China Stock Tipping Point

We are perhaps witnessing the tipping point of massive disintermediation away from ownership in stocks of Chinese companies. Hong Kong’s Hang Seng Tech Index was down 8% today and is down 26% YTD. China’s CSI 300 Index was down 3.5% today. I believe there are 3 reasons why we are seeing this sell-off in Chinese stocks, although all three really boil down to the fact that the Chinese are Communists. Let’s explore:

Hong Kong Hang Seng Index from StockCharts.com

More Regulations

The main media narrative, as reflected in this Wall Street Journal article, is that today’s selloff is due to increased regulations on big high-tech companies recently issued by the Chinese Communist Party (CCP). The CCP is growing wary of the increasing power of big high-tech companies in China, and so they are passing new laws to keep their power in check. As these companies have grown in status and have become more powerful, the CCP’s grip on its populace has become less powerful (sort of). New regulations as to how ride hailing company employees are to be treated (an issue also here in the US, by the way), as well as regulations on private tutoring companies have been unsettling, as was a short suspension of new users by WeChat.

No Audits

The new regulations by the CCP may be the narrative, but I believe there are deeper reasons why we are seeing this sell-off. One big reason is that, due to the backing of the CCP, Chinese “private” companies that are listed on American exchanges are not subject to the same audit standards as any other company that lists on American exchanges. DiDi Global, whose stock recently IPO’d here in the US, has gotten hammered because of the lack of audit standards. Referencing this article on Protocol.com, investors as well as US Government officials are ramping up demands that Chinese companies should be subject to the same audit standards as everyone else. Without a standard audit, how can an investor be sure that the financial results reported by Chinese companies are true? This is not a new issue, but investors now seem to be waking up to this issue even more, especially with the DiDi Global IPO and its negative performance since its IPO. By the way: US investment banks that have brought these Chinese companies to the US markets and have been paid handsomely for doing so have been complicit in this continued financial sham. I understand Caveat Emptor, but investment banks need to take a stronger stand on this issue.

Coronavirus

The real tipping point issue I believe has been Coronavirus, and specifically China’s and the CCP’s uncertain role with its origin and spread, and their continued efforts to obfuscate. I believe Coronavirus is causing a macro change in the way China is viewed, from China: Good to China: Bad. As long as China continues to act like Communists with respect to the Coronavirus, I believe China’s reputation will continue to worsen, and investors will treat Chinese companies with an increased level of skepticism.

IMO

When asked how someone goes bankrupt, Ernest Hemingway famously said with his economy with words, “Two ways: gradually, then suddenly.” I think we may be at the point now when the sense of ethical bankruptcy of Chinese companies may be moving from gradual to sudden. Investors start to sell positions in Chinese companies, and very soon a trickle becomes a flood. There could be very significant ramifications to world financial markets if I am correct.

TIAA and Nuveen

There are so many options out there for investors and their accounts. How does one choose? An investor might choose where to open an account based on investment performance – this firm’s 5 year investment performance is the best of the lot, so I’ll open an account there. Other investors might open an account at a particular brokerage because they like the brokerage’s website. There might also be a recommendation from a friend or relative involved. All of these are valid ways to make that decision. However, should you take into consideration how a firm is organized, how it manages its profits and expenses, and how long it has represented a certain set of values within the investment world, you should consider opening an account with TIAA and/or with its subsidiary, Nuveen Funds.

TIAA

Why do I suggest that? Because TIAA (which stands for the Teachers Insurance and Annuity Association of America) has always been and still (kind of) is organized as a not-for-profit. Although it is technically not a not-for-profit today, TIAA does dividend all of its profits back to its account holders, in the mode of AAA and Costco. As its name suggests, TIAA was organized to help teachers and other public-sector workers with their finances, and though now anyone can open an account and/or buy an annuity or other insurance product from TIAA, its public sector accountholders remain at its core. Hand in hand with its not-for-profit mission is to keep expenses low. This goes for both its corporate expenses as well as for fees and expenses related to its investment products.

