The last time there was a widespread physical gold counterfeiting scare was in the summer of 2012 when as we reported the discovery of a single 10 oz Tungsten-filled gold bar in Manhattan's jewelry district led to a panic among the dealer community, which then resulted in local jewelry outlets discovering at least ten more fake 10-ounce "gold bars" filled with Tungsten. Fast forward to today when a similar instance of gold counterfeiting has been discovered, this time in Canada, and where the fake bar in question had been "certified" by the highest possible authority.
According to CBC, the Royal Canadian Mint is investigating how a sealed, "pure gold" wafer with proper mint stampings has emerged as a fake. According to the Canadian press, the one-ounce gold piece, which was supposed to be 99.99% pure, was purchased by an Ottawa jeweller on Oct. 18 at a Royal Bank of Canada branch. The problem emerged when tests of the bar showed it may contain no gold at all. And, when neither the mint nor RBC would take the bar back, jeweler Samuel Tang contacted CBC news.
"Who is going to make sure those [gold wafers] are real?" asked Tang. "I am worried there are more of those [gold wafers] out there, and no one knows."
Following the news, RBC felt an obligation to pick up the bar and returned it to the mint for testing, refunding Tang the $1,680 purchase price.
The Royal Canadian Mint said in a statement to CBC it is in process of testing the bar, "although the appearance of the wafer and its packaging already suggests that it is not a genuine Royal Canadian Mint product."
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
October 31, 2017
October 30, 2017
Will America’s Prosperity Be Completely Wiped Out By Our Growing Debt?
The federal government is now 20.4 trillion dollars in debt, and most Americans don’t seem to care that the economic prosperity that we are enjoying today could be completely destroyed by our exploding national debt. Over the past decade, the national debt has been growing at a rate of more than 100 million dollars an hour, and this is a debt that all of us owe. When you break it down, each American citizen’s share of the debt is more than $60,000, and so if you have a family of five your share is more than $300,000. And when you throw in more than 6 trillion dollars of corporate debt and nearly 13 trillion dollars of consumer debt, it is not inaccurate to say that we are facing a crisis of unprecedented magnitude.
Debt cannot grow much faster than GDP indefinitely. At some point the bubble bursts, and when it does the pain that the middle class is going to experience is going to be off the charts. Back in 2015, the middle class in the U.S. became a minority of the population for the first time ever. Never before in our history has the middle class accounted for less than 50 percent of the population, and all over the country formerly middle class families are under a great deal of stress as they attempt to make ends meet. The following comes from an absolutely outstanding piece that was just put out by Charles Hugh Smith…
If you talk to young people struggling to make ends meet and raise children, or read articles about retirees who can’t afford to retire, you can’t help but detect the fading scent of prosperity.
It has steadily been lost to stagnation, under-reported inflation and soaring inequality, a substitution of illusion for reality bolstered by the systemic corruption of authentic measures of prosperity and well-being.
Read the entire article
Debt cannot grow much faster than GDP indefinitely. At some point the bubble bursts, and when it does the pain that the middle class is going to experience is going to be off the charts. Back in 2015, the middle class in the U.S. became a minority of the population for the first time ever. Never before in our history has the middle class accounted for less than 50 percent of the population, and all over the country formerly middle class families are under a great deal of stress as they attempt to make ends meet. The following comes from an absolutely outstanding piece that was just put out by Charles Hugh Smith…
If you talk to young people struggling to make ends meet and raise children, or read articles about retirees who can’t afford to retire, you can’t help but detect the fading scent of prosperity.
It has steadily been lost to stagnation, under-reported inflation and soaring inequality, a substitution of illusion for reality bolstered by the systemic corruption of authentic measures of prosperity and well-being.
Read the entire article
October 27, 2017
Goldman Sachs Maintains The Most Tax Havens Of Any US Company... By Far
Multinational companies based in the United States are able to avoid paying an estimated $100 billion in federal income tax every year through the use of tax havens.
As Statista's Niall McCarthy notes, a recent report from the Institute on Taxation and Economic Policy has found that 366 of America's largest 500 companies maintain 9,755 tax haven subsidiaries holding over $2.6 trillion in accumulated profits.
You will find more statistics at Statista
Despite only having three tax haven subsidiaries in Ireland, Apple stashes the most cash off shore by far, some $246 billion which helps the company avoid $76.7 billion in U.S. taxes.
The Goldman Sachs Group maintains the most tax havens of any large U.S. company by far with 905 in total. That includes 511 in the 511 in the Cayman Islands (though the company does not have an office there), 183 in Luxembourg, 52 in Ireland and 41 in Mauritius.
Morgan Stanley is in second place with 619 tax haven subsidiaries while ThermoFisher Scientific rounds off the top three with 199.
Read the entire article
As Statista's Niall McCarthy notes, a recent report from the Institute on Taxation and Economic Policy has found that 366 of America's largest 500 companies maintain 9,755 tax haven subsidiaries holding over $2.6 trillion in accumulated profits.
You will find more statistics at Statista
Despite only having three tax haven subsidiaries in Ireland, Apple stashes the most cash off shore by far, some $246 billion which helps the company avoid $76.7 billion in U.S. taxes.
The Goldman Sachs Group maintains the most tax havens of any large U.S. company by far with 905 in total. That includes 511 in the 511 in the Cayman Islands (though the company does not have an office there), 183 in Luxembourg, 52 in Ireland and 41 in Mauritius.
Morgan Stanley is in second place with 619 tax haven subsidiaries while ThermoFisher Scientific rounds off the top three with 199.
