Well, it’s been a while. And in that while, I keep getting asked the question, “So now what?” The interesting part about the question is that I’ve been getting asked both when it comes to bitcoin and cryptocurrencies, as well as related to traditional equities. If everything is down, and in this case down is certainly relative to the specific market, how can we be anything but fearful about the future of these markets. However, if you’ve read at least a handful of my blogs, you know that I believe in the influence of cycles, crowd behavior (sentiment), technical analysis (self-fulfilling prophecies), and plain old fundamentals to drive the markets, not to mention perspective. I like to think of it as taking a step back, looking for the bigger picture, and filtering out as much “noise” as I can.
We can start with equities. Certainly has been an ugly few weeks. But is all that terrible action really the beginning of the end? It could be, but in my own analysis I don’t see it. What I do see is an acceleration of an inevitable correction. Everything negative seems so much at the forefront of our thinking, both economically and socially, that we don’t seem to ever see the “silver linings” we’ve heard about our entire lives. Markets don’t just go up. The good news is they don’t just go down either. Every uptrend I’ve ever seen has corrections. And every down trend? The same. But it never feels like it when you’re going through it. The feelings of joy and misery these market moves bring influence our every decision. Welcome to what we’ve signed up for; the struggle to balance fear and greed and come out in the long term better off than we were before.
So how do we handle this? “The rich get richer” is often muttered after we look back on difficult market times. It’s not just because they can double down and invest harder in down-turns, understanding that this too shall pass as we go through economic cycles. It’s the ability not to panic. To understand that while today I may have less money than yesterday, sometime next week, or next month, or even next year, I’ll have more money than I had those same days, weeks, and months ago. It’s how it works. This has been a heck of a rally. People are shopping. Homes are selling. Interest rates have gone up for the right reasons.
Are there obstacles? Sure. We’ve discussed trade wars. They’re generally not a good thing. We can go into manufacturing, head-quarter locating, infrastructure upgrades. Good things are happening but getting less press. There is a need for us to find the value of the good news and ascertain the actual impact of the bad news to truly analyze what we’ve got. Grab a chart and understand that nothing goes straight up, but it’s awfully early to say it’s the end. I’m going to err on the side of the people that historically make the most money. The ones that really put their “money where their mouth is,” and not panic out because someone on television is talking their position or finding a way to get air time by being negative. Notoriety is not what moves markets. Real facts move markets and I look to my charts to filter those facts. Doesn’t look that bad from here.
But what about bitcoin?? What about crypto? I’ve written numerous times about crypto, and the need to explain it every time the news is big enough that even my mom is asking. So now my mom is asking, “Is the crypto market over? Was it really just another bubble?” It’s my mom, so the answer has to be more than just a simple “No.” There needs to be some sort of reasoning behind a statement so opposite to what markets, and commentators, are telling us. And as I try to do as often as possible in market analysis, I’m going to draw on history for my explanation. While many are saying, “Well, over the past few years it’s still a great return,” this isn’t where I’m going to go with this one. After all, we wrongly think of markets in hours, days, or maybe weeks when thinking about returns, so how can we now pull this 2-year argument out of our back pockets? Doesn’t work in reality, and I get that. And it is down…a lot
So what do I have to say to those that want to tell me the crypto “revolution” is over? I say I’ll go back and look at history…again. It’s what I do. Generally using charts and pointing out repetitive behavior over time, but also the fundamentals behind that repetitive chart behavior. The Story Behind the Picture! It’s what this blog is all about! So what’s the story behind this picture?
In my memory, the not so distant dot com bubble comes to mind. And in many ways it was a bubble. People invested blindly in things they didn’t understand. Often it was because there was nothing to really understand. Hype. Companies coming to market on loose promises that they had no idea how to deliver! Hmmmmm…oh yeah…crypto ICO’s! Ever heard the term “I’ve seen this movie before?” It comes from situations like these!
Did the Internet die? That’s rhetorical because you’re reading this. Did a load of companies, with nothing to offer but empty promises of stock riches based on plans they couldn’t execute, come to market and make founders millionaires at the expense of innocent dreamers? They certainly did. And they temporarily killed the equity markets. And then something happened. The promise of the Internet began to actually manifest itself in our everyday lives.
I do believe it’s similar with crypto. The basis of its existence, blockchains, is our newest phenomena that’s spurred a temporary investment bubble. The value of blockchain technology is not about to vanish. Like the value of the Internet didn’t. Microsoft, Amazon and Apple are the most valuable companies around. But why is it so easy for scammers to create bubbles in these times? Because there really is something of value, something world changing behind it. But there’s a painful process we’re going through. We’ve been through it before. And at some point we’ll go through it again. Wait…will that be traditional equity markets or revolutionary arrivals that change society? Another rhetorical question; the answer is “Both.”
Thank you to everyone who’s taken a little time to read these this year. Wishing you a happy, healthy, and profitable 2019.