Month: September 2017

For the third time in as many weeks Israel has reportedly bombed positions inside Syria. Syrian state media along with multiple regional outlets showed fires burning at a facility near the Damascus international airport in the early hours of Friday. Israeli newspaper Haaretz reports that like with previous attacks, Israel jets fired from over Lebanese airspace. But it appears the latest exchange was part of a tit-for-tat exchange of fire between Syria and Israel in a situation that continues to dangerously escalate. 

Multiple reports are circulating that the Israeli attack was initiated after Syria's aerial defense missile system engaged and fired on an Israeli aircraft in the area. Video of what purports to show Syrian missiles firing on the aircraft circulated widely in Syrian social media and was picked up by Lebanese and Israeli news outlets. Early reports indicate that an Israeli drone was likely the target. 

#Syrian air defense downing an #Israeli drone over #Syria tonight. http://pic.twitter.com/yWCKZSzrCR

— Hamosh (@Hamosh84) September 22, 2017

It appears that Israel's attack came in response to Syria's engaging the unidentified aircraft – though it's unclear if the target was hit. This latest incident is unique for the fact that Syria quickly publicized that its missile defense system engaged the Israeli target. 

The Facebook page of a prominent Syrian pro-government militia reported in the early morning hours that, “an area near the Damascus international airport was attacked by a hostile missile." Israeli newspapers are claiming the site to be an ammunition storage depot. 

Early Friday morning images of the aftermath of the Israeli strike circulated in regional media. Image source: Jerusalem Post via Syrian social media. 

The exchange of fire comes after a Tuesday incident wherein the Israel Defense Forces shot down what it identified as an Iranian-made drone which departed from Damascus and subsequently entered the demilitarized zone along the border on the Golan Heights. Israel's aerial defense command fired a Patriot missile and destroyed the drone. 

Meanwhile, Israeli jets have been illegally operating in Lebanese airspace with increased intensity of late – even to the point of causing temporary moments of panic over southern Lebanon as low flying jets sometimes break the sound barrier. Violation of Syrian airspace was more brazen in previous years of the war, but as we've explained previously it appears that Israel is carefully calculating it's strike positions over "neutral" Lebanese airspace so as not to force a Russian response by directly violating Syrian space. 

Weeks ago senior Israeli officials were quoted as threatening to assassinate Syrian President Assad by bombing his palace in Damascus, while further adding that Israel will seek to derail the US-Russia brokered de-escalation deal reached in Astana, Kazakhstan earlier this summer. The Astana deal essentially put Russia in the driver's seat in Syria, which Israel sees as guaranteeing a permanent Iranian presence – something Prime Minister Netanyahu sees as intolerable. 

Though rarely acknowledged in the media, Israel and Syria have been at open war since at least 2013, when Israel launched a massive missile attack against a Syrian defense technology facility in Jamraya outside of Damascus. Israel has also targeted Damascus International Airport on a number of occasions. During the summer, the head of Israel's air force acknowledged nearly one hundred IDF attacks on convoys inside Syria over the course of the past 5 years. And as a Wall Street Journal investigation confirmed, the Israeli army has been providing military aid to al-Qaeda linked rebels operating in Syria's south for years.

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In what has been called “the most important day for Brexit since the referendum”, UK PM Theresa May is about to deliver a key speech laying out the next steps of the UK divorce process.

.@theresa_may has arrived for her key #Brexit #FlorenceSpeech – and in a Maserati no less. http://pic.twitter.com/7lw7Ffo69V

— Mark Stone (@Stone_SkyNews) September 22, 2017

As previewed last night, while few specific details are available on what May will cover in her speech, it is expected that the material will be significant given that the UK delayed the fourth round of Brexit talks (which were set to take place in the week of 25 September). A spokesperson for May has been quoted as saying that the speech would outline the UK’s hopes for a “deep and special partnership” with the EU following Brexit. May was said to have discussed the particulars with her Cabinet on Thursday 21 September. At the time of publication, no firm details have been leaked, although a BBC reporter was told that May will seek a transitional agreement, with a time frame of two years being touted.

“In the wake of slow progress on Brexit negotiations, the United Kingdom may be preparing to adjust its approach,” analysts at Stratfor write. “Brexit negotiations have achieved limited progress so far, and the EU side has warned that talks are still far from the ‘sufficient progress’ necessary to move to their second phase, which is meant to address the future bilateral relationship” which the UK was eager to begin in October. One theory that is gaining traction, therefore, is that the UK will offer some concessions to the EU which will help move the discussions on.

Read the full preview here.

Watch her speech live below.

