Why invest when there are such better ways to make money?

Why M-Pesa is the most successful mobile payments scheme in the world

image

Secondly, there was the management commitment. There was a lot of investment to get this right. Mobile money isn’t like any other product where you try it for six months and leave it. M-Pesa first started making money after three years. The first three years are just investment, investment, investment. There’s no quick win to make it a success. It takes a lot of effort and determination.

quote via CS Monitor. image via Pixel Ballads

Microsoft has killed Skype

The acquisition happened May 2011.

The Recession That Never Came

In 2011, just two years after we came out of the Great Recession of 2008, the Economic Cycle Research Institute called another recession coming.

image

They were wrong. The double-dip didn’t come. The U.S. economy grew 3.6% in Q3’2013. And, following ECRI’s forecasts cost me a pretty penny.

So, why did an organization whose methodology has been so prescient in forecasting recessions since the 1950s call it so wrong? (* and continues to call it wrong since they’ve dug in their heels)

It’s hard to say, of course, but I think three factors:

The “New Normal” for economic growth

It used to be that 1.6% real GDP growth like we’re seeing now was a sure indicator of an oncoming recession.

As Doug Short writes: “The latest GDP update (through the Q3 Advance Estimate) shows the current data point is lower than the onset of all recessions except the one that started in January 1980.”

image
No more. Like Larry Summers has said, we’re in the midst of a “Secular Stagnation” —- low growth, low inflation, low interest rates. This isn’t a recession or a “Japanification”. It’s just our new “muddle-through” economy; the “New Normal.”

Underestimating the bureaucrats

ECRI believed that government can’t stop economic forces. And, that seems to be more than true of Congress that’s pushed the budget from “stimulus” to “sequester” to “wtf”. But, the over $3 trillion (!) dollars that the Fed has poured into the economy did not go unnoticed in the least.

image

Perhaps no less important, China, now the world’s second largest economy, pushed its fiscal stimulus into hyperdrive while strengthening the renminbi, which was a boost for us.

Marshmallow not “Yo-yo”

Lastly, ECRI has believed that since the ‘90s, the U.S. economy shifted to a cycle of higher volatility. Outside of another major financial bubble, however, that doesn’t seem to be the case. As we’ve moved from agriculture and manufacturing onto services and cubicle-dwelling in the last 70 years, we’re no longer at the mercy of crop failure or the “boom-bust” of rising inventories. Rather than the up-down “Yo-Yo Economy” that the ECRI has written about, our economy’s bounciness now looks more like that of a melted marshmallow.

America’s Next Recession Oracle

So, if ECRI’s predictions are no longer a good alert system, what is?

  1. Well, firstly, ECRI’s data has been much less dire than the organization’s analysts, so it isn’t a lost cause.
  2. The “Big Four Recession Indicators" are a good bet.
    image
  3. And, in Georg Vrba’s work, the Conference Board’s freely-available Leading Economic Index looks like as good a predictor as there likely exists.

May the crystal ball be with us.  Happy forecasting.

When Will the Bitcoin Bubble Burst?

tl;dr:  Bitcoins are like Beanie Babies.  In 2014, both fanatics and critics will turn out right.  If you want to play this, watch out for the mafiosos.

Bubbles are stubborn things. They make fools money and make those with common sense look like chumps. They never go up and down in any straight-line fashion. And, just after the last one bursts, a new one seems to appear somewhere.

Bitcoin prices

image

If you recall, the latest gold bubble ended just before the Bitcoin craze began, and drew in not just Glenn Beck and the Tea Party, but some of the smartest financiers in the business, including David Einhorn and John Paulson.

So, when will the Bitcoin bubble end? As Henry Blodget writes, Bitcoin is the perfect asset bubble and “prices could keep rising for years.”

There is absolutely no way to value Bitcoin, which means there is nothing constraining its price other than supply and demand. As long someone new can be convinced to buy Bitcoin, its price can keep rising.

However, sooner or later, all bubbles get ahead of themselves, and Bitcoin will be no different.

So, when will the bubble burst?

Chances are, much after when the early critics would expect — likely no earlier than 2015.

With Bitcoin, the timing is actually relatively predictable, and depends on supply and demand.

On the supply side:

Bitcoin is already 57% mined. There are 12M coins out of 21M possible coin total. By end of next year, 63% of the Bitcoins will be mined, after which the supply will grow exponentially slower.

On the demand side:

Bitcoins’ demand is driven by just two reasons:

  • they continue to rise in price
  • they are non-traceable, aka you can use them to do illegal things

One important note: Bitcoins’ demand isn’t based on that they are a “universal” currency that can be used anywhere in the world. While hypothetically that’s true, in reality, Bitcoins involve much higher transaction costs than any other currency exchange. Using Bitcoins for cross-border transactions is a bit like hiring an English-to-Esperanto translator and an Esperanto-to-Spanish translator to get around Mexico City.

So, once the initial controversy and exuberance over Bitcoin wears off in one to two years in favor of the next shiny thing, Bitcoin prices will reach a plateau. Once that happens, the vast majority of the people interested in Bitcoins today will no longer have any use for them, making the price plummet.

How far will the prices plunge?

Likely not to zero. Could it be $500 (up from today’s $466)? $100? $10?

That depends almost entirely on the importance of the illegal, untraceable feature of Bitcoins, and how much cocaine the Winklevoss twins and their friends consume per year. Chances are, however, this demand for Bitcoins is much much lower than the “monetary base of Turkey,” which Second Market alludes to in their Bitcoin investor pitch.

image

With U.S., Japan, and Europe taking measures to disrupt illegal money laundering operations, the value of Bitcoin based on this will likely be quite low.

So, when can I start making money shorting Bitcoin?

Well, likely you can’t. Unless you hit a jackpot in your timing, the transaction costs alone will likely eat away your gains. The trick with bubbles is that “there’s a sucker born every minute”*. Bubbles inflate and crash in waves, making their paths very hard to predict.

Some spike and crash quickly, like gold in the 1970s-80s and NASDAQ in the 1990s.

image

image

Others pause for a while at the peak, like the the housing bubble of 2000s.

image

One thing that we know is that at the end, things will end up looking like they did after the Mother of All 1990’s Bubbles:

image

Eugene Meyer’s Principles for The Washington Post (1933)

I hope Jeff Bezos keeps true to these:

On June 1 (1933), a public bankruptcy auction was held on the steps of The Post’s E Street Building and the newspaper was sold for $825,000 to Eugene Meyer, a California-born financier. Meyer was not an experienced newspaperman, but he had strong convictions about publishing a newspaper which he expressed in this set of principles:

  • The first mission of a newspaper is to tell the truth as nearly as the truth may be ascertained.
  • The Newspaper shall tell ALL the truth so far as it can learn it, concerning the important affairs of America and the world.
  • As a disseminator of the news, the paper shall observe the decencies that are obligatory upon a private gentleman.
  • What it prints shall be fit reading for the young as well as for the old.
  • The newspaper’s duty is to its readers and to the public at large, and not to the private interests of its owners.
  • In the pursuit of truth, the newspaper shall be prepared to make sacrifices of its material fortunes, if such course be necessary for the public good.
  • The newspaper shall not be the ally of any special interest, but shall be fair and free and wholesome in its outlook on public affairs and public men.

Source: The Washington Post

Zimmerman — bigger than the Pope, smaller than Hurricane Sandy. (chart)