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Thursday, 15 October 2015 00:00

The Global Currency War - USA Edition Featured

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CNBC ran a very interesting article this morning, basically laying out the groundwork for the Fed to push interest rates lower - that's right, lower! This video puts it into perspectiveThe media and the so-called experts have been pontificating on whether the Fed will raise rates in September, or October, or was that September of last year, or the year before. Of course, there was one expert who made the common sense contrarian call...

Go to the 0:55 marker in the video to hear what I had to say at the beginning of the year (the whole video is worthwhile and prophetic for those who haven't seen it).

Click this link to hear this articulated perfectly by someone other than me. Please be aware that the US is basically firing it warning shots to let the world know it's re-entering the currency war, and no one... and I mean noone has the currency guns of the size of that of the US. This means that the ECB's QE program is as good as moot unless they double down (ponzi-style) and China and Japan are going to have to reload. It War, baby! I penned and entire series to educate one and all as to what's going on worldwide.

  1. Despite What You Don't Hear In The Media, It's ALL OUT (Currency) WAR! Pt. 1 -, as excerpted from Wikipedia: Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relati ... Created on 25 January 2015
  2. Stab, er... I Mean... Beggar Thy Neighbor - It's ALL OUT (Currency) WAR! Pt 2 - Here Comes The Boom! By now, everybody who cares knows about the Swiss National Bank's removal of its EUR floor, and the havoc that it caused to FX brokerages around the world (Currency Brokers Fightin ... Created on 26 January 2015
  3. As US Companies Report, Signs of Imported Unemployment/Deflation Appear: It's ALL OUT (Currency) WAR! Pt. 2.5 - 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 ... Created on 27 January 2015
  4. 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! ... t 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. Expect to see practically all of the nor ... Created on 10 February 2015
  5. Translating Goldman Sachs 2015 Recommendations As UltraCoin Trade Setups pt 2 ... 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, ...
  6. Monetizing The Spear That The Swiss National Bank Hurled At Swiss Banks and Insurers
  7. "Fu$k the Fundamentals!": Negative Rates In EU Will Absolutely Wreck the Very System the ECB Sought to Save - ... t's not as if there's that much equity in the system. Once two or three counterparties "legally" default, the system comes tumbling down! Take your own high leverage positions on every soveriegn, cur ...
  8. How to Blow a Trillion Dollars and Look Like You (Don't) Know What You're Doing While Blowing It -
    ...  I declared that it was not going to work as planned. As a matter of fact, I made it clear that there is clear evidence of diminishing returns in QE currency wars as a form of monetary policy, reference: ...
For those who want to know where all of this came from, read... 

The Central Banker's Definition of Money is Obviously Wrong, And That's Not Taking Into Consideration Veritaseum Technology and also The Real Definition of Money in a Modern Economy

David Stockman throws some truth on a pile of lies.

Wednesday, 07 October 2015 00:00

The Real Definition of Money in a Modern Economy Featured

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 This article continues the corrections introduced in The Central Banker's Definition of Money is Obviously Wrong, And That's Not Taking Into Consideration Veritaseum Technology. Yesterday at the New York Blockchain conference conference I told those in the financial and fintech communities that banking as we know it is done.

 20151006 115519 1

As a result, banks as we know it are done. One very important aspect of this observation is that banks define money as debt... Which it is not....

Money in a Modern Economy Reggie Middleton and Veritasum

Money is a proxy for one's labor, and not debt. Here, I break it down in detail...

Even gradeschool students in Brooklyn, poverty stricken children in Port au Prince, Haiti and my children know this. Is it the educational system that causes this confusion over such a very basic economic concept such as money?

Meet the new banking system and the new defintion of money...


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The BOE has a drastically contradictor statement in its lesson on Money in the modern day. Go 2:09 marker

If the 20 pound note use to be able to demand 20 pounds worth of gold from the Bank of England, but can now demand only 0.0017 pounds of gold, and not even directly from the BOE, but on the open spot market - then it would be safe to say that the 20 pound note has not held its value. This is particularly true relative to gold, as it was originally priced. According to the author, the BOE is not doing its job because the 20 pound note is no longer worth 20 pounds. Money is not an IOU, money is a proxy for labor. Only a bank, whose livelihood is dependant upon loans and lending is would claom that money is a loan, debt or IOU vs a present time proxy for labor. 

