Friday, 19 April 2019

A Analysis

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 From Wikipedia:

Plan Z during 2012

"Plan Z" is the name given to a 2012 plan to enable Greece to withdraw from the eurozone in the event of Greek bank collapse.[16] It was drawn up in absolute secrecy by small teams totalling approximately two dozen officials at the European Commission (Brussels), the European Central Bank (Frankfurt) and the IMF (Washington).[16] Those officials were headed by Jörg Asmussen (ECB), Thomas Wieser (Euro working group), Poul Thomsen (IMF) and Marco Buti (European Commission).[16] To prevent premature disclosure no single document was created, no emails were exchanged, and no Greek officials were informed.[16] The plan was based on the 2003 introduction of new dinars into Iraq by the Americans[16] and would have required rebuilding the Greek economy and banking system ab initio, including isolating Greek banks by disconnecting them from theTARGET2 system, closing ATMs, and imposing capital and currency controls.[16]

Wolfson economics prize

In July 2012, the Wolfson economics prize, a prize for the "best proposal for a country to leave the European Monetary Union," was awarded to aCapital Economics team led by Roger Bootle, for their submission titled "Leaving the Euro: A Practical Guide."[19] The winning proposal argued that a member wishing to exit should introduce a new currency and default on a large part of its debts. The net effect, the proposal claimed, would be positive for growth and prosperity. It also called for keeping the euro for small transactions and for a short period of time after the exit from the eurozone, along with a strict regime of inflation-targeting and tough fiscal rules monitored by "independent experts."

The Roger Bootle/Capital Economics plan also suggested that "key officials" should meet "in secret" one month before the exit is publicly announced, and that eurozone partners and international organisations should be informed "three days before." The judges of the Wolfson economics prize found that the winning plan was the "most credible solution" to the question of a member state leaving the eurozone.

... In February 2015 the Russian government stated that it would offer Greece aid but would only provide it in rubles.[31]

Kathimerini reported that after the 16th February Eurogroup talks Commerzbank AG increased the risk of Greece exiting the euro to 50%.[32] The expression used by TIME for these talks is "Greece and the Euro Zone dance on the precipice".[33]

Effect upon the European economy

Claudia Panseri, head of equity strategy at Société Générale, speculated in late May 2012 that eurozone stocks could plummet up to 50 percent in value if Greece makes a disorderly exit from the eurozone.[34] 

Wait a minute! That's not possible. Goldmans Sachs says to buy EU eqities because of ECB QE and NIRP! We all know Goldman Sachs is always right, that's why more than half of hedge funds are following suit...

After all, do you remember Goldman's recommendation to sell the Swiss Franc? It worked out excellente', reference When Everybody Thinks They're Right, They're Almost Guaranteed to be Wrong! I Think This Is The Biggest Bubble In World History.

Bond yields in other European nations could widen 100 basis points to 200 basis points, negatively affecting their ability to service their own sovereign debts.[34]

Hopefully with no correlation whatsoever to US-based debt, cause Goldman also recommended - Long U.S. High-Yield credit risk: The recent underperformance of the U.S.High-Yield market should prove transitory, the bank reckons. I addition, what will the ECB do after all of this QE and NIRP if bond yields spike anyway? Well.. More NIRP and QE of course!

But, as early as March 2010, other European financial economists had supported the notion a swift Greek withdrawal from the Eurozone and the simultaneous reintroduction of its former national currency the drachma at a debased rate, arguing that the European economy as a whole would eventually benefit from such a policy change : "Such an abrupt readjustment might be painful at first, but it will ultimately strengthen the Greek economy and make the Eurozone more cohesive, and thus better at confronting the difficult economic circumstances and dealing with them." [15]

Effect upon the world economy

Europe in 2010 accounted for 25 percent of world trade, according to Deutsche Bank.[34] Economic depression within the European economy would ripple worldwide and slow global growth.[34]

Immediate economic fallout inside Greece

The theory behind the readoption of an independent Greek national currency is that such a currency, freely floating on the international markets, would be able to depreciate in value and thus Greek exports and shipping services would become more competitively priced on the world market. Imports would be correspondingly more expensive, encouraging domestic production in Greece. However, persuading the Greeks and their businesses to replace their euros with a currency intended to collapse in value would be more than somewhat challenging, and current Greek debts would remain denominated in euros.

On 29 May 2012 the National Bank of Greece warned that "[a]n exit from the euro would lead to a significant decline in the living standards of Greek citizens." According to the announcement, per capita income would fall by 55%, the new national currency depreciate by 65% vis-à-vis the euro, and the recession which Greece has been in for five years would deepen to 22%. Furthermore, unemployment would rise from its current 22% to 34% of the work force, and the inflation, which is currently at 2% would soar to 30%.[20]

According to the Greek think-tank Foundation for Economic and Industrial Research (IOBE), a new drachma would lose half or more of its value relative to the euro.[17] This would drive up inflation, and reduce the purchasing power of the average Greek. At the same time, the country's economic output would drop, putting more people out of work where one in five is already unemployed. The prices of imported goods would skyrocket, putting them out of reach for many.[17]

Analyst Vangelis Agapitos has estimated that inflation under the new drachma would quickly reach 40 to 50 per cent to catch up with the fall in the new currency's value.[17] To stop the falling value of the drachma, interest rates would have to be increased to as high as 30 to 40 per cent, according to Agapitos.[17] People would then be unable to pay off their loans and mortgages and the country's banks would have to be nationalised to stop them from going under, he predicted.[17]

But what if Greece put a floor under its currency with a peg to gold and a soft redemption policy (with a borderline prohibitive premum to be paid if the drachmas were actually redeemed for the gold)? Such a floor may actually make the Drachma preferable to what would be a rapidly destabilizing euro with a guarantee of further debasement, QE and volatility to come. Under such a scenario, capital may actually fly into the drachma, particulalry of they default on current euro based debts and wipe the slate clean. Concerns about paying back euro denominated debt with the drachma are ill founded if the euro based debt faces mass defaults. Look at the chart below. Someone was at least thinking about this idea.

Below the chart is a trade setup to monetize such an event within three months.

The Grexit into Gold Conspiracy Theory

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On January 14th, 2015 I penned Toil, Trouble, Crash and Bubble! Monetizing The Biggest Crash of the Millenium? with the following graphic...

Here comes the crash

For those who think I'm doing the Doom & Gloom thing, I simply suggest you do the math. The ECB does QE2, the currency markets go bonkers as those central banks with small balance sheets run out of the way of the steamrollers (but nobody expects lower quarterly results, of course), and every fund and their aunt Petunia engage in the most thoughtful macro and intensive fundamental analysis ever possible. What's the result of this deep, introspective thinking. Chase the Fed ECB, of course!

