Month: September 2017

President Donald Trump’s feud with the NFL erupted nearly a week ago when he demanded that NFL franchise owners should “get that son of a b***h off the field” when they see players kneeling during the national anthem.  Since then, league owners have discovered, to their surprise, that millions of Americans – and more importantly, millions of NFL fans – agree with the president, who encouraged them to boycott the league until it agrees to ban kneeling during the anthem.

So far, evidence suggests that fans have heeded the president’s call to boycott the league. NBC’s “Sunday Night Football” last weekend recorded its worst weekly ratings in years. Overall, ratings are down 11% from last year, according to the Associated Press.

And while mainstream media outlets have insisted that there's “no evidence” to suggest that the protests have impacted television ratings, at least one survey suggests that there’s a direct link.

In what was perhaps an attempt to obscure this fact, NFL camera operators were instructed by the networks to avoid crowd shots during last weekend’s games to avoid capturing images of fans counterprotesting the protests, which involved both players and, in many cases, team owners, a few of whom locked arms with their players.

Sporting News reports that while some fans cheered the protests, many others responded with outrage. While mics picked up the boos, fans never got a chance to see the jeering fans.

The decision to ban controversial crowd shots was a wise decision by the networks, helping them avoid angering the providers of some of their most valuable programming. But from a journalistic perspective, it was a weak decision.

By covering one of the most significant days in NFL history with rose-colored glasses, the networks cheated viewers. We got an incomplete picture of what really happened in stadiums on Sunday and Monday.

 

Yes, the main television focus should have been on the players, coaches and owners sitting, kneeling or linking arms. But fans hold the ultimate power over the networks and the league, and they were missing in action during coverage.

Indeed, fans hold the ultimate power over the networks and the league, and they were missing in action during coverage.

A CBS spokeswoman denied to Sporting News that camera operators had been instructed to avoid crowd shots. However, as we reported, those watching the "Monday Night Football" telecast of the Cowboys-Cardinals in Glendale, Arizona, ould hear the boos from the sold-out crowd as Jerry Jones and the Cowboys collectively took a knee after the anthem in a gesture of defiance.

As Sporting News reports, during the singing of the anthem before Giants-Eagles at Lincoln Financial Field in Philadelphia, Fox stuck to up-close, ground-up shots of players, coaches and owners. The only image of fans was one long shot showing them clapping before the network cut to commercial.

Maybe next time, networks will accurately portray what’s happening at the games. Or perhaps by next week's games, the controversy will be over after the league's owners decide endorsing controversial protests just isn't worth the hit to their bottom lines.

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Via Baker & Company Advisory Group,

• The U.S. economy is not as solid as it appears.
• Statistical anomalies hide profound weakness.
• I will examine actual GDP and actual employment.
• Warning: not for the faint of heart.

 

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Yesterday, in its latest triennial Survey of Consumer Finances, the Fed admitted what had been obvious to everyone else: Fed policies unleashed over the past decade have made the rich richer, even as the American middle class has continued to shrink.

Then overnight, Capgemini released its latest World Wealth Report, which found more of the same: the number of people with investable assets of at least $1 million across Asia Pacific, Europe and North America increased by 7.5% in 2016, while their aggregate wealth rose by 8.2%, more than double the 2015 growth rate. Meanwhile, the wealth of the ultra-rich – those with more than $30 million in assets – grew by 9.2% percent.

As shown in the chart below, in a year in which the S&P hit new all time highs, the report found notable jumps in the ranks of millionaires in North America and Europe, where wealthy populations grew 7.8% and 7.7%, a sharp jump from the 2% and 5%, respectively, in 2015. Offsetting this was the Asia-Pacific region (ex Japan), where growth slowed modestly, slipping to 7.4% from 9%.  Still, as in previous years, the Asia-Pac region remains host to the largest number of millionaires, with some 5.5 million High Net Worth individuals (those with more than $1 million in investable assets) in 2016, versus 5.2 million in North America and 4.5 million in Europe.

Those gains add up to 16.5 million people with at least $1 million in investable assets around the globe, holding a record $63.5 trillion in wealth, up from 10.9 million high-net-worth investors in 2010 with combined assets of $42.7 trillion.

