Dr DOOM and Dr BOOM
THE FUTURE OF CRYPTOS
There is Dr DOOM (Nouriel Roubini) and then there is Dr BOOM (BOOM Finance and Economics). Dr DOOM is famous for big calls, big predictions that generate maximum media coverage. Dr BOOM specializes in careful analysis and the avoidance of grandiose predictions with the view that variables are always changing in complex systems.
Last week, Dr DOOM (Roubini) was reported to have said “99 Percent of cryptocurrencies are worth zero”. That is a big statement but Dr BOOM tends to agree in terms of the general price direction for these so-called “currencies”. Zero may be an exaggeration but BOOM thinks that the trend towards further price falls is likely far from over. As BOOM said in last week’s editorial, “BOOM cannot see any reason why the total Crypto market capitalization cannot fall from here”.
Then Dr DOOM went on to say “An academic study suggests that 81 percent of all ICOs (Initial Coin Offerings) were a scam to begin with; 11 percent of them have failed or have died; and of the remaining eight percent that is traded on exchanges, the top 10 have lost on average, in the last year, 95 percent of their value — more than Bitcoin”. Those are facts and facts are impossible to dispute. So BOOM concurs, of course.
Then Dr DOOM said there is no future for peer-to-peer, decentralized, permissionless, trustless ledger systems. Why? Because “it’s not scalable, it’s not secure, it’s not decentralized”. Dr BOOM agrees in regard to current technology but is aware of innovations in Blockchain technology that may change all that.
So what is Dr DOOM missing? Let’s look at where Dr BOOM sees things a little differently.
The so-called “Crypto-Currency” world has been roundly criticised by BOOM in editorials dating back to the end of 2017 where BOOM said that they were not currencies and not digital commodities. BOOM was the first to describe them as “digital baseball cards” (collectibles) and not currencies (because currencies are generally accepted by most merchants and by taxation departments as payment of taxes). BOOM also explained that they could not serve as a store of wealth (so-called “digital Gold”) because of the technical problems associated with their storage and security. BOOM explained that those problems grow significantly as the price of a collectible grows. Storing or trading a Million Dollar baseball card generates very significant security problems.
As the prices of these so-called digital, crypto “currencies” and “stores of wealth” collapsed from 18th December 2017 to present day, BOOM stayed relatively silent on the matter. Why? Because BOOM was not surprised. Anyone who had read the BOOM Editorials in early December 2017 could have seen what was coming.
Another grand promise for the “Crypto” phenomenon came with the issuance of so-called “Utility Tokens” and “Smart Contracts”. These were mostly just elaborate Frequent Flyer Programs or Customer Engagement Programs. Intriguing , yes but hardly revolutionary. Many have been issued to receptive buyers but their prices have also all fallen along with the so called “crypto-currencies” and the so called “digital stores of wealth”.
So what is the future? BOOM has witnessed something in the “Crypto” world that is worth noting. That is the exploding appetite for instant global investing and instant global settlement. Financial markets at present are not truly global for the average investor. A resident in Chile cannot easily buy a stock in Australia or a bond in Germany simply by logging onto an online exchange. In the Crypto world, this has always been the base case and it has been the major attraction. Putting aside whether it may or may not be a wise investment decision, anyone anywhere can buy a “crypto” and sell it anytime 24 hours a day, 7 days a week.
BOOM thinks that this will be the next iteration of the “Crypto” world. Every financial product and security everywhere can now be tokenized and made available for secondary trading at all times anywhere on the planet. For this to happen, online global exchanges will have to be built by trusted institutions acting as intermediaries or via technologies such as Blockchain or DAG (Directed Acyclic Graph — Tangle) and they will have to be easily accessed by using any fiat currency inside the banking system. And they will have to operate inside national borders to give legal protection to investors. The Stablecoin phenomenon may provide assistance there as a bridge. The US and Switzerland are the two most likely candidates. But the UK, Germany and Australia could also be candidates. A strong, reliable, efficient, respected, independent justice system is actually the key here. Smaller jurisdictions may be better as they could more quickly develop legal processes for dispute settlement. Here is an opportunity for Switzerland and Australia.
Whether that innovation is called “Fintech” or “Crypto” is not important and whether or not it is built on distributed ledger technology or conventional database technology is not really important. This will be the financial revolution of the future and the world of Crypto to date will have been an important part of that revolution. Tokenization will come because it must. It will genuinely open investment markets to the entire planet for the first time. There are already strong moves in this direction.
Stay tuned as there is also yet another “killer app” future application in the financial world that BOOM can see forming out of the Crypto and Fintech mist.
