Head Of World’s Largest Sovereign Wealth Fund Forced Out Because His Wife Is Chinese

Head Of World’s Largest Sovereign Wealth Fund Forced Out Because His Wife Is Chinese

Tyler Durden

Sat, 12/05/2020 – 19:30

The deputy governor of the Norwegian central bank, Jon Nicolaisen, announced on Friday he was resigning because his application for renewed security clearance had been rejected because he has a Chinese wife.

“The Norwegian Civil Security Clearance Authority informs me that the reason that I will not receive a renewed security clearance is that my wife is a Chinese citizen and resides in China, where I support her financially,” Nicolaisen said. “At the same time, they have determined that there are no circumstances regarding me personally that give rise to doubt about my suitability for obtaining a security clearance, but that this does not carry sufficient weight.”

“I have now had to take the consequences of this,” he said as he tendered his resignation.

Jon Nicolaisen, head of the Norwegian sovereign wealth fund and deputy governor of Norway’s central bank, stepped down after being denied security clearance because he has a Chinese wife.

The resignation takes effect immediately, according to a statement released by the central bank. It was not immediately clear who would replace him.

In recent years, Norway has introduced stricter rules for the issuing of security clearances, making it difficult in many cases to get approval for anyone married to a person from a country with which Norway does not have security cooperation.

Jon Nicolaisen, whose wife lives in China, has been married since 2010. He had his term at the bank extended in April, having originally been appointed in 2014. In other words for over a decade it wasn’t an issue who the central banker was married, but has suddenly become grounds for effective termination.

In addition to taking part in setting monetary policy, Nicolaisen had been in charge of overseeing Norway’s $1.2 trillion sovereign wealth fund, the world’s largest.

Central Bank Governor Oeystein Olsen said Nicolaisen’s departure would be a big loss: “I will miss Jon Nicolaisen in his post as deputy governor, where he performed his duties superbly as a close colleague and competent professional,” Central Bank Governor Oeystein Olsen said in a statement.

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‘Virtuous Hypochondria’: How One Man Lost A ‘Friend’ Of 20 Years…

‘Virtuous Hypochondria’: How One Man Lost A ‘Friend’ Of 20 Years…

Tyler Durden

Sat, 12/05/2020 – 19:00

Authored by Eric Peters via EricPetersAutos.com,

I parted ways yesterday with a friend of more than 20 years’ standing over his sickness – and my refusal to indulge it or even pretend to ignore it.

This ex-friend says I should don the Holy Rag because “I might be asymptomatic” and because I ought to “show a little respect for your fellow man” and that “It’s not all about you.” He added:

“Grow your own food and you don’t need to interact with people. But if you want the benefits of society you have to participate and conform a bit.

Italics added.

So I said good-bye.

I “have to conform a bit”? I am obliged to literally show that I (supposedly) agree with the outrageous assertion that I might be sick – i.e., “asymptomatic” – and so present an ongoing, never-ending threat to other people that requires me to wear a Face Diaper – the religious vestment of the Sickness Cult – to assuage their fears?

I attempted to reason with this friend.

It was like attempting to discuss Euclid with a rooster.

“I’m not sick,” I texted him.

“I’ve had two friends die from it,” he texted back. “And several still sick.”

Me: “Well, I’m not sick. Therefore, I cannot transmit sickness. Therefore, wearing a rag over my face serves no medical purpose.”

Him: “You might be asymptomatic.”

Me: “Okay, so you are saying that the possibility I might be sick – even though I’m not coughing or sneezing or manifesting any symptoms of sickness and so there is no evidentiary/specific reason to suppose I am in fact sick, much less contagious – obligates me to act as if I am in fact sick and contagious and to literally put on something as a ‘protective’ measure, just in case and to ease your fears?”

“In that case, why shouldn’t you be obliged to turn in your guns (my ex-friend likes guns) since many people are quite terrified of them and fear you might use them to harm them or someone they care about?”

“If my fear that you might be – or do – some thing is enough to impose an obligation on you, then how do you feel about being made to wear an armband or similar highly visible item indicating that you are gay (my ex-friend is homosexual) and thus a potential transmitter of AIDS?”

“The fact is you could possibly transmit AIDs. You might spit on me. You might rape someone. These are just as possible as ‘you might be asymptomatic’ ”…

He didn’t like that much – and that was the end of the texting and the friendship.

I do not mourn the loss.

Because I understand this person is not and may never have been my friend. A friend doesn’t threaten violence nor countenance its threat. Yet that is precisely what my ex-friend advocates – in a mewling, gas-lighting way – when he urges me to “wear a mask” to “show a little respect for (my) fellow man” and then says I am obliged to “conform a little bit.”

He means obey. And not merely obey.

I must agree.

I must show that I agree . . . by wearing a visible accoutrement of agreement.

Like the wearing of an armband, in another time.

To not wear the armband then – or the Holy Rag now – is to give visual evidence of non-agreement and that is what these creeps cannot stand.

Not that we are “asymptomatic” and might be plague carriers but that we disagree with them. That we do not share their virtuous hypochondria and by showing that we do not share it show contempt for it.

