Indeed, this weekend marks the 78th anniversary of the attack on Pearl Harbor in Hawaii, which opened the door for the United States to enter World War II. Turn on your TV and you will see military mavens rambling on, pontificating about ‘the defense of the realm’, all the while completely aloof and unaware of the American empire’s real Achilles heel.
Recent, financial pundit and TV host Max Keiser outlined such a scenario, and warned that the US will be blind-sided the day that China introduces its gold-backed crypto currency – an absolute game changer which would create a “catastrophic trapdoor opening underneath the US economy,” said Keiser.
Not surprisingly, very few mainstream financial pundits in the West are willing to admit that China possesses gold reserves in excess of 20,000 tons, and by introducing a gold-backed cryptocurrency, it has the ability to “kill the US dollar deader than a door nail …. a new Pearl Harbor-type event and it’s coming in the next six to nine months.”
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
Showing posts with label Currency. Show all posts
Showing posts with label Currency. Show all posts
December 9, 2019
November 25, 2019
China's 'Official' Virtual Currency Could Be Arriving "Quite Soon" To "Challenge The U.S."
As if the trade war - and soon to be currency war - between China and the U.S. needed another wrench thrown in its gears...
China sent cryptocurrencies tumbling on Friday after re-cracking-down on exchanges that are operating illegally against authorities' ban.
On Nov. 22, authorities in Shenzhen have identified a total of 39 exchanges falling foul of China’s cryptocurrency trading ban, according to local news outlet Sanyan Finance.
It remains unknown what consequences the exchanges will face, with Sanyan highlighting a desire to crack down on liquidity.
It appears that China's blockade on non-government-sanctioned crypto trading, could be on its way to launching its own digital currency within the next 6 to 12 months, according to fund manager Edith Yeung, who recently appeared on CNBC.
The Chinese government has been researching the idea over the last few years and has reportedly identified entities to use for a potential rollout, Yeung says.
“It’s really been something (that’s) been in the works for the last few years,” she said on Wednesday during an interview. Yeung is a partner at blockchain-focused venture capital fund Proof of Capital.
When she was asked how long it might be before the launch becomes reality, she responded "Quite soon. So I definitely think within the next 6 to 12 months."
And China has recently embraced blockchain, with state media reporting that President Xi Jinping said the country should look to "take a lead" in the technology.
Wendy Liu, head of China strategy for UBS, also said that there was greater willingness to work with blockchain and 5G in China because they will help facilitate and manage the world's biggest country by population.
Liu commented: “Due to its own needs, (China) is going to push in that direction and you see this willingness to back these technologies more so than anywhere else.”
Meanwhile, tensions between China and the U.S. continue to hit new fever pitches, as the trade war standoff between the two countries continues. Yeung says that even thought the dollar remains the world's reserve currency, the wider use of the Yuan could "challenge the U.S."
Read the entire article
China sent cryptocurrencies tumbling on Friday after re-cracking-down on exchanges that are operating illegally against authorities' ban.
On Nov. 22, authorities in Shenzhen have identified a total of 39 exchanges falling foul of China’s cryptocurrency trading ban, according to local news outlet Sanyan Finance.
It remains unknown what consequences the exchanges will face, with Sanyan highlighting a desire to crack down on liquidity.
It appears that China's blockade on non-government-sanctioned crypto trading, could be on its way to launching its own digital currency within the next 6 to 12 months, according to fund manager Edith Yeung, who recently appeared on CNBC.
The Chinese government has been researching the idea over the last few years and has reportedly identified entities to use for a potential rollout, Yeung says.
“It’s really been something (that’s) been in the works for the last few years,” she said on Wednesday during an interview. Yeung is a partner at blockchain-focused venture capital fund Proof of Capital.
When she was asked how long it might be before the launch becomes reality, she responded "Quite soon. So I definitely think within the next 6 to 12 months."
And China has recently embraced blockchain, with state media reporting that President Xi Jinping said the country should look to "take a lead" in the technology.
Wendy Liu, head of China strategy for UBS, also said that there was greater willingness to work with blockchain and 5G in China because they will help facilitate and manage the world's biggest country by population.
Liu commented: “Due to its own needs, (China) is going to push in that direction and you see this willingness to back these technologies more so than anywhere else.”
Meanwhile, tensions between China and the U.S. continue to hit new fever pitches, as the trade war standoff between the two countries continues. Yeung says that even thought the dollar remains the world's reserve currency, the wider use of the Yuan could "challenge the U.S."
Read the entire article
November 6, 2019
Is The Global Dollar In Jeopardy?
Since the end of World War II, the United States dollar has been at the heart of international finance and trade. Over the decades, and despite the many ups and downs of the global economy, the dollar retained its role as the world’s favorite reserve asset. When times are tough or uncertainty reigns, investors flock to dollar-denominated assets, particularly US Treasury debt – ironically, even when there is a financial crisis in the US. As a result, the Federal Reserve – which sets US dollar interest rates – has enormous sway over economic conditions around the world.
For all the associated innovation evident since the launch of the decentralized blockchain-based currency Bitcoin in 2009, the arrival of modern cryptocurrencies has had essentially zero impact on the global taste for dollars. Promoters of these new forms of money still have their hopes, of course, that they can challenge the existing financial system, but the impact on global portfolios has proved minimal. The most powerful central banks (the Fed, the European Central Bank, and a few others) are still running the global money show.
