Bitcoin Gets the Gold Treatment- Futures Roll Over FOMO Crowd

We Told You First- Bitcoin is Going to Be made To Heel per its Banking - Government Overlords. 

Written by Soren K., Bon Scott, and Fay Dress for the Soren K.Group  

There is no Bretton Woods agreement to repeal here. Therefore, just control the upstart before if gains traction is all that needs to be done. And it is being done right now. Bitcoin as a potential alternative  to sovereign fiat is being strangled in the crib right now via futures listing in the US and banning in the Asian markets. We were warned. Yes it will continue to go up and down i nmassive vilatile moves, but now longs getting in using futures will lose money because of the volatility adn  the leverage they cannot afford. This is a tax on the ignorant common man feeling the anxiety of missing out unfolding in real time.

From a Previous Post on How Bitcoin will be made to "Heel"

 Technology that removes the banks" clearing risk while keeping the client captive in their system. Technology is disruptive, yes. But market structure, regulatory agencies , and marketers that lobby and shill for the Banks and Government will win. Technology has no protective moat by nature. It is that quality which will allow Bitcoin to be owned by the powers that be. 

As the cash in India is being replaced by Visa cards, so shall the Bitcoins be replaced by bank or nation state branded versions of themselves. [EDIT- Futures Do Nicely as well- Soren k .] Are you ready to exchange more  freedom for convenience?

Bloomberg today saw no possible correlation between trading desks opening up to arb bitcoin futures  and its drop off a cliff.  

Bitcoin plunged as much as 21 percent, briefly dropping below $13,000 in overnight trading. There seems to have been no particular catalyst for the selloff, with extreme volatility remaining a hallmark of the digital token. By 5:40 a.m. Eastern Time bitcoin had recovered some of losses to trade at $14,539.60. In a sign that cryptocurrencies are becoming more mainstream, yesterday we learned that Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies.

In other words, buy the dip because it is becoming mainstream. Pay no attention to the prop arbitrage desk that will destroy futures longs even  while the bank clients are hedging their BTC longs through them. You know, like when miners hedge production through bullion banks? Mainstream is code to a flow trader (i.e. one who has no original idea in his head and front runs client flow and hammer smaller participants) as for "there  is enough stupid money in it for us to arb the shit out of it. After we do that, we will destroy the public longs 

We find this fascinating as headlines like:

• “Gold Rallies $50.00: ‘It is overbought’ says analyst” In unrelated news: Russia declares war on US 

or

• “Gold plummets $3.00 as people realize its a worthless pet rock, may cause cancer” 

pervade the financial MSM whose sponsors have nothing to do with gold by and large. Enter BTC which has not yet cemented its potential in the public mind as a replacement for fiat, and must be strangled in the crib. 

Incensed? You Bet We Are

We were compelled (incensed) to bang this post out despite being on vacation. Written from the road hastily but accurately. Seriously. How many times can you be warned?

Here are some links to previous posts on the concepts of market structure as tool of control, an interview with Vince Lanci actually saying “Sell Bitcoin futures and buy Gold on a dollar for dollar basis” last week in an interview with Daniela Cambone when asked about the relationship between the two.

Some articles on bitcoin"s market structure and as a futures product .

• Why Bitcoin Can"t Replace Gold - Economic Freedom - Marketslant

Futures as a form of regulation in Bitcoin

 Bitcoin will be co-opted by Banks

We have said this several times in the past. Bitcoin is not your savior from Banking Oligarchs. It is electronic. It is not physical and therefore can be co-opted by the banks themselves. Banks are not going to give up their franchises. If they cannot beat Bitcoin, they will create their own. The CME has embraced Blockchain technology. Banks are starting their own crypto currencies. Believe us when we say, either the government, or the Banking industry will shut it down. If they cannot, then they will buy or control it.  

This is a war between Mice and Cats. Every time the Mice (people) find a new way to avoid the Cats (Banks) monopolistic ways, the cats do something to throttle the Mice. Sometimes it is by developing their own Tech. Sometimes it is by using the government regulatory agencies to help them. Sometimes it is via a fear campaign. 

Usually, it is all three. Banks are developing their own proprietary Blockchain products. Governments are restricting ways to use Bitcoin. And finally it is done under the cover of "stop the crime"

•  Interview: If You Don’t Own Bitcoin and Hold Gold, Read This


• Recco Read: Doug Casey Measures Bitcoin’s Moneyness on the Gold Scale


• A Real Gold Guy"s View Of Crypto, Bitcoin, and Blockchain

and other Soren K. Posts on Bitcoin HERE

As stated in several posts by the Soren K. Group, and Vince, who is a bonafide rockstar in areas governing market structure, subjective probability, and commodity investment and trading in general. [Edit-And the only one of us crazy enough to put his real name on these articles.-Fay Dress]

Bitcoin lies at the intersection of all 3 areas. In the aggregate we said the following:

• Bitcoin futures will be sold to you as your only safe  reliable regulated way to get bitcoin. 

This means if you buy bitcoin futures, you are buying a cardboard cutout of the product. You are buying a tracking stock that settles in cash and MUST, when all is said and done trade at a lower  less than “physical” bitcoin.

You traded freedom for convenience again. Good Fido!  Here"s a lesson from people who understand this as it happened to Gold. 

• Ways to demoralize, control, or co-opt a grass roots movement into a product that threatens sovereign “debt- money”and restore some economic freedom. 

If you can’t control it outside your nation’s borders bit there is pent up demand in your nation, you can make it illegal and/ or implement draconian measures to impede its use on your country. This is the China way.

News flash! China is a newbie when it comes to manipulating its people. And frankly it doesn’t have to be subtle as their people are under no pretense of being in a democracy.

But in “democratic” countries one must protect its citizens from evil doers, give them “free markets” and get the public to swap freedom for convenience. Manipulation , Manufactured consent, and controlled opposition are the tools. 

So guys like Jamie Dimon, talking sock puppets who in an attempt to protect government fiat vilify Bitcoin one day; and who apparently didn’t get the note that the tactic of demonizing bitcoin had been replaced by “co-opting” it flips his script in a week. JPMORGAN  promptly after  being reminded there will be a futures market and money to be made; they actually imply it is a store of value, a new gold.

Are you serious? When bitcoin does become a store of value, it will be as a result of its potential for price appreciation  being killed. Price appreciation , by the way, that was a reflection of what would happen to gold if they took their foot off its throat. Bitcoin needed to be controlled; for it showed the vulnerability to government issues fiat as trustworthy. Is it not obvious? Where corporate and government interests can intersect, they do- and the public gets killed at the crossroads. 

1- increase accessibility  and stoke public grass roots movement  retail demand 

2- eventually trade at a discount to Bitcoin itself because it is settled in cash- a bank arbitrageurs dream! 

3- This de-facto regulation of bitcoin combined with tail-wagging dog price transparency will make the product “come to Daddy”.. daddy being the government which has no interest in Btc succeeding in its original form, it’s other daddy being the banks who will make a sitload of money raving “physical” bitcoin to cash settled futures, and destroy its status as money without borders.. at least in the USA. 

