Market Analyst: ‘The Fed Has Lost Control Of Markets! We Are In A Lot Of Trouble!’

Gregory Mannarino, the founder of TradersChoice.net joined USA Watchdog’s Greg Hunter for an interview.  While speaking with Hunter, Mannarino said that the Federal Reserve isn’t losing control of the market, it has already lost control and we are in some very serious financial trouble.

Mannarino said the markets are out of control and it’s the Fed’s fault.  Not that we didn’t know that, but the whole economy is unraveling and not many seem to have noticed.  Mannarino, who is a professional trader says the new Fed Head, Jerome Powell, caused the market to sell off last week, not president Donald Trump’s tariff talk. Powell blurted out in Congressional testimony that the “U.S. is not on a sustainable fiscal path.” 

“They have already lost control. If they were in control, would they still be buying bonds like they are? Would they still be trying to ‘get it right’? They cannot unwind this in a normal way. They have created a system of bubbles, and they are well aware of this. These things tend to collapse very violently when they do. If the Federal Reserve or any of these central banks were in control, do you think we would be in the situation we are in right now? Absolutely not. All they have done is liquefy the world with debt and buy everything they can to keep this propped up. This is not control. This is some kind of a Frankenstein they have created by trying to prop everything up.”

“The stock market is in a bubble that is being suspended on the back of the debt bubble. So when the debt bubble pops, every other subsequent bubble connected to it is gonna burst along with it…forget the stock market…it’s the bond market that tells the story,” Mannarino warns.

Mannarino says that the whole system is fake, and he and Hunter say it’s definitely possible that central banks are giving each other money to buy their own bonds.  If that’s happening, and many market analysts firmly believe that it is then the Fed is in desperation mode.

“This [the markets] is a corpse here, that’s on life support. And that’s all it is. So, there’s going to be a terrible moment or reckoning. Inflation? Forget about it. Of course, there’s going to be massive inflation. They can’t stop it…we’re in a lot of trouble here…let’s say we start getting surreal inflation, and they’re going to start hiking super fast.  Well, what’s that going to do? BAM! There goes your debt bubble and then we’re done. Back to the stone age. Stock market down 6,000 will probably seem like a dream come true because it might even go lower than that.”

“People are going to lose everything; worse than last time if they’re not ready for what’s coming. That means watching the bond market….there’s gonna be an unbelievable price to pay for this at some point.”

Is This Why The Status Quo Disdains Bitcoin? - The "Wrong People Are Getting Rich"

Authored by Charles Hugh Smith via OfTwoMinds blog,

The wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore.

The psychology of money, wealth and speculative manias is endlessly fascinating. Most of what"s written on these subjects focus on the process of building wealth as if it were a quasi-science rather than a psychologically driven process. Only speculative manias attract a psychology-based analysis, usually characterized as some variant of the madness of the herd running off the cliff en masse.

But money and wealth are nothing but more sedate reflections of the same dynamics that drive speculative manias. Much has been written about cognitive biases and thinking fast and slow, but these explorations do not exhaust the psychology underpinning money, wealth and speculative manias.

Few things have unleashed the Monster Id of wealth and money quite like bitcoin and the cryptocurrencies. Compare the speculative manias of the dot-com era (1995 - 2000) and the housing bubble (2002 - 2007) with the crypto-mania: in the first two manias, the status quo embraced the mania as rational and justified: the Internet would continue growing for decades, housing never goes down, etc.

But the status quo has not embraced cryptocurrencies with the same ardor--why? Instead of endless justifications for valuations, the status quo is filled with reports that 97% of all economists view bitcoin as a bubble, and endless articles decrying the bitcoin bubble as a fools game that will deservedly burst, and soon.

Why did the status quo embrace irrationally exuberant bubbles in the 1990s and 2000s, but views the exuberance of cryptocurrencies with disdain? I think this is a fruitful topic to explore, largely because nobody seems to be asking this question.

Here are my suppositions:

1. The status quo reviles cryptocurrencies because the wrong people are getting rich.

2. The status quo reviles cryptocurrencies because the usual insiders (Wall Street and its politico leeches) didn"t get on board early, and they"re deeply offended that they missed the boat.

3. Until the advent of bitcoin futures trading, the usual insiders had no means to skim profits from the exuberance.

To me, these dynamics go a long way in explaining the 97% of the status quo"s visible loathing of bitcoin and the cryptocurrencies.

In other words: why embrace some manias but not all manias? Answer: some manias make the usual insiders filthy rich, others don"t. The dot-com mania generated billions of dollars in profits for Wall Street and the rest of the financier-politico leeches (i.e. the rentier class) via IPOs (initial public offerings), insider deals and vast fees generated by trading the mania with other peoples" money.

The housing bubble generated billions of dollars in profits for Wall Street via the issuance of mortgage-backed securities (MBS), CDOs and other exotic financial instruments based on mortgages and related securities, and realtors (and the rest of the housing industry) banked billions in commissions, fees and other skims.

In both cases, Average Joe and Jane reckoned the manias were their ticket to untold wealth. A relative few Average Joes and Janes did strike it rich, usually by being early employees of companies that went public, and a few others managed the impossible, i.e. buying low and selling high and then exiting the casino with their winnings.