If you go to the beginning of the video, the author defines money as an advaned form of an IOU (ex. debt or loan). He uses the example of a farmer who would only be able to consume the produce that he would produce (this is a key work, produce as in production as a result of labor on inventory) on his land. If he met a fisherman that would not have a catch until autumn that would want to consume berries in the present (ie summer). The BOE rep states that the fisherman would give the famer an IOU in the form of a banknote, and the farmer would take that promise to pay in the future in exchange for berries now.

I say nonsense. What the fisherman gave the farmer was a proxy for his labor of attempting to grow his own berries on his or someone else's land. The fisherman could always endeavor to grow berries or pick berriers in the wild himself. That time and energy spend (labor) would be better spent by the fisherman in gathering fish, so the fisherman gives the farmer a proxy (token) of his labor in exchange for goods and services. This proxy  ahs to have the faith of all involved that it is at least as good as the labor it represents. This is where the value lies. 

As the Bank of England (and most bankers) would have you believe, the fisherman could never, ever search for his own berries - nor grow his own berriers. Berries, at least in the UK, do not grow without debt!

The smartest people in the room have a vastly antiquated and dramatically outdated definition of money. A good start is the Veritsaseum article: Veritaseum Breaks the Definintion of Money, Inhibits Seigniorage, with Asset Backed Bitcoin, to wit:


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

The Accepted Defintions of Money

According to Wikipedia:

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

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

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

According to Wikipedia, representative money is defined as:

    • 0px 12px no-repeat !important;">A claim on a commodity, for example gold certificates or silver certificates. In this sense it may be called "commodity-backed money". 0px 12px no-repeat !important;">Any type of money that has face value greater than its value as material substance. Used in this sense,fiat money is a type of representative money.

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

In the next article on this topic, we will cover and discover the new and much more accurate defintion of money in a modern age.

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I had some prognostications in December or 2014 for the new year. These are apparently quite contrarian in relation to the sell side. Let's take a quick peek and then compare to the smartest guys in the room (you know, the sell side analytical machine) year-to-date...

This is self explanatory, keeping in mind that the S&P 500 was somewhere around 2028 and the 10 yr Treasury was roughly 2.1% on January 1st of this year. 


Notice how I also commented on real estate prices. We have definitive research which shows a definite correction coming,  but more on that later. The question du jour is why so many (as in all) of the sell side banks proffer such bad (actually, inaccurate) research?  Well...

Banks do three things, and three things only

  1. They amass capital from one group of people and/or entities and give it to another group, requiring substantial fees along the way, ie. lending and securities underwriting.

  1. They move financial assets around the globe, between and amongst individuals and entities, requiring substantial fees for said transactions, ie. securities brokerage

  1. They provide financial advice and related transactions, again for significant fees

As those who follow me over the years know, I provide advice. Much of that advice runs circles around the sell side. I'd love to take credit for being hyper-intelligent, but the secret sauce actually lies in muppet mentality and conflicts of interest.

But what about the other components of the banking model?  Well, technology is now available that may prevent guys like me from posting laughable graphics like the one above in the near to medium term future.  

Fully distributed banking models (we're talking full on disintermediation here) combined with independent (which eliminates the "muppet" factors of conflicting interests) advisory businesses can do all of the above while allowing end users to maintain control of their capital while removing the incentive of advisors to "churn" trading and transaction activities.

What would a fully distributed banking system look like and how would it prevent 12 analysts from giving highly inaccurate forecastsforecasts? 

Traditionally, over-the-counter (OTC), or off-exchange trades are brokered between two parties without being subject to a middleman in the from a centralized legacy exchange. The terms of an OTC trade, including any pricing information, are not necessarily published to third parties. In this case,  the middleman is the banking institution. 

In contrast, legacy exchanges provide some pricing transparency and mitigate most credit risk (except that emanating from the exchange itself) in the event of infrequent defaults by trading parties. When they work, these features encourage market liquidity. However, when legacy exchanges fail, either party to a trade may lose value as defaults and evaporating liquidity overwhelm any marginal safety nets.

