8 years after the beginning of "Bull & Fed's Excellent Adventure", BofA's Michael Hartnett is starting to have his doubts.
The bull market catalyst – extraordinary, unprecedented central bank policies – is fading globally and the so-called "Humpty-Dumpty' Trade looms:
The Fed has hiked 2 times in past 10 years; March 15th will be the 2nd hike in 3 months and they will continue tightening until “event”
This is the "great fall" in risk assets catalyst = hawkish Fed & weaker EPS in H2 – BofAML suggests buy long-dated SPX puts (June FOMC/ECB = volatility); accumulate gold; avoid “ZIRP winners”…CRE, HY, EM debt, NZ$
But Hartnett suggests there are still opportunities among the "Biggest Picture" trades…
1. Long Robots, Short Humans
"You can’t build a wall to keep the robots out"
Number of global robots by 2020 = 2.5 million; in 2010 was 1 million
Until we “tax the robots” (which we are likely to end up doing) Disruption, Demographics, Debt likely caps rise in inflation & interest rates
The “deflationary D’s” won’t prevent cyclical rise in inflation; but are likely to prevent a secular rise in inflation
2. Long Main Street, Short Wall Street
Economic Nationalism is back
Electorates are voting for trade & immigration policies to boost wages on Main Street, not for central banks to support stock & bond prices on Wall Street
3. Long Global, Short US Stocks
A multipolar world looms
US equities @ all-time highs; global equities 27% below all-time peak in 2007
US equities trade on 3.0X book; non-US equities trade on 1.3X book
I am tickled to share the news that Reason in all its journalism-producing subdivisions has been nominated for 13 awards for its 2016 coverage by the Western Publishing Association, which assesses magazines and weekly newspapers and websites headquartered west of the Rocky Mountains. The lucky number of noms tops the previous Reason record for work in 2012 and 2013, and more than doubles up on last year’s six (which led to a Best Feature Article award for Elizabeth Nolan Brown). More importantly, we squashed Mother Jones and its five nominations this year like a bug.
* Best Feature Article. Shikha Dalmia, for “Muslim in America: A trip to two of the most Islamic cities in the U.S.”
* Best Signed Editorial or Essay. Matt Welch, for “Trump Is Not the Peace Candidate: Don’t be fooled by the false prophet of anti-interventionism.”
* Best Regularly Featured Department, Section or Column. Veronique de Rugy, for “Beyond Permissionless Innovation: Exciting things happen outside the reach of regulators,” and “Marco Rubio’s Sweet Protectionism: The 2016 hopeful gives the feds cover to keep propping up Big Sugar.”
* Best Web or eNewsletter Article. C.J. Ciaramella, for “Why Are Detroit Cops Killing So Many Dogs? A Reason investigation reveals widespread, unchecked violence against pets during drug raids—including two officers who have shot more than 100.”
and Austin Bragg and Meredith Bragg, for “#DrunkenSocialism vs. The State: How Virginia is Screwing over Bars, Customers, and Common Sense”:
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* Best Use of Video in Editorial Long Form. (We are still awaiting word on which entry was nominated.)
Winners will be announced April 28.
None of this journalism, nor recognition of its quality, would be possible without your generous support of the Reason Foundation, the 501(c)3 nonprofit that publishes all of our journalism. So thank you! You can donate more at this link, or simply subscribe to the magazine!
There may have been much more to the termination of US attorney for the Southern District of New York, Preet Bharara, than meets the casual glance.
According to Reuters, which cites a law enforcement source, two days before U.S. Attorney Preet Bharara was fired on Saturday, the high-profile New York prosecutor declined to take a call from President Donald Trump. Bharara reportedly contacted the DOJ for authorization to speak to the president on Thursday – one day before the DOJ announced it had requested all Obama-era attorneys to hand in their resignations. When he apparently did not receive it, Reuters adds that he called back the woman who had contacted him to say “he did not want to talk to Trump without the approval of his superiors.”
As reported previously, Bharara – in his role as chief federal prosecutor for the Southern District of New York – oversaw several notable corruption and white-collar criminal cases and prosecutions of terrorism suspects. He was one of 46 Obama administration holdovers who were asked to resign by the Justice Department on Friday.
As Reuters also notes, the DOJ would not comment on reports of Bharara’s contacts with Trump representatives and Attorney General Jeff Sessions’ office in the days before his firing. The White House had no comment on Sunday on any contacts with Bharara.
Among some of Bharara recent caseflow, he was most notably overseeing a probe into New York City Mayor Bill de Blasio’s fundraising. Bharara said his deputy, Joon Kim, would serve as his temporary replacement.
More importantly, in light of recent speculation that Trump terminated Bharara due to an alleged investigation into Trump himself, Reuters’ source declined comment on whether or not the office had any active investigations related to Trump. On Wednesday, three watchdog groups asked Bharara to take steps to prevent the Trump Organization from receiving benefits from foreign governments that might enrich Trump, who has not given up ownership of the business.
Norm Eisen, a former White House ethics lawyer who leads one of the groups, Citizens for Responsibility and Ethics in Washington, questioned the timing of the firings. “I do believe that something odd happened,” he said. “You don’t decide to keep 46 folks on, then suddenly demand their immediate exit, without some precipitating cause or causes.”
