Tuesday, July 18, 2017

EES: Fighting inflation with FX, a real traders market

(GLOBALINTELHUB.COM) Dover, DE — 7/18/2017 — Hidden in plain site, as the Trump administration finally released something of substance regarding the so called promised “Trade Negotiation” we see FX take center stage in the global drama unfolding.  As noted on a Zero Hedge article:
The much anticipated document (press release and link to full document) released by U.S. Trade Representative Robert Lighthizer said the Trump administration aimed to reduce the U.S. trade deficit by improving access for U.S. goods exported to Canada and Mexico and contained the list of negotiating objectives for talks that are expected to begin in one month. Topping Trump’s list is a “simple” objective: “improve the U.S. trade balance and reduce the trade deficit with Nafta countries.” Among other things the document makes the unexpected assertion that no country should manipulate currency exchange to gain an unfair competitive advantage,which according to Citi’s economists was the only notable surprise in the entire document: That line of focus centers on FX: “Through an appropriate mechanism, ensure that the Nafta countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”  ..While Canada and Mexico are not formally considered currency manipulators by the US Treasury, the reference in the list of objectives will likely set a template for future trade deals such as the pending negotiation to modify a 5 year old free trade deal with South Korea, a country in far greater risk of being branded a currency manipulator as it sits on the Treasury’s monitoring list for possible signs of currency manipulation.
As we have explained in previous articles and in our book Splitting Pennies – Trade is FX.  Tariffs can discourage trade, but so can a high price – effectively they are the same thing.  Conversely, a cheap price encourages trade.  This is why Japan has logically and rationally destroyed the value of its own currency in order to boost trade, in their case – exports – because Japan is not only a net exporter, they are a near 100% OEM manufacturer.
But it’s not clear that whoever wrote this document understands FX – every currency is currently a ‘manipulator’ – including Japan, and the US Federal Reserve Bank.  In fact, the global FX market has become a race to the bottom, with each currency competing with each other who can go down more, faster.  It’s a race into oblivion.  Contrary to what you may read in the current doom journalism popular online, the global financial collapse is happening right before our eyes – over a long time horizon.  The big mistake that many economists, analysts, and investors have made in the ‘doom and gloom’ crowd is that they all expected a ‘date’ or a ‘time’ when everything would ‘collapse’ – they didn’t think that it can happen over a period of 50 years.  We are in the demise, it’s happening right before our eyes.
Today someone asked me if Bitcoin can really be 500,000 – and why not?  My answer was that, it isn’t that Bitcoin is going UP it’s that the value of the US Dollar is going DOWN.  So if Bitcoin is 500,000 – that property in the hamptons that’s listed for $150 Million, it will be listed for $15 Billion, or why not $1 Trillion.  There is no limit to the amount of money the Federal Reserve can create – but there is a limited amount of Bitcoin.  Those who have lived in exSSR countries or Russia for example, understand how quickly money can be worthless.  Quantitative Easing is itself a global ‘reset’ if you understand how it works, and it happens over a long timeframe.
So where is one to invest, to protect from the deteriorating value of FX?  Bitcoin is by itself not a solution and by no means even something that should be part of any portfolio, it’s a test of the new world order’s global currency payments and monetary control system, whatever you want to call it – and it’s very volatile – just as it goes up 100% it can go down 90%.  The answer is that even with Bitcoin – the point is to TRADE it not INVEST in it.  Let’s dissect FX to understand this.  Take a look at this Daily EUR/USD chart going back 3 years:
eur usd
The EUR/USD goes up, it goes down.  There’s an election in France, an election in the US.  It’s practically one currency.  But the ECB has a similar QE program that’s destroying the value of the Euro as well.  So the way to protect yourself here is to ‘trade’ this.  For example, take a look at a snapshot from 2016 of Magic FX Strategy, that has returned on average 1.5% per month for the last 4 years:
This is not a solicitation of this particular strategy, simply it provides a good example of how to ‘trade’ FX for a consistent profit, to combat inflation.  Investing in CDs and other interest rate products are not going to give you the 15%+ per year needed to stay ahead of the Fed.  This is the game of hot potato that Elite bankers have designed that’s built into the modern electronic financial system.  The stock market is great unless there’s a down year, but still just barely keeps you ahead of the game (if you stick to the traditional blue chips, industrials, utilities, etc) and certainly is not going to give you the 15% – 30% per year returns needed to really grow your portfolio.  30% + is the magic number Elite portfolios target (ironically, it’s about a 2x allocation to Magic FX strategy, in line with the natural fluctuations of the FX market, using reasonable, modest leverage).