One of the most notable shifts in the market rankings was France overtaking the U.K. to occupy the number-five position. France benefited from a recovery in its real estate sector (from a decline in 2015 to 1.3% growth in 2016), as well as continued moderate growth in its economy and equity markets (Figure 8). Also notable was Sweden placing among the top 25 markets for the first time by overtaking  Singapore and Belgium, both of which suffered from declines in their equity markets. Other key changes included Russia (the fastest-growing market in 2016) moving past Saudi Arabia and Norway, aided by equity market growth of about 20%, surpassed Hong Kong, whose equity market was largely flat. Austria surpassed Mexico, which was the only top-25 market to witness a decline in HNWI population (due to a weak equity market).

But the biggest increases were observed in several countries, which saw their high net worth populations grow by double digits, largely as a result of a sharp rebound in commodity prices. Specifically, a handful of markets, including Russia, Brazil, and Canada dramatically reversed course from declines suffered a year ago. Gains in (commodity-linked) stocks, cited by investors as their largest asset class, helped fuel Russia’s 19.7% growth in the number of rich investors last year. That was a sharp turnaround from a 1.8% decline in 2015. Even so, the pool of Russian millionaires, at 182,000, is relatively small. Brazil also rebounded in 2016, with a 10.7% rise in millionaire investors after a 7.8% drop in 2015. There, the ultra-rich hold some 87% of all the wealth held by wealthy investors. The high-net-worth population of the U.S. grew 8% last year.

Looking at the top four markets of the U.S., Japan, Germany, and China, they continued to account for nearly two-thirds (61.1%) of all HNWIs in 2016 (Figure 4). New HNWIs, however, emerged from a wider variety of markets during 2016. Compared to 2015, when 81% of new HNWIs came from the top four markets, only 59% did so in 2016

Though the U.S. and Japan remain the largest and most mature HNWI markets, China’s influence since 2010 has been increasing. Its emergence as an economic powerhouse has made it the fastest grower of HNWI wealth and population since 2010, followed by Kuwait, Sweden, and Norway. The laggards during that time included the mature Latin American markets of Brazil and Mexico, both of which were major contributors to constrained global HNW growth. Meanwhile, above-average growth from 2010 onward by a variety of markets, including Japan, Netherlands, the U.S., and India, balanced out weaker growth in the other key economies, including the U.K., Argentina, Australia, and Canada

Ultra-HNWIs, with US$30 million or more in investable assets, posted striking improvements in wealth and population, thanks in part to an upswing in Latin American economic performance. Because Latin America accounts for more ultra-HNWI wealth than any other region, it holds significant sway over the segment’s overall growth. Vibrant growth in Latin America helped lift global ultra-HNWI wealth by 9.2%, up from an increase of only 2.5% in 2015. Similarly, the global ultra-HNWI population increased by 8.3%, nearly double the 4.2% recorded in 2015 (Figure 5).

Where did most of this newfound wealth come from? According to Capgemini, stock markets fueled the bulk of the gains for well-heeled investors in much of the world last year, though their portfolios aren’t overwhelmingly in stocks. On average, high-net-worth investors had just over 31.1 percent in stocks in 2017’s second quarter, up from 24.8 percent at the end of 2016, and a five-year high. Equities were cited by more than 90 percent of investors as “an important or the most important contributor to their investment performance.” After stocks, the next-highest chunk of assets for the (U)HNW population was sitting in cash and cash equivalents, at 27.3%. That was an increase from 2016’s 23.5%. meanwhile, real estate unexpectedly shrank to 14% of the average portfolio, from about 18% in 2016, the lowest allocation to this class in the past five years. At the same time, stakes in alternative assets such as hedge funds, commodities, and private equity took a deep dive.

But the biggest surprise, at least to us, from the report is that at current trends, the world is on its way to reaching more than US$100 trillion in HNWI wealth by 202 , thanks to strong global HNWI wealth growth of 8.2% in 2016, which far surpassed the anticipated rate of 6.1% annually over 2015 to 2025. Global HNWI wealth is now expected to expand by 5.9% annually through 2025 to reach US$106 trillion.