Democrat Elijah Cummings, ranking member of the House Oversight Committee, said on Sunday it was the president’s prerogative to fire U.S. attorneys. But he questioned why Trump had suddenly changed his mind on keeping Bharara. “I’m just curious as to why that is,” Cummings said on ABC’s “This Week” program. “Certainly, there’s a lot of questions coming up as to whether … President Trump is concerned about the jurisdiction of this U.S. attorney and whether that might affect his future.”
In a cryptic follow up tweet on Sunday afternoon, his first since announcing his termination, Bharara said he tweeted Sunday that he now understood what the “Moreland Commission” felt like.
By the way, now I know what the Moreland Commission must have felt like.
The tweet appears to be a jab at Trump; with many immediately hinting the reference to the commission as suggesting the president fired Bharara because he was looking into possible corruption in the administration.
Wow. Moreland Commission was created by Cuomo to probe NYS corruption & then disbanded by him. Is Bharara implying he was probing Trump? https://t.co/Z1p1rCKHbv
As the Hill summarizes, the Moreland Commission to Investigate Public Corruption focused on investigating possible corruption activities in New York. Bharara, the former U.S. Attorney for the Southern District of New York, ran it until Gov. Andrew Cuomo shut down the anticorruption panel while it was investigating allegations that the Democratic governor interfered with one of its investigations.
Many belive the powerful politician dismantled the Moreland Commission for investigating him.
For now, the mystery over why Trump fired Bharara after asking him to stay on just three months ago, remains.
Long-time Congressional staffer Mike Lofgren refers to the murky agencies at work to ensure this planetary plan stays on track as the “deep state,” in his book of the same name.
He writes that it includes key elements of the national security state, which ensure continuity of policy despite the superficial about-faces from one administration to the next. The deep state is effectively a warlike oligarchy, hell-bent on full spectrum dominance, driven by a lust for wealth and power, and anxious to inscribe its name in history. Specifically, Lofgren says, the deep state includes the Department of Defense, the State Department, the National Intelligence Agencies, Wall Street, the defense industry, and the energy consortium, among other major private players. They share common agendas, operate a revolving door of employees, and have a collective distaste for democracy, transparency, and regulation.
The deep state is the link between military interventions and trans-pacific trade deals, between sanctions and IMF loans. All of these tools, be they arms or loans or legal structures, serve a single purpose: the overarching control of world resources by a global community of corporate elites. One can also see how these three instruments of policy and power all do tremendous damage to a particular entity, the nation-state.
It is the nation-state that is considered by elites to be the sole remaining barricade between populations in nominal democracies and their unfettered exploitation by multinationals, although one might reasonably argue that the state more often abets exploitation rather than deters it.
The Dystopia to Come
So where is this all headed? Aside from the theatrics of the Trump presidency and its sequestration or removal. What would full-spectrum dominance look like?
Probably something like a one-world market, populated by enfeebled states, ruled by a worldwide raft of interlocking investor rights agreements that allowed private capital to plunder natural resources free of state restraints, such as labor safeguards, environmental protections, reasonable tax regimes, capital controls or border tariffs. Faceless multinationals would pillage the planet, their anonymous appointees manning the joysticks of power behind the reflective glass of their cloud-draped spindles, unreachable and unelected by the armies of the destitute that prowled the wastelands below. The amalgamated forces of corporate elitism would coolly play labor arbitrage across continents, threaten and destroy defiant economies through currency flight and commodity manipulation, and continue to consume an outsized percentage of the world’s resources. This would fulfill the hegemonic dreams of former State Department Director of Policy Planning Kennan, who once argued that we must dispense with humanitarian concerns and “deal in straight power concepts,” the better to control and consume an outsized portion of the world’s resources, presumably a privilege reserved for elite whites, and a selection of mandarins from other ethnicities with special clearances.
A criminal corporate commonwealth, supported by a fiat dollar as global reserve currency enforced by threat of war and economic collapse, will be deaf to protest from below, its weaponized satellites aimed at populations like sunlit magnifiers at a column of ants. Currency itself would be wholly digitized. This move would be sold as a positive advance as it would provide better tax accountability and therefore fund future programs of social uplift. Rather it will be employed as a means of totalitarian financial control over populations. Their wealth will be institutionalized. The concept of withdrawal will fade along with the fiction of ownership.
Terrorism will become the chosen tool of this elite power (insofar as it isn’t already). Surgical strikes, be they military, economic, or news-driven, will “keep the rabble in line” as all societies become subservient to the portents of war, the fear of inaccessible funds, and the black smears of an amoral media. The ‘deep state’ will become an obsolete term, as the nation-state will recede in memory as a relic of a strife-ridden dark age.
After all, the laissez faire cult of the beltway actually believes the planet would prosper sans nation-states. As another scene from Syriana reminds us, elite capital has a very different worldview from the majority of labor, who continue to believe the state has a role to play defending their interests. At one point in the film, Texas oil man Danny Dalton lectures lawyer Bennett Holiday on the true definition of corruption, “Corruption!? Corruption is government interference in market efficiencies in the form of government regulation. That’s Milton Friedman! He got a goddamn Nobel Prize!” The U.S. already practices free-market militarism, refusing to recognize borders, legal constraints, or geostrategic jurisdiction. Why not free-market finance and trade?
The good news is that, if you can clamber into the top one percent of the U.S. population, for instance, serving as a parasite on the grizzled hide of the corporate beast, you might yet partake of unimaginable luxuries, high in the clouds, sipping Mimosas as you transit between the ring-fenced metropoles of the world, where stateless elites intermingle.
