Olduvaiblog: Musings on the coming collapse

Home » 2014 » February » 14 (Page 2)

Daily Archives: February 14, 2014

Bitcoin and Gold: Currency versus Money

Bitcoin and Gold: Currency versus Money.

Bitcoin holders — especially those who bought in during the crypto-currency’s recent surge past $1,000 — are a bit shell-shocked this week:

 

Bitcoin prices plunge as problems persist

Bitcoin prices plunged again Monday morning after Mt.Gox, the major exchange for the virtual currency, said technical problems require it to continue its ban on customer withdrawals. 

Mt.Gox said it has discovered a bug that causes problems when customers try to use their account to make a transfer or payment of bitcoins to a third party. It said the problem is not with Mt.Gox software but affects all transfers of bitcoins to third parties.

The exchange said it was suspending withdrawals and third-party payments until the problem is fixed, although trading in bitcoins continues.

A bug is allowing a third party receiving a bitcoin transfer to make it look as if the transfer did not go through, which can lead to improper multiple transfers, Mt.Gox said.

Bitcoin prices on Mt.Gox plunged from about $693 just early Monday to $510 at 6 a.m. ET, soon after the statement was posted. Prices had been as high as $831 just after 7 p.m. Thursday before Mt.Gox’s halt of withdrawals was first disclosed early Friday morning.

Mt.Gox tried to put the best face on the technical problems in its latest statement, noting that the technology is “very much in its early stages.”

“What Mt.Gox and the Bitcoin community have experienced in the past year has been an incredible and exciting challenge, and there is still much to do to further improve,” it said.

This is one of those “teaching moments” that the President likes to point out. But the lesson isn’t that bitcoin in particular or crypto-currencies in general are fatally flawed. It is that they are currencies, not money or investments, and the differences between these three concepts is crucial to doing asset management right.

An investment is something that, if successful, generates cash flow and potentially capital gains, but if less successful can produce a capital loss. Money, in contrast, is capital. It is what you receive when you sell an investment and/or where you store the resulting wealth until you decide to buy something with it. Money does not generate cash flow and does not “work” for you the way an investment does. Instead, it preserves your capital in a stable form for later use.

“Sound” money exists in limited quantity and doesn’t have counterparty risk – that is, its value doesn’t depend on someone else keeping a promise – so it tends to hold its value over long periods of time. Gold and silver, for instance, have functioned as sound money for thousands of years. As you’ve no doubt heard many times, the same ounce of gold that bought a toga in ancient Rome will buy a nice suit today. Ditto for oil, wheat and most of life’s other necessities.

Currency, meanwhile, is the thing we use for buying and selling. It can also be money, as in past societies where gold and silver coins circulated. But it doesn’t have to be. Paper dollars, euro, and yen are representations of wealth rather than wealth itself and are only valuable because we trust the governments managing them to control their supply and banks to give us back our deposits on demand. Such currencies are not very safe but are extremely convenient, so even people who understand the inherent flaws of today’s currencies keep some around for transacting.

As for bitcoin, for a while the more excitable in the techie community seemed to think that crypto-currencies could function not just as currency but as money, i.e., as a form of savings, because the supply of bitcoin was limited by the algorithm that creates it. But they were overlooking counterparty risk. Since the vast majority of bitcoins in circulation are stored electronically and transmitted over the Internet, they’re only valuable if those media function correctly. Let a system fail, as Mt. Gox apparently has, and the bitcoins in that system are either unavailable (in which case their immediate value is zero) or suddenly very risky, in which case they’re obviously not a good savings vehicle.

Is this a deal-breaker for crypto-currencies? No. In many ways bitcoin is a better currency than the dollar because it can’t be inflated away by a desperate government or confiscated in the coming wave of bank bail-ins.

People who understand crypto-currencies and own a small amount of bitcoin for transactional purposes are probably unfazed by the latest speed bump. And people who had their life savings in it have received a valuable lesson in the nature of money.

Goldilocks And The Dog That Didn’t Bark | Zero Hedge

Goldilocks And The Dog That Didn’t Bark | Zero Hedge.

Submitted by Ben Hunt of Epsilon Theory

Det. Gregory: Is there any other point to which you would wish to draw my attention?

