Sunday, 27 November 2022

A Analysis

This is the 4th installment of our public service announcements on Deutsche Bank subsidiary, Xetra-Gold's gold note offerings. Since a lot has been covered already, it's advisable that you read the first 3 articles to catch up:

  1. Veritaseum Knowledge Exposes Frightening Counterparty Risk At Deutsche Bank for "Gold Investors"
  2. Is Deutsche Bank Prepping for Fraud Charges Against It's Gold Derivative Products?
  3. The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold

Now, that we have determined that Deutsche Bank subsidiary Xetra-Gold "may" not have been fraudulent, mainly because they stated in their prospectus things that contradict and befuddle the misleading things they stated in their marketing material, we are left to ponder, "Well, we know the offering was unethical, but was it illegal?" Unfortunately, I'm not a lawyer thus cannot accurately opine on such. Alas, I can speculate as a laymen. The Xetra-Gold derivatives were offered in the UK, as well as several other jurisdictions. Let's peruse the UK perspective via the FCA in the difference between clear and misleading financial advertising:

"Financial adverts and promotions can be misleading for many reasons, but there are some questions you can consider to help you spot and avoid misleading financial adverts, such as: ... Are there important points that are only shown in the small print?"

Hmm... Let's take a look at the Xetra-Gold advertisement, and cross reference it to it's prospectus:

DB Xetra-Gold false advertising test

You guys tell me, is this a blatant case of false advertising, or is it not? Let me know in the comment section below. It's not as if DB is totally innocent in these matters, for they just signed a consent order admitting the manipulation of gold prices. This goes deeper than many may care to admit. Deutsche bank seems to be dumping its gold exposure, and what better way to dump it than to sell it unsuspecting gold derivative note buyers. This is how it could be going down...

Deutsche Bank, through it's Xetra-Gold subsidiary, has a guaranteed, zero premium call option.

  1. DB/Xetra-Gold accepts money from investors who are told they are buying gold, from “an economic perspective”.
  2. DB/Xetra-Gold takes money that was supposed to buy gold (at least in the eyes of many investors) and does whatever they want with it (which could include buying gold) because gold delivery on demand is not guaranteed and the investors have been disclaimed against ownership of, and rights to, the gold underlying as well as price correlation, and failure to deliver.
  3. If the price of gold goes up, DB/Xetra-Gold can fail to deliver (as disclaimed) and keep the capital gains profits. They don't even have to match the price of the gold underlying. or return the initial investment.
  4. If the price of gold goes down, DB can deliver gold on demand and keep the spread from gold spot and the price originally charged for the gold notes.

This is good work, if you can get it, no? 

This is how a company like DB can have over 90% in profitable trading days, because they never had a chance of losing in the first place. The losses belong to their clients! This is speculation, of course (wink, wink). Now, legal eagles say that we can't scream fraud, because Deutsche clearly says they have the motivation to, and the ability to, rip you off in their prospectus (but not in their marketing materials).


Which leads us to the end of "The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold", where John Titus (see his videos at the end of this article at the bottom) explained to me after I queried about misleading and contradictory marketing materials:

I asked, "If marketing materials are negatively contradicted by the prospectus then the marketing materials are fraudulent and misrepresentative, no?" He replied...

Misrepresentative, yes (accepting your definition of economic), and the marketing materials probably do in fact flout any number of laws against false advertising.
But fraudulent, no. The essence of fraud is to falsely induce someone by words or acts into doing something against his interests that he wouldn't have done but for the dishonesty. Courts consider the totality of the circumstances. So while you would undoubtedly tear the economic investment statement to shreds, you'd still be left with the many other statements from the prospectus that are true, and herein lies the problem.
The UK Fraud Act of 2006 is a criminal statute. So each element of the crime has to be proved beyond a reasonable doubt (or whatever the English equivalent burden of proof is). The first element of fraud by false representation under the Act is "dishonestly makes a false representation." The problem posed by the prospectus is that it would preclude a finding that DB acted dishonestly beyond a reasonable doubt. I mean, you've got one false (but arguably vague) statement vs. several clear-cut disclaimers that are accurate. The totality of the statements are perhaps half false and half true, but dishonest beyond a reasonable doubt? Fuhgetaboutit. DB played the game with all of its cards face up. Yeah, they contradicted each other, but they were damn sure visible to investors, who can claim they were misled only in a subjective (personal) sense, not in an objective way (which is how a judge would look at it).
Now, if--in addition to the mktg mat's and the prospectus--you've got some Goldman-like behavior where DB took out massive insurance policies on the investments it sold and concealed them from the buyer, it's a totally different story."