Read the entire article
October 26, 2017
Saudi Wealth Fund Aims To Double AUM To $400 Billion By 2020 - Discovers Leverage Boosts Returns
Saudi Arabia’s sovereign wealth fund, a key engine of the kingdom’s plan to diversify the economy, on Wednesday laid out new targets for growth, saying it aims to nearly double the value of assets it manages to around $400 billion by 2020. That sum includes the expected proceeds from the planned initial public offering of up to 5% of state-owned oil giant Saudi Aramco. The listing, slated for next year, could raise as much as $100 billion, Saudi officials have said. The Saudi fund, called the Public Investment Fund or PIF, held assets worth roughly $224 billion as of September, it said in a document released on Wednesday. It had previously struggled to calculate the value of its holdings, estimating them to be between $200 billion and $300 billion. The PIF has made a series of high-profile investments and announcements since Saudi Arabia unveiled its long-term plan for economic overhaul last year. It has invested $3.5 billion in Uber Technologies Inc., and committed $45 billion to a technology fund led by SoftBank Group Corp.
The PIF’s announcement highlighted its aim of raising the fund’s annual returns.
“The Program also encompasses efforts to maximize value in PIF’s existing assets, which make up the majority of the Fund’s holdings, and a new target to increase PIF’s Total Shareholder Returns (TSR) up from 3 percent to between 4 to 5 percent.”
While our calculation suggests that they’ll need at least 5% to reach $400bn by 2020, Reuters reports that the PIF is even more optimistic about the “long-term”, aiming for 6.5-9.0% - all-time highs in equities and all-time lows in bond yields notwithstanding.
How will it do this?
As Reuters reported from the Future Investment Initiative in Riyadh, it will invest in almost every asset class (apart from gold and cryptos it seems) and – this might be important - add leverage to juice its performance.
Read the entire article
The PIF’s announcement highlighted its aim of raising the fund’s annual returns.
“The Program also encompasses efforts to maximize value in PIF’s existing assets, which make up the majority of the Fund’s holdings, and a new target to increase PIF’s Total Shareholder Returns (TSR) up from 3 percent to between 4 to 5 percent.”
While our calculation suggests that they’ll need at least 5% to reach $400bn by 2020, Reuters reports that the PIF is even more optimistic about the “long-term”, aiming for 6.5-9.0% - all-time highs in equities and all-time lows in bond yields notwithstanding.
How will it do this?
As Reuters reported from the Future Investment Initiative in Riyadh, it will invest in almost every asset class (apart from gold and cryptos it seems) and – this might be important - add leverage to juice its performance.
Read the entire article
October 25, 2017
"We've Built A Thousand-Year Cryptocurrency" – And It Works On Multiple Blockchains
Jeff Garzik’s start-up, Bloq, is launching a new cryptocurrency which can switch between blockchains. As Coindesk reports
Long a controversial figure at the center of the debate on how best to scale the public bitcoin blockchain, Garzik's company is today announcing what it believes will be a solution to the infighting he perceives as keeping money out of the established cryptocurrency market.
Revealed at Money2020 in Las Vegas, Bloq is unveiling metronome, a cryptocurrency that seeks to claim a series of firsts in crypto-economics, including offering users the ability to switch the same token back and forth between blockchains as desired.
"It's sort of a best-of-all-worlds cryptocurrency," Garzik said, describing it as a ‘boxcar’ that could ride on top of any compatible blockchain.
Bloomberg explains
Jeff Garzik, one of a handful of key developers who helped build the underlying software for bitcoin that is known as blockchain, has seen its shortcomings first hand. So he decided to create a better digital currency.
He’s calling it Metronome and says it will be the first that can jump between different blockchains. For example, coins that are used for applications on the Ethereum blockchain will be able to move to Ethereum Classic before jumping onto Qtum or Rootstock, which connects with the bitcoin blockchain, said Garzik. The mobility means that if one blockchain dies out as the result of infighting among developers or slackened use, metronome owners can move their holdings elsewhere. That should help the coins retain value, and ensure their longevity.
Read the entire article
Long a controversial figure at the center of the debate on how best to scale the public bitcoin blockchain, Garzik's company is today announcing what it believes will be a solution to the infighting he perceives as keeping money out of the established cryptocurrency market.
Revealed at Money2020 in Las Vegas, Bloq is unveiling metronome, a cryptocurrency that seeks to claim a series of firsts in crypto-economics, including offering users the ability to switch the same token back and forth between blockchains as desired.
"It's sort of a best-of-all-worlds cryptocurrency," Garzik said, describing it as a ‘boxcar’ that could ride on top of any compatible blockchain.
Bloomberg explains
Jeff Garzik, one of a handful of key developers who helped build the underlying software for bitcoin that is known as blockchain, has seen its shortcomings first hand. So he decided to create a better digital currency.
He’s calling it Metronome and says it will be the first that can jump between different blockchains. For example, coins that are used for applications on the Ethereum blockchain will be able to move to Ethereum Classic before jumping onto Qtum or Rootstock, which connects with the bitcoin blockchain, said Garzik. The mobility means that if one blockchain dies out as the result of infighting among developers or slackened use, metronome owners can move their holdings elsewhere. That should help the coins retain value, and ensure their longevity.
Read the entire article
October 24, 2017
UK Banks Too Scared Of Regulator To Open Accounts For Crypto Companies
Want to set up a company to trade cryptocurrencies in the City of London. Forget about it.