But the vast majority of the Average Joes and Janes were fodder for the chipping machines of Wall Street and the FIRE (finance, insurance, real estate) insiders and elites. Far more people lost money in the period between 1997 and 2003 than won big and kept their winnings. Millions of people gambled on the housing bubble expanding forever and lost everything.

Now compare that to the cryptocurrency mania: Wall Street and the rest of the financier-politico leeches (the rentier class) have virtually no insider skims in the cryptocurrencies--is it any wonder they hate bitcoin with a passion that correlates to their inability to rake in billions of low-risk fees from the mania?

The psychology of FOMO (fear of missing out) is well known; the indignation of those who didn"t get on board before the ship sailed is less well noted. The financier/rentier class has a very high opinion of its own moxie and intelligence, and the fact that they missed the boat entirely on bitcoin et al. is like a knife of wounded pride plunged directly into their greedy hearts.

Those who can see past their own wounded pride are busy investing in blockchain applications and cryptocurrency funds, while those who cannot let go of their wounded pride are raging daily against the bitcoin bubble, and praying nightly to their evil gods for its collapse, to prove themselves right after all.

Every day that bitcoin doesn"t crash to zero is a day of pain for those whose pride was wounded by missing the cryptocurrency boat.

Even worse--if that"s possible for those whose greed is insatiable--the wrong people have gotten rich--techies, nerds, outsiders, rebels, etc.

It"s as if the crypto-rabble rebels just blew up the Financial Empire"s Death Star and got away with it.

Interestingly, few balk when privileged insiders mint fortunes for doing essentially nothing but exploiting their privileges. The corporate media heaps fatuous praise on insiders who reap billions of dollars from others" labor and ideas via IPOs, leveraged buyouts, etc. because of course these rentiers are our bosses and overlords.

It"s dangerous for a mere peasant in the Corporate-State Feudal System (i.e. the status quo) to speak truth to power against the Financial Aristocracy that issues the paychecks.

You can bet that if a Wall Street insider had bought bitcoin in size for $100 each, said insider would be justifying today"s valuations and arguing for higher valuations ahead, just as he/she did in the dot-com and housing manias.

So it all boils down to this: the wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore, not just resentful but indignant that this mania didn"t enrich insiders like it should have.

So sorry about your Death Star. I guess this doesn"t bode well for your bonus and promotion in the Imperial hierarchy.

*  *  *

I"m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20). Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

In An Unexpected Outcome, Trump Tax Reform Blew Up The Treasury Market

Over the past week we have shown on several occasions that there once again appears to be a sharp, sudden dollar-funding liquidity strain in global markets, manifesting itself in a dramatic widening in FX basis swaps, which - in this particular case - has flowed through in the forward discount for USDJPY spiking from around 0.04 yen to around 0.23 yen overnight. As Bloomberg speculated, this discount for buying yen at future dates widened sharply as non-U.S. banks, which typically buy dollars now with sell-back contracts at a future date, scrambled to procure greenbacks for the year-end.

However, as Deutsche Bank"s Masao Muraki explains, this particular dollar funding shortage is more than just the traditional year-end window dressing or some secret bank funding panic.

Instead, the DB strategist observes that the USD funding costs for Japanese insurers and banks to invest in US Treasuries - which have surged reaching a post-financial-crisis high of 2.35% on 15 Dec - are determined by three things, namely (1) the difference in US and Japanese risk-free rates (OIS), (2) the difference in US and Japanese interbank risk premiums (Libor-OIS), and (3) basis swaps, which illustrate the imbalance in currency-hedged US and Japanese investments.

In this particular case, widening of (1) as a result of Fed rate hikes and tightening of dollar funding conditions inside the US (2) and outside the US (3) have occurred simultaneously. This is shown in the chart below.

What is causing this? Unlike on previous occasions when dollar funding costs blew out due to concerns over the credit and viability of the Japanese and European banks, this time the Fed"s rate hikes could be spurring outflows from the US, European, and Japanese banks’ deposits inside the US. Absent indicators to the contrary, this appears to be the correct explanation since it"s not just Yen funding costs that are soaring. In fact, at present EUR/USD basis swaps are widening more than USD/JPY basis swaps.

According to Deutsche, it is possible that an increase in hedged US investments by Europeans could be indirectly affecting Japan, and that market participants could also be conscious of the risk that the repatriation tax system could spur a massive flow-back into the US, of funds held overseas by US companies

In fact, one can draw one particularly troubling conclusion: the sharp basis swap moves appear to have been catalyzed by the recently passed Trump tax reform.

• Corporate tax reform in the US

The United States House of Representatives and Senate recently passed a tax reform bill that lowers the corporate tax rate from 35% to 21% starting 2018. Lowering corporate taxes would likely accelerate the pace of Fed rate hikes, which could trigger a shift from dollar deposits to Government MMFs. Revisions to interest tax deductions would encourage companies to repay corporate bonds and could spur a decrease in dollar deposits (however, demand to bank loan could also weaken).

• Repatriation tax system

The tax bill also includes the abolishment of taxation (currently 35%) on dividend payments from overseas subsidiaries. However, overseas subsidiaries" retained earnings would be subject to a one-time tax. It is expected that this repatriation tax system would result in reserves held overseas by US companies (we estimate 90% are USD-denominated) flowing back into the US. This could create tighter conditions for USD financing outside the US.