Suddenly, however, there is a new, potentially serious player in town: Facebook’s Libra initiative. Facebook and a currently shifting coalition of firms are planning to launch their own private form of money that would, in some sense, be secured by holdings of major currencies.
Without question, Libra could become a widely used form of payment – partly because Facebook has over two billion monthly active users, but also because the existing financial system is full of inefficiencies. If private money could make it cheaper, easier, and safer to make payments, then consumers would be happy to use it. Few people care what is under the hood of the monetary engine; most just want crash-proof transactions.
The unfortunate truth is that our current payment system is expensive to run, including for sending money overseas in the form of remittances sent by workers back to their home countries. If Libra could allow people to send money as easily (and as cheaply!) as they post updates to Facebook, the currency would get a lot of likes.
We have repeatedly experienced how quickly a disruptive new digital technology can transform the economic landscape. Think of how fast taxis came under pressure from Uber and Lyft.
Read the entire article
For all the associated innovation evident since the launch of the decentralized blockchain-based currency Bitcoin in 2009, the arrival of modern cryptocurrencies has had essentially zero impact on the global taste for dollars. Promoters of these new forms of money still have their hopes, of course, that they can challenge the existing financial system, but the impact on global portfolios has proved minimal. The most powerful central banks (the Fed, the European Central Bank, and a few others) are still running the global money show.
Suddenly, however, there is a new, potentially serious player in town: Facebook’s Libra initiative. Facebook and a currently shifting coalition of firms are planning to launch their own private form of money that would, in some sense, be secured by holdings of major currencies.
Without question, Libra could become a widely used form of payment – partly because Facebook has over two billion monthly active users, but also because the existing financial system is full of inefficiencies. If private money could make it cheaper, easier, and safer to make payments, then consumers would be happy to use it. Few people care what is under the hood of the monetary engine; most just want crash-proof transactions.
The unfortunate truth is that our current payment system is expensive to run, including for sending money overseas in the form of remittances sent by workers back to their home countries. If Libra could allow people to send money as easily (and as cheaply!) as they post updates to Facebook, the currency would get a lot of likes.
We have repeatedly experienced how quickly a disruptive new digital technology can transform the economic landscape. Think of how fast taxis came under pressure from Uber and Lyft.
Read the entire article
October 21, 2019
Here Is The Real Reason The Fed Restarted QE
In the past month, a feud has erupted in the financial media and across capital markets between defenders of the Fed, who praise the return of its unprecedented easing in the form of $60BN in monthly T-Bill purchases, by refusing to call it by its real name, and instead the Fed's fanclub calls it "not QE" (just so it doesn't appear that ten years after the Fed first launched QE, we are back to square one), and those who happen to be intellectually honest, and call the largest permanent expansion in the Fed's balance sheet, meant to ease financial conditions and boost liquidity across the financial sector, for what it is: QE.
It is this same "not QE" that has boosted the Fed's balance sheet by $200BN in one month, the fastest rate of increase since the financial crisis.
Yet while the Fed's desire to purchase Bills instead of coupon Treasuries was dictated by its superficial desire to distinguish the current "Not QE" from previous "True QEs", even though both tends to inject the same amount of liquidity into the system, which as a reminder is what the Fed's bailout role in the past 11 years has all been about, and only true Fed sycophants are unable to call a spade a spade, the Fed's choice raises a rather thorny question of where the Fed will source those T-bills, because as JPMorgan calculates, the net supply of Bills in 4Q19 and 1Q20 is around $115-$130bn while JPM's economists estimate that at least $200-$250bn of purchases could be required to return reserves to around $1.5tr where they were in early September this year.
That means the Fed might need to source purchases from money-market funds and foreign central banks - which paradoxically would serve to further drain liquidity out of the system. As such, given the limited alternatives, JPM's Nikolas Panagirtzoglou believes that the Fed may be reluctant to do so and if they do, some may chose to leave cash in the Fed’s ON RRP facility which would represent a drain on reserves and make T-bills a less efficient vehicle for reserve creation.
Another key question: what if just returning to the previous reserve baseline is not sufficient, and the Fed needs to return reserves to a higher level than $1.5tr? Indeed, with close to $200bn of reserves injected via overnight and term repos for much of this week...
Read the entire article
It is this same "not QE" that has boosted the Fed's balance sheet by $200BN in one month, the fastest rate of increase since the financial crisis.
Yet while the Fed's desire to purchase Bills instead of coupon Treasuries was dictated by its superficial desire to distinguish the current "Not QE" from previous "True QEs", even though both tends to inject the same amount of liquidity into the system, which as a reminder is what the Fed's bailout role in the past 11 years has all been about, and only true Fed sycophants are unable to call a spade a spade, the Fed's choice raises a rather thorny question of where the Fed will source those T-bills, because as JPMorgan calculates, the net supply of Bills in 4Q19 and 1Q20 is around $115-$130bn while JPM's economists estimate that at least $200-$250bn of purchases could be required to return reserves to around $1.5tr where they were in early September this year.
That means the Fed might need to source purchases from money-market funds and foreign central banks - which paradoxically would serve to further drain liquidity out of the system. As such, given the limited alternatives, JPM's Nikolas Panagirtzoglou believes that the Fed may be reluctant to do so and if they do, some may chose to leave cash in the Fed’s ON RRP facility which would represent a drain on reserves and make T-bills a less efficient vehicle for reserve creation.
