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Cryptocurrencies & the Scam

27 Oct

There is a serious new fraud centering around Cryptocurrencies. There have been some trading platforms set up that are suddenly changing the rules in mid-game. People who have tried to sell things like Monaco Card etc. on these platforms have discovered that their accounts are frozen because they do not have the money to pay people. The excuse is they need to now suddenly PROVEwho they are to liquidate anything. The requirements are onerous and simply a DELAY tactic. These platforms maybe a FRAUD and should be reported to the SEC.

There was a company IGBE (International Gold Bullion Exchange) back in the early 1980s. They were offering selling gold bullion coins at the spot, which was below cost, but the catch was 90-day deferred delivery. They were actually not booking the gold and expected it to continue to decline. When gold rallied, they were not covered and could not deliver. They were taken off to jail and investors lost I believe $100 million+.

Cryptocurrencies are no different from any other investment product. It is a misrepresentation that they offer an alternative to the dollar. No matter how much money one made on Bitcoin, they still have to sell it to realize that profit and how are they measuring that profit? In dollars of course.

Beware of the fraud in these trading platforms that are now suddenly freezing people’s accounts claiming security to prevent people from selling particularly the smaller new cryptocurrencies.

Source : armstrongeconomics.com

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End of market – When fool who rushes at the last minute

26 Oct

The recent report by the Commodity Futures Trading Commission (CFTC), shows that the professional investors have continued to bet on falling Dow Jones “short” as private investors are starting to bet heavily on rising prices ( “Long”). Professional investors remain suspicious of a further rise in the US stock market. The private investors’ view is exactly the opposite. The question is; Who will be right?

There have been plenty of times that the professional is dead wrong and the average person on the street has actually outperformed the professionals. Reuters reported that 69% of hedge fund investors expected the second half of 2017 to be worse than the first half. So why are the professionals so pessimistic?

When you live and breath the market every single day, it is hard to get a grip on vertical markets. The professionals, more so that even the average street investor, tends to do worse in such markets because it makes them uncomfortable. Then there is the self-gratifying notion that the market is over when the retail invest comes in. But they tend not to look at the fact that there is a huge difference between the average retail investor and the person who has never invested who rushes in to join the party at the top simply be everybody else if there.

I have told the story before how I was doing an institutional only seminar in Tokyo at the Imperial Hotel. This individual bribed someone in the hotel to get in. He came up to me and apologized offering to pay. He said he just had to speak to me. I asked him what was the problem, He explained he had bought the Japanese share market on the very day of the high and now it was crashing. His investment was $50 million. But the intrigue came when he said it was the first time in his life he had purchased any stock. He then had my attention since I was talking to the guy who bought the high.

I asked him what made him buy that day for the first time in his life? He said brokers had called him every year saying the Nikkei rallied on average 5% every January with the New Year. He watched it for 7 years and then finally bought the high. That is what I mean as the difference between the average retail investor and the fool who rushes in at the end because everybody else is there. It is when that final group of people rush in that marks the end of the market – not when simply average investors buy who follow the market generally.

We have four actual groups:

  1. smart strategic big money (long-term portfolios)
  2. professional short-term traders
  3. the day trader who thinks he is limiting his risks
  4. program traders who try to arbitrage ticks
  5. the average retail investor
  6. the fool who rushes in at the last minute

In most real good vertical markets, it is the professional short-term traders who keep trying to sell the new highs. This has been the group that has been bearish ever since 2009. They never saw new highs coming, and they still will try to sell every new high today. They falsely believe that they are “professional” and so they will be right and the average investor is the fool. But the average investor sees the trend for what it is, goes with the trend, while the short-term “professional” keeps trying to beat the market.

Usually, the day trader who thinks he is limiting his risks and the program traders who try to arbitrage ticks will typically get caught when they suddenly find the lack of liquidity traps than in a position they cannot get out of.

Source : armstrongeconomics.com 

How to Play the Odds in the Crypto Casino – Bitcoin

18 Sep

We’re living in the crypto casino now. The total value of cryptos fell 11% over the weekend. This wiped off billions in the valuations of all of them.

Why? Who knows. Maybe traders ran a big sell program to shake out the weak holders so they can buy them back cheap.

Maybe it’s the end of a massive bull run.

I think it’s a dip. News just keeps coming in to suck more people into these markets.

Already, two tokens — issued via an ‘initial coin offering’ (ICO) this year — have hit US$1 billion valuations. These two coins only began life in March and July 2017.