Meanwhile, as the rich get richer, the middle-class around the globe continues to shrink as the Fed itself admitted yesterday.

Which begs the question: if populist anger in 2016, when the world’s richest owned “only” $62 trillion in wealth, led to such unexpected and angry reactions to the status quo as “Brexit” and “Trump”, just what will the 2025 world, in which a few million people own $100 trillion in wealth, look like, and can the world’s central bank continue to shift blame and scapegoat others for what has been the world’s largest wealth transfer process in history?

Source: CapGemini.

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Authored by Simon Black via SovereignMan.com,

The first thing to understand about Venezuela today is that it’s becoming exceedingly difficult to even get here.

Or get out.

Nearly every major regional and international carrier has discontinued service to/from Caracas.

Due to safety concerns amid all the chaos and violence here, Lan Airlines in Chile (now merged with TAM in Brazil as Latin America’s biggest airline) no longer serves Venezuela.

Aerolineas Argentinas, based in Buenos Aires, stopped flying to Caracas last month.

Delta Airlines. United. Air Canada. British Airways. Alitalia. Aeromexico. All of these airlines no longer fly here.

Even Avianca, the national carrier of Colombia (right next door) terminated its daily flight between Bogota and Caracas back in July.

There are only a few routes remaining – I flew from Panama on Copa Airlines. And it was ridiculously expensive (more on that below).

Overall, Venezuela is being systematically cut off from the rest of the world.

But it gets worse.

Foreign governments are starting to put up barriers to prevent Venezuelans from coming to their countries.

For example, the Panamanian government decreed a few weeks ago that Venezuelan citizens will require visas in order to visit Panama, effective October 1st.

And there will likely be more of these visa requirements as the situation here in Venezuela deteriorates.

Moreover, the visas are becoming harder to acquire.

I keep hearing stories here from people who have been rejected for travel visas to other countries, mostly because the foreign consulates believe [perhaps accurately] that a Venezuelan tourist will attempt to stay illegally in their country.
There’s a story, for instance, about a Venezuelan family who applied for a visa to Australia to visit family there.

The consular official denied their visa, stating, “I cannot be satisfied that you genuinely intend a temporary stay in Australia.”

But even if someone here in Venezuela is lucky enough to be able to obtain a visa and find a flight, the cost of travel is now prohibitive.

My roundtrip ticket between Panama and Caracas cost over $2,000. It’s only about a two hour flight.

(Granted, I flew in business class, but even the economy ticket was nearly $1,500. Crazy.)

This is a simple supply/demand issue. There are hardly any airlines flying out of Venezuela, and a whole ton of people who want to get out. So the price goes through the roof.

Bear in mind that due to the nasty hyperinflation that Venezuelans have suffered, the minimum wage here works out to be about $32/month.

So it would literally require a minimum-wage earner more than four years of saving 100% of his/her paycheck just to afford a ticket out of this place.

This means there are millions… and millions… of people trapped here. And they’re suffering immeasurably.

For a place that used to be one of the wealthiest countries in the region, Venezuela is now completely destitute. People are running out of food. Medicine. Even toilet paper (yes, the stories are true).

The reversal of fortunes is remarkable. And the lessons are abundant.

First and foremost, Venezuela is an obvious example that rational, thinking people should have a Plan B.

No matter how peachy and wonderful things may seem, it makes sense to have a backup plan… especially if your government happens to be running woefully unsustainable finances as Venezuela’s government has done for years.

At a minimum, that backup plan ought to include some savings, ideally denominated in a stronger currency or an asset like gold that has a 5,000+ year history of holding its value, and held overseas in a stable country out of harm’s way.

Additionally, consider obtaining a second residency in a foreign country that you and your family enjoy.

Legal residency in a foreign country provides a LOT of advantages.

It means that you’ll always have a place where you and your family are welcome to go… and in many cases to work, invest, and do business.

Many foreign residency programs also make you eligible to apply for citizenship and a second passport after a few years have passed… which provides even MORE benefits that could be passed down to your children, grandchildren, and future generations.

In many countries, legal residency can be incredibly straightforward to obtain. We’ve written a lot about residency in places like Panama, Chile, Andorra, Philippines, Belgium, etc.