This is what the sacrosanct advice of Goldman Sachs macro research department suggests, after all. They accurately predicted the (obvious) ECB QE program, and suggest you pile into EU equities for the same reason the rest of the fund world did - low rates mean higher stock prices, right? Well, it's not so simple. I think investors should look a little deeper and dig past the groupthink. Europe has severe structural issues that a NIRP answer will exacerbated vs. ameliorate, at least over the medium term. Yes, you get that short term pop, but then what. I don't think the Goldman nod to groupthink is a good idea. After all, they also suggest - "Sell the Swiss franc against the Swedish krona: A monetary policy divergence play." This would have lost forex traders' a fortune. Wait a minute, it did lose them a fortune, didn't it. One really should have seen it coming, for those small countries cannot outrun the ECB, and it was obvious, reference  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 as for the wisdom of piling into those equities because we're NIRPing... Professor Shiller calculates us at being at an all time, worldwide historical high in terms of real PE. Wait, but... It's different this time!

The worlds biggest bubble

 I'm looking for traders to take positions (either in agreement with, or contrary to) the research and opinion contained herein - or using your own trade setups and fundamental/macro outlook - via our UltraCoin P2P swap platform. You can use actual capital or I can give you Testcoins, basically, play money, to trade with me and my team and all I ask for is feedback on the system and the ability to quote you (which is not mandatory, but it would be nice). You can trade stocks, bonds, commodities, forex and forex pairs long or short, or swap the exposures directly for another asset, ex. S&P 500 for the LSE 100, Apple for Google, etc. Digital leverage is available, up to 10,000x worth (double digit profits/losses can be had from 11 basis points in movement, or less - so be careful), with no possibilty of a margin call since the trades are pre-funded.

Any who are interested can contact me here, and download the trading client here.

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 With bitcoin 5 day standard deviation starting to quell, many traders are losing interest as this is consdered a sideways trading market. Not to fear, bitcoin is still extremely volatile compared to just about all forex. Below is an info graphic show the components of a long BTC trade with 55x price leverage and hard set P/L parameters (ie. you can only lose or win ~the amount of capital put at risk - no more and no less. At 55x leverage for a 2 day trade, the cost/potential return ratio is maximum given a standard deviation of just over 12.5%. - as performed through an UltraCoin BTC swap.

I urge all bitcoin traders to give this a try. Be aware that one leg of the swap is teh EURUSD pair to be paid for the long BTC exposure. The reason is because (at least for longer term transactions/swaps) chances are the euro will depreciate further relative to the dollar.

If one were to take a short position in BTC, then I (personally) would pay teh USDJPY pair since it looks like Japan is not interested in having the ECB out-debase its currency. I believe Japan was the reason the ECB engaged in QE at this level in the first place. See my currency war series on the blog, or the several thousand article on BoomBustBlog for more info.

BTC trade

This is just the beginning of what is capable with bitcoin (and this is pure bitcoin, not altcoins, no tokens, no sidechains, just pure, old fashioned [at least as old as it can be considered] bitcoin) and 2.0 business models. Wait until you see the new stuff we'll be rolling out.

I implore you to download our:

There's also a lot of BTC industry research available for download as well as our blog which has some of the best fundamental and macro research available on the web. Hardcore traders, investors and speculators should check out my latest piece: 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!

Any bitcoin-rich individuals or entities looking to provide liquidity to the system, individuals/compamies who wish to partner, accredited investors looking for a piece of the action (you have to be willing to sign and NDA, we are quite open to working with anybody), or those who simply want to shoot the breeze should feel free to contact us.

Bitcoin 2.0 An example of an UltraCoin smart contract summary

Here's some info about me, my team and what we're doing at Veritaseum:

 

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Depositphotos 22847034 800px originalI was looking at the offerings of a large US bitcoin exchange just now, after hearing that Coinbase had the highest volume of any US-based broker just weeks after opening an exchange (we’ll discuss that at a different time, since Coinbase is waiving fees meaning those users are hot money, but likely are part of the largest installed bitcoin user base in the world and growing rapidly). What I found was illuminating, at least for me since I don’t follow the offerings of BTC brokers and exchanges that closely. I noticed several of the industry (BTC exchange) leaders offer leverage, plain vanilla swaps and TRS (total return swaps - basically fixed/variable rates in major fiat denominations for cryptocurrency (BTC. LTC, DRK) exposure). I said to myself, “Wow, that’s pretty advanced.” Then I looked at the fees, and saw the swaps were priced up to and past 15%. Then, upon further research, I realized that these swaps were financing mechanisms for margin lending. The first thing that came to mind was the difference, and limitations that come with the business models of first generation bitcoin companies and second generation Bitcoin companies. Take notice in the difference of the capitalization. Lower case "b" denotes the accounts of value that the mainstream media calls digital currency. Upper case "B" denotes the blockchain-based, protocol driven services and capabilities behind the lower case "b". Generation 1.0 v. generation 2.0!

To put this into perspective, Veritaseum's UltraCoin offers user programmable swaps (ie. you can make your own CDS, TRS or plain vanilla, or even a custom swap) with exposures to not just 3 cryptos and 3 or 4 fiat currencies, butall major and most exotic currency pairs (dozens) as well as over 45,000 tickers covering EVERY major asset class (stocks, bonds, forex & commodities as well as cryptos) from exchanges throughout the world. This is all capable at a sliding scale of 10 to 25 basis points, round trip. That's the equivalent of 5 bp to 12.5 bp per trade. In addition, all of this is done without UltraCoin having any possession of your funds, whatsoever. Veritaseum (the company behind UltraCoin) is a software concern, not a financial entity, thus you have no exposure to our balance sheet. We cannot MT. Gox you and you essentially have no counterparty, default or credit risk because your counterparty is the blockchain, and you trade peer to peer vs. through a centralized exchange. Pretty big difference from the legacy systems that we're all used to, no?

The Difference between Bitcoin 1.0 and Bitcoin 2.0 Companies

To begin with, I'd like to make clear that not only is the title misleading, but all references to the same are essentially inaccurate. Bitcoin itself is still in beta stage (0.9x) thus its not accurate to refer to 1st and 2nd generations of bitcoin businesses. If anything, we're all in beta. Now that I've gotten that off of my chest... The first bold generation of bitcoin entrepreneurs (it's amazing that you can refer to companies born 2 and 3 years ago as a previous generation, it just goes to show you how fast this space is moving!) built businesses based upon bitcoin as a legacy commodity. Basically, they bought, sold, transmitted or transferred it as a unit of value. They did this because that's how everything was done for the last several thousand years in the financial services industry. Basically, they had no choice - or so they thought. Then came those who read the Satoshi whitepaper and the bitcoin wiki and saw a very different meaning. My team and I are among those entrepreneurs. We saw that bitcoins were malleable, programmable, tools with which one can use to paint upon the canvas of value. A far cry from the moving of static financial widgets from place to place. Think of moving bitcoins around (bitcoin 1.0 companies) vs programming bitcoins to act on their own according to their contractual owner's wishes (bitcoin 2.0 companies) akin to pushing a model T Ford around town vs. programming your driverless electric Tesla to go by the grocery store to pick up some fresh produce before swinging by the school to pick up your kids on the way home to meet you to take your wife (girlfriend?) out to dinner.

