A Real Illusion

People often ask me what I think of some Elliott Wave count, or another. But rarely do they ask me what I think of the phenomenon underlying any Elliott Wave count, and that is - price. Rarely do they ask me about price. So, here is what I think about price: to some extent it is an illusion, but it is an illusion we often have to deal with or chose to deal with. To make my case, let's talk about something you are very familiar with: your home.

Below is a chart from the US. Federal Reserve of median home prices since 1965.

Median Home Price By Year

 

From the chart, since 1965 it is clear that the 'median' home price has gone up from $20,000 to about $320,000. If you've purchased, sold or rented a home any time you know what you are paying, and you know what your parents or grandparents may have paid for a home.

But, IT'S THE SAME HOME. It's the same 980 sq. ft. beach cottage, 2,100 sq. ft. suburb ranch, or 5,800 sq. ft. Beverly Hills mansion. The very same. In fact, some people still live in a house built in the 1800's, maybe with some electrical or plumbing upgrades, etc. That's not bad, huh, a 1,500% increase in the price of the very same asset.

Now, we know to some degree people will say, this is, in part, because people now earn more, so they can afford more house and the upgrades, others will say, there are more people in the U.S. now than in 1965 so they must compete in a market for fewer units. Still others will cite money printing by the Federal Reserve as the operative phenomenon.

But, here is the question: does the very same asset available in 1965 provide 1,500% more value to a person now than it did in 1965? Um .. I'll answer that question with a resounding "no", for the moment. I mean the house doesn't brush my teeth, or massage my sore muscles or provide any other significant service now than it did in 1965. I mean, it might be equipped with cable, or a dish, and it might be wired for internet, or it may not. But, is any of that worth 1500% more? I think not. It is still some amount of heated square footage, with a roof, and a place to eat, sleep, play, and a yard, and a garage, or not, often with a way to bathe or do laundry, etc. So, 1500% more, huh?

This illusion, made possible through the phenomenon of asset Inflation, still often must be dealt with. People must find the funds or not to buy a house and land, pay the taxes, or to pay something similar in rent. It is an illusion and a phenomenon the U.S. Federal Reserve is struggling desperately to keep alive. Like the Wizard of Oz, they don't want people seeing what is behind the curtain or focusing on it. They want steady inflation at around 2% per year. And, why do they want it?

They want it because they fear that people won't know what to do with lower prices. They have seen in the Great Depression and in previous housing crash of 2009, that asset prices can deflate. They are afraid that people will lose confidence in the system if prices decline. So, they perpetuate the illusion. As we all know, it has gotten to the point that they now don't spent billions of dollars to keep the illusion going, they are now spending trillions of dollars.

Since, the Federal Reserve is operating as a quasi-arm of the U.S. Government, and under the auspices of and at the direction of Congress - which the people elect - then, essentially, increasing price is an illusion that we want to keep ourselves under. Don't ask me why. But, we do. Maybe we get more psychological satisfaction for getting a raise each year for doing essentially the same job, perhaps with a little more skill each year. But, do we need to tie that satisfaction to a paper dollar bill? Maybe we do. Here is another phenomenon of price. Bitcoin.

Bitcoin Futures - Weekly Close - Channel

So, over the course of three years you could have the choice of buying/selling Bitcoin at either $16,000, or $3,200, or $22,000. That's not bad, huh? Oh, and what does this thing do? It let's you buy other stuff - maybe secretly, maybe not? And what does it represent? Some computer spending a lot of electricity to solve an algorithm (i.e. going around endlessly in a "Do-Loop"?) OK. That's worth that kind of volatility in price (um..not).

People often ask me what I think about Bitcoin. When I look at a chart like the one above, here is the primary thing I think: I have heard and seen written that most Elliott analysts think that in a zigzag, if the next move after the zigzag is to be up, then the C wave down should be at a less steep angle than the A wave. That is because the C wave down should show a loss of momentum, otherwise it might be the darn middle of a third wave, and watch out, below! The loss of momentum is what is presaging the next upturn.

So, seriously study that downward wave sequence from June of 2019 for a moment. The A wave down takes from June 2019 to December, 2019 - almost a full six months. Yet, the clear C wave down - traveling just about as far in price -  takes like only Feb/Mar of 2020 or two months! So, that means the C wave down occurs at a steeper, more aggressive angle than the A wave down. Yet, the structure of Bitcoin shows such a zigzag was handily exceeded to the upside.

So, what do I think of Bitcoin? I think it has disproved some cherished guideline by some online Elliott Wave analyst or other, or maybe even something someone wrote in a book - at least in this instance. 

And what else do I think about Bitcoin? Should people own it? Well, I will only say - just remember to some extent, price might be an illusion. It might be one that people have to or chose to deal with; or not. Wherein as in the case of housing, it may be a more persistent (or at least less volatile) illusion, in the case of Bitcoin - maybe not so much, no matter how high it goes.

Have an excellent rest of the weekend. P.S. This is the second post of the weekend, if you have not seen the first, you may wish to review it, also.

TraderJoe