A major concern of retirees is having sufficient post-retirement income. Although I am not a proponent of annuities, they are good for those who risk averse and who want to be sure of their monthly income in retirement. To that end, TIAA has put an annuity calculator on the Home page of its website. Interest rates, and hence annuity returns, are low, but what’s unique about TIAA annuities is that they add TIAA corporate profits into the annuity payout, which means TIAA annuities can theoretically return a higher rate than comparable annuity products. If you are looking to purchase an annuity, I strongly consider looking at TIAA.

Nuveen

TIAA acquired Nuveen Funds during the 2008 Financial Crisis, and Nuveen is now a wholly-owned subsidiary of TIAA. Nuveen was formed as a municipal bond underwriter, but it is now a mutual and exchange-traded fund manager. Like its parent, Nuveen’s emphasis is on keeping expenses and accountholder fees low. Nuveen now emphasizes environmental, social, and corporate governance (ESG) investing, with several funds having that goal. Check out Nuveen’s website to see if they have a fund that fits your goals and needs. If you like the concept of TIAA but aren’t in the market for an insurance or an annuity product, then take a look at Nuveen.

IMO

Another good way to decide where to house a new brokerage account is to find a brokerage company whose stated values align with your own values. TIAA and Nuveen each have been catering to all clients, and especially to their public sector clients, in an empathetic way for over 100 years by operating as a not-for-profit, by keeping costs low, and by dividending any profits they do make back to their accountholders, while at the same time maintaining a high level of product offerings as well as customer service to their clients. Each has helped out its clients to reach their financial goals, and they can do the same for you as well or better than its brokerage brethren.

Option Premiums Are Too Low

I trade options, mostly options on financial indexes such as the S&P 500 and the Nasdaq 100. Option premiums, which is what you pay to buy an option or what you receive if you sell an option, have been declining this year. Said another way, I have to sell at a strike price closer to the trading price of the underlying index in order to generate the same covered call revenue that I was able to generate last year. I believe current options premiums do not represent the full level of risk inherent in our economy, and hence are too low. Read on to see why.

Function of Risk

There are a number of components to the value of an option premium, and among them are Risk, meaning the likelihood that the actual result will differ from the predicted result. When the perceived level of Risk is higher, option premiums will be higher, and vice versa. One measure of Risk in the investing markets is the VIX Index, which I have written about before. The VIX is currently at 16.64, which is very close to its low since the start of Covid during 1Q 2020. It is higher than the 13-ish handle it displayed during most of 2019, by about 28%. One might conclude that the VIX has mirrored Covid infections: a spike during early 2020 followed by a decline to current lower levels, with several bumps along the way. However, I believe this is a simplified reading that misses one key element: government debt.

Increased Debt

Where did the US Government get all of the money it used to pay out to citizens and small businesses as part of the Covid stimulus plan? It borrowed, massively. The US Federal budget deficit in 2020 was $3.1 Trillion, and is projected to be an additional $3 Trillion in 2021. (Source: Congressional Budget Office). That’s $6 + Trillion dollars of additional leverage pumped into our economy. The effect of leverage is that it magnifies any change in the growth or shrinkage of economic performance. If corporate earnings improve, the magnitude of the improvement is enhanced by the leverage, and vice versa.

I ask you: Do you believe an additional $6 Trillion in Federal leverage would tend to enhance or diminish any risks that actual corporate performance matches projected corporate performance? My money says that the leverage would enhance risks, by a significant amount, or much more than the 28% that the VIX is higher now than in 2019. I don’t know by how much, but 28% seems low.

IMO

My argument is not that you should buy VIX Index call options because I believe it will rise; nor is my argument that you should buy Index call options for the same reason. Moreover, I am not arguing the merits of the $6 Trillion expansion of the Federal budget deficit one way or another. My point is that all of this additional borrowing makes projected likely outcomes more risky, and significantly so. If all goes according to script, then no harm and no foul. But when has the economy ever followed a script? As much as a script plays a role, so does improvisation. Consequently, I believe that current option premiums do not fully represent the level of risk commensurate with the higher level of debt in the economy. Perhaps what we will see is a lower base level of the VIX and option premiums, such as we have now, with intermittent spikes to significantly higher levels as incongruent data is released, such that the average over a period of time is heightened. We have a much different economy now than we had before Covid and we should adapt our expectations as a result.

I hope you all are having a good Summer so far, as my family and I are!