We circled back to Vince for a comment:

If you bought bitcoin futures as an investment, you are going to get fleeced. Or better said, your profits, if they come, will have a “little off the top” when you cash in. This is the expense of swapping convenience , “safety” and taxation, for OTC “exchange” counter party risk. 

He continues that it’s not bad if you know what you are getting into:

This is not a negative on the product. It does give you transparent access to a market with “wild west” issues. You may very well make money on a 5 year hold, but not as much as if there were no futures, not as much as owning BTC itself.

On investing vs trading:

Bitcoin is now a trading vehicle. It will be relentlessly arbed by bank prop traders, which is all fair to me. But it is the selling of it to a public that is woefully under capitalized, undereducated, and in search of a financial messiah to solve their fear of missing out anxiety. 

So what price should futures trade at compared to spot?

I don’t know. (Laughs) And to just say that in this age is itself a “no-no”. But anyone who knows and is in the markets will not tell you unless they are talking their position. What I can offer is the differential will become a product of cost of production, cost of storage, opportunity cost of money, and taxation. plus anything I haven"t thought of yet

He goes on seeming to work out the potential arb in his head as we chat.

I have to wonder: if bitcoin is a medium of exchange and in spot form may be difficult to tax properly, but profits on BTC futures are taxed at capital gains.. couldn’t that imply a discount in some instances as high as 20%? I don’t know, but those using BTC to dodge taxes in expatriating money criminally would certainly have that as a possible differential. But how that arb works, I haven’t figured yet. 

Look, at its basic level, the futures settle cash, they are not fungible with BTC, they cannot be. There is no above ground fungible unified supply in exchange vaults yet. Therefore it must trade at a discount to the real thing. The other factors that need to be considered are cost of mining and storage in energy terms. Maybe there is an arb between BYC, Futures and electricity.. it certainly is going to be a huge profit center for smart proposals desks like Goldman. Don’t short Goldman in the year after they get their arb up and running. It will be free money to them.

Come to think of it, if you are not in a position to sell BTC futures and buy Gold as a risk arb like i recently said in a Kitco intrview, just buy GS stock. They will certainty profit being long, short and sideways in Bitcoin futures. Don"t dig for gold, but the company that sells the shovels here.

We told you it would happen. Bitcoin in futures  form is now getting a taste of what it is to be a pariah wrapped in a pretty bow to the public while being demonized by the govt implicitly. 

This is market structure sponsored by a corporatised government that will do any thing to protect its most precious franchise its debt as money schematic that has hi jacked the fiscal lifeblood of our financial system with a heroin addicted contaminant. 

Will botcoin (not a typo- the algos are coming)rally again? Of course it will. But now we can all watch in real time as over the nextb5 Years Bitcoin “physical” will succumb to bitcoin futures due to its higher volume and more liquid markets. It will undermine the pseudo crypto exchanges which do actually need regulation. 

But make no mistake about : every broker and bank will be pitching cryptos now to you the public. And it is a tax on you. Bigger forces are now being put in place to make bitcoin less volatile, lower in price, and a sleepier asset. Hence it will become in their pitch “a store of value”. This is a joke. 

Remember all the gold nuts complaining that paper gold isn’t physical gold? Well he’d we go again. 

 

 

Forward Guidance

 

Government shutdown avoided, Spanish regional vote solves nothing, and bitcoin tumbles.

Staying open

Congress passed a bill to keep the U.S. government funded until Jan. 19. The bare minimum needed to avoid a shutdown, the legislation means lawmakers can head home for the holiday break, but makes for a difficult start to 2018 as a wide range of divisive fiscal and social issues have to be faced. Measures contained in the bill will allow President Donald Trump to sign the tax plan as early as today.

Catalan headache

The election in Catalonia saw separatist parties win a small majority of seats in the Barcelona assembly. The result keeps intact the uneasy status quo that’s endured since October, rather than take the Spanish region closer to independence. With ousted Regional President Carles Puigdemont still facing arrest if he returns from his self-imposed exile in Brussels, and Spanish Prime Minister Mariano Rajoy’s People Party losing almost all of its seats in the assembly, an easy way forward seems elusive. This uncertainty is being reflected in markets this morning, with Spain’s IBEX 35 Index dropping as much as 1.6 percent after the open. 

Markets ready for a holiday

Overnight, the MSCI Asia Pacific Index rose 0.3 percent, while Japan’s Topix index closed 0.2 percent higher as the avoidance of a U.S. shutdown helped lift sentiment. In Europe, the Stoxx 600 Index edged 0.1 percent lower at 5:40 a.m., with the results of the Catalan election making Spanish stocks by far the worst performer in the region. S&P 500 futures added 0.1 percent, the 10-year Treasury yield was at 2.485 percent and gold was slightly higher.

Data due

The core PCE deflator for November, the inflation gauge favored by the Federal Reserve, is due at 8:30 a.m., with consensus seeing a pickup to 1.5 percent. At the same time, personal income and spending numbers will be published, with durable goods orders for November also at 8:30. At 10:00 a.m. we get the latest reading from the University of Michigan sentiment gauge and new homes sales data. At 1:00 p.m. the Baker Hughes rig count will be the last piece of significant data in what has been a good week for oil.

 

Bank of Canada Governor Is Right To Be Worried About The Economy

Written by Peter Diekmeyer, Sprott Money News

 

 

 

Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites yesterday at the prestigious Canadian Club.

However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.

Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.”

But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

The Poloz Bubble

Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness.

Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.

Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Poloz with the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.

Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months.

Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.

More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.

 

At the household level, the BoC’s low interest rates enticed Canadian families to borrow themselves to the hilt. Businesses haven’t been that far behind.

The upshot is that total government, private sector and personal debts are now in nosebleed territory with Canada’s economy seemingly on a knife’s edge, in danger of crumbling at the first patch of rough road.

Chained to a Ponzi

Another worry is that the Poloz BoC, by broadly mirroring the Federal Reserve’s actions, has firmly lashed Canada to a US economy which could prove to be an even bigger Ponzi than its own.

America’s “everything bubble”, like Canada’s, has been stroked by a central bank that has been pushing credit growth at a rate faster than GDP growth, a textbook Ponzi scenario.

 

 

One result, as Grant Williams, co-founder of Real Vision Television, noted in a recent presentation, is that US stock prices are currently far higher than they were during the Internet and housing bubbles. “[Central bankers] keep hoping that this time is different,” Williams warned. “But ladies and gentlemen – it’s never different.”

Refusal to ring fence Canada

Another worry for Poloz to ponder, is that although the BoC has identified financial system interconnectedness as a key concern, the central bank has done little to ring fence Canada’s economy from huge global macro threats on the horizon.

That’s particularly true of the hundreds of trillions of dollars in global derivatives books, many of which are unquantifiable, as they are trading outside of traditional exchanges. This threat is particularly acute, as it was the failure of AIG, a derivatives player, to cover its bets (not the subprime mortgage and Lehman implosions as most assume) that sparked the 2008 financial crisis.

