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Raoul Pal Slams Bitcoin: “It’s Not The Store of Value People Thought It Was”

Written by Peter Diekmeyer (CLICK HERE FOR ORIGINAL)

 

 

Raoul Pal, one of the most effective critics of mainstream economics, is cashing in his Bitcoins. Gold is a better wealth preservation tool, says Real Vision Television’s co-founder.

Yesterday Pal, who once thought that Bitcoins could eventually be worth as much as $1 million each, informed Real Vision Publications subscribers that he was selling the digital currency.

“Bitcoin not a store of value people thought it was,” he told Sprott Money News, in a telephone interview this morning from his Cayman Islands home. “If core developers are talking about changing the Bitcoin code or how it works, what happens if – at some future point – they decide to allow the number of coins to expand?”

Pal also cited lack of a Bitcoin “killer app,” and the commoditization of blockchain technology – as new players chip away at the market – as motivating his thinking.

Those who have been following Pal’s advice regarding Bitcoin, which he has been pushing hard on Real Vision TV – through the prominence that he has given sector advocates, such as Trace Mayer – haven’t done that badly.

The digital currency is up more than tenfold in the last two years.

Mainstream economics “does not work in the real world”

 

However, Pal’s dimming view of Bitcoin is particularly important to gold investors, because he and partner Grant Williams, in their legacy platforms and the recently-launched Adventures in Finance podcast series, have been among the global financial system’s most astute critics.

Pal is particularly vociferous about the opaque econometric models pushed by mainstream academics and central bankers, who don’t sufficiently warn the public of the dangers involved.

He cites economists’ use of the qualification “ceteris paribus” (which means “all other things being equal”, but which, Pal jokes, really means “it does not work in the real world”).

This, despite the fact that while insiders understand the jargon, profession politicians and the public are left insufficiently informed by economists about the risks of policies such as rising debts and quantitative easing.

Bitcoin: like gold, except . . .

Pal’s call is also important for another reason: if Bitcoin’s allure as a store of value and a hedge against systemic collapse is dimmed, this would increase the relative value of other solutions.

That includes gold, for which Pal’s partner Grant Williams has been a particularly strong backer.

Pal’s fascination with Bitcoin echoes that of many alternative investors, who seek a hedge from what some suspect is a “Krugman Con” – sustained long-term increasing government spending, borrowing and money printing at a pace that exceeds economic growth.

Bitcoin met many of those hedging characteristics. Despite its wild fluctuations, the digital currency provided a partial store of value outside the banking system and its encryption technology reportedly kept away prying eyes.

Bitcoins fraught with increasing risks

However Pal’s concerns with the digital currency barely scratch the surface of the increasing risks that Bitcoin investors face – particularly at a time when its hockey stick chart pattern practically screams “bubble.”

(According to chart compiled by Coinmarketcap.com, the market capitalization of the top ten cryptocurrencies as of June 2, 2017 exceeded $75 billion).

For one, an astonishing number of investors – including this writer – have a hard time getting their minds around key Bitcoin concepts.

These range from how data mining (the process through which Bitcoins are created) is done, to who is behind the various Bitcoin exchanges (this writer could not find a single Canadian operator to speak on record for a recent article), and how good the platform’s encryption is.

(Note: America’s National Security Agency, which few journalists fully understand, is almost certainly making hacking digital currencies its number one priority. In fact, (in this writer’s opinion) it has likely already succeeded).

Despite Pal’s pessimism about Bitcoin’s future, the alternative investment guru admits that the digital currency “may go up in price, maybe a lot more,” before its ultimate future is decided.

But Pal won’t be going along for that last leg.

 

 

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Raoul Pal Slams Bitcoin: “It’s Not The Store of Value People Thought It Was”

Written by Peter Diekmeyer (CLICK HERE FOR ORIGINAL

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Another company on the infamous Fitch “retail death list” has taken its first step toward bankruptcy.

On Thursday, distressed children’s clothing retailer Gymboree elected not to make the interest payment due June 1 on its outstanding 9.125% notes due in 2018, Debtwire reported, with Moody’s downgrading the company to D from CC on Friday, as it does not expect Gymboree to make the interest payment, “or any other payments on its debt obligations, and sees a general default given ongoing lender negotiations.”