From the latest weekend notes from Eric Peters, CIO of One River Asset Management
“Some people blindly invested offshore and were in a rush to do so,” explained China’s central bank chief, justifying his recent capital controls.
“Some of this outbound investment was not in line with our own policies and had no real gain for China.” No doubt he’s right. The tycoons fleeing Chinese capital markets have done so selfishly. “So to regulate capital flows, I think it is normal,” concluded the central banker.
Chinese credit relative to GDP has doubled in the past decade to 300%. Which remains less than the US at 350%, but the rate of Chinese credit growth is as unsustainable as it is difficult to reverse — without tanking the economy. The tycoons are running from this dynamic. Because such loops almost always end badly.
Anyhow, after so many years of secular stagnation fears, global investors have grown conditioned to run. They’ve been running away from fear for so long, they’ve forgotten how to run toward greed. Which has left them blindly holding over $10trln of bonds, which yield negative interest.
Now, this might make sense in a deflationary depression. But the global economy has not seen such strong synchronized cyclical growth in years. Inflation is likewise firming everywhere.
But China lowered its growth target again. As the World Bank warned that today’s strong global upswing in confidence and financial markets are not enough to pull the world out of a “low-growth trap.” If they’re right, we’re surely headed for depression. Because all this new debt requires robust economic strength to shoulder the weight.
But European debt markets are still largely priced for depression. And with JP Morgan’s CEO Jamie Dimon announcing the return of animal spirits in America’s economy, it seems more likely that this cycle ends like every other. With a blind run toward greed.
Many years ago, the mass circulation Reader’s Digest had a feature titled "Humor in These United States." As The Mises Institute's Hunter Lewis rightfully scoffs, the following would have qualified for inclusion…
Greg Mankiw, author of a leading economic textbook, former Chair of Bush to Council of Economic Advisers, member of the Romney inner circle, widely praised for his decency as a human being, writes a New York Times op ed suggesting that President Trump needs to listen to professional economists…
Judging by those with whom Mr. Trump chooses to surround himself, it seems that the new president is averse to talking with professional economists. But over time, he will probably get around to appointing the three members of his Council of Economic Advisers, as is required by law.
As Lewis notes, Mankiw starts with an anecdote about how Trump is alleged to have asked his then national security advisor, General Flynn, if a strong dollar is good or bad and was told by Flynn that he needed to consult a professional economist.
At the end of the article, Mankiw says "Oh, and about the dollar." Guess what he then says about a strong versus a weak dollar? He says that it depends, that it benefits some and hurts others, and leaves it there. He doesn't even bother to define what a strong or weak dollar is. How helpful!
No wonder President Truman said that he was looking for a one-armed economist (who would not be able to keep saying: one the one hand, on the other hand).
Why should President Trump or anybody seek out this kind of advice? Does Mankiw himself not perceive the irony of such an answer for the question he has posed?
Is it time to give up on economics or economists? No.
The problem here is not with economists.
The problem, says Lewis, is with Keynesian economists like Mankiw who still totally dominate leading universities and policy circles.
We think so… and so does Nassim Taleb, who summed up Mankiw's article in one simple word…
As a side-note, Mankiw points out the declining productivity (and stagnant wage growth) of the American worker as a problem Trump will struggle to fix. As one witty commenter notes,perhaps what is called for is a total retooling of the 40,000 Keynesian economists who hold down non-productive jobs in government administration… As they say with drowning lawyers – it's a start.
Looking at the most recent CFTC Commitment of Traders report, BofA makes two notable observations ahead of what may be a volatile week between the Fed’s 25bps rate hike announcement on Wednesday, just hours after the Dutch General Election, and on the same day as the US debt ceiling expiration hits.
The first is that HFs short covered the most S&P 500 futures contracts in a week since the US election. Specifically, asset managers increased S&P 500 longs by $1.2bn to $78.7bn; bringing the net position to the highest since August 2015. Meanwhile, Leveraged Funds, i.e. hedge funds, decreased short by $10.2bn to -$16.4bn; net position the least short since December 2014.
Additionally, institutions bought $1.2bn S&P 500 and $0.2bn EM futures last week, but sold other equity indices: -$1.1bn NASDAQ 100, -$0.7bn Russell 2000 and -$0.4bn EAFE. HFs bought $10.2bn S&P 500, but sold other equity indices: -$0.9bn NASDAQ 100, -$0.7bn each of Russell 2000 and EM.
Also of note, as we reported yesterday, despite the exuberant money flow (and short covering) from the FOMO-followers into the broader S&P, not everyone’s buying it as speculators have entirely erased their massive record net long position in the small-cap Russell 2000 index, swinging the net position to its first net short since the election.
* * *
The second notable observation in last week’s CFTC report according to BofA’s Jue Xiong, is that institutions sold the most JPYUSD futures since February 2013. Asset Managers increased their JPY short by -$1.7bn to -$4.8bn; net position near 3-year low (4.4%tile), while leveraged funds increased short by -$0.4bn to -$2.9bn.
* * *
Finally, BofA notes that in light of the recent move wider in credit spreads, Hedge Funds may “get hurt” as they are increasing negatively correlated to the bond risk premium. Short Bias and Managed Futures are the only two strategies that provide positive correlation, i.e. benefit from higher credit spread. Macro strategy also offers better diversification in this aspect. The one-year correlation between diversified HF performance and S&P 500 price return has declined from the three-year and five-year relationship, suggesting that HFs are less relying on market exposure.
