We are not far away from a future where all the transactions will be free from any tax and also there will no delay or theft of currency. If you use the web then you might have heard of Bitcoin.
Bitcoin is a virtual currency that, like any other currency, can be bought and used at places to buy something or perform a transaction. The interesting part about Bitcoin is the technology on which it works, the blockchain. It is one of the reasons why Bitcoin is gaining momentum when it comes to gathering people’s confidence and also assuring some governments of its feasibility.
The problem, which Bitcoin partly can solve, lies in the simple fact that today if a person wants to perform a transaction then that person has to go through a 3rd party.
This method adds a somewhat unnecessary middleman who also takes some commission for facilitating the transaction. All of this is quite cumbersome.
There is a solution, however, it is not entirely foolproof. You can maintain a certain record say a paper, a ledger or a register in which you maintain or keep a record of the transactions that you have performed. This will help you be more organized but chances are that ledger, register or paper can be misplaced or be stolen.
To try and prevent that, you could make copies of that ledger, paper or register and even add a seal to it. Now, when you do all of this digitally, you get what we can call the blockchain.
Think of the single page as representing a single transaction, a block, and the folder in which all of "pages" (blocks) will be kept will be a continuous chain of blocks and thus being called the blockchain…
Hurricane force winds returned to Northern California on Saturday, revitalizing the massive Tubbs fire that’s destroyed much of Santa Rosa. With the fire headed toward the few neighborhoods in the city of 140,000 that haven’t already been destroyed, state authorities ordered thousands more residents to evacuate as residents in some of the hardest hit neighborhoods began venturing back into the city to see what, if anything remains of their homes.
An estimated 3,000 people in Santa Rosa and at least 250 people in Sonoma evacuated their homes before dawn, the Associated Press reported.
Meanwhile, the death toll for what was the deadliest week for wildfires in California history has climbed to 40, while 5,700 homes and businesses have been destroyed.
Fortunately, the winds that have stoked the fires started to die down Saturday afternoon. And with temperatures dropping on Sunday, firefighters have finally been able to go on the office and make meaningful advances in their attempts to contain the flames.
Officials said Sunday they are making good progress on the Tubbs and Atlas fires, which have devastated much of Sonoma and Napa counties. Both were fires were more than 50% contained by mid-morning Sunday, the LA Times reported. Fifteen fires continue to burn across A 100-mile swath of the state. So far, they’ve ravaged more than 220,000 acres.
Meanwhile, the Nuns Fire, which continued to rage in Sonoma County, has burned 47,106 acres and is 25 percent contained. There were no reports of new evacuation orders early Sunday in the areas affected by the fires, according to the San Jose Mercury News.
More than 10,000 firefighters from California and other states are fighting the fires, said Dave Teter of the California Department of Forestry and Fire Protection, and officials are readying more crews in Southern California, where red flag warnings are in place through Sunday. The offensive to contain the fires has involved 880 fire engines, 134 bulldozers, 224 hand crews and 138 water tenders, Teter said. At first light Saturday, 14 helicopters were in the air conducting water drops.
Authorities warned that the biggest threat remains the low humidity, with the dry air continuing to transform grass and vegetation into fuel. Northerly winds are expected to move across the region at about 15 mph overnight with some 25 mph gusts. Of course, they’ll be far more intense than the 50 mph Santa Ana winds blowing in from the desert that helped the fire spread shortly after its outbreak a week ago. Temperatures are expected to drop into the mid-40s overnight, with temperatures expected to hover in the mid-80s Sunday.
Authorities scrambled early Saturday to evacuate thousands of residents from the Oakmont neighborhood of Santa Rosa, with firefighters receiving the call around 3:30 a.m. Winds had helped revive the fire early in the day, though authorities managed to get it under control after the winds died down. When firefighters arrived, police were helping to evacuate the area.
"I don't think I've ever seen that many cop cars Code 3," CalFire spokesman Jeff Allen said, meaning they were flashing their lights and blaring their sirens.
Two new victims of the Atlas fire in Napa have been identified: George Chaney, 89, and Edward Stone, 79. The two men owned a house in the 2300 block of Atlas Peak Road, where officials found their bodies Thursday, county spokeswoman Molly Rattigan said – yet another example of how the fire’s ferocity initially took many by surprise, making it impossible for some to flee in time.
Meanwhile drone footage of Santa Rosa reveals the stunning extent of the devastation wrought by the fires on one of the most densely populated patches of Sonoma County.
In one eerie twist, the Associated Press reported that one spot remained untouched by the fire in Napa: the Bubbling Well Pet Memorial Park, a pet cemetery on Atlas Peak Road. The park was still covered in lush, bright green grass when firefighters returned, while much of the surrounding area had been totally incinerated.
