Bubble speculation as bitcoin’s rise continues

Bubble speculation as bitcoin’s rise continues

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Is bitcoin in a bubble?

The price of bitcoin has been soaring this year, and last week alone it jumped from $11,000 to well over $17,000, according to Coindesk. It started the year below $1,000. (All prices are in U.S. dollars.)

That rocketing level of appreciation smells a lot like an irrational investor mania to many economists and financial pros, the kind that sent prices for unprofitable startup internet companies soaring in the dot-com boom. Those prices eventually came crashing down.

“We saw this in the 1990s,” says Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management. “Any of those things sound familiar? ‘This is unique, this will change everything?”’

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Like many others in finance, Ritholtz expects the bitcoin bubble to pop. The only question is when. “Some people think it’s early days, some people think it’s late,” Ritholtz said. “We’ll find out in the not-too-distant-future who is right.”

Robert Shiller and Joseph Stiglitz, two Nobel-prize-winning economists who’ve seen their share of speculative manias, recently have called bitcoin a bubble. Stiglitz went so far as to tell Bloomberg TV that bitcoin should be “outlawed.”

Bitcoin was created in hopes it would become a new kind of currency that people could use outside of the traditional banking system, without backing from any country or central bank. It was also supposed to operate outside of government oversight, which has raised concerns that it will be a haven for criminals.

Unlike traditional currencies, bitcoin doesn’t have a country backing it, a central bank, interest rates, or a long history of exchange rates against other currencies, making it extremely difficult to place a value on. Its value is tied only to what people believe it’s worth at any given time.

Despite the growing interest, bitcoin still is not widely accepted in stores to buy merchandise, and you can’t deposit it at a bank. One of the problems with using it as a currency is that its value keeps bouncing around, sometimes very suddenly.

“We have seen bitcoin more as a speculative investment rather than an equivalent to cash,” says J. Craig Shearman, spokesman for the National Retail Federation, the world’s largest trade association of retailers. “Even if it were a foreign currency, you need to dependably know what the exchange rate is, and bitcoin doesn’t meet any of those tests.”

Backers of bitcoin say it’s about time for a new kind of currency that can be exchanged in private and secure ways. Its promoters include internet entrepreneurs Cameron and Tyler Winklevoss.

This week mainstream financial markets are for the first time allowing investors to make future bets on the direction of bitcoin, but bitcoins themselves will continued to be traded only on private exchanges, which are mostly out of reach of regulators.

Mark Fratella, a teacher who lives in Elmhurst, Illinois, bought some bitcoin “for the novelty of it” back when it was worth $700 or $800.

Fratella is holding onto his bitcoin, and buying a little more from time to time. He’s also buying other cryptocurrencies, such as Ethereum and Litecoin. He’s heard the talk of a bitcoin bubble.

“But I have also seen a few analysts talk about how, in the grand scheme of things, there are a relatively low amount of people into bitcoin and there is a huge potential for growth,” he said. With the futures trade starting, Fratella thinks people who have been leery of its decentralized, deregulated nature will start buying into it too.

The futures also give investors the opportunity to “short” bitcoin—that is bet that its price will go down—which presently is very difficult to near impossible to do.

While the value of bitcoin itself may be inflated, even some of its biggest critics say that the technology that’s behind bitcoin has promise. That technology is called blockchain. It’s a kind of digital ledger that securely records transactions and prevents the same bitcoin from being spent twice.

Jamie Dimon, the head of JPMorgan Chase, has called bitcoin “a fraud” that will eventually “blow up.” Dimon also said he thought the blockchain technology was “good” and could be used to make transactions faster and easier.

For now, people keep buying bitcoin, even with all the talk of a bubble. To Ritholtz, the enthusiasm is a combination of the novelty of bitcoin, the built-in scarcity of it—only 21 million of them will ever be created—and the psychology of people being attracted to assets whose prices appear to keep going up.

