June 6, 2017


A Death Knell for Bitcoin?

The Investment View from Prescott, Arizona

bitcoin2Bitcoin has been in the news lately for two reasons.  

Artificial demand created as the bitcoin Exchange Traded Note (ETN) was approved for trading recently has pushed prices to absurd levels.  Think tulip bulb absurd.

Would you willingly pay twice what something is worth?  That is what investors who buy the bitcoin ETN have started doing just because it trades on the stock exchange and is easy for inexperienced bitcoin fanciers to buy that way.  As of this writing on June 4th, buyers have been paying 2.1 times what the underlying bitcoin portfolio is really worth (called the Net Asset Value, or NAV).  

Most ETN and ETF prices stay very close to their NAV, so a 100% premium above NAV is just plain crazy and signals a structural problem with the underlying portfolio.  A lot of unsophisticated investors are buying really, really high, without realizing it and insiders are gouging them to an amazing degree.  Huge losses that will inevitably follow as the ETN price drifts down to the bitcoin value will destroy their misplaced faith in bitcoin.

pullout 6 6 17The second reason was highlighted by the recent epidemic of “ransomware” attacks in which hackers lock up a computer’s data and extort a payment in bitcoin to release it.  Hackers prefer using bitcoin since it is supposed to be untraceable money, and indeed often get away with crime done this way.

Governments just hate untraceable money, and are looking for reasons to prohibit the use of bitcoin.  Criminals are giving them a reason.  Unleashing the IRS on bitcoin users and merchants who accept it will be the mechanism that the US uses to curtail bitcoin, and in the process it will certainly pop the bitcoin bubble.  Income tax evasion charges took down Al Capone 75 years ago and they can do the same to bitcoin.   

If someone thinks they are safe hiding behind the anonymity of bitcoin they forget that cash or merchandise must be pulled out of the system if one wants to actually spend the money bitcoin purportedly represents.  If the IRS gets a sniff of someone using bitcoin through these audit trails and they have not paid taxes on the amounts, they will have big problems.  

Expect the IRS to take the lead in killing bitcoin by making a few examples of bitcoin tax dodgers.

 I Need Your Vote

Mensa Foundation LogoI have just been invited to compete for the title of Mr. Mensa at their national convention next month.  The Mr. Mensa Pageant is a spoof on the Miss America Pageant and a fundraiser for the Mensa Education and Research Foundation, which provides scholarships and other educational opportunities to gifted children and young adults.  For additional information, go to: www.mensafoundation.org

No, there isn’t a swimsuit competition, although we do get to show off our crazy legs.  But there are formal wear, interview and talent portions of the program.  Since I don’t have all that much talent, I plan to win by being crafty instead.  This is where I need your help.

The talent winner is decided by the audience voting with their dollars.  Whichever of us gets the largest amount of donations from the audience wins, and with your help, I intend to stuff the ballot box.  Please consider writing a check (tax deductible) to the Mensa Education and Research Foundation.  My “accomplice” will drop your donations in the box during the voting along with mine.

If I win, I promise to send you a photo of me sporting the iconic Mr. Mensa sash.

Please mail your check to 2069 Willow Creek Rd, Suite A, Prescott, AZ 86301 and help make this hilarious event, for a great cause, even more memorable.

Thanking you in advance for your support.


 The Best and Worst Paying College Degrees

This is probably something anyone going to college should be aware of, but probably isn’t.  Click on the links below to read more.

30 Best Paying College Majors

30 Worst Paying College Majors


 Level Three Paperwork

Many of you received notification of the settlement of a class action suit involving Level 3 Communications, which HCM clients owned for six months in late 2013 and early 2014.  Don’t bother with the tedious chore of filling out all the paperwork.  

Although LLL took a big hit prompting the lawsuit, my systems told me when to get you out of LLL, so HCM investors made a 13% gain on the trade before the decline that triggered the suit.  Since we have no damages, we can’t participate in the settlement.   

Sorry – sort of.


 What the Markets Are Doing

 Wall Street

The US stock market seems to finally be breaking out of its 3-month sideways pattern, and just in the past two weeks has it finally broken above its March 1st high.

European stock markets (IEV) have gained 25% since the Trump rally began in November.

