Shares Of World's Largest Miner Plunge To Seven-Year Low After Massive Toxic Mudslide Engulfs Brazilian Village

Ok, so if you’re the world’s largest mining company, one thing you don’t want is a global deflationary supply glut brought on by depressed demand from China and a worldwide excess capacity problem. 

Another thing you don’t want is for a tailings dam to burst, sending a river of toxic mud into a nearby village in South America.

Well, BHP Billiton is now dealing with both of those issues and the market is punishing the stock, which hit a seven-year low on Monday as analysts and investors alike attempt to figure out how the company intends to clean up a spectacular (in a bad way) mess in Minas Gerais. 

Here’s what happened, in BHP’s words: 

The Samarco operations include a three tiered tailings dam complex. Within this complex, the Fundão dam failed and the downstream Santarém dam has been affected. This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream.The third dam in the complex, the Germano dam, is being monitored by Samarco. At this time, there is no confirmation of the causes of the tailings release.

Samarco is jointly operated with Brazilian giant Vale and BHP has been keen to note that the joint venture is “responsible for the entirety” of the Minas Gerais operations. After the company's operating license was revoked on Monday, its debt plunged, with some $2.2 billion in paper due 2022, 2023, and 2024 hitting record lows.

For those who might have missed it, the following images will tell you pretty much all you need to know about what happened:

(via WSJ)

And here's Deutsche Bank's take, which underscores the significance:

BHP and Vale's 30Mtpa Samarco iron ore mine in Southern Brazil (50/50 JV) has suffered a catastrophic tailings dam failure. The mine represents c. 10% of our BHP earnings and 3% of NPV, we now assume the mine is shut until FY19. Pellet production was recently expanded to 30Mtpa at a cost of US$3.2b. Media reports have stated that there is a significant and tragic loss of life. Based on public images of the failure we estimate that the dam contained over 300Mt or 150Mm3 of tailings and Samarco could be down for years while the clean-up costs may exceed US$1b. This accident will add further pressure to BHP's cash flow, growth and safeguarding of the progressive dividend

At around 0530am AEST on Nov 6, Samarco’s largest tailings facility failed causing slurry to race through the open pit and down the valley into the local village of Bento Rodrigues and into local waterways. The media is reporting that between 15 and 17 people have died and 45 others are missing. Samarco states in its FY14 sustainability report that it employs a management system referred to as “Failure Modes and Effects Analysis (FMEA) system” to control tailings dam failure risks. It could be months before Vale, BHP, State and Federal governments complete their assessment of the incident. The clean-up, community support, litigation and rebuilding of the tailings dam (if approved and deemed feasible) could mean that Samarco is shut for years. The mine employs 3,100 people and is one of the largest employers in the region. Samarco contributed US$369m to BHP earnings in FY15 and before this incident we estimated it would contribute US$308m in FY16. We have assumed the mine is shut until FY19, the workforce remains employed, and BHP’s share of the clean-up and dam rebuild costs US$500m. We have excluded any recouping of costs from insurance at this stage. 

Of course this is the sellside penguin brigade so naturally, all of that somehow translates to a "Hold":

As WSJ notes: 

Brazilian officials on Sunday raised the death toll to three people, two of whom were found in the path of the mud flow, and a third who died while receiving medical treatment. That number is expected to rise, as at least 28 people are now confirmed missing.

“BHP Billiton will continue to work with Samarco, Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident,” BHP said.

The shutdown will reduce BHP’s iron-ore production this fiscal year—cutting into profit when falling commodity prices already are already making it more difficult for the company to keep its promise to maintain or lift shareholder dividends. Samarco last year accounted for roughly 3% of BHP’s underlying earnings.

Right, so in other words, this is an unmitigated disaster. 

On the "bright" side, the fallout could take some excess supply offline, and could impact prices. Here's more, via Bloomberg:

• Deactivation of production at Samarco Mineracao mine, a JV between BHP Billiton and Vale, is likely to pressure iron-ore prices, Christopher Tuck, mineral commodity specialist at U.S. Geological Survey’s National Minerals Information Center, says in interview in Rio.
  • "Any deactivation, on this scale, will have an impact on seaborne trade. The varying factor that would affect prices is the length of time this mine remains inoperable. The larger time it remains idled, the greater the likelihood it will have an impact on prices’’
  • Potential impact on price of pellets much more significant than effect on overall market
  • Short-term idling could level off prices through end of 2015; if output is halted long-term, prices could increase slightly

We suppose the takeaway here is that an already abysmal backdrop for BHP just got a lot worse, which means you may want to brace yourself if you're a shareholder and if you're a Brazilian villager, just hold your breath and wait for your compensatory check from Samarco - we're sure it's in the mail.

http://www.zerohedge.com/news/2015-11-09/shares-worlds-largest-miner-plunge-seven-year-low-after-massive-toxic-mudslide-engul

The Most Surprising Thing About Today's Jobs Report

After several months of weak and deteriorating payrolls prints, perhaps the biggest tell today's job number would surprise massively to the upside came yesterday from Goldman, which as we noted earlier, just yesterday hiked its forecast from 175K to 190K. And while as Brown Brothers said after the reported that it is "difficult to find the cloud in the silver lining" one clear cloud emerges when looking just a little deeper below the surface.

That cloud emerges when looking at the age breakdown of the October job gains as released by the BLS' Household Survey. What it shows is that while total jobs soared, that was certainly not the case in the most important for wage growth purposes age group, those aged 25-54.

As the chart below shows, in October the age group that accounted for virtually all total job gains was workers aged 55 and over. They added some 378K jobs in the past month, representing virtually the entire increase in payrolls. And more troubling: workers aged 25-54 actually declined by 35,000, with males in this age group tumbling by 119,000!

Little wonder then why there is no wage growth as employers continue hiring mostly those toward the twilight of their careers: the workers who have little leverage to demand wage hikes now and in the future, something employers are well aware of.

The next chart shows the break down the cumulative job gains since December 2007 and while workers aged 55 and older have gained over 7.5 million jobs in the past 8 years, workers aged 55 and under, have lost a cumulative total of 4.6 million jobs.

The same chart as above showing the full breakdown by age group - once again the 25-54 age group sticks out.

But young workers' loss is old workers' gain, as the following chart of total jobs held by those aged 55 and over shows. As of October, there was a record 33.8 million workers in the oldest age group tracked by the BLS - the same workers who, as noted above, also have the poorest wage negotiating leverage.

Finally, the most disappointing data point in today's report is that while overall labor growth was solid, the participation rate for workers 25-54, was 80.7%, far below is peak of just under 85%, and below the 80.8% at the end of 2014.

Time for a rate hike?

http://www.zerohedge.com/news/2015-11-06/most-surprising-thing-about-todays-jobs-report

EES: Play The Forex Fix - JPY And CHF Pairs Range Bound

The Forex market is very unusual; it's the largest market in the world with the least amount of significant players (a handful of large banks and central banks control the Forex market).

We see everyday in the news more and more proof that the Forex market, to a large degree, is fixed. Just today, two traders from Rabobank have been convicted of rigging Libor rates:

Two British citizens face lengthy prison sentences in the US after being convicted of rigging Libor interest rates, in the first case of its kind to reach a courtroom across the Atlantic.  The two former traders at the Dutch bank Rabobank - Anthony Allen, Rabobank's former global head of liquidity and finance, and Anthony Conti, a former senior trader - both intend to appeal against the verdicts reached by a federal jury in Manhattan.

The US justice department said the verdicts showed that the authorities were determined to crack down on financial crime.

Instead of getting into the detail of how and why the Forex market is different, and that it's fixed; let's look at some charts of USDJPY and EURCHF.

USDJPY 1 Hour

EURCHF 1 Hour

As you can see from the above 2 pairs which are not connected or correlated, there are defined ranges and little direction. While USDJPY has a slight trend up and EURCHF has a slight trend down, they mostly are range bound.

Why is this? Both the BOJ and the SNB have intervened in the market to influence the Forex market, and in some cases have defined predetermined 'fix' levels where they want the currencies to be. They can do that, because they are the primary emission of the currency!

A simple range bound strategy - trade the ranges

If you have the ability to trade spot Forex, trading these ranges is simple. In the case of USDJPY, simply sell when there's a big move up and buy when there's a big move down. There are ways to use algorithms to execute this as well - simply program them to trade against the market - if USDJPY is going up - sell, and if USDJPY is going down, buy.

Of course, there are situations where they will break out of the range - which is why it is always prudent to use stop losses and other account protection methods. The ranges certainly will not last forever - but the point is to make money while they last!

Trading ranges with options

If available at your broker, trading these ranges with options is great, especially with options such as 'double no touch' which allows traders to bet that a pair will stay within a certain range.

For serious traders, sell a call above the range and sell a put below the range for the duration you believe the range will last (30 days, a reasonable time). Or in the reverse and in the money, buy a put above the range and buy a call below the range.

What this bet is really all about - the Forex Fix

Not only do the banks fix Forex market rates, the central banks openly manipulate the Forex market in many ways:

• Most basically, setting the interest rates
• Capital controls (such as the case with emerging markets)
• Actual Forex market intervention

See a short timeline of central bank intervention from Reuters here.

What are the best range bound Forex pairs?

Simply open your platform and look hourly or daily charts. Currently any CHF pair should be the best, and the best CHF pair - EURCHF. Any pair which is connected to a central bank that openly intervenes in the market, is subject to such behavior. JPY is a little more volatile than CHF, as Japan has a real economy it needs to manage (no offense, Switzerland!).

Remember - Forex is a countertrend market. It always pays in Forex to bet against the trend. Forget "The trend is your friend" and start listening to "Home, home on the range."

About Elite E Services Forex

For updated Forex strategies, checkout Elite E Services blog, Elite Forex Blog.  

http://www.zerohedge.com/news/2015-11-05/play-forex-fix-jpy-and-chf-pairs-range-bound

Bank Of Ireland Bans "Small" Cash Withdrawals At Branches

As central planners the world over grapple with the effective “lower bound” that’s imposed by the existence of physical banknotes, there’s been no shortage of calls for a ban on cash. 

Put simply, if you eliminate physical currency, you also eliminate the idea of a floor for depo rates.

After all, if people can’t withdraw paper money and stash it under the mattress, then interest rates can be as negative as the government wants them to be in order to “encourage” consumption. If, for instance, you’re being charged 10% for saving your money, then by God you will probably spend that money rather than see the bank collect a double-digit fee just for holding on to your paycheck. 

In the absence of physical cash, there’s no way for depositors to avoid that rather unpalatable outcome unless the public starts buying hard assets like commodities with their debit cards. If you think that sounds far-fetched, just consider the fact that everyone from Citi’s Willem Buiter to economist Ken Rogoff to the German Council Of Economic Experts' Peter Bofinger have now floated the idea. 

"With today's technical possibilities, coins and notes are in fact an anachronism," Bofinger told Spiegel back in May. 

Now, in what should be a wake up call to the world, Bank of Ireland has banned branch withdrawals of less than €700. 

Seriously.

Here's The Irish Times explaining that tellers will still assist the "elderly" if they have trouble using automated methods of obtaining cash:

Under new rules, designed to streamline in-branch services, Bank of Ireland said withdrawals of less than €700 will no longer be facilitated with the assistance of tellers.

From mid-November, customers will have to use ATMs or mobile devices for small and modest-sized withdrawals.

Lodgements of up to €3,000 and those involving less than 15 cheques will also have to use the bank’s dedicated lodgement ATMs.

“Bank of Ireland understands these changes may be a new way of banking for some of our customers, and the branch teams will be available to help and guide them through this change,” the bank said in a statement.

So, if you are, i) wanting less than €700, ii) have less than 15 checks to deposit, or iii) aren't looking to put at least €3,000 into your account, you are no longer welcome inside Bank of Ireland branches. 

For his part, Irish Finance Minister Michael Noonan seems to think that this is, for lack of a better description, absolutely nuts: 

Minister for Finance Michael Noonan has described restrictions to be imposed by Bank of Ireland on over-the-counter lodgements and withdrawals as both “surprising and unnecessary”.

“I expect the bank to fully honour this commitment and ensure that customers will be facilitated through the existing arrangements where required. I would welcome a clarification form Bank of Ireland on the issue,” he said in a statement.

Yes, Noonan is demanding some "clarification," and you should too, before you discover that the world's central bankers planners have absconded with your physical cash on the way to instituting a regime that will allow for the micromanagement of your purchasing decisions. 

http://www.zerohedge.com/news/2015-11-05/bank-ireland-bans-small-cash-withdrawals-branches

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How One Retailer Is Preparing For The Apocalypse

Zero Hedge first revealed Overstock's contingency plans "in preparation for the next collapse" ten days ago. Today, the strategy outlined by Overstock Chairman Jonathan Johnson hasresonated across the Atlantic and this morning as the Financial Times catches up to the story of an "online retailer hoarding gold as crisis defense" in which it calls the retailer a "redoubt of doomsday conservatism" adding its policy to prepare for the loss of central-planning control is "redolent of the small band of US survivalists preparing for the end of civilization."

The FT reports that Jonathan Johnson, Overstock’s "anti-establishment leader", told the Financial Times it has "stashed away $10m in gold and silver coins as an insurance policy against financial apocalypse" and that it keeps "precious metals outside the banking system so the company could pay employees even if lenders slammed shut in a crisis."

Mr Johnson, who is running to be Utah governor, said Overstock also kept extra freeze-dried food so it had enough to feed each employee and one family member for three months.

“We thought there’s a decent chance that there could be a banking holiday at some point caused by a crisis and it could last for two days or two weeks or who knows how long, and we wanted to be in a position where we could continue to operate during any such crisis,” he said.

Overstock’s gold stash will resonate with libertarian conservatives who distrust the Federal Reserve and Wall Street and view gold as a refuge from government attempts to inflate and control the economy.

According to the FT, Overstock's stockpile "makes up about 10 per cent of the company’s liquid assets."

The Nikkei's most recent media acquisition also notes that in an "act of rebellion against financial convention", Patrick Byrne, its chief executive, "is a strident libertarian who champions bitcoin, the virtual currency, and its immunity from government money-printing."

Well, if the company had converted all of its fiat currency in bitcoin two months ago, it would have doubled in value as of yesterday now that the predicted Chinese exodus into the digital currency has been unleashed.

Mr Johnson said Overstock’s board had approved its accumulation of gold and silver after the last financial crisis when the Fed’s policy of quantitative easing, which he called dangerously “irresponsible”, was in full swing.

So with the Fed jawboning for a rate hike, and ZIRP expected to end in 6 weeks (the way it "ended" in Japan in August 2000), has Overstock's gloomy outlook changed? Not at all: "On the bullion hoarding policy, he said: “It was put in place during quantitative easing. It’s in place now and we don’t see a reason to change it.”

“Gold is just one of the financial contingency plans that Overstock puts in place,” he said. “We also have contingencies if sales don’t come in as expected.”

The FT concludes by poking fun of preppers and those who think the world's biggest experiment in central planning intervention will end the way central planning interventions always have - in absolute disaster:  

"Overstock’s policy is redolent of the small band of US survivalists preparing for the end of civilization, but Mr Johnson said he himself was not a “prepper”.

We'll spare judgment on Overstock's policy and Johnson's "prepperness" since the final chapter of the financial crisis - namely the so-called unwind of emergency measures - has yet to be written.

* * *

Finally for those who missed it and who would rather make up their own mind about the strategy, here are the key highlights from Johnson's speech presented first here in late October:

We are not big fans of Wall Street and we don't trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don't trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don't know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

We also happen to have three months of food supply for every employee that we can live on.

His full presentation before the UPMA is below:

http://www.zerohedge.com/news/2015-11-05/how-one-retailer-preparing-apocalypse

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Why A Russian Default Is A Very Real Scenario In 2016

Submitted by Marin Katusa via KatusaResearch.com,

Debt.

Everyone understands it pretty well when it comes to their personal finances. You borrow money, you have to pay it back. If you can’t, your creditor hounds you until you either come up with the cash or restructure your repayment schedule. Or, worst case, you eventually file for bankruptcy, thereby defaulting on your debt. Simple.

Yet people, especially in the West, seem blithely unaware that the same basic principles apply to countries, as well. Most of us tend to think that nations can’t or won’t default on their debt. Well … maybe Greece will. But surely not a big country.

Why we believe this is partly due to an ignorance of history, which features literally countless defaults, among nations great and small. Even the US has done it.More than once. It happened right at the beginning, in 1779, when the fledgling US nation defaulted on its first currency, the Continental (which led to widespread use of an early American pejorative phrase: “not worth a Continental.”) And a very recent example was when Nixon severed the tie between gold and the dollar in 1971; that was a default on the precious metal debt the country owed to France and others.

It’s also partly due to the current financial behavior of the American government, which acts as if the cure for a debt problem is more debt (do not try this at home, by the way).  As Congress raises the federal debt ceiling, and the Federal Reserve creates ever more currency units out of thin air, it creates the illusion of stability. All it’s really doing, though, is just kicking the can down the road.  The US has placed itself firmly on this path. But that doesn’t ensure that the rest of the world’s nations can or will follow the same one.

Particularly Russia.

In 2014, I published The Colder War, which became a New York Times Bestseller.  Vladimir Putin, Russia, oil and energy were all dissected in my book, which today is every bit as timely as it was when I wrote it in 2013.  Because of the decade I spent researching the book, I have a very unique Westerner’s perspective on Russia.

Here’s one of the things I learned: Russia is completely unafraid of a default on its debt.

Russia was a basket case in the 1990’s.  The first war in Chechnya was a disaster, both economically and psychologically for the Russians.  Russia not only lost that war, it had a disaster of an economy, ran a huge governmental budget deficit, and was stuck with a very unfavorable fixed exchange rate between the ruble and the currencies of all its trading partners. The country was barely staying afloat.

Then, on top of all that, came the two additional straws that finally broke the Bear’s back: the Asian financial crisis and a crash in oil prices.

But the West totally mis-guessed the eventual outcome. The World Bank and the IMF arrogantly assumed the Russians would continue to play by their rules.  In fact, years later it was leaked that billions in IMF relief funds had headed east, where they were “misplaced.” Or, in laymen’s terms, stolen before they even hit the Russian bank accounts.

On August 17, 1998, the so-called “Russian flu” infected world markets. Moscow announced that a moratorium would be placed on payments to foreign creditors. In addition, the ruble was devalued by 33% (from 7.1RUR/USD to 9.5RUR/USD).  Within a few months, the government allowed the ruble to float freely and the currency devalued by another 120% to 21RUR/USD.  There were bank closures, political fall guys and rabid inflation.

The Russian oligarchs, many of them ruthless criminals, made their moves—and consolidated their wealth at levels that would make the American robber barons blush.

Into this chaos, in 1999, entered Vladimir Putin—one of the most mischaracterized politicians on the planet. An archetypal Russian strong man, he brutally squashed the Chechen revolt and moved decisively to bring the oligarchs under state control, which meant killing or imprisoning them, or driving them into exile. Most importantly, he committed massive resources to reviving an energy sector that had fallen into disrepair, and made it quasi-public with companies headed up by his buddies and inner circle. As prices moved upwards, Russian crude oil output expanded like crazy to become #1 in the world and the economy boomed, as did Putin’s global agenda.

Through a series of deft political maneuverings, Putin still controls Russia 16 years later.  During that time, he has stayed enormously popular among his countrymen despite policies that Westerners (and some dissenting Russians) find reprehensible. His prolonged supremacy is quite a feat, given how the byzantine nature of Russian politics laid low any number of his predecessors.  But he’s done it by persuading the mass of the people that he always acts in what he sees as the best way to push Mother Russia to the head of the table among nations, and that in that pursuit he’s willing to let all manner of chips fall where they may.

Today, Russia is in crisis again, having been hit with the double whammy of plummeting energy prices and heavy sanctions laid on by the West over Putin’s foreign policy. Given the country’s struggling economy, it’s puzzling why the world is ignoring the risk of Russia defaulting on its debt. Again. And why it may be underestimating Putin. Again.

Why a Russian Default is a very real scenario in 2016

The IMF is loaning billions to Ukraine.  In addition, NATO is spending billions in Ukraine on a war that has lasted longer than any US or NATO official expected.  The West, led by the US, has put national sanctions on Russia, and personal ones on many of Putin’s associates—despite a clear historical record that shows sanctions almost never achieve their stated ends.

To understand how misguided this is, you just have to ask one question: Who holds the majority of the debt that would be at risk in a Russian default? Not China.  Not Iran.  Not Syria.  No, it’s the exact same nations, and banks and funds within those nations, that are applying the sanctions against Russia.

So, if Russia does default, what does it mean in terms of its political relationship with the West?

Nothing.

But what does it mean to its creditors?

Everything.

They’re the ones who will take the hit. And by the way, to anyone who thinks they will be able to enforce their nation’s debt laws on the Russian government or any Russian companies, I have this to say: I wish you the best of luck.

Don’t buy my story?

Here is a chart of Brent Oil pricing verses the 10-year Russian credit default swaps (CDS).

The market is completely mispricing the Russian CDS, by totally ignoring the potential for a Russian Default.

For comparison purposes, in the oil crash of late 2008 early 2009, Russian CDS popped 600% to over 7%. (The CDS market can be a bit complicated, but in general terms, the higher the rate, the more perceived risk is being priced into the market.)

Even earlier this year, with the Brent price of oil trading higher than it does now, the CDS were 100% more expensive. But they’ve since fallen to around 3%, which is absurd, as oil is lower now than when the CDS were at 100% higher rate—therefore if the market was paying attention, CDS should have a “higher” rate now than earlier this year.

The market is assuming that Putin will play by the western bankers’ rules; therefore there is no fear that the Russians might default on their debt.

Otherwise, there’s no reason Russian CDS would be 50% lower than earlier this year, given the fall in the price of oil, which is critical to their economy.

Has something else changed?

Are we in some better place globally now? I highly doubt it for many reasons, but how about I just mention one horrific fact: the world has never seen more displaced persons—ever— than we currently have at over 60 million.

Or has Putin merely distracted the Western world by diverting its interest to Ukraine and Syria?

Those are relatively small items on Russia’s policy agenda. Putin’s real focus is on strengthening his country’s economy by ramping up business with China and the emerging markets. That is where the future lies. If Putin can’t entirely eliminate all dependence on the West, he’s certainly moving forcefully to greatly diminish its influence.

The $400 billion natural gas deal he signed with China in 2014 is just one powerful indicator.

In a few words, if Putin believes that the benefits of a default outweigh the consequences to his country, he won’t hesitate to do it, no matter the international ruckus it might raise.

So … my advice is that if you are invested in any funds or banks that are exposed to debt in Russia, I would rethink your investment thesis. The rules of the game are apt to change quickly, and not to the foreign debt holders’ benefit.

And, if you like ironic coincidences, I’ll close with this one.

Donald Trump is the current leader for the Republican presidential nomination. During his business career, he’s helmed four companies that filed for Chapter 11. Which just happens to be the same number of Russian bankruptcies that have occurred during ‘The Donald’s’ lifetime.

Who knows, ‘The Donald’ and Putin might end up the best of friends…

http://www.zerohedge.com/news/2015-10-27/why-russian-default-very-real-scenario-2016

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More and More Countries Are Beginning to Outlaw Cash For Certain Transactions

More and more institutions are trying to make it harder for you to move your money into cash.

Globally, over $5 trillion in debt currently have negative yields in nominal terms, meaning the bond literally has a negative yield when it trades. In the simplest of terms this means that investors are PAYING to own these bonds.

Bonds are not unique in this regard. Switzerland, Denmark and other countries are now charging deposits at their banks. France and Italy have banned any transaction over €1,000 Euros from using physical cash. Spain has already banned transactions over €2,500. Uruguay has banned transactions over $5,000. And on and on.

This is also at work in the US. Louisiana has made it illegal to purchase second hand goods using cash. This is just the beginning. The War on Cash will be spreading in the coming weeks.

The reasoning is simple. Most large financial entities are insolvent. As a result, if a significant amount of digital money is converted into actual physical cash, the firm would very quickly implode.

This is true for banks around the world. European banks as a whole are leveraged at 26 to 1. In simple terms, this means they have just €1 in capital for every €26 in assets (bought via borrowed money).  If a significant percentage of their depositors took their money out of the bank, the bank would violate its capital limitations at best and implode at worse.

The US financial system isn’t any better. Indeed, the vast majority of it is in digital money. Actual currency is just a little over $1.36 trillion. Bank accounts are $10 trillion. Stocks are $20 trillion and Bonds are $38 trillion.

And at the top of the heap are the derivatives markets, which are over $220 TRILLION.

Notice that less than 1% of the “wealth” in this system is actual physical cash. Now imagine what would happen if investors decided to move their money out of the system and into physical cash.

This is precisely what imploded the money market system during the 2008 crisis.

If you think the banks aren’t terrified of what this market could do to them, consider that JP Morgan managed to get Congress to put the US taxpayer on the hook for it derivatives trades. Mind you, this is the same bank that is now refusing to let clients store cash in safe deposit boxes.

This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRLLLIONS of dollars worth of assets on their books.

This is just the beginning.

http://www.zerohedge.com/news/2015-10-24/more-and-more-countries-are-beginning-outlaw-cash-certain-transactions

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EES: Market structure evolution

The markets have evolved over time to bring us to where we are now (as if anyone knows where that is!).  How markets evolve is largely misunderstood by the general investing public, certainly by the regulators, and the general populace thinks the markets are nothing more than a high brow elitist conspiracy to strip their assets and take their rights.

And to a large degree, this is true.  Markets have become so fast moving, so computerized, we often lose focus of what the markets really do - what our market based system does and is supposed to do.  

Let's take politics for example - there are those who think US democracy has been 'bought' by the 'deep state' and doesn't exist anymore, since the 2000 elections and advent of electronic voting machines, is real democracy possible anymore?  Of course it is - and always was.  But the lie the establishment feeds the populace, as always - is 95% truth.  It's the 5% that is the real game changer, like discovering a new physics that explains the 95% of dark matter in the universe.  The 5% truth the public is missing - it is 'one dollar, one vote' - not 'one person, one vote.'  Remember, the 'founding fathers' of America were a bunch of slave owning Freemasons that wrote 'all men are created equal' (excluding of course, women, blacks, the indigent, foreigners, American Indians, and any other group that was not a white land owner).  Yes, of course - America was the beacon of light and free trade compared to the darkness that existed in Europe at the time - just bring these facts to bear!

How market structure evolves

The market really is chaos.  The only real solid financial structure created in the last 500 years is a central bank and how money is created.  But introduce Forex, and that structure goes right out the window!  Market structure evolves by simple capital trial and error; sometimes at the great detriment to the investors.  Imagine for a moment - the investor doesn't own the securities, the capital does.  Imagine that capital itself is a virus, an organism by itself, that is actually manipulating humans to buy and sell stocks; to make investments (for better or worse).  If you think this metaphor is far fetched, look into the toxoplosmosis that controls our brains to the liking of our furry friends, our cat pets.  Another metaphor appropriate which is more commonly known in Philosophy is from Eric Fromm's "To have or to be?" - basically to paraphrase the concept in one sentence, as we acquire material things, it is the things that own us - not the other way around as most owners believe.  

Do you own the stocks or do the stocks own you?

This capital as a virus has no purpose, other than to self-replicate, expand, and find other ways to manifest itself.  Traders are the host.  Traders and investors facilitate this capital-virus to test different ways to behave, and to eventually create new environments to exist.

Take the recent expansion of stock trading into dark pools.  20 years ago, if you had told any trader that a great majority of equity trading takes place automatically by robots (algo trading) in 'dark pools' which are not public and no one knows exactly what goes on inside, it would be laughed at as market science fiction.  But now we are even far past that!

In the process of trial and error, there are extremes - big winners and big losers.  Fortunately, the winners are happy to be greatly infected with this virus, and the losers have certain ways and means to recover losses, such as by participating in class action securities litigation.  And it should be noted that securities litigation is a significant part of the market based system, without which many cheaters would go unchecked, thus the system would be eaten by dangerous cancers.  Also fortunately, our legal system has evolved to facilitate market evolution, by allowing for market rules to be established, and for cheaters to be punished.

The market structure is defined by its behavior on a daily basis, from market participants, by trading and investing.  Not by a grand design, and certainly not by regulators!  Although the regulators, are a significant market participant from this perspective.  

To put this in deeper perspective, let's think a little about the most unstructured and most significant market in the world; Forex.

Forex

Forex markets are completely different than other markets!  We know this, but few understand how deep the Forex rabbit hole goes.  

Forex markets:

• Are completely unregulated
• Are the foundation of ALL other markets, and global trade!  
• Are directly connected to our nation-state political system popular now on this planet (as opposed to stock, bond, and commodity markets which can be localized and fragmented)
• Are the least understood

Although this is the case, in terms of market structure, equity markets (especially US markets) are significantly more structured than Forex, and have gone through magnitude thousands of evolution generations to produce what they have today.  If markets had an 'age' - Forex is a baby, and the stock markets are a wise old man.  Slowing the evolution of Forex, there are few pure speculators in Forex (as opposed to the stock market, where near 100% of investors are speculators in one form or another).  And those who have the large amounts of required capital to invest in Forex in a significant way, largely have some ulterior motive (such as politics, or to 'corner' a small currency market), or choose not to speculate in Forex (they use it as payment system and for hedging).

Some more contrarian facts unique to Forex:

• There is no 'insider trading' laws pertaining to Forex market (even if there were - how could they be prosecuted?)
• Modern Forex was created by 'accident' by Richard Nixon, in response to French demand for gold (US Dollar was backed by Gold in that time)
• If the Forex market itself didn't exist in its current form, the central bank would completely control the value of the dollar (any dollar, in their respective domicile) 

Literally, the markets are the cutting edge of our global societal evolution, and have become an entity of their own.  It could be argued that the market itself is the first form of Artificial Intelligence.  Does the 'market' have an intelligence by itself?  Oh - it sure does love all the computers we are building for it (nice and cozy new home)!

Further evolution

As the markets evolve, humans will become less and less relevant.  Unless in the next years a group of major market participants get together and create a superstructure such asBretton Woods (a very unlikely scenario), the market evolution will accelerate.  New emerging markets will thrive and die, new instruments such as Binary Options and other derivatives will change how participants look at trading.  Goldman will create new fangled derivatives creating super-bubbles and topple dictators and open new markets.

Speculating on what the outcome of chaotic evolution process will look like is preposterous.  Discussing market structure and what measures we can take to 'stabalize' markets is also preposterous.  The idea that we can get all in the world to 'agree' on a 'comprimise' of what the markets (including Forex) should look like, is not feasible.  

That's the whole idea of the markets!  Traders all disagree - and voice their opinions with their capital.

What is practical - what is feasible.  Prepare yourself!  Educate yourself!  Do your own investing!  Build your own algorithms!  Get active legally if you have a big loss! 

If we don't prepare for the coming high tide, we may all drift out to sea.  

FINRA Launches Funding Portal Rules

Today, FINRA proposed a rule change that could have the greatest impact on private markets in over 80 years. Known as the Funding Portal Rules, they would allow crowdfundingportals to take an active role in the sub $1 million non-accredited investor market currently untapped. These rules – when launched – would work in tandem with the as-of-yet enacted Title III JOBS Act rules to allow unaccredited investors to invest freely in private companies. The proposed changes can be read in their entirety here. 

[original]

EquityNet | The Leading Equity Crowdfunding Platform

http://www.zerohedge.com/news/2015-10-12/finra-launches-funding-portal-rules