Which leads to a bizarre outcome, that while the GOP tax reform may benefit corporate America, it appears set to punish America itself as buyers of US Treasurys suddenly require far greater yields to offset the surge in funding costs!

* * *

Whatever the cause behind these sharp funding shortages, one thing is clear - dollar funding costs (FX hedging costs) for both Japanese and European insurers and banks to invest in US Treasuries are surging (with Japanese buyers and reached a post-financial-crisis high of 2.35% on 15 Dec. And in terms of practical implications for the treasury market this means that, all else equal, marginal demand for US paper is about to plunge for one simple reason: the FX-hedged yields on US Treasurys have plunged to (negative) levels never seen before (unless of course foreign investors buy US Treasurys unhedged).

To demonstrate this point, the chart below from Deutsche Bank shows the yields on currency-hedged US Treasuries from the perspective of Japanese investors. Japanese financial institutions tend to use 3-month FX forwards when they invest in hedged foreign bonds. Annualized hedge costs have recently risen to 2.33%, which means that investments in 10y US Treasuries result in virtually no yield. Furthermore, yields from investment in shorter than 10y US Treasuries would be less than JGBs and result in negative spreads. This means that unless funding costs slide, Japanese buyers will simple pick JGBs over TSYs, eliminating one of the biggest sources of Treasury demand in receng years.

There is another consideration: as Deutsche Bank notes, whenever it is time to roll over a hedge, financial institutions need to decide whether to (A) sell US Treasuries or (B) hold them as unhedged foreign bonds. Engaging in (B) on a large scale would be difficult unless the institution"s outlook calls for yen depreciation. After implementing (A), institutions should then choose to invest in high-yielding US MBS (high interest rate risk), medium- to low-rated corporate bonds (high credit risk), European and other sovereign bonds, or to reinvest in JGBs.

Moving away from Japan, and looking at Europe one finds an even more dramatic slide in hedged TSY yields, which net of hedge costs have plunged to -0.6%, by far the lowest - and most negative - on record, something we highlighted yesterday in "There"s Never Been A Worse Time For A European Investor To Buy US Treasuries" .

The conclusion is that as a result of the recent surge in funding costs, seemingly in response to the nuances of Trump tax reform as explained above, suddenly buying US Treasurys is no longer an economic option for virtually all foreign buyers! Needless to say, something will need to change because if funding costs stay where they are, yields across the curve will have to jump for US Treasurys to once again be an attractive purchase for foreign buyers, which as a reminder comprise the majority of TSY buyers in recent years.

What is the outlook? Some parting thoughts from Deutsche, which writes that according to the chart below, fundings costs will likely continue widening as the Fed raises interest rates.

DB then also warns that the repatriation tax system that was just passed into law, coupled with ongoing Fed rate hikes, will indirectly result in the widening of dollar funding conditions in and outside of the US. And the punchline: if these indeed continue to widen, and US long-term interest rates stay at a low level, "this would restrict investments in US Treasuries by Japanese financial institutions relying on short-term dollar funding." This could then lead to a sharp move higher in US yields - and rates- as the US finds it needs an aggressive increase in foreign demand to finance the widest US budget deficit in years. 

In other words, by pounding the table on - and recently passing - tax reform, Donald Trump appears to have sown the seeds of the equity market"s own destruction, because remember that the one thing that can bring the house of manipulated cards down faster than you can say covfefe, not to mention burst the equity bubble, is a sharp move higher in long-term yields, rates, and ultimately - inflation.

The #BitcoinBreakdown: Demigod in the Details

First Appearing on HedgeAccordingly.com

Sixth in a series. Part 1, Part 2, Part 3, Part 4, Part 5

By @sellputs

Seems like everybody wants to buy in on bitcoin, and if you do, brace for a gut-tossing rollercoaster ride and another drawback, as well:  Trading costs in crypto are astonishingly high. 

Comparison: on TD Ameritrade, you can do a $10 million transaction in stocks on the New York Stock Exchange and it will cost you as little as $6.99; sell $10 million in bitcoin, and the transaction fee could come to $100,000 or more. And stocks are safer!

Opening an account with Coinbase (see Part 3 of this series), is more of a beginner’s way, admittedly, to go to the market to “buy” crypto-coins.  It also is the better option for buy-and-hold fans of bitcoin, though holding anything too long in cryptos may be risky on its face.

Coinbase imposes a fee on every transaction you undertake, charging 1.5% of the total value of the purchase or sale. And if you want to use your credit card to set up an account, Coinbase will charge you a 4% fee for the pleasure.  That’s $400 to hand ’em $10,000.

The GDAX trading platform is the more advanced way to play, ideal for day trading and high-frequency trading if you have the nerve.  It assesses no transaction fees at all as you trade, and it allows more sophisticated techniques that Coinbase doesn’t enable, such as limit orders letting you set stop-losses (sell when the price falls to a particular level) and buy limits letting you trigger a “buy” only when a coin hits the price you specified.

