An e-mail about Bitcoin...

Porter's thoughts on Bitcoin and Gold…

We've been getting more and more questions on Bitcoin, the virtual currency many view as an alternative to the dollar.

In today's Digest Premium, Porter shares his thoughts on the pros and cons of Bitcoin… and how it compares with gold.

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

An e-mail about Bitcoin... Porsches and expensive watches... Bitcoin's two-day crash... Another way to get out of the dollar... Blackstone Group hits a new high... A way to play inflation... What is selling short?...

 Last week, we received this e-mail about the virtual currency Bitcoin: "Im still surprised you choose not to talk more in depth about bitcoins. I realize you dont know much about it, therefore feel you cant comment directly. Can I help in any way?"

The writer went on to say he was at the Inside Bitcoin conference right now in Las Vegas. "So many venture capitalists here its not even funny," he wrote. "I think you are missing the mark on not covering bitcoins much. I keep buying low selling high on the volatility. Im going to buy my first IWC watch thanks to bitcoins. Im going shopping for my first Porsche (356a speedster) for Christmas."

He said that he was making in a few days or weeks "what takes some of your best performing stock picks years."

"There are even options markets now for bitcoin, and $1700 by the end of the year is not impossible. If you invest now you could double your money in three weeks," he wrote. "Iceland is considering a virtual currency and theres big rumors the forex markets will begin accepting bitcoins in February. You really could be capitalizing on all of this news... Please reconsider your silence on bitcoins. Its going to change this world. Theres already ATM machines that buy/sell bitcoins, theres alternative coins and so much more."

I forwarded the e-mail to some colleagues with the note, "I'm not saying Bitcoin is [at] a top, but this is one toppy e-mail..."

 Since then, Bitcoin has fallen from more than $920 to $550 today. It's a reminder that Bitcoin is not an investment. It has no intrinsic value, no history of utility as a currency (unlike gold), and it yields nothing. Bitcoin is a speculation… a volatile speculation.

On a side note, Porter shares his thoughts on Bitcoin in today's Digest Premium. (If you're not a subscriber, you can sign up here to access his write-up. It's only $10 a month.)

 Two major happenings in the U.S. and China caused Bitcoin's recent rout...

First, the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) – the agency's anti-money-laundering unit – sent "industry outreach" letters yesterday to around a dozen firms, discussing potential compliance measures related to Bitcoin businesses, FinCEN spokesman Steve Hudak told news agency Thomson Reuters.

In other words… if you're a business accepting Bitcoins… the government wants you to know it's watching you.

 Meanwhile in China, BTCChina (the world's largest Bitcoin exchange) said its platform could no longer accept renminbi. "As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange," BTCChina co-founder Bobby Lee told the Financial Times. In other words, the Chinese can't buy Bitcoin. Existing account holders can still exchange their Bitcoin for renminbi.

Also, two weeks ago, China's central bank banned financial institutions from dealing in Bitcoin. It said individuals remained free to transact. We suppose the People's Bank of China changed its mind.

 As for why we don't cover Bitcoin...

The rise in price and popularity of Bitcoin is evidence that people want out of fiat currency – a desire we wholeheartedly understand... People distrust governments and their ability to debase paper currencies.

However, governments, as we see today, can also debase digital currencies.

We're not saying a new strong alternative to the dollar won't appear someday... But today, we prefer gold to Bitcoin.

 However, if you're looking for another way to get out of dollars, Steve Sjuggerud dedicated the November issue of True Wealth to our currency and the relative strength of China's renminbi. He explained why he thinks the renminbi will soar and shared his favorite way to profit from the trend.

If you sign up for True Wealth, you'll also receive Steve's currency seminar… which is the ultimate primer for anyone wanting to learn more about protecting your hard-earned money. He divulges the one currency you should own for the next 10 years.

We believe folks who read Steve's seminar will be far more informed than most other investors… You can learn more about Steve's currency seminar – and a subscription to True Wealth – by clicking here.

 Private-equity firm Blackstone Group hit a new high today...

Steve Sjuggerud originally recommended Blackstone in the December 2012 issue of True Wealth as a way to play the housing recovery in the U.S. The company was spending billions of dollars buying single-family homes around the country, fixing them up, and renting them.

Plus, the company was cheap. As Steve wrote:

 Since the recommendation, Blackstone has become the largest landlord in the U.S. It has spent more than $7 billion to acquire some 40,000 properties.

But its impressive real-estate portfolio isn't the only reason Blackstone's stock is soaring. (True Wealth readers are up 129% on the recommendation.)

As we've discussed several times, private equity is one of the greatest beneficiaries of quantitative easing... These companies borrow money to buy businesses. Thanks to the manipulation of interest rates, they can borrow lots of money at record-low rates.

And with asset-price inflation, the value of their portfolios are growing... as are their assets under management, which generate management fees.

 Visa, the world's largest payment processor, is another new high of note (though none of our analysts currently hold it in his portfolio).

Visa is a great inflation hedge... It has more branded credit and debit cards in circulation than anyone else. And the financial institutions that license the Visa brand do so on the basis of transaction volume.