“One of the first rules of investing is, only invest in things you understand,” Ritholtz said. “If you want to speculate in a cryptocurrency and you don’t understand it, you might get lucky for a while but those sorts of speculations don’t work out well.”

Published at Mon, 11 Dec 2017 13:06:58 -0500

U.S. tax bill could distort trade, EU leaders warn

U.S. tax bill could distort trade, EU leaders warn

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The European Union’s top five economies are warning the U.S. that its massive tax overhaul could contravene some of its international obligations and risks “having a major distortive impact on international trade.”

In a letter to U.S. Secretary of the Treasury Steven Mnuchin, the finance ministers of Germany, France, Britain, Italy and Spain wrote they had “significant concerns” about three tax initiatives in particular, including the so-called base erosion and anti-abuse tax Senate bill.

In a letter seen by The Associated Press, the five wrote that “it is important that the U.S. government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed-up.”

Also read: What you need to know about the U.S. estate tax debate

Revenue estimates

The Trump administration is now estimating the Republican tax bill will generate about US$1.8 trillion in new tax revenue over 10 years by boosting economic growth.

But that’s a lot more than nonpartisan congressional analysts have projected. The Joint Committee on Taxation estimates that growth stimulated by the anticipated tax cuts will generate some US$409 billion in additional tax revenue over 10 years.

President Donald Trump and Republican leaders in Congress have promoted the massive tax plan by promising the tax cuts will boost the economy. The US$1.5 trillion House and Senate tax bills combine steep tax cuts for corporations with modest reductions for individuals.

The new Treasury Department analysis out Monday says about half the expected increase in economic growth likely will result from tax benefits for corporations.

Published at Mon, 11 Dec 2017 13:08:49 -0500

Global economy has ‘room to run’ in 2018: BlackRock

Global economy has ‘room to run’ in 2018: BlackRock

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Synchronized global growth, a modest comeback for inflation, and geopolitical risks are on the horizon, according to BlackRock’s 2018 investment outlook.

However, the global economy still has “room to run” in 2018 and beyond, the investment firm says in a report released Monday. Also, it says there will be fewer surprises for upside growth.

Expect a “modest comeback” for inflation, led by the U.S., with the Federal Reserve slowly normalizing policy, the report says. The firm predicts three 0.25% rate increases in 2018 by Fed, with a fourth if the central bank expects tax cuts to raise inflationary pressures.

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“We see 2017’s surprising soft patch as fleeting and expect markets to grow more confident in the inflation outlook. Why? Wages are grinding higher and one-off factors, notably an adjustment to how wireless data costs are measured, will wash out of inflation readings,” the report says.

“As a result, we see higher U.S. yields ahead and prefer inflation-protected bonds over the nominal variety,” it adds. This doesn’t hold for the eurozone and Japan, though, where BlackRock expects the ECB and BoJ to “keep policy loose.”

The report says low market volatility could persist, however, and it finds few signs of leverage building in the financial system. The exception is China, where “much-needed economic reforms risk slowing growth and triggering temporary credit crunches.”

BlackRock favours economic risk in equities over credit “given tight spreads, low yields and trade risks.” Those include the NAFTA renegotiations, which the report considers a barometer for American trade policy and its impacts on the global economy. “Any breakdown in NAFTA would be an ominous sign for global trade,” the report says.

The firm says it likes financials and tech, and sees rising profitability in Japan and emerging markets powering equity returns.

Read the full report here.

Published at Mon, 11 Dec 2017 13:13:38 -0500

Seniors financially supporting younger generations: survey

Seniors financially supporting younger generations: survey

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It’s not uncommon for seniors to help their children and grandchildren with paying down debt, making down payments, and covering the cost of education and childcare, a survey from HomEquity Bank says. The survey was conducted in late October at the Toronto Zoomer Show.

Roughly one-fifth of the 682 respondents said they’ve provided one-time financial support (down payments, weddings and education) to children and grandchildren. Another 5% said they’ve provided childcare support, and 14% said they have children or grandchildren living with them.

