Month: January 2023

With the public court of opinion having long ago convicted crypto fraudster Sam Bankman-Fried – even as several notable holdouts such as Bill Ackman  and Andrew Ross-Sorkin remain –  attention is now turning to his just as “effectively altruistic” parents. According to a court filing by bankrupt FTX, SBF’s parent should be forced to answer questions and provide financial documents about their personal wealth and any money they may have gotten from the 30-year-old scammer.

As Bloomberg notes, FTX asked a judge for permission to question under oath Bankman-Fried’s family and a handful of the company’s former top executives as part of a hunt for hidden assets that could be used to repay creditors owed billions of dollars. Or not so hidden: as a reminder in November it was revealed that SBF’s disgraced “progressive” parents – Stanford University law professors Joseph Bankman and Barbara Fried (who on her bio says she has “written extensively on questions of distributive justice, in the areas of tax policy, property theory and political theory” which apparently means using her son’s stolen money to buy herself beachfront mansions) – purchased at least one $16.4 million beachfront “vacation home” in the gated Bahamas community of Old Fort Bay.

The court filing shows “the aggressive approach that FTX advisers are taking to recover any money that Bankman-Fried may have inappropriately handed out.” The company was heavily involved in lobbying politicians and regulators and making campaign donations to Democrats and the White House. Federal prosecutors charged Bankman-Fried with fraud for his role in the collapse of FTX, which filed for bankruptcy in November.

Incidentally, when asked by Reuters in November why the couple decided to buy a vacation home in the Bahamas and how it was paid for, a spokesperson for the professors said only that Bankman and Fried had been trying to return the property to FTX. “Since before the bankruptcy proceedings, Mr. Bankman and Ms. Fried have been seeking to return the deed to the company and are awaiting further instructions,” the spokesperson said.

They’ll now get their chance.

According to the court filing, Joseph Bankman and his wife, Barbara Fried, were actively involved in their son’s company. Joseph Bankman, a law professor at Stanford Law School, offered tax advice to FTX employees and helped recruit the company’s first lawyers, the court filing said, citing media reports. Menawhile, ultra-progressive liberal, Barbara Fried, founded a political action committee that got money from FTX and its top executives, according to the filing.

It gets better: the brother, Gabriel Bankman-Fried, founded an organization that lobbied members of the US Congress from a multimillion dollar property near the US Capitol, according to the filing.

Finally, for those wondering if the alleged criminal’s parents will be teaching at Stanford Law School next year (one really can’t make this up), the answer is no: apparently not even Stanford will sink that low.

Separately, FTX watchers will recall that early on, the now insolvent exchange asked the bankruptcy judge to keep the names of its thousands of creditors confidential and under seal. Well, we finally got a glimpse at some of the companies that provided money to fund Sam’s discretionary spending (i.e., theft of FTX funds). According to the latest bankruptcy court documents, FTX owes money to a dizzying assortment of firms including Goldman Sachs and JPMorgan.

The 116-page document filed on Wednesday detailing FTX’s creditors contains thousands of entries, and while the names of individuals are redacted, the list identifies heavyweights across Wall Street as holding some kind of claim against Sam Bankman-Fried’s once-giant exchange.

Oh well, time to crack down on the largest Wall Street banks  for enabling the biggest fraud in history.

Joking aside – because everyone knows nothing will ever happen to Goldman and JPM –  another interesting name in the creditor list stands out:

The full creditor list is below:

The disclosure doesn’t reveal the nature or size of the debts and inclusion on the list doesn’t mean a firm is highly exposed to FTX.

At a moment the NATO alliance is broadly pushing for its members to bolster defense readiness and spending, Denmark is planning to introduce compulsory military conscription for women in order to greatly boost the size of national armed forces.

Jakob Ellemann-Jensen, Denmark’s defense minister and deputy prime minister, announced his intent to introduce women’s conscription in an interview with broadcaster TV2, with Bloomberg subsequently reporting on the comments.

He stressed that at current levels, the Danish defense forces cannot really defend Denmark, and so the nation needs to tap more manpower.

“If we are to be able to strengthen our defense, we must have a basis from which to strengthen it. In public and private companies, you can grab employees from other places, but you can’t do that in the defense,” Ellemann-Jensen said. “In the future, women must be called up for military service in the same way as men.”

And responding to a question over whether conscription should apply equally to both sexes, he stressed that “the armed forces benefit from more women coming.”