A Real World Comparison of Bitcoin Companies

Tickers Available

Veritaseum's UltraCoin: ~45,000+

Asset Classes Available

Veritaseum's UltraCoin: Stocks, Bonds, Commodities, Forex, Cryptos and many indices

Costs Veritaseum's UltraCoin: up to 25 bp round trip for all products (primarily smart contract swap driven)

Leverage available: Veritaseum's UltraCoin: up to 10,000x, with finite digital P/L parameters (no margin calls, no negative account drawdowns)

How does Veritaseum do it? We program the bitcoin to act according to a mutual agreement between two or more parties, then send it to the blockchain to act accordingly. These agreements are self executing, unbreakable promises known as "Smart Contracts". In this case, they are highly customizable, P2P OTC swaps, but we are working on a multitude of other products, services and solutions as well. We also supply very high level, unconflicted, independent and impartial strategy and research for our customers. Since we don't use our balance sheet and we don't act as a principal, we have no incentive to skewer the research in any particular direction.

Smart Contracts as Transaction Vehicles: The Safest Possible Way To Exchange Value

Veritaseum's UltraCoin BTC-based smart contracts are: 1. highly flexible - you design your own derivatives yourself using your own parameters via our simple graphical user interface 2. self-executing 3. autonomous 4. unbreachable: we call them, the unbreakable promise! They are backed, fortified and stored by/on the Bitcoin blockchain itself 5. uber-transparent: simple click the "trace transaction" button to find the location and historical travel path of your assets anytime, from anywhere you have an internet connection

Trading Through a Balance Sheet-Based Financial Institution vs. Distributed, Decentralized, P2P Software Concern

What I do want to accomplish is the education through the fact that the Bitcoin protocol has given rise to the genesis of a new type of company, with a new business model that can offer a totally new type of product. As you were able to see from above, Veritaseum's UltraCoin offers a very uniquer product with many if not all of the attributes that potential competitors offer, with a slew of attributes that others can't touch. This is done at 1/150th of the price and at much less risk! When dealing with Veritaseum's UltraCoin, you can never get Gox'd because we never have (nor do we want) possession of your coins or fiat - every, at any time. Because we don't user our balance sheet (we are a software company, not a centralized exchange or broker/dealer) you:

  • are never exposed to us as a counterparty, we make the blockchain your counterparty

  • never have to worry about our capital reserves or the capitalization/credit of your initial counterparty (all trades are fully funded at the outset, even a heavily levered trade at 10,000x),

  • You never have to worry about negative drawdowns, negative equity or margin calls

  • If a catastrophic event were to occur, say bi-coastal earthquake takes out our datacenters on the east and west coasts simultaneously while a meteor hits the backup center in the midwest, you will still be able to recover you funds - on your own. Since we do not have possession of your funds you don't have to worry about us absconding with them nor getting blown up with them. Each trade has a catastrophic rollback feature which will put you back into your original funding position n-time units after expiry. Unfortunately, you will not be able to complete your trade, but if two bi-coastal trades hit at the same time as meteor to the mid-west, you may not be studying that EUR short anyway :-)

This is just the beginning of what is capable with bitcoin (and this is pure bitcoin, not altcoins, no tokens, no sidechains, just pure, old fashioned [at least as old as it can be considered] bitcoin) and 2.0 business models. Wait until you see the new stuff we'll be rolling out.

I implore you to download our:

There's also a lot of BTC industry research available for download as well as our blog which has some of the best fundamental and macro research available on the web. Hardcore traders, investors and speculators should check out my latest piece: 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!

Any bitcoin-rich individuals or entities looking to provide liquidity to the system, individuals/compamies who wish to partner, accredited investors looking for a piece of the action (you have to be willing to sign and NDA, we are quite open to working with anybody), or those who simply want to shoot the breeze should feel free to contact us.

Bitcoin 2.0 An example of an UltraCoin smart contract summary

Here's some info about me, my team and what we're doing at Veritaseum:

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Continuing the theme "Using UltraCoin To Take Positions On Goldman Sachs 2015 Recommended Global Macro Trades" (& part 2), we will focus on recommendation number 2 as sourced from the Wall Street Journal

Buy 10-year U.S. Treasurys with yields above 3% but not below 2%

The bank expects 10-year U.S. Treasurys, currently yielding around 2.3%, to trade at or above 3.0% by next June.

It may be cheating, but we've had two months to peak into the potential performance of these recommendations, and to date this one hasn't done so well. In my defense, I've been rather skeptical of the "goldilocks" perspective banks anyway, as I stated verbosely in "Using UltraCoin To Take Positions On Goldman Sachs 2015 Recommended Global Macro Trades, pt 1". To put it succinctly, despite all of the rhetoric, the US, and its banks in particular, simple can't afford for rates to cliimb materially. Here's where we stand now in relation to what GS said in November:

CBOE 10 yr note yields Now, there's still 4 months left for this trade to turn to Goldman's client's (muppets, introductory link to the article in the first paragraph for the definition of a muppet) favor. I'll leave it up to you to decide which way you want to lean, while I provide you the platform to go both ways...

 GS 2015 trade reco long 10 yr yields

As it is currently set up, this trade has a maximum win/loss of $1,200 with a capital commitment of $1,436.61. Price leveraged 200x with 300% collateral. As pictured, it is set up to go along with the Goldman recommendation. If you are contrarian, simply hit the switch button in the center of the console and the positions will be reversed to allow you to take the opposing side of this trade.

For those who are not familiar with my previous calls, reference: - 1. Reggie Middleton via Wikipedia - 1. A list of many (but not all) of my calls and mentions in the media And a simple walk through video of a sample Ultra-Coin trade: A Simple Apple Trade Using A Pure Bitcoin Wallet: The UltraCoin Client

New comers to BTC derivative trading are urged to download our:

  1. tutorial

  2. spreadsheet-based trade model to assist you designing your own custom made swaps before committing capital

    1. and of course, the UltraCoin BTC wallet for Windows - or - Mac & Linux, which doubles as the trading client. The wallets have a "Demo Mode" which allows you to trade on testnet if, after using the spreadsheet modeler, you are still not comfortable committing live coins. You can get the demo (testnet) coins here.

Feel free to contact us.

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TL;DR This is a continuation of the post made on November 28th where we converted Goldman Sachs ECB QE 2015 trade recommendations into UltraCoin trade setups: Receive exposure to the SPDR Eurostoxx 50 long ETF (speculating that the top 50 EZ equities will rise from currency wars & QE) and pay exposure to the ProShares Ultra Euro ETF (ULE) (with minimum of 2x leverage set in UltraCoin client, up to a practical limit of 50x) 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). This trade can be made cleaner by shorting the EURUSD pair directly with a healthy dose of leverage. This would be entered into UltraCoin as "pay" EURUSD (with system leverage set at 50x). Since November 28th, this trade would have been unwound by the UltraCoin server with a near 100% (gross of fees) gain using anything over 7x leverage. There are still some legs left on the trade short term, but we are suspicious of the european equity markets being fully able to benefit from this round of QE to the extent anticipated by the media and sell side analysts.

