Wednesday, 07 December 2022

A Analysis

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Here come capital controls in Europe. Of that, I have little doubt. Actually, they are already here, both in legislative form and in action. Let's walk through what they are, why they're here, how they got here, and what you can do to avoid them.

What Are Capital Controls?

Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets (money) into and out of the country's capital account. These measures may be economy-wide, sector-specific (usually the financial sector, ex. your bank). 

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Yesterday I penned "The Pop Media Is In Love With Goldman Again, Probably Because They Don't Read The Fine Print", illustrating how quickly the media swallows what a big name brand company throws at them. If you do a Google search in Goldman's latest quarterly earnings, it looks something like this:

Goldman earnings google search Q1 2015 -1

I pointed out what was really pertinent in the last quarter's report... Goldman had to ratchet up risk in order to hit $200 per share again):

Goldman earnings google search Q1 2015

... and recommended a very unique macro trade on Veritaseum to monetize the situation...

GS vs euro volatility chart

I offered Goldman to defend their quarter's reporting, good name and share price by taking the GS long side of this swap. It's good thing they didn't, because this is what it looks like 24 hours later with the recommended GS bear leg up nearly 50% - in JUST ONE DAY!

GS vs euro volatility trade - Day 1 

I invite one and all to try what I consider to be a revolutionary method of trading value that sidesteps all of the banks, brokers and exchanges, offers you near unlimited leverage and is dramatically safer - all at once. Goldman, you're invited too :-) 

  1. Take your own high leverage positions on every soveriegn, currency, and bank mentioned in this article with Veritaseum. Learn more or download from here.
  2. Purchase our tradeable intellectual property token, Veritas - the intellectual capital commodity - and design your own high end trades and value trading/exchange platforms with our assistance.
  3. Contact Veritaseum here.


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Listen to this video to hear my opinion of ZIRP starving the banks in 2010 when nearly every single economist analyst and pundit swore that ZIRP would be free money and unlimited profits for said industry. If you don't want to hear my opinion on derivative daisy chain risk afterward, fast forward to the 6:18 marker to see how the contrarian opinion panned out the following year.

Fast forward again, by three years, and we're not only still flirting with ZIRP (despite proclamations to the contrary) but European NIRP. Those that read my analysis know how I feel that will turn out for European banks. After all, if zero is bad, less than zero is probably...

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If you do a Google search in Goldman's latest quarterly earnings, it looks something like this:

Goldman earnings google search Q1 2015 -1

Dudes!!! Don't you guys read the fine print?

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I have been warning Veritaseum users about the unbridled risks the ECB is taking with its banking system by slamming its yield curve - driving short and medium term rates negative. Despite the ECB's proclamations, its banking system is still quite fragile, and it is putting pressure on the barely recovered fractures, causing additional stress fissures.

Before we go on, if you haven't read "It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So! and "How the Danish Central Bank is Destroying the Danish Citizens' Wealth Form Both Sides While Stressing It's Bank!", please do. My warnings in 2010 on the PAN-EUROPEAN SOVEREIGN DEBT CRISIS will do a lot to fill in the background as well.

Yesterday, the Wall Street Journal ran a story on the Spanish bank, Bankinter S.A., which was actually paying customers interest on their mortgages, in a rather backwards twist that is the result of the perverse incentives (basically, the opposite of typical tenets that underlying fundamental analysis) that come about when you turn the world of borrowing, literally, upside down. Here's an excerpt (and remember I warned about Spain 5 years ago in "The Spanish Inquisition is About to Begin..."):

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Though many of the libertarian bent bitcoin aficionados, and those uber liberal early proponents of the Internet lauded the decentralized topologies of these networks, they presumably failed to take into consideration groupthink enabled rent seeking on a massive scale and basic human nature. No matter how decentralized one makes a platform or system, pursuit of power and rent seeking always results in a darwinistic survival of the fittest contest that ultimately results in the centralization of social, political and economic (usually in that order) control over the very infrastructure within which the decentralized topology has been built.

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With nearly a billion USD invested in blockchain related startups over the last two years, even the true luddites are starting to take notice. Most still have no idea what this tech is capable of, so my job is to show all the light. On that note, I present a step-by-step guide to Collateralizing and Ensuring Physical Delivery of Gold Through the Blockchain - Faster, Cheaper, Safer!

What many may not realize is that Veritaseum, when used with our commoditized intellectual capital (Veritas), can actually move the value of, and secure, physical assets through the blockchain. This is the trade architecture from a high level.

Veritaseum Pitch Deck

If one where to speculate or hedge the value of gold, you can receive the price value of gold in exchange for USD (or EUR, or even forex pairs such as EURUSD, or even other assets such as copper). The Veritaseum contract would look like this...