Perhaps We Shouldn’t Panic Just Yet

The release last week of CPI data that showed that May’s annualized inflation rate was 5% got a lot of media attention as well as rebuke from inflation hawks and my conservative brethren. If it were to continue for a whole year, 5% inflation would far exceed the Federal Reserve’s forecast and would be a big change in assumptions going forward. However, a deeper dive into the components of the data shows that things may not be as bad as the banner headline number indicates. Specifically, according to the US Bureau of Labor Statistics, almost all of the increase in May’s inflation reading was due to a rise in energy costs, which had been extremely depressed a year ago due to Covid. The Federal Reserve believes May’s 5% inflation level (as well as April’s 4.2%) is “transitory” and will be normalized once more of the economy opens up and energy production returns to pre-pandemic levels.

From Google Images

Base Year Effect

If you are comparing data from one year to the next and your prior or “base” year’s data was anomalistic, then you have what’s known as a base year problem. That’s what we have here with energy prices. 12 months ago we had the entire energy sector shutting down due to the pandemic economy. Recall that people weren’t driving to work or flying on planes and thus were not using gasoline or jet fuel. Recall also that during April 2020, May 2020 oil futures fell to below $0 because storage was full and producers needed to offload their production. Now, West Texas Intermediate Crude is trading at about $71, which is an incredible increase from just above $0 12 months ago but not that much higher than the $50 to $60 range that held during much of 2019, before Covid. And this is without worldwide production having reached full or near full capacity, as US production is down in part due to changes in government policy. The BLS data show that annualized inflation in energy components was 25.1% in April and 28.5% in May, compared with a year ago when producers were paying buyers to take oil off of their hands. Last year was an anomaly and we are hoping that the Fed is correct that we should be on more normal footing going forward.

Other Components More Normal

The BLS groups data into several components in addition to Energy, such as Food (in several subcategories), furnishings, apparel, medical care, sporting goods (?), and used cars and trucks. Of these, the only one (other than Energy) to have had an abnormal increase was used cars and trucks, which were up nearly 30% (annualized) in May. Ok, but again we had negative inflation a year ago (due to Covid) and supply chain issues with all automobiles. Specifically, the auto industry is going through a shortage of semiconductors. A lack of semiconductors means fewer new cars are being built, which means prices are up both for new and used cars. Assuming semiconductor production ramps back up (it will, right?), we should see auto prices leveling off. I can’t believe that car companies won’t try to take advantage of the increased demand for cars if they are able to do so. Food sector inflation is actually down from a year ago, from 4% to 2.2% currently. Remember meat plant shutdowns due to Covid a year ago? That’s not as much of an issue now and so food inflation is trending in the right direction.

IMO

This analysis leads me to believe that perhaps the Fed is more right than wrong and that the inflation Cassandras are more wrong than right. Though the US population is substantially vaccinated, that is not so for the rest of the world, including developing countries. Increased worldwide vaccination rates will mean greater production which will mean supply goes up and prices level off or go down. Bond investors appear to agree with this thesis as the yield on the 10 Year US Treasury has stabilized in the mid 1.5%-range. Let’s hope we are all right and inflation remains at an acceptable level.

Quarterly Estimated Taxes Due

Today is June 11. Don’t forget to pay your quarterly estimated taxes on or before June 15, which is next Tuesday. “Wait a minute! I thought my taxes aren’t due until April 15 next year”, you might think. That is correct, if you are a regular employee, someone who receives a Form W-2 at the end of the year. If you are a W-2 employee (as I call them), you likely don’t have to concern yourself with making quarterly estimated tax payments, unless you have a lucrative side gig. For most other people, however, making your quarterly estimated payments is an important thing. This includes gig workers, independent contractors, and anyone else who isn’t on a company’s payroll and who receives a Form 1099 at the end of the year. Although the 2020 tax return date was delayed until May 15, 2021, there has been no delay in the due date for 2021 taxes, so June 15 remains the next due date for quarterly estimates.

