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Are we in for a bust? Based on previous ones, the answer is NO. Maybe.

It’s been squirrely recently.

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Not like the nice steady rise last year.

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I raise this “bust” question because our banks are now free to do whatever madness their hearts desire.

Despite their new freedoms, they won’t go crazy. So, for now, we’re safe from the banks. (I’ll explain later.)

For now we have to look at root causes.

Busts happen because sentiment turns against booming assets. I went to Wikipedia to find bubbles:

+ Tulip mania Holland 1634-1637
+ South Sea Company England 1720
+ Canal Mania UK 1790-1810
+ Panic of 1819 US following speculative land bubble
+ Panic of 1837 1834-1837 US Prices of US land, cotton, and slaves grew into bubbles with easy bank credit
+ Railway Mania UK 1840s
+ Panic of 1857 Land and railroad boom in US following discovery of gold in California in 1849. Resulted in big expansion of US money supply.
+ US panic of 1907
+ US farm bubble and crisis – 1914-1920
+ Roaring Twenties stock-market bubble US 1921-1929
+ Florida speculative building bubble US 1922-1926
+ Gold and Silver bubble 1976-1980
+ Dot-com bubble US 1995-2000
+ Japanese asset price bubble 1986-1991
+ Asian financial crisis 1997
+ US housing bubble 2002-2006
+ Bitcoin bubbles 2011-2018
+ Sub-prime mortgage bubble US 2000-2007

Here’s the latest issue of MIT Technology Review:

MITBlockChain

The issue begins:

The case for blockchain: After the bubble bursts, the foundations of a future technological industry (blockchain) will remain. The case against cryptocurrencies: they’re good for thieves and speculators, but no use as serious money.”

Assets are typically valued by the cash they generate. That’s called cash flow. Or value investing.

A boom is a stratospheric rise in the value of an asset, untethered from underlying cash flow, and driven by The Greater Fool Theory — somebody will pay more tomorrow for what I just bought today.

Other than bitcoin and 150 other cryptocurrencies, I simply don’t see an asset bubble today. There are stocks which are highly priced as measured by their skycraping price earnings ratio — Salesforce, Netflix, Amazon, Honeywell, Microsoft and Nvidia.

But if I look at my portfolio, those are the only ones with a P/E above 50.

Am I deluding myself? This is the last six months of heavy-tech Nasdaq (my big holdings):

NasdaqSixMonths

Should I be concerned?

Not now.

I don’t believe that when bitcoin bursts, that bursting will seriously hurt the economy. It doesn’t have the power to create a systemic economic failure, like we had in 2008.

Some of Dodd-Frank burdens have been lifted off the Banks

But the lifting won’t make the slightest difference.

In the last ten years since 2008, banks have simply forgotten how to do their primary business of lending.

No one can borrow from a bank any longer. Their fees are too high. Their rules are too stringent. All they care about is collateral. Cash flow means nothing. Businesses with limited collateral and huge cash flow — think businesses leasing land for their factories and offices — are up a proverbial creek without a paddle. In the old days you had a relationship with your bank manager. I knew my father’s bank manager because he came to all our family’s shindigs. He was an integral part of our family. And he stayed with us for years. Over 25 years. I went to his retirement party.

These days, banks are staffed by children and stupid onerous computer rules. Appraisals mean more than relationships. Collateral is what counts.

I own part of a profitable tennis club. We have a small loan, which we’ve paid on time. Never been late one single month. Our bank got bought. The new bank owner simply doesn’t like our business nor our collateral. We have a long-term lease on the land our club sits on.

I am an investor in a banking look-alike financial entity that takes my money and the money from many other investors and money from banks (go figure) and lends it to fast-growing companies which, in the past, borrowed from banks.

This entity spends the time to understand its borrowers’ needs (unlike conventional banks) and moves quickly when its borrowers need money — usually for reasons banks these days wouldn’t understand: Like buying a competitor.

I have several bank accounts with several banks. I’ve never bought anything from the banks (except a safety deposit box once). The only reason I use them is they have reasonably efficient electronic online banking and wiring systems.

I have two credit cards with Citibank. One has a credit line of $25,000 which they won’t increase, though it has a balance of $72,000. The second has a credit line of $200,000, but a balance of $85 — the annual fee (which I just got waived). I haven’t used the second card in over ten years — maybe never. When I asked Citibank to switch the higher credit line from one to the other, they said NO. No explanation. But they gave me 5,000 American Airlines miles just for asking. I asked. Remember to ask.

Bank profits for the first quarter of 2018 were over 25% up over 2017.

Banks have a monopoly on banks and credit cards. Even Amazon had to partner with a bank to issue a credit card to Prime customers like me.

Banks get free money from you and me. It’s called customer deposits — checking and savings.

Banks should be the greatest business in the world — with fewer regulations now, and better management (if they could find some). That’s today’s pipedream.

Meantime, Ladder Financial (LADR) has risen 10.2% since I first recommended it a few weeks ago. It’s still yielding over 8%. And I still like it.

You don’t need

+ A dedicated fax line

+ All those phone landlines. Everyone is using their cell phone.

+ All those packages of cable TV channels you don’t watch.

Some old. Some new. Most terrible.

+ Did you hear about the fat, alcoholic transvestite? All he wanted to do was eat, drink and be Mary.

+ Do you think glass coffins will be a success? Remains to be seen.

+ I’ve been charged with murder for killing a man with sandpaper. To be honest I only intended to rough him up a bit.

+ A reminder to those who stole the electrical Goods in last year’s riots. Your one year Manufacturer’s Warranty runs out soon.

+ Then there was the Spanish fireman, who had two sons. One he named Jose. And the second — wait for it — Hose B.

HarryNewton
Harry Newton. Please teach your kids selling and programming. No matter what profession they choose — doctor, lawyer, entrepreneur, company man — these two skills will make them a better whatever they choose to be.

Remember Harry’s Six Great Rules:

+ Keep moving.

+ Don’t eat so much.

+ Don’t let the bast*ards get you down.

+ Don’t do stupid, like fall on the last step down.

+ Always Check. Check. Check.

+ Always ask for a discount. You’ll be surprised.