Poloz, had he been ready to condone a recession, could have encouraged broader interest rate hikes to incentivize Canadian governments, businesses and households to pay down debts, build up savings and increase overall system stability.

Similarly, instead of building up Canada’s gold reserves to cushion against potential external shocks, the supposedly-independent BoC (as noted above) gives the money it prints to the big banks and the Canadian government to help it finance raises for politicians and bureaucrats.

Government and academic elites would argue that Poloz’s actions are understandable as he has only limited powers. They cite key constraints on the central bank’s actions.

These range from the BoC’s agreement with the Department of Finance to target 2% inflation, the fact that the government has primary authority over foreign exchange purchases and by realpolitik which dictates that Canada has to follow US policies – or else.

Tied to discredited Keynesian econometrics

Others, such as James Rickards, author of The Road to Ruin, would argue that Poloz is plagued with the same “group think” problem that faces Fed Chairmen.

Almost all the top economists these days, despite obvious brilliance, remain trapped by Keynesian/econometrics educations they endured to get their graduate degrees, which left them with few ideas regarding how to generate growth other than to print more money.

Canada’s top central banker rarely deviates from his talking points. So, it’s almost impossible to know what he really thinks.

However, a base case scenario suggests that Poloz (who has considerable private sector experience from his days at BCA Research) knows full well the treacherous position in which the BoC has placed the Canadian economy.

If that’s true, it’s little wonder that he is having trouble sleeping.

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

Bank of Canada Governor Is Right To Be Worried About The Economy

Written by Peter Diekmeyer, Sprott Money News

 

 

Check out these other articles by our contributors:

Bitcoin Proves You Cannot Have Your Digital Cake and Eat it Too - Nathan McDonald

Political Pizza - Jeff Thomas

For Clues On The Economy, Follow The Money - Dave Kranzler

Eric Sprott Talks Lows in Gold, Comex Shenanigans, and Answers Your Questions (Weekly Wrap-Up, December 15, 2017)

 

How Will The Market Absorb Trillions Of US Treasury Bonds to Replace The Feds Balance Sheet Wind Down?

First, the facts:

At Powell"s Nov 28th 2017 testimony to Congress, Powell said that as the Fed allows its 4 trillion dollar balance sheet to wind down, the US Treasury would issue new bonds to the market to replace them (so, technically, US notional debt will neither increase nor decrease as a result of QE).

Recall that QE is a sterile operation (this is why we don"t have hyper-inflation).  What does that mean?  Sterile means that the US public debt will neither increase or decrease as a result of QE, and neither will the money supply.  Another way to say this is that QE is a cash neutral operation.  Where cash is pushed into the system at one point, it must be drained someplace else (in our case, the Fed offers interest to banks to store their cash at the Fed...mostly with IOER - interest on excess reserves..and all the banks have indeed been doing this).  This is also why banks are not over-excited to lend you money...they get risk free money to deposit their cash at the Fed.  QE simply took US debt off the markets balance sheet, and placed onto the Fed"s (yes, the Fed printed digital fiat currency to make this happen...but the unwind will reverse  this "money" creation).  So, the Fed bought 10yr notes with funny money..will hold them to maturity...and then when those 10yr notes mature, the US Treasury will auction new bonds into the market to repay the Fed, making the funny money disapear like magic.  This whole process together "sterilizes" the Feds money printing...but in the meatime, the market pushed that money into other assets (mostly stocks).

Here is the simplified flow of money:
Fed QE --> bond market --> stock market --> bank accounts --> Fed accounts(IOER)

Such that total dollars in circulation didn"t change much...they ended up back at the Fed (with a nice uptick in asset prices as an inbetween step).
There was a nice side effect to this...while the Fed holds a large balance sheet...the US Treasury doesn"t have to pay interest on its debt (because the Fed remits all its profits back to the Treasury...and interest income is considered profit).  When the Fed winds down its balance sheet, the Treasury will have to start paying interest on that debt again.

The interesting question is thus:  When the US Treasury tries to sell 1-2 Trillion dollars of long term debt back into the market...what happens to interest rates and the stock market?  Recall #1 that after the Trump election, 10 year interest rates moved from 1.80% to now 2.40% (expectation of Trump borrowing lots of long term money to finance his infrastructure and deregulation projects).  But that hasn"t even happend yet (analysis of the Republican tax plan cost estimates an additional 1 Trillion US long term debt).  Recall #2 that the Fed is currently holding a lot of that debt...which minimized the need to liquidate bad long positions in the post Trump bond market selloff.  US Treasury debt is "high quality" and so the market will buy it...but at what price?  This is the big question.  Will the market sell stocks to make room to buy up all this new debt (reverse QE)?  Does this cause the next stock market crash?  (hint hint - probably)

 

The piper must be paid eventualy.  However, just like in Cyprus...the banks will have a heads up...and their assets will be safe.  What will happen to yours?

Is Crypto The Only Truth?

In the nearly thirteen years that I"ve been writing Slope of Hope, perhaps the most ironic post (out of over 20,000) was one I did last January called Bitcoin"s Massive Bullish Base. The reason it"s ironic is because Slope is largely dedicated to seeking out short-selling ideas for stocks, whereas the post was about going long a cryptocurrency. Seven-hundred percent later, It turned out to be the greatest trade idea in the blog"s history, which actually doesn"t feel that great for the reason just cited.

In any case, the "bullish base" had merit (just like in the old days for stocks - - remember those?) and, in the months following the post, it"s quite evident what an explosive rally we"ve had. I"ve tinted the original "base" in green.

As cryptos continue to roar higher, and as Bitcoin itself vaults toward $10,000, the world is increasingly awash in excitement, come-ons, scholarly essays, scam artists, and everything in between. Anything that goes from one penny (2009 price) to almost ONE MILLION times that, is going to catch some attention. There aren"t many financial instruments that go from one thousand dollars to a billion dollars in value in the span of eight years. Bitcoin makes Amazon and Apple look like complete garbage investments.

Do cryptocurrencies represent the last bastion of an honest market? After all, you don"t have any central banks screwing around with them (like they do with stocks and bonds), and you don"t have meddlesome governments trying to get their grimy fingers and regulations wrapped around these instruments. It could be argued that, after eight years of absurd and grotesque intervention on so many other financial assets, Bitcoin finally represents a sliver of honest price discovery.

Personally, I"m of two separate minds when it comes to Bitcoin (which I"ll use as a catch-all with respect to cryptocurrencies, since it by far the largest and best-known). One is that, in the same sense that some celebrities are "famous for being famous", like these wastes of space.............

.......Bitcoin is getting more valuable because it"s getting more valuable. Call it the Greater Fool Theory if you like, or just plenty of free global publicity, but as the frenzy feeds on itself, more and more people are piling in, terrified of missing out on what appears to be free money.

Another part of me is thinking that Bitcoin has become the recipient of all the animal spirits that gold was SUPPOSED to inherit. It wasn"t that many years ago, particularly around 2010 and 2011, that the world was going almost as crazy for gold as they are currently going for Bitcoin. Do you remember articles like this one? They were EVERYWHERE.