My now-ex-friend supports my being made to “conform a little bit” – and you, too. They will cheer when we are hounded by the Gesundheitpolizei for not wearing the Holy Rag and – soon – refusing to allow ourselves to be injected with god-knows-what. They will support our being excommunicated from life – not allowed to transact business, buy food.

“If you want the benefits of society you have to participate and conform a bit.”

Such people are no friends of mine.

The words attributed to Edward I – the “longshanks” – come to mind: “A man does good business when he rids himself of a turd.

*  *  *

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No, Low Rates Do Not Lead To Higher Earnings Multiples: What That Means For Markets

No, Low Rates Do Not Lead To Higher Earnings Multiples: What That Means For Markets

Tyler Durden

Sat, 12/05/2020 – 18:35

With the S&P closing Friday at a new record high just shy of 3,700, which as we showed last week translates into a Shiller CAPE ratio now above levels where it was on the eve of the crash of 1929 for the first time since the dot com bubble…

… even Goldman has been forced to admit that stocks around the globe are at extremely elevated valuations relative to history not just on a forward P/E multiple basis…

… but across all valuation metrics…

… with one exception: the equity risk premium, which is also used in the so-called “Fed model”, both of which boil down to a simple concept: that low interest rates (and rates are now the lowest they have been in 4000 years of history) justify – and “allow” – high earnings multiples, implying that even if stocks are extremely overvalued since rates are at historic lows, investors have no choice but to keep buying stocks as there are no alternatives.

But is that true?

That’s the question which Gerard Minack, of Minack Advisors, raised this week as Bloomberg’s John Authers noted: do low interest rates on their own lead to higher earnings multiples?

Well, contrary to what Goldman, Morgan Stanley and virtually every other bank writes using the “Fed Model” as the only valuation-based justification for projecting even higher S&P500 targets in 2021 and onward (most banks predict the S&P will rise another 10-15% next year), Minack’s answer is a resounding no: it’s not rational to bid up stocks just because rates are low.

The reason is blindingly simple to anyone whose pay doesn’t depend on goalseeking a bullish narrative, namely that “all else is not equal”, or in other words, interest rates are usually low – i.e. disinflationary – because growth is bad, and as Authers redundantly clarifies, when growth is bad that tends to be bad for equities (except, paradoxically, now when collapsing global GDP has pushed world stocks to record highs).

Minack digs deeper to find that there is a curved relationship between rates and equities over time: when rates come down from very high levels, equity multiples tend to improve, but when rates then drop to very low levels, equity multiples fall because this generally means that the economy is mired in a recession.

The chart below from Minack maps the CAPE on one scale against the 10-year yield on the other for every month since 1925. It shows that the relationship between the two isn’t that strong. In fact, the best fit Minack can find, excluding the bubble dot-com years, has an R-squared of only 0.12, meaning only a weak correlation:

As Authers points out the dot-com bubble readings, in pink, are almost off the chart — irrationally high multiples given the interest rates of the time (everyone knows what happened next). The current reading, shown in bright red, is clearly alarming as it’s the only time outside of the dot com bubble when the CAPE ratio was this high. This isn’t a well-explored end of the spectrum, obviously, but stocks do look expensive… and of course, Wall Street is quick to point out that this is justified due to the record low yields. Further bolstering the bullish case, one can extrapolate Shiller’s logic to show that one would expect the excess yield to rise further as rates get to extreme lows. If the relationship with rates held as anticipated in his chart, then the excess yield as calculated by Shiller would be roughly double what it is now (and stocks, on Shiller’s suggested methodology, would look like a screaming buy).

What if instead of nominal one uses real yields? Minack repeats his exercise to account for inflation, looking precisely at real yields which as one can imagine, are low present, but not historically unprecedented. As Bloomberg’s Authers writes, this exercise gives a slightly better correlation, “makes the dot-com bubble look like more of an outlier and, sadly, also makes the current point look like more of an outlier.” In short, while there have been a number of observations with 10-year nominal yields below the rate of inflation in the past, this is the most expensive that stocks have ever been during such a period:

What is particularly notable is that not every market is an outlier like the US: the next chart, which uses nominal yields since 1987, compares CAPEs and 10-year yields for developed markets outside the U.S., emerging markets, and the U.S. While the US is clearly a bubble, stocks outside the U.S. appear to be reasonably valued given the level of interest rates. It is only U.S. stocks look wildly overpriced across most valuation metrics as even Goldman would agree:

And here a nuance emerges: as Authers points out, in an intriguing development, the U.S. relationship between yields and earnings multiples has started to differ from its historic pattern only in the last six years. In other words, until the end of 2013, there was a much more discernible correlation, with an R-squared of 0.38. But since the end of 2013, earnings multiples have been without exception higher than the previous relationship with interest rates would have suggested. In fact, they have never been further away. To be clear, this means that they now look unambiguously expensive, given where interest rates are, even though interest rates are so low:

According to Authers, we can learn two things from this chart:

  • One is that the relationship between rates and earnings multiples changed at some point early in the last decade in the U.S., presumably when investors got used to the notion of enduring “lower for longer” rates coupled with low inflation. One possibility is that this was due to the belief that the traditional relationship between rates and the economy had broken down, in other words the advent of central planning by banks broke one of the most fundamental valuation relationships.
  • The second is that whatever is driving multiples higher, it isn’t rates. As the chart shows clearly enough, rates have been on or about where they are now for nine months. Earnings have dipped and then recovered, and yet this is the most expensive that stocks have been.