The platform exacts an ample vig, however, once you take cash out of your GDAX account, whether it’s an exponential windfall or the remaining shreds of cash from a bitcoin beating. GDX charges a fee of 25 to 100 basis points, or 0.25% to 1.0% of the total sum you withdraw. In some cases the fees run even higher than that.

Plus, on Coinbase and GDAX the only way to bet on bitcoin et al is to bet their prices will rise—so far, you cannot hedge that gamble by actively betting that bitcoin will actually go down in price, by selling short.  At least, you can’t do that on Coinbase and GDX and their rivals. Now, though, you can short elsewhere, via futures contracts on both CBOE and the CME

One futures contract on the CBOE involves one full bitcoin, while at the CME, one contract covers five bitcoins. Thus, the CME contract has higher leverage than the CBOE contract. The CME contract is based on the average price taken from five exchanges, while the CBOE’s contract is priced off of a single exchange, run by Gemini Trust Co. 

Those differences create gaps and fleeting, short-lived anomalies, and professional traders and their Ph.D. mathematicians will be brainstorming this one, figuring out new algorithms aimed at exploiting those spreads between the two markets.  It is unclear how much bitcoin prices could gyrate around as a result of such computerized trading.

As you read this—most of you didn’t get down this far, and for those of you who did—I’d bet you some holders of real bitcoins are slowly converting a portion of them into dollars and investing the cash in new bitcoin futures on CBOE and the CME.  In some ways that may be the ultimate sign of how bitcoin gradually will get co-opted by Wall Street and superseded by trading in derivatives-of-derivatives based on bitcoin prices.

Hold on to your hats for this ride.

Next: A new way to predict bitcoin’s pricing patterns.

Gold Jumps To Key Technical Level As VIX Collapses

Traders are dumping equity protection and buting chaos protection as VIX tumbles near the year"s lows and Gold jumps back towards its 100-day moving average - and its highest level in a month.

 

Gold is up 9 of the last 10 days, at its highest since early Dec and testing its 100DMA... ($1292)

 

And while Bitcoin has stabilized, the divergence between the alt-currencies is closing...

Is This The Most Important Chart In The World?

"This is possibly the most important chart in the world..." As 13D Global Strategy and Research noted:

A breach of the top-line of the channel could signal a major reversal in the multi-decade downtrend in UST bond yields."

So the question is - is an event engineered to slam rates lower, in order to avoid interest expense soaring beyond US government capabilities; or is the event a reaction to over-exuberant bubble-fueled positioning in risk assets?

What is perhaps most worrisome for that channel breakout is that speculative traders have almost never been more net long the long-bond...

In 1998, 30Y yields jumped from under 5% to almost 7% in the next year.

In 2004, 30Y yields extended their drop after peak positioning (from 5% yield to 4%) in the next 3 months.

In July 2016, 30Y yields spiked from 2% to well over 3% in the next 4 months.

So what will happen this time?

Even after one of the worst 3-day steepenings of the yield curve last week, specs failed to cover...

And today bonds are bid further.

Venezuelans Abandon Bolivar - Merchants Insist On Being Paid In Dollars

Venezuelans are struggling to carry out basic transactions like purchasing food as the value of their currency, the bolivar, has plunged against the dollar amid the country’s worsening economic collapse.

According to Reuters, over the past year, Venezuela’s currency weakened 97.5% against the greenback: Put another way, $1,000 of local currency purchased in early January would be worth just $25 now. The annual inflation rate in 2017 could reach $2,000. Though at least one other estimate puts the real rate of inflation closer to 2,800%.

Of course, President Maduro has blamed websites like DolarToday – which publishes the closest thing to an official black-market rate by surveying clandestine exchanges in Caracas and other cities – for the spread of black-market activity, part of a conspiracy organized by Washington and his local political opponents to force him from power.

One of the unintended consequences of the bolivar’s collapse has been a social experiment of sorts in the use of digital currencies: As we noted back in October, as many as 100,000 people are now mining digital currencies in Venezuela, defying a government crackdown that’s seen many of them thrown in prison.

But for those who can’t or haven’t resorted to transacting in bitcoin, an increasingly scarce supply of dollars is creating intractable problems for millions of Venezuelans, Reuters reported.

For many, simple purchases like a new tire for their car are simply out of reach.

There was no way Jose Ramon Garcia, a food transporter in Venezuela, could afford new tires for his van at $350 each.

 

Whether he opted to pay in U.S. currency or in the devalued local bolivar currency at the equivalent black market price, Garcia would have had to save up for years.

 

Though used to expensive repairs, this one was too much and put him out of business. "Repairs cost an arm and a leg in Venezuela," said the now-unemployed 42-year-old Garcia, who has a wife and two children to support in the southern city of Guayana.

 

"There’s no point keeping bolivars."

A practice that was initially adopted by shops catering to wealthy and middle-class Venezuelans is spreading to merchants selling everything from foodstuffs to medicine. Food sellers, dental and medical clinics, and others are starting to charge in dollars or their black-market equivalent - putting many basic goods and services out of reach for a growing number of Venezuelans.

"I can’t think in bolivars anymore, because you have to give a different price every hour,” said Yoselin Aguirre, 27, who makes and sells jewelry in the Paraguana peninsula and has recently pegged prices to the dollar. “To survive, you have to dollarize."