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– Bitcoin “is a bubble” but gold is money says world’s biggest hedge fund manager
– Gold is a better “store of value,” Ray Dalio of $160 billion Bridgewater tells CNBC
– Bitcoin has climbed over 300% this year on speculation and expectation that it will continue to climb
– Bitcoin is not a valid currency due to volatility and lack of spending ability says Dalio
– Bitcoin is ‘worse than tulip bulbs’ says JP Morgan’s CEO Dimon
– Crypto buyers need to be concerned with government regulations

 

The manager of the world’s biggest hedge fund, Ray Dalio has declared his preference for gold over bitcoin.

Earlier this week Dalio, of $160bn Bridgewater Associates, labelled bitcoin ‘a bubble’. Dalio believes the 300% plus rise in price of the most popular cryptocurrency is down to speculation over its expected price rise, as opposed to confidence in its future role as a currency.

Dalio’s comments come less than a week after J.P. Morgan’s Jamie Dimon said bitcoin “is worse than tulip bulbs” and a month after Professor Robert Shiller said it was the best example of  “a bubble right now”.

Bitcoin had a tough week last week, taking a hit following an announcement by Chinese authorities to shut down exchanges. However, it has since begun to recover.

It’s strong performance this year has prompted many experienced investors and economists to call it out for what it seems to be – a bubble.

Bitcoin is not a store of value, it’s a bubble

“It’s not an effective store of wealth because it has volatility to it, unlike gold…Bitcoin is a highly speculative market. Bitcoin is a bubble.”

For Dalio speaking in an interview with CNBC, bitcoin is in too speculative a market for it to become an effective store of wealth. This has long been the case with the cryptocurrency. This is a problem that may well continue and may prevent it becoming a store of value.

Why will this continue? Back in August Dalio expressed concern over investors becoming complacent in markets and how this can then lead to volatility:

… People adapt to the circumstances they have experienced and are then surprised when the future is different than the past. In other words, most people are inclined to assume that the circumstances they have recently encountered will persist, which leads them to change what they are doing to be consistent with that recently experienced environment. 

This is what we are now seeing with bitcoin. Traders have pretty much only seen bitcoin rise over the last couple of years. This has come with high levels of volatility, but overall the price has gone up. For bitcoin investors, this is now the norm. This is what they have come to expect.

So they keep pushing the price (and volatility) up because, for now, what on earth else would possible happen?

When asked if bitcoin is in a bubble, evangelists are offended you could ask such a thing. Following Professor Shiller’s comments about bitcoin’s bubbliness we noted an article on CoinTelegraph which was about as far from a far economic argument for something not being in a bubble as you could get:

“Looking at a chart of the growth of sectors that experienced bubbles since 1990, there is a familiar pattern. However, Bitcoin skyrockets off and away from that chart, showing no correlation with the tech bubble, the homebuilders bubble or the biotech bubble.”

So…because bitcoin skyrockets off the chart then it’s not in a bubble.

As Dalio points out, gold is not volatile. Over hundreds of years it has consistently performed according to markets around it. It has rarely surprised anyone, ‘nor has the gold market been accused of any kind of irrational exuberance.

This makes gold an effective store of value. You are rarely surprised by the price of it, you are unlikely to check your gold savings account from one day to the next and find the price down by 40% in less than a week. This is not the case for bitcoin.

Bitcoin is not a currency 

“There are two things that are required for a currency. The first thing is that you can transact in it, it’s a medium of exchange. The second thing is it’s a store of value. Bitcoin today…you can’t spend it very easily.

We take these criteria, and we define a bubble based on those criteria, bitcoin is a bubble. It’s a shame – it could be a currency, it could work conceptionally, but the amount of speculation that’s going on and the lack of transaction…”

At this point it would be unfair not to remind Dalio that the bitcoin infrastructure is still relatively young. Of course it is difficult to spend bitcoin as the ecosystem is still in its infancy.

You have to give credit where its due for how far exchanges and merchants have come given the youth of the currency.

However, there are few people actually spending bitcoin. The majority of transactions come from speculators.

This ties into the point above, regardless of how many merchants accept bitcoin if the price can drop by 40% and then recover by 25% (as it did last week) how on earth can I expect to do the weekly shop with it?

Like bitcoin, gold is borderless in terms of where it can be accepted. The difference is that I know the price stability and its long-time role as a medium of exchange.

For bitcoin, this is just not a priority for those trading it on a daily basis. It is just about getting the price up and cashing in on those gains. It is all about speculation for most buyers.

Threat of government

One of the big selling points for early bitcoin adopters was its ability to operate outside of the eyes of ‘the Feds’. In truth, bitcoin transactions are not anonymous, as evidenced by US authorities’ ability to trace various bitcoin users in the past.

However transactions are not easily viewed and take serious work to trace. At present they do not have to be reported to authorities and traders can operate out of sight.

