Tag: finance

The days of the American homeowner competing against the Mexican guy living in a cardboard shack made from garbage is coming to an end — God willing. While no one deserves to live in cardboard shacks made from garbage, it is not the burden of the American people to uplift the lifestyles of the Mexican people. If Mexico is unable to do that, they should permit our armies to take control of their cities and properly build their economies the way Alexander Hamilton intended.
 
source: Reuters/Bloomberg

U.S. President Donald Trump said on Sunday he plans talks soon with the leaders of Canada and Mexico to begin renegotiating the North American Free Trade Agreement.
 
“We will be starting negotiations having to do with NAFTA,” Trump said at a swearing-in ceremony for his top White House advisers. “We are going to start renegotiating on NAFTA, on immigration and on security at the border.”
 
Trump pledged during his presidential campaign that if elected he would renegotiate the NAFTA trade pact to provide more favorable terms to the United States.
 
NAFTA, which took effect in 1994, and other trade deals became lightning rods for voter anger in the U.S. industrial heartland states that swept Trump to power this month.
 
Trump has said little about what improvements he wants, apart from halting the migration of U.S. factories and jobs to Mexico.
Since winning the Nov. 8 election, Trump has singled out and threatened to impose tariffs on U.S. companies that move any production to Mexico.
 
He has also intends to build a wall along the U.S. southern border to deter illegal immigration and insisted that Mexico will pay for it.
 
“We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength,” Trump said in Friday’s inaugural address.

 
This, of course, is bound to have massive ramifications on U.S. equity markets — which have done nothing but ignore Trump and the seriousness of his massive policy changes. For those of you who are too young to remember, there was once a man named Ross Perot (Presidential run 1992) who warned us about NAFTA and how it wreak havoc across the American industrial landscape.
 

 
Here is an article published by the NY Times in 2003, after 10 years of NAFTA.
 

The pain, he said, is concentrated in places like the Midwest, where manufacturing jobs have been lost to Mexico and Canada, and now to China. ”Nafta-related job loss and lower income may be small, but the echo is very large because of all the other jobs lost to globalization,” he said. ”Nafta is the symbol for all of that pain.”
 
”It has definitely created export-related job growth,” said Bill Richardson, the governor of New Mexico. As the Democratic whip, he helped pushed through passage of Nafta in the House.
 
”On the whole Nafta’s been a plus, but still, with a lot of alarmingly bad follow-up on commitments made on the border,” he said. Promises to protect workers’ rights and the environment have ”failed alarmingly.” So have pledges to close the economic gap between the United States and Mexico.
 
”The whole idea that Nafta would create jobs on the Mexican side and thus deter immigration has just been dead wrong,” he said. ”That was oversold.”
 
”We’re the losers,” said Bonnie Long, one of at least half a million American manufacturing workers who lost their jobs due to Nafta, despite the surge in trade. ”We lost our health care, our living wages. The winners are the corporate executives who don’t even live here and can locate their factories wherever they find the cheapest labor.”
 
Chester F. Dobis, speaker pro tem of the Indiana House of Representatives, held four meetings this year around the state to gauge feelings toward free trade. Mr. Dobis, a Democrat from Merrillville, said he had thought the only problems would be in his own district, a steel-producing region.
 
”Boy, was I wrong,” he said. ”These trade pacts have had a devastating effect on every part of the state. The companies deserted Indiana for Mexico a couple of years ago and now they’re heading for China.”
 
The warning signs were there and evident. Our politicians knew, but did not care enough to do anything about it.

 

 

Content originally generated at iBankCoin.com

via http://ift.tt/2khKt1f The_Real_Fly

Submitted by Eric Peters via EricPetersAutos.com,

America is in trouble because Americans got lazy. Not so much physically but morally. They began to care more about some passing thing than about the things that truly matter; the things that made America unlike other places.

Better than other places.

Things like principles; the plain meaning of words. The Fourth and Fifth Amendments, especially. Which were (past tense deliberate) laws written to articulate and protect principles that matter.

It gradually became more important to – as Thomas More’s character in the play, A Man For All Seasons put it – cut down all the “trees” (laws) that sheltered the individual for the sake of making things easier for the government.

For example, the Fourth Amendment’s prohibition of unreasonable searches – defined in sane terms and plain English as any non-specific search of people at random, who’ve not done anything to suggest they may have committed a crime. Fishing expeditions, in other words.

The idea was that the government should have to – in the first place – substantiate suspicion. It wasn’t enough for a cop to say – I don’t like your looks. He had to be able to articulate some definite thing (evidence) that gave him reason to believe you had committed or were about to commit a crime.

Today, cops stop people at random, without any specific cause at all. Without even having to say they don’t like their looks. It is enough that they are cops. And that you are not.

It was once the case that prior to a physical search of your property, it was legally necessary to obtain a search warrant – a piece of paper issued by a judge, who was supposed to issue the thing only if the investigator asking for it could present some definite thing (evidence) that supported his asserted suspicion of criminal activity. And the warrant had to be specific, stating clearly who was to be searched and what and where. This was to prevent something that used to be routine in the colonies under the British – the general writ, which empowered King George’s minions to search anyone, anywhere for anything.

Today’s redcoats wear blue (and lately, black). They search whomever, whatever, whenever.

We are even coerced into witnessing against ourselves via threats that failure to do will bring down separate charges and punishments.

Is this America?

I do not recognize it as such.

How did we get to this point?

The change occurred gradually but has become a juggernaut for the simple reason that precedent becomes routine. Once accepted, an affront is forgotten. It not only becomes accepted – it becomes acceptable to do it again. (Which, as an aside, is why this Obamacare business is so important. If it stands, if Trump does not repeal – not replace  – it, it is certain we will shortly be forced to also buy other forms of government-mandated insurance; for example gun insurance, if you want to own a gun.)

But when did it begin to become acceptable?

Probably when the Supreme Court gutted the Fourth and Fifth Amendments to placate “moms” who were “mad” about drunk driving. This was back in the ’80s, when it was still legally necessary for a cop to have specific probable cause – weaving across the double yellow, for instance – before he could turn on his lights and pull you over.