As Bloomberg points out, the discussion and planning for the significant change comes as Denmark and others have been deepening their unprecedented support to Ukraine. In December, the small northern European country donated 300 million Danish crowns, the equivalent of $42.8 million, in military aid to Ukraine, and last week gifted 19 French-made Caesar howitzer artillery systems.

“Currently, women can join on a voluntary basis while men generally are required to serve if they are called on under a lottery system, for a duration of four months for most,” Bloomberg details of existing Danish military policies on women. Already the number of women recruits is on the rise.

“The new measure has the backing of several women’s organizations and comes as Denmark, like the rest of Europe, provides increasing levels of support to Ukraine in the war to oust Russia from the country,” the report adds.

Neighboring Norway already has conscription for women, having become the first NATO member to implement it, and as of 2021 20% of its armed forces were composed of women.

A mere hours after both Washington and Berlin confirmed they will be providing Western-made heavy battle tanks for Ukraine, reversing course on prior policy after intense inter-NATO debate, Ukraine said it is now pushing hard for 4th generation fighter jets.

That’s according to an adviser to Ukrainian defense minister Oleksiy Reznikov, who just told Reuters that Kiev will step up efforts to lobby for newer western aircraft to replace its small, aging Soviet fleet. “The next big hurdle will now be the fighter jets,” the defense ministry official, Yuriy Sak, said.

“Every type of weapon we request, we needed yesterday,” Sak added, expressing Ukrainian impatience as the Russians report fresh gains in the east and south, also after Ukrainian forces confirmed withdrawing completely from Soledar. “We will do everything possible to ensure Ukraine gets fourth-generation fighter jets as soon as possible.”

American F-16s have long been as the top of President Zelensky’s defense “shopping list” – especially following his first appearance before Congress. In a March 16 virtual address to US lawmakers he urged Washington to send jets along with anti-air defenses to help “close the sky”.

But his public calls for ‘closing the sky’ grew a bit quieter in the months that followed that initial March speech given it proved unpopular with the American public – because in essence this was an appeal for the US to impose a ‘no fly zone’ – and of course this would be a de facto act of war.

But with advanced tanks now in the bag, The Hill admits that “Western fighter jets and longer-range artillery units, which would allow Ukraine to strike Russian forces deeper in occupied territory, will likely be the next debate for NATO.”

Of course, those few public voices arguing against these iterative steps of pledging heavier and heavier weaponry have pointed out precisely that it only ensures a ladder of escalation leading to direct clash with Russia in a WW3 scenario, which some say we are already in the midst of.

The Ukrainian side is of course fully aware that its strategy to keep pressing the West for bigger and more advanced weapons at all costs is working. The aforementioned defense ministry adviser explained to Reuters further:

“They didn’t want to give us heavy artillery, then they did. They didn’t want to give us HIMARS systems, then they did. They didn’t want to give us tanks, now they’re giving us tanks,” Sak said.

“If we get them, the advantages on the battlefield will be just immense,” he added. “It’s not just F-16s: fourth generation aircraft, this is what we want.”

And then this amazing, brazen admission: “Apart from nuclear weapons, there is nothing left that we will not get,” Sak added.

What is the limiting principle at this point? Because all we ever hear is the robotic mantra, “whatever Ukraine needs.” Next week they may claim to “need” a nuclear warhead…?

— Michael Tracey (@mtracey) January 26, 2023

As for the Pentagon reaction to all this, spokesman John Kirby cited “constant discussions” with Ukrainian officials on what they need. “Can’t blame the Ukrainians for wanting more and more systems,” Kirby said. “It’s not the first time they’ve talked about fighter jets, but I don’t have any announcements to make on that front.”

Similar to when the tank issue was first introduced, likely it’ll take a mere few months or less for the West’s supposedly firm “no” to become “maybe…” to a supposedly reluctant, “OK, yes”. It’s only a matter of time, and yet few top officials are acknowledging the increasing speed at which they are running straight up the escalation ladder with Russia. As Glenn Greenwald aptly observed this week, “The more escalation there is, the less debate.”

Authored by Michael Maharrey via SchiffGold.com,

Policy wonks and government people come up with some really dumb ideas. And a lot of those dumb ideas just won’t go away.

Now that we’re in the early stages of the fake debt ceiling fight, a really dumb idea has been resurrected from the dead – the trillion-dollar coin.

Last week, the federal government ran up against the debt ceiling. That means it either has to come to some kind of agreement to raise the borrowing limit or it will default.