Dalio expressed his doubts that governments will continue to allow cryptocurrency transactions to be managed in such a way.

“the idea that it will be private in terms of transaction…is really questionable if you look at what’s gone on in terms of governments to examine it.”

The most recent attempt by the IRS to unmask cryptocurrency users was when they sued Coinbase and demanded client transaction records.

Jim Rickards recently expressed concern over governments’ interest in bitcoin, writing:

There is every indication that governments, regulators, tax authorities and the global elite are moving in on cryptocurrencies. The future of bitcoin may be one in which Big Brother controls what’s called “the blockchain” and decides when and how you can buy or sell anything and everything.

It is worth mentioning here that if a government is able to get hold of client records legally, then it stands to reason that cyber-hackers can also get their hands on them.

If prying eyes want to have your records then it stands to reasons that they may also be able to track your bitcoin.

Gold will be there in times of need, who knows about bitcoin

This is the second time in recent months that Dalio has shown a preference for investors to own gold.

In August he said clients should move 5% to 10% of their capital to gold as a hedge to the two biggest risk events that were unfolding: North Korea and the (then) looming debt ceiling crisis.

Neither risk has disappeared in the last month. They have perhaps been delayed some what but only at a cost of them being exacerbated further. At the time Dalio was speaking they were the two most imminent threats to financial and political stability.

In the background there were of course all the other disasters-in-waiting. Namely Washington’s inability to get anything done, central banks’ monetary policies for the last decade and, of course, the most bubbly of stock markets, to name a few.

We have no idea how the next few days, months or even years will play out. We are not taking a punt like the bitcoin traders and assuming everything will stay as it is. We are realists and know that the current ‘status-quo’ is just not sustainable.

In the same manner, we know that the current performance of bitcoin is also unsustainable if it expects to be taken seriously as a currency and store of value. For now this seems to be down a long and volatile road.

Given all of the unknowns, we know it is important to diversify and that we should anchor our savings in this ever uncertain and volatile environment.

As Dalio says:

When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on.

We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen and treasuries) would benefit.

So if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest you relook at this. “

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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Authored by Charles Hugh Smith via OfTwoMinds blog,

So let's look at currency flows, reserves and debt.

The demise of the U.S. dollar has been a staple of the financial media for decades. The latest buzzword making the rounds is de-dollarization, which describes the move away from USD in global payments.

De-dollarization is often equated with the demise of the dollar, but this reflects a fundamental misunderstanding of the currency markets.

Look, I get it: the U.S. dollar arouses emotions because it's widely seen as one of the more potent tools of U.S. hegemony. Lots of people are hoping for the demise of the dollar, for all sorts of reasons that have nothing to do with the actual flow of currencies or the role of currencies in the global economy and foreign exchange (FX) markets.

So there is a large built-in audience for any claim that the dollar is on its deathbed.

I understand the emotional appeal of this, but investors and traders can't afford to make decisions on the emotional appeal of superficial claims–not just in the FX markets, but in any markets.

So let's ground the discussion of the demise of the USD in some basic fundamentals. Now would be a good time to refill your beverage/drip-bag because we're going to cover some dynamics that require both emotional detachment and focus.

First, forget what currency we're talking about. If the USD raises your hackles, then substitute quatloos for USD.

There are three basic uses for currency:

1. International payments. This can be thought of as flow: if I buy a load of bat guano and the seller demands payment in quatloos, I convert my USD to quatloos–a process that is essentially real-time–render payment, and I'm done with the FX part of the transaction.

It doesn't matter what currency I start with or what currency I convert my payment into to satisfy the seller–I only hold that currency long enough to complete the transaction: a matter of seconds.

If sellers demand I use quatloos, pesos, rubles or RMB for those few moments, the only thing that matters is the availability of the currency and the exchange rate in those few moments.

2. Foreign reserves. Nation-states keep reserves for a variety of reasons, one being to support their own currency if imbalances occur that push their currency in unwanted directions.

The only nations that don't need to hold much in the way of currency reserves are those that issue a reserve currency–a so-called "hard currency" that is stable enough and issued in sufficient size to be worth holding in reserve.

3. Debt. Everybody loves to borrow money. We know this because global debt keeps rising at a phenomenal rate, in every sector: government (public), corporate and household (private sectors).(see chart below)

Every form of credit/debt is denominated in a currency. A Japanese bond is denominated in yen, for example. The bond is purchased with yen, the interest is paid in yen, and the coupon paid at maturity is in yen.

What gets tricky is debt denominated in some other currency. Let's say I take out a loan denominated in quatloos. The current exchange rates between USD and quatloos is 1 to 1: parity. So far so good. I convert 100 USD to 100 quatloos every month to make the principal and interest payment of 100 quatloos.

