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Greater fool theory comes back to haunt bitcoin and tech stocks: Don Pittis

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So, when a speculative investment plunges in value, where does the money go? 

As bitcoin crashes to year-long lows, as tech stocks give up their entire 2018 gains and as global oil prices tumble to a level not seen since October 2017, it is common to to hear investing being compared to playing roulette.

Sometimes, it’s harder making the comparison when asset prices are on the way up. But that’s what Bank of Canada governor Stephen Poloz did just as bitcoin was reaching a peak over $18,000 US.

“There is no intrinsic value for something like bitcoin, so it’s not really an asset one can analyze,” Canada’s chief central banker said almost a year ago. 

“It’s just essentially speculative or gambling.”

Conjured from thin air

“You’re better off in Vegas; the food is better,” joked cryptocurrency critic Jeffrey Robinson in his own attack on cryptos, which he insisted were neither investments nor currencies.

This week, people who once turned their Canadian dollars into bitcoin may be wishing they had listened to Poloz and Robinson as the digital token plunged again to below $5,000 US.

It may not be hard to see money paid for bitcoin, a relatively recent invention conjured out of ones and zeros, going back to the thin air from whence it came.

Digital currencies are relatively easy to write off as a foolish gamble. But in an era of casino capitalism, the fact is that losing money in Vegas may actually be better for the economy than losing on speculative investments of any kind, whether crypto, stocks or oil.

After peaking in late 2017, the price of bitcoin has fallen precipitously since.

At least the money you lose at the card table or roulette wheel flows out of your pockets straight into someone else’s. In casino capitalism, especially when asset values go through a synchronized decline, money can simply disappear from the economy altogether — not to return until some future day when those asset prices rise again.

Speaking on U.S. business network CNBC, Robinson, author of BitCon: The Naked Truth About Bitcoin warned that anyone interested in bitcoin should Google the greater fool theory, “because that’s what they are all about.”

Finding someone more foolish

Greater fool theory is the concept that it may very well be wise to buy an asset that you know is foolishly overvalued, so long as you are confident you can sell it on at a higher price to a greater fool. But that only works if you find that greater fool before asset prices decline. 

And the concept is by no means limited to cryptocurrencies.​

The hard fact is that assets with intrinsic value are also subject to the theory, something that occurred to me in a much earlier bitcoin era in 2013 when both gold and bitcoin were falling at around the same time.

Just how long ago that is in bitcoin valuation terms can be see from the fact that it had just “plummeted to about $50 after hitting a Wednesday high of about $260.

The Nasdaq had a strong 2018 until a sell-off that started in October. (CBC)

My conclusion in that case was not exactly original in that there is an ancient maxim in Roman law that says “Res tantum valet quantum vendi potest” which translates as “a good’s only value is the amount you can sell it for.”

Looked at individually, there are rational reasons why someone might want to pay less for bitcoin, stocks and oil.

Bitcoin is being investigated for price rigging. In the case of stocks, flat demand for Apple products and some bad financial results from retailers are offered as a reason for the decline. In the case of oil, high inventories are among the factors getting the blame for prices falling to their lowest levels in a year.

The curse of Harry Potter

But the fact that they are all happening at the same time may be a sign of something else — a general and synchronized gloom about assets that is the flip side to the recent excess of euphoria.

Like the slap of a beaver tail, a warning in one market sector can act as signal to traders in other parts of the pond. And despite repeated reminders that the market and the economy are two different things, a widespread loss of asset value from the economy can have an economic impact.

The bitcoin chart “looks like the left-hand side of the Eiffel Tower, doesn’t it?” said Poloz a year ago, allowing us to imagine the other side of the tower.

Depending on how you construct your graph, you could have found similar Eiffel towers in various other stocks and markets.

Think back to the happy man with the goatee and the hat who celebrated the Dow Jones Industrial Average climbing to 20,000 and through to 25,000 in the months after Donald Trump was elected president.

