It is definitely in a bubble

I was travelling in Europe in the past two weeks and constantly on the road. So I did not want to stretch myself too much by closely watching the market. Therefore a two weeks break for my blog. Now I'm back and trying to catch up. The stock market is fascinating that it reaches new highs almost every day. The bullish momentum is simply too strong at the moment. But there is something that is even more crazy that I'd like to comment now.


I'm talking about bitcoin or and other cryptos. As you may still remember, just a short while ago in less than 2 months, the sentiment for bitcoin was totally different and I could even called it abysmal like the end of world for it. At that time, the JP Morgan CEO Dimon openly called it a fraud and it would not survive for too long. China announced a total ban of it. Indeed it seemed bitcoin would crash and even disappear soon. You know I don't believe it at all and I even wrote a long blog to provide rationale why Dimon's fraud claim was laughable and why bitcoin would go much higher during its life.  But to be very honest, even with my very strong belief in it, I thought it would probably take a year or two to reach new highs. Of course I was totally wrong. Just within 2 short months, the sentiment has drastically shifted towards a super bullish mood as I'm writing. Bitcoin is indeed making new highs every day in the past week or so and has reached its all time high at $9700. Suddenly it seems everyone is getting very excited about it and wants to get in. This is typically when a bubble is formed, although a temporary one. If you are also getting exciting and want to buy now, my best advice is NOT CHASING IT! I believe bitcoin may very soon top over the $10,000 mark, probably within a week or two. Dec 11 is a historical day for bitcoin as its first ever futures will be available for trading. This is likely one of the major catalysts that pump up bitcoin right now. But we may very well see "Buy the rumor and sell the news" phenomenon. I think the chance is very high that after bitcoin breaks out over $10K, and then a rather severe correction may follow. It is generally a loser's game to follow the herds, either chasing up or down for anything. No difference for bitcoin!


For myself, I'm certainly happy to see bitcoin or other cryptos make new highs constantly but I'm not naïve enough to believe the uptrend will simply continue without breaths. I'm even hoping bitcoin can be cut in half to shake out weak hands and allow me to buy more. For now I'm just holding my coins and at the same time also enjoy accumulating my coins via the digital renting business I've got in. It is a great feeling to know that every hour my cryptocoins are getting more without me doing anything. It is a very slow process of course but over a long run, it could become a phenomenal asset for me if bitcoin and the cryptos become the mainstream technology just like what the Internet is for our lives now.   

Stocks are poised for a swift decline

The market has been hitting new highs almost daily and there is widespread complacence that any significant decline seems unthinkable. But I think the market is now sending 2 warning signs:

• Vix call/put ratio hits extremely high level, over 20 times more expensive for calls than puts. This has been a pretty accurate indicator in the past year, usually leading to a jump of volatility with a quick market correction.
• The high yield bonds are breaking down and currently sitting on its 50 DMA. If breaking down that level, more selling will follow. Usually such bonds are leading the market by a few days to weeks.

When these two lining together, it is not a good sign, at least for the near term. I think the market can suddenly plunge any days now. How much is anyone's guess, but at least some panic may show up. Be ready!

You could be rich if you could go to this country

I'm sure you know Zimbabwe in Africa, one of the poorest countries in the world. You must ask, are you kidding me that one could be rich if he or she could go to Zimbabwe? Yes, I'm serious but not in a way you would think about. Of course I know how poor it is and there is virtually no hope in the sight for it. Its inflation is probably the highest one in the world, so much so that it even issued a 100-trillion-dollar note, which was worth only 40 cents when it went out of circulation. I bet this is likely the only money in such a big number. It has become a collectible now and I found it on sale in eBay for $53.


So why on earth that I'd think I could be rich if I could go to Zimbabwe? You may recall what I said why bitcoin will not die as predicted by many pundits. One of the reasons: the widespread acceptance by third world countries where they are facing increasingly severe inflation problems with their official currencies. I just read a report that bitcoin is trading around $12,000 in Zimbabwe as they are begging their money with US$ now but there is huge shortage of US$ for them. For those very few people in Zimbabwe who are much richer than general people (probably due to corruption or few successful businessmen), they for sure will not keep their bank notes. When difficult to exchange to US$, they turn to bitcoin, causing a huge demand for it, much more than in the other countries. As a result, we are talking about a difference over $5000 as bitcoin has just reached it new high over $7000 now. If I could go there to open a bank account, I could easily make thousands of dollars per coin by buying a bitcoin here and selling it there. Of course I couldn't but I thought it is  interesting evidence how bitcoin can preserve value for poor countries. I think we will hear more such stories moving forward.


One caution note to finish my writing: bitcoin is a bit crazy at the moment and I think it is short-term bubbly that may easily go down sharply any time. Buying now will be rather risky as a 30-50% haircut is not out of touch.