Then some sort of kerfuffle occurs in the FX markets, and suddenly it takes 2 USD to buy 1 quatloo. Oops: my loan payments just doubled. Where it once only cost 100 USD to service my loan denominated in quatloos, now it takes $200 to make my payment in quatloos. Ouch.

Notice the difference between payments, reserves and debt: payments/flows are transitory, reserves and debt are not. What happens in flows is transitory: supply and demand for currencies in this moment fluctuate, but flows are so enormous–trillions of units of currency every day–that flows don't affect the value or any currency much.

FX markets typically move in increments of 1/100 of a percentage point. So flows don't matter much. De-dollarization of flows is pretty much a non-issue.

What matters is demand for currencies that is enduring: reserves and debt. The same 100 quatloos can be used hundreds of times daily in payment flows; buyers and sellers only need the quatloos for a few seconds to complete the conversion and payment.

But those needing quatloos for reserves or to pay long-term debts need quatloos to hold. The 100 quatloos held in reserve essentially disappear from the available supply of quatloos.

Another source of confusion is trade flows. If the U.S. buys more stuff from China than China buys from the U.S., goods flow from China to the U.S. and U.S. dollars flow to China.

As China's trade surplus continues, the USD just keep piling up. What to do with all these billions of USD? One option is to buy U.S. Treasury bonds (debt denominated in dollars), as that is a vast, liquid market with plenty of demand and supply. Another is to buy some other USD-denominated assets, such as apartment buildings in Seattle.

This is the source of the petro-dollar trade. All the oil/gas that's imported into the U.S. is matched by a flow of USD to the oil-exporting nations, who then have to do something with the steadily increasing pile of USD.

Note what happens to countries using gold as their currency when they run large, sustained trade deficits. All their gold is soon transferred overseas to pay for their imports. So any nation using gold as a currency can't run trade deficits, lest their gold drain away.

Nations aspiring to issue a reserve currency have the opposite problem. They need enough fresh currency to inject into the global FX markets to supply those wanting to hold their currency in reserve.

This means any nation running structural trade surpluses will have difficulty issuing a reserve currency. Nations shipping goods and services overseas in surplus end up with a bunch of foreign currencies–whatever currencies their trading partners issue. This is opposite of the global markets need, i.e. a surplus (supply) of the reserve currency.

Any nation that wants to issue a reserve currency has to emit enough currency into the global economy to supply the demand for reserves. One way to get that currency into the global system is run trade deficits, as the world effectively trades its goods and services in exchange for the currency.

A reserve currency cannot be pegged; it must float freely on the global FX exchange. China's currency, the RMB, is informally pegged to the USD; it doesn't float freely according to supply and demand on global FX markets.

Nobody wants to hold a currency that can be devalued overnight by some central authority. The only security in the realm of currencies is the transparent FX market, which is large enough that it's difficult to manipulate for long.

(Global FX markets trade trillions of dollars, yen, RMB and euros daily.)

This is why China isn't keen on allowing its currency to float. Once you let your currency float, you lose control of its exchange rate/value. The value of every floating currency is set by supply and demand, period. No pegs, no "official" rate, just supply and demand.

If traders lose faith in your economy, your ability to service debt, etc., your currency crashes.

So let's look at currency flows, reserves and debt. In terms of currencies used for payments, the euro and USD are in rough parity. Note the tiny slice of payments made in RMB/yuan. This suggests 1) low demand for RMB and/or 2) limited supply of RMB in FX markets.

The USD is still the dominant reserve currency, despite decades of diversification. Global reserves (allocated and unallocated) are over $12 trillion. Note that China's RMB doesn't even show up in allocated reserves–it's a non-player because it's pegged to the USD. Why hold RMB when the peg can be changed at will? It's lower risk to just hold USD.

While total global debt denominated in USD is about $50 trillion, the majority of this is domestic, i.e. within the U.S. economy. $11 trillion has been issued to non-banks outside the U.S., including developed and emerging market debt:

According to the BIS, if we include off-balance sheet debt instruments, this external debt is more like $22 trillion. FX swaps and forwards: missing global debt?

Every day, trillions of dollars are borrowed and lent in various currencies. Many deals take place in the cash market, through loans and securities. But foreign exchange (FX) derivatives, mainly FX swaps, currency swaps and the closely related forwards, also create debt-like obligations. For the US dollar alone, contracts worth tens of trillions of dollars stand open and trillions change hands daily. And yet one cannot find these amounts on balance sheets. This debt is, in effect, missing.

The debt remains obscured from view. Accounting conventions leave it mostly off-balance sheet, as a derivative, even though it is in effect a secured loan with principal to be repaid in full at maturity. Only footnotes to the accounts report it.

