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October 31 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 31 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!

Q: I would like to keep CRISPR stocks as a one or two-year-old, or even longer if it is prudent. What do you think?

A: Yes, there is a CRISPR revolution going on in biotech—I’m extremely bullish on all these stocks, like Editas Medicine (EDIT), Thermo Fisher Scientific (TMO), and Ovascience Inc. (OVAS). If any of these individual companies don’t move forward with their own technology, they will get taken over. The principal asset of these companies is not the patents or the products, it’s the staff, and there is an extreme shortage in CRISPR specialists (and anybody who knows anything about monoclonal antibodies).

Q: Could you explain how to manage LEAPs? For example, the Gold (GLD) and the General Electric (GE) LEAPs. Sit and leave them or trade them short term?

A: You make a lot of money trading long-term LEAPs. Just because you own a year and a half LEAP doesn’t mean that you keep it for a year and a half. You sell it on the first big profit, and I happen to know that on both the Gold (GLD) and the (GE) LEAPs we sent out, people made a 50% profit in the first week. So, I told them: sell it, take the profit. The market always gives you another chance to get in and buy them cheap. You make the money on the turnover, on the volume—not hanging out trying to hit a home run.

Q: Why did you only close the Amazon (AMZN) November $1,550-$1,600 vertical bull call spread and not roll the strike prices down and out?

A: Well I actually did do the down and out strike roll out first, which is the super aggressive approach. By adding the November $1,350-$1,400 vertical bull call spread position on Monday at the market lows and doubling the size—we took a huge 30% position in Amazon and that position alone should bring in about $3600 in profits in two weeks, at expiration. And when I put on that second position I told myself that on the next big rally I would get out of the high-risk trouble making position, which was the November $1,550-$1,600 vertical bull call spread. So that’s how you trade your way out of a 30% drop in three weeks in one of the best tech stocks in the market.

Q: Is AT&T (T) no longer a good buy at these prices?

A: All of the telephone companies have legacy technology, meaning they are all dying. Basically, AT&T is about owning a bunch of rusting copper wire spread around the country. They haven’t been able to innovate new technologies fast enough to keep up with others who have. The only reason to own this is for the very high 6.56% dividend. That said, dividends can be cut. Look at General Electric which cut its dividend earlier this year. Whatever you make of the dividend can get lost in the principal.

Q: Do you think Square (SQ) is a good buy at this level?

A: Absolutely, it’s a screaming buy. It’s one of the favorite companies of the Mad Hedge Technology Letter and one of the preeminent disruptors of the banks. We think there’s another 400% gain in Square from here. It’s dominating FinTech now.

Q: When do you expect to close the short position in the iPath S&P 500 VIX Short-Term Futures ETN (VXX)?

A: If we can get the Volatility Index (VIX) down to $15, the (VXX) should crater. We’ll take a hit on the time decay and that’s why I say we may be able to sell it for 20 cents in the future when this happens. We’ll still take a 50% hit on the position, but half is better than none.

Q: What happened to Microsoft (MSFT) last week?

A: People sold their winners. They had a great earnings report and great long-term earnings prospects, but everyone in the world owned it. Buy the long-term LEAP on this one.

Q: If we want to double up on the iPath S&P 500 VIX Short-Term Futures ETN (VXX), how do you plan to do it?

A: Go out to further with your expiration date. When you go long the (VXX) you only buy the most distant expiration date. I would buy the February 15 expiration as soon as it becomes available.

Q: How do you see Goldman Sachs (GS) from here to the end of the year?

A: It may go up a little bit as we get some index money coming into play for year-end, but not much; I expect banks to continue to underperform. They are no longer a rising interest rate play. They are a destruction by FinTech play.

Q: Is it too soon for emerging markets in India (PIN)?

A: As long as the dollar (UUP) is strong, which is going to be at least another year, you want to avoid emerging markets like the plague. As long as the Federal Reserve keeps raising interest rates, increasing the yield differential with other currencies, the buck keeps going up.

Q: What are your thoughts on retail ETFs like the SPDR S&P Retail ETF (XRT)?

A: You may get lucky and catch a rally on that but the medium term move for retail anything is down. They are all getting Amazoned.

Q: Is it better to increase long exposure the day before the election?

A: No, what we saw starting on Tuesday was the pre-election move. That said, I expect it to continue after the election and into yearend.

Q: Any opinions on Advanced Micro Devices (AMD)?