Lloyd Blankfein tweeted about spending more time in Frankfurt, now London is shunning the fastest growing sector in finance. From the FT
British banks are shunning companies that handle cryptocurrencies, forcing many to open accounts in Gibraltar, Poland and Bulgaria and prompting some to question the UK’s ambitions to be a global hub for the fast-growing fintech sector.
Investor interest in bitcoin and other cryptocurrencies has surged since their prices rocketed this year, but traditional banks are steering clear of the sector, fearing it is riddled with criminals and fraudsters. ‘Nobody will give us a bank account in the UK,’ said James Godfrey, head of capital markets at BlockEx, a platform for trading digital assets including cryptocurrencies. He said Metro Bank recently shut its UK account, forcing it to rely on a Bulgarian lender to keep trading. Mr Godfrey said the disruption had prompted BlockEx to consider moving to a more welcoming location, such as Toronto.
‘Having [Bank of England governor] Mark Carney standing at the front of the shop and saying ‘raa, raa, fintech’ just doesn’t do it for me.’ Metro Bank declined to comment. Michael Hudson, chief executive of the bitcoin investment firm Bitstocks, said:
Read the entire article
Lloyd Blankfein tweeted about spending more time in Frankfurt, now London is shunning the fastest growing sector in finance. From the FT
British banks are shunning companies that handle cryptocurrencies, forcing many to open accounts in Gibraltar, Poland and Bulgaria and prompting some to question the UK’s ambitions to be a global hub for the fast-growing fintech sector.
Investor interest in bitcoin and other cryptocurrencies has surged since their prices rocketed this year, but traditional banks are steering clear of the sector, fearing it is riddled with criminals and fraudsters. ‘Nobody will give us a bank account in the UK,’ said James Godfrey, head of capital markets at BlockEx, a platform for trading digital assets including cryptocurrencies. He said Metro Bank recently shut its UK account, forcing it to rely on a Bulgarian lender to keep trading. Mr Godfrey said the disruption had prompted BlockEx to consider moving to a more welcoming location, such as Toronto.
‘Having [Bank of England governor] Mark Carney standing at the front of the shop and saying ‘raa, raa, fintech’ just doesn’t do it for me.’ Metro Bank declined to comment. Michael Hudson, chief executive of the bitcoin investment firm Bitstocks, said:
Read the entire article
October 23, 2017
After 16 Months Without a 5% Market Pullback, Goldman's Clients Want To Know Just One Thing
It's confusing to be a Goldman client these days.
One month after the investment bank reported that its Bear Market Risk indicator had jumped to 67%, a level it hit most recently before the dot com bubble crash and just before the global financial crisis and prompted Goldman to ask "should we be worried now"...
... Goldman's chief equity strategist, David Kostin, nearly admitted capitulation on his bearish year-end S&P price target of 2,400 (which rises to 2,600 by year end 2019, or just 25 points from current levels!), writing last week that "the 2400 target assumes no reform and P/E of 17.3x. 65% probability of passage by 1Q." However, "with tax reform, target could be 2650 (17.9x)." Even so, Kostin still conceded that both the S&P 500 and the median stock trades at high valuations (the latter at the 98%-percentile of historical records), with the exception of free cash flow yields, which he explained is artificially low due to companies' unwillingness to spend on capex.
So on one hand, there is a broad consensus that stocks are massively overvalued, there are also concerns that the market is poised for a bear market, if not worse, and all this takes place 30 years after Black Monday. On the other however, Goldman refuses to cut its tactical outlook on stocks, and despite predicting a 6% drop by year end, cautions that stock may keep rising, if only on expectations of tax reform getting done, which will push stocks even higher, to 2,650 or more.
In this context, it is probably not surprising then that as Goldman's David Kostin writes in his latest Weekly Kickstart report that "In the ninth year of economic expansion, with S&P 500 up 15% YTD, the most common question from clients is, “When will the rally end?”
Here are the details from the latest round of conversations Goldman had with its clients, which it summarizes as "peak growth and drawdown potential."
Read the entire article
One month after the investment bank reported that its Bear Market Risk indicator had jumped to 67%, a level it hit most recently before the dot com bubble crash and just before the global financial crisis and prompted Goldman to ask "should we be worried now"...
... Goldman's chief equity strategist, David Kostin, nearly admitted capitulation on his bearish year-end S&P price target of 2,400 (which rises to 2,600 by year end 2019, or just 25 points from current levels!), writing last week that "the 2400 target assumes no reform and P/E of 17.3x. 65% probability of passage by 1Q." However, "with tax reform, target could be 2650 (17.9x)." Even so, Kostin still conceded that both the S&P 500 and the median stock trades at high valuations (the latter at the 98%-percentile of historical records), with the exception of free cash flow yields, which he explained is artificially low due to companies' unwillingness to spend on capex.
So on one hand, there is a broad consensus that stocks are massively overvalued, there are also concerns that the market is poised for a bear market, if not worse, and all this takes place 30 years after Black Monday. On the other however, Goldman refuses to cut its tactical outlook on stocks, and despite predicting a 6% drop by year end, cautions that stock may keep rising, if only on expectations of tax reform getting done, which will push stocks even higher, to 2,650 or more.
In this context, it is probably not surprising then that as Goldman's David Kostin writes in his latest Weekly Kickstart report that "In the ninth year of economic expansion, with S&P 500 up 15% YTD, the most common question from clients is, “When will the rally end?”
Here are the details from the latest round of conversations Goldman had with its clients, which it summarizes as "peak growth and drawdown potential."
