Political instability causes opportunity
Did Epstein commit suicide, or was he murdered?
If he was murdered, who was behind it? Clinton? Trump?
How will Trump handle the trade war with China?
What will happen with Hong Kong?
These are all questions nearly everyone online has opinions on, and I am not here to argue for or against any of these points. One thing is clear, there is massive uncertainty in the US government right now. People are spending vast amounts of time arguing these issues online and in real life, and the current sentiment is being reflected in the markets.
This is a stock market site, so real question is: how do we make money off this current insanity?
There are a few ways.
1. Shorting (most risky)
If you shorted Amazon 5 years ago you could be out hundreds of thousands, or millions – and your broker would probably hate you.
Shorting has its potential advantages, but in the end is incredibly risky if you aren’t a seasoned trader with a pile of cash to put up. Betting against stock means infinite losses, whereas investing long in a company has finite losses as stocks can’t go below zero.
Shorting is a different story, if you shorted Amazon 5 years ago you could be out hundreds of thousands, or millions – and your broker would probably hate you.
Shorting could also be force you to cover your short at a moments notice. That is, you may be required by your broker to repurchase the stock you sold short before you want to do so.
When there is a buy-in, it generally comes at the worst time for the short seller. Buy-ins most often happen when there is a “short squeeze” in which a positive catalyst sends the stock higher which often leads other short sellers to cover their positions.
This then starts vicious cycle where the share price movement and the high trading volume lead to forced buy-ins which drives the share price even higher – sometimes to insane levels as witnessed in the Volkswagen short squeeze during which VW’s share price increase 5x to make it the most valuable company in the world for a brief moment
2. Crypto (medium risky)
The fed has printed $11,000 for every American over the past decade. Hello inflation.
All you need to do is look at the Bitcoin price chart in relation to recent world events to see the positive correlation. There is growing skepticism on not only the government, but the fed as well. The fiat currency that the fed creates continues to get inflated as the organization actively creates trillions of dollars of new money per year.
The fed has printed $11,000 for every American over the past decade. As more and more money is printed the less valuable each piece is. Bitcoin, or other crypto currencies have a fixed amount of units that can be bought and sold, making the coins immune to inflation. This is a huge plus for investing in crypto, they aren’t creating new batches of the coins you currently own.
There are a few downsides to crypto though.
Exchanges are susceptible to hacks within their system, where millions of dollars are stolen. Even as cryptocurrencies have proliferated widely and as security systems designed to protect customers and exchanges have grown more sophisticated, hacks and instances of theft have also continued to take place. When the attack involves a service as large as Bithumb, South Korea’s biggest cryptocurrency exchange, it shows that even the largest players in the digital currency world are not necessarily safe. Below, we’ll explore some of the largest cryptocurrency hacks so far this year.
Here are some of the biggest crypto hacks of 2019 so far:
- Bithumb: $30 Million.
- Coinrail: $37.2 Million.
- BitGrail: $195 Million.
- Coincheck: $534 Million.
Another thing to note about Bitcoin in particular is that most new inventions and ideas take a long time to develop. In most technological advances it’s generally not the first one out of the gate that does well over the long run. Others come in down the line and create new innovations, building on the success of the original.
This can be seen in computers, cars, weapons, construction practices and even currencies themselves.
3. Gold (least risky)
The US dollar was taken off the gold standard in 1971, since then has depreciated in value by 80% due to inflation.
Gold and crypto are vastly different despite sharing many commonalities. Both are a hedge against fiat currencies, and both surge when government instability becomes a dominant conversation in society.
The psychology behind behind crypto and gold are similar, and while crypto can have bigger gains for the YOLO players, gold might be a nice addition to stabilize that portfolio. If you are going to hedge against fiat currencies, may as well hedge against crypto too.
The thing is, crypto has only had value for a decade, whereas gold has had value for thousands of years.
The chance that gold wont have value a year, 2 years or 50 years from now is catastrophically low. Everyone in the investment world is buzzing about gold right now. One of the main reasons for this is the current instability of global financial markets. In 5 of the last 6 downturns the price of gold has gone up as markets have gone down. This close relationship had lead many investors to begin to hedge their bets against the current 11 year bull run.
Gold has performed well in 5 of the last 6 economic downturns. Whereas we have no data on cryptocurrencies.
In the 1976 recession the market dropped by 20%, in the same period of time gold increased 54% as an asset inflation hedge.
1980 – 1982
In the 1980 recession the market dropped by 27%, in the same period of time gold dropped 46%.
Black Monday, the market crashed 33% between August and September, while gold increased by 6% during the same period of time.
1990’s bear market
Stocks dropped 20% while gold increased 7%.
2000 – 2001
During the dot-com bubble the market dropped 50% while gold increased by 12% over the same period of time.
During the great recession from 2007-2009 the stock market dropped 50%, while gold increased 25% over those 2 years.