Holmes: To the curious incident of the dog in the night-time.

Det. Gregory: The dog did nothing in the night-time.

Holmes: That was the curious incident.

— Arthur Conan Doyle, “Silver Blaze”

Goldilocks And The Dog That Didn’t Bark

The market was down more than 2% last Monday. Why? According to the WSJ, CNBC, and all the other media outlets it was “because” investors were freaked out (to use the technical term) by poor US growth data. Disappointing ISM number, car sales, yada, yada, yada. But then the market was up more than 2% last Thursday and Friday (and another 1% this Tuesday), despite a Friday jobs report that was more negative in its own right than the ISM number by a mile. Why? According to those same media arbiters, investors were now “looking through” the weak data.

Please. This is nonsense. Or rather, it’s an explanation that predicts nothing, which means that it’s not an explanation at all. It’s a tautology. What we want to understand is what makes investors either react badly to bad news like on Monday or rejoice and “look through” bad news like on Friday. To understand this, I sing the Epsilon Theory song, once more with feeling … it’s not the data! It’s how the data is molded or interpreted in the context of the dominant market Narratives.

We have two dominant market Narratives – the same ones we’ve had for almost 4 years now – Self-Sustaining US Growth and Central Bank Omnipotence.

The former is pretty self-explanatory. It’s what every politician, every asset manager, and every media outlet wants to sell you. Is it true? I have no idea. Probably yes (technological innovation, shale-based energy resources) and probably no (global trade/currency conflict, growth-diminishing policy decisions). Regardless of what I believe or what you believe, though, it IS, and it’s not going away so long as all of our status quo institutions have such a vested interest in its “truth”.

The latter – Central Bank Omnipotence – is something I’ve written a lot about, so I won’t repeat all that here. Just remember that this Narrative does NOT mean that the Fed always makes the market go up. It means that all market outcomes – up and down – are determined by Fed policy. If the Fed is not decelerating an easy money policy (what we’ve taken to calling the Taper), the market goes up. If the Fed is decelerating its easy money policy, the market goes down. But make no mistake, the Common Knowledge information structure of this market is that Fed policy is responsible for everything. It was Barzini all along!

How do Narratives of growth and monetary policy come together? Well, there’s one combination that the stock market truly and dearly loves – the Goldilocks scenario. That’s when growth is strong enough so that there’s no fear of recession (terrible for stocks), but not so strong as to whip the flames of inflation (not necessarily terrible for stocks, but sure to provoke the Fed tightening which is terrible for stocks).

Over the past few years the Goldilocks scenario has changed. Inflation is … well, let’s be straight here … inflation is dead. I know, I know … our official measures of inflation are all messed up and intentionally constructed to keep the concept of “inflation” and the Inflation Narrative in check. I get that. But it’s the Narratives that I care about for trying to predict market behaviors, not the Truth with a capital T about inflation. If you want to buy your inflation hedge and protect yourself from the ultimate wealth-destroyer, go right ahead. At some point I’m sure you’ll be right. But I’m in a business where the path matters, and I can’t afford to make a guess about where the world may be in 5 to 10 years and just close my eyes. The Inflation Narrative is, for the foreseeable future, dead. It’s a zombie, as all powerful Narratives are, so it will return one day. But today Goldilocks has nothing to do with inflation.

The Goldilocks scenario today is macro data that’s strong enough to keep the Self-Sustaining US Growth Narrative from collapsing (ISM >50 and positive monthly job growth) but weak enough to keep the market-positive side of the Central Bank Omnipotence Narrative in play. That’s the scenario we’ve enjoyed for the past few years, particularly last year, and it’s the scenario that our political, economic, and media “leaders” are desperate to preserve. So they will.

On Monday we had bad macro data on the heels of the Fed establishing a focal point of $10 billion in additional Taper cuts per FOMC meeting, a clear signal that monetary easing is decelerating on a predictable path. This is the market-negative side of the Central Bank Omnipotence coin, which turns bad macro news into bad market news. And so we were down 2%. And so the Powers That Be started to freak out. Did you see Liesman on CNBC after the Monday debacle? He was adamant that the Fed needed to reconsider the path and pace of the Taper.