If you’re not making 15% + per year inflation is eating you away.  So where can you invest and get 15% with reasonable risk?  The answer is practically no where in the markets, maybe in the private equity world, complex real estate, and other special situations but clearly there is no vanilla answer like “Buy Gold” or “Buy Bitcoin” as there may have been post 9/11.  This will be more and more true as QE matures, because QE is distorting asset prices in complex ways.  This is the ‘trap’ which has been set.  Not only does it cull the herd, as the Elite like to do every 20 years or so, it forces investors into a situation where they have to take more risk – if they don’t, their assets will ultimately be eaten away by inflation.  They have to play the game because if they sit on the sidelines they will lose out.  Of course it’s not fair – but that is the nature of the global capitalist financial system, at the moment, and it’s not going to change in our lifetime, so one can understand it and master it, or be the victim of it, SIMPLE!
And in the case of FX it’s not so complex to understand.  Let’s look quickly at the last currency of investment, the Swiss Franc.
Here’s a historical chart of CHF/USD (usually it’s quoted USD/CHF which is the inverse – opposite)
Investors in Swiss Francs over this period – which includes Americans just sending their money to Switzerland, enjoyed a 400%+ return over the 40 year period, non-compounded, without considering interest (just FX).  The small blip in the 80s when this investment declined was due to the US Dollars aggressive double digit interest rates, but that ended in 1986 when Swissie just took off and never looked back.  That was until the post 2008 world, where Switzerland became the target of a number of investigations by hungry US agencies looking for someone to blame and money to pay for damage done by the credit crisis, including the IRS, FBI, and DOJ in general, but there were a number of other US interests interested in financially ‘toppling’ the Gnomes of Zurich – namely, by closing the only way out of QE.  The Swiss Franc (CHF) was really the only currency that had any value, it was 40% backed by Gold, and upheld by a 1,000 + year banking tradition, a stable economy, and banking privacy laws.
In order to solidify the US Dollar as the primary world’s reserve currency, that had to be smashed.  So they did it in a number of ways, including but not limited to activating assets there such as corrupt central bankers (which really was a non-issue) and squeezing the Gnomes back into submission.  So the conclusion to this drama is now the CHF previously being the only real currency to invest in for the long term and forget about it, is now a central bank manipulated currency that is subject to SNB interventions, caps, trading ranges, and other direct central bank manipulation (like all other currencies).
So the reason for that story is simply that there is no where to just ‘invest’ your money and forget about it anymore (there was, such as the example of the Swiss Franc).  The good news though, FX is a traders market.  If investors are not too greedy, there’s a number of strategies in FX that can return the 15% + needed to beat inflation and possibly even grow.  Magic FX is certainly not the only strategy in the world with such low-volatility and consistent returns.  But due to the recent Dodd-Frank regulations such strategies are only available to ECP investors, which is a step above being accredited – basically you need to be liquid for $10 Million.  Oh, and to make fighting inflation really fun for the retail US investor, you aren’t allowed to hedge (no buying and selling of the same currency) and you must exit your positions in the same order in which you entered them (FIFO) and you have reduced leverage.  Basically, the Fed is creating pressure forcing the hand of investors to trade to stay ahead of the game, and the regulators are making it difficult (and in fact, more risky) to trade.  With US rules it’s a miracle any US retail investor can be profitable.  The rules have really turned FX into the casino that people are afraid of, because they are literally telling you when to exit your trades (FIFO).
In conclusion – FX is a real traders market.  It’s better than stocks, bonds, options, futures, etc.  Now with the influx of Cryptocurrencies FX is about to get even more interesting.  By trading FX successfully, or finding a manager who can do it for you – it’s the only way to fight inflation, to at least maintain the value of your hard earned dollars.  As we mentioned earlier in the article, there are of course other methods such as private equity and niche businesses (such as lawyers selling rights to settlements) that can generate the 30% + needed to grow a portfolio – but it’s not available publicly, in the markets.  But FX is there – it’s there for the taking – and it’s not going away anytime soon.
Article written by Elite E Services for Global Intel Hub.