Hmmm... On that note, let's take a look at whether DB has been a net buyer or net seller of gold exposure. Remember, Goldman, sold MBS structures to clients and then took big short positions betting against their own clients, reference "Goldman 'bet against securities it sold to clients'.

The subcommittee also released four internal Goldman Sachs emails. In one, says a subcommittee statement: "Goldman employees discussed the ups and downs of securities that were underwritten and sold by Goldman and tied to mortgages issued by Washington Mutual Bank's sub-prime lender, Long Beach Mortgage Company. Reporting the 'wipe-out' of one Long Beach security and the 'imminent' collapse of another as 'bad news' that would cost the firm $2.5m, a Goldman Sachs employee then reported the 'good news' – that the failure would bring the firm $5m from a bet it had placed against the very securities it had assembled and sold."

Goldman is fighting to clear its name after the $1bn fraud charges brought by the US Securities and Exchange Commission last week, and wants the case settled in court.

The movie, "The Big Short" dramatized this rather well.

Well, guess what it looks like Deustche has been doing...

DB gold exposure expressed as VaRDeustche has been a net seller of foreign exchange risk, which includes (wait for it now, and guess....) gold! They probably were not cash sellers, but purchased swaps to reduce exposure, possibly along the parameters I mentioned above with the guaranteed, zero premium call option.

If you enjoy this free analysis, there's much more where this came from as we pick apart many other banks in our paid research and knowledge modules. WE just finished a true forensic valuation (very extensive, and detailed analysis) of a very large European bank that led to a huge short recommendation. Subscribe here and pass the word. Our bank analyses have performed very well in 2016, with Banco Popular and Banco Popular Milano doing roughly 40% to 80% in theoretical returns (contingent on how the positions were taken). We have done an excellent job historically as well, calling the fall of Bear Stearns, Lehman, Countrywide, GGP, etc. If you think the free stuff is intense, you should see the stuff that we sell!

The Wall Street Journal has a well done analysis of Greek debt coming due in about a week. It's a lot considering the size of the country's shrinking economy! Here's a snapshot:

Greek Debt Due from WSJ

I have explained the Greek situation in full detail for my blog subscribers back in 2010, 2011 and 2012.

For background and perspective, read Lies, Damn Lies and the EU Confiscation Of Greek Sovereignty Masked As The Bailout That Never Happened. Pay close attention to these parts...


image021 copy


 So, as I was saying...

 It just won't work because it doesn't solve the problem. Instead, it attempts to conceal the problem in fashion that pretends it never existed. Let's walk through this so a 5 year old can understand it.

Interestingly enough, Reinhart and Rogoff, of This Time Is Different: Eight Centuries of Financial Follyfame contend "that historically, significant waves of increased capital mobility are often followed by a string of domestic banking crises". If that is actually the case, then the very goal of the Euro project was bound to bring about a sting of banking crises and all of this was actually inevitable. As excerpted:


The forgotten history of domestic debt has important lessons for the present. As we have already noted, most investment banks, not to mention official bodies such as the International Monetary Fund and the World Bank, have argued that even though total public debt remains quite high today (early 2008) in many emerging markets, the risk of
default on external debt has dropped dramatically, especially as the share of external debt has fallen. This conclusion seems to be built on the faulty premise that countries will treat domestic debt as junior, bullying domestics into accepting lower repayments or simply 12 defaulting via inflation. The historical record, however, suggests that a high ratio of domestic to external debt in overall public debt is cold comfort to external debt holders.

Default probabilities probably depend much more on the overall level of debt. Reinhart and Rogoff (2008b) discuss the interesting example of India, who in 1958 rescheduled its
foreign debts when it stood at only1/4 percent of revenues. The sums were so minor that the event did not draw great attention in the Western press. The explanation, as it turns out, is that India at this time had a significant claim on revenue from the service of domestic debt (in effect the total debt-to revenue ratio was 4.4. To summarize, many investors appear to be justifying still relatively low external debt credit spreads because “This time is different” and emerging market governments are now relying more on domestic public debt. If so, they are deeply mistaken.