From Google Images

Growing Numbers

According to this posting in Forbes from a year ago, 28% of workers claim to be self-employed and 14% claim to be independent contractors. Earlier postings show the independent contractor percentage to be 8% to 10%. A lot of people signed up to be Uber drivers in the 2-3 years prior to 2020, and all of them are independent contractors. Both self-employed workers and independent contractors are subject to paying quarterly estimated taxes.

Safe Harbor

How much should you pay to avoid a penalty? The IRS provides a somewhat confusing (is there any other type for the IRS?) Safe Harbor rule, which is that you can avoid a penalty if you pay 100% of your tax bill from the prior year (in quarterly increments), or 110% if you made over $150,000. Your state will also have its own Safe Harbor rule that may or may not match up with the IRS’s rule. For instance, in California, where I live, the 100% rule is in place but the timing of the payments is accelerated such that 70% of the payment must be made by June 15. California penalties for underpayment are steep, so make sure you are aware of your own state’s rules – unless you live in a no state income tax state.

IMO

Paying a penalty is the pits, so please pay attention and make your estimated quarterly payment by next Tuesday if you are self employed or an independent contractor. Other links to read if you have time on your hands:

IRS page on independent contractors

TurboTax article reinforcing the same arguments I make here

Wicked Popular

Back when there used to be plays and musicals on Broadway and elsewhere, one of my favorites was “Wicked”, which is the fun musical that is the “preqel” to The Wizard of Oz. One of the bring-down-the-house numbers in Wicked is titled “Popular”, in which Glinda, the Good Witch, tries to get Elphaba, the future Wicked Witch of the West, to accept and become what is popular. Good song; funny song, but to no avail as it turns out. When I watched a recent piece about what are called Meme Stocks, I made a mental connection with Wicked, and though I’m not from Boston, I see Meme Stocks as “wicked popular”. Perhaps this is a good connection in an artistic sense, but are Meme Stocks a good investment for you? In my opinion, no financial advisor worth their fees could in their right mind recommend that someone invest a substantial sum in Meme Stocks. Yet, part of the piece I saw (which aired on a “wicked popular” financial news network) described how companies are now trying to figure out how to become Meme Stocks. Why is that? Because Meme Stocks tend to go up and become unhitched from their fundamentals, which is all good for the management of Meme Stock companies.

Elphaba from Wicked

What are Meme Stocks?

“Meme Stocks” is the term used to describe stocks that get caught up in discussions on Reddit, Stock Twits, or other social media forums and get substantially bought up by retail investors as a result. Gamestop was an early example of this phenomenon, followed by others such as AMC Entertainment, Bed Bath and Beyond (?!), and perhaps Tesla and Blackberry. Each of these has seen a significant upturn in ownership by retail investors, abetted by commission-free trading on platforms such as Robinhood, in addition to the Reddit discussion, which may or may not be a form of collusion. Combatants in the Meme Stock battle buy positions because they believe they are “sticking it to the man”; the man being perhaps a hedge fund, bank, or an otherwise wealthy character of despicable reputation who may have a short position in the stock. The hottest, most wicked popular meme stock right now is AMC, which owns movie theaters. AMC’s CEO, Adam Aron, has become a mini-celebrity as well as very wealthy as a result of the stock’s run-up this year. Good for him, but I think his good fortune has been a result of luck much more than skill.

AMC from Stockcharts.com

Should You Play?

Let’s take AMC as an example. Before the Pandemic, AMC was a sleepy stock trading in the $10-range, and subject to significant headwinds. AMC needs people to go out to its theaters to make money, and even before the pandemic, this was becoming more troublesome because of aging demographics, alternative options for watching movies (think Netflix or other streaming services), and crappy offerings by the Hollywood studios. Not a great business model in my opinion, and investors agreed as AMC stock to stay above $10. Then the pandemic hit, forcing the complete closure of AMC theaters, which are struggling to reopen to this day. At the start of this year, AMC traded in the $2-range. Things looked bleak. Then, sometime in late January, AMC became wicked popular in chat rooms, and retail investors started to buy. AMC’s float was pretty weak (i.e., it was thinly-traded), and this played into the hands of the chat roomers. Now AMC is at $56. I ask you: Do you think the headwinds I described above are better or worse from AMC’s standpoint now that we are emerging from the pandemic as opposed to prior to the start of the pandemic? I’ll use the Socratic method here to give you my answer. Has our population gotten older or younger on balance as the pandemic has raged? (Sadly, perhaps it has gotten somewhat younger, but for the wrong reasons, as Covid deaths have been disproportionately among our elders). Do you think potential movie-goers are more or less inclined to go out and watch a film in the theater now with all of the other streaming options available? And do you think the shutdown of filming as a result of Covid will cause more or fewer movies to be produced? In short, I see AMC’s headwinds as much worse now. So what possible justification can I find to buy AMC at $56 when I didn’t like it at $10 or $2? Corporate reorganization aside, AMC is not an asset-rich company, and don’t see AMC being worth $56 under any scenario.

