For as long as Bitcoin and other crypto currencies have been in existence, a constant drum beat from its evangelists was the belief that it was “digital gold.”
The claim of course was an effort to throw a halo around cryptocurrencies as a “safe haven” and a “store of value” during times of crisis or economic uncertainty.
Per the Coinbase blog (emphasis theirs):
“Gold, and bitcoin, are safe havens from fiat currency devaluation, which historically tends to be incited by surging government debt. Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age.”
Not only that, but the same article says that Bitcoin is in fact better than gold (emphasis mine):
“Bitcoin development is accelerating and has already proven a myriad of advantages over precious metal…”
Those advantages are essentially listed as portability, scarcity, divisibility, privacy, low transfer fees and “auditability.”
Yesterday’s market rout, with the Dow Jones Industrial Average collapsing 2,352 points to have its worst trading day since “Black Monday” in 1987, should have been the day where Bitcoin could finally live up to its promise.
All it had to do was not drop as much as the broad market and perform similar to gold, Bitcoin would have a landmark day.
Instead, it got decimated, plunging 12% to close at $5,700.
In the past five days alone it has lost more than one-third of its value.
Gold, in case you are wondering, has lost a mere 6% in the last 5 days, and during yesterday’s market rout it only lost 0.74%.
One of those two “rivals” proved to be a safe haven and a store of value during these scary times.
The other proved to be nothing more than a speculative investment, providing absolutely no store of value.
Yesterday alone, the cryptocurrency market lost $62 billion in market cap, according to CoinMarketCap.
In the past month, roughly 50% of the value of the entire cryptocurrency market has been erased.
Store of value?
Safe haven like gold?
Not even close if you ask Andrew Button at Motley Fool.
“While Bitcoin fans were caught off guard by BTC’s dramatic slide, the truth is that it wasn’t surprising at all. Put simply, apart from the scarcity, Bitcoin has nothing in common with gold. Gold is a physical asset you could trade if global financial institutions shut down; Bitcoin can’t be used without access to a computer. Gold is as old as human civilization; Bitcoin is younger than social media. Gold is used in manufacturing and jewelry; Bitcoin hasn’t seen any practical use case outside of black markets. The two assets simply have nothing in common whatsoever.”
While the siren song of “digital gold” is alluring, it’s time we stop pretending that Bitcoin has what it takes to become a real asset class. In times of uncertainty, it failed to perform as promised.
Stocks Close In the Red After Massive 900-Point Rally Falls Apart
In what could be an ominous sign of things to come, the stock market couldn’t hold on to a massive rally yesterday. Stocks closed the day in the red.
The Dow Jones Industrial Average climbed as much as 937 points intraday. This was before it gave back all the gains and closed the day down 26 points.
It could turn out to be a turning point that many experienced investors have been predicting.
Their belief is that the rapid 20% rebound in stock prices couldn’t last. They also believe that we may eventually re-test the March 23 lows.
900-Point Rally Fails
Jim Cramer, host of ‘Mad Money’ on CNBC seems to be slowly coming around to the idea.
“Just think about the last 500 Dow points [Monday]. I don’t know. They were done in, what, about 30 minutes. That’s not sustainable. There are people who are just anxious about taking something off the table because they’ve just seen a remarkable two-day bull market, and now they’re ready to find out about … the various stages that we need to get out.”
David Kostin, the chief U.S. equity strategist at Goldman Sachs, believes that stocks are poised to fall again. He mentioned that it’s likely, if you compare it to how the market behaved during the 2008 financial crisis.
“The way I think about this is [there’s an asymmetry] in terms of downside risk towards a level in the S&P 500 of around 2,000, which is about 25%, and an upside of around 10% to a target at the end of the year of around 3,000. [That’s not symmetrical] in terms of timing. I think the risk is a lot further towards the downside,” Kostin said. He then added: “I would just remind you that in [Q4 2008], there were many different rallies, they’re called bear market rallies, some of which were almost 20% a couple of times, but the market did not bottom until March of 2009.”
“I wouldn’t be surprised if we hit 2,000 on the S&P 500 ”said Alex Chalekian, the CEO of Lake Avenue Financial.
