#bitcoin

The flip side of Crypto coins, literally!

When crypto currency pundits laud security as a key tenet, surely this is not what they had in mind.

Crypto collapso

This is a true conversation a “veteran” Bitcoin miner sent to CM’s LinkedIn messenger. Despite constant assurances all would be ok, had an investment been made on Oct 2, 2018, CM would be down 44% in just 3.5 months. Just wish the argument wasn’t so compelling, especially the last sentence.

It is also quite interesting as to what determines veteran status in crypto currency trading. It certainly seems self appointed.

Crypto schmypto

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CM is not a fan of crypto currencies. Apart from the fact they are solely backed by greed (when you buy a share or bar of gold you get ownership of  a physical asset in return) there are too many of the damn things. We have approximately 190 fiat currencies in circulation. Of that only a handful trade. US$, GBP, euro, yen, A$, C$ and RMB. After that liquidity goes out the window. Try getting a good rate from the Travelex currency window on Malaysian ringit. If you invest in illiquid coins the same nasty spreads will ruin any thirst for making a fortune

With crypto currencies, there are over 2,000 variants. Bitcoin is the bellwether. It has a net worth of $94 billion. Only a handful of others trade. Many should have realised that when the Japanese started to get all excited over the craze the gig was up. Japanese variety show comedians were responsible for the promotion almost 12 months ago when Bitcoin was at all time highs. Some companies like Rakuten were offering to pay staff  in crypto in lieu of cash salaries.  Now Bitcoin is languishing at 20% of that value.

Take a look at some of the products being invented to become crypto. LivingOffset is a classic case in point. It used Wikipedia as a source for justifying the validity of its findings in its prospectus.  That settles it then. Who wouldn’t buy an asset backed by Wikipedia research?!?

From LivingOffset – “Global concern about climate change is growing rapidly. Five out of every 10 people now consider climate change to be a serious problem. In Chile and Peru the number is over 75%. Interestingly, 69% of Americans are concerned about global warming [if you believe Huff Post], despite their government’s position. There is no doubt demand for our offering is there, and like Airbnb, we can provide the means and the mechanism for easy participation. In just a few minutes ordinary people can start to make a real and meaningful difference.

In January 2017, IPSOS held a global poll asking what each country’s major problem was and climate change didn’t feature a mention.

Apart from the completely bogus stats on ‘69% of Americans being concerned by global warming, SUV sales remain a solid staple in the US. In fact the most popular car in America is the Ford F-150 pick-up truck where customers rank ‘fuel economy’ #28 in terms of reasons they buy it.

Here was the promise at prospectus time around March 2018. The launch was delayed on the basis there was a need to make it more global in appeal. It supposedly launches this month.

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Below lists how some of the other crypto currencies performed overnight. This is before heavy handed legislation has come down to regulate the industry. If you look at a crypto kiosk in Shinbashi, Tokyo you’ll likely see a Rolls-Royce parked out front, presumably owned by someone in the Yakuza. As far as money laundering goes, crypto’s are brilliant.

BTC

In an event, crypto currencies are most at the mercy of cyber fraud. Don’t buy the bomb proof guarantees of blockchain. If state agencies want to destroy these markets, they can do it on a whim. Then again there is little need to do so given the numerous events of hackers breaking into crypto exchanges and costing them huge liabilities l. Coincheck in Japan lost $500mn in one day due to a breach.

In short, crypto is little better than betting on a roulette table. If the benchmark crypto is hemorrhaging like this, why put faith in the illiquid stuff being any better? Fiat currencies may not be good stores of value but there are far more sensible places to protect wealth than parking it in products which are underwritten by nothing more than greed.  If you like a flutter by all means throw some loose change into crypto.

If you ever wanted proof of Australia’s stupid energy policy look no further

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Here is a cracker from Jo Nova on proof of how retarded the thinking is with our federal and state governments when it comes to energy policy. The free market makes a compelling case for taking the opposite view of the regulators. The real danger is if more businesses move off the grid (like the Chinese Bitcoin miners) to their own affordable power the cost of electricity to the “rest of us” will soar. It doesn’t take a rocket scientist to work that out. Joe and Joanne Public will be forced to rely on an already unstable energy source with fewer people to cover ever rising network costs. As long as we look as we are doing something about climate change, that will be enough. Nuts!

