Another One Of The World"s Largest ICOs Is Collapsing

Last month, we reported that the world’s largest ICO was imploding after just three months as its developers admitted they wouldn’t be able to deliver the tokens purchased during a $230 million July “presale” by the end of the year, as they had promised, causing an understandable furor among its investors.

Now, in the latest sign that the $3 billion ICO market is imploding, Bloomberg report’s that the value of formerly high flying Bancor, the world’s fifth-largest ICO by funds raised, has plunged by more than 50% since the company’s June ICO as investors have become disillusioned with its obscure product.

Bancor attracted big name venture capitalists like Tim Draper this year when it published a white paper proposing to create a kind of decentralized digital currency exchange that would allow holders of the Bancor tokens to exchange them for other digital currencies listed on their market-making platform - a functionality, its creators insisted, that would one day render digital currency exchanges obsolete.

But while it’s founders delivered a compelling pitch, beneath the surface was a product that was, at best, needless complex, and at worst, downright nonsensical.

Of course, the obliqueness of Bancor"s plan showcases a common trope in the ICO market whereby companies say they’re “improving” on the “user experience” of a product that most users are already satisfied with - except instead of creating a more streamlined solution, they propose to make it needlessly more complex by involving “decentralized” systems and monetizable tokens.

The result is a soup of hypertechnical gibberish, and a use-case that, tellingly, only the people building the product seem to understand. For many investors, that should trigger nightmarish flashbacks to synthetic CDOs (which are themselves experiencing something of a renaissance led by Citigroup) and other arcane credit derivatives that helped crash the economy and market in 2008.

Cornell professor Emin Gun Sirer, in a takedown of Bancor published shortly after the ICO, validated this view, arguing that Bancor’s formula is less efficient than simply making the market manually, Sirer says. And they say the technology could also be vulnerable to front running, where people make money off of the visibility of others’ transactions.

Here’s Bancor’s explanation of its functionality from its white paper:

Abstract: The Bancor Protocol enables the creation of networks of smart contract-based “Smart Token.” Smart Token hold balances of one or more other tokens--“Connectors”--and have a builtin autonomous conversion mechanism that allows any party to instantly purchase or sell the Smart Toke for one of its Connectors, directly through the Smart Toke contract, at a price calculated by a formula which balances buy and sell volumes.

 

Bancor believes that Smart Token can address the challenge of liquidity  faced by conventional tokens, cryptocurrencies, and community currencies on three levels. First, and most fundamentally, by being autonomously convertible for their Connectors, and with an unconstrained supply that grows in response to purchases, each individual Smart Token has built-in liquidity that does not depend on counterparties or exchanges. Second, Bancor has developed specialized Smart Token that enable inter-convertibility between any two other Smart Token or, with an added step, between any Smart Token and any conventional Ethereum network token. Third, Bancor’s ultimate vision is that users will create their own tokens and community currencies in the form of Smart Tokens™ that hold a common Connector, enabling any Smart Token™ in the network to be converted into any other. Bancor’s own Smart Token, BNT, is the common Connector in the first such network, which we call the Bancor Network.

And here"s Bloomberg"s translation.

Bancor protocol enables anyone to create a new type of digital coin called a Smart Token, which can hold and trade other tokens. This allows the Smart Token contract to serve as its own market maker, automatically providing so-called price discovery, and liquidity to other coins. So effectively, Bancor has created an exchange that will automatically price and trade any cryptocurrency that wants to list with it, as well as a token. The company says it will always have enough liquidity to make the market because the currencies have to build a reserve in Bancor tokens.

Initially, the notion that Bancor - which is named after the universal curency proposed by John Maynard Keynes - can “guarantee liquidity” for ICO tokens that have been shunned by major digital currency exchanges sounds like a vaguely useful market nich. And one could argue that there might be a niche. Today, the FT reported that GDAX, one of the largest cryptocurrency exchanges, said it wouldn’t list most ICOs because of doubts about their viability. But as one trader explains, when exchanges refuse to list a token, there"s generally a good reason.

Kyle Samani, managing partner at Austin, Texas-based hedge fund Multicoin Capital, said the functionality Bancor provides isn’t needed. Tokens that can’t list on exchanges may simply not be good enough, he said.

"For assets that actually have value, there will be a market," Samani said. "For assets that people don’t want to buy... why should there be some pity-based programmatic market maker to provide liquidity? My inner capitalist is just dumbfounded by the concept of Bancor."

Even the venture capitalists don’t get it.

"I’m a big fan of what they’re building and think they are the most qualified team around to do it," Brock Pierce, co-founder of Blockchain Capital, an investor in Bancor’s tokens, said in an email. "Not everyone understands it."

In defending Bancor, one adviser had the temerity to argue that consumers don’t understand how exchanges work, and that Bancor’s concept is somehow more straightforward, which is an obviously absurd thing to say.

But even if Bancor tokens did have a clearly defined use-case, it wouldn’t make a difference if the company couldn’t implement it, or if nobody used their product ( the network effect is obviously crucial for these tokens to thrive). Right now, Bancor tokens are - to borrow a conspicuously apt analogy from Cornell Professor Gun Sirer - “like a child’s swimming pool placed in an ocean.” Essentially a less liquid, more volatile version of Ether. Bancor was built on top of the Ethereum protocol, and Gun Sirer said buyers needed ethereum to purchase Bancor during the crowdsale - a claim Bancor disputed.

However, while Gun Sirer’s criticisms appear thoughtful, his perspective is automatically rendered suspect by the fact that he’s an adviser to Tezos, an ICO that raised more than $230 - the largest haul so far - but has been plagued by missed deadlines and internal strife, as we noted above.

Bancor, which penned a thorough - but glib - rebuttal to Gun Sirer’s comments, claims its product is already in demand. To wit, thirty tokens are already using, or planning to use, its platform, it says. But given the performance of the tokens, vanishingly few people are trading on it.