Writers would speculate that gold, which almost got to $2,000/ounce in September of 2011, was on its way to $3000.........$5000............$10,000. The predictions got increasingly loony, but given the insanity going on with central bank intervention, it actually made a lot of sense that "sound money" would be the place where sensible souls were squeezed into.

As you well know,. however, just when gold mania was peaking at about $1900 per ounce, it went into an almost-any-asset-is-better bear market of its own, stumbling, fumbling, and languishing its way down to a complete lame-o loss of 35% over a period of about six years. Gold has, particularly compared to just about any other asset imaginable, completely sucked.

My declaration that it "sucked" is risk-free now, because any five-year old kid could draw the same conclusion. It would be foolhardy to say the same thing during its heydey, though, even as it was descending in 2012, 2013, etc., since gold bugs were fanatical about their rightness. It took years before someone could shamelessly roll their eyes at precious metals and get away with it, because PM types had a zealotry few religions could match. Now they have fallen into embarrassed silence. There"s only so long you can declare that change is "just around the corner".

This zealotry is present with cryptos these days. Just try to hop onto Twitter or a comments stream and bash (or even question) cryptos. You"ll be torched. So there has been, it seems, a transference of these passions from the world of precious metals to the world of cryptos, and it"s easy to see why; cryptos have made investors tons of money, where gold has let all of its believers down unless they bought it, I dunno, 1999 or something.

It"s an odd thing, though. I mean, let"s face it, gold should be intrinsically more appealing to the human spirit than a bunch of 1s and 0s. Put a stack of gold coins in front of a bunch of five years old that are playing, and put down a few sheets of paper with SHA-256 hash codes printed on them, and watch to see what the kids find more enjoyable. Gold looks pretty, it feels substantial, and it seems like.........money.

Jump back forty years, and you can witness a time when people regarded gold with the same fervor as Bitcoin.......doesn"t this chart look familiar?

If you think Bitcoin is heading for some kind of blowoff top, perhaps gold"s history can suggest what"s next. If financial history repeats itself, perhaps something like this is in store:

I"m pretty ambivalent about cryptos myself, because I"ve never bought one, and God knows even I"m not fool enough to try shorting any of them. As a chartist, just as I was impressed by Bitcoin"s bullish base, I"m likewise impressed by the breakout we"ve seen in Ethereum:

All the same, with all the mayhem surrounding this phenomenon, particularly the celebrities trying to come up with their own cryptos (my favorite: Coinye West), it sure does have all the typical attributes of a fad-based bubble. If so, the fall should be more interesting as the rise. Whether this happens or not only time can tell, but I, for one, don"t want to follow a genius like Newton on a road like the one he took four centuries ago.

Minsky, Myopia, & Why The S&P 500 Is A Bloated Corpse

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

According to Hyman Minsky, economic stability is not only inevitably followed by instability, it inevitably creates it. Complacent humans being what they are. If he’s right, and would anyone dare doubt it, we’re in for that mushroom cloud on the financial horizon. We know that because market volatility, as measured for instance by the VIX, the Chicago Board Options Exchange (CBOE)’s volatility index, is scraping the depths of the Mariana trench.

Two separate articles at Zero Hedge this weekend, one by NorthmanTrader.com and one by LPLResearch.com, address the issue: it is time to be afraid and wake up. And that is not just true for investors or traders, it’s true for ‘everyone out there’ perhaps even more. Central bank policies, QE and ultra low rates, have distorted the financial system to such an extent -ostensibly in an attempt to save it- that the depressed, compressed volatility these policies have created can only come back to life with a vengeance.

Feel free to picture zombies and/or loss of heartbeat as much as you want; it’s all true. Financial markets haven’t been functioning for years, and there have been no investors either, only gamblers and profiteers, as savers and pensioners have been drawn and quartered. Central bankers have eradicated price discovery, nobody knows what anything is really worth anymore, be it stocks, bonds, housing, gold, bitcoin, you name it.

If you make interest rates ‘magically’ disappear anyone can spend any amount of money on anything they fancy buying. And it’s not just traders and investors either. Scores of people think: look, I can buy a house, others think they can buy a bigger house, many will get into stocks and/or bonds, because prices just keep going up. Even savers and pensioners are drawn into the central bank Ponzi, often in an effort to make up for what they lose when their accumulated wealth no longer pays them any returns. Shoeshine boys are dishing out market tips.

Crypto may or may not be a new tulip, but many Silicon Valley start-ups -increasingly funded by crypto ICO’s- certainly are. There’s so much money sloshing around nobody can tell, or even cares, whether they are actually worth a penny. It’s all based on gossip multiplied by the idea that they will be smart enough to get out in time in case things go awry.

People mistakenly think that a market’s heartbeat can be found in for instance rising stock prices, the Dow, the S&P. But that’s simply not true. The S&P is a bloated corpse increasingly filling up with gases that will eventually cause it to explode, with guts and blood and body parts and fluids flying all around.

The US stock market’s heartbeat manifests itself in volatility, and the overall economy’s heartbeat in interest rates. Rising and falling volatility and interest rates is how we know whether a market is in good health, or even alive at all. They are its vital signs.

That follows straight from Minsky. Ultra-low rates and ultra-low volatility, especially if they last for a longer period of time, are signs of trouble. The markets the central banks’ $20+ trillion QE and ZIRP have created are bloated corpses that no longer have a heartbeat. They are zombies. But markets, unlike natural bodies, won’t die, they can’t. They will instead rise from their graves and take over Wall Street, the City, and then everyone else’s street.

Bernanke, Yellen, Draghi and Kuroda are sorcerer’s apprentices and Dr. Frankensteins, who have created walking dead monsters they have no control over. But the monsters won’t turn on them personally; that’s the tragedy here as much as it is the reason why they have worked their sorcery. They themselves won’t go bankrupt, other will. No skin in the game.

Enough with the metaphors. First, here’s NorthmanTrader:

Flatliners

In the movie Flatliners aspiring medical doctors tried to unlock the mysteries of death by, well, killing themselves. It was meant to be a controlled death of course, to flat line on the heart rate monitor for a few minutes to find out what wonders where to be found “on the other side” only to then return safe & sound thanks to medical intervention. Well, they soon found out the other side wasn’t everything it was cracked up to be and the main character soon got regular beatings as the sins of his past came back to haunt him.

In my view markets find themselves in a very similar script. The promise of investor nirvana where the pains of real life no longer matter. If you only pay attention to the record highs headlines it all looks rather fantastical these days. [..] any trader staring at the tape knows that we find ourselves in the most compressed price environment in history. This is not normal, there’s no heartbeat:

As I’m writing this I’m fully aware I may be viewed as the bear who cried wolf. After all I’ve been outlining structural risk factors for a while and markets have moved past my technical risk zones of 2450-2500 and most recently 2530. That’s what bubbles do. They blow past anyone’s expectations, they make believers of the unbelievers, make bears look like idiots and the most reckless look like geniuses. But an extreme market that only becomes more extreme is not any less extreme, it is just more extreme. As no risk is apparent these extremes are then dismissed as the new normal. Yet momentum driven price appreciation has absolutely zero predictive value of future price appreciation, it only appears as such at the time.