Sunday, July 16, 2017

The $3.8bn cryptocurrency bubble is a huge deal. But it could break the blockchain

David Siegel had a problem. For years, the American entrepreneur had been working on an idea: an open-source platform, called Pillar, which would allow people to remain in control of their personal information by piggybacking on the blockchain — a digital decentralised ledger underpinning cryptocurrencies such as Bitcoin.
But when Siegel pitched his company Twenty Thirty to venture capital firms, he was met with blank looks. Investors weren’t interested in Pillar, and Siegel couldn’t get funding to build it.
After months of rejections, Siegel decided do something different: instead of phoning just another investor, he resolved to get help from future users.

On 15 July, he is going to sell 560 million “tokens” — digital units of payment that will be necessary to use Pillar, once it’s ready — in exchange for ether, an up-and-coming cryptocurrency exchanged on public blockchain Ethereum. His target is the equivalent of $50 million; if that sounds like a lot, be aware that Pillar’s “token pre-sale”, some days ago, raised $4 million worth of Ethereum’s currency, ether — in 34 minutes.

“I couldn’t raise any money for Twenty Thirty from investors, because they didn't get what we were doing; now we have ordinary people hammering our email about Pillar,” Siegel says. “These people really want to fund this open source project.”

Siegel’s fund-raising model is called Initial Coin Offering, or ICO — and you might have heard of it, as it is the latest big thing in the frenzied world of cryptocurrencies.
An ICO’s functioning is simple: a team with an idea, but short of funds, use blockchain technology to issue a certain amount of digital tokens (aka “coins”) sold in an auction to people paying in ether, Bitcoin or, seldom, regular money like dollars or pounds.
Apart from rare cases, tokens’ only ostensible function is allowing their holders to use the platform that issued them: they could be used, for instance, to buy storage space on a Dropbox-style service, or converted into special objects on a gaming platform. They are the equivalent of coupons for a supermarket under construction.
But tokens often grow into mini-currencies in their own right: they are traded for cryptocurrency or fiat on blockchain marketplaces, and the more successful their related project grows, the more valuable its tokens become. This dynamic is inevitably attracting a great deal of speculation.

The mechanism has been around for a while — the first instance was MasterCoin in 2013, followed in 2014 by Ethereum’s first ether sale, and more recently by the ill-fated autonomous VC firm The DAO — but it really surged over the first half of 2017. Tens of projects have amassed millions of dollar within days, hours, or seconds, with superstars such as blockchain architecture firms EOS and Tezos soaring over $150 million and $200 million. In June, bitcoin news website Coindesk announced that funds raised through ICOs had overcome VC money as the first source of investment in the blockchain sector in 2017. “Tokens” might sound like Monopoly money, but their impact on the real world is growing by the day.

The question is: why? Ask people in the field and they tend to reflect two main narratives, one optimistic, the other decidedly sceptical.

The positive one is that ICOs are a new, smart way to finance projects that struggle to get VC’s backing.

