A Basic Reflection on Cryptomania
I still recall a few manias from my work history. One of the first dealt with gold, which had exploded from an official rate of $35/ounce to over $800/oz in the wake of Nixon's decision to break the link between paper money and hard currency. One fellow computer programmer/analyst was putting literally almost everything he made into gold purchases; I had been wondering why he was shaving in the office. and it turned out that the power company had cut him off for unpaid bills. Volcker's high interest rate remedy to high inflation is widely attributed to breaking the back of inflation, the principal factor underlying gold's dizzying ride up. Gold eventually gave back much of its gains and it would take years to recover. I couldn't help but wonder what became of that colleague who had hopped on the mania just as it was peaking. There's an old saw that manias correct when everybody is all in--there are no more buyers at these price levels. Typically it's stated that when the small/retail investor enters the market, it's the beginning of the end as they hope the trend continues indefinitely--or at least long enough to sell to an even more gullible investor after making a big enough return. But even experts can't time if and when a mania tops.
I still recall what Greenspan once infamously called "the irrational exuberance" of the Internet economy, where the rush for market share trumped profits: the old rules no longer applied, etc. I never really played with options, foreign exchanges, etc., or decided to daytrade as a living. but I did have enough success to grow a brokerage account into (very low) six-figures, along the way doing some successful stock shorts.(I eventually lost most of what was in that account, making the rookie mistake of not cutting my losses; I'm still carrying the loss on my tax returns; the government, of course, taxed 100% of the capital gains in building the account, but you can only deduct a net loss of $3000 per year. As I plan for my retirement years, I'm focusing on building my retirement assets, not in investing taxable accounts. So since year 2000 I've not had the funds to do taxable investing. This means I haven't had the gains to offset my large losses in that account from 20 years backs, so I've been stuck carrying over those losses $3K per year since then likely to years in the future.) It took the NASDAQ at least 15 years or more just to get back to where it was.
The funny thing is I was not really that into the stock market. But beyond the nonsense that "this is a new market; profits don't matter"; there were other warning signs. One of them was when I went to office printers (at a chiptesting equipment client) for faxes or printouts, I often found employee printouts of some high tech company stock charts, etc. Not to mention by my DBA predecessor had been lured away by the promise of stock options.
I'm writing this post not so much because of the uncertainty over a richly valued domestic stock market, but cryptomania. Let me be clear: I'm all for decentralized currency, which cannot be manipulated like fiat paper currency. And perhaps I'm playing a game of "woulda, coulda, shoulda"; I mean, if all my retirement assets had been in Bitcoin at the beginning of the year (Bitcoin sold for under $1K/coin), this year's explosive market would have multiplied my assets by more than 15 times. Of course, one would then have had to stomach volatility of up to 20% or more daily spikes or corrections. I can't afford to put my retirement savings at that kind of risk.
I have no way of knowing whether the current value of Bitcoin (at just under $15000, according to Google) is overvalued, undervalued or fairly valued. But this past week at work, I've learned at least 3 co-workers have been playing with the crypto currency exchanges. Not much money, maybe $75-300. But the point is when the small investor or Grandma are joining the party, it's usually closer to the end than the beginning of the cycle. I'm staying out of it.
Trump, Amazon and the USPS
Trump recently attacked Amazon for using USPS as a low-cost delivery partner (USPS has a government-sanctioned mail delivery monopoly and largely fulfills Amazon Sunday deliveries). But let's be clear: Trump's distaste for Amazon and its CEO Bezos has more to do with Bezos' ownership of WashPo, one of Trump's media critics. Citigroup recently released an analysis claiming that the USPS is stuck with a money-losing contract losing nearly $1.50 a package. The USPS points out that the Amazon contract is profitable from a marginal costs perspective, i.e., when you tie in the costs of labor, accrued vehicle expenses, handling, etc. of Amazon delivery. Its profit, of course, offsets other USPS expenses, including fixed costs. How to explain the discrepancy? With going into a long boring discussion of cost accounting, Citigroup argues that the delivery business should be allocated more of the USPS' fixed costs, not just marginal costs. (No doubt USPS' competitors, UPS and FedEx, would love this idea.) This is basically an arbitrary distinction; The Constitution or Congress did not give USPS a monopoly on delivery services in general. The point is the USPS is leveraging costs it established to handle its mail monopoly to compete in the parcel market.But Trump has a tendency to oversimplify things. So he takes the Citigroup analysis at a superficial level and uses it to bash both the USPS and Amazon. But here's the reality:
- even if the contract with USPS allowed USPS to pass on price hikes to Amazon; Amazon has other partners, even its home-grown delivery service; the number of shipments could decline, even decrease associated aggregate revenues;
- as bad as the USPS financial situation is today, package delivery is mitigating part of it;
- the real solution is to fully privatize the USPS; it needs freedom to cut money-loosing facilities and assets, flexibility to change prices, operating hours, etc., to invest in its package business.
