Tag Archives: WTF?

Irrational exuberance continues plaguing Bitcoin

2013.12.IgnoranceBank of America has now initiated coverage of bitcoin and puts a fair value price target at US$1,300, which depending on your view, either validates or discredits the digital currency. Personally, I have no skin in this game, I appreciate and am fascinated by the theoretical construct, but am put off by the breathlessly brainless hype surrounding it and one doesn’t have to look far to see bitcoin’s limitations.

With that said now, the BoA report link is here, and as far as I’m concerned, the most important stuff comes in at page 6, in the section entitled, “How to assess Bitcoin’s fair value?”

I admit up front I have yet to come up with a viable answer to this question, but if I may say so, I am expert at recognizing bullshit when I see it. And BoA analysts make what even they concede are very big assumptions here, but if you know the assumptions are “big” (read: unrealistic), then why bother going on about it in the first place?

Anyway, taking this piece by piece, some of the outlandish assumptions that lead to a “fair value” price of $1,300, as far as bitcoin’s value as a medium of exchange:

Given the assumption that Bitcoin will grow to account for the payment of 10% of all on-line shopping, this would suggest that US households would want to have a balance of $1bn worth of Bitcoins.

…given bitcoin’s famous finite supply cap at 21 million units, the math here isn’t quite doing it for me.

What about for the whole world? US GDP is about 20% of World GDP. If we were to assume the same degrees of penetration of e-commerce for the rest of the world and that spending by households outside the US has the same velocity, we get to $5bn worth of Bitcoins for the total desired cash/noncash balance of global on-line shopping.

…sure, but both of those assumptions are not just wrong but shockingly ignorant about how the world outside the United States operates. I don’t need to spell this one out further, do I?

In addition to its role as a mean for payment for on-line commerce, Bitcoin can be used for transfer of money (e.g. immigrant worker in the US sending remittances back home).

…the average immigrant worker in the US sending remittances back home is a) Latin American, and b) traditionally very distrustful of all financial mechanisms or intermediaries that are not cash; further, this average immigrant worker would require a level of facility with the internet that various studies simply do not bear out.

Western Union, MoneyGram, and Euronet are the three top players in the money transfer industry (with about 20% of the total market share). Let’s assume that Bitcoin becomes one of the top three players in this industry.

…actually, let’s not, for all kinds of practical reasons. See previous two rebuttals to begin with.

A thought just occurred to me: maybe this is a practical joke — like the Onion!

As far as bitcoin somehow serving as a store of value, the entire discussion here appears LSD-induced, with the following statement perhaps being the biggest whopper:

If we were to assume that Bitcoin were to eventually acquire the reputation of silver (which is an extremely ambitious assumption), this suggests that Bitcoin market capitalization for its role as a store of value could reach $5bn.

WHAT?

This is the metaphorical equivalent of saying that assuming gravity were one-tenth its current force, I could leap tall buildings in a single bound…and then going on to design a workout routine that does indeed involve me leaping tall buildings in a single bound.

Someone’s living in unreality and I’m pretty sure it’s not me. 

More evidence of a Bitcoin bubble

If this isn’t proof enough of a Bitcoin bubble, I don’t know what is:

2013 December Bitcoin

Actually you know what? I think there is better proof: THIS.

Charts of the Day: The Future Of Emerging And Frontier Markets

CarnacTheMagnificentThanks to Ernst & Young, I’ve got my retirement destination all picked out: Turkey.

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young,  which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector. 

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you  can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

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Taxation With Representation, By Mustafa Mond

I am pleased to present a new guest contributor today, who goes by the tag of Mustafa Mond, presumably inspired by Aldous Huxley’s Brave New World.

In recognition of today as that annual rite of American citizenship–Tax Day–Mr. Mond has graciously offered us a piece of his mind.

Ladies and Gentlemen, Mustafa Mond: 

Democracy-Taxation-With-Representation-Mustafa-Mond

The first person to correctly identify all the references here will receive a prize to be determined at a future date.

What The BRICS Really Have In Common

2013.03.28.BRICS as The_Breakfast_ClubSometimes news editors exercise such brain-dead judgment that it’s a wonder journalism as a practice even survives.

That sentence was one of a few I conjured up as a possible lead-off thought. Well, technically, it was the only sentence, since the rest are thoughts posed as questions. Here they are:

Is the BRICS Durban conference officially the acronym’s 14th minute of fame?

When will the country grouping of France, Uganda, Chad, Kenya, Oman, Fiji and Finland finally supplant the BRICS as the political economy cadre du jour? What about Bulgaria, Uganda, Lithuania, Latvia, Spain, Haiti, Italy and Thailand?

2013.03.28.bric_summit_durbanDoes anyone honestly still believe in the BRICS as an investment theme?

