Category: zerohedge

Authored by Valentin Schmid via The Epoch Times,

Many older, wealthy people are losing out, while younger risk takers are getting rich…

Normally, the concept of wealth redistribution involves government using force to take from some people and give to others. But the bitcoin revolution is redistributing wealth differently.

For the sake of simplicity, and to avoid confusion, we will talk about only the original bitcoin in this article and avoid the likes of cryptocurrency products such as ethereum and initial coin offerings, as well as recent duplicates of the original protocol.

On the one hand, at a price of $15,500 and a market capitalization of $277 billion at the time of writing, bitcoin has made many people rich. Most of the early bitcoin adopters who made the real money are young and entrepreneurial, and they have been put at a disadvantage by the status quo of the current financial system of fiat and bank money.

On the other hand, we have the representatives of the old money system, the Jamie Dimons and Joseph Stiglitzs of the world, who have made a fortune using the old system (Dimon) or gained prestige and recognition talking and writing about it (Stiglitz). At this moment, they are losing out. The value of their assets is getting crushed in bitcoin terms, and more people are becoming interested in the 8-year-old cryptocurrency.

The price of one share of JPMorgan stock was worth 0.084 bitcoin on Jan. 3, the first trading day of the year. On Dec. 1, it’s worth only 0.0096, a decline of 89 percent. We can calculate similar numbers for the S&P 500, the 10-year Treasury, and even bitcoin’s competitor for sound money, good old gold.

Bitcoin is often compared with penny stocks, but only the best can compete with bitcoin’s 1,500 percent price rise this year and with a valuation of $277 billion, bitcoin is pushing into the sphere of the heavyweights of finance. But that’s still a far cry from the $8 trillion valuation of global gold, the $20.5 trillion U.S. government debt market, or the $80 trillion of global stocks.

Sophisticated Wealth Redistribution

So what will happen if the price of bitcoin keeps going up, to $50,000, to $100,000, or even to $1 million, a value at which its market cap ($16.7 trillion) would be roughly equal to the combined balance sheets of the Fed, the European Central Bank, and the Bank of Japan (totaling $14.5 trillion)?

It’s not that the $15,500 you spend to buy one bitcoin now is sucked up by the bitcoin blockchain and disappears out of existence.

It is transferred to the person who sold you the bitcoin, and he or she can spend it on other assets or goods and services.

If the price of bitcoin keeps going higher, the relative value of it and other assets will change, similar to the example of JPMorgan stock, which became almost 90 percent cheaper in bitcoin terms this year.

Not only will the dollars in your pocket become worth less in the process (down 92 percent in bitcoin terms this year), but also any other asset that doesn’t keep pace with the rise of bitcoin will drop. People holding bitcoin become richer not only relative to U.S. dollars, or euros, or yen, but also relative to the stock market and gold.

And all this happens without a single government rule or regulation.

However, there are other mechanisms preventing people from getting into bitcoin and participating in the upside, although none of them includes the use of force.

Intellectual Hard Work

The first such barrier is how well you understand bitcoin.

In order to “buy into” bitcoin, you have to believe in the story. Bitcoin’s main value proposition is that it is digital sound money that is not centrally controlled by a government or private party, is censorship-resistant, and is outside of the banking system.

However, though the corruption of the hybrid system of fiat government money and private bank money has been thoroughly exposed, many people still do not perceive the status quo to be a problem, nor do they see the record risks baked into the booming stock market.

So for them, bitcoin doesn’t solve a problem, and therefore they won’t have a reason to expose themselves to the gut-wrenching volatility as well as the technological risk still inherent to the system.

A similar argument applies to the status-quo elite, who have greatly benefited from the corrupt system and see bitcoin as a risk to that system. This group includes almost all government officials—especially central bankers—and politicians, as well as the private banking elite. They are incentivized to defend the old system at all costs, but would be smart to hedge their exposure. Some may be doing so in secret.

So these are the first intellectual hurdles to overcome: understanding that our current money system is severely flawed, and that to prosper and make progress, humanity needs an alternative.

To fully understand this, many people spend a few years researching history and economics away from mainstream educational propaganda.

The Gold Trap

Then, there is a second trap. As most of the history of sound money is rightly focused on gold and the gold standard period of the late 1900s, some people who understand the problems of the monetary system are too beholden to their golden beliefs to wrap their heads around bitcoin.

This group of people believes—and they may well be right—that gold will reset the debt-based financial system, as it has always done in history. They are also not participating in the bitcoin upside.

It takes another college course’s worth of research to understand the technology behind bitcoin and why, despite its risks, it could provide a new monetary solution and system for the digital age and digital economy.

It then requires a more nuanced and probability-based investment approach to see that while bitcoin is far riskier than gold and has some disadvantages compared to the yellow metal, it also provides far higher upside. The gold market is relatively expensive, at $8 trillion, while bitcoin is relatively cheap, at $277 billion. Bitcoin also has some striking advantages over gold, which warrant a rise in price.

Once you understand the value proposition and are ready to buy in, you need to jump through some hoops to register with an exchange and safely store your bitcoin, which is another hurdle many people who do not fully understand bitcoin cannot clear.

Winners and Losers

So, by and large, and of course with the usual exceptions and caveats, the old guard of both the political and financial systems and the old guard of sound-money people are not participating in the upside of bitcoin.

This is not because they don’t have any money to invest or because the government prohibits them from doing so. It is their own intellectual inflexibility, lack of curiosity, and risk-aversion that bars them from entry.

As bitcoin becomes ever more secure and ever more mainstream, more people from these groups will hop on the gravy train, but they will be able to afford fewer bitcoin with their assets than they would have now or five years ago.

As these people bid up the price to the stratosphere, the early movers will be richly rewarded and their purchasing power will increase relative to goods and services—and relative to the very assets the old guard now owns that were previously out of reach.

So who are the people who are gaining on the status quo with their crazy cyberpunk cryptocurrency?