This of course made it inconvenient to arrest and cage people who may have had some drinks but were not “drunk.” Back then, you could drink and drive and – provided your driving gave no cause to suggest impairment – you were free to continue driving.

Apparently, competent driving aggravates people who are in fact much more opposed to drinking.

And so, checkpoints – dragnet style. At which every single driver would be (and is) forced to stop and – in blatant Fourth and Fifth Amendment rape – submit to a random (and thus, unreasonable) search and prove they are not drunk, according to an arbitrary standard (BAC level) without the cops having to even assert that their actual driving was somehow “impaired.”

It also became the legal obligation of the people forced to stop at these checkpoints to provide evidence to be used against themselves in a criminal prosecution. The court ruled that you must submit to various tests supposedly designed to establish drunkenness and that failure to provide evidence was (and is) a crime in itself. The burden of obtaining evidence was lifted off the shoulders of the accuser – who could now claim that failure to provide it amounted to proof of guilt.

Even if it is later determined – as a result of the various tests, which you may be forced to submit to (including forced blood draws) that you were not, in fact, “drunk” (and perhaps had not been drinking at all) you will still be prosecuted for your failure to assist in your own prosecution.

The court came up with a truly Orwellian concept they called implied consent – which is like sort-of rape.

You either consented – or you didn’t.

The courts saying you have given implied consent to be stopped and searched at random by dint of driving, or because you got a driver’s license (which you had to get) is an outrage upon words as much as it is upon rights. How is it any different than asserting a woman who has gone out on a date with a man has consented to have sex with him? If anything, it’s even more outrageous in the case of driving and implied consent, because in the case of the couple, they both agreed to the date part of the thing.

No court would enforce a contract upon you whose terms you had not freely consented to. A contract agreed to under duress – that is, under coercion – or which contains codicils you, the signer, are not made aware of prior to signing, is by definition not binding.

Except when the court decrees otherwise – because “moms” were “mad.” And also because it opened the door to more and worse, which I am certain was the true purpose. Have you been to an airport recently? I assume you know that literally every keystroke you make, every site you surf, every search, your emails and Skypes and phone calls and texts are all of them recorded, the “data” used to profile and keep track of quite literally everything you do, even though you’ve done nothing illegal to warrant it.

It had to begin somewhere.

Arguably, it began some thirty years ago, when it became ok to stop motorists at random in the name of apprehending drunk drivers. Henceforth, all drivers would be presumed drunk until they proved otherwise.

Is it really surprising that we are now also presumed to be terrorists until proved otherwise? At the airport, online.

Everywhere.

Voila, we find ourselves living in an authoritarian state in which making it easier for the government to arrest and successfully prosecute people for something, for anything is considered desirable. As opposed to the old American idea that people ought to be free to be left alone unless they have given damn good reason to suspect they’ve committed a crime of some kind. That the burden of proof ought to be on the government rather than proving one’s innocence the obligation of the citizenry.

But these are ideas that seems as quaint today as free association or using cash to pay for things and being allowed to actually own things without having to pay taxes in perpetuity to maintain the fiction that we own those things.

Maybe one day our children will recover the sense we appear to have lost.

via http://ift.tt/2khKRMY Tyler Durden

While President Trump chose not to attend the elite extravaganza in Davos last week, choosing instead to lambast the great-est and good-est of the world's executives in their crony capitalist safe space, the cognitively dissonant CEOs reassured each other by saying 'ignore the tweets', confident that "if [Trump] knows the facts, he’ll respond according to the facts." It depends whose 'facts' those are, of course.

As Bloomberg so eloquently noted, executives gathered in the Swiss resort for the World Economic Forum this week keep repeating, like a soothing mantra, that Donald Trump is at heart a pragmatist who will avoid trade wars and regulations that make it harder to do business.

Everywhere you looked, and everything you were told confirmed that nothing has changed in the minds of the world's elite community organizers… (as Bloomberg summarizes)

“What somebody’s saying is not necessarily what they’re going to do,” said David Cote, chief executive officer of Honeywell International Inc. He should hope so: Honeywell is a global manufacturing giant with far more employees outside the U.S. than in, and it has made major bets on projects like supplying parts for China’s first commercial jet.

 

“In the end if he knows the facts, he’ll respond according to the facts,” said Hideaki Omiya, chairman of Mitsubishi Heavy Industries.

 

Companies shouldn’t sweat the president’s “one-liners” and instead should focus on Trump’s cabinet nominees, said Jamie Dimon, CEO of JPMorgan Chase & Co. “I think that these very rational people will be very thoughtful when they go about the actual policy.”

 

Foreign companies say they’re similarly relaxed; Nissan Motor Co.’s co-CEO, Hiroto Saikawa, said he doesn’t believe Trump has any intention of severing trade ties that benefit the U.S.

With stock markets nearing record highs and business-friendly figures like billionaire investor Wilbur Ross named to the cabinet, a conviction has set in that a man who came to power as an anti-establishment populist might in fact usher in a golden age for business. Former Treasury Secretary Larry Summers, is however puzzled by the shifting views on Trump and cautions against “enabling” the new administration.

“I’ve been very troubled by the attitude of business people from the U.S… People who were terribly afraid of what this would mean for America’s place in the world are now hailing those who surround Donald Trump as great geniuses.”

Executives shouldn’t entirely discount what Trump says, warns Phil Levy, a senior fellow at the Chicago Council on Global Affairs and adviser to former President George W. Bush, noting that "usually when somebody who’s been elected president makes threats, people take it seriously."

Some Davos attendees were prepared to concede that optimism about Trump is built, at least in part, on wishful thinking.

“I don’t think anyone likes the unpredictability he brings to the table,” said Martin Eurnekian, a director at Buenos Aires-based conglomerate Corporacion America.

 

“Everybody wants to believe,” he said, “that it’s mostly for show.”

Still, the herd remains convinced that everything will be 'business as usual' under Trump… judging by the first two days, however, we suspect a rude awakening looms.

via http://ift.tt/2k5N62X Tyler Durden

Via Vox Popoli,

"The Trump Wars of the past 18 months do not now go away. Now it becomes the Trump Civil War, every day, with Democrats trying to get rid of him and half the country pushing back. To reduce it to the essentials: As long as Mr. Trump’s party holds the House, it will be a standoff. If the Democrats take the House, they will move to oust him.

