Actually, owning shares is very different. — ssu

You're correct, which is why I said from "a trading perspective" as it seemed that was what Michael was talking about.

ugly feature — ssu

Why?

Why?

Well,

When there's an stock market crash, the collapse of stock prices has a real effect on the economic situation of companies even if they otherwise wouldn't have to sell their stock.


The effects of Mark-to-Market accounting is explained from 13min 20s forward.
Now I'm not totally agreeing on what with the speaker, but he does make a good point.

An obvious difference though is that share prices try to reflect the value of the company where it's usually clear that labour adds value. — Benkei

That was in the old days of sound monetary policy. As David Stockman notes, that was the time of President Dwight Eisenhower and Fed Chairman William McChesney Martin.

Today, stock prices represent buybacks funded by cheap interest rates driven by massive QE by the world's central banks.

That's one of the arguments made by crypto enthusiasts. That it's the stock market that's the real bubble backed by nothing but speculation. You have to admit they have a point.

began to watch the GDAX board — ArguingWAristotleTiff

That GDAX board sure is addictive! I don't trust the exchanges with serious money. But I have a little play money in there and the past few nights I spend way to much time watching the green and orange candlesticks fight it out on the Litecoin chart on GDAX.

You know, if we could see all this from twenty years in the future, a lot of things would be completely obvious. And the clues were here all the time. But in the present we can't see what's true and what will last.

Perhaps this is the start of a philosophical view. What things last? What things pass? If we think from that point of view, can we figure out how to intelligently deploy our assets in the crypto revolution to come?

I think the current wild west environment is fun to watch but nothing I'd recommend that anyone spend any serious money in. One week it's bitcoin then it's bcash then it's ripple and now it's ethereum. If anyone could figure out what the hysterical dumb crowd is going to do ahead of everyone else, you could surf that wave and make money.

But who can predict the actions of the raving crowd? "I can calculate the motions of the heavens, but not the madness of people." -- Isaac Newton, after losing his fortune in the South Sea Island bubble of 1720.

Today, stock prices represent buybacks funded by cheap interest rates driven by massive QE by the world's central banks. — fishfry

This is true up to a point and less true for stocks than bonds. Investors look for yield, even at inflated stock prices due to QE. company value and expected earnings is still used to calculate yield.

I've watched this and it really isn't informative. His explanation of mark-to-market is a bit of a misrepresentation. He doesn't really offer a solution or talk about the alternative and it tends towards a single cause fallacy, while at the same time he already highlights several issues that are co-causes. When talking about these sort of things, I think we should be talking about contributing factors and not causes.

First, excess cash is a contributing factor and QE and low interest rates created this. I've personally (as was the president of the Dutch central bank) been an opponent of QE. I'm also an opponent of price stability monetary policy (it doesn't reduce crises as it claimed it would) so interest rate driven policies all reek to me.

Second, modern corporate capitalism, especially in the US, is all about short term gain and after the repeal of the glass-steagall act they started pursuing short term profits with money that should've stayed off limits (e.g. deposits). Simply put, you shouldn't gamble with other people's savings. In a way, this created a larger pool of cash as well - contributing factor.

Third, complexity. Bankers didn't know what they were buying and selling any more. Once you don't understand the underlying economics of the product any more, the product is unhinged from the real economy and it becomes a pure supply-demand equillibrium based on sentiment.

Fourth, the alternative seems to be historical cost accounting. But permanent changes in market value of assets need to be accounted for with historical cost accounting as well (impairments and write downs for instance). So it doesn't really avoid the problem, it just realises a bit slower. So mark-to-market is faster but I do not think it's realistic to think 2008 would've enfolded very differently if we were doing historical cost accounting. (On a side note; I'm personally a proponent of mark-to-market modelling as it's relatively easy to check the veracity of accounts and their development and the relative performance of a particular company compared to others).

Fifth, in 2008 only about 31% of bank assets were marked-to-market and these were assets held for trading. Assets held to maturity are a second category and are accounted for at historical cost and not marked-to-market. Most loans and many bonds are and were held to maturity. The third category has assets available for sale and they are marked-to-market as well but with an important difference. Any unrealised profits or losses are accounted for in the OCI account (other comprehensive income) and unrealised losses do not reduce the bank's income or regulatory capital requirements (exemption for held-for-sale-loans but that's a small percentage).

