The New Bubble – Bitcoin and Other Cryptocurrencies


Bitcoin rose above the $4,000 price mark, adding to this year’s surge in value. The New York Times attributes the most recent upward spike to an agreement among key backers to settle “a long-disputed update to the network’s software and rules.” Regardless of the reason given, the price action exemplifies unfettered speculation.

To be fair, there are those who view bitcoin and other cryptocurrencies as alternative means of storing wealth. Cryptocurrencies are not issued by central governments nor controlled by central banks. They are tradeable globally as long as someone has an internet connection. In the case of bitcoin at least, there is a limit to how many can be ever created.

Still, the introduction of “ICO” (initial coin offering) to Wall Street’s lexicon smells of tulips, Dutch tulips to be specific. Ethereum, a competitor to bitcoin, raised more than $150 million. Tezos, another blockchain provider, raised $232 million last month. (In simplistic terms, a blockchain is an online ledger of transactions. Ethereum and Tezos have their own cryptocurrencies.) Business Insider tabulates that more than $1 billion has been raised through ICOs so far this year. The digital coin offerings have even sparked the Securities and Exchange Commission to issue an Investor Bulletin about them. Continue Reading »

AAII Model Portfolio Update

No changes were made to Model Fund Portfolio or to the Model Shadow Stock Portfolio. Within the Model Shadow Stock Portfolio, three existing holdings met the qualification rules for purchase: Rocky Brands (RCKY), Salem Media Group (SALM) and SigmaTron International (SGMA). Alamo Group (ALG) approached the portfolio’s size and value and limits, while Ultra Clean Holdings (UCTT) exceeded the value limit.

The AAII Model Shadow Stock Portfolio added 0.2% in July. The Vanguard Small Cap Index fund (NAESX) gained 1.09% for the month and the DFA U.S. Micro Cap fund (DFSCX) added 0.47% in July.

Since its inception in 1993, the AAII Model Shadow Stock Portfolio has a compound annual average return of 15.9% versus the Vanguard 500 Index fund’s (VFINX) gain of 9.3% per year over the same period. The DFA U.S. Micro Cap fund (DFSCX) has averaged an annual return of 11.5% over the same period.

The Model Fund Portfolio gained 1.66% in July, compared to a 2.05% increase in the SPDR S&P 500 ETF (SPY). Since its inception in July 2003, the Model Fund Portfolio has a compound annual average return of 9.0%, while the SPDR S&P 500 ETF has an 8.9% average annual return over the same period.

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Highlights from this month’s AAII Journal

AAII Sentiment Survey

All three indicators are close to each other for a second week, though optimism remains below average while pessimism is rising for the third consecutive week. More about this week’s results.

This week’s results:
  • Bullish: 34.2%, up 0.5 points
  • Neutral: 33%, down 1.0 points
  • Bearish: 32.8%, up 0.5 points
Historical averages:
  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.

The Week Ahead

Just 17 members of the S&P 500 are scheduled to report as second-quarter earnings season starts to wind down. Among the large-cap companies on the calendar are Medtronic PLC (MDT) and Inc. (CRM) on Tuesday; Lowe’s Companies Inc. (LOW) and HP Inc. (HPQ) on Wednesday; and Broadcom Ltd. (AVGO) on Thursday.

The week’s first economic report will be July new home sales, which will be released on Wednesday. Thursday will feature the August Purchasing Managers’ Index (PMI) and July existing home sales. Ending the week, July durable goods orders will be released on Friday.

The Jackson Hole Economic Policy Symposium will begin in Jackson Hole, Wyoming, on Thursday and continue through Saturday. The annual meeting will include speeches by Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi.

Only one Federal Reserve official will speak this week at an event other than the Jackson Hole Economic Policy Symposium. Dallas president Robert Kaplan will speak on Wednesday.

The Treasury Department will auction $13 billion of two-year floating rate notes on Wednesday and $14 billion of five-year inflation-indexed securities (TIPS) on Thursday.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »

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