We find ourselves in a very unique point in history and in a world dominated by false narratives. It is a challenge to keep an analytical grip on reality, but I’ll try to tie a few threads together here to put everything in a macro context. Firstly the underlying base reality: Free money, easy money, whatever you want to call it, permeates everything we see in financial markets. Indeed I would argue price appreciation has been paid for with unprecedented and, in my view, unsustainable volatility compression. A couple of charts really highlight this. Most clearly perhaps is the precise trend line tagging we can observe in the correlated picture of price appreciation and volatility compression since the February 2016 lows:

The $VIX’s corollary, the inverse $XIV, embarked on an explosive near one way journey since the US election coinciding with over $2 trillion central bank intervention in just the first 9 months of 2017:

And it has continued to this day and just made another all time high this past week on a massive negative divergence. It is the magnitude of this volatility compression that explains the current trading environment we find ourselves in.

[..] Debt expansion at low rates continues to sustain the illusion of real prosperity for the 90%:

And then LPLResearch with another indicator that goes to show we’re dealing with a zombie here: stock prices are not moving, either up or down. Or rather, they’re moving up all the time, but in too small increments. Yeah, like that bloated corpse.

Where Did All the Big Moves Go?

There have only been eight moves of at least 1% for the S&P 500 Index so far this year—the least since 13 in 1995. The all-time record was an incredible three in 1963. What about a big move? The last time the S&P 500 moved at least 4% was nearly six years ago. In fact, the S&P 500 had four consecutive days with 4% (or greater) changes in August 2011. Other than 2008 and the crash of ’87, that is the only other time since the Great Depression to see four consecutive 4% changes. That isn’t anything like today’s action.

As the chart below shows, so far in 2017, big moves have been nonexistent; and even 1% changes have been rare. Per Ryan Detrick, Senior Market Strategist, “If you had forecast that the 11 months after the 2016 U.S. presidential election would be one of the least volatile periods ever, you would be in the minority. Then again, the last time we saw a streak of calm like this was the year after John F. Kennedy was assassinated in November 1963. Once again proving that the market rarely does what the masses expect and usually surprises us.”

You want a heartbeat. That tells you if a body or a market is alive, healthy, functioning. We don’t have one. We haven’t for years. But we will again.

Natural bodies can tend towards equilibrium, i.e. death. Markets cannot. They’re doomed to flatline, and then to always come back from near death experiences. They tend to do so in violent ways though. When volatility at last returns, so will price discovery. It won’t be pretty.

"There Are No Bears Left... None... Not A Soul"

By Kevin Muir via The Macro Tourist blog,

Think back six months. Do you remember all the warnings from the legendary hedge fund managers about the impending stock market doom?

Paul Tudor Jones, Scott Minerd, Larry Fink, Seth Klarman, the list is long but distinguished. At the time I penned It’s too easy to write bearish pieces. Even in late summer, gurus like Gundlach were bragging about the 400% he would make on his S&P 500 put purchases - Billionaire Bears. Given the atmosphere, I knew posts about the coming collapse would be greeted with tons of words of encouragement. Yet if I wrote something about the stock market continuing higher, crickets… Or worse yet, remarks about my cluelessness regarding the problems in the global financial system.

I didn’t think stocks were going higher because everything was roses, no in fact just the opposite. Stocks were being pushed higher because everything was so FUBAR’d. Central Bank balance sheet expansion was pushing risk assets higher, and for the longest time, everyone wanted to fade it.

Fast forward to today. Even the most ardent bears have given up and embraced the idea Central Bank buying will push stocks higher. Investors that were previously doom and gloomers are now speaking of blow off-tops. I can hear the capitulation in their voices. No more brave predictions of the coming collapse. Instead, meeker forecasts of a high volume runaway euphoria. There are no bears left. None. Not a soul.

The bears have been replaced by gloating bulls that are openly bragging about how high the S&P 500 futures will gap up Sunday night. They are mocking the bears with taunts of how much money will they lose fighting the rally. They joke about buying the dip, which increasingly is becoming more and more nothing more than a couple of downticks.

I might not know much, but I know the Market Gods do not take kindly to that sort of behaviour. What was that quote from Bernard Baruch? “The main purpose of the stock market is to make fools of as many men as possible.”

Ask yourself what would embarrass most investors right now? Would it be a continuing rally? Not a chance. Given the white flag waving by the bears, and the over-enthusiasm of the bulls, there is little doubt in my mind that a stock market decline is what would hurt most. That wasn’t the case six months ago. Heck, it wasn’t even the case two months ago. But that’s where we are today.

I could try to dig up some sentiment numbers, but the reality is I don’t need to. The mood is plainly obvious. Investors are as bullish as they have ever been since the Great Financial Crisis. Sure, you might argue that it was much more frothy in 1999. But who cares? Do you really want to be buying based on the greater fool theory? Ask Chuck Prince how that turned out.

It’s hard standing alone and fighting the crowd. If it was easy, everyone would do it.

I have written about the new reality of how markets are now full of A Series of Rolling Mini-Bubbles, but a sharp Seeking Alpha writer by the name of Ian Bezek has done a better job than me of identifying the latest madness. In his post, An ETF Levitates: This is Not Normal, Alex points out that the IWC nano-cap ETF has been up 26 of the past 28 days.

This is the new reality. A series of rolling mini-bubbles. But you want to know the hardest part? Just when it looks best, is the time to fade it.

I can already hear you saying to yourself, that’s a big leap. Selling it because it looks good? Well, in case you don’t believe me about the series of rolling mini-bubbles (remember, the keyword is mini), how about this for a reason?

Almost everyone has now embraced the idea that Central Banks will push asset prices to the moon. It’s like they just realized that with the balance sheet expansion of the ECB, BoJ and the SNB (Swiss National Bank), the monetary stimulus has been higher than any time except for the initial days of the crisis.

One thing before I continue. For these Central Bank balance sheet charts, I have frozen the currency adjustments in time. If I let them float, then the balance sheet size will move around as the US dollar rises or falls. Since we are interested in how much the Central Banks are expanding or shrinking their balance sheets, this would lead to a distorted monthly change.

Let’s zoom in and have a look at this a little bit more closely.

It’s a little bit amusing that market pundits are now shouting about the inevitability of Central Bank buying. The reality is that from mid-2013 to 2017, the pace at which their balance sheets have been expanding has been ferocious.

The ironic part? All these pundits have figured it out just as the pace has started to slow. Look at the last six months. Slowest six month period in the last few years. And guess what? It will be negative soon enough. The ECB will taper, the Fed will shrink, and if financial assets keep screaming at this pace, even the BoJ and the SNB might be forced to slow down their purchases.

So yeah, knock yourself out buying stocks because Central Banks are printing like mad. Instead of examining what they did, I am more interested in what they will do. And to me, it looks like this game is nearly over.

Nothing sums up better the crazy rush into stocks than the recent headlines.

Remember the last time the Economist came out with a bold cover like that?

So let’s sum it up.

We have the bears capitulating and accepting the inevitability of the Central Bank buying pushing up asset prices, at the very moment magazine covers are shouting about the “bull market in everything.”