Now, we all know how this will end. After months of political theater and hand-wringing, Congress will raise the debt limit. But that just kicks the can down the road. Because before long, the government will run up against the debt ceiling again, and we’ll have to watch another awful sequel to this awful movie.

The debt ceiling drama completely ignores the real issue —  the US government has a spending problem. The current administration is blowing through about half a trillion dollars every single month and running massive budget deficits. The solution is simple. The federal government could stop spending so much money. Or it could raise taxes. Or, why not both?

But these are politically non-viable solutions. Nobody in Washington DC is willing to seriously contemplate spending cuts. Sure, Republicans will talk about it, but that’s nothing but hot air. And nobody in Washington DC is willing to seriously contemplate raising taxes. Sure, Democrats will happily tax “the rich,” but tax increases would have to go much deeper into the poor and middle class to actually address the spending problem. So, Democrats are full of hot air too.

But there are some people out there who think they have a simple, politically viable solution — a panacea if you will.

It wouldn’t require raising the debt ceiling. It wouldn’t require spending cuts. And it wouldn’t require raising taxes. (Except that it would — I’ll get to that in a minute.)

All the US Treasury needs to do is mint a $ 1 trillion dollar coin.

Voila! Problem solved!

The government could mint the coin, deposit it at the Federal Reserve, and then it could write checks against that asset.

Now, that may sound a little bit like the government is just creating money out of thin air. And that’s because it is. But hey, it’s legal, they argue. So, why not!

Here’s how it would work,  as explained by Yale law professor Jack Balkin who promoted the idea back in 2011:

Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.

“Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds…

“The ‘jumbo coin’ [strategy works] because modern central banks don’t have to print bills or float debt to create new money; they just add money to their customers’ checking accounts.”

In effect, this would be no different than quantitative easing. The Federal Reserve buys bonds with money created out of thin air. Why not let Uncle Sam write checks to spend money created out of thin air? The central bank would be good for it. After all, there would be a coin with $1 trillion dollars stamped on it sitting in a Fed vault.

The platinum coin is really just a prop to create the illusion of legality. It’s not like they would use $1 trillion dollars worth of platinum. That would weigh millions of pounds. In practice, they could just write $1 trillion on a napkin with a green crayon. Or as economist Bob Murphy explained, they could sell the Fed a paperclip.

The Federal Reserve has the power to buy whatever assets it wants at whatever price it wants. In principle, [the Treasury Secretary] could sell a paperclip to the Fed for $2 trillion. The Fed would simply write a check made out to the Treasury, drawn on the Fed itself.

When the Treasury deposited this check with its own bank — which just so happens to be the Fed — then its own “checking account” balance would go up by $2 trillion. This money wouldn’t come from anywhere in the sense that some other account would need to be debited $2 trillion. On the contrary, the system’s total reserves (and what is called the “monetary base”) would have swelled by $2 trillion. The Treasury would be free to start paying bills by writing checks on the $2 trillion in its account.

But what if the Fed wouldn’t take the coin? And what if the Supreme Court struck the scheme down on legal grounds?

Willamette University College of Law professor Rohan Grey, another big supporter of the trillion-dollar coin, doesn’t think that would be a problem. He suggested that the government could just ignore the SCOTUS and send troops over to the Eccles Building to force the Fed to take the coin.

Dumb Idea Meets Economics

You do realize this is dumb, right?

This is a monetary disaster waiting to happen. It would put inflation on hyperdrive.

We just saw what happens when the Fed prints trillions of dollars out of thin air and injects it into the economy. The price of everything goes up. We’re paying for pandemic stimulus every time we go to the grocery store.

I mentioned earlier that this scheme would raise taxes. This is how. It would jack up the inflation tax even higher. Minting a coin and pretending it is worth $1 trillion doesn’t change the dynamics. When you boil it all down, it would do nothing but increase the money supply. That is, by definition, inflation.

But we’re dealing with “smart” people here and they’ll tell you “this is different.” They’ll offer all kinds of plausible reasons it will work. They’ll talk about the dollar being the reserve currency. They show you some convincing-looking accounting tautologies. They’ll babble and spin and suddenly you’ll be thinking, “Hell yeah! A $1 trillion coin! That’s the ticket.”

No.

It’s not.

Supposedly, they can keep this from being inflationary by just dribbling the new money out as they need it. But this is the federal government we’re talking about here. Do you really think politicians will be restrained with $1 trillion in the bank? And when they blow through that, we can just mint another one of those puppies. So, they won’t dribble. It would create an even bigger cascade of spending.

