| December 02, 2013 | | | | |  | | | The Stuff of Alternatives and Manias | | | - Stocks show their sluggish side...
- Consumers surprise market watchers…. Black Friday results pour in…
- Plus, Chris Mayer on whether or not you should put Bitcoin into your coffee can… If you're confused, stay tuned! The answer is the key to earning 20 times every dollar invested over...
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| | | | | | | In the past, these types of stocks soared 12,428%… 20,381%… AND EVEN 55,000% from massive Pentagon spending The Pentagon is set to do it again with the "Black Budget" and more than $16.1 billion in new military spending. Spending that could easily send one small group of stocks through the roof. Not since World War II have investors had an opportunity to grab astronomical once-in-a-lifetime gains like these from military spending. Click here to watch this stunning video presentation… | | | | | | | | Peter Coyne, watching the price of gold and Bitcoin converge...
 Stocks are mixed this morning after last week marked their eighth straight week of gains. Trading is sluggish despite the manufacturing data released before noon. Both the Purchasing Managers manufacturing index and the Institute for Supply Management manufacturing index met the high end of the "experts'" expectations. In turn, the dollar is supposedly up versus the yen.
Meanwhile, the barbaric relic took a $20 swan dive today. It's the biggest drop since June. Bitcoin, however, is trading for $1,031. Two days ago, the digital currency hit a record price of $1,242 per coin. Slowly, the prices of the digital and physical monetary alternatives are converging. Maybe the price of both will soon crisscross. Maybe you'll regret not getting in in a week's time. Maybe you should sell gold and buy Bitcoin right now. Or maybe not. We need a moment to think about it…
While we mull it over, let's see how Black Friday turned out.
Preliminary figures out of the National Retail Federation showed 141 million shoppers between Turkey Day and yesterday. That counts both online and in stores. Last year, that number was 137 million. It turns out, however, that's a deceiving statistic.
Total shopping over the weekend almost hit $58 billion -- a decrease of nearly 3%. The average amount consumers spent declined by 4% too. They represent the first drops in the weekend's spending in seven years. So much for a consumer-fueled recovery, huh?
Unfortunately, dig as we did, we couldn't find any reports on the amount of Bitcoin spent on Bitcoin Black Friday, an event we detailed in these pages a week ago. We'll keep our eyes peeled. In total, over 400 merchants joined in on the event. Perhaps the wave of interest can shed some light on our quest to understand Bitcoin.
"For consumers," Chris Larsen explained to the Financial Times yesterday, "using currencies like Bitcoin could present a way 'round fees and foreign exchange costs, which consume up to 10% of international remittances."
| The idea is that Bitcoin is to finance industry what the Internet was to the communications industry. | Mr. Larsen was the serial entrepreneur behind the Prosper online lending service. It cuts out the middleman and lets individuals directly lend and borrow from each other. Now Larsen is betting that Bitcoin is the future. Not just as a speculation… but as a viable alternative to financial systems as you know them.
"Bitcoin's tech industry backers argue that the shared protocols and common technology standards on which it is based echo the open technologies that lie at the heart of the Internet," writes the FT's Richard Waters. "That could make it the foundation for a low-cost, standards-based financial system independent of the traditional banking industry."
The idea is that Bitcoin is to finance industry what the Internet was to the communications industry. Larsen, who created his own digital currency called Ripple, explained to FT that "an open digital currency platform made it possible for startups to create a wide range of financial applications, similar to the way companies such as Google broke into the media world by building on the Internet's HTTP protocol."
Still, who's to say that Ripple or any other digital payment system will revolutionize finance? There are at least 60 types of digital currencies/payment systems. By market cap, the largest of them are Bitcoin followed by Litecoin, Peercoin, Namecoin and Quarkcoin. The total stock of Bitcoin is currently valued at more than $11 billion. Each has a market cap over $30 million.
At $1,035, Bitcoin is the world's most expensive currency. Yet if our informal poll at Thanksgiving dinner is representative, at least 40% of people still don't know what exactly Bitcoin is. (Rest assured, we recommended reading our free Bitcoin report. Our family's now full of Bitcoin experts.)
"What is the implication of having 60-plus alternative cryptocurrencies floating around?" asks one reader. "Seems like someone is going to figure out a way to cheat the system, and the whole mess will come tumbling down."
Could be. Or maybe the scam is that people realize making money is as simple as making a new and obscure digital money. Heck, with Bitcoin's one-year 5,000% rise, even we're tempted to exit the publishing business and start our own digital currency.
"I like Bitcoin. And I've always thought it is an awesome thing," writes another reader. "But I recently read over an old book at home that I read a couple of years ago explaining the Iceland crisis. It basically states that investors were simply selling assets to each other, demanding higher prices each month. Because it worked, they felt good about it and, at the end, superior over other people.
"Isn't that what we see in the Bitcoin markets?"
Glad you asked. In today's episode of The Daily Reckoning, our own Chris Mayer tackles our reader's question.
"I like the story about the guy from Oslo" he writes below, "who bought $27 worth of Bitcoin -- and then forgot about it. Four years later, he remembered and found out his account was worth $1 million."
The story paints a perfect picture of what Chris calls the coffee can portfolio. Read on for the idea in his own words... | | | | | | | | | Could This Completely Destroy The Democratic Party's Platform? It's shocking stuff. Bigger than anything you might hear on Talk Radio.
A Florida-based computer expert is breaking an incredible story. Perhaps the biggest political story of the next decade.
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For obvious reasons, you likely won't see this story picked up in mainstream media outlets.
Instead, this whistleblower is putting everything he discovered up in a free video.
| | | | | | | | The Daily Reckoning Presents
| | | | Not Quite Coffee Can Material | | | | by Chris Mayer | | | The best place to park some cash in the last five years was in Bitcoin, the digital currency.