But nearly every country on the planet has standard procedures to obtain residency. So there really is a world of options out there.

Venezuela shows that when crisis hits, it’s too late. The options dry up.

So, again, a rational person develops a Plan B… now. When everything is just fine.

Think about it like insurance; you don’t wait until the house is engulfed in flames to buy a fire insurance policy. You buy the policy when everything is still fine.

And the great thing about a strong, robust Plan B is that even if nothing bad ever happens, you won’t be worse off.

There’s no downside to having the legal right to live, work, invest, etc. in a foreign country that you and your family really enjoy… where one day you can obtain a second passport.

There’s no downside in having some precious metals or emergency savings held at a conservative bank in a stable jurisdiction.

But if something ever does happen, you and your family will be covered.

Do you have a Plan B?

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Despite the expert guidance of one Ben Bernanke, the world’s once most levered hedge fund, Citadel, is reportedly returning money to some global hedge-fund clients.

Bloomberg reports that Ken Griffin’s Citadel LLC is forcing out some of the clients in one of its multistrategy hedge funds as it seeks to tighten up its investor base, according to people with knowledge of the matter.

The timing is intersting as Citadel’s move comes amid a revival of interest in hedge funds.

Hedge funds raised $13.4 billion in August, the second-largest monthly amount in two years, boosting net inflows for the year to $39 billion, according to data provider eVestment.

 

This marks a turnaround from 2016, when investors pulled $112 billion amid mediocre performance.

Bloomberg reports that some of the investors, particularly funds-of-funds, will receive all their money back from the Citadel Kensington Global Strategies Fund by the end of the year, the people said, asking not to be identified because the information is private.

Others will get back a portion of their investment, one of the people said.

In an obvious attempt to quell any anxiety, a spokesperson reassured this is standard operating procedure, as hedge funds sometimes return part of their capital because managing too much money can hurt performance.

“We have routinely made profit distributions, in whole or in part, across a number of our funds over the past 20 years,” Zia Ahmed, a spokesman for Citadel, which oversees $27 billion, said by email.

Notably performance has not been dreadful. Citadel’s main Wellington and Kensington funds gained 9.2 percent this year through August. Its Global Equities Fund was up 6.8 percent.

Still, we don’t feel too bad for Mr. Griffin after hauling in $600 million last year…

 

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While the establishment including various central banks, China (which has a “modest” capital flight problem), commercial banks such as JPM and especially its CEO Jamie Dimon who called Bitcoin a ‘fraud” similar to the tulip bubble of the 17th century, have come out as harsh opponents of cryptocurrencies, some notable “minority oppinions” have emerged in recent days, such as Morgan Stanley’s CEO, James Gorman, who yesterday suggested that Dimon is wrong and that “Bitcoin is certainly more than a fad… the concept of an anonymous currency is an interesting concept.“

However, the harshest criticism of Jamie Dimon’s takedown of bitcoin came from Macquarie’s head of AsiaPac equity strategy, Viktor Shvets who this morning said that it’s not bitcoin that’s the bubble- or fraud – but the entire modern financial system, which is 4x-5x bigger than the underlying economies, to wit:

When a number of financial executives recently described Bitcoin as a “fraud” akin to the tulip mania, it exhibited their apparent lack of appreciation of fundamental shifts that are altering global monetary and financial systems. If one describes Bitcoin as a fraud, how would one describe a ‘financial cloud’ that is at least 4x-5x larger than the underlying economies? It is unlikely that US$400 trillion+ of financial instruments circulating around the world would ever be repaid and most are now backed by assets that are already either worthless or are diminishing in value. How does one describe rates and  the yield curve that are either directly determined by CBs (BoJ or PBoC) or heavily influenced by them (Fed or ECB)?

The following chart summarizes Shvets’s concern: some $500 trillion in global financial assets including shadow banking, or roughly 500% global GDP.

As a result of this unprecedented financialization bubble, which is the true systemic fraud, “cryptocurrencies remain a tiny niche, but as in the case of tulips, they are a symptom of a deeply seated disease.  They represent a desperate search for alternatives to the above potential “train wreck.”