Trader Peter Tuchman celebrates as stock market heads for a new record in December 2016. (Andrew Kelly/Reuters)

Now, various market analysts are beginning to talk about a supposed market phenomenon that sounds like a curse from the Harry Potter books. It’s called the “death cross,” which a quick internet search shows is currently being applied to oil, technology stocks and bitcoin.

“The death cross appears on a chart when a stock’s short-term moving average crosses below its long-term moving average,” says the investment education website Investopedia.

While the death cross has appeared before nasty bear markets, including in 1929, 1974 and 2008, it is unreliable, having also appeared at other times when markets actually recovered.

“For smaller corrections of less than 20 per cent,” says Investopedia, “the temporary appearance of the death cross may be reflecting losses already booked, and thus indicates a buying opportunity.”

Follow Don on Twitter @don_pittis

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Real Estate

The cost of renovating your bathroom in Toronto in 2021

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Home renovations can be a big task, especially bathroom renovations where you have to work with either an awkwardly shaped space, or one with lots of pipework and very little natural light.

Nonetheless, getting a bathroom renovation by Easy Renovation to change your existing bathroom layout, improve the ambience or add more natural skylights can be worth all the trouble. But determining how much a bathroom renovation would cost is important while setting a budget.

The pandemic has changed a lot of things with social distancing rules, working from home, and for some, being made redundant. Therefore, having a complete grasp of the financial implication of a bathroom innovation is very important.

Owning your dream bathroom can be made a reality and the good thing is, regardless of your financial situation, there are always available options. If you also decide to put up your property for sale in the future, a bathroom upgrade would be a great investment—as it would add significant value to the property. Your bathroom renovation project, like every home renovation, can either be very affordable or extravagant, but one thing is certain, you’re bound to have a more refreshed, stylish and modernistic space.  

Looking through detailed sketches of luxurious and expensive bathrooms can be quite tempting, especially when you’re on a budget. However, your bathroom can be equally transformed into something that looks just as modern, stylish and refreshing but without the heavy price tag.

Conducting a partial bathroom renovation means you only have to change a little part of your existing bathroom rather than tearing it down and starting from scratch. If you intend to carry out this type of bathroom renovation in Toronto, depending on the size of your bathroom, you can spend between $1,000 – $5,000. With a partial bathroom renovation, you can save money by tackling smaller problems that exist in your present bathroom—or you can just upgrade a few of its features.

Partial bathroom renovations are quite affordable and would leave your bathroom feeling new and stylish without being time-consuming or a financial burden—which is important considering the economic impact of the pandemic. Repainting the bathroom walls, replacing the tiles on the floor and in the shower area are examples of partial bathroom renovations which is the cheapest to accomplish.

A more expensive and popular bathroom renovation is the standard 3- or 4-piece renovation. This renovation type involves a lot more services that are not covered by a partial renovation budget. To execute a standard bathroom renovation in Toronto you need a budget of about $10,000 – $15,000.

Unlike with a partial renovation, you would have to make a lot more changes to various elements of your bathroom without the hassle of changing the overall design. You can easily restore your current bathroom into a modernistic and classy space that fits your existing style. Making changes to more aspects of your bathroom is quite easy since there is more room in your budget to accommodate it.

A standard 3- or 4-piece renovation includes everything in a partial renovation plus extras such as revamped baseboards, installing a new bathroom mirror, buying new lights, installing a new vanity, changing the toilet, and buying new shower fixtures.

If you’re one of those looking to make a complete overhaul of your existing bathroom, then the option of a complete bathroom remodel is for you.

Unlike a bathroom renovation, remodelling means a complete change of your current bathroom design and layout for one that is newer and completely unrecognizable. The possibilities when remodelling a bathroom are endless especially when you have a large budget of over $15,000. That way, you can get the opportunity to create the perfect bathroom for yourself.

In addition to all that’s available with a standard bathroom renovation, bathroom remodelling allows you to make bathtub to shower conversion, relocation of plumbing, relocation of the toilet, reframing the bathroom and even relocating the shower.

In conclusion, a bathroom renovation can be a very important upgrade to your home and depending on the features that you decide to include, in addition to the size of your bathroom, this would influence the total cost of the project.

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Real Estate

7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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Real Estate

‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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