He added “We’re going to see opportunities and we’re going to take advantage of them,” he said. “But in the meantime, there’s no rush to jump back into the market right now.”
Economic Strategists React
Peter van der Welle, a multi-asset strategist at Robeco says “From a sentiment angle, recent exceptional bounces suggest that investor sentiment is still in the denial phase, rather than in the phase of capitulation that paves the way for a new bull market.”.
In addition, Albert Edwards, a global strategist at Société Générale, said that investors hoping that monetary and fiscal stimulus can save the market through this rally have made a mistake. “This optimism is the legacy of a long bull market. Investors can’t conceive that the Fed will ‘allow’ the stock market to collapse. Think again. That was the view in 2007 too,” he said.
Finally, Goldman Sachs conducted a poll with more than 1,800 of its institutional clients as respondents. It found out that 50% believe the lows have not yet been set. The survey also revealed that 75% believe equities remain in a bear market.
Stocks Rally as Oil, Jobless Claims Rocket Higher
The stock market rally continued yesterday with the Dow Jones Industrial Average jumping 2.24%, the S&P 500 gaining 2.28% and the Nasdaq up 1.72%.
Investors felt optimistic after President Trump tweeted that he had spoken with Saudi Arabian Crown Prince Mohammed bin Salman. Many were hoping that both Saudi Arabia and Russia were willing to end the price war and mutually agree to cut production by at least 10 million barrels per day.
“Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Trump tweeted.
However, some experts are doubting the reality of cutting production by such a significant amount.
Edward Marshall, a commodities trader at Global Risk, told The Wall Street Journal, “It’s physically impossible for Saudi Arabia and Russia to get 10 million barrels a day off the market—they’d burst their onshore storage and fill every ship in sight.”
News also broke that Saudi Arabia called for an emergency meeting of OPEC and other oil-producing countries. The country called for a meeting to talk about how they can stabilize the oil market. Prices have been in freefall since the last meeting ended without a production agreement beyond April 1.
This was enough to send oil prices rocketing higher. West Texas Intermediate crude gained as much as 34% intraday before settling at $25.32 per barrel, a 24.7% jump. This is its largest single-day percentage gain in history.
Even with prices moving higher, it may not be enough to prevent bankruptcies in the oil and gas sector. This wave of bankruptcies was kicked off by shale driller Whiting Petroleum Corp. on Wednesday.
Jobless Claims Set Record
The market’s rally yesterday came in spite of some very bad news early in the day. Initial jobless claims for the week ending March 28 came in at 6.6 million. This figure is nearly double the previous week’s then-record of 3.2 million.
To put this number in a historical perspective, prior to the last two weeks, the previous record number of claims in a single week sat at 665,000 in March 2009 during the Great Recession.
To put it simply, this week’s initial jobless claims number was equal to the total claims filed during the entire Great Recession.
Chris Rupkey, chief financial economist for MUFG Banks, wrote in an email, “We knew that massive job losses were coming because of reports that many workers were unable to file a claim for benefits even after waiting on line for hours. Everywhere you look Washington and state governments were not prepared for the rapid spread of the virus and the devastating damage that would be done to the economy if businesses were shut down and workers sent home.”
He added “In a normal recession, job layoffs build over the many months of recession until they peak. In this pandemic-based recession, the job losses are immediate where the economy’s weakest hour is right now.”
Why was the market able to rally despite historically bad jobless claims?
JJ Kinahan, chief market strategist at TD Ameritrade, says it’s possible that the market knows it’s going to get worse. He also mentioned that this number won’t seem as bad in the coming weeks.
“Overall this is a little bit of a victory in and of the fact that it was such a bad number and the market did kind of shake it off. It is also the market preparing for a lot more bad numbers.”
The Next Generation of Sin Stocks to Ride Out a Bear Market
While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.
They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.
Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.
The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.
Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.
And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.
Here’s a short list of “next gen” sin stocks that we expect to do very well.
While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.
Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.
Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).
Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.
Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.
Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.
Social Media Platforms
If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.
Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)
While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.
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