The details:
The one-year correlation between diversified HF performance and S&P 500 price return has declined from the three-year and five-year relationship, suggesting that HFs are less relying on market exposure. However, the correlation with S&P 500 varies substantially among different HF strategies. Short Bias is the only strategy that offers negative correlation or most diversification effects. Macro and Managed Futures also have lower correlation with the equity market. It is worth to point out that performance of the Merger Arbitrage strategy seems increasingly correlation to the S&P 500.
Diversified HF performance are increasing negatively correlated to the credit spread or bond risk premium. In other words, when credit spread increase, performance of HFs is expected to deteriorate. Short Bias and Managed Futures are the only two strategies that provide positive correlation, i.e. benefit from higher credit spread. While macro strategy also offers better diversification in this aspect. However, most other strategies are positioning for even lower credit spread.
Keep an eye on bond yields and spreads, especially with the 10Y blowing, but not fully crossing, the recent post-election highs.
Harold Vilches, a 23-year-old Chilean, exported $80 million in contraband gold. As Bloomberg Businessweek details, it all started with a Google search…
In just two years he had rapidly risen in the ranks of Latin American gold smugglers. Although he was barely old enough to order a beer in Miami, he’d won a $101 million contract to supply a gold dealer in Dubai. That hadn’t exactly worked out—the Dubai company was after him for $5.2 million it says he misappropriated—but still, in a brief career he’d acquired and then resold more than 4,000 lb. of gold, according to Chilean prosecutors. U.S. investigators and Chilean prosecutors suspect almost all of it was contraband.
In the past decade and a half, global gold consumption has risen by almost 1,000 tons a year, to about 4,300 tons, according to the World Gold Council, a London-based industry group. Legal mining operations haven’t kept up with demand, so illegal mines controlled by criminal gangs, from the Amazon to central Africa, help cover the deficit, according to Verité, a nonprofit group in Amherst, Mass., that’s researched the illegal gold trade. A 2016 Verité study found that five countries in Latin America shipped 40 tons of gold from illegal mines to the U.S. in one year, almost twice the legal exports from those countries. South America’s illegal gold mines, most of them in the Amazon basin, are toxic pits in which mobs of laborers use fire hoses and mercury to extract nearly pure gold nuggets from the red earth. According to a finding by the United Nations, the industry thrives on child labor, devastates the environment, and enables prostitution at ramshackle camps around the mines. The gold moves from smuggler to smuggler, then into a network of refiners and traders, all feeding the world’s voracious demand.
Vilches, a city kid, never saw any of this, but he did grow up around gold. His father, Mario, owns a jewelry shop; his uncle Enrique, an evangelical preacher, built Joyas Barón, a chain of 18 jewelry stores. Enrique has more than once attracted the attention of the authorities. In 1998, Chilean prosecutors caught Ecuadorean smugglers with 18 ingots of gold at the airport, and they claimed to be delivering it to Enrique. (He was cleared of all criminal charges after arguing that police set him up.) In March 2015, Enrique was sentenced to five years’ probation for tax fraud by an appeals court in Santiago. Last year tax authorities filed further charges alleging that Enrique had organized an enormous accounting scam and owed an estimated $18 million in back taxes. Speaking on Chilean TV, Enrique Vilches denied all connections to his nephew’s gold smuggling. “I don’t have any commercial relationship with what’s being investigated,” he said. “[There’s] no situation that involves me, therefore I want to remain absolutely separated from this situation.”
By 15, Harold was working for his father’s business. Within a year, his dad was stuffing his backpack with up to 50 million pesos ($78,000) in cash and sending him to the bank to make deposits. In 2013, Vilches entered college at the Universidad Mayor in Santiago to study business administration. He hadn’t been there long when his father had a stroke, and he cut back his classwork to focus on the family business. If he was going to be doing that, he decided, he wanted to do more than buy and sell trinkets. He intended to make some real money, and that meant getting into the bulk gold business.
His first move was to persuade Gonzalo Farias, a metals exporter in Santiago, to take him on as a supplier. In September 2013, Vilches made his first delivery to Farias—6.6 lb. of gold legally acquired in Chile. He made several more such deliveries. But he wanted to be bigger. He went around Farias and cut a deal directly with Fujairah Gold, a Dubai-based company that Farias supplied. In June 2014, Vilches signed a contract to deliver 6,000 lb. of gold over the next 12 months to Fujairah’s head office. The contract began with 90 lb. the first month, then ratcheted up. He didn’t have the money to buy that much gold, so the company gave him access to an account holding $5.2 million. This was his big break—the contract was potentially worth more than $100 million. He stood to make $2 million to $6 million in profit.
This was beyond ambitious for Vilches—there weren’t enough available gold coins and jewelry in Chile to fill Fujairah’s orders.
So Vilches decided to become a smuggler. It was easy: He Googled gold dealers in Peru. He found Rodolfo Soria Cipriano, one of the country’s most prolific exporters, according to Peruvian newspaper El Comercial. An answer came quickly. Vilches told investigators Soria promised to set him up with all the gold he wanted if he showed up with the cash. Vilches said he didn’t ask where the gold came from. Whatever its source, he evaded export controls and moved the gold into Chile without paying taxes or duties, prosecutors say.