Read: Lack of savings could delay retirement indefinitely, study finds

“While the data clearly shows that the respondents would love to spend their money on travel and home improvements, many seniors have children and grandchildren who still rely on them for financial support,” said Yvonne Ziomecki, executive vice-president of marketing and sales at HomEquity Bank, in a release.

“Whether it’s helping with education or getting into the housing market, Canadian seniors will likely spend their money on children and grandchildren this holiday season.”

Read:

More Canadians work beyond age 65

Canadians’ net worth, mortgage debt rise

Can you make your client’s holiday wish come true?

Published at Mon, 11 Dec 2017 13:16:53 -0500

Provinces to get 75% marijuana tax share

Provinces to get 75% marijuana tax share

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The federal government has agreed to give the provinces and territories a 75% share of the tax revenues from the sale of legalized marijuana.

Finance Minister Bill Morneau announced the agreement Monday after a day-long meeting with his provincial and territorial counterparts.

Morneau says Ottawa will retain the remaining 25% share to a maximum of $100 million a year, with any balance over and above that limit going to the provinces and territories.

The larger share, he added, will allow the provinces to “fairly deal with their costs and so they can work with municipalities,” which had been asking for at least a one-third portion of the revenue.

All 14 jurisdictions at the table agreed to the key principles reached at the meeting, Morneau said, calling it a “very good outcome.”

The original model put forward by the federal government proposed an even 50-50 split, a plan that was immediately shot down by the provinces, many of which wondered aloud what sort of costs Ottawa would be incurring to deserve such a share.

Earlier Monday, Ontario Finance Minister Charles Sousa said the federal Liberal government had successfully made the case that it, too, would have costs, but was showing flexibility on related revenue and cost-sharing questions.

After a meeting with his Atlantic counterparts in Halifax, Nova Scotia Premier Stephen McNeil let slip that a two-year deal had been reached, and that provinces would have the ability to include a markup above and beyond existing taxation levels.

Ottawa’s initial estimates suggest the total pot of tax revenue from marijuana sales could reach $1 billion per year.

Also read:

Finding the cannabis tax sweet spot

The challenges ahead for cannabis producers

Published at Mon, 11 Dec 2017 16:41:07 -0500

Why housing starts picked up in November

Why housing starts picked up in November

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The Canada Mortgage and Housing Corp. says the pace of housing starts picked up in November, pushing the six-month trend to the highest level in nearly a decade.

The Ottawa-based Crown corporation says construction of multiple-unit projects in Toronto has been a driving force behind the trend.

In November, the seasonally adjusted annualized rate of housing starts across Canada was 252,184 units—up from 222,695 units in October.

Multiple-unit urban starts accounted for 175,016 units, up 16.9%, while single-detached urban starts were up 7.5% to 60,396 units and rural starts were estimated at 16,772.

CMHC’s six-month housing starts trend rose to 226,270 units in November, from 216,642 units in October.

In a research note, CIBC Capital Markets chief economist Avery Shenfeld says the news isn’t as much of a surprise as some might think. “Home sales have slowed, but with builders focused on condos that are started well after most of the units have been bought, it’s going to be a while before quieter sales offices mean fewer cranes on the horizon. Multiples starts were up 17% from October, with singles up 6%.” 

Read: Condo sales push Montreal real estate to November record

Another reason for the surprise, he adds, could be the “seasonally mild weather in much of the country, with Ontario starts up 66% from the prior month, but less-weather-affected permits had already been running fairly strong.” 

Derek Holt, vice-president and head of Capital Markets Economics at Scotiabank, is cautious on Ontario for now. “I would remain cautious toward the multiples surge in Ontario,” he says in a Dec. 8 report. “Given project lags, the numbers we’re seeing reflect decisions that pre-date rent control changes in April that many feel will sharply diminish investor appetite for such units (and already is with lagged effects on construction).” 