A: Yes, this is a great level. It was extremely overbought two months ago but has now dropped 50%. It is a great long-term LEAP candidate.

Q: What about the W bottom in the stock market that everyone thinks will happen?

A: I’m one of those people. So far, the bottom for the move in the S&P 500 is looking pretty convincing, but we will test the faith sometime in the next week I’m sure. We got close enough to the February $252 low to make this a very convincing move. It sets up range trading for the market for the next year.

Q: How do you figure the inflation rate is 3.1%?

A: The year-on-year Consumer Price Index for September printed at 2.3%, and the most recent months have been running at an annualized 2.9% rate. Given that this data is months old we are probably seeing 3.1% on a monthly annualized basis now given all the anecdotal evidence of rising prices and wages that are out there. That is certainly what the bond market believes with its recent sharp selloff and why I will continue to be a fantastic short. Sell every United States US Treasury Bond Fund ETF (TLT) rally. Like hockey great Wayne Gretzky said, you have to aim not where the hockey puck is, but where it's going to be.

Q: Will rising interest rates kill the housing market?

A: It already has. A 5% 30-year mortgage rate shuts a lot of first time Millennial buyers out of the market. We are seeing real estate slowing all over the country. Los Angeles is getting the worst hit.

Q: How do you see the Christmas selling season going?

A: It’s going to be great, but this may be the last good one for a while. And Amazon is getting half the business.

Q: October was terrible. How do you see November playing out?

A: It could well be a mirror image of October to the upside. We are already $1,000 Dow points off the bottom. So far, so good. Throw fundamentals out the window and buy whatever has fallen the most….like Amazon.

Did I mention you should buy Amazon?

Good luck and good trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Ten Years of Consumer Price Index

October 25, 2018

Diary, Newsletter, Summary

Global Market Comments
October 25, 2018
Fiat Lux

Featured Trade:

(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(THE NEXT THING FOR THE FED TO BUY IS GOLD),
(GLD), (GOLD), (GDX), (ABX), (NEM)

October 9, 2018

Diary, Newsletter, Summary

Global Market Comments
October 9, 2018
Fiat Lux

SPECIAL REPORT ON GOLD

Featured Trade:
(TAKING A LOOK AT GOLD LEAPS),
(GLD), (ABX), (AMZN)

Taking a Look at Gold LEAPS

Diary, Newsletter

As incredible as it may sound, I’m starting to hear good things about gold. That’s amazing as the barbarous relic has been the red headed step child of the financial markets for the past six years. Not since the yellow metal peaked in 2011 have I heard the talk so bullish.

You can thank central banks which have become the principal buyers of gold in 2018. China is always the largest buyer. It has been joined by Russia, which is avoiding American trade sanction, and Kazakhstan. Now Poland has joined the fray. Central banks have accounted for a stunning 264 metric tonnes of purchases this year, or some 9.3 million ounces.

You can thank the coming return of inflation in the US economy, gold’s best friend. With a 4.2% GDP growth rate in Q2, the return of rapidly rising prices is just a matter of time. We here in Silicon Valley have grown inured to ever rising prices for everything. You in the rest of the country are about to get the bad news.

You can thank Amazon (AMZN) founder Jeff Bezos for pouring gasoline on the fire. By giving 250,000 US workers a 25% pay increase from $12 to $15, he has created a national short squeeze for minimum wage workers. If McDonald’s (MCD), Target (TGT), and Wal-Mart (WMT) join the fray, as they must or lose workers, wage inflation will go national.

Yes, you can remind me that rising interest rates are a terrible backdrop against which to own gold. The Federal Reserve has essentially promised us four more 25 basis point rate hikes by next summer. That would take the overnight rate to 3.25%, a historically "normalized” rate.

But what happens when the rate hikes stop? Gold takes off like a scalded chimp.

It is in fact a myth that gold can’t perform in a raising rate environment. When you look at gold’s “golden age” during the 1970’s when the barbarous relic rocketed from $34 to $900, a 24-fold increase, interest rates were rising almost as fast.

Over the same time period, the ten-year US Treasury yield soared from 5% to 16%. At the end of the day, investors fear inflation far more than high interest rates.

So when you believe that an oversold asset is about to turn but don’t know when, what is the best course of action?

Long Term Equity Anticipation Securities, or LEAPS, are a great way to play the market when you expect a substantial move up in a security over a long period of time. Get these right and the returns over 18 months can amount to several hundred percent.