Focusing on the dominant dollar segment, we estimate that non-bank borrowers outside the United States have very large off-balance sheet dollar obligations in FX forwards and currency swaps. They are of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet debt.

So let's wrap this up. To understand any of this, we have to start with Triffin's Paradox, a topic I've addressed numerous times here. The idea is straightforward: every currency serves two different audiences, the domestic economy and the FX/global economy. The needs and priorities of each are worlds apart, so no currency can meet the conflicting demands of domestic and global users.

Understanding the "Exorbitant Privilege" of the U.S. Dollar (November 19, 2012)

 

So if a nation refuses to float its currency for domestic reasons, it can't issue a reserve currency. Period.

If a nation runs trade surpluses, it has few means to emit enough currency into the FX market to fulfill all three needs: payment, reserves and debt.

As for replacing the USD with a currency convertible to gold: first, the issuer would need to emit trillions for the use of its domestic economy and global trade (let's say $7 trillion as an estimate). Then it would need to issue roughly $6 trillion for reserves held by other nations, and then another $11 trillion (or maybe $22 trillion) for those who wish to replace their USD-denominated debt with debt denominated in the new gold-backed currency.

source

So that's at least $24 trillion required to replace the USD in global markets, roughly three times the current value of all the gold in existence. Given the difficulty in acquiring more than a small percentage of available gold to back the new currency, this seems like a bridge too far, even if gold went to $10,000 per ounce.

Personally, I would like to see a free-floating completely convertible-to-gold currency. Such a currency need not be issued by a nation-state; a private gold fund could issue such a currency. Such a currency would fill a strong demand for a truly "hard" currency. The point here is that such a currency would have difficulty becoming a reserve currency and replacing the USD in the global credit market.

Issuing a reserve currency makes heavy demands on the issuing nation. Many observers feel the benefits are outweighed by the costs. Be that as it may, the problem of replacing the USD in all its roles is that no other issuer has a large enough economy and is willing to shoulder the risks and burdens of issuing a free-floating currency in sufficient size to meet global demands.

Of related interest:

How Dangerous Is Emerging Markets Dollar Debt?

$10.5 trillion in dollar-denominated debt

The Fed's Global Dollar Problem Borrowers around the world have gone on a dollar binge. This makes them vulnerable when interest rates rise.

*  *  *

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

 

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Iranian President Hassan Rouhani delivered another snub to the Trump administration on Friday when he said that Iran would continue its missile program in defiance of US sanctions, and to underscore the determination, the Iranian Revolutionary Guard unveiled its newest long-range ballistic missile during a military parade in Tehran.

The new missile that was introduced at the parade is capable of reaching much of the Middle East, including Israel, with a range of 1,200 miles. It's also capable of carrying several warheads. The parade in Tehran commemorated the 1980s Iraq-Iran war. Though Iran has long boasted of having missiles in the same range in its arsenal, it was the first time that the new Khoramshahr missile was displayed in public, the AP reported adding that in February, Iran test-fired the same medium-range type of missile, prompting Trump to say that the United States is "putting Iran on notice."

Friday's parade also showcased various Iranian army units and Revolutionary Guard forces, as well as the police, according to the Associated Press. Similar parades were held in other Iranian cities.

Rouhani addressed the parade in Tehran, saying that Iran would not halt its missile program but continue to boost military capabilities, despite U.S. demands.

“We will increase our military power as a deterrent. We will strengthen our missile capabilities … We will not seek permission from anyone to defend our country.

 

“All countries in the world supported the nuclear deal in the United Nations General Assembly this year … except the United States and the Zionist regime (Israel),” Rouhani said.

During his address to the general assembly earlier in the week, Rouhani slammed the US and Trump for reneging, and claimed that the Iran deal belongs “to the world” and “cannot be renegotiated.” He criticized Trump’s “ugly, ignorant words” made during Trump's own address where he urged world powers to come together and pressure the Iranian regime. Rouhani added that the country’s missile program is vital to national security, citing the country's long-running war with Iraq in the 1980s as justification for the program.

Iran has continued its ballistic missiles program in defiance of sanctions signed into law by US President Donald Trump in August that targeted any person or company that does business with any entity designated by the administration as having a connection to Iran's missile program. The White House said the sanctions were also levied in response to the country’s purported support of terrorists and alleged human rights violations.

Trump said earlier this week that he has made up his mind about whether to re-certify Iran’s compliance with the deal, but has yet to reveal his decision publicly. The administration has until Oct. 15 to decide whether to label Iran compliant or not. The White House certified in July that Iran was in compliance with the nuclear deal, but would “face consequences” for violating the “spirit” of the deal.

