Bitcoin's Million-dollar Question

Posted On Dec 28, 2017 By Dave Gonigam

  • Alan Knuckman asks the million-dollar question…
  • … and weighs in on bitcoin futures
  • Jim Rickards’ December gold prediction looks legit
  • Ray Blanco: What will tech and biotech do with gobs of repatriated cash?
  • Struggling retailers catch a break, thanks to the tax bill
  • Fruitcake’s the bomb?… Tax takes from the Golden State… and the Sunshine State… Dave gets the “bro” treatment… and more!

[Before we start the clock, a note from Dave: In the 10-plus year history of The 5 Min. Forecast, only five people have signed their name at the bottom of an issue. Today we introduce the sixth.

Emily Clancy has penned your Saturday 5 Things You Need to Know the last three months. Now she’s taking her first crack at a weekday 5. Well, I’m supervising. But the idea is that eventually Emily will take over if I take a day off now and then. So expect to see her name a little more often in the weeks ahead as she gets up to speed…]

“Here’s the million-dollar question: Is bitcoin truly ready for prime time?” asks Alan Knuckman.

In our occasional efforts to provide “equal time” on the topic of cryptocurrencies among our far-flung experts… we turn today to our man at the Chicago Board Options Exchange.

Understand Alan isn’t a bitcoin-basher. He’ll trade anything — stocks, bonds, cocoa, pork bellies, whatever — as long as there’s a large and liquid market for it.

Bitcoin? Not there yet, in his estimation.

For the time being he says, “Digital currencies have already measured as the second most speculative bubble in financial history (and could be the first when all is said and done).”

The “scarcity” argument? It cuts no ice for Alan. “This argument simply states that there will only ever be 21 million bitcoin created,” he reminds us. “And since the number of people interested in buying bitcoin continues to increase — while the number of bitcoin in circulation is capped — growing demand will continue to push the price of bitcoin higher.”

It reminds him of a saying at the peak of the real estate bubble — the one about how “they’re not making any more land.”

So what does that all mean? “Bye-bye, scarcity… and hello to a new transparent market!” says Alan.

As we’ve mentioned now and then, bitcoin futures started trading in Chicago this month. “Speculators can now bet on bitcoin without owning a piece of the actual currency,” he says. “Instead, futures contracts allow one speculator to bet that bitcoin prices will rise and match that bet with a speculator who believes bitcoin prices will fall.

“So now, as long as there’s a speculator willing to take the other side of the trade — and there are plenty of people like me who believe bitcoin will eventually trade lower — investors and speculators can invest in as much bitcoin as they want.”

“In the first few hours of bitcoin futures trading, the price started to move higher,” Alan says.

“The fact that bitcoin initially moved higher when the futures contract was launched does not surprise me,” he goes on. “The launch of this new contract now makes it possible for anyone with a futures-approved brokerage account to speculate on bitcoin.” (Before futures, you could buy bitcoin only through a crypto exchange that baffled many individual investors and was off-limits for most money managers.)

“But as the futures contract picks up traction, the additional supply of virtual bitcoin (as more speculators on both sides of the contract emerge) should give way to lower prices.”

Alan’s advice for investors hasn’t changed — regardless of bitcoin futures: “Treat bitcoin the same way you would treat any other speculative trade or investment.” In other words, take a flyer on bitcoin futures… only if you have the fun money to do so.

[Ed. note: We suspect Alan’s down on crypto in part because his recently unveiled “42-day retirement” strategy has been so successful. In less than three months, he’s issued and closed 11 recommendations. Every one of them is a winner… and the average return’s a stellar 63.8%. See for yourself — and make sure you do so before Monday when the link comes down.]

The major U.S. stock indexes are spinning their wheels today. As we write, the Dow has notched a small gain, pushing past the 24,800 mark.

Among the big movers is Energous Corp. (WATT). It’s more than tripled the last two days on news that the FCC has approved the company’s “WattUp” wireless charger — allowing you to charge mobile phones and similar devices from up to three feet away.

If you were reading us in the summer of last year, you’ll recall several of our publications were jazzed about a wireless-charging technology that might end up in a future version of the iPhone. WATT was the company behind it… and while its technology still hasn’t ended up in the iPhone, patience for WATT shareholders has finally paid off.