Read the entire article
October 20, 2017
The World's Largest ICO Is Imploding After Just 3 Months
Earlier this summer, Tezos smashed existing sales records in the white-hot IPO market after the company’s pitch to build a better blockchain for cryptocurrencies made it one of the buzziest ICOs in the world. As we noted at the time, the company capitalized on that buzz by courting VC firms and other institutional investors with a $50 million token pre-sale. After the company opened up selling to the broader public, demand soared as investors greedily bought up tokens in spite of glitches that threatened to derail the sale early on. By the end of its weeks-long token sale in July, Tezos had sold more than $230 million.
Now, Tezos is proving that authorities in the US and China were on to something when they decided to crack down on the ICO market, which has become a cesspool of fraud and abuse. To wit, the company's management revealed this week that progress on its vaunted product has stalled as it has struggled to recruit engineering talent, and an acrimonious dispute between several of the company’s leading figures has spilled out into the open.
As WSJ’s Paul Vigna reports, “a battle between the founders of the company and the head of the Swiss foundation they installed to give it more independence has put most trading of Tezos coins on ice, possibly until early next year.”
The shakeup started after Tezos founders Arthur and Kathleen Breitman reported the delays in a blog post published Wednesday. But even more alarming, the pair accused Johann Gevers, the head of a Swiss foundation which oversees their funds, of attempting to overpay himself using the massive pot of investor capital - despite the fact that the company will likely blow through its promised deadline of allocating tokens to buyers by December (the tokens have yet to be created).
Read the entire article
Now, Tezos is proving that authorities in the US and China were on to something when they decided to crack down on the ICO market, which has become a cesspool of fraud and abuse. To wit, the company's management revealed this week that progress on its vaunted product has stalled as it has struggled to recruit engineering talent, and an acrimonious dispute between several of the company’s leading figures has spilled out into the open.
As WSJ’s Paul Vigna reports, “a battle between the founders of the company and the head of the Swiss foundation they installed to give it more independence has put most trading of Tezos coins on ice, possibly until early next year.”
The shakeup started after Tezos founders Arthur and Kathleen Breitman reported the delays in a blog post published Wednesday. But even more alarming, the pair accused Johann Gevers, the head of a Swiss foundation which oversees their funds, of attempting to overpay himself using the massive pot of investor capital - despite the fact that the company will likely blow through its promised deadline of allocating tokens to buyers by December (the tokens have yet to be created).
Read the entire article
October 19, 2017
A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins
Somewhere in the mountains near Switzerland’s Lake Lucerne lies a hidden underground vault containing a vast fortune.
It’s no ordinary vault, according to Quartz. Built inside a decommissioned Swiss military bunker dug into a granite mountain, it’s precise location is a closely guarded secret, and access is limited by myriad security precautions.
But instead of gold bars, the bunker contains hard drives on which customers’ bitcoins are being kept in what’s call “cold storage” – i.e. the owners’ private keys are protected by an air-gapped hard drive. The vault is one of many operated by Xapo, an early bitcoin company known for its cold storage wallet products and a debit card that pays for transactions in digital currencies.
The company won’t disclose how much bitcoin is stored in the vault, but one employee who spoke with Quartz said he sometimes takes customers with millions of dollars in bitcoin on tours of the vaults where their fortune is stored. Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.
Read the entire article
It’s no ordinary vault, according to Quartz. Built inside a decommissioned Swiss military bunker dug into a granite mountain, it’s precise location is a closely guarded secret, and access is limited by myriad security precautions.
But instead of gold bars, the bunker contains hard drives on which customers’ bitcoins are being kept in what’s call “cold storage” – i.e. the owners’ private keys are protected by an air-gapped hard drive. The vault is one of many operated by Xapo, an early bitcoin company known for its cold storage wallet products and a debit card that pays for transactions in digital currencies.
The company won’t disclose how much bitcoin is stored in the vault, but one employee who spoke with Quartz said he sometimes takes customers with millions of dollars in bitcoin on tours of the vaults where their fortune is stored. Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.
Read the entire article
October 18, 2017
What Goldbugs Have Been Waiting For: Goldman’s New Primer On Gold
The good news is that Goldman believes “precious metals remain a relevant asset class in modern portfolios, despite their lack of yield” and disagrees with Ben Bernanke and the naysayers “They are neither a historic accident or a relic. Indeed, by looking at each of the physical properties of an ideal long-term store of value…we can clearly see why precious metals were initially adopted and why they remain relevant today.”
It was sounding really good – and there was 91 pages to go - although when it came to the drivers of precious metal prices, Goldman did not exactly re-invent the wheel “We see two key drivers of the precious metals markets: Fear and Wealth”
That said, there was a new take on what, in Goldman's eyes constitutes fear as “in our new framework we see a closer link to growth expectations. However, we ?nd that many risk factors are relevant, depending on the sub-component of gold demand: real interest rates, debasement risks, sovereign balance sheet risks, geopolitical risks and other market tail-risks. Stated more simply, we are talking about the drivers of “risk-on”/”risk-off” behavior in markets.”
On the wealth angle, the good news for gold was that “as economies grow, they tend to go through a rapid gold accumulation phase at around per capita GDP of $20,000-$30,000, following a ‘hump-shaped’ relationship between per capita income and gold demand. As more EM economies (including China) are set to grow to these income levels over the next few decades.”
As in-depth students of gold market research, our mood was lifted by some genuinely original research. Goldman found that the ratio between gold purchases and household savings (global we assume) has been broadly stable at around 1.7% for almost 40 years. Who knew that.