Work was a supporting pillar in my family dynamic growing up, instilling a foundation that would ultimately propel me to achieve all of my career and financial goals I had set for my 25 year benchmark. Those goals are personal and private, but I am ecstatic that with just about five months to spare, I’ve exceeded them all.
That foundation was built by years of watching and learning from my father, Joseph Merse, who has taught – and continues to teach me – what it means to work hard and provide for a family.
Americans like my father that take pride in their work propelled Mike Rowe to become “the dirtiest man on TV” with his notorious show Dirty Jobs and one of the leading American men tackling the issues related to the widening skills gap through his foundation, mikeroweWORKS Foundation, which awards scholarships to students pursuing a career in the skilled trades.
Rowe has been a role model for me, my father and countless friends of mine that have all reached career and financial stability and success by employing a simple concept – working hard for everything we have.
Fortunately for younger generations that may not have grown up watching “Dirty Jobs,” the show is syndicated, and though Rowe couldn’t tell me many details, it’s very likely that the CNN spinoff “Somebody’s Gotta Do It” may soon follow suit.
I asked Rowe for his thoughts on the impact the working man (or woman) has on American lifestyles – considering he worked more than 300 different jobs in all 50 states.
“My working theory for Dirty Jobs was that anonymous people in towns you can’t find on maps are doing the jobs that make civilized life for the rest of us possible,” Rowe said.
“I’m still doing the same thing today, in a slightly different way, but my foundation can be reduced to an individual doing a job that is far more important than society realizes.”
That slightly different way is his new show, “Returning The Favor” on Facebook, which has received more than 54.5 million views of the seven currently released episodes. In this series, Rowe travels the country in search of remarkable people making a difference in their communities.
For as long as I can remember my father would pull up his Red Wing work boots and be out the door by 4:30am to get to Kearny, NJ and begin work by 6 or 7 o’clock, always working for Linde-Griffith Construction as a union dock builder turned Local 15 operating engineer. My father left in his blues, and came home pretty much black, covered in grease and oil and dirt.
To this day I love the smell of diesel fuel, it smells like my father, it smells like love and it smells like success.
A few times a week we can all catch a whiff of the stink of the neighborhood’s trash as it sits on the curb waiting for pickup. Some people are grossed-out by that, and couldn’t fathom hauling it away and dealing with the smell, but I see those small piles of trash as small mountains of money for someone to provide for their family.
From a young age I thought getting up and going to work was cool – I saw my dad do it daily, eventually learned about his paychecks and connected the dots between him pulling up those boots to that little piece of paper to the food I ate every night at 5pm for family dinner.
My dad is tradesman and has been all of his life. He welds, he is licensed to operate heavy equipment like Manitowoc 4000W crawler cranes, and carries a universal Caterpillar key on his key ring.
He’s fixed heavy machinery with names I can’t event pronounce, and he made sure my sister and I both can change our own oil, brakes and change and fix flat tires. He knows basic electricity and plumbing skills and I’ve never seen a tool he doesn’t know how to use.
I mentioned this in my 9/11 story, but it’s worth reminding my readers that my father’s skillset was vital after the towers fell in lower Manhattan. As an operating engineer, he holds the necessary credentials and licenses that were needed to operate the machines used to clean up the wreckage.
Another example of my father’s skillset being able to help others involves an infamous generator that’s big enough to power the entire neighborhood if properly hooked up. During the aftermath of Hurricane Sandy, much of New Jersey was without power, but my father had our entire house lit up and fully functional – a sanctuary for family, friends and neighbors that needed a hot shower, to cook perishables or just hang out for a while.
My father’s conventional wisdom is cool, and it’s not something I see often in corporate America or academia.
Learning Is Not Limited To The Classroom
Rowe was on Fox News discussing “making work cool again” and that resonated with me. Many of my peers look at me, my properties and my lifestyle and tell me I got lucky. But luck had nothing to do with how I got to where I am now.
They think it’s cool that I am successful now, but they didn’t think I was cool when I was working multiple jobs through high school, college and post-grad to achieve all of my goals. Nobody thought it was cool to be tired at 9pm on a Friday night.
When I was 13 or 14, I pulled staples for a family friend that owns an upholstery shop in my hometown. At 15 I started working as a lifeguard, and picked up another job at the local carwash. By 19 I was also scrubbing toilets as a janitor at the community club house. At some point I even served burnt coffee at a coffee house.