This is what the trade would today, long FEZ and short ULE for an approximate gain of 18.61%, unlevered, 6x leverage would have pushed this towards a 100% gain.Goldman EU QE tradeadvanced tab 2.0.

This trade setup was made before we instituted leverage directly into the system. Now, you can go into the "Advanced" tab and turn the leverage up. We recommend leveraging 2x to 50x, contingent upon your risk tolerance and collateral posting (the more collateral posted, the less chance of getting the contract unwound as your trade goes out of the money.

You can also use the direct forex pair EURUSD (levered ETFs suffer from decay issues) and turn the leverage up even more in the UltraCoin client, which gives the same exaggerated price movement, but will track the primary underlying asset more closely. The trade pictured above, would have unwound in your favor by now with anything over 6x leverage with a near 100% return on invested capital. Not bad for 2 and a half months.

See the full analysis. This trade was initially posted on November 28tth, 2014. It did very well. For those who are not familiar with my previous calls, reference: - 1. Reggie Middleton via Wikipedia - 1. A list of many (but not all) of my calls and mentions in the media And a simple walk through video of a sample Ultra-Coin trade: A Simple Apple Trade Using A Pure Bitcoin Wallet: The UltraCoin Client

New comers to BTC derivative trading are urged to download our:

  • tutorial

  • spreadsheet-based trade model to assist you designing your own custom made swaps before committing capital

    • and of course, the UltraCoin BTC wallet for Windows - or - Mac & Linux, which doubles as the trading client. The wallets have a "Demo Mode" which allows you to trade on testnet if, after using the spreadsheet modeler, you are still not comfortable committing live coins. You can get the demo (testnet) coins here.

Feel free to contact us.

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An employee at Veritaseum asked me a very simple, but initially perplexing question last night. He said, "All other parameters being equal, what's the difference between an order with 10 BTC principal at 1x leverage and 0% collateral, and an order with 1 BTC principal at 10x leverage at 900% collateral?"

Well, to answer that question, I want to direct everyone to our trade modeling spreadsheet (which definitely comes in handy when designing more complex trade setups and fleshing out less than obvious ideas). What I did to answer his question was to create the two trades independently using a forex setup. The first trade setup looked like this:

1BTC levered 9x thin forex profit

The trade looked like this at expiration (remember these are illustrative results, not necessarily or accurately indicative of actual trade results for a whole lot of mumbo jumbo legal reasons):

10BTC thin forex profit

This what the trade would have resulted in if we used 1BTC as the principal, 9 BTC as collateral and 10x leverage, which would have effectively given you the same amount of purchasing power with the same amount of capital committed.

1BTC levered 9x thin forex profit chart

This is what would have happened to both trades above if BTC prices were to drop by a whopping 40% before the trade ended, but after the trade began...

1BTC levered 9x thin forex profit chart with 40 drop in BTC prices

Yes, that would hurt, and it would hurt a lot! That chart was one of the biggest objections given to me about the new UltraCoin trading system, the need to be exposed to bitcoin volatility in order to trade. But, there's gold at the end of this rainbow. Check out what happens when we drastically ratchet up the leverage to levels insane! At 1,100x leverage, look at what happens to that same 1BTC trade with 9BTC collateral when winning a thin forex profit...

1BTC levered 1100x thin forex profit chart with 40 drop in BTC prices

That's correct! Even with the price of the underlying BTC dropping almost in half... Net of all transaction, transmission and leverage fees... Even with not the fattest in profits (well, maybe fat for a forex trader)... This trader was able to eek out a 8.1% profit exiting the trade. The ability to leverage "insane" can insulate the winning trade from normally deadly levels of BTC volatility and price fluctuation.

If you don't believe me, look at the same trade setup, except in all cash with 1,100BTC and not leverage or collateral...

1100BTC levered 1x thin forex profit chart with 40 drop in BTC prices

I don't want anyone to think that insane leverage is a panacea, or even safe, for novice traders - but as you can see it does have its uses. I want to remind everybody that the leverage used is bounded (both on the profit and the loss side) by the principal+collateral posted. These next 4 charts tell the story. Look at the trade setup up wtih a 20% gross gain - levered 1,100% and unlevered (this is explicitly unlevered to illustrate a point, not the same purchasing power being put upfront in cash as modeled in the other examples above).

1100BTC levered 1x with 20 forex profit chart with no drop in BTC prices

As you can see, we profits are bounded by the capital sent to the blochchain as escrow (you get a maximum of what you and your counterparty have agreed to commit to the transaction - and not necessarily 20% of the face price of the profit x 1,100%). Similarly, your losses are capped in the same fashion.

Just for education's sake, this is the same trade with the entire amount put up as principal and no leverage or collateral.

1100BTC levered 1x with 20 forex profit chart with no drop in BTC prices real

Basically, after fees, you get a little less than 1/4th the return, while having to commit a lot more capital.  

These trading concepts should come in handy this year when we tackle things such as the Danish National Bank (their central bank) telling us things that Reggie just doesn't believe are sustainable. Feel free to reach to me personally if you have any questions. 

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The Guardian reports: Danish central bank 'will maintain krone's euro exchange rate':

Denmark has no plans to change its fixed exchange rate policy and the central bank has the tools to react “at any given moment” to keep the krone stable against the euro, a central bank spokesman said on Tuesday.

The comments came a day after the bank cut interest rates to weaken the krone. That followed the abandonment last week of the Swiss franc’s cap to the euro, which had raised speculation that Denmark could follow suit.

I commented, at length, on this topic about 3 weeks ago and warned that it is highly unlikely that the Swiss will be the only nation that realizes it can't run lockstep with the behemoth that is the ECB in devaluing its currency.

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.

It appears as if more than one macro fund manager was paying attention, as I will demonstrate later in this article - but first, back to the Guardian piece:

“We have the necessary instruments in the form of interest rate changes and intervention to maintain the fixed exchange rate and we at all times look at market conditions and determine what to do,” central bank spokesman Karsten Biltoft said.

Hmmm.. We have heard that before, and more than once, no? If you recall, similar rhetoric was bandied about the pound - the 1200 years old currency born when "sterlings" or silver pennies were the main currency in Anglo-Saxon kingdoms. For those that don't know, if you had 240 of them, you had one pound in weight. A pound was  humongous fortune back in the 8th century, but thanks to British monetary policy, inflation brought sterlings, and eventually pounds to even the poorest of the poor. Alas, I digress... In the late '80s and early '90s Britain attempted to peg the pound to the Deustchemark in anticipation of joinig the ERM, with a central banking mandate of keeping the pound withing a +/-3% band of the DM. The problem with that promise is, like with Sweden and Denmark, and many of the countries whose CB attempt to peg to the euro is that their economies do not run in lockstep with that of Germany's - and Germany is, by far and large, the economy that calls the shots in the euro area. Everyone wants to reproduce Germany's economic success, but it's not as easy as just saying so - alas, many will try anyway. Britain tried by attempting to peg its currency to the DM in an attempt to reduce its interest rates (then at 15%) to match Germany's 9% (does this interest rate cue thing sound familiar?). Of course, this backfired as Germany's economy boomed while Britain's fell into recession, while the pound sterling exacerbated the problem by remaining strong relative to the DM, hurting exporters even more.