They are the pioneers and innovators who built the bitcoin ecosystem and keep working tirelessly to make it more secure and ever more consumer friendly.

It is the former finance professional who learned about sound money on YouTube and spent months educating himself on how bitcoin works.

It is the software developer who first looked at the bitcoin protocol out of technological interest and then learned everything about money and monetary history.

It is the sophisticated investor who understands that a zero interest policy boosts his stock holdings in the short term but exposes them to massive downside when rates start rising again. He knows that diversifying his portfolio with assets outside of the banking system actually increases his risk-adjusted return. He does not think he needs to make an either-or choice between bitcoin and gold.

It is the prudent saver who understands that spending less on frivolous consumption is worth it when he can save in a currency with a sound monetary policy.

Of course, every technology and every sector in finance has its bad apples, scammers, and speculators who have no idea about the underlying value proposition. Bitcoin does, too, but they don’t seem to go beyond the scope and proportion we have seen in banking and government.

In spite of this usual caveat, bitcoin favors risk takers, innovators, savers, and people who are curious and persistent enough to learn new technology as well as history. It favors the little people who are willing to take some risks, over the old elite fighting to maintain their privilege. By rewarding these positive qualities, the voluntary bitcoin wealth redistribution creates a positive incentive cycle, much different than the old model based on bureaucratic force.

via http://ift.tt/2B7AtPW Tyler Durden

Casual dining investors, despite the retail route, have become increasingly optimistic over the past month and a half with several of the largest names in the industry rallying 15-20% into the holiday season. 

As TDn2K points out, part of the optimism is attributable to a recent “acceleration” in average check size across the restaurant space with comps up 2.4% in November and 2.5% in October.  Despite many brands focusing on price promotions to drive sales and traffic amid a decline in mall/retail foot traffic, both figures are higher than the 2.0% check growth experienced the first nine months of the year.

On the other hand, strong pricing has been completely offset by abysmal traffic comps resulting in overall flat sales comps. As TDn2K notes, rolling 3-month traffic comps declined 2.5% in November across the United States, with the Midwest market fairing the worst at -4.1%.

Meanwhile, these steadily declining traffic comps in 2017 compound on lower traffic experienced in 2016 as well.

Restaurant traffic down 2.5%, rolling 3 month traffic down 2.8%. This compounds on -3.3% traffic a year ago. #restaurantrecession https://t.co/OlrYxTm8GP

— Greg S., CFA (@GS_CapSF) December 8, 2017

Of course, the key question that arises from all this is why restaurants continue to hike prices even as customers are clearly rebelling against them? 

As it turns out, to our complete shock mind you, the answer to that question just might lie in those ill-advised minimum wage increases that we’ve been warning about for years.  With the minimum wages in California, for example, set to rise roughly 10% per year for the next 5 years, restaurants are increasingly trying to offset those increases in price hikes…

“Higher check average increases are risky in a market with steadily decreasing traffic, but brands may be using price to support margins as they face rising labor and operating costs,” said Fernandez.

 

“Our concern is that these improved trends come despite the fact that the industry has not cracked the code on declining guest visits,” commented Victor Fernandez, executive director of insights and knowledge for TDn2K. “Brands have come to rely on rising checks to overcome the steady loss of traffic.” Same-store traffic dipped -2.5 percent in November, a 0.9 percentage point drop from October. It’s been almost three years since restaurants experienced a month of positive guest counts.

…but with price hikes simply being offset by traffic declines it’s clearly not working out as well for profits as investors might hope.  The last time we checked, raising prices did little to offset rising costs if traffic declines simply resulted in flat overall revenue trends.

Unfortunately, as we’ve pointed out numerous times before, given that the restaurant industry clearly has no pricing power, the only way to truly offset the impact of higher minimum wages on their bottom line is to cut staff and pursue automation upgrades where possible.  As we pointed out earlier this year (see: State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds) a study from the American Action Forum estimated that some 1.8 million people could be at risk of losing their jobs just from minimum wage hikes already passed by states across the country.   

Conclusion: You’re going to see a lot more “Flippy’s” cooking your burgers at Chili’s in the years to come…

via http://ift.tt/2iKIHD6 Tyler Durden

Authored by David Stockman via Contra Corner blog,

If you want to know why both Wall Street and Washington are so delusional about America's baleful economic predicament, just consider this morsel from yesterday's Wall Street Journal on the purportedly awesome November jobs report.

Wages rose just 2.5% from a year earlier in November – near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November…. November marked the 86th straight month employers added to payrolls.

Whoopee!

Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the "jobs" counted by the BLS establishment survey. In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level.

The reason isn't hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually.

In other words, the ballyhooed headline averages are essentially meaningless noise because the BLS counts all jobs equal—-that is, a 10-hour per week gig at the minimum wage at McDonald's weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

When the line is trending inexorably from the upper left to the lower right, of course, it means there are more of the former and fewer of the latter. Six more minutes of continuing worse—-is still bad.

As a matter of fact, the November report showed 20.199 million goods-producing jobs in manufacturing, construction and energy/mining, which did represent about a 2% improvement from prior year.

The real story, however is not about the short-term monthly or annual deltas being generating by an economy barely crawling forward. Rather, at 102 months, the current business cycle is exceedingly long in the tooth by historic standards (the longest expansion was just 118 months under the far more propitious circumstances of the 1990s).

In fact, what has been the weakest expansion in history by far may now be finally running out of gas.

During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply—and it is ultimately Uncle Sam's collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL—meaning they are not likely to be recovered before the next recession hits.

Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed,  we are still not even close to the  24.6 million figure which was posted  at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the "Bread and Circuses Economy" keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total.

Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers or 2.4X the four decade ago level.

Yes, there is nothing wrong with these jobs or the workers who hold them, but the fact that they constitute a rapidly increasing share of the mix is powerful proof that the job market is not nearly as awesome as it is cracked up to be; and that the monthly BLS report is surely no measure at all of a rising standard of living in Flyover America.