 

The socialist government of the late president Hugo Chavez in 2003 brought in the strict controls in order to curb capital flight, as the wealthy sought to move money out of Venezuela after a coup attempt and major oil strike the previous year.

 

Oil revenue was initially able to bolster artificial exchange rates, though the black market grew and now is becoming unmanageable for the government.

Still, President Nicolas Maduro has maintained his predecessor, the late Hugo Chavez’s policies on capital controls, even as the spread between the official rate - some 10 bolivars per dollar - and the black market rate - of around 110,000 per dollar - is now huge.

The trend is angering Venezuelans who don’t have access to dollars. As Reuters pointed out, it also dampened Christmas celebrations this year due to a shortage of pine trees, toys, meat, chicken, cornmeal…the list goes on.

While sellers see a shift to hard currency as necessary, buyers sometimes blame them for speculating.

 

Rafael Vetencourt, 55, a steel worker in Ciudad Guayana, needed a prostate operation priced at $250.

 

“We don’t earn in dollars. It’s abusive to charge in dollars!” said Vetencourt, who had to decimate his savings to pay for the surgery.

Most Venezuelans, earning just $5 a month at the black-market rate, are nowhere near being able to save hard currency.

"How do I do it? I earn in bolivars and have no way to buy foreign currency," said Cristina Centeno, a 31-year-old teacher who, like many, was seeking remote work online before Christmas in order to bring in some hard currency.

While many have begun mining bitcoin, purchasing the digital currency is also out of reach for many, since they would need to first convert their bolivars into dollars.

As the bolivar has continued to plummet, some communities have begun experimenting with alternative currencies that derive their value from a limited supply. In one Caracas neighborhood, several shops have started accepting the panal, one such alternative currency.

With the supply of dollars drying up since Maduro announced that the state-owned oil company would no longer settle payments for oil exports in greenbacks, it’s likely only a matter of time before more of these alternative paper currencies start springing up.

That is, unless the price of oil – which broke above $60 today – makes a surprising and altogether unlikely comeback.

A Lambo For Under 10 Bitcoin: You Can Now Buy Supercars For Cryptos

Listening to the CNBC today one would be left with the impression that once having purchased bitcoin, there is nothing one can do with it (except check its price 30 times per minute of course). Which, of course, is dead wrong: one can buy pretty much anything that Overstock (among increasingly more online retailers) has to offer, one can purchase a home not only in the US but also the UK, and as of a week ago, one could pay an Albany car dealer the digital currency and drive off with any vehicle off the lot.

And now, rushing to capitalize on the countless brand new crypto millionaires minted in the past year, is Moonlambos, an online dealership for supercars with offices in Santa Monica and London which dubs itself "the premier destination for exotic supercars that deals exclusively in cryptocurrency."

The innovative dealership catering exclusively to bitcoin buyers, sells Aston Martins, Ferraris, Lamborghinis, Mclarens, Porsches and other coupes and convertibles, with a price rangins from 5 bitcoins for a Mercedes 230 SL Pagoda, to a 9 bitcoin Lamborghini Gallardo. to 20 bitcoin for a Ferrari 488, all the way to a 44 bitcoin Lamborghini Aventador LP 750-4 Superveloce.

What some may find most fascinating, however, is the constantly changing price in bitcoin for any one car - a result of the most volatile underlying asset currently in circulation (with the possible exception of electricity).

However, the real news here is not that there is now an exclusive online outlet aimed at bitcoin millionaires: it is that - as we have mused previously - there are so few of them when one considers that the population of crypto nouveau (ultra) riche has exploded in recent months, and is so very eager to spend its newfound wealth. It is almost as if, due to ideological barriers or other irrational considerations, retailers - who are all hurting in Amazon"s shadow - think they are too good to accept a new currency which millions would be delighted to spend, and would rather file for bankruptcy than accept the likes of bitcoin, ether and ripple.

Oh, and for those who say that cryptos are too volatile for any merchant to accept, here is a word you can ask Alexa to look up: "hedging."

The #BitcoinBreakdown: Before You Buy, More Caveats

First Appearing on HedgeAccordingly.com

Fifth in a series.  Part 1, Part 2, Part 3, Part 4, Part 5

By @sellputs

Let us regard the wonders of technology & innovation: Suddenly, we now have multiple easy ways to lose money betting on bitcoin. Giddyup!

With incredible speed, from your laptop or even your smartphone and without even thinking about it, you can open up a new account, inject real U.S. dollars into it, use that to buy a teensy piece of your favorite cryptocurrency, and begin surfing the bitcoin wave. Or begin getting crushed by that wave, depending on your timing, smarts and luck.

This occurs to me on a recent Thursday night, as I visit an old friend in Brooklyn and bring along Big Guy, a college pal who stands 6-feet-4 (“and a half,” he feels it necessary to point out).  The Big Guy and I had been hanging out at the famed Waverly Inn in the West Village in Manhattan, where I had the vodka martini, marked down on special: just $28, down from $30 list.

This next point has nothing to do with bitcoin, okay? I gotta say: Anybody who regularly spends 30 bucks on a martini is a P.T. Barnum-scale sucker.  What a waste of money.  Waste it, instead, on something really irresponsible. . . . like bitcoin.

