Answer? Bitcoin is the only portable and concealable protector of wealth or survival funds. It is the only available antidote for global fear and loathing of corrupt regimes.

– Rob S.

They say bitcoin is “real and unstoppable.” Please! All “they” have to do is turn off the internet and the show disappears. You guys can’t be “under the ether” that bad, can you?

– Stephen G.

I hate to burst your bubble, but “money” is a fiction, created by the “Fraudulent Reverse System.” Period! Bitcoin is definitely more honest, useful, and endangered because it does not fit their model of “screw the people” as the traditional system does. It is not based upon borrowed debt that is monetized by a private group of thieves. The “authorities” are pissed because they are losing authority. I don’t own bitcoin or any other paper, cyber, or non-tangible assets. This “system” is the cause of the ruination of freedom.

– Chuck D.

What if bitcoin isn’t going up? What if it is the value of the fake dollar going down relative to bitcoin? What if it’s a gamble? When funny money crashes, will gold or bitcoin be safer?

– Ian M.

I have been reading your publications for almost a decade, and have read nearly all your books. Thank you for doing what you do… I appreciate you greatly.

This is the first time I have written in. I wanted your comments and thoughts on bitcoin from a little different perspective. I remember reading something you wrote where you said that money is basically a score keeper.

It is a representation of the investment of time. Having money is a claim on others’ time. Being in debt is giving others a claim on your time. Of course, gold has historically been the best scorecard, but setting the “you can make jewelry out of gold” argument aside, it seems as though blockchain tech would fit the scorekeeper role even better.

From that perspective of what money is, why wouldn’t bitcoin or its successor be qualified to be money? Honesty seems to be its intrinsic value. I am hoping you can hit this question out of the park.

– Elijah R.

Editor’s Note: Readers can catch up on Bill’s examination of money as a time keeper by reading this classic essay.

IN CASE YOU MISSED IT…

Recently, Bill’s top technology expert, Jeff Brown, attended an invitation-only meeting with 35 of the most active tech investors in Silicon Valley.

All anybody wanted to talk about was the best ways to invest in this technology.

When we asked Jeff if he believes this investment could grow 21 times, he laughed… Because he believes it will grow far more…
Details here.

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