…
The net began to close in early 2016, when banks in Chile and Miami began filing suspicious-activity reports on Vilches’s huge cash transactions and shutting down his accounts. Then came the criminal complaint involving the Fujairah Gold contract. Finally, police arrested Vilches and seized $300,000 in cash and a small amount of gold from the bunker. Facing a multiyear jail sentence for money laundering and tax evasion, Vilches agreed to cooperate with law enforcement in both the U.S. and Chile. He also dropped out of college. Today, Vilches and NTR Metals are at the center of a sweeping criminal investigation by the U.S. Justice Department, Chile’s National Economic Prosecutor’s office, and law enforcement in Peru and Ecuador, according to Pérez, the Chilean prosecutor. Sarah Schall, a spokeswoman for the U.S. Attorney’s Office in Miami, declined to comment, citing policy against confirming or denying the existence of an investigation.
In October 2016, FBI agents and prosecutors with the U.S. Attorney’s Office in Miami traveled to Chile to interview Vilches. After becoming convinced his information was legitimate, they told him he might get immunity in the U.S. from prosecution in exchange for his sworn testimony, people with knowledge of the probe say. As Vilches spent hour after hour in interrogation, FBI agents and Chilean detectives were both fascinated and entertained. Upwards of 15 law enforcement professionals crowded into a meeting room at Santiago 1, a sprawling prison complex, and Vilches fed off the attention. He laughed and seemed to shrug off the seriousness of his situation. His confessions took on the air of a performance, according to one of the investigators present. “All you lacked was the popcorn,” he says with a laugh. FBI agent Lourdes McLoughlin, the assistant legal attaché at the U.S. embassy in Santiago, declined to comment, citing a policy of not commenting on active investigations.
In December the U.S. Attorney’s Office and FBI brought Vilches to Miami, where he told a federal grand jury that he was coached by NTR Metals Miami on how to set up his corporate structure in the U.S. to handle smuggled gold and then launder the proceeds, people familiar with the U.S. probe say. Elemetal and NTR Metals Miami didn’t respond to questions about an investigation.
…
Vilches lived large only briefly. He’s traded down to an apartment along Gran Avenida, a thoroughfare in a tough Santiago neighborhood. Because of his cooperation, he’s unlikely to face additional jail time for smuggling. He still faces multiple criminal charges, including tax evasion.
Chilean export regulations have been beefed up in the wake of the Vilches case. One gold dealer describes the new export process as similar to “being told to stand up against the wall and put your hands up.” Customs officials from Ecuador, Bolivia, and Peru have visited Chile to exchange information and compare notes. Pérez approves, but he has no illusions. If Vilches, without any particular advantages except his boldness, could get this far in the illegal gold trade, who else could? “I think there are 100 Vilcheses across Latin America,” he says. “It’s easier than it looks.”
In an interview with CNN’s Fareed Zakaria broadcast on Sunday, Vladimir Putin’s spokesman Dmitry Peskov expressed growing frustration with the inconclusive first two months of relations between Moscow and the Trump administration, which started off with hope for reconciliation and have instead devolved into a perpetuation of the Obama (and Hillary Clinton) imposed status quo. The election of President Trump, who had spoken approvingly of Putin and called for improved US-Russia relations, had raised hopes in the Kremlin. But Peskov – just like Syria leader Bashar al-Assad yesterday – said there are no signs of progress yet.
“Unfortunately, we don’t have a proper understanding of when this dialogue can begin,” Peskov told Fareed Zakaria (Peskov’s take on the Trump administration begins 14:20 in the video below). “We certainly would expect our contacts to be more frequent, more in depth. We had quite a significant pause in our bilateral relations.” Trump’s early campaign statements had initially led to speculation that the US would drop sanctions imposed on Russia for its interference in Ukraine, however that approach appears to have been indefinitely delayed following recurring allegations of proximity between the Trump campaign and Moscow. Furthermore, quoted by CBS Peskov said that “Russia will never initiate putting this issue on the agenda.”
In an ironic twist, we reported last week that not Trump, but the Clinton-affiliated Podesta Group, run by John Podesta’s brother Tony Podesta, had been retained by Russia’s largest bank Sberbank CIB to “proactively seek the removal of various Obama-era sanctions” according to TASS. That particular story has yet to make US primetime news.
Peskov also said Putin never voiced support for then-presidential candidate Trump. “You would probably recall that President Putin, during election campaign, had never answered directly a question about his candidate of his support. He kept saying that we will respect a choice of American people,” Peskov told Zakaria.
The Kremlin spokesman, however, did concede that Putin preferred Trump over Clinton, saying, “If you ask him whether he had mentioned the then-candidate Donald Trump, I will answer, yes, he had.”
He also suggested that Putin found Clinton hostile toward Russia, while Trump was open to thawing U.S.-Russian relations. “The candidate Hillary Clinton was quite negative about our country in her attitude and in her program, declaring Russia being nearly the main evil in the world and the main threat for the United States,” Peskov said.
“And to the contrary, the other candidate, Donald Trump, was saying that, ‘Yes, we disagree with the Russians … in lots of issues, but we have to talk to them in order to try to find some understanding.’ Whom would you like better? The one who says that Russia is evil or the one who says that, ‘Yes, we disagree, but let’s talk to understand and to try to find some points of agreement?’” he asked.
* * *
Touching on a more sensitive subject, Peskov denied any collaboration between the Russian government and President Donald Trump’s campaign, and said the U.S. is humiliating itself with its obsession over Russian meddling.