In a press conference Wednesday night, US Secretary of State Rex Tillerson repeated the administration’s line that Iran, while technically in compliance with the deal's terms, has continued to engage in destabilizing behaviors like funding Hezbollah, and Shia militias fighting on behalf of embattled Syrian President Bashar Al Assad, and by continuing its ballistic weapons program. Tillerson said the agreement must be altered, or the US wouldn’t be able to abide by its terms.

Other signatories to the deal have expressed reluctance to renegotiate. According to Reuters, Chinese Foreign Minister Wang Yi said tensions on the Korean peninsula underlined the importance of the Iranian deal, and that China would continue to support it. Russian Foreign Minister Sergei Lavrov said that the US imposition of unilateral sanctions on Iran was “illegitimate and undermines the collective nature of international efforts.”

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Just a week after Jamie Dimon first attacked Bitcoin for being a "fraud," the self-interested JPMorgan CEO has doubled down on his anti-crypto-currency tirade, somewhat exposing just how concerned he is at the potential for disruption within his industry.

To paraphrase, here's what Dimon said last week…

"It’s a fraud. It’s making stupid people, such as my daughter, feel like they’re geniuses. It’s going to get somebody killed. I’ll fire anyone who touches it."

And now, as CNBC reports, JPMorgan Chief Executive Jamie Dimon has laid into bitcoin and digital currencies once again, labeling it a "novelty" that is likely to end badly.

Eventually governments will close down cryptocurrencies: JPMorgan CEO from CNBC.

 

"Right now these crypto things are kind of a novelty. People think they're kind of neat. But the bigger they get, the more governments are going to close them down," Dimon said during an interview with CNBC-TV18 in New Delhi, India, on Friday.

 

Dimon was concerned that with bitcoin, ethereum and various Initial Coin Offerings (ICOs), there are now cryptocurrencies everywhere.

 

"It's creating something out of nothing that to me is worth nothing," he said. "It will end badly."

 

Dimon warned that governments will eventually crack down on cryptocurrencies and will attempt to control it by threatening anyone who buys or sells bitcoin with imprisonment, which would force digital currencies into becoming a black market.

And this has pushed Bitcoin lower (extending losses from BTC China liquidations ahead of its closure)…

Dimon's comments came under criticism from several bitcoin investors and experts.

"Comments like Jamie's show a failure to grasp the significance of the blockchain and the power of brand in a fundamental sea of change," said Scott Nelson, CEO and chairman of blockchain firm Sweetbridge, in an email to CNBC last week.

And as we reported previously, a company called Blockswater has filed a market abuse complaint in Sweden against Dimon and JPMorgan.

Blockswater claims Dimon deliberately spread false and misleading information, according to a report by City A.M.

And perhaps even more interesting, as we detailed before, JPMorgan Securities continues to allow clients to trade this 'fraudulent' security through its platform…

Source

In fact JPMorgan has transacted 87 million Swedish Kroner's worth of Bitcoin ETF transcations in the past year for clients…

Source

As we asked rhetorically previously, does the bank not have a fiduciary duty not to transact on clients' behalf in a security it defines as fraud? (like Subprime CDOs?)

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Authored by Robert Shiller via MarketWatch.com,

The US stock market today looks a lot like it did at the peak before all 13 previous price collapses. That doesn't mean that a bear market is imminent, but it does amount to a stark warning against complacency.

The U.S. stock market today is characterized by a seemingly unusual combination of very high valuations, following a period of strong earnings growth, and very low volatility.

What do these ostensibly conflicting messages imply about the likelihood that the United States is headed toward a bear market in stocks?

To answer that question, we must look to past bear markets. And that requires us to define precisely what a bear market entails. The media nowadays delineate a “classic” or “traditional” bear market as a 20% decline in stock prices.

That definition does not appear in any media outlet before the 1990s, and there has been no indication of who established it. It may be rooted in the experience of Oct. 19, 1987, when the stock market dropped by just over 20% in a single day. Attempts to tie the term to the “Black Monday” story may have resulted in the 20% definition, which journalists and editors probably simply copied from one another.

Origin of the ‘20%’ figure

In any case, that 20% figure is now widely accepted as an indicator of a bear market. Where there seems to be less overt consensus is on the time period for that decline. Indeed, those past newspaper reports often didn’t mention any time period at all in their definitions of a bear market. Journalists writing on the subject apparently did not think it necessary to be precise.

In assessing America’s past experience with bear markets, I used that traditional 20% figure, and added my own timing rubric. The peak before a bear market, per my definition, was the most recent 12-month high, and there should be some month in the subsequent year that is 20% lower. Whenever there was a contiguous sequence of peak months, I took the last one.