... and this part from Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding


Now, with a full background on how we got to where we are now we move over to Goldman's recommended defensive plays to a Grexit, as reported by ZeroHedge. Before we go on, remember my admonitions about blindly following Goldman's retail and institutional analyst recommenations:

    • If tensions turn systemic, EM assets likely to see pressure

Even as Greek concerns have escalated, risk markets have so far traded in a resilient fashion, treating those concerns as effectively isolated to Greek assets. But in previous episodes of acute Euro area stress in 2010 and 2012, a wide range of EM assets came under pressure, especially CEE FX and CDS. Hungary was the hardest hit across all asset classes.

    • To hedge Greek risk, long $/CEE

Among EM, $/CEE has seen the largest moves in times of Euro area stress. This has reflected a weakening EUR and EUR/CEE moving higher. Specifically, the HUF and PLN are likely to depreciate against the USD in the medium term as policymakers welcome weaker currencies in the fight against ‘lowflation’, and would move even more rapidly if Greek risks do become systemic. Locally, the entry levels are also attractive given the rally in EUR/CEE in recent weeks.

*  *  *

Hedging Greek risks in EM assets

Euro area sovereign and financial risks rising again
The nearly constant barrage of headlines reporting comments from Greek and Euro area policymakers is indicative of the renewed deterioration in sovereign risk. Greece and its Euro area counterparties continue to work within a tight schedule to avert a disorderly outcome. Our base case remains that some new accommodation will eventually be found between Greece and the European authorities. But risks of an accident remain as commercial bank deposit outflow and a shortfall in tax collections can precipitate a critical situation in the interim. Even if an agreement to extend the programme is reached this week, the gap between the demands of the Greek side and the actual programme requirements is very large.

The situation is fluid, and if an agreement is reached quickly to extend the Greek bailout, then broader asset markets (including in EM) should stay largely unaffected. But we continue to receive questions on how EM investors can consider hedging the risks of a more messy outcome – that either leads to a ‘no man’s land’ where Greece is without the funding that comes along with a programme or, in the worst case, an outright exit from the common currency. In these latter outcomes, with systemic risk likely to increase, EM assets would come under pressure.

Three weeks ago, we described how in previous episodes of Euro area turmoil, on average EM bond yields tracked the move lower in G3 yields as demand for safe assets spiked, whereas EM credit spreads widened, EM FX weakened versus the USD and EM equities came under broad pressure (see ‘Taking one step back’, EM Weekly: 15/03, January 29, 2015). That said, both EM and G3 bond yields are now at much lower levels – which makes the argument for being long EM fixed income more debatable in the current context. In this EM Weekly, we drill further down within EM FX, CDS and equities to evaluate the relative performance across countries over those previous episodes to help identify how best to protect portfolios against an escalation in Greek risks.

The EM asset experience in the 2010 and 2012 episodes of Euro area stress
Even as concerns around the extension of the Greek programme have escalated, risk markets have so far traded in a resilient fashion, treating those concerns as effectively isolated to Greek assets. But in previous episodes of acute Euro area stress, a wide range of EM assets came under pressure as risk traded poorly. Below we study the two previous episodes of Euro area stress in 2010 and 2012 to assess how different EM assets were affected on average. Euro area stresses were also elevated in 2011, but in that episode it is harder to distinguish between the impact of the Euro area worries and the US debt-ceiling crisis, which played a major role in roiling markets.

Starting with EM FX, Exhibits 3 and 4 show the average moves versus the USD and the EUR over the two periods when Euro area stresses were at their most acute: mid-April to early June 2010 and mid-March to early June 2012. Exhibit 3 shows that in these ‘risk-off’ periods, almost all EM currencies depreciated versus the USD. In relative terms, the largest average depreciations were recorded in the Central and Eastern European region (PLN, HUF, CZK), followed by a couple of the high-yielders (RUB, ZAR) in the European time-zone. The MXN and BRL were most affected in the LatAm region, whereas NJA currencies outperformed.

Most EM currencies appreciated versus the EUR (Exhibit 4), which is unsurprising given that the Euro area was the epicentre of the shocks at these times. But, notably, the CEE-4 currencies saw meaningful depreciations versus the EUR, even as the EUR itself was depreciating. The geographical proximity and the strong trade and financial linkages of the CEE region to the Euro area meant that currencies there have tended to bear the brunt of Euro area crisis episodes.