Anyway, we’re standing around a table in my friend’s apartment in Brooklyn, and Big Guy is taking swigs from a bottle of Blue Point Winter Ale and staring into the screen of his smartphone, as if mesmerized by some new videogame. Instead, he is tracking his own cryptocurrency trades.

“Uh oh, Ethereum is flash-crashing,” he says. He had gotten got into Ethereum (ETH), a newer “altcoin” alternative to bitcoin, a few days earlier at $620, watching it rise to $740 in a day or two and holding on, only to see it crash instantly down to $650 just this moment.  Should he sell?

Guy resists the urge and doubles up on his bet, adding to his ETH holdings (as well as Litecoin, LTC) “to lower my cost basis and scalp the bounce-back from the flash crash,” as he describes it later.  By 3 a.m. that same night, Ethereum had re-inflated to rise back up even higher, to $850. Whew.

Big Guy had put $10,000 into a new account he opened at Coinbase, a digital exchange akin to the New York Stock Exchange (except it is unregulated and carries no particular guarantees, far as I can see).  He had bet his stake all on bitcoin, pulling out after a 53% gain in a week, after commissions.

Guy opened up a second account, this one on GDAX, a 24/7, online platform in the rather unregulated, Wild West of crypto (it is owned by Coinbase). GDAX offers FDIC guarantees up to $250,000 (what happens to your money as a result of your trades is on you). On GDAX, he bet his bitcoin profits on the two lesser lights, ETH and LTC.  He says he can take profits out of Litecoin in only minutes, while transferring money out of bitcoin would take several hours. (LTC is lighter-traded than the binge-fueled bitcoin.)

GDAX charges him 25 basis points (0.25% of the total value of the trade) for “taking markets,” that is, buying coin shares on offer, and no fee at all for “making markets,” or selling on the platform.  Coinbase’s buying fee, at 1.5%, is fives times as much that of GDAX. A few days after he sat out the mini-flash-crash, Guy transfers some LTC from his GDAX account to another coin platform, Binance, where he wants to sell LTC and spread the proceeds among various coins trading below $5 apiece.

And a day or two after that, Big Guy is beaten down: He was up 75% and lost most of it all when he panicked and fled ETH and LTC at the bottom of a later plunge. Too fidgety. Easy come, easy go. He’s back in Ripple, though, and it has been “outperforming.”

Yes, the Big Guy admits, he does worry that in a flash crash or especially high trading volume, he may not be able to minimize his losses and take out cash.  In cryptocurrency trading, the bigger question than whether to sell may be: Can you sell? 

Coinbase limits how much money you can pull out of your account after you sell your crypto and convert the proceeds back to U.S dollars or whichever “real” currency you desire. So, in the event of a crash or some sudden, sharp de-valuation in bitcoins, your ability to act fast and sell your coins might be hampered, and selling your coins could be all but impossible.

Think of it as a football packed with cheering buyers, most of them unaware that there’s only one exit—and it is the size of a doggy door.  Buyer beware.  Puppies, too.

Next up: The high fees for buying bitcoin.

This Cryptocurrency Mining Rig Can Also Heat Your Home

The intensifying energy consumption of the bitcoin network is becoming a concern for environmentalists who have begun to question whether digital currencies should be considered a socially responsible investment. As we pointed out last month, Digiconomist’s Bitcoin Energy Consumption Index stood at 29.05TWh.

That’s the equivalent of 0.13% of total global electricity consumption. While that may not sound like a lot, it means Bitcoin mining is now using more electricity than 159 individual countries, including Ireland and Nigeria.

As the share of the world’s electricity consumed by miners of bitcoin and other cryptocurrencies rises, miners will likely face pressure – both economic and social – to find efficiencies wherever they can.

In anticipation of this trend, a crypto startup called Comino is marketing a mining rig that also functions as a heater.

Back in October, the Next Web published a report about the company and their new product, the Comino N1. In launching the product – priced at an affordable $5,000 per rig – the company is hoping t make it easier for novices and those who have only a glancing familiarity with crypto technology to start mining coin.

A reporter from The Next Web tested out the miner – and found that it both the heating and mining functions worked well. He even used it to heat his room during the winter.

After running the crypto-heater for a little over a month now, we are finally ready to share our experience with the device...

 

Once we installed the mining rig in our office, which practically included connecting the crypto-heater to the internet via the web-based dashboard system developed by Comino, it automatically created a wallet and began mining Ethereum. As easy as this.

 

Of course, if you already have a wallet, you still have the option to connect it to the dashboard. You can also connect any other mining rig to the Comino dashboard, in case you want to follow all of your mining efforts in one place.

 

Among other things, the online dashboard shows a number of statistics the Comino developers had programmed to monitor, including the current and average hashrate at which the miner is solving cryptographic puzzles, the current and average temperature at which it operates, as well as the unpaid balance of Ethereum you’ve accumulated. It also shows stats for the temperature of each separate GPU.

...

Throughout this one-month trial, the only issue I experienced with the miner was that – for some reason – its ambient temperature sensor inaccurately picked up the temperature of the GPUs inside (which had just taken a break from mining); this prevented the device from booting up again, until it cooled down a little.

...

