Bitcoin Is NOT The New Gold

Lior Alkalay - Contributor

Last week, the price of one Bitcoin surged above $1,227, the price of an ounce of Gold. And the headlines soon followed, screaming, “Bitcoin worth more than Gold.” The implication, of course, that Bitcoin is the new Gold in the world. In reality, however, Bitcoin is hardly the “new” Gold, real or digital.

In arguing for Bitcoin’s allure, enthusiasts tend to fall back on one singular point; like real Gold, there is but a finite number of Bitcoin that could be mined (21 million to be exact). But that is hardly the case. Bitcoin’s allure is not a factor of its rarity, but rather its ecosystem. That ecosystem enables financial transactions between two parties, both anonymously, and at very low costs. The fact is that that ecosystem could be easily replicated with an alternative to Bitcoin. So, while the number of Bitcoins we can mine is limited, the amount of alternative ecosystems that could emerge for Bitcoin wannabes is not. In fact, even today, there are already 12 different alternatives to Bitcoin, including Litecoin, Peercoin and Primecoin.

However, there is one area in which Gold and Bitcoin have something in common and, unfortunately, for Bitcoin bulls, it is in their vulnerability rather than strength. Both Bitcoin and Gold do not pay interest like a currency, nor a dividend like a stock. And when interest rates rise the allure of Bitcoin and Gold quickly fades. Because, simply put, there are better alternatives. Continue reading "Bitcoin Is NOT The New Gold"

German Bundesbank Uneasy With ECB

Lior Alkalay - Contributor

Relations between the German Bundesbank and the ECB are turning tense again. What dictates this complex relationship of ups and down is one thing and one thing only—the Bundesbank’s fear of inflation. When deflationary pressures occur (falling prices) the German Bundesbank tends to accord more leeway for the ECB and it mutes its hawkish stance.

But when German inflation is on the rise, then the trauma Germany experienced from the inflationary crisis of the 1930s comes rushing back. Then the Bundesbank’s stance becomes hawkishly vocal and relations become strained. So, what has caused Germany’s Bundesbank to “raise its voice” this time around? This time, it's a bit more complex than just inflation. Continue reading "German Bundesbank Uneasy With ECB"

S&P 500: Prepare For Choppiness

Lior Alkalay - Contributor

After the S&P 500’s rather flat performance over the first three weeks of January, the Index has finally broken higher, pierced through the 2,280 resistance, and seems well on its way to surge above 2,300. So, the question of potential profit taking for the Index at this time may raise some eyebrows. But if we are to take the signals coming from the Federal Reserve over the past few weeks, this is exactly when we should be worried about profit taking and a jump in volatility for the Index.

While the S&P 500 (CME:SP500) was muddling through over the past few weeks, some attributed it to the protectionist stance of the new US president, e.g. the looming threat of a trade war with China, the risk of import levies and, of course, the latest events of this week. President Trump, in a characteristically dramatic fashion, announced the revocation of the Trans-Pacific Partnership Agreement and proclaimed his intention to renegotiate NAFTA, the North American Free Trade Agreement. And how did investors respond? By pushing the S&P 500 up and out of its stagnation and into a new high. Because, while investors are concerned about the risk of a protectionist trade policy, their concerns are somewhat soothed by Trump’s plan to slash the US corporate tax to 15% and boost infrastructure spending.

But what about the S&P 500 are the bulls ignoring? Continue reading "S&P 500: Prepare For Choppiness"

Will Brazil Turn A Corner In 2017?

Lior Alkalay - Contributor

In Brazil, the year 2016 will no doubt go down in the history books as one of the worst the country has experienced. The Brazilian president, Dilma Rousseff, was impeached for the role they played in a bribery scandal and for illegally disguising the country’s real debt. Moreover, the Brazilian economy had its worst recession in more than half a century.

And yet, there are some encouraging signs that, at least as far as the economy and the Brazilian Real are concerned, the country might have turned a corner.

Brazilian Bonds Revival

In the months of January and February, when the political climate turned more and more chaotic and Brazilian growth tumbled, yields on Brazilian 10-year bonds were as high as 16.78% and CDS prices, which measure the likelihood of a sovereign debt default, jumped to 7%. One would then expect that, from this point onwards, and especially in recent months with the prospect of a Fed’s tightening weighing on bond markets across the globe, the already fragile Brazilian government bonds would experience an utter meltdown, even to the extent of risking an actual default. But what happened instead was interesting. While bonds across the world were tanking and yields surging (bond yields move in reverse, relative to prices) amid the Fed’s tightening, Brazilian bonds staged an impressive rally, and yields on 10-year bonds fell from their highs back in January to as low as 11.4% today. Unsurprisingly, this was followed by an impressive rebound for the Brazilian Real. Continue reading "Will Brazil Turn A Corner In 2017?"

Eurozone: 2017 Spells More Trouble

Lior Alkalay - Contributor

The year 2017 is just around the corner and it seems that more troubles are brewing for the Eurozone. The region faces a deadly combination of a premature ECB taper, Fed tightening and more political uncertainty. Together, those factors could disrupt the already fragile Eurozone recovery.

ECB Tapers While Fed Tightens

Mario Draghi, the ECB President, so far has proved (and more than once) his ability to stabilize the Eurozone economy and delicately navigate monetary policy. But, in the latest ECB rate decision, which was also the last for 2016, Mario Draghi may have slipped up and acted a bit too hastily. Draghi declared that the ECB would reduce its monthly bond purchases from the current pace of €80 billion a month to €60 billion, beginning in April 2017. Despite constant denials from the ECB, there is simply no other way to interpret Draghi’s declaration but as a tapering of the ECB’s Quantitative Easing program. And, in the world of monetary policy, especially ultra-loose monetary policy, less stimulus equals tightening.

The ECB is effectively rolling back part of the brakes it has used to curb volatility in the Eurozone debt market. When the Greek crisis loomed, the ECB used QE to curb volatility. Likewise, when the Spanish banking crisis erupted and, as of late, with Brexit and the Italian banking crises, the ECB quickly responded. The ECB’s massive QE program helped restrain the shocks to the system. Continue reading "Eurozone: 2017 Spells More Trouble"