The larger point is that the monthly jobs report is really neither a report on true labor market conditions or a proxy for genuine economic growth. The fact is, without sustained growth of  full-time, full-pay "breadwinner" jobs there is no real economic recovery or progress.

And we literally mean, no progress. With an update for November's results, the chart below would show 72.8 million "breadwinner jobs" in goods production, the white collar professions, business management and support, transportation and distribution, FIRE (finance insurance and real estate) and full-time government jobs outside of schools.

As it happens, that is virtually the same number posted by the BLS back in January 2001 when Bill Clinton was packing his bags to vacate the Oval office. In short, three presidents later—all of whom have claimed undying devotion to good jobs and rising living standards—and there is hardly a single new breadwinner job.

The above chart does not bring the concept of awesome to mind. In fact, it reminds of the same kind of stagnation that is evident in all the key metrics for real economic progress. For instance, an economy flat-out can not grow without steady gains in industrial production, which includes energy extraction and all facets of goods manufacturing from automobiles to furniture clothes, shoes and canned soup.

But like in the case of "breadwinner jobs", this so-called recovery has generated none of it. The index of industrial production stands at exactly the level of the pre-crisis peak a full decade ago.

There is a whole raft of these statistics,  but the following graph leaves little to the imagination.

Notwithstanding the Fed's whacko claim that it hasn't generated enough inflation in recent years, the truth is that even by the BLS' faulty measuring stick every single dollar of median household income gain has been eaten up by CPI inflation. Accordingly, there has been zero gain in real median household income for the entirety of this century!

What does our latest Oval Office occupant plan to do about this? Why nothing less than borrow $1.8 trillion from future taxpayers in order to enable corporations and other business to crank-out even bigger financial engineering distributions to shareholders in the form of dividends, stock buybacks and M&A deals.

This isn't even "disruption" as per the Donald's real job. It's just dumb and fiscally irresponsible beyond measure – a message we have once again taken to the mainstream media in recent days.

via http://ift.tt/2B4r8bH Tyler Durden

Embedded into Bincoin’s genesis block by Satoshi Nakamoto on January 3, 2009, the day Bitcoin went live, was a message which is now well-known throughout the Bitcoin community. This message, taken from The Times newspaper of that day, read “Chancellor on brink of second bailout for banks”.

While there is ongoing debate as to its significance, the message was arguably a commentary on Satoshi’s less than favorable regard for the parasitic, unstable and inflationary nature of the contemporary banking system, as well as a statement on Bitcoin being able to provide a more equitable transfer system by cutting financial institutions out of the equation.

Elsewhere, Satoshi had elaborated on banks, again is a less than flattering way:

“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

We can therefore conclude that the Bitcoin creator does not have a high opinion of banks in general, which probably also explains why Satoshi created Bitcoin in the first place, and why Satoshi’s white paper about Bitcoin was first published on a cypherpunks mailing list, and not, for example, within the pages of a Bank for International Settlements (BIS) research report.

Which is why it would be intriguing at this time to know what Satoshi thinks of the imminent launch of (US dollar cash-settled) Bitcoin futures by the CME Group. But even more interestingly, it would be intriguing to know what Satoshi would think of the fact that the settlement prices of these new CME Bitcoin futures are based on calculations by a private London-based company whose founder and sole director is from Goldman Sachs.

As a reminder, this is the same Goldman Sachs which Matt Taibbi described as follows, coincidentally also in 2009:

"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."  

This is also the same Goldman Sachs, whose alumni currently occupy positions in the most powerful financial positions in the world, positions such as US Secretary of the Treasury (Steven Mnuchin), President of the European Central Bank (Mario Draghi), Governor of the Bank of England (Mark Carney), and President of the Federal Reserve Bank of New York (Bill Dudley).

The Fix is In: CME Bitcoin Futures

One key feature that stands out when glancing at the contract specs of these soon to be launched CME Bitcoin futures contracts is that they will be cash-settled based on a “CME CF Bitcoin Reference Rate (BRR)”

A recent CME press release elaborates:

“CME Group's Bitcoin futures will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.  

 

Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time.

 

The BRR is designed around the IOSCO Principles for Financial Benchmarks.

 

Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.”

A reference rate / benchmark calculated in the City of London that is used as a basis for the settlement of multi-billion dollar financial contracts. Wait, where have we heard that before?

The CME web site also helpfully hosts a methodology document for this Bitcoin Reference Rate (BRR), but which strangely has very little mention of CME, and a lot of citations to Crypto Facilities Ltd.

The document is even titled "Crypto Facilities – Digital Assets Unleashed" (dated March 6, 2017) and also copyrighted by Crypto Facilities Ltd. “© 2015 – 2017 CRYPTO FACILITIES LTD. ALL RIGHTS RESERVED. PATENT PENDING.”

In this methodology document, both the Administrator and Calculation Agent of the BRR are exclusively listed as "Crypto Facilities Ltd", based at an address in the City of London:

Contact Details: Crypto Facilities Ltd 4th Floor 25 Copthall Avenue London EC2R 7BP

 

Web: http://ift.tt/1LCloQV Phone: +44 20 7655 6085 Email: contact@cryptofacilities.com

So who or what is “Crypto facilities Ltd”?  Looking at the UK Companies registration web site (Companies House), reveals that 'Crypto Facilities Ltd' was incorporated on 12 August 2014 as a private limited company in the UK.

According to Companies House, 'Crypto Facilities Ltd' only has one director, a certain Timo Schlaefer.

Who is this Timo Schlaefer? According to LinkedIn, Timo Schlaefer was with the Vampire Squid Goldman Sachs between 2011 to 2015. Strangely though, the header of Schlaefer's LinkedIn profile still says “Goldman Sachs”.

LinkedIn screenshot http://ift.tt/2iJyQ04

Then there is a Bitcoin Magazine article about Schlaefer dated February 2015 which describes him as “Executive Director in Credit Quantitative Modelling at Goldman Sachs.”

