For many years, since I moved to Portugal, I have learned to keep my work and my private relationships much more separate than I once did.
For most of my life on the front line of the business, colleagues and customers were the people with whom I spent most of my downtime. After work drinks etc.
I don’t think it is much different for most of you.
In our business, we are dealing with and talking about telephone numbers. Playing with amounts of money which Joe Public simply doesn't understand.
However, this weekend, over a family lunch, someone asked me about cryptocurrencies, because he had a friend who was trying to sell him some(?).
I tried to explain what I understood and had learned, and before I could finish, some of the others mentioned that they also had friends who were now selling cryptocurrencies.
As I have always said, I am no expert, but this conversation I had over a family lunch got me thinking.
Firstly, none of the people who had approached my family had any background of any significance in the world of investing. Secondly, what information my family had been given was somewhat sketchy, to say the least. But, even so, they were seriously thinking about getting involved.
I wondered, how many other people are in the same situation, how many new buyers haven’t got a clue about what they are buying into.
This is a serious worry.
As I’ve said in previous reports, I believe we are seeing a perfect storm developing, and at some point, we will see another global economic collapse. The Chinese credit crunch, payment defaults, covid costs, Green new deal, central banks printing debt, post covid increases in personal debt, rocketing commodity prices.
Our governments have been spending lots on infrastructure, which is ok if our businesses are producing goods and transporting them, but when your building roads, and no one can afford to use them, or no one is making goods to send down them, then the government spending is debt, without any productivity.
I could go on, but I think you get where I’m coming from.
Then I look at what I see in the crypto world. i.e. Everyone is jumping on it.
We have all sorts of people selling coins and related products, and too many of them, do not understand the product, the business, or the risk. Therefore, many new buyers - those we rely on the keep prices stable - are potentially very weak.
What will these people do if, or when, the shit hits the fan?
The values of these currencies are heavily based on confidence, if this confidence goes, what then?
Whilst I like the idea that there are no break-mechanisms in these currencies, there appear to be too many weak advisers and weak buyers.
This doesn't make me feel too optimistic.
With all due respect, a guy selling Real Estate or pencils, just 6-months ago, is not going to be too clever when it comes to providing hedging advice or instructing his clients on how to take a loss.
Even professional fund managers - if a collapse does come - will be looking at their margin requirements, and thinking:
Do I keep my utility shares, or do I dump some of my speculative coins?
These products did not exist when we had the last collapse, so they have not been tested. Therefore, I will not be surprised if the next collapse is worse, and this industry goes through a very bad time.
Also, consider the potentially devastating effects of government and central bank intervention.
Governments and all Central Banks will be in real trouble. They will look for places to raise capital and for people who they can make into scapegoats. They not only despise Cryptocurrencies and De-Fi but there are also trillions invested in this arena, making the industry a good target, in my book.
I’m not knocking the industry, it has a lot of merits, and the professionals involved will know exactly how to advise their clients. But he newbies, those who are selling products to a multitude of punters with weak hands, these people will add to our woes.
My pessimistic view of what might be around the corner may be completely wrong, and hopefully, it is.
But what if I am right?
Do we think that last month's real estate agent or pencil seller, has the understanding to discuss out of the money, S+P PUTS, or indeed does he know whether he should be buying Bonds or selling them!
I’m lucky that I am working with guys who have been around a while, people who have traded multiple products, and been through at least 2 “boom and bust” scenarios. And obviously, many people are working at other companies, who also have vast experience.
But that is not the case everywhere.
We will, and we can only, advise our clients as best we can. And I know, when grown-ups promote buying a product, the advice comes with an exit strategy (unless they are stockbrokers, who have an uncanny knack of making short-term speculations, long-term investments, if the price drops).
I asked over my Sunday lunch, what was the strategy, what were the products they were asked to buy.
The answers, buy bitcoin as a hedge against inflation and a drop in stocks, no exit strategy is mentioned.
My family, as with my readers, are responsible for their own money, and what they do with it. I told them, what I tell everyone else:
Don’t listen to the noise, spend time doing your own research, and then make a decision.
Only time will tell.
UNTIL NEXT TIME
GOOD LUCK AND GOOD TRADING
The Old Man