And then we had Friday. Honest to God, I thought Liesman was going to collapse of apoplexy, what my Grandmother would have called a conniption fit, right there on the CNBC set. The Fed MUST reconsider its Taper path. The Fed MUST do everything in its power to avoid even a whiff of deflationary pressures. Heady stuff. By 10 am ET that morning the WSJ was running an online lead story titled “U.S Stocks Rise as Focus Returns to Fed”, acknowledging and promulgating the dynamic behind bad macro news driving good market news.

It’s not necessary (and is in fact counter-productive from a Narrative construction viewpoint) to switch the Fed trajectory 180 degrees from Taper to no-Taper. What’s necessary is to inject ambiguity into Fed communication policy, particularly after the non-ambiguous FOMC signal of two weeks ago that led directly to Monday’s horror show. The need for ambiguity is also something I’ve written a lot about so won’t repeat here. But this is why Hilsenrath and Zandi and all the rest of the in-crowd are writing that the Taper is still on track … probably. Unless, you know, the data continues to be weak. What you’re NOT seeing are the articles and statements by the Powers That Be placing a final number on QE3, extrapolating from the last FOMC meeting to a projected QE conclusion. And that’s the dog that didn’t bark. It’s the projection that Yellen won’t be asked about in her testimony; it’s the article that won’t be written in the WSJ or the FT. Is the Taper still on? Two weeks ago the common knowledge here was “Yes, and how.” Today, after a stellar bout of Narrative construction, the answer is back to “Yes, but.” That’s the ambiguous, “data dependent” script that Yellen and all the other Fed Governors now have the freedom to re-assert.

If I’m right, what does this mean for markets? It means that our default is a Goldilocks scenario between now and the next FOMC meeting in mid-March. It means that bad macro news is good market news, and vice versa. If the next ISM manufacturing number (no one cares about ISM services) is a big jump upwards, the market goes down. Ditto for the February jobs number. If they’re weak, though, that’s more pressure on the Fed and another leg up for markets.

Place your bets, ladies and gentlemen, the croupier is about to spin the roulette wheel. Pardon me if I sit this one out, though. My crystal ball is broken.

If I’m right, what does this mean for the real world? It means an Entropic Ending to the story … disappointing, slow and uneven growth as far as the eye can see, but never negative growth, never an honest assignment of losses to clear the field or cull the herd. That’s not my vision of a good investment world, but who cares? I’ve got to live in the world as it is, even if it’s a long gray slog.

Activist Post: 20 Signs That The Global Economic Crisis Is Starting To Catch Fire

Activist Post: 20 Signs That The Global Economic Crisis Is Starting To Catch Fire.

Michael Snyder
Activist Post

If you have been waiting for the “global economic crisis” to begin, just open up your eyes and look around.  I know that most Americans tend to ignore what happens in the rest of the world because they consider it to be “irrelevant” to their daily lives, but the truth is that the massive economic problems that are currently sweeping across Europe, Asia and South America are going to be affecting all of us here in the U.S. very soon.

Sadly, most of the big news organizations in this country seem to be more concerned about the fate of Justin Bieber’s wax statue in Times Square than about the horrible financial nightmare that is gripping emerging markets all over the planet.  After a brief period of relative calm, we are beginning to see signs of global financial instability that are unlike anything that we have witnessed since the financial crisis of 2008.  As you will see below, the problems are not just isolated to a few countries.  This is truly a global phenomenon.

Over the past few years, the Federal Reserve and other global central banks have inflated an unprecedented financial bubble with their reckless money printing.  Much of this “hot money” poured into emerging markets all over the world.  But now that the Federal Reserve has begun “tapering” quantitative easing, investors are taking this as a sign that the party is ending.  Money is being pulled out of emerging markets all over the globe at a staggering pace and this is creating a tremendous amount of financial instability.  In addition, the economic problems that have been steadily growing over the past few years in established economies throughout Europe and Asia just continue to escalate.

The following are 20 signs that the global economic crisis is starting to catch fire…

#1 The unemployment rate in Greece has hit a brand new record high of 28 percent.

#2 The youth unemployment rate in Greece has hit a brand new record high of 64.1 percent.

#3 The percentage of bad loans in Italy is at an all-time record high.

#4 Italian industrial output declined again in December, and the Italian government is on the verge of collapse.