Still, Draper, the project"s most visible backer says it’s only a matter of time before the tech blossoms and the value of Bancor tokens soars.

Backed by billionaire venture capitalist Tim Draper, Bancor is the fifth-largest ICO by amount raised by startups, which totals more than $3 billion this year. "All of these projects are in development," Draper said in an email. "Wait two years, and I believe we will all be blown away by what these people can do for the world.”

But let us stop you right there.

As many of our long-time readers are probably aware, venture capitalists and entrepreneurs talking about how their (in this case, nonexistent) tech will ‘change the world’ is a red flag that a given venture might be headed for the rocks.

And most crucially, large digital-currency traders agree that the functionality isn’t needed. At best, Bancor is what some in the digital currency and blockchain communities would call “a solution in search of a problem.”

* * *

When Bancor raised an astonishing $153 million during its coin offering in June, it instantly transformed its creators into millionaires.

And after a brief but tantalizing run of gains, it appears Bancor’s investors will now be left holding the bag. The only question now, it seems, is how long before it goes to zero.
 

"I Think We Got Away With It": HSBC Trader"s Fate Left To Jurors After Damning Phone Recordings Revealed

After weeks of testimony, the fate of former HSBC trader Mark Johnson, who stands accused of orchestrating a massive international front-running scheme that netted his firm over $8 million in illicit profits, has been left in the hands jurors.

Over the past couple of weeks, tidbits of the prosecution"s case has made it"s way into the media, including reports last week that Johnson used the code phrase "my watch is off" to trigger trading by HSBC traders all around the globe.  Meanwhile, as Law360 recently pointed out, jurors also had the opportunity to hear some rather damning recordings of Johnson"s phone conversations with traders, including the one below in which he says "I think we got away with it."

Prosecutors played a recording of a call between Johnson and Stuart after the 3 p.m. fix as they debrief, with Johnson telling Stuart, “I think we got away with it,” but Stuart replies that HSBC executive Dipak Khot — who acted as the go between with Cairn and HSBC — thinks otherwise and suspects that Cairn will protest.

 

Johnson in turn argued that Cairn is still in a better position than it would have been if it had taken any other offers to execute the deal in alternate methods as opposed to the fix. “They don’t really have a lot of room to complain,” he said on the call.

 

But as Cahill was trading ahead of the 3 p.m. fix on the day of the transaction, Johnson sounded more concerned about “ramping it up” too much. Jurors heard another recording of a call between Johnson and Scott, with Scott talking to Cahill in the background as he trades, in which Johnson cautions against spiking the price of sterling too high out of concern that Cairn will "squeal."

 

“Frank, Frank if it rates above 30 at the fix, I think they’ll start to ah ... if you need to buy them, obviously, but ideally don’t ramp it above 30,” Scott tells Cahill. “Do what you need to do, but ... sorry I know I’m probably not helping much...I’ll leave you alone.”

 

“Is he getting a bit tetchy?” Johnson asks.

 

“No, he’s not,” Scott replies.

 

“He can’t, fucking moaning bastard,” Johnson said. “I do all the work and he gets all the glory.”

 

Jurors heard that days later in a call with HSBC forex trader Ed Carmichael in Hong Kong, Johnson told him that HSBC’s London forex trading desk, “just had a bonanza” on the Cairn deal, and described his response when Cairn sought an explanation on the less than stellar result for the oil and gas developer.

Of course, when HSBC"s client complained about their less than stellar execution price, Johnson admits that he blamed all the usual suspects: "Russians, other central banks, all that sort of stuff."

“And they said, well you know it jumped up a bit, who else was buying? And we said the usual Russian names, other central banks, all that sort of stuff,” Johnson said on the call.

For those who haven"t followed this particular story, Mark Johnson was arrested at New York’s Kennedy Airport in 2016 before he could return to the U.K. following a nearly 3-year investigation into efforts on the part of several large investment banks to rig FX markets but Stuart Scott has remained free at his home in the London suburbs pending the outcome of the extradition proceedings.  Per Bloomberg:

Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, was taken into custody at John F. Kennedy International Airport Tuesday and is scheduled to appear before a judge in federal court in Brooklyn Wednesday morning, said the people, who asked not to be named because the case hasn’t been made public. He’s charged with conspiracy to commit wire fraud, the people said.

 

According to Bloomberg, Johnson’s arrest comes more than a year after five global banks pleaded guilty to charges related to the rigging of currency benchmarks. HSBC, which wasn’t part of those criminal cases, in November 2014 agreed to pay $618 million in penalties to U.S. and British regulators to resolve currency manipulation allegations. HSBC, which still faces investigations by the Justice Department and other authorities for the conduct, has set aside $1.3 billion for possible settlements, according to an August filing.

 

Rob Sherman, an HSBC spokesman, and Peter Carr, a Justice Department spokesman, declined to comment.

According to the original DOJ complaint, HSBC was selected by Cairn Energy Plc to execute a foreign exchange transaction – which was going to require converting approximately $3.5 billion in sales proceeds into British Pound Sterling – in October 2011.  But, before executing that trade, he tipped off a bunch of HSBC traders who loaded up their proprietary accounts with Pounds just before the massive trade sent the currency higher.

“As alleged, the defendants placed personal and company profits ahead of their duties of trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars,” stated United States Attorney Capers.  “When questioned by their client about the higher price paid for their significant transaction, the defendants wove a web of lies designed to conceal the truth and divert attention away from their fraudulent trades.  The charges and arrest announced today reflect our steadfast commitment to hold accountable corporate executives and licensed professionals who use their positions to fraudulently enrich themselves.”

 

“The defendants allegedly betrayed their client’s confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank,” said Assistant Attorney General Caldwell.  “This case demonstrates the Criminal Division’s commitment to hold corporate executives, including at the world’s largest and most sophisticated institutions, responsible for their crimes.”