While we maintain that despite presence of US$7.5 trillion of excess reserves (amongst G4+Swiss central banks), global deflationary pressures are so strong that break-out of inflationary pressures is unlikely. However, if public sectors continue to insist on suppressing business/capital market cycles, then some form of full credit market nationalization and/or currency debasement becomes inevitable.

Hence, cryptocurrencies.

Shvets’ then gives some advice to the Dimons of the world: “people living in glass houses should not throw stones” and explains what is really happening: like gold, bitcoin has emerged as an insurance policy to the insanity unleashed by a reeling, establihsment political system and central bankers determined to preserve the status quo at all costs, who “instead of repudiation of debts, deleveraging and clearance of past excesses”, have encouraged the opposite, namely “accelerated leveraging and avoidance of debt repudiation and clearance.” As a result, setbacks have been relatively mild, and “we have not experienced a Kondratieff winter since 1930s”… so far.

Shvets also warns that “there is always a price to pay for deliberate and long-term suppression of cycles, and that is subsequent recoveries (both real GDP and inflation) get progressively weaker” and adds that “eventually, gravity would take control, and it would be impossible to generate positive outcomes, as deflation takes control. However, it is not clear to us whether we are close to such a ‘black hole’. Our working assumption is that we would require a significant further jolt to the system to push us closer to the ‘black hole’ and force coalescence around far more robust policies, such as a merger of fiscal and monetary policies, minimum income guarantees, etc. This is where gold and cryptocurrencies come in. Both are outside the system, and offer an exposure to what can be effectively described as an insurance policy.“

Shvets also admits that while cryptocurrencies are not yet money based on the conventional definition of being both “a store of value and a reliable and stable medium of exchange”, he notes that “the big difference between today’s cryptocurrencies and (say tulips) is that even though Bitcoin price could be reflecting extreme speculation, it is built on a durable technology that is likely to continue to evolve and strengthen, and although governments might try to restrict and ban it, ultimately technology is going to win.”

Hence, the challenge facing central banks is that although cryptocurrencies are today a tiny portion of the overall money pool, the nature of monetary economy is rapidly changing and central banks would have no choice but to adjust. Consumers and businesses would ultimately carry wallets consisting of different types of sovereign and cryptocurrencies, while transactions would be increasingly conducted via new technology channels (such as block chain).

Summarizing his retort to Jamie Dimon, and echoing what Mike Novogratz said earlier this week, Shvets asks rhetorically “Is there a role for cryptocurrencies and gold in investment portfolios?” and answers “Absolutely” because as explained above, these are nothing more than insurance policies against degrading of fiat currencies. However, for now, he says that the “US$ remains the king and until changes to the monetary system become more pronounced (cryptocurrencies account for ~0.5% of cash in circulation), economies would continue to reside on a de-facto US$ standard.”

Which then brings us to the real $500 trillion question: “whether in this new environment, would the US$ be dethroned as the key linchpin of the global trade and finance?“

And, as Shvets explains in his full note below, it is every investor’s own answer to that question, that provides the justification whether to buy – or stay away from – cryptocurrencies.

* * *

From Macquarie Capital’s Viktor Shvets

About cryptocurrencies and tulips

“Bitcoin is a sort of tulip… it is an instrument of speculation but certainly not a currency and we don’t see it as a threat to central bank policy.”

       – Vitor Constancio, ECB Vice President, September 2017

“You can’t have a business where people can invent a currency out of thin air… it is fraud and worse than tulips bulbs.”

       – Jamie Dimon, CEO JP Morgan, September 2017

Are cryptocurrencies new tulips?

The world today has more than one thousand cryptocurrencies and both their number and market capitalization has proliferated at an astounding speed. For example, in June 2016, the market capitalization of all cryptocurrencies was ~US$16bn (and over 80% was represented by Bitcoin). Today, market capitalization is in excess of US$160bn, and Bitcoin’s market share is only around 40%-45%. It was this rapid ascension that prompted the above-quoted references to tulip bubble in 17th century Holland. It is interesting that both Constancio of ECB and Dimon of JP Morgan referred to one of the  most famous bubbles, without explaining why tulip mania originated in the first place.