Read: Mortgage changes make it tougher for first-time buyers: industry group

Published at Fri, 08 Dec 2017 11:22:54 -0500

Global week ahead: What to expect

Global week ahead: What to expect

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If you’re wondering which economic headlines to watch over the coming week, Moody’s Analytics’ latest weekly market outlook has you covered.

Here’s a rundown of what to expect.

In the U.S.

Fiscal and monetary policy will be the focus south of the border, says Moody’s.

Talks of “a potential government shutdown are intensifying,” the report says, and the Federal Reserve is meeting Dec. 12 and 13. Moody’s forecasts a hike of 25 basis points to a target range of 1.25% to 1.5%. On Friday, that call was mirrored by the CME Group’s FedWatch Tool, which said there was a 90% probability of a hike.

In Europe

The main events will be data from both the U.K. and eurozone. Moody’s will be looking at industrial production, inflation and unemployment numbers, in particular.

Eurozone countries to watch include Germany, Spain, France and Italy. German exports dropped in October for the second straight month while imports grew, narrowing the trade surplus, according to numbers released Friday.

Meanwhile, in the U.K., the data “will likely make the Bank of England monetary policy committee’s trade-off even harder, as they are expected to show that inflation jumped further over the month but that wage growth remained subdued,” says Moody’s.

In Asia-Pacific

In China, “November activity data should show improvement from the holiday-induced slowdown in October,” says Moody’s, which calls for a retail-sales rebound and manufacturing growth.

China reported strong growth Friday in both exports and imports for November. Figures posted on the customs department website show exports expanded 12.3% to $217.4 billion in November over a year earlier—that’s nearly double the 6.9% pace recorded in October.

In Japan, the central bank “will be closely watching the December quarter Tankan Survey,” Moody’s says. That survey measures the mood of the region’s largest manufacturers. Japan’s economy gained momentum, expanding at a 2.5% annual pace in July-September, according to the government.

Other countries to watch are India, where “all isn’t well,” says Moody’s, as well as Australia and South Korea.

Read the full weekly report.

Published at Fri, 08 Dec 2017 14:56:06 -0500

CRA reverts to previous DTC criteria for diabetics

CRA reverts to previous DTC criteria for diabetics

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Canada Revenue Agency is taking steps to quell a furor over what critics were calling its heartless treatment of diabetics.

Disability advocates and opposition parties have been criticizing the agency for weeks over the fact that many Canadians with Type 1 diabetes have suddenly found themselves ineligible to claim the disability tax credit, even though they’ve previously qualified for it.

CRA insists there’s been no change in the eligibility criteria, which requires an individual to spend at least 14 hours a week engaged in activities related to the administration of insulin.

But diabetes support groups point to an internal CRA clarification letter last May, which said only in “exceptional circumstances” would adult diabetics need 14 hours a week to manage their insulin therapy. Most would not, which would mean they’re not eligible for the tax credit.

CRA now says it will revert to the clarification letter that existed prior to May.

Read: When DTC eligibility is in dispute

It will also review all applications for the disability tax credit that have been denied based on the May letter.

Revenue Minister Diane Lebouthillier has also reinstated a 14-member disability advisory committee to help CRA and the minister improve the way they administer tax measures aimed at helping disabled Canadians.

On Friday, she released the names of the committee members. Their ranks include representatives of Diabetes Canada and the Council of Canadians with Disabilities.

The committee is to be chaired by CRA assistant commissioner Frank Vermaeten and Karen Cohen, chief executive of the Canadian Psychological Association.

Also read:

Which tax tools require DTC eligibility?

All about the disability tax credit

Published at Fri, 08 Dec 2017 15:05:24 -0500

Former MFDA rep banned, fined $75k over ‘gold strategy’

Former MFDA rep banned, fined $75k over ‘gold strategy’

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A former MFDA rep has been banned and fined for, among other actions, recommending investments to hundreds of clients without adequate due diligence in assessing their suitability.