#5 The number of jobseekers in France has risen for 30 of the last 32 months, and at this point it has climbed to a new all-time record high.

#6 The total number of business failures in France in 2013 was even higher than in any year during the last financial crisis.

#7 It is being projected that housing prices in Spain will fallanother 10 to 15 percent as their economic depression deepens.

#8 The economic and political turmoil in Turkey is spinning out of control.  The government has resorted to blasting protesters with pepper spray and water cannons in a desperate attempt to restore order.

#9 It is being estimated that the inflation rate in Argentina is now over 40 percent, and the peso is absolutely collapsing.

#10 Gangs of armed bandits are roaming the streets in Venezuela as the economic chaos in that troubled nation continues to escalate.

#11 China appears to be very serious about deleveraging. The deflationary effects of this are going to be felt all over the planet. The following is an excerpt from Ambrose Evans-Pritchard’s recent article entitled “World asleep as China tightens deflationary vice“…

China’s Xi Jinping has cast the die. After weighing up the unappetising choice before him for a year, he has picked the lesser of two poisons.

The balance of evidence is that most powerful Chinese leader since Mao Zedong aims to prick China’s $24 trillion credit bubble early in his 10-year term, rather than putting off the day of reckoning for yet another cycle.

This may be well-advised for China, but the rest of the world seems remarkably nonchalant over the implications.

#12 There was a significant debt default by a coal company in China last Friday

A high-yield investment product backed by a loan to a debt-ridden coal company failed to repay investors when it matured last Friday, state media reported on Wednesday, in the latest sign of financial stress in China’s shadow bank sector.

#13 Japan’s Nikkei stock index has already fallen by 14 percent so far in 2014.  That is a massive decline in just a month and a half.

#14 Ukraine continues to fall apart financially

The worsening political and economic circumstances in Ukraine has prompted the Fitch Ratings agency to downgrade Ukrainian debt from B to a pre–default level CCC. This is lower than Greece, and Fitch warns of future financial instability.

#15 The unemployment rate in Australia has risen to the highest level in more than 10 years.

#16 The central bank of India is in a panic over the way that Federal Reserve tapering is affecting their financial system.

#17 The effects of Federal Reserve tapering are also being felt in Thailand

In the wake of the US Federal Reserve tapering, emerging economies with deteriorating macroeconomic figures or visible political instability are being punished by skittish markets. Thailand is drifting towards both these tendencies.

#18 One of Ghana’s most prominent economists says that the economy of Ghana will crash by June if something dramatic is not done.

#19 Yet another banker has mysteriously died during the prime years of his life.  That makes five “suspicious banker deaths” in just the past two weeks alone.

#20 The behavior of the U.S. stock market continues to parallel the behavior of the U.S. stock market in 1929.

Yes, things don’t look good right now, but it is important to keep in mind that this is just the beginning.

This is just the leading edge of the next great financial storm.

The next two years (2014 and 2015) are going to represent a major “turning point” for the global economy.  By the end of 2015, things are going to look far different than they do today.

None of the problems that caused the last financial crisis have been fixed.  Global debt levels have grown by 30 percent since the last financial crisis, and the too big to fail banks in the United States are 37 percent larger than they were back then and their behavior has become even more recklessthan before.

As a result, we are going to get to go through another “2008-style crisis”, but I believe that this next wave is going to be even worse than the previous one.

So hold on tight and get ready.  We are going to be in for quite a bumpy ride.

Venezuela Accuses AFP Of “Manipulating” News Coverage; Shuts Down Colombian TV Station | Zero Hedge

Venezuela Accuses AFP Of “Manipulating” News Coverage; Shuts Down Colombian TV Station | Zero Hedge.

Having described Venezuela as “absolutely calm” today – when it was anything but; the fact that Venezuelan President Nicolas Maduro has the stones to accuse Agence France Press of “manipulating” news coverage is stunning.

  • *VENEZUELA ASKS INFO MINISTER TO TAKE ACTIONS AGAINST AFP NEWS

Furthermore, Maduro has taken a TV station off-air that competed with Telesur (the state-owned TV station). Of course, we should not worry as Maduro has explained the violence is all protesters’ fault and that he will propose his “peace plan” tomorrow.

