As we watch, the price of Bitcoin is just now passing a unique milestone of $7,000 per coin. At this point, I would like to take a moment to point out the difference between holding government money vs other assets.
If you had held $7,000 in cash since the year 2000, it would have lost an average of 2.15% in value every year due to inflation. Such that today, you would need $10,000 in order to buy the same amount of stuff with that money. Meaning, that today’s $10,000 has the same purchasing power as $7,000 did at the turn of the century.
If you would have put that $7000 in the stock market, say the Dow Jones, the investment would now be worth $20,000. However, we already know that that 20k has less buying power than money did in 2000. So if we adjust for inflation, the investment would be worth $14,000 of the Y2K Dollars. Meaning, You’ve doubled your purchasing power.
Let’s say you bought Gold. In 2000 the price was $275 an ounce, so you could have bought a total of 25 ounces. At today’s prices, those 25 ounces would be worth $31,900 of today’s money, or $22,000 of Y2K money. So you’ve more than tripled your purchasing power.
Let’s not even get started on specific individual tech stocks, or even think about leveraged investments, and certainly let’s not wander far enough into imagination land to arrive at cryptocurrencies. I think I’ve made my point.
Market Overview
In light of the above maths, we can now understand how critically significant it is to the US Government to get timely and efficient tax reform in place.
As of now, Donald Trump and the Republican party both need a win. The Republican’s have pretty much controlled all three branches of US government as of January 20th but have yet to create any meaningful laws or legislation. Most of the year has already been wasted trying to repeal Obamacare but they have failed.
The deadlines they’ve set to get this tax bill passed are utterly ridiculous and it would take nothing short of a miracle to get it done. Picture Donald Trump sitting around a campfire with Senate Republicans singing Kumbaya in four-part harmony.
Stranger things have happened. If somehow they do get this done on time this market may yet still have room to grow. After all, economic figures are looking great and all the earnings reports coming out are showing businesses that are full of confidence about the future. Reflection chart. Dow Jones since Donald Trump’s election and the promise of lower taxes…
Finally Some Action
The Bank of England will most likely make an announcement to raise their interest rate from 0.25% to 0.5%. The announcement will be made at 13:00 in London.
Rate hikes are extremely significant for currencies and this announcement will likely have a high impact on all GBP pairs along with the rest of the FX markets and the FTSE 100.
The markets are already expecting the change and it is likely already priced in. The more interesting news will be the monetary policy summary that will be released at the same time and a press conference with BoE Governor Mark Carney at 13:30.
Let’s see the history….
In the wake of the 2008 financial crisis, the BoE was compelled to lower their interest rates and leave them near zero until today, just like most of the world’s largest countries have done. In the wake of the Brexit referendum, they did one final cut as a precautionary measure. And went from 0.5% to 0.25%.
Today, they will probably reverse that cut, leaving the rate near the floor. The big question that investors are asking, is what’s the future path. Will they begin an upward incline towards 5% or are they just going to leave it “one and done?”
Analysts are torn on this question, which is why the summary and conference will be vitally important and while we may not get a clear answer today and ripples of a hint can cause tidal waves in the markets.
Have an awesome day!!
