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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 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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The ‘Maple Majestic’ wants to be Canada’s homegrown Tesla

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Look out Tesla, Canada has a homegrown electric sedan on the way. Well, that’s if AK International Motor Corporation can drum up enough investment to make its EV a reality. Dubbed the “Maple Majestic,” the vehicle is a battery-electric designed to “excel in extreme climate performance without adversely affecting the climate, as befits a vehicle from Canada,” according to its website.

What’s in a name? — The company says the maple leaf is a “symbol of Canada’s warmth and friendliness towards all cultures,” while “majestic” refers to the country’s “status as a Constitutional Monarchy.”

That patriotism carries over into Maple Majestic’s parent company’s lofty goals. AK Motor founder Arkadiusz Kaminski says he wants the company, which he founded in 2012, to become “Canada’s first multi-brand automotive OEM,” and that the “Maple Majestic is intended to be Canada’s flagship brand of automobiles on the world stage.”

Partnerships are key — “We acknowledge that the best chance for the Maple Majestic brand to succeed, lies in continuing to build the relationship with Canada’s parts suppliers and technological innovators, whether they be academic institutions, corporations, or individual inventors,” the company explains. “We are currently seeking partners in automotive engineering, parts manufacturing, automotive assembly, electric propulsion technology, battery technology, autonomous technology, and hybrid power generation technology.”

In other words, don’t expect to be able to buy a Maple Majestic any time soon… and don’t expect to pour over 0-60 mph times, power output, range, or other key stats, because those don’t currently exist. For now, all we have are pictures and a short video clip. But at least those are arresting.

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PE-backed Quorum Software to merge with Canadian energy tech firm

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Houston-based energy technology company Quorum Software will merge with a Canadian tech firm to bolster its presence in oil and gas services.

Quorum announced Feb. 15 it plans to merge with Calgary, Alberta-based Aucerna, a global provider of planning, execution and reserves software for the energy sector. The combined firm will operate under the Quorum Software brand.

Gene Austin, CEO of Quorum Software, will continue in his capacity as chief executive of the combined firm. Austin, former CEO of Austin-based marketing tech firm Bazaarvoice Inc., became CEO of Quorum in December 2018.

Aucerna co-founder and CEO Wayne Sim will be appointed to the Quorum Software board of directors. Both companies are backed by San Francisco- and Chicago-based private equity firm Thoma Bravo.

“Over the last 20 years, Quorum has become the leading innovator of software deployed by North American energy companies,” said Austin. “Today, Quorum is expanding the scope of our technology and expertise to all energy-producing regions of the globe. Customers everywhere will have access to a cloud technology ecosystem that connects decision-ready data from operations to the boardroom.”

In addition to the merger announcement, Quorum Software announced it had entered into an agreement with Finnish IT firm TietoEvry to purchase TietoEvry’s entire oil and gas business. The agreement, which includes hydrocarbon management, personnel and material logistics software and related services, is valued at 155 million euros, or $188 million, according to a statement from TietoEvry.

“Our three organizations complement each other — from the software that our great people design to the energy markets where we operate,” said Sim. “Our new company will be able to deliver value to our stakeholders, while accelerating the growth of our combined business and the energy industry’s software transformation.”

The combined company will serve over 1,800 energy companies in 55 countries, according to the announcement. With its headquarters in Houston, Quorum will continue to have a significant presence in Calgary and in Norway, the headquarters for TietoEvry’s oil and gas software business. Quorum will have other offices throughout North America, Latin America, Europe, Asia and the Middle East.

As of Sept. 30, 2020, private equity firm Thoma Bravo had more than $73 billion in assets under management. In late December 2020, Thoma Bravo agreed to acquire Richardson, Texas-based tech firm RealPage in a roughly $10 billion acquisition.

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Piece of Kitchener technology lands on Mars on Perseverance rover

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KITCHENER — A piece of Kitchener technology has landed on Mars, thanks to NASA’s Perseverance rover.

The rover settled on the planet’s surface on Thursday afternoon. It’s been travelling through space since it was launched from Cape Canaveral, Fla. in July.

“The whole idea of being on a device that we’re sending to another plant with the express mission of looking for traces of past life, it’s pretty mind boggling actually,” said Rafal Pawluczyk, chief technical officer for FiberTech Optica.

The Kitchener-based company made fibre optic cables for the rover’s SuperCam that will examine samples with a camera, laser and spectrometers.

“The cables that we built take the light from that multiplexer and deliver it to each spectrograph,” Pawluczyk said.

The cables connect a device on the rover to the SuperCam, which will be used to examine rock and soil samples, to spectrometers. They’ll relay information from one device to another.

The project started four years ago with a connection to Los Alamos National Lab, where the instruments connected to the cables were developed.

“We could actually demonstrate we can design something that will meet their really hard engineering requirements,” Pawluczyk said.

The Jezero Crater is where the Perseverance rover, with FiberTech Optica’s technology onboard, landed Thursday. Scientists believe it was once flooded with water and is the best bet for finding any evidence of life. FiberTech’s cables will help that in that search.

Ioannis Haranas, an astrophysicist and professor at Wilfrid Laurier University, said the rover isn’t looking for “green men.”

“They’re looking for microbial, single-cell life, any type of fossils and stuff like that,” Haranas said. “That’s why they chose a special landing site. This could be very fertile land for that.”

“It’s very ambitious,” said Ralf Gellert, a physics professor at the University of Guelph.

Gellert helped with previous rover missions and said it’s the first time a Mars rover has landed without a piece of Guelph technology on it. While he’s not part of Perseverance’s mission, he said the possibilities are exciting.

“Every new landing site is a new piece of the puzzle that you can put together with the new results that we have from the other landing sites,” he said.

“It’s scientifically very interesting because, even though we don’t have an instrument on that rover, we can compare what the new rover Perseverance finds at this new landing site,” he said.

Now that Perseverance has landed on Mars, FiberTech is looking ahead to its next possible mission into space.

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