We have nano-cap ETF’s rising more in a period of a month than they have ever done before.

I have former bears telling me how we need to have a blow-off top before the true bear market can start.

As far as I can tell, there is absolutely no one who thinks this market will head lower over the next month or two. Well, sold to them.

Given the dirt cheap options they are all selling to gather extra premium (it’s free money after all - stocks never go down), I think taking the other side of their trade via long put positions is a great risk reward. I know this trade is lonely. Jeez, as I write this, a little bit of me wonders if I have gone insane.

But I take comfort in the words of a famous speculator, Jesse Livermore - “The obvious rarely happens, the unexpected constantly occurs.”

Then again, Livermore killed himself in the cloakroom of the Sherry Netherland Hotel. He left a note that he was tired of fighting. Good thing Jesse isn’t around to see this bull market.

Odey Sees "Terrifying" Outcome Between Arrival Of MiFID, End Of QE

There is a dark cloud of tangible desperation over Crispin Odey"s recent monthly letters, and not only because he went "all in" on central bank failure exactly one year ago... and failed. With his fund down 10.6% YTD, and down 31% LTM, he knows he may have 1 Hail Mary left, two tops.  Which explains why as of August 31, the Odey Asset Management founder - who back in May asked rhetorically "why do i remain stubbornly bearish" - has bet it all on red, or inflation, and as his Top 10 position breakdown shows, he had a net 135% short in gilts and JGBs. As for the rest of his book, with just 25% of his top 10 position net long (ex gold), Odey"s view on risk assets remains the same: a crash is coming, the only question is when.

It is here that things get more interesting, because while traditionally Odey has bashed central banks for perverting and manipulating asset prices, this time he appears to have found another variable to help him goalseek his cataclysmic conclusion that it is all about to crash, and in his latest letter, Odey now says Europe"s upcoming research rule overhaul will result in less trading, less price discovery and less efficient markets.

He is referring, of course, to MiFID II, which Odey writes in his latest letter, will cause the cost of capital to rise "as information is going to become harder to come by" leading to investors with different levels of information and resulting in those with less access to analysis trading less. As previously discussed, the revised "Markets in Financial Instruments Directive" starts on Jan. 3. and forces firms to separate the cost of research from trading-related expenses incurred with investment banks.

It"s not just the impact of MiFid however: just as information flow is being curbed among the sellside, the Federal Reserve will be accelerating its balance sheet shrinkage. “For asset prices, a change to QE would be far from a happy solution,” Odey wrote in the August Swan Fund letter. “What is terrifying is that MIFID II is arriving when, thanks to QE and the sight of endless cheap money, companies’ shares are at their most expensive. Hindsight is going to have a field day.”

Maybe. Or maybe in hindsight it will be Odey"s endless war with central banks that will be his undoing.  Or perhaps Odey"s luck - we use the term loosely when it comes to the (former?) billionaire - is finally changing: having posted a miserable series of monthly losses, "In August-17 the EUR class returned +1.9% against the MSCI Daily TR Net Europe (EUR) return of –0.8%."

His full letter is below:

Manager"s Report

Sidney Homer in ‘A History of Interest Rates – 2000 BC to the present’ had to deal with the period before interest rates existed. What was the natural rate of return given by nature? How many eggs from a chicken? Economists started life as alchemists. All governments dreamt of creating gold out of base metals. All kings wanted interest rates to be lower so that growth could be stronger.

Now for 10 years we have enjoyed what they could never achieve. We have enjoyed rates of interest which were below the natural rate thanks to QE. It has allowed economies to grow so that we are now at the point where that growth threatens to be met by an inelastic labour supply.

It has so far proved disappointing for productivity globally which hovers around zero percent. But that reflects that QE has not been helpful for allocating capital. Take tertiary education in the UK. Over 20 years the university student population has grown by 650%. When student fees were increased by 300% to £10,000 p.a. in 2012 the thinking was that this would turn students into consumers. That they would demand value for money and more appropriate courses. But it hasn’t. Why? Because students still see the loans as free money. They have understood QE very well. The misallocation of resources continues but now when the student finds there is no job at the end of his / her degree, the sense of injustice leads them leftwards politically.

QE is no longer the easiest option. But, for asset prices, a change to QE would be far from a happy solution. We are now approaching MIFID II’s implementation and it is apparent that the effect of pricing research is that information is going to become harder to come by. Markets work off free and abundant information and views and multiple pricing points. MIFID II looks designed to ensure that individuals trading in a market will have different levels of information and as always the one with less information will start to trade less.

Less trading, less price discovery, less efficient markets. The cost of capital should rise. What is terrifying is that MIFID II is arriving when thanks to QE and the sight of endless cheap money, companies’ shares are at their most expensive.

Hindsight is going to have a field day.

Finally, for those wondering, here is Odey"s P&L since inception.

Guaranteed Income And Living Wage Schemes Cannot Possibly Work

Authored by Mike Shedlock via MishTalk.com,

Facebook founder Mark Zuckerberg Supports Universal Basic Income.

In its basic form, universal basic income means “everyone gets a paycheck, whether they have a job or not.”

Many expect even more. They want a guaranteed “living wage”.

Useless Trials

Such schemes cannot possibly work. But that does not stop fools from trying.

For example, Finland is giving out a guaranteed monthly income of nearly $600 to 2,000 citizens.

Canada’s province of Ontario, which includes Toronto, started a pilot program in April that provides 4,000 citizens with an unconditional income of about $12,600 a year. Applicants must be between ages 18 and 64 and living on a limited income.

Those studies cannot prove anything, no matter what the results.

Free Money Proposals Do Not Scale

Sure, one can do a trial and show that 20,000 or whatever sample size is better off.

However, any benefit to the trial participants must at the expense of a bigger deficit or higher taxes on everyone else.

Imagine giving 200 million people a guaranteed living wage. Who is going to pay for it?

Next, imagine all of Europe doing this coupled with freedom of movement.

Why stop there? Imagine the same program for the entire world? Free money for everyone!

Why Quantitative Easing In The Eurozone Will Be Extended

The staff of the European Central Bank has now released the new macro-economic projections for the Eurozone and whilst the introduction sounds optimistic about an ever-increasing GDP and a relatively stable GDP growth rate, reading between the lines suggests we could see an extended Quantitative Easing program.

The ECB is probably correct when it claims the economic recovery will remain ‘robust’, but it also mentions the ‘favorable financing conditions’ as one of the main drivers of this economic recovery. This is quite the ‘catch 22’ scenario. The economy is recovering due to the low interest rate policy of the ECB, but without this ‘easy money policy’, the recovery would be either much slower or non-existing at all. Whilst we have heard several voices from ECB committee members the central bank is getting close to the point it will start to increase the interest rates again, the working paper from the ECB staffers is pretty clear on the need for continuous (monetary) support to protect the current economic recovery.