And in case you were wondering about how reliable the Comino was as a heater : it certainly kept the temperature high enough to save some energy on heating bills, but not enough to make you turn on the air conditioner. Which is exactly what you want from a a machine that was built to bank on crypto.

The Comino N1 maintains an average hashrate of about 200 MH/s, and an average temperature of approximately 60 Celcius – about 140 degrees Farenheight.

Since installing the miner on Nov. 16, TNW reported that it has so far transferred a total of 1.2 ether to the company’s designated wallet. Since Ethereum is currently trading around $700 a coin, the miner would pay for itself in eight months, assuming the value of Ethereum doesn’t crash, or that an influx of new mining capacity decreases the miner’s efficiency.

Now That Xmas Is Over - Mapping The US States With The Most People In Debt

With Americans left with only one option - indentured servitude - to maintain any semblance of normal quality of life - especially at Christmas - we thought it worthwhile considering which US States have the most people in debt.

Using data from anonymous consumer-level records from a major credit bureau, the Urban Institute was able to release figures on debt levels across America.

Statista"s Niall McCarthy points out that nationwide, 33 percent of people have debt that has gone into collections which means they have unpaid bills creditors have either closed or are trying to collect.

You will find more statistics at Statista

Between states, the share of people in debt fluctuates considerably and the lowest levels were recorded in Minnesota (17 percent), South Dakota (18 percent) and North Dakota (19 percent).

Louisiana is at the opposite end of the scale with nearly half its residents in debt with collections. Last year, 46 percent of people living in Louisiana were in debt and the median amount owed was $1,486.

The majority of U.S. states with high levels of debt are concentrated in the south. Texas is second with 44 percent of its residents in debt and South Carolina comes third with 43 percent.

3-Month Bills Turmoil Ahead Of March Debt Ceiling Showdown: Bid To Cover Plunges To 8 Year Lows

Despite the GOP"s tax reform victory, over the past few weeks, Congress once again punted on a formal decision how to keep government funded and what to do with America"s debt ceiling and as a result US legislators simply kicked the can on the agreement of raising the nation’s borrowing limit for another few months. However, with the Treasury expected to breach the ceiling as soon as late March, today"s $45 billion 3-Month Bill auction was closely watched as it serves as a fresh gauge of investor anxiety about the ongoing impasse.

As a reminder, in the first week of December, the Treasury deployed a series of extraordinary measures to stay under the debt ceiling cap since it was reinstated on December 8. But T-bill investors, in both the primary and secondary market,  remain especially wary given questions over what’s known as the debt ceiling’s drop-dead date. Today"s Bills mature March 29, within the Congressional Budget Office’s late-March to early-April window for when Treasury will exhaust the extra capacity it’s using to keep below the $20.5 trillion limit.

Quoted by Bloomberg, Justin Mandeville of Inveso said that the late-December bill auctions “speak volumes to investors being cautious as to when the potential drop-dead date will be,” adding that “we saw it back in July when we had concerns about the October bills.”

And sure enough, having just concluded, the 3M bill was especially ugly, pricing at 1.445%, or a 3bps tail to the 1.415% When Issued, with Indirect Buyers fleeing, and taking down just 20.1% of the finally allotment, down from 30.8% in the last 6 auctions, while Primary Dealers had no choice but to step up aggressively from 61.9% in the 6MMA, to 74% as Direct interest also fizzled from 7.3% in the last 6 auctions to just 5.9%. But nowhere was the revulsion quite so visible as in the bid to cover, which plunged from 3.04 in the past 6 auctions to just 2.71 on Dec. 26: this was the lowest Bid to Cover since January 2009.

As Bloomberg reminds us, at the government’s July 24 auction, the US Treasury sold $39 billion of three-month bills at 1.18 percent, then the highest rate since 2008. The bid to cover for that particular sale also matched the lowest for the maturity since 2009. Congress wound up passing a three-month debt-ceiling suspension Sept. 8, weeks before Treasury Secretary Steven Mnuchin estimated the government would run out of cash.

However, revulsion to paper that could be impacted by the debt ceiling was not just in the primary market: it also hit the secondary Bill market, as the previously noted kink that has emerged in the bill curve between securities maturing in late March and those in early April, has gotten even more pronounced. For several days after the Dec. 18 auction of bills maturing March 22, the rate on these securities was higher than debt maturing a week later. Since then, the rate on securities expiring March 29 has climbed to 1.44%, exceeding those on bills due the following week by nearly 10 bps as shown in the chart below.

And so, looking at the debt ceiling fight that refuses to go away despite the can being kicked every few months, while there is still a chance the issue could be resolved without going down to the wire, it is unlikely: while lawmakers hammered out a spending bill this week to keep the government open through Jan. 19, they didn’t include a provision to lift or suspend the debt ceiling. The longer a resolution remains at the bottom of Congress’s to-do list, the larger the T-bill dislocations could grow. Sooner or later, the bond market - which has been crying wolf on a technical US default - will eventually be right.

Bitcoin Bounces Back Again - Beginning Of The End... Or Bump In The Road?

A crypto-Christmas miracle? Bitcoin is now unchanged from the pre-Friday bloodbath, having scrambled higher for the last 24-48 hours as much of the world enjoyed a day off.