In an attempt to find out what is driving multiples, Minack next turns to the FANG stocks, which he defines as the FAAANMs (for Facebook, Amazon.com, Apple, Alphabet, Netflix and Microsoft). The key finding is that their earnings have, until now, defied slow growth that defined the developed world during the post-crisis decade, and have even defied the slump that followed the Covid shock. The rest of the S&P 500, and indeed the rest of the world, did nothing remotely similar. The following stunning chart from Minack shows the internet platform groups’ earnings, rather than their share prices.

Of course, soaring earnings also mean soaring stock prices (especially when one applies record PE multiples), and on Friday the NYSE Fang+ index hit a new all-time high. As Authers shows, over the last five years, its performance has dwarfed that of the S&P 500, and the MSCI all-world index. While smaller stocks are beginning to make a relative comeback, the FANGs’ share prices are as high as they have ever been in absolute terms.

Putting it together, while much of the world has seen corporate earnings behave just as one would expect in a world of very low interest rates (i.e., in a very sluggish economy), a tiny group of U.S. companies have managed to defy that logic completely and seen their earnings explode, dragging the US stock market higher while leaving the 494 remaining S&P companies in the dust. And now, amid growing expectations of a post-vaccine boom, earnings estimates are rising even more. That leads stocks to trade at a higher multiple of past earnings. In other words, as Authers notes, “it is earnings expectations, not rates, that have brought the market up in the last month or so, on this logic, and it would be an earnings disappointment (presumably sparked by some disappointment with distribution of the vaccine) that would bring it down again.”

As Minack summarizes:

In short, the US has been exceptional – relative to both its own history and other markets – by re-rating in the low-rate post-GFC cycle. The reason global equities are re-rating now is because of improving growth expectations, not because rates are low. If the rally were to correct – and I think it’s getting frothy – then the catalyst will be a growth scare, not a rate scare. Having said that, it’s a terrific combination for equities if growth does improve as expected next year and rates stay low. That combination would be more beneficial for de-rated non-US markets than the re-rated US market.

Indeed, anywhere one turns, one can find banks pushing the argument for favoring non-U.S. equities over the U.S. – JPMorgan did that just this week, when it downgraded US stocks and upgraded Europe.

That said, even in a world where record low rates did not justify the record high in stocks, and as we have repeatedly cautioned the last thing markets want is to find out what will happen if rates do surprise by rising, especially if they spike higher in an uncontrolled manner similar to what happened during the 2013 taper tantrum when 10Y yields soared by 150bps in months. As Authers notes, “U.S. markets have been working on the assumption that they will stay low for a while. It has been an unspoken ceteris paribus clause” and for good reason: “The sharp corrections in response to slightly higher rates in 2013 and 2018 both forced central banks into climbdowns.”

This is also the worst case conceived by Morgan Stanley’s Michael Wilson who last week said that “with our economists forecasting 7.5% nominal US GDP growth next year, a 1% 10-year Treasury bond looks awfully mispriced on a 12-month view. This has implications for equity valuations, especially longer-duration ones like the Nasdaq and S&P 500.”

Conversely, shorter-duration cyclical and value stocks get a boost from better growth and higher interest rates – hence the rotation we have been witnessing in the equity markets from the Nasdaq to the small-cap Russell 2000 over the past few months as markets contemplate a full reopening of the economy. “We think this rotation has further to go if we are right about the economy and rates” according to Wilson.

Of course, the question is just how high will rates eventually go in a world where the recent record injection of M2 would suggest it is just a matter of time before we experience a record inflationary spike:

As Authers ominously concludes, “we don’t yet know the results of an experiment in which rates rise and central banks cannot climb down because the economy is growing and inflation is back” but we may very soon have to find out.

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Why Does Bitcoin Have Value?

Why Does Bitcoin Have Value?

Tyler Durden

Sat, 12/05/2020 – 18:10

Authored by Jeffrey Tucker via The American Institute for Economic Research,

Even after eleven years experience, and a per Bitcoin price of nearly $20,000, the incredulous are still with us. I understand why. Bitcoin is not like other traditional financial assets. Even describing it as an asset is misleading. It is not the same as a stock, as a payment system, or a money. It has features of all these but it is not identical to them. What Bitcoin is depends on its use as a means of storing and porting value, which in turn rests of secure titles to ownership of a scarce good. Those without experience in the sector look at all of this and get frustrated that understanding why it is valuable is not so easy to grasp. 

In this article, I’m updating an analysis I wrote six years ago. It still holds up. For those who don’t want to slog through the entire article, my thesis is that Bitcoin’s value obtains from its underlying technology, which is an open-source ledger that keeps track of ownership rights and permits the transfer of these rights. Bitcoin managed to bundle its unit of account with a payment system that lives on the ledger. That’s its innovation and why it obtained a value and that value continues to rise. 