When I’m at my day job or here at my desk writing, I know that I am making my father proud, and I know that I have earned his respect as a working man and provider. I can even pull up the same Red Wing boots hold my own with him for the occasional side job he asks me to help with, or to rake the leaves or mow the lawn.
They were big shoes to fill, but they finally fit.
It’s cool that I can change my own light switches, install a new sink and vanity and once I even tiled my own bathroom floor.
It’s cool that I am a completely independent man at the age of 25.
It’s cool that a woman at my day job in a corporate office asked me to stop by one day and help her hang family photographs – I made a new friend and I can’t wait to help her.
None of my jobs growing up were particularly glamorous, but I learned valuable skills at all of them. While discussing the various things I’ve done in my life, Rowe reminded me that even though I have a white-collar day job, I still carry these skills in a toolbox with me every day.
I believe any honest work is good work, and Rowe noted that there are 6.2 million jobs available right now and 75 percent of those do not require a four-year college degree, but our cookie cutter approach which shepherds high school students en masse to four-year universities really doesn’t help students see the trades as a viable alternative.
“For a long time, the skills gap simply wasn’t [even] written about. 15-20 million people were unemployed at the height of the recession at the same time as millions of jobs going unfilled,” Rowe said.
“No one was writing about the existence of opportunity, but everyone was writing about the lack of opportunity.”
One of the most alarming things Rowe pointed out was that we currently still push a four-year degree as the best path forward for the largest numbers of students, while slowly killing shop class in American high schools.
“When you start calling vocational arts ‘shop,’ it’s pretty easy to take shop class out back and put a bullet in its head,” Rowe said.
“That’s what we did; we killed shop class, which sends an undeniable message to millions of kids in terms of what is valuable.”
Now that we have a presidential administration that values the American work force – like the coal miners in Allegheny County and the men and women that build Boeing 787s South Carolina – an opportunity to change the narrative is within reach.
If parents and guidance counselors team up to reinstate the vocational arts programs, enhance the work-study options and celebrate the trades again, the opportunities are limitless for the next generation.
We’ve got work to do, and we can’t be afraid to get dirty.
WV COAL MINERS BELIEVE TRUMP WILL BRING COAL, MANUFACTURING BACK TO US:
Having been responsible for the biggest flash crashes in recent years, it is no surprise that when it comes to the market’s growing structural vulnerabilities, high frequency traders have emerged as the primary authority on how to crash the market in the blink of an eye. Which is perhaps why none other than the Pentagon is seeking advice from HFTs on how hackers could “unleash chaos” in the US financial system.
According to the Wall Street Journal, the Department of Defense’s research arm, the Defense Advanced Research Projects Agency, better known as DARPA, has been consulting with executives at HFT firms and quant hedge funds as well as people from exchanges and other financial companies, over the past year and a half. Officials described the effort as an early-stage pilot project aimed at “identifying market vulnerabilities.” The WSJ notes that meeting participants described meetings as informal sessions in which attendees brainstorm about “how hackers might try to bring down U.S. markets, then rank the ideas by feasibility.“
Why approach HFTs? Because of all market participants, it is the “high freaks” who, better than anyone, know how to force a market crash at will. The WSJ was a bit more diplomatic:
High-speed traders and quant-fund managers, who use sophisticated computer programs to buy and sell stocks, sometimes in fractions of a second, form the core of the group. Such traders tend to have deep expertise in the inner workings of financial markets and the automated systems that account for huge swaths of trading activity today.
Among the potential scenarios probed by the Pentagon: Hackers could cripple a widely used payroll system; they could inject false information into stock-data feeds, sending trading algorithms out of whack; or they could flood the stock market with fake sell orders and trigger a market crash.
The name of the DOD initiative is the Financial Markets Vulnerabilities Project. Speaking to the WSJ, Darpa officials confirmed the effort, which while unclassified had not been previously reported.
“We started thinking a couple years ago what it would be like if a malicious actor wanted to cause havoc on our financial markets,” said Wade Shen, who researched artificial intelligence at the Massachusetts Institute of Technology before joining Darpa as a program manager in 2014.
The report is the first tangible evidence of what we proposed back in January 2015, when we asked rhetorically if the US is preparing to blame the next market crash on “Russian Spies” and HFTs. We can now add the generalized “hacker” category to this. For those who may not recall, this is one of the exchanges that was contained in the DOJ complaint:
IGOR SPORYSHEV, the defendant, called EVGENY BURYAKOV, a/k/a “Zhenya,”the defendant, and the following conversation, which was intercepted by the FBI, occurred:
EB: Well, I thought about it. I don’ t know whether it will work for you but you can ask about ETF. . . . E-T-F. E, exchange. IS: Yes, got it. EB: How they are used, the mechanisms of use for destabilization of the markets. IS: Mechanism – of – use – for – market – stabilization in modern conditions. EB: For destabilization. IS: Aha. EB: Then you can ask them what they think about limiting the use of trading robots. . . . You can also ask about the potential interest of the participants of the exchange to the products tied to the Russian Federation.