While not exactly news – the WSJ previewed the inevitable Chapter 11 at the beginning of May – a Gymboree bankruptcy filing is now assured over the next month, and certainly by July 1 when the grace period expires. In March, the company posted a $324.9 million loss for its fiscal second quarter; same-store sales fell 5% in the period while EBITDA crashed.

In early May, the WSJ reported that Gymboree was looking to close 350 of its 1,200 stores as part of a broader restructuring under Chapter 11 protection. Buckling under its debt, the company has been in talks with its lenders who may or may not agree on a prepackaged bankruptcy. According to the WSJ, the company has contacted firms known for liquidating inventories and other assets during store closures.

Gymboree was taken private in a $1.8 LBO buyout by Bain Capital in 2010, at which point the PE firm stripped out the assets, and loaded the company up with debt, $1.06 billion as of June 28, an amount company founder Joan Barnes described to Bloomberg as “horrendous.” Meanwhile, LTM EBITDA was cut by more than half from the mid-$60 million to negative most recently, explaining the upcoming filing. Walmart, Children’s Palace, and online retailers have put the squeeze on sales and margins. In recent years, Gymboree scrambled to raise cash by mortgaging its distribution center in 2015. In 2016, it sold Gymboree Play and Music to Zeavion Holding, a Bain investor. But in its fourth quarter, the company lost $325 million, and the CEO was sacked.

In an attempt to control the post-petition equity, Bloomberg reported that Bain Capital has been buying up Gymboree’s crashing bonds to have more leverage during the upcoming bankruptcy process and participate in what Bain hopes will be Gymboree’s revival. After plunging to 4 cents on the dollar in April, prices on Gymboree’s fulcrum 9.125s of 2018 have rebounded to roughly 8 cents.

Some still see value here: “It was one of the first aspirational brands to cater to the preschool market,” said founder Joan Barnes who is now an adviser to Gymboree Play and Music.

“There is no reason it can’t be again” Barnes added, although Jeff Bezos surely disagrees.

 

Meanwhile, other retailers who have filed for bankruptcy recently include Rue 21, Marsh and Central Grocers. According to Fitch, many more are coming.

• Sears Holdings
• Gymboree
• Nine West Holdings
• 99 Cents Only Stores
• True Religion Apparel
• Charlotte Russe
• Charming Charlie
• NYDJ Apparel
• Vince.A
• Claire’s Stores
• Chinos Intermediate Holdings (J Crew Group)

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Authored by Cyril Widderhoven via OilPrice.com,

The cohesion of the Gulf Cooperation Council (GCC), which includes all Arab Gulf countries, seems to be cracking.

UAE Minister of State for Foreign Affairs, Anwar Gargash, openly stated that the GCC was facing a major crisis, as Qatar seems to be opening up to Iran. Gargash made his comments on Twitter less than a week after Saudi Arabia and the UAE signaled frustration at Qatar. The simmering conflict between the UAE and Saudi Arabia on one side and Qatar on the other has again been heating up after the Qatar’s News Agency (QNA) was purportedly hacked, spreading remarks by Qatari Emir Tamim bin Hamad al-Thani which criticized Gulf rhetoric against Iran and suggested strains between the Emir and U.S. President Donald Trump. Qatar has vehemently denied these quotes, but the Saudi, Emirati and Egyptian governments have reacted by blocking Qatari news sites and TV stations, including Al Jazeera.

The crisis between Qatar and its GCC neighbors, Saudi Arabia, UAE and Bahrain, emerged shortly after Tamim bin Hamad Al Thani, the Emir of Qatar, visited Saudi Arabia for the meeting between the heads of state of most Islamic countries and U.S. president Trump. During these meetings, as indicated by Arab sources, Sheikh Tamim has called Iran a force of stability. The latter is remarkable as most statements made to the press during the Riyadh Summit indicated that all attending countries agreed to keep Iran in political and economic quarantine. At the same time, the participants agreed to counter the Muslim Brotherhood, which is blacklisted by Saudi Arabia, UAE and Egypt. The Muslim Brotherhood however is well protected in Qatar. At present, the ideologue of the Brotherhood, Yusuf Al Qaradawi, is a celebrity in Doha, and has access to the Emir and the Emir’s father and predecessor, Hamad bin Khalifa al-Thani.

