BOB HOYE - PUBLISHED BY INSTITUTIONAL ADVISORS - JANUARY 11, 2018

Exceptional Speculations: Part 2

We have been around too long to be wholly confident. However, the main trend is up and
as with previous great bull markets, the completion will be anticipated by change in the
credit markets. Which continue supportive of the boom. The recent turn to brighter action
in industrial commodities has also been positive.

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Transports and Banks also continue positive. Indeed, they are both making new highs.

However, the most fabulous speculations, as eternally recorded in the Bitcoin and Pot

Stocks, reached technical excesses within the targeted time window – the-Turn-Of-The-
Year (TOTY). And got hit. Pot Stocks soared until yesterday, with WEED almost

doubling in only three weeks from 19 to 36. In June, the stock was at 6.58.
The shocking discovery of suddenly unsupportable positions started on the day we
published our first Exceptional Speculations on December 21st. Bitcoin (GBTC) took a
big hit from 3523 on December 19th to 1155. 1 The bounce made it to 2488 on the 26th
,
which reached the ChartWorks objectives on dynamics. Wednesday’s CW again puts the
action in perspective with the initial failures of earlier great speculations. Similar patterns
and dynamics occur in any price series from the South Sea stock in 1720 to Western
Union in 1873 to Radio Corporation of America in 1929 to silver in 1980 to the Nikkei in
1989 to Qualcomm in 2000.

Each was a different vehicle but the completion of each bubble had much in common. In
bulk commodities, the feature has been that each product is fungible. Each unit of, for
example copper, is interchangeable with another unit. The next step is that intense
speculation itself is fungible, which provides the characteristics common to speculative
climaxes.

The latter three speculations, silver, Nikkei and Qualcomm set their peaks in the TOTY.
And it seems that the Bitcoin and Pot Stocks are completing in the same time window.
We will have to think about tempus fugit and time fungibility.

Part 1 of Exceptional Speculations reviewed that in earlier times, the cost of
compounding interest required that the price-rise be continuous. Running out of
momentum prompts margin calls on those late in with too much leverage. And if the old
Vancouver Stock Exchange is any guide the other liquidation feature is that too many in
the deal will own a lot of very cheap stock. This will come out on the first break and as

1 Two days earlier, a Sequential (13) Sell registered. It was the first such signal in two years and
the biggest correction in two years followed.

the play dies can provide relentless selling at distressed price levels. That’s when getting
cash for the next deal becomes very appealing.

The other historical point dates back to the first bubble in 1720. The South Sea Company
was a quasi-government company that was raising lots of money for government coffers.
As the action was soaring, it prompted a rapidly growing number of new issues. Seeing
that this was capturing funds that might have gone to the South Sea game, Parliament
quickly passed the Bubble Act to prevent such new issues. It was too late and the bubble
crashed.

In the case of cryptocoins, electric power consumption is unrelenting.

There are ancillary events with great speculations. The 1989 Tokyo Bubble had suddenly
prosperous players buying real estate and collectable sports cars around the world. A
1968 Ferrari GTB 4-cam traded up to $1.3 million (pre-bubble at $10,000) in 1990 and a
few years later the trade was at $300,000. A friend sold a limited production Alfa Romeo
sports racing coupe (TZ1) for almost a million. By that September, the buyer could not
complete the purchase. Lost his deposit.

Then there were “Trophy” hotels and golf courses. A big winner just had to buy Pebble
Beach. This he briefly “owned” and being unable to complete the deal dropped $500
million. That works out to $13 million per hole. In less than a year.

Of course, the important “ancillary” was that in most historical examples the highest of
flyers blowing out was part of a cyclical peak in both credit and stock markets.
In the current example, sensational peaks and hits to the most speculative sectors could
precede important highs in the senior indexes by a number of months.
Friends who have been in the Bitcoin story for a long time tell us that this phenomenon
“is really different”. Same for the marijuana game.

However, it is fascinating that the chart patterns of each are similar. And in turn these are
similar to previous great blow-offs.

On the way up, Bitcoins and Pot Stocks have been recording fungible speculation.
On the investment-grade sector, the action in the S&P registered a Springboard Buy
yesterday.

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