As we noted last week, nearly a dozen HSBC traders around the globe netted over $8 million in profits by allegedly front-running their own client.

Of course, Johnson would like for you to know that this entire case is just "much ado about nothing" as he never intended to "front-run" his client but rather was just engaging in some innocent "pre-hedging"...which is a new term for us...must be a technical term only used by European FX traders.

Last Week's Gold "Fatfinger" trade was an Options Expiry Spoof

You Know What to Do

• The Gold Wave Count Still points upwards, but external signs make us nervous


• New info tells us the Flashcrash  last week was most likely an options related price manipulation


• There is a new class  action  lawsuit worth watching as it crosses international  borders.

So far the charts and wave count are all holding. We must admit that the double bottom at $1241 being broken gave us quite a scare. And we stick to the "triple bottoms are made to be broken" axiom. Bullish bias aside, if we dip below $1241 again, we think  $1220  won"t be a problem. Even then, as freaked out as it would seem, the market is still ok for its next run higher by many measures. 

The Bull Case Reiterated

Authored by Soren K. Group for Marketslant

By combining Elliot Wave and traditional Technical Analysis we have been fortunate to be on  the right side of this move  that started  around $1214. But it is getting hairy now. Breaking $1247 took out a leg despite the fact we are back above  it. Taking out $1241 was another area we liked. Being above it again is obviously good. but it would be much better if we saw some people "get short in the hole". Unfortunately we did not see shorts getting in net-net, but longs getting out. So on balance the analysis is still valid, but we are on alert that the  next dip may not be bought at all. In Resistance/ Support Terms it reads like this

• 1550


• 1350


• 1296


• 1280


• 1257-1259


• 1247- 1248


• 1241-1238


• 1217-1214


• 1150

Numbers aggregated from these Posts 

1. MYSTERY SOLVED? GOLD OVER $1214 GIVES $1550 AS TARGET


2. Project $1550 Gold: Buy Dips Above $1248


3. Why Gold is Up and Why $1550 is Still The Target.


4. Wave Count Hints at $1241 Bottom


5. Above $1259 Settlement Gets you $1296 

The Knot in Our Gut Just Got Bigger

One of our colleagues came out of hibernation recently  and quite voluntarily voiced something we  were afraid of in these recent swoops and flash  crashes.  Without giving away his system we will just say that with 30 years trading Gold and managing money for some  of the biggest players in Metals during that time, when  he makes a statement, we take note. Quite simply:

$1214 gets you $1200 and if we break that number a freefall should commence leading to $1150

So it is stuff like that that scares  us. What"s more his opinion is not based on Elliot Wave counts, but he reads them  nonetheless. He just thinks  that the wave count we are following is not going to hold. 

Gold Today is basically unchanged  

 

click pic for updated prices?

Gartman  And Goldman are Bullish Now

Do we have to say anymore? It has been our experience that when Goldman is bullish, the next $20 may be higher, but the next $50 is likely lower. As to Gartman, he has a bad rep in predicting Oil prices. Histrack record isnt so bad in metals. We happen to have a good idea why. Gartman is wired to a couple London Bullion dealers and when he gives info or insight, especially in explaining a move, he is very good.

So we are not as negative on Gartman as a "contrary indicator" as most in the trade are. That said, the power of a Goldman  recco buy combined with a Gartman  long idea is like  crossing the streams in  Ghostbusters ( the good one girls)

Finally, and this is purely observing the context of Gartman"s statements: Talking about Gold and Bitcoin is like saying "I want some publicity so I"ll act like I know my ass  fro m my elbow in  Crypto currencies."

Really, we know a shitload about these products and in some circles are considered experts in the macro concepts governing them.

The only thing we feel we are expert about in Bitcoin and its ilk is in learning everyday we don"t know shit about them and got to keep  learning. So who the F&*k is Gartman to even  have an opinion on Bitcoin? He may as  well be talking about Beanie  Babies.

And that is the final straw or us.

Flat is Where It"s At

Goldman and Gartman are bullish.  Out gut says the downside is vulnerable, and a seasoned professional who rarely makes statements  is now uber bearish. So what is our conclusion?

Project $1550 is still in play, but we would rather now buy strength  than weakness. Flat is where it is at now with a buy stop entry above $1259 and a sell stop exit below $1240. The first upside target if the wave count holds is $1296. That"s our  call. 

And if our bearish colleague is right, sell  the crap out of it below $1241 on a settlement basis.

About the Flash Crash - it was manipulated

We"ve been very vocal  in stating that a fund puked to a commercial last week causing the $18 swoon. What was interesting was the strong bounce. While we still stick to our info  that the most likely scenario was a fund puking to a commercial there was something that bothered  us about the way it bounced. What kind of idiot would buy back  in like that? And then it hit us. There was an option expiration we believe on the LBMA and it is quite possible a commercial wanted to "make his option position right". And that is what one London trader told us. We already knew that the COMEX expiration  was coming due as well. Odds  are overwhelmingthat COMEXoptiosn positions had offsetting LBMA expiring positions. That is just from our experience.

Our London Source:

Someone wanted to make themselves right at an expiration. The bounce came post expiry, after the risk went away. Possibly a cash settled LBMA look alike vs a Comex futures-settled hedge 

Here is some analysis into how influential an option expiration can be. Even bigger than a daily Fix. It is during  option expirys that the tail wags the dog.

 Viking Analytics agrees and puts it rather eloquently:

The COMEX Gold Options Market is Enormous

The flash crash of gold occurred one day before the COMEX gold market had a key expiration date. The COMEX gold options market is enormous, accounting for approximately 45% of the value of the COMEX gold futures market. While many market analysts pay attention to the gold futures market, it is rare to find an analyst that provides commentary on the options market. [Soren K- we  agree and now number Vokingamong the few that "get it"]

The most recent Commitment of Traders ("COT") report can easily demonstrate the influence of the options market. The delta-weighted options on June 20th were approximately 46% of the futures open interest. The "delta-weighted options" essentially means the "equivalent futures contracts."