Another key question: what if just returning to the previous reserve baseline is not sufficient, and the Fed needs to return reserves to a higher level than $1.5tr? Indeed, with close to $200bn of reserves injected via overnight and term repos for much of this week...
Read the entire article
October 8, 2019
"Paper Money Systems Have Always Wound-Up With Collapse And Chaos", Buffett Senior
Warren himself acquired a record-setting 128 million ounces of silver back in the late 1990s… which he later sold at a profit in the early 2000s.
But to listen to him talk about precious metals these days, he’s always negative.
Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.
Reclusive Millionaire Urges Retirees: “Get Out Of Cash”
PhD Millionaire who called Dotcom crash, housing bust, and market's surge since '09 is now predicting a 'cash panic' in 2019. Here's how to prepare.
With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.
This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.
Sure, I’d rather own a profitable, productive asset than a pile of metal.
But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.
Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.
Read the entire article
But to listen to him talk about precious metals these days, he’s always negative.
Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.
Reclusive Millionaire Urges Retirees: “Get Out Of Cash”
PhD Millionaire who called Dotcom crash, housing bust, and market's surge since '09 is now predicting a 'cash panic' in 2019. Here's how to prepare.
With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.
This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.
Sure, I’d rather own a profitable, productive asset than a pile of metal.
But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.
Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.
Read the entire article
October 4, 2019
Will The Drive To Devalue The Dollar Lead To A Plaza Accord 2.0?
The Lead-Up to the Plaza Accord
To understand the Plaza Accord, one has to look back to August 15, 1971. On this day Richard Nixon closed the gold window. This step de facto ended the Bretton Woods system, which had been created in 1944 in the New Hampshire town of the same name and was formally terminated in 1973. The era of gold-backed currency was well and truly over; the era of flexible exchange rates had begun. Without a gold anchor, the exchange rate of every currency pair was supposed to be driven exclusively by supply and demand. National central banks — and indirectly governments as well — were at liberty to make their own decisions, free of the tight restrictions imposed by a gold standard, but they had to bear the costs of their decisions in the form of the devaluation or appreciation of their currencies. While a gold-backed currency aims to impose discipline on nations, a system of flexible exchange rates enables national idiosyncrasies to be preserved, with the exchange rate serving as a balancing mechanism.
However, unlike any other currency system, the system of free-floating currencies invites governments and central banks to manipulate exchange rates practically at will. Without reciprocal agreements, which can provide planning security to export-oriented companies in particular, the danger of international chaos is very high, as the system of flexible exchange rates lacks an external anchor.
In order to prevent this chaos, a repetition of the traumatic devaluation spiral of the 1930s, and the resulting disintegration of the global economy, IMF member nations agreed in 1976 at a meeting in Kingston, Jamaica, that “the exchange rate should be economically justified. Countries should avoid manipulating exchange rates in order to avoid the need to regulate the balance of payments or gain an unfair competitive advantage." And in this multilateral spirit — albeit under an US initiative that was strongly tinged by self-interest — an agreement was struck nine years later that has entered the economic history books as the Plaza Accord.
Read the entire article
To understand the Plaza Accord, one has to look back to August 15, 1971. On this day Richard Nixon closed the gold window. This step de facto ended the Bretton Woods system, which had been created in 1944 in the New Hampshire town of the same name and was formally terminated in 1973. The era of gold-backed currency was well and truly over; the era of flexible exchange rates had begun. Without a gold anchor, the exchange rate of every currency pair was supposed to be driven exclusively by supply and demand. National central banks — and indirectly governments as well — were at liberty to make their own decisions, free of the tight restrictions imposed by a gold standard, but they had to bear the costs of their decisions in the form of the devaluation or appreciation of their currencies. While a gold-backed currency aims to impose discipline on nations, a system of flexible exchange rates enables national idiosyncrasies to be preserved, with the exchange rate serving as a balancing mechanism.
However, unlike any other currency system, the system of free-floating currencies invites governments and central banks to manipulate exchange rates practically at will. Without reciprocal agreements, which can provide planning security to export-oriented companies in particular, the danger of international chaos is very high, as the system of flexible exchange rates lacks an external anchor.
In order to prevent this chaos, a repetition of the traumatic devaluation spiral of the 1930s, and the resulting disintegration of the global economy, IMF member nations agreed in 1976 at a meeting in Kingston, Jamaica, that “the exchange rate should be economically justified. Countries should avoid manipulating exchange rates in order to avoid the need to regulate the balance of payments or gain an unfair competitive advantage." And in this multilateral spirit — albeit under an US initiative that was strongly tinged by self-interest — an agreement was struck nine years later that has entered the economic history books as the Plaza Accord.
Read the entire article
September 19, 2019
Rothschild Emerges From The Shadows For The Centenary Of The London Gold Fixing
This month in London marks the 100th anniversary of the first “London Gold Fixing”, the infamous daily meeting of a secretive cartel of bullion banks which has met since 1919 to set benchmark gold prices used throughout the international gold market, a meeting which continues to this day through its thinly disguised successor, the LBMA Gold Price auction.
London gold price benchmarks are critically important to the global gold market because they are used as a valuation source for everything from ISDA gold interest rate swap contracts to gold-backed Exchange Traded Funds (ETFs), and everything from OTC gold contracts to transaction reference prices used by physical bullion dealers when purchasing gold bars and gold coins from refineries and suppliers.