Referring to my compilation of monthly S&P Composite and related data, I found that there have been just 13 bear markets in the U.S. since 1871. The peak months before the bear markets occurred in 1892, 1895, 1902, 1906, 1916, 1929, 1934, 1937, 1946, 1961, 1987, 2000 and 2007. A couple of notorious stock-market collapses — in 1968-70 and in 1973-74 — are not on the list, because they were more protracted and gradual.

CAPE ratio

Once the past bear markets were identified, it was time to assess stock valuations prior to them, using an indicator that my Harvard colleague John Y. Campbell and I developed in 1988 to predict long-term stock-market returns. The cyclically adjusted price-to-earnings (CAPE) ratio is found by dividing the real (inflation-adjusted) stock index by the average of 10 years of earnings, with higher-than-average ratios implying lower-than-average returns. Our research showed that the CAPE ratio is somewhat effective at predicting real returns over a 10-year period, though we did not report how well that ratio predicts bear markets.

This month, the CAPE ratio in the U.S. is just above 30. That is a high ratio. Indeed, between 1881 and today, the average CAPE ratio has stood at just 16.8. Moreover, it has exceeded 30 only twice during that period: in 1929 and in 1997-2002.

But that does not mean that high CAPE ratios aren’t associated with bear markets. On the contrary, in the peak months before past bear markets, the average CAPE ratio was higher than average, at 22.1, suggesting that the CAPE does tend to rise before a bear market.

Moreover, the three times when there was a bear market with a below-average CAPE ratio were after 1916 (during World War I), 1934 (during the Great Depression) and 1946 (during the post-World War II recession). A high CAPE ratio thus implies potential vulnerability to a bear market, though it is by no means a perfect predictor.

Earnings to the rescue?

To be sure, there does seem to be some promising news. According to my data, real S&P Composite stock earnings have grown 1.8% per year, on average, since 1881. From the second quarter of 2016 to the second quarter of 2017, by contrast, real earnings growth was 13.2%, well above the historical annual rate.

But this high growth does not reduce the likelihood of a bear market. In fact, peak months before past bear markets also tended to show high real earnings growth: 13.3% per year, on average, for all 13 episodes. Moreover, at the market peak just before the biggest ever stock-market drop, in 1929-32, 12-month real earnings growth stood at 18.3%.

Another piece of ostensibly good news is that average stock-price volatility — measured by finding the standard deviation of monthly percentage changes in real stock prices for the preceding year — is an extremely low 1.2%. Between 1872 and 2017, volatility was nearly three times as high, at 3.5%.

Low volatility

Yet, again, this does not mean that a bear market isn’t approaching. In fact, stock-price volatility was lower than average in the year leading up to the peak month preceding the 13 previous U.S. bear markets, though today’s level is lower than the 3.1% average for those periods. At the peak month for the stock market before the 1929 crash, volatility was only 2.8%.

In short, the U.S. stock market today looks a lot like it did at the peaks before most of the country’s 13 previous bear markets. This is not to say that a bear market is guaranteed: Such episodes are difficult to anticipate, and the next one may still be a long way off. And even if a bear market does arrive, for anyone who does not buy at the market’s peak and sell at the trough, losses tend to be less than 20%.

But my analysis should serve as a warning against complacency. Investors who allow faulty impressions of history to lead them to assume too much stock-market risk today may be inviting considerable losses.

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

• North Korea Ramps Up International Rancor With H-Bomb Threat (WSJ)
• A nuclear test over the Pacific? Logical, terrifying (Reuters)
• What’s a ‘dotard’? Kim’s insult to Trump (Reuters)
• From Rubble and Ruin, a Mexican Town Wonders How to Rebuild After the Earthquake (WSJ)
• Bonuses Are Shrinking. Blame Hurricanes and Trump (BBG)
• OPEC’s ‘Problem Children’ Are Holding Down Oil Prices (WSJ)
• Trump Backers Cheer Economic Agenda, Blame GOP for Setbacks (WSJ)
• Turkey to deploy troops inside Syria’s Idlib – Erdogan (Reuters)
• Uber Loses Its License to Operate in London (BBG)
• Alabama Senate race tests Trump’s ability to deliver his voters (Reuters)
• Puerto Rico: No Power, No Phones and Lots of Damage (WSJ)
• Mnuchin’s Incomplete Treasury Staff Could Be a Risk in Crisis (BBG)
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Overnight Media Digest

WSJ

– Standard & Poor’s became the last of the three major rating agencies to lower its view on China’s creditworthiness, a move that came as China has taken forceful measures to tamp down risks and emphasize stability. on.wsj.com/2xzs9qg

