Category Archives: Financial markets

Bitcoin Buyer Beware, by Tyler Durden

Check all the fine print and know exactly what you’re getting if you invest in an Initial Coin Offering. What’s an Initial Coin Offering? Read on. From Tyler Durden at zerohedge.com:

Entrepreneurs have a new trick to raise money quickly, and it all takes place online, free from the constraints of banks and regulators. As Axios reports, since the beginning of 2017, 65 startups have raised $522 million using initial coin offerings — trading a digital coin (essentially an investment in their company) for a digital currency, like Bitcoin or Ether.

 One recent example, as NYT reports, saw Bay Area coders earn $35 million in less than 30 seconds during an online fund-raising event. They sold Basic Attention Tokens (BAT coin) which will grant buyers access to an innovative ad-free web browser the coders are intending to create, but have yet to launch.

And that’s the catch: these investors are buying promises in the form of coins for a product or service that doesn’t exist.

 Similar to the Bay Area example, a group of entrepreneurs in Switzerland secured $100 million last week by selling a coin that will one day be used on Status, an online chat program that’s still being developed.

 Proponents argue that these initial coin offerings are “a financial innovation that empowers developers and gives early investors a chance to share in the profits of a successful new enterprise,” NYT notes.

 However, many say it potentially violates securities law and that this trading of digital currencies is ripe for hackers, from NYT: “Last year, the first blockbuster coin offering, the Decentralized Autonomous Organization, quickly raised more than $150 million. But the project blew up after a hacker manipulated the code and stole more than $50 million worth of digital currency.”

By selling these coins for Bitcoin or Ether, “conventional banks and financial institutions are essentially shut out, allowing initial coin offerings to take place beyond the control of regulators,” and that could lead to a whole host of issues for the entrepreneurs and investors alike.

To continue reading: Bitcoin Buyer Beware

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Doug Casey on 100-Year Bonds

Anyone who buys Argentina’s newly issued 100-year bonds as an investment probably deserves what they are going to get: massive losses when interest rate, and almost certainly at least one Argentinian default before the bonds mature. From Doug Casey at caseyresearch.com:

Justin’s note: Argentina just issued a 100-year bond.

That’s not a typo. South America’s second-biggest country issued a bond that matures 100 years from now.

This is completely nuts. After all, a lot can happen over the course of a century. Not to mention, Argentina doesn’t exactly have the best credit history.

It’s defaulted on its debt seven times since it was founded in 1816. Three of those defaults happened in the last 23 years.

And yet, people lined up to buy these bonds. To make sense of all this, I called up Doug Casey. Below is a transcript of our conversation. We hope you enjoy.


Justin: Doug, what do you make of Argentina selling 100-year bonds?

Doug: These bonds are the 7.125’s of 2117. They’re selling US$2.75 billion of them, at around 90, priced to yield about 8%. The issue is apparently oversubscribed 3-1.

It’s all quite amazing, from a number of points of view.

But first, I’ve got to say something about bonds in general, to set a context. As we speak right now, we’re at the peak of probably the biggest bubble in history. Vastly bigger than the Tulipmania of the 17th century, the South Sea and Mississippi Bubbles of the 18th, and the ’20s stock market bubble of the 20th combined. It’s a super bubble. The current bond bubble will go down in history. As a catastrophe.

I used to think it was metaphysically impossible for interest rates to go below zero. But clearly with financial engineering absolutely anything is possible.

The very idea of buying almost any kind of bond in today’s market impresses me as incredibly stupid. But buying a bond that goes out a hundred years is the type of thing that only happens at the top of a mania. And to top it off, it’s with the government of Argentina…

The whole world—not just computers—is changing at the rate of Moore’s Law.

To continue reading: Doug Casey on 100-Year Bonds

Moody’s: Modest Downside Could Spark $3 Trillion Surge In Pension Liabilities, by Tyler Durden

Trader’s intuition says the long festering debt and pension crisis will erupt soon, indeed, in Detroit, Puerto Rico, and Illinois, it already has.. From Tyler Durden at zerohedge.com:

Some very simplistic math from Moody’s helps to shed some light on just how inevitable a public pension crisis is in the United States.  Analyzing a basket of 56 public plans with net liabilities of $778 billion, Moody’s found that just a modest downside return scenario over the next three years (2017: +7.2%, 2018: -5.0%, 2019: 0%) would result in a 59% surge in new unfunded liabilities.  Moreover, given that total unfunded public pension liabilities are roughly $5 trillion in aggregate, this implies that a simple 5% drop in assets in 2018 could trigger a devastating ~$3 trillion increase in net liabilities.