 

Because we are divided. We are two nations, maybe more."

 

–Peggy Noonan, WSJ

Definitely more, Peggy. Definitely more.

And that is why war is on the horizon that no longer feels quite as distant as it once did. But at least one nation, the American nation, has a leader worth his salt.

Normally a new president has someone backing him up, someone publicly behind him.

 

Mr. Obama had the mainstream media – the big broadcast networks, big newspapers, activists and intellectuals, pundits and columnists of the left—the whole shebang. He had a unified, passionate party.

 

Mr. Trump in comparison has almost nothing. The mainstream legacy media oppose him, even hate him, and will not let up. The columnists, thinkers and magazines of the right were mostly NeverTrump; some came reluctantly to support him. His party is split or splitting. The new president has gradations of sympathy, respect or support from exactly one cable news channel, and some websites.

 

He really has no one but those who voted for him.

 

Do they understand what a lift daily governance is going to be, and how long the odds are, with so much arrayed against him, and them?

 

–Peggy Noonan, WSJ

The USA now contains considerably more than two nations. That's why it is no longer any more viable than the European Union. It's been held together by force, easy credit money, and sleight of hand for a long time, but not for much longer.

The inaugural address was utterly and uncompromisingly Trumpian. The man who ran is the man who’ll reign.

 

It was plain, unfancy and blunt to the point of blistering. A little humility would have gone a long way, but that’s not the path he took. Nor did he attempt to reassure. It was pow, right in the face. Most important, he did not in any way align himself with the proud Democrats and Republicans arrayed around him. He looked out at the crowd and said he was allied with them.

 

–Peggy Noonan, WSJ

For all his strength of will and civic nationalism, Trump cannot save the political entity, but he can put the American nation in a much better, much stronger position before the growing rifts become borders. He should take those who say he is not their president at their word, because they are neither the Posterity of the Founders nor We the People…

via http://ift.tt/2iS8XxJ Tyler Durden

See a common thread here?

 

Source: Townhall.com

via http://ift.tt/2k5sMPa Tyler Durden

Submitted by Chris Hamilton via Econimica blog,

The Maginot Line formed France's main line of defense on its German facing border from Belgium in the North to Switzerland in the South.  It was constructed during the 1930s, with the trench-based warfare of World War One still firmly in the minds of the French generals.  The Maginot Line was an absolute success…as the Germans never seriously attempted to attack it's interconnected series of underground fortresses.  But the days of static warfare were over – in 1940, the Germans simply drove around the line through Holland and then Belgium.  Had the Germans replayed WWI and made a direct attack, the Maginot Line likely would have done its job.  But Hitler wasn't interested in a WWI re-do, so the fortifications were quickly rendered moot.  France, Europe, and the world would pay the price for generals fighting the last war rather than adjusting to the contemporary risks they faced.

In 2008, the economic generals at the various central banks likewise pulled out the playbook to refight the great depression… not realizing, this time was an entirely different opponent.  Federal governments and central bankers presumed doing what they had always done would again win the day.  Cut interest rates (this time to zero) to incent both public and private entities to refinance existing debt loads and undertake new, greater leverage.  This nearly free money would reduce debt service levels and the new loans would ignite a new wave of economic activity in the form of capital expenditures and small business creation.  Economic multipliers and velocity would ensure general prosperity with job and wage growth.  Instead, it's the "Maginot Line" all over again for our economic generals as economic activity grinds to a stall absent the illusory asset bubbles.

BTW – if you are not a fan of charts or visual representations…this is not the article for you and likely best to stop here.

What changed?

1- The Global Population of Young (Future Consumer Base) Ceased Growing…30 Years Ago.

For hundreds if not thousands of years, global population growth rose at an annual rate of about 0.2% to 0.4%.  Somewhere in the 19th century, the pace of population growth began rising significantly faster and headed to a global rate never seen before and likely never to be seen again.  The rate of population growth peaked around 1970 and has precipitously fallen off since.  However, despite the collapse in the rate of population growth, the total population has continued to rise due to the existing population living decades longer than the previous generation (chart below).

The worlds population ceased growing in about 1988…since that time the world is only growing older.  Below, global births per five year periods plus UN medium and low estimates.  The double peak from '85–>'90 and again '10–>'15 is clear and as for the future, the reality will be somewhere between the medium and low estimates, but flat to declining births will be the order of the day.

So it only figures, if you tracked the population of young (0-4yr/old total annual population…chart below) that they would essentially cease growing.  The population growth party was over…and it ended almost 30 years ago.

2- The Worlds Population is Still Growing Due to a Surge in the Elderly Living Longer and High African Birthrates Offsetting Global Depopulation of Young

If there was no increase in the global number of births or the population of young…how did the world grow so much?  The old living so much longer.  The chart below shows the two ends of the life spectrum…the global populations of 0-4yr/olds vs. the 75+yr/olds.  Both populations grew rapidly until '90…but since '90, the 75+ population has nearly doubled while the population of young isn't budging.  And by 2050, the population of elderly will surpass the population of young…undoing what was a 10:1 ratio in 1950.

Why is this a bad thing (economically)?  65+yr/olds consume at about 70% of the rate they did during their peak working years.  By the time they are 75+yrs/old their consumption drops to about 50% to 60% of what it was during peak working years.  They are credit averse, preparing for (or on) fixed incomes, and napping is one of their favorite activities and it doesn't cost a thing.

3- Global Depopulation of young (excluding Africa)

The chart below highlights global births per five year periods ex-Africa plus UN estimates for medium and low future births.  Again, the reality will likely split the UN estimates but a clear peak in the late '80's and huge deceleration of births since is undeniable.

The surging births in Africa plus medium and low UN future estimates.  But sadly, absent income, without savings, without access to credit, and the world awash in overcapacity as it is…this population growth in Africa has no avenue to export themselves to prosperity or greater consumption.  They are simply economically going to remain poor beyond belief and will not be capable of driving any significant economic activity.