At market bottoms these are a dollar a dozen. At all-time highs they are as scarce as hen’s teeth. However, scouring all asset classes there are a few sweet ones to be had.

Today, you can buy the SPDR Gold Shares ETF (GLD) January 2020 $120-$125 call spread for $1.60. For those who are new to the Mad Hedge Fund Trader, that involves buying the January 2020 $120 call and selling short the January 2020 $125 call.

This has the attributes of reducing your cost and minimizing the cost of time decay while giving you highly leveraged upside exposure over a long period of time.

If the price of gold rises by $11.20, from $113.80 to $125, a mere 9.8% by the January 17 option expiration date, the profit on this trade will amount to 212.5%. In order words, a $1,000 investment will become worth $3,125 if gold simply returns back to where it was in April.

If you’re more aggressive than I am (unlikely), you can buy the SPDR Gold Shares ETF (GLD) January 2020 $125-$130 call spread for $1.00, That would give you a maximum potential profit of 400%. In order words, a $1,000 investment will become worth $5,000 if gold simply return back to its February 2018 high.

A number of other fundamental factors are coming into play that will have a long-term positive influence on the price of the barbarous relic.

The only question is not if, but when the next bull market in the yellow metal will accelerate.

All of the positive arguments in favor of gold all boil down to a single issue: they're not making it anymore.

Take a look at the chart below and you'll see that new gold discoveries are in free fall. That's because falling prices from 2011 to 2018 caused exploration budgets to fall off a cliff.

Gold production peaked in the fourth quarter of 2015 and is expected to decline by 20% in the following four years.

The industry average cost is thought to be around $1,400 an ounce, although some legacy mines such as at Barrack Gold (ABX) can produce it for as little as $600.

So why dig out more of the stuff if it means losing more money?

It all sets up a potential turn in the classic commodities cycle. Falling prices demolish production and wipe out investors. This inevitably leads to supply shortages.

When the buyers finally return for the usual cyclical macro-economic reasons, there is none to be had, and price spikes can occur which can continue for years.

In other words, the cure for low prices is low prices.

Worried about new supply quickly coming on-stream and killing the rally?

It can take ten years to get a new mine started from scratch by the time you include capital rising, permits, infrastructure construction, logistics and bribes.

It turns out that the brightest prospects for new gold mines are all in some of the world's most inaccessible, inhospitable, and expensive places.

Good luck recruiting for the Congo!

That's the great thing about commodities. You can't just turn on a printing press and create more, as you can with stocks and bonds.

Take all the gold mined in human history, from the time of the ancient pharaohs to today, and it could comprise a cube 63 feet on a side.

That includes the one-kilo ($38,720) Nazi gold bars with stamped German eagles upon them which I saw in Swiss bank vaults during the 1980's when I was a bank director there.

In short, there is not a lot to spread around.

The long-term argument in favor of gold never really went away.

That involves emerging nation central banks, especially those in China and India, raising gold bullion holdings to western levels. That would require them to purchase several thousand tonnes of the yellow metal!

Venezuela has also been a huge gold seller to head off an economic collapse, thanks to the disastrous domestic policies there.

When this selling abates, it also could well shatter the ceiling for the yellow metal.

Tally ho!

October 1, 2018

Diary, Newsletter, Summary

Global Market Comments
October 1, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD,
or DON’T NOMINATE ME!),
(AMZN), (NVDA), (AAPL), (MSFT), (GLD), (ABX), (GOLD),
(JOIN US AT THE MAD HEDGE LAKE TAHOE, NEVADA,
CONFERENCE, OCTOBER 26-27, 2018)

The Market Outlook for the Week Ahead, or Don’t Nominate Me!

Diary, Newsletter, Research

I have a request for all of you readers. Please do not nominate me for justice of the Supreme Court.

I have no doubt that I could handle the legal load. A $17 copy of Litigation for Dummies from Amazon would take care of that.

I just don’t think I could get through the approval process. There isn’t a room on Capitol Hill big enough to house all the people who have issues with my high school background.

In 1968, I ran away from home, hitchhiked across the Sahara Desert, was captured by the Russian Army when they invaded Czechoslovakia, and had my front teeth knocked out by a flying cobblestone during a riot in Paris. I pray what went on in Sweden never sees the light of day.

So, I’m afraid you’ll have to look elsewhere to fill a seat in the highest court in the land. Good luck with that.