Goldman believes Hungary is the most susceptible to Grexit risks. Since I've only excerpted the analysis, you can get the full story from the ZeroHedge article direcly... 

$/HUF and $/PLN weakening our preferred ways to hedge Greek risks
At the current juncture the market appears to be making a couple of assumptions: first, that the ongoing disagreements between the Greek government and the Eurogroup represents the typical political posturing that has tended to take place in advance of eventual eleventh hour agreements; and, second, that in the event that agreement cannot be reached by the end of February, the upgraded EU toolkit, including the OMT and the soon-to-be-initiated sovereign QE, will keep market pressures from spilling over into the rest of the EU periphery, and by extension into the broader market.

Our read of the situation is less sanguine on both counts. An eventual agreement between the Greek government and the Eurogroup is still our base case, but we worry that the gap between the current programme on offer and what would be acceptable to a majority of the Greek parliament is very large. In addition, market pressure has often been the forcing variable in the past in helping to close this gap, so paradoxically the absence of broader market pressure is likely to make an eventual agreement that much less likely. In the event that an agreement cannot be found, and ‘Grexit’ becomes a serious possibility, we would expect systemic concerns to affect markets more broadly than currently. As Francesco Garzarelli discussed (in Global Markets Views: ‘Systemic risks posed by Greece set to peak at month-end’, February 17, 2015), even if peripheral bonds are shielded from the fallout by the ECB’s purchases, we would expect the EUR and stocks to come under downward pressure, and credit spreads to widen, reflecting the downside risks to a fragile economic recovery in the Euro area.

Given the results documented in the previous section, our preferred way to hedge these risks would be through long $/CEE positions. In previous episodes of Euro area stress, the combination of the EUR moving lower versus the USD and EUR/CEE moving higher has meant that $/CEE has tended to see the largest moves across the EM FX complex. Even setting aside Greece-related risks, our forecasts call for EUR/USD to move to 1.11, EUR/PLN to weaken to 4.22 and EUR/HUF to weaken to 320 in 6 months, as policymakers in these economies welcome or actively seek weaker currencies in their fight against ‘lowflation’. This implies that the HUF and PLN are likely to weaken against the USD in the medium term based on macro and policy considerations, and if Greece-related risks turn systemic, the weakening is likely to be even more rapid. Finally, given the rally in EUR/HUF and EUR/PLN over the past three weeks, locally the entry levels are also much more attractive.

I've excluded the portions relating to CDS, but the EM FX is more than what's needed. I'm fully aware that CDS trades and exotic forext pairs may be beyond the ken of most retail investors and likely many institutional investors as well (which is why banks get them into such precarious situations, that cost them so much to get out of, ie. How Veritaseum's UltraCoin Could Have Saved Harvard Over $1 Billion!). Alas, I digress. Those who follow me know that I clearly aim to disintermediate rent seeking in the financial space and to return said rents back to the community at large in order to let true talent, intellect, and most importantly drive (the prime determinent of success absent institutional barriers to entry, participation and geo/socioeconomic discrimination). These tweets make a good segway into how and why consumers - big and small (like Harvard who was taken advantage of by the Bank Morgans and stay at home day traders) - can now compete with Wall Street and stand toe to toe. 

Now, I will work the magic of technology and show everyone who can make it to the bottom of this article (unfortunately, that is truly only a select few) how to encapsulae the Goldman researh (which I haven't personally vetted, but does make sense on its face) in one single trade. This trade, a digital swap, is something that Goldman itself, nor any of its competitors (save Veritasuem, which is a software concern and not a financial institution) can offer you. Goldman suggests "$/HUF and $/PLN weakening our preferred ways to hedge Greek risks". A cursory look at these two pairs through both the 2012 scare and now lends credence to the Goldman assumption.