Consider the criticism offered by traditional gold advocates, who have, for decades, pushed the idea that sound money must be backed by something real, hard, and independently valuable. Bitcoin doesn’t qualify, right? Maybe it does. 

Bitcoin first emerged as a possible competitor to national, government-managed money in 2009. Satoshi Nakamoto’s white paper was released October 31, 2008. The structure and language of this paper sent the message: This currency is for computer technicians, not economists nor political pundits. The paper’s circulation was limited; novices who read it were mystified. 

But the lack of interest didn’t stop history from moving forward. Two months later, those who were paying attention saw the emergence of the “Genesis Block,” the first group of bitcoins generated through Nakamoto’s concept of a distributed ledger that lived on any computer node in the world that wanted to host it.

Here we are all these years later and a single bitcoin trades at $18,500. The currency is held and accepted by many thousands of institutions, both online and offline. Its payment system is very popular in poor countries without vast banking infrastructures but also in developed countries. And major institutions—including the Federal Reserve, the OECD, the World Bank, and major investment houses—are paying respectful attention and weaving blockchain technology into their operations.. 

Enthusiasts, who are found in every country, say that its exchange value will soar even more in the future because its supply is strictly limited and it provides a system vastly superior to government money. Bitcoin is transferred between individuals without a third party. It is relatively low-cost to exchange. It has a predictable supply. It is durable, fungible, and divisible: all crucial features of money. It creates a monetary system that doesn’t depend on trust and identity, much less on central banks and government. It is a new system for the digital age.

Hard lessons for hard money

To those educated in the “hard money” tradition, the whole idea has been a serious challenge. Speaking for myself, I had been reading about bitcoin for two years before I came anywhere close to understanding it. There was just something about the whole idea that bugged me. You can’t make money out of nothing, much less out of computer code. Why does it have value then? There must be something amiss. This is not how we expected money to be reformed.

There’s the problem: our expectations. We should have been paying closer attention to Ludwig von Mises’ theory of money’s origins—not to what we think he wrote, but to what he actually did write. 

In 1912, Mises released The Theory of Money and Credit. It was a huge hit in Europe when it came out in German, and it was translated into English. While covering every aspect of money, his core contribution was in tracing the value and price of money—and not just money itself—to its origins. That is, he explained how money gets its price in terms of the goods and services it obtains. He later called this process the “regression theorem,” and as it turns out, bitcoin satisfies the conditions of the theorem.

Mises’ teacher, Carl Menger, demonstrated that money itself originates from the market—not from the State and not from social contract. It emerges gradually as monetary entrepreneurs seek out an ideal form of commodity for indirect exchange. Instead of merely bartering with each other, people acquire a good not to consume, but to trade. That good becomes money, the most marketable commodity.

But Mises added that the value of money traces backward in time to its value as a bartered commodity. Mises said that this is the only way money can have value.

The theory of the value of money as such can trace back the objective exchange value of money only to that point where it ceases to be the value of money and becomes merely the value of a commodity…. If in this way we continually go farther and farther back we must eventually arrive at a point where we no longer find any component in the objective exchange value of money that arises from valuations based on the function of money as a common medium of exchange; where the value of money is nothing other than the value of an object that is useful in some other way than as money…. Before it was usual to acquire goods in the market, not for personal consumption, but simply in order to exchange them again for the goods that were really wanted, each individual commodity was only accredited with that value given by the subjective valuations based on its direct utility.

Mises’ explanation solved a major problem that had long mystified economists. It is a narrative of conjectural history, and yet it makes perfect sense. Would salt have become money had it otherwise been completely useless? Would beaver pelts have obtained monetary value had they not been useful for clothing? Would silver or gold have had money value if they had no value as commodities first? The answer in all cases of monetary history is clearly no. The initial value of money, before it becomes widely traded as money, originates in its direct utility. It’s an explanation that is demonstrated through historical reconstruction.

That’s Mises’ regression theorem.

Bitcoin’s use value

At first glance, bitcoin would seem to be an exception. You can’t use a bitcoin for anything other than money. It can’t be worn as jewelry. You can’t make a machine out of it. You can’t eat it or even decorate with it. Its value is only realized as a unit that facilitates indirect exchange. And yet, bitcoin already is money. It’s used every day. You can see the exchanges in real time. It’s not a myth. It’s the real deal.

It might seem like we have to choose. Is Mises wrong? Maybe we have to toss out his whole theory. Or maybe his point was purely historical and doesn’t apply in the future of a digital age. Or maybe his regression theorem is proof that bitcoin is just an empty mania with no staying power, because it can’t be reduced to its value as a useful commodity.

And yet, you don’t have to resort to complicated monetary theory in order to understand the sense of alarm surrounding bitcoin. Many people, as I did, just have a feeling of uneasiness about a money that has no basis in anything physical. Sure, you can print out a bitcoin on a piece of paper, but having a paper with a QR code or a public key is not enough to relieve that sense of unease.

How can we resolve this problem? In my own mind, I toyed with the issue for more than a year. It puzzled me. I wondered if Mises’ insight applied only in a pre-digital age. I followed the speculations online that the value of bitcoin would be zero but for the national currencies into which it is converted. Perhaps the demand for bitcoin overcame the demands of Mises’ scenario because of a desperate need for something other than the dollar.