In summary, here we have a new Bitcoin futures contract, a derivative on the global phenomenon that is Bitcoin, whose settlement price is based on a reference rate calculated in London by an unknown company whose sole director is from Goldman Sachs.

But there is nothing to worry about, because CME also confirms that there is an Oversight Committee for this Bitcoin Reference Rate calculation. This committee has the impressive title of the “Bitcoin Pricing Products Oversight Committee”, and the Committee:

“has been established jointly by Crypto Facilities Ltd. (“CF”) and Chicago Mercantile Exchange Inc. (“CME”).

 

The initial members of the Oversight Committee and its Chairman shall be appointed jointly by CF and CME”

While we will leave you to ponder what all of this means, its difficult to imagine that US dollar cash-settled CME Bitcoin Futures were on Satoshi’s radar when he typed “Chancellor on brink of second bailout for banks” into his computer on January 3, 2009, hitting the enter key and kicking off Bitcoin’s genesis block and the creation of a new global system for disintermediating banks and sparking the emergence of an entire new universe of crypto currencies and blockchain platforms.

via http://ift.tt/2iM5dLO Tyler Durden

Authored by EconomicPrism's MN Gordon via Acting-Man.com,

When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

Over the years, layers and layers of interference by various federal, state, and local agencies have built up like grime on a kitchen window.  The grease shines and smells of something fierce.  The layers of government grime also drip and ooze into every crack and crevice of the economy.

These days, for example, it is impossible to carry out a simple private transaction with your barber or barista without some form of government interference.  Has your barber obtained the required license and paid the obligatory fees to be able to legally taper your neck line?  Has your barista’s espresso bean grinder passed city health inspection?

Is the hot Cup of Joe served in a paper cup of appropriate recycled material composition?  Did the hot beverage exceed the legally accepted temperature standard?  Did state and local governments receive their tax exaction upon payment?

The licensing racket – left panel: the basic definition of the racket; middle panel: how long it takes and what it costs to obtain licenses for assorted jobs in the US; right panel: the inexorable growth of rules and regulations. One shouldn’t be surprised that the pace of real economic growth has steadily declined since peaking in the late 19^th century (or if one wants to focus on the modern era, since it peaked not too long after WW2). From money supply inflation to regulatory inflation, Leviathan has undermined the economy at every turn by inflating all the stuff we definitely don’t need more of. The pretense is that this is needed to “protect” us (for instance, last year the police courageously protected the citizens of Georgia from the dangers of an unlicensed lemonade stand by arresting its 14-year old female proprietor). Let us be clear: No-one will be allowed to terrorize the community by running an unlicensed lemonade stand or engaging in the high crimes of dispensing unlicensed manicures and haircuts. [PT] – click to enlarge.

When it comes to more complicated matters, where real money’s on the line, government interference is an absolute disgrace.  Did you know that it costs 10 times more to have an appendectomy in the United States than in Mexico?  Is the procedure 10 times better?

Obviously, this is nothing new.  Governments have been regulating and impressing their fingerprints all over commerce since society first granted its leaders the opportunity.  People are so accustomed to it that they accept government intervention as necessary to better their lives.

When it comes to price fixing, wage controls, and dictating oil production, things quickly go haywire.  This is because prices, wages, and resources have their own independent relationships beyond what can be legislated.

When the price of a certain good or commodity is artificially fixed below its natural equilibrium, scarcity and shortages follow.  In short, when the price of bread is decreed below the cost of the wheat that goes into it, bakers go fishing.

The scourge of occupational licensing [PT]

Credit Market Intervention

Perhaps the most nefarious of all government intervention, is that which directly affects a nation’s money stock.  Many people don’t recognize its occurrence.  But they do misdiagnose its effects.

Wage stagnation, for instance, is often blamed on greedy executives off-shoring their production.  In reality, this is merely a consequence of a forced monetary regime that inhibits genuine capital formation and earned savings in favor of asset price inflation. Of course, only a complete killjoy would bother scratching below the surface to uncover such minutiae.

Without question, the last decade has brought forth some of the craziest monetary policy experiments in human history.  If you recall, the Federal Reserve dropped the federal funds rate to near zero in December 2008, and kept it there until December 2015 – exactly seven years.

Since then, the Fed has hiked the federal funds rate four times – 0.25 percent each time – bringing the federal funds rate up to 1.25 percent. The Federal Open Market Committee (FOMC) meets on December 12 and 13, and will likely raise the federal funds rate another 0.25 percent.

It is also anticipated that the Fed will raise rates three times in 2018, assuming financial markets and the economy don’t break down before they can accomplish this.

Broad true money supply TMS-2 and the federal funds rate – a mountain of money was created, and it is an apodictic certainty that is has not made us one iota more prosperous – quite the contrary. [PT] – click to enlarge.

Concurrent with the Fed’s interest rate raising efforts, they’ve also begun to reduce their balance sheet.  They’re selling some of the roughly $3.6 trillion in Treasury and mortgage-backed securities purchased as part of their Quantitative Easing program. This reversal of the Federal Reserve’s Quantitative Easing program reduces the pool of available credit in the financial system.

It doesn’t take much imagination to visualize the effect this will have on an economy and financial markets that are wholly addicted to cheap and abundant credit.  So where does the GOP’s tax bill fall within this landscape?

The Zealous Pursuit of State-Sponsored Collapse

Here we turn to David Stockman, former Director of the Office of Management and Budget under President Reagan.  Stockman’s more than four decades of in-the-trenches experience, study, and contemplation of taxes, budgets, and deficits, and how these all influence and affect the economy, is unrivaled. As he explains:

“All tax cuts are not created equal.  Their impact for good or ill depends on: (1) which taxes are cut; (2) how the revenue loss is financed; (3) when they occur in the business cycle; and (4) how they impact that nation’s underlying fiscal posture.