Etienne Brunet, an investment executive at FinTech VC firm Illuminate Financial, points to investors’ recent interest in private blockchains (members-only ledgers banks and financial institutions are experimenting with) as the root cause for ICOs. “In 2016 it was very hard to raise funding unless you were doing private blockchains,” he says. “So, all the people trying to build open source projects for the public blockchain had to find a new way to get funds.”
The way Burke sees it, ICOs are finally lowering the barriers to entry for technology investment, as whoever has some cryptocurrency can join the party; more than that, coins’ speculative potential is allowing open-source projects to raise more funds than ever before.
“The point is that now, for the first time ever, open-source initiatives can be profitable for investors,” he says. “Previously, they were relying upon donations and they were inherently unprofitable — people would just do them for an ethical goal. Now there is a financial incentive for people to participate.”
There is a stick-it-to-the-man undertone behind this take on ICO: the idea that smart, independent teams are raking in millions from the anarchic crypto-crowd to take on blindsided VCs and bank-loving private blockchainers. And increasingly, ICOs are being used by companies outside of the blockchain field, such as messaging service Kik, which portrayed its upcoming ICO as a last-ditch attempt to compete with juggernauts such as Facebook.
Still, Burke admits that, while this is the direction he sees ICOs evolving over the next few months and years, the current state of affairs is far from optimal.
“Most of the projects which have launched ICOs are poorly designed and won't scale,” he says. “But I look past that: I still think we have the ability to kick-start this new economy.”
That brings us to the second narrative, which portrays the ICO frenzy as a massive speculation game, or worse.
ICOs might have lowered barriers to entry, but most token sales are dominated by a handful of large investors —“whales” in crypto parlance — snarfing up almost all the cake. In the $35 million ICO for Brave, a browser created by Mozilla co-founder Brendan Eich, only 130 people bought coins — and half of them were purchased by just five buyers.
Although most projects specify — risibly— that tokens are “not for speculation”, token speculation is at the core of ICO’s success at raising so much money so quickly. Big crypto owners are throwing money at token sales hoping that coin value will increase in the short run, diversifying their crypto portfolio in the process.
“The point is: if you have $200 million worth of bitcoin or ether, what should you do?” Illuminate’s Brunet says.
The side effect is that millions are going to entities which, apart from tokens and a project outline — crypto parlance: “white paper” — have very little to offer. Take for example “Useless Ethereum Token”, a parody initiative which still managed to raise $40,000 in funding. Or, for a grimmer story, look at OneCoin: a Ponzi scheme which had amassed over $350 million before being busted by the Indian police.

Some of the more obvious security problems are being addressed by the crypto community at large: it has been recommended that funds from ICO be locked in an escrow mechanism — giving access only to limited sums after milestones have been reached — in order to prevent crypto heists. And Ethereum’s wunderkind guru Vitalik Buterin has turned to game theory to suggest some tips for designing fairer ICO auctions, such as as splitting them up in smaller, spaced out sales over time.

The elephant in the room, has to do with financial regulation: with tokens being auctioned, traded, and speculated on as if they were securities, should we regard them and regulate them as securities? (The fact that ICO is even phonetically reminiscent of IPO, or initial public offering, is hardly a coincidence.)In most countries, the answer would be no: if something is not formally a security, it won’t be treated as such. But that is different in the US, whose security regulation extends to “investment contracts” — defined in a landmark case (centered on an orange orchard in Florida) as investments made with an “expectation of profits.”

Whether that applies to tokens— bizarre entities that have a sort of intrinsic value (as theoretical payment units) but are also being flipped around like stocks, is anybody’s guess. Right now, the US Securities and Exchange Commission has been silent on the matter, explains Peter Van Valkenburgh, a researcher at blockchain-focussed think tank Coin Center.

“SEC’s default position is ‘we're proceeding cautiously because, while we are worried about investor protection, we're not certain this is within our purview, and we don't want to stifle innovation’,” he says. “There's no indication that anything is gonna happen in the very short term.”
For the time being, ICO’s real challenge is whether it can thrive without being a pain in the side for the blockchain ecosystem itself. ICOs are likely behind the recent spike in the value of ether — with investors buying the cryptocurrency in order to take part in token sales; ICOs might also be behind ether’s sudden 30 percent drop in value, as many ether-loaded projects are converting their ICO-generated ether into fiat currency to pay their staff.
And the Ethereum network itself — which less than one year ago went through a traumatic restructuring following the collapse of The DAO — is being put under strain by the ICO onslaught, as relentless, massive volume of transactions generated by token sales commandeer the ledger’s computing power.
But that is not necessarily a bad thing, Van Valkenburgh says. “It could be a way to battle-harden the network: there have been issues with transaction delays and scaling because of the popularity of ICOs put strain on the network,” he says. “But if the blockchain has to grow, ICOs are a good way to test the infrastructure.”