Fully distributed financial systems brings the benefits of legacy exchanges to OTC transactions, but without the associated costs. Smart contracts enable OTC trades featuring unique characteristics, with publicly published pricing, and where all credit risk and counterparty risk is removed. Liquidity is provided by a distributed, peer-to-peer exchange, which is essentially a mesh network of participants looking to deal directly with each other. Blockchain technology allows them to do so pseudonymously, and without having to detour through a formal entity (not even Veritaseum servers have access to the assets) that can default, collapse, corrupt, or defraud.

Transparency and accountability are unprecedented. The details of every transaction are logged in the blockchain and readily available to all who are privy to the trade. Each node has its own copy. Any entity who wants this information can have it, and all transactions related to it, forever.

What Would Such A System Look Like?

Vertiaseum’s core technology utilizes four major components: the blockchain, a data source (e.g., a ticker feed), Veritaseum’s proprietary server technologies (“Facilitator”) and the  Veritaseum HTML Wallet (essentially, a very advanced web page), which communicates with the Facilitator via an Application Programmer’s Interfaces (API).


In the first phase, the Wallet validates the order terms (e.g., payor instrument, receiver instrument, principal, collateral, expiry, etc.) with the Facilitator. The Wallet broadcasts a transaction conforming to those terms. The Facilitator activates the order when it sees the transaction in the blockchain.

Thursday, 24 September 2015 00:00

The Street Finally Realizes The Power of the Google Biz Model Featured

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In 2010 I declared Google to be one of the most powerful, promising and undervalued internet companies of our time. Much of Google's value rests outside of its core advertising business, which is in and of itself a perpetual minting machine. This is the report that I offered my paid subscribers, a literal tour de force, particularly considering what most institutions are use to getting from the sell side sales machine.

Google Final Report Sep 29 Page 05Google Final Report Sep 29 Page 57

Fast forward 5 years and we have the last of the sell side holdouts discovering the truth, using a sum of the parts valuation that I pioneered for Google 5 years ago.  

YouTube, Android, Search, AdWords/AdSense, driverless cars, Drive/Docs, Voice, Fiber, Maps, Gmail (and more) ... All multi-billion dollar businesses and most are potential (or actual) multi-billion dollar revenue generators as well. If valued separately and rolled up, would be materially more than what Google is trading at today. Google is also in the unique position of capitalizing on cross product synergies that no other company really has the depth, breaddth adn reach to produce. The closest competitor with potential synergies would likely be Facebook (watch out for them!), and they are not even close yet - but they are getting there.
The Veritaseum Trade
In case you are not aware as of yet, the BoomBustBlog blog research and investment advisory team is back in action under Veritaseum. Ping me if you are interested in research to be used with out trading platform. Insitutional beta testers of the platform will get the research for free.
Next up, I will explain why the banks and real estate companies will get booped once again. I can even give you a relatively granular approximation of when, and what trades to set up and how to do it. You see, it's all about...
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The US, and the tech hubs in particular, are experiencing a bubble whose proportions have never been seen before. No one is discussing this bubble, and I'm sure after it pops (likely momentarily) you're likely to hear that no could have seen it coming...

In recent years household income in California has witnessed a sharp increase....

In 2012 the household income increased at 6.8% annually, with this growth continuing in 2013 at a rate of 0.9%

House Prices Index in San Francisco (2000 = 100) and Household Income (in US$) in California

SF Income Bubble

 This sharp increase seems to be driven by the rising valuations in tech companies in the area. 

Valuations of start-ups in the Silicon Valley have reached very high levels over the last two years, many of which can make even valuations blush...

Some of the major Silicon Valley start-ups have soaring valuations

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I'm here to dissect the balance sheet of Morgan Stanley and demonstrate the solutions that I've invented to proof against what I see is an upcoming, nigh guaranteed collapse. Before we get to that, we need to come to terms with counterparty risk and exactly what it entails. Also realize that Morgan Stanley is not unique in any way, balance sheet wise. What goes for MS can go for any money center bank on the street.