Sixth, illiquid assets need not be marked-to-market, that's only for FASB level 1 liquidity. Level 3 is mark-to-model. FASB released guidance in 2008 on this and stressed that companies did not have to use prices from forced or distressed sales to value illiquid assets.

In other words, I think Brian Wesbury doesn't really know what he's talking about and is probably a banking shill.

That GDAX board sure is addictive! I don't trust the exchanges with serious money. But I have a little play money in there and the past few nights I spend way to much time watching the green and orange candlesticks fight it out on the Litecoin chart on GDAX.

You know, if we could see all this from twenty years in the future, a lot of things would be completely obvious. And the clues were here all the time. But in the present we can't see what's true and what will last.

Perhaps this is the start of a philosophical view. What things last? What things pass? If we think from that point of view, can we figure out how to intelligently deploy our assets in the crypto revolution to come?

I think the current wild west environment is fun to watch but nothing I'd recommend that anyone spend any serious money in. One week it's bitcoin then it's bcash then it's ripple and now it's ethereum. If anyone could figure out what the hysterical dumb crowd is going to do ahead of everyone else, you could surf that wave and make money.

But who can predict the actions of the raving crowd? "I can calculate the motions of the heavens, but not the madness of people." -- Isaac Newton, after losing his fortune in the South Sea Island bubble of 1720. — fishfry

So addictive! When I go to bed at night it is usually just about to hit it's high for the 12 hr period and then when I wake up it drops down and levels out to new base trading price for that day.

As far as what is to come? Good Heavens. My eldest Indian has almost .5 of an Ethereum coin. He bought in when it's high was $420.00 for the first .25 of the coin and then bought the second .25 coin at $1,200.00 (ouch!). My youngest Indian is back at college mining away with 2 towers in the room, sending 17 hr print jobs to their 2 3D printers in the two person dorm room, in addition to the lap tops they use for class.

NicK woke up with an awesome idea of using the block chain application, for government voting that could be in the form of an app and bounced it off my youngest and he said "yep, it's one of the sample applications of block chain's possibility". Bless NicK's heart but I think this is for our off springs generation to create, explore, implement, support and standardize. I was inspired to hear my youngest Indian say that had he invested X$ at the time he bought in at $460.00, he would likely be able to pay his annual tuition at school, at the end of this semester. I keep reigning them in reminding them both, along with myself, that never invest what you cannot loose.

It's really hard though when I see it go up to $1,300.00 and not SELL at least the profit margin on my original $960.00 buy in price. Do you have a digital wallet?

NicK woke up with an awesome idea of using the block chain application, for government voting — ArguingWAristotleTiff

Russian Government Advances Plan to Test Blockchain Technology-Based Local Voting Systems.

Okay, back to the hanging chad. (Y)

I've watched this and it really isn't informative. His explanation of mark-to-market is a bit of a misrepresentation. He doesn't really offer a solution or talk about the alternative and it tends towards a single cause fallacy, while at the same time he already highlights several issues that are co-causes. When talking about these sort of things, I think we should be talking about contributing factors and not causes. — Benkei

For the plunge to stop I think the changing of accounting rules had an effect. It surely is one of the factors. But there are naturally others, of course, ...that the World didn't end, that the international monetary system didn't collapse (just came close to collapsing) and that when prices went low enough, the bubble had burst and it was time to go in the other direction.

First, excess cash is a contributing factor and QE and low interest rates created this. — Benkei

Umm...created what exactly? Speculative bubbles traditionally happen because of loose monetary markets.

Second, modern corporate capitalism, especially in the US, is all about short term gain and after the repeal of the glass-steagall act they started pursuing short term profits with money that should've stayed off limits (e.g. deposits). Simply put, you shouldn't gamble with other people's savings. In a way, this created a larger pool of cash as well - contributing factor. — Benkei

Has it been something else, truly? Perhaps in the age when owners were the innovators themselves who started the companies.

Third, complexity. Bankers didn't know what they were buying and selling any more. Once you don't understand the underlying economics of the product any more, the product is unhinged from the real economy and it becomes a pure supply-demand equillibrium based on sentiment. — Benkei

A lot of markets have been "unhinged" from reality for a long time.

