Bitcoin Or Gold: Did The Alleged Bitcoin Creator Just Settle Once And For All What Is More Valuable?

Last Wednesday, we brought you the story of Craig Steven Wright who was “outed” by Wired and Gizmodo as Satoshi Nakamoto, the pseudonymous founder of bitcoin.

Hours after two articles pegged Wright as the man behind the myth, Australian authorities moved in, raiding the residence “Cold fish Craig” (as he was known in his neighborhood) rented with his wife and conducting searches and interviews at his businesses. 

Apparently, Australian tax authorities had questioned Wright in the past and according to a number of sources (and documents obtained by Wired and Gizmodo), there appears to have been some manner of dispute over how his bitcoin holdings should be taxed. The attention accorded to Wright on the heels of the two articles published late last Tuesday might have prompted the ATO to move in once and for all, although authorities claimed at the time that there was no connection between the new “revelations” about Wright’s identity and the raids. 

Now, we get the latest twist in what is already a fairly bizarre story, as The Australian says that in May of 2013, Wright attempted to buy some $85 million in gold and software from Mark Ferrier, who at the time was working on a deal whereby his MJF Mining would obtain 50% of the gold discovered by ASX-listed goldminer Paynes Find Gold. 

Apparently, Paynes needed machinery which Ferrier - via MJF - was willing to provide in exchange for a claim on any future discoveries. According to the Australian, “Mr Ferrier is alleged to have told Mr Wright gold was good security in the event the ‘funny money’ of Bitcoin failed.” Here’s what supposedly happened next: 

Read the entire article

December 14th To 18th: A Week Of Reckoning For Global Stocks If The Fed Hikes Interest Rates?

Are we about to witness widespread panic in the global financial marketplace?  This week is shaping up to be an absolutely critical week for global stocks.  Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and last week stocks really started to slide all over the world.  Here in the United States, the Dow Jones Industrial Average is down about 600 points over the past week or so, and at this point it is down more than 1000 points from the peak of the market.  That brings us to this week, during which the Federal Reserve is expected to raise interest rates for the very first time since the last financial crisis.  If that happens, that could potentially be enough to accelerate this “slide” into a full-blown crash.

And just look at what is already happening.  Trading for stocks in the Middle East has opened for the week, and we are already witnessing tremendous carnage…

Following Friday’s further freefall in crude oil prices, The Middle East is opening down notably. Abu Dhabi, Saudi, and Kuwait are lower; Israel is weak and UAE and Qatar are tumbling, but Dubai is worst for now.  Dubai is down for the 6th day in a row (dropping over 3% – the most in a month) extending the opening losses to 2-year lows. The 11% drop in the last 6 days is the largest since the post-China-devaluation global stock collapse. Leading the losses are financial and property firms.

Things in Asia look very troubling as well.  As I write this, the Japanese market has just opened, and the Nikkei is already down 508 points.

Read the entire artcile

Credit Suisse Warns On China: "Some Companies Are Having To Borrow To Pay Staff Salaries"

During October, the credit impulse in China rolled over and died. 

To be sure, the writing was on the wall before the data was released. Early in November, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. As we noted at the time, that would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.  “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn't been seen for many years,” MNI added. 

Sure enough, when the numbers came in, new RMB loans to households fell 60% M/M and new loans to corporates declined nearly 40% from September.

To some, this was a shock. After all, multiple rate cuts and round after round of liquidity injections should have given banks plenty of dry powder to lend. But as we discussed at length, liquidity isn’t the issue. 

Read the entire article

America Crosses The Tipping Point: The Middle Class Is Now A Minority

Americans have long lived in a nation made up primarily of middle-class families, neither rich nor poor, but comfortable enough, notes NPR's Marilyn Geewax, but this year - for the first time in US history, that changed. A new analysis of government data shows that as of 2015, middle-income households have become the minority, extending a multi-decade decline that confirms the hollowing out of society as 49% of all Americans now live in a home that receives money from the government each month. Sadly, the trends that are destroying the middle class in America just continue to accelerate.

Back in 1971, about 2 out of 3 Americans lived in middle-income households. Since then, the middle has been steadily shrinking.

Today, just a shade under half of all households (about 49.9 percent) have middle incomes. Slightly more than half of Americans (about 50.1 percent) either live in a lower-class household (roughly 29 percent) or an upper-class household (about 21 percent).

As NPR explains, thanks to factory closings and other economic factors, the country now has 120.8 million adults living in middle-income households, the study found. That compares with the 121.3 million who are living in either upper- or lower-income households.

"The hollowing of the middle has proceeded steadily for the past four decades," Pew concluded.

