This week, much of the talk on Wall Street was around Bitcoin. The cryptocurrency crossed the psychological barrier of $10,000. It then raced up to $11,000 before crashing. However, the CME received approval from the CFTC to begin trading Bitcoin futures on December 18th propelling it to back up once again.
On this week’s show, Karl discusses what it is and why it may be dangerous in the short-term.
Also on this episode, the Senate is trying to get the votes for its tax reform bill and looks to have them. But, just as Wall Street was celebrating that, the Flynn news broke that could impact President Trump. Volatility ruled the day on Friday.
Karl Eggerss: Hey, welcome to The Eggerss Report. My name is Karl Eggerss. Thank you very much for joining. We appreciate it as always. Just a reminder, our website is eggersscapital.com. E-G-G-E-R-S-S capital.com. There’s a lot of information on there. In fact, so much information that we have a button on there that says “Financial Education.” And we also have the blog. It really takes you to the same place. It’s all the things that we post throughout the week. We try to post things that are relevant to you. Things we think you might be curious about, and might be wondering about. Obviously right now, it could be Bitcoin, which we’re going to talk a little bit about. What’s going on in the markets, of course. Really, a busy week in terms of news and in terms of movement. There’s some very important things going on.
Our telephone number, (210) 526-0057. Website, eggersscapital.com. Just a reminder, we do have our Technical Tuesdays, our YouTube channel. Just search Karl Eggerss. K-A-R-L-E-G-G-E-R-S-S. For those of you that have a little more technical mindset and like to look at charts, we do that on Tuesdays when we can. That’s on our YouTube channel. We also have a Twitter feed @karleggerss is my Twitter handle. And Eggerss Capital Management’s on Facebook. We are on Instagram. So a lot of different ways to get our information, but of course, eggersscapital.com is the best way. You can even subscribe to our information for free, right there. We’re getting new viewers and listeners each and every week from all over the world. Talked to people in Arizona, and people in Florida, and people in Michigan, and talked to a gentleman from Israel this week. Getting a lot of different people from all over the world, and that’s what the internet has done. So welcome to the podcast.
First thing we’re going to do is go over some of the winners and losers this week. It was a pretty fluid situation all the way up until the closing bell on Friday. Let’s start with the winners. You can probably guess the biggest winner on the week. The GBTC. This is the Bitcoin Investment Trust. This is something interesting, and we’re going to spend a little time in a minute talking about Bitcoin. The Bitcoin Investment Trust was up 55% this week. Yeah. This week. For the year it’s up 1150%. VIX, the volatility index had a little spike, and it could’ve been much bigger. It was up 20% at point on Friday. Finished flat on the day, which is amazing, but it still finished up 17% for the week.
I want to point your attention to a couple of other things. Railroads were really big. I draw some of these pictures on Eggerss Capital Management on the Instagram feed. I put it on Twitter. We have an [inaudible 00:03:48] ETF charts on Twitter as well. I put these pictures up showing people these shorter term technical set ups, and some of the things we don’t participate in because they’re short term in nature but they’re very important. Why we show them, in fact, a couple of weeks ago we were talking about the economically sensitive areas of the market were looking pretty good. It made sense, because we believe the economy is re-accelerating. We pointed to railroads. Since we’ve pointed to that, that thing’s up almost 9% since that time. Transports were up 6% this week. So we’ve been showing that. We showed some pictures of retail, and retail has broken out, which we really like. Airlines doing very well, which we also own and one of our strategies. You’re seeing these economically sensitive areas do very well. Those are some of the biggest movers on the week. And then banks were also very big. About 6% this week.
On the downside, the semiconductors … this was another one. I put a picture up during the week about that they looked vulnerable. And vulnerable doesn’t mean it’s going to fall, but to me, it looked vulnerable based on a couple of technical patterns. Sure enough, we saw a down 4% day, which was the day that, Wednesday, the technology sector got really hit. The FAANG stocks got really hit. The Facebook, Apple, Amazon, Netflix, and Google. Since that time, you can see the semiconductors were down, like I said, 7%, 8% total. We also saw the foreign stocks fall off. We saw copper, which is hanging in there, but it had about a down 3% week. And then technology was down. Remember, we had technology down quite a bit Wednesday, as I said, for not a big reason. But we did see this shift. It’s important to watch this, because we’ve been talking about it. At some point you’re going to get more of a permanent rotation, I think. Not because we don’t like technology. It’s just sometimes people wake up and say I’m going to take profits in one area, and I’m going to look for bargains. There are bargains in this market still, believe it or not. You may see this rotation continue.
