Irish Financial Review

Slaying the Bitcoin fraud

10 or so days ago when the price of a single Bitcoin reached a staggering $4,600, I search its price trajectory.

The math was astonishing.

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Bitcoin has taken on many characteristics of a speculative investment bubble

A €5,000 investment in Bitcoin in 2010 would be worth over €300 Million today.

Recently, while preparing to deliver a seminar at one of the largest global tech firms, some of the attendees were discussing the so-called cryptocurrency, which is the collective description of what concepts like Bitcoin belong to. Some were wondering if they should invest. Smart, cash-rich and well-informed, they didn’t like the odds and didn’t ‘get’ the concept but they were keen to get as much information as they could.

I have always doubted the investment proposition of cryptocurrencies like Bitcoin.

This is because they threaten a critical function of Government, which is to govern.

Modern currency is also known as Fiat currency. In other words, it is not backed by anything other than a promise by Government to pay the value of the currency. In this past, currency was backed by Gold.

Currency serves 3 specific functions, which are:

They are a unit of account

They are a store of value and

They are a medium of exchange.

That says a lot. For example, as a medium of exchange, Governments will always want to maintain a high degree of control over the value of money from a trade (domestic and international) perspective. Devalued currency for example can provide Government with options to boost trade, or reduce the real value of debt.

So, when it came to Bitcoin, I have always felt that while it continued to exist as an exotic form of currency used primarily by shady traders on the ‘dark web’, as long as it did not interfere with the daily activities of Government, then it could survive.

Then, within a few days, Chinese authorities acted.

Their primary goal was to shut down Bitcoin exchanges. This resulted in traders being scared off.

Today, Jamie Dimon, JPMorgan’s boss launched a blistering attack on Bitcoin, calling it a ‘fraud’.

It has resulted in traders becoming even more sacred.

What was a ‘sure bet’ 10 days ago is starting to look like a one-way bet to some big losses today.

Looking at Bitcoin’s price trajectory today, while it is falling sharply, the falloff in many ways mirrors it’s rise just 2 weeks ago so this could all prove to be a corrective blip in the long run.

But it is the long term where Bitcoin is likely to find the going difficult.

It has taken on the characteristics of a speculative bubble. It has become a modern-day Dutch Bulb phenomenon with cash rich investors pushing the price sky-high on little more than a gamblers impulse.

With the latest Chinese intervention, Bitcoin’s time may have been called. How interesting the Chinese intervention really is. Over 2,000 years ago, it was China that gave the world the concept of modern-day currency and here it is again slaying Mr. Dimon’s fraud!

Is medical science putting your pension system at risk?

Just last week, US regulators gave their approval to a new gene therapy drug that promises to revolutionize the treatment of various cancers. A ‘living’ drug that, if it delivers’ can increase life expectancy dramatically for those with cancer. And, perhaps start a new revolution in the ‘living’ drugs space for a myriad of other illnesses.

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Life in retirement may change significantly for retirees if pension fund returns fail to keep up with aging population growth

Great news for citizens.

But what about pensions?

As populations in the developed world age rapidly, the entire pensions structure is being pushed to the limits.

Zero percent interest rates and below benchmark inflation means that many traditional assets that underpinned pension fund growth are simply way off their mark. And with low growth, pension plans are suffering.

And even with the growing prospect that central banks are again starting to eye the prospect of rolling back many of the quantitative easing programmes of the last few years, this will not herald the rise in asset growth needed to grow pension investments across the developed world. In fact, demand for higher-yield and riskier investments is likely to continue to grow for the foreseeable future.

Pension fund managers are inevitably pushed to take riskier investments on board in order to generate much-needed returns. Otherwise, their clients face the prospect of reduced funds and incomes on retirement and throughout their retirement years.

Aging populations are a global problem. The ratio of workers to retirees is falling and by 2050, some estimates suggest that there will only be four workers per pension compared to eight today. In fact, the situation in some countries is expected to be much greater, including the UK which is preparing to restrict migration. In fact, the World Economic Forum predicts that by May 2050, there will be a combined US$224 trillion pension shortfall in the worlds six leading pension systems; the U.S., the U.K., Japan, Netherlands, Canada and Australia.

To reinforce the point of how badly the situation could be, pension deficits have already forced the bankruptcy of Detroit, Michigan, Central Falls, Rhode Island and Puerto Rico.

Employees here in Ireland have already been subject to the pain of such deficits. At a broad level, the wholesale ending of Defined Benefit plans (a.k.a final salary pensions) has been underway for some years. Today, the financial risk traditionally carried by companies is now carried by employees by way of Defined Contribution schemes.

States have also been forced to change tact with many increasing retirement ages. Taxpayers will now have to work longer before they can claim contributory pension entitlements.

In the UK, Mercer, the pension consultancy estimates that some 55% of U.K. defined-benefit funds are cash-flow negative and, of those that aren’t, nearly 85% are likely to be over the next decade.

According to a report in the Wall Street Journal, corporations are now shifting to riskier bets and shifting away from lower risk government bonds. BlackRock—the world’s largest asset manager found that pension funds are seeking greater private equity and high-yield bonds. IN other words, more risk. It is little wonder the stock markets have been booming.

For now, the game of chase continues in the pension fund markets. But history is not kind to illusionary economics. The harsh reality of aging populations and how to pay for them will eventually come crashing up against the reality of long-term costs and returns. For now, we seem to be keeping the wolf from the door but if the ‘living’ drugs have the impact they could have, if we all live to age 120, it will take a lot more to keep the financial needs to retirees in check. It might take a new deal across the whole of society.

For anybody that is serious about their long-term financial well-being, they need to begin planning for retirement in both a financial and physical way.

Plan early. From a financial perspective, saving, taking employer cash and government tax relief is a must. But workers must also start contributing to their pension accounts as soon as their are entitled to by their employers. This way, they will benefit from the compounding impact of pension growth later in the investment cycle at a far greater rate than they make contributions. This is the power of compound growth!

Cut the fees – management fees on pension performance can have a detrimental impact on long-term pension growth. In fact, it can reduce individual pension pots by €200,000 or more for someone earning €50,000 per year and investing just 10% of their annual income from age 25. Reducing the overall fees (all fee tiers) will also result in more money circulating in the local economy providing an added benefit.

Health – taking a life-long approach to healthy living is now more important than ever. For example, reducing sugars and taking regular exercise are proven to provide many health benefits including weight-loss, blood pressure reduction and positive mental health.  These can provide an added level of insurance against expensive medical intervention or even long-term care during retirement.

Frank Conway is a qualified Financial Adviser and founder of moneywhizz.org, the financial literacy initiative. 

Why Irish Consumer Confidence Remains Weak

By Frank Conway

Consumer confidence in Ireland remains weak because many people are not seeing the benefits of an improving economy in their net take-home pay.

 

Irish families are not very confident on the economy

 

And this is not just an Irish problem. It is a problem that impacts millions of workers across the EU. As economies ‘improve’, families are not seeing those improvements reflected in their take-home pay or benefits.

But here in Ireland, the statistical recovery in the economy is not translating to a real recovery in wallets and bank balances and so, families remain wary of spending.

In fact, the problem goes far deeper. For example, families know that when push comes to shove, their livelihoods are on the line every single day. Many, who endured long periods of unemployment or the threat of unemployment are never going to raise their heads and ask for higher wages or better benefits. But this does not mean they are happy with the system, they are just trapped in the system and choose to prepare for worst-case scenarios in the meantime.

Across the socio-economic spectrum, families are nursing their financial situations back to health; this takes time. For example:

Mortgage arrears – Over 76,000 residential mortgage holders continue to be in arrears with over 50,000 90 days passed due. Many are working to get their mortgages back on track.

Rainy-day funds – best practice in any economy, many families are simply saving their cash. Having a rainy day fund is one of the 4 pillars of building and protecting family wealth and during the economic depression, families all over Ireland lost that capacity to save; many are making up for lost ground.

Rising costs – for many people, rising rent costs, the rising cost of insurance and the rising cost of getting and education means empty bank balances at the end of the month.

A Tip O’Neill moment. Tip O’Neill, the larger-than-life US politician one quipped that all politics is local. Regardless of any grant visions politicians may have held, what really mattered was how well the electorate fared individually. The same is true in Ireland today. Regardless of the statistical recovery of the Irish economy, consumers are not buying that recovery is strong enough or real enough to encourage them to open up their wallets and start spending any time soon.

 

 

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