 

Via Bloomberg,

Venezuela’s President Nicolas Maduro asked his information minister in a national address to take unspecified actions against AFP France Press. Maduro accused AFP of “manipulating” news coverage

 

Decision to take Colombian TV station NTN24 off the air in Venezuela was made by the government, Maduro says

 

“The NTN24 station tried to compete with Telesur and yesterday created confusion about the possibility of a coup. Off the air”: Maduro

 

I denounce AFP for manipulating information, and I’ve asked the information minister to speak clearly with their correspondents”: Maduro (Telesur is TV network owned by Venezuelan government)

 

And here is Maduro presenting his perspective of the troublemakers from his Twitter account:

RT @tmaniglia: Peaceful opposition creating “a small” fire in the center of Caracas pic.twitter.com/ObTqlvIEPv

— Nicolás Maduro (@maduro_en) February 13, 2014

RT @tmaniglia: peaceful opposition with its face covered trying to knock down a door in the center of Caracas pic.twitter.com/hfIN6O08ZV

— Nicolás Maduro (@maduro_en) February 13, 2014

RT @tmaniglia: Photo 1 the opposition demonstration today in Caracas http://t.co/q1abSlM98h

— Nicolás Maduro (@maduro_en) February 13, 2014

And yet he also told us that things were “absolutely calm”?

Shinzo Abe’s Nationalist Strategy | The Diplomat

Shinzo Abe’s Nationalist Strategy | The Diplomat.

Shinzo Abe’s Nationalist Strategy
Image Credit: REUTERS/Yuya Shino

Shinzo Abe’s Nationalist Strategy

With his overt nationalism and his historical revisionism, Shinzo Abe has a plan for Japan.

By Kosuke Takahashi
February 13, 2014
 351
 108
 5
 8
472 Shares
59 comments

The world is now beginning to realize Japanese Prime Minister Shinzo Abe’s true intentions. With his controversial visit to the Yasukuni shrine, which memorializes war dead, including Class A war criminals such as Hideki Tojo, he is no longer hesitant to reveal his true nature: without question, the most conservative leader in Japan’s postwar history. And he is a historical revisionist, notably with respect to wartime Japan. By encouraging a spirit of nationalism, Abe is hoping to engender self-confidence and patriotism among the Japanese public.

But what exactly is his future agenda? To understand Abe’s political ambitions, you need to understand their take on modern Japan.

For mainstream Japanese conservatives such as the Abe family, Tokyo has been shackled since it accepted the judgments of the International Military Tribunal for the Far East, known as the Tokyo Trials. For one thing, as a defeated nation Japan has always been forced to take a servile position— militarily and diplomatically—toward the U.S., the World War II victor. And Japan has had to repeatedly bow its head to its neighbors, such as China and South Korea, to apologize for its conduct during the war.

Willingly or not, Japan embraced these two international restraints when it signed the San Francisco Peace Treaty in 1951, hoping to return to the fold of the international community as an independent nation.

More than 60 years later, though, the Abe administration wants to free Japan from these perceived shackles. In his own words, he is seeking a “departure from the postwar regime” by “bringing back Japan.” Although Abe has never said from “what” he will bring back the nation, many Japanese believe what he meant is to bring back a militarily, diplomatically and economically strong Japan from the political and economic abyss of the past decades, and perhaps in the long term from the U.S. itself.

Although Abe’s popularity has recently tapered somewhat from the heady days early in this, his second stint as prime minister, many Japanese still support his nationalistic program, because they feel that Japan lacks strength and needs to stand on its own feet, amid mounting nationalism in East Asia and a rising China.

So, to return to the question: What is Abe’s grand strategy? In fact, Abe has a three-year plan to accomplish his ultimate goal of having Japan “depart from the postwar regime.”

Abe’s Three-Year Plan

During the first year of his second term in office 2013, Abe proposed a move from “passive pacifism” to a “proactive pacifism” that encourages Japan to contribute more proactively to world peace and international cooperation. He then established a Japanese National Security Council (NSC). He also announced the first National Security Strategy (NSS) and the National Defense Programme Guidelines (NDPG) that introduced the concept of “a Dynamic Joint Defense Force.” This new concept emphasizes the Self-Defense Forces’ (SDF) joint operations and interoperability capability at sea, in the air and on land, and bolster the nation’s defensive posture in the southwest—in particular the Nansei island chain that includes Okinawa and the disputed Senkaku/Diaoyu islands in the East China Sea.