Now... Counterparty risk, more commonly known as a default risk in some circles, is a risk that a counterparty will not pay as obligated on a financial contract - including bonds, derivatives, insurance policies, repurchase agreements, etc. Parties to a transaction may attempt to hedge this risk via offsetting trades or credit insurance, but a true offset or perfect hedge is rarely possible and is usually (in reality) non-existent. In addition, hedges are usually the most useless when they're most needed due to issuess of liquidity, correlation, cross colateralization, rehypothecation, and macro/systemic disconnects.

Starting in 2007, I waived the counterparty risk flag for several financial institutions, nearly all of which collapsed within 3-6 months of my warnings - all having investment grade ratings and buy recommendations at the time of my warnings, by the way. Reference a sample of such warnings and the anecdotal notes that I pasted on about each:

Bear Stearns

The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? Notice the similarities between Bear Stearns in 2007 and Morgan Stanley today... Bear Stearns is below:

This is Morgan Stanley today...
veritaseum  Morgan Stanley4
Lehman Brothers
The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”. I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.) 

Lehman, Bear Stearns, AMBAC and MBIA all share one common trait, and that was they carried assets on their balance sheet whose value was directly related to another party paying them (or their paying another party). This compounds risk exposures when compared to many other "asset" classes. For instance, gold held on a balance sheet as a physical commodity, only exposes the holder to the market price of gold. A gold swap exposes the holder to the market price of gold, the counterparty (default risk) of the other side of the swap reneging on its obligation, AND the counterparty risk of the bank that stands in between you two of going belly up and not delivering the contracted value. That's a lot of compounded risk as compared to just holding the physical.

Despite the added risk of entering into a financial contract for an asset versus purchasing an asset, Wall Street is pushing for just that... They're selling swap trades in lieu of equity purchases to minimize their balance sheet hit in terms of newly written reserve requirements, as per regulatory authority mandates. Reference  the Wall Street Journal: Banks Pitch Swaps as Alternative to Buying Stock. Now, with that in mind, let's take a time-lapsed look at Morgan Stanley's balance sheet.

Reggie Middleton on  MS Balance sheet

As you can see, nearly $400 billion (or more than half) of the assets on Morgan Stanley's balance sheet derive their value from their counterparty not reneging. To be particular, going down the labels of Morgan's balance sheet:

  1. Receivables from customers - Ask FXCM how those customer IOUs work out when the market disconnects. They took a $225 million loss on clients who refused to honor the banks recievables. Leucadia National Corp. had to bail them out with a $300 million loan (plus associated rights, written in blood). 
  2. Other loans - Well, loans (particularly loans that need to be called "Other") don't have static values. Speaking of loans and fluctuating values, that Lecuadia bailout loan package referenced above just got written down by more than $100 million.
  3. Securities recieved as collateral - if these securities drop in price, the contracts Morgan attempted to collateralize drop in value since the associated liabilties won't follow suit.
  4. Securities borrowed - Old fashioned margin, and there's a healthy dose of it here.
  5. Securities purchased under agreements to resell - aka repos, repurchase agreements or sale and repurchase agreement - the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price is usually greater than the original sale price, the difference effectively representing imputed interest, which is also known as the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. Of course, the counterparty risk lies in the other side honoring their side of the deal in buying back the securities.

All of the asset categories in the list above are highly sensitive not only to the underlying market prices, but to the willingness and capability of Morgan Stanley's counterparties to honor their side of the deal. When the other sides failed to honor for whatever reason (Lehman, Bear, GGP, MBIA, Ambac, etc.) the assets dropped in value even faster than the underlying's market price fell. Whenever this happens, correlations cause other bank's similar and/or hedged assets to drop in tandem, and then it's a party!

Let's revisit how this worked out for Bear Stearns...

