In today’s issue of Capital & Conflict… the cyber war intensifies… bitcoin soars… and the pound is a coiled spring, ready to jump in 2017…
And there you have it! Just days after I spoke to you about the increasing cyber-conflict that I think could mark the next US president’s reign… the current president came out and confirmed what I’d been saying.
A word of warning. Several people wrote to me last week alerting me to the fact that just because the US says Russia is hacking its institutions, doesn’t mean that it’s true. What is said and what is happening may be two different things. I’m with you. We need to take what’s said by the state with a pinch of salt, and judge it with the same rigor we would if it involved monetary or fiscal policy.
Nevertheless, the narrative from the US government on this conflict is important. It may or may not be true. But you can be sure it’ll shape how and where money will be spent. And that’s our number one goal here, remember: to understand what’s happening in the world and turn that understanding into successful investments.
With that in mind, let’s take a look at what President Barack Obama had to say at the back end of last week, with added emphasis from me:
Look, we will provide evidence that we can safely provide, that does not compromise sources and methods. But I’ll be honest with you, when you are talking about cybersecurity, a lot of it is classified, and we’re not going to provide it – because the way we catch folks is by knowing certain things about them that they may not want us to know, and if we’re going to monitor this stuff effectively going forward, we don’t want them to know that we know…
The target of cyberattacks is not one entity, but it’s widely dispersed and a lot of it is private, like the DNC [Democratic National Committee]. You know, it’s not a branch of government. We can’t tell people what to do…
To prevent some sort of cyber arms race because we obviously have offensive capabilities as well as defensive capabilities. And my approach is not a situation which everybody’s worse off because folks are constantly attacking each other back and forth, but putting some guardrails around behavior of nation states, including our adversaries, just so that they understand that whatever they do to us, we can potentially do to them.
There are three points worth underlining about what Obama said. I think they’re illuminating for a number of reasons.
Put simply, a lot of the coming cyber-conflict is going to be non-public; it’s going to operate at the intersection between public and private entities; and it’s going to involve all sides moving onto the attack, as well as preparing their defenses.
I’m not going to try and predict precisely how that will play out just yet. Why? Because I’d rather let the experts show you. I’ve been involved in a project behind the scenes here at Southbank Investment Research, which has involved bringing a series of genuine cyber experts in to answer that question. We’ll be publishing that material in the new year. So look out for it.
Beyond that, we’ve been preparing an investigation into the best cyber stocks to buy in 2017. Eoin Treacy has been heading that project up. His suggestion? Look at firms with offensive capabilities. For instance, last year the US government granted six private firms the rights (and the funding) to perform pre-emptive cyber strikes. That’s exactly what Obama was referring to in the quote above, in my opinion. This is just the start. There’s opportunity here. Eoin will share his picks with you in 2017!
Why Chinese buying is sending bitcoin soaring
Bitcoin is on a tear. In late August one coin was worth $209. Now it’s nearly four times higher at $788. Why? Eoin Treacy explains:
I don’t need to write another word. Just click on this link fiatleak.com and watch it for a couple of minutes. Next leave it on for a few minutes in the background with the sound turned up. Every time it pings signals when the rate of bitcoin purchased moves above 20 per second. If it looks anything like it has for the last few months, you’ll see that the vast majority of bitcoin are bought by Chinese.
Chinese government bonds futures crashed lower last week in yet another example of a highly emotional investment crowd first pouring into a market than all heading for the door at the same time. However, this is not the stockmarket. The government bond market is huge by comparison and a run up in yields has a real world connotation.
There are some clear fundamental reasons for why China is more prone to a succession of manias than others which are tied to a dearth of other avenues for savings and a wide disparity between the lending and deposit rates. However, there is another aspect to Chinese life that comes to mind when it comes to bitcoin.
Many Chinese families lost everything when the Communists took power. Those fortunate enough to escape to Taiwan or Hong Kong with their wealth were few and far between. The memory of government cadres coming to confiscate all a family’s possessions still represents a vivid imprint for anyone over 40. For example, my wife remembers her grandfather throwing gold bars into the latrine because to be found with them would have meant death.
Everyone knows that China has been able to spur massive economic and infrastructure development through state sponsorship and massive amounts of debt. Large numbers of people have profited enormously from the status quo. But with interest rates starting to rise in the US and China’s currency, the renminbi, trending lower since 2014, many of China’s wealthy are looking for a way to send money offshore and beyond the ability of the government to grab, tax or debase it.
In a country with currency controls, bitcoin is a booming business because it allows money to be moved offshore without the close scrutiny of the Chinese Communist Party. That’s the reason bitcoin has been so firm while other classic safe havens such as gold have been weak.
Thanks Eoin. And here’s my question to you at home: do you want to know more about bitcoin and cryptocurrencies? I find bitcoin interesting, if only as a barometer for people’s lack of faith in fiat currency and as a showcase for what technology can achieve. But would you like more coverage from us here at Capital & Conflict? If so, write in and let me know at [email protected].
Is the pound the most undervalued currency in the world?
It hasn’t been a good year for the pound. Political uncertainty – bordering at times on political turmoil – has seen it drop from $1.50 to $1.24 today (with a brief spell below even that during the autumn).
But perhaps that creates the conditions for a strong 2017. According to a research note from Aurelija Augulyte at Nordea AG, the pound is “one of the most undervalued among the G-10” currencies. You could argue there are good reasons for that, the uncertainty around Brexit chief among them.
But the pound has already seen a major fall. If it is undervalued compared to other key currencies, that could make it a prime candidate to rise off the back of uncertainty elsewhere. If Donald Trump’s presidency gets mired in anti-China/trade war rhetoric, for instance, or if the EU starts to disintegrate after anti-establishment votes in France or Germany, that could lead to money leaving the US or Europe and looking for a home. If the pound offers good value it could be an attractive choice. That could push it higher. Watch this space.
Until tomorrow,
Nick O’Connor
Associate Publisher, Capital & Conflict
Category: Investing in Technology