Excluding Africa, births from the remainder of the world are collapsing since the late 1980's peak.  And according to the UN's best guestimates, births will only continue trending down world over (excluding Africa).  Fewer births means fewer consumers, declining need for housing, commodities, and nearly everything else as this smaller population works it way through from the bottom up (also known as deflation or depopulation).

What people struggle to understand is that our present system is all about growth and it is the population growth of .05% or 1% which drives economic activity magnitudes larger. This relatively small population growth % drives huge spending on infrastructure, home building, factories, supply chains, etc.  The differing impact of 1% or 0.1% population growth is felt far beyond a 1% or .1% economic growth…more like 10x's that impact.

But population growth isn't slowing across the board.  It is the huge population declines of the young among the combined wealthy 35 OECD nations (list of members HERE), China, Russia, & Brazil vs. the still growing but decelerating RoW (rest of the world…but really Africa).  So, the 0-4yr/old combined OECD, China, Russia, and Brazil population peaked in 1991 and has steadily declined since, now down over <-22%>.  The combined 0-4yr/old population growth among the relatively poor RoW was barely able to offset the declines of the relatively wealthy developed since '91 (chart below).

High fertility rates and population growth in Africa are solely offsetting the contracting populations of young across the remainder of the world.  The chart below highlights global fertility rates for 2016….where the global population growth is coming from.  In two words, Central Africa.

Those highlighted in yellow, orange, red, and magenta (indicating nations that, on average, have 3 to 6+ children per female) are almost entirely located in Africa.   Uganda, Somalia, Burundi all have birthrates near 6 children per female and the most populous African nation, Nigeria (approaching 200 million citizens), has a birthrate of 5.1.  Officially, 2.1 children per female is zero growth and the global fertility rate has fallen over 50% from it's 1964 peak of 5.1 to 2.4 as of 2016…and all indications point to further declines.

Declining populations of young across the world has been made up for by growing populations of young in Africa.  Something tells me, economically, this is not a good trade.

Below, GDP per capita or purchasing power parity (PPP).  Countries with low PPP in red (Central Africa), moderate in green, high in blue, and very high in magenta.  Most global commodities and exports cost the same worldwide…so those with high PPP's (and particularly those with relatively easy access to credit) can consume far more than those with low PPP's.  The bulk of nations highlighted in red (particularly in Africa) have PPP's below $2000 a year…(and as low as $400/yr).  Nations with annual PPP's of $2000 are generally in-line with the GDP per capita of Haiti…their consumptive capability is equivalent to about 5% of US GDP per capita.

How the worlds population is distributed, by global regions (chart below).  Africa represents about 15% of the worlds population but at least 100%+ of population growth.

Below, net 2016 fertility rates as per those regions.  Shortly, all regions will likely be negative…except Africa.

Below, world population excluding Africa…further broken down by the under 45 and over 45yr/old populations.

Global 0-44yr/old population, excluding Africa (chart below).  This is the child bearing population…as their total number shrinks compounded by collapsing birth rates, a far larger population decline could be in store than anticipated.

Global 45+yr/old population, excluding Africa.  This is how the world is growing…by growing older (chart below).

Global 0-44 vs 45+yr/old population change, per 5yr periods (chart below).  No, the world is coming to the rescue…if the world is seen through a lens excluding Africa, the 0-45yr/old population growth is essentially over.  The population capable of bearing children has chosen not to…and is now itself declining in size.  The global economy will never be the same.

2017 is the last sliver of light for the nations that collectively consume 70% of global oil and represent about 80% of all global import markets.  The combined 0-64yr/old population of the 35 OECD nations plus China, Russia, and Brazil grows just one million persons in 2017 or 0.1% (chart below).  After that, the declines begin, slowly at first but picking up speed to the downside every year.  What was an influx of up to 30 million new consumers annually with the income, savings, and access to credit will now be a declining consumer base for the rest of our lives.

The reason Japan and Germany were able to maintain their economies once their own internal 0-64yr/old consumer bases were declining was an emphasis on exports to a still growing export market.  Looking at the annual population growth of the 0-64yr/old importer nations (OECD, China, Russia, Brazil), the chart below highlights when, in turn, major nations / trading blocks 0-64yr/old populations turned negative.  We see that the final support for global consumption, China, turns negative this year.  As you see below, that pool of seemingly endless demand for import growth goes dry this year.

So, what about the US?  The data that represents the US economy, charted out with a minimum of opinion.  You decide what it means.

US Population growth & Makeup of that Growth –

The change, per five year periods, of the 0-44yr/old population vs. the 45+yr/old population (chart below).  The UN medium population growth estimate is included through 2050 (the 45+ estimate is a lock but the 0-44 is highly optimistic and slowing birthrates almost surely means there will be significantly less 0-44yr/old growth than indicated).

Total US Debt & US Full Time Jobs – The change, per period, of net full time job growth vs. total debt growth (private and public…chart below).

US Energy Consumption – Total consumption and fossil fuel consumption since 1950 in the chart below.

Consumption change, per period in the below chart.  Fairly self explanatory that growth of energy consumption ended and we are now contracting.  Whether a shift from industrial to service economy, whether through higher efficiency, or a hundred other possible explanations for why…the declines are not debatable.

Energy consumption, by type of energy (chart below).

Change in energy consumption, by type per period.

Mortgage rates vs. Mortgage debt – Interestingly, lower FFR's and mortgage rates did not incent more debt since 2007 (chart below).

Mortgage rates and mortgage debt, change per period (chart below).

From 1970 to 1981, as mortgage rates increased by 300%, mortgage debt increased by $1.2 trillion dollars (even unadjusted for inflation, this was a hug sum of money).  This was a 350% increase in outstanding mortgage debt while the cost of funding these loans rocketed higher.  However, since 2008, mortgage debt has fallen by a half trillion dollars despite a 50% decrease in rates.

Breakdown of America's Core

Finally, the cleanest and clearest point of breakdown was the end of population and employment growth among the 25-54yr/old population.  This is the bedrock and foundation upon which the nations economy resides.  As this group goes, eventually so goes America.

The change in each, by period.