George Soros and his Quantum Fund (and to be fair, many other global macro currency speculators) recognized the unfavourable entry point the United Kingdom joined the ERM, using simple math to determine the unsustainably high rate at which the United Kingdom was brought into the Exchange Rate Mechanism, the high inflation relative to Germany's and the pain the exporters and asset prices were feeling. So he did what anyone who reads Reggie Middleton would do, he levered up and shorted pounds for deustche marks. The rest was history (Black Wednesday) as the British Central Bank insisted on keeping an unsustainable peg. As per Wikipedia:

The currency traders act

The UK government attempted to prop up the sinking pound to avoid withdrawal from the monetary system the country had joined two years previously. John Major raised interest rates to 10 percent and authorised the spending of billions worth of foreign currency reserves to buy up the sterling being sold on the currency markets but the measures failed to prevent the pound falling below its minimum level in the ERM. The Treasury took the decision to defend the sterling's position, believing that to devalue would be to promote inflation.[7]

George Soros' Quantum Fund began a massive sell-off of pounds on Tuesday, September 15, 1992. The Exchange Rate Mechanism stated that the Bank of England was required to accept any offers to sell pounds. However, the Bank of England only accepted orders during the trading day. When the markets opened in London the next morning, the Bank of England began their attempt to prop up their currency as per the decision made by Norman Lamont and Robin Leigh-Pemberton, the then Chancellor of the Exchequer and President of the Bank of England respectively. They began buying orders to the amount of 300 million pounds twice before 8:30 AM to little effect.[8] The Bank of England’s intervention was not effective because Soros’ Quantum Fund was dumping pounds far faster. The Bank of England continued to buy and Quantum continued to sell until Lamont told Prime Minister John Major, the man responsible for making the controversial decision to bring the United Kingdom into the Exchange Rate Mechanism while he was serving as Chancellor of the Exchequer, that their pound purchasing was failing to produce results. Major ordered Lamont to wait for further data later in the trading day, hoping the trend would pass.[6]

At 10:30 AM on 16 September, the British government announced a rise in the base interest rate from an already high 10 to 12 percent in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15 percent, dealers kept selling pounds, convinced that the government would not stick with its promise. By 7:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12 percent (however, on the next day interest rate was back on 10%). It was later revealed that the decision to withdraw had been agreed at an emergency meeting during the day between Norman Lamont, Prime Minister John Major, Foreign Secretary Douglas Hurd, President of the Board of Trade Michael Heseltine and Home Secretary Kenneth Clarke (the latter three all being strong pro-Europeans as well as senior Cabinet Ministers), and that the interest rate hike to 15 percent had only been a temporary measure to prevent a rout in the pound that afternoon.

 George Soros is rumoured to have made $2 billion in his bet against streling and was titled "the man who broke the Bank of England" by the Daily Mail. Of course, that was 23 years ago. Central bankers have much more crediblity and smarts now, right? Right?!?!?!

September 15 2011 - SNB Vows To Defend Franc-Euro Peg, Hold Rates Close To Zero

PARIS (MNI) - The Swiss National Bank said Thursday it will continue to keep short-term interest rates as low as possible and defend the peg of the Swiss franc to the euro in order to counter the currency's appreciation resulting from inflowing capital in search of a safe haven amid the Eurozone debt crisis.

June 7, 2012 SNB spends billions defending the franc - FT.com

The SNB in effect pegged the franc to the euro last September after a surge of ... The bank has vowed to defend the franc's value at SFr1.20, ... that the SNBhad spent as much as SFr65bn buying euros to keep the franc weak  ...

January 15, 2015 Switzerland 'capitulates' on franc as global currency wars ... Daily Telegraph

The franc soared 30pc in one of the wildest days in Swiss history ... The move came three days after a top SNB official vowed that the peg would “remain a ...bitterly that it would make it even harder for exporters to keep afloat.

and... Rinse... Wash... Repeat...

Jan 21, 2015 Denmark vows to keep currency peg, likely to cut rates ... Reuters

Denmark vows to keep currency peg, likely to cut rates on Thursday ... The Swiss franc has leapt almost 20 percent against the euro since last week when the Swiss National Bank out of the blue ended a three-year-old.
 

Jan 22, 2015 - Denmark Ready to Dump Kroner on Market to Tame Hedge Funds... Bloomberg

Jan 30, 2015 - Denmark Suspends Bond Issuance to Protect Krone's Peg... Wall Street Journal

Feb 3, 2015 - Denmark Increases Krone Sales to Protect Peg... Wall Street Journal

Feb 6, 2015 - Is Denmark facing a speculative attack?... CNBC

... and the currency brokers get nervous, you know... after FXCM and all (FXCM to Forgive Majority of Clients Who Incurred Negative Balances) - 

Feb 6, 2015 - Dukascopy cuts leverage on pairs with Danish krone to 1:10

Dukascopy Bank and its arm Dukascopy Europe will reduce the maximum leverage on currency pairs with the Danish krone to 1:10. The changes will be effective as of February 8, 2015 (Monday) and will affect positions with EUR/DKK (Euro vs Danish krone) and USD/DKK (US dollar vs Danish krone), the company said in an announcement.

The company attributes the change to “the possibility of recalibration of the trading range of EUR/DKK which may lead to significant price gaps and cause negative equity on client accounts”.

Denmark’s national bank (Nationalbanken) has been taking action to weaken the Krone in order to maintain its peg – the watchdog sold record amounts of Krone during the month of January. The bank is obviously trying to avert “Black Swan” events.

Dukascopy is not the first retail Forex broker to axe leverage on DKK pairs lately – over the past couple of weeks we have seen other companies adopt similar measures too. Forex.com (GAIN Capital’s retail Forex brand) also announced a reduction of maximum leverage on instruments with Danish krone to 1:10 earlier this month.

Other companies, like Australian Forex brokers AxiTrader and Pepperstone have been even stricter and temporarily ceased trading with currency pairs with DKK in the end of January.

As a matter of fact, FXCM, the brokerage that nearly collapsed due to the  Swiss National Bank (Switzerland's Central Bank and the oldest central bank in the world) pulling its peg from the EUR unannounced, is outright banning 13 currency pairs. Check it out, and more importantly, check out the reasons...

