If you do a Google search in Goldman's latest quarterly earnings, it looks something like this:
Dudes!!! Don't you guys read the fine print?
I have been warning Veritaseum users about the unbridled risks the ECB is taking with its banking system by slamming its yield curve - driving short and medium term rates negative. Despite the ECB's proclamations, its banking system is still quite fragile, and it is putting pressure on the barely recovered fractures, causing additional stress fissures.
Before we go on, if you haven't read "It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So! and "How the Danish Central Bank is Destroying the Danish Citizens' Wealth Form Both Sides While Stressing It's Bank!", please do. My warnings in 2010 on the PAN-EUROPEAN SOVEREIGN DEBT CRISIS will do a lot to fill in the background as well.
Yesterday, the Wall Street Journal ran a story on the Spanish bank, Bankinter S.A., which was actually paying customers interest on their mortgages, in a rather backwards twist that is the result of the perverse incentives (basically, the opposite of typical tenets that underlying fundamental analysis) that come about when you turn the world of borrowing, literally, upside down. Here's an excerpt (and remember I warned about Spain 5 years ago in "The Spanish Inquisition is About to Begin..."):
Though many of the libertarian bent bitcoin aficionados, and those uber liberal early proponents of the Internet lauded the decentralized topologies of these networks, they presumably failed to take into consideration groupthink enabled rent seeking on a massive scale and basic human nature. No matter how decentralized one makes a platform or system, pursuit of power and rent seeking always results in a darwinistic survival of the fittest contest that ultimately results in the centralization of social, political and economic (usually in that order) control over the very infrastructure within which the decentralized topology has been built.
With nearly a billion USD invested in blockchain related startups over the last two years, even the true luddites are starting to take notice. Most still have no idea what this tech is capable of, so my job is to show all the light. On that note, I present a step-by-step guide to Collateralizing and Ensuring Physical Delivery of Gold Through the Blockchain - Faster, Cheaper, Safer!
What many may not realize is that Veritaseum, when used with our commoditized intellectual capital (Veritas), can actually move the value of, and secure, physical assets through the blockchain. This is the trade architecture from a high level.
If one where to speculate or hedge the value of gold, you can receive the price value of gold in exchange for USD (or EUR, or even forex pairs such as EURUSD, or even other assets such as copper). The Veritaseum contract would look like this...
This is a speculative/hedging contract receiving the derivative gold price and paying the derivative USD price over the weekend to NYSE market close on Monday. Yes! This is cool, but suppose you actually wanted to take physical delivery of said gold rather than take cash settled exposure? Well, to do that you still enter into this contract with the seller of said gold, but set the expiry date at time certain in the future for physical delivery of said gold (to be provided and guaranteed by the transportation service). Let's assume that time and date is as stated above. Said transportation service feeds into the Veritaseum system (via a custom implementation created through a Veritas purchase) and upon delivery confirmation of the physical gold the contract unwinds and the seller gets the buyer's funds plus a refund of their deposit which is put up as BTC collateral linked to the USD price - essentially paying him in USD up front - but locked into the blockchain. The buyer of the physical gold has been hedged into the GLD price this entire time and exchanges his gold-linked BTC for actual physical gold upon arrival as this BTC is released to the physical gold seller along with his USD-linked deposit. With such an arrangement, the gold purchase transaction can literally happen immediately, with all parties hedged into their respected requested exposures as they await physical delivery of the underlying.
If the physical gold does not arrive for whatever reason, the buyer still has his direct gold price exposure - basically a win-win situation. If the seller did not deliver the physical gold, then he/she will be forced to pay as if they sold and delivered the gold anyway by being exposed to USD price exposure relative gold and not receiving that deposit back until the end of the contract - whose expiry was defined as provable physical delivery of the gold.
For those who do not want to be exposed to BTC volatility, simply open the advanced tab on the markets tab/interface and lever the contract to "outrun" your perceived exposure to BTC volatility. If you feel bitcoin will have an 4% standard deviation and you lever 5x, you will significantly mute said price delta in your trade results (the actual amount of leverage to use can be calculated using our trade modeling spreadsheet - in this case, 5x is rather excessive for an expected 4% STD).
This what that "smart contract" would look like...
This is what the entire trade would look like, levered 5x with BTC featuring 4% volatility.
Download the Veritaseum wallet and all tools needed to conduct this transaction (sans the physical gold and BTC, of course) here. Purchase Veritas (our tradeable Intellectual Commodity token) here.
Feel free to contact me directly here - I love to chat.
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.
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 gold, silver, copper, salt, cocoa 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.
According to Wikipedia, representative money is defined as:
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.
The United States is certainly not immune from these effects. The economic thirst of war has pushed the US to the brink at least two times in the past. Continental currency (the precursor to the current USD) printed during the Revolutionary War reached a monthly inflation rate of 47% in November 1779.
Again, during the U.S. Civil War, the 50 months preceeding April 1865 saw the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9,000.
The Confederate dollar was nearly worthless by the end of the civil war. Towards the north, greenbacks (the currency of the Union) were purposely inflated up to a 40% monthly inflation rate. In many of these instances, the money was purposely inflated to fund the war. This monetary seigniorage still exists today in the US and abroad.
Referencing the study made by Federal Reserve Bank's own St. Louis Fed...
As you can see, monetary seingniorage has been and is, a profitable business for the US and has been such for some time.
Seiniorage has been responsible for paying between 1% to 3% of the federal budget of the largest single economy in the world - but that's before the crisis and QE, which we will get to in a minute.
Pay very close attention to this table, where the US.gov had its debt bought outright by the Fed. The number peaked in teh '71-'80 period at just over $12B. Be aware that, pre-Bernanke Fed did not have a mandate (as popularly interpreted) to purchase private debt.
Let's look at this from a 2014 perspective, and please notice the delta in the numbers...
The 3 rounds of US QE:
So we, go from $12B in US .gov debt to somewhere around $500B of the same in 2007, in addition to a category labeled as "All Other" to $4.4 Trillion as of last year, including unheard of asset classes in the comparable tables above - MBS, etc.). Even if one were to exclude such (and I query as to the reason why one would do that), there is still over $2 Trillion of note and bond purchases. If one were to linearly extrapolate the relationship between monetary senioriage in the tables above as a percentage of the US Federal Budget and the Fed's balance sheet bloat as a result of QE, it would look something like this...
Now, we're not economists at Veritaseum, and I'm sure this little analysis may be rife with holes, but its purpose is to illustrate the vast revenue and profit machine that is Monetary and Fiscal Seigniorage, ex. money printing. QE, NIRP, ZIRP generates funny money at the expense of the holders of said money. Reference this graphic from "How the Danish Central Bank is Destroying the Danish Citizens' Wealth Form Both Sides While Stressing It's Banks":
Other examples of current day seignorage and their results are exemplified by the Currency War series linked below. We, @Veritaseum, are using the power of the blockchain to resurrect commodity money and commodity-backed money in a fashion that brings it into the 21st century through our smart contracts technology. We will infuse bitcoins with a definitive floor value (but the coins will also feature the value of bitcoin itself, hence be able to float freely above said floor) based on the following liquid commodities:
More info will be available after the Veritas sales end. Institutions and accredited investors who are interested in learning more can reach us here.
The Currency War Series:
Interesting tools for the community:
About two months ago, I posted "It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So!" wherein I feel I made a rather cogent argument against the fidelity of the Danish peg to the euro. Yes, they have not made the same mistakes that Switzerland made when they engaged in, and broker their ped - they're making a whole different set of mistakes. I urge all to read (re-read) that piece and then review the inforgraphic-like graphic below which was created to illustrate the folly of printing for printing's sake to those who may not quite grasp the concept of more currency not being the equivalent of being wealthier.
As always, you can use the Veritaseum platform to take our positions, whatever they may be.
So, will Denmark break its peg to the euro? Who knows, but I can guarantee you that the probability is much, much higher than the Danish Central Bankers are proclaiming. If they break the peg, go long the DKKEUR pair, if they don't break the peg, short their banks. It's possible to construct a decent risk weighted reward trade from this - despite the fact this iis dated information. If any of you do make a Veritaseum-powered profit, be sure to send the Danish Central Bank a thank you note, and Cc: us while you're at it.
Note: The 7,000x leverage setting is illustrative only! It is impractical to use leverage rates that high.
Yesterday, I illustrated a detailed use case for a Veritas purchase for the institutional investor (pension fund, sovereign wealth fund, family office, etc.). In essence, I explained how we can provide those entities with exposure to the venture capital asset class without the excessive fees and 10 year commitments which lead to an extreme lack of liquidity - reference Venture Capital Mis-allocation, Illiquidity & Disintermediation: Veritas Use Case #1.
Today we illustrate a Veritas use case for the professional and/or self directed investor. The team that delivered award winning research at BoomBustBlog is available for packaged and bespoke research to be use with the Veritas Value Trading Platform. Here's the result and some research samples (you can download the historical research example here - Apple Margin Compression Analysis and Forensic Valuation Note [PDF])...
When: From March 14 to April 25, 2015, or until we sell all 21M Veritas, whichever comes first. If you purchase them within the first fifteen days of the sale, you will get a discount off of the retail price. Please see this presentation to learn more. Click here to view as full page presentation.
The tokens will be transferable - free to be bought and sold between customers and purchasers and potentially on crypto-exchanges. A 13% discount will be in effect for those who purchase the tokens within 24 hours of the sale's commencement. Those who miss the first twenty four hour period can still purchase the tokens at a sliding discounted price for up to 14 days.