Meanwhile, Moody’s found that even if the funds return 19% over the next three years then net liabilities would still increase by 15%.  Per Pensions & Investments:

In its report, Moody’s ran a sample of 56 plans with $778 billion in aggregate reported net pension liabilities through three different investment return scenarios. Due to reporting lags, most 2019 pension results appear in governments’ 2020 financial reporting, Moody’s noted. The plans had $1.977 trillion in trillion assets.

Under the first scenario with a cumulative investment return of 25% for 2017-’19, aggregate net pension liabilities for the 56 plans fell by just 1%. Under the second scenario with a cumulative investment return of 19% for 2017-2019, net pension liabilities rose by 15%. Under the third scenario with a 7.2% return in 2017, -5% return in 2018 and zero return in 2019, net pension liabilities rose by 59%.

In 2016, the 56 plans returned roughly 1% on average and would have needed collective returns of 10.7% to prevent reported net pension liabilities from growing.

Of course, as we pointed out before, the problem is that the pending doom surrounding these massive public pension obligations often get clouded over by complicated actuarial math with a plan’s funded status heavily influenced by discount rates applied to future liability streams.  Translation, they can “kick the can down the road” for a very long time before having to actually admit there’s a problem.

Take Chicago’s largest pension fund, the Municipal Employees Annuity and Benefit Fund of Chicago (MEABF), as an example.  Most people focus on a funds ‘net funded status’, which for the MEABF is a paltry 20.3%.  But the problem with focusing on ‘funded status’ is that it can be easily manipulated by pension administrators who get to simply pick the rate at which they discount future liabilities out of thin air.

To continue reading: Moody’s: Modest Downside Could Spark $3 Trillion Surge In Pension Liabilities

We had just experienced exactly the type of free and honest fight club conversation that ZeroHedge enables, by Hedgeless Horseman

I attended the conference that is the topic of this article, and made a presentation on “Breaking the Alternative Media’s Dependence on the Mainstream Media.” Soon I will release the text of that presentation, probably in parts since it was about a 45-minute speech. It was a great conference, and Hedgeless Horseman and Zero Hedge deserve a world of credit for hosting it. From Hedgeless at zerohedge.com:

At the time, my life just seemed too complete, and maybe we have to break everything to make something better out of ourselves.” 

-Chuck Palahniuk, Fight Club

I am still trying to interpret and integrate all that I experienced and learned about disintermediation, about myself, and about y’all at last week’s First ZeroHedge Symposium and Live Fight Club in Marfa, Texas. I hope that writing this after-action report will help me to better assimilate it.

Last Wednesday, I picked up the aquaponics speaker, Tim, upon his arrival from Hawaii at the airport.  My family and I got to know him well during our short 10.5 hour drive out to Marfa, and over the course of the next 6 days.  We now grok the differences between aquaponics and hydroponics, and the similarities between our two families.

For us, staying in the tepees, tents, and vintage aluminum trailers at El Cosmico proved to be a very good choice.  ZeroHedgers arrived and immediately coalesced around the open-air showers and community kitchens.  Usually the question of, “Are you here for the symposium?” was answered with a yes, a big smile, an offer of a beer or mescal, and an introduction such as, “Hello, I am hedgeless_horseman.”  

[The guy in the picture is Hedgeless Horseman]

Some of us had come a day early to tour the art at the Chinati Foundation.  I had very high expectations based on the reading I had done, and they were exceeded.  It was sublime to experience Donald Judd’s 100 untitled works in milled aluminum, in that particular light, architecture, and environment.  Another favorite was Robert Irwin’s relatively new permanent installation where we literally moved out of the darkness and into the light.  The full-day tour served as the perfect appetizer to clear, open, and prepare my mind for the three-day symposium.

Thursday afternoon, I learned from our gracious hosts in Marfa that a few special snowflakes, which had only recently fallen in this hot and dry desert, had started a petition for the city to ban us from holding the symposium in “their” town. I asked what the perceived problem was, and was told that they were afraid we were violent and white supremacists.  We all laughed, especially the non-whites and pacifists.  Someone asked if the special snow flakes were able to read the list of speakers and topics.  Apparently not.  However, I immediately suspected that their concerns and petition were just another clear case of FEAR, False Evidence Appearing Real.  This was confirmed when I agreed to be interviewed by one of them, a young woman from New York, who also claimed to be a freelance journalist.

To continue reading: We had just experienced exactly the type of free and honest fight club conversation that ZeroHedge enables

Trump Is Setting Himself Up To Take All The Blame When The Stock Market Tanks, by Duane Norman

When the stock market tanks, so too will whatever’s left of Trump’s popularity. From Duane Norman at Free Market Shooter, fmshooter.com:

In spite of low volumes, US stock markets made fresh all-time highs today:

The Dow Jones industrial average rose about 140 points and hit intraday and closing records, surpassing a previous all-time high of 21,391.97, which was set last week.

The S&P 500 gained 0.8 percent to also reached record levels, with information technology rising 1.4 percent to lead advancers. The Nasdaq composite outperformed, rising 1.65 percent.

In an article written for Single Dude Travel and published the day Trump took office, I stated what many others have already been saying for a long time; the market is far overdue for a correction to the downside, and when the whole charade comes crashing down, President Trump is gonna wear the whole thing around his neck:

Whether it was Clinton or Trump, whomever won the Presidency was going to be saddled with $20 trillion of debt (not counting the off-the-books liabilities like Social Security, Medicare and pensions), and a stagnant economy that consists largely of welfare recipients, a defunct healthcare system, and several states and municipalities on the brink of insolvency.

Not exactly a recipe for success. 

Brandon Smith of Alt-Market elaborated on why Trump is the perfect person for the Deep State / Central Bankers / Globalist movements to blame for the coming market collapse…

With interest rates increasing, I would point out that market behavior has changed. The meteoric rise has stalled. In the past few months stocks have barely budged 1 percent either up or down per week. Except for last week when something strange happened; markets suddenly dropped nearly 400 points in a single day. Why? Well, that is a subject up for debate, but the majority of mainstream news outlets will tell you that it was all Donald Trump’s fault.

I have been warning since long before the election that Trump’s presidency would be the perfect vehicle for central banks and international financiers to divert blame for the economic crisis that would inevitably explode once the Fed moved firmly into interest rate hikes. Every indication since my initial prediction shows that this is the case.

The media was building the foundation of the narrative from the moment Trump won the election. Bloomberg was quick to publish its rather hilariously skewed propaganda on the matter, asserting that Trump was lucky to inherit an economy in ascendance and recovery because of the fiscal ingenuity of Barack Obama. This is of course utter nonsense. Obama and the Fed have created a zombie economy rotting from the inside out, nothing more. But, as Bloomberg noted rightly, any downturn within the system will indeed be blamed on the Trump administration.

To continue reading: Trump Is Setting Himself Up To Take All The Blame When The Stock Market Tanks

 

Harry Markopolos – Who Exposed Madoff – Has Uncovered a New Fraud, by Robert Huebscher

The fraud is in the Boston Transit Authority’s pension fund. Pursuing fraud in municipal pension funds would be a full time job for 100 accountants. From Robert Huebscher at advisorperspectives.com:

Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud. The unfunded status of the pension fund of the Boston Transit Authority (the “MBTA”) is $500 million bigger than previously thought, according to Markopolos. This will have a significant impact on the municipal bond market, especially if it turns out that the MBTA’s problems are endemic among similar pension funds.

The unfunded status of a pension fund is the market value of the assets minus the present value of the liabilities, discounted at an actuarially determined interest rate. For most public pension plans, this number is negative; the liabilities exceed the assets and it is underfunded.

Although the full details are not yet known, Markopolos said the $500 gap is due to bad investments, fraudulent accounting and unrealistic actuarial assumptions.

Markopolos spoke on June 9 at Northfield Information Service’s 22nd annual summer seminar, held in Newport, RI. Northfield is a provider of advanced analytics to institutional investment managers and wealth managers. Its CEO, Dan diBartolomeo, worked with Markopolos in the Madoff investigation and is helping with the MBTA case.

Markopolos called what is left of the MBTA’s pension a “Tender Vittles retirement plan,” meaning (sarcastically) that its participants would be eating cat food.

The underlying cause of the MBTA’s problems was poor management and oversight. “No good outcomes result when you mix politics and money,” Markopolos said.

The problems began with failed investments in two hedge funds and culminated in the more widespread problems that Markopolos uncovered.

To continue reading: Harry Markopolos – Who Exposed Madoff – Has Uncovered a New Fraud

Why The Markets Are Overdue For A Gigantic Bust, by Chris Martenson

When this bubble finally busts, it will be the biggest bust in history. From Chris Martenson at peakprosperity.com:

Let me begin with a caveat: confirmation bias is an ever-present risk for an analyst such as myself.

If you’re not familiar with the term, ‘confirmation bias’ suggests that once we’ve invested time and emotional energy into developing a worldview, we’ll then seek information to confirm that view.

After writing about the economy for so many years, I’m now so convinced that we can’t print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me.  I’m going to keep repeating this mantra and Im going to keep finding data that supports this view.

Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites.  But it cannot print up real prosperity.

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It’s just too clear to me that doing so presents plenty of dangers, due to what we might call ‘economic gravity’: What goes up, must also come down.

Which brings us to this chart:

The 200 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal.  At least to entire financial markets, large institutions, and a few sovereigns.

It’s essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’  That is, paper claims on real things. 

As the central banks have printed with abandon over the past decade, they’ve created the most extreme gap between real things (GDP) and the claims on those same things (Net Worth) in all of history.

To continue reading: Why The Markets Are Overdue For A Gigantic Bust