 

via http://ift.tt/2kfYus2 Tyler Durden

Bitcoin and Gold – Outlook, Volatility and Safe Haven Diversification

– Recent performance of Bitcoin and Gold
– Price outlook
– Bitcoin, China and capital flight
– Exchanges of value?
– Can bitcoin rival gold as a safe haven?
– ‘Bitcoin vs Gold’ or ‘bitcoin and gold’?
– Importance of diversification
– Conclusion: A monetary and financial revolution?

Recent performance of bitcoin and gold

What does the recent volatility and surging price of bitcoin mean for the future of the crypto-currency and does its recent outperformance mean that it may supplant gold as a safe haven currency? Can bitcoin rival gold as a safe haven? Do bitcoin’s recent price gains herald gains for gold in 2017?

Bitcoin in USD – 1 Month via Coin Desk

2016 was a pivotal year for both the gold price and the price of bitcoin. In dollar terms, both made new gains that have not been since in the last four years. However, the fledgling digital currency greatly outperformed gold.

Gold climbed 8.6 per cent in dollars last year, outperforming both US Treasuries and the US Dollar itself. Despite ending its four year decline and gold being higher in all major currencies, sentiment in the media and among investors remains tepid towards gold as it had a poor second half to the year and failed to end the year above its July high of $1,366.

This despite strong gains in dollar and euro terms and surging over 31% in British pound terms and protecting UK investors and savers from sterling’s devaluation.

In contrast, 2016 saw the bitcoin price climb by more than 100% (see FT chart). With a climb of 126% it greatly outperformed all major fiat currencies in 2016.

In terms of significant developments in the gold market, 2016 was very important for gold. John Hathaway’s recent Tocqueville Gold Strategy Investor Letter pointed to two bullish factors that came to fruition in 2016 and will continue to benefit gold. Namely:

• First is the new Shariah Gold Standard, launched by AAOIFI and the World Gold Council, and brought to your attention here. This opens up investing in physical gold to approximately 25% of the world’s population – over 100 million investors
• “Second, is the incorporation of gold as a settlement currency to facilitate trade between oil-producing nations and the world’s largest hydrocarbon importer, China. Russia, Saudi Arabia, and Iran are settling most, if not all, of their energy sales to China in yuan convertible into physical gold via the Shanghai Gold Exchange”

2016 was also a year of significant maturing for bitcoin, this was in part thanks to the developments made in the underlying technology – the blockchain – but also because it had a year of lower volatility. It also began to react to macroeconomic developments, indicating that bitcoin traders and some buyers are now considering its role in the world beyond the cryptocurrency system, and instead as a form of currency hedge.

Last year was the first time in which we really saw the bitcoin price start to react to surprise economic factors, namely the hike in Federal Reserve rates last month. The Washington Post writes:

“When Greece threatened to leave the European Union in 2015, investors surged into the digital currency. The same thing happened when Britain voted to leave the European Union last year, and when Donald Trump defied polls to win the U.S. presidential election. Recent economic surprises in China, India and Venezuela that threatened to destabilize those countries’ paper currencies sparked an interest in the digital alternative as well.” 

Bitcoin began to act more like gold – a  hedge against geo-political, systemic and monetary risks.

Outlook for in 2017

The outlook for both bitcoin and gold looks positive in 2017. There are many positives for both gold and bitcoin as prices and holdings of both assets look set to benefit from speculators and investors’ desires for diversification, alternative currencies and safe havens.

Gold price predictions for 2017 range from $1,100 to $1,600 and beyond. Following a near 9% jump in 2016 a Bloomberg survey of analysts expect, on average, a climb on 13% this year. Goldcore, one of the analysts surveyed by Bloomberg sees gold reaching an annual high of $1,600 per ounce and closing the year over $1,400/oz.

Should analysts’ expectations play out, it will be the metal’s biggest rally since 2010.

Regardless of where analysts sit on the gold price axis, they all agree that Trump, Brexit and ongoing upset in the EU  are likely to be supportive for gold. Not to mention negative real rates, inflationary policies and ongoing problems in the Eurozone banking system.

A survey on CoinDesk showed expectations for bitcoin to finish north of $1,400. Interestingly only a small percentage of those surveyed pointed to macroeconomic factors as the reason for the price climb, many in the bitcoin community still look inwardly to the technological improvements that are ongoing within the cryptocurrency, as support for higher prices.

A report from SaxoBank, released early December, also saw the potential economic impact of Trump’s governance and inflationary expectations as well as tense relations with Russia and China, as having a positive effect on the bitcoin price. The Bank made the ‘outrageous’ prediction that the bitcoin price could rise to as much as $2,000 as a result.

As we have already seen happen with gold, Saxo Bank believe it is not impossible to think that Russia and China, will move to accept bitcoin as a ‘partial alternative to the USD’.

“If the banking system as well as sovereigns such as Russia and China move to accept bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see bitcoin easily triple over the next year going from the current $700 level to +$2,100 as the block-chains decentralised system, an inability to dilute the finite supply of bitcoins as well as low to no transaction costs gains more traction and acceptance globally.”

The start to bitcoin’s year has been promising, if volatile. On January 4th, the price reached multi-year highs over $1,129 per bitcoin. Since then, it has dropped by as much as 33% to as low as $776.

In recent days it stabilised at $800 and today it has surged over 6% to $880.

Both gold and bitcoin continue to benefit from their positions as borderless, autonomous currencies. Not only will they grow in appeal as countries look to diversify away from the US Dollar, protect themselves from cyber hacks and Trump uncertainties, including his tweets, but also as populist politicians of the left and right increasingly encroach on the roles of central bankers.

This is something that we are just starting to see in 2017 and looks set to continue for the foreseeable future. Jim Rickards points to President-elect Donald Trump’s possible decision to staff the Federal Reserve’s board with politicos. This will inevitably lead to inflation, according to Rickards:

“I’ve never known a politician who’s meddled in central bank policy to cause deflation.”