There was more but the general gist was clear: the US was setting the stage for putting the blame for an upcoming market crash on not only Russians but Russian spies who were looking to ETFs and HFTs as a mechanism of market “destabilization.”
Fast forward to today when the WSJ reports that as part of its “Financial Markets Vulnerabilities Project”, DARPA has met with some of the most prominent names in the high-speed trading business, especially those who have been implicated in the shadier aspects of HFT. They include Jamil Nazarali, senior adviser to Citadel which is responsible for around 20% of daily volume in U.S. stock markets. Additionally, another former Citadelite, Misha Malyshev, and CEO of trading firm Teza Technologies, has “advised Darpa on vulnerabilities within the U.S. financial markets,” Teza’s website said. Manoj Narang, CEO of quant hedge fund Mana Partners – and one of the most vocal defenders of HFT practices – said he had advised Darpa, too.
So what will Russian hackers focus on?
Among potential targets that participants have worried could appeal to hackers given their broad reach are credit-card companies, payment processors and payroll companies such as Automatic Data Processing , Inc., or ADP, which handles the paychecks for one in six U.S. workers, participants said.
Adding a sense of theatrical urgency to the DARPA project, the WSJ artistically notes that Manoj Narang, whom we have written about previously on numerous occasions, said he began taking part in the Darpa meetings as a skeptic, thinking the U.S. stock market was resilient and it was unlikely for attackers to cause anything more than temporary damage. But since then, he has gotten more worried. What has the biggest advocate of HFTs most concerned?
One scenario he fears: a hack of a U.S. exchange in which the attacker sends a wave of fake sell orders to every firm offering to buy shares. That could potentially erase hundreds of billions of dollars of market value as prices drop and firms try to cover losses by selling on other exchanges, Mr. Narang said.
What he really means is a “wave of fake sell orders” that isn’t launched by HFTs, but by some “unknown” entity sabotaging an equity market whose structure is broken beyond repair thanks to, drumdoll, HFTs.
It gets better: “Project participants have also debated the impact of attackers transmitting false data via the electronic feeds that traders use to monitor stock prices, or publishing “fake news” to shake investor confidence.”
Ah yes, because the “non-fake” market, which rewards news of a possible ICBM launch by North Korea by sending stocks surging, will crash following “fake news” which “shake investor confidence.” Perhaps the only confusion here is who came up with this idiotic script: the US government or the HFTs, who are and will be desperate to shift blame to “someone else” after the next crash.
Finally, what is the logic behind DARPA’s project? According to the WSJ, “the goal is to develop a simulation of U.S. markets, which could be used to test scenarios, Mr. Shen said. Such software would need to model complex, interrelated markets—not just stocks but also markets such as futures—as well as the behavior of automated trading systems operating within them.“
Many quantitative trading firms already do something similar, Mr. Narang said. His company won a small contract from Darpa this year to test whether its simulation tool could be used by the agency, according to Mr. Narang and a Darpa spokeswoman.
The project isn’t the first time the Pentagon has studied such risks. In 2009, military experts took part in a two-day war game exploring a “global financial war” involving China and Russia, according to “Currency Wars: The Making of the Next Global Crisis,” a 2011 book by James Rickards. The Applied Physics Laboratory at Johns Hopkins University hosted the event, a spokesman there confirmed. Such scenarios might seem far-fetched, but Mr. Shen said it is Darpa’s job to think about futuristic attacks that haven’t happened yet.
For those who are still confused, here is what is going on: HFTs are preparing to scapegoat some other, potentially “Russia government controlled” actor for the upcoming market crash, and Darpa has been brought in to provide credibility and validation to the upcoming charge.
“Our charge at Darpa is to think far out,” Wade Shen, the Darpa program manager said. “It’s not ‘What is the attack today?’ but ‘What are the vectors of attack 20 years from now?’”
In retrospect, the only thing we find surprising about today’s WSJ report is that the Fed is not involved (at least not yet) in these Darpa-HFT level talks: after all, in addition to HFTs, whose domination of markets has resulted in market structure that is brittle and fragile and susceptible to fracture and flash crash without warning, and thus responsible for crashes at the micro level, it is none other than the Federal Reserve whose actions over the past decade (and really 104 years) that has led to the biggest macro level asset mispricing, i.e., bubble, in history. As for today’s trial balloon that preparations for the scapegoating process are already taking palce, and that it likely will be some “Russian hacker” blamed for the upcoming crash, the fact that the top echelons of the US government are already contemplating “next steps” is the clearest indication yet that the current market bubble is approaching its terminal phase.
