What Could Go Wrong: Flight Attendants & Chimney-sweeps
This month’s Elliott Wave Financial Forecast reminds us that not so long ago in March 2009 individual investors had 45% of their portfolios in cash. After 8 years of bull market investors have only 14.5% dry powder on hand. “That is the smallest percentage since January 2000, after which the Dow declined 38% into October 2002.”
Mutual fund investors have $4.75 in stock funds for every dollar in money market mutual funds. That’s a higher ratio than the market tops of 2000 or 2007. And it’s not just stocks that the investing public are gaga for. Robert Prechter says there have been more Google searches for Bitcoin than for Beyonce.
A Forbes article by Peter Tchir has the headline, “Bitcoin is Going Mainstream.” He claims, “what I am sure about is interest in Bitcoin and Crypto Currencies has skyrocketed.” NBC reports, “flight attendants, ironworkers, and small business owners” are trading in their low tech treasury script for the digital gold.
Human irrational exuberance is as old as human life itself. Charles MacKay’s account of Tulipmania, “A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot … Nobles, citizens, farmers, mechanics, sea-men, footmen, maid-servants, even chimney-sweeps and old clothes-women, dabbled in tulips. People of all grades converted their property into cash, and invested it in flowers.”
Julie Verhage writes in Bloomberg that Bitcoin and other cryptocurrencies have left the tech stock boom in the dust.
Bitcoin, the best-known digital currency, has surged 358 percent. While staggering, lesser-known competitors have seen even bigger gains, such as the more than 4,000 percent increase for ethereum.
Bespoke Investment Group contrasted the rise in bitcoin with infamous bubbles such as the tech market in the late nineties. There’s almost no comparison. Tech stocks rose just over 1,000 percent over the entire course of their bubble, and bitcoin is already up more than twice that.
Bloomberg’s Camilo Russo explains, “Startups have been ditching venture capitalists and raising millions of dollars in minutes by issuing digital tokens in what have become known as initial coin offerings.”
In less than two years, companies have raised almost $2 billion in ICOs, with token prices doubling in a week, and often falling just as fast. Companies have been able to rake in millions with little more than a white paper and a website. Bitcoin, the biggest cryptocurrency, has more than tripled in value this year, raising concern of a bubble.
The Elliott Wave folks remind us, “It’s always like this in the end. The easy way becomes the obvious way. In this case, all a person has to do is push a button and literally create money. What could go wrong?”
Indeed, what could go wrong.