Source: ECB paper

What’s even more intriguing is the fact the ECB’s assumptions are taking an even LOWER interest rate into account. The study was based on the market circumstances and market expectations as of half August, and back then, the market was taking an average 10 year government bond yield of 1.3% in 2018 and 1.6% in 2019 into consideration. However, this has now been revised downward with approximately 10-20 basis points. This could indicate the market has started to price in a longer period of easy and free money.

And that’s an important starting point. As the loans to businesses (and individuals) are priced based on the anticipated ‘risk-free’ interest rate of a government bond, the lower expectations for sovereign debt yields will trickle down to the ‘real’ economy (underpinning the growth expectations), but it’s unlikely this effect will still be noticeable should the ECB reduce its QE program. That’s probably why the market is now expecting the three month EURIBOR interest rates to continue to be low, and even lower than when the previous quarterly survey was completed.

Source: ECB Paper

As you can see on the next image, even keeping the Quantitative Easing program unchanged, the GDP growth rate will slow down whilst the anticipated inflation rate will decrease as well to less than half of the ECB’s desired 2% rate.

Source: ECB Paper

The ECB comments this is due to a lower oil-related inflation impact and it expects the underlying inflation rate to increase again from 2019 on, but we do not necessarily agree with that view. After all, the weaker than expected US Dollar might increase the impact of the low oil price and extend the period wherein this impact will be felt.

Source: Danske Bank

Whilst most eyes have been on the Federal Reserve lately, the upcoming decision of the European Central Bank in October might be even more important. Several executive committee members have claimed the Eurozone is strong enough to sustain the recovery on its own, but we think it might be too soon for the Eurozone to stand on its own legs.

A reduction of the size of the Quantitative Easing program is definitely a possibility but this isn’t Utopia. The continuous support of the Central Bank is still needed.

Would you like to maintain your purchasing power? Read our Guide to Gold right now!

What The Bond Market Got Wrong About Today's Debt Ceiling Extension

Sometimes the bond market gets it wrong too.

Earlier today, when Trump "flipped" on the GOP and aligned with congressional Democrats at a White House meeting to fund the government and raise the debt ceiling through Dec. 15. despite objections from virtually all Republicans, the threat of a late September/early October debt ceiling crisis disappeared. The bond market realized this first by sending the yield on the October 5 BIll tumbling from 1.20% to 1.00%, as repayment on this maturity was no longer in jeopardy.

However, at the same time as the October T-Bill yield was tumbling, bond traders sent the December 21 T-Bill yield surging, since after all all Trump had achieved was kick the can by three months...

... which in turn inverted the Oct 12-Dec 21 curve.

There"s one problem with this kneejerk reaction: it was only half right, because while bond traders were right to buy the October bills, they made a mistake in dumping the December Cusip.

Why? The answer lies in the cash flow calendar.

Recall that the reason why early October Bills were being sold is not because the "debt ceiling" would be breached - that happened in March of 2017, with a last minute agreement in May kicking the can through September, which in turn has now been pushed through December) - but because early October is when the Treasury"s "X-Date" would finally be hit: that"s the date when the Treasury would run out of cash and emergency measures.

The problem is that the upcoming three month extension to December 15 is not also an extension of the X-Date: there will be a buffer of at least a few months between December 15 and when the next X-Date hits.

As Jefferies" Ward McCarthy explains, Congress’s standard operating procedure for addressing the debt ceiling over the past few years has been to suspend it for a defined period of time. Assuming that this agreement centers on a suspension of the debt ceiling through December 15th, the following will happen once President Trump signs the bill:

• The “debt issuance suspension period”, the process by which Treasury accesses the “extraordinary measures”, will end. Treasury can then replenish the G-Fund, CSRDF, and EFSF with the issuance of nonmarketable securities that they have been redeeming since mid-March. Effectively, this re-loads the extraordinary measures for when the debt ceiling is hit again in mid-December. It


• Treasury will ramp up issuance of bills in order to replenish supply in the market and boost their cash balances. Under normal circumstances, Treasury maintains a minimum cash balance of $150 bln, but cash  balances had fallen to as low as $32.1 bln as of September 1st. This is an uncomfortably low level and Treasury will waste no time in re-establishing a cash buffer.
  


• Lastly, there will be no debt limit. However, Treasury will be bound to issue only that which is necessary to meet current obligations. The translation of that is that Treasury will have to have the same or less cash on hand on December 15th as they did upon the signing of the bill. So, no matter how many bills are issued in September, October and November, Treasury will have to make potentially massive paydowns heading into December 15th.

So if December 15th is not the next "X-date", what happens then, and in the weeks after.

• The debt ceiling will be re-struck at the current level.


• Repeating the above, Treasury will need to bring their cash balances down to the same level (or lower) as was the case at the beginning of the debt ceiling suspension period.


• Treasury will once again declare a “debt issuance suspension period” and have access to the extraordinary measures. It is too early to tell how much will be available at that time, but around $350 bln seems like a reasonable baseline. This estimate will change as we get closer.

In other words, instead of the $32 billion in effective cash and equivalents as of today, the Treasury will have over $300 billion in dry powder, more than enough to buy the Treasury 2-3 of more months, and to take the government well into 2018 before a debt ceiling crisis reappears on the horizon.

Lastly, when will this issue come to a head again? Here"s Jefferies" estimate:

The answer to that question is highly dependent on estimating borrowing needs for Q1, which is always a dangerous exercise since Treasury pays out the lion’s share of tax refunds in January and February. If tax refund outlays are relatively high and Treasury needs to issue a lot of debt in order to fund them, the new “drop-dead” date could come as soon as late-February. However, if Treasury is able to get through Refund Season and make it to the April 15th income tax receipts, then the “drop-dead date” would be a few more months out, potentially the end of Q2, beginning of Q3.

Putting it all together, it is still too early to tell the specifics,  "especially because there is a non-zero chance that this “agreement” reached by Trump and Congress falls apart." After all, as Jefferies snydely notes, only a few hours ago Paul Ryan was on television describing a 3-month extension as “unworkable” and characterized the action of tying debt limit legislation to an aid bill as “disgraceful”. Shortly after, the President endorsed it.

In a worst case scenario, the early-October bills would come right back into the cross-hairs although for right now, the crisis appears averted, if only temporarily. One thing, however is certain: there is no reason at all why the December 21 Bills should have been sold off. While it is much too early to determine what is the correct "Fulcrum" Treasury Bill should today"s extension pass - it could be an issue maturing in Q1, Q2 or Q3 2018 - it is effectively "free money" that any purchases of the December Bills that were sold today at the closing price, will be a profitable investment.

So yes, sometimes even the bond market gets it wrong.

Hawaii Considers A "Universal Basic Income" As Robots Seen Stealing Jobs, There's Just One Catch...

Forget social security, medicaid and WIC, today"s progressives have moved well beyond discussing such entitlement relics of the past and nowadays dedicate their efforts to the concept of a "Universal Basic Income" for all...call it the New "New Deal".  You know, because having to work for that "car in every garage and chicken in every pot" is just considered cruel and unusual punishment by today"s standards.

