You can’t rely on confidence….

Wednesday 4th April 2018

You can’t rely on confidence….

I took a break over Easter – cutting back on the usual volume of reading and taking a more leisurely stroll through the daily newspapers….

On a go-slow you see things you don’t see when you’re rushing headlong from one bit of news to the next, from one event to the other….

At a more pedestrian pace over the weekend it occurred to me how rapidly fortunes can turn in the world of money….

How swiftly last year’s big thing turns into this year’s has-been. How fast what was dependable becomes the opposite….

Nothing – or very little – lasts. Situations are almost always ripe for change. What the market is confident about today can look foolish a week later….

Recent events offer more reminders of this important contextual lesson….

  • The poster boy is not what he was….

Look at Bitcoin….

What happened to the big strong lad who just a few months ago looked like he might move mountains with his bare hands?

Did someone forget to feed him his Weetabix? Did some foreign agent acting on the orders of Vladimir Putin expose him to some noxious substance?

Whatever, the star-performer and poster-boy investment opportunity of 2017 now looks like a juiced-up body-builder that failed a drugs test….

He’s not the man we believed him to be….

Bitcoin hit a high of almost $20,000 in mid-December last year. The first quarter of this year has been nothing short of a disaster. Bitcoin is now on the verge of going sub-$7000….

  • Then and now….

Just a few short months ago, Bitcoin was the cryptocurrency that was going to change the world and replace domestic fiat currencies – revolutionizing our lives in the process….

You only had to buy and hold, and you were certain to get rich….

People were so confident. John McAfee (with his very own genitalia on the line) said Bitcoin was going to $250,000 by 2020. James Altucher said it was going all the way to $1 million….

Maybe these guys were joking. Maybe they’d been drinking. Maybe they were in sore need of column inches and publicity. Who Knows?

But in April 2018, Bitcoin has lost almost two-thirds of its value since recording its December high. And it is falling further still….

And Bitcoin is not alone. The entire cryptocurrency sector has lost traction. Ethereum is down. Ripple is down. Litecoin is down.

Last week only 7 of the top 100 cryptocurrencies advanced in price. The other 93 were down. The unstoppable march of the cryptocurrencies has become an across-the-board retreat – and in less time than it takes to grow decent cabbages….

I don’t know what it all means. But it tells us something about the illusory nature of market confidence. You can’t rely on it.

  • Copper goes into reverse….

Bitcoin is not the only big winning asset of 2017 that has fallen on hard times this term….

Look at copper….

The world’s most important industrial metal goes into just about everything – from plumbing to power lines to electrical motors….

During 2017 demand was high. Prices rose. Copper was as hot as a firecracker on the 4th July….

And with car manufacturers across the board looking to make electric vehicles a bigger contributor to revenues in the years ahead, copper – an important material for those vehicles and the support technology that will serve them – looked set for a sustained bull market into the future….

The market was confident. But confident, as we see with cryptocurrencies, means diddly-squat. Copper just recorded its first quarterly loss since 2015. One of the big go-forward winners of last year is now peddling backwards….

And what happens with copper might turn out to be a lot more significant than what is happening with cryptocurrencies….

Because of the sheer diversity of uses copper is put to in the industrial world, the metal is widely considered a barometer for the well-being (or not) of the global economy….

When the global economy is going well, copper usually does well too. When the global economy is struggling, copper generally struggles too….

A losing Q1 for copper is a red-light. It suggests an industrial slow-down. It points to a slump ahead rather than growth….

We can keep our eye on that….

  • Amazon in choppy waters….

Meanwhile, what is happening right now in the US with Amazon is proof positive that no stock of any company (however successful) is immune to a loss of market confidence….

Amazon stock has been on a tear since 2015. Confidence in the company has been impregnable over the period….

Amazon, along with Facebook, Netflix and Google (Alphabet) made up the FANG-group of stocks – the real big boys leading the way and too innovative and just too damn successful to lose even an inch of ground….

But the last few days have seen the price of Amazon stock start to fall. Confidence has dipped too….

And you can put both effects down to the attentions of one man – President Donald Trump….

Robert Maxwell once observed that he could not walk past a belt without stopping to punch below it. Donald Trump is a man cut from similar cloth….

The man likes to pick a fight – and he isn’t too bothered how many fronts he is fighting on at any one time….

Russia, China, Mexico, Democrats, serving members of his own administration and back-room team, journalists, broadcasters and detractors of any stamp, status or creed. All are fair game. None are turned away….

Love him or loathe him, you can’t do anything but admire the man’s appetite for a scrap. Trump is a one-man wrecking-ball willing to take-on all comers – simultaneously….

Now his pugilistic attentions have fixed on Amazon and the man behind that company, Jeff Bezos….

  • On the offensive….

The public line (the one emanating from the White House) is that Trump is standing up for the American interest….

He says Amazon takes advantage of the US Postal Service and that the company does not pay its fair share of tax….

This from the President on Twitter last week….

‘While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars….’

Followed by this….

‘If the P.O. increased its parcel rates, Amazon’s shipping costs would rise by $2.6 Billion. This Post Office scam must stop. Amazon must pay real costs (and taxes) now!’

And then this on Monday….

‘Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!’

  • But in whose interest? 

Of course, all this ‘Man of the American People’ posturing against the great ‘Satan of Capitalism’ plays well to the peanut gallery that is the American public….

I wonder what small proportion of the American public might have stopped to consider that in addition to Amazon, Jeff Bezos also owns the Washington Post – a newspaper doing more than most to investigate and pay critical attention to the suspect nooks and crannies of the chaotic (at best) or corrupt (at worst) Trump Presidency….

I wonder whose interests are really being served with the recent attacks on Bezos and his flagship commercial concern?

It hardly matters….

The bottom line is that Bezos the newspaper proprietor will need to wind his neck in if Bezos the Amazon man is to avoid watching the share price of his principal company tank in the face of what is almost certain to become a sustained ‘America comes first’ onslaught from the President….

2018 is shaping up to be quite an entertaining year. More to come….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths