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Out of the Box: Mr. Grant is Not Going Here

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The State Department issues warnings on unsafe places in the world. The message is clear, “Don’t go there.” Mark Grant issues warnings on the markets. The message is clear, “Don’t go there.” Out of the Box is directed at warnings for a purpose. If you don’t find yourselves in “risky” places, that could cost you a significant amount of money, then your capital is preserved. That is the core of my commentary.

Grant’s Rule 1-10: “Preservation of Capital”

“Enter, stranger, but take heed
Of what awaits the sin of greed,
For those who take, but do not earn,
Must pay most dearly in their turn…”
-Harry Potter

There are times when the risk/reward ratio is tilted in your favor but, as I have learned, over the years, there are far less of those scenarios than when the risk/reward ratio is tilted against you. The central issue is “Risk” and the central question is, “How much risk, for how much reward?” That one statement, really, lies at the heart of investing money. Equities or debt, the central question remains the same. The mantra then is, “Think it through, carefully, very carefully.”

I am asked, often enough, about my view of bitcoin, crypto currencies. “I want nothing to do with them,” has always been my answer. In the markets there is investing, speculating and gambling. These made up currencies are in the last class and it is unregulated gambling.

It is nothing other than betting, and betting on what? The vagaries of the “pimp,” or a class of securities virtually overseen by no governmental agency, that is subject to massive frauds, as we have all seen recently. Moreover, if and when, these crypto artifices ever become a threat to any nation’s currency then they will be outlawed in various countries, which is what I think is in the process of happening. In my opinion, the days of bitcoin are numbered.

“Stay away from it. It’s a mirage, basically”
-Warren Buffet

Bitpoint, a licensed cryptocurrency exchange based in Japan, has been hacked for $32 million in crypto assets, today. According to a CoinDesk Japan report, Bitpoint halted all services including trading, deposit and withdrawal of all crypto assets this morning after it noticed irregular withdrawal from its hot wallet on Thursday. It is not yet clear at this stage which types of assets were lost. The exchange offered trading for five cryptocurrencies: bitcoin, bitcoin cash, ether, litecoin and XRP.

Federal Reserve Chairman, Jerome Powell, in his Congressional testimony yesterday, expressed serious concern about Facebook’s plan to create a cryptocurrency-based payment network. He stated that any such plan would face intense legislative and regulatory scrutiny. Mr. Powell, speaking to the Senate Banking Committee on Thursday, expressed doubt about the feasibility of launching the digital coin, dubbed Libra, on the timeline Facebook has targeted. “I think we agree that Libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability,” he said. “Those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds.”

You know, if you go to a casino and gamble, that the casino is governed by state laws and regulations. There are no such protections in the crypto world. Moreover, there are tout sites, and fake news platforms, where the most gullible are drawn in with dreams of easy money only to be fleeced, as they walk in the door.

Donald Trump has criticized Bitcoin, Facebook’s proposed Libra digital coin, and other cryptocurrencies, and demanded that companies seek a banking charter and make themselves subject to U.S. and global regulations if they wanted to “become a bank”. “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” Trump wrote on Twitter. “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International,” he added.

“The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not.”
-John Kenneth Galbraith

Mark J. Grant
Chief Global Strategist, Fixed Income
Managing Director
B. Riley FBR Inc.
U.S. 954-468-2366

Information herein is for general use; is not unbiased/impartial; is current at publication date, subject to change; may be from third parties; and may not be accurate or complete. Opinions are the Author’s, not B. Riley FBR, Inc., or their respective affiliates or subsidiaries. This is not a research report or solicitation or recommendation to buy/sell the subject securities. Investment factors are not fully addressed herein. B. Riley FBR Inc. and their affiliates may have a proprietary position in the subject securities.
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