As Currency experts, we found nothing unusual in the Bit World, it’s just FX 2.0 and hopefully a catalyst for real global financial reform beyond the scope of the myopic Dodd-Frank Consumer Rip Off and Exploitation Regulation that have plagued the US consumer going on 5 years now. As we’ve explained in our previous work, Splitting Pennies – FX is the basis for the global financial system. Don’t forget that Bitcoin is denominated in US Dollars. While FX is the least understood market in the world it is also the most important.
And being based in Chicago, they need to repatriate those currencies into US Dollars, making them one of the biggest FX traders in the world. So where does Bitcoin fit into all this? At the moment, it doesn’t. Of course that’s all changing – and changing quickly. The news changes by the day – as the Bit Paradigm goes mainstream. The current market cap of the entire CryptoCurrency Market is $170 Billion according to Coinmarketcap.com.
While that is still far away from traditional markets, the growth rate is beyond parabolic. Skeptical traders should remember the late 90’s when fears about the Euro kept investors away. Just take a look at this Monthly EUR/USD chart showing the Euro’s rise against the dollar from lows of .83 to highs of 1.58 before settling into the range that it’s been in recently:
The Red line from .83 to 1.58 is about 190% or double – and traders should also bear in mind in FX there is a lot of leverage, so the 100% return in 6 years could have been 1000% or greater (many funds did profit from this simple trade).
Of course, the real money in FX is in algorithmic trading, what the banks learned the hard way.. But the Euro is a great example of a synthetic currency that was created artificially, and finally succeeded to be an alternative to the US Dollar as a world reserve. Although the technicalities of Bitcoin are far different, the gestalt is the same – Bitcoin is a currency created artificially, backed by nothing, and is increasing in value because people believe that it will be used in the future and that the price will go up. Just like there’s nothing behind Bitcoin, there’s really nothing behind the Euro – with one key difference. It’s possible for the ECB to print (mint) as many Euros as they want, but it’s not possible to do this with Bitcoin because of the design (there is a limited number of Bitcoin) and because there’s no central bank behind it.
The big story of currency trading Crypto is of course, new alt-coins other than Bitcoin, which are being issued so rapidly it’s impossible to even keep track of them. Coinmarketcap.com lists 1170 different Cryptocurrencies, you can see the full list here.
Last week, as I reflected on my recent three-part series filled with bold predictions, I began to question whether or not I was being too negative. Upon hearing Trump’s Iran speech Friday, I became convinced that everything I wrote had merit.
The speech was downright terrifying, serving to confirm all my worst fears about what he’s up to in the Middle East.
There’s no way you can listen to that disingenuous rant and not recognize that he’s already made up his mind about war with Iran. What comes next will be a series of U.S. imposed redlines and demands, which Iran will eventually be said to violate, at which point the U.S. will escalate bigly.
I expect the most wretched cretins in America to rally behind the coming war push, including much of the corporate media. We already saw evidence of this…
Many of you will accuse me of exhibiting unwarranted confidence about where all this is headed, but it’s not that. The reason I feel so strongly about this forecast is because war with Iran has been planned for decades.
For proof, take a watch of this classic video of General Wesley Clark explaining the foreign policy establishment’s post 9/11 plans.
Friday’s speech by Trump makes me even more confident regarding what I wrote over the past few days. In case you missed the series the first time around, links are below.
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Once again the unintended consequences of government intervention are exposed…
In 2010 – following the release of sensitive government documents related to wars in Afghanistan and Iraq – John McCain and Joe Lieberman led a bipartisan attempt to cut off WikiLeaks funding by forcing 'traditional' payment systems to block them.
7 years later and the price of Bitcoin has… risen…50,000%!
And Julian Assange chose yesterday to thank the US government and its corporatocracy for his forced investment…
My deepest thanks to the US government, Senator McCain and Senator Lieberman for pushing Visa, MasterCard, Payal, AmEx, Mooneybookers, et al, into erecting an illegal banking blockade against @WikiLeaks starting in 2010. It caused us to invest in Bitcoin — with > 50000% return. http://pic.twitter.com/9i8D69yxLC
As CoinTelegraph concludes, Wikileaks has been on the forefront of revealing government corruption, and Assange has lived as a fugitive in the Ecuadorian Embassy in London since 2012. With all the antigovernment rhetoric, it’s no wonder Assange is not friendly with pro-government fiat currencies. Wikileaks and its founder represent the sort of non-governmental control that Bitcoin is founded upon.
