The ‘Tormented Bull’ Trade We’re In Now

The ‘Tormented Bull’ Trade We’re In Now

Bitcoin is showing some remarkable resilience right about now. We’ve just come over the news that China is going to ban initial coin offerings.

Now comes the rumour that the head honchos in Beijing are going to ban crypto exchanges completely inside China.

In theory, this should be like a kick between the legs for the price. A lot of demand comes from here. Except bitcoin is holding up. It’s still over US$4,000.

The news — both good and bad — just keeps flowing here. Major US bank chief Jamie Dimon, who heads up JP Morgan Chase, has come out and said bitcoin is a ‘fraud’ and ‘worse than tulips’.

Then we have another report saying a Swiss town will accept bitcoin for tax payments.
Bitcoin is not for the unopinionated!

The developments in China might be overhyped.

As we’ve discussed before, China banned bitcoin in 2013 and the price tanked then. It came back. Some say the Chinese are merely giving themselves time to evaluate what’s happening so they can put some rules down.

Can they even stop it? I’m not sure.

We’ll see! But you have to agree the bitcoin story is not over yet — by a long shot.

That reminds me…

Crypto debate obscures trillion-dollar economy

Back in July, your Daily Reckoning service pointed out the hot market for Italian debt from private equity. We came to the conclusion: ‘The EU is on the mend as we speak. Invest with this in mind.’

The Financial Times reports that Italian banks are recovering. Italy is beginning to rev up.

I’ve made the case that this was one of the biggest things holding back Europe. That’s because Italy’s previous problems has restricted the banks’ ability to extend credit to the private sector. The more this improves, the better!

Italy is a major economy. Its GDP is now growing at the fastest rate since 2011.

While bitcoin and cryptos hog the headlines, what happens to Italy matters more. Italy’s economy is over 10 times the size of the crypto market.

That’s another thing. We’ve also been tracking how low energy prices, stemming from US shale, could benefit Europe.

We can add a little more to this, but closer to home. The Australian reported yesterday that ExxonMobil will cut the price of the LNG it’s selling to Indian energy company Petronet. This is gas that comes from the Gorgon project in Western Australia.

In 2009, Petronet signed a 20-year agreement to buy 1.4 million tonnes of the stuff from Gorgon. But there’s such a glut around the world that it’s been bucking for a discount.

This, of course, cuts the profitability of the Gorgon project, and puts other LNG producers under pricing pressure as well.

That’s their problem. A lower cost of energy is a massive benefit for the world as a whole.

Just think of what a boon this could be for the massive and energy-hungry markets of China and India…

Two global giants breaking out

It’s of note that Indian small caps are having a fine old time of it this year. The iShares MSCI India Small Cap ETF is up 44% since the beginning of 2017.

I find it hard to believe the world is going into some sort of depression with this happening.

And the amount of securities associated with China that are making fresh, 52-week highs is really sticking out.

Take a look at this list from yesterday’s market in the US…

•       iShares MSCI BRIC Fund
•       Global X China Financials Fund
•       WisdomTree Emerging Markets High Dividend Fund
•       iShares China Large-Cap Fund
•       KraneShares E Fund China Commercial Paper ETF
•       KraneShares CSI China Internet Fund
•       iShares MSCI China Index Fund
•       Guggenheim China Real Estate Fund

We also have US stocks hitting fresh highs again overnight (our time). Of course, you also have to be wary when everything looks rosy. That’s when the market can deliver a nasty shock.

But I’m in agreement with US Goldman Sachs analyst David Kostin. He said he viewed a major correction in stocks as unlikely because there’s a total absence of investor euphoria.

Kostin says investors are torn between scepticism and optimism, and calls them ‘tormented bulls’.

That’s a nice phrase, and sums it up perfectly in my mind. Certainly, I just see too many positives around the world to stay bearish on the economic outlook in general.

That could make the rest of this year, and 2018, very exciting indeed.


Callum Newman
Editor, The Daily Reckoning Australia