The same forces that created early 17th century asset inflation are powering…

Most scholars today agree that it was rapid expansion of flow of bullion into Amsterdam (which in the early part of 17th century was the key centre of European trade and finance) that created a feverish boom, ending with the collapse of the tulip mania in 1637. The large increase in silver flows from the New World between 1570 and 1630s (shipments more than doubled), currency debasements by various states across Europe to pay for the Thirty-Year War and many other wars that raged in the first half of the 17th century, when combined with Amsterdam’s standing as a safe and reliable depository of money, had significantly increased Dutch money supply. Although at the time there were no reliable monetary statistics, several indicators suggest a substantial rise in liquidity. For example, mint output rose from 9m guilders in 1630-32 to 17m guilders in 1633-35 and ballooned to 23m guilders at the peak of Tulip mania in 1636-38, falling back to 11m guilders in 1639-1641. Similarly, deposits at the Bank of Amsterdam rose from 3.6m guilders in 1632 to 5.7m guilders in 1637.

Indeed, it was a continent-wide phenomenon, with supply of the New World silver and demographic bulge, led to price rises for most commodities and not just tulips (from corn, wheat, meat to firewood). It had become known as the great inflationary pulse of late 16thearly 17th centuries. As today, it was a world of declining real wages and rapidly rising income and wealth inequalities. In Amsterdam, this inflationary pulse was aggravated by the new financial innovations, including establishment of the world’s first futures and options clubs in 1609. These clubs (mostly well-managed for professionals) encouraged reckless zero-margin financing for tulips and other commodities, which gradually sucked in an increasing number of participants, who were not professional tulip growers. The rest is history.

In some ways it is not dissimilar to the sub-prime crisis in 2008 or the dotcom bubble in 1999- 2001. Rising liquidity and loose standards always lead to bubbles. As Douglass North once remarked, “In a society that rewards pirate skills, such skills would proliferate.” Adapting that for today’s world, in a society that encourages financial speculation and financialization of underlying economies, rolling bubbles are the inevitable by-product, and as Gresham’s Law says, “Bad money drives out good.” In the case of 17th century Holland, any high-quality gold coins were immediately reminted into their poorer cousins. Today, systematic currency debasements drive wealth into alternative currencies and other means of safeguarding value, be they land holdings, fine wines or cryptocurrencies.

…alternative asset classes from Bitcoins to fine wines and gold

As the global economy embarked on a three-decade-long quest for stability at a time of stagnant productivity and declining returns on conventional labour, the stock of ‘money’ has expanded as dramatically as anything that had been experienced during late 16th-early 17th centuries. If we examine G4 economies (i.e. US, Eurozone, UK and Japan), the stock of narrow money expanded from 100 in 1996 to 380 as at June 2017, while nominal GDP has only expanded to 190. Today, the world’s narrow money supply (M1 – notes, coins and shortterm demand deposits) approximates US$33 trillion, while broader money supply (M2) is ~US$85 trillion and the value of all outstanding financial instruments (equities, sovereign and corporate bond markets, lending, shadow banking and repo markets) is around US$400 trillion or ~4x-5x global GDP. At the same time, G4 plus Switzerland CBs’ balance sheet exploded over the last decade from a run rate of US$2-3 trillion to almost US$16 trillion.

In this context, cryptocurrencies remain a tiny niche, but as in the case of tulips, they are a symptom of a deeply seated disease. They represent a desperate search for alternatives to the above potential ‘train wreck’. While we maintain that despite presence of US$7.5 trillion of excess reserves (amongst G4+Swiss central banks), global deflationary pressures are so strong that break-out of inflationary pressures is unlikely. However, if public sectors continue to insist on suppressing business/capital market cycles, then some form of full credit market nationalization and/or currency debasement becomes inevitable. Hence, cryptocurrencies.