 

“Our point today is that the GOP gets an “F” on all four components of the test.  That’s because a deficit-financed tax cut is never a good idea, but is especially counter-productive if done late in the business cycle in the face of a structural deficit that is high and rising (owing to inexorable demographic pressures on entitlement spending); and in the teeth of an unprecedented cycle of monetary contraction, which is exactly what the Fed’s interest rate normalization and balance sheet shrinkage (QT or quantitative tightening) amounts to.”

David Stockman, former budget director in the Reagan administration – which he quit when it ignored his admonishments on its massive spending. [PT]

To clarify, if you’ve been out of school for a while, “F” stands for fail.  Most notably, financing tax cuts with money borrowed from the future is doomed to fail.  Hence, the great GOP tax cuts represent but another fail milestone in the zealous pursuit of state-sponsored collapse.

As an aside, since last week, when we declared buying bitcoin above $11,000 to be an action for idiots, bitcoin has spiked up above $19,000.  That represents more than a 70 percent increase in just one week.  Nonetheless, we stand behind our claim.  We also stand behind our claim that sometimes idiots get rich – click to enlarge.

We should point out that the spike to $19,000+ in BTC was confined to the Coinbase exchange, where a huge premium developed during the trading day. It was not replicated at any of the other exchanges, where BTC peaked just below $16,000. This is mainly a sign of inefficiencies at said exchange (BTC routinely trades at a premium there, but it is usually much smaller). It took a while for arbitrageurs to bring the premium back down, but they succeeded eventually. [PT]

via http://ift.tt/2jD4rS5 Tyler Durden

On Thursday, as the Bitcoin price made record high after record high, spiking to somewhere between $16,000-19,500, it was one of the top stories across mainstream media outlets, never mind Reuters, Bloomberg and the FT.

However, what exactly was the all-time high for Bitcoin? Because of Bitcoin's growing "price gap", it depended where you looked. But a price gap of more than $3,000…really? Actually yes, as Bloomberg explains.

Bitcoin traded above $19,000 on Thursday, but you may have missed it. As it was reaching $19,500 just after 11 a.m. on the GDAX exchange, which is run by the popular bitcoin brokerage firm Coinbase, bitcoin was still stuck in the high $15,000's on other trading platforms. Similarly, most U.S. traders woke up on Thursday to news that bitcoin was above $15,000, unless they were following it on Bitfinex, where it didn't cross $15,000 until soon before 10 a.m.

This is nothing new. Bitcoin trades on dozens of exchanges, and the prices get out of whack at times. But as the price of bitcoin rises more rapidly into the tens of thousands, the gap seems to be getting worse. It was particularly bad on Thursday, when for several hours in the morning the difference between the price of bitcoin on the exchanges remained thousands of dollars, more than the total price of bitcoin just a few months ago.

The chart below compares the price of Bitcoin on two separate exchanges, GDAX and BitStamp, from 12.00am to 5.00pm yesterday.

To some extent, this might not seem to matter, Bloomberg suggests. So what if you could sell at a higher price on GDAX, it’s likely that you paid a higher price in the first place. As we discussed yesterday, GDAX is Coinbase’s exchange and the higher price probably reflects  Coinbase being the easiest way for new Bitcoin investors to participate. And…let’s face it, most investors in Bitcoin have been making money. Furthermore, yesterday was an unusual day as the whole world seem to be momentarily gripped by Bitcoin mania. Congestion problems on the Gemini exchange, for example, forced it to suspend redemptions for several hours.

While people might not care about the price divergence right now, they might do in the next few days. As we know only too well, Bitcoin trading is about to change dramatically, with the launch of the CBOE and CME Bitcoin futures contracts. The former starts trading on Sunday after which investors will be able to buy, sell and short the Bitcoin price without having to buy the digital currency itself. Unlike the current Bitcoin exchanges, the futures exchanges are heavily regulated (except when it comes to trading gold and silver, of course).

The intersection of trading on "wild west" Bitcoin exchanges with conventional futures exchanges is a potentially dangerous mix. While the CEO of ICE, which owns the NYSE, has lamented that the CBOE and CME have beaten him in launching Bitcoin products. He also said this week that his organisation wouldn’t be offering futures contracts soon due to the lack of transparency and structural integrity in existing Bitcoin markets. Those cautionary words are looking prescient all of a sudden. As Bloomberg notes.

The price gap creates some structural problems for the futures market. Consider hedging. The Cboe and the CME contracts will reference prices on different exchanges. So if investors are trying to hedge a bitcoin purchase, they will have to make sure they buy bitcoins on an exchange that matches up most closely with a particular contract.

But the bigger problem is that the price gap gives some credence to Sprecher's argument. Large price spreads indicate liquidity problems and a lack of active professional dealers or traders who would normally arbitrage these differences away rapidly. Less liquidity suggests prices will drop more quickly when they inevitability do, though not everyone agrees.

Paul Puey, the CEO of Airbitz, a bitcoin wallet company, told me on Thursday that bitcoin's fractured market was a feature, not a bug. If a large trade were to start a tumble in one exchange, the prices would be safe elsewhere, the thinking goes, though I'm not sure I believe that the bitcoin whales wouldn't rush in to sell on a sustained plunge.

On balance, Bloomberg comes down favourably on the introduction of Bitcoin futures trading, expecting it to reduce volatility. However, any conviction is lacking as Bloomberg Gadfly analyst, Stephen Gandel, acknowledges that he might be wrong and it could have the opposite effect.

And more liquidity by way of the futures market should make bitcoin prices less volatile. But it could go the other way, too. A drop in the price could send futures traders heading for the exits, stoking more fears in the traditional bitcoin exchanges. That could create negative feedback loops, like the ones in mortgage markets during the financial crisis. What's more, if there is some pent-up demand to short bitcoin, a rush of traders could cause futures to plunge when they start trading, pushing down the price of bitcoins.

Exactly.

As the clock running down to futures trading, we are waiting to see whether big banks and “official” interventionists launch a pre-emptive strike in a desperate effort to cool the Bitcoin bull market. Whether or not that happens, we aren’t convinced that Bitcoin’s volatility, or its price, will be tamed for long.

