Bitcoin - Seasonal Opportunity within the chaos (1 of 2)
Hello all,
After what can only be described as a parabolic move in the US$, we have seen one by one the world's 'risk' assets slowly work their way back down to earth. Weather it be, gold, oil or now even stocks, the bubble of the US Federal Reserve Board's QE program is deflating. Bitcoin too it would seem has been caught up in this deflationary spiral as it has seen its' value drop by 50% over just the past four months and nearly 75% from it's peak only ten month's ago....kaboom.
Macro economic backdrop
The current deflationary pressure is warranted in my opinion as it appears the US economy no longer needs to be force feed liquidity to keep it afloat. Unfortunately, through 'fear' cycles our society inevitably will be net sellers of assets as the baby boomers liquidate life savings to pay for retirement. The problem is, when too many of them rush the exits all at once the market can get overwhelmed very quickly. Couple that with poor ethical decisions by political leaders (US housing crisis....ty Jr. Bush and the whole elite superstructure) and one literally has the makings of an economic disaster written all over it. Without such extreme measures like Quantitative Easing asset prices would have gone through the 2008 lows and stayed down (a la Great Depression). Considering too the West's reliance on deficit spending (ty Mr. Regan) and one can clearly see that letting the economy find it's 'natural' footing (as Mr. Hoover advocated for through his respective 'fear' cycle tenure) simply was not an option. Through the force feeding of the QE programs, asset prices have risen enough to be able to absorb more selling if needed. Indeed, stock prices themselves could easily fall 50% from current levels and still not threaten those 2008 lows. Quantitative easing has worked, it has bought the market some time but this all that it has done. Keep in mind, this is not a strong economy to begin with. Due to structural issues short term interest rates in North America are at/near zero for a reason and now just the suggestion of removing the QE programs has been enough to bring whatever economic expansion that existed into question. On top of this, Neither Asia nor Europe seem ready willing or able to pick up the proverbial slack in demand at the moment. It seems to me, with both the US$ rally and the stock market break, the market is searching for the point at which it will get the US Fed to resume the QE programs. How far lower do asset prices need to fall in order to get them to act? That of course, is the $64,000 question! As the famous Mortimer Duke would say, 'turn those machines back on!, turn those machines back on!'...
Seasonal backdrop
In the face of the scenario outlined above, we have a number of seasonal forces that are helping the bear along. These include repatriation of assets into the US Federal Government's fiscal year end which happens to be exacerbated because of the 'carry trade', reporting of typically weak late summer earnings, liquidation of agricultural assets in size and of course the Vernal Equinox. This is a big time for change in markets and we retail investors are often handed some incredible opportunities through the later part of the window. As one market technician I love (Don Vialoux) would say, 'buy when it snows and sell when it goes'..
end of part 1....
After what can only be described as a parabolic move in the US$, we have seen one by one the world's 'risk' assets slowly work their way back down to earth. Weather it be, gold, oil or now even stocks, the bubble of the US Federal Reserve Board's QE program is deflating. Bitcoin too it would seem has been caught up in this deflationary spiral as it has seen its' value drop by 50% over just the past four months and nearly 75% from it's peak only ten month's ago....kaboom.
Macro economic backdrop
The current deflationary pressure is warranted in my opinion as it appears the US economy no longer needs to be force feed liquidity to keep it afloat. Unfortunately, through 'fear' cycles our society inevitably will be net sellers of assets as the baby boomers liquidate life savings to pay for retirement. The problem is, when too many of them rush the exits all at once the market can get overwhelmed very quickly. Couple that with poor ethical decisions by political leaders (US housing crisis....ty Jr. Bush and the whole elite superstructure) and one literally has the makings of an economic disaster written all over it. Without such extreme measures like Quantitative Easing asset prices would have gone through the 2008 lows and stayed down (a la Great Depression). Considering too the West's reliance on deficit spending (ty Mr. Regan) and one can clearly see that letting the economy find it's 'natural' footing (as Mr. Hoover advocated for through his respective 'fear' cycle tenure) simply was not an option. Through the force feeding of the QE programs, asset prices have risen enough to be able to absorb more selling if needed. Indeed, stock prices themselves could easily fall 50% from current levels and still not threaten those 2008 lows. Quantitative easing has worked, it has bought the market some time but this all that it has done. Keep in mind, this is not a strong economy to begin with. Due to structural issues short term interest rates in North America are at/near zero for a reason and now just the suggestion of removing the QE programs has been enough to bring whatever economic expansion that existed into question. On top of this, Neither Asia nor Europe seem ready willing or able to pick up the proverbial slack in demand at the moment. It seems to me, with both the US$ rally and the stock market break, the market is searching for the point at which it will get the US Fed to resume the QE programs. How far lower do asset prices need to fall in order to get them to act? That of course, is the $64,000 question! As the famous Mortimer Duke would say, 'turn those machines back on!, turn those machines back on!'...
Seasonal backdrop
In the face of the scenario outlined above, we have a number of seasonal forces that are helping the bear along. These include repatriation of assets into the US Federal Government's fiscal year end which happens to be exacerbated because of the 'carry trade', reporting of typically weak late summer earnings, liquidation of agricultural assets in size and of course the Vernal Equinox. This is a big time for change in markets and we retail investors are often handed some incredible opportunities through the later part of the window. As one market technician I love (Don Vialoux) would say, 'buy when it snows and sell when it goes'..
end of part 1....