This is a speculative/hedging contract receiving the derivative gold price and paying the derivative USD price over the weekend to NYSE market close on Monday. Yes! This is cool, but suppose you actually wanted to take physical delivery of said gold rather than take cash settled exposure? Well, to do that you still enter into this contract with the seller of said gold, but set the expiry date at time certain in the future for physical delivery of said gold (to be provided and guaranteed by the transportation service). Let's assume that time and date is as stated above. Said transportation service feeds into the Veritaseum system (via a custom implementation created through a Veritas purchase) and upon delivery confirmation of the physical gold the contract unwinds and the seller gets the buyer's funds plus a refund of their deposit which is put up as BTC collateral linked to the USD price - essentially paying him in USD up front - but locked into the blockchain. The buyer of the physical gold has been hedged into the GLD price this entire time and exchanges his gold-linked BTC for actual physical gold upon arrival as this BTC is released to the physical gold seller along with his USD-linked deposit. With such an arrangement, the gold purchase transaction can literally happen immediately, with all parties hedged into their respected requested exposures as they await physical delivery of the underlying.

If the physical gold does not arrive for whatever reason, the buyer still has his direct gold price exposure - basically a win-win situation. If the seller did not deliver the physical gold, then he/she will be forced to pay as if they sold and delivered the gold anyway by being exposed to USD price exposure relative gold and not receiving that deposit back until the end of the contract - whose expiry was defined as provable physical delivery of the gold.

But what about being exposed to BTC price volatility?

For those who do not want to be exposed to BTC volatility, simply open the advanced tab on the markets tab/interface and lever the contract to "outrun" your perceived exposure to BTC volatility. If you feel bitcoin will have an 4% standard deviation and you lever 5x, you will significantly mute said price delta in your trade results (the actual amount of leverage to use can be calculated using our trade modeling spreadsheet - in this case, 5x is rather excessive for an expected 4% STD).

Recieve GLD lto USD evered 5x

This what that "smart contract" would look like...

Recieve GLD lto USD evered 5x contract

This is what the entire trade would look like, levered 5x with BTC featuring 4% volatility.

Recieve GLD lto USD evered 5x contract trade results chart

Recieve GLD lto USD evered 5x contract trade results descriptionRecieve GLD lto USD evered 5x contract unbounded PL 

Download the Veritaseum wallet and all tools needed to conduct this transaction (sans the physical gold and BTC, of course) here. Purchase Veritas (our tradeable Intellectual Commodity token) here.

Feel free to contact me directly here - I love to chat.

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Veritaseum will be announcing asset-backed bitcoins after the end of our token sale. These are bitcoins that will have both the full value and capability of bitcoins that actually ride along the bitcoin blockchain plus the additional attribute of being backed by a variety of real world commodity assets. This essentially inflation-proofs the coin (more so than the possibly deflationary effect of limited supply) and in addition it puts a hard floor on the value of the coin - setting it aside from bitcoins not modified by Veritaseum.

The Accepted Defintions of Money

According to Wikipedia:

Money is any item or verifiable record that is generally accepted as payment for goods and servicesand repayment of debts in a particular country or socio-economic context.[1][2][3] The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment.[4][5] Any item or verifiable record that fulfills these functions can be considered money.

Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money.[4] Fiat money, like any check or note of debt, is without intrinsic use value as a physical commodity. It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private".[6] Such laws in practice cause fiat money to acquire the value of any of the goods and services that it may be traded for within the nation that issues it.

Commodity money, whose value comes from a commodity of which it is made consists of other things that have utility value in and of themselves in addition to the value attribuated to their use as money. Examples of such include goldsilvercoppersaltcocoa beans, oil and barley. These items historically ran into practical barriers as the global economy expanded - through limitations in storage, transport and rancity - basically techological barriers. As such they were overtaken by representative money. 20 US Gold note

According to Wikipedia, representative money is defined as:

  • A claim on a commodity, for example gold certificates or silver certificates. In this sense it may be called "commodity-backed money".
  • Any type of money that has face value greater than its value as material substance. Used in this sense,fiat money is a type of representative money.

Unfortunaely, as fiat took hold, the former defintion of representative money failed to hold sway - the result of which has been rampant seignorage. Seigniorage is the action of exchanging sovereign-issued securities for freshly printed money by a central bank. This is in essence, borrowing real money and paying with "created" money - or basically not needing to repay at all. These actions are not without consequences. Monetary seigniorage is an action which takes this theme a step further, wherein the sovereign entity relies on seignorage as an active revenue stream through regular and routine debt monetization (printing new money to repay old money to meet budgetary targets. The use (or misuse) of these newly printed notes can exacerbate the inherent problems of rampant monetization. For many developed nations, seignorage is relied upon as a regular revenue source, despite the fact it has wrecked the economies of smaller nations.

Sweeping up the banknotes from the street after the Hungarian pengőwas replaced in 1946.
highest inflation periods in history

The United States is certainly not immune from these effects. The economic thirst of war has pushed the US to the brink at least two times in the past. Continental currency (the precursor to the current USD) printed during the Revolutionary War reached a monthly inflation rate of 47% in November 1779. 

Again, during the U.S. Civil War, the 50 months preceeding April 1865 saw the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9,000.