Since 2015, the London Gold Fixing has been known as the LBMA Gold Price following a rush by the London Bullion Market Association (LBMA) bullion banks to patch over the then scandalized ‘Fixing’ in a smoke and mirrors and circle the wagons relaunch and renaming exercise. The collusive Gold Fixing first formally came into existence on 12 September 1919 when the Bank of England tapped its favorite bankers N.M. Rothschild & Sons to be the daily Fixing’s permanent chairman. Rothschild and the Bank of England had been joined at the hip since the early 1800s and would continue to be so in the Gold Fixing throughout the next century.
The 1919 launch of the Gold Fixing by the Bank of England and Rothschild succeeded a more informal version of a gold fixing that had existed up to the outbreak of the First World War in 1914, which consisted of a meeting of four London gold brokers Mocatta & Goldsmid, Samuel Montagu, Sharps & Wilkins, and Pixley & Abell who between them set a daily gold price at the offices of Sharps & Wilkins.
Read the entire article
London gold price benchmarks are critically important to the global gold market because they are used as a valuation source for everything from ISDA gold interest rate swap contracts to gold-backed Exchange Traded Funds (ETFs), and everything from OTC gold contracts to transaction reference prices used by physical bullion dealers when purchasing gold bars and gold coins from refineries and suppliers.
Since 2015, the London Gold Fixing has been known as the LBMA Gold Price following a rush by the London Bullion Market Association (LBMA) bullion banks to patch over the then scandalized ‘Fixing’ in a smoke and mirrors and circle the wagons relaunch and renaming exercise. The collusive Gold Fixing first formally came into existence on 12 September 1919 when the Bank of England tapped its favorite bankers N.M. Rothschild & Sons to be the daily Fixing’s permanent chairman. Rothschild and the Bank of England had been joined at the hip since the early 1800s and would continue to be so in the Gold Fixing throughout the next century.
The 1919 launch of the Gold Fixing by the Bank of England and Rothschild succeeded a more informal version of a gold fixing that had existed up to the outbreak of the First World War in 1914, which consisted of a meeting of four London gold brokers Mocatta & Goldsmid, Samuel Montagu, Sharps & Wilkins, and Pixley & Abell who between them set a daily gold price at the offices of Sharps & Wilkins.
Read the entire article
September 16, 2019
Our Energy And Debt Predicament In 2019
Many people are concerned that we have an oil problem. Or they are concerned about recession and the need to lower interest rates.
As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away.
The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.
Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.
In the following sections, I will explain some of the issues involved.
Read the entire article
As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away.
The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.
Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.
In the following sections, I will explain some of the issues involved.
Read the entire article
September 6, 2019
China Cuts Required Reserve Ratio Releasing $126BN In Liquidity; Yuan Surges
As had been widely previewed in China's official financial press in recent days, on Friday the PBOC announced it would cut the required reserve ratio (RRR) for all banks by 0.5% effective Sept. 16 (and by 1% for some city commercial banks, to take effect in two steps on Oct. 15 and Nov. 15), releasing 900 billion yuan ($126 billion) of liquidity, helping to offset the tightening impact of upcoming tax payments.
While today's rate cut was more than the previous cuts in January and May, which released 800 billion yuan and 280 billion yuan, respectively, the PBOC stated that “China won’t adopt flood-like monetary stimulus” and that they will continue “prudent” monetary policy to “keep liquidity at (a) reasonably ample level" and will "strengthen the counter-cyclical adjustment" which is basically gibberish for it will do whatever it sees appropriate.
With the Chinese economy slowing drastically in recent months, with various economic indicators at multi-decade lows, the RRR cut was aimed at supporting demand by funneling credit to small firms and echoes the earlier cuts this year. Indeed, as Bloomberg notes, China’s economy softened substantially in August after poor results in July, and will likely deteriorate further in the remainder of the year. Trade tension between China and the U.S. expanded onto the financial front recently after China allowed the currency to decline below 7 a dollar, prompting the U.S. to name it a currency manipulator.
Anticipating cries of foul play from Trump's twitter account which is just minutes away from unleashing hell at the Fed for not doing what China is doing, the cut "doesn’t reflect an aggressive easing," said Commerzbank economist Zhou Hao. "In fact, China has recently massively tightened property financing. Hence this is still a re-balancing - to lower the funding costs for the manufacturing sector but tighten liquidity in the property sector due to asset bubble concerns."
Read the entire article
While today's rate cut was more than the previous cuts in January and May, which released 800 billion yuan and 280 billion yuan, respectively, the PBOC stated that “China won’t adopt flood-like monetary stimulus” and that they will continue “prudent” monetary policy to “keep liquidity at (a) reasonably ample level" and will "strengthen the counter-cyclical adjustment" which is basically gibberish for it will do whatever it sees appropriate.
With the Chinese economy slowing drastically in recent months, with various economic indicators at multi-decade lows, the RRR cut was aimed at supporting demand by funneling credit to small firms and echoes the earlier cuts this year. Indeed, as Bloomberg notes, China’s economy softened substantially in August after poor results in July, and will likely deteriorate further in the remainder of the year. Trade tension between China and the U.S. expanded onto the financial front recently after China allowed the currency to decline below 7 a dollar, prompting the U.S. to name it a currency manipulator.
