Saturday, December 16, 2017

Friday Thoughts

Yield Curve
The yield curve has started flattening. When comparing January curve to December curve you can see a significant move towards horizontal. In some circles the yield curve is very impressionable.

     Why is the yield curve important and why is it [usually] sloping upward? Think about the Expectation Theory. For starters, yield is on the y-axis and maturity on the x-axis. Short term is inherently less risky meaning the interest you receive on bonds will be lower. When you start moving out - 10 years, 20 years, 30 years - the yield will increase to account for the risk of time. Most cases you'll see a fairly significant difference between the 10 year and the 30 year. Why, besides time risk?



     Expectations Theory defines the yield curve as upward sloping when prospects for the future are bright. Economists still see GDP growth and an expanding economy. As it begins to flatten the future growth expectations are beginning to dwindle - in theory. In the past, the yield curve has gone from normal, to horizontal, and ultimately inverted at the market peak.

     A downward sloping/inverted yield curve - still centering thoughts around expectation theory - says that the short term is much better than long term. Interest rates are going to fall in the future. The Fed, remember, lowers the discount rate during the back end of the market cycle in an effort to prevent a recession. Or in a recession.

     The yield curve is a slow moving indicator. In reality, it really isn't used as an economic indicator because it's slow moving. Never the less the move towards horizontal has piqued some folks interest as it was written about yesterday. Yesterday being Friday, December 16th.






Bitcoin - Again
I don't want Bitcoin to become a regularly excepted currency like the dollar. Not soon at least. When that happens, the volatility and price fluctuations will have to stop. My good friend presented a great example.

     "You have $20,000 dollars in cash and the same amount in Bitcoin. You are going to buy a car. They accept both types of payments. Are you going to use cash or Bitcoin? Any sane person will use cash. The way Bitcoin has been moving, you'll end up paying $50,000 for that car."

     Don't get me wrong. I love Bitcoin and cryptocurrencies. But right now only as a store of value. Just take the place of Gold. We don't use that to buy groceries. "Yeah because that's stupid." Okay same as Bitcoin. As of writing this, the one day gain on BTC is 3.04%. One coin is worth $18,391.96. One week ago one coin was worth 21.07% less. Why would you use Bitcoin to buy regular things when it is rising and falling so greatly?

     For me, keep using Bitcoin as a store of value. As the younger generation matures it will begin to overtake the market the older folks have a stronghold on - Gold. And what if Governments get really freaked out with the decentralization. They start buying up Bitcoin instead of other currencies. The price is only going to appreciate more than it is now.

     With the amount of hype that is surrounding Bitcoin now, even the older folks are interested. They want to buy, they just don't know how. I have friends (I swear) in the financial industry who have talked to so many people that want in but can't figure it out. Computers aren't really their thing and they struggle. Coinbase is very simple to use, but what if it becomes even easier? The Gold generation starts to dabble and begin to increase the price more?

     All I'm trying to say is there is more room for growth, so why try and use it to replace the dollar? Just doesn't make sense.

     Hopefully I am in the majority with that basic thought.



Spark Therapeutics
Share price has fallen from $76 to $46 in a week. Why? On not that bad news.

     Because I'm lazy and no one is going to read this I won't go into specifics. Google it. However, all the articles I read essentially said the same thing; there are not enough data to say whether it is a failure.

     ONCE is still trying to figure out the correct dosage and is very early on in the process. They have limited number of patients and are at the very start of the process. The stock price fell so hard is because one of their competitors - who are further along in the process - posted progress. Technically Spark did not. Therefore, cliff diving.

     They didn't have enough evidence for anything to be conclusive yet it fell 35%. People will soon realize this and the share price will increase. Not back to original levels, but not as low as $46. I expect settling close to $60.

 

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