The Confederate dollar was nearly worthless by the end of the civil war. Towards the north, greenbacks (the currency of the Union) were purposely inflated up to a 40% monthly inflation rate. In many of these instances, the money was purposely inflated to fund the war. This monetary seigniorage still exists today in the US and abroad. 

Seigniorage in the United States: How Much Does the U. S. Government Make from Money Production?

Referencing the study made by Federal Reserve Bank's own St. Louis Fed...

As you can see, monetary seingniorage has been and is, a profitable business for the US and has been such for some time.

monetary seigniorage profitability in the US 1

Seiniorage has been responsible for paying between 1% to 3% of the federal budget of the largest single economy in the world - but that's before the crisis and QE, which we will get to in a minute.

monetary seigniorage profitability in the US 2

Pay very close attention to this table, where the had its debt bought outright by the Fed. The number peaked in teh '71-'80 period at just over $12B. Be aware that, pre-Bernanke Fed did not have a mandate (as popularly interpreted) to purchase private debt.

monetary seigniorage profitability in the US 3

Let's look at this from a 2014 perspective, and please notice the delta in the numbers...

The 3 rounds of US QE:

  1. QE1 (December 2008). In December 2008, the Fed started buying longer-term Treasury securities as well as the debt and the mortgage-backed securities (MBS) of Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs).[3] The Fed announced it would purchase up to $100 billion of the GSEs’ debt and up to $500 billion of their MBS from both banks and the GSEs themselves.
  2. QE2 (November 2010). In November 2010, the Fed announced that it would purchase $75 billion per month of longer-termed Treasuries, for a total of $600 billion. These purchases were to be concentrated in Treasury securities with maturities of two to 10 years, though the Fed also intended to purchase some shorter-term and some longer-term securities.
  3. QE3 (September 2012). In September 2012, the Fed announced its third round of easing, now referred to as QE3. Under QE3, the Fed’s combined securities purchases (long-term Treasuries, GSE debt, and MBS) were increased to approximately $85 billion per month. Unlike its counterparts, QE3 was an open-ended commitment. Rather than commit to purchasing a fixed amount of securities by a certain date, the Fed declared that it would make purchases until it decided that the labor market had sufficiently improved.

So we, go from $12B in US .gov debt to somewhere around $500B of the same in 2007, in addition to a category labeled as "All Other" to $4.4 Trillion as of last year, including unheard of asset classes in the comparable tables above - MBS, etc.). Even if one were to exclude such (and I query as to the reason why one would do that), there is still over $2 Trillion of note and bond purchases. If one were to linearly extrapolate the relationship between monetary senioriage in the tables above as a percentage of the US Federal Budget and the Fed's balance sheet bloat as a result of QE, it would look something like this...

monetary seigniorage profitability in the US 4 Now, we're not economists at Veritaseum, and I'm sure this little analysis may be rife with holes, but its purpose is to illustrate the vast revenue and profit machine that is Monetary and Fiscal Seigniorage, ex. money printing. QE, NIRP, ZIRP generates funny money at the expense of the holders of said money. Reference this graphic from "How the Danish Central Bank is Destroying the Danish Citizens' Wealth Form Both Sides While Stressing It's Banks":

Danish Central Bank prints risk into its economy

 Other examples of current day seignorage and their results are exemplified by the Currency War series linked below. We, @Veritaseum, are using the power of the blockchain to resurrect commodity money and commodity-backed money in a fashion that brings it into the 21st century through our smart contracts technology. We will infuse bitcoins with a definitive floor value (but the coins will also feature the value of bitcoin itself, hence be able to float freely above said floor) based on the following liquid commodities:

  1. Gold
  2. Brent crude and heating oil
  3. Natural gas
  4. Copper
  5. Aluminum
  6. Corn
  7. Wheat

More info will be available after the Veritas sales end. Institutions and accredited investors who are interested in learning more can reach us here.

The Currency War Series:

Interesting tools for the community:


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About two months ago, I posted "It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So!" wherein I feel I made a rather cogent argument against the fidelity of the Danish peg to the euro. Yes, they have not made the same mistakes that Switzerland made when they engaged in, and broker their ped - they're making a whole different set of mistakes. I urge all to read (re-read) that piece and then review the inforgraphic-like graphic below which was created to illustrate the folly of printing for printing's sake to those who may not quite grasp the concept of more currency not being the equivalent of being wealthier.

As always, you can use the Veritaseum platform to take our positions, whatever they may be.

Danish Central Bank prints risk into its economy

So, will Denmark break its peg to the euro? Who knows, but I can guarantee you that the probability is much, much higher than the Danish Central Bankers are proclaiming. If they break the peg, go long the DKKEUR pair, if they don't break the peg, short their banks. It's possible to construct a decent risk weighted reward trade from this - despite the fact this iis dated information. If any of you do make a Veritaseum-powered profit, be sure to send the Danish Central Bank a thank you note, and Cc: us while you're at it.

Note: The 7,000x leverage setting is illustrative only! It is impractical to use leverage rates that high. Danish Central Bank prints risk into its economy1

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