And while governments around the world play 'pass the hot potato' with their regulatory crackdowns on cryptocurrencies, it appears – after denouncing Bitcoin earlier in the week – that Russia has accepted the inevitability of digital currencies… and created its own.
As CoinTelegraph reports, Russian President Vladimir Putin has officially stated that Russia will issue its own ‘CryptoRuble’ at a closed door meeting in Moscow, according to local news sources.
The news broke through Minister of Communications Nikolay Nikiforov.
According to the official, the state issued cryptocurrency cannot be mined and will be issued and controlled and maintained only by the authorities.
The CryptoRubles can be exchanged for regular Rubles at any time, though if the holder is unable to explain where the CryptoRubles came from, a 13 percent tax will be levied.
The same tax will be applied to any earned difference between the price of the purchase of the token and the price of the sale. Nikiforov said:
“I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after 2 months our neighbors in the EurAsEC will.”
While the announcement means that Russia will enter the cryptocurrency world, it is in no way an affirmation or legalization of Bitcoin or any other decentralized cryptocurrency. On the contrary, Putin quite recently called for a complete ban on all cryptocurrencies within Russia. The statement from Putin seemed apparently to contradict the earlier comments from other ministers who seemed pro-crypto, but only with regulations, as well as Putin’s recent meetings with Buterin and others.
Now, with the issuance of the CryptoRuble, the apparent contradiction has been made clear.
I'm writing this from my home in Sonoma County at the end of an intense week of witnessing firsthand the devastation caused by the many current fires burning in northern California. While it's hard to focus on anything other than the moment-to-moment developments of this still-unfolding disaster (which I've been chronicling here), it's already clear that the implications for my part of the state will last for many, many years to come.
It's amazing how instantly the status quo where I live has changed. The world my neighbors and I lived in when we all went to bed on Sunday night simply no longer existed by the time we woke up on Monday morning. Lives have been lost. Entire neighborhoods – thousands of homes – have burned to the ground. Businesses, hospitals and schools are now shuttered.
Having now experienced this personally — on top of watching news reports over the previous weeks of similarly abrupt "before/after" transitions in Houston, Florida, Puerto Rico, Mexico City, Las Vegas and Catalonia — I have a new-found appreciation for the maxim that when it arrives, change happens quickly — usually much more quickly than folks ever imagined, catching the general public off-guard and unprepared.
We humans tend to think linearly and comparatively. In other words, we usually assume the near future will look a lot like the recent past. And it does much of the time.
But other times it doesn't. And that's where the danger lies.
The Cruel Math
In 1987 a Danish physicist named Per Bak released a landmark paper introducing the concept of self-organized criticality. Bak observed that complex systems draw stability through an ongoing cycle of corrective collapses that keep the overall system from becoming too over-extended.
His point is best understood by watching a sand pile being formed. The pile rises as more grains of sand are added to it, until it hits a critical mass. At that point, the addition of more sand grains is likely to cause a limited collapse of the pile. The more grains of sand added, the more frequent these localized collapses are:
The key takeaway is that the end result of these collapses is that the overall size and shape of the sand pile as a whole is maintained — i.e. the smaller corrections are necessary for maintaining the ongoing stability of the larger system (in other words, the sand pile retains a constant shape over time)
Without them, the system would grow unchecked until toppled by other laws of physics, yet at this point the energy displacement of the collapse is so large that the system is destroyed or re-set (in other words, the sand pile would rise in height over time until it collapsed entirely)
In his later 1996 book, How Nature Works, Bak showed how the same rules apply to the complex systems around us — earthquakes, traffic jams, biological evolution, forest fires, the distribution of galaxies in the universe — and financial markets, too.
His findings are universal to complex systems. Ongoing smaller corrections are necessary for long-term stability of the larger system. And while you can't predict exactly when the next correction will occur, the longer it takes to happen, the larger it will be (as it has more pent-up energy to displace).
Another way to look at this is: If the smaller corrections don't happen, the system is being set up for a much bigger and more painful collapse in the future.
In many ways, we're seeing this manifest via the rash of recent disasters.
Let's look at hurricanes. 2010-2016 was one of the most mild periods on record when it comes to damaging storms making landfall in the US. For whatever reason, the usual seasonal "smaller corrections" just weren't happening as frequently in the Atlantic.
Bak's work would predict an increasing probability of an unusually busy season of destructive hurricanes to arrive. And, right on cue, 2017 has now been recognized as the 9th most-active Atlantic hurricane season in recorded history (and the season isn't over yet!). Underscoring the point, September 2017 proved to be the #1 single most active month for Atlantic tropical cyclones on record.