The most conspicuous market action of the week took place when several broker upgrades of major technology stocks. Amazon (AMZN) was targeted for $2,525, NVIDIA (NVDA) was valued at $400, and JP Morgan, always late to the game (it’s the second mouse that gets the cheese), predicted Apple (AAPL) would hit a lofty $270.

That would make Steve Jobs’ creation worth an eye-popping $1.3 trillion.

The Mad Hedge Market Timing Index dove down to a two-month low at 46. That was enough to prompt me to jump back into the market with a few cautious longs in Amazon and Microsoft (MSFT). The fourth quarter is now upon us and the chase for performance is on. Big, safe tech stocks could well rally well into 2019.

Facebook (FB) announced a major security breach affecting 50 million accounts and the shares tanked by $5. That prompted some to recommend a name change to “Faceplant.”

The economic data is definitely moving from universally strong to mixed, with auto and home sales falling off a cliff. Those are big chunks of the economy that are missing in action. If you’re looking for another reason to lose sleep, oil prices hit a four-year high, topping $80 in Europe.

The trade wars are taking specific bites out of sections of the economy, helping some and damaging others. Expect to pay a lot more for Christmas, and farmers are going to end up with a handful of rotten soybeans in their stockings.

Barrick Gold (ABX) took over Randgold (GOLD) to create the world’s largest gold company. Such activity usually marks long-term bottoms, which has me looking at call spreads in the barbarous relic once again.

With inflation just over the horizon and commodities in general coming out of a six-year bear market, that may not be such a bad idea. Copper (FCX) saw its biggest up day in two years.

The midterms are mercifully only 29 trading days away, and their removal opens the way for a major rally in stocks. It makes no difference who wins. The mere elimination of the uncertainty is worth at least 10% in stock appreciation over the next year.

At this point, the most likely outcome is a gridlocked Congress, with the Republicans holding only two of California’s 52 House seats. And stock markets absolutely LOVE a gridlocked Congress.

Also helping is that company share buybacks are booming, hitting $189 billion in Q2, up 60% YOY, the most in history. At this rate the stock market will completely disappear in 20 years.

On Wednesday, we got our long-expected 25 basis-point interest rate rise from the Federal Reserve. Three more Fed rate hikes are promised in 2019, after a coming December hike, which will take overnight rates up to 3.00% to 3.25%. Wealth is about to transfer from borrowers to savers in a major way.

The performance of the Mad Hedge Fund Trader Alert Service eked out a 0.81% return in the final days of September. My 2018 year-to-date performance has retreated to 27.82%, and my trailing one-year return stands at 35.84%.

My nine-year return appreciated to 304.29%. The average annualized return stands at 34.40%. I hope you all feel like you’re getting your money’s worth.

This coming week will bring the jobspalooza on the data front.

On Monday, October 1, at 9:45 AM, we learn the August PMI Manufacturing Survey.

On Tuesday, October 2, nothing of note takes place.

On Wednesday October 3 at 8:15 AM, the first of the big three jobs numbers is out with the ADP Employment Report of private sector hiring. At 10:00 AM, the August PMI Services is published.

Thursday, October 4 leads with the Weekly Jobless Claims at 8:30 AM EST, which rose 13,000 last week to 214,000. At 10:00 AM, September Factory Orders is released.

On Friday, October 5, at 8:30 AM, we learn the September Nonfarm Payroll Report. The Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, it’s fire season now, and that can only mean one thing: 1,000 goats have appeared in my front yard.

The country hires them every year to eat the wild grass on the hillside leading up to my house. Five days later there is no grass left, but a mountain of goat poop and a much lesser chance that a wildfire will burn down my house.

Ah, the pleasures of owning a home in California!

Good luck and good trading.

We’re Taking Calls Now

August 24, 2018

Diary, Newsletter, Summary

Global Market Comments
August 24, 2018
Fiat Lux

Featured Trade:
(AUGUST 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(BIDU), (BABA), (VIX), (EEM), (SPY), (GLD), (GDX), (BITCOIN),
(SQM), (HD), (TBT), (JWN), (AMZN), (USO), (NFLX), (PIN),
(TAKING A BITE OUT OF STEALTH INFLATION)

August 22 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 22 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!

Q: How do you think the trade talks will resolve?

A: There will be no resolution this next round of trade talks. China has sent only their most hawkish negotiators who believe that China has done nothing wrong, so don’t expect results any time soon.

Also, because of the arrests in Washington, China is more inclined to just wait out Donald Trump, whether that’s 6 months or 6 1/2 years. They believe they have the upper hand now, sensing weakness in Washington, and in any case, many of the American requests are ridiculous.