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Via The Daily Bell

The U.S. government plans to spew occupying forces far and wide within the United States.

Or… The U.S. government will distribute the income of the bureaucratic class across distressed regions of the country.

Are they spreading the wealth, or spreading the swamp?

The government’s definition of decentralizing is certainly not the same as ours. They think moving government agencies’ central offices out of DC is decentralizing the government. It’s like an Amelia Bedelia book. Well, the people said they wanted decentralized government!

But generally, when people advocate decentralizing government, they mean the power structure, not the physical presence of government agents.

But still, it is not so clear whether moving agencies out of DC would be a good thing or a bad thing.

The Good

DC is an echo chamber. It is an insular club where people never see the American people they supposedly work for, represent, and serve.

While only 15% of the federal workforce is in Washington, it is where most of the top decision makers live and work. David Fontana, a professor at George Washington University Law School who is writing a book about decentralizing the federal government, says their bubble is growing evermore insulated from reality.

Embedding government agencies throughout the country could make top bureaucrats more empathetic towards the average American when they see how their decisions hurt them.

Citizens’ concerns might actually be heard when government officials are their neighbors. Instead of a tally on a spreadsheet, officials would hear it from a friend.

Increasing physical distance between bureaucrats, lawmakers, and other agencies could cut down on corruption, behind the scenes string-pulling, and closed-door collusion to harm the American people.

DC suburbs include the five richest counties in the entire United States. The lowest median household income among these counties is $108,706 per year! That is almost twice the median household income of the United States at large. Altogether, 9 of the 20 highest income counties in the USA are suburbs of DC.

Instead of that money remaining in the DC area, some of it would be spread out across the country. Original tax dollars paid out as salaries to government employees would be spent in a local small town establishments instead of in DC.

The Bad

When the Chinese invaded Tibet, they sought to destroy their culture by importing Chinese businesses, citizens, and government agents. Of course, they claimed to be improving the economies of impoverished Tibetan regions. And technically, they have made Tibet wealthier by injecting billions of dollars into the region.

DC could end up exporting its culture across the United States. Greed, corruption, crony-deals, and power hungry ideals would come with the money. Local officials would become like crime bosses, trading favors for federal cash.

The Stanford economist representing Silicon Valley in Congress sees opportunity to strategically seed regions of the country with pieces of the federal bureaucracy that can benefit them — and that they can benefit.

In Tibet, the less educated locals end up doing menial jobs, while the best gigs go to imported Chinese nationals. Will the people living near the new government offices become a servant class? It would be the ultimate reversal of what the government is intended to do: serve the people.

One of the most oppressive government agencies is the Bureau of Land Management. The BLM controls 260 million acres of land, 90% of which is west of the Mississippi. That’s why some lawmakers are calling for the central office to be relocated.

But that is essentially inviting the fox into the henhouse. The BLM has confiscated land, stolen cattle, and issued excessive fines to hikers and property owners. They took 90,000 acres of land along a river in Texas, and refuse to even talk to property owners.

This could escalate and increase occurrences of standoffs like the one on the Bundy Ranch. The agencies would essentially become an occupying force.

The Ugly

Would the American people come to see up close how terrible their government really is? Or would they become more sympathetic–or even corrupt–by the presence of government agents in their communities?

“Decentralizing” the government offices could make the U.S. divide into factions based on what agency is embedded in particular areas. It is already bad enough having Congressmen fight over federal funds. Things could get messy if they advocate for a particular agency which most their constituents belong to. Then you might have the BLM battling with the National Parks Service.

“There is all this unused office space outside of Detroit where the FBI could build for not much money,” said Paul Kupiec, a scholar at the right-leaning American Enterprise Institute. That city, unlike suburban Washington, desperately needs the economic surge such an agency would bring, he said. “Why are we spending billions of dollars on these headquarters in Washington?”

Will the FBI, then, run Michigan? They would have some pretty intense pull in the local scene. And perhaps any Congressmen who don’t want to help out Michigan lawmakers might end up… under investigation.

What Would Really Help…

Maybe it isn’t the government agencies which need to stay away from DC, but the politicians. In the internet age, why do they need to spend tax dollars flying to DC, and staying in swanky accommodations, eating expensive food?

All the members of Congress can simply video call in for their votes. They can talk to other politicians via government technology that records their meetings. That way, there is a record of their communications. That means fewer backroom deals and more pressure from constituents. No more hiding in DC!

We can dream.

What do you think? Would distributing the government offices across America breed harmony or resentment? Would government officials become empathetic towards their fellow Americans, or simply abuse them from a closer range? Would the people in surrounding areas be enriched by tax-funded salaries, or sink into the swamp?

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A Russian interceptor was scrambled to stop a "rogue" US fighter jet from actively interfering with an anti-terrorist operation, the Russian Defense Ministry said, describing the latest close encounter between the US and Russian air force. It also accused the US of provoking close encounters with Russian jets in Syria.

According to Russia Today, a US F-22 fighter was preventing two Russian Su-25 strike aircraft from bombing an ISIS base to the west of the Euphrates river on Nov. 23, according to the ministry. The ministry’s spokesman, Major General Igor Konashenkov described the episode as yet another example of the US air force attempting to prevent Russian forces from carrying out strikes against Islamic State.

"An American F-22 fighter actively prevented the Russian pair of Su-25 attack aircraft from carrying out a combat mission to destroy the Daesh stronghold in the suburbs of the city of Mayadin in the airspace over the western bank of the Euphrates River on November 23. The F-22 aircraft fired off heat flares and released brake shields with permanent maneuvering, imitating an air battle," Konashenkov said on Saturday.

"The F-22 launched decoy flares and used airbrakes while constantly maneuvering [near the Russian strike jets], imitating an air fight,” Konashenkov added that the US jet backed down only after a Russian Su-35S fighter jet joined the two Su-25s.