As time passed—and I read the work of Konrad Graf, Peter Surda, and Daniel Krawisz—finally the resolution came. Bitcoin is both a payment system and a money. The payment system is the source of value, while the accounting unit merely expresses that value in terms of price. The unity of money and payment is its most unusual feature, and the one that most commentators have had trouble wrapping their heads around.

We are all used to thinking of currency as separate from payment systems. This thinking is a reflection of the technological limitations of history. There is the dollar and there are credit cards. There is the euro and there is PayPal. There is the yen and there are wire services. In each case, money transfer relies on third-party service providers. In order to use them, you need to establish what is called a “trust relationship” with them, which is to say that the institution arranging the deal has to believe that you are going to pay.

This wedge between money and payment has always been with us, except for the case of physical proximity.

If I give you a dollar for your pizza slice, there is no third party. But payment systems, third parties, and trust relationships become necessary once you leave geographic proximity. That’s when companies like Visa and institutions like banks become indispensable. They are the application that makes the monetary software do what you want it to do.

The hitch is that the payment systems we have today are not available to just anyone. In fact, a vast majority of humanity does not have access to such tools, which is a major reason for poverty in the world. The financially disenfranchised are confined to only local trade and cannot extend their trading relationships with the world.

A major, if not a primary, purpose of developing Bitcoin was to solve this problem. The protocol set out to weave together the currency feature with a payment system. The two are interlinked in the structure of the code itself. This connection is what makes bitcoin different from any existing national currency, and, really, any currency in history.

Let Nakamoto speak from the introductory abstract to his white paper. Observe how central the payment system is to the monetary system he created:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

What’s very striking about this paragraph is that there is not even one mention of the currency unit itself. There is only the mention of the problem of double-spending (which is to say, the problem of inflationary money creation beyond which the protocol would otherwise permit). The innovation here, even according to the words of its inventor, is the payment network, not the coin. The coin or digital unit only expresses the value of the network. It is an accounting tool that absorbs and carries the value of the network through time and space.

This network is the blockchain. It’s a ledger that lives in the digital cloud, a distributed network, and it can be observed in operation by anyone at any time. It is carefully monitored by all users. It allows the transference of secure and non-repeatable bits of information from one person to any other person anywhere in the world, and these information bits are secured by a digital form of property title. This is what Nakamoto called “digital signatures.” His invention of the cloud-based ledger allows property rights to be verified without having to depend on some third-party trust agency.

The blockchain solved what has come to be known as the Byzantine generals’ problem. This is the problem of coordinating action over a large geographic range in the presence of potentially malicious actors. Because generals separated by space have to rely on messengers and this reliance takes time and trust, no general can be absolutely sure that the other general has received and confirmed the message, much less its accuracy.

Putting a ledger, to which everyone has access, on the Internet overcomes this problem. The ledger records the amounts, the times, and the public addresses of every transaction. The information is shared across the globe and always gets updated. The ledger guarantees the integrity of the system and allows the currency unit to become a digital form of property with a title.

Once you understand this, you can see that the value proposition of bitcoin is bound up with its attached payment network. Here is where you find the use value to which Mises refers. It is not embedded in the currency unit but rather in the brilliant and innovative payment system on which bitcoin lives. If it were possible for the blockchain to be somehow separated from bitcoin (and, really, this is not possible), the value of the currency would instantly fall to zero.

Proof of concept

Now, to further understand how Mises’ theory fits with bitcoin, you have to understand one other point concerning the history of the cryptocurrency. On the day of its release (January 9, 2009), the value of bitcoin was exactly zero. And so it remained for 10 months after its release. All the while, transactions were taking place, but it had no posted value above zero for this entire time.

The first posted price of bitcoin appeared on October 5, 2009. On this exchange, $1 equaled 1,309.03 Bitcoin (which many considered overpriced at the time). In other words, the first valuation of bitcoin was little more than one-tenth of a penny. Yes, if you had bought $100 worth of bitcoin in those days, and not sold them in some panic, you would be a half-billionaire today.

So here is the question: What happened between January 9 and October 5, 2009, to cause bitcoin to obtain a market value? The answer is that traders, enthusiasts, entrepreneurs, and others were trying out the blockchain. They wanted to know if it worked. Did it transfer the units without double-spending? Did a system that depended on voluntary CPU power actually suffice to verify and confirm transactions? Do the rewarded bitcoins land in the right spot as payment for verification services? Most of all, did this new system actually work to do the seemingly impossible—that is, to move secure bits of title-based information through geographic space, not by using some third party but rather peer-to-peer?

It took 10 months to build confidence. It took another 18 months before bitcoin reached parity with the U.S. dollar. This history is essential to understand, especially if you are relying on a theory of money’s origins that speculates about the pre-history of money, as Mises’ regression theorem does. Bitcoin was not always a money with value. It was once a pure accounting unit attached to a ledger. This ledger obtained what Mises called “use value.” All conditions of the theorem are thereby satisfied.