With the memories of the Black Swan event still fresh in the minds of investors and FXCM, the company has opted to target thirteen exotic currency pairs that structurally are more prone to rampant fluctuations of volatility given their currency floors, pegs, or bands in placeFXCM will discontinue trading on 13 currency pairs on Friday, February 20, 2015. Many of these exotic currency pairs carry significant risks due to over-active manipulation by their respective governments, either by having a floor, ceiling, pegs, bands, etc in place. As such, FXCM will be removing the 13 currency pairs below:

        • GBP/SEK
        • NOK/JPY
        • HKD/JPY
        • EUR/PLN
        • USD/ILS
        • CHF/SEK
        • SEK/JPY
        • USD/SGD
        • EUR/CZK
        • CHF/NOK
        • SGD/JPY
        • USD/PLN
        • USD/CZK

Despite all of the circumstantial (and not so) evidence above, if we return to the Guardian piece that we opened with...

Economy minister Morten Ostergaard said after Monday’s rate cut that the policy was not in doubt and that “no serious politician” would propose leaving or changing ERM.

Mayhap we should focus a little less on politics and a little more on macroeconomics and fundamental analysis. I will show in just a few paragraphs that these guys really, really don't know what they are doing!

The central bank aims to keep the krone pegged within a narrow band of 7.29252 to 7.62824 kroner to the euro. “The policy remains the way it has been – namely that we maintain it close to central parity,” Biltoft said. Analysts expect a further cut as soon as this Thursday should the European Central Bank announce a widely anticipated quantitative easing package, which they say could lead to the euro weakening and the krone strengthening again.

Central bankers who can't print in bulk (and that's essentially all central banks save the Fed, ECB, Bank of Japan, The People's Bank of China and the Bank of England - and you see what happened to them vis-a-vis Soros, et. al.) essentially have no nucelar arsenals in their toolchests. They do have a few mini-atomics, primarily their credibility. Once that's shot, its the equivalent of their shooting a hand gun in a nuclear war. That leads us back the Danish central bank. These the same people who said "Bitcoins are like 'glass beads', warns Danish national bank":

The Danish national bank has released a briefing note firmly declaring bitcoin to not be money, noting that the currency is more like “glass beads”.

“Bitcoins are not money in a proper sense as there is no issuer behind them,” the report states. “Instead, bitcoins display the characteristics of a commodity to which users attach value. Unlike precious metals such as gold and silver, bitcoins have no actual utility value, bearing closer resemblance to glass beads.

...  “Bitcoin is a virtual currency without any value anchor and hence it may rise sharply or fall very suddenly. A core property of money is that its value is stable so that its purchasing power does not change markedly from day to day,” argued Hugo Frey Jensen, the governor of the central bank.

“In spite of the considerable focus, use of bitcoins as a means of payment remains very limited,” Jensen continued. “Against that background, the risks linked to their use are currently assessed to be limited to the individual user.

The Danish bank’s warning also comes three months after a European Banking Authority warning on cryptocurrencies which stated that “you need to be aware of the risks associated with virtual currencies.

These are statements borne out of pure, unadulterated, uncut ignorance. It is obvious that the issuers of the statements don't understand what Bitcoin is. A quick rundown:

Bitcoin (with a capital "B") is a protocol driven, value exchange platform designed to have applications written on top of it to take advantge of said protocol(s). It is similar to the Internet, which is a protocol driven, data exchange platform upon which many applications run. As such, bitcoin (with a lower case "b") is the earliest and most rudimentary of said applications, and application of digital currency. It is not Bitcoin, but an application written on top of Bitcoin. This is akin to email, being and application written on top of the Internet, or YouTube, Facebook, etc.

To asset that Bitcoin, or even bitcoin, has no value is to ignorantly fly in the face of evidence before you. I will give you a very pertinent example right now, of how applications written on top of Bitcoin, in bitcoin, can not only prove the Danish central bank wrong, but allow funds and individuals to profit immensely from their taking actions without knowing what they are doing. 

My startup, Veritaseum, programs bitcoin to allow you to speculate in the markets (any market) by trading derivative value through smart contracts (unbreakable, self-executing agreements). Below is a screenshot of a setup using the UltraCoin client to take a leveraged long position in Danish Krona exposure. This is a gamble that the Danish central bank, like the Swiss central bank, and the British central bank before it, cannot hold true to its promise to keep a peg to a currency that is tied to an economy that is essentially different from its own. In keeping with the theme that Bitcoin has no value, I want you to pay close attention the pertinent aspects of this smart contract summary, and then I wll use our illustrative tutorial spreadsheet to walk you though a scenario analysis of what can happen if this trade goes in the money and out. 

Long the Danish Krona in UltraCoin client 

So, why buy the Krone, even if you can command $2.1 million of price movement action with $5,561 reports? Well, there are a few more reasons that I haven't mentioned above.

  1. Well, I did mention this one above, but it's worth mentioning againg. They cut interest rates deeply negative and will keep cutting. This shows that they are already under attack as:
    1. Scared money flows in as they are considered a safe haven, and;
    2. Hot money flows in as macro-types pile on for the exact reasons delineated in this article.
    3. The ECB is about to announce another leg of their QE program which will put even more pressure on the Krone to shoot upward, requiring even more capital to keep down.
  2. The Danes don't intend to join the EMU, thus, despite all of the rhetoric that you hear, ex. (and I quote from above), "Economy minister Morten Ostergaard said after Monday’s rate cut that the policy was not in doubt and that “no serious politician” would propose leaving or changing ERM".  Ahem, if that's the case, then why not join the EU? Denmark is the only country that apparently wants to permanently ties its currency to the euro without joining the block. In other words, its seeking euro stability (that's actually quite relative) and ubiquity, but at the same time it wants to retain its economic sovereignty - quite likely looking over at Greece, shaking its head. If at any time Denmark wants to actually behave like an economically sovereign nation, it can do so by abandoning the euro peg (which Greece cannot do, since it gave up its currency) and not have to bother with re-denominating assets and liabilities, re-introduction of an old, but now new currency, and the credit risks, downgrades from uncertainty and strife that is bound to go along with it. So, despite what Danes are saying, what they are doing tells a totally different story!
  3. Denmark has pegged its official interest rate to that of the ECB's (with a slight premium) to finance its currency peg. Since my warning of the Pan-European sovereign debt crisis, Denmark has been forced to materially trail the ECB official rate. This has added materially to the cost of funding the euro peg. Chart source, the Economist.
  4. We all know the peg can break. After all, many funds and retail speculators thought the CHFEUR peg was stolid, and you see how that turned out. 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.