Bonds continue to struggle against the headwind of rising interest rates, with the Vanguard Total Bond Market Fund (VBMFX) having gained a measly 1.17% over the 12 months ending May 31, 2017.  With the economy strengthening, I expect the Fed to continue to slowly raise interest rates.  10-Year Treasuries yield only 2.16% as of June 2nd, so they have a long way to go to get to the historic average over 5%.  A few more ¼% increases by the Fed will hardly be noticed, but bonds will continue to struggle to eke out small gains, if any.

Gold is entering a favorable part of its cycle and is up over 10% for the year.  However, gold is still well below the highs of a year ago and way below its 2011 peak.  Inflation, which often pushes gold higher is up 2.2% since April of last year.  This is the first time since 2012 that we have seen inflation above 2% for an extended period of time, a good omen for the yellow metal.

Despite a lot of news causing daily volatility, crude oil prices are at $47 per barrel as of this writing on June 2nd, right where they were a year ago.  Oil prices seem to be finding stability, which leads to economic stability - a good thing.


 What's Going on in Your Portfolio?

portfolioShock Absorber Growth* portfolios have been rockin’!

I mentioned in my last newsletter that I was not fully invested in February because I saw it as a very high risk time in the markets and I prefer to avoid risk that is that obvious.  This time the risk was rewarded, leaving me with some egg on my face, but history suggested a decline was a good probability, so I went with the probability.  After all, I’d much rather lose opportunity than lose money.

At my last writing on April 28th, I had just identified a low risk entry point and had moved to fully invested a few days before the newsletter deadline but it was a little too early to say how that move would turn out.  Now I can tell you that as of June 2nd, Shock Absorber Growth* portfolios are up 8.63% since moving to fully invested on April 21st.  To put this in perspective, the S&P 500** index is up 3.85% during the same period, which means we are more than doubling the performance of the S&P 500**.

For the year through June 1st, Shock Absorber Growth* accounts are up almost the same as the stock market despite taking very low risk.

Flexible Income* portfolios, which had struggled for the previous six months, jumped 1.62% during May more than the total bond market index (AGG) made in the previous 12 months.

So both of our main portfolios have performed very well recently, and therefore blended portfolios such as Adaptive Balance* (50/50 stocks and bonds) and Adaptive Growth* (80% stocks, 20% bonds) have performed well also.

I want to thank all of you for the kind words about our strong performance recently.  Each comment made my day.  Thank you.

I think the old saying is that if you are not happy, please tell us.  If you are happy, please tell your friends.  The greatest compliment you can give me is a referral.  You can also earn discounted fees by referring friends and family to me.  Yes, that is a hint.

An easy way to let your friends know about our work is to forward this newsletter to them.  Thank you ahead of time for thinking of who might be interested in my strategies that Adapt to Changing Markets®.

College Classes

  • Yavapai College LogoTax Tips for Arizona Newcomers  

Discover valuable tax savings from details about Arizona taxation that may differ from States in which you have lived in the past.  Tax deductions, tax credits and estate planning considerations unique to Arizona will all be discussed.  Will Hepburn and Jay Lode, CPA lead this class.

Wednesday, June 7, 2017, 2:00-4:00 pm.  
Call Yavapai College to register at 717-7755      
Class # SU17-117, Tuition $45


  • Understanding Investments

Please tell your friends about this popular course I have offered at Yavapai College since 1990.  It is a great way to introduce them to my work.

This course is designed to help investors become more confident about their financial decisions.  In an easy-to-grasp format, this class provides a broad knowledge of investments preferred by investors approaching or already in retirement.  Learn the ins and outs of stocks, bonds, mutual funds, annuities and more.  Topics include recognizing risk, controlling the tax impact of IRA withdrawals, avoiding common investment mistakes and simple risk reducing strategies that anyone can use.

Wednesdays June 14-June 28,   2:00-4:00 pm.   
Call Yavapai College to register at 717-7755      
Class # SU17-114.    Tuition is $65.


Pine Tree

Savings Trees

May is proxy season, causing a flood of mail about your investments.  If you would like to save a tree, skip all of the snail mail and just get email notifications of proxies and other reports, you can request that on the Liberty account access site.  Call the office to get instructions.





 Our Spotlight Strategy - Future Technologies


With our Future Technologies Strategy we strive to provide a high rate of capital appreciation using primarily equity investments in emerging technologies.

We invest primarily in stocks, mutual funds or ETFs, and a money market fund.  The proprietary HCM Safety Net suite of indicators is used to warn of potential stock market declines, in which case exposure may be quickly reduced or hedged using inverse funds.

Click here to read more about Future Technologies.