Final accounting

To review, if anyone says that bitcoin is based on nothing but thin air, that it cannot be a money because it has no real history as a genuine commodity, and whether the person saying this is a novice or a highly trained economist, you need to bring up two central points.

One, bitcoin is not a stand-alone currency but a unit of accounting attached to an innovative payment network.

Two, this network and therefore bitcoin only obtained its market value through real-time testing in a market environment.

In other words, once you account for the razzle-dazzle technical features, bitcoin emerged exactly like every other currency, from salt to gold, did. People found the payment system useful, and the attached accounting was portable, divisible, fungible, durable, and scarce.

A new form of money was born. This money has all the best features of money from history but adds a weightless and spaceless payment network, one that is reliable and verified in real time, that enables the entire world to trade without having to rely on third parties. 

But notice something extremely important here. The blockchain is not only about money. It is about any information transfers that require security, confirmations, and total assurance of authenticity. This pertains to contracts and transactions of all sorts, all performed peer-to-peer. 

To be sure, the sector has come to be dominated by third parties that operate mainly as custodians. The crucial point is that this is a market development driven by consumer desire but it is not necessary for the functioning of the system. In addition, thousands of additional tokens have appeared that operate and compete in the crypto sector which is now worth, at the time of this writing, $560 billion in market capitalization. 

Think of a world without essential third parties, including the most dangerous third party ever conceived of by man: the state and the central bank. Imagine that future and you begin to grasp the fullness of the implications of our future.

Ludwig von Mises would be amazed and surprised at bitcoin. But he might also feel a sense of pride that his monetary theory of more than a century ago has been confirmed and given new life in the 21st century.

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The NBA Is No Longer Testing For Marijuana Use

The NBA Is No Longer Testing For Marijuana Use

Tyler Durden

Sat, 12/05/2020 – 17:45

With marijuana getting close to being decriminalized and with predictions of over 80% of all NBA players smoking weed, the NBA looks like it has finally given up on random marijuana testing. 

The deal appears to have been cut with the help of the NBA Players Association, who seems intent on pinning its motivation (for some reason) on Covid – which is, of course, a virus that affects the lungs.

League spokesperson Mike Bass told NBC Sports: “Due to the unusual circumstances in conjunction with the pandemic, we have agreed with the NBPA to suspend random testing for marijuana for the 2020-21 season. And focus our random testing program on performance-enhancing products and drugs of abuse.”

One beneficiary of the new rules will likely be J.R. Smith, who said in a post game interview in 2018 that his shooting was “very green” but “not as green as that green I’m gonna hit tomorrow.”

Marijuana will still stay on the NBA’s banned substances list, but the league is clearly shifting away from enforcing its rules against the substance. When the league altered its rules to play at the Orlando Bubble during the pandemic, it suspended random testing for the drug for the first time. 

NBA players had previously been required to submit to four random tests per season. “If a player tested positive for marijuana once, he was required to enter the NBA’s drug program. Twice, he would be fined $25,000 and a third time would result in a five-game suspension,” NBC Sports writes.

And while a majority of NBA players may use marijuana, the league isn’t the only one moving away from enforcing rules about it. The MLB has also removed marijuana from its “drugs of abuse” list in December 2019 and turned its focus to opioids. 

The NBA still may revert back to its old rules for the 2021-2022 season, but we think it’s more likely that pot rules go “up in smoke” for good. Congrats, J.R.

via ZeroHedge News https://ift.tt/2JDNx61 Tyler Durden

Breakeven Inflation Is Breaking Out

Breakeven Inflation Is Breaking Out

Tyler Durden

Sat, 12/05/2020 – 17:20

Authored by Bryce Coward via Knowledge Leaders Capital blog,

Inflation expectations as priced by the Treasury market are hitting 18 month highs just now. As the reader can see, inflation expectations across all treasury maturities are at cycle highs.

This is happening coincident with growing expectations for the $908bn bipartisan stimulus deal and widespread expectations that the Fed will ease in some additional way at their next meeting 12 days from now.

That these two events are anticipated by the market does pose some near-term downside risk for inflation expectations, since there is now room for disappointment. Even still, keeping the long game in mind is useful.

Indeed, there exist multiple structural catalysts for inflationary pressure that haven’t existed in quite some time:

  • de-globalization

  • USD which may be under continued pressure from massive twin current account and budget deficits

  • the possibility that US oil production has peaked, or at least will not grow as it did last cycle

  • raw material (especially base metal) inflation from the acceleration of green transport and power generation trends

  • demand-pull inflation from fiscal stimulus

Within the equity market, there are clear implications to a structural change in inflation expectations. The clearest one may be the outperformance of cyclical vs defensive stocks. In the next chart below I compare the materials sector vs the consumer staples sector (red line) and overlay 10Y inflation expectations (blue line). The bottom panel displays the correlation between the two series in green. If breakevens continue to march higher, it’s clear one wants a more cyclical tilt towards their portfolio.

On the other hand, cyclicality does not equal value. This is apparent in the chart below in which I plot the relative performance of Pure Value vs Pure Growth stocks overlaid on inflation expectations.