Anticipating cries of foul play from Trump's twitter account which is just minutes away from unleashing hell at the Fed for not doing what China is doing, the cut "doesn’t reflect an aggressive easing," said Commerzbank economist Zhou Hao. "In fact, China has recently massively tightened property financing. Hence this is still a re-balancing - to lower the funding costs for the manufacturing sector but tighten liquidity in the property sector due to asset bubble concerns."
Read the entire article
August 29, 2019
World's First Licensed Crypto Bank Seen As Game-Changer For Switzerland
The co-founders of Sygnum crypto bank have hailed the award of a Swiss banking license as a game changer that could open the floodgates to the integration of cryptocurrencies and other digital assets into the established financial sector.
Sygnumexternal link, along with SEBAexternal link, were awarded provisional banking and securities dealer licenses by Switzerland’s financial regulator on Monday. Both entities will become fully-fledged banks once they have completed some final routine regulatory hurdles.
“This is the first time such licenses have been granted worldwide, so Switzerland is playing a pioneering role,” Manuel Krieger, CEO of Sygnum Switzerland, told swissinfo.ch. He also thinks the early movers will encourage others to take the plunge. “We now have a responsibility as an enabling platform to help banks and other financial players make the step into the digital asset world.”
“This has positive implications for Switzerland and distributed ledger technology [the blockchain-style platform on which cryptocurrencies run] internationally,” added Mathias Imbach who runs the group’s Singapore operation.
Read the entire article
Sygnumexternal link, along with SEBAexternal link, were awarded provisional banking and securities dealer licenses by Switzerland’s financial regulator on Monday. Both entities will become fully-fledged banks once they have completed some final routine regulatory hurdles.
“This is the first time such licenses have been granted worldwide, so Switzerland is playing a pioneering role,” Manuel Krieger, CEO of Sygnum Switzerland, told swissinfo.ch. He also thinks the early movers will encourage others to take the plunge. “We now have a responsibility as an enabling platform to help banks and other financial players make the step into the digital asset world.”
“This has positive implications for Switzerland and distributed ledger technology [the blockchain-style platform on which cryptocurrencies run] internationally,” added Mathias Imbach who runs the group’s Singapore operation.
Read the entire article
August 27, 2019
Will Central Banks Survive?
Almost all economists and the vast majority of the general population erroneously believe that central banks are, basically, indestructible. And most fail to appreciate that central banks are different from normal commercial banks in just two respects: their ability to earn seigniorage revenue, and to distort accounting rules.
With the current level of liabilities central banks hold those may not be enough. We might be closing in the end of the central banking era.
The income structure of a central bank
Central banks earn seigniorage from the difference between the “printing” costs of the legal tender (monetary base) and its nominal value. In a simplified balance sheet of a central bank, money is visible in the liabilities-side, which also holds the government’s bank account (domestic liabilities) and the reserves of commercial banks and net worth. Net worth includes the capital of the central bank and valuation adjustments for changes in the foreign-exchange rate and investments. A central bank’s assets include securities, foreign-exchange reserves (net foreign assets) and loans (to commercial banks).
Thus, when a central bank buys assets, such as government bonds, it simply either creates money directly or debits the reserves of commercial banks to maintain balance. In the programs of quantitative easing (“QE”, see Q-Review 1/2018), the latter option has been used. The central bank earns income in the form of interest from these holdings. If the liabilities contain required reserves and currency, the central bank has “zero-cost” financing. If the liabilities contain excess reserves and or domestic liabilities, the central bank will need to pay interest.
Read the entire article
With the current level of liabilities central banks hold those may not be enough. We might be closing in the end of the central banking era.
The income structure of a central bank
Central banks earn seigniorage from the difference between the “printing” costs of the legal tender (monetary base) and its nominal value. In a simplified balance sheet of a central bank, money is visible in the liabilities-side, which also holds the government’s bank account (domestic liabilities) and the reserves of commercial banks and net worth. Net worth includes the capital of the central bank and valuation adjustments for changes in the foreign-exchange rate and investments. A central bank’s assets include securities, foreign-exchange reserves (net foreign assets) and loans (to commercial banks).
Thus, when a central bank buys assets, such as government bonds, it simply either creates money directly or debits the reserves of commercial banks to maintain balance. In the programs of quantitative easing (“QE”, see Q-Review 1/2018), the latter option has been used. The central bank earns income in the form of interest from these holdings. If the liabilities contain required reserves and currency, the central bank has “zero-cost” financing. If the liabilities contain excess reserves and or domestic liabilities, the central bank will need to pay interest.
Read the entire article
August 15, 2019
Why The Dollar Rules The World - And Why Its Reign Could End
President Donald Trump wants a lower US dollar. He complains about the over-valuation of the American currency. Yet, is he right to accuse other countries of a “currency manipulation”? Is the position of the US dollar in the international monetary arena not a manipulation in its own right? How much has the United States benefitted from the global role of the dollar, and is this “exorbitant privilege” coming to end? In order to find an answer to these questions, we must take a look at the monetary side of the rise of the American Empire.
Trump is right. The American dollar is overvalued. According to the latest version of the Economist’s “ Big Mac Index,” for example, only three currencies rank higher than the US dollar. Yet the main reason for this is not currency manipulation but the fact that the US dollar serves as the main international reserve currency.
This is both a boon and a curse. It is a boon because the country that emits the leading international reserve currency can have trade deficits without worrying about a growing foreign debt. Because the American foreign debt is in the country’s own currency, the government can always honor its foreign obligations as it can produce any amount of money that it wants in its own currency.