“The answer is very simple. No,” Peskov told Zakaria when asked about Russians colluding with Trump’s allies last year. “And the fact that Russia is being demonized in that sense comes very strange to us. And we are really sorry about that, because this — the whole situation takes us away from the perspective of getting our relationship to a better condition.”
“We don’t know what’s the reason for these words. We’ve never seen any evidence, and we’ve never heard something trustful,” Peskov said. “What we have seen – an open, a public part – of a report by one of the agencies, special agencies of the United States. And I would humbly say that it’s not a paper of high quality, in terms of being really trustful.”
* * *
Peskov also said there is nothing special in the Russian ambassador discussing bilateral ties with some members of Donald Trump’s electoral campaign team. The Russian ambassador to the US, Sergey Kislyak, talked to Trump campaign team members and future US administration officials “about the bilateral relations and… about what was going on in the United States” to provide Moscow with a better understanding of the situation on the ground, Peskov said.
He also noted that “every ambassador of Russia abroad” works just like “every ambassador of the US abroad, including [the one] in Moscow, because the more ambassador talks to people in his country of residence, the better job he does.”
Peskov also said that the Russian ambassador held conversations with some members of Hillary Clinton’s campaign team. “If you look at some people connected with Hillary Clinton during her campaign, you would probably see that he had lots of meetings of that kind,” he said.
“There are lots of specialists in politology, people working in think tanks advising Hillary or advising people working for Hillary.”
At the same time, he repeated that the Russian envoy has never spoken with any US officials about the electoral process and had no intention to interfere in the 2016 election process: “there were no meetings about elections — electoral process … So if you look at it with intention to demonize Russia, you would probably say that, yes, he was trying to interfere in Hillary’s activities. But it would be nonsense, because this is not true,” Peskov said.
* * *
Peskov, who insisted Vladimir Putin’s government has no intentions of interfering in the domestic affairs of another country, said the Kremlin has all of a sudden become a “nightmare” for the U.S.
“We sincerely cannot understand why American people and American politicians started the process of self-humiliation. You’re self-humiliating yourself, saying that a country can intervene in your election process,” he said, adding that it would be “simply impossible” for the Kremlin to easily influence an election of “the most powerful country in the world” with its “very, very stable political traditions.”
For now, however, the very simple logic of that statement has failed to register with a substantial portion of the US population, which continues to pursure the “Russia” link as a basis to delegitimize, and perhaps impeach, Trump in the future.
Bitcoin is once again trading above the price of an ounce of gold as Friday's collapse in the virtual currency – after the SEC's decision to deny an application for a Bitcoin ETF – has now been erased…
That de-escalated quickly…
Perhaps the dip-buyers know something the ETF-demand-hopers don't? The point is, as Jameson Lopp writes at CoinDeck.com,Nobody Understands Bitcoin (And That's OK)
In this guest feature, Lopp provides a deep dive into whether bitcoin can truly be understood as a technology, coming up with more questions than answers and delivering an impassioned appeal to open-mindedness and exploration.
When I first became interested in bitcoin, I found myself spending countless hours absorbing as much information about it as possible, trying to put all of the pieces together.
After years of learning, I now devote a fair amount of my time trying to help others understand bitcoin better. While many people have referred to me as a "bitcoin expert," I still consider myself a student – I have yet to determine how deep the rabbit hole goes.
Andreas Antonopoulos had this to say about explaining (and thus understanding) bitcoin:
"I wrote a book that answers the question 'What is Bitcoin?' It's 300 pages long, was obsolete the moment it was printed and has to be corrected and updated every three months just to keep up with changes."
The multifaceted nature of bitcoin
With enough studying you can teach yourself how bitcoin currently works from a technical standpoint.
I maintain a list of educational resources that is sufficient to keep anyone busy for several months in pursuit of this goal. However, this approach of information ingestion will only expose the tip of the bitcoin iceberg.
Ferdinando hits a key point that I’ll be delving into – bitcoin is not just a technology; it's a technology that represents something even less tangible.
Bitcoin is a living protocol that emerges from a melting pot of ideas, philosophies, cultures and politics after they undergo trial by fire.
"Writing a description for this thing for general audiences is bloody hard. There's nothing to relate it to." – Satoshi, July 5, 2010
Even Satoshi didn’t fully understand what he built with regard to bitcoin’s security model. He (or she) ended up fixing a multitude of bugs in the first few years of bitcoin’s existence.
After it was 18 months old, the rate of bug fixes had slowed down to the point that new vulnerabilities were categorized and documented. Let's cover a few of the flaws that were fixed before bitcoin gained adopters.
"The opcode OP_RETURN originally just caused the script to end early instead of fail, so you could steal anyone's bitcoins by simply using the scriptSig OP_TRUE OP_RETURN. It was also possible to put a pushdata opcode right at the end of a scriptSig to turn the entire scriptPubKey into a constant (which evaluates to true). Satoshi fixed these bugs by changing the behavior of OP_RETURN to cause the transaction to immediately fail and making it so that scriptSig and scriptPubKey are evaluated in two separate steps.”
– Theymos
Satoshi fixed a major consensus flaw by changing the 'best chain' logic from using the longest chain to using the chain with most proof-of-work. Technically, it could be argued that this was a hard fork, though it didn’t actually cause a chain fork because the longest chain at the time was also the one with the most proof-of-work.
Satoshi also set the block-size limit as protection against denial-of-service attacks. The block size was originally only implicitly limited by the network message size of 32MB.