The correlation here is much, much less than the preceding chart. As I have argued multiple times in this blog, value as a style is highly dependent on the yield curve steepening. Because the Fed has telegraphed an inclination to push against back against higher long rates (yield curve control, forward guidance, etc.), a material and sustained steepening of the yield curve (i.e. one that lasts through the first half of 2021) doesn’t seem like a particularly high probability bet.

At least, the bet on cyclical vs defensive is a higher probability and one that will grow if the inflationary catalysts above play out.

via ZeroHedge News https://ift.tt/3gekG45 Tyler Durden

Snowflake CEO Earns $95 Million Per Month

Snowflake CEO Earns $95 Million Per Month

Tyler Durden

Sat, 12/05/2020 – 16:55

We don’t know whether or not to blame this excess on inflation and endless money printing, or just pure public market insanity. So, we’ll let the reader decide.

Either way, it was revealed yesterday that the CEO of cloud computing company Snowflake, Frank Slootman, has a compensation package that is earning him about $95 million per month. 

Admittedly, Slootman was in the news because Snowflake had posted a great third quarter revenue number and its stock is up more than 200% since going public just months ago in September. 

But his pay soon became the topic of discussion. A compensation package he accepted in April 2019 – before the IPO and before he knew how the public market would receive his company – awards him more than 13.7 million options with a strike price of $8.88, according to The Detroit News

Snowflake currently trades at about $373 per share and Slootman’s entire options package could be worth about $4.5 billion once it is paid out in full in 2023. So far, Slootman has yet to exercise any of his options, which come on top of a $375,000 per year base salary.

The company’s CFO has a similar package and is raking in options worth about $25 million per month.

Meanwhile, Snowflake’s valuation has rocketed from $3.5 billion in October 2018 to $96 billion. 

So the moral of the story is: if you see Frank Slootman at a bar and he offers to pick up the check – let him.

via ZeroHedge News https://ift.tt/3mM1fSP Tyler Durden

Is The Gold Sell-Off Over?

Is The Gold Sell-Off Over?

Tyler Durden

Sat, 12/05/2020 – 16:30

Authored by Alasdair Macleod via GoldMoney.com,

The dramatic sell-off of the last few weeks ended on Monday morning when gold spiked down to an intraday low of $1765 (silver $21.90). But in morning trading today in the European time zone gold was at $1843, up $56 from last Friday’s close, and silver at $24.28, up $1.65 on the same timescale.

The sell-off in paper gold was a repetition of events every November and December bar one since 2015, and the cause appeared to be the same. In the run-up to the year end, the bullion banks manage prices in a book squaring exercise, using the expiry of the December contract to squeeze out the bulls. The only exception was 2018, when they failed to push prices lower, but they still rose strongly into 2019.

This time, an estimated 150,000 gold call options expired worthless, representing 467 tonnes of gold. The premium income must have been substantial, a welcome offset for the bullion banks’ to their book losses on Comex positions. The question now is, will the pattern of a rally through December into the New Year be repeated?

The short position for the swaps has improved marginally as the table below indicates.

This snapshot, the most recent Commitment of Traders report at the time of writing, shows that the Swaps (bullion bank trading desks) recovered a net 7,895 of their shorts, still leaving them net short of 189,178 contracts. Historically, their position still remains high, despite the fall in the gold price and the reduction of their position. The next chart puts this in a monetary context.

It appears that the Swaps are not out of the woods yet by any means, and there is a growing threat from a tumbling dollar, which is our next chart.

This is important, because the Managed Money category, mainly hedge funds, look at gold as part of a pairs trade — sell dollar buy gold or buy gold sell dollar. With a net long position of 85,348 contracts, they have room to add a further 25,000 contracts to be only average net long. We will almost certainly have seen some of this buying in the Commitment of Traders’ report for last Tuesday, when the gold price rose strongly, due to be released later tonight.

That would have increased the Swap’s net shorts, worsening their position.

The other side of the coin is the larger forward market in London, where vaulted gold, including that of the Bank of England, has increased to record levels. Between August and October (the most recent figures), vaulted gold increased by 394.6 tonnes, split 192.3 tonnes at the BoE and 202.3 tonnes in LBMA vaults. Given the appetite for gold is increasing for the Bank’s earmarked customers and the growth in physical demand from ETFs, and not to mention the desire from unrecorded non-LMBA members for physical bars, it does not appear that the Comex short position is adequately offset in London.

Compared with other financial assets seen to be inflation hedges, gold has been badly left behind. This is an anomaly likely to be addressed in the coming months.

via ZeroHedge News https://ift.tt/33OxyZD Tyler Durden

“I’m Just Not Buying It” – Jeff Gundlach Raises Questions About COVID Vaccine’s ‘95%’ Efficacy Rate

“I’m Just Not Buying It” – Jeff Gundlach Raises Questions About COVID Vaccine’s ‘95%’ Efficacy Rate

Tyler Durden

Sat, 12/05/2020 – 16:05

As Dr. Fauci walks back criticisms of Britain’s decision to grant emergency approval to the Pfzier-BioNTech – something Dr. Fauci characterized as “rushed” earlier this week before receiving the proverbial kick under the table – and Pfizer cuts its 2020 vaccine delivery target due to issues with ‘raw materials’, a video of DoubleLine Capital founder Jeff Gundlach expressing doubts about the prospects for a vaccine is making the rounds on twitter.