Banks are quite different: car manufacturers can compete with a lot things, banks with just the interest rate. This makes banking all about scale. And notice that banking is an industry where sitting idly on the bench and not going along with others into a bubble frenzy isn't a winning strategy: likely you will be bought by a competitor or likely the CEO will be fired as you aren't giving similar profits as your competitors are. You aren't performing well enough.

I've seen this with my own eyes during the IT-bubble. I remember a finance conference here in Finland in 1999 (or so) where a mutual fund manager that had not gone into the IT craze, came on the stage and told how he still believed that traditional industry stocks was the place to be and had to try to tell why he wasn't investing in Information Technology. Well, he was nearly laughed out of the stage. Few years later the mutual fund was the top performer and stayed there for a long time.

You can be right, but then there is the timing just when are you going to be right.

And anyway, I still believe this is going to a classic bubble with cryptocurrencies. No matter how useful and important they will be later. Events in South Korea aren't at all normal. Perhaps the correct adjective would be tulip-like or "tulipy"?

Of course I can be wrong...

Hope nobody here mortgaged their house to go all in at $19k. It's a crypto bloodbath out there at the moment.

For the plunge to stop I think the changing of accounting rules had an effect. It surely is one of the factors. — ssu

That had a lot to do with the perception at the top, who apparently don't know the ins-and-outs of accounting rules. The change was unnecessary and the law was window dressing for a problem that didn't exist but in the minds of banking CEOs. I recall some guy from Oxford or Harvard publishing a lot about this and how they were solving something that didn't require a solution. So I agree the change had an effect but for the wrong reasons. It wasn't an actual problem as the FASB repeatedly communicated this themselves. To then have a TED talk suggest how terrible fair value accounting is, is just something I have to discount for the reasons I enumerated above.

Banks are quite different: car manufacturers can compete with a lot things, banks with just the interest rate. This makes banking all about scale. — ssu

Not necessarily but that's the most easily comparable feature. For instance, I selected the ability to do high prepayments on my mortgage - up to 20% of the loan without a penalty fee. Most mortgages have 10% at most. I can also change banks if I sell my house (e.g. pay off the entire loan and get a new one with a new house with a different bank). That has become standard but when I closed my mortgage it wasn't. So if you're interested and have time to make the comparisons, there are good reasons to ignore interest to a point (those two options cost me 20 bps).

And anyway, I still believe this is going to a classic bubble with cryptocurrencies. — ssu

Probably.

Probably — Benkei

So far, it's about as boringly regular and predictable a bubble there could be. The chart I posted earlier (when we were around "delusion / new paradigm!") :



The actual price graph now (1 yr period):



Notice any similarities? :-|

Imagine they're worth $1,000,000 in 10 years. The 10-year graph will look a lot like your earlier chart.

Probably the same if you look at the graph in the first year of its introduction, too.

A parabolic move in price means that there has been a huge "mispricing" for some reason. Either the a) reality and information has changed dramatically or b) there's a mania of some kind among investors. If b), then that parabolic rise typically is followed by a crash. Yet in most occasion the post-bubble normal is higher than the pre-bubble normal and the mania phase is just a hickup on the way.

As I've stated earlier, this thread itself is in my view a marker that there is huge "bubble-size" interest in the topic as this is a philosophy forum. Name how many other threads there have been on investing and currency speculation in something here. It's simply rare (although I remember a discussion on currencies earlier here). I noticed the similar thing on another site where the topic of interest is history and politics also there a thread went up on bitcoin/cryptocurrencies. Members of that site also don't talk about investments/investing either. It simply cannot be argued that people wouldn't have heard of bitcoin and the events in South Korea obviously show that this is the mania phase. When you get ads about trading Bitcoin on your smartphone (when playing some stupid game), this surely isn't the time when the public is totally unaware of the investment.

So is there any bedrock to state when something is "too" expensive?

Things like stocks or real estate do have some indicators when prices are "too" high or low. With stocks I would be allways sceptical about P/E ratios of more than 100. That means that owning the stock it will take 100 years to your money back by dividend. Historical you seldom see these kinds of P/E ratios (but you actually do see them today). Yet P/E ratios of more than 100 can be very persistent, just look at Amazon. With real estate prices a marker for me is when a) prices go rapidly up without there being inflation and b) prices start approaching similar levels as the World's most expensive real estate, those of Manhattan, center of Paris etc. Some backwater place like Helsinki simply cannot be as expensive as 5th Avenue in Manhattan.