IMO

When a stock becomes a wicked popular Meme Stock, be very skeptical. True, retail investors can take advantage of a short or a low-float situation and cause a run-up in a thinly-traded stock. However, retail investors are fickle, and their attention spans can be quickly altered when the next great opportunity emerges. Though it is a growing segment, only a very small percentage of investors participate in chat rooms, and while their power may seem large when confined to a single stock, it is not broad enough to sustain any fundamental change in a company. Unless you really have money and time to waste, don’t play in the wicked popular Meme Stock carnival.

Best Places Lists

I just read through another “Best Places” list. This one was the Top 25 Tax-Friendly States to Retire, by Yahoo News. If you have too much time on your hands, you scroll though the article and envision yourself in one of these states. If your currently live in a high tax state (as I do in California, which is not on the Yahoo Top 25 list), you think, “Wow! I could drastically cut my tax bill and give myself a big raise if I moved to one of these states!” However, before you call your real estate broker to list your house and Bekins Moving to move your stuff, there are a lot of factors to consider aside from taxes when you decide where you want to live during retirement.

Should I Move?

The first consideration is whether you should move at all. If you have lived in the same house or the same community for many years and you have family nearby, to up and move away might save you some taxes but likely won’t make sense from a family or quality of life standpoint. Having deep roots is important and digging up those roots is not to be taken lightly. If you move to a new state, is it worth it to have to form a whole new social circle just to save some money on taxes? If you have family nearby, perhaps they can help you out in situations where you otherwise would have to pay out of pocket in a new community for that same help. Maybe your kids can help you paint a room or fix something broken, or even get groceries or take you to an appointment. Would you still see your grandchildren if you move a thousand miles away? All very important things.

The Weather

Having lived in the Northeast while growing up, I get that cold winter weather is no fun and moving south makes sense if you are sick of shoveling snow. People have been “wintering” in the south for years, but although some people make the move permanent, others go the “snowbird” route and travel back and forth each year, seeking the best of both worlds (winter in the South, summer in the North). If you are a snowbird, where do you plant your flag as your “permanent” residence? Consider in which one you spend the most time. You may not be able just to pick the state that has the lower tax rate.

Your Current State

There are legal issues to consider. New York State, for instance, makes it very difficult for someone who is a current NYS resident to move out of state if they keep property or businesses or jobs in the state. You cannot, for instance, keep your job in New York but move to Florida and say you are working remotely and are now a Florida resident. The NYS Department of Taxation and Finance will track you down and you will have to prove to them that you are completely gone from NYS. I have read of other states (California!) starting to be more aggressive in tracking down state-tax avoiders. Check with your CPA before you make a decision.

Your Current Home

Is your current home or apartment conducive to living if you weren’t as healthy as you are now? Stairs become real obstacles as you get older and your joints creak more or you put on more weight. If you live in a split-level or a multi-story townhome now or if you live in an upper apartment that is lacking an elevator, you may need to move at some point because you can no longer manage the stairs. What about the size of your house or the maintenance needed for your yard? You may think you want to retire and devote more time to your garden, but consider if it is manageable or not as you get much older. A tip: keep it small.

Health Care

You may be tired of living in a dense area, but denser areas tend to have better health care alternatives available to those who live there. Your need for quality health care will grow as you get older. Before you opt to move, make sure you are comfortable that you can go to good doctors in good facilities in your new community. You might save some money on taxes, but if you can’t get the cancer treatment (for instance), what is the point of having money on taxes?

