Tuesday, July 02, 2013
Team Macro Man could not help but notice the Winkelvii are launching a Bitcoin ETF. Now, some of TMM are known for nasty, nasty put downs and angry letters to the editor type behavior so we will try to keep this brief -
ARE YOU MAD?????????
Someone on one of Team Macro Man's chats recently described this ETF as a Rorschach test of what people think of digital currencies. That is utterly wrong: it's an IQ test. Bitcoin is anonymous, untaxed (for now) and quite liquid in and of its own right despite all the complexities of a cryptocurrency. A bitcoin ETF is taxed, has fees, may or may not be liquid at all. So, this is really a test: do you want to facilitate the exit of the Winkelvii from an investment at inflated levels which they will soon be taxed upon or do you want to sit this hand out?
Excellent. You and TMM can wait for this deal to fail miserably and you can back bid the Winkelvii at much lower levels which they will almost certainly hit since they are US citizens and unlikely to have any means to avoid being taxed upon bitcoins when the IRS comes knocking.
This brings TMM to the psychology of anchoring and herd mentality. Suppose we told you there was this thing bitcoin and we issued a research report all about it. Maybe you buy it, maybe you don't. But if we issued a research report and showed your real money asset allocation competitors gave it a 1% weight, TMM are pretty sure you would at the very minimum think twice about it. This gets down to the way to sell something bizzare and new - call it an asset class. Just as Bonds become "investment grade " when they move up to BBB, so it appears any thing with a price that moves, however spivvy, becomes investable if it can be promoted from "Betting on a horse" to "Asset class".
TMM have noticed this as a growing theme having also just received an invitation to a conference inviting them to learn about "Volatility as an Asset class". Now we know that volatility funds are prolific but does that actually make volatility an asset class?
The key features of something that can be seen as an "asset class" is that its cashflows and the drivers thereof, are somehow independent or unrelated to other existing asset classes. TMM think that if it looks and quacks like a duck then it's probably a duck and not something entirely new. To that end new asset classes such as MLPs and the like are just underlying assets with slightly different taxation for certain entities - a big pipe is a big pipe at the end of the day.
Now this of course does not apply to assets without cashflow such as bitcoin and gold and you are free to define new asset classes however you please IF THEY TRADE THAT WAY. But herein lies the problem with true speculative assets - their ability to diversify and behave like something new and different is driven by positioning. If it's crowded it probably won't work unless the money keeps coming in. So TMM think that as the general USD squeeze continues and the pain spreads, it's worth getting back to valuation 101 and asking oneself simple questions like: can this company pay me back? Will this company grow? Does this country have the asset base or the ability to tax to pay me back and where are the factor pressures that drive inflation?
TMM know this doesn't provide much counsel on gold but perhaps our readers should move on from Wink-evil's latest "asset class" (ahhm), much like everyone else.
That is once they have signed up for our conference (at an early bird discount rate of $1,999 per day) launching TMM as an asset class.