Waking up to a horror of our own creation

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Some will say I am a pessimist. I’d prefer to be called an optimist with experience. At only age 16 (in 1987) I realized the destructive power financial markets had on the family home. Those memories were etched permanently. We weren’t homeless or singing for our supper but things sure weren’t like they use to be. It taught me much about risk and thinking all points of view rather than blindly following the crowd. That just because you were told something by authority it didn’t mean it was necessarily true. It was to critically assess everthing without question.

In 1999, as an industrials analyst in Europe during the raging tech bubble, we were as popular as a kick in the teeth. We were ignored for being old economy. That our stocks deserved to trade at deep discounts to the ‘new economy’ tech companies, no thanks to our relatively poor asset turnover and tepid growth rates. The truest sign of the impending collapse of the tech bubble actually came from sell-side tech analysts quitting their grossly overpaid investment bank salaries for optically eye-watering stock options at the very tech corporations they rated. So engrossed in the untold riches that awaited them they abandoned their judgement and ended up holding worthless scrip. Just like the people who bought a house at the peak of the bubble telling others at a dinner party how they got in ‘early’ and the boom was ahead of them, not behind.

It was so blindingly obvious that the tech bubble would collapse. Every five seconds a 21 year old with a computer had somehow found some internet miracle for a service we never knew we needed. The IPO gravy train was insane. One of my biggest clients said that he was seeing 5 new IPO opportunities every single day for months on end. Mobile phone retailers like Hikari Tsushin in Japan were trading at such ridiculous valuations that the CEO at the time lost himself in the euphoria and printed gold coin chocolates with ‘Target market cap: Y100 trillion.’ The train wreck was inevitable. Greed was a forgone conclusion.

So the tech bubble collapsed under the weight of reality which started the most reckless central bank policy prescriptions ever. Supposedly learning from the mistakes of the post bubble collapse in Japan, then Fed Chairman Alan Greenspan turned on the free money spigots. Instead of allowing the free market to adjust and cauterize the systemic imbalances, he threw caution to the wind and poured gasoline on a raging fire. Programs like ‘Keep America Rolling’ which tried to reboot the auto industry meant cheaper and longer lease loans kept sucking consumption forward. That has been the problem. We’ve been living at the expense of the future for nigh on two decades.

Back in 2001, many laughed me out of court for arguing Greenspan would go down in history as one of the most hated central bankers. At the time prevailing sentiment indeed made me look completely stupid. How could I, a stockbroker, know more than Alan Greenspan? It was not a matter of relative educations between me and the Fed Chairman, rather seeing clearly he was playing god with financial markets.  The Congressional Banking Committee hung off his every word like giddy teenagers with a crush on a pop idol. Ron Paul once set on Greenspan during one of the testimonies only to have the rest of the committee turn on him for embarrassing the newly knighted ‘Maestro.’ It was nauseating to watch. Times seemed too good so how dare Paul question a central bank chief who openly said, “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant.”

We all remember the horrors of the collapse of Lehman Brothers and the ensuing Global Financial Crisis (GFC) in September 2008. The nuclear implosions in credit markets had already begun well before this as mortgage defaults screamed. The 7 years of binge investment since the tech bubble collapse meant we never cleansed the wounds. We would undoubtedly be in far better shape had we taken the pain. Yet confusing products like CDOs and CDSs wound their way into the investment portfolios of local country towns in Australia. The punch bowl had duped even local hicks to think they were with the times as any other savvy investor. To turn that on its head, such was the snow job that people who had no business being involved in such investment products were dealing in it.

So Wall St was bailed out by Main St. Yet instead of learning the lessons of the tech bubble collapse and GFC our authorities doubled down on the madness that led to these problems in the first place. Central banks launched QE programs to buy toxic garbage and lower interest rates to get us dragging forward even more consumption. The printing presses were on full speed. Yet what have we bought?

