Risk Is Out There

It happens often enough that it can’t be called an “isolated event.” The theft of cryptocurrency is a pretty big deal. Most recently, $600 million in crypto was stolen by modern-day bank robbers. 

It’s not crypto’s fault. It’s the exchanges that hold the digital money that are the problem. And the irony is that the lack of a paper trail to establish provenance is considered a major benefit of cryptocurrency.

In contrast, when you buy a stock, your ownership is established by the transaction. The shares were bought through a broker that has your name and address on file. And your name goes on file with the company. The purchase is completed under your name, not some 26-character string of digits that cannot be unscrambled, as is the case with cryptocurrency. 

This anonymity is a pretty fundamental flaw for the crypto exchanges because it is impossible to protect your crypto holdings. It plays right into the crooks’ hands. And yet a recent crypto exchange IPO did very well…

If you are intent on owning cryptocurrency, you simply can’t leave it on one of the exchanges. You must put the cryptocurrency in your own account. And that means you have to take ownership of your blockchain ID.

This is confusing stuff. Your blockchain ID is a name or phrase that gets 26-bit encryption. It is functionally impossible to decrypt it. So once the coins are “owned” by a particular ID, that’s the only way in. And when you go to access it, you get three chances to get the ID right or your cryptocurrency is locked forever.

Experts say you should etch your blockchain ID on a piece of stainless steel and then hide it. Seriously, like jars of money out in the yard. Kinda nuts.

Personally, I prefer the relative safety of stocks. But it brings up a timeless point about risk.

It never ceases to amaze me how much risk investors will ignore when the dollar signs roll up in their eyes…

The China Risk

Lemme ask you: Do you consider China an existential threat to the U.S.? High-ranking government officials have said that China is indeed an existential threat. But do we really think the conflict runs that deep? 

It really is hard to imagine that another country could take a Khrushchev-like “we will break you” stance. But I worry about China and its surveillance-state brand of communism. 

The People’s Bank of China (PBOC) has hit upon a population control model that could be boxed and sold — Surveillance State 2.0 — complete with cameras and real-time facial recognition software.  

What wingnut wannabe-emperor-for-life wouldn’t want the ability to track anybody, anytime? Hungary, Turkey, North Korea — there’s a sizable list.

Which brings me to Investor’s Business Daily. IBD is a great investment resource with really good technical advice for investors. But I’m not sure about IBD’s macro outlook, because recently I keep seeing an article titled “5 Best Chinese Stocks to Buy and Watch.” 

Has IBD completely missed the Putin-esque power play the Chinese government just pulled on many of its major corporations? Does it not get the implications of Chinese aspirations in Hong Kong? 

Hong Kong has an international stock market. And I think it’s only a matter of time before all U.S.-listed Chinese stocks are pulled from the NYSE and Nasdaq and put on the Hong Kong market. 

Frankly, IBD is wrong to suggest there’s any value in Chinese stocks. Of course Chinese companies are viable, make money, etc. — despite the number of them that have lied about revenue and profits. 

But that’s my point. Chinese companies seem to think of U.S. investors as a trust fund they can access anytime and under any pretense they want. Eventually, they will take our money, leave, and laugh about the stupid Americans.

A month ago, I told you to sell any Chinese stocks you might own. I stand by that advice. Why risk it? For a decade, I’ve been telling my Wealth Advisory subscribers that, from a risk/reward standpoint, U.S. stocks are the place to be. That’s not going to change anytime soon. 

It’s Your Money

The Fed’s gotta tighten at some point. Global debt is spiraling out of control. The COVID resurgence is real. Indoor mask mandates have just been reinstated here in Baltimore. 

I was planning a trip to New Orleans to enjoy Jazz Fest with my daughter before she graduates. Nope. Canceled. 

My son heads to College Park for his sophomore year at the University of Maryland in a couple weeks. It is looking increasingly like it will be another semester wasted with online-only classes. 

These lost years, we don’t get them back. Money lost on Chinese stocks or cryptocurrency… that doesn’t come back either. 

To paraphrase the old X-Files TV show, risk is out there. You need to know what it is.

My good friend Christian DeHaemer (aka The Hammer) has some pretty unsettling thoughts about cryptocurrencies. You owe it to yourself to know the risks — and the opportunity.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.