    I think it's clear that Denmark prefers monetary sovereignty. Another possible angle is that breaking the peg once it comes under XXXX euros of pressure is that domestic imbalances will be rectified, at least on paper. The Danish current account surplus spiked over a  5 year period, implying the current exchange rate band has become undervalued. Do you catch any similarities between this and the British pound from the 90s?:
  5. The Economist reports (graphs below) that the Danish central bank's foreign currency reserves are up more than 3x's during the so-called recovery from the great recession through 2012, coinciding with Mario Draghi saying he would do “whatever it takes” to save the euro:
  6.  It's a safe bet to assume that the vast majority of this balance sheet ballooning (accumulation of euros) came from currency manipulation through came from central bank intervention. Remember, parts 1 and 2 of this series :
    1. Despite What You Don't Hear In The Media, It's ALL OUT (Currency) WAR! Pt. 1,

    2. and, Stab, er... I Mean... Beggar Thy Neighbor - It's ALL OUT (Currency) WAR! Pt 2

  7. The Swiss, who unpegged due to fright of being run over by a train, monetary policy was(is) unilateral in nature and not tied to the whims of the ECB, thus the Swiss National Bank had the lattitude to change course at will. Both the ECB and Danmarks Nationalbank are bilaterally mandated to defend the peg due to adherence to the rules of ERM2. The assistane from the ECB means a lot, something that the Swiss didn't have. In addition, this quote from the Danish central bank resonates with me...

"(Bloomberg) -- Lars Rohde, the governor of Denmark’s central bank, addressed speculators in what he said was a verbal intervention designed to stamp out any lingering doubts that he can preserve the krone’s peg to the euro.... Rohde said the central bank hasn’t coordinated its steps to date with the ECB, which is contractually obligated to support the peg should it ever breach its tolerance band. Denmark doesn’t need help from the ECB when the challenge is preventing the krone from appreciating, he said. The question of whether the ECB will step in is a “non-issue,” Rohde said. “This is a very special situation, because as everyone knows, we are all in negative territory in Europe but we are the only supplier of kroner. And we have unlimited access to Danish kroner, so we don’t have to have any coordination with anybody else.”"

Of course, there's always two sides to every story.

Caveat Number 1

All Danish government debt, up to 5 years out is NEGATIVE! That's extreme, that's unprecedented (meaning you have to guess at what the negative consequences are because you really don't know) and most importantly, that's extremely damaging to the Danish banking system! Here's an example re: Mortgage Yields. As mortgage bond yields are trading negative out to three maturities, mortgage banks are offering insanely low fixed-rate 1.5 percent bond-backed loans with a 30-year maturity. Just so we are clear, not just 30 year amortization, 30 year MATURITIES at 1.5%. This is not only the lowest rate in Denmark’s history, it's rate that offers mere basis points in raw return, and if we adjust for the significant risk of the mortgage and real estate industries, this is a materially negative risk-adjusted return. In other words, from an economic profit perspective, Danish mortgage banks are pretty much guaranteed to lose money on every loan that they make. Oh yeah, these are nominal returns. We haven't adjusted for inflation yet. Yes, inflation is currently quite paltry, but when you only have basis points to begin with, you really can't afford much - now can you?

What Mr. Rohde is not including in his rhetoric aimed at backing off speculators is that he is essentially racing against time. The fractional reserve banking system is built upon stacks and theories of debt and lending. When it can't lend profitably, it dies. Mr. Rohde is hoping his peg bears fruit before his banks start dying, but that is highly unlikely from a fundamental perspective. The ECB JUST STARTED its QE program, and is likely to ramp it up some more. In other words, we're just in the first inning of this game (my apologies for an American sports reference in this global article) and whatever suffering the banks may be going through will have to be maintained for a much longer time.

Caveat Number 2

The mandated assistance of the ECB to maintain the Krone/Euro peg comes in the form of unlimited credit lines to be drawn upon in times of insufficient FX reserves from the target central bank's balance sheet. Apparently, the ERM2 didn't anticipate the effects of European Bubble, Bubble, Toil and Trouble. You see, as is show in the Danish central bank balance sheet chart above, the problem is the exact opposite of such - the Danes are accumulating too many euros, with the spectre of having to buy many, many more. Credit lines do nothing for you when the problem is not depreciating currency digging a hole that needs to be filled, but appreciating currency building a mountain that needs to be moved. So, yes Mr. Rohde, you do have access to all of the Krone that you need since you own the printing press, but that's really not your problem, now is it? You have to sell Krone and buy Euro and related (and likely highly unwanted and rapidly depreciating) assets in increasing amounts, putting you right smack dab back where Switzerland was when they broke their peg, no? Buy high and sell low, that's the way to fend off us speculators, right?

Tell me how long can you keep that up while your banks are suffering negative economic profits and the ECB is in the beginning of a long-haul QE to never-ville?

The Economist recommends buy:

"a put option on the EURDKK exchange rate at the current price of about 7.43. Our preferred way to think of the cost of that option is to look at the amount of volatility in the exchange rate implied by the costs of hedging. As you can see in the chart below, the cost of protection has gotten a lot more expensive since the SNB’s policy change last week:

Implied volatility has jumped by more than 10 times — about what happened to 1-week implied volatility in EURCHF, despite the fact that not much has happened to the actual EURDKK exchange rate. This doesn’t necessarily mean that the cost of protection is expensive relative to the risks. While the implied 1-week volatility in EURDKK is a lot higher than it used to be, it is about the same as 1-week implied volatility was in EURCHF back when everyone thought the currency floor was unbreakable.

Of course, I recommend using those glass beads that the Danish National bank was referring to above. There is no price increase or implied volatility spike to measure. Let's take a look at how that would work if modeled out using Veritaseum's UltraCoin Trade Modelling Spreadsheet Version:1.0 Beta.

Revisiting the Swiss Franc uncoupling using the chart above...

Nordic deflation

We see a 22% jump in price relative to the euro. If a similar spike were to happen while the trade setup illustrated above were in place (actually, the trade setup above with the monetary amount at risk x 10, to allow for a bigger trade), it would look something like this.

Krona lonb model results

In case your wondering, the absolute net payout is bounded by what you put in (principal+collateral). If you increase that amount, you increase the amount you are able to claim from your counterparty. The leverage allows this (or the opposite, a loss) to happen very, very quickly if you ratchet it up. The collateral is just that, collateral - and is return to you as yours if it is unused. It's purpose is to allow you to stay in the trade if your orignal principal is eaten up and to guarantee that your counterparty gets paid up to the "smart contract"ual limits. The more you pay, the more can play!

Now, I'm sure many of you should be amazed at these glass beads, as the Danish Central Bank proclaims (because they apparently read the Satoshi whitepaper very, very carefully before going on record. Of those that are amazed, there are probably some of you saying, "That's cool and all, but  I don't want to trade through or have any exposure to bitcoin price volatility." Well, for one, the entire interface can be expressed in the (major) fiat currency of your choice. More importantly, the sytem does a lot to quell the noise of bitcoin. It's almost as if it wasn't there.

This is the result of this trade when bitcoin drops 10% mid-trade...

bitc drops 10 on Krone long trade

 This is what happens if BTC were to go catastrophic and collapse 40% during the trade...

bitc drops 40 on Krone long trade

Yes! You still profit roughly 9%. There are a plethora of other advantages to these "Glass Beads" as well...