Yet the international reserve status comes also with the curse that the persistent trade deficits weaken the country’s industrial base. Instead of paying for the import of foreign goods with the export of domestic production, the United States can simply export money.
Read the entire article
Trump is right. The American dollar is overvalued. According to the latest version of the Economist’s “ Big Mac Index,” for example, only three currencies rank higher than the US dollar. Yet the main reason for this is not currency manipulation but the fact that the US dollar serves as the main international reserve currency.
This is both a boon and a curse. It is a boon because the country that emits the leading international reserve currency can have trade deficits without worrying about a growing foreign debt. Because the American foreign debt is in the country’s own currency, the government can always honor its foreign obligations as it can produce any amount of money that it wants in its own currency.
Yet the international reserve status comes also with the curse that the persistent trade deficits weaken the country’s industrial base. Instead of paying for the import of foreign goods with the export of domestic production, the United States can simply export money.
Read the entire article
August 14, 2019
China Factory Output Weakest In 17 Years, Everything Missed
With currency turmoil and social unrest, China's economic assault tonight was supposed be the great equalizer - confirming that a few trillion here or there and everything looks awesome and happy, and not a tiny bit angry (and that the Americans are not to blame for everything).
Ahead of today's data, broadly speaking, macro data globally has been weak, but in China, recent credit growth numbers slumped and steel production slowed, suggesting graver concerns. And so here it is...
Finally, for a few minutes/seconds the world spiked after China set the yuan fix slightly stronger; we are not so impressed, nor is the yuan or US equity futures...
So with inflation spiking, currency crashing, social-unrest; will the PBOC flood the nation with cash to ensure happiness at October's CCP Anniversary?
It's just that the sugar high from the injection is getting shorter...
Read the entire article
Ahead of today's data, broadly speaking, macro data globally has been weak, but in China, recent credit growth numbers slumped and steel production slowed, suggesting graver concerns. And so here it is...
Finally, for a few minutes/seconds the world spiked after China set the yuan fix slightly stronger; we are not so impressed, nor is the yuan or US equity futures...
So with inflation spiking, currency crashing, social-unrest; will the PBOC flood the nation with cash to ensure happiness at October's CCP Anniversary?
It's just that the sugar high from the injection is getting shorter...
Read the entire article
August 12, 2019
Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket
For those who have grown bored with the ongoing US-China trade war whose escalation was obvious to all but the dumbest BTFD algos, the biggest news of the past week was that yet another Chinese bank was bailed out by the Chinese government - the third in the past three months - and a substantial one at that: with over 1.4 trillion yuan in assets ($200BN), Hang Feng Bank's nationalization was certainly large enough to make a dent on the Chinese financial system and on the Chinese Sovereign Wealth Fund, which drew the short straw and was told to bailout the troubled Chinese bank (more here).
Hang Feng's bailout followed those of Baoshang and Bank of Jinzhou, which means that 3 of the top 4 most troubled banks have now been either nationalized by an SOE or seized by the government, which is effectively the same thing.
Of course, to regular readers this development was hardly surprising, especially after our post in mid-July when we saw the $40 trillion Chinese banking system approach its closest encounter with the proverbial "Lehman moment" yet, when inexplicably the four-day repo rate on China’s government bonds (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) on the Shanghai exchange briefly spiked to 1,000% in afternoon trading.
While some attributed the surge to a fat finger, far more ominous signs were already present, and in the aftermath of the Baoshang failure, which has sent Chinese banking stocks tumbling, one-day and seven-day weighted average borrowing rates had remained low thanks to huge central bank cash injections - such as the 250BN yuan we described back in May - longer tenors such as the 1 month repo have marched sharply higher.
Read the entire article
Hang Feng's bailout followed those of Baoshang and Bank of Jinzhou, which means that 3 of the top 4 most troubled banks have now been either nationalized by an SOE or seized by the government, which is effectively the same thing.
Of course, to regular readers this development was hardly surprising, especially after our post in mid-July when we saw the $40 trillion Chinese banking system approach its closest encounter with the proverbial "Lehman moment" yet, when inexplicably the four-day repo rate on China’s government bonds (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) on the Shanghai exchange briefly spiked to 1,000% in afternoon trading.
While some attributed the surge to a fat finger, far more ominous signs were already present, and in the aftermath of the Baoshang failure, which has sent Chinese banking stocks tumbling, one-day and seven-day weighted average borrowing rates had remained low thanks to huge central bank cash injections - such as the 250BN yuan we described back in May - longer tenors such as the 1 month repo have marched sharply higher.
Read the entire article
August 7, 2019
Gold Hits Record Highs!
Gold hit record highs in a number of currencies this week as trade war worries, geopolitical uncertainty and expectations of a slowing economy drove investors to seek safe haven.
While the yellow metal has soared in USD terms in recent weeks, as global geopolitical tensions rise and the "policy-maker idiocy" proxy spikes ($15 trillion of negative-yielding debt)...
More trade war tension was a big driver in the gold rally, but the recent surge in gold prices isn’t an isolated event. The yellow metal has been rallying for months. The yellow metal is up 17% since last December when plunging stock markets drove the Fed to initiate the “Powell Pause.”
The trade war isn’t the only factor pushing gold higher. For instance, Brexit uncertainty is driving the yellow metal up in the United Kingdom. The gold price in British pounds has skyrocketed 25% since May.