Grexit Hedge using Dual CEE Forex pairs

 So, let's take a position on both pairs with a single UltraCoin swap. This can be be modeled with Veritaseum's UltraCoin Trade Modelling Spreadsheet before actually being entered through the actual ultracoin client. Keep in mind that, as a digital derivative transaction:

  1. You can take as small or as large a position as you please. This example uses a $4000 at risk amount, you can use as little as 12 cents or as much as $300 million.
  2. The use of leverage can give you extreme buying power (up to 10,000x), but along with it is extreme risk and larger fees. At the end of the day, its still beats ANYTHING Goldman can, or would offer you. Here we have the equivalent of two forex pair swaps for $100,000 for $121. Read  How Veritaseum's UltraCoin Could Have Saved Harvard Over $1 Billion! to see how much JP Morgan and Morgan Stanley charged Harvard. Here's a spoiler, it was more than the 10 basis points they would have been charged with UltraCoin!
  3. This is a very custom swap. I'm not saying Goldman can't do it, but it's not just sitting around in their inventory, and they will charge you accordingly - with no more liquidity than is offered here, but with a LOT less transparency and safety. As a matter of fact, you always either no where your money is (in the blockchain) or have it in your possession (via your wallet), that is unless you lose it. Here's a graphic of the order placed, and to find the location of your funds at any time, just hit that "Track Transactions" button at the bottom.

Grexit Hedge using Dual CEE Forex pair UltraCoin Swap order placed

    Rest assured, Goldman, et. al. can never tell you where your funds are at any specific time. The ex-president of Goldman, Mssr. Corzine can attest that Man Financial probably couldn't either, as per Wikipedia:
    1. In 2011, MF Global faced major pressures to its liquidity over several months. Some analysts and financial commentators indicate that MF Global probably experienced a number of trading days in 2011 during which the firm's bets on sovereign debt would have required the use of customer funds to meet capital requirements, thereby maintaining operating funds and possibly overall solvency. A large part of these pressures on MF Global were a result of the firm's involvement in a significant number ofrepurchase agreements. Many of these repo agreements were conducted off their balance sheet. Also, MF Global made a $6.3 billion investment on its own behalf in bonds of some of Europe’s most indebted nations. Failure of those, and other, repo positions contributed to the massive liquidity crisis at the firm.
  1. UltraCoin is P2P software, not a brokerage firm or a bank hence there is absolutely no exposure to our balance sheet or the risks of such that my ensue. It never, at any time, even takes possession nor has control of any of your funds, thus it can never abscond with them or use them in an inappropriate manner.
  2. The only other possible (okay, credible) sales objection the Goldman team could raise to prevent their clients from defecting to a software solution as compared to their 45% of gross revenues paid as their compensation solution is that the Veritaseum solution rides on the Bitcoin blockchain, exposing users to BTC volatility. Outside of the fact Goldman would likely charge you more for the swap than the volatiity may cost you, I have modeled in a 10% drop in BTC prices, along with all the fees charged to show you what happens when the swap is constructed properly. Just follow the series of graphics below carefully and read everything.

 Grexit Hedge using Dual CEE Forex pair UltraCoin Swap

I love to talk! I'm willing to discuss anything in this article, from Grexit to Wall Street banks to the technology that challenges their hegemony, with anyone. Just reach out to me here.

Those who follow me know that I don't agree with many of Goldman Sachs recommendations, primarily because I know that Goldman considers their clients to be "muppets" and use said muppets as profit springboards for trade setups. Of course, I can be wrong, but remember that we have ex-Goldman partners who support this thesis with personal experience, reference "Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients":

An executive director at Goldman Sachs has explicitly corroborated what I and many in the blogosphere have been crowing for some time now, and that is... 


The whole video can be seen here on the Max Keiser show, starting from about 19:00 minutes in where I discuss risk vs reward in GS and how they outperform eventhough risk outweighs reward. Those who like numbers and charts can see where I actually demonstrated in For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks:

As in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, reference Reggie Middleton vs Goldman Sachs, Round 2.

gs roe

And now we have supporting evidence from the inside... From the NYT:

"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. I can honestly say that the environment now is as toxic and destructive as I have ever seen it."

"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

"I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."

" I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."

 "How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence. What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."

"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."

"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen."

Well, anyway.... This piece was not intended to reveal the inner workings of Goldman Sach's business model. It was intended to illustrate how our UltraCoin system can be used to monetize global macro trade ideas, even if they are from the vampire squid! According to Forbes:

Goldman’s first non-U.S. trade recommendation revolves around an expectation European stock markets rise in 2015 as the impact of ECB money-printing makes its way into the real economy. Goldman recommends investors go long a December 2015 Eurostoxx 50 call spread, buying a Dec. 2015 strike call at 3,150, and selling a Dec. 2015 strike call at 3,450. “The (nearly) at-the-money 3150 call costs 170.6, while selling the 3450 call costs 69.10 (both priced as of the close on November 19), giving this position a maximum potential 2-to-1 payout,” notes Goldman. The firm sees two reasons European stocks will move higher: regional growth simply accelerates, or disappointing inflation readings force the ECB into added action. Both scenarios, Goldman believes, augur well for European asset prices.