Take Out Your Calculator

Ok, you want to avoid paying taxes, but you should at least calculate how much tax money you really will save. For instance, here in California we have Proposition 13 which restricts the amount my property taxes can be increased each year. For me to sell my house and buy another one in another state, I need to calculate how much I can pay for a house and keep my property taxes the same as they are now. The most likely case for me is that I will need to buy a less expensive house in a new state because its tax rate will be greater than my current Prop 13-advantage rate. Another issue is your income post-retirement. Don’t look at your current income while working and compare the tax rate on that vs. your tax rate on your retirement income. Instead, look at what money you plan to have coming in once retired, and calculate what taxes you would pay on that in your current state vs. your new state. Probably a CPA or a planner should help you out. You may conclude that you won’t really be saving that much and it isn’t worth it to move. Or maybe not!

IMO

Saving money on taxes or living in a new community and starting a new life once you retire has some romantic appeal but there are a lot of other things to consider when you think about moving to a lower tax state. I understand and sympathize with wanting to avoid state taxes, but you may be better off in the end if you pay a little more in taxes but are therefore able to call on family or long-standing friends to help you out in a pinch. I strongly recommend you work with your CPA or a financial planner such as me when you go to make such a big decision.

The Almighty Dollar

Let’s take a look once again at the strength of the US Dollar. As you can see from the chart, the value of the US Dollar (relative to other world currencies) has been declining since mid-March. From its high of about 93.25 in March, the Dollar index sits right at about 90. At 90, the Dollar is re-testing a support level it reached in early January 2021. Trading is showing some bottoming action, so we will see soon if the support holds or not.

US Dollar Index

Why?

Why has the Dollar been falling in value relative to other currencies? One reason is that US interest rates have stabilized during the same period and remain high relative to interest rates in other large world economies. For instance, from 1/1/21 to 3/31/21, which is the entire First Quarter, data from the Fed shows that the yield on the 10 Year US Treasury Note rose from 0.93% to 1.73%. However, since then, its yield has stabilized and dropped slightly to 1.58%, as I write this. Rising interest rates mean international money moves into the Dollar, which means the value of the dollar increases. When rates here are stable to falling, the opposite happens, and the Dollar falls in value. That is what has happened thus far during the Second Quarter.

What Else?

What else happened as the Dollar has fallen in value? The stock market rose. Since 4/1, the S&P 500 Index has risen from about 4,000 to about 4,200, but if you go back 3 weeks to early March, the Index sat at 3,750. A weaker Dollar means that more of them are needed to buy assets, so each Dollar is not as valuable.

Another piece of data is that the April annualized inflation rate was 4.2%, the highest in many months. Did the higher inflation rate cause the Dollar to decline? Or did the Dollar decline cause the higher inflation rate? Probably a bit of both. Supply chain issues coming out of the Covid economy have caused inflation to spike. The Fed says this is transitory, but we will see if they are correct. Higher inflation and a weaker currency go hand in hand.

IMO

Don’t look for a return to rising interest rates to bail out the decline in the Dollar. Yields on similar-termed government bonds in Europe remain below 0%, and so international sovereign bond investors will continue to buy US Treasuries because at least their yield is positive. This will continue to hold US rates relatively low, and likely not to increase much if at all. This means I project the Dollar Index will stay low and perhaps break its support level of about 89.5. What might be the catalyst to break the current situation? If supply chain issues prove to be temporary and rectify themselves, thereby showing inflation to be relatively tame or at least within the Fed’s target. Lower inflation figures should cause the Dollar Index to at least stabilize. Perhaps what is behind the bottoming action of the past week or so is the thought that the reopening of the economy is going well and that inflation will not spike as much as April’s figure suggests it might.

The Best Way to Play Crypto

The management of Colonial Pipeline reportedly paid a ransom of $5 million of cryptocurrency to the hackers of its computer systems. An artist named Beeple sold a piece of art that was embedded with a string of code called a Non Fungible Token (NFT) for $69 million. The value of one Bitcoin has risen from about $8,700 one year ago to over $37,000 now, with a stop at over $60,000 a month ago. Clearly the worlds of Bitcoin and other cryptocurrencies as well as the related world of NFTs is growing up and going more mainstream. Anecdotally, I have had a number of people ask me about cryptocurrency within the past couple of months, more than ever before. Interest is high, but involvement is still relatively low. Are you reading these stories and thinking about getting involved by investing in Bitcoin or other forms of crypto? If so, what is the best way to do so? I have my thoughts about that.