Speaking in an off-the-cuff manner, Gundlach raised questions about the timeline for vaccine-induced COVID herd immunity, something Sweden’s Anders Tegnell recently affirmed remains a poorly understood concept, that some might characterize as “conspiratorial”.

First, Gundlach pointed to the ~95% effective number: “I’m just not buying it,” Gundlach said, arguing that the sample size of infected patients (that is, trial participants who actually contracted the virus) is too small to be reliable.

“I would take this news more credibly if they came up with a vaccine and they said it worked, like, 53% of the time. There’s something about that 94.5% that just looks fishy to me. You go from zero to 94.5…um…I got a feeling that it’s a very small sample, I got a feeling that it’s relative to one strain.”

“And these things mutate like crazy. That’s the problem with vaccines on coronaviruses, is they mutate like crazy. We can’t get a durable vaccine on the regular influenza, we have failure rates of over 50% in some years.”

And then there’s the side effects, which Gundlach cited as another reason to question the timeline and whether vaccines will be widely accepted by Americans.

A group of doctor’s recently issued a warning about the side-effects, and the need to plan out vaccinations carefully so we don’t have 12 nurses from the same floor too sick to work all on the same day. The CDC has said it is committed to working out these types of logistics. But at the end of the day, fears of the side-effects could become a serious deterrent.

“Apparently, the ones they’ve tested with these high rates, apparently it’s super unpleasant to take the vaccine. You have to take it twice, it’s painful…you have to deal with really painful side effects…this is what I’m hearing from people who know more about this than I do.”

Finally, Gundlach brought up public opinion polling showing roughly half of Americans aren’t rushing to take the vaccine.

“I saw a survey from Gallup – not that I believe polls anymore – but this was a poll that said if you were given a free vaccine from the FDA…would you take it? Even then, the number was 50% – and that was before they told you it hurts like hell…and you might be sick for 3 days.”

As one might expect, Gundlach’s comments provoked a few armchair commentators to declare Gundlach’s comments as not only false and misleading, but dangerous.

Saying the vaccine “mutates like crazy” may be slightly hyperbolic, but there is evidence showing some strains of the virus are deadlier than others. Public Health officials in South Australia argued that their extremely restrictive lockdown conditions were a response to the deadly strain documented by scientists.

As far as comparing COVID-19 to the flu, it’s entirely possible that rates of efficacy for COVID-19 vaccines might be lower – perhaps even significantly lower – than these headline numbers suggest.

Most of what Gundlach is saying here is appropriately labeled as speculation. This is the view of a skeptic who is trying to anticipate the unanticipated – ie, that the process of rolling out COVID-19 vaccines in the west goes far less smoothly than OWS head Moncef Slaoui and others have led the public to believe.

Whether Gundlach is actually trading on this view is a mystery. Is it possible that the bond titan might be trying to sow some FUD simply to try and stir the pot?

The timing is also notable, coming after Friday’s disappointing jobs numbers, which caused the yield curve to widen even further, as the yield on the 10-year approaches the 1% mark for the first time since March.

Might we see Gundlach make one of his infrequent, but closely followed, appearances on CNBC this week to take the side of Rick Santelli?

via ZeroHedge News https://ift.tt/33NQvvt Tyler Durden

Israel Warns Its Own Nuclear Scientists That Iran Could Target Them

Israel Warns Its Own Nuclear Scientists That Iran Could Target Them

Tyler Durden

Sat, 12/05/2020 – 15:40

Authored by Dave DeCamp via AntiWar.com,

Israel warned its nuclear scientists that they could be targets of an Iranian attack, Israeli media reported on Friday. The warning came after prominent Iranian scientist Mohsen Fakhrizadeh was killed, an attack widely believed to have been carried out by Israel.

One former scientist who worked at Israel’s Dimona reactor said he was cautioned to change his daily routine. The Dimona reactor is where Israel is believed to have first secretly developed its undeclared nuclear weapons.

Tel Aviv file image, via The Forward

According to The Times of Israel:

Nevertheless, Israel is taking precautions. Israeli scientists have been told to step up their vigilance, Kan [Israeli Public Broadcasting] reported. At least one former Dimona scientist was told to change his daily routine, not take walks along set paths, and to be vigilant about suspicious packages.

According to Kan , security officials also told him that the Iranians were likely monitoring his social media and internet activities.

Israel is estimated to have anywhere between 90 and 300 nuclear warheads, although they maintain a policy of ambiguity and officially deny possessing nuclear weapons.

The warning to Israeli scientists came after Israel warned its citizens against traveling to countries that neighbor Iran. On Thursday, Israeli media reported that the US and Israel are stepping up coordination between their militaries over fears of an Iranian attack.

Any violence committed against US or Israeli targets between now and January 20th will likely be blamed on Iran. The assassination of Fakhrizadeh came after a report said President Trump considered attacking an Iranian nuclear site.

Israel seemed to take the news as a signal to increase provocations against Iran, while Iran warned its allies in the region to avoid provoking tension.

via ZeroHedge News https://ift.tt/33MY6dS Tyler Durden