Am I the only one seeing that Brazil, Russia, India, China and South Africa may actually have less in common than a brain, an athlete, a basket case, a princess and a criminal?

What drives this apparently human need to shrink everything down into bite-sized archetypal infonuggets?

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A Perfect Example Of Why Diplomats Should Never Be Trusted On The Economy

2013.02.26.Mexico gdp forecast calculationYes, that’s right: NEVER. War, yes. Economy, no.

I know this has been a very Mexico-heavy week, but there’s been a lot of activity here and I’m angling for some other things coming next week, so stay tuned! In the meantime, chalk up another gushing go-go-pro-Mexico story, this one from the Globe and Mail of Toronto, in which Canadian Foreign Affairs Minister John Baird unleashes this whopper:

“Mexico, in our lifetime, is going to be a top-10 world economy, and potentially in our lifetime, a top-five world economy.”

This is more than just irrational exuberance. I’m tempted to call it a lie, but then that would imply that there is an absolute truth, that Baird knows that absolute truth, and is willfully concealing it while vocally professing the opposite to be true. And I can’t prove that. But what I can prove is that this statement is nothing less than Bullshit.

Consider the 15 largest economies as measured by nominal GDP in 2012, according to the IMF (figures in US$ billions):

1. United States: 15,653.366
2. China: 8,250.241
3. Japan: 5,984.390
4. Germany: 3,366.651
5. France: 2,580.423
6. UK: 2,433.779
7. Brazil: 2,425.052
8. Italy: 1,980.448
9. Russia: 1,953.555
10. India: 1,946.765
11. Canada: 1,770.084
12. Australia: 1,542.055
13. Spain: 1,340.266
14. Mexico: 1,162.891
15. South Korea: 1,151.271

Now here’s how the Economist Intelligence Unit is forecasting Mexico’s real GDP growth out to 2030:

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Chart of the Day: What the Big Mac says about Eurozone prices

Borrowed Bruegel (source link here):

“…the Big Mac tells us that Italy is the most expensive place in the euro area. A Big Mac costs €3.85, while it costs only €3.6 in France and 3.64 in Germany. Or to put it in percentages, in July 2011, Italy was overvalued by 2.9% while in January 2013, it was overvalued by 5.7% relative to Germany. Of course, you may just as well say that Germany was undervalued… but then, the adjustment in Germany seems to go in the right direction but not in Italy in these last one and a half years.”

2013.02.11.Big Mac Euro 1

2013.02.11.Big Mac Euro 2

Intelligence, Super Bowl XLVII Edition

Considering that some three-quarters of the regular readership for Diverging Markets is physically somewhere outside the United States, I thought I’d put a few things on the table today, being the last business day before that annual rite of proud American consumerist gorging otherwise known as the Super Bowl.

Let’s get the game day stuff out of the way first. Deadspin the other day put up a very impressive map which I suppose it retrieved from Facebook showing the geographic clusters of teams’ fans throughout the United States broken down by county.

For the non-Americans among you, consider that it’s a matter of time before Facebook figures out how to do the same thing worldwide for European football, cricket, rugby, Formula One, Aussie rules, hurling, curling and all that other great stuff I never would have learned to appreciate if not for spending half of my post-college life somewhere abroad.

Now then, the map:

2013.02.01.Facebook NFL Map

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From the Department of Feeling Good: The Importance of Acknowledgement

Normally I downplay lengthy videos because I recognize that we’re all time-stretched and attention-deficient, but in this case, a) this will have a direct and immediate impact on your income potential, b) the speaker here is a renowned expert in the field and c) it’s holiday season so you’re not getting any work done anyway. Plus, all contemporary forms of media depend on this precise topic for survival. So if you can manage to just unplug everything else for about 15 minutes, I think you’ll find this worth your while. Ladies and gentlemen, Christopher Littlefield:

Che Misterio asks: Could Argentina be manipulating Big Mac prices? A preliminary investigation.

I am pleased to once again present Che Misterio, who previously enlightened us with the realities of Argentina’s economy at the street level. Today, he takes on the very provocative question of whether that time-tested bulwark of American soft power, the Big Mac, might be the latest commodity to fall victim to Argentine price-fixing. Ladies and gentlemen, a preliminary investigation:

Big Mac Fraud

by Che Misterio

Could the Kirchner Administration be obsessive enough to fix the price of a Big Mac?

In Argentina everything is possible.

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The WTF File: The Worst Investing in Africa Charts You’ve Ever Seen

I had such a high opinion of the Economist Intelligence Unit. And I still do, but ass-headed is the only way to describe these charts from their recent report, “Into Africa: Emerging opportunities for business”. Take a look at these and if you are able to discern any actionable or even philosophical meaning from these, please, share your insights with us in the comments. Good God.

Leading off, we have a bunch of petri dishes filled with rabbit excrement:

 

 

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