The major general went on to say that “most close-midair encounters between Russian and US jets in the area around the Euphrates River have been linked to the attempts of US aircraft to get in the way [of the Russian warplanes] striking against Islamic State terrorists.”

He also said that the US military officials provided no explanation for the November 23 incident as well as other, similar encounters.

The statement came as a response to the Pentagon’s claims about “an increase in unsafe behavior” by Russian warplanes. “We saw anywhere from six to eight incidents daily in late November, where Russian or Syrian aircraft crossed into our airspace on the east side of the Euphrates River,” Lt. Col. Damien, the spokesman for US Air Force Central Command, told CNN earlier on Saturday.

Even though ISIS has effectively been driven out of Syria, last month Defense Secretary Jim Mattis signaled that the US is preparing for an interminable period of occupation after he told reporters at the Pentagon that the US is preparing for a long-term military commitment in Syria to fight ISIS "as long as they want to fight." At the time, Mattis indicated that even should ISIS lose all of its territory there would still be a dangerous insurgency that could morph into an "ISIS 2.0" which he said the US would seek to prevent. “The enemy hasn’t declared that they’re done with the area yet, so we’ll keep fighting as long as they want to fight,” Mattis said. “We’re not just going to walk away right now before the Geneva process has traction.”

Russia has blasted the US for its illegal air force presence in Syria, as Sputnik noted. And as Pickart explained, the majority of near-misses between US and Russian planes in Syria and in the area of the Euphrates were connected with the Washington's attempts to hinder Daesh's defeat.

"The statements of the US Army representatives that a part of the Syrian airspace belongs to the US is puzzling," Konashenkov stated, reminding the Pentagon that "Syria is a sovereign state and a member of the United Nations, therefore, the United States does not own any part of sky."

A ministry rep also noted that the US has so far neglected to offer explanations to the Russian command at the Khmeimim airbase in Syria "concerning this and many other incidents in the Syrian sky."

The statement was made following The New York Times' Friday's report, citing US commanders as expressing their concern over a possible collision between Russian and US warplanes over Syria, which might take place because of alleged violations of the deescalation deal by the Russian side a dozen times a day since the agreement had come into force.

"It’s become increasingly tough for our pilots to discern whether Russian pilots are deliberately testing or baiting us into reacting, or if these are just honest mistakes… The greatest concern is that we could shoot down a Russian aircraft because its actions are seen as a threat to our air or ground forces," Lt. Col. Damien Pickart was quoted as saying by the media.

Col. Jeff Hogan, deputy commander of the air operations center at the Qatar base, told the newspaper that he had daily phone calls with Chief of the Russian General Staff Valery Gerasimov, but because of occasional misunderstandings, he had to make additional calls.

According to the newspaper, the military explained Moscow's actions by the desire to entrench the positions of the Syrian army and cement its territorial acquisitions ahead of the peace talks aimed at ending the seven-year war.

Back in 2015, the US and Russia agreed upon the mutual flight safety memorandum regulating the flight paths and contacts of the countries’ air forces in Syria during an emergency. Since then, the two countries have traded accusatios over various incidents involving warplanes in the Syrian skies. Washington accused Russian jets of not carrying transponders allowing air-traffic controllers to identify them, while Moscow repeatedly said that the US military only “occasionally” indicate the time period and an approximate area of their air operations without even giving the types of aircraft and their affiliation.

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Earlier this week we reported that as part of the stunning, unexpected collapse of South African retail giant Steinhoff, which also owns France-based Conforama furniture chain, Mattress Firm in the U.S. and Poundland in the U.K., none other than the ECB was unveiled as owning an unknown amount of its recently issued €800 million in 2025 bonds, which plunged from 85 to as little as 41 cents on Wednesday when the news hit…

… and which we said would be sharply downgraded in the coming days as the rating agencies – once again painfully behind the curve – caught up with reality. That’s precisely what happened late on Thursday, when Moody’s cut its Baa3 rating by four notches deep into junk territory, highlighting “the uncertainties and implications for the company’s liquidity and debt capital structure.”

 After the downgrade- much to the humiliation of the ECB which has to explain why as part of its economic revitalization efforts, i.e. QE it is holding this pile of steaming garbage – Steinhoff bonds extended losses on Friday as the world paid increasingly more attention to the accounting scandal that’s threatening the survival of the global furniture and clothing retailer.

Meanwhile, whispers of Enron 2.0 have emerged as the investing community begins to appreciate the potential implications of Steinhoff’s implosion. For South Africa, the collapse of the company which employs 130,000 people worldwide, already has systemic implications. As Bloomberg reports, South African Finance Minister Malusi Gigaba said he’s “mindful” that many retirement and savings funds will be hurt by the loss in value and has asked the PIC to prepare a report on the extent of the exposure.

Still, unless South Africa is willing to fund a state bailout, the fate of Steinhoff, which has appears to be sealed.

“I think it is the end,” Simon Brown, Johannesburg-based chief executive officer of trading company JustOneLap, told Bloomberg. “The end will be a break up. There are lots of decent businesses that others will want to buy and it’s likely they’ll fetch decent prices. so staff will mostly be fine, except in head office.”

“There’s no way back,” David Shapiro, deputy chairman of Sasfin Wealth in Johannesburg, said in emailed comments on Friday. “The worry is that there are a huge number of operating companies within the stable – if you were a supplier to these businesses would you sell goods on credit? I reckon they should file for Chapter 11 or business rescue and try and salvage what they can.”

That outcome would be a disaster not only for the ECB, which as we showed is a proud owner of an unknown amount of the company’s plunging bonds.

The fallout from the spectacular implosion also means that U.S. and European banks with billions of dollars at stake were told they’d have to wait another week to confront the global clothing and furniture retailer that’s engulfed in an accounting scandal, Bloomberg reported on Friday.  

The company on Friday delayed a meeting with lenders to Dec. 19 from Dec. 11, citing that full-year earnings that are typically discussed in the annual gathering haven’t been published. The owner of chains such as Mattress Firm in the U.S. and Conforama in France didn’t say whether it planned to report financials before Dec. 19.