Of course, it should come as little surprise that the progressive state of Hawaii, which depends on easily automatable jobs tied to the tourism industry, is among the first to pursue a Universal Basic Income for its residents.  And while the idea of passing out free money to everyone seems like a genius plan, if we understand it correctly, as CBS points out, there is just one catch...figuring out who will pay for it.

Driverless trucks. Factory robots. Delivery drones. Virtual personal assistants.

As technological innovations increasingly edge into the workplace, many people fear that robots and machines are destined to take jobs that human beings have held for decades--a trend that is already happening in stores and factories around the country. For many affected workers, retraining might be out of reach —unavailable, unaffordable or inadequate.

Over the past two decades, automation has reduced the need for workers, especially in such blue-collar sectors as manufacturing, warehousing and mining. Many of the jobs that remain demand higher education or advanced technological skills. It helps explain why just 55 percent of Americans with no more than a high school diploma are employed, down from 60 percent just before the Great Recession.

Hawaii state lawmakers have voted to explore the idea of a universal basic income in light of research suggesting that a majority of waiter, cook and building cleaning jobs — vital to Hawaii"s tourism-dependent economy — will eventually be replaced by machines. The crucial question of who would pay for the program has yet to be determined. But support for the idea has taken root.

"Our economy is changing far more rapidly than anybody"s expected," said state Rep. Chris Lee, who introduced legislation to consider a guaranteed universal income.

Lee said he felt it"s important "to be sure that everybody will benefit from the technological revolution that we"re seeing to make sure no one"s left behind."

But taking billions from hard working Americans to "spread the wealth around" has never been all that difficult before so presumably this too should prove to be a relatively minor issue.

In all seriousness, where does Representative Lee and CBS figure Hawaii will get the funding for their guaranteed income plan?  Well, as it turns out, Facebook co-founder Chris Hughes made a very generous $10mm donation to support programs just like this...the only problem, of course, is that Hawaii would need about 1,000 times that amount to fund Chris Lee"s plan for just one year.

For now, philanthropic organizations founded by technology entrepreneurs have begun putting money into pilot programs to provide basic income. The Economic Security Project, co-led by Facebook co-founder Chris Hughes and others, committed $10 million over two years to basic income projects.

Tom Yamachika, president of the Tax Foundation of Hawaii, a nonprofit dedicated to limited taxes and fairness, has estimated that if all Hawaii residents were given $10,000 annually, it would cost about $10 billion a year, which he says Hawaii can"t afford given its $20 billion in unfunded pension liabilities.

That said, it"s difficult to argue with Karl Widerquist"s argument that Hawaiians deserve a "beach dividend" for their heroic efforts in being born and continuing the difficult task of breathing day in and day out.

Karl Widerquist, co-founder of the U.S. Basic Income Guarantee Network, an informal group that promotes the idea of a basic income, suggests that Hawaii could collect a property tax from hotels, businesses and residents that could be redistributed to residents.

"If people in Alaska deserve an oil dividend, why don"t the people of Hawaii deserve a beach dividend?" he asked.

And while we have little doubt that Widerquist has fully thought through his suggestion that Hawaii just raise an incremental $10 billion every year via a tax on hotel stays...we thought we"d run the math just to make sure his plan holds water.  As it turns out, roughly 3 million families visit Hawaii for a little R&R every year which means each family would only have to pony up an extra $3,400 per hotel stay to cover Hawaii"s Universal Basic Income plan.  Seem more than reasonable, right?

Is The Bitcoin Civil War Over?

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Before I get going, let me start out with the usual disclaimer. I’m not a Bitcoin expert, nor do I claim to be. I love people who live and breathe Bitcoin every day, and I have the utmost respect for all of you, but that’s not me. As you can tell from a quick glance at my website, my current focus revolves around the current political environment as well as the geopolitical implications of a declining U.S. empire. That said, I’ve been involved in Bitcoin since 2012, and I care deeply about it. In my opinion, globally interconnected humans functioning within decentralized systems of economics and political governance provide the best framework for the human species going forward. We have the tools, we just need the desire.

Today’s post is about an alt-coin that is about to fork from Bitcoin, led by a contingency in the civil war known as the big blockers. This piece is not meant for newbies, but is written for people who own Bitcoin and already have a good understanding of all the drama that’s been going on and may continue to periodically resurface after August 1. If you aren’t already up to speed on these things you should probably stop reading. The post will just sound confusing and won’t have much impact on your decision making anyway.

First of all, I don’t think there will be any debate around what the “real Bitcoin” is following the fork and creation of an alt-coin called Bitcoin Cash (BCC). This coin will be a pet project of big blockers wanting to both save face, and also potentially hurt the original Bitcoin (BTC). Only time will tell if some of those considered “bad actors” will try to target the original Bitcoin out of pettiness, but you should never underestimate what people with a lot of money/power and huge egos will do. History is replete with the ruins of the crazed actions of these types of individuals.

If you control your private keys, you should be able to access BCC sometime after August 1st. Some people are describing this as a dividend, although it seems more like an asset spinoff to me. Either way, BCC will have some sort of value on or around August 1st, and a market will start being made. So how should people concerned about potential bad actors on the side of BCC think about all of this? Let’s start with a few tweets from Whale Panda that I think are important to ponder.

Then when the 2x part of Segwit2x wont activate, they will dump $BTC hard and pump $BCC claiming it is the original/legacy #Bitcoin.

— WhalePanda (@WhalePanda) July 25, 2017

With that in mind, take a watch of this recent interview of Roger Ver. Roger is considered to be one of the largest holders of Bitcoin out there, and owns bitcoin.com.

That video definitely made me feel that Roger could act in a hostile way following the launch of BCC. I really hope he swallows his pride and doesn’t go down that route, but we can’t make that assumption. I think we absolutely need to prepare for the possibility that some bad actors will try to harm Bitcoin using BCC. Here are a few more tweets from Whale Panda.

Since I think Whale Panda is onto something, the most logical way to defend against the threat from a market psychology perspective is to hold onto your BCC even if you think it’s garbage. You have to understand that if bad actors want to make Bitcoin look bad and their alt-coin look good, price will be a huge part of their strategy.

It might make sense to not dump your BCC right away, which could let bad actors control the entire float. If you do that, they can then dump their BTC on the market while controlling all the BCC and ensure it goes up while Bitcoin drops. I’m not saying this is my assumption, I’m saying its possible. As such, hold on to your BCC to prevent them from executing this strategy. Then if BTC does drop as BCC rises, you have dry powder to take the other side of the trade. The risk in this strategy is that BCC crashes right away and never recovers and you lose that free money, but if that happens you’ll still probably benefit from a rising BTC price.

At the end of the day, everyone should do what they feel is right. I could be completely nuts here. I’m just putting all of this out there in the event some of you haven’t thought through this potential outcome yet. I at least want people to be aware of what might happen. I have no idea of the likelihood of such a scenario.

Personally, I hope Roger, Jihan and whoever else don’t go down that route. If they do, they will be rightly demonized and remembered as the egomaniacs who tried to kill Bitcoin. Sure float your alt-coin and let people choose, but don’t start playing nefarious games. If you do, the Bitcoin community will rally together like never before and it won’t be good for you. I ask that you stand down.