Team Veritaseum is uniquely trained, and highly motivated. Specialists with few equals, immune to the concept of “can’t”!
—Reggie Middleton, CEO and Founder of Veritaseum, Inc.
Veritaseum is in the business of disintermediation. Our profit model is based on the displacement of rentseeking entities. As a result, our profit is your profit, since we split the difference of monies extracted by those who have gained as financial gatekeeper. We have demonstrated how Veritaseum poses to disintermediate “legacy” banking system (reference “DACe, Disintermediation and the Death of Wall Street”), but our search for capital has opened our eyes to an ever inreasing pool of industries that will likely be disrupted as our technology and methodologies become more widespread. I will present a barrage of facts and data and let you come to your own conclusions as to whether this is the dawn of a new age.
The impetus of this article is Veritas, our software token that you can redeem for our products and services. The aim is to provide real-time proof of the value of said services. (I will explain what these tokens are and how to get them as we progress in the article.)
You probably already know that the Internet circa 1994 was the biggest investment opportunity (for those who had the foresight and resources to capitalize on it) of the 20th century. Imagine a world where there was a near “guarantee” of a similar monumental investment opportunity (x2) and where many (but most certainly not all) of the world’s most powerful and influential investors are quietly backing entrepreneurs from all over the world to monetize and stake claims of control well ahead of the lay investor.
In other words, imagine lightening is about to strike twice
Let me show you something (slides with the “Coindesk” designation are sourced from the State of Bitcoin 2015 slide presentation, annotated as shown):
Yes, the opportunity is real. Growth metrics are popping three years in a row, even as media froth and rampant speculation has died down. (BTW, that’s a good thing!)
Some of us saw through the noise years ago. That is why I started Veritaseum (formerly marketed under the moniker “UltraCoin”). As of late the venture capital community is truly starting to come around. What does this Bitcoin VC investment look like?
The deals are not necessarily small deals either. Here are the latest:
The “Contrarian Badass” (yours truly)—who has shown a strong proclivity for things finance and technological, and who has created a start-up with a crack-shot team and a first mover advantage on many fronts—is in an ideal position considering this activity.
Investors (should) look for four things when plowing money into startup:
Let’s walk through each of these and examine exactly what it is we’re doing at Veritaseum with Veritas.
Our launch product is a bitcoin wallet, and there is rapid growth in wallets, worldwide.
But our product is not just any bitcoin wallet. It was (and still is, we believe) the first MULTISIG
, smart contract-aware, universal FinTech wallet that we know of. VCs love MULTISIG
, they adore smart contracts [Bitcoin 2.0], and if there’s something they cream over even more than those two it would be a universal wallet.
I warned early on that, although a lot of money was going into bitcoin payment processors (ex. Bitpay, Coinbase), it was a bad idea to invest in the strategy that the transaction business would enrich all. The margins are indefensible in a market rife with better capitalized competitors with larger existing customer bases. Reference my post from a year ago, “Payment Processors, Patents and a Dollop of Healthy Paranoia”:
… the big media interest in Bitcoin combined with the increasing VC interest in Bitcoin companies (reference BitPay Gets $30 Million in Venture Capital Funding) is a very good thing for the industry, but also illustrates shortsigtedness in both the investment community and many practitioners.
The problem with the processors...
When bitcoin is as easy as PayPal to use then it will be on the path to mass adoption, but to assume that’s the most lucrative path to take in bitcoin company private equity investment begs the wrong question.
...That 25x markup on the high end is significant (even for the Bitcoin companies), and ripe for disintermediation itself (that's right, the disintermediating agents are poised for disintermediaion). Particularly once the UX of Bitcoin evolves, as email and web browsing did, and users realize how easy and cheap it is to jump onto the blockchain and do this stuff themselves.
Even assuming users don’t follow the historical model of those that left proprietary walled gardens (think AOL) and jumped directly into the open World Wide Web themselves, there are no material barriers to entry to enter into the processing business other than potentially a money transmitter license. The only material barrier, hence the business opportunity, is that Bitcoin is cumbersome to use. As the UI/UX polish increases and the amount of competitors in the space increase, the lower the prices charged - hence the margins - will be.
With such low barriers to entry and potentially humongous markups to exploit, what do you think happens next? The wild, untamed hordes of competitors swoop down upon the masses, and we have a concerted race to zero, and likely negative margin as competitors attempt to make processing a loss leader to draw users into the folds of richer, higher margin services!!!
The race to marginal zero, then negative, does not make a strong business plan. So, what do these companies such as BitPay, Coinbase, etc. do once that point is reached (rather quickly)? They look to value added (high margin) services on top of their low margin, utility-like payment infrastructures.
Enter smart contracts and the true use of programmability in the crypto-currencies. The easiest and the likely first implementation of such will be multi-sig operations which allow multiple parties to share funds without having to worry about trusting and single party in a transaction. Our ZeroTrust Letters of Credit (patent pending) is just such a product. It allows for multiple parties to tranfer payment for simple and complex transactions contingent upon the mutual agreed upon successful execution of said transactions. This is done without the parties having to:
and can be done using micropayments all the way up to multi-million dollar macro payments. The barriers to this business are much higher. For one, it takes more than just programming code. You have to be able to congeal the legal logic of the conventional law in equity contract into code. You have to be able to congeal the business logic into code, and you have to be able to implement it into the blockchain or whatever other underlying transmission mechanism you choose to utilize.
Once the race to negative zero is in full swing, a few of the wiser companies will wake-up and say "Hey, there has to be a better way, and we think we found it!". It is at that point Reggie Middleton's UltraCoin products and assets will shine. It is not hard to foresee that the entrenched companies (Visa, Mastercard, PayPal, Western Union) may enter a bidding war with the new comers armed with material VC warchests (much more than we're seeing with $30 million investments of today - all over the guys who had the foresight to see the next evolutionary step in plain vanilla payments - smart transactions and self-executing digital contracts and transactions.
That was a year ago. Was I right? Well, pricing models changed to drop prices and the business slowed down:
Which led to exactly what I predicted, business model drift:
And at the same time margins shrunk.
What is Multisig?
A multi-signature address is an address that is associated with more than one private key (in cryptograsphy, security is handled by pairs of unique alphanumeric keys - one private to open a lock, the other public to send to the locked funds/data to others through open passageways [ex. Internet, email]. Once the other side gets the locked package, they will need a private key to open it. The two unique keys must fit with and recognize each other in order to open the lock). The simplest type of multisig is an m-of-n address - it is associated with n private keys, and sending bitcoins from this address requires signatures from at least m keys. A multi-signature transaction is one that sends funds from a multi-signature address.
The primary use case is to greatly increase the difficulty of stealing the coins. With a 2-of-2 address, you can keep the two keys on separate machines, and then theft will require compromising both, which is very difficult - especially if the machines are as different as possible (e.g., one pc and one dedicated device, or two hosted machines with a different host and OS).
It can also be used for redundancy to protect against loss - with a 2-of-3 address, not only does theft require obtaining 2 different keys, but you can still use the coins if you forget any single key. This allows for more flexible options than just backups.
It can also be used for more advanced scenarios such as an address shared by multiple people, where a majority vote is required to use the funds.
Cross-reference the companies below with the green spreadsheet graphic above, and you’ll see that VCs simply love MULTISIG
technology.
Veritaseum is also a universal wallet. VCs adore universal wallets. Cross reference the names in this graphic with the names in the funding sheet above.
Veritaseum was not only one of the early universal wallets, but to finance and investment guys, it’s likely the most powerful universal wallet ever made. You see, not only can it send, receive, and store bitcoins. It allows you to act as your own broker by buying exposure to nearly any publicly traded financial asset (over 45k tickers), in any asset class, through any major exchange around the world, and do this with up to 10,000x leverage. This is all done without counterparty, credit, or default risk.
Here’s some obligatory screenshots:
With nothing more than a 15 second download of our trading client (no signups, registrations, no accounts) you can:
Eliminate your broker, exchange and clearing house - all while actually increasing the safety of your trading.
Veritaseum's offerings and technology are right on time:
Let me show you something more:
So, with Veritaseum you have a universal financial services and self-contained P2P exchange wallet—quintessentially what’s in demand by the “smart money” right now.
When I say we do financial services, I mean we do heavy lifting financial services—going after the big money.
This is quite timely from a VC investment perspective:
Keep in mind that Veritaseum doesn’t just trade bitcoins. It trades everything that’s available on public exchanges (including stocks, bonds, forex, and commodities) and more!
Veritaseum has a very, very diverse management team with expertise in IP law, software engineering and architecture, investment stategy, forensic/fundamental/global macro strategy and analysis—and we're just getting started. The CEO has a strong media presence as well:
"You're going to put JP Morgan out of business! The banks are going to hate you!" |
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"At least one of the top global money center banks have approached us, and I expect to hear from at least 3 of the top 6!" “MP3 technology combined with innovative business models have cut the music industry profits in half, and they're not coming back! I query all banking execs, 'Do you want to get MP3'd?'" |
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"You are building a virtual Goldman Sachs on top of Bitcoin!" |
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“Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that ‘…what I’m doing right now is a direct threat to fiat merchant banking.’” |
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“It’s the perfect storm of disruption, as it renders trading fees, brokerage fees, and those infamous Wall Street bonuses obsolete. The sheer scale of disruption this technology brings with it makes it something to watch.” |
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“Veritaseum is ripe for a strategic investor to approach us before the end of the calendar year, likely payment processors, global banks, and innovative technology companies such as Google, Facebook, Microsoft or Apple.” |
These are the reasons to learn more about Veritas and Veritaseum.