Bear Stearns portfolio exposed towards Ambac is $2.2 billion

Bear Stearns portfolio insured by Ambac Ratings
Issuer Net Par Exposure ($ mn) A AAA BIG Grand Total
The Bear Stearns Companies Inc. $88   $88   $88
  $104   $104   $104
  $117   $117   $117
  $125   $125   $125
  $136 $136     $136
  $140     $140 $140
  $144     $144 $144
  $151     $151 $151
  $171   $171   $171
  $202     $202 $202
  $245 $245     $245
  $261 $261     $261
  $337 $337     $337
Total $2,220 $978 $605 $638 $2,220

Because Bear Stearns underlyings and counterparties defaulted, AMBAC was on the hook. Since AMBAC was overleveraged and suffered high correlations in opposing deals, they defaulted (big time) and... It's a party!

This is how we solved this problem over at Veritaseum. Veritaseum contracts cannot be broken or breached, thus counterparty/default/credit risk are essentially non-existent. We accomplish this by fully escrowing the entire "smart" contract through the blockchain (an immutable, and to date unhackable, consensus driven database in the cloud) and giving each party access to unlimited digital leverage to appease the "cowboy" in everyone without enabling them to take unfunded risks or potentially not deliver to the other side - regardless of how the contract and its underlying perform. Everybody always gets paid, according to the contract terms, all the time. It's a shame this can be called a new invention, but it is and we are patent pending.

veritaseum platform trade cycle

veritaseum contracts

Those who wish to find out more about the startup can view our public slide deck and/or contact me via email.

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During the last market collapse I developed a name for myself calling banking, tech and real estate company collapse.

One of the premises of many of those calls were based upon balance sheet analysis (and common sense). Basically, after mark to market rules were suspended there was a big party since the underwater asset problem had been solved. Everyone just erased and penciled in a new value for said assets... and Voila!


If only it were that easy... You see, the smoke and mirrors worked (and worked a lot longer than most of us spreadsheet wielding realists would have ever thought - 6 years), but at the end of the day, we all knew that the banking system was rebuilt on matchsticks. Right about New Years, Stacy Herbert and Max Keiser asked me what my prognositication was for the new year. I said equities and real property go boom...

I want to expand on that today. Developed nation bank regulators have tighted rules in an attempt to proof against another market crash and mass bank run. These new rules have materially altered the behavior of big money center banks. For instance, the Wall Street Journal reports: Banks Pitch Swaps as Alternative to Buying Stock, New capital rules prompt banks to seek less-onerous ways to facilitate trades

Banks are nudging certain hedge-fund clients to use derivatives instead of actual stocks when placing some bets, an effort aimed at lessening the impact of new capital rules on the banks’ businesses.

The shift generally involves derivatives called total-return swaps that mimic the effects of owning a stock or other asset. In some instances, banks take less of a balance-sheet hit when they are hedging offsetting client positions targeting the same stock using total-return swaps than they would if the bets were made via securities.

... Banks generally benefit from the tactic when two clients are betting in opposite directions on the same stock, allowing the bank to offset the hedges it often needs to employ when facilitating such trades. In one example, if a bank has two hedge-fund clients who have opposing bets on IBM Corp., with one purchasing the stock in a bet it will rise and the other selling it short in a bet it will fall, the bank under certain circumstances may have to set aside additional capital to facilitate those trades.

But if a bank has two clients using total-return swaps to take opposing bets on the same stock, it could offset the securities it has bought and sold as hedges against those positions so they don’t tie up additional capital.

If the bank had to buy securities to hedge a single client swap, without the offset, the hedge would have gone on its balance sheet.

Units of Bank of America Corp.Goldman Sachs Group Inc., J.P. Morgan Chase & Co.,Morgan Stanley and UBS AG are among those firms asking some of their clients to shift certain trades into total-return swaps instead of the underlying securities, people familiar with the efforts said.

Well, as those of you who follow me know, I've taken time off of my investment advisory business to build digital swaps powered by the blockchain. The startupt venture, Veritaseum, is uniquely positioned to capitalize on this movement because not only is it significantly ahead of most banks efforts in automating swap trading, it eliminates counterparty risk (Veritaseum swaps are trading right now, for over 45k tickers in all asset classes from all major bourses - download the client here). Why is counterparty risk so important? Back to that WSJ article...

..The downside for hedge funds is they could, in some cases, struggle to collect payments owed on a swap if their bank or other trading partner goes belly up.