The main point that we are trying to make here is that the COMEX gold options market is enormous and influential, every bit as influential as the futures market itself.

The Value of Options in the COMEX Gold Market and GLD

Not only is the COMEX options market significant, the options market in the SPDR Gold Trust (GLD) is significant as well.

At Viking Analytics, we have created a (beta version) program to calculate the value of every call and put option at the end of every COMEX trading day. We also calculate the value of certain relevant call and put options for GLD. At the end of the day on June 23rd, the value of all call and put options that expire in June was $66.7 million.

Moreover, the value of the options that expire Tuesday on the COMEX were $28 million and $24.5 million for the calls and puts, respectively as of June 23rd.

Moreover, the change in value of the aggregate calls and puts expiring June 27th might be as much as 50% of the value of the calls and puts themselves.

Therefore, there is a lot of money riding on the closing price Tuesday at COMEX  [Soren K.- and look alike LBMA] options expiration.

This explains much more cleanly why a commercial sold volume and then the market bounced the next day. We have one source saying this was a factor now and have adjusted our opinions accordingly. We will not look for others because it doesn"t really matter does it? it is a market reality that must be traded around. Gold is manipulated and the depth of that manipulation is so large that no court will be able to understand just how much  money is stolen with: spoofs, fat fingers, pinned option expirations, fixes, slams, swoops, and the usual front running. And we have seen this first hand as victims in options in  every commodity traded.

So whether a fund puked or an option expired, there was some manipulation going on. We already know the truth. The problem is in finding facts. By the time investigators see the fire investors have already choked on the smoke.

Some Flash Facts:

1. The contracts traded the minute of 4:01am were MORE contracts traded than any other minute of the trading day Monday. The trading range in the 4:01am EST minute was about $18 per ounce.


2. The second panel in Eric"s chart above shows a dynamic bid-ask "stack" with the at-the-market bids in dark blue, and out-of-market bids in red. The main point here is that the flash sale of 2% of annual mining supply completely removed liquidity from the futures market. The order to sell 1.8 million ounces hit many of the bids that were offered at 4:01am. This is perfectly legal. However, it shows the power of some market participants (who have the capital to do so) to dramatically change market dynamics in a single (illiquid) minute.

The Game is rigged. And even  with the new UK lawsuit gathering steam we do not believe the actual money stolen from  investors numbers can ever be known. But we arepretty sure that whatever is offeredby these  lying settlers, it is 10x that amount. But we gotta keep trying

Click for info

ALERT: Euro impending collapse, but don't worry - FX is simple

Forex is the most simple market in the world.  As we explain in our book Splitting Pennies - Forex is the underpinning of the world"s financial system.  Although it is also the least understood market, there"s nothing "sophistocated" about FX.  Take a dollar, exchange it for a euro.  The rate changes - exchange it back.  Simple!  Trading money.

There is no "2 day settlement" in Forex, a custodian, there"s no Reg D, no Reg NMS - there"s no HFT front running your orders, there"s no "order types" - there"s no exchange rules (because there"s no exchange).  Actually, when you strip away the complexities of most markets like securities, bonds, real estate, commodities, FX is many times over the most simple market.  

Understandably, the securities market is the most widely promoted to investors because of the potential for making high returns from participating in corporate ownership (and thus ownership of profits).  But securities are a derivative.  Investors don"t really own the companies - they own the shares.  And actually to be technical, they don"t own the shares too - they are controlled by a huge custodian DTCC.  The securities, bond, and futures markets are the core of modern capitalism.  But they aren"t a necessity, they are an abstration and thus - have complex rules.  Or to say differently - the banking system needs the real economy - the real economy doesn"t need the banking system.

How do these abstract markets drive inflation?  Here"s how.  QE doesn"t directly go into the economy.  However, by keeping interest rates low, both in real terms and buy the Fed"s various asset purchase programs - it means money has never been cheaper.  With cheap money, it"s easy for i-banks to borrow at zero or near zero rates, invest in any index at 2x or 4x leverage and get their 20% - 40% per year with virtually no risk (that is, no seen risk - there is huge tail risk that one day the market will collapse, which it will for sure, like the big bubble that it is.)  

The "stock markets" have become so intertwined with the real economy, they have made themselves a necessity.  Like a virus that has taken over a host, now it would be practically impossible to kill the market without affecting the overall economy.  All of this has become so complicated, with so many involved parties - it has become a giant spider web.

On the topic of the Fed and their direct stock market alleged manipulation, consider the following.  The Fed is owned by the member banks.  The Fed gives it"s QE to the member banks, almost all of which are now publicly traded companies.  Here"s where the paper trail begins for the "conspiracy crowd" about the Fed being owned by nefarious 13 families:  Public disclosure rules mean that anyone can lookup what"s going on at Bank of America (BAC).  Hiding significant information at public companies is very difficult, and becoming more and more difficult with the digitization of records, communications, and basically all aspects of business, which by the way is all "doubled" and recorded on a network level by ATT (T) another public company - and stored in an NSA database.  America Inc. is technically a corporation and the states such as South Carolina are more like countries (hence the name "states") - although you can"t buy and sell shares of America Inc. you sort of can, it"s called immigration - citizens of USA are sort of like shareholders.  And there"s a short side too, record numbers of US Citizens are giving up their citizenship.  So, does the Fed manipulate the stock market?  It"s not a fair question, because Fed ownership and operations are completely intertwined with the stock market.  During the time when the Fed was created, America was just passing the wildcat banking era, where there were thousands of private banks.  Do not confuse "private banking" with a "privately owned bank" - private banking is discreet services for rich people who may want to hide their assets or not let others know how rich they are.  Privately owned banks are nearly non-existant in the USA today, for a number of reasons - mostly caused by generational wealth transfer and generally a trend towards the institutionalization of assets.  What does that mean?  It means that 100 years ago, things were in YOUR name, if you were JP Morgan or Andrew Carnegie.  Today, it"s all in tax havens, the Carnegie foundation, trust funds, and almost nothing is in YOUR name.  That includes banks, which are mostly publicly traded and thus, publicly owned.  The individual has become obsolete.  