And middle-income Americans not only have shrunk as a share of the population but have fallen further behind financially, with their median income down 4 percent compared with the year 2000, Pew said.

Read the entire article

Guess What Happened The Last Time Junk Bonds Started Crashing Like This? Hint: Think 2008

The extreme carnage that we are witnessing in the junk bond market right now is one of the clearest signals yet that a major U.S. stock market crash is imminent.  For those that are not familiar with “junk bonds”, please don’t get put off by the name.  They aren’t really “junk”.  They simply have a higher risk and thus a higher return than other bonds of the same type.  And yesterday, I explained why I watch them so closely.  If stocks are going to crash, you would expect to see a junk bond crash first.  This happened in 2008, and it is happening again right now.  On Monday, a high yield bond ETF known as JNK crashed through the psychologically important 35.00 barrier for the very first time since the last financial crisis.  On Tuesday, high yield bonds had their worst day in three months, and JNK plummeted all the way down to 34.44.  When I saw this I was absolutely stunned.  This is precisely the kind of junk bond crash that I have been anticipating that we would soon witness.

Normally, stocks and junk bonds track one another very closely, but just like before the 2008 crash, they have become decoupled in recent months.  Anyone that even has an elementary understanding of the financial world knows that this cannot continue indefinitely.  And when they start converging once again, the movement could be quite violent.

When I chose to use the word “carnage” to open this article, I was not exaggerating what is going on in the junk bond market one bit.  On Tuesday evening, Jeffrey Gundlach used the exact same word to describe what is happening…

Read the entire article

Even Bank Supporters Arguing for Restoration of Glass Steagall

John Dizard, who perhaps by virtue of being one of the Financial Times’ most original and insightful columnists, is relegated to its weekend “Wealth” section, has written a particularly important pair of articles. Note that Dizard’s ambit is not policy wonkery but apt and often cynical observations about behavior and trading patterns in less visible part of the financial markets, and sometimes the spending habits of the uber-rich themselves, and what they portend for investments and the economy.

The week before last, Dizard penned an important piece, In the shadow of quantitative easing, party like it is 1788, in which he pointed out that the meant-to-be-stealthy part of the bank bailouts, ZIRP and quantitative easing, had served to shift the risk of the next crisis off the regulated parts of the financial system and onto investors, particularly long-term investors like life insurers and pension funds. His piece last weekend, The US financial industry should listen to leftwing reformers, builds on his observations about where risks sit to argue that the financial services industry would do far better to listen to critics and go back to a clearer separation between commercial banking and trading activities* than we have now.

Dizard chooses to depict the case for breaking up big banks as a pinko argument, when the Bank of England has also fought fiercely for it; it had to settle for ring-fencing because the UK Treasury campaigned hard. And the arguments that the Bank of England made are sound. For instance, Andrew Haldane has pointed out that one of the results of deregulation has been homogeneity in strategies, and even in how banks model risk, ranging from approaches like VaR to the pervasive use of FICO in the US. The result resembles an ecological system with a dominant species. They are much more prone to collapse than ones with more diversity.

I’m in favor of Glass-Steagall type reforms too, but for different reasons. I’ve regarded from my very first days working with commercial banks (and that was Citibank in the early 1980s, meaning a top player at the time) that the managerial requirements for investment banks and commercial banks are diametrically opposed. And what has developed over time is a Rube Goldbergian compromise which results in the worst of all possible worlds (well, save for the inmates): it leaves the foxes, as in the “producers” running the henhouse, with the nominal leaders of these organizations regularly pleading ignorance as to the fact that there is gambling taking place in their ranks.

Read the entire article

BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History

Over the past several months, one of the biggest conundrums stumping the financial community has been the record negative swap spread which we profiled first in September,  and which as Goldman most recently concluded, "has been driven by funding and balance sheet strains, especially since August."

Today, in its latest quarterly report, the Bank of International Settlement focused precisely on this latest market dislocation.  According to the central banks' central bank, "recent quarters have witnessed unusual price relationships in fixed income markets. US dollar swap spreads (ie the difference between the rate on the fixed leg of a swap and the corresponding Treasury yield) have turned negative, moving in the opposite direction from euro swap spreads (Graph A, left-hand panel)."

Given that counterparties in derivatives markets, typically banks, are less creditworthy than the government, swap rates are normally higher than Treasury yields because of the additional risk premium. Hence, the negative spreads point to a possible dislocation. One set of factors relates to supply and demand conditions in interest rate swap and Treasury bond markets. In the swap markets, forces that can compress swap rates include credit enhancements in swaps, hedging demand from corporate bond issuers, and investors seeking to lock in longer durations (eg insurers and pension funds) by securing fixed rates via swaps.

In cash markets, in turn, upward pressures on yields stemmed from the recent sales of US Treasury securities by EME reserve managers. The market impact of these Treasury bond sales may have been amplified by a second set of factors that curb arbitrage and impede smooth market functioning. First, the capacity of dealers’ balance sheets to absorb rising inventory may have been overwhelmed by the amount of US Treasury bonds reaching the secondary market in the third quarter (Graph A, centre panel), causing dealers to bid market yields above the corresponding swap rates. Second, balance sheet constraints may have made it more costly for intermediaries to engage in the speculative arbitrage needed to restore a positive swap spread. Such arbitrage is sensitive to balance sheet costs because it requires leverage, with a long Treasury position funded in the repo market.

Read the entire article 

Auto Loan Madness Continues As US Car Buyers Take On Record Debt, Lunatic Financing Terms

Way back in June, we noted that auto sales had reached 10-year highs on record credit, record loan terms, and record ignorance. We based that assessment on the following set of Q1 data from Experian: 

• Average loan term for new cars is now 67 months — a record.
• Average loan term for used cars is now 62 months — a record.
• Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
• Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
• The average amount financed for a new vehicle was $28,711 — a record.
• The average payment for new vehicles was $488 — a record.
• The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

In short, the “renaissance” in US auto sales is being driven (no pun intended) by increasingly risky underwriting practices and this is leading directly to the securitization of shoddier and shoddier collateral pools in a return to the “originate to sell” model that drove the housing bubble over a cliff in 2008.

As Comptroller of the Currency Thomas Curry recently put it, “what's happening in the auto loan market reminds me of what happened in mortgage-backed securities in the run-up to the crisis.” 

Read the entire article

Alarm Bells Go Off As 11 Critical Indicators Scream The Global Economic Crisis Is Getting Deeper

Economic activity is slowing down all over the planet, and a whole host of signs are indicating that we are essentially exactly where we were just prior to the great stock market crash of 2008.  Yesterday, I explained that the economies of Japan, Brazil, Canada and Russia are all in recession.  Today, I am mainly going to focus on the United States.  We are seeing so many things happen right now that we have not seen since 2008 and 2009.  In so many ways, it is almost as if we are watching an eerie replay of what happened the last time around, and yet most of the “experts” still appear to be oblivious to what is going on.  If you were to make up a checklist of all of the things that you would expect to see just before a major stock market crash, virtually all of them are happening right now.  The following are 11 critical indicators that are absolutely screaming that the global economic crisis is getting deeper…

Read the entire article

Banks to Have Fed Dividends Clipped to Pay to Fill Potholes; JPMorgan, Bank of America the Biggest Losers

Yesterday, the general public scored a small but important victory over the Fed and the banking-industrial complex. To help fund the highway trust, which repairs highways and bridges, Congress released a compromise to the highway funding bill that whacks a long-standing subsidy to banks. This measure has high odds of passing.

Part of the funding will come from a cut the dividend the Fed pays to member banks on their non-voting preferred stock holdings. It will drop from 6% to the 10 Treasury bond yield at the time of the dividend payment, which currently is 2.3%, with a cap at 6% for banks with more than $10 billion in assets. This was a compromise from the original proposal, to cut the dividend to 1.5% for banks with over $1 billion in assets.

The banks that will see the biggest decline in income in 2016 as a result of this change will be JP Morgan and Bank of America, at roughly $200 million each. Media reports suggest that this change will produce $8 to $9 billion in revenue, but the experts to whom I’ve spoken estimate the take at $12 to $15 billion over the next ten years.

While this is not the most earthshaking change, it is nevertheless important for several reason. First, it is a sign of the decline in reputation and power of the Fed as well as of the banking lobby. This provision was included in the highway funding bill, which was where it was first proposed in its current form (the idea had initially surfaced as an idea in the Progressive Caucus’s budget proposal). It had been removed from the House version of the bill but was reinserted in the reconciliation talks.

Read the entire article

Paper Gold Dilution Hits 294x As Comex Registered Gold Drops To New All-Time Low

One week ago, gold market observers were surprised when in the span of four days, gold held in the JPM Comex vault declined by nearly 50%, starting on November 16 when the 668,498 ounces held in the vault below 1 Chase Manhattan Plaza declined precipitously to just 347,899 ounces, a new all time low.

Furthermore, as of the latest Comex activity update, on Friday the Registered gold held by JPM dropped another 2,802 ounces to a record low and virtually negligible 7,975 ounces, essentially equivalent to zero as shown in the chart below, even as JPM's eligible gold has also been seeing a substantial decline in recent months.