Read the entire article
It was sounding really good – and there was 91 pages to go - although when it came to the drivers of precious metal prices, Goldman did not exactly re-invent the wheel “We see two key drivers of the precious metals markets: Fear and Wealth”
That said, there was a new take on what, in Goldman's eyes constitutes fear as “in our new framework we see a closer link to growth expectations. However, we ?nd that many risk factors are relevant, depending on the sub-component of gold demand: real interest rates, debasement risks, sovereign balance sheet risks, geopolitical risks and other market tail-risks. Stated more simply, we are talking about the drivers of “risk-on”/”risk-off” behavior in markets.”
On the wealth angle, the good news for gold was that “as economies grow, they tend to go through a rapid gold accumulation phase at around per capita GDP of $20,000-$30,000, following a ‘hump-shaped’ relationship between per capita income and gold demand. As more EM economies (including China) are set to grow to these income levels over the next few decades.”
As in-depth students of gold market research, our mood was lifted by some genuinely original research. Goldman found that the ratio between gold purchases and household savings (global we assume) has been broadly stable at around 1.7% for almost 40 years. Who knew that.
Read the entire article
October 17, 2017
ECB May Have Only €220 Billion In QE Left If The Hawks Get Their Way
After seemingly sending out trial balloons (via Bloomberg and Reuters simultaneously) on tapering last Thursday, which had almost zero impact (see “ECB Reportedly Considering Slashing QE in Half in January, EURUSD Shrugs), Draghi’s minions have been busy again.
“Central bank officials familiar with the matter” told Bloomberg that some - presumably quite hawkish - ECB policy makers “see room for little more than 200 billion euros ($235 billion) of purchases under the institution’s bond-buying program next year.” With said “officials” (who asked not to be named because the talks are not private anymore) seeing a limit to bond buying of 2.5 trillion euros under the current rules and purchases expected to reach 2.28 trillion by the end of 2017, we can do the calculation.
According to last week’s trial balloons, the ECB was looking at reducing its purchases from €60 billion euros to about €30 billion for at least nine months.
As we also explained in “How Will The ECB's QE Tapering Impact The Market? Here Are The Possible Scenarios”, the market neutral level of APP extension estimated by Citi appears to be around 250 billion Euros, or roughly €50 billion more than "some" ECB policymakers will permit. The three broadly market neutral scenarios laid out in Citi’s model were €20bn x 12mth, €30bn x 9mth and €40bn x 6mth as shown below.
Read the entire article
“Central bank officials familiar with the matter” told Bloomberg that some - presumably quite hawkish - ECB policy makers “see room for little more than 200 billion euros ($235 billion) of purchases under the institution’s bond-buying program next year.” With said “officials” (who asked not to be named because the talks are not private anymore) seeing a limit to bond buying of 2.5 trillion euros under the current rules and purchases expected to reach 2.28 trillion by the end of 2017, we can do the calculation.
According to last week’s trial balloons, the ECB was looking at reducing its purchases from €60 billion euros to about €30 billion for at least nine months.
As we also explained in “How Will The ECB's QE Tapering Impact The Market? Here Are The Possible Scenarios”, the market neutral level of APP extension estimated by Citi appears to be around 250 billion Euros, or roughly €50 billion more than "some" ECB policymakers will permit. The three broadly market neutral scenarios laid out in Citi’s model were €20bn x 12mth, €30bn x 9mth and €40bn x 6mth as shown below.
Read the entire article
October 16, 2017
China's Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis
Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s.
Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years.
City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.
“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said.
“Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.”
Read the entire article
Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years.
City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.
“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said.
“Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.”
Read the entire article
October 13, 2017
China Launches Yuan-Ruble Payment System
The monetary regimes of China and Russia, two of the world's most resource-rich nations, are drawing closer with every passing day.
In the latest push for convergence, China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.
It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.
According to CFETS, the system would reduce settlement risk as well as the risk of transactions taking place in different time zones, and improve foreign exchange market efficiency. Of course, if the two countries had a blockchain-based settlement system, they would already have all this and much more.
CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. Russia, however, is a top priority: the world's biggest oil producer recently became the largest source of oil for China, the world’s top energy consumer.
Read the entire article
In the latest push for convergence, China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.
It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.
According to CFETS, the system would reduce settlement risk as well as the risk of transactions taking place in different time zones, and improve foreign exchange market efficiency. Of course, if the two countries had a blockchain-based settlement system, they would already have all this and much more.
CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. Russia, however, is a top priority: the world's biggest oil producer recently became the largest source of oil for China, the world’s top energy consumer.
Read the entire article
October 12, 2017
Goldman Is Allowing Its Clients To Bet On The Next Financial Crisis
Just over a decade ago, as the S&P was hitting all time highs and there was a line around the block of 30-some year old hedge fund managers, desperate to put other people's money in various ultra risky investments just so they could pick a few excess bps of yield over Treasurys - a situation painfully familiar to what is going on now - Goldman had an epiphany: create new synthetic products that have huge convexity, i.e., provide little upside (such as a few basis points pick up in yield) versus unlimited downside, link them to the shittiest assets possible and sell them to gullible, yield-chasing idiots (collecting a transaction fee) while taking the other side of the trade (collecting a huge profit once everything crashes). The instruments, of course, were CDOs, and not long after Goldman sold a whole of them, the financial system crashed and needed a multi-trillion bailout from which the world has not recovered since.
Ten years later, Goldman is doing it again, only instead of targeting subprime mortgages, this time the bank has focused on quasi-insolvent European banks.
And just like right before the last financial crash, Goldman is once again allowing its clients to profit from the upcoming collapse, or as Bloomberg puts it, "less than a decade after the last major banking crisis, Goldman Sachs and JPMorgan are offering investors a new way to bet on the next one."