CHINA ECONOMIC NUMBERS
China’s economic numbers were released last week. Its GDP Growth rate is now at 6.5% per annum. That means that its economy will double within 11 years if this rate of growth continues. Its rate of growth has slowed but it is still remarkable. Within the next decade, it will become indisputably the largest national economy on Earth.
Its year-on-year CPI inflation number came in at 2.5%. This is increasing steadily. And the trade surplus grew again with exports increasing by 14.5% year-on-year. Retail sales are growing at almost 10 % per annum.
Of course, there is always skepticism about the accuracy of China’s official economic releases. BOOM looks at proxies to confirm the direction of GDP growth and, at present, those proxies seem to indicate rapid expansion of Chinese GDP. They seem to confirm the 6.5% growth number.
Some China skeptics say 6.5 % growth is lower than previous years, therefore the Chinese economy is failing. This seems an odd analysis. The number is still a positive growth number, it is not negative – 6.5%. But that does not rattle the sceptics who see Chinese economic failure as inevitable because the growth numbers have declined from 14% growth in 2006 to 6.5% growth. Growth is growth as far as BOOM is concerned especially when the economy under examination is huge, with 1.5 billion participants.
Many other economic Doomsters predict the collapse of the Chinese economy due to its “excessive debt” leading to a global economic crisis. But BOOM cannot see a decline in productivity and as long as that productivity continues, then any tears in the fabric can be patched over quickly as the caravan moves on. This is a central command economy with one great weakness. It is the biggest importer of oil on the planet. However, in counter-balance, it does not have a predatory financial sector seeking to financialize all aspects of the economy. The financial sector is really an extension of government. Thus, the economy should hold together as long as productivity holds and as long as it can acquire oil at a reasonable price. That role is being fulfilled by Russia (the world’s second largest exporter of oil), Iran and Angola with Venezuela perhaps assisting.
HOME BUILDERS IN USA
The Home builder stocks ETF in the US has dropped alarmingly in price by 17 % over the last month and by 30 % since late January. This is a complete reversal of its meteoric rise by 40% in 2017. The Homebuilders ETF on the New York stock exchange has the code XHB. Presumably, this represents a fall in the prospects for profit in the home builder sector.
Since 2011, over the last 7 years, the value of new private residential buildings in the US has grown every year from a total of $ 242 Billion in 2010 to $ 517 Billion in 2017. That is a doubling of value in just 6 years and represents a growth rate of over 10% per annum. So this had nothing to do with the Trump Presidency and has been a strong component of the US economy’s recovery.
It looks like that game is possibly now over while America’s trade deficit with the rest of the world is growing. With residential building and external trade both in decline, BOOM cannot see where the BOOM in the US economy is ………… except in government expenditure programs as seen in their rapid expansion of the Federal Government Budget Deficit to over $ 1 Trillion in the last 12 months. You can verify this at the Debt to the Penny website published by the US Treasury — https://treasurydirect.gov/govt/reports/pd/pd_debttothepenny.htm
Prior to 2008, Greece was great at issuing bonds (mainly to German, French and Dutch creditors) and spending the proceeds to boost their GDP growth. In fact, their GDP Growth was stellar. None of that told us anything about the real health of the Greek economy. And we all know what happened next.
BOOM is constantly stunned by mainstream economics and finance commentators in the media and in the finance industry who repeatedly state that “the US economy is growing strongly”. They are like trained monkeys utilizing Group-think en masse — brainless but paid well to repeat the official narrative mantra. Independent thought is rare in this world.
That is where BOOM strives to assist readers in sorting the wheat from the chaff.
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
EMAIL: gerry [@] boomfinanceandeconomics.com
PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 21st October 2018:
1. GOLD PRICE (in Aus Dollars) — Changed to NO Arrow Dominant
GOLD PRICE (in Aus Dollars) — Changed to NO Arrow Dominant
NOTE — RED ARROWS INDICATE BOOM PRICE PULSE DOMINANCE in the present moment (as indicated by the date of the chart and taking into account the 3 year time frame shown). The charts are now arranged in PRICE PULSE RED ARROW DOMINANCE. NOTE: All Charts are WEEKLY Charts over the last 3 YEARS time frame. Arrows indicate PAST price action (not future). No predictions are implied from past action.
Comments refer to past PRICE PULSE (Red Arrow DOMINANCE) over the last 3 years, the week ended 21st October 2018. You can RIGHT CLICK a chart and OPEN in a New Tab. Make your own conclusions, do your own research. BOOM does not offer investment advice.
PLEASE NOTE — Many charts are ETF’s from NY Market (not the base commodity or currency etc). The NY Stock Code is in the Top Left Hand Corner of each chart.
Charts are produced from http://www.stockcharts.com
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
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