The Arab criticism may have been less harsh if U.S. officials would not have put oil on the fire. U.S. Secretary of Defense James Mattis openly warned Qatar that it should change its support of the Muslim Brotherhood. Mattis also stated that U.S. president Trump is considering classifying the Brotherhood as an international terrorist organization, which could have a very negative impact on the U.S.-Qatar economic-military cooperation in the coming months. Instead of trying to lower the tensions, Doha seems to have significant increased them. Egypt, Saudi Arabia and others have now put new pressure on Qatar regarding its financing of the Syrian and Palestinian branches of the Brotherhood.

The Emir left shortly after the Doha summit, dissatisfied with the U.S. approach. Some analysts even claimed that the Emir had expected Trump to visit Doha first as a show of support for Qatar’s political standing. Trumps strategy to first enter into a strong relationship with Riyadh has not gone down well in Doha.

Qatar’s willingness to talk to Iran is the main bone of contention. The fact that Doha called Iran’s president Rouhani shortly after his re-election is seen as a sign that Qatar is not willing to support Saudi Arabia and the UAE in their proxy wars with Iran in Yemen, Syria and Bahrain.

An open confrontation between Qatar and both Saudi Arabia and the UAE is looking increasingly likely as tensions heat up. A military conflict between Saudi Arabia and Qatar cannot be ruled out. Religious tensions are also rising, as descendants of the founding father of Saudi Arabia's Wahhabi brand of Islam published a statement in Saudi media distancing themselves from Qatar's ruling family. This can be seen as an unofficial attack on the religious power position of the Qatari Al Thani family, as they claim to be from the Al Najd region, which is the central and northern part of Saudi Arabia, where Ibn Abd Al Wahhab was from. The fact that Saudi religious leaders are now denouncing the Qatari ruling family’s historical claims can be seen as a major attack on the latter’s position.

Doha is now openly questioning U.S.-Saudi views on Iran, with U.S. president Trump having accused Iran of supporting terrorism in the Middle East. Qatar remains angry about the fact that U.S. based organizations are still accusing Doha of supporting extremist groups. It is rather coincidental that these stories from the Qatar News Agency quoting the Emir appeared just days after the Riyadh summit ended.

While the GCC has been hit by severe internal turmoil before, the current wave is particularly worrying. First of all, a divided GCC will bring further instability in the region at a time of full confrontation between the Saudi-led alliance and Iran. A possible thaw between Tehran and Doha could, in theory, lead to a confrontation with Washington, as the latter has an immense military base currently on the peninsula. A rapprochement between Iran and Qatar would be a vast security risk to the U.S. military. Further escalation could also bring renewed threats to oil and gas shipping in the Persian Gulf.

Even without a military confrontation, the Saudi-UAE vs Qatar confrontation holds another risk. All GCC countries depend on stability in the oil and gas markets, which is evident from the recent OPEC deal. A full-fledged confrontation will, without any doubt, put pressure on the current compliance rate of OPEC members to production cuts. Doha will be able to sabotage the current 6+3 production cut agreement between OPEC and non-OPEC members. If Doha decides to join the ranks of Iran and Iraq, OPEC’s future will be in doubt.

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It’s risk-parity heaven right now, notes RBC's head of cross-asset strategy Charlie McElligott, with global equities (developed and EM) AND fixed-income all continuing their torrid rallies, but McElligott warns this is a classic "from worst to first" PM-grabbing into a new "Fear Of Missing Out" stage of the equities-rally.

Bonds remain well-bid on account of the ongoing ‘slowing into tightening’ narrative, with commodities being the only asset class (outside of volatility, of course) that is lower overnight as a ‘signal’ for the lower bond yields.  This continues to be “falling inflation expectations” story for rates / bonds: industrial metals continue their struggles (Chinese / PBoC deleveraging efforts, while recent efforts at STRENGTHENING yuan to stem FX outflows will FURTHER FEED global disinflation in coming months) in conjunction with Crude’s inability to get off the mat post disappointing OPEC (market still focusing on US shale supply–especially now, with the thinking post Trump’s Paris Accord drop-out that we’ll see even MORE US oil supply via increased drilling / deregulation). 

#FOMOROTATION: But today is largely an equities-centric story, as stocks can of course view the world in a ‘mutually-exclusive’ fashion from the aforementioned fixed-income ‘slowing growth’ concerns.  A goldilocks interpretation of ‘easier financial conditions’ (weaker USD and lower US rates / flatter curves are a POSITIVE for large cap US corporates) against still-expansive data (yesterday’s US ADP print portending + for NFP) keeps stocks in a very ‘sweet spot,’ especially as the world is still awash in liquidity despite the ‘coming’ pivot tighter.  To this point, EPFR data last night showed us that cash continues to be deployed in both equities (+$13.7B inflow in global Eq funds, a five week high absolute $ number) and bonds (+$6B inflow) as well.  It seems like investors are appropriately taking their cues from very recent CB messaging: cautiously ‘slow and steady’ tightening in light of recently ‘softer’ inflation data.