Trade talks will likely overhang the market for the rest of this year and you don’t want to go running back into those China Tech plays, like Alibaba (BABA) and Baidu (BIDU) too soon. However, they are offering fantastic value at these levels.

Q: Will the Washington political storm bring down the market?

A: No, it won’t. Even in the case of impeachment, all that will happen is the market will stall and go sideways for a while until it’s over. The market went straight up during the Clinton impeachment, but that was during the tail end of the Dotcom Boom.

Q: Is Alibaba oversold here at 177?

A: Absolutely, it is a great buy. There is a double in this stock over the long term. But, be prepared for more volatility until the trade wars end, especially with China, which could be quite some time.

Q: What would you do with the Volatility Index (VIX) now?

A: Buy at 11 and buy more at 10. It’s a great hedge against your existing long portfolio. It’s at $12 right now.

Q: Are the emerging markets (EEM) a place to be again right now or do you see more carnage?

A: I see more carnage. As long as the dollar is strong, U.S. interest rates are rising, and we have trade wars, the worst victims of all of that are emerging markets as you can see in the charts. Anything emerging market, whether you’re looking at the stocks, bonds or currency, has been a disaster.

Q: Is it time to go short or neutral in the S&P 500 (SPY)?

A: Keep a minimal long just so you have some participation if the slow-motion melt-up continues, but that is it. I’m keeping risks to a minimum now. I only really have one position to prove that I’m not dead or retired. If it were up to me I’d be 100% cash right now.

Q: Would you buy Bitcoin here around $6,500?

A: No, I would not. There still is a 50/50 chance that Bitcoin goes to zero. It’s looking more and more like a Ponzi scheme every day. If we do break the $6,000 level again, look for $4,000 very quickly. Overall, there are too many better fish to fry.

Q: Is it time to buy gold (GLD) and gold miners (GDX)?

A: No, as long as the U.S. is raising interest rates, you don’t want to go anywhere near the precious metals. No yield plays do well in the current environment, and gold is part of that.

Q: What do you think about Lithium?

A: Lithium has been dragged down all year, just like the rest of the commodities. You would think that with rising electric car production around the world, and with Tesla building a second Gigafactory in Nevada, there would be a high demand for Lithium.

But, it turns out Lithium is not that rare; it’s actually one of the most common elements in the world. What is rare is cheap labor and the lack of environmental controls in the processing.

However, it’s not a terrible idea to buy a position in Sociedad Química y Minera (SQM), the major Chilean Lithium producer, but only if you have a nice long-term view, like well into next year. (SQM) was an old favorite of mine during the last commodity boom, when we caught a few doubles. (Check our research data base).

Q: How can the U.S. debt be resolved? Or can we continue on indefinitely with this level of debt?

A: Actually, we can go on indefinitely with this level of debt; what we can’t do is keep adding a trillion dollars a year, which the current federal budget is guaranteed to deliver. At some point the government will crowd out private borrowers, including you and me, out of the market, which will eventually cause the next recession.

Q: Time to rotate out of stocks?

A: Not yet; all we have to do is rotate out of one kind of stock into another, i.e. out of technology and into consumer staple and value stocks. We will still get that performance, but remember we are 9.5 years into what is probably a 10-year bull market.

So, keep the positions small, rotate when the sector changes, and you’ll still make money. But, let's face it the S&P 500 isn’t 600 anymore, it’s 2,800 and the pickings are going to get a lot slimmer from here on out. Watch the movie but stay close to the exit to escape the coming flash fire.

Q: What kind of time frame does Amazon (AMZN) double?

A: The only question is whether it happens now or on the other side of the next recession. We can assume five years for sure.

Q: More upside to Home Depot (HD)?

A: Absolutely, yes. The high home prices lead to increases in home remodeling, and now that Orchard Hardware has gone out of business, all that business has gone to Home Depot. Home Depot just went over $204 a couple days ago.

Q: Do you still like India (PIN)?

A: If you want to pick an emerging market to enter, that’s the one. It’s a Hedge Fund favorite and has the largest potential for growth.

Q: What about oil stocks (USO)?

A: You don’t want to touch them at all; they look terrible. Wait for Texas tea to fall to $60 at the very least.

Q: What would you do with Netflix (NFLX)?