Generally weak economic data is also driving investor worry. Despite assurances from Powell and US government officials that the American economy is strong, the data tells a different story. Even as Powell was assuring us the domestic economy is fine, and the Fed’s worries are all global, we got more gloomy economic numbers. Data showed the ISM manufacturing index dropped to 51.2% in July. That’s the lowest level since mid-2016. Construction spending also declined by 1.3% in June. Meanwhile, jobless claims climbed modestly by 8,000 to 215,000 at the end of July.
Philips Futures analyst Benjamin Lu told CNBC he thinks all of the uncertainty will lead to more Fed rate cuts.
Read the entire article
While the yellow metal has soared in USD terms in recent weeks, as global geopolitical tensions rise and the "policy-maker idiocy" proxy spikes ($15 trillion of negative-yielding debt)...
More trade war tension was a big driver in the gold rally, but the recent surge in gold prices isn’t an isolated event. The yellow metal has been rallying for months. The yellow metal is up 17% since last December when plunging stock markets drove the Fed to initiate the “Powell Pause.”
The trade war isn’t the only factor pushing gold higher. For instance, Brexit uncertainty is driving the yellow metal up in the United Kingdom. The gold price in British pounds has skyrocketed 25% since May.
Generally weak economic data is also driving investor worry. Despite assurances from Powell and US government officials that the American economy is strong, the data tells a different story. Even as Powell was assuring us the domestic economy is fine, and the Fed’s worries are all global, we got more gloomy economic numbers. Data showed the ISM manufacturing index dropped to 51.2% in July. That’s the lowest level since mid-2016. Construction spending also declined by 1.3% in June. Meanwhile, jobless claims climbed modestly by 8,000 to 215,000 at the end of July.
Philips Futures analyst Benjamin Lu told CNBC he thinks all of the uncertainty will lead to more Fed rate cuts.
Read the entire article
August 5, 2019
Fed Rate Cut – Too Little, Too Late, As Trump Hikes Tariffs
We had also warned previously the current extension of the market, combined with overbought conditions, was due for a reversal. That reversal has indeed begun, and short-term sell signals have been triggered.
“As we have noted over the last few weeks, the very tight trading range combined with negative divergences also does not historically suggest continued bullish runs higher without some type of corrective action first.”
This past week, a disappointing cut by the Fed, and increased tariffs on China from the White House, provided the catalysts needed for a very quick market rout.
Again, this is something we discussed over the last couple of weeks with our RIAPRO subscribers previously (30-Day Free Trial). The analysis led us to previously trimming our long positions slightly, and increasing our cash holdings, heading into the Fed announcement.
Read the entire article
“As we have noted over the last few weeks, the very tight trading range combined with negative divergences also does not historically suggest continued bullish runs higher without some type of corrective action first.”
This past week, a disappointing cut by the Fed, and increased tariffs on China from the White House, provided the catalysts needed for a very quick market rout.
Again, this is something we discussed over the last couple of weeks with our RIAPRO subscribers previously (30-Day Free Trial). The analysis led us to previously trimming our long positions slightly, and increasing our cash holdings, heading into the Fed announcement.
Read the entire article
August 2, 2019
Mission Accomplished: Rate Cut Odds Surge After Tariff Announcement, Just As Trump Wanted
Earlier today, we wrote a post titled "What Would It Take For The Fed To Not Cut Again?", with Goldman providing a stylized answer, although in retrospect, the post should have been titled "What Would It Take For The Fed To Cut Again", as that is what the market was far more concerned about after yesterday's hawkish Powell press conference.
In any case, Goldman hinted at the one specific catalyst that could force the Fed to cut more: "We also see risks in the other direction, especially on a significant escalation of tariffs against China."
To this, we said that "if an acceleration in the trade war with China is what the Fed will need to cut more, it's pretty clear what that means for the chances of any trade deal between Washington and Beijing, since even Trump now understands that if he keeps escalating trade war with China, Powell will have no choice but to eventually cut to 0% (and lower)."
Just a few hours later, we were proven right in suggesting that an escalation in the trade war is inevitable and imminent when Trump tweeted that he would hike tariffs on $300BN in Chinese imports to 10% starting September 1, ending the tentative ceasefire with Beijing with a bang, and sending risk prices sharply lower.
Read the entire article
In any case, Goldman hinted at the one specific catalyst that could force the Fed to cut more: "We also see risks in the other direction, especially on a significant escalation of tariffs against China."
To this, we said that "if an acceleration in the trade war with China is what the Fed will need to cut more, it's pretty clear what that means for the chances of any trade deal between Washington and Beijing, since even Trump now understands that if he keeps escalating trade war with China, Powell will have no choice but to eventually cut to 0% (and lower)."
Just a few hours later, we were proven right in suggesting that an escalation in the trade war is inevitable and imminent when Trump tweeted that he would hike tariffs on $300BN in Chinese imports to 10% starting September 1, ending the tentative ceasefire with Beijing with a bang, and sending risk prices sharply lower.