 

The entire crypto space is rallying once again today but the question remains, is this another dead cat bounce on the way to "zero" or is Tom Lee, John McAfee, and Mike Novgratz right, this is a bump in the road to $40k and beyond...

 

As The Economic Collapse"s Michael Snyder notes, Bitcoin, Ethereum, Litecoin and other major cryptocurrencies have been on a wild ride this year, and over the past 10 days the volatility that we have witnessed in the marketplace has been absolutely breathtaking.  On December 17th, Bitcoin shot above $19,800 for a brief moment before it started plummeting dramatically.  At one point the price of Bitcoin dipped below $11,000, which represented close to a 45 percent decline from the record high that it had hit just five days earlier.  And Bitcoin was far from alone – virtually every other major cryptocurrency was also down between 25 and 50 percent during that five day period.  But now almost all of them are bouncing back, and at this moment the price of Bitcoin is $14,219.99.

So where do things go from here?

There are many that believe that in the short-term the price of Bitcoin will fall back toward the actual cost of production.  It has been estimated that the cost to produce a new Bitcoin is currently between three and four thousand dollars, and with the price of Bitcoin so high there is a tremendous incentive for Bitcoin miners to produce as many as possible right now.

But there are others that are convinced that Bitcoin could eventually go to zero…

Morgan Stanley analyst James Faucette and his team sent a research note to clients a few days ago suggesting that the real value of bitcoin might be … $0.

 

That’s zero dollars. (Bitcoin stood at around $14,400 at the time of writing.)

To back up his assessment, Faucette made the following arguments…

• Can Bitcoin be valued like a currency? No. There is no interest rate associated with Bitcoin.


• Like digital gold? Maybe. Does not have any intrinsic use like gold has in electronics or jewelry. But investors appear to be ascribing some value to it.


• Is it a payment network? Yes but it is tough to scale and does not charge a transaction fee.

Faucette also pointed out that the number of online retailers that accept Bitcoin is actually falling.  Five of the top 500 e-commerce merchants accepted Bitcoin during the first quarter of 2016, but now only three still do.

In order for Bitcoin to have a sustainable long-term future, it must become a real currency that is widely used, but many would argue that it is already being surpassed by better and newer options.  In fact, one top cryptocurrency expert recent stated that the old Bitcoin network “is as good as unusable”…

Emil Oldenburg, the co-founder of Bitcoin.com – one of the world’s largest sites devoted to the cryptocurrency – recently called the cryptocurrency the “most risky investment you can make,” after he switched to bitcoin cash, which he considers to be the future.

 

"The old bitcoin network is as good as unusable,” said in an interview with Swedish tech site Breakit.

That certainly doesn’t sound promising, but so far that hasn’t stopped the price of Bitcoin from heading into the stratosphere. 

So far in 2017 the price of Bitcoin has risen more than 1,400%, and that number is extremely impressive no matter how you look at it.

Of course virtually all of that “digital wealth” could disappear in just a matter of days during a major crash.  The CEO of Patriarch Equity, Eric Schiffer, believers that Bitcoin investments are eventually heading for “a thermonuclear death”…

“I think bitcoin is a ‘tower of death,’” Schiffer says. “It is going to result in the imminent death of your investment – a thermonuclear death.

 

“Right now we are looking at a financial bubble that is bigger than the tulip craze and I believe that we are headed for a bitcoin crash that will supersede any financial worries of the 21st century,” he added. “People are going to be shocked when they try to liquify their bitcoins.”

Schiffer might be right.

After all, Bitcoin and other cryptocurrencies don’t have any intrinsic value.  Essentially, they are nothing more than digital creations that only have value because people think they have value.

But those that got in back at the beginning and have cashed out now have made enormous amounts of money, and nobody can deny that.

With every form of “investing”, they are winners and there are losers.  Unfortunately, those that chose to jump in at the height of the madness could end up losing very big.  The following comes from Wolf Richter…

Betting on cryptos is a peculiar form of online gambling on a global scale that requires a consensus among participants that they only buy, and that you cannot ever cash out, and now that some folks are trying to cash out, the bets for everyone else are souring. The same dynamics that pushed prices up have reversed and are causing them to crash.

But what if the naysayers are wrong?

What if this current “Bitcoin crash” is just a bump in the road on the way to $40,000?

Years ago, the price of Bitcoin crashed 75 percent at one point.  What would have happened if the early investors had all bailed out then instead of holding on until now?

Those that sold Bitcoin at $12,000 might end up really kicking themselves if the price of Bitcoin does hit $40,000 by the end of next year, and that is exactly what some top experts are projecting…

Billionaire investors and highly respected analysts including hedge fund investor Mike Novogratz, prominent financial analyst Max Keiser, and Fundstrat’s Tom Lee stated that the price of bitcoin will likely surpass the $40,000 margin by the end of 2018, and achieve a $1 trillion market cap.

And let us not forget that big names such as John McAfee and James Altucher are predicting that the price of Bitcoin will eventually reach one million dollars.

To me, this is absolutely fascinating.  On the one side, you have financial experts that believe that Bitcoin is going to zero, and on the other side you have financial experts that are projecting that someday a single Bitcoin will be worth one million dollars.

I don’t know which side will ultimately prevail, but it will be a lot of fun to watch how everything plays out.

*  *  *

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.