So all these tendencies, make the market so complicated it"s even confusing to describe.  

All this drama created by Nixon is really in the eye of the beholder - this idea of "economic collapse" is a fantasy promulgated by religious types in armaggedon style packaging, as if the Earth will explode and burn in a big singularity event.  The reality is that "economic collapse" is happening every day, simply that only some of us notice it.  

Forex simply guages the tides as they ebb and flow, EUR/USD rate changes, but not really that much.  Brexit gave us a 9% move which is huge for FX but not really statistically significant in the grand scheme of things.

Take a look at EUR/GBP for last 10 years:

This is a monthly chart.  You can see why FX is not interesting for the general public.  But it takes a lot less time to understand FX than the stock markets.  FX is simple.

As we head into a potential complete meltdown of the Euro, and tomorrow"s NFP, we"re heading into an event that may change the face of FX forever.

Dear Trader, With the upcoming second round of the French Presidential Election this weekend, we require that your account balance plus any open profit or loss covers at least 3% of the total notional exposure across all EUR crosses and EUR Equity Index CFDs by 4pm (UK time) Friday, 5th May 2017. Where the cover is lower than 3%, we may reduce your positions to increase the cover on your account before the market close. Exit polls will be released prior to the market open on Sunday, 7th May 2017 and there is increased risk of wide spreads and large price gaps on the market open and through the night. Please ensure you are comfortable with the exposure on your open positions leading into the market close on Friday, 5th May 2017. If you have any queries, please do not hesitate to contact Client Services by calling +44 20 3192 XXXX or emailing XXXXXX. FX and CFDs are leveraged products that can result in losses exceeding your deposit. They are not suitable for everyone so please ensure you fully understand the risks involved. Kind regards LMAX Exchange Client Services Team

To get a primer on what this FX is all about and how it"s really more simple than any other market - checkout Splitting Pennies - Understanding Forex.

Are 401K Holders About To Feel A Savers Pain?

Authored by Mark St.Cyr,

There’s an old truism people forget all too often. It has many variations and is attributed to even more, its core meaning goes something like this:

“If the government can give it to you, than it can also take it away.”

Some of you might be wondering if I’m talking about the current “tax” advantages that have made these vehicles so popular over the years. To that I’ll say no, not at this current time. But I feel that will be the least of worries coming down the pike in the not so distant future.

No, what I’m directly addressing is what is now emanating from the one and only non-government, privately held institution, directed by a consortium of non-elected, Ivory Towered, policy wonks: The Federal Reserve.

And those emanations are anything but 401K holder friendly. Let me explain…

I know many are wondering how a government inspired quote, a private institution, their retirement account, or savings account fits under one banner, or are some how all connected. Well, that’s easy:

The Federal Reserve has been the sole entity that dictates what any of them are currently worth. And if you don’t like their choices or decisions? Tough. There’s nothing you can do about it. Period.

Maybe that’s not quite correct: It’s not that there’s “nothing you can do.” The problem is – there’s nothing you’ll want to do. Hence where the real issues lie.

The following is for those who know of no other “investing” world (or 401K holder) other than after the financial crisis of 2007/08. Or put differently – if you’ve been working and saving only for the last decade or so. i.e., in the 35ish – 40-year-old bracket and younger.

Back in ancient history before algorithmic HFT parasites roamed the trading world (circa 2008 A.D.) One could retire comfortably with a modest sum of money and find relatively safe places to hold their assets receiving some form of interest payment for its usage. CD’s (certificates of deposit) bonds (such as U.S. Treasuries) and others were some of the most popular.

That was until the Fed. decided interest rates and everything that was connected to them was secondary (and even expendable) as to subjugate the financial markets and bring them into such a reflexive corollary that even if a Fed. official whispered- the effect on Wall Street was a realtime example of that other adage “When a butterfly flaps its wings…”

That’s what pumping (and printing) $4+TRILLION dollars via differing iterations of QE, Twist and a relentless death grip for years at the Zero-bound will buy you.

For those who don’t remember, it used to be when understanding investing prowess people used to say (or was advertised) things like, “When E.F. Hutton speaks – people listen.” Now it’s: “When The Federal Reserve whispers – Wall Street jumps!”

That’s what the greatest expression for capital formation the world has ever known has now become. i.e., Nothing more than a trained jumping flea circus. And again – all in less than 10 years.

Does a “Mission Accomplished” banner come with that? But I digress.

One of the reasons I can attest to much of what has been thrust upon (or taken from) retirees and others is that I actually am one, became one right at the beginning of the financial crisis. I was fortunate enough (via hard work and forethought) as to retire at the age of 45. A “dream” or ‘brass ring” many find elusive if not near impossible back in 2005.

It was a dream come true. However – it was also smack-dab right before, and squarely into the teeth of the “out of the blue” financial shock and market melt down for the ages that would transform everything. And I do mean: everything!

Suddenly the idea of diversifying one’s financial assets into relative safety was gone – and I do mean just that – gone. Which is, by-the-way, why I detest and so adamantly stand against all this over-simplified drivel once again appearing from so-called financial “expert” landscape. It’s going to hurt far more people than it’ll ever help.