We saw a little bit of that on Friday when the market sold off based on this Flynn news. When the market sold off, you saw things like commodities, gold, bonds, some of these things that hadn’t been doing too hot start to perk up. Energy stocks continue to look good to us.
Let’s go through a couple of things that happened this week. Number one, we saw that Bitcoin crossed 10,000 on Tuesday. Of course on Wednesday, it drops 20%, and it pretty much crashes, and then recovers. Not all of it, but it recovered a lot of it. That was the day the tech stocks got hammered. Of course, Thursday market comes back, rallies really hard, because McCain says I’m going to be a yes on tax reform. We were anticipating a Thursday night, or Thursday evening, vote from the Senate on their tax bill. Everybody’s anticipating it, and all of a sudden we see that a couple of people, including a senator named Ron Johnson, say, “Hold on a sec. There’s a couple of things we don’t like about this.” So futures are down 100 overnight.
Listen, the gentleman that said, “I’m not on board with him,” I agree with him. He and one other gentleman, I don’t have the name in front of me, but these two senators said we need more benefit from these pass through entities. This is really important, because pass through entities are the lifeblood of our economy. These are small businesses primarily. Pass through entities would be a partnership, or a S-Corp. S-Corp income flows onto a personal income tax return. You just get taxed as the same rate if you have an S-Corp that you do as your personal. What these guys are wanting to do is actually that tax rate and make it lower for these pass through entities. So they said hold on, and so we have seen some negotiation for that. Now they say, “We’re on board.” Looked like they had the votes for that.
So the market’s humming along, everything’s fine. Then we get Friday mid-day, early mid-morning, I guess, the news that Flynn agrees that he did lie and has a plea deal. He’s going to essentially testify against Trump, knowing that he tried to contact Russia before elections and so forth. The market drops off about 300 points very quickly. I tweeted out that Friday was all about Flynn versus tax cuts. Which one was going to be more important to the market? I know which one I would be betting on is tax cuts. And the reason why is because politics may move the markets in the short term, but tax cuts, earnings, interest rate, those things are what move stocks over the long term. Not political news events.
And by the way, if you don’t believe that there was a Trump bump last November? Then the subsequent fall on Friday, when this news came out, that hurt the market, shouldn’t be related. Right? You can’t have your cake and eat it too. If there’s a Trump bump, then it would make sense that if Trump isn’t there, because he gets impeached or something, the market would fall. But for those that are saying, “Man this market went down because of the Trump news,” but yet they don’t believe in the Trump bump, those two things don’t reconcile.
Interesting to see all that, but very volatile news week. Really, this market, the last few weeks has been anticipating a continual dovish Federal Reserve. We got a new Fed chairman coming in. Seem to be we need lower for longer. We need interest rates … Yeah, they’re going to go up, but we’re not quite where we need to be in terms of full employment, which means I want to keep rates lower. That’s what the market interpreted. Then we get real economic data showing growth is continuing to accelerate, which important. Not that we’re growing, but the growth rate itself is going up. That was important.
Then we got this tax cut, which, again the people that are against the tax cut I can see why they’re against it. The folks that are for it I can see why they’re for it. I am wanting it to go through, but I agree that it isn’t going to do as much for the average Joe as people think. But it’s funny for them to say, “I don’t know. How are we going to pay for this tax cut,” when they don’t want to cut spending. That’s the hard part. We need a tax cut. There’s some things I wish were better, but we do need a tax cut. So the market’s going well on its way, and then we get this rock dropped in the pond, which is this Flynn testimony, so to speak. The market goes haywire for a little while, but still managed to claw its way back, because as I said, tax cuts dwarf that news. That’s what we saw.
For the people who have been saying, “I want to buy the dip,” they actually did it on Friday, because we saw the market bounce back. What’s interesting is if you look at years similar to this year, going all the way back, I don’t know, going back to maybe the fifties or the forties, even the thirties. Basically, since the Great Depression … there’s ways to calculate this. Bespoke does a good job of this, but they went back and looked and said years that are similar to this, in terms of the pattern, how have the markets done the rest of the year? On average, the rest of the year the market’s gone up another 2%. About 80% of the time it’s been positive. Even if it does go down, it’s been down about 1.4. History is on the bull’s side. If you own stocks, and you’ve made money, generally speaking you’re going to make money the rest of the year.
When January comes, it may be a different situation given the fact that we’re on a new tax year and we could see some rotation into some things. Let’s wait to see on that, but the market continues to leave a lot of people behind that don’t believe it should be going up. I constantly talk to folks who say, “I’m waiting for this thing to pop. I’ve got cash sitting here. I’m waiting.” If you don’t have a systematic plan to get into the market, not now, not all, but a systematic plan, you’re probably doing it wrong. You’re probably going to wait too long, because the people that said, “Boy, Dow 13,000. That’s too high.” Now the Dow’s at 24,000. Now what do you do? In other words, even if the market corrects 10% it’s still way higher than where you were hesitant to get in. That’s the problem with waiting. So you have to have a systematic way.
What we like to do is for clients that come to us that have a tremendous amount of cash percentage-wise, what we do is we like to go in and take the income portion, the things that we want for income that are more stable, and get those started right away. Get those invested right away, because there’s no sense in waiting. When it comes to the stock market, there has to be a little more finesse. If you’re buying individual stocks there are stocks that are always looking good. There’s stocks that are at a bargain, and they’re good to buy right now, regardless where the market is. Don’t worry about the market, these are good deals. Pound for pound, I’m buying profits. That’s the real benefit of buying individual stocks is that I can say this stock looks cheap, that stock looks cheap, this stock looks cheap, and go buy them without really worrying about where the stock market is.
When you’re buying ETFs, broad baskets of the stock market itself, then you have to worry about what level the market is, how expensive it is, how cheap it is, and you get the timing right. That’s the part we may average in, or maybe take our time getting that part invested. There is a method to the madness in terms of getting from A to B. But if you’re still sitting there going, “I just don’t know what to do, because it feels like it needs to come down,” your feelings … Nobody cares about your feelings. Right? Wall Street doesn’t care about your feelings. You have to put a plan together, and then take action on it. Again, that doesn’t mean throwing everything in at one point.
This week we saw that, but really some of the big news, still, is Bitcoin. What’s interesting is I’ve been … if you’ve followed my work for the last 10 plus years, we’ve talked about Bitcoin for a long, long time. Full disclosure, I’ve never purchased it. Should I have? Perhaps. We all wish we would, but that’s the problem is that the only reason it’s garnering any interest now is because it keeps going up. What a dumb reason to want something. And this is how the investment world works. When something gets more expensive, people want it. Why weren’t you buying Bitcoin three years ago? It was a heck of a lot cheaper. Why weren’t you buying it a year ago? Because it hadn’t gone up. Isn’t that silly? Wouldn’t you want it when it’s cheaper? But that’s not the way it works.
Go look at the Google trends for Bitcoin searches. It’s higher than searches for President Trump now. That has changed. It’s only because the price is going up. Nobody understands it. I shouldn’t say nobody, but most people don’t understand what they’re even doing. They’re trying to go buy some simply because they want to get rich quick. You and I know, over the history, get rich quick schemes don’t work. They don’t work. Will people make money from cryptocurrencies? Yes. Will they make money from Bitcoin specifically? Yes. Is Blockchain a revolutionary technology? Yes. Those are all true, but you have to step back and say, “Why am I interested in it? Am I interested in it because my neighbor told me about, and because it’s gone up 1100% this year?” That’s why people are interested in it.
I will say, this week, for the first time I had people asking me about it in a little bit more of a way of … essentially reading between the lines, I want some. People have asked me about it in years past, and kind of, “What do you think about that?” Now it’s, “Huh, how do I buy that?” That is a concern for me. There’s going to be people that lose a lot of money, because right now Bitcoin and cryptocurrencies are the Wild West. I talked to a gentleman this week who knows a little bit about it. He told me there was a person on YouTube who was really good at trading these and knew everything about it, but his comments were turned off on YouTube and he couldn’t figure out why. When he tried to research this guy, very difficult to do so. What did he do? He kept snooping around the internet, finds out this guy is wanted for money laundering all over the world. That’s what’s going on here, so be very, very careful. Because it is the Wild West. The regulators can’t catch up fast enough to what’s happening.
We did get, on Friday, the CFTC said, “Yes, we will have … the Chicago Mercantile Exchange has been approved to start trading Bitcoin futures on,” I think, “December 18th.” Here’s what I think’s going on with Bitcoin specifically. Remember there’s a lot of cryptocurrencies out there. Bitcoin’s just one. What’s happening with Bitcoin, which I believe has a bigger market cap now than, I believe, MasterCard, GE. It’s pretty amazing. What’s happening right now, I think, is that when you went into Thanksgiving there’s a lot of jokes being sent around about how Bitcoin was going to be the talk around the Thanksgiving day dinner table. There were some jokes about how to talk to your parents about Bitcoin. Really funny articles. That really did happen, and we saw something like 100,000 accounts opened up at one particular place that trades Bitcoins in 24 hours. Obviously, people are talking about it. They literally went and did it. But you almost have a one-sided market right now, don’t you? Yes, people can sell Bitcoin, but people that have owned it for the reason it was invented in the first place aren’t selling it. There’s some people who think it’s going higher, and aren’t selling it. You really didn’t have a balanced market. You just have all this demand. Bitcoin goes parabolic. Goes vertical.
What I think is going to happen is more liquidity is going to mean some volatility, and could mean some downward pressure. When they start trading futures, Bitcoin futures, that was a good thing. You saw Bitcoin jump up when that got approved. But when it actually happens, because they’re going to be able to trade Bitcoin futures, that means there’s going to be ETFs created. It’s going to open the flood gates on the types of ways for you to invest in Bitcoin. A lot of different ways. Not just buying the actual coins. That’s going to create a little more liquid market, which in the big picture’s a good thing. But I think it’s going to create some supply for people who want to short it. Watch Bitcoin and cryptocurrencies over the next couple of months, and watch what happens. It’s going to be very interesting to watch. I continue to watch from the sidelines. I don’t have a dog in this fight.
I think that I’ve got people in my office that are on different sides of the table. Again, you can’t argue with the fact that the technology behind it is revolutionary, if you understand it. You also probably can’t argue with the fact that paper bills and nickels and coins aren’t going to be here, and we’re going to go digital. Who controls it, or doesn’t control it, and how it’s regulated, and which countries do it and don’t, that’s the part that’s up in the air. Remember, all these different cryptocurrencies have different algorithms they run on. Some are created by different institutions, and it’s very interesting. You need to learn about it, but please do not run out and buy it simply because it’s going up. I’m hearing a lot of people … you can imagine in my business.
When I go talk to somebody that I haven’t seen in a while, everybody wants to talk about finance. They want to talk about stocks, the market. Now it’s shifted to everybody wants to talk about Bitcoin with me. I’m prepared for these conversations, but I keep tally in my head. What people are concerned about, what they’re talking about, what they’re bragging about. Right now, I’m starting to see it, where it’s not just a curiosity, it’s a I want to take action type of mentality. I hear younger people wanting to put their savings in Bitcoin, and man, oh man. Just be careful. That’s all I’m saying. That really was one of the most dominant things on the street this week was the talk about Bitcoin and the price movement.
It’s kind of backwards, but I want to give you some real … ran across an article, just give you some real generic definitions of Bitcoin. What is Bitcoin? Let’s start there. Bitcoin’s a peer to peer digital cash system that can be used to make anonymous, that’s funny, but also totally transparent payments without the need for assistance from financial institutions. That’s what’s interesting is that it’s a way to facilitate transactions is why it was invented, to circumvent the banks and say we don’t need the banks to be the middle man. It says it’s anonymous but transparent. The reason they say this is because there is a ledger kept on all transactions. It’s just the identity is encrypted.