A: I would probably start scaling into buy right here. If you held a gun to my head, the one trade I would do now would be a deep in the money call spread in Netflix, now that they’ve had their $100 drop. And I can’t wait to see how the final season of House of Cards ends!

Q: If yields are going up, why are utilities doing so well?

A: Yields are going down right now, for the short term. We’ve backed off from 3.05% all the way to 2.81%; that’s why you’re getting this rally in the yield plays, but I think it will be a very short-lived event.

Q: Do you see retail stocks remaining strong from now through Christmas?

A: I don’t see this as part of the Christmas move going on right now; I think it’s a rotation into laggard plays, and it’s also very stock specific. Stocks like Nordstrom (JWN) and Target (TGT) are doing well, for instance, while others are getting slaughtered. I would be careful with which stocks you get into.

Good luck and good trading
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader

August 9, 2018

Diary, Newsletter, Summary

Global Market Comments
August 9, 2018
Fiat Lux

Featured Trade:
(WHY YOU SHOULD AVOID THE CRYPTOCURRENCIES LIKE THE PLAGUE),
(BITCOIN), (GLD),
(TESTIMONIAL)

Why You Should Avoid the Cryptocurrencies Like the Plague

Diary, Newsletter, Research

With Bitcoin probing new lows in its 9-month-old bear market, I am starting to get deluged with questions from readers as to whether it is time to buy.

My answer is always the same.

I wouldn't touch it with a 10-foot pole. I wouldn't even buy it with Donald Trump's money.

Bitcoin was a great buy at $1.00. At $6,000? Not so much. At the December $20,000 high? Yikes!

The inquiries are being driven by analysis from friends of mine, such as Tom Lee of Fundstrat, concluding that the theoretical value of Bitcoin could be as high as $50,000.

These are based on some obscure calculations of Bitcoin's value relative to the size of the global monetary base.

By the way, the same calculations done elsewhere suggest that gold (GLD) should also be worth $50,000 an ounce. Today, gold is trading at a lowly $1,218.

Here is the problem that I have with all cryptocurrencies.

The security is terrible.

When your Platinum American Express card is stolen, you just conveniently call the 800-number listed on the back of the card.

Not so with cryptocurrencies. When it's gone, it's gone. There is no recourse anywhere.

According to Chainalysis, a New York-based firm that sells ant- money laundering software, about 10% of all outstanding cryptocurrencies were stolen last year worth about $225 million.

More than 30,000 investors have fallen prey to ethereum-based scams alone, losing an average of $7,500 each.

The security for Bitcoin is no better.

There are in fact 32 cryptocurrencies now trading online, including Auroracoin, Dash, Gridcoin, Primecoin, and Zcash.

Most of these are originated abroad, often in countries with no U.S. extradition treaty.

New cryptocurrency issuance is expected to exceed $1.6 billion this year.

There is no limit. The number of cryptocurrencies that can ultimately be issued is infinite. Think of them as modern-day tulips.

According to the FBI, cyber-fraud in the U.S. topped $390 billion in 2015. Retired FBI chief Robert Mueller once told me that the bulk of all American crime now takes place online.

It is THE preferred method of picking your pocket.

Cryptocurrencies most often fall victim to the phishing scams by crooks posing as legitimate cryptocurrency creators, or "miners" as they are known.

Once the victims open up their digital currency accounts, they are cleaned out.

It doesn't help that cryptocurrencies have become the currency of choice for a number of criminal enterprises, including those employing ransomware attacks.

About 99% of the daily trading volume in Bitcoin takes place with Chinese counterparties.

They need it to sidestep strict foreign exchange restrictions and capital controls.

The average Chinese is not allowed to take more than $50,000 a year out of the country. Extensive disclosures on the use of funds are also required to discourage money laundering.

Bitcoin has also been popular in other emerging countries where the convertibility of their own currencies is either sketchy or nonexistent.

It is possible that cryptocurrencies and the blockchain technology they use have a role in the financial system in the future. I'm thinking the FAR future.

However, massive investments are first required in infrastructure and security. The technology needs to mature.

When online commerce first emerged in the mid-1990s, I was similarly suspicious.

I used a low-limit credit card for my first Amazon purchase, even though I personally knew the founder of the company.

That way, if my card got stolen, the loss would be manageable.

I may take a similar approach to cryptocurrencies in the future. Again, in the FAR future.

Personally, I would rather buy gold if a currency alternative was my inclination.

For a much more extensive discussion of Bitcoin specifically, please click here for "Is There a Bitcoin in Your Future."

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