Similarly, the US West is coming off of a long stretch of regrettable forestry management practices — logging large trees, fire suppression, and livestock grazing — which reduced the natural occurrence and frequency of smaller-scale forest fires that prevented the build up of combustible flora. As a result, the system has become much more vulnerable to unchecked fires — a situation made worse by the effects of the prolonged recent drought (just as the warmer temperature of the Gulf of Mexico is making hurricanes there more potent). Which is why the American West is experiencing its third most severe fire season in history this year.
Et Tu, S&P?
Don't forget that Bak's rules for complex systems also apply to financial markets.
With that in mind, it makes the inexorable mania and lack of micro-corrections since 2009 downright frightening. Just take a look at this price chart of the S&P 500, which is currently in its second-longest-ever bull market run:
We see that as stock prices have been on a one-way ride higher over the years, downside volatility has dried up, to the point where it now practically no longer exists:
Going back 55 years, the average cumulative intra-day losses over a 25-day period is about 660 basis points, or 6.6%. As of yesterday (October 10), the last 25 days have seen a grand total intra-day loss of just 96 basis points, or 0.96%. If that seems small, it is.
In fact, outside of the period ending November 26, 2014, this is the smallest cumulative 25-day intra-day loss in the past 46 years – and the only one registering less than 100 basis points.
Just as (until this fall) with the US east coast and hurricanes, or like my corner of California with wildfires, things since 2010 have been "too good for too long" for the financial markets. The usual cycle of smaller corrections has not been allowed to happen, resulting in an unnatural build-up of the system to a height from which a destructive re-set is increasingly probable.
How much longer this can continue is anyone guess. But Bak's work explains why it can't go on forever, and why the resulting collapse will be more devastating the longer it takes to happen. And with the world central banking cartel set to reduce total global QE — just as with hotter water temperatures in the Gulf — the conditions for catastrophy are ratcheting up.
We are getting closer and closer to the day when we awake to find the markets we had the day before no longer exist. Change happens that fast, even with financial markets. If you think you'll be one of the smart ones to sell your current positions before things get too bad, talk to someone who was invested in the market on October 19, 1987 when it suddenly lost nearly 25% of its value in just a few hours.
While you're at it, talk to someone in Houston, Tampa Bay, Puerto Rico or Mexico City. Or I can put you in touch with one of my friends from Santa Rosa. Any one of them will tell you how stunningly swiftly fate can upend your best-laid plans.
Takeaways From Tragedy
Fortunately this week, I was one of the lucky ones. My family and property were spared.
But I can't say the same for many in my community. From their loss, as well as from the threat I experienced earlier this week when the fires were much closer, here are some of the key learnings that came out of this crisis:
Preparation only matters if it's done in advance. And it matters a LOT — Those who had "go bags" and disaster kits in place before the fires fared much better than those who didn't. They were able to evacuate faster, more safely, and with better self-sufficiency. And even a few small steps can make a big difference. I found that already having a stash of emergency cash as well as several containers full of gas for my car put me at a great advantage when it first looked like we were going to have flee our home. Putting it more bluntly: if you don't have some sort of emergency prep kit at this point, you're being unforgivably reckless. Need guidance on what to put in it? Read our free Guide To Emergency Preparedness.
People matter much more than property — for those who had only minutes to flee the flames, they only cared about getting their loved ones to safety. All the "stuff" they accumulated in life didn't even factor into their thinking at that moment. The big learning here? Don't let possessions take an undue importance in your life. A disaster can quickly take them from you, and when forced to choose, you'll pick people over things every time. So instead, place your focus on nurturing the relationships you value and maximizing the quality of time you can spend with those people. If you could use some professional help in this area and are having trouble finding it, consider contacting the therapist we endorse (full disclosure: she's my wife)
Community is priceless — no one can be prepared for everything. Community will provide for the things you lack. I've been blown away by the magnitude of the response from the generous folks living both within and without Sonoma County. As I wrote last week, tragedy offers a way for people to step into their best selves. Invest in your community now, so that it's as robust as possible when you need to count on it. Looking for ways to build community? We have a free guide for that, too.
These learnings apply to any crisis, but of course, depending on the type — natural, financial or otherwise — additional preparations come into play.