UltraCoin summary

 

Download the UltraCoin Value Trading client, tutorial and trade modeling spreadsheet for free, no registration, no account activation, not even an email. Address. Just lock and load, and trade. 

 

 

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Is GM really doing that well? In 2007, they did well too, in 2008 their finance arm= .gov bailout. In 2009 GM went Bankrupt! On January 14th, 2015 I penned Toil, Trouble, Crash and Bubble! Monetizing The Biggest Crash of the Millenium? with the following graphic...

Here comes the crash

Just keep that in mind as you read my thoughts on GM's amazing blowout quarter that the mainstream media is simply gushing over. This was on the front page of CNBC's website this morning...

gm reports surprise earnings

Excluding special items...

I noticed that when management categorizes something as "special" or "one-time", sell side analysts literally tend to gloss over it. Literally, no matter how special, or not so "one-time" it may be. In this particular situation we are referring to GM's record recall. Take a look at this...

  1. The company continued to recall more of its cars over the next several months. As of June 30, 2014, GM has issued 45 recalls in 2014, which have involved nearly 28 million cars worldwide and over 24.6 million in the United States.
  2. 2014 General Motors recall - Wikipedia, the free encyclopedia

    en.wikipedia.org/wiki/2014_General_Motors_recall

GM's 28 or so million potentially affected vehicles in 2014 are equivalent to over 40% of GM's fleet and about 11% of all vehicles in operation, using Experian Automotive data. This is more than they sold over the last TWO (2) years. Of course, we can just gloss over that since GM's accounting firm apparently hired a highly skilled storyteller to do this quarter's numbers.

Here are some more choice tidbits from the article:

  1. North American profit margins for the full year were 6.5 percent. Excluding the additional costs for a record vehicle recall in 2014, the margin would have been 8.9 percent...
  2. Shares of GM moved higher in premarket trading following the report.
  3. The company also said it plans to raise its dividend by 20 percent
  4. ... the planned increase, which will boost the company's annual outlay for dividends by about $400 million to $2.4 billion, was due to the strong 2014 results and stronger performance expected this year.

  5. ... plans to pay 48,400 full-time UAW union workers annual bonus of up to $9,000.

It's a Party Over Here - OR - NIRP's Financing a Bubble Like You've Never Seen Before...

It is my contention that GM is not good at managing financial companies through Boom/Bust cycles. Their former captive finance company, GMAC, had to be bailed out and purchased by the government in 2008. Did we learn our lesson? I'll let the numbers tell the story, but first a few qualitative observations, such as desperate car selling measures like we never seen before.

  1. Zero down sub prime lending...
  2. 100 dollar a month leasing...
  3. Auto repos are at all time highs (or at least 70% higher)

From Wikipedia, on GM's former captive finance company, GMAC:

The bank has more than 15 million customers worldwide and provides a range of financial services including auto financing, corporate financing, insurance, mortgage services, and online banking. In 2009, Ally employed 18,900 people. In 2008, the firm provided financing to 75% of the 6,450 General Motors dealers.

The company was bailed out by the US Government during the financial crisis of 2007–08 taking over from its previous owner General Motors

Not to be outdone, GM goes at it again with GM Financial:

General Motors Financial Company, Inc. is a financial services arm of General Motors. The company is a global provider of auto finance, with operations in the United StatesCanadaEuropeand Latin America. The company is headquartered in Fort WorthTexas.

Founded in 1992 as AmeriCredit Corp., the company was acquired by GM in October 2010 and renamed General Motors Financial Company, Inc. The company provides retail loan and lease programs through auto dealers for customers across the credit spectrum. They also offer commercial lending products, such as retail floorplan, construction and real estate loans, or insurance for cardealerships.

Before its acquisition by GM, the company ranked at 768 on the Fortune 1000.[2] AmeriCredit's loan parameters would originally provide financing at an interest rate of between 10% and 23% APR to clients with credit scores around 500 who can prove employment and residency, though the company has become increasingly more stringent over the past few years.

Acquisition by General Motors

In July 2010, General Motors entered into a definitive agreement to acquire AmeriCredit in an all-cash transaction valued at approximately $3.5 billion. The deal provided GM with a new financial arm to replace the loss of GMAC in 2006.[3] Following the approval of the deal by AmeriCredit shareholders, GM renamed the company "GM Financial" on October 1, 2010.[4]

On Sep. 4, 2014, GM and GM Financial announced they entered into a support agreement providing for leverage limits and liquidity support to GM Financial if needed, as well as other general terms of support. Under the terms of the agreement, as GM Financial expands its product portfolio and grows its business, GM committed to provide funding to GM Financial if its earning assets leverage ratio rises above pre-determined thresholds. GM extended an intercompany revolving credit facility to GM Financial to provide up to $1 billion of liquidity if needed. This facility, which is subordinate to GM Financial’s senior unsecured and secured debt, will replace an existing $600 million line of credit from GM. The agreement also provides that GM will use its commercially reasonable efforts to ensure that GM Financial will continue to be designated as a subsidiary borrower on up to $4 billion of GM’s corporate revolving line of credit.[5]

Since being acquired by GM in 2010, GM Financial has significantly increased its share of GM’s business which now represents 75 percent of GM Financial’s consumer loan and lease originations.[5]

On Sep. 25, 2014, Standard & Poor's Ratings Services upgraded the credit ratings of both GM and GM Financial to investment grade with a stable outlook. The new GM corporate and GM Financial credit rating is BBB-.[6]

 I'm not going to go into an automotive finance class here, but if (or as) things deteriorate, pay attention to the terms floorplan (dealers get throats slit in a slow down), lease programs (depreciating collateral backing increasingly defaulting loans with a weak resale market), and the oldie but goodie "across the credit spectrum", ie. as in skilled storyteller turned bean counter parlance - includes people who knowingly won't pay the loans back.

Just in case nobody decided to actually glimpse at the numbers behind GM's blowout numbers, let me do it for you...

GM Financial Q4 results - horiible

So, let me get this straight. GM Financial has triple digit increases in interest expense in a NIRP (negative interest rate policy) environment. As a matter of fact, 16% of government bonds now have a negative yield, but this company is spiking in the opposite direction as the rating agencies RAISE their rating on it???!!! Yeah, okay! Delinquincies are high, and getting higher. All of this, and the news media is gushing about the parent company selling more cars!!?? Are they selling cars or are they giving them away as a packaged deal with loose money loans? I want you guys to sit back and think about it.

The Veritaseum UltraCoin value trading client now has built in leverage - of up to 10,000:1. This is world's first, but unfortunately we are delaying the public release until next week in order to ge the patent filings in. When we do release it, ardent users can feel free to contact me in taking positions on reality TV show-style earnings releases like the one above. Now, while you can get in a lot of trouble with 10:000:1 leverage, ratcheting it down a bit seems like a good idea when going after those fairy tale stories.

GM short

Anybody interesting in participating in the UltraCoin venture (financially, strategically, even spiritually) should feel free to reach out to me. We're looking for it all.

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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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