In closing, I urge all to read Using Veritaseum's Free Crypto 2.0 Valuation Tool To Value Tokens, Crypto Assets & Smart Properties. Feel free to download the model, tweak the assumptions to your liking or value any other Crytpo 2.0 venture you desire. The results are sure to be illuminating.
Following up on yesterday's research, "The Evolution That Is Veritaseum: Benchmarking It To Venture Funded Competition", I wiush to lead into the first publsihed use case of Veritas - our commoditized, tradeable intellectual capital. This particular use case is a real life story - mine. It is a solution that I used Veritas to come up with after pondering the state of the venture capital industry. Please read on...
Everybody is piling into the venture capital space, including angels, websites (ex. Angelist), and corporate venture funds. Corporate funds have taken more than 12% of the total VC takedown. California had more than 50% of all corporate VC deals last year, followed by New York (Veritaseum’s home turf) and Massachusetts. Google Ventures did more investments than any other corporate VC last year. As you may know, Vertitaseum’s founder recommended the Long GOOG/short APPL pair trade in 2012 and introduce Google Glass to Wall Street on CNBC.
Here are the top 20 corporate venture funds in terms of activity:
It does seem that raising money with the big brand name professional VCs leads to much larger rounds, and it seems those rounds are often more profitable than with smaller VC funds that don’t seem to have the same connections to capital and deal flow. The chart and list below was sourced from the CB Insights article: If You Raise From These Smart VCs, You’ll Raise More Money:
The smart money investors analyzed include:
Notice that many of the companies listed here are funders for the Bitcoin company rounds listed in "The Evolution That Is Veritaseum: Benchmarking It To Venture Funded Competition". Be aware, looking at the amounts raised and who raised them is only a small part of the real story.
We’ve solicited each and every one of the funds above, and many of them two and three times. The advantage of being better positioned as a larger VC may be a red herring, a misnomer, after all we have circumstantial (albeit first hand) evidence that deal flow may not be vetted empirically, but subectively, and (more importantly) very expensively for the investor and entrepreneur. The legacy vetting process may be more akin to the “membership to the club” methodology vs. picking the best opportunity available. If this is true, there’s potentially a very profitable arbitrage opportunity. (We’ll come back to this point in a minute after reviewing the Veritaseum business model of disruptive disintermediation.)
Our analysis exposed some market inefficiencies, such as clients of hedge funds having nearly as much expertise and bandwidth as some of the funds they were investing in, yet paying said funds 2 and 20 (or more, such as 2.5 and 30) to deploy their capital anyway. This is a point that I must expound upon. The reason that most VC funds do not have a hurdle rate (a minimum amount they must generate in profits before they can participate in said profits via their "carry") is not to disincentivize risk taking. After all VCs (particularly seed and early stage VCs) are in the business of funding high risk ventures, and if their compensation structure discourages this due to the possibilty of losing a big paycheck already earned, then said compensation structure work's against the interests of the LPs who chartered their money for high risk/high reward investments. This situation is called distorted compensatory motivations.
But... (yes, there's always a but), this methodology of avoiding distorted compensatory motivations can actually distort compensatory motivations. The management fees, normally 2- 2.5% of the assets committed to be invested, are designed for a fund to be able to meet its ongoing expenses as a business as it goes about its business of finding, vetting, and (allegedly) nurturing companies that have promise. This works out practically for smaller to medium sized funds. The problem is, with worldwide NIRP and ZIRP, fund sizes are growing ridiculously large. A $100 million fund (it appears to be thought that sub-$100M funds are uneconomical) would receive $2-2.5M per year. That's enough $7k per month rent, an analysts and 2 partners (one senior, one junior) taking a low range comp package (to be made up with a larger carry bonus) a secretary and SG&A and marketing/contingency expenses. The point is to make the partners work for the carry, not the salaries - and at this level it works fine, even with a cushion or safety net.
With larger funds, the meritorious compensation rubric becomes dramatically distorted...
Venture Capital Compensation
(Much like private equity compensation, venture capital pay also includes a carry bonus, which may result in a large payout.)
These venture capital salary figures are an approximation and rough range based on the user registration data on Wall Street Oasis as well as the thousands of discussions on venture capital compensation that the community has had around compensation at these levels (source: http://www.wallstreetoasis.com/)
As funds break the billion dollar mark, these distortions become considerably more intense. As you can see from he $1.5B fund raise modeled below, the partners are pulling in$35 million per year, by hook or by crook. That is a lot of money to make annually before the first cent of profit is ever (if ever) generated!
Ten partners can pull down $3 million salaries plus pay associates and analysts, while horribly and spectacularly failing - see below under our "adverse scenario" where GPs can produce a near 1,400% return while the LPs take a near total loss - and that's including the GPs 1% equity contribution to the fund. In such a scenario, the carry can be the investor's call option from hell - or the GPs call option from heaven - really depending from which side of the fence you are standing!
Why, you Ask?
While not being an expert in the field of venture finance, I'm damn good at finance in general, and looking at how capriciously our offerings have been glanced over without any inquiry, there is circumstantial evidence that VCs aren’t paid to generate above market returns. That 2.5% fee that you see modeled up above puts a considerably higher risk-adjusted reward on being an asset gatherer rather than an asset investor. As an investor myself, I modeled my startup after what I thought would be the prime investment opportunity. Alas, it is high risk and there's much lower risk (if the fund manager has enough traction) to raise $1.5B at 2.5% yield than to invest in 20 - 30 companies with one hitting 10,000% return, 2 hitting 100% an the rest trailing towards zero or complete loss. Even when the funds do well, carry is not disbursed until successful exit, likely several years after the raise closes. You know what they say, a bird in the hand is worth two in the bush. Plus, one should recongize that they would likely not be able to deploy the full $1.5B unless they engaged in very large rounds, hence putting even more pressure on the entrepenuer for ROI.
In addition, Entrepeneurs are being pushed to deliver returns on 100% of capital despite only recieving 85% of it. Yes, that 2.5% is not only expensive for the investors, but for the entrepeneur as well. The funds ROI is not calculated net of mangement fees, hence the entrepenuers efforts are guage gross of management compensation, not net. It would have been more favorable to the entrepeneurs to source the capital themselves, they would feel and immediate 15% bump in return for their investors.
These perverse incentives quickly and dramatically misalign the incentives of the GP in relation to both the investors and the entrepenuers. I feel I've explained the misalignemnt between GPs adn LPs above, but how about entrepeneurs?
This Quora question inquired about whether a $100k salary for a startup was inappropriate. All VCs answered basically yes, with the reason being it looks like you are acting like and employee rather than an owner. Here are some key quotes:
David S. Rose, Managing Partner, Rose Tech Ventures; CEO, Gust: ... in my experience, that fact pattern (a pair of founders, $500K seed round) would typically see them each taking $50-$75K, at least until they either start generating revenue, or raise a larger round. At that point, $100K (which is pretty close to market) might be a little more palatable.
Which would be similar to the management fee capped at 1% and scaling upward after successful subsquent rounds at higher prices for GPs and the fund. If the investors would manage VCs the way VCs purportedly manage entrepeneurs, this is what we'd see.
Sean Owen, UK early stage tech VC: It is normal to draw a minimal salary, not market-rate salary. At this early stage, everyone needs to be investing in the business. Investors put in money; founders put in work. Someone drawing a market-rate salary is being fully compensated in cash and can't be said to be investing; this only makes sense if said person is not getting equity in the business.
This is exactly the point that I made above, re: management fees, particularly with thebigger funds. It's good to see that we agree on this, no? :-)
Nicholas Chavez, Received VC funding: In life you don't get what you deserve. You get what you negotiate.
Anonymous: it sounds like he's negotiating for a job, not making an investment.
Bingo!
VCs expect entretpenuers to have put skin in the game, yet the industry practice is for GPs to put only 1% in as a fund contribution, and many of them don't invest that 1% from personal assets - they pledge it from expected management fees!
If investors structured funds with the same structural expectations VCs have from startups, investors would see both lower fees and much less overcompensation for underperformance while allowing the funds to bathe in appropriate compensaion for overpeformance.
Outside of Angelist and similar online ventures, not much has changed in the VC space over the last 20 years except for fund sizes getting larger due to the ZIRP. As ZIRP either tapers or backfires (either way, we'll likely find out within two years), the hedy VC rerturns will revert to mean, but not before overshooting the target to the downside.
U.S. Venture Capital Index Returns
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,522 U.S. venture capital funds, including fully liquidated partnerships, formed between 1981 and 2014 and the U.S. Growth Equity Index is based on data compiled from 164 U.S. growth equity funds, including fully liquidated funds formed between 1986 and 2014.
1 Pooled end-to-end return, net of fees, expenses, and carried interest.
*Capital change only.
Static technological advancement is usually the precursor to disintermediation. Ask the media industry, they know all about it. Between the lack of innovation and the cyclical change about to run its course, this is a ripe opportunity for a different way to access this asset class to come about. I propose investors be able to various aspects of VC exposure - both long and short - on a liquid basis, and without the massive fees associated with it. How's that for rapid innovation in a short period of time. Read on to find out more...
We are directly soliciting the clients of those we initially sought to finance us. I’m personally soliciting the institutions and investors who fund the VCs to teach them about the new commoditized intellectual capital product we’ve launched (Veritas) and how it can assist in their investment efforts, namely:
Angels or former clients from BoomBustBlog literally cold called me to invest. These are smaller amounts in the 6 digit range, but every amount helps when you’re bootstrapping. Thus far, these are the only outside equity investors. There were some ex-clients who were willing to put in much more, up to $20 million. I’m going down the list of all 10k or so subscribers to spread the gospel.