Unlike Holland of 1637, when the state was quite prepared to inflict pain by closing open futures and option contract positions, and thus quickly deflating the bubble, it is highly doubtful that today’s regulators would ever be prepared to embark on such a drastic action. As outlined in our recent review of the Kondratieff cycles (here), governments have been in the business of micro-managing economies and liquidity for at least three decades (certainly since Paul Volcker’s days). Instead of repudiation of debts, deleveraging and clearance of past excesses, central banks and politics encouraged accelerated leveraging and avoidance of debt repudiation and clearance. As a result, setbacks were relatively mild, and we have not experienced a Kondratieff winter since 1930s. However, as described in our note, there is always a price to pay for deliberate and long-term suppression of cycles, and that is subsequent recoveries (both real GDP and inflation) get progressively weaker. Eventually, gravity would take control, and it would be impossible to generate positive outcomes, as deflation takes control. However, it is not clear to us whether we are close to such a ‘black hole’. Our working assumption is that we would require a significant further jolt to the system to push us closer to the ‘black hole’ and force coalescence around far more robust policies, such as a merger of fiscal and monetary policies, minimum income guarantees, etc.

This is where gold and cryptocurrencies come in. Both are outside the system, and offer an exposure to what can be effectively described as an insurance policy.

While cryptocurrencies are not yet stores of value or proper mediums of exchange, they…

While we do not pretend to be experts on Bitcoin or other multiple variations of cryptocurrencies (which use different software), the essential point about all of them is that they provide relatively secure and divisible means of transacting that is borderless, with predictable and decentralized supply. Although the above quotes indicate that senior financial executives believe that Bitcoin is a fraud, the reverse in many ways is true, as it is in fact a highly transparent system, with every transaction that has ever taken place recorded on the database (block chain), which is visible to all and every entry is permanent. The entire business case is built around mathematics rather than fraud. However, it is also true that it can be hacked (think of Mt Gox) and it has evolved into one of the key avenues that turbocharges potentially fraudulent and illegal transactions (think of Silk Road). But it is only natural, as criminals have a much higher than average tolerance to risk (an occupational hazard, so to speak), and hence they tend to be the first on the scene. Eventually, many of the custody and safety issues associated with cryptocurrencies would be resolved (or at least sufficiently blunted) to engender greater confidence.

…represent insurance policy against fiat currencies and proliferation of different transaction technologies

The essence of money is that it has to be accepted as a store of value and a reliable and stable medium of exchange. Cryptocurrencies at the current juncture do not satisfy either of these conditions. The massive booms and busts that Bit coin has experienced over the last three-to-four years is indicative of speculation rather than store of value. Similarly, there are few centres where cryptocurrencies can be today exchanged for actual services. In that respect, Vitor Constancio is correct that cryptocurrencies are not yet proper currencies. However, it is equally disingenuous to argue that US$ or Euro inherently have an underlying value. Being nothing more than fiat currencies, these are not backed by anything that is valuable, other than the prestige of and confidence in the state and the governments that issue that currency. As multiple examples from the past illustrate, the governments can and regularly do debase this privilege. It is during these times that alternatives—be they tulips, gold, antique cars, Bitcoin or seashells—spring up. If the governments ban Bitcoin from circulating within sovereign territory or attempt to over-regulate it, it is likely that money would simply shift to another assets (principally gold and precious metals) and if these are restricted (a la the US government ban on gold in 1930s-60s), then other assets would take its place.

However, the big difference between today’s cryptocurrencies and (say tulips) is that even though Bitcoin price could be reflecting extreme speculation, it is built on a durable technology that is likely to continue to evolve and strengthen, and although governments might try to restrict and ban it, ultimately technology is going to win. Hence, the challenge facing central banks is that although  cryptocurrencies are today a tiny portion of the overall money pool, the nature of monetary economy is rapidly changing and central banks would have no choice but to adjust. Consumers and businesses would ultimately carry wallets consisting of different types of sovereign and cryptocurrencies, while transactions would be increasingly conducted via new technology channels (such as block chain).

The key question is whether in this new environment, would the US$ be dethroned as the key linchpin of the global trade and finance?

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Authored by Nick Cunningham via OilPrice.com,

Oil moved back into bull market territory this week, with Brent prices jumping to a more than two-year high at $58 per barrel. A confluence of events has given a jolt of optimism to oil prices, with market sentiment at its most positive arguably in years.

The proximate spark from earlier this week was the Kurdish referendum, which raised the specter of a sizable supply outage when Turkey threatened to cut off Kurdish oil exports through its territory, and Baghdad joined in by calling for an international boycott of Kurdish oil sales.