Bitcoin, China and capital flight

The volatility in the bitcoin price in January has largely been thanks to China. Much of the bitcoin activity (and subsequent interest from the government) was attributed to capital flight from the country as the yuan continues to be devalued and fall in value. The FT writes

“ The rally had caught the attention of Chinese regulators concerned that the currency was being use to facilitate capital flight. Authorities had gotten wind of the fact that some of their citizens were using it to take cash out of the country while circumventing strict regulations. People would buy bitcoin onshore, then sell it offshore for another currency, and move the money to a bank account. In the past six months, the yuan has accounted for 98 per cent of bitcoin trading.”

The PBoC released two separate statements on 6th January, both of which reminded (and quoted) readers of a 2013 statement stating bitcoin was not a currency and warning buyers of the risks involved. This is in stark contrast to Chinese official pronouncements re gold which has tended to be very positive – including at one stage encouraging Chinese people to diversify into physical gold.

Then, last week the PBoC purportedly stated that it will be carrying out ongoing investigations into China-based bitcoin exchanges. This prompted a 14% price crash.

Investigations at the moment appear to be interpreted as making sure exchanges are not faking the volumes going through sites (something the West has long been vocal about), as well as taking measures to prevent money laundering.

No one knows what the impact or extent of the Chinese government’s decisions will be. It’s unlikely that these leaks and announcement were by accident, given that the price and volatility were both covered on Chinese State television.

Put in perspective one wonders how big a deal this really is. At the moment, the bitcoin market cap is around $12.9 billion, in contrast the total amount of currency outflow from China was $320 billion.

The majority of capital flight from China, is not happening via bitcoin. Although it is obviously the reason for increased bitcoin activity. Given only 16 million bitcoin exists, it is impossible that a significant proportion of the 1 billion plus Chinese citizens are stocking up on the cryptocurrency.

For many bitcoin exchanges in China, increased transparency and more questions from the PBoC is only a good thing. The volatility seen in the last few weeks has masked a number of positive developments for bitcoin.

The announcements in regard to regulation and monitoring are welcome for an asset that is still untrusted by the majority of the financial world. In order for the market (and supporting ecosystems) to mature the currency most experience the same hurdles and be subject to the same scrutiny we see in other currencies and asset classes.

This is a familiar situation for gold. For a long-time we have been drawing attention to the activity in China, in terms of exchange developments and gold controls. It has been the controller of the physical gold market for many years, and how much the government owns and imports has been the source of much speculation and research.

However, recently gold too has come under scrutiny  by the Chinese government due to concerns over capital flight. Last year gold import controls were put in place in an attempt to prevent currency leaving the country. In turn, this may have contributed to a spike in the demand for bitcoins.

These are examples of how gold and not bitcoin are being used as currency hedges and safe havens.

For some a maturing in the bitcoin market may be seen as a threat to gold. However, bitcoin has undoubtedly opened up the minds of many to alternative currencies, and the development and evolution of the bitcoin and cryptocurrency market will likely benefit gold and attitudes towards it.

Exchanges of value

When I talk to anyone about bitcoin or gold, one of the first questions I am asked is ‘if it’s money, where can I spend it?’

For sure, bitcoin is easier to spend than gold, on a day-to-day basis. However, as we have covered in recent articles, the technology that supports bitcoin (blockchain) is making it easier for gold to play a more significant role in daily spend (whether one wants to spend their gold, or not, is for another time).

Owning bitcoin and gold have been very useful for people in countries which have suffered financial crisis and currency crisis in recent months. Take, for example, currency controls in South American countries and India, to name a few.

To spend and store bitcoin has little cost and is easy if you have even basic technology know how. If you own gold in a vault in Switzerland – you can simply sell it and have your  funds wired to your bank account in another jurisdiction. You then can access your currency by using your credit and debit cards.

In recent months and years, we have seen growth in gold imports across several countries whose monetary and political systems continue to come under threat. India, China and Turkey just to name a few. Turkey’s own President Erdogan is calling for citizens to convert their foreign holdings into gold and lira:

“For those who have foreign currencies under the pillow, come change this to gold, come change this to Turkish lira. Let the lira win greater value. Let gold win greater value…”

Both assets have come up against regulatory and legal issues when it comes to being able to use them as mediums of exchange. In worst case scenarios and for periods of time you may not be able to use gold or bitcoin in monetary transactions. Then their ability to potentially act as safe havens and stores of long-term value would become more important.

Can bitcoin rival gold as a safe haven?

We have seen gold’s role as a store of long-term value clearly during the financial crisis in recent years and indeed throughout history. Indeed, there is a significant body of academic and independent research which clearly shows that gold is a hedging instrument and a safe haven asset. We have been at the forefront of educating about gold’s diversification benefits and safe haven properties since 2003.

Bitcoin has not proven itself in this regard just yet. It relies on the internet and technology to be functional. The idea of crossing borders as a refugee and there being little access to technology is a situation which is all too common to millions of people today alas.

However, this is a situation gold has coped with very well over hundreds of years of human migration in times of both war and peace. Again in recent years, a nest egg of even a small amount of physical gold has helped people start new lives in foreign countries.

When it comes to the security of gold and bitcoin, you will hear different opinions. Both can be stolen, and there are recent examples of thefts in both markets. Both need to be owned and stored in the safest ways possible. How secure they are depends on you own them and where you store them.

For Nick Szabo, highly respected cryptographer and rumoured Satoshi Nakamoto, bitcoin is more secure than gold. He argues than in its history, gold has been very insecure and points to several lootings by explorers (the Spanish from the Aztecs, the English from the Spanish) by way of example.

This is less of a risk if you own gold in a discreet, well hidden place in your home or office in indeed in secure storage in safer jurisdictions internationally such as Switzerland and Singapore.

In contrast to gold, says Szabo, bitcoin is secured by a private key to a a secured address. How you store the private key is up to you – whether online, a piece of paper or even in your head. Information, Szabo argues, is easier to protect than something physical.

With the threat of cyber security growing on a daily basis it is reasonable to see security as more of a threat to bitcoin than gold. Although many gold providers are also exposed to cyber risks.

Bitcoin’s security and functionality relies on technology, servers, the internet, the grid and electricity. One of the cases for gold’s strong outlook is because of the growing threat of cyberwarfare, something the cryptocurrency is unfortunately more exposed to.

In truth all assets carry some security risk, but much of the threat to bitcoin’s security comes down to its relative newness and whilst it matures so do the abilities and tricks of cyber hackers.