Family offices who are now competing directly with the VC funds they are investing in.
Large sovereign wealth funds. The result so far? BINGO. They absolutely love the concept, the team, the execution to date, particularly the middle eastern funds.
As we’ve reached out directly to the potential (and actual, since we are the first to actually have a product up and running) users and started financing ourselves Kickstarter-style by pre-selling our software and services (through Veritas). This is very similar to what Microsoft does with its unearned revenue annuity model or Macy’s does with its gift cards. The difference is that purchasers of Veritas (our gift card for products and services) can:
redeem them immediately (because we have both products and services available now as well as a portfolio of upcoming offereings),
horde them,
turn around and resell their gift cards (we call them tokens) OTC or on an open exchange if they wish.
One cool part? They’re divisible. (Try regifting half of your Target gift card and see how far that gets you.) The selling and trading of these tokens allow for the tokens to be valued by others through word of mouth, thus validating the value of our products, services, and brand via the public opinions and actions of others.
Please be aware that these are not financial investments. They are not stocks or securities. They are direct economic stakes in access to our actual products and services (direct purchases of said products and services as opposed to purchases into our company or operation). These products and services are essentially and literally built directly upon the backbone of the Bitcoin network. Our software/services token is called Veritas, which we refer to as the “Capability Commodity” because it encapsulates tradeable intellectual capital (ours). That is the Veritas difference! From day one, it is backed by actual, definable, quantifiable value that has already proven itself in the market as sure as you can find only one wallet that will allow you to short JPM and go long the EUR/USD pair at the same time at 100x leverage without fear of margin calls, negative equity, or counterparty failure. And you can redeem your Veritas (capability commodities) for our services.
Click here to view as full page presentation.
Here you have three distinct differences between Veritas and many other token sales:
One obvious answer is that you get instant expertise. If you have any questions related to our Veritaseum platform and its use, there is no better source for the answer and its implementation than the people who made it. Few realize how powerful and answer this can be. For instance, you can use Veritaseum to create synthetic, liquid “LP-like units” that track and mimic the value of that sold by specific VC funds for 2 and 20. The difference? You pay 50bp instead of up to 2,200 bp - and you can go long or short! Yes! You can actually use our product to disintermediate the funds, and we’d be happy to show you how, and build out the entire implementation for you. Veritaseum, the value transfer platform, is vehicle that you’d use to do this and Veritas is the Intellectual Fuel that you’d purchase for us to put that vehicle together for you.
You can purchase Veritas in bulk and use it all at once, or purchase it piecemeal, or buy a large amount and sell it off to other parties if you feel you don’t have any further immediate use for it.
Remember, tech VC funds are highly correlated to the NASDAQ, with such a high correlation many institutional investors have concentration and diversification risk that they are not aware of. It would actually be imprudent not to consider an exploratory purchase of Veritas of you have such a high concentration. If you are a high net worth individual, family office, sovereign wealth fund, or pension fund that deploys more than $500,000 into this asset class, you should buy some Veritas then talk to us.
You can buy, sell, and trade your Veritas immediately.
Veritas are essentially pre-sold products and services. There’s a high correlation between revenues, economic profits, and equity values. Basically, if we do well through product and service sales, you do well. If you do well using our purchased products and services, we do well. There’s a wealth of research to substantiate this synergy:
Each purchase of Veritas increases our sales, which increases our brand equity and value, which enables us to deliver even more fantastic products and services, which increases the impetus to purchase Veritas for our products and services, which increases both the value and the market price of our products and services, and thus increases the value and market price of Veritas, which is the key to our products and services.
Get it? Yes, there's sometimes a method to the madness of circular logic! Buying our products and services through Veritas allows you to compete head-to-head with the leading venture capital funds, and Veritas owners already have a significant head start! Veritaseum was likely the first entity to apply for patent protection for many of the key technology applications and uses illustrated above.
Veritaseum has a very, very diverse management team with expertise in IP law, software engineering and architecture, investment stategy, forensic/fundamental/global macro strategy and analysis—and we're just getting started. The CEO has a strong media presence as well:
"You're going to put JP Morgan out of business! The banks are going to hate you!" |
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"At least one of the top global money center banks have approached us, and I expect to hear from at least 3 of the top 6!" “MP3 technology combined with innovative business models have cut the music industry profits in half, and they're not coming back! I query all banking execs, 'Do you want to get MP3'd?'" |
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"You are building a virtual Goldman Sachs on top of Bitcoin!" |
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“Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that ‘…what I’m doing right now is a direct threat to fiat merchant banking.’” |
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“It’s the perfect storm of disruption, as it renders trading fees, brokerage fees, and those infamous Wall Street bonuses obsolete. The sheer scale of disruption this technology brings with it makes it something to watch.” |
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“Veritaseum is ripe for a strategic investor to approach us before the end of the calendar year, likely payment processors, global banks, and innovative technology companies such as Google, Facebook, Microsoft or Apple.” |
The majority of successful entrepreneurs and professionals will likely be solicited by (or seek the opportunity to participate in) a VC and/or private equity fund. Technology has changed the way things can be done and disintermediation is not constrained to the media industry and P2P file sharing anymore:
The number one, universal, irrefutable characteristic of private equity, regardless of the source of that private equity exposure (fund, online aggregator, bank, or adviser) is a lack of liquidity. At the very least you’re stuck with your capital outlay for 3 years, but more likely 5 to 10 years. Since these are capital appreciation plays, that is dead money until an exit occurs, if it occurs. The reason to invest in private equity is to garner higher than mean returns on a risk adjusted basis. As you can see from the chart below, the larger the fund the greater the return (on average) but all funds of all sizes drop precipitously in performance as the horizon stretches. Then there’s that 2 and 20! Trust me, it can really add up.
Source: Pitchbook
In addition, the field is getting crowded as high returns bring a higher level of competition—meaning more people at the table looking to eat—diluting returns as prices get bid up and payouts are split more even thinner. Alison J. Mass, the co-head of the Financial Sponsors Group, Investment Banking Division of Goldman Sachs, recently said there were now 500 funds worldwide with assets of more than $1 billion.
So, diminishing returns due to being awashed in capital, bypassing potentially lucrative investments due to “club mentality”, and—oh yeah—those fees....
These are the reasons to learn more about Veritas and Veritaseum to gain exposure to this asset class (venture capital, as well as broader private equity and hedge funds) without giving up liquidity.
In closing, I urge all to read Using Veritaseum's Free Crypto 2.0 Valuation Tool To Value Tokens, Crypto Assets & Smart Properties. Feel free to download the model, tweak the assumptions to your liking or value any other Crytpo 2.0 venture you desire. The results are sure to be illuminating.
Team Veritaseum is uniquely trained, and highly motivated. Specialists with few equals, immune to the concept of “can’t”!
—Reggie Middleton, CEO and Founder of Veritaseum
Summary: With custom, high-end consultation obtained through a relatively small (~$2,250,000) acquisition of Veritas (our commoditized, tradeable intellectual capital), Veritaseum Digital Swaps can allow Goldman Sachs, JP Morgan Chase, and Morgan Stanley to maintain thier share buyback/dividend aspirations and still pass the Federal Reserves stress test requirements.
We have finally issued our own tradeable digital asset. It is much, much different from anything currently available on the market, and arguably materially more valuable. For those not familiar with our new offering, please see Veritas Pre-sale: Intellectual Capital Abstracted Into a Blockchain Tradeable Asset With True Intrinsic Value
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I'm sure there are a lot of you wondering exactly what tradeable, Intellectual Capital is. Well, Wall Street has made an entire industry of hoarding and controlling the commodity known as financial capital - basically, the life blood of business. Yet, financial capital is useless without being properly wielded. Consulting firms such as Accenture (Revenues of $30.0 billion, clients in more than 200 cities, 56 countries including 91 of the Fortune Global 100 and more than 3/4th of the Fortune Global 500) and McKinsey & Co. (80% of the world's largest corporations are clients) make a lot of money selling "bespoke" consulting services which can be seen as intellectual capital for hire, but it is expensive (hence the high incomes of the consultants) and extremely unwieldy and inefficient for all but the largest of engagements.
What we have done was to take "capability", essentially intellectual capital in action, and packaged it as a digital commodity that can be traded on an exchange, bought and sold, and redeemed for services rendered. In essence, we've digitized and commoditized the management "intelligence" that these companies sell for well over $40 billion per year and have it on offer for sale, trade and exchange. This article represents a user case of the venerable Goldman Sachs and JP Morgan and their hypothetical use of Veritas.
From Fool.com's Why Goldman Sachs (and 2 Other Wall Street Banks) Nearly Failed This Year's Stress Test
In its most severe scenario this year, the Fed assumed that unemployment would spike to 10%, stocks would fall by 60%, interest rates would stay low, and housing values would decline by 25%. On top of this, the Fed applied a special test to the six financial firms with the largest trading operations -- namely, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.
The primary consequence of the general scenario was large loan losses. According to the Fed's projections, Wells Fargo would have to write off an estimated $56.4 billion in loan losses (or, more specifically, loan loss provisions), JPMorgan Chase's tab came to $55.5 billion, Citigroup's to $50.3 billion, and so on.
