The Zigmont Report (Daily Market Recap for 12/11/17)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

Back to normal.  The news of the day was snooze-worthy, capital flow was light at 95%, and US equities rallied about 0.3%.  It looks like bullish continuation on autopilot if you ask me.  The big topic of the day was Bitcoin (BTC).  The futures on CBOE started trading on Sunday and continued today.  Volumes were pretty light (about $70 million total volume) but the futures were halted twice because of rallying into upside breakpoints.  Bitcoin’s appreciation is so great that it has captured the attention of every financial media outlet and almost every market-watcher.

  • BTC is up 120% in the last 30 days ($1 became $2.20)
  • BTC is up 2,100% this year ($1 became $22)
  • BTC has appreciated at a 420% annualized rate for the last 5 years ($1 became $1,308)
  • BTC has appreciated 58,000% in 7 years ($1 became $58,000)
  • there’s no sign of this thing stopping.

The question of the moment is: “Is Bitcoin a bubble?”

The people who say no… think it’ll go up to $100,000 or even $1 million per BTC.

The people who say yes think it’ll go up to “who knows where.”

Believers and skeptics *all* seem to agree that Bitcoin will continue higher.

It really comes down to how much more traditional money, Dollars, Euros, Yen, etc., will buy into Bitcoin.

I don’t know how much more demand is out there and I don’t think anyone else does either.  If I were a Venezuelan citizen, maybe I’d be buying BTC.  Supposedly, there’s a BTC frenzy in South Korea.  I heard that in the Middle East a cleric (or group of clerics) officially said that Bitcoin was compatible with Islam… and it spurred a rumor that a Kuaiti investor was creating a $100 MM fund to invest in BTC.

As far as I can tell, this is an unverified (and likely false) story, but the drama is real and the buzz around BTC is undeniable and unprecedented.

I think some dot-com stocks had runs as big but I may be misremembering… and I’m pretty sure nothing had a multi-year run like this.

My point here is simply that we have a lot of hype surrounding something that almost everyone admits *they don’t really understand* and *don’t really know what the future holds.*

Is that a sign of something else?

Others have posited, and I agree, that BTC is the poster child for speculation in general.  Whatever speculative spirits are swirling through US equities, a more powerful vanguard pulses through BTC.

I still think BTC is the risk-on canary in the coal mine.  When it goes, traditional assets classes are going to go too.

Not because they are directly linked but because they are sentimentally linked.  We are in a gambling mindset.  The future, without specifics, is generically justifying all valuations.  It’s probably going to continue for a while too.

I wonder if the rate hike on Wednesday will even pause things.

See you tomorrow,