But while the decline of JPM gold has long been noted, it was the latest drop in total Comex registered gold which has again raised eyebrows, and which contrary to expectations it would be replenished either from external inflows or by conversion from Eligible both of which have not happened, has instead continued to decline. According to the latest data, total Registered gold dropped by another 11% overnight to just 134,877 ounces, just over 4 tonnes and another all time low...

... and since the gold open interest remains largely unchanged, the physical gold coverage ratio, or the ratio of gold claims to Registered gold, has just hit an all time high of 294 ounces of paper for every ounces of physical.

Source

Elite funds prepare for reflation and a bloodbath for bonds

One by one, the giant investment funds are quietly switching out of government bonds, the most overpriced assets on the planet.

Nobody wants to be caught flat-footed if the latest surge in the global money supply finally catches fire and ignites reflation, closing the chapter on our strange Lost Decade of secular stagnation.

The Norwegian Pension Fund, the world's top sovereign wealth fund, is rotating a chunk of its $860bn of assets into property in London, Paris, Berlin, Milan, New York, San Francisco and now Tokyo and East Asia. "Every real estate investment deal we do is funded by sales of government bonds," says Yngve Slyngstad, the chief executive.

It already owns part of the Quadrant 3 building on Regent Street, and bought the Pollen Estate - along with Saville Row - from the Church Commissioners last year. But this is just a nibble. The fund is eyeing a 15pc weighting in property, an inflation-hedge if ever there was one.

The Swiss bank UBS - an even bigger player with $2 trillion under management - has issued its own gentle warning on bonds as the US Federal Reserve prepares to kick off the first global tightening cycle since 2004. UBS expects five rate rises by the end of next year, 60 points more than futures contracts, and enough to rattle debt markets still priced for an Ice Age.

Read the entire article

Age of Bubble Finance → Crackup Phase

Today, we have a rogue central bank. It’s destroyed honest price discovery in the money and capital markets.

I once said, “Invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.”

You can say the same thing about Yellen today.

The Fed’s monetary injections, “puts” and safety nets under the price of risk assets now drive everything. Accordingly, investors ignore risk and mechanically “buy the dips.”

This irrationally inflates asset prices — that is, until the bubble becomes unsustainable and then splatters violently, as it has done twice already this century.

The vital core of capitalism is the capital markets. That’s where capital is supposed to be raised and allocated. It’s where future profits are rationally assessed and discounted. And it’s where entrepreneurs and business enterprises are honestly rewarded for their contributions to free market prosperity.

Read the entire artcile

Dysfunction at the Fed

The Fed is About to Make Life Harder For Big Banks ... It's considering changes to its annual stress test. The Federal Reserve administers stress tests to the largest U.S. banks each year to see how they would fare in a hypothetically turbulent economy. The regulator is expected to make those tests more difficult to pass. No changes have officially been proposed but, as the New York Times reports, a senior official says that the Fed is considering different modifications. – Fortune

Dominant Social Theme: The Fed is on the job, always trying to make the banking system better and safer.

Free-Market Analysis: Fortune magazine gives us a heads up on what the Federal Reserve may soon mandate for banks, as can be seen in the excerpt above.

The test is actually fairly simple, though doubtless the details are complex. First the Fed figures out how much money a bank would lose in a volatile market. This number is removed from the bank's capital and if the result brings the total below the minimum requirement, then the bank is not considered to be in compliance.

Now the Fed wants to raise the minimum requirement – that is, the amount of capital a bank has to hold. Supposedly, this would make big banks "more resilient" and less likely to fail.

Read the entire article

Goldman Finally Looks At The Freight Charts, Raises Alarm About The "Broader Health Of The US Economy"

In the first days of November, we showed that global trade is in freefall with "China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down." Now, Goldman has finally caught up, and writes that "indicators of freight activity—the volume of goods carried by truck, rail, air or ship—have slowed recently, raising concerns about the broader health of the US economy."

This is how Goldman finally admits what we have been saying for the past two years: the biggest threat to the US, and global, economy is the gradual and ever faster slowdown in trade, something which central banks are incapable of "printing."

Freight transportation data can be a useful gauge of activity in the goods-producing sectors of the economy, for obvious reasons. Products need to move from manufacturers to end consumers, and will be carried along the way by at least one of the four modes of transportation—truck, rail, air or ship—and frequently by multiple types (“intermodal” transport). The economic indicators measuring US transportation activity are also relatively transparent—counting things like the number of containers or rail cars—and in some cases quite timely. They are therefore popular among investors. Recently some of these measures have slowed, raising concerns about the broader health of the US economy.

And here is Goldman doing its best recap of our charting, using its own words:

• Railcar traffic, for example, has been notably weak, falling by about 3% from a year earlier based on monthly data (Exhibit 1, left panel)

Read the entire article