In Search of the Perfect Investment

Logic for the stockmarket weakness:

+ Interest rates up. Bonds weak.

+ Inflation fears.

This is minor stuff. Blips. The economy is booming (with exceptions, like some retail).

Markets are emotion-bound.

I counseled “stand firm.” Most observers did also.

Yet, many readers sold everything. They believe the world is falling. One reader wrote “I’m looking for a 90 percent drop in the Dow.” He didn’t say why.

The financial reporters and guest gurus need copy, a story — something to talk about. This investing business does not have the certainty of a train crash — with photos and grim statistics. What investment pontification lacks in certainty, reporters and their gurus make up for in something called “recency” — as in what happened recently will happen again.

Recency is easy. What happened yesterday — a big fall — is likely to mean a big fall today.

Recency has a new wrinkle. It’s called “volatility.”

Until the last few days, the market was nice and steady up. Here’s Nasdaq.

Here’s the VIX — flat until the last few days.

Now we have “volatility.” Here’s yesterday for Nasdaq and the VIX.

That’s amazing movement. What’s causing it? There’s only one answer: the 70% or so of trading in stocks that’s done by machines. If you see order flow (and many of the machines do), you can see short-term market direction and make millions of pennies on movement. This is Happy Times for the Stock Trading Machines.

I remember reading that one year Goldman Sachs’s trading machines had made a profit on every single trading day. That’s phenomenal. I don’t know how they did it — except they clearly have access to information I don’t. Drat.

I’m largely sitting through this “volatility.” I’ll pounce on something I like if it suddenly gets “cheap.” I bought some Amazon at $1402.63. It closed last night at $1,416.78. But I also bought a little UNH and Netflix. They’re down a little over what I paid. I’m not going to get rich playing this silly timing game.

I am spending time reading transcripts of earnings calls. They really are much more interesting, and potentially, a lot more profitable, long-term.

The earnings calls of Google and Amazon will blow you away. Google is boring and uninspiring. Amazon is exciting, brimming with news of exciting new products. Google is a dearth. I will not be a long-term owner of Google shares. I bet 90% of the readers of this blog don’t even know the name of Google’s CEO. He’s Sundar Pichai.

I read the earnings call of CENT — Central Garden and Pet Co. It’s businesslike and boring. Nothing seems to excite management other than margins and tiny organic growth.  No new, exciting products. Their growth doesn’t justify a P/E of 24 times.

Reading and mulling is good during the volatility. Have faith. Print this chart and keep it by your bedside.

The dash for instant wealth

The wealth world has become weird. It’s ultra-hard to earn decent money from common investments — like savings accounts, real estate, bonds, and now stocks, which have surged to ultra-high levels.

Yet, the media is full  of stories of huge “instant” wealth — e.g. bitcoin, marijuana, contemporary art. The media highlights it with huge percentage increases in value and stories of $100 million penthouses in New York.

The emotion gets to you. It all looks so easy. I got suckered into bitcoin, came to my senses and lost $475.

Mull on “instant rich” ideas for three days. Mull for three days before you panic sell something. Harry’s new rule.

Kids become bitcoin billionaires. We’d all like to be one. But we can’t because — as we now realize — crypto-currencies are all smoke and mirrors, like all the great Ponzi schemes that came before.

This piece from the New York Times this week does a great job of summing it all up.

As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to Surface

SAN FRANCISCO – You did not have to be a technophobe to worry that the virtual-currency boom of the past year papered over plenty of problems.

The scale of those problems is starting to become clear as digital tokens have slid more than 50 percent in value from their peaks in early January, with steep drops on Monday pushing the value of Bitcoin specifically below $7,000.

Hackers draining funds from online exchanges. Ponzi schemes. Government regulators unable to keep up with the rise of so-called cryptocurrencies. Signs of trouble have appeared at nearly every level of the industry, from the biggest exchanges to the news sites and chat rooms where the investment frenzy has been discussed.

On Tuesday, the leaders of the two main regulatory agencies in the United States that oversee the technology, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are to testify before the Senate banking committee about their efforts to police virtual currency markets. In the past two weeks, both have brought major cases, but people in the young industry said regulators had barely made a dent.

Some virtual currency enthusiasts argue that the problems are no different from what has happened in other booms, like the internet bubble of the 1990s. But even true believers say the design of virtual currencies — meant to cut out middlemen and government authorities — has made bad behavior more prevalent amid this particular bubble.

“Cryptocurrencies are almost a perfect vehicle for scams,” said Kevin Werbach, a professor at University of Pennsylvania’s Wharton School. “The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.”

The fall from the peaks of early January has been dizzying. The value of all outstanding virtual currencies has been cut by more than half, down over $400 billion as of Monday, according to the website Coinmarketcap.com.

In January, the heads of the main regulators wrote in The Wall Street Journal that the situation presented an unprecedented challenge. “These markets are new, evolving and international,” Jay Clayton, the Securities and Exchange Commission’s chairman, and J. Christopher Giancarlo, his counterpart at the Commodity Futures Trading Commission, wrote. “As such they require us to be nimble and forward-looking.”