This is what you get when you have an entire school of economics that disconnects money from stuff. That’s the real problem here. The government could create a $50 trillion coin. But it can’t create stuff.

We’ve been snowed into thinking money makes the economy go, but ultimately it comes down to stuff.

And the Treasury can’t create stuff out of thin air. Uncle Sam can’t mint cars and food and clothing and commodities and oil and all of the other actual stuff we need. What happens when you create more money without creating more stuff? You get rising prices. That’s where we are today. We are seeing this play out. But again, we have people who exercise zero self-reflection. They are coming up with dumb ways to solve problems they created in the first place.

Treasury Secretary Janet Yellen has nixed the idea of a trillion-dollar coin for now. But dumb ideas never die. I won’t be shocked if the sociopaths in DC eventually try it.

Following the continued decline in existing home sales, new home sales were expected to drop notably in December (after two months of surprising improvements). After rising 8.2% and 5.8% MoM respectively in the last two months (as mortgage rates dipped and homebuilder incentives soared), new home sales surprised once again – rising 2.3% MoM (dramaticaly better than the 4.4% decline expected). However, that surprise was due to a huge downward revision in November data from a 5.8% surge in new home sales to just 0.7%…

Source: Bloomberg

That pushed the drop in New Home Sales down to 26.6% YoY – the worst drop since Oct 2021.

It appears the rebound in mortgage applications and reversal lower in mortgage rates has run out of juice for the new home buyer…

Source: Bloomberg

Bear in mind that, as we detailed recently, cancellations are running at at higher rate than at the peak of the 2008 financial crisis…

Notably, the median new home price dropped to $442.1K, lowest since August…

But the ‘average’ price was barely changed…

We also note that existing home prices are falling faster than new home prices…

At some point those incentives will crush homebuilder margins…

Finally, given the total collapse in homebuilder confidence (about future sales), which still has a long way to go to catch down to the collapse in homebuyer confidence, we would suggest real estate agents ‘brace, brace, brace’…

Source: Bloomberg

Is that really where The Fed wants the US housing market to end up?

Short seller Hindenburg Research sparked market turmoil in Indian stocks and bonds after attacking India’s richest man, Gautam Adani, Founder and Chairman of the Adani Group, for “brazen stock manipulation and accounting fraud scheme over the course of decades.”

Now the legal team of the Adani Group is exploring legal action against Hindenburg.

“We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” Jatin Jalundhwala, legal head for the Adani Group, wrote in a statement. 

Jalundhwala said the “maliciously mischievous, unresearched” report “adversely affected the Adani Group, our shareholders and investors” and sparked “volatility in Indian stock markets” that caused “unwanted anguish for Indian citizens.” 

He continued:

“Clearly, the report and its unsubstantiated contents were designed to have a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by their own admission, is positioned to benefit from a slide in Adani shares.”

Jalundhwala added:

“We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the FPO (Follow-on Public Offering) from Adani Enterprises.”

On Thursday, a selloff of dollar bonds linked to the Adani Group continued. The declines came after Hindenburg’s report was published late Tuesday night. 

Kaveh Namazie, a credit analyst at Australia & New Zealand Banking Group Ltd., said a lot of Hindenburg’s allegations against Adani were already known, such as “leverage and corporate governance” issues, “but the detail and extent of the research and timing of the release, with several Asian markets still out, saw a large impact” on bonds and stocks tied to the Indian company. 

In September, Fitch Group unit CreditSights outlined the Adani Group’s leverage as “elevated” and “a matter of concern.”

Adani on Wednesday called the report baseless.

Authored by Bill Blain via MorningPorridge.com,

“Gold is enough, Beautiful gold, Lovable gold, Spendable gold..….”

Gold – can’t eat it, can’t use it, but its everything crypto never was: tangible, exchangeable, a store of value, and a kitty for when things get tough. In uncertain markets…. Don’t forget the yellow stuff.

Writing the morning porridge after Burn’s Night, Scotland’s celebration of our acclaimed national poet, Robert Burns, following Whisky and Haggis is never easy… So in order to force my brain back into motion… let’s consider Gold!

Trying putting Gold in the context of today’s markets…. So foul and fair a market I have not seen. (Extra points if you know the reference from the Scottish Play – and what happens next!)