One hedge-fund executive said his multibillion-dollar firm was avoiding the derivatives and opting to own the actual securities instead in part due to that risk, which he became sensitive to during the financial crisis.

And that pretty much sums it up. Counterparty risk. The big banks are starting to weigh counterparty risk vs profits, and the results are... Cut off the little guys. Here's how that article put it...

Wall Street’s focus on swaps is the latest example of how banks’ prime-brokerage businesses, which execute and finance trades for hedge funds, are changing in light of stricter regulations designed to prevent a repeat of the 2008 financial crisis.

A new slate of rules is raising capital and liquidity requirements for the biggest financial institutions, forcing them to reassess their businesses, shed certain assets and reject some customer activities, like accepting deposits.

Some banks also have been jettisoning hedge-fund clients whose trading strategies they deem too costly to support.

Do realize that not all institutional cleints will have a chance to take advantage of these new bank engineered swaps. After all, the regualtions passed to increase safety have caused the banks to turn their collective backs on thier least profitable clients. This means Veritaseum opportunity. Reference JP Morgan Pulls Plug on "Mini Prime' Clients:

J.P. Morgan’s prime-brokerage operation is casting off many hundreds of smaller hedge funds in a move that threatens to further escalate trading and financing costs for managers.

In the past two weeks, the bank has notified the “introducing brokers” it works with that it will no longer clear trades or offer financing to their hedge fund clients. The brokers — BTIG, Concept Capital, Conifer Financial, Convergex and arms of Jefferies and Wells Fargo — have 90-120 days to find new clearing banks for clients that had been using J.P. Morgan. The move affects an estimated 800-1,200 hedge funds.

With their balance sheets pressured by new regulatory-capital requirements, several Wall Street banks have taken steps in the past few years to cull smaller, less-profitable fund shops from the ranks of their prime-brokerage clients. But the abrupt retreat of J.P. Morgan from the “mini-prime” arena marks the first time a major prime broker has stopped working with introducing brokers altogether. Those firms serve as middlemen between smaller hedge funds and banks that offer clearing and financing services.

Industry professionals said the move could have far-reaching consequences, potentially stranding the smallest managers and undermining the mini-prime business model. Some said they wouldn’t be surprised if other big banks followed suit — or if introducing brokers took steps to weed out their weaker accounts.

“Guess what — some of these people [fund operators] aren’t going to find homes,” said an executive at an introducing-brokerage firm. “We’re going to look at these accounts and decide which ones are worth keeping.”

Here's a thought. What happens if technology enables these funds to deal directly with each other and clear for themelves. This technology is available here and now.

This the first time where Wall Street is challenged with technology that may be able to bypass the protections of excessive regulation. The Internet, as wondrously transformative as it was, did very little to increase the efficiencies of Wall Street as an industry, at least from the consumers perspective.

banking prices normalized and adjusted for inflation

Notice how distributed tech mashed other industries' margins and revenues - such as media...


Because Paradigm Shifts Wipe-out Legacy Players & Wall Street is Ripe for the Taking. It has the highest prices and the highest paid workers (on average) of all consumer facing indsustries - these prices and wages are going up! This is unsustainable.

Why is it unsustainable? Because Wall Street is structurally incapable of handling the introduction of low cost product. Look, I'll prove it to you!

veritaseum  Morgan Stanley3veritaseum  Morgan Stanley4

veritaseum  Morgan Stanley

Email me at reggie [at] if you want to know more about what we're doing and what we're up to over at the lab.

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Do you remember this from the beginning of the year on the Max Keiser show in London?

SP drop

S&P 500 drops below trading range as global selloff intensifies

Chicago Tribune - Aug 20, 2015

Bulls Against Wall as Seven-Month S&P 500 Trading Range Caves

Bloomberg - Aug 20, 2015

S&P 500 Worst Day in 18 Months May Act as Accelerant for Bigger Unwind

DailyFX - Aug 20, 2015

Stock pain: 15% of S&P 500 down 20% in 2015

USA TODAY - Aug 20, 2015

Stocks Rocked: Plunge Lands S&P 500 Back In Negative Territory For 2015

Forbes - Aug 20, 2015

God forbid the Fed actually follows up on one of its many bluffs and does inch interest rates up. The real estate markets will collapse. Those who visit NYC and Miami know there's rampant construction ala 2007, despite the fact that supply is really not that sparse. This is all during ZIRP and NIRP, Imagine rates going higher...