The trade in question is a total return swap, a highly levered product which is similar or a credit default swap but has some nuanced differences, which targets what are known as Tier 1 , or AT1 or "buffer" notes issued by European banks, and which usually are the first to get wiped out when there is even a modest insolvency event (just ask Banco Popular), let alone a full blown financial crisis.
Goldman and JPM are offering the derivative trades that enable investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble. Other banks are also hoping to get in on the fun, and start making markets in the contracts, known as total-return swaps, or TRS, in the coming weeks, according to Max Ruscher, the London-based director of credit indexes at IHS Markit Ltd., which administers the benchmarks that the swaps are linked to.
Read the entire article
Ten years later, Goldman is doing it again, only instead of targeting subprime mortgages, this time the bank has focused on quasi-insolvent European banks.
And just like right before the last financial crash, Goldman is once again allowing its clients to profit from the upcoming collapse, or as Bloomberg puts it, "less than a decade after the last major banking crisis, Goldman Sachs and JPMorgan are offering investors a new way to bet on the next one."
The trade in question is a total return swap, a highly levered product which is similar or a credit default swap but has some nuanced differences, which targets what are known as Tier 1 , or AT1 or "buffer" notes issued by European banks, and which usually are the first to get wiped out when there is even a modest insolvency event (just ask Banco Popular), let alone a full blown financial crisis.
Goldman and JPM are offering the derivative trades that enable investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble. Other banks are also hoping to get in on the fun, and start making markets in the contracts, known as total-return swaps, or TRS, in the coming weeks, according to Max Ruscher, the London-based director of credit indexes at IHS Markit Ltd., which administers the benchmarks that the swaps are linked to.
Read the entire article
October 11, 2017
National Rents Stall For 4th Month In A Row As Multi-Family Supply Glut Takes Its Toll
After a steady march higher in the wake of the 'great recession' nearly a decade ago, a note today from Rent Cafe reveals that average rents in the United States have now stalled for 4 months in row with September's national average coming in at $1,354 per month, which is virtually flat from the $1,350 average reached in the summer.
National rents have barely moved through the entire peak rental season and into September, marking the longest period of stagnation in recent history — 4 consecutive months. Coming in at $1,354 for the month of September, the average rent is only 2.2 percent higher than this time last year. This is the slowest annual growth rate we’ve seen in more than six years — having reached a high point of 5.5%-5.6% peak growth around two years ago — a pretty good indicator that the rental market has entered calmer waters.
Still, that doesn’t mean rents have flat-lined everywhere. Though nationally and in the most expensive cities for renters prices have finally come to a full stop, there are still some holdouts—and it seems renters in smaller and mid-sized cities are not yet getting a break, on the contrary.
As we pointed out over the summer, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders. Per the chart below from Goldman Sachs, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.
Read the entire article
National rents have barely moved through the entire peak rental season and into September, marking the longest period of stagnation in recent history — 4 consecutive months. Coming in at $1,354 for the month of September, the average rent is only 2.2 percent higher than this time last year. This is the slowest annual growth rate we’ve seen in more than six years — having reached a high point of 5.5%-5.6% peak growth around two years ago — a pretty good indicator that the rental market has entered calmer waters.
Still, that doesn’t mean rents have flat-lined everywhere. Though nationally and in the most expensive cities for renters prices have finally come to a full stop, there are still some holdouts—and it seems renters in smaller and mid-sized cities are not yet getting a break, on the contrary.
As we pointed out over the summer, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders. Per the chart below from Goldman Sachs, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.
Read the entire article
October 10, 2017
Mapping The World's Trillion-Dollar Asset-Manager Club
In the late 1700s, it was the start of the battle of stock exchanges: in 1773, the London Stock Exchange was formed, and the New York Stock Exchange was formed just 19 years later.
And while London was a preferred destination for international finance at the time, Visual Capitalist's Jeff Desjardins notes that England also had laws that restricted the formation of new joint-stock companies. The law was repealed in 1825, but by then it was already too late.
In the U.S., exchanges in New York City and Philadelphia took full advantage by dealing in stocks early on. Eventually, for this and a variety of other reasons, the NYSE emerged as the most dominant exchange in the world – helping propel New York and Wall Street to the center of finance.
THE CENTER OF FINANCE
Wall Street and the U.S. in general is now synonymous with finance – and most of the world’s largest banks, funds, and investors maintain a presence nearby. The biggest asset management companies, which pool investments into securities such as stocks and bonds on behalf of investors, are no exception to this.
Today’s chart shows all global companies with over $1 trillion in assets under management (AUM).
Read the entire article
And while London was a preferred destination for international finance at the time, Visual Capitalist's Jeff Desjardins notes that England also had laws that restricted the formation of new joint-stock companies. The law was repealed in 1825, but by then it was already too late.
In the U.S., exchanges in New York City and Philadelphia took full advantage by dealing in stocks early on. Eventually, for this and a variety of other reasons, the NYSE emerged as the most dominant exchange in the world – helping propel New York and Wall Street to the center of finance.
THE CENTER OF FINANCE
Wall Street and the U.S. in general is now synonymous with finance – and most of the world’s largest banks, funds, and investors maintain a presence nearby. The biggest asset management companies, which pool investments into securities such as stocks and bonds on behalf of investors, are no exception to this.
Today’s chart shows all global companies with over $1 trillion in assets under management (AUM).