 Again, all of my conversations yesterday were centered around stocks and the ‘rotation’ being evidenced.  Remember this from my note Wednesday?:

“Q1/Q2 ‘Mean Reversion’ strategy turning sloppy due to grinding move lower in rates, as ‘Value’ and ‘Size’ continue to fade against ongoing ‘Growth’ and ‘Anti-Beta’ U.S. equities leadership—nearing the inflection.”

 

and

 

“But everybody in the equities-universe it seems is aware of this dynamic, and fundamental folks are increasingly nervous about the potential for a reversal in mega ‘pain trade’ style—because it seems the entire world is ‘LONG TECH AGAINST SHORT ENERGY’…people are ready to pounce on this trade.”

 

–Me, Wednesday’s “RBC Big Picture”

When I wrote “HOW WE GOT HERE / WHERE WE’RE GOING” Wednesday, I certainly didn’t think that my key market / trading-takeaway—that being a pending and equities factor-rotation with significant portfolio positioning (and thus performance) impact—would commence within the following 24 hr period!  Nevertheless, Thursday ‘happened,’ and ‘it was indeed quite the ‘pounce.’

This was classic “from worst to first” PM-grabbing into a new “FEAR OF MISSING OUT” stage of the equities-rally.  For example, this year’s bottom three performing factor market neutral strategies which I track—‘Size,’ ‘Value’ and ‘Earnings Revision’–were the day’s three best-performing strats; and on the flipside, the YTD’s top four performing factor market neutral strategies—‘Anti-Beta,’ ‘Growth,’ ‘Momentum’ and ‘Quality’—were the days four worst-performing strategies.

‘WORST TO FIRST,’ AS WE SEE YTD FACTOR M/N LEADERSHIP ROTATE SHARPLY YESTERDAY:

This also was expressed in the form of many thematic and sub-sector dynamics reversing their YTD performance trends as well.  For instance, five of the bottom six performing US equities themes or sub-sectors for Thursday’s session which I monitor–‘Nasdaq 100,’ ‘High Beta Tech,’ ‘Cloud Computing,’ ‘EM Levered Consumer Staples’ and ‘Semis & Semicaps’—are amongst the best-performing segments YTD by far, up anywhere from 17.2% to 30.4% YTD.  It would be reasonable to assume that these sectors were being utilized as a ‘source of funds’ to move into those areas largely ‘left behind’ in 2017.

As such, we saw YTD laggards like ‘SMID Cap Consumer Staples,’ ‘Autos / Auto-related,’ ‘Food & Staples Retailing,’ ‘High Short Interest,’ ‘High Beta Industrials,’ ‘Russell 2000 Small Cap,’ ‘Low-End Consumer,’ ‘Media,’ ‘Domestic Consumer,’ ‘Food,’ ‘Airlines’, ‘Refiners & Integrateds,’ ‘Regional Banks,’ ‘Oil Services’ and ‘High-End Consumer’ as many of yesterday’s top performing subsectors.  Mind you, that laundry list of spaces shows YTD performance from +4.0% to -24.9%.

SIGNALING THE ‘FOMO’ STAGE OF THE EQUITIES RALLY–REACHING INTO THE ‘STUFF THAT’S BEEN LEFT BEHIND’ (VIA YTD LEADERS AS ‘SOURCE-OF-FUNDS’) AS WE KICK-OFF A FRESH PNL MONTH:

Fact of the matter, this still wasn’t a completely SEISMIC shift (from an absolute-move perspective) and was obviously just ‘one day’—after all, the S&P Energy sector still muddled-along just +0.7% on the day (fourth-worst S&P sector on the day).  BUT to my point in recent notes and as a sector-specific example, there are a lot of folks increasingly worried about missing a move in ‘energy’ too because it is a placeholder short / underweight, and will thus ‘hurt’ performance on the way back ‘up.’  As a random-sampling, by the first hour of Thursday’s session, the market had already seen XOP put spreads SOLD, while ECA, OAS, HAL and WLL all saw signif upside calls trade.  Again, classic FOMO.