There is also a bug in OP_CHECKMULTISIG that exists to this day. It’s mentioned in BIP-011:
"(OP_0 is required because of a bug in OP_CHECKMULTISIG; it pops one too many items off the execution stack, so a dummy value must be placed on the stack)."
– Gavin Andresen
And who could forget the value overflow bug that allowed someone to create 184 billion bitcoins!
In my quest to find more early Satoshi bugs that aren't well-known, Greg Maxwell recalled a juicy one:
"In the early versions of bitcoin, any user could hard fork any released versions from any other versions! This design flaw showed he didn't fully understand the required conditions for safe upgrades when it was first released, but his fix showed he did understand them later.
There was an opcode called OP_VER which pushed the verifying node's version number onto the stack. (Satoshi always believed there should only be one piece of bitcoin node software.) The apparent purpose of that opcode was so that you could add features to script and have only the newer supporting versions see those new opcodes (there also was originally 16 bits of opcode space in the codebase.) But someone could have used this maliciously like "OP_VER 1234 IF FALSE RETURN ENDIF TRUE" to make version 1,234 reject a block mined by any other version. So, any user could make the system fork any any time! When he removed OP_VER, he added the OP_NOP, which is what makes modern style script soft forks possible. This change itself was a soft fork because the original versions ignored unknown opcodes.”
Researchers have also discovered some flaws in Satoshi's white paper regarding the description of the system's security.
Bitcoin clearly didn’t follow a 'code is law' view, but rather 'Satoshi’s vision is law' given that he made a number of tweaks in the first few years as it was discovered that the code didn’t fully align with the intent of the code creator.
I think this distinction is particularly relevant given that: a) Satoshi stopped contributing to bitcoin many years ago, and b) bitcoin has no formal specification.
Software is never finished
You can tell how little bitcoin is understood simply by the vast amount of research being done to analyze and improve upon it.
Satoshi once stated that the core design was set in stone and other implementations would be a menace to the network. People often take this quote (and others from Satoshi) and use it to fallaciously argue (via appeal to authority) that the bitcoin protocol must evolve in a specific way.
I pose to you that this was just another case where Satoshi was mistaken.
As we’ve seen, Satoshi actually had to make a lot of changes to bitcoin as early developers were exploring the code and discovering edge cases. There are also over half a dozen bitcoin client implementations running today that aren't disrupting the network. We have even seen that a single implementation can be a menace to the network when machine-level differences can cause consensus failure, as happened in 2013 with the Berkeley DB chain fork.
Recall my earlier description of bitcoin being the result of a melting pot of contributions. This really took hold once Satoshi released his pet project that he had been working on in secret for several years.
The very first week that bitcoin launched, it also gained its first collaborator, Hal Finney. Hal was one of the few people who believed early on that bitcoin could actually work, which is clear from Satoshi's original white paper release:
"[Hal Finney] allegedly showed a lot of flaws in the early code, which were fixed by reducing the opcodes. Hal Finney was the cypherpunks' cypherpunk. He had a rare ability to both code superlatively, see the forest and the trees and describe what he saw. We all read his posts carefully, I don't think there is anyone else who commanded such respect."
– Ian Grigg
Finney released a number of his emails with Satoshi to the Wall Street Journal; they’re an interesting read. You can see Satoshi's surprise as he manages to find several bugs that Satoshi had not anticipated even though he had "tested heavily".
Unlike some systems (such as ethereum), bitcoin doesn't have a formal specification. Even if bitcoin did have one, it wouldn't be any easier or harder to make changes to the protocol from a technical standpoint, though it might from a social standpoint.
I pose to you that bitcoin’s strength comes not from being the embodiment of some dogmatic beliefs of immutability, decentralization or other buzzwords, but from collaboration. The process of taking collaboration and using it to determine human consensus can be noisy and messy, but it’s the governance model within which we must work.
Sergej Kotliar penned this piece years ago describing why bitcoin has similarities to religion. As he notes, there is a bit of magic to the fact that the system works as a whole, because it relies upon non-technical components.
The well-aligned incentives of the system form an "invisible hand" that guides it.
Most bitcoin users probably don't realize it, but they are subscribing to a sophisticated subjectivist ontology by participating in this collectively reinforced belief in the system of rules that comprises bitcoin.
To put it in simpler terms:
1) Public permissionless consensus systems let you use them w/o trusting any one individual. However, you must trust everyone in aggregate.
While bitcoin can be described as trustless in the sense that a full node operator needs not trust any other participants on the network, at a meta level there is often some form of trust involved. For example, almost none of bitcoin’s users actually read and understand the software and the protocol itself.
They are trusting the developers to be careful not to introduce flaws.
It appears to me that the fact that few people have a deep understanding of bitcoin's technical operations results in people with lesser understanding deciding which 'experts' to trust. As such, when experts clash, the crowd divides and takes sides behind the experts whose arguments they find most compelling.
Unfortunately, this means that sometimes politics are injected into the decision making process.
As Shaolin Fry recently noted, we should strive to avoid politicization of proposed protocol improvements. To be clear, this doesn't mean 'nobody in the ecosystem is motivated by political ideals'. Rather, it means that the direction of the system is not driven by politics in which one group of people forces their beliefs upon another.
For example, the concept of 'voting' generally means that a political process is occurring. We should instead strive for a system of permissionless innovation wherein participants can signal that they want to interact in certain ways, regardless of what other participants signal.