By the way: You don’t really get an actual coin when you buy Cryptocurrency

A Long Time

What strikes me about crypto and NFTs is that we are in the very early innings of this game and that it is going to take a long time for the real applications of these technologies to play out. Take this Wall Street Journal article by columnist (and former venture capitalist) Andy Kessler about an email conversation he had with entrepreneur Mark Cuban. Kessler and Cuban discuss the possible future of crypto and especially NFTs. Central to their discussion is the concept of “smart contracts”, which are transactions between two parties that are authenticated by virtue of blockchain code. The more business transactions become “smart”, the more useful and valuable blockchain becomes, and therefore the more valuable Bitcoin becomes, or so the thinking goes. This could all occur more or less as Kessler and Cuban surmise, but its adoption will take a long time.

If you see a trend that you think is going to take a long time to play out and you want to invest in that trend so that you will profit if your reading turns out to be correct, then you play that long-term hunch by buying something that you are going to hold for a long time. In the case of crypto, the way to play the crypto game is to buy and hold crypto. Set up a separate account for it (you kind of have to anyhow), buy it, and don’t look at it very often. Go to Coinbase or another reputable crypto house (and I am assuming Coinbase is reputable because it is public – no assurances that it is), buy some Bitcoin and/or Ethereum – most of the other cryptocurrencies out there including Dogecoin are “a hustle”, as Elon Musk stated – and sit back.

Futures

Another way to play crypto is to buy or sell Bitcoin futures. The Chicago Merc has offered futures trading in Bitcoin for over 3 years. As with other Futures instruments, each Bitcoin futures contract expires every 3 months. This means that you cannot own a futures contract for the long term. Futures are for short-term traders. If you want to try to time the market and profit from short-term fluctuations in the price of Bitcoin, then have at it with Bitcoin futures. However, if you believe as I do that Bitcoin is a long-term thing, then don’t play in the futures sandbox.

ETF

There are some Bitcoin ETFs out there offered by smaller, less-well capitalized shops. Stay away from these. However, some of the bigger ETF shops – such as potentially Fidelity and Blackrock – have filed to introduce Bitcoin or crypto ETFs. This will probably happen, if not this year then next. Some current crypto investors believe that ETFs will be game-changers for this market. They could be correct, and ETFs are a good alternative to holding actual crypto. Problem is, we don’t know what these reported ETFs look like yet, let alone what their asset mix will be. Also, the SEC is not on board yet. Until all of these details become evident, and even still with that development, I still like owning “hard” crypto over an ETF.

IMO

I think that the true value of cryptocurrencies will be realized only in the very long term. Years, if not decades, but not weeks or months. A long term time horizon means you should own a long term asset. Don’t try to trade it in the short term. I like investing in Futures for most other trends, but not this one. Be a buy and hold investor if you want to play the crypto phenomenon.

Be Your Own Cybersecurity Engineer

It’s bad out there and it seems to be getting worse. Computer hackers are attacking individuals and corporations alike. Nobody is immune. Colonial Pipeline is the most recent headline-worthy attack, but these attacks go on all day, every day. Do you receive robocalls or spam emails? Those are all attacks to hack into your personal accounts and to steal money from you. I recently attended a webinar about these cyberattacks and what each of us can do about them without resorting to extraordinary or expensive measures, and I will summarize and add my own suggestions here:

Two Factor Authentication

For any log-in that you have for any bank, savings, brokerage, insurance, or any other account you have that involves money, you should move to two-factor authentication. What is that? It’s another step you need to do after you input your user name and password but before you can access your account. There are many forms of two-factor authentication, some more effective than others. Here is a summary:

