Market Analysis

Random Musings on Markets 2019: Sgt. Random’s Lonely Hearts Club Musings

This week’s not-weekly roundup of unusual financial news.

This week’s not-every-Friday selection of random and bizarre financial and economic related news brings you robo-umpires in baseball, some questions about Bitcoin-as-reserve-asset, the IRS is coming for cryptoholders and a modest proposal to improve the Democratic debates. Please enjoy the read!

Random Musing on Baseball, Because We Can

Over halfway through the season, this is proving to be a banner year for baseball. Not only do Elisabeth’s beloved Astros have the best record in the American League (and now, Zack Greinke), but those staid suits who run the game are finally waking up to new ideas. First, we got the tantalizing possibility of the Tampa Bay Rays-Expos of Montreal. Now, the independent Atlantic League is running a pilot test for—wait for it—automated home plate umpiring. If it works, it could be coming to a major league park near you.

There are a lot of people who don’t like this. They wax poetic about the human element of baseball and how errors are part of the game’s beauty and mystery. Those people probably didn’t cut their baseball teeth on Game 6 of the 1986 NLCS and learn some new words from the Astros bench when home plate umpire Fred Brocklander decided to become the 26th member of the Mets in the ninth inning. They probably don’t still have deep-seated childhood pain from seeing what should have been strike three against Ray Knight called a ball, enabling him to knock in the tying run one pitch later. Yes, it. Still. Hurts.

Now, being rational people, we realize you can’t blame umpires for tough losses. Good teams overcome, and the Astros had—and missed—their chances in the next seven innings. Same goes for every team on the wrong end of a blown call. But still, wouldn’t it be nice to have one less thing to play what-if over? Wouldn’t it be nice if we didn’t have to hear announcers say weird things like “Joe Ballsenstrike’s strike zone is a bit wider than Bob Strikesenball’s was yesterday?” as if something enshrined in the baseball rule book is somehow a matter of opinion? Wouldn’t it be nice if we could ditch the annoying practice of catchers framing pitches and yanking them back into the zone in order to get a call? Wouldn’t it have been nice if every Atlanta pitcher in the 1990s couldn’t magically throw “strikes” three feet out of the zone? The sacrifice of Greg Maddux’s Hall of Fame induction seems like an ok price to pay for this.

So bring on the bots! Baseball will still be baseball, just with moderately less second guessing. Players will still find things to fight umpires about. David Bell can still get thrown out of every other game. It will all be fine. Better than fine.

All in all, the objections many traditionalists—and the umpire’s union—note seem like the objections we have long heard about machines displacing people, like Michel Mok’s great 1932 Popular Mechanics article titled, “Will You Lose Your Job to a New Machine?” While the fear is understandable, in this case it isn’t very relevant. For one, the Atlantic League isn’t replacing umpires with robots. The computer reports whether the pitch is a ball or strike via an earpiece, leaving the ump to announce the decision. Maybe someday it heads that way, though, rendering umpiring jobs equivalent to horse-drawn carriage repairmen. As we often say, economic and technological advance creates losers and winners. Although umps may eventually lose from this, we suspect baseball fans, who will hopefully no longer have to watch grown men in polyester throw temper tantrums at home plate umpires, would win.

If a Bitcoin Falls and Doesn’t Make a Sound, Is It a Reserve Currency?

One of our biggest pipedreams is never to write about Bitcoin or cryptocurrencies again. But people keep talking about them and saying weird things, and when people say weird things, we must muse.

Our trigger this time was a Wall Street Journal op-ed from some industry gurus arguing against Fed rate cuts (spoiler alert: The Fed didn’t listen). What caught our eye was this observation: “This year gold has risen 10% against the US dollar. Alternative currencies like bitcoin [sic] have risen about 160% against the dollar. All other major currencies have also fallen by similar magnitudes against both gold and bitcoin [sic]—troubling signs.”

Bitcoin is a reserve asset? Who knew!

This raises some questions. Like, was Bitcoin’s supercharged 2017 bubble really just a massive temporary devaluation of the dollar? Did we survive currencypocalypse and not even realize it? Similarly, when Bitcoin then tanked, did the dollar actually get super strong? Will central banks and governments start holding Bitcoins in reserve? Will the IMF add it to the basket of currencies underpinning its proprietary reserve asset, the Special Drawing Right (SDR)? Will China include it in the currency basket it uses to manage the yuan? Will the Fed include it in the trade-weighted currency baskets it uses to measure the dollar? The world needs to know!

Then again, maybe we already have the answer, thanks to a very timely reminder from the UK’s main financial regulator, which issued a statement advising investors cryptocurrencies “have no intrinsic value.” This should be self-evidently true, as cryptos are nothing but blips of data wrapped in hype and shiny branding. But it attracted pushback from those who insisted Bitcoin has value because its “brand” has value. Which, maybe! But that doesn’t make it a currency with intrinsic value. That makes it, well, a brand name without an actual company behind it. A currency is something you can exchange for goods and services without having to make a speculative bet on its brand—that is why a currency is stable. Bitcoin is not stable. Which, you know, is why it has all those massive swings and isn’t a reserve asset.

Which means rising Bitcoin prices aren’t any more signs of dollar devaluation than rising stock prices, rising bond prices or surging pork bellies.

