When I was a young adult, I enjoyed playing blackjack.  The more I played, it became increasingly evident that Steve Wynn, the famous founder of Wynn Resorts, was correct when he said the only way you make money in a casino is to own the casino.  As I have become quite familiar with the industry, the same idea holds true today, and it is applicable to both table games and slot machines.  Still, I came to enjoy other kinds of games, one of which is poker, though I don’t play any more because it takes too much time, which I do not have.  Anyway, in blackjack and poker you often see a similar circumstance where a player gets cards which are not so good and winds up winning the hand or the pot by getting lucky.  In poker, it is called getting a bad beat and you hear the excuse constantly.  The best response I have heard is when a dealer said to the player who luckily won a hand at black jack where he split tens against a six face card- ‘Just cause you won the hand does not mean you are not an idiot.’  With that, let us turn to the shiny trophy on Wall Street, the subject which makes all of our hearts suddenly beat a tad quicker, that being Bitcoin.

 

Stay with me now as I briefly discuss my love of currencies.  In studying the subject matter from the CFA institute, there is a nice portion devoted to currencies where you have to learn about finding the arbitrage opportunity within buying and selling three currencies- say converting the pound to the yen, the yen to the dollar, and then the dollar back to the pound in order to find the profit potential.  I loved this kind of stuff, and today I constantly monitor currencies to see where the investment opportunity might reside.  Note I say might.  Anyway, the thing with currencies is most of them move maybe 5-7% in a year max.  The unique thing about currency trading is you can leverage your capital 50x, although if you are prudent you never mess around with leverage.  On a daily basis, a currency might move one tenth of one percent to a half of a percent on a big move.  If you add in the leverage and big sums traders use, it amounts to a massive amount of money.  Still, currencies are typically stable in terms of price moves (meaning they don’t move much).  Back to everyone's favorite Bitcoin, which is moving 20% or so in a day.  20% in a day.   Clearly, unequivocally, without question, in no way, is Bitcoin a currency.  No way, no how.  Nope.  Nada.  Not. Going. To. Happen.  

 

However, for those of us who can remember way back when, it does exhibit the characteristics of a 2000 internet stock.  Limited supply (only 21 million issued)- check the box.  Insiders (maybe venture capital firms or those who ‘mined it early’) owning a large percentage of it- check the box.  Limited disclosure about who owns it for the regulators- check the box.  Potential for having run up because of a cornered market (vast demand with limited supply)- check the box.  Anything that makes you 10-15x your money in one year is going to create great interest, as was the case during the internet bubble.  Back then, people learned the hard way that owning the stock of a company with no underlying value would end up costing you.  This week, Bitcoin futures will start trading, although they will be settled in cash.  The spot price is different than the futures price, but you have to know those who are short the BC (BS?) will use the futures market to express their conviction.  I am quite interested to see how this plays out, but I suspect those who are buying bitcoin (current price at 15K per coin), or have been buying bitcoin, are going to resemble the lucky poker player.  I have been wrong so far, but time will tell.  

 

In the markets this week, the November jobs number came in strong as the economy rolls along nicely.  On the earnings front, HD Supply showed once again how strong Home Depot is, while Broadcom is still powerful in the semiconductor area.  By the way, Google and other tech giants are making a fuss about the potential of a Broadcom-Qualcomm tie up, so make sure to send a line to the fellows at Google to buck up.  Toll Brothers reported a soft number in the housing area, and Vail Resorts missed in the leisure area.  On the tax front, one area I would urge readers to pay attention to is the possible provision to take away from investors the choice of using FIFO or LIFO lots when you provision for the stocks you have sold during a given year.  The Senate proposal is to make it mandatory to use FIFO accounting, which can have a major impact on whether a stock is sold as a gain or a loss.  Naturally, I made my two cents known, though I suspect the politicians could care less.  Speaking of that crew, has it ever been worse in terms of how poor both parties are?  No budget, pedophiles becoming Senate candidates, current Senators resigning because of improper conduct, House Committees suing the FBI and Justice Department, investigations with politically predetermined motives based on a slighted best friend (my opinion)?  Anyway, on that note I thought I would share this joke about politicians to conclude with a lighter and more humorous tone:

 

 

While stitching a cut on the hand of a 75 year old farmer, whose hand was caught in the squeeze gate while working on cattle, the doctor struck up a conversation with the old man.

Eventually the topic got around to politicians and their role as our leaders.

The old farmer said, “Well, as I see it, most politicians are “Post Turtles”.Not being familiar with the term, the doctor asked him what “a post turtle” was.

The old man said, “When you’re driving down a country road and you come across a fence post with a turtle balanced on top, that’s a post turtle”.

The old farmer saw a puzzled look on the doctor’s face so he continued to explain.

“You know he didn’t get up there by himself, he doesn’t belong up there, he’s elevated above his ability to function, and you just wonder what kind of dumb idiot put him up there to begin with!”.

Thank you for reading the blog this week, and if you have any questions about investing, please email me atinformation@y-hc.com 

 

  Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.