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Preposterous Bubble Predictions and the Madness of Crowds

Preposterous Bubble Predictions and the Madness of Crowds
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Think the DJIA and Bitcoin are getting a little toppy? If you require inspiration check out Ric Edelman, author of The Truth About Your Future: The Money Guide You Need Now, Later and Much Later, who claims the Dow is headed to 100,000 by 2030.

“If I’m wrong, it’ll be 150,000,” he said. “We’re going to see incredible profits in the United States, as well as globally.”

Just to scare those of us in our 60’s, he says, “If you think you’re going to retire at age 65 and die at 85, forget it. You’re going to live to 110 or 120.” Ugh, I’m only halfway done.

He’s probably right claiming “retirement” won’t exist in the 21st century. “That means you’re going to work a lot longer and you’re going to save a lot longer,” he says.

Mr. Edelman is a prolific financial book writer and seller. Before the housing crash he advised people to never pay down their mortgages. I wrote in “Walk Away,”

Edelman the hot-shot financial advisor claimed we should all stay in hock up to our necks and invest whatever money we might use to pay down the mortgage just in case home prices actually fell. While Edelman advised this, the stock market crashed, commodity markets crashed and interest rates on Treasuries and bank CDs went to virtually zero. During no time period could a person earn a risk-free rate of return higher than even the tax-advantaged rate of a 30-year mortgage.

While Edelman pitches a 150,000 Dow, Tom Lee says a single Bitcoin will go for $55,000 by 2022.

“We believe one of the drivers [of bitcoin] is cryptocurrencies are cannibalizing demand for gold,” Lee said in the report. “Based on this premise, we take a stab at establishing valuation framework for bitcoin. Based on our model, we estimate that bitcoin’s value per unit could be $20,000 to $55,000 by 2022.”

Evelyn Cheng writes for CNBC, “Gold’s market value of $7.5 trillion is exponentially greater than bitcoin’s $41 billion. But Lee pointed out the precious metal’s supply ‘is surging as mining soars to all-time highs,’ while the number of available bitcoins is rapidly approaching its inherent 21 million-coin limit.

Gold production surging? Not hardly. “Growth in mine output is at its lowest point since the financial crisis, with risks only getting greater,” wrote ANZ’s senior commodity strategist, Daniel Hynes.

“With investment conditions remaining subdued, it’s unlikely we’ll see any rebound in mine supply in the foreseeable future,” Hynes added.

gold1

Tom Lee told CNBC he expects central banks will consider buying the digital currencies if the total market value tops $500 billion. Including bitcoin and its rival ethereum, the value of all cryptocurrencies hovers around $100 billion (it’s higher now), according to CoinMarketCap.

Central banks creating government money out of nowhere to buy cryptocurrency created by computer calculation.  That would be some monetary policy: CRYPTOQE.

Cryptocurrencies are just another escape from government inflation.  As Ludwig von Mises wrote in “Human Action,”

 Credit expansion is the governments’ foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.

Economists must admit, Mises wrote,

the upswing is invariably conditioned by credit expansion, that it could not come into being and continue without credit expansion, and that it turns into depression when the further progress of credit expansion stops.

Bill Bonner wrote recently, “Cryptocurrencies are not an investment. And not yet a convenient or reliable form of money. They are still just an experiment. A work in progress. Early adopters could get rich… or get wiped out.

We’re as curious as anyone; we want to see how it turns out. In the meantime, we’ll hold on to our gold…”

While I have friends claiming to be made wealthy in the cryptocurrency boom, it all sounds like the same old central bank created mania chatter whether it be tulips, stocks, bonds, houses or Beanie Babies.

I won’t be trading any krugerrands for bitcoin.

Originally appeared at douglasinvegas.com

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Douglas E. French is a Director of the Ludwig von Mises Institute of Canada. Additionally, he writes for Casey Research and is the author of three books; Early Speculative Bubbles and Increases in the Supply of Money, The Failure of Common Knowledge, and Walk Away: The Rise and Fall of the Home-Owenrship Myth. French is the former president of the Ludwig von Mises Institute in Auburn, Alabama.

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