The Federal Reserve decided in its infinite “wisdom” that interest rates were now to be considered a “poison” to the economy and not only cut – but slashed them, and held them at the Zero-bound for years. What this meant was one could no longer expect to receive any interest bearing accounts to live. i.e., Eat, pay bills, et cetera. And I won’t even get into what it has done to pensions and insurance companies.

But no one has cared – especially the Fed. Let me use the following for demonstration purposes…

Let’s say you were an entrepreneur and sold your business, or were able to some how via thrift or shrewd business acumen, and were able to amass a nest egg of let’s say $3Million dollars for the entrepreneur, and $1Million for the shrewd. Both scenarios are quite feasible for the prudent minded.

Just 10 years ago it was also not only feasible, but rather probable, one could safely allocate their resources finding returns of 5% (and higher, depending) in such mundane vehicles as CD’s, Treasuries, and more.

So, using nothing more than napkin math, one could easily calculate using the $1MM example that money would generate approximately $50,000.00 per year without touching the principal for one to live on. This was also a relatively accurate proposition because there was precedent going back decades. Sure, $50K ain’t what it used to be, but it’s sure a hell of a lot more than Zero – which is precisely what interest rates have been now going on years. And on $3MM? It’s the same. i.e. Zero, as in zip, zero, nada.

“But wait! There’s more!!!” as they say, but it’s not a bonus anyone wants to hear about. What is that you say? Glad you asked…

Not only does having a $Million dollars get you nothing at a bank (correct, not even a lousy toaster) if you are one of the fortunate (or unfortunate depending on perspective) who wants to put that hard-earned money safely under “lock and key” via the auspices of some bank – it’s going to cost you! And in some instances – they might not even want your deposit at all. Why?

Why else – it’ll cost them, and that’s a no-no in banking. Costs are something you pay – not them. And if enough profits can’t be made on legitimate transactions? See Wells Fargo™ for clues.

So what was the flip side? Here’s my opinion…

Welcome to the “markets” (or should I say casino) of today. Where 401K holders, and corporate buy-backs supported via the Fed’s balance sheet accrual, and zero interest rate financing meet the front running, algorithmic, headline reading HFT parasites which enabled the BTFD phenom to appear time, after time, after time, after time. Which, by its very nature and existence has allowed “investing” to be the equivalent of nothing more than following the strategy of a chimp hurling darts at ETF symbols backed by a central banks “bulls-eye.”

Ah, but what a difference an election does make, no? For that was then – and this is now. And “now” seems to be that the Federal Reserve is hell-bent as to raise interest rates regardless of what the “markets” desire.

Can you say, “Oh-oh?”

For years the cries of savers, pension plans, insurance companies and more have fallen on deaf ears. Actuary tables that prove these bedrocks of society can not sustain or endure under a Fed. policy such as what has been thrust upon them was relegated to the, “Who cares the “markets” up – deal with it!” status.

Now – That all seems to have changed.

Suddenly (as in the last few months) interest rates not only need to go up. They need to go up stat!

The Fed. via its differing speakers in public comments are signaling that not only is the raising of rates further, and quicker on the table, but so too is the balance sheet as to begin down sizing it.

If the above is to be taken at face value (and why shouldn’t it, after all, isn’t this why the Fed. makes public comments to begin with?) with signaling (via the Dot Plot and more) now stating 3 rate hikes for 2017 and some Fed. speakers signaling the possibility of even 4. Along with the abrupt metamorphosis of doves turning into hawks (using Ms. Yellen, and Ms. Brainard as examples) the “markets” are going to find fuel to propel them higher using what precisely?

The only fuel that has enabled the “markets” to propel this high has been all Fed. funded. And now this same Fed. is in no uncertain terms professing they’re out of the “hopium” business. Or at least – want to appear that way.

If this is true, taking them not just at their words, but rather via their actions – we now have 2 rate increases in 90 days with near shouting (as compared to prior discussions) that the Fed. is far more interested in raising further, and faster, than previously discussed. All while remembering it was only a few short weeks prior the Fed. Chair herself was touting the need for running a “high pressure economy” and has now flipped to jettison anything of the such – and is now the undisputed leader of “hawks are us.”

The issue here is – the “markets” have been levitated via the “wings of doves.” Suddenly – those “doves” have all but vanished. And if that’s true? What’s vanished with it may just be the BTFD genius along with it. And that will turn into a very big problem indeed if correct.

When savers were (and still are) getting crushed, no one cared, not even the Fed. The problem?

It seems just as the Fed. turned its back on savers pain all these years – they might be signaling how they’re going to feel about any 401K holders losses that may appear via their new-found policy stance. To Wit:

ZeroHedge: “What is the biggest S&P drop the Fed will accept before intervening?”

Minneapolis Fed. president Neel Kashkari: “Don’t care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis.”

And with that, only one last saying comes to my mind:

Dear 401K holders – welcome to a savers world. Oh yeah, and buckle up. For things might get a little “bumpy” as that other saying goes.

Index Investing Unmasked: 96% Of Stocks Are Garbage

Submitted by Daniel Drew via Dark-Bid.com,

Warren Buffett released his annual letter over the weekend, in which he praised Jack Bogle as his "hero" for promoting index investing. The irony is that investors would have been better off buying Berkshire shares. Over the last 10 years, Berkshire stock is up 139% while the S&P 500 is up 71%. The real question is why Buffett just doesn"t tout his own stock rather than promote index investing. He tries to explain himself:

"Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price - it"s no fun having owners who are disappointed with their purchases - nor one too low."

Buffett is doing something every skilled salesman does: managing expectations. Buffett"s own performance is compared against the S&P 500, and what better way to win that game than by putting a floor under the Berkshire price with the promise of share buybacks and then putting a ceiling on the stock by promoting index investing? The real secret is Buffett is talking his book by not talking it: Rather than tell investors to buy Berkshire at any price, he tells people to invest passively through an index, which leads to the very market inefficiencies that he profits from.