Finding themselves in limbo, and in a communication lockout, is hardly good news for lenders who stand to lose massive amount should Steinhoff liquidation. Total exposure to lenders and other creditors was almost 18 billion euros ($21 billion) as of the end of March, with Bloomberg reporting that “long-term liabilities were 12.1 billion euros and short-term liabilities 5.87 billion euros.” Those are the most recent Steinhoff results available after it indefinitely postponed publishing full-year financials on Wednesday. The latest numbers will likely be even greater to account for the July issuance of the company’s 2025 bonds.

But the real dangers is what is not reported on the books: “The great unknown is the funding of the off-balance-sheet structures, which could spill over into fresh bank liability,” Adrian Saville, chief executive officer of Cannon Asset Managers in Johannesburg, told Bloomberg on Friday. The short-term debt could “fall over if the business fails,” he said.

It is unclear which banks are on the hook although in South Africa, Steinhoff has relationships with Standard Bank Group, Investec and a unit of FirstRand. Globally some of the lenders include Citigroup, Bank of America, HSBC and BNP Paribas.

Banks also have exposure to Steinhoff through loans provided to Chairman, billionaire Christo Wiese’s investment vehicles. Last year, the billionaire and largest shareholder of the company pledged 628 million of Steinhoff’s shares in collateral to borrow money from Citigroup, HSBC, Goldman Sachs Group Inc. and Nomura Holdings Inc. That was to participate in a share sale in conjunction with the acquisition of Mattress Firm and Poundland, according to a company statement. It’s unclear whether Wiese has repaid part of those loans since, Bloomberg notes. The value of all shares pledged as collateral is now 365 million euros, down from 2.2 billion euros a month ago.

Meanwhile, in a desperate attempt to salvage value, Steinhoff said after the market close on Friday that it had appointed a new sub-committee to improve corporate governance at the company.

The three non-executive directors are all existing board members, and are led by Johan van Zyl, the co-CEO of financial services firm African Rainbow Capital Ltd. Steve Booysen, an ex-head of lender Absa, and Heather Sonn, a former investment banker, make up the trio.

Steinhoff also said it was considering boosting liquidity by selling assets worth at least 1 billion euros. It also said one of its African subsidiaries would refinance long-term liabilities amounting to another 1 billion euros, while the possibility of recovering assets for around 6 billion euros was being investigated. All of these measures may help recoup some of the money owing to banks and investors, and while a complete loss on the $21 billion in exposure is unlikely, it seems virtually guaranteed that the banks will suffer steep haircuts on their Steinhoff exposure.

As will the ECB, which on Friday was rumored it was considering selling its Steinhoff bonds. It is not exactly clear how this would take place, since the ECB’s QE by definition only buys, not sells, at least for now.

One thing that is certain, however, is that this is just the beginning of the ECB’s balance sheet woes: as we showed on Wednesday using UBS data, the ECB now holds no less than 26 “fallen angel” equivalent bonds, amounting to €18 billion in notional exposure; both numbers are set to soar when the next recession hits and the bulk of the ECB’s holdings shift down in quality, leaving Mario Draghi and his henchmen dealing with countless credit committees in bankruptcy court as the European central bank finds itself the post-reorg equity holder of countless European companies.

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Submitted by Elijah Magnier, Middle East based chief international war correspondent for Al Rai Media

Well informed sources have said the commander of the Iranian Revolutionary Guards Corp Brigadier General Haj Qassem Soleimani sent a formal verbal message, via Russia, to the head of the US forces command in Syria, advising him to pull out all US forces to the last soldier “or the doors of hell will open up”.

“My message to the US military command: when the battle against ISIS will end, no American soldier will be tolerated in Syria. I advise you to leave by your own will or you will be forced to it,” said Soleimani to a Russian officer. Soleimani asked the Russian officer to make known the Iranian intentions towards the US: that they will be considered as forces of occupation if these decide to stay in northeast Syria where Kurds and Arab tribes cohabit together.

Iranian Revolutionary Guards Corps-Quds Force commander Qassem Soleimani in Aleppo province in 2015. Image source: Iraqi Shiite militia Harakat al Nujaba via Long War Journal

The Russians are not necessarily against the US presence and can adapt to this after defining the demarcation lines to avoid any clash, but Iran has a clear position and has decided not to abandon the Syrian President alone to face the US forces, if these stay behind.

Soleimani’s message to the US clearly indicated the promise of ‘surprise measures’ against the US:  "You shall face soldiers and forces you have not experienced before in Syria and you will leave the country sooner or later."

Russia conveyed to the US that Iran will stay in Syria as long as President Assad desires, and he insists on liberating the entire territory from all forces without exception. Russia confirmed to the US its intention to refrain from offering any air support to Iran and its allies in the case of attacks on US forces. From the Russian perspective, the Iran-US dispute is not its concern nor on its agenda.

CIA Director Mike Pompeo said last week that he had sent a letter to Soleimani expressing his concern about Iran’s intention to attack American interests and “will hold Soleimani and Iran accountable for any attack in Iraq.”

Mohammad Mohammadi Golpayegani, a senior aid to the Grand Ayatollah Ali Khamenei confirmed Pompeo’s attempt to send a letter but said  “Soleimani refused to read it or to take it because he has nothing further to add.”

Sources in the area believe it is not unlikely that Kurdish groups – operating in al-Hasaka (Syria's northeastern province) and who are faithful to the government of Damascus – are willing to spearhead attacks against the US forces. Many of these groups remained loyal to Syria: they reject any occupation forces on its land or the partition of the country.

Meanwhile, Al-Hasaka 2018 is being widely compared to 1983 Beirut where hundreds of US Marines and French paratroopers were killed following double suicide attacks by Islamists in the Lebanese civil war. The multinational forces became hostile rather than peacekeepers and were pushed to hastily exit Lebanon as a consequence of this attack. The future could well mirror these past events.

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