– North Korea’s foreign minister Ri Yong Ho said the country could detonate a hydrogen bomb over the Pacific Ocean in response to U.S. President Donald Trump’s speech before the United Nations. on.wsj.com/2xyUk8K

– Hewlett Packard Enterprise Co plans to cut its workforce by 10 percent, according to a person familiar with the plans. on.wsj.com/2xyUZqK

– General Motors Co is laying off more than 250 workers from an engine factory in Canada and trimming production at two U.S. facilities, fallout from a strike at a vehicle-assembly plant in Ontario. on.wsj.com/2xz4m9N

– Facebook Inc, under fire for its response to Russian activity on its site before the U.S. presidential election, agreed to hand over detailed information on thousands of Russian-backed ads to congressional investigators and said it would take steps to increase political transparency. on.wsj.com/2xyDbvZ

– On the eve of a closely watched speech on Brexit by UK Prime Minister Theresa May, the European Union’s chief negotiator said Britain needs to speedily present concrete proposals on all the main sticking points for the talks to advance. on.wsj.com/2xycmrs

 

FT

The UK public sector posted its lowest August budget deficit in 10 years, according to figures from the Office for Budget Responsibility, leading economists to predict that finance minister Philip Hammond will have more room for giveaways in his November Budget.

The UK Competition and Markets Authority will probe investment consultancies with a focus on conflicts of interest, barriers to entry and a lack of information for customers, after the industry was referred to the CMA by the Financial Conduct Authority because of “serious concerns” about the way it works.

Prime Minister Theresa May will promise to strengthen legal protections for EU citizens living in the UK in a speech in Florence on Friday in hopes of breaking the stalemate in Brexit negotiations.

UK’s food and drink industry cut back their capital investment last year and are “addicted” to cheap labour, after a second year of falling revenues, according to an annual review by OC&C, a consultancy.

 

NYT

– Facebook Inc said it would turn over 3,000 ads linked to Russia to Congress after growing scrutiny about its role in last November’s presidential election. nyti.ms/2hmgql7

– With a new executive order, U.S. President Donald Trump is expanding efforts to constrict North Korea’s trade with the rest of the world. nyti.ms/2xkKepE

– S&P Global Ratings downgraded its rating on China, saying the country’s strong economic growth has been fueled by heavy borrowing — and that it expects that borrowing to continue. nyti.ms/2fecodT

– The U.S. Department of Justice is seeking information about a New York law firm’s work on behalf of a Russia-aligned former president of Ukraine – Viktor Yanukovych. nyti.ms/2hnB2cG

– The Trump administration is preparing to relax Obama-era rules on drone strikes and commando raids outside conventional battlefields, according to officials familiar with internal deliberations. nyti.ms/2flsfes

 

Britain

The Times

Dorothy Thompson, one of a handful of female chief executives to run a large UK-listed company, is to step down as chief executive of the power giant Drax Group Plc after 12 years in charge. (bit.ly/2fE9tvu)

Britain’s Co-op Group Ltd has sold its last remaining stake in the struggling Co-op Bank as its food business continues to grow and outperform the market. (bit.ly/2fEEcJ8)

The Guardian

Ryanair Holdings Plc Chief Executive Michael O’Leary, has escalated the airline’s dispute with pilots, saying they do not have a “difficult job” and claiming he can force them to defer their time off. (bit.ly/2fEfKHI)

The UK’s first new nuclear power plant for 20 years could be delayed again, after trade unions for construction staff working on the 20 billion pound ($27.14 billion) Hinkley Point C project announced a ballot for strike action in a dispute over pay. (bit.ly/2fELWuB)

The Telegraph

Challenger bank Paragon has shaken up its management and restructured itself to accelerate its push into mainstream banking services, including car, business and development finance. (bit.ly/2fElUYt)

Richard Cousins, chief executive of FTSE 100 catering giant Compass Group Plc, is to step down after more than a decade in the role during which he brought the firm back from the brink and turned it into one of the most successful constituents of the index. (bit.ly/2fDDThx)

Sky News

Uber is bracing itself for regulators‎ to deliver a crucial ruling that could trigger the removal of tens of thousands of private-hire drivers from London’s streets. Transport for London‎ could announce as soon as Friday whether it is handing the world’s biggest ride-hailing app a new five-year operating licence. (bit.ly/2fDFfc7)

Paul Kahn, the former boss of Airbus’s UK operations‎, is to resurface in a senior role at Cobham Plc, the embattled defence and aerospace group. (bit.ly/2xi0Hxi)

The Independent

Greenpeace campaigners in boats and kayaks have stormed a 23-tonne ship, in an attempt to stop it from delivering diesel cars made by Volkswagen AG to the UK. (ind.pn/2fDOmJI)

 

 

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