Over the last year, Abe’s government has also enacted a controversial secrecy law to prevent leaks of state secrets, after it was pressured by the U.S. to tighten the confidentiality of their shared intelligence on security.

Now, in his second year, Abe is trying to reinterpret the constitution to allow for the exercise of the right of collective self-defense. Abe will also formally abolish Japan’s decades-old ban on weapons exports this year. In January, his administration revised textbook screening guidelines to give Japanese children a more patriotic take on modern Japanese history and to better reflect the government’s view on territorial issues such as on Senkaku Islands. Abe has also succeeded in placing four conservative intellectuals with whom he has very close ties on Japan’s public television NHK’s management board. Some of their comments have already stirred considerable controversy.

In this third year, 2015, Abe plans to change Article 9 of the U.S.-imposed pacifist constitution, accomplishing his final goal of escaping from the postwar regime.

This three-year plan seeks to boost national security and could lead to Japanese involvement in conflicts abroad in the future.

Shinichi Kitaoka, a former Japanese ambassador to the United Nations and a key Abe adviser, remarked recently that all of these steps are simply trying to bring Japan closer to a “normal country.” Kitaoka is now deputy chairman of Abe’s Advisory Panel on Reconstruction of the Legal Basis for Security, which is expected to recommend reinterpreting Japan’s war-renouncing Constitution to lift the self-imposed ban on the right to exercise collective self-defense in April.

Mass exodus as volcano erupts in Indonesia – Asia-Pacific – Al Jazeera English

Mass exodus as volcano erupts in Indonesia – Asia-Pacific – Al Jazeera English.

Booms from Java’s Mount Kelud heard 130km away, while about 200,000 people flee as ash, sand and rocks rain down.

Last updated: 14 Feb 2014 09:11

A major volcanic eruption in Indonesia has shrouded a large swathe of the country’s most heavily populated island in ash, triggering the evacuation of about 200,000 people and closing three international airports.

Indonesia’s disaster agency said two people died on Friday in the overnight eruption of Java’s Mount Kelud, considered one of the most dangerous volcanoes on the island.

“A rain of ash, sand and rocks” reached up to 15km from the volcano’s crater, national disaster agency spokesman Sutopo Purwo Nugroho told the Agence France-Presse news agency. “Sparks of light can be continuously seen at the peak.”

The smell of sulfur and ash hung so thickly in the air that breathing was painful.Insaf Wibowo, Kediri resident

Nugroho said about 200,000 people from 36 villages in eastern Java were being asked to evacuate.

Television pictures showed ash and rocks raining down as terrified locals fled in cars and on motorbikes towards evacuation centres.

Booms could be heard at least 130km away in Surabaya, the country’s second-largest city, and even further afield in Jogyakarta.

Kediri, a normally bustling town about 30km from the mountain, was largely deserted as residents stayed indoors to avoid the choking ash.

“The smell of sulfur and ash hung so thickly in the air that breathing was painful,” Kediri resident Insaf Wibowo told the Associated Press news agency.

Two people were killed when the roofs of their homes collapsed under the weight of the ash and volcanic debris, the disaster agency said.

Tremors on Friday continued to wrack the volcano, which had been rumbling for weeks, but scientists did not expect another major eruption.

Ring of Fire

The 1,731-metre Mount Kelud has claimed more than 15,000 lives since 1500, including around 10,000 deaths in a massive 1568 eruption.

The last major eruption was in 1990, when the volcano kicked out searing fumes and lava that killed more than 30 people and injured hundreds.

It is one of some 130 active volcanoes in Indonesia, which sits on the Pacific Ring of Fire, a belt of seismic activity running around the basin of the Pacific Ocean.

Earlier this month another volcano, Mount Sinabung on western Sumatra island, unleashed an enormous eruption , leaving at least 16 people dead.

Sinabung has been erupting on an almost daily basis since September, coating villages and crops with volcanic ash and forcing tens of thousands from their homes.

%d bloggers like this: