Wednesday, 07 December 2022

A Analysis

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In "Despite What You Don't Hear In The Media, It's ALL OUT (Currency) WAR! Pt. 1" I detailed what happened the only other time in modern history we've had a global currency war: 

... currency war broke out in the 1930s. As countries abandoned the Gold Standard during the Great Depression, they used currency devaluations to stimulate their economies. Since this effectively pushes unemployment overseas, trading partners quickly retaliated with their own devaluations. The period is considered to have been an adverse situation for all concerned, as unpredictable changes in exchange rates reduced overall international trade.

May I remind all that thinking nationally instead of internationally in the 1930s drastically exacerbated the depression to go on to make it the GREAT Depression. Excerpted from Wikipedia:

USA annual real GDP from 1910–60, with the years of the Great Depression (1929–1939) highlighted.
The unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted. 

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1930 and lasted until the late 1930s or middle 1940s.[1] It was the longest, deepest, and most widespread depression of the 20th century.[2]

Worldwide GDP fell by 15%, 1929-32.[3] In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline.[4] The depression originated in the United States, after the fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday).

The Great Depression had devastating effects in countries rich and poorPersonal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%.[5]

Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by approximately 60%.[6][7][8] Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most.[9]

Some economies started to recover by the mid-1930s. In many countries, the negative effects of the Great Depression lasted until after the end of World War II.[10]

This is the graphic that Wikipedia posts to represent the poverty from the 1930s:

Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, age 32, a mother of seven children, in Nipomo, California, March 1936
 That was then. This is now (Greece 2015)...
greece 2015

For the more academically leaning, this is what it looked like back then. Take note the foreign trade delta and realize the significantly increased correlation be between employment and foreign trade now as compared to back then, due primarily to the fact that information and value much more easily passes through borders via the means of digital currency (you know, the stuff the less informed love to hate), the internet, etc...

Great depression economic indicators 

In "Stab, er... I Mean... Beggar Thy Neighbor - It's ALL OUT (Currency) WAR! Pt 2" I detailed the fact that despite the fact we all know a global currency war destroyes global trade, every nation is looking to stab the others in their deflationary backs by exporting unemployment/deflation to them...

6x short Japanese Yen JPY in UltraCoin

Well, in this quick update shows that math still works. Reuters reports:

  1. * Strong dollar may cut up to $12 bln from Q4 U.S. revenue -FireApps
  2. * Dupont sees 2015 $0.60/share impact, Bristol-Myers $0.12-$0.14/share

 From Microsofts latest Q2 2105 results:

As we discussed last quarter, FX movement first impact of bookings growth and unearned revenue on our balance sheet are contracted but not billed balance was adjusted down to reflect current FX rates. Therefore our bookings were flat this quarter.

Unearned revenue was up 9% year-over-year to $21.2 billion, but the sequential decline was slightly larger -- slightly higher than we expected due to the larger than anticipated impact from FX. Adjusting for that FX impact our commercial unearned balance is in line with historical trends and our expectations.

...Our transactional revenue declined over 15%, slightly more than we expected primarily in Office and mostly due to our performance in China and Japan, which I detailed earlier. Additionally, FX had a greater negative impact on commercial revenue than we had anticipated.

In total, we expect that FX will negatively impact revenue growth by approximately four points in Q3. The majority of this impact is in our commercial business.

We currently expect that these geographic dynamics, challenging comparables from XP and FX headwinds will be in place throughout the remainder of our fiscal year.

And Tim Cook in Apples latest conference call?

And it's a fact of life if the U.S. dollar strengthens, that creates a headwind for us both in revenue and margins for our business outside the United States.

 Russia is also pushed to devalue: Russia faces wave of bankruptcies if interest rates don't fall

The pressure is building on Vladimir Putin: Russia will be hit by a wave of bankruptcies unless it cuts interest rates very soon, a top financial official warned Monday.

ECB exports deflatio to N. America

I ask you, what do you think the US is going to do? Raise rates to strengthen the dollar (to skewer its own powerful multinations such as Caterpillar, Apple, MSFT, et. al.), or drop rates and weaken the dollar to re-export this unemployment back overseas? What do you think Russia is going to do, raise rates? Do nothing? Buy gold? Fail to hoard gold? How about China's other major trading competitors/partners (you know, the ones besides the EU who fired back at it) Korea, India and the QE experienced Japan? It's on!

It is said that world trade rose from 12% to 32% of world GNP in little over 20 years. I haven't verified these numbers but they seem about right because as I have stated earlier, the international linkages of information and value transmission have strengthened considerable over the last... 20 years or so. Why? Look what happened 20 years ago!

The Internet and the World Wide Web greased international commerce and supercharged it. This increased efficiency in value and information transmission leverages movement down as quickly as it leverages movement up. Leverage is leverage, after all and is not uni-directional! 

On the topic of currency debasement and digital currencies and value transmissions, I think many will see the value of currency that can't be debased at will by a central authority and will see said value very, very soon.

Yeah, this is just as sustainable as that EUR floor in front of ECB QE. What the hell are these guys thinking? Capitalism turned Socialism turned... WAR!

I will publish specific companies and their specific weak points, hopefully in time to purchase options with 4-5 months or more on them (enough time value to catch movement deep into the next quarterly reporting cycle) that are priced cheaply, simply because nobody sees the gravity of the situation. These companies will be available to my premium research subscribers and/or verified volume users of our UltraCoin trading client. The Veritaseum team is working hard to implement internal leverage by next week before things truly start popping off. Due to the inherent capabilites of Blockchain technologies and smart contracts, we will be offering up to 10,000:1 leverage, without credit/counterparty/default risk. Yes, it does sound amazing doesn't it? Controlling up to $10,000,000 of price action and purchasing power with just $1,000 without the ability to default. Remember, that doesn't mean you can't lose everythying, you just can't lose more than everything. Give it a try - no registration or account opening needed. Download it along with tutorials and related research, for free, here.

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Here Comes The Boom!

By now, everybody who cares knows about the Swiss National Bank's removal of its EUR floor, and the havoc that it caused to FX brokerages around the world (Currency Brokers Fighting Insolvency Are Learning the Value of Our Blockchain Technologies - the Hard Way). I explained to clients that what seemed like a stupid move by the SNB was actually a strategic move borne out of fear. Days later, the ECB came out with the QE package from hell (or heaven, depending on how you view perpetual bailouts), and my explanation gained lucidity for many.A single country devaluing, even if it's a significant global economy such as the US, will result in a rise throughout other major currencies. This rise will easily be absorbed. The problem is when the major economies of the world have a singular problem - the problem that the world has now, that was started back in 2008. That problem is a structural recession and slow growth. Now when the US, or more accurately from a chronological perspective, the EU/ECB devalue, they export unemployment/deflation to neighboring states who not only do not want it but are actively pursuing their own policies to eradicate it. What do these states do when unemployment is sent over to their countries? They retaliate by doing the same. Enter... War!

Of course, the story doesn't and there. This is a macro trader's nirvana, provided he/she has at least a modicum of insight.

It's All Out War!

As stated above, ECB President Mario Draghi, announced the deflation export attack on all nations who didn't have the central banking chutzpah to defend themselves, and the throwing down of the gauntlet even to those who do, self-preservation concerns prompted preemptive strikes from the northern Europeans and Asians. The Swiss National Bank would have had to expand a balance sheet that had already grown 3x in 2yrs to an exponentially larger size, and that growth would have been fueled by Pumping continuously depreciating euros onto it. While the Fed doesn't have to worry about mark to market losses like the average Joe, the SNB simply cannot continuously replace 1 value unit with .8 value units at an increasing rate without cracking the country. It's abandoning the Swiss franc’s cap to the euro marked a mini-Lehman moment (the maxi-moment I warned about clearly 8 years ago, see Is Lehman really a lemming in disguise? Thursday, February 21st, 2008). Since the SNB simply can't afford to outprint the ECB (only the Fed can do that) they decided to use negative interest rates (actually, they decided to make their rates negative-er, #NIRP4EVA, if you know what I mean) to go "BOO!" and frighten potential buyers of its currency. Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden. It is the world's oldest central bank and the world's 4th oldest bank still in operation. You would think they'd know what they're doing. Well, they say "Swedish central bank: Deflation isn't a concern". They worked very hard to find inflation as well:

  1. Swedish Krona Sinks to Four-Year Low Wall Street Journal - Oct 28, 2014
  2. Swedish krona rallies as monthly inflation rate rebounds to positive International Business Times UK - Jan 13, 2015
  3. Of course, right after the SNB move, NFA Raises Margin Requirements for Swiss Franc, Swedish Krona

The Danish Central Bank, Danmarks Nationalbank cut its benchmark rates deeper into negative territory as well, all (actually, they did it twice) in a bid to protect the Danish krone’s peg to the euro without burning its balance sheet. Did the people up north succeed in defending against Draghi's deflationary war move? Let's see...

Nordic deflation

Expect to see practically all of the nordic countries to do what Switzerland did, of course they will be rather late to the party... Then again, better late than never.

 Central & Eastern Europe, had problems that they've worked through to the point they have been thought of as a safehaven. They have successfully weakened their currencies but the ECB has reversed those efforts. It's hard to believe, current rhetoric to the contrary aside, that they wouldn't not act to defend against this imported deflation. Poland: PLNEUR, Czech Republic: CZKEUR

ECB exports deflatio to eastern Europe 

North America, ran by the most powerful currency manipulator in the world and the central bank who taught the world how QE is done. The US has allowed its dollar to rise slowly, but this sudden spike will crash earnings (not to mention the plethora of faux economic activity which crashes them even more) which risks throwing the deflationary mud back where the Fed doesn't want it. See the USD climb to much and the Fed will once again show the world how its done!  Canada, through the Bank of Canada’s untelegraphed quarter-point cut in its overnight rate, after nearly 5 years of inaction, is also looking to join the CW (currency war) fray. Canada's economy is highly susceptible to oil prices, and we all know that those North Americans have been clamoring to ignite some inflation for years. Has oil cooperated as of late?

CADEUR vvs brent crude

Although Canada's issues can be tightly correlated with falling oil prices, the last thing it needs is for the Canadian dollar to move higher, or even just to remain static. It, like everybody else, needs its currency to fall! But how can that be when everyone is running from the newly donned, low-yielding eurozone currencies and fixed-income assets. Canada: CADEUR, US Reserve Currency status and current king of manipulation: USDEUR

ECB exports deflatio to N. America

Asian economic engines, namely China, Korea, India and the inventor of QE and the one suspected of causing the ECB to act in defense of euro to fight back the unemployment exported over to the EU - Japan, are big exporters to the EU. As a matter of fact, that's likely their second biggest market behind the US. In other words, losing pricing power and traction there relative to the EU is a very, very big deal. China even had the balls to go at it with the big daddy, the US. Remember?

  1. ·US says China 'manipulating' renminbi -
  2. ·China currency manipulation: How does it harm the U.S. ...Slate
  3. ·China: Currency Manipulator No More - Forbes
  4. ·Senators renew push against China currency 'manipulation ...

If you remember from part 1 of this series and the impossible Triangle, or the trilemma...

The Impossible Trinity or "The Trilemma", in which three policy positions are possible. If a nation were to adopt positiona, for example, then it would maintain a fixed exchange rate and allow free capital flows, the consequence of which would be loss of monetary sovereignty.

Well, China uses monetary controls with a banded peg to the USD. that peg is bursting at the seems since the ECB did its thing. It has also cut its rates, like everybody else...

  1. ·Economists React: Will China's Interest-Rate Cut Make a 24, 2014 - Economists React: Will China's Interest-Rate Cut Make a Difference? ...According to the statement, the move “does not signal that the direction  ...
  2. ·China Central Bank PBOC Cuts Interest Rates - WSJ Nov 23, 2014 - In a surprise move, China cuts interest rates for the first time in more .... on an economy of about the same size) the government did nothing.
  3. ·China's interest rates: The right call | The Economist Nov 21, 2014 - CHINA has cut interest rates for the first time in more than two years, surprising if China did not follow up with more rate cuts and more  ...
  4. ·China cuts interest rates to spur growth, ease debt pressure ... Nov 21, 2014 - BEIJING (Reuters) - China cut interest rates unexpectedly on Friday, stepping up efforts to support the world's second-biggest economy as it ...
  5. ·China's Surprise Rate Cut Signals Desperation, Bad News ... Nov 23, 2014 - What does the PBOC's out-of-the-blue rate cut suggest? ... Harrison Hu and Ning Zhang of UBS predict interest rates will fall by 50 basis points  ...

So, China has tried the fixed rates and monetary policy, but wait a minute.. China has capital controls as well! If the trilemma holds true, then capital controls are to be broken (like in nearly every totalitarian state that attempts to be part time capitalist), interest rates are going to sprawl out of control (as I have cautioned in the past), or the fixed rate peg will be broken (ala Switzerland) on the horizon or there will be a distinct failure of a combination of the efforts. I'd choose the latter if I were a wagering man.

Very recently, China injected liquidity into its banking system  - both in response to its slowing economy and concern of stresses in the banking system surround the Lunar New Year holiday which is retail nirvana for the country.’s biggest shopping season. The People’s Bank of China tied the yuan to the dollar via a trading band, and the dollar has appreciated significantly - particularly in relation ot the euro and just about everyone else's currency. This is bad news for an export nation that's been running on faux activity for some time now, and China's southern manufacturing centers are vulnerable. So what does China do? Check the headlines:

China has taken another page out of the Japanese, American and ECB handbook and declared war on its neighbors by exporting unemployment to those who are economically proximal.

6x short Japanese Yen JPY in UltraCoin Anyone who wants to get their practice in BEFORE we implement 10,000:1 leverage should feel free to download the trading client, the tutorial and related research here.

In the next two installments we wil surgically dissect the banking domiciles (I think these countries are in much more trouble than any of these bank analysts are saying) and even more forensically, the banks themselves. Since this research is sort of expensive, I will not go too deep, but I will put a sample "armageddon" trade out and explicitly illustrate it.

Quick note: The research that was originally disseminated through BoomBustBlog is now being offered through Veritaseum, my new venture, as well as transaction services to assist in monetizing said research. Anyone interested in the services or the software should This email address is being protected from spambots. You need JavaScript enabled to view it.

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The premise of this book is that Western countries are ultimately controlled by a group of private banks, which, according to the book, runs their central banks. This book uses the claim that the Federal Reserve is a private body to support its role. The book's author correctly predicted a banking crisis in the US in 2008. More than one million copies of this book have been sold.Quick note: Due to popular demand I will be accepting up to 13 UHNW clients for asset managment services and resuming the superior research that was originally disseminated through BoomBustBlog. This research will now be done through Veritaseum, my new venture. Anyone interested in the services should This email address is being protected from spambots. You need JavaScript enabled to view it.. Now, on to today's post.

The world is at war, yet it's citizens don't even know it!

First, a backgrounder, as excerpted from Wikipedia:

Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.

... currency war broke out in the 1930s. As countries abandoned the Gold Standard during the Great Depression, they used currency devaluations to stimulate their economies. Since this effectively pushes unemployment overseas, trading partners quickly retaliated with their own devaluations. The period is considered to have been an adverse situation for all concerned, as unpredictable changes in exchange rates reduced overall international trade.

... States engaging in competitive devaluation since 2010 have used a mix of policy tools, including direct government intervention, the imposition of capital controls, and, indirectly, quantitative easing. While many countries experienced undesirable upward pressure on their exchange rates and took part in the ongoing arguments, the most notable dimension of the 2010–11 episode was the rhetorical conflict between the United States and China over the valuation of the yuan. In January 2013, measures announced by Japan which were expected to devalue its currency sparked concern of a possible second 21st century currency war breaking out, this time with the principal source of tension being not China versus the US, but Japan versus the Eurozone.

... when a country is suffering from high unemployment or wishes to pursue a policy of export-led growth, a lower exchange rate can be seen as advantageous.

...  Devaluation can be seen as an attractive solution to unemployment when other options, like increased public spending, are ruled out due to high public debt, or when a country has a balance of payments deficit which a devaluation would help correct. A reason for preferring devaluation common among emerging economies is that maintaining a relatively low exchange rate helps them build up foreign exchange reserves, which can protect against future financial crises.[4][5][6]

Of course, it seems to be lost on many that competitive devaluations (currency war) only really works for strong net export nations such as China, Japan, Germany and the US. If you are highly reliant on imports vs. exports and try to become a currency warrior then the Marshall–Lerner condition will likely occur. Best case scenario you get a significant lag in true economic benefits, likely scenario... You just piss off your neighbors and lose economic benefit as the higher price of your imports simply outweight the internal generation of economic activity and exports. After all, if you buy more than you sell, why raise the price of your purchases?

The Three Methods of Currency Manipulation

Countries and their central banks can:

Buy and sell currencies in the open market. This takes horsepower. Just ask the Swiss National Bank whose balance sheet swelled 3x in 2 years - and that's before the ECB QE announcement (which would have easily doubled the pressure, if not more). If you want to move upscale, ask the Bank of England after their conversation with Soros, et. al.

... Black Wednesday refers to 16 September 1992 when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it was unable to keep the pound above its agreed lower limit in the ERM. George Soros, the most high profile of the currency market investors, made over 1 billion GBP[1] profit by short selling sterling.

In 1997 the UK Treasury estimated the cost of Black Wednesday at £3.4 billion, with other sources giving estimates as high as £27 billion. In 2005 documents released under theFreedom of Information Act revealed that the actual cost may have been £3.3 billion.[2]

The trading losses in August and September were estimated at £800 million, but the main loss to taxpayers arose because the devaluation could have made them a profit. The papers show that if the government had maintained $24 billion foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4 billion profit on sterling's devaluation.[3] Newspapers also revealed that the Treasury spent £27 billion of reserves in propping up the pound.

If you haven't picked up on the theme yet, this central bank buying currencies in an attempt to over power the markets (dirty float) stuff really just doesn't work. Over time, mother market takes charge and extracts one hell of a price in return.

Central banks can also just attempt to talk rates down or up. I'll not waste anymore words on this as CBs around the world have lost creditiblity. Talk is cheap!

Lastly, and this is the kicker, banks can engage in quantitative easing (QE). QE is essentially the injection of money into the economy by openly purchasing public and private assets, oftentimes dead assets that no private entity would touch with a ten foot pole. The PC way of putting it is this is creating money, but more aptly put this bailing out failed institutions by creating a market for things that the actual market has priced at, or close to, economically nothing. This practice was invented by the Japanese, and it didn't work! Do you guys remember the 26 year lost decade? It's not that hard to rememer since, although it started in 1990, it's still ongoing. That's Japanese central banker math for you. As per Wikipedia:

The Lost Decade or the Lost 10 Years(失われた10年 Ushinawareta Jūnen?) is the time after the Japanese asset price bubble's collapse within theJapanese economy. The term originally referred to the years from 1991 to 2000,[1] but recently the decade from 2001 to 2010 is often included,[2] so that the whole period of the 1990s to the present is referred to as the Lost Two Decades or the Lost 20 Years (失われた20年, Ushinawareta Nijūnen). Over the period of 1995 to 2007, GDP fell from $5.33 to $4.36 trillion in nominal terms,[3] real wages fell around 5%,[4] while the country experienced a stagnant price level.[5] While there is some debate on the extent and measurement of Japan's setbacks,[6][7] the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequences.

Now, there are some who said Japan did start recovering earlier, but they used the very malleable (in terms of definition) GDP numbers to prove their point. Asset values didn't back the story...

Japan lost decade

QE was taken to the next level by the only central bank that I know of that is actually owned by, and controlled by, a coterie of private, for profit, publicly traded banks. It is also the most powerful central bank in the world, bar none. Here's a hint...

Between QE1/2/3, the Fed has injected well over $3 trillion dollars and has exploded its balance sheet both in terms of size and composition...

Despite many proclamations that things are getting better, the Fed has increased its purchases of both MBS (the housing market's financial underpinnings are still in trouble of the Fed wouldn't be doing this) and US Treasury securities (the treasury issues the securities to fund the US and the Fed creates money and buys them - as wel all know, we are financing our credit cards with newly acquired credit cards). It is the Fed that IS this country (US), almost literally with a balance sheet that is over 25% of the US GDP. Remember who owns the Fed? Well, if you do you realize why the ECB is doing this QE thing to the level that it is. Their banks are still in trouble, material trouble. Reference "Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe" from 5 years ago and tell me if you think its gotten better...

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns


 Well, it's all relative. The banks are smaller, leverage is down - and that's after 6 years of global QE, ZIRP and now NIRP, yet each and every bank is big enough to collapse the country that it's domicled in... Global Bank Risk as Determined by Veritaseum

And since the big global banks are so interconnected as they daisychain their hedges and act as counterparties with each other (6 banks hold over 85% of the multi-trillion dollars global derivatives exposure), once one goes down hard, it brings the rest with them. And as you can see from the size of each individual bank relative to their domiciled country, such an event will still drag the countries down with them.

FICC Bank risk

Okay, now back to this discussion of currency wars, something's got to give. Countries cannot (or at least, have never) successfully pursued all three methods of currency manipulation without failing. According to Wikipedia:

The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:

    1. fixed exchange rate
    2. Free capital movement (absence of capital controls)
    3. An independent monetary policy

It is both a hypothesis based on the uncovered interest rate parity condition, and a finding from empirical studies where governments that have tried to simultaneously pursue all three goals have failed. 

The Impossible Trinity or "The Trilemma", in which three policy positions are possible. If a nation were to adopt positiona, for example, then it would maintain a fixed exchange rate and allow free capital flows, the consequence of which would be loss of monetary sovereignty.

So, either balance sheets get burned trying to buy and sell currencies, capital controls are implemented, or QE (sovereign monetary policy) fails. All three are likely not going to succeed.

See part 2 of this 4 part series on on 1/26/15.

Friday, 23 January 2015 00:00

An Introduction to the Veritseum Business Model Featured

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 We have finally complete a version of our internal business plan that is suitable for outside, non-NDA'd viewing. I'm so proud of it that I've decided to actually use it as a marketing document. It contains the near to moderate term future in no uncertain words. Let's review some of the salient points made therein...

BusinessPlanRedux very hi-res optimization Page 01BusinessPlanRedux very hi-res optimization Page 03

Before we begin, it can't be stressed enough that this is not an offer of securities. What we have done was to take the concept of the smart contract dn extrapolate it to the entire Wall Street banking function, sans the regulatory constaints, capital requirements and credit/counterparty risks of being and actual bank. Yes, today's nascent technologies allow you to do this!