The fallout of the trading-specific scenario was large trading and counterparty losses. And it was here where JPMorgan Chase, Goldman Sachs, and Morgan Stanley appear to have run into problems, as the Fed estimated that the three firms would lose an additional $56 billion combined.
The added losses from trading, coupled with the firms' original dividend and share buyback requests, caused certain capital ratios at the three banks to fall below the regulatory minimum at the nadir of the Fed's severely adverse economic scenario. As the central bank explained:
In the supervisory severely adverse scenario, three [bank holding companies] -- Goldman Sachs, JPMorgan Chase, and Morgan Stanley -- were projected to have at least one minimum post-stress capital ratio lower than regulatory minimum levels based on their original planned capital actions. Goldman Sachs fell below the minimum required post-stress tier 1 risk-based and total risk-based capital ratios; JPMorgan Chase fell below the minimum required post-stress tier 1 leverage ratio; and Morgan Stanley fell below the minimum required post-stress tier 1 risk-based and total risk-based capital ratios.
The net result was that, in the week between the first round of this year's stress test (the results of which were announced March 5) and Wednesday, these three banks had to reduce the size of their proposed dividend increases and/or share buyback programs.
We propose "provable" solutions to Goldman and JP Morgan that can enable them to maintain there proposed share buyback and dividend programs, accomplished through the purchase of Veritas.
If you remember, we've seen this risk adjusted capital horror movie before. In 2009, the same financial analysis team represented in slide 12 of our "What is Veritas?" presentation ran their own stress tests of the US money center banks. I have included the full 47 page Goldman Sachs report as an example of the quality of the work ( Goldman Sachs 2009 Stress Test). The bottom of page 7 of said report reads as follows (for those not familiar with industry parlance, FICC stands for fixed income and currencies - basically interest rates and forex, which are tightly correlated):
Although year-on-year trading and principal revenues are expected to grow 54% in 2009 due to record contribution in 1Q09 with revenues of $5.7 bn versus $4.4 bn loss in 4Q08, trading and principal revenues are expected to decline sharply the coming quarters. Trading and principal revenues are expected to decline of 57% and 12.5% in 2Q09 and 3Q08, respectively over 1Q09. In 1Q09 GS trading and principal revenues showed a considerable strength due to higher contribution from FICC. FICC revenues increased to $6.6 bn due to higher bid-ask spreads and increased volatility although total volumes continued to decline. As spreads revert back to mean and volatility subsides revenues from FICC are expected to fall sharply particularly if volumes continue to decline. In addition, the government’s indemnification of AIG’s CDS obligations funneled at least $12 to Goldman Sachs despite the fact that we have not been able to track down where it landed in the FICC landscape. It may be very likely that this payment contributed to the FICC revenue boost.
This is want Goldman's FICC revenues looked like going forward...
From the FT.com article this graphic is referenced from:
The latest profits from Goldman Sachs beat Wall Street's forecasts even though they fell from a year earlier.
While fourth-quarter results were buoyed by a strong performance from equity underwriting, including Twitter's November flotation, revenues from its fixed-income, currency and commodities (FICC) business dropped 15 per cent in the quarter to $1.72bn.
It capped a year in which its annual revenues from FICC were the weakest in eight years.
The Federal Reserve is justifiably concerned, for the currency wars that I have been harping on will make things even worse for Goldman and the money center banks - reference:
What does all of this mean? Well, I laid out the road map clearly in "Currency Brokers Fighting Insolvency Are Learning the Value of Our Blockchain Technologies - the Hard Way".
This volatility is poised to hit the banks hard. The following is an excerpt from one of my past articles on the topic of FICC risk in banks.
As of Q2, 2009, Goldman Sachs with interest rate contracts to total assets at 318.x and Forex contracts to total assets at 11.2x has the largest relative exposure. Those of you with substantive Veritas holdings can request an update to the afore-linked analysis. It can be argued that Goldman is trading at an extreme premium from a risk adjusted book value perspective.
As you can see, Goldman Sachs had significantly more exposure that its competitors as a multiple of tangible assets. Not only does the acquisition and ownership of Veritas pose significant value for investors, regulators and counterparties of these banks - it poses significant value for the banks themselves. Revisiting "Currency Brokers Fighting Insolvency Are Learning the Value of Our Blockchain Technologies - the Hard Way", as excerpted:
The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.
That follows New Zealand's Excel Markets, which made the same statement earlier, according to the Financial Times.
Brokers can go out of business on big moves like this because they give their clients access to leverage. For example, an account holder might have $1,000 with the broker, but hold positions worth $10,000 in currency markets. That doesn't matter so long as the holder's losses are covered by the initial amount. But on Wednesday, for at least two brokers, that wasn't the case for a lot of those clients.
Our solution for these brokerages is to give the leveraged return of $10k but to have contract unwind when his principal and collateral are exhausted. There are NEVER negative equity situations.
New York-based FXCM, one of the world's biggest foreign exchange brokers, says that it may be in breach of rules on capital requirements and that it is owed $225 million by clients who are now in negative equity. FXCM shares are down by an astonishing 90% ahead of the US open.
IG Group, a publicly listed UK-based broker said yesterday that its losses would not exceed £30 million ($45.7 million)...
http://static3.businessinsider.com/assets/images/back_gradient_20x40.png?1421356676) repeat-x;">Investing.com, Business Insider
As of 11:30 a.m. GMT (6:30 a.m. ET) the franc is currently looking more settled, down 3.9% at 1.016 against the euro.
Veritaseum's UltraCoin (no rebranded as simply "Veritaseum") was designed specifically to avoid solvency issues by:
The following is an example posted in a BTC trading chat room of an exotic forex pair, heavily levered, that I recommended to a Romanian trader. Please forgive the informal description in the middle of the graphic, and realize the power of using Veritaseum Digital Contracts to limit risk in the banking system. This set uses an exaggerated 222x leverage (prove a point) yet is significantly safer than anything the banks are currently offering.
Notice how maximum profit and loss are bounded in the smart contract description (the black dialog box on the left side of the graphic above). Participants can ONLY lose or gain the capital amount put at risk. No more, no less.
I'm thoroughly convinced that this is the trading model for, and of, the future and the recent FICC carnage should go a long way in convincing banks, brokerages and regulators to agree with me. Insolvency can be one hell of a motivator.
Even those who aren't facing insolvency issues still have to deal with the structural decline in big bank profitability. I have answers for that as well, right fellas?
Goldman Sachs Posts Lowest Annual Trading Revenue Since 2005
Goldman Sachs Pay Ratio Slips to Second-Lowest Level Since IPO
3 of the 4 largest U.S. banks reported falling profits and revenue below analysts’ estimates
Using the $158 billion fair value from Goldman's 2009 numbers and assuming a mere 50 basis point (1/2 of 1%) risk adjusted capital reserve reduction would yield a $790,000,000 freedom (from a less than $2M investment in intellectual capital) to give back to shareholders. Any Goldman employee (think stock option plan) or shareholder (think, "it's your money!") should consider it imprudent that Goldman NOT load up on Veritas TODAY!
See our Quick Start Guide for details on how to conduct a purchase.
When: From March 14 to April 25, 2015, or until we sell all 21M Veritas, whichever comes first. If you purchase them within the first fifteen days of the sale, you will get a discount off of the retail price. Please see this presentation to learn more. Click here to view as full page presentation.
The tokens will be transferable - free to be bought and sold between customers and purchasers and potentially on crypto-exchanges. A 13% discount will be in effect for those who purchase the tokens within 24 hours of the sale's commencement. Those who miss the first twenty four hour period can still purchase the tokens at a sliding discounted price for up to 14 days.
*Approximate translation into USD as of 3/9/2015
Learn more about Veritaseum, the company here.
Download Veritaseum, the value trading platform here.
"You're going to put JP Morgan out of business! The banks are going to hate you!" |
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"At least one of the top global money center banks have approached us, and I expect to hear from at least 3 of the top 6!" “MP3 technology combined with innovative business models have cut the music industry profits in half, and they're not coming back! I query all banking execs, 'Do you want to get MP3'd?'" |
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"You are building a virtual Goldman Sachs on top of Bitcoin!" |
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“Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that ‘…what I’m doing right now is a direct threat to fiat merchant banking.’” |
|
“It’s the perfect storm of disruption, as it renders trading fees, brokerage fees, and those infamous Wall Street bonuses obsolete. The sheer scale of disruption this technology brings with it makes it something to watch.” |
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“Veritaseum is ripe for a strategic investor to approach us before the end of the calendar year, likely payment processors, global banks, and innovative technology companies such as Google, Facebook, Microsoft or Apple.” |
If you Google (“Who is Reggie Middleton?”) you’ll see I made my name accurately calling contrarian booms and busts, specifically fundamental and forensic outliers such as the housing crash, Bear Stearns and Lehman collapse, European sovereign debt crisis, Apple share price halving, Blackberry collapsing, Google popping through Android, etc. In short, I’ve developed a knack for seeing things very differently from most other renowned “industry professionals”, and being right more often then I’m not.
All of the calls mentioned above (among about 80 others) were highly contrarian. This means that just before Bear Stearns collapsed, it was trading over $100 per share and had buy recommendations and investment grade ratings from all of the big Wall Street banks and ratings agencies. Ditto for all of the other calls. I say the things people don’t want to hear, make the trades that no one wants to make, and take (financial) positions that the “smart guys in the room” consider absurd and amateurish—until the following year.
After being “absurd and amateurish” through two global crashes, the near collapse of the banking system, a real estate black hole, and the birth of an entirely new way of computing and communicating, I’ve developed a small, but loyal following as a trends “seer” in the media.