So the more money people spend on their Visas, the more money Visa earns. Taking it a step further... The more money that's in existence, the more money Visa earns.

And as you can see from this chart of M2, a measure of money supply, the amount of money in existence is growing...

 As of the 12 months ended June 30, Visa processed a total of $6.7 trillion in transactions... that's up 7% from a year earlier. The company processed 58 billion transactions in the same period, up from 53 billion in 2012.

 New 52-week highs (as of 12/17/13): BLADEX (BLX), Blackstone Group (BX), Energy Transfer Equity (ETE), and Targa Resources (TRGP).

 Great feedback on yesterday's mailbag... And we answer a question that often arises. Send your comments or questions to feedback@stansberryresearch.com.

 "In regard to 'Porter responds to one of the best questions we've ever received in the feedback'... Wow. That's all I have to say. As a serious investor (sometimes trader) of approximately three years, I can now understand this discussion whereas two or three years ago, it would have gone right over my head. Absolutely brilliant discussion. Thanks." – Paid-up subscriber Dave Middleton

 "Thanks for printing the letter in yesterday's S&A mailbag and for Porter's thorough reply. It answered a few questions I've gathered over the years reading Porter's commentary. I've always looked forward to the wealth-building knowledge Porter has disseminated in his writings and podcasts. I no longer subscribe to many paid newsletters, just the S&A basics provided by the Private Wealth Alliance.

"Implementing and following a trailing stop loss has greatly improved my returns. I would sell winners too fast and hold on to losers way too long... uch.

"The other thing that has helped is to just keep emotion out of the equation as much as possible and to either ignore and/or view very skeptically anything coming out of the Wall Street machine (especially CNBC).

"I follow the integrated strategy that [Stansberry's Investment Advisory] uses including trailing stop loss, but have broken the rules a bit buying a large position in Apple when it fell below $400 briefly several months back. I'm almost... I repeat almost… looking forward to a big market pullback.

"Thanks for all the information and great analysis! ps. Porter's writings and thoughts have helped me more with my career than in the market. Although my investing has greatly improved through guidance by Porter, as well as the other newsletter writers like Doc, Steve, Dan, and Frank." – Paid-up subscriber Andy Snell

 "What exactly is meant by the term 'selling short'? How is it accomplished to 'make a profit'?" – Paid-up subscriber S Lang

Goldsmith comment: Selling a security short is simply betting that it will decline in price. When you sell short a stock… you borrow those shares and sell them into the market. When you want to exit the position, you have to buy back the shares.

If they trade for less than when you sell them… you keep the difference. Of course, if the security rises in price, you'll pay more to buy shares than you earned selling them. This is important... The maximum you can make on a short sale is 100% (should the security reach zero). But your downside risk is technically infinite, as there's no theoretical limit to how high a security can rise in price.

The act of short selling sounds more complicated than it is... To open a short position, you simply have to tell your broker to "sell short" the stock you're interested in trading. He'll handle the logistics of borrowing and selling. For more details about short selling, please read this interview with S&A Short Report editor Jeff Clark. It's posted in our online Education Center... and it's free.

Regards,

Sean Goldsmith
Miami Beach, Florida
December 18, 2013

Porter's thoughts on Bitcoin and gold…

 Bitcoin is a fantastic example of all of the things that I (Porter) have been talking about in the "End of America" hypothesis – that the U.S. dollar will lose its place as the world's reserve currency.

People are desperate for alternatives to the U.S. dollar… That they've adopted something that is a technological phantasm is not surprising, given the state of technology in the world today. I'm not surprised that Bitcoin exists. I'm not surprised it's popular. And I'm not surprised that it has soared.

But I will tell you this... the intrinsic value of Bitcoin is zero. And there is no yield in holding Bitcoin. And if you listen to the Bitcoin proponents talking about it, every argument they make is the same argument I could make about gold…

 Bitcoin can't be manipulated by central governments (neither can gold). Bitcoin is divisible (so is gold). The amount of Bitcoin is limited (like gold).

Also, like gold, the government could ban Bitcoin… As you read in today's Digest, we're already seeing steps in that direction.

Remember Bernard von NotHaus? He created a physical currency called "Liberty Dollars" over a decade ago. Some $60 million worth of Liberty Dollars entered circulation in the U.S. The government raided him and threw him in jail. He was accused of "domestic terrorism" for using Liberty Dollars to undermine the government. Von NotHaus is still awaiting sentencing.

I digress…

 Unlike Bitcoin, the history of gold is as long as humanity's. Gold has been treasured for millennia.

So if you ask me whether I'd like to buy Bitcoin or whether I'd like to have another ounce of gold… the answer for me will always be another ounce of gold.

– Porter Stansberry

Porter's thoughts on Bitcoin and gold…

We've been getting more and more questions on Bitcoin, the virtual currency many view as an alternative to the dollar.

In today's Digest Premium, Porter shares his thoughts on the pros and cons of Bitcoin… and how it compares with gold.

To continue reading, scroll down or click here.

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