The great appeal of index investing is its low fees, but like buying a cheap pair of shoes that falls apart after 6 months, investors will find that index investing is the most expensive thing they ever did. Vanguard promotes its rock bottom expense ratios, but what is not published is market impact costs that are incurred when the fund rebalances. Since these rebalances are often announced ahead of time, they are extremely vulnerable to front running. Christophe Bernard, PhD Senior Scientist at Winton Capital Management, estimates that front running costs index investors 0.20% per year. That"s 4 times the official expense ratio of Vanguard"s S&P 500 ETF.

In his latest research, finance professor Hendrik Bessembinder discovered that 58% of stocks don"t even outperform a Treasury bill. This study was based on 26,000 stocks from 1926 to 2015. Just 4% of stocks accounted for all of the $31.8 trillion in gains during this period. That means 96% of stocks were complete garbage. Even worse, shares of unprofitable companies outperform their profitable counterparts, which is why you have a marketplace that is dominated by Twitters and Teslas.

Index investing means buying a box of garbage stocks sprinkled with a few hope and glamour stocks whose price gains are solely a result of underperforming fund managers grasping for quarterly bonuses and retail investors juicing up their portfolios in a doomed attempt to catch up on their retirement targets.

While mom and pop buy a Vanguard index with their $500,000 and get front run all day by proprietary traders, the capitalist televangelist Warren Buffett will continue to actively trade billions while preaching the miracle of buy and hold investing.

Indexing Lunacy

By Chris at www.CapitalistExploits.at

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week"s edition of the WOW we"re covering an update to indexing lunacy

In a previous edition of the WOW I wrote about a bubble in dumb money, and in it we looked at the massive drawdowns in capital from hedge funds in favour of "passive investing" via ETFs. Investors have a point. Why pay 2/20 when you can pay as little as 0.09% for an ETF which appears to do pretty much the same thing as a hedgie?

Two reasons that a 10-year old should be able to provide:

1. If you don"t know what you"re buying, then how the heck are you going to know when to sell?


2. Buying an ETF that is "low vol" creates a self fulfilling cycle. You"re buying it because of its volatility relative to other ETFs and asset classes. The more you buy it the lower the volatility measure - ergo the more you have to buy it. Genius, until the inevitable happens.

I summed my thoughts up with the following:

I fear we’re about to find out how smart “smart beta” really is. When the inevitable happens and Bob and Mabel, together with their millennial grandkids, Peach and Cloud, lose their shirts there’ll be no-one there to explain to them, “sorry, snowflake but did you realise that over half of the index you bought was sporting P/E and P/B ratios that have only existed a couple of times before?”

To help us along today in providing a granular view of how truly silly indexing really is I"m leaning on my buddy Harris Kupperman (Kuppy) who, after our discussions on the topic and some sifting through the entrails of ETFs, offered up the following:

So, this should be pretty easy to sort out.

Crawford & Co has two classes of stock, A and B. The A shares pay a dividend that is 2 cents a quarter higher than the B shares. There are differences in voting rights, but as there’s a control shareholder, those are irrelevant.

Therefore, a simple analysis says that the A shares ought to trade at a moderate premium to the B shares to account for the nearly 1% higher annual dividend yield. NOPE!! The B shares are in the Russell 2000 index and the B shares now trade at roughly a 35% premium to the A shares.

Now, I’m not here to pass judgement on the investment merits of Crawford and the A or B shares. I have done no analysis on the company and have no opinion on if it is a good investment or not. However, I know that the A shares are better than the B shares as you get a higher dividend and there is no logical reason for the B shares to trade at a huge premium except that the Russell 2000 index has to keep buying them as more money is allocated to the index.

Two years ago, I noted how index funds and ETFs were warping asset valuations and creating opportunities for those who were willing to seek them out.

This trend has only accelerated since then and has grown from something of a curiosity in certain asset classes into a true bubble that is doomed to eventually pop. There are now hordes of overvalued assets that have no justification for their overvaluation, except that index funds have to own them. Like all bubbles, this one too will burst.

In the interim, there will be huge opportunities created by how index funds misallocate capital. As I said earlier, I know nothing about Crawford, but if I wanted to own it, I sure as hell wouldn’t be buying the B shares when compared to the A shares. Additionally, I feel pretty confident in saying that at some point in my career, the A shares will trade at a premium to the B shares—as they deserve to.

At the same time, I wouldn’t be betting that this spread collapses any time soon either. Shorting indexing has been a widow-maker for many in the hedge fund industr y— it’s hard to fight against fund flows.

In finance, when a trend gets in motion and the marketers start pushing it (indexing and ETFs today) you can expect it to go further than is logically possible, but the hangover will be pretty epic. Along the way, there will be a lot of money made by better understanding the flaws in these indexes and front running them — much as I front-ran the marketing department back in March.

As a final note, I’d like to share a chart with you from Passport Capital showing the median total returns of markets graduating to the MSCI EM since 1994. If you can’t beat the indexers, you might as well make money off of them by getting there first.

I think it"s probably worth going back to that article from 2 years ago because it shows exactly how we made money on similar anomalies.

Think of it this way, as the indexing movement has grown, so have the assets under management — leading index funds to become key factors in access to capital. You now have really bad companies that have overstated market valuations, simply because the index has to buy it — yet you have high quality companies that should get access to capital, but are starved because they are not in the index, or not in the index at an adequate weighting.

In the real world, we call this socialism—basically starving the strong in order to prop up the stragglers. In the investment world, this is called indexing.

Rather than continue to bemoan modern portfolio theory, I’d rather focus on how this shift in asset allocation will create opportunities. No chart better illustrates this than the performance of Banco Espirito Santo 2023 subordinated debt:

Does anyone not know that European banks have issues (remember this was 2 years ago)? Does anyone actually believe that the European financial crisis is “solved?”