In October of 2013 I finally succumbed to the requests of my clients to look into Bitcoin. Rather than read other people’s takes, I went straight to the heart of the matter—the 8-page Nakamoto Satoshi bitcoin white paper and the Bitcoin wiki.
Within minutes, my jaw dropped out of excitement and awe, particularly when I read about smart contracts. My first thought was, “Wow, I really missed the boat on this one.” While I stood by during bitcoin’s dramatic price increase, I feared I had missed a much more significant opportunity in building the next wave of social computing architecture.
Old habits die hard. I started performing my due diligence to find out who was first to market, and whether there were worthwhile investment opportunities. Shockingly, I couldn’t find a single person or company that had a viable commercial application for creating and delivering smart contracts. We have a paradigm shift that nobody was taking advantage of, while the media focused almost exclusively on red herrings like coins, Gox, and Silk Road.
I hadn’t missed the boat. It hadn’t even arrived in port yet.
Now, to save time for those who haven’t read through the links above, I will summarize it in the next section which also encapsulates the problem with Bitcoin, its supporters, and detractors today.
Bitcoin is likely among the most popular topics ever that practically no one knows anything about. All it takes is about 10 to 15 minutes of reading—and an additional 2 to 3 minutes of further contemplation—to start to understand its true value potential.
Ask almost anybody what Bitcoin is and you will nearly always get something inaccurate or incomplete. Responses range from Bitoin is a ponzi scheme to worthless digital currency because it’s not backed by a sovereign nation, to Bitcoin is a failed experiment because it doesn’t have a central bank. None of this is true, but where does this come from?
To find out, let’s Google the term, “What is Bitcoin?”
Let’s start by discussing what Bitcoin is not. Bitcoin is not a digital currency. Bitcoin (with a capital “B”) is a protocol driven network and platform for programmatic value transfer and consensus-based decision making (as opposed to bitcoin with a lowercase “b”, which comprise the individual accounts of value known as the digital currency or coins). A useful synonomous descriptor would be IP (the base-level Internet Protocol), a protocal driven network and platform for programmatic data transfer. On top of the Internet Protocol are other protocol-based systems and full blown applications that rely upon them. A brief list of these can include:
The Internet is not a digital file or a digital file system. That trivializes its potential. It is a foundation for an extremely rich and diverse set of funtionality layered on top of it. That functionality constitutes a data ecosystem. Bitcoin is no less than a foundation on which can be built an extremely rich and diverse value and decision making ecosystem.
This cannot be stressed enough. Bitcoin is not merely a currency. Like packet routing in IP, the currency of bitcoins is merely one integral, but very basic application of the Bitcoin protocol. But it is capable of much, much more. For those of you who think Bitcoin is about Silk Road, Mt. Gox and Western Union payments, I’m about to blow your mind.
This is my company’s, Veritaseum, launch product—UtlraCoin. It is the world's most powerful Bitcoin wallet - yes, pure BItcoin. It is a smart contracts-based, P2P, counterparty risk free, financial asset creator, trader, and exchange—complete with leverage available of over 1000:1, with no risk of negative equity or margin calls. This product was put together by my team at Veritaseum, consisting of IP/patent attorneys, software engineers, developers, financial engineers, and financial analysts. Our team is a bit more diverse than the typical Bitcoin start-up addressing a $220+ trillion market. That's not a typo. It's trillion. With a “T”. Add up the forex, derivatives, equity, commodity, and fixed income markets daily and annual turnover, and you have captured phase 1 of our project (we have 12 other phases planned).
For the financial types among you, tell any friends you know who has read this article what the liklihood of getting a swap like this from your local broker or investment bank, whether it be Goldman, Morgan(s), or Merrill. It’s already out of their league, and we’re just getting started.
Veritaseum’s UltraCoin Wallet (pictured below) is a 100% Bitcoin-based, peer-to-peer (P2P), over the counter (OTC), financial asset trading desk, financial asset creator, and smart contract designing center. Users can trade exposure to over 45,000 tickers in all asset clases (stocks, bonds, forex, and commodities) from all major exchanges. It offers up to 10,000× leverage.
The UltraCoin Wallet allows users to swap highly customized financial exposures directly with each other with no middlemen. This smells ripe for disintermediating the Wall Street crowd, doesn’t it? No centalized exchanges, no brokers, no investment banks, no prime brokers, no clearing houses. This is just scratching the surface of the power of the Bitcoin protocol.
In addition, there are no counterparty, credit, or default risks (meaning no Bear Stearns, Lehman Brothers, Man Financials). You are never exposed to any financial entity’s balance sheet (unless you want to be by way of creating your own swap for it). Veritaseum is a software company, not a financial concern. All of your capital is either directly in your possession, or in-contract, locked in the blockchain. Veritaseum never has control, possession, or custody at any time. Press the “Track Transaction” button in the UltraCoin Wallet application and you can instantantly confirm with a third party the state of your funds any time from any location that has Internet access.
Yes, everything just stated is factual! There are bound to be many of the “smartest guys in the room” who assert that these claims are not possible. They are likely to be the same crew that allege Bitcoin is a payments system, a digital currency, or a ponzi scheme as well.
Below is what the fee revenue looks like upon launching the prototype, beta 1, and beta 2. The fees are small (starting from a base of zero; this not a representation that we are making a lot of money, or even any real money at all yet), but I want to illustrate what the proverbial hockey stick looks like and how this can ramp up once it really gets going.
If you’re like me, curves like that get you...excited.
Like the layers and layers built on top of the Internet Protocol, these “smart contracts” can do some rather fantastic things. If you have a couple silver hairs, you probably remember the skepticism many pundits and investors had of the Internet back in 1993. You’ve probably also guessed at how much money you would have made if you invested in the right companies back then.
Here’s a truly tough question: How much would a start-up be worth now if it patented commerce and methodogies over the Internet. My guess would be a lot. There are not a lot of guys doing this stuff now, and we believe we are the first to launch a product such as this. As businessmen, the first thing we did was to create not just one, but a portfolio of patents (pending) covering all types of higher-end methodologies using consensus algorithms, blockchain-like technologies, and smart contracts. We did this a long time ago (in tech time, that is) and are confident that not only are our applications comprehensive and solid, but quite early relative to the rest of the bitcoin is a digital currency crowd.
There is no reason to take my word for anything. Our application is available for download now. Liquidity is low because we just launched in beta, but the screen shots that you see above are not demos. They are grabbed from my desktop running live trades with other traders right now. Get the UltraCoin Wallet for PC or Mac/Linux, the tutorial, and the UltraCoin trade designer spreadsheet for free, with no registration, account openings, muss or fuss. We don’t even ask for your e-mail address. Start trading within minutes of clicking download. No whitepapers, concepts, or theory speeches needed.
What can this Bitcoin stuff do? Well take a look at what we’ve come up with thus far:
This is just a sampling. I want you to digest this as I prep part two of this series. It will tell the story of how we could not get professional investors to give us capital to date. Why you may wonder? That’s a good question, but I have some theories. If you can’t wait for part 2 and want to invest, e-mail me.
Otherwise, stay tuned in a few hours for “Why Almost Nobody (and I mean ALMOST NOBODY) Gets Bitcoin, Part 2 – Why Are You Pushing a Ferrari Down the Street?”
Bio
Reggie Middleton has spent the last year bringing to market a peer to peer swap platform called Ultra-Coin based completely off of the bitcoin blockchain. The platform provides an opportunity for any two parties to speculate on any publicly traded financial asset, denominated in any currency, currency pair or even in another asset as well as setting their own rules for notional amounts and time to expiration. The collateral used in trades is held in the bitcoin blockchain, thus the platform can function independently without any middlemen standing in the way of financial transaction while eliminating counterparty, default and credit risk – all while offering up to 10,000x digital leverage. Prior to working on Ultra-Coin Reggie maintained a very popular fundamental, forensic and macro analysis research blog called BoomBustBlog. The early, and very popular Research arm serviced thousands of investors and traders – both retail and institutional and has included nearly all of the global money center banks and several central banks. As an entrepreneurial investor and Financial Analyst Reggie has won all of CNBC’s stock draft competitions winning in both 2013 and 2014. He is often seen interviewed on all the major financial shows like Keiser Report, Boom Bust, Bloomberg and CNBC, and is on record for perfectly calling turning points such as the fall of Bear Stearns, Lehman Brothers, GGP, Research in Motion (now Blackberry), the housing and CRE crisis in 2007, the pan-European sovereign debt crisis and a contrarian 50% fall in Apple’s stock price as it hit $700 in 2012 – among roughly 80 other notable calls over a 7 year period.
From the CATO institute:
Since the New Year, Ukraine’s currency – the hryvnia – has collapsed, losing 51 percent of its value against the U.S. dollar. To put this rout into perspective, consider that the Russian ruble has only lost 8 percent against the greenback during the same period.
Like night follows day, the hryvnia’s meltdown has resulted in a surge of inflation. The last official Ukrainian year-over-year inflation rate is 28.5 percent. This rate was reported for January and is out of date. That said, the official inflation rate has consistently and massively understated Ukraine’s brutal inflation. At present, Ukraine’s implied annual inflation rate is 272 percent. This is the world’s highest inflation rate, well above Venezuela’s 127 percent rate (see the accompanying chart).
... estimate[d] Ukraine’s current annual inflation rate to be 272 percent – and its monthly inflation rate to be 64.5 percent. This rate exceeds the 50 percent per month threshold required to qualify for hyperinflation. So, if Ukraine sustains its current monthly rate of inflation for several more months, it will enter the record books as the world’s 57th hyperinflation episode.