Now we have exchange traded funds (ETFs). Super simple to understand products. While one needed a Field’s Medal in Mathematics to understand the calculations of a CDO or CDS, the ETF is child’s play. Sadly that will only create complacency. We have not really had a chance to see how robots trade in a proper downturn. ETFs follow markets, not lead them. So if the market sells off, the ETF is rapidly trying to keep up. Studies done on ETFs (especially leveraged products) in bear markets shows how they amplify market reactions not mitigate them. So expect to see robots add to the calamity.

Since GFC we’ve had the worst post recession recovery in history. We have asset bubbles in bonds, stocks and property. The Obama Administration doubled the debt pile of the previous 43 presidents in 8 years. Much of it was raised on a short term basis. This year alone, $1.5 trillion must be refinanced.  A total of $8.4 trillion must be refinanced inside the next 4 years. That excludes the funding required for current budget deficits which are growing despite a ‘growing economy’. That excludes the corporate refinancing schedule. Many companies went out of their way to laden the balance sheet in cheap debt. In the process the average corporate credit rating is at its worst levels in a decade. Which means in a market where credit markets are starting to price risk accordingly we also face a Fed openly saying it is tapering its balance sheet and the Chinese and Japanese looking to cut back on US Treasury purchases. Bond spreads like Libor-OIS are already reflecting that pain.

Then there is the tapped out consumer. Unemployment maybe at record lows, yet real wage growth does not appear to be keeping up. The number of people holding down more than one job continues to rebound. The quality of employment is terrible. Poverty continues to remain stubbornly high. There are still three times as many people on food stamps in the US than a decade ago – 41 million people. Public pension unfunded liabilities total $9 trillion. Credit card delinquencies at the sub prime end of town are  back at pre-crisis levels. We could go on and on. Things are terrible out there. Should we be in the least bit surprised that Trump won? Such is the plight of the silent majority, still delinquent after a decade. No wonder Roseanne appeals to so many.

A funny comment was sent by a dyed-in-the-wool Democrat, lambasting Trump on his trade policies. He criticized the fact that America had sold its soul for offshoring for decades. Indeed it had but queried that maybe he should be praising Trump for trying to reverse that tide, despite being so late to the party. Where were the other administrations trying to defend America all this time? Stunned silence.

Yet the trends are ominous. If we go back to the tech bubble IPO-a-thon example. We now have crowd funding and crypto currencies. To date we had 190 odd currencies to trade. Of that maybe a handful were liquid – $US, GBP, JPY, $A, Euro etc – yet we are presented with 1,000s of crypto currency choices. Apart from the numerous breaches, blow ups and cyber thefts to date, more and more of these ‘coins’ are awaiting the next fool to gamble away more in the hope of making a quick buck. Cryptos are backed by nothing other than greed. Yet it sort of proves that more believe that they are falling behind enough such they’re prepared to gamble on the biggest lottery in town. One crypto used Wikipedia as a source for its prospectus.

Yet the media remains engrossed on trying to prove whether the president had sex with a porn star a decade ago, genderless bathrooms, bashing the NRA, pushing for laws to curtail free speech, promoting climate change and covering up crime rather than look at reporting on what truly matters – the biggest financial collapse facing us in 90 years.

There is no ‘told you so’ in any of this. The same feelings in the bones of some 30 years ago are back as they were at the time of Greenspan and Lehman. This time can’t be avoided. We have borrowed too much, saved too little and all the while blissfully ignored the warning signs. The faith and confidence in authorities is evaporating. The failed experiment started by Greenspan is coming home to roost. This will be far worse than 1929. Take that to the bank, if it is still in operation because you won’t be concerned about the return on your money but the return of it!

Worst Q2 start for S&P 500 since 1929

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ZeroHedge reported today that the S&P had its worst percentage 2nd quarter start since 1929 overnight. Both the Dow Jones Industrial Average broke below the 200 day moving average before an at the death rally to close above. Plunge Protection Team (PPT)? The broader S&P 500 failed to hold the 200 dma. All feels ominous. Awaiting the dead cat bounce. Short dated out of the money index put options continue to look ridiculously cheap relative to other asset classes. Gold also having a good day. Bitcoin showing its true value sliding below $7.000. Best to remember in a bear market the winner is the one who loses the least.