In our recent report Part 2 — Crisis Preparation: What To Do, we detail out, point-by-point, our complete list of the most important steps concerned individuals should take now — before another disaster arrives — to safeguard their investment capital, their property, and the personal security of their families. Because whether caused by Mother Nature or man's own recklessness, we are due for more crisis. Don't be caught unprepared. Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
In another stunning defeat for Europe’s establishment, as previewed earlier this morning Austria’s 31-year-old Sebastian Kurz is assured victory in the Austrian National Council elections, with his People’s Party set to take roughly 30.2% of the vote according to exit polls by Austrian broadcaster ORF, while just as shocking is that the anti-immigrant, nationalist Freedom Party appears set to top the Social Democrats in 2nd place with 26.8% of the vote: the two parties are expected to form a coalition government, while Chancellor Christian Kern’s Social Democrats are looking at another devastating – for Europe’s legacy parties – loss, sliding to 3rd spot with just 26.3% of the vote.
The full breakdown from the initial exit polls vs the last election results in 2013:
People’s Party (Foreign Minister Sebastian Kurz) 30.5% vs 24%
Freedom Party (Heinz-Christian Strache) 26.8% vs 20.5%
Social Democrats (Chancellor Christian Kern) 26.2% vs 26.8% in 2013
It remains to be seen if and how Kurz will form a coalition with the anti-immigrant Freedom Party – a historic outcome for the nationalist party which could enter government for the first time in history – however one thing is clear: just like in Germany, where Merkel’s CDU/CSU suffered its worst result since 1949, so in Austria the “establishment” SPÖ, or Social Democrat party just suffered what Europe Elects described as the “worst result since Hitler rule.”
We now await the market’s reaction to the news that Europe’s populist anti-establishment, anti-immigrant revolt, considered to have been dead and buried following the French elections, was not only revived after last month’s German election, but is once again thriving.
Two weekends after Trump publicly snubbed and mocked Rex Tillerson’s attempts to achieve a diplomatic resolution with North Korea, when the president tweeted that “I told Rex Tillerson, our wonderful Secretary of State, that he is wasting his time trying to negotiate with Little Rocket Man… Save your energy Rex, we’ll do what has to be done!” just one day after Tillerson revealed for the first time that the US has been in direct, if secret, contact with Pyongyang over its missile and nuclear tests, on Sunday morning the Secretary of State – who remains in hot water with Trump over the recent NBC report that he called the president a “fucking moron” – doubled down and said that Trump had instructed him to continue diplomatic efforts to calm rising tensions with North Korea, saying “those diplomatic efforts will continue until the first bomb drops.”
Tillerson says Trump wants diplomacy in North Korea: “Diplomatic efforts will continue until the first bomb drops” https://t.co/TuRBJ51eeJ
During an interview on CNN’s “State of the Union,” Tillerson said Trump is trying to “motivate action” on North Korea, adding that the president wants to be clear that he has military options on the table.
“The president has also made clear to me that he wants this solved diplomatically,” Tillerson said but explained that “[Trump] is not seeking to go to war.”
He said Trump has made it clear Tillerson should continue his diplomatic efforts in North Korea. “Those diplomatic efforts will continue until the first bomb drops,” Tillerson said while White House National Security Adviser H.R. McMaster said the president would do whatever is necessary to prevent an attack from North Korea on the U.S.
“Our president has been really clear, he’s not going to permit this regime and Kim Jong Un to threaten the United States with a nuclear weapon,” McMaster said on Fox News Sunday. “He’s going to do anything necessary to prevent that from happening and what Kim Jong Un should recognize is that if he thinks the development of this nuclear capability is keeping him safer, it’s actually the opposite,” he continued.
It remains unclear just what provocative catalyst could prompt the US to launch the “first bomb drop”, assuming of course North Korea doesn’t do it first.
Separately, Tillerson also touched on the Iran deal, now in danger of falling apart, and said Sunday he believes staying in the Iran nuclear deal is in the best interest of the U.S. Speaking in the same CNN interview, Tillerson was asked whether he agrees with Defense Secretary James Mattis that he would not want Congress to immediately impose sanctions that would end the multilateral deal.
“I do agree with that,” Tillerson said. “And I think the president does as well.” Tillerson said the U.S. will see if it can address the flaws in the Iran nuclear deal by staying within the agreement and working with the country’s friends and allies. “That may come in a secondary agreement as well,” Tillerson said. He said the U.S. wants to fully enforce the agreement as it exists and “then begin the process of addressing the flaws.”
His comments come after President Trump declared Friday that the Iran nuclear deal, because it is not being strictly enforced, is no longer in the national security interest of the United States. He stopped short of withdrawing from the Obama-era pact and demanded reforms.
“I am announcing today that we cannot and will not make this certification,” Trump said during a speech at the White House. The ball is now in Congress’ court for the next 2 months to decide whether to keap the Iran deal or end it.