Meanwhile, gold is up again, now only $7 away from $1,300 — back where it was a month ago. Jim Rickards’ call — a bounce coinciding with a December Federal Reserve meeting for a third year in a row — looks increasingly on the money.

“Things are looking up for U.S. companies thanks to a recently passed tax reform bill that will slash corporate tax rates,” says our science-and-wealth maven Ray Blanco.

“I’m really excited about what the changes mean for money held offshore. American companies are holding trillions of dollars overseas. They don’t bring that money home to avoid being taxed twice at a high rate. Those rates have been reduced, meaning it’s more likely at least some of this vast trove will make its way back home and get invested here.”

The two sectors that stand to benefit most from this change are the two sectors in his wheelhouse — high tech and biotech.

On its own, Apple’s responsible for $250 billion in overseas accounts. “Big Pharma companies,” says Ray, “are also holding hundreds of billions of dollars offshore.”

What to do with all that repatriated cash? Ray foresees flush companies buying smaller competitors… small companies with big ideas.

“Big Pharma especially needs acquisitions. Companies have been replacing new drugs with price hikes. They’ve slashed research and development, leading to flagging pipelines of new potential products. In the meantime, some of their best-selling drugs are going off patent to face competition from cheap generics.”

Ray says, “The only way to make up lost revenues quickly — short of raising prices again — is to buy up smaller biopharma companies that have mature pipelines nearing commercialization or ones early into commercializing post an FDA approval.

“The change in the law makes it much more likely that smaller companies with cutting-edge technologies will be bought out at attractive premiums. I’ll be keeping an eye out for candidates as we roll into 2018.”

Here’s another way to view the tax bill’s impact on stocks: “To understand which companies will get the most out of the corporate tax cut, let’s look at which companies are paying the most in taxes,” says our income specialist Zach Scheidt.

“According to The Wall Street Journal, the retail industry is one of the most heavily taxed industries in the U.S. This is largely because other companies are currently able to take bigger deductions to minimize their tax bill.”

Take a look at this chart for retail’s tax liability compared with other sectors:

High Tax Rates for Retail

“Since most retail companies have an effective tax rate above 30%, the 2018 corporate tax cut will naturally lower tax expense by roughly a third.

“Lower tax payments lead to higher earnings per share. And this will be a material change for retail stocks,” Zach says. “Given the challenges that the retail industry has faced over the past year, this is a very welcome benefit!”

Twice this month, Zach has shown his premium subscribers how to collect instant payouts from a resurgent retail sector — $600 on Dec. 5 and another $520 on Dec. 12. Wouldn’t you like to collect $1,120 in only eight days? Learn how right here.

Yesterday, we told you about a special — very special — delivery to Treasury Secretary Mnuchin. Here’s another parcel that caused quite a stir…

A Washington state trooper noticed a lone package under a Christmas tree in the lobby at Seattle’s Colman ferry dock Tuesday morning.

Passengers were swiftly evacuated and incoming ferries weren’t allowed to dock at the station… all because of the suspicious package. “The Seattle police bomb squad was summoned,” per an article at The Seattle Times, “and the mysterious gift was determined to be [wait for it] a fruitcake.”

Fruitcake

“What it looks like is the intention was good by whoever left it,” said Trooper Kevin Fortino. “I don’t know if it was left for the ferry personnel, or whatever.”

Heh… or whatever.

The Seattle Times postulates, “Perhaps some traveler found the ferry-terminal tree a convenient spot to abandon an unappreciated dessert.”

Ya think?

“It’s a good reminder not to leave your packages or your luggage unattended, even if you are trying to leave behind a fruitcake,” said ferry spokesman Ian Sterling.

The 5 thinks the folks in Seattle took necessary precautions… fruitcakes just might be the missing WMDs.

“To respond to the California haters cited in yesterday’s 5,” begins our mailbag…

[We just knew this was going to happen. Not that we ran those emails to stir the pot. We’d never do that on purpose…]

“… perhaps those of you who live in a red state and are subsidized by blue states (as we all know, red states in general receive more money from the feds than they pay in, and blue states contribute more than they pay in; the latest numbers for California are that we receive 87 cents on the dollar) should either:

  1. Be grateful that the ‘the liberal, communism-inspired taxation wonderland of California’ is subsidizing your (clearly much more American?!) lifestyle, or
  2. Put your actions and money where your mouth is and get off of what can only be termed ‘state welfare’ by paying your fair share to the feds.