The MFDA released its reasons for decision Friday following a hearing in Saskatoon on Sept. 7 into the allegations against Boyd Yahn, a former branch manager in North Battleford, Sask. Yahn was a registered mutual fund salesperson, which is now known as dealing representative, from Dec. 18, 2001 to Dec. 13, 2015.

“Since September 2008, the respondent believed, based on his own studies, that due to a systemic failure of the financial markets, the value of gold was predictable year over year,” the MFDA said in its reasons for decision. As a result, Yahn had “formulated an investment strategy of his own design” for clients.

Yahn “contended that his belief that the financial system was broken entitled him to advise his clients that investing in the precious metals sector money markets was low or medium risk,” the MFDA statement said, and Yahn recommended his “gold strategy” to all his clients,  “including those who were elderly, had limited annual incomes, and little knowledge of the financial markets.”

“There was no reliable evidence that the respondent’s belief that the financial system was broken was well founded, or in any event, entitled him to circumvent his obligation to perform the KYC and suitability obligations,” it said.

The panel said the lack of evidence of financial loss to clients was “irrelevant” and didn’t justify the breach of MFDA rules.

Yahn “recorded inaccurate investment objectives and investment knowledge on the client account forms so that they would conform to his gold strategy recommendations,” the reasons for decision said.

As a branch manager, Yahn supervised an approved person “who shared his perspective, and [who] also concentrated investments for clients’ holdings in precious metals sector funds,” the panel said.

The MFDA said Yahn told his previous mutual fund dealers about his gold strategy. Those dealers were HollisWealth Advisory Services Inc., with whom he worked until May 20, 2014, and Sterling Mutual Inc., with whom he worked until Dec. 31, 2015. The SRO “launched disciplinary proceedings against HollisWealth and Sterling, which concluded with settlement agreements […].”

The panel said Yahn breached due diligence standards of practice for approved persons, as set out in MFDA Rules 2.2.1 and 2.1.1 and 2.5.5.

Based on the panel’s findings, Yahn:

  • is permanently prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA member;
  • shall pay a fine in the amount of $75,000; and
  • shall pay costs in the amount of $10,000.

For more, read the full reasons for decision.

Published at Fri, 08 Dec 2017 15:12:39 -0500

Will Bitcoin ‘mania’ keep growing?

Will Bitcoin ‘mania’ keep growing?

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After hitting a record high of more than $19,00o per coin on Thursday, bitcoin tumbled by more than $2,000 on Friday. 

Read: Bitcoin tops US$15K amid security breach

This is only the latest development in what has been a tumultuous year for investors in the currency, says Nigel Green, founder and chief executive of deVere Group, in a Friday release. “This correction is an appropriate one after such frenzied trading,” he adds. “We should expect to see Bitcoin see-sawing in coming weeks.”  

Green attributes market excitement over bitcoin to “increased interest in this exciting new alternative currency,” he says, “especially with the Chicago Board Options Exchange allowing investors to trade bitcoin futures in the next few days, driving hikes.”

As cryptocurrencies become more established, he forecasts they’ll “gain in popularity, and the growing cryptocurrency mania will likely result in the launch of more and more digital currencies to meet demand.”

They won’t all survive, Green says. “One or two of the existing ones will succeed, [but] whether it’s bitcoin or not remains to be seen.” 

Read: Amid bitcoin buzz, BoC considers its own digital currency

The Financial Times reported on Thursday (subs only) that investors expect the introduction of bitcoin futures will help “temper the volatility in bitcoin’s price,” given hedging will be possible. Another factor to consider, says FT, is “bitcoin developers have struggled to overcome the network’s capacity issues for many years,” and security risks are on investors’ radar.

Also read: Bitcoin buoyed by investor behaviour

Published at Fri, 08 Dec 2017 16:09:16 -0500