First, let's put this in a form that can be traded via UltraCoin. To go long the Eurostoxx 50, we'll receive exposure to the SPDR Eurostoxx 50 long ETF (speculating that the top 50 EZ equities will rise from currency wars & QE)  and we will pay exposure to the ProShares Ultra Euro ETF (ULE) seeking to provide twice the exposure to the performance of euro versus the U.S. dollar on a daily basis (speculating the euro will fall relative to the US dollar as a result of currency wars & QE by going short). It should also be noted that leveraged ETF products usually seek to match the return of the euro against the dollar over a single day. Due to this and the compounding of daily returns, the returns of the product may deviate from long term return rates, suggesting that investors need to monitor their holdings closely if they are going to be in for a long time period. It should also be noted that this is a materially more advanced trade setup than that recommended by Goldman, for it captures potential euro downside movement relative to the dollar AND potential european equity market upside -which, according to the Goldman hypothesis, are tightly linked. One would think that Goldman should start recommending trading with UltraCoin, no? 

My take on this? Well, it's obvious that the euro will see some pressure from central bank machinations, but its not so obvious... or maybe its too obvious that that is an automatic plus for the eurozone economies in general. Remember, what's good for stocks short term is not necessarily what's good for the economy medium term. The eurozone is a confederate of 27 (or so) countries with widely disparate economies, equity markets, macro situations, fundamentals and financial situations. This is far from a one size fits all situation. This should be obvious to all (and is how I called the Pan-European Sovereign Debt Crisis 5 years ago). In Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! I illustrated how inaccurate the many calls for European growth actually were, to wit:

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.


Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.


Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...


The EU/EC has proven to be no better, and if anything is arguably worse!




and the EU on goverment balance??? Way, way, way off.

It's not just Greece either...

And what about Italy???

This is Italy's presumption of economic growth used in their fiscal projections:





If the IMF was wrong, what in the world does that make the EC/EU?

Now, for sure, there are some eurozone nations that will benefit mightily from the debasement boost, but those countries are not representative of the entire eurozone. The reason why debasement and QE are almost a forgone conclusion is that Japan has thrown the gauntlet down and the ECB feels it has little choice. You see, there is a stark difference between how the Japanese economy (despite 34 years of a lost decade) and the EZ economies are put together, and a currency war will bring those differences starkly to the forefront. I posted series of tweets on this topic a few days ago...

Of course, if one wanted to take the opposite side of Goldman's views, simply click the switch button in the trade setup screen of UltraCoin to reverse the exposures. Download the UltraCoin client for free, and start trading for free without banks, brokers or exchanges.

Correction: the improper ticker was initially used in the trade setup. We intended to communicate going short the euro, which is what the words said, but the original ticker and desciption was for the Proshares ultra short euro ETF, which would have had a net long effect (shorting the short). The ticker has been corrected to reflect the Proshares long euro ETF, which one would be shorting through the UltraCoin client.

Management apologizes for the editing error. 

thumb Slide7

Let's quote some of the last lines of my last article on Bitcoin: "Witness the drivel that comes out of the the analyst's reports (and yes, I thoroughly ridiculed each one):

  1. Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing
  2. Does the Mainstream Media Assist Wall Street In Hypocritical Hypothesis For Fear Of The Next Paradigm Shift?"

You see, first JP Morgan threw baseless fear tactics, then Citibank jumped into the fray. Well, guess whose next? Goldman Sachs, of course. Everybody's favorite fair game player. As excerpted from Business Insider today:

"Dominic Wilson and Jose Ursua of the firm's markets research division are first up. They argue that Bitcoin fails to meet both basic criteria of a viable currency: while there remains an outside chance for widespread acceptance as a medium of exchange, as a stable source of value, it has so far failed. That undermines the premise that Bitcoin could serve as a way of short-circuiting exchange rates in inflation-prone countries."

 And Reggie, Chief of Bullshit Patrol & Related Crimes Division chimes in with a Google search on promintent "failed" currency processors:

Bitpay user growth google searchcoinbase user growth google search

But wait a minute! Goldman's business business is growing at a fraction of this pace, and actually negative in some areas. So, if Bitcoin as a currency and payment system is a failure, what the hell is Goldmam? Of course, Business Insider goes on to report...