One hand we have a pandemic of optimism that inflation is broken, central banks are going to pivot and start cutting rates, thus its unbounded joy at the prospect of a minor downturn, recovery, growth and a swift rise in earnings pushing up stocks, while bonds rally into the ease. The China reopening will fuel global recovery. Put your buying boots on!

On the other hand are the ongoing portents of sticky inflation, central banks wanting to normalise positive interest rates around 2% inflation and 4% rates to promote functional capitalism (the end of the era of cheap money), and the shake-out in Zombie, over-levered companies and speculative hype that’s driven financial asset price inflation and now blocks growth and productivity gains. Stabilising the global economy will see rates and inflation higher for longer.

Then layer on the real-world challenges of War In Ukraine, Geopolitical threats, Energy Security, the consumer Cost of Living Crisis and Income Inequality, climate change, plus a host of immediate challenges emerging to the political order in the West; from failing services across health, housing, education to increased populist threats from Left and Right.

Pick yer poison and lay yer bets accordingly.

Markets work by reading the uncertain runes of unclear futures. There are threats out there – but outcomes probably fall into the middle. My classic mantra is: “Things are never as bad as you fear, but never as good as you hope.” I see markets as multi-dimensional and complex: a little bit of inflation here will have consequences way over there. Be aware of the complexity.

Many market participants tend to make the mistake of thinking price moves are determined by the linear cause and effect of events – this morning I read on Bloomberg: “High Equity Yields act as a better hedge against higher inflation than fixed income.” That is linearly true, but higher interest rates have consequential lateral effects; reducing consumption thus putting corporate earnings under stress and long-term less sustainable.

Nothing in markets is ever simple…. Think laterally. Which finally leads us to Gold and its place in uncertain markets.

According to the chart I was looking at, Gold prices peaked in 1980 at $2500 on an inflation adjusted basis. On a price basis the current price of Gild ($1945) is pretty close to the $1971 price seen during the depth of Covid.

My colleague Ashley Boolell, Shard’s head of commodities, reckons gold is going to a new record level this year, fuelled by a number of factors – not least being the ongoing market uncertainty. Each time we get another unexpected market number, or a corporate shock, it chips way confidence. In uncertain markets Gold is seen as the safe-haven investment – especially when there is the threat of the technical US default on the back of the debt-ceiling being blocked by the Alt-Right of the Republican Party.

Gold pays no interest. There is no return. It has no real use. Gold’s value is its scarcity.

It is formed in supernovas and neutron stars in Galaxies far, far away. All the gold on earth came arrived as space rubble and dust, absorbed as the planet coalesced in the clouds of material around the forming sun. All the gold that’s ever been mined would only just cover a football pitch to the depth of 1 meter. (205,238 tonnes over the entirety of human history according to the World Gold Council.) Aside from some very limited industrial catalyst applications, its not very useful, but because it does not react or tarnish – it’s been worshipped as a thing of value for millennia.

I was once told the prime driver of gold prices is the Monsoon. In wet years Indian farmers get rich on improved crop yields – meaning they buy their daughters more gold bangles for their wedding dowry. It’s a lovely thought – but apparently an exaggeration.

Unlike cryptocurrencies – which tried to push their way into finance as exchangeable stores of value despite their intangibility – gold’s tangibility as a store of value has made it the globally accepted token of wealth since year dot. Over the years it has morphed into a commodity in its own right – traded electronically and held as an investment because of its recognised store of value.

In times of uncertainty gold tends to rise. In times of market uncertainty it’s a very useful asset to hold. The trick to a market sell off is not being short equities when the stock crash comes, but being liquid enough to start buying after the crash or market correction. Analyse any great market tumble and its inevitably followed by a buying window – that delicious moment when the rest of the market is still panicked and fearful, but stock yields look cheap and bonds are selling for pennies because of weakness. That’s the moment to buy – but what with if your liquid bonds are in free-fall and offered only, and stocks are still in free-fall.

That’s when the liquidity of Gold is a marvellous thing. Going into market uncertainty with a nice little stash of gold to finance bottom fishing of distressed cheap assets is a marvellous thing!

Funny moment yesterday when I was chatting to Ashley about Gold y’day. Aside from being our commodities guru, he is also a published Science Fiction author. I asked him about the implications of space mining – which will be a very real thing in the next 50-years. What if a mission to the asteroid belt discovers a 10,000 tonne lump of orbiting gold? (I remember something like that from E Doc Smith’s Lensman series). Ashley told me that’s exactly what he’s writing about now!