When we think about security for gold, we mainly think about government confiscation. For the bitcoin community this is the asset’s saving grace – it is yet to be confiscated by a government. In truth, this is rare in gold and there are no recent examples. It is not an occurrence that is impossible to imagine for bitcoin.

The fact is, a government is perfectly able to outlaw either asset and demand it be handed over to the government. However, in practice this is very unlikely goven the tiny amount of people who own gold and bitcoin in the world.#

Bitcoin fans will argue that their asset is easier to hide, but surely no one would argue that you should break the law. Instead, diversification of storage is important for both assets. This is to reduce both the risk of government confiscation and cyber attacks. 

Bitcoin vs Gold or ‘bitcoin and gold’?

“People are using [bitcoin] similar to how they use gold…They use it as a risk-off trade when they’re concerned about what’s going on in the capital markets.”

Statements such as this by Chris Burniske, an analyst at ARK Investment Management, to the Washington Post have a tendency to make gold investors nervous. It can plant a seed of doubt into investors’ minds that markets are going to turn off from gold and focus efforts on bitcoin during times when they would normally turn to gold.

Those who are still asking if they should by bitcoin or gold are often basing it on the fact that by the end of 2016 bitcoin had doubled in price whilst gold climbed 8.43%. Both had outpaced the S&P 500, the US Dollar and US Equities over the long term.

Granted, gold did not have the year bitcoin did, but it did not do badly. For example, at the beginning of 2016 gold continued to prove itself as a safe haven (the best performing asset, following silver in the first half of the year) and reached its 2016 high post-Brexit vote in July.

Certainly, when bitcoin first arrived in the mainstream consciousness, bitcoin versus gold was a big question. This was mainly down to the fact that bitcoin was pitched as the new gold, by many  journalists.

However, I believe the majority of those who are already invested in either gold and/or bitcoin are pretty much over this issue.

Currently bitcoin plays a different role to gold. For want of an analogy, bitcoin is more the cash, whilst gold is more the savings. It is likely that we will see those looking at securing their wealth across both assets. This is likely to be done in a similar way that we see gold investors also buy silver, and divide holdings between stored bars and coins kept at home.

In the last couple of years, gold and bitcoin bugs have joined forces and many people, especially younger tech savvy people, own both perceiving benefits to holding both forms of money.

Importance of real diversification

Investment and now currency diversification is extremely important, especially in a world of growing uncertainties and an increasing number of surprises whether politically, economically or even socially.

Gold has long been an asset that is important to own in a diversified portfolio and in order to protect wealth. It is only of late than bitcoin is also looking to play a role, especially as gold controls in China saw buyers turn to bitcoin.

However, as discussed above, we do not believe the debate over gold and bitcoin investment is an either/or.

In 2012 the World Gold Council released research that found the presence of gold in a portfolio ‘is a significant contributor to portfolio efficiency by reducing risk-adjusted returns and reducing expected losses’. They found that holding between 2.6% and 9.5% of one’s wealth in gold assets can help achieve beneficial diversification.

For bitcoin, the focus is still on returns, rather than its role as a safe haven or currency hedge, although we suspect this will change. A oft quoted fact is if you had bought $200 in bitcoin in 2011, it would be worth $1 million today.

It is possible for us to take any asset and demonstrate staggering returns over a perfectly chosen period. The fact is that for now, the bitcoin investment market is too new and under reported to know what role the currency may play.

There is also a dearth of quality bitcoin investment vehicle and at present buying bitcoin directly is the best way to benefit from price gains.

However, as we have discussed above, owning bitcoin directly can bring its own security risks and this is something there is little education and understanding about.

In contrast, holding gold as part of a balanced portfolio and as a safe haven asset has been part of the public consciousness for centuries and remains understood by many today – especially in Asia.

Conclusion: A monetary and financial revolution?

At the moment, bitcoin is very much the darling of the alternative currency world and sections of the media. However, it is still very young. There are far more ‘what ifs’ in its future than there are for gold.

Whilst there is currently no argument for or against why bitcoin will be an obsolete asset in 100 years from now, gold has history and over 2 billion people holding it. I personally do not think that bitcoin’s future is at risk but then as 2016 has shown, we really cannot predict anything.

Gold has stood the test of time and has withstood thousands of years of technological, political and economical change.

Bitcoin, as a technology-based currency is yet to experience any of these things. For all we know, another cryptocurrency may well usurp bitcoin due to more technological advances and the ability to avoid the volatility and government threats that bitcoin currently experiences. We really do not know.

The psyche that has people shifting into alternative currency hedges is the same one that is surprising the media and pollsters when it comes to discontent and worry over the political and economic system amongst the electorate.

Soon the mainstream will begin to ask why this is happening and start to take it seriously. When this happens bitcoin will likely no longer be a novelty and gold will again be seen as the prudent safe asset to hold in your portfolio.

In all likelihood both assets will continue to benefit from the factors that have made them preferred assets in times of uncertainty recently.

Politics is much harder to predict these days, but the long-term demand for gold, and short-term demand for bitcoin has shown them both to be good currencies to hold when the going gets tough or unpredictable. The question for bitcoin is whether this will continue.

The financial revolution that bitcoin has driven (the thought that anyone can diversify from the modern monetary system) is beneficial for gold and we may well continue to see a split in what would have been primarily gold demand, now being split between both bitcoin and gold – especially among the millienials and the tech savvy younger generations. This is not a bad thing for gold.

Increasingly, gold and bitcoin may be seen as very much complementary assets, but bitcoin buyers should be aware of the volatility of bitcoin and of how speculative it remains today. Those considering buying should only own a very very small percentage of their wealth in bitcoin. While gold and silver can constitute as much as 20% of a diversified portfolio – bitcoin should be less than 3% or 4% of one’s wealth.

Also, if buying bitcoin, it is prudent to apply the same logic to owning bitcoin as they do for gold – diversify, own the currency in the safest ways possible – including some offline in secure ‘cold’ storage and monitor the wider political, financial and monetary environment.

 

KNOWLEDGE IS POWER

For your perusal, below are in order of downloads our most popular guides in 2016:

10 Important Points To Consider Before You Buy Gold

7 Real Risks To Your Gold Ownership

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns

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Having already signed a (mostly symbolic) executive order on Obamacare on Friday night, urging US agencies to “waive, defer, grant exemptions from, or delay the implementation” of provisions deemed to impose fiscal burdens on states, companies or individuals, Trump is preparing to unload a volley of many more executive orders. Courtesy of Axios, which quotes “one of the best-wired Republican lobbyists in town”, here is a preview of the initial round of Trump executive actions, some of which may hit as soon as Sunday afternoon:

• Look for a possible hiring freeze at executive branch
• 5-year lobbying ban on transition and administration officials
• Mexico City policy, which prevents foreign NGOs from getting U.S. family planning money if they provide abortions with non-U.S. funds. (It’s already illegal to use U.S dollars on abortions.)
• Task the Defense Secretary and joint chiefs to come up with plan to eviscerate ISIS
• Report on readiness, and something cyber security related
• Border/immigration: Something on sanctuary cities, expand E-Verify, an extreme vetting proposal
• Trade: Withdraw from TPP and a thorough review of NAFTA

Axios also notes that “the Mexico City executive order could come as soon as today.”

Furthermore, watch for dozens of EPA executive orders coming down the pike. “Says a Trump source: “EPA has clean water-related and some 30,000 foot regulatory ones lined up [immediately]…We have dozens for the EPA…Starting Monday through the month of February. We have to roll them out gradually.”

As we laid out before, here is a brief summary of what Trump can (and can not do) on day one. Exhibit 3 lists the President’s “Contract with Voters”, which includes several items that can be accomplished through executive action but involves significant legislative activity as well.

Next a table breaking down the upcoming Budget process:

The “budget reconciliation” process allows the majority party to instruct various committees to pass legislation to achieve certain fiscal targets, for example to reduce the deficit by a certain amount over the next ten years. These instructions, along with spending and revenue targets, are included in the annual budget resolution that Congress is supposed to pass by April of each year. Legislation passed pursuant to these instructions enjoys procedural protections in the House and Senate; most importantly, it is immune to filibuster in the Senate and thus needs only 51 votes to pass. The budget resolution can provide instructions to pass as many as three reconciliation bills, one dealing with tax or revenue changes, one dealing with spending changes, and one dealing with the debt limit. This year, tax reform is likely to be addressed through reconciliation, as are changes to the Affordable Care Act (“Obamacare”). It is possible that congressional leaders might also consider using this process to address infrastructure funding, certain entitlement program reforms, or the debt limit increase that appear to be necessary by Q3.

A Multi-Step Budget Process :

Finally, here again are the main differences between the House tax plan and that of the president.

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By EconMatters

The OPEC and Non-OPEC Oil Production cuts are actually a joke in the bigger scheme of things, the oil markets have been over supplied for a decade. The Market`s self serving definition of a balanced oil market is complete nonsense on a larger macro view of the market.

There is a reason the 5-year averages for oil stocks have been rising every year I have been trading the oil market. It isn`t a coincidental indicator that more oil storage facilities are being built or expanded every year for the last 15 years of the modern electronic oil markets.

There is so much oil and derivative oil products in storage on a global calculus, that it is a joke if OPEC thinks they have cut enough to actually long term balance the oil markets.

In addition they are delusional if they think a little six month seasonal pullback in production is going to do anything other than artificially set the oil market up for the next leg back down in the second half of 2017.

 

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Trump’s crackdown on Obamacare is accelerating.

Just over 7 hours after his inauguration, late on Friday, the president signed an executive order concerning the 2010 healthcare law, telling reporters the action was meant “to ease the burden of Obamacare as we transition from repeal and replace” and urging U.S. agencies to “waive, defer, grant exemptions from, or delay the implementation” of provisions deemed to impose fiscal burdens on states, companies or individuals.

Executive order just signed by @POTUS relates to #Obamacare. http://pic.twitter.com/dTaX6QEZBS

— Steve Herman (@W7VOA) January 21, 2017

While the executive order was purposefully vague and served mostly a symbolic role, on Sunday the Trump administration provided some more details on how the “repeal and replace” would look, when Trump aide Kellyanne Conway said the government may no longer enforce the key “Affordable Care Act” rule requiring individual Americans to carry health insurance or pay a penalty if they do not.

Speaking on ABC’s “This Week” program, Conway who is a counselor to the president, said Donald Trump “may stop enforcing the individual mandate.” Then, on CBS’ “Face the Nation” show, she reiterated Republican promises that no one would lose their health insurance under Obamacare while a replacement is being developed.

“For the 20 million who rely upon the Affordable Care Act in some form, they will not be without coverage during this transition time,” she said quoted by Reuters.

Also on Sunday, Mitch McConnell repeated Republican promises to replace Obamacare and allow patients to buy health insurance across state lines using health savings accounts. “We’re going to move carefully in conjunction with the administration to repeal and replace it with things like health savings accounts and interstate health insurance sales and high-risk pools at the state level to take care of people who have pre-existing conditions.” he said.

Last week Republican Representative Tom Price, Trump’s nominee to lead the Department of Health and Human Services, told the Senate Committee on Health, Education, Labor and Pensions, that an overhaul of Obamacare will initially focus on individual health plans sold on online exchanges and the Medicaid health insurance program for low-income Americans.

 

He added that the revamp would not immediately tackle changes to Medicare, the federal health insurance program for those 65 and older and people with disabilities.

Trump has previously said he wants to keep some elements of Obamacare, such as allowing young adults to be covered under their parents’ insurance. He is in favor of plans that use health savings accounts and the sale of insurance across state lines. A bigger question is once the administration moves beyond the repeal phase, just how long would the replace phase take: as a reminder, a full replacement would require bipartisan support, and at the current time that appears very much improbable, which is why Goldman, and others, speculated that the replacement of Obamacare could take as long as 2 years, and may bog down much of Trump’s fiscal agenda.

If so, much of what the market has priced in will have to be “unpriced” quickly, as Trump focuses exclusively on undoing 8 years of Obama tinkering with the US health insurance system.

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