 BusinessPlanRedux very hi-res optimization Page 04BusinessPlanRedux very hi-res optimization Page 05

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I have been in discussion with one of the world's largest banks, a US domiciled bank, with over 200 million customers and clients worldwide. After my second meeting with the American FX group, I was referred to one of their biggest clients as it was understood that there were significant synergies to be had between their global operations and our UltraCoin ecosystem which allows counterparty and credit risk free value trades. This particular aspect of our product was, as fate would have it, not only extremely pertinent to the topic at hand but arrived just a few days too late. I was scheduled to meet with one of the original founders of this FX brokerage firm yesterday, but earlier that morning the Swiss National Bank decided to remove thier much publicized and promised floor from their Swiss francs from the euro. Carnage ensued, as I promised that it would.

Of course, this guy was much too busy to meet with me. His firm is now all over the news (there are several firms that could fit the bill, but I will not mention the firm to keep it anonymous nonetheless) as nearly all of the specialist currency brokerages face insolvency issues - the very thing that UltraCoin was designed to prevent! Yesterday Bloomberg reported Casualties From Swiss Shock Spread From New York to New Zealand and today we find members of this group have lost up 90% of thier share price, as per Business Insider: Foreign Exchange Brokers Are Going Bankrupt In The Swiss Franc's Surge

UK FX broker

The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency. 

That follows New Zealand's Excel Markets, which made the same statement earlier, according to the Financial Times.

Brokers can go out of business on big moves like this because they give their clients access to leverage. For example, an account holder might have $1,000 with the broker, but hold positions worth $10,000 in currency markets. That doesn't matter so long as the holder's losses are covered by the initial amount. But on Wednesday, for at least two brokers, that wasn't the case for a lot of those clients.

Our solution for these brokerages is to give the leveraged return of $10k but to have contract unwind when his principal and collateral are exhausted. There are NEVER negative equity situations.

New York-based FXCM, one of the world's biggest foreign exchange brokers, says that it may be in breach of rules on capital requirements and that it is owed $225 million by clients who are now in negative equity. FXCM shares are down by an astonishing 90% ahead of the US open. 

IG Group, a publicly listed UK-based broker said yesterday that its losses would not exceed £30 million ($45.7 million)...

swiss franc 2 repeat-x;">, Business Insider

As of 11:30 a.m. GMT (6:30 a.m. ET) the franc is currently looking more settled, down 3.9% at 1.016 against the euro.

Veritaseum's UltraCoin was designed specifically to avoid solvency issues by:

  1. Forcing all participants to prefund their accounts with full principal and optionally additional collateral (margin);
  2. Forcing all participants lever up (via actual loans) outside of the system, leaving the system sacrosanct;
  3. Enabling implied leverage by gearing the returns upon mutual consent of the parties, or using levered securities as price fees (ex. Proshares Ultra);
  4. and most importantly, replacing all counterparies in the trade with the blockchain, which essentially removes all counterparty and credit risk.  

This is what a sample contract looks like before being submitted to trade:

Allianz short and long Franc

I'm thoroughly convinced that this is the trading model for, and of, the future and this week's carnage should go a long way in convincing banks, brokerages and regulators to agree with me. Insolvency can be one hell of a motivator.

Even those who aren't facing insolvency issues still have to deal with the structural decline in big bank profitabilty. I have answers for that as well, right fellas?

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Hey, guess what? Global banks rely on leveraged monies used to speculate on things big and small around the world. These speculations are usually denominated in the banks domiciled currency and express risks through the currencies in which the speculation was made. As an example, business done in the eurozone from a Swiss bank has EUR to CHF exchange risk. This risk is materially and significantly magnified by the leverage necessarily inherent in the banking model. 

You want to know what's worse. The entire FIRE (finance, insurance and real estate) sector is susceptible to the same thing, often to more servere degrees. Insurance companies, particularly longer tail companies such as catastrophic PC and life insurance, place the vast majority of their assets in longer duration bonds, oft denominated in thier home domicile country's currency. So, guess what the Swiss National Bank did? They shot spear right through the heart of Switzerlands biggest financial institutions. Let's take a look, shall we?

Allianz, one of the worlds largest insurers, who was significantly weakend this year by firing likely the most important employee they ever had (Bill Gross) thereby suffering hundreds of billions of dollars of asset outflows from PIMCO now has to contend with a vast amount of what may be left of its investment assets denominated in CHF being worth ~17% less, and that's sans the leverage that they're likely guaranteed to employ to some degree. 