For most users what matters is not the comparison with other currencies, but a comparison with the volatility of the currency that they hold (dollars in the US for instance) in terms of the things that they need to buy. The volatility of consumer prices (in dollars) has been even lower than FX rates, even if measured over a period including the 1970s. Put simply, if you hold cash today in most developed countries, you know within a few percentage points what you will be able to buy with it a day, a week or a year from now.  

This is Bullshit! Say it to the more mathematically challenged, my bonus hungry friends. Let's run the math using the

Dollar as a store of value

As you can see, if you measure things from the '70s as the esteemed, erstwhile Wall Street aficiaondo from Goldman recommended, then you would have less than 17% of your buying power left. Yes, bitcoin is volatile, but its volatility stems from the price going up and down, while the USD has primarily just went down. You know that saying about the frog in the slowly heated boiling pot of water, right?

In addition, both of the largest Bitcoin payment processors absorb the exchange rate volatility for their customers, or did the best of breed Goldman analysts somehow overlook this pertinent fact?

How it Works - BitPay

Back to those Goldman guys...

Wilson and Ursua include this graph showing volatility of Bitcoin versus the Argentine peso, the yen, the euro, the pound, and U.S. inflation. It's not even close. 

bitcoin volaitlity

But wait a minute! If the largest payment processors absorb the volatility and market risk of their customers, then Goldman must assuredly be referring to the currencies above from an investment perspective, no?

Yes! Bitcoin is truly volatile, indeed, but the guy at Goldman are cheating, hoping that the rest of us don't know our finance and/or basic common sense. You see, they are looking at just one side of the equation - the side that favors fiat currencies and disfavors bitcoin. You see, risk is the price of reward. For every reward you seek, you pay a price in risk. The goal, as a smart investor, is to pay little risk for much reward. Goldman is trying to make it appear as if you are paying nothing but risk for bitcoin and getting little reward in return. Let's see how that pans out when someone who knows what they're doing chimes in. From the BoomBustBlog research report File Icon Digital Currencies' Risks, Rewards & Returns - An Into Into Bitcoin Investing For Longer Term Horizons:

Bitcoin risk adjusted returns

You see, with high volatility (aka, risk), it's hard to earn your cost of capital, not to menton surpass it. Isn't that right, employess of Goldman Sachs? Let me jog your collective memories, as excerpted from the BoomBustBlog post on When the Patina Fades… The Rise and Fall of Goldman Sachs???

GS return on equity has declined substantially due to deleverage and is only marginally higher than its current cost of capital. With ROE down to c12% from c20% during pre-crisis levels, there is no way a stock with high beta as GS could justify adequate returns to cover the inherent risk. For GS to trade back at 200 it has to increase its leverage back to pre-crisis levels to assume ROE of 20%. And for that GS has to either increase its leverage back to 25x. With curbs on banks leverage this seems highly unlikely. Without any increase in leverage and ROE, the stock would only marginally cover returns to shareholders given that ROE is c12%. Even based on consensus estimates the stock should trade at about where it is trading right now, leaving no upside potential. Using BoomBustBlog estimates, the valuation drops considerably since we take into consideration a decrease in trading revenue or an increase in the cost of funding in combination with a limitation of leverage due to the impending global regulation coming down the pike.



 Now that we see how hard it is to truly produce Alpha, I query thee... What do you think would happen if a financial maverick, an out of the box thinker who's different from all of those other guys, got a seed round of funding for the most disruptive product to hit the finance world since the printing press? What if that seed round was for enough money to make UltaCoin one of the best capitalized Bitcoin entities, ever - with a preferred A series coming right behind it? What would such a cash flush company do with that maverick guy whose been getting all of these trends right at the helm? Hmmmnnn!!!

Speakin' of Goldman Sachs...

I anticipate being in the market very soon for (I'm not thier yet, but hopefully very soon):

  1. CTO - Chief Technology Officer
  2. COO - Chief Opertating Officer
  3. General Counsel
  4. CMO - Chief Marketing Officer 
  5. CFO - Chief Financial Officer
  6. As well as skilled Java and Blockchain developers.

Hit me via reggie at if you have an interest in coming on board.

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