  • Secure code card from the financial institution: This is very safe. For my main brokerage account, I have a credit card-sized card with many alpha-numeric codes. When I try to log into my brokerage account, I am given numbers that correspond to the codes on my card, which is specific to my account. I look up the codes on the card, type them in, and I am now in to my account. This is very safe, but requires that you don’t lose your code card.
  • Face ID: For this same brokerage account, I could use Face ID through my phone, but I choose not to. I have used the Face ID method in the past but the code card works better for me. With the Face ID method, whether through an app on your phone or through your desktop or laptop, your account is linked to your phone number, and you open your phone so it sees your face, and you are in. Face ID is probably the preferred method of two-factor authentication if you are just using an app on your phone to access your account. Also very safe.
  • RSA Security Device: I have this for my checking account, specifically for my business account, although it could be used for a personal account. This is a variant on the code key card. With the RSA device, a 6-digit numeric code is provided and is updated every minute or two. When you log into your bank account, simply input the 6-digit code that appears on your device at that time, and you are in. Very safe, but you have to have your device with you when you log in. I assume there are companies or devices other than RSA that do the same thing.
  • SMS Text: Beware of this! This is the most common form of 2 factor authentication but is also the most easily hackable. We have all done this: An app or website sends you a text containing a 6 digit code that you then type in to gain access. Problem is, if the hackers already have access to your phone, then they can easily have access to your texts and thus the 6 digit code. Let me clarify: SMS Text is still better than no 2-factor authentication, but it’s not as good as other methods.
  • Authentication Apps: The leading players seem to be Twilio/Authy, Google Authenticator, and Microsoft Authenticator. I am not as familiar with these but plan to use them to see how they work, and will report what I find. Try one of them yourself and see what you think

Passwords

The moderator of the webinar I attended spent a long time discussing how he comes up with unique passwords for each new log-in. We’ve all been there: You open a new app or website, and it asks you to create a password. Brain-lock ensues. You know that you really should not re-use passwords that you already have in play, but you are impatient to open the app, so you cave and re-use an old password. Don’t do this! The moderator suggested we use thought and word association related to that specific website or app in order to derive a new password. That’s fine, but the problem is most new passwords require combinations of small letters, capital letters, numbers, and special characters. They do this for your own safety but it makes it difficult to come up with a creative phrase. What I do sometimes to address this is to use alphanumeric strings from other sources, just to come up with something. The key, however, is to write down the user name and password in the Notes section of my Contacts app on my iPhone. That way, I always have access to each user name and password. My search engine on my computer (Google Chrome, mostly) will auto-generate passwords and would (or should) remember those passwords the next time you log in. That works, if you are lucky and the search engine works the way it is supposed to, but what if you use multiple computers and/or multiple search engines? I still think you need to write down your user names and passwords. Also, there are apps out there such as Dashlane that will auto-generate passwords. I used Dashlane for a while a few years ago, but then Dashlane crashed and took all of my passwords with it, so I have a bias against Dashlane. That’s my personal experience, although I expect (hope!) Dashlane has improved its performance.

RoboCalls and Spam

The moderator says there isn’t a lot we can do about these banes of existence as of now. He stated that the average person receives 20 robocalls per day, which seems high because that’s what I get on a bad day. However, even if the number is half that, it’s still too many. We’ve all heard that you aren’t supposed to answer the calls, but the only way to make the bloody phone stop ringing is to answer it. Recently, my iPhone has been providing a Decline button when a call comes in, but only on some calls but not others. I would like to see the phone company provide a Decline option for all calls, cellphone or land line. Anything to make the thing stop ringing. As for limiting robocalls all together, that will require government action, which means you should keep your hand where it’s warm.

As for email junk or spam, you can Unsubscribe, but that doesn’t necessarily prevent the junk emails from coming in. The moderator spent a lot of time also discussing various spam (and robocall) schemes that are out there. Basically, the message was don’t under any circumstances do what the scammers ask for you to do. The IRS will not call you or email you; they will send you a letter in the mail if they want to get in touch with you. If you get a call or email saying they are from Apple or Amazon and there is a problem with your account, then log into your accounts on those websites and see if there is a problem; likely there is not one. Be very skeptical and use common sense.

IMO

All of these recommendations require more time spent and more work by you, but none of them require expenditures. Do them for your own safety. You lock your car and your front door; you should also do what you can to lock your online selves. Think of these steps as your keys. By doing so, you will be your own cybersecurity engineer: another job title you probably didn’t think you would attain just a few years ago!