The IRS Sends Friendly Reminder to Alleged Cryptotaxdodgers

Relatedly, news broke Monday the IRS was sending formal letters to roughly 10,000 individuals it thinks failed to accurately document transactions in cryptocurrencies in recent years. This follows a court order last year that compelled virtual wallet firm Coinbase to hand over identifying information on roughly 13,000 account holders to the feds. So much for crypto being the currency outside the government’s reach, we guess.

The letters, tantalizingly named Letter 6173, 6174 or 6174-A, inform alleged cryptotaxdodgers the IRS believes they didn’t accurately file or pay taxes related to their bitdealings. Which, to us, would be quite easy to do when you know how these things are taxed.

For the uninitiated, Bitcoin and other cryptocurrencies aren’t considered currency by the IRS (or, basically any other legal authority—see prior musing for more). The IRS deems such assets property.[i] That simple-seeming statement has big implications for holders. It means transactions in it are subject to capital gains taxes. Yes, that includes sales of previously purchased cryptoproperty. It means exchanging one for another (the IRS uses the example of Bitcoin for Ether). But it also means using crypto to pay for goods or services! It means getting paid in Bitcoin isn’t just taxable income (reported at fair market value as of the date received), but potentially subject to gains taxes when you use this payment later. Yikes! From Letter 6174:

Generally, U.S. taxpayers must report all sales, exchanges, and other dispositions of virtual currency. An exchange of a virtual currency (such as Bitcoin, Ether, etc.) includes the use of the virtual currency to pay for goods, services, or other property, including another virtual currency such as exchanging Bitcoin for Ether.

How poetic. But also problematic! We doubt many online “wallets” are keeping good records to issue you a solid 1099 at yearend. We know this machine Elisabeth spotted while in Europe recently isn’t going to.


Photo by Elisabeth Dellinger.

One-Two-Three-Four We Declare a Currency War?

Earlier this week, in our more, um, serious commentary, we discussed a pending Senate bill that, if passed, would order the Fed to weaken the dollar by taxing foreign investment—a novel way of conscripting the Fed in a currency war, we guess. One grand irony is that the UK presently has exactly what these politicians say they want: a currency that is flirting with the prospect of erasing all gains made in the last three and a half decades. Of course, Brits aren’t cheering this or salivating over a potential manufacturing and export boom. They are rather unhappy with the prospect, and we suspect Americans would be too, if historical reactions to a weakening dollar are any indication.

But still. We find it fascinating that the Brits have won a currency war without even trying! They didn’t need massively negative interest rates or trillions of pounds’ worth of quantitative easing. They didn’t need capital controls. They didn’t need to change the BoE’s remit. They just needed Brexit. That was it!

So, we have an idea for Senators Tammy Baldwin (D-WI) and Josh Hawley (R-MO), who co-sponsored S. 2357, which is snappily called, “A bill to establish a national goal and mechanism to achieve a trade-balancing exchange rate for the United States dollar, to impose market access charge on certain purchases of United States assets, and for other purposes.” You want a weaker dollar? Find your own Brexit! Engineer some massive reorganization of the country and its place in the world! Endorse one of those state secession movements! Tell Tim Draper you are on board with splitting up California! Join the EU, then leave it!


But our point remains. It is pointless for politicians to try to engineer exchange rates and monetary policy. Leave it to the experts and the market, which will ultimately do what it wants anyway.

Two Thoughts on the Democratic Debates

Before we dive in, a quick reminder that MarketMinder favors no party nor any politician. This is a partisanship-free zone. With that out of the way, let’s get into it. This week, the big political news was the second set of Democratic debates, which garnered a slew of headlines and lots of snappy tidbits. As in the first set, 10 candidates graced the stage on Tuesday and Wednesday, with 5 left out for reasons we cannot fathom.[ii]

Maybe the DNC should have included those folks. Why? New cast members[iii] could help ratings. As Politico put it, “The first night of CNN’s Democratic debate in Detroit drew 8.7 million television viewers, a steep drop from last month’s event hosted by NBC, MSNBC and Telemundo. The June event brought in 15.3 million viewers across the three networks on Night One, with 18.1 million tuning in for the second night, a Democratic primary record.” The Hill reported the second night saw a similar drop: “CNN’s broadcast of the second night of Democratic presidential debates this week attracted 10.7 million viewers, according to final ratings compiled by Nielsen Media Research.” That means viewership dropped -58.1% between June and July. 

Now, those data aren’t seasonally adjusted. There are other issues in the sense that NBC is a broadcast network and CNN is cable. So, comparing July’s ratings to June’s isn’t apples to apples. But if the DNC is indeed worried about ratings, we have a modest proposal: Change the format to a one-on-one, single-elimination, NCAA Basketball tournament-style affair. Seed all the candidates according their poll numbers (take them out to three decimals if needed). Then pair them up and let registered Democrats vote online or via phone, American Idol-style. Winner moves on, loser goes home—all the way through the convention, which would be the finals. They would of course have to get Ryan Seacrest to host, but is he really likely to be that much worse of a moderator than the ones the networks have trotted out to date? 

Enjoy your weekend.

[i] Henceforth we shall call such virtual assets, “cryptoproperty.” This is also why we capitalize Bitcoin. Currencies aren’t capitalized, but the name of property would be a proper noun.

[ii] We see you, Mike Gravel.

[iii] Like Mike Gravel.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.