This is where it also is interesting. This really started in 2009. If you go back, it probably started before that, technically. But 2009 is when Bitcoin started, and Satoshi Nakamoto is the cryptographer who invented this. Some people believe this is not the person’s real name. A lot of mystery behind this particular individual, if it is an individual. Where is it kept? It’s digital. These aren’t actual coins or notes. It’s kept in your virtual wallet, like a bank account.
The Blockchain, what is Blockchain? Bitcoin is based on a technology known as Blockchain. It saves each and every transaction, and it’s publicly viewable on this ledger that I was talking about. It’s stored on these computers. Keep in mind that these things can be mined. We see the price of Bitcoin moving around, and it’s because it’s being bought and sold. Of course, people are day trading it. People are buying and selling it from a speculative or investment … for reasons. For profit. But also, people can mine it. You can actually buy these computers that mine it. That essentially create them. But it takes up a tremendous amount of power, which has cost to it. So there’s this return on your investment, how long is it going to take and doing all those calculations? It’s becoming harder and harder, because there’s only so many Bitcoins that’ll ever be mined.
That is, in a brief nutshell, if you’re saying, “I jumped in on the conversation about Bitcoin, what is this thing again?” We’ve talked about it numerous times. You can go search “Bitcoin” on our website, eggersscapital.com. We’ve done interviews, we’ve had articles, we’ve drawn charts. We’ve been talking about this for a long time. But nobody cared, because it was only at $700, $800, $1,000. Then it was $2,000. Then it was $4,000. The people started to say, “What is this thing?” And then it was 6, and 8, and 10, and 11. And then it went back to 9, and then it went back to 10. Now they care. Now they care. That is what Bitcoin is. Normally, we don’t spend a tremendous amount of time on it, because for right now most of you it doesn’t impact you at all simply because you’re not involved in it. But it will eventually impact probably most of us down the road.
Just to wrap up the show today, what we’re saying right now is, again, the economy accelerating. The stock market saw some bad news on Friday. Overcame that. We think it probably continues to run into the year, but it is stretched. If you look at the market relative to some of its moving averages, it’s stretched. It’s overbought right now. All that simply means is it’s probably going to pause a little bit. May pull back a little bit, and that’s okay. Right now, economically things are looking okay. Technically, they’re still looking good in the longer run, and you simply don’t have a lot of supply. That just means there’s not a lot of willingness on the part of investors that want to sell. Occasionally, they don’t want to buy either, because everybody has enough stocks, but we haven’t seen that. We’ve seen people, obviously, wanting to buy a little bit, and that pushes up prices. But it’s not overwhelming demand just yet, but we’re still seeing demand greater than supply, stocks continuing to go up. Keep that in mind, but we are still a little stretched.
You saw the vulnerability of the stock market on Friday when a little bit of bad news comes out, and how quickly things can change. The Dow dropped 300 points within seconds. That may be what 2018 looks like. By the way, I think 2018 is going to be the year of commodities. I think if there’s one thing we could pin point about 2018, it may be commodities. There’s several reasons. Over the next few weeks, we’ll talk about more about commodities and why I think that is.
All right, guys. Have a great, great weekend. Don’t forget (210) 526-0057, eggersscapital.com is our website. We’re on Facebook. We are on Twitter @karleggerss. We are on iTunes, if you want to go to the Apple podcasts and listened to the podcasts there. We’re on Spotify podcast now. We are on Instagram, eggersscapitalmanagement. And we have a fairly new Twitter handle, @ETFcharts, if you just want to look at some charts on ETFs, and some good set ups, or things that look vulnerable or negative. We post those every week. That’s about it. Have a great weekend, everybody. We will talk to you next week on The Eggerss Report, you’re investing play book.
Speaker 2: This show is for entertainment only, and information provided by the host, guest, and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research before you make those decisions. As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment. Or get yourself a trusted advisor.