Cryptocurrency values is harder. To put it diplomatically, the huge upswings and downswings tell that pricing them is in it's infancy. Actual currencies are priced totally differently and there a huge rise in the price compared to other currencies is a terrible thing that countries want to avoid at all costs. For example the Swiss franc has experiences of this nasty event when foreigners have bought into the small countries currency as to get into a "safe haven".

I am interested in watching the impact of the fluctuations of the Stock Market on the value of the cryptocurrency. Is anyone here using Monaco?

This is interesting. https://www.nytimes.com/2018/01/31/technology/bitfinex-bitcoin-price.html

how's your ROI after this wonderful week?

Last I checked I was down to £87 (from £100).

Expected to slide down to 5k USD according to Michael Kovacocy, who's made pretty solid predictions so far. I'm trying to find what he's basing it on though as the underlying fundamentals for crypto valuation are a mystery to me. I'm thinking it could ultimately be a proxy for the black market but that relationship seems tenuous at best.

Just follow the bubble curve. Bitcoin is pixie dust. It's worth whatever people expect it to be worth. Personally, I expect it to fatefully follow the burst trajectory as per above and fall below 3,000USD within a short period.

Ok, so one valuation theory is that transactional prices aren't really the most important factor for bitcoin valuation but the number of hodlers - people who hold bitcoin regardless of price movements based on the belief bitcoin will ultimately replace fiat money or because of political ideology (die-hard anarchists and libertarians probably). See for instance: macro-economic valuation theory for bitcoin. It would be nice to see whether this can be empircally backed up.

I suppose that can explain something (a lot?) about the underlying fundamental value but on the face of it, it feels to me it discounts the fact that ultimately bitcoin is intended as a means of exchange too much. If I take the paper to the extreme and end up with only hodlers, you won't have any transactions, no price information and therefore the value cannot be determined.

I see some people making consistently accurate predictions on price movements for bitcoin - both the rises and falls. That indicates there's more to it than simple market sentiment and herd mentality. I'm curious what.

I see some people making consistently accurate predictions on price movements for bitcoin - both the rises and falls. That indicates there's more to it than simple market sentiment and herd mentality. I'm curious what. — Benkei

I haven't seen anything more accurate than simply tracing the bubble curve above, which I've been using as a predictive mechanism since the price took off in December. If there are micro-movements being reliably predicted then that does suggest something else at play. I've seen no evidence of that though. What people are you referring to?

Even if you have that curve, you don't have timing. Michael Kovacocy is one person who seems to get timing, direction and price points right.

Expected to slide down to 5k USD according to Michael Kovacocy — Benkei

I've said 6-7K sometime before Christmas, but purely on a technical, non-fundamental kind of analysis. My guess would be these guys also use a technical analysis, I doubt they're looking into fundamentals for something as volatile as BTC.

The problem with it though, is that the exchanges suck so much that it's virtually untradable.

Nouriel Roubini, who predicted the 2007 Financial Recession, is also expecting bitcoin to drop to $5K shortly.

[Delete] @Baden

So I asked him what he bases his predictions on and this is basically not something you can easily replicate:

I have applied a rather bespoke analytical framework. A combination of an overlay of historical bubble comparison (stage evolution, drivers, transparency, basis/lack of basis of intrinsic value) along with fundamentals and technical analysis. Fundamentals has included understanding the structure operates for an opaque pricing mechanism and Ponzi capability for releasing "physical" Bitcoin from those at the top of the pyramid to those at the bottom. Fundamentals have also included a fair bit of game theory and understanding the motivations of various key actors and how they would be likely to respond, from money launderers to speculators to Asians trying to move money out of jurisdictions locked down by capital controls to regulators, etc. — Kovacocy

Also note that he ultimately thinks the thing will fail. Not necessarily cryptocurrencies but bitcoin itself.

I'm wondering if Bitcoin was the canary in the coal mine. The indicator that the long bull run from the financial crisis of 2008 has finished.

Of course, with these things you can be wrong, but...