Market Lab Report - Premarket Pulse 5/7/18

As earnings season comes to a close, 79.9% of companies have reported earnings per share that were above analysts’ expectations, putting the season on track for the highest earnings beat rate on record, going back to 1994. Yet the stock market remains lackluster since market forces know that these earnings reports are inflated due to stock buybacks made possible via QE.

At the recent fed meeting, the Federal Reserve indicated further interest rate increases are likely given that US inflation is ticking higher. Should inflation accelerate, the Fed will become more aggressive about hiking rates. Meanwhile, economic stability continues to be called into question with regard to the deteriorating middle class at home and abroad. Studies have shown about 75% of those in the US and UK don't have even $1000 in savings so if any emergency comes up, such as auto repair or medical, they have to borrow from friends and relatives. As Ray Dalio of Bridgewater astutely pointed out, 60% of those in the US are seriously struggling, while the divide between the haves and have-nots has never been greater. The top 1% now represent the bottom 90% of wealth. He also warns about the coming fiat currency devaluations given that the level of global debt towers over any other period in history including the Great Depression.

The sagging global economy remains stuck despite a decade of near record levels of QE capital being printed. This will eventually force the Fed's hand to either reverse their rate hikes, potentially within the next year or two, or devalue the dollar. Other fiat currencies being weaker sisters would follow suit. Thus hard assets such as real estate, gold, and leading cryptocurrencies such as bitcoin and ethereum pose less risk over the longer term.

Google co-founder Sergey Brin credits ethereum with playing a central role in the recent “boom in computing” that is helping drive what he calls a “technology renaissance.” Brin stated, “There are several factors at play in this boom of computing. First, of course, is the steady hum of Moore’s Law…The second factor is greater demand, stemming from advanced graphics in gaming and, surprisingly, from the GPU-friendly proof-of-work algorithms found in some of today’s leading cryptocurrencies, such as Ethereum.”

Indeed, cryptocurrency mining has soared during the past 18 months. It is no longer the low hanging fruit it once was. The mining boom has even led to a shortage in the GPU market where Crypto miners purchased 3 million GPUs worth about $776 million in 2017.

And the number of decentralized technologies coming online via Ethereum and other platforms including bitcoin is reminiscent of the days of the dot.com boom. Most will fail but a number of them will be transformational.

One of the largest transformations will be the reign of decentralized cryptocurrencies such as bitcoin over fiat. Both the CEO of Twitter and Tim Draper among others have said this will come within the next 5 to 10 years. That, together with the fiat devaluations will be the beginning of the end of government tyranny over the many. Note, those of us in the top 1% may not directly feel the effects and more likely have benefited from it. As one example, the stock market has had a QE-sponsored, decade long bull run, while real estate being a hard asset has performed well overall. But these powerful bull markets do not remove the reality of where things stand. Central bank money printing comes with a steep price. The middle class has been the first to feel such pronounced effects as three-quarters of Americans dont even have $1000 in savings. And when you wipe out the middle class, deep economic instability and social unrest result.

The creator of bitcoin understood that governments would always own the individual as long as the trusted third party paradigm was part of the structure. Centralized government is the trusted third party and such control has always resulted in dictatorships or oligarchies in one form or another which enrich the few at the expense of the many. Such corrupt structures may start out as democracies but eventually transmogrify while continuing to maintain the illusion of a democracy. Singularly, if 5000 years of history is any guide, any economic justice was short-lived which is why fiat has a limited lifespan.

In today's world, theft through the central banking system is rampant. Governments have many justifications for QE money printing in the form of 'too big to fail' and in their attempts to jump start the global economy. But the issue at hand is that different systems of government offer varying levels of freedoms but eventually devolve into concentrating power into the hands of the few who then use financial, judicial, and military means to control the many. Such power structures could not exist under a decentralized form of government such as Bitnation for whom I wrote a lengthy piece last October. Such decentralized governance would truly empower the individual far greater than any other system of government, past or present.

The brilliance behind blockchain is that governments in their current form are rendered obsolete as the technology eliminates the need for trusted third parties (TTPs). Ed Seykota writes that governments have always controlled by initially reducing then quashing productivity and freedom, and details his point nicely in his book "Govopoly in the 39th Day". 39th day is the analogy to duckweed in pond ecosystems. Duckweed doubles each day so goes unnoticed the first 25 or so days. But by the time it is noticed, it is too late to reverse its course. On the 40th day, duckweed strangles all life in the pond. Seykota equates the current systems of government to being one day away from the 40th day given the beyond onerous levels of regulation, taxation, and unjust rights-crippling laws not just in third world countries but also in first world nations. The world sits at a major tipping point economically, financially, socially, and politically.