Read the entire article
October 9, 2017
Economic Slowdown Confirmed: The U.S. Economy Lost Jobs Last Month For The First Time In 7 Years
Don’t worry – even though the employment numbers are terrible the mainstream media insists that everything is going to be wonderful for the U.S. economy in the months ahead. According to the Bureau of Labor Statistics, the U.S. economy lost 33,000 jobs during September. That was the first monthly decline in seven years, and as you will see below, overall 2017 is on pace for the slowest employment growth in at least five years. But the Bureau of Labor Statistics insists that the downturn in September was due to the chaos caused by Hurricane Harvey and Hurricane Irma, and they are assuring us that happier times are right around the corner.
Economists were projecting that we would see an increase of around 80,000 jobs last month, and we need to add at least 150,000 jobs each month just to keep up with population growth. So the -33,000 number was a huge disappointment.
But even though we lost 33,000 jobs last month, the Bureau of Labor Statistics says that the unemployment rate fell from 4.4 percent to 4.2 percent.
Yes, I know that doesn’t make any sense at all, but that is what they are telling us.
Perhaps if several volcanoes go off inside this country, terrorists detonate a dirty bomb in one of our major cities and Godzilla invades the west coast next month the unemployment rate will drop all the way to zero.
Read the entire article
Economists were projecting that we would see an increase of around 80,000 jobs last month, and we need to add at least 150,000 jobs each month just to keep up with population growth. So the -33,000 number was a huge disappointment.
But even though we lost 33,000 jobs last month, the Bureau of Labor Statistics says that the unemployment rate fell from 4.4 percent to 4.2 percent.
Yes, I know that doesn’t make any sense at all, but that is what they are telling us.
Perhaps if several volcanoes go off inside this country, terrorists detonate a dirty bomb in one of our major cities and Godzilla invades the west coast next month the unemployment rate will drop all the way to zero.
Read the entire article
October 6, 2017
Will Retailers Switch to a Price Tag System That Screws Customers at Every Opportunity?
Retailers intend to engage in very sneaky price discrimination. But big data is way overhyped and regularly underdelivers. It might be great at pricing airline seats, but airlines have only so many routes and run planes only so many times of day and days of the week. By contrast, the average grocery store has over 40,000 SKUs. They aren’t going to have granular enough data to discriminate finely on a lot of things. They may try to draw crude inferences, like “People who go to Starbucks daily are higher income and can/will pay more” but aside from using certain criteria to pick out less price sensitive customers, how much price gouging they might take is a crude inference. And what about stores you rarely visit, say the once a year at best sports store shopper?
In addition, this type of price discrimination is against the law in many cities which require merchants to post prices and honor them. But the threat of this sort of system is an argument in favor of not using ApplePay and other phone-based payment systems, which could provide even more granular info about your shopping habits, or not using a smart phone, or putting it in a mini Faraday cage when you are going on a serious shopping mission. Plus if this sort of system starts to be implemented, it’s not hard to imagine that software developers would implement apps to block inquiries from purchase snooping systems, or better yet, feed them incorrect data that says you are price sensitive (like a false history of shopping regularly at discounters).
But as Ramsi Woodcock, professor of legal studies at Georgia State University, observes, those outraged by Delta’s reportedly asking $3,200 for a ticket out of Florida as Hurricane Irma approached should be aware that dynamic pricing enabled Delta to charge the same price to last minute customers two weeks before.
We’ve imposed no limits on dynamic pricing, although we’re nibbling around the edges of imposing some constraints on the sale of our personal data. Woodcock believes dynamic pricing could have anti-trust implications. Anti-trust is justified by many as a way to stop or break up monopolies that could artificially raise prices and reduce total consumer welfare. In a detailed article, Woodcock argues that big data enables “price discrimination (that) extracts more value from consumers than uniform pricing, by tailoring price to the maximum level tolerated by each consumer.” And thus warrants anti-trust enforcement.
Read the entire article
In addition, this type of price discrimination is against the law in many cities which require merchants to post prices and honor them. But the threat of this sort of system is an argument in favor of not using ApplePay and other phone-based payment systems, which could provide even more granular info about your shopping habits, or not using a smart phone, or putting it in a mini Faraday cage when you are going on a serious shopping mission. Plus if this sort of system starts to be implemented, it’s not hard to imagine that software developers would implement apps to block inquiries from purchase snooping systems, or better yet, feed them incorrect data that says you are price sensitive (like a false history of shopping regularly at discounters).
But as Ramsi Woodcock, professor of legal studies at Georgia State University, observes, those outraged by Delta’s reportedly asking $3,200 for a ticket out of Florida as Hurricane Irma approached should be aware that dynamic pricing enabled Delta to charge the same price to last minute customers two weeks before.
We’ve imposed no limits on dynamic pricing, although we’re nibbling around the edges of imposing some constraints on the sale of our personal data. Woodcock believes dynamic pricing could have anti-trust implications. Anti-trust is justified by many as a way to stop or break up monopolies that could artificially raise prices and reduce total consumer welfare. In a detailed article, Woodcock argues that big data enables “price discrimination (that) extracts more value from consumers than uniform pricing, by tailoring price to the maximum level tolerated by each consumer.” And thus warrants anti-trust enforcement.
Read the entire article
October 5, 2017
De-Dollarization & Disintermediation - Russian Mobile Phone Operator Issues First Blockchain-Backed Bond
Russian Mobile phone operator, Megafon, issued RUB500 million in zero-coupon blockchain-based bonds recently. This was purely a proof of concept issuance.
But, it speaks to the bigger picture of bypassing traditional book runners, i.e. the major banks, for selling securities to investors. No longer does Goldman Sachs, Standard Charted, HSBC and Deutsche Bank have a stranglehold on how capital is raised for emerging markets.