There are two ways to approach this through UltraCoin - one as an individual or corporation looking to hedge against the economically destructive forces of hyperinflaton, the second as a speculator looking to profit.
Thei individual looking to protect themeselves from hyperinflation can swap their Hyrvna holdings exposure for GLD - the gold tracking ETF. This would be an expensive hedge that costs less then 3 cents per every $10, and will drop down to less than half of that in volume. Of course, all that glitters is sometimes not always golden. Gold hasn't held its value as well as the inflated USD (relative to most world debased currencies) YTD, but still has done a hell of a lot better then the UAH.
For the speculatory who wishes to go balls to the wall, you can use UltraCoin to actual go long/short to distinct and separate currency pairs. The rather strong USDUAH pair would be your long exposure and you would short the UAHUSD pair. To put some spice in the mix (as if this wasn't enough) dial in 80x digital leverage. One can consider using another strengthening (or percieved to be strengthening, which is the dangerous part) curreny such as the Swiss franc on the pay (short) leg, although that would have weakened this return over the last few weeks as the CHF is weakening again. Alas, you are free to put whatever ticker in their you want and dial in whatever leverage you want. I suggest you design the trade in our UltraCoin trade modeler, first, (Excel required).
As you can see, the leverage is dailed up to 80x, but P&L is capped the principal amount put at risk. What this means is you will only get (or lose) up to what you put in as a maximum (these are not binary options and do have a continuous payout that exactly mimics that of the underlying asset(s)), but you will get (or lose) it very, very quickly! This is perfect for you action junkies!
Download the tutorial.
Download the UltraCoin client for PC or Max/Linux.
Download the our UltraCoin trade modeler, first, (Excel required).
“47% of all jobs will be automated by 2034, and no government is prepared.” -Economist
“In the next 10-20 years, 58% of financial advisors will be replaced by robots and AI.”-Frey and Osborne, Oxford University.
This article's goal is to demonstrate how true those statements are. Below you will find the face of today's investment bank as pictured by the article "Yes, Goldman Sachs is a great place to work"...
... and this is the face of invesment banking tomorrow:
//// Have the payee sign the resolution transaction and send it back over the wire |
LetterOfCredit.signInchoateTx(new_tx, lc_tx_script_pub_key, this._payee_key_priv); |
new_tx = new Transaction(LetterOfCreditTest.params, new_tx.bitcoinSerialize()); |
Set<ECKey>[] keys = LetterOfCredit.checkInchoateTx(orig_tx, new_tx, lc_tx_script_pub_key); |
Set<ECKey> signed = keys[0]; |
Set<ECKey> candidates = keys[1]; |
Assert.assertEquals(1, signed.size()); |
Assert.assertTrue(signed.contains(this._payee_key_pub)); |
Assert.assertEquals(2, candidates.size()); |
Assert.assertTrue(candidates.contains(this._xch_key_pub)); |
Assert.assertTrue(candidates.contains(payer_key)); |
Introducing DACe
Decentralized - dispersed functions, powers and assets away from a central location or authority
Autonomous - self-governing; independent; subject to its own laws only
Commercial - of or relating to a system of voluntary exchange of products and services to the market
entity - something that exists as distinct, independent, and/or self-contained
DACe (pronounced “dak-ee”) - A network-based logical business entity that replicates the functions of centralized legacy businesses and business operations profitably and at substantially lower costs through disintermediation. Disintermediation is: the reduction of rent seeking by connecting natural producers and natural consumers of products and services directly (in our case, peer-to-peer) while providing the ability for said actors to facilitate the required business functions through decentralized software designed exclusively for network-based, distributed use with appropriate failsafes for both temporary and catastrophic failures.
UltraCoin is an example of a DACe. It is essentially an investment bank/brokerage in the cloud without the bank and brokerage components. It consists entirely of computer code. It currently facilitates the trading of the exposures of over 45,000 tickers, long, short or in unique relative combinations, and can do so while offering up to 10,000x leverage without the risk of default, negative equity, non-payment or margin calls. It provides its own exchange and rents space along the Blockchain rails with which it often does business. Best yet, it is totally transparent by allowing all users to track their assets at any time, and it never, ever holds or has any control over customer assets. Your capital stays either in your wallet or the blockchain (of which I will define below) at all times. Users are never exposed to our balance sheet, or the counterparty risks inherent therein. Deals are done in basis points, negating the need for gouging to support billions of dollars annually in salaries and bonuses - and computer code has no incentive to Bernie Madoff, and abscond with your money.
A DACe has no balance sheet risk (Lehman), no fraud/corruption (Madoff), audit trail so no double counting (Man) http://t.co/2FfMb8FHCH
— ReggieMiddleton (@ReggieMiddleton) February 23, 2015
UltraCoin’s aim is to disintermediate the banking system by congealing the business processes of Wall Street banks into software and code that lives and thrives in the cloud, and the blockchain in particular.
This DACe in the cloud allows disparate consumers of banking products and services to purchase said services directly from each other through UltraCoin using unbreachable smart contracts as the medium.
Through the disintermediation of investment banks and brokerages, the nominal and economic profits of rent seekers are now redistributed to consumers as “inefficiency rebates” - or extreme discounts to products and services in the absence of the rent seeking middlemen who charge for what software can now do better, cheaper, safer and more efficiently. These inefficiency rebates reallocated to consumers can be, and are substantial. Wall Street banks compensation and benefits as a percentage of revenues range from 35-50%.
A few months ago, I approached several of the big banks to discuss partnership, and relayed the reaction of one of them in the post, "Reggie Middleton's Open Letter of Commoditization and Disintermediation to Wall Street: Pay Attention Jamie Dimon!". Further to that point, this downloadable research document forensically describes the specific weak points in the banking business model, to wit: Banking Risks, Rewards & Demise: The Rise of Programmable Currencies & Smart Contracts
Stress Test on [This Bank’s] Earnings Resulting from the Introduction of Smart Contract Platforms as an Alternate Value Transaction System
We have carried out a stress test on [This Bank]’s 2013 earnings to assess the potential impact of digital currency transaction platforms on the bank’s future earnings. The revenue of the banks is categorized into interest income (net of interest expense) and non-interest income that comprises income from investment banking operations, asset management business, trading income, insurance, and other commission or fee based businesses.
Impact Analysis
[This Bank] derives more than 60% of its total revenues from net interest income, and less than 40% from non-interest income. Net interest income depends upon the bank’s net interest margin and volume of loans and advances as well as deposits with the bank. A decrease in margins and volume could significantly impact net interest income, due to [This Bank]’s heavy reliance on interest earning assets for revenue.
In assessing the impact of an alternate digital currency transaction system on the bank’s annual revenues and profitability, our analysis assumes a certain percentage of business that is vulnerable and a certain percentage reduction in fees (see below).
Key points:
[This Bank] could see around 3% decline in its non-interest income. The bank’s net interest income could fall by 7-8% from a contraction in its net interest margin.
The bank could see lower charge on account of compensation benefits for employees (due to decrease in variable pay). However, this will not be enough to offset the decline in revenues.
Net income could drop by as much as 21%.
@pmarca @MikeIsaac Disintermediation releases rentseeker captured profit, Redistributes 2 full socioeconomic spectrum http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
Veritaseum’s UltraCoin is not a concept, nor a whitepaper or even a prototype. It is a functional, ongoing business in the form of a nascent start-up. Here is a snapshot of revenue ramp-up before the official launch. The provervial "hickey stick"!.
Update: ...and this is what it looked like the day after this post was made...
We are on the lookout for financial and strategic partners, liquidity providers and traders. If you qualify of any or all of those, I'd love to hear from you. You can Download the UtlraCoin client here.
The Wall Street Journal has a well done analysis of Greek debt coming due in about a week. It's a lot considering the size of the country's shrinking economy! Here's a snapshot:
I have explained the Greek situation in full detail for my blog subscribers back in 2010, 2011 and 2012.
For background and perspective, read Lies, Damn Lies and the EU Confiscation Of Greek Sovereignty Masked As The Bailout That Never Happened. Pay close attention to these parts...
So, as I was saying...
It just won't work because it doesn't solve the problem. Instead, it attempts to conceal the problem in fashion that pretends it never existed. Let's walk through this so a 5 year old can understand it.
Interestingly enough, Reinhart and Rogoff, of This Time Is Different: Eight Centuries of Financial Follyfame contend "that historically, significant waves of increased capital mobility are often followed by a string of domestic banking crises". If that is actually the case, then the very goal of the Euro project was bound to bring about a sting of banking crises and all of this was actually inevitable. As excerpted:
The forgotten history of domestic debt has important lessons for the present. As we have already noted, most investment banks, not to mention official bodies such as the International Monetary Fund and the World Bank, have argued that even though total public debt remains quite high today (early 2008) in many emerging markets, the risk of
default on external debt has dropped dramatically, especially as the share of external debt has fallen. This conclusion seems to be built on the faulty premise that countries will treat domestic debt as junior, bullying domestics into accepting lower repayments or simply 12 defaulting via inflation. The historical record, however, suggests that a high ratio of domestic to external debt in overall public debt is cold comfort to external debt holders.
