Wow the bitcoin bubble in in full party mood...not only did it reach my April  $1,000 prediction LINK1 but it is now trading well above that at $1200 plus as we speak - see the Mtgox.com graph below. I would still be very suspicious of buying any bitcoins at these prices (although they have proved to a great investment to date for those that got in early !). The liquidity in this market will dry up very quickly when the crash eventually occurs. The other thing that worries me is that there are many other look alike crypto currencies out there - see the Guardian story LINK2. Still Bitcoin does have an encouraging eco-system built up around it.

Nonetheless the ability for anyone to create a crypto currency means it is vulnerable to a superior copycat, also its price is too volatile, security is a huge issue and in my view it is just too complex for it to become a generally accepted means of payment. Finally, if any major government turns against it then it will likely be in trouble. Also, I would also be wary as the rise in price seems not to be accompanied by any underlying increase in the volume of transactions see below. Still if you have them cash out while the going is good ! Price of other bitcoin wannabees such as litecoin can be followed at coinmarketcap.com

Wow the bitcoin bubble is really powering up now LINK1. As I pointed out in my April 3 post LINK2 the bitcoin bubble might peak at as much as $1,000 at the time it was $120 it then went up higher to around $260 fell back to around $70 and in now rapidly accelerating such that $1,000 is more than feasible. Price at time of posting is around $728 (bid - offer prices are approx $732-$724 from plus500.co.uk see below)

What worries me about this recent rapid rise in prices is that people are now entering the market purely on the belief they will make a fortune each day. The Chinese seems to be keen on buying bitcoins and senate has today given a favourable review of bitcoin in that it has said per se there is nothing wrong with it. However, this is very reminiscent of the Tulip Mania - diseased tulip bulbs were sold at every higher prices in the Netherlands peaking in march 1637 at 10 times a person's annual salary, and people would even sell their houses to buy them LINK3. Of course, diseased Tulip bulbs were intrinsically worthless and so too are bitcoins - they are just bit of computer code and nothing more than that. Oliver Blanchard wrote a famous paper in 1979 looking at "rational bubbles"  LINK4 an important characteristic of a rational bubble is that its price needs to accelerate upwards to compensate for the risk of a price collapse when it eventually and inevitably occurs. Bitcoins seem the be following this rational bubble path as the graph below shows.

 So CAVEAT EMPTOR (buyer beware). Lets see how this plays out. Of course, this mania may get even worse than I predict because bitcoins have the potential to become a truly global bubble (the Tulip Mania bubble was mainly confined to the Netherlands). In addition, what worries me is that there have been significant thefts of bitcoins and who started them and how they come into being is a bit of a mystery to the layperson (including me)....so I suspect people are ignoring all these issues just to play for the capital appreciation potential. The bitcoin price price chart for the last year is below from http://www.bitcointcharts.com they were $12 a year ago ! and $2.28 two years ago and a mere 5 cents in July 2010.

This a follow up from my earlier posting the winners and losers from Quantitative easing LINK1. A recent study by the McKinsey Global Institute LINK2 has guesstimated that the $4.7 trillion of Quantitative Easing by central banks to date by lowering interest rates has saved Treasuries an enormous amount on interest in the region of $1.7 trillion, other beneficiaries have been companies who have lower debt servicing costs (some $710 billion) and  American banks who have increased the spread between their borrowing and lending costs (some $310 billion). Big losers have been insurance and pension funds losing some $460 billion of interest and households losing a combined $630 billion of interest. Other big losers have been countries getting lower returns on their holdings of US and European securities losing a combined $710 billion. You don't have to entirely agree with the figures, but it gives a good idea that QE is not a winner for everyone that central banks Chiefs have been pretending it is. Also, of course, my key point is that we have not yet seen the huge potential costs and possible future crises that may occur as the central banks try to unwind these reckless policies. National debts have grown as central bank low interest rate policies and bond purchases have meant that government have been merrily running large unsustainable fiscal deficits, thinking that they don't have to worry about interest rate rises. If the bond vigalantes turn up then all bets are off. Lets hope I am wrong ! The Table below shows the main winners and losers from QE.

It is quite clear to me that we are in a social media bubble. Looks like Twitter likely to open around $45 to $46 for a market cap of $30 billion plus, that is, more than 55 times annual sales ! Forget profits they don't yet exist. Of course, it is not alone in this bubble we have Linkedin trading at 700 times earnings, Facebook at 100 times earnings. To me these are nutty valuations. I expect them all to crash once the social media bubble blows up. Probably 1/3 and even lower than their current prices  Twitter $45-$46, LinkedIn $220, Facebook $48. There you go !

I managed to get my tax return in by 31 october (otherwise I have to do it online! by 31 January). It always strikes me as important to be honest when filling in your tax form as we all actually benefit from the taxes we pay and I like to sleep well knowing that I have paid what I must pay. It is filling in the form that most annoys me, as it takes me a lot of time to fill in the right boxes and back track on what I earnt and what  is tax deductible - and that is partly my own fault because I am so disorganised.

What really annoys me though is when others a lot wealthier than me are evading paying what they owe. There is a nice story today on Bloomberg on the IRS crackdown on these tax dodgers in the United States - some 38,000 have coughed up $5.5 billion in taxes and fines. Swiss bank accounts are no longer the secret tax dodge they used to be - see Bloomberg story here LINK1. Some and in my opinion not enough go to prison. Why is it that when you have so much wealth you don't you just pay up what you owe ?? Instead these tax cheats   risk having to pay so much more when they catch you and also risk spending valuable time in jail.  People are sometimes just too greedy and not thinking through the possible consequences of their actions.