Keep in mind that the SNB is employing NIRP (negative interest rate policy) at the same time as letting exchange rates jump as much as 30%, full knowing that many of its largest instituions are highly leveraged into these markets. These are drastic moves.

From the Reuters' persective:

LONDON (Reuters) - Shares in Switzerland's two big banks UBS and Credit Suisse slumped as much as 15 percent on Thursday after a massive strengthening in the Swiss franc raised the threat that reported earnings will be hit hard.

The Swiss National Bank (SNB) shocked financial markets by scrapping a three-year-old cap on the franc, sending it soaring nearly 30 percent against the euro. The SNB also cut interest rates, which were already negative, to minus 0.75 percent.

..."We estimate that the sharp Swiss franc appreciation will potentially negatively impact forward earnings by about 7-10 percent. With interest rates going into deeper negative territory, there could be further margin pressure," Citi analyst Kinner Lakhani said.

Credit Suisse shares were down 10.6 percent at 20.75 Swiss francs and UBS was down 10.8 percent at 14.88 francs by 1414 GMT. Both had slumped by more than 15 percent at one stage, which dragged Credit Suisse shares to a two-year low. Julius Baer shares were down 12.4 percent.

A 10 percent appreciation in the Swiss franc against the U.S. dollar would have knocked 277 million francs ($271 million) off Credit Suisse's pre-tax income in the first nine months of last year and a 10 percent appreciation against the euro would have hit it by 180 million Swiss francs, the bank said in its third-quarter results.

...About 19 percent of Credit Suisse's revenue and 27 percent of its costs were in Swiss francs last year. About 69 percent of revenue was in U.S. dollars and euros, compared with 52 percent of expenses.

...Adding in the impact of higher costs -- especially in wealth management -- UBS could take a 14 percent earnings hit, Credit Suisse 15 percent and Julius Baer 30 percent, Barclays said.

Can you imagine the margin and collateral calls that are likely occuring right about now. Let's discuss contagtion effect in our next blog post, shall we? This is a price snapshot as of now.

swiss financials after SNB currency debacle

This is how to set up the trade in the UltraCoin client to go long the Swiss Franc in euros and short Allianz equity traded directly on the SWX (Swiss stock exchange)...

Allianz short and long Franc


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The pop media is now circling with '"b"itcoin is dead' commentary, prompting me to state yet again, that the value proposition that the "B"itcoin technology represents is grossly misunderstood, if it is even captured by the pop media at all. Remember, Bitcoin with an uppercase "B" is the blockchain, the transport mechanism, the scripting language and the decentralized, distributed trust consensus ecosystem upon which my startup is focused to build solutions upon. "b"itcoin with a lower case "b" is a digital currency and oft times digital payments app, simply early applications (and the most rudimentary ones) in the early portion of this paradigm shifting ecosystem.  

As a matter of fact, the drastic drop in the price of bitcoin serves to highlight the true value of those utilizing the technology behind bitcoin - the blockchain. The drastic drop (or pop) in prices does nothing to alter the business models of these companies. The value proposition lies in the blockchain and programmability, not in the price of individual currencies within a digital currency app - yes, bitcoin as a payment system or speculative currency is an app within an ecosystem, not the ecosystem itself. Until one is able to grasp this concept one will simply be chasing the erratic prices swings of a single cog within a complicated machine up and down - all the while missing the opportunities within.

To proclaim the death of bitcoin due to a drop in the price of components of one of its apps is akin to proclaimng the death of the Internet due to the drop in the price of AOL stock. Yes, it does sound assinine, but that's what the media is proclaiming.

A tightly related, yet tangential story can be used to prove my point (for those that are not familiar with UltraCoin, it is a blockchain-powered Global Macro trading app that allows anybody, anywhere to trade almost anything with any amount of money on a counterparty/credit risk-free basis). WSJ reports: Macro Horizons: Shock Swiss Policy Turn Alters Equation for Other Central Banks:

WRAPThe Swiss National Bank rocked European markets in early trade by abandoning its euro floor. Unable to resist the pressure of euro devaluation against the dollar, and with more likely to come as the European Central Bank prepares to launch quantitative easing, the SNB faced catastrophic losses on its mounting holdings of the eurozone currency if forced to abandon the one-sided peg sometime further down the line. The immediate significance is for people elsewhere in Europe who hold Swiss franc-denominated mortgages, to Swiss corporations which find themselves suddenly 20% or so less competitive against eurozone rivals and to leveraged investors betting that the SNB would hold fast forever. More generally, it reminds people that central banks aren’t invincible. Ultimately, their efforts and intent can be defeated by even stronger market forces and by having to weigh difficult political judgments. Ironically, one of the outside effects over which they have no control are the actions of their counterparts in other countries – which is what the SNB’s will do to others. Poland’s central bank now has a whole new game plan to think about in a meeting Thursday whose decision is due shortly. And a string of earlier central bank decisions in Asia, including a surprise rate cut by India, now have a different meaning for their currencies because the Swiss central bank has just put the franc back into the mix as one of the globe’s safe havens.  (AM, MC) 