Moreover, it will prove just how much of an advantage the blockchain has over these older and much more expensive business models.
This reduces the cost of a bond issuance to practically nothing, beyond the needed legal work.
These bonds can and will be sold without the need for the middle man to take a huge cut.
The blockchain is changing everything.
This news also puts paid the news from a couple of months back that the National Settlement Depository is moving, via the WAVES platform, to token-ize as much of the Russian economy as it can. This is your first example of their integrating with the Moscow Exchange to trade securities via the blockchain.
Read the entire article
But, it speaks to the bigger picture of bypassing traditional book runners, i.e. the major banks, for selling securities to investors. No longer does Goldman Sachs, Standard Charted, HSBC and Deutsche Bank have a stranglehold on how capital is raised for emerging markets.
Moreover, it will prove just how much of an advantage the blockchain has over these older and much more expensive business models.
This reduces the cost of a bond issuance to practically nothing, beyond the needed legal work.
These bonds can and will be sold without the need for the middle man to take a huge cut.
The blockchain is changing everything.
This news also puts paid the news from a couple of months back that the National Settlement Depository is moving, via the WAVES platform, to token-ize as much of the Russian economy as it can. This is your first example of their integrating with the Moscow Exchange to trade securities via the blockchain.
Read the entire article
October 4, 2017
Uber Shareholder Drops Lawsuit Against Kalanick, Clearing Way For Softbank Investment
Tuesday’s meeting of the Uber Inc. board – the first following Kalanick’s unilateral decision to appoint former Xerox Corp. Chairwoman and CEO Ursula Burns and former Merrill Lynch Chairman and CEO John Thain – appears to have been a productive one.
Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.
To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.
But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board's rules to try and limit Kalanick's power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.
Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?
Read the entire article
Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.
To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.
But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board's rules to try and limit Kalanick's power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.
Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?
Read the entire article
October 3, 2017
Hard Assets In An Age Of Negative Interest Rates
In a word, the hard asset vision is about building wealth outside the stock market. It refers to three main strategies overall:
1) land ownership and/or farmland, forestry and agriculture
2) gold, other precious metals, and certain base-metal commodities, and
3) The (Old Masters/Classic Modern) art market.
Where this last is concerned, we mean art as investment and not art-as-commerce, such as that which contaminates today’s insipid and overpriced world of ‘Balloon-Dog’ bad art. The auction world of Rembrandt and Picasso; of El Greco and Gerhardt Richter has been on a tear, is smashing records, and cannot be ignored as an excellent safe-haven vehicle, as outstanding works of art traditionally always have been.
To begin with, physical gold and precious metals remain an investment enigma despite being market-leading performers for the past seventeen years. Gold is a must-have portfolio asset amid the aggressive debt levels and monetary debasement that have so unhinged the market. Silver, for its part, in addition to its prestige status, also has innumerable industrial applications and throughout the precious-metal bull market since 2000.
Read the entire article
1) land ownership and/or farmland, forestry and agriculture
2) gold, other precious metals, and certain base-metal commodities, and
3) The (Old Masters/Classic Modern) art market.
Where this last is concerned, we mean art as investment and not art-as-commerce, such as that which contaminates today’s insipid and overpriced world of ‘Balloon-Dog’ bad art. The auction world of Rembrandt and Picasso; of El Greco and Gerhardt Richter has been on a tear, is smashing records, and cannot be ignored as an excellent safe-haven vehicle, as outstanding works of art traditionally always have been.
To begin with, physical gold and precious metals remain an investment enigma despite being market-leading performers for the past seventeen years. Gold is a must-have portfolio asset amid the aggressive debt levels and monetary debasement that have so unhinged the market. Silver, for its part, in addition to its prestige status, also has innumerable industrial applications and throughout the precious-metal bull market since 2000.
Read the entire article
October 2, 2017
Blowback? NFL Ticket Sales Crash 17.9% As Owners Lose Control Of Players
Probably just a coincidence... or just transitory, but The online ticket reseller TickPick told The Washington Examiner that sales have dropped 17.9 percent, far more than the usual Week Three fall...
17.9 percent decrease in NFL orders this week compared to the previous week.
Last year the drop was 10.8 percent in orders on Monday & Tuesday following Week Three games.
"We have seen a massive decrease in NFL ticket purchases this past week in comparison to years past. Week 3 seems to usually have less ticket orders than week 2, but this year ticket purchases are down more than 7 percent from this time last year," said TickPick's Jack Slingland.
"While we can't specify if this decrease is due to the president's comments, player and owner protests, play on the field, or simply the continued division of consumer's media attention, the conversation around the NFL this week has focused on the president's comments as well as the players' and owners' reaction. As viewers continue to abandon their NFL Sunday habits, both the number of ticket sales and the purchase price of tickets will drop," he told us.
Read the entire article
17.9 percent decrease in NFL orders this week compared to the previous week.
Last year the drop was 10.8 percent in orders on Monday & Tuesday following Week Three games.
"We have seen a massive decrease in NFL ticket purchases this past week in comparison to years past. Week 3 seems to usually have less ticket orders than week 2, but this year ticket purchases are down more than 7 percent from this time last year," said TickPick's Jack Slingland.
"While we can't specify if this decrease is due to the president's comments, player and owner protests, play on the field, or simply the continued division of consumer's media attention, the conversation around the NFL this week has focused on the president's comments as well as the players' and owners' reaction. As viewers continue to abandon their NFL Sunday habits, both the number of ticket sales and the purchase price of tickets will drop," he told us.
Read the entire article
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