Default probabilities probably depend much more on the overall level of debt. Reinhart and Rogoff (2008b) discuss the interesting example of India, who in 1958 rescheduled its
foreign debts when it stood at only1/4 percent of revenues. The sums were so minor that the event did not draw great attention in the Western press. The explanation, as it turns out, is that India at this time had a significant claim on revenue from the service of domestic debt (in effect the total debt-to revenue ratio was 4.4. To summarize, many investors appear to be justifying still relatively low external debt credit spreads because “This time is different” and emerging market governments are now relying more on domestic public debt. If so, they are deeply mistaken.
... and this part from Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding
Now, with a full background on how we got to where we are now we move over to Goldman's recommended defensive plays to a Grexit, as reported by ZeroHedge. Before we go on, remember my admonitions about blindly following Goldman's retail and institutional analyst recommenations:
Even as Greek concerns have escalated, risk markets have so far traded in a resilient fashion, treating those concerns as effectively isolated to Greek assets. But in previous episodes of acute Euro area stress in 2010 and 2012, a wide range of EM assets came under pressure, especially CEE FX and CDS. Hungary was the hardest hit across all asset classes.
Among EM, $/CEE has seen the largest moves in times of Euro area stress. This has reflected a weakening EUR and EUR/CEE moving higher. Specifically, the HUF and PLN are likely to depreciate against the USD in the medium term as policymakers welcome weaker currencies in the fight against ‘lowflation’, and would move even more rapidly if Greek risks do become systemic. Locally, the entry levels are also attractive given the rally in EUR/CEE in recent weeks.
* * *
Hedging Greek risks in EM assets
Euro area sovereign and financial risks rising again
The nearly constant barrage of headlines reporting comments from Greek and Euro area policymakers is indicative of the renewed deterioration in sovereign risk. Greece and its Euro area counterparties continue to work within a tight schedule to avert a disorderly outcome. Our base case remains that some new accommodation will eventually be found between Greece and the European authorities. But risks of an accident remain as commercial bank deposit outflow and a shortfall in tax collections can precipitate a critical situation in the interim. Even if an agreement to extend the programme is reached this week, the gap between the demands of the Greek side and the actual programme requirements is very large.
The situation is fluid, and if an agreement is reached quickly to extend the Greek bailout, then broader asset markets (including in EM) should stay largely unaffected. But we continue to receive questions on how EM investors can consider hedging the risks of a more messy outcome – that either leads to a ‘no man’s land’ where Greece is without the funding that comes along with a programme or, in the worst case, an outright exit from the common currency. In these latter outcomes, with systemic risk likely to increase, EM assets would come under pressure.
Three weeks ago, we described how in previous episodes of Euro area turmoil, on average EM bond yields tracked the move lower in G3 yields as demand for safe assets spiked, whereas EM credit spreads widened, EM FX weakened versus the USD and EM equities came under broad pressure (see ‘Taking one step back’, EM Weekly: 15/03, January 29, 2015). That said, both EM and G3 bond yields are now at much lower levels – which makes the argument for being long EM fixed income more debatable in the current context. In this EM Weekly, we drill further down within EM FX, CDS and equities to evaluate the relative performance across countries over those previous episodes to help identify how best to protect portfolios against an escalation in Greek risks.
The EM asset experience in the 2010 and 2012 episodes of Euro area stress
Even as concerns around the extension of the Greek programme have escalated, risk markets have so far traded in a resilient fashion, treating those concerns as effectively isolated to Greek assets. But in previous episodes of acute Euro area stress, a wide range of EM assets came under pressure as risk traded poorly. Below we study the two previous episodes of Euro area stress in 2010 and 2012 to assess how different EM assets were affected on average. Euro area stresses were also elevated in 2011, but in that episode it is harder to distinguish between the impact of the Euro area worries and the US debt-ceiling crisis, which played a major role in roiling markets.
Starting with EM FX, Exhibits 3 and 4 show the average moves versus the USD and the EUR over the two periods when Euro area stresses were at their most acute: mid-April to early June 2010 and mid-March to early June 2012. Exhibit 3 shows that in these ‘risk-off’ periods, almost all EM currencies depreciated versus the USD. In relative terms, the largest average depreciations were recorded in the Central and Eastern European region (PLN, HUF, CZK), followed by a couple of the high-yielders (RUB, ZAR) in the European time-zone. The MXN and BRL were most affected in the LatAm region, whereas NJA currencies outperformed.
Most EM currencies appreciated versus the EUR (Exhibit 4), which is unsurprising given that the Euro area was the epicentre of the shocks at these times. But, notably, the CEE-4 currencies saw meaningful depreciations versus the EUR, even as the EUR itself was depreciating. The geographical proximity and the strong trade and financial linkages of the CEE region to the Euro area meant that currencies there have tended to bear the brunt of Euro area crisis episodes.
Goldman believes Hungary is the most susceptible to Grexit risks. Since I've only excerpted the analysis, you can get the full story from the ZeroHedge article direcly...
$/HUF and $/PLN weakening our preferred ways to hedge Greek risks
At the current juncture the market appears to be making a couple of assumptions: first, that the ongoing disagreements between the Greek government and the Eurogroup represents the typical political posturing that has tended to take place in advance of eventual eleventh hour agreements; and, second, that in the event that agreement cannot be reached by the end of February, the upgraded EU toolkit, including the OMT and the soon-to-be-initiated sovereign QE, will keep market pressures from spilling over into the rest of the EU periphery, and by extension into the broader market.
Our read of the situation is less sanguine on both counts. An eventual agreement between the Greek government and the Eurogroup is still our base case, but we worry that the gap between the current programme on offer and what would be acceptable to a majority of the Greek parliament is very large. In addition, market pressure has often been the forcing variable in the past in helping to close this gap, so paradoxically the absence of broader market pressure is likely to make an eventual agreement that much less likely. In the event that an agreement cannot be found, and ‘Grexit’ becomes a serious possibility, we would expect systemic concerns to affect markets more broadly than currently. As Francesco Garzarelli discussed (in Global Markets Views: ‘Systemic risks posed by Greece set to peak at month-end’, February 17, 2015), even if peripheral bonds are shielded from the fallout by the ECB’s purchases, we would expect the EUR and stocks to come under downward pressure, and credit spreads to widen, reflecting the downside risks to a fragile economic recovery in the Euro area.
Given the results documented in the previous section, our preferred way to hedge these risks would be through long $/CEE positions. In previous episodes of Euro area stress, the combination of the EUR moving lower versus the USD and EUR/CEE moving higher has meant that $/CEE has tended to see the largest moves across the EM FX complex. Even setting aside Greece-related risks, our forecasts call for EUR/USD to move to 1.11, EUR/PLN to weaken to 4.22 and EUR/HUF to weaken to 320 in 6 months, as policymakers in these economies welcome or actively seek weaker currencies in their fight against ‘lowflation’. This implies that the HUF and PLN are likely to weaken against the USD in the medium term based on macro and policy considerations, and if Greece-related risks turn systemic, the weakening is likely to be even more rapid. Finally, given the rally in EUR/HUF and EUR/PLN over the past three weeks, locally the entry levels are also much more attractive.
I've excluded the portions relating to CDS, but the EM FX is more than what's needed. I'm fully aware that CDS trades and exotic forext pairs may be beyond the ken of most retail investors and likely many institutional investors as well (which is why banks get them into such precarious situations, that cost them so much to get out of, ie. How Veritaseum's UltraCoin Could Have Saved Harvard Over $1 Billion!). Alas, I digress. Those who follow me know that I clearly aim to disintermediate rent seeking in the financial space and to return said rents back to the community at large in order to let true talent, intellect, and most importantly drive (the prime determinent of success absent institutional barriers to entry, participation and geo/socioeconomic discrimination). These tweets make a good segway into how and why consumers - big and small (like Harvard who was taken advantage of by the Bank Morgans and stay at home day traders) - can now compete with Wall Street and stand toe to toe.
@pmarca @usv @sequoia #DefiningDisruption Most FinTech isn't truly disruptive due 2 reliance on powerful legacy banks http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
@pmarca @usv @sequoia #CreatingMarkets Give new consumers access 2 that reserved 4 big consumers creates NEW markets http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
@pmarca @TheStalwart @MikeIsaac @fredwilson #Disruption value gained from rent seekers offers socialeconomic mobility http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
@pmarca @MikeIsaac @fredwilson #Disintermediation Rentseeker profits redistributed to clients as inefficiency rebates http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
@pmarca @MikeIsaac @fredwilson #DefiningDisruption Rent seekers fail@P2P consumer interaction, missing new bizmodels http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
@pmarca @MikeIsaac Disintermediation releases rentseeker captured profit, Redistributes 2 full socioeconomic spectrum http://t.co/Gao4xpJdzO
— ReggieMiddleton (@ReggieMiddleton) February 20, 2015
Now, I will work the magic of technology and show everyone who can make it to the bottom of this article (unfortunately, that is truly only a select few) how to encapsulae the Goldman researh (which I haven't personally vetted, but does make sense on its face) in one single trade. This trade, a digital swap, is something that Goldman itself, nor any of its competitors (save Veritasuem, which is a software concern and not a financial institution) can offer you. Goldman suggests "$/HUF and $/PLN weakening our preferred ways to hedge Greek risks". A cursory look at these two pairs through both the 2012 scare and now lends credence to the Goldman assumption.
So, let's take a position on both pairs with a single UltraCoin swap. This can be be modeled with Veritaseum's UltraCoin Trade Modelling Spreadsheet before actually being entered through the actual ultracoin client. Keep in mind that, as a digital derivative transaction:
I love to talk! I'm willing to discuss anything in this article, from Grexit to Wall Street banks to the technology that challenges their hegemony, with anyone. Just reach out to me here.