"We already have a lot of options for currencies which are (indirectly) controlled by political whim. Bitcoin should be sounder stuff than that. I would love to be able to say that the complete consensus rules on day one were involatile ('set in stone') but engineering reality makes that unrealistic. That dream for bitcoin died the day the first unambiguous and serious consensus flaw was found. The deactivation of buggy opcodes further weakened it, requiring more changes to be fully general again. But the world is seldom so conveniently black and white. Bitcoin can still deliver on the promise of being a less political money without being totally set in stone."
– Greg Maxwell
Projection problems
Some bitcoin users achieve such a sufficient understanding of the protocol that they begin to envision potential improvements, at which point they try to change the system to better fit their perspective.
This is a 'command and control' mindset that is human nature; I myself have been guilty of making this same mistake in the past by trying to project my perspective onto bitcoin rather than ingesting the perspectives of the community.
There are far more considerations that go into debates about bitcoin's evolution than just the technical aspects of how changes would affect the network.
Ryan X Charles covered the high-level philosophies of the two most popular viewpoints in the scaling debates. Much of the contention in these debates comes from: a) different priorities and b) different beliefs in the use cases for bitcoin.
Unfortunately, a significant portion of participants in these debates have taken their perspectives and developed them to the point of dogmatic belief, which makes it nearly impossible to engage in intellectual discourse.
Dogma: "Doing X is an attack on Bitcoin!" Discourse: "I disagree with doing X because my vision for Bitcoin is Y."
One reason I believe that it is easy for people to project their perspective upon bitcoin is due to its lack of specification and thus lack of clear objectives.
For example, Satoshi described bitcoin as a 'peer-to-peer electronic cash system'. But even this simple description can easily be interpreted in many ways. 'Peer-to-peer' provides no context around how many peers there should be; 'cash' provides no context around what the speed or cost of transactions should be.
Much as you can find a variety of perspectives and interpretations of the US Constitution or the Bible or the Quran, so can the writings of Satoshi be interpreted and debated.
The projection of individual perspectives onto bitcoin has led to the same sort of fracturing we can observe in political, philosophical, and religious systems. A group starts out on mostly the same page, but then an issue arises about which the group can not form a consensus.
The individuals begin to polarize their perspectives and support actions that foster tribalism. Party lines are drawn, litmus tests are applied to newcomers, dissenting speech is suppressed, propaganda is perpetuated, communications break down, and echo chambers are formed.
As a result, today, bitcoin debates often devolve into fallacious assertions and name calling, where one party considers the other party to be either ignorant or malicious. This is unfortunate because people often end up talking past each other under the assumption that they are right and the other party is wrong.
It's troubling to see the ossification of perspectives into dogmatic beliefs that degrade the quality of discourse in the community.
I pose to you that there is no single 'correct' approach to viewing bitcoin, but rather a multitude of perspectives. The diversity of perspectives and use cases was the topic of one of the first articles I ever wrote about bitcoin.
I’m not saying that you have to agree with rhetoric propagated by people with conflicting perspectives of what bitcoin should be. I will suggest, however, that you should recognize it as such – not as a malicious attack that you must defend against with a direct counterattack.
If a debate is becoming too heated and discourse is breaking down, you can always disengage.
Keep in mind that all humans fall prey to biases; we can't avoid being affected by them, but we can consciously choose how we respond to other biased people. It may also help to remember that bitcoin doesn't need you to defend it – you defend your own perspective of bitcoin by choosing which software to run and by choosing the system in which you store your money.
The Tao of bitcoin
Andreas once spoke about the "noisy" scaling debate.
While it can be unpleasant, we should remember that it is the result of a feature rather than of a flaw in bitcoin.
Bitcoin ecosystem participants should be humble when discussing it rather than confident that our understanding of the system is superior to that of others participating in a discussion. I, for one, have found my conversations to be more productive after making this realization.
I've also wasted a lot less time by avoiding conversations that were clearly going to be unproductive due to the dogmatic views expressed by the other party.
You can achieve the 'Tao of Bitcoin' by accepting that bitcoin is on its own path that is outside of your control. Don’t be frustrated if your vision of bitcoin does not align with that of other users. Bitcoin will naturally converge upon the least common denominator of human consensus – that which is beneficial (or at least not harmful) to the greatest subset of participants.
The Tao of Bitcoin is not understanding bitcoin, it is accepting that bitcoin is what it is.
Thanks for playing, everybody – you're all correct! Everyone who has a vested interest can /try/ to influence Bitcoin. None can control it. http://pic.twitter.com/chfbUtZAZi
I’ve attempted to present sufficient evidence that bitcoin defies conventional educational approaches and even defies self-professed authorities who claim to understand it. The result can be bewildering, but there is no need for negativity.
We should remain hopeful that bitcoin will continue to 'fail to scale' just like the internet has.
"In short, bitcoin is maturing and the market is starting to define what bitcoin is going to be. I’m sure there are people on both sides of the debate that won’t like what it’s going to become, but that’s what you get with a decentralized currency."
I will continue my quest to consume as much information as possible about this new ecosystem, but have long since given up the goal of understanding bitcoin.
The faster I run toward the finish line, the further it moves away from me. While some people in this space are more confident than others about its future direction, the truth is that we're blazing new trails and learning as we move forward.
You don’t understand bitcoin, and that’s OK – neither does anyone else.
You can be any of these things… * whale investor * early adopter * C-level exec * developer * miner … and still not understand Bitcoin.