Don't believe me? Remember why the market spiked to begin with. FASB was coerced to drop mark to market accounting rules, and everybody forgot why the banks were in trouble to begin with (quick reminder, their balance sheets are trash)... From BoomBustBlog:


I declared insolvency throughout the banking system, and it looked as if I was wrong for some time, then the truth’s ugly head started peaking out. See The Financial Times Vindicates BoomBustBlog’s Stance On Goldman Sachs – Once Again!

Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5bn of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.

Hmmmm! I walked through this in explicit detail in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“ and I did it without being privvy to Goldman’s financial innards. Long story short, practically all of the major banks are lying about the value of some of the largest assets on their books.

How many institutional and/or retail investors will be able to ferret out such? Or more importantly, why should they have to? It is the reporting company’s responsibility to report, not to obfuscate. The big problem with this “hide the market marks” thing is that markets tend to revert to mean.Unless said market values fundamentally catch up with said market prices, you will get a snapback. That is what is happening in residential real estate now. That is what happened in Japan over the last 21 years!!! That’s right, it wasn’t a lost decade in Japan, it was a lost 2.1 decades!

Speakng of Miamia, I was Miami Beach just two weeks ago and guess who I bumped into walking down the beach... (go to the 4:10 marker)


Those interested in speculating on property price compression, set up a Veritaseum P2P swap. From an operator's perspective, Veritaseum + Veritas = Use Case To Prevent Banks From Failing The Next Stress Test

Monday, 10 August 2015 00:00

HTML 5/CSS UI/UX Front End Developer Wanted

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Veritaseum, Inc. is seeking UI/UX developer. (We mockup in markup; no PSDs.) We are flexible as to formalizing relationships, but contractors should be prepared for an open-ended engagement.

Must haves:

  • expertise in HTML5/CSS3 and best practices
  • proficiency with modern distributed revision control systems (git/GitHub, hg/Bitbucket, bzr/Launchpad, etc.)
  • some JavaScript coding experience, including use of at least one commonly used, browser-side toolkit (e.g., JQuery, React, AngularJS, etc.)
  • solid understanding of basic rapid software development best practices (unit tests, continuous integration, pull requests, etc.)
  • exposure to some collaborative software development methodology (Agile, Scrum, Kanban, etc.)

Responsibilities include:

  • quickly gathering a deep understanding our existing product(s)
  • helping to drive user story creation and user experience design
  • working directly with application and back-end developers to ship awesome web-based applications

Experience designing web-based financial applications, or with Bitcoin protocol or related technologies is a huge plus, but not necessary. Must be willing to sign an NDA. You should be knowledgeable and competent, but grit is preferred to genius.

Interview challenge

  1. If you’re not already familiar with our application, download it, start it up in Demo Mode, get your wallet address, grab some test coins (e.g., from here or here), and try a few trades.
  2. Familiarize yourself with the My Trades tab. The table is updated periodically from queries to/from our API. The columns are sortable. The check boxes at the bottom filter the displayed results.
  3. Mock up a web-app version of the My Trades UI. It (obviously) doesn’t have to call out to our API, but it should demonstrate some responsiveness to user input. Be prepared to explain or defend any departures or improvements you make, as well as any third party tool choices.

Let us know if you’re a fit!

Are you a creative type who loves designing and improving user experiences? Are you usually the person whose UX ideas and suggestions are (eventually) adopted as what goes into the final product? Do you like working with small, close-knit teams where you can have a tremendous impact? Do you like going from pen and paper straight to a browser mockup without having to start up Photoshop? Send a link to a demo, along with your availability, time zone, compensation expectations, and LinkedIn profile to This email address is being protected from spambots. You need JavaScript enabled to view it.. If we like your submission and invite you to proceed, please be prepared to share your repository (GitHub is prefered, but Bitbucket, Launchpad, etc. are okay too).

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