Bonds

May 5, 2013

Market Update 3 May 2013: Long Bonds at Critical Support

This week the markets shifted back into forward gear, with all assets except Bitcoin and the 20 year Treasury Bond advancing. Coffee and copper were especially strong.

Bitcoin started the week in an uptrend; trading at over 3 g on Monday, it declined through the week to close at 1.93 g, down 31%. Since early April, the BTC has made a series of lower highs and higher lows; over the next few weeks the market should make up its mind about whether Bitcoin is overvalued or undervalued at these levels. Keep in mind that it could drop by 75% and still be in an exponential uptrend. Expect continued volatility!

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April 30, 2013

Market Update 26 Apr 2013: Coffee tumbles

This week saw a pullback after the prior week's monster rally. Government-issued currencies, stocks and bonds all gave up about half of last week's gains, while Bitcoin continued its recovery. Commodities were mixed, with silver continuing to fall, crude oil continuing to rise. The week's biggest loser was coffee, which gave back much of its gain from last week.

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April 21, 2013

Market Update 19 Apr 2013: Massive Currency Rally

Another "mostly higher" week, led by a massive rally in all currencies. The only asset classes that fell for the week were silver bullion and gold stocks.

Bitcoin had another volatile week, but in the end recovered strongly from last week's "crash", leading all other asset classes by rising 52.5% to finish at 2,643 mg. It's not over yet, folks: expect more wild price action as newcomers work through the process of price discovery in a thinly traded market. For comparison, the London market trades about 640 tonnes of gold per day. Last week, Mt. Gox trading between bitcoins and USD had a daily average volume of 0.5 tonnes. In fact, the entire world supply of bitcoins currently has a value of about 30 tonnes, less than 5% of the gold traded each day in London.

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April 14, 2013

Market Update 12 Apr 2013: Bitcoin, Gold Stocks "Crash"

All asset classes but Bitcoin, coffee, JPY, and mining stocks were higher this week.

Bitcoin ended a wild week down 38.7% at 1693 mg, after trading has high as 5,253 mg and as low as 1,099 mg. Friday had the largest volume ever traded for Bitcoin, over 964 kg. As I forecast last week, this kind of price action is to be expected in such a thin market as new buyers enter in quantity. Over the weekend, BTC has recovered to 2,051 mg. Keep in mind that BTC could fall to 500 mg or so and still be in an exponential uptrend! Expect further volatility.

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March 25, 2013

Market Update 22 Mar 2013: Europe scrambles for bitcoins

All but three asset classes were lower this week, the gainers being Bitcoin, gold stocks, and long dated treasuries.

Bitcoin ended the week up 51.8% at 1,392 mg, after setting another record high every day this week. The latest round of panic buying seems to have been triggered by the partial bank account confiscation plan announced in Cyprus. The realization that their money is no longer safe in banks has spooked investors across Europe, but especially in Spain, where downloads of Bitcoin software have skyrocketed. Because Bitcoin has such a small market cap, currently about 15,800 kg, and trades less than 200 kg each day, it doesn't take much money moving in (or out) to swing the price, so we should expect continued volatility in the near future.

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March 17, 2013

Market Update 15 Mar 2013: Bitcoin Hiccup

Most assets were lower this week, with the major exceptions being Bitcoin, the free market online currency, and Cotton.

Bitcoin ended the week up 8% at 917 mg, after recording another all-time high of 938 mg on Monday. Things got exciting the next day, as high transaction volumes caused two different versions of the Bitcoin mining software to update the distributed ledger (known as the "block chain") differently. This split, or "fork in the block chain", was deftly handled by the developer group, but it caused a dip in the price which has now been mostly erased. If you are interested in more technical details, you read about them here. This should serve as a reminder that Bitcoin is a young currency, and still vulnerable to failures of technical, social, or political origin. Keep position sizes small enough that you won't be badly hurt if one them turns out to be fatal, but keep in mind that there is still tremendous upside if this experiment in free market money succeeds.

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March 16, 2013

Is the Debt Bomb a Dud?

Many people are rightly concerned that the US Federal debt has been exploding in the last few years. A quick look at the following chart will show why:

This chart doesn't try to show all the debts of the United States, just the publicly acknowledged debt of the federal government. So it doesn't include state and local debt, and it also omits unfunded liabilities (promises to pay in the future for things like medicare and social security). This is the number that grows each year by the size of that year's deficit.

Market Update 8 Mar 2013

It was another mixed week, with government currencies and long bonds lower, while stocks and commodities moved higher. Bitcoin, the free market online currency, ended the week up 26% at 849 mg, after recording another all-time high of 893 mg on Wednesday. If you have a time-horizon of a few years, don't let these prices scare you away… Bitcoin has plenty of upside, though it's volatility will be huge. My strategy is to keep position size small, but add a little every week.

Market Update 15 Feb 2013

In a week when most assets turned in excellent performances, bitcoin once again outshone all others. The only things that lost ground this week were mining stocks and silver.

Currencies were all higher, led by bitcoin, which added an astounding 24.6% to close at 520.7 mg, within spitting distance of its all-time high of 598 mg. In fact, in all of bitcoin's history, there are only 3 days on which it was traded at higher levels.

Compound Interest and Fiat Currency

Recently, I got a great question about compound interest. Everyone is taught the power of compounding… Usually the story goes something like "If you invested $1,000 in 1900 at 5% compound interest, it would be worth $236,000 today!".

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