“All this tax bill does is increase the ‘state welfare payments’ to red states from some blue states.

“Love the range of perspective and interesting ‘discourse’ in The 5 (even though I’m one of those much-maligned people in California).”

Now let’s hear from a reader in low-tax Florida. “Everyone is better off in a low-tax state?” he wonders.

“Since I moved here in 1999, and especially since Gov. Rick Scott, the tax cutting has only:

  1. Gutted the public school system (K-12) and transferred massive public monies to charter schools run by for-profit companies and religious organizations;
  2. Misappropriated massive voter-mandated moneys meant to expand and manage protected public lands and water systems. Guess what? Our Republican legislators and governor took the money and spent it on their own pet projects run by (gasp) campaign contributors;
  3. “Tried to write a law and when it didn’t pass muster, sued the state Supreme Court for the right of government to hide public records and actions from the public.

“From my point of view, this low-tax state government is leading the charge to the neo-feudal corporatist future run by the 1%.

“Then again, let the red writers be aware that huge amounts of federal moneys have been and continue to be transferred from blue to red states from at least the early 20th century and continuing due to our federal system. Seems some red states want to secede — let’s double down on that.

“Just let the blue states withdraw/secede and keep their own tax dollars at home to do with what they want. Those blue states (especially CA, WA, NY, CT, MA) are our Germany, and the red states are Spain, Greece, Italy… you get my drift. The red states are kept from squalor by the largesse of the federal system transferring all those blue dollars into those red low-tax coffers for at least a century now. Otherwise, there would still be some red states without electricity, phones or paved roads.

“As always, thanks for all the fun and interesting commentary, guys. I’m not worried about the ‘end of the world clock’ — the ‘end of civil society’ is knocking at our door NOW.”

“I’d like to address the angry political emails and the current tribal state of American (and world) politics. Just stop it,” a reader entreaties.

“The RNC and DNC aren’t football teams — they’re life-altering entities that affect everyone: family, friends, neighbors and fellow citizens (not to mention they are private corporations and corrupt to the gills). War, money, infrastructure, the environment, life.

“The problem is that both sides are corrupt (squirrel!) and until corporate and dark money are taken out of (squirrel!) politics everyone should be (squirrel!) united in one cause to reclaim the (squirrel!) country for the people. Politicians on both sides (squirrel!) are bought and paid for (squirrel!) by large corps, special interests (squirrel!) and wealthy individuals. We have legalized bribery (squirrel!) in this country via Citizens United and other campaign (squirrel!) ‘reform,’ and until it’s called what it is (squirrel!) and reversed, there will be no change for the better.

“Get money out of politics, and then we can actually try to debate the issues again.”

The 5: Dave says he just has to jump in here: “The problem isn’t that there’s too much money in politics — it’s that there’s too much politics for money to glom onto.

“In other words, slash the powers of government and there’d be far less reason for special interests to try to harness those powers for their benefit. Cut government down to size — pre-New Deal would be a good start — and George Soros and the Koch brothers would have a lot less to fight about, with all of us as the helpless pawns caught in the middle…”

“Dave, you are a card, bro!” writes our final correspondent. “Yesterday’s 5 had me almost ROFLOL.

“The ‘we deserve better from you folks’ displayed your fine measured response to the mockery and was amusing enough. The meat of the email covered great common sense tax strategy and BOOM! I got to the part about the box of manure sent to the Los Angeles home of Treasury Secretary Steve Mnuchin. I was cackling, and when I got to the 04:25 ‘back to the mailbag’ part where you chastise the commenter, I literally had to get out of my chair from laughing so hard. Thanks for the good time!”

The 5: Says Dave, “This might be the first time a reader has addressed me as ‘bro.’”

Best regards,

Emily Clancy
The 5 Min. Forecast

P.S. Our crypto maven, James Altucher, didn’t do any mollycoddling for readers on Friday when bitcoin took a dive. Why? Because he expects dips (and encourages you to buy when it happens). Years of experience have helped him spot the next big thing in crypto… and James reveals a 24-cent crypto that’s coming on strong right here.


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