Bill Bonner wrote recently in a note to members of his family office (of which I am one):
"The value of [Bitcoin], per unit, has gone from under 10 cents when it emerged, in 2008, to $754 at this writing. If you'd put in $10,000 a few years ago, your stake would be worth over $75 million today."
There's nothing that has come close to that.
Which inspires the thoughts that follow. Below are some speculations about the nature of money, Bitcoin, the U.S. dollar and the wealth-generating power of a simple coffee can.
I don't know that anyone turned 10 cents into $75 million, but there are a lot of great stories out there about people reaping big gains with Bitcoin. I like the one about the guy from Oslo who bought $27 worth of Bitcoin — and then forgot about it. Four years later, he remembered, and found out his account was worth $1 million.
This story illustrates the power of what I call the coffee can idea.
The premise of the coffee can portfolio, you may remember, is to take a select group of stocks and forget about them. Figuratively speaking, you put them in your coffee can. Open 10 years later and see what you have.
 What's in your coffee can?
The theory is you'll be richer for your negligence, which protects you against your impatient and impulsive self. There is no way our man holds onto his Bitcoin if he's paying attention. He talks himself out of his gains long before they hit $1 million. But he coffee-canned it, and made a handsome pile.
That's the power of the coffee can concept.
Anyway, the guy wound up cashing in his Bitcoin once he found out his stash was worth a million bucks. He used one-fifth of that stash to buy an apartment in an expensive part of Oslo. Nicely turned.
Predictably, mind-boggling returns in Bitcoin have led to the creation of lots of new digital currencies: peercoin, namecoin, worldcoin, gridcoin, fireflycoin, zeuscoin, hobonickels and more. According to The Wall Street Journal, there are more than 80 such variants.
And why not? It's of a piece with speculative mood of the times. Frankly, I don't know what to make of it all.
I know a lot of people frame Bitcoin as some sort of free-market competitor to the U.S. dollar — or to any state-backed currency. On one level, this is obviously true. Bitcoin is an option of something you can hold instead of dollars, at least for a time. It's a competitor to the dollar in the same sense as an ounce of a gold, a share of stock, a barrel of oil or a piece of real estate.
But Bitcoin isn't a threat to the U.S. dollar as a currency — at least for the American taxpaying population — unless one thing happens: The government accepts it for the payment of taxes.
I know that's about as likely as snow in Miami.
But it's useful to think about because it gets to a question of why we accept paper dollars at all. Why does the U.S. dollar have any value at all? | | | | | | |
| First Obamacare... Now This!? Obamacare was the first step in Obama's plan… The second step is hinted at in his 2014 budget. And this time, it has to do with retirement. Little does he know there's one thing that could foil his plan… It's a secret $200 retirement blueprint that anyone could use to retire wealthy… | | | | | | | |  Why does this have any value at all?
There are many theories on the nature of money. I have become enamored lately with the ideas of a little-known writer named Alfred Mitchell-Innes. He wrote a pair of essays in 1913 and 1914 that explored the history and nature of money.
The essays got quite a bit of attention in their day, even drawing the review of John Maynard Keynes. But economics went in another direction, and Mitchell-Innes got lost in the mists until a recent revival by a fringy group of economists and anthropologists.
The full story, as interesting as it is, would take us too far afield. Mitchell-Innes, though, made one point in these essays that is a timeless observation relevant here. He wrote, "Government money is required everywhere for the discharge of taxes or other obligations to the government."
It's pretty simple. If he's right, then acceptance of the dollar depends on the ability of the U.S. government to collect taxes. And the U.S. is very good at collecting taxes, which any number of otherwise hard-to-bring-down criminals have found out. (They got Al Capone on tax evasion, don't forget.)
 Al Capone found out why everyone accepts U.S. dollars
So the U.S. levies taxes on the U.S. population, and when combined with its fearsome tax-gathering goons and prisons, it instantly turns everyone in dollar-seekers to settle those obligations. I think people tend to forget this elemental truth, especially when they start talking about Bitcoin.
It's been true since the time of kings and explains why all kinds of odd things have been money at some point. Randall Wray, who seems like a bit of a nut, sums it up nicely in a book about the work of Mitchell-Innes (Credit and State Theories of Money):
"Why would the population accept otherwise 'worthless' sticks, clay, base metal, leather or paper? Because the state agreed to accept the same 'worthless' items in payment of obligations to the state."
This doesn't mean Bitcoin can't grow in value or settle transactions among individuals. Of course it can. And it doesn't mean the dollar can't lose value over time. Of course it does.
The dollar, despite its ability to settle up with Uncle Sam, isn't an investment. It's really a token, a way of keeping score. It's something to tally up credits and debits. This is an idea Mitchell-Innes understood.
And Bill Bonner, to bring the thing 'round to where I began, also knows this: "Money is just a placeholder," he wrote. "It has no value in itself. It just signals your position relative to everyone else… It doesn't really matter what you use as money. But some things work better than others."
As for Bitcoin, your guess is as good as mine what happens. (I don't own any.) As for the U.S. dollar, until the facts discussed above change, we're stuck with the U.S. dollar. But I wouldn't put it in your coffee can.
What would I put in your coffee can? That's too long of a discussion for here… but if you're interested, you can visit this post for my full thoughts on the subject.
Regards,
Chris Mayer
for The Daily Reckoning
P.S. My coffee can strategy is the surest and laziest way to grow rich. I'm talking about specific stocks that you can tuck away for 10 years and wind up with 20 times your money. I outline the full details for you at this link. | | | | | | | | |  Chris Mayer is managing editor of the Capital and Crisis and Mayer's Special Situations newsletters. | | | | | | | | | BE SURE TO ADD dr@dailyreckoning.com to your address book.
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