Read the entire article
August 1, 2019
“The Stock Market Started To Fall In July…”
Will we look back on the month of July as a critical turning point for the stock market? During the first half of 2019, stock prices soared to record high after record high even though we just kept getting one number after another that indicated that a new economic slowdown was starting. Because of the disappointing performance of the U.S. economy, it was believed that we would see a rate cut from the Federal Reserve on Wednesday, and that is precisely what happened. But instead of rejoicing, investors started to panic a bit, and the Dow Jones Industrial Average ended the day down 333 points. We will get into why that happened in just a little bit. But without a doubt it seems quite odd that the Fed’s very first rate cut since December 2008 actually caused stocks to go down. On a historical basis, interest rates are already very low right now, and so this greatly limits what the Fed will be able to do once the next recession officially begins. Of course most investors are not concerned with such considerations. What they really want is for interest rates to be pushed all the way to the floor as quickly as possible, and so they were quite disappointed with what they heard from Fed Chairman Jay Powell on Wednesday.
But considering the fact that we haven’t seen a rate cut in more than a decade, the truth is that investors should have been thrilled by what happened. When interest rates go down, that tends to promote more economic activity…
As expected, the Fed lowered its federal funds rate by a quarter-percentage point to a range of 2% to 2.25%. The move is likely to ripple through the economy and financial system, nudging down rates for credit cards, home equity lines and auto loans and theoretically sparking more economic activity. While the rate cut should aid borrowers, it will frustrate savers who were just starting to benefit from higher bank account yields.
Read the entire article
But considering the fact that we haven’t seen a rate cut in more than a decade, the truth is that investors should have been thrilled by what happened. When interest rates go down, that tends to promote more economic activity…
As expected, the Fed lowered its federal funds rate by a quarter-percentage point to a range of 2% to 2.25%. The move is likely to ripple through the economy and financial system, nudging down rates for credit cards, home equity lines and auto loans and theoretically sparking more economic activity. While the rate cut should aid borrowers, it will frustrate savers who were just starting to benefit from higher bank account yields.
Read the entire article
July 30, 2019
Is Bitcoin A Store Of Value? Experts Weigh In On 'Digital Gold'
It’s hard to tell who was the first to coin - pun intended - Bitcoin as “digital gold,” underlining the idea that Bitcoin is a good store of value. To understand the community leaders’ thoughts about digital gold nowadays, we asked Binance’s Changpeng Zhao, award-winning technology leader Jonathan Reichental, the United Nations’ Susan Oh, Singularity University’s David Obran and other outstanding experts.
The phrase “digital gold” possibly came into more widespread use after The New York Times journalist Nathaniel Popper's book, "Digital Gold," was published in 2015. Google searches for the term “Bitcoin digital gold” peaked in December 2017, when the leading cryptocurrency’s price hit record highs around $20,000 per coin.
Well before Bitcoin was born, computer scientist Nick Szabo wrote a proposal for “bit gold,” laying out a concept for secure digital money that is often referred to as Bitcoin’s predecessor.
After 10 years of existence, the question of whether or not Bitcoin can in fact be considered “digital gold” continues to be debated in the industry. Yes, Bitcoin is designed to be scarce, but when discussing it as a potential store of value, many point to Bitcoin’s historical volatility as an argument against doing so.
Read the entire article
The phrase “digital gold” possibly came into more widespread use after The New York Times journalist Nathaniel Popper's book, "Digital Gold," was published in 2015. Google searches for the term “Bitcoin digital gold” peaked in December 2017, when the leading cryptocurrency’s price hit record highs around $20,000 per coin.
Well before Bitcoin was born, computer scientist Nick Szabo wrote a proposal for “bit gold,” laying out a concept for secure digital money that is often referred to as Bitcoin’s predecessor.
After 10 years of existence, the question of whether or not Bitcoin can in fact be considered “digital gold” continues to be debated in the industry. Yes, Bitcoin is designed to be scarce, but when discussing it as a potential store of value, many point to Bitcoin’s historical volatility as an argument against doing so.
Read the entire article
July 26, 2019
Which Countries Are The EU's Biggest 'Takers' (And 'Givers')
The question of which countries are paying more in EU contributions than they are getting out is a contentious issue for some and was also one major factor in the Brexit vote in the UK.
In the 2017 budget, there were ten EU members contributing more than they got out of the EU, at least in terms of direct monetary contributions. As Statista's Katharina Buchholz notes, UK came in second place in the ranking, with roughly 7.5 million euros of net contributions. Germany, topping the ranking, put in 12.8 billion euros more than it got out.
Poland was the biggest monetary benefactor from the EU, coming out with 8.2 billion euros earned, far ahead of Greece (3.7 billion euros) and Romania (3.4 billion euros).
But being on top of this list doesn’t have to send a country scrambling to leave the political union. In Germany, for example, support for the EU is high. While budget contributions might outweigh direct financial benefits for the country, a study by the Bertelsmann foundation suggests that the single EU market increased the average incomes of Germans by over 1,000 euros, above the EU average increase of 840 euros.
Read the entire article
In the 2017 budget, there were ten EU members contributing more than they got out of the EU, at least in terms of direct monetary contributions. As Statista's Katharina Buchholz notes, UK came in second place in the ranking, with roughly 7.5 million euros of net contributions. Germany, topping the ranking, put in 12.8 billion euros more than it got out.
Poland was the biggest monetary benefactor from the EU, coming out with 8.2 billion euros earned, far ahead of Greece (3.7 billion euros) and Romania (3.4 billion euros).
But being on top of this list doesn’t have to send a country scrambling to leave the political union. In Germany, for example, support for the EU is high. While budget contributions might outweigh direct financial benefits for the country, a study by the Bertelsmann foundation suggests that the single EU market increased the average incomes of Germans by over 1,000 euros, above the EU average increase of 840 euros.
Read the entire article
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