Government agencies in the United States have shut down a few notable frauds. Early last month, securities regulators in Texas and North Carolina issued cease-and-desist orders to BitConnect, an operation that had grown to be worth $3 billion.

But those moves only came after BitConnect had operated openly for months, collecting hundreds of millions of dollars from people around the world despite being labeled a Ponzi scheme by many prominent people in the virtual currency industry. BitConnect offered tokens on a decentralized network, similar to Bitcoin, but promised regular payouts to coin holders.

In January, the Commodity Futures Trading Commission shut down My Big Coin, a purported swindle that had attracted $6 million.

But regulators have not gotten near most of the brazen schemes that have popped up in the past year, many of which had been attacked by hackers first, or simply shut down by their operators after money had been raised.

A new virtual currency, Proof of Weak Hands Coin, whose creators referred to it as a Ponzi scheme on Twitter and use a pyramid as a website logo, raised $800,000 before hackers got into its systems last week and drained its funds. Another pyramid scheme, MMM, which was shut down in an earlier incarnation by the Russian government, has been revived thanks to the popularity of Bitcoin and is operating openly, with particular success in Africa.

One challenge facing regulators is that it is unclear how much of the deceptive activity they can legally control.

Some online groups openly try to manipulate the prices of digital tokens in what are known as pump-and-dump schemes. Similar schemes involving stocks are illegal, but people operating the groups recently told BuzzFeed that they did not think the same rules applied to virtual currencies.

Many schemes have been able to expand quickly because they do not use bank accounts and therefore do not have to win approval from established institutions. Instead, they are able to use virtual currency “wallets” without any approvals. And virtual currency transactions cannot be reversed like normal bank or even PayPal transfers.

With regulators slow to crack down, the private sector has taken on a more important role. Facebook announced last week that it would no longer allow advertisements for virtual currency projects. On Friday, JPMorgan Chase and Bank of America said they would bar customers from using credit cards to purchase virtual currencies; Citigroup followed suit on Monday.

For investors, some of what has caused the most concern are well-intentioned businesses set up in a hurry with little outside oversight or time to work out kinks.

Coincheck, which until last month was one of the largest exchanges in Japan, announced on Jan. 26 that it had lost nearly half a billion dollars of a virtual currency known as NEM, in what appeared to be the largest hack to hit the industry.

Traders have been particularly worried about the largest Bitcoin exchange in the world, Bitfinex, an unregulated operation that has provided few details about its operations, raising concerns about whether it is insolvent or involved in price manipulation.

In the United States, even the most widely used virtual currency company, Coinbase, has struggled to keep up with demand, shutting down trading for hours at particularly important moments, and attracting widespread complaints about its customer service.

But the biggest number of incidents have cropped up around so-called initial coin offerings, in which entrepreneurs sell custom virtual currencies to investors to raise money for software they are building. About 890 projects raised over $6 billion last year, a 6,000 percent increase over the year before, according to Icodata.io, which tracks the offerings.

The $240 million raised through one of the most successful initial coin offerings last year, Tezos, is already frozen in a dispute between the founders of the project and the board they created in Switzerland.

Even established companies like Kodak have ended up chasing the riches without doing proper due diligence. The company delayed its own initial coin offering after it was revealed that the people assisting the venture had problematic histories and little relevant experience.

Most of the newer virtual currency projects borrow their basic design from Bitcoin, which uses a network of computers to maintain its records so that no central government or authority is needed.

Under Pressure from Fox News, Obama to Stop Making Stocks Plummet

NEW YORK (The Borowitz Report) – One day after the Fox News Channel host Sean Hannity blamed him for the historic plunge in the Dow Jones Industrial Average, former President Barack Obama agreed to stop making stocks tumble.

“Sean Hannity has accused me of making the stock market go down,” Obama told reporters on Tuesday morning. “All I have to say is, `Guilty as charged.’ “

A visibly chastened Obama said that, at first, he thought that he had gotten away with making the stock market crash, but when he saw Hannity blame him on Fox, “I knew I had been busted.”

Obama offered scant explanation for why he had made stocks crash on Monday. “I guess since leaving the White House I haven’t really found enough ways to fill my time, so tanking the stock market seemed like something to do,” he said. “But I know that’s not a good excuse. The fact is, I caused a lot of folks a lot of pain yesterday, and for that I am very, very sorry.”

He said that he would “get to work right away” to return stocks to their previously lofty levels. “I made the stock market go down, and, darn it, I can make it go up again,” he said.

This is too good not to repeat. 

My favorite New Yorker cartoon:

Stuff

+ You and I get spam phone calls. Go to Recents. Touch the i on the right. Scroll way down and hit “Block this Caller.” It helps a little.

+ Want three screens off your laptop? Attach one via HDMI directly. Use the  $80 Diamond Multimedia Ultra Dock Dual Video USB 3.0/2.0 Universal Docking Station for the other two. Click here. You’ll also need free software from DisplayLink. Click here.

Harry Newton. Peter saw his sister Eleanor getting a ponytail. He wanted one, too. That’s how Peter Newton, age two, got a ponytail. He isn’t a hippie, yet.