So far, there are no signs of an actual supply disruption, but oil traded up at the start of the week on the heightened geopolitical risk.

But Brent prices have only moved up into the upper-$50s because the underlying fundamentals have improved markedly in the last few months. Oil demand is robust and continues to grow even as global supplies have stagnated. The OPEC deal seems to finally be bearing fruit in the form of a sharp decline in global crude oil inventories.

The oil market could finally be breaking out of a depressed pricing environment after three years of sluggishness, according to Trafigura Group, an oil trading company. “We are nearing the end of ‘lower for longer’ oil,” Ben Luckock, co-head of Group Market Risk at Trafigura said at the S&P Global Platts APPEC conference in Singapore on Tuesday. Luckock cites the fact that the oil market could lose some 9 million barrels per day (mb/d) by 2019 just from well depletion. That could leave the world short on supply, pushing up prices significantly.

Citigroup said that the supply crunch could come as soon as next year, arguing that so many OPEC members are already producing at their maximum, despite nominally restraining output. Libya, Nigeria, Venezuela, Iran and Iraq might not be able to add new supply next year, Citi says. And in fact, the risk of a slide in production is probably a more likely outcome for some members. “Fear in the market has been that OPEC production will rise dramatically,” Citi’s Ed Morse said in Singapore. But, “there could be a supply gap emerging, which could point to a tighter market.” Much of OPEC is failing to invest in its upstream capacity, Citi argues, leaving little room for higher output. Related: Is This The End Of U.S. Dominance In Global Energy?

Goldman Sachs added its voice to the growing chorus of bullishness this week. The investment bank argues that the backwardation exhibited in the Brent futures market—a situation in which near term oil contracts trade at a premium to futures dated further out—is a clear sign that the market is on its way to rebalancing. Backwardation will help drain inventories at a faster rate in the months ahead. “[T]he combination of very strong demand, potential greater cohesion among OPEC and growing pains for shale suggests that backwardation is likely to remain in place in coming months,” Goldman wrote in a note.

However, not everyone agrees that there is further room to run for oil prices, and just because oil has rallied in the past few weeks, does not mean that greater price increases are a foregone conclusion.

There are several roadblocks ahead.

With Brent prices back towards $60 per barrel, there could be a temptation by some OPEC members to add some barrels back onto the market, undermining the group’s collective compliance rate. The original six-month OPEC deal was much easier. The market looked much less stable, and cuts came at a seasonally advantageous time—Russian output tends to decline in winter months, for example, while it ticks up in summer months. Russia’s numbers look better recently, but only because of field maintenance.

With oil back (almost) at $60, the rationale for the OPEC cuts could lose some of its urgency. $60 has sort of been the informal target for the cartel, and participating countries are much more likely to cheat with prices firming up at that level, according to Olivier Jakob of Petromatrix. Related: Oil Analysts Baffled As Venezuela Ditches Petrodollar

At the same time, many argue the OPEC cuts still need to be extended because a $60 price signal will spur more shale drilling, putting downward pressure on the market all over again. “Brent could go above $60 a barrel in the fourth quarter,” Giovanni Staunovo, a commodity analyst at UBS Group AG, told Bloomberg. “It would send the wrong message to U.S. shale production to hold above there—drill and produce more.”

Moreover, Chinese oil demand soared earlier this year but has since cooled. U.S. shale continues to add output, and they also have a huge backlog of drilled but uncompleted wells. The fracklog, coupled with a step up in drilling, could lead to production growth of about 400,000 bpd over the next four months, Alexandre Andlauer, an analyst at AlphaValue SAS, told Bloomberg in an interview.

Finally, the financial positions of hedge funds and other money managers are starting to look a bit overdone. The recent surge in bullish bets from investors opens up more downside risk. As has been the case numerous times in the past two years, when bets on futures go too far to one side, the pendulum swings back. “The market is apprehensive about pushing [Brent] to $60 a barrel,” Geordie Wilkes, a research analyst at brokerage Sucden Financial Ltd., told The Wall Street Journal.

As always, there’s much disagreement among oil analysts on what happens next.

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