SWITZERLAND: Switzerland’s central bank abruptly ended its policy of maintaining a minimum exchange rate of 1.20 Swiss francs to the euro, while at the same time cutting its key interest rate to a negative 0.75% from 0.5%. The Swiss National Bank also said that it was moving the target range for three month Libor to between -1.25% and -0.25% from the current range of between -0.75% and 0.25%.

In what must be one of the most currency market-shattering announcements made by a central bank in recent memory, the SNB ripped the ground out from anyone with an interest in the Swiss franc-euro exchange rate. At one point the euro collapsed to 0.86 against the Swiss franc, from 1.20 immediately before the announcement – a 28% move. That must stand as one of the most dramatic developed market currency moves ever. The SNB justified the move by saying that the 1.20 ceiling had been put in place at a time of serious Swiss franc overvaluation and that while the franc continues to be expensive, it is no longer quite at such an extreme – in part thanks to the dollar’s recent surge. We await fallout among investors holding Swiss equities and macro hedge funds who had taken the 1.20 level to be sacrosanct. (AM)

On that note, notice the trade on this 100% bitocin blockchain powered application. We are going long the Swiss Franc (betting that its spike against the euro will continue past the news event this morning (NYC time) due to its floor decoupling/unpegging from the lagging euro and short the leverlaged oil ETF which had a deadcat bounce up over 7% for the night, where we're assuming it will continue its drop. This is all done in one trade, and this is the power of the bitcoin blockchain. Forget the price of the widgets of that one blockchain app and open your mind to the future of distributed decision making.

Long Swiss Franc short leveraged oil trade via Veritaseums Blockchain powered Global Macro Trading App

For the more adventurous, here's a long CHF short EUR and GBP trade.

Long CHF short EUR and GBP via UltraCoin

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On the New Years special on Max Keiser, I proclaimed that we'll likely see multiple crashes for 2015. I don't say this lightly. First the clip, then some illustrative evidence that demonstrates where I'm coming from.

And for those who fell I'm being bombastic this time around, simply look at where we are and where we've come from...

Here comes the crash

If there are any more doubts, I invite all to peruse my track record in calling the housing crash, the CRE crunch, the European sovereign debt crisis, the mobile computing wars shakeout, the monoline insurer debacle, the fall of Bear Stearns, WaMu, Lehman among over 30 other banks, and much more. Hopefully, I've earned your audience. For those UHNW types interested in assisting me in building a structure to monetize this upcoming volatility, contact me via the information on the coin above. 

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On January 6, 2011 I penned, "As JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The "New" Tobacco Companies". Was I right? Fastforward to January 14th, 2015 and you find "JPM Misses Revenues And EPS Due To Another $1 Billion In Legal Costs", as reported by ZeroHedge, as excerpted:

... a miss on both the top and bottom line, reporting $1.19 in EPS, well below the $1.32 consensus, and just barely above the lower estimate of $1.16. This was a decline from both the previous quarter (by 17 cents) and from a year ago (by 11 cents). Revenues missed as well, with JPM reporting $23.552 billion in top line, a decline of $560 million from a year ago ($1.6 billion lower than Q3), and below the $24.0 billion consensus. And while JPM's latest recurring, non-one time "one-time, non-recurring" charge came as a surprise to most (although how over $30 billion in legal charges can be considered one-time is beyond us), at the same time JPM once again resorted to the oldest trick in the book, taking the benefit of some $704 million in loan loss reserve releases, nearly offsetting the entire negative impact of the legal charge.

Of course, the reported revenue should not be confused with the GAAP revenue, which actually was $1 billion less at $22.5 billion, the lowest quarterly real revenue in over a year!

The miss happened despite JPM repurchasing another $1.5 billion in common stock, leaving $2 billion in buyback capacity for Q1 2015.

The weakness in earnings was widespread, and now that JPM's prop desk is dead and buried, and the bank has to make money the old fashioned way using NIM, the fact that Mortgage Banking Income dropped from both the prior quarter and Q4 2013 will hardly inspire much confidence in the firm. Still the result was better than some had expected - the reason: Total headcount down over 7,500 for the year.

Speaking of net interest margin, that's going to be a challenge. AFter all, we have a market crash to deal with.

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