Any proper perusal of the financial statements would tell you that many European banks have “issues.”

Banco Espirito Santo didn’t suddenly have a problem — it has been troubled for a very long time. The difference is that about four weeks ago, a payment at the parent company was missed and someone suddenly noticed that the problems mattered.

Look at the chart above—the sub debt traded over par, just 5 weeks ago!! That is what happens when the financial system is managed by indexers. They simply buy what they’re told to buy—they do no research. If it is in the index, they need to own it, and we all know that bonds have been a very hot product with lots of inflows over the past few years.

How do you make money off of this? The key is research and knowledge. The good news is that all sorts of assets are mispriced. In the past, these would be mispriced because humans made mistakes in valuing them. Now they’re mispriced because they are part of a big index and some computer keeps buying them—creating a situation of overvaluation. Or they aren’t yet part of the index and no one knows they exist.

An 80% gain in a month from having realized that a debt payment at a parent company would be missed, is a huge gain. There are more gains like this out there.

Chris again...

My question for today:

Cast your vote here and also see what others think

Ok, so there"s a couple of granular examples for you to chew on.

Bottom line: there is no such thing as passive investing. It"s like passive sex. How it works I"ve no idea. But I just know that it doesn"t.

- Chris

“I own last year’s top performing funds. Unfortunately, I bought them this year.” — Anonymous

Liked this article? Don"t miss our future missives and podcasts, and

get access to free subscriber-only content here.

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World's Purest Silver Producer To Join Class Action Lawsuit Against Bullion Banks For Price Rigging

Submitted by Mac Slavo via SHTFPlan.com,

Though Wall Street regulators and the mega-banks they purport to regulate have long said that there exists no manipulation in markets and that anyone making claims to the contrary is nothing short of a conspiracy theorist, recent revelations suggest that even the most well known financial institutions on the planet have been actively involved in rigging asset prices. We need look no further for confirmation of this fact than Deutsche Bank, which last year admitted the precious metals market has been rigged all along and agreed to pay nearly $100 million in settlements resulting from their direct involvement in the manipulation of gold and silver prices.

Now that the cat is out of the bag and Deutsche Bank has agreed to turn over documents implicating other banks in related schemes, major mining companies are preparing lawsuits of their own. Straight-shooting First Majestic Silver CEO Keith Neumeyer, who in 2015 was the first mining company head to issue a public statement on the manipulation of precious metals prices by a small concentration of players, has said that the company’s legal team is closely monitoring the situation.

Citing loss of revenue, jobs and shareholder value Neumeyer said in an interview with SGT Report that his company will likely be preparing legal action against the bullion banks involved in the rigging of prices.

I have an intimate knowledge of what goes on on the trading floors… how front running occurs, how wash trading occurs, how spoofing occurs… I’ve been looking for an opportunity to step in… I’ve been very vocal… I’ve talked to many executives that are running other silver companies… When the Deutsche news came out I sent an email to the law firm that’s responsible for this lawsuit and I had a conference call with two lawyers… we spoke about this case… I can tell you that a couple of the CEO’s of some very prominent silver companies in the States have no interest in pursuing this… Other CEOs have said that they are interested in pursuing this with First Majestic.

We’re monitoring this. We’re going to follow it. We’re likely going to, at some point, add our name to the class action lawsuit. 

Watch the full interview detailing Neumeyer’s views on global cash bans, what silver prices may do once the manipulation comes to an end, how precious metals will be affected by the incoming Trump administration, current supply and demand fundamentals and an update on his latest projects including Silver One Resources:

Neumeyer and what appears to be a handful of other CEO’s in the industry are preparing to declare war on the banks that have been responsible for the price suppression schemes many knew to exist but couldn’t prove until now.

The problem was that the fox was left to guard the hen house, which of course led to an inevitable bloodbath:

It’s quite shocking to me… It’s very harmful to the shareholders…

…It is manipulation and it’s used frequently. There’s ways that the regulators can monitor it. They can see it happening. The exchanges know when false bids and offers get put into the system… Yet, the exchanges don’t step in because the exchanges are owned by the banks… and the banks are doing that kind of trading… It’s the self policing system, which doesn’t work because no one wants to police themselves because they’re all making too much money.

How does Bank of America or JP Morgan not have a losing day year-after-year of trading… it’s actually impossible… traders lose money… it happens all the time… yet they have not had a single losing day for at least a couple of years as far as I know.

As Neumeyer correctly highlights, it’s impossible for a trader or firm to have such a perfect record, unless of course they are working the system, which certainly appears to be the case based on the evidence.

Now that market manipulations have been proven at the highest levels of the bullion banking system, and with the pressure of lawsuits mounting, there is a distinct possibility that precious metals prices will be allowed to trade freely on the open market.

Such a development bodes well for precious metals investors, especially with Donald Trump set to take over the Presidency in a few short weeks. Neumeyer notes that several Trump appointees are gold-friendly, which could add further upside potential:

On a positive note regarding Trump, he’s got a couple of pro-gold individuals that he’s appointed to his inner circle and I’m looking forward to them starting to make some gold favored policies that will help us as a mining company and our investors as well.

Summing up, Neumeyer hints that precious metals could do very well in the years to come:

We’re in very uncertain times… the world is changing.

If history is any guide, global changes of this magnitude mean that the entrenched systems run by central banks and Deep State politics are set to be destabilized on a level we may have not witnessed in our lifetimes, which means assets like bitcoin, gold, and silver could become the safe havens of choice for investors.

Something Is Fishy In The Oil Market (Video)

By EconMatters

It is pretty easy to game the official government oil numbers if you play in both the physical and paper based commodity markets, and this is the Fed`s concern as well. There is some funny business going on in the oil market. This has happened with Silver and Copper warehousing manipulation, and any market with a large physical storage component is susceptible to this kind of front running or gaming the system.

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