The larger story from a client-perspective was hyper-crowded ‘Technology’ as the S&P’s worst-performing sector as it inherently meant both hedge- and mutual- fund performance lagged index due to the sector’s enormous overweight.  Tech underperforming on the day wasn’t ‘outright pain’ per se as it was still ‘up’…but obviously the buy-side is watching this very closely on the ‘follow-through’ because as noted earlier, it’s the natural ‘source of funds’ for ongoing rotation into laggard factors / sectors / themes.  My guess though is that there is still too much ‘momentum’ here to see these winners outright ‘pitched’ aside yet…and ‘tech’ too will benefit from other sectors contributing to doing some of the heavy-lifting for the broad index on account of the sectors weighting.

The key question then: was this then a true rotation?  Judging by the tape’s overall ‘burst’ higher (and follow-through globally overnight in both DM and EM), this clearly wasn’t any sort of ‘grossing down’ behavior (selling longs and covering shorts).  So to me, this WAS opportunistic re-deployment of capital through ‘high flyer’ sources-of-funds into the beaten-down stuff that has clearly struggled in 2017.  This is classic PM ‘reach’ behavior, looking for anything that hasn’t really participated in the CURRENT rally but is now set to participate in this potential NEXT leg.

I also continue to believe though that the key to SUSTAINING the move higher in YTD laggards (for example ‘cyclicals’ / ‘value’ / ‘small cap’) ultimately still requires a move higher in nominal rates / steeper curves.  Obviously yesterday I made a case for a re-test or even break of the low-end of the ‘macro range trade’ coming first PRIOR to any potential bounce higher in rates.  Equities do indeed have a knack of getting ‘ahead of’ the trade though, and that’s exactly what yesterday was: a fresh month of PNL and opportunistic PM behavior looking to juice returns by scooping losers.  We saw this Wednesday too after I sent my note: our high touch equities desk flows showed energy as the 2nd most active sector overall and at 68% better to BUY, while tech flows were 70% for sale and almost entirely hedge fund driven.

I will continue to watch relative factor market-neutral strategy performance as an indicator of this ongoing ‘turn’—especially ‘value vs growth’ and ‘quality vs size.’

FWIW, yesterday’s decline in ‘quality m/n vs size m/n’ ratio was a two standard-deviation move, and the third largest since 1Q16’s mega market-neutral unwind.

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With yields plunging to 2017 lows, the Treasury curve has collapsed with 2s30s at its flattest since early September (and 2s10s at its flattest since early October).

This, as Gary Cohn noted, reflects bond investors' poor outlooks for longer-term growth… which, with equity markets at record highs, is entirely missing from stock investors' minds.

Now where would bonds get the idea that all is not well from?

 

Of course, there is one simple reason for this…The world's central banks!

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Authored by Tsvetana Paraskova via OilPrice.com,

The OPEC/non-OPEC deal is working, and the current underlying key assumption of Russia’s economic policies—oil prices at US$40—can allow it to live forever at that price or below, Russia’s Economy Minister Maxim Oreshkin told Bloomberg in an interview on the sidelines of the St. Petersburg International Economic Forum on Thursday.

OPEC and Russia are already achieving what they intended to achieve with the deal—a decline in crude oil inventory levels around the globe, the minister said.

Arguing that OPEC “has not failed at all” in its attempt to drive oil prices up, Oreshkin said that the price of oil is now much higher than it was this time last year, before the cartel and 11 non-OPEC producers led by Russia struck the initial output cut deal.

"We are targeting tighter short-term end of the curve,” the minister said, noting that hedge funds are currently taking risks with medium-term prices a year or two ahead.

From a Russian economy perspective, the key assumption on which all Russian monetary and fiscal policies are based is oil at US$40, Oreshkin said. Russia is not as dependent on the price of oil as it was five or ten years ago, the minister noted, and said:

“We are actually ready to live forever at oil prices $40 or below.”

On Wednesday, Saudi Energy Minister Khalid al-Falih said—after meeting with his Russian counterpart Alexander Novak—that OPEC and non-OPEC producers are committed to do “whatever it takes” to draw the global crude oil inventories down to their five-year average.

Last week, just a day after the output cut deal was extended as-is until March 2018, Novak said in an interview with CNBC that deeper cuts to OPEC’s oil production were not out of the question, but their implementation would depend on how things unfold with the current agreement.

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