The 2019 Crypto comeback

I was milling around in Harrods yesterday not because I had any intention to buy anything but because my better half loves that shop. Thankfully she loves to window shop more than actually buy anything which is just well for me. In fact, I hate shopping and I am as far removed from being a fan of shopping as one could probably be. I have often thought that whilst the internet has had so many incredible uses such as connecting people through email, transferring money in seconds to somebody on the other side of the world, or the ability to stream a live film straight into the comfort of your own living room, I can’t help but think that it’s number one use is for people to buy something without ever having to walk into a shop again. At least it is for yours truly. For me, I get that same warm feeling in my stomach which was probably the same feeling that people felt about 200 odd years ago when the industrial revolution dramatically changed their lives. The emotion that the steam engine gave for generations past is what Amazon gives me today. And because of my distinct lack of interest in shopping, I often end up observing the people and my surroundings rather than the products themselves. I find myself critically assessing human behaviour, how salespeople approach their customers, and the general mood and confidence that people have as they are out their making purchase decisions. And what I noticed yesterday which surprised me is that people were out buying in droves and confidence remains high. This might explain how Harrods is able to get away with selling a small punnet of Strawberries for £7 that has a normal retail value of about £2. You see, people buy go to Harrods for the experience. Sure, the quality of the food, the clothes, the watches, the books and whatever else you can think of (yes Harrods sells just about everything) is of the highest quality, but at the end of the day a strawberry is a strawberry. People know that and are happy to pay the greatly inflated price because of the customer experience. The reason that I am telling you this story is because it triggered a stark reminder that despite the turmoil in the stock market both here in the UK and globally, people still have plenty of money. The economy is still doing relatively well, and despite our hapless politicians messing up the Brexit negotiations thereby creating a level of division and uncertainty greater than we have ever seen before, none of that takes anything away from the fact that people still have money in their pockets and cash in the bank. This can only mean one thing; that at some point they are going to find a home for that cash, whether that be sooner or later. After all, no savvy investor ever wants to keep cash for too long because of the impact that rising inflation will have on it. Similarly, property prices are on the slide, most corporate bonds (although not all) are paying a pittance, bank deposit rates are non-existent and of course the equity market as we already know is on the cusp of a collapse. So where is all the money going to go? Well I have a good idea where some of it might go. I think that it will find its way into the crypto currency market. You see most investors follow the market like sheep and never try to predict market direction or new trends. As a result, they are always the last ones to get onto a market trend and the last ones to get out. Indeed, most retail investors have now given up trying to establish market changes because they have been sold the myth that there is no point in trying to time the market – one should just buy and hold whatever the market conditions. That is nonsense. The market is full of opportunity but like any opportunity you won’t find it knocking on your day if you sit snugly on your sofa watching the omnibus edition of EastEnders. You need to be in the market place and keep your eyes open and you will see opportunities every single day. If you don’t keep your eyes open then you are wasting an incredible opportunity. Take the housebuilding stocks for example, which offered one such an opportunity, only last month. Whilst everybody was panicking and cashing in their portfolios, there were some smart investors who recognised that many people were over-reacting which meant that the level of fear shown by those individuals was out of line with the true market conditions. They also noticed that some solid blue-chip companies like Taylor Wimpey had been sold so aggressively that they had fallen dramatically in the run up to Christmas. As a result, their dividend yield had jumped up to 11%. They also realised that a FTSE100 company could not support such a high yield which meant that either the company would be forced to cut their dividend or the price would have to increase. As the company showed no signs of financial difficulty a dividend cut was highly improbable thereby leaving the only other sensible option on the table – a significant possible increase in price. As a result, the smart investors bought the stock at a price of just 130p and in some cases even lower than that. Unsurprisingly these ‘lucky’ investors (of course they were not lucky at all, just prepared), had just secured a very safe, low-risk investment which all but guaranteed an indefinite annual income of 11% (this would only change if the company cut its dividend in the future). Imagine that! So, if you are thinking about how bad your portfolio has been doing, then I am sorry to say but you may need to take a closer look at yourself rather than your holdings. More importantly you need to think about the action that you should consider taking. Oh, and did I mention that since December the share price has also increased by nearly 30% to nearly 170p? 11% dividend AND 30% capital growth in a month! – all in the middle of a stock market crash. And if you think that finding Taylor Wimpey was a once in a lifetime opportunity, think again. There were and still are countless opportunities like this one. In fact, you could have taken your pick from any number of similar housebuilder shares including Barratt Developments, Bellway, Berkeley, Persimmons and several others – and yes they all did the same thing. The point is that you should never be worried about being contrarian and so when the market over-reacts (either to the downside or upside) that is your signal to do what others are either too fearful or too greedy to do i.e. either buy or sell. But it’s not just about being contrarian within an asset class like equities. If you really want to be successful in the current market climate you need to think across asset classes. That’s because I maintain the view that the equity market will come under continued pressure this year, albeit with these pockets of incredible investment opportunities, as evidenced by what recently happened with the house builders. However, there is an altogether bigger opportunity which 95% of investors will completely miss altogether simply because of fear – not knowing and not understanding. In fact, in 2019 and 2020 investors who take no action, will once again be talking about those ‘lucky’ investors once again and how the opportunity is now gone. I am talking about Bitcoin and the phenomenon of the crypto currency market. I have followed Bitcoin and the other major crypto currencies very closely for at least five years and as with the equity market, I saw the crash coming. That may sound boastful, but it’s not intended to be. It’s just factually correct; I did, I said that the crash would come and it did. There were a number of reasons for this correction and it is absolutely right that it happened but we should not forget that as with all cycles there are ups and downs and there will come a time where the crypto market cycle will make a recovery.  I believe that the time is 2019. hat’s partly because since December 2018 the value of Bitcoin has fallen from the dizzy heights of nearly $20,000 per coin to less than $3,600 per coin. In my book that is a significant over-reaction and there is now a huge opportunity waiting for investors. Whilst Bitcoin is not regulated and it is not a product that I am either offering or advising on, I will say this. Two months ago, I went to a very reputable City of London conference not far from my offices, with the expectation of meeting market makers, platform providers and trading technology companies in derivatives such as Contracts For Difference (CFD). Instead the room was full of Crypto currency players all fighting for a piece of the market. In my experience it’s very rare that so many industry leaders get it wrong and so I believe that if the professionals are now investing so heavily in this area then they are gearing up for an explosion in this market place, which means that the retail investors should pay attention. Investment banks, hedge funds and multi-national corporations already have committed great time, money and resource in gaining exposure to the crypto world and whilst technologies and coins will change, the crypto market is here to stay. Of course, there are risks involved like any investment but in the absence of any sensible alternative asset classes, I believe that the Crypto Asset class could potentially have a very big year. As a form of diversification, it could also even help to reduce the risk of your exposure to traditional investments.