Both were issued at a price under $1 and now trade over $10 — despite neither of the companies behind them having a product to sell as of now.

These sorts of speculative gains in the crypto markets dwarf anything else on offer.

Total token sales for 2017 have eclipsed US$1.2 billion. This has surpassed the money that venture capital firms have raised for startups.

Some people say it’s a bubble now. I think this could keep running up and away for a long while yet.

Here are some clues as to why: Hedge funds are launching to invest and trade in cryptos. One reason is that bitcoin, for one, has no correlation to global stocks, commodities and traditional currencies.

Then we can add high share prices, low bond yields, inflated property, and the sheer amount of cash looking for a home.

One precious metals dealer in Australia is now dealing in trading and storing bitcoin.

Apparently, the surprise for these guys is the demand from self-managed super funds. These investors like it as a way to diversify, too.

You might thinks it’s all crazy. But the blockchain technology underpinning this new market is extremely compelling and could change a lot.

Just ask ASIC Chairman Greg Medcraft…

Why share trading looks archaic now

He’s cited in The Australian Financial Review today as saying regular bank accounts might become redundant. That’s if we all keep our money with the central bank and use an RBA digital currency.

This could ‘disaggregate’ the basic banking business model of using deposits as a cheap source of funding.

He may very well be right. But the banks aren’t sitting still on this.

Reuters reported last week that six big international banks have joined forces to create a new digital cash to settle financial transactions over the blockchain. They hope to launch it next year.

This could cut costs for the banks and reduce the amount of capital they need to hold against clearing trades.

And blockchain is coming for the commodity markets. The first one will probably be gold. This could take demand away from ETFs and future markets.

The gold will be stored in a vault somewhere, but traded and settled over a specific blockchain.

Speed is the key here. We’re talking instantaneous settlements.

This is beginning to make regular share trading look archaic. I mean, it takes two days for the ASX to fully clear a share transaction.

Cryptos trade 24/7, and worldwide, too. When you buy them, they appear in your account almost instantly.

Clue for the crypto markets might be here

Here’s another way we can look at this market, and maybe add some sort of indicator as a guide.

It’s all too new to be sure of anything.

But a company called AMD makes GPU chips. These are used (among many things) in the ‘mining’ process for cryptocurrencies like bitcoin and Ethereum.

AMD released a new chip last week and sold out in minutes.

Here’s why. Bitcoin miners, for example, are rewared with new units for each new block created. This involves solving complicated maths problems. Whichever miner does this first gets the bitcoin reward as a payoff.

This means crypto mining relies on raw computing power in a big way. The mining process underpinnng these networks is designed to get harder over time. So the incentive is fixed to always have the best and latest tech driving the mining.

You would think any systematic weakness in the crypto market would show up in chip sales. As of now, they look strong. Other companies are cashing in on this too. AMD is not alone.

As I say, this is just something to watch and see how it plays out. The most compelling thing about cryptos is that they are truly global. The potential demand is enormous. Access is easy, for almost everyone. That may change if some governments step in and attempt to put limits down, as China is rumoured to be doing.

But you have to be following what’s happening here. I still like the idea of having some modest percentage exposure to the main players, bitcoin and ether. Keep your position size small to ride out the volatlity.

Explore the rest of the cryptos for a potential punt on a big payoff.

 

Source : Callum Newman (Editor, The Daily Reckoning Australia)

September 4, 2017

The gold swing

2 Sep

In 2013, Gold slumped by 28% due to equity surge and Fed’s diminishing pace of monetary stimulus. However, gold rebounded by 7.3% in 2014 as a result of geopolitical tensions prevailing in Middle East, East Europe and Iraq. After beating gains of other investment asset like commodities, equities and treasuries, it is again back to its status of being less favored by investors.

Gold price has remained confined in a small range due to lack of conviction in the yellow metal as hedge funds and money manager lower their bullish bets in gold by 24,182 contracts, to 92,734, the lowest since June as reported by CFTC.  US and Canada markets are closed on account of Labor Day holidays hinting the low market participant volumes.

The U.S. economy grew more than forecast in the second quarter, government data showed Aug. 28. Orders for durable goods jumped in July while consumer confidence climbed in August. The volumes of the SPDR Gold Trust holdings, the biggest ETP backed by the precious metal, plunged three times in last four weeks which also show continued lack of interest in the precious metals as investor opt for US equities that is marching to a fresh record.

Better US data shows continuing US economy’s recovery that could prompt FED to increase rates in near future. Higher interest rates can make gold a lesser attractive investment option against treasury.

However the lowering tensions between Russia and Ukraine have escalated with hundreds of Russian soldiers entering Ukraine and Ukraine blaming Russia for launching a fresh military attack across its eastern border.  US is working closely with EU to keep their Russian sanction programs in place. This may generate fresh investor interest in gold for a hedge against political instability.

Thus, gold prices seem to remain range bound with upper side capped by the further march of US equities to a record high while the lower side restricted by the falling Treasury yields. However the unresolved Russia – Ukraine geopolitical tension and coming Indian Festive season can play an important role to lift the gold price.

Warren Buffett And The Chinese Are Loading Up On Hard Assets

20 Aug

Money is transitory and wealth is permanent. So, a lot of people confuse money and wealth and say well, I have a lot of money so I’m wealthy. Well, in the short run, that may be true but in the longer run, the money can go away but the wealth is something that prevails.

You look at Warren Buffett. In the last several years, Warren Buffett went out and bought the Burlington Northern and Santa Fe Railroad. He didn’t just buy some stock, he bought the whole thing, took it private.

What is a railroad? A railroad is nothing but hard assets. It’s right of way, mining rights adjacent to the right of way, rail, rolling stock, yards, switches, signals, buildings, it’s all hard assets. How does the railroad make money? It makes money by moving hard assets so coal, wheat, corn, steel, other kinds of freight, etc. So, railroad is the ultimate, its hard assets moving hard assets. It’s the ultimate hard asset play. Warren Buffett’s next deal was to go out and buy massive natural resources in oil and natural gas. And by the way, he can move his oil on his railroad. He doesn’t need the Keystone Pipeline. You line up a hundred tanker cars, that’s a pipeline on wheels.

So, Warren Buffett comes with his own railroad. That means he has his own pipeline. So, Warren Buffett’s a guy who’s dumping paper money, getting into hard assets in the form of transportation and energy in particular. And the dollar could go to zero and it has no effect on him. He still owns a railroad

The other example are the Chinese. The Chinese have spent the last four years acquiring approximately 3,000 to 4,000 tons of gold. Now, how do we know that? We have some hard data. We know China’s mining output is about 450 tons a year. We know China’s imports through Hong Kong are coming in between 800 and 1,000 tons a year. This has been going on for four years so that’s kinda 6,000 tons there and where you have to use a little guesswork is okay, we know how much gold China is getting, how much is going to private consumption, how much is going to the government? We’re not as clear on that, but I use kinda half as the first approximation.

And we also know that China is acquiring gold through stealth using intelligence and military assets to bring gold in completely off the books, doesn’t show up in Hong Kong imports. So, why is China doing this? Well, because they got a mountain of paper assets. They’ve got $4 trillion in reserves, almost all of it denominated in paper bonds. Most of that U.S. dollars, most of that U.S. treasury so, you know, the oldest joke in banking is if I owe you a million dollars I have a problem, but if I owe you a billion dollars, you have a problem because you have to collect it from me and I can walk away.

Well, we owe China $4 trillion so China has a problem. So, they can’t dump those paper assets. They know that. Their treasury markets big, but it’s not that big. It can’t absorb those kinda sales. So, what China’s doing, they’re vulnerable in the paper. If we have inflation, that’s just a wealth transfer from them to us so they’re acquiring gold, thousands of tons of gold. By the way, there are only about 33,000 tons of official gold in the world. All the central banks, sovereign wealth funds and treasuries and finance ministries combined have about 33,000 tons of gold.

China’s acquired 10 percent of all of the official gold in the world in the last four years. So, why are they doing that? Well, they now have a hedge position. So, they actually want a strong dollar because they own so much dollars denominated paper. If the dollar is strong, they might not make very much on the gold, but they’ll collect the value of their bonds, but if we inflate the dollar, which we’re trying to do, and the value of those bonds goes down in real terms, we know what’s gonna happen.

The gold is gonna go up like this so they’ve created a hedge where they win this way and they win this way so I would say look at China buying gold, look at Warren Buffett buying hard assets in energy and that will give some guidance. The two other ones, powerful, biggest, best and foreign investors in the world are getting out of paper money into hard assets.

(Article by James G. Rickards)

Jim Rogers: I Missed the Boat on Investing in Bitcoin

29 May

Investor Jim Rogers, of Rogers Holdings fame, has said he missed the boat on investing in bitcoin.

In a recent interview with China Money Network, the veteran investor said he still does not know much about digital currencies, but he admitted that he should have got on board a long time ago:

“If I were smart, I would have bought it in the early days when people first told me about it. I still don’t know enough about it to invest in it.”

Future of money?

Rogers said there have always been great investments around the world, so he was not focused on digital currencies in the past. Furthermore, it all seemed too complicated at the time, he said.

He indicated that he might invest in digital currencies in the future, provided he learns enough about them.

When asked whether or not digital currencies like bitcoin have a future, Rogers said the world has serious currency needs and serious problems, but, he is not sure whether or not digital currencies are the answer:

“The US dollar has dominated the world for the past 70 to 80 years. […] We need something to compete with the US dollar, and something to replace it eventually. Whether it’s the bitcoins, the RMB or seashells, I have no idea.”

Artificial liquidity

Rogers discussed various economic and geopolitical issues in the interview. His biggest concern in terms of economics, he said, is that all major banks have been “printing huge amounts of money” over the past five or six years.

“It’s the first time in recorded history that we have the Japanese, British, European and Americans all printing money at the same time. So we have this artificial ocean of liquidity, which is making markets do well, but it’s not doing much for the economy worldwide. When it ends, we will all pay a terrible price,” he cautioned.

In spite of ominous developments on the monetary front, Rogers said the geopolitical situation should not be overblown, although he does expect to see bigger conflicts over the next decade.

“Politicians have always made foolish mistakes throughout history. They will make mistakes again, and we will all pay for it,” he said.

(Source : coindesk)

India Election Like Abe In Japan: 10-Year Bull Market Has Started

29 May

Summary

  • India has a stable, single-party government after 25 years; weak governance due to multi-party coalition politics has been the primary cause for India’s growth being significantly below potential.
  • Modi, leader of the new government, has a reputation as being pro-business, with the willingness and ability to quickly push through major changes through the complicated, slow and corrupt bureaucracy.
  • Indian economy has significant tailwinds: demographic dividend, large and growing highly educated and skilled workforce, large and growing middle class.
  • Risk: terrorist strike leads to the right-wing government initiating a military confrontation with its nuclear armed neighbor (Pakistan).
  • Risk: ruling party has been accused of having an anti-minority and fascist ideology. With 13% Muslims and 2.4% Christians, this may lead to negative socio-economic consequences.

Recent political environment and latest election

For the last 25 years (beginning in 1989), regional parties gained significant influence over the national government often causing paralysis of governance due to conflicting demands of coalition parties. The dysfunction of the national government peaked in the last few years with analysts concluding that “India and China are often considered to be the world’s rising economic powers, yet if China’s growth has been led by the state, India’s growth is often impeded by the state.” With crumbling infrastructure, rampant corruption, stalled economic reforms and unacceptably long new-project approval times there are legitimate concerns that India’s government is killing its economic miracle. This led to macroeconomic imbalances, pessimism among investors, corporations and the population at large.

Results of the 16th general election in India were announced on May 16, 2014. After 25 years of messy coalition politics, India will now have a stable, single party government. The Bharatiya Janata Party (BJP) won 282 seats, comfortably above the 272 seats needed for a majority. Further, the BJP-led pre-election alliance (National Democratic Alliance, or NDA) won a historic 336 seats (62% of the seats).

Narendra Modi, leader of the new government, has a reputation as a pro-business aggressive leader with the willingness and ability to quickly push through major changes through the complicated, slow moving and corrupt Indian bureaucracy. He got this reputation while he was the Chief Minister (equivalent of Governor in the US) of the Indian state of Gujarat from 2001 to 2014.

This election in India is akin to the historic election of a Shinzo Abe led government in Japan in 2012. The landslide victory by Abe’s Liberal Democratic Party is enabling Japan to undertake historic and radical economic policies aimed at jolting the economy out of its two decade slumber. The Japanese Nikkei 225 Index (Nikkei) rose 67% in the 5 months after Abe’s election. The Nikkei fell from that high, but is currently still up 53% from the pre-Abe period.

Indian economy – significant economic tailwinds

Economic reforms in India began in earnest in 1991 in reaction to a severe balance of payments crisis. The reform was led by Dr. Manmohan Singh, who at the time was the Minister of Finance in the Congress Party led government. It has continued inconsistently since then. The combination of economic reforms, it’s growing and large highly educated and English-speaking workforce and globalization trends helped India become a major exporter of information technology services, which led to its Gross Domestic Product (GDP) growing by 8.3% per annum from 2003 to 2010. However, this growth slowed to 4.7% in 2012, blamed primary on its crumbling infrastructure and regulatory bottlenecks due to a dysfunctional national government.

A 2011 working paper by the International Monetary Fund concluded that while India has been a latecomer relative to advanced Western nations and East Asian economies, it is in the midst of a major demographic transition. That transition started about 40 years ago and will likely last another 30 years. Large cohorts of young adults are poised to add to the working-age population in combination with falling fertility rates. This leads to working age population growing as a percentage of total population. This demographic dividend could add about 2 percentage points per annum to India’s per capita GDP growth over the next two decades.

As per a JP Morgan report India has the world’s third-largest English-speaking workforce, a sizable part of which is also highly educated. Every year Indian universities produce more than 3.5 million graduates. The Indian Diaspora (people of Indian origin living outside India) has achieved significant success in business and other areas (click here, here and here), indicating that under the right government structure, the population has significant potential for global success.

A recent Ernst and Young report concluded that India’s middle class, currently at around 50 million people or 5% of its 1.3 billion population, is expected to grow steadily over the next decade, reaching 200 million by 2020. This will create a rapidly growing and vibrant consumer base for sustained economic growth.

The election result has led to a historic surge in optimism and confidence among local and global investors, corporations and the population at large (see article 1, article 2). This may create a positive feedback loop in the economy by increased capital investment by corporations and spending by consumers, both supported by major economic reform and reallocation of government resources towards badly needed infrastructure projects.

Domestic and foreign investor flows into Indian equity markets

India’s individual investors still have room to boost stock holdings, which account for less than 6% of their assets. In Japan, which has Asia’s biggest stock market, 8.5% of household assets are invested in equities. That compares with 33% in the US and 16% in the Euro Zone.

Foreign Institutional Investors (FII) have invested more than $17 billion in Indian securities since the BJP announced Narendra Modi as its prime ministerial candidate in September 2013. Now that the uncertainty of the unpredictable election has passed, it is expected that FII money may have another surge.

India has well developed capital markets, with the stock exchange in Mumbaiformed in 1875. Significant capital market reforms beginning with the start of major liberalization in 1991, have increased retail and institutional investor confidence in the integrity and reliability of the capital markets in India.

Valuation

The broad Indian equity market, as represented by the S&P BSE Sensex Index (SENSEX), is trading at an undemanding 15.4x forward price-to-earnings (PE) ratio. Over the last 10 years, it has traded at an average forward PE of 16.3x, with a high of 23.3x and a low of 9.6x (at the bottom of the 2008-09 crises). Small capitalization stocks, as represented by the S&P BSE Small-Cap Index (BSESMCAP), are trading at an 11.7x forward PE ratio. While the SENSEX is trading at both 5 and 10 year highs, the BSESMCAP is trading at a 22% and 37% discount to its 5 and 10 year highs.

Long-term growth in the price of Indian equities is likely to be driven by both expansion of the PE ratio, which is currently below historical averages, and growth in earnings per share.

Bulls argue that over the next 10 years, India’s GDP could grow to US$5 trillion (from US$1.9 trillion) and the market capitalization of its publicly traded equities could grow to US$4 trillion (from US$1.2 trillion). Such growth would depend on, among other things, (1) the new government focuses on significant structural reforms and its willing and ability to push them through the legislative branch of government and ensuring proper implementation by the bureaucracy, (2) reigning in inflation (3) managing the fiscal deficit, (4) managing the current account deficit, (5) the global economic environment, and (6) productive investment by the corporate sector and strong labor productivity growth.

All else being equal, a potentially strengthening Indian currency (Rupee) in the short term due to inflow of foreign capital and in the long term due to improving macro economic variables, will be a tailwind for investors purchasing US listed ETFs that invest in Indian listed equities.

Relevant securities

The following US listed Exchange Traded Funds (ETFs) provide different ways for investors to get exposure to Indian equities: EGShares India Infrastructure Index Fund (INXX) – focused on companies in the infrastructure sector (during this election, the BJP has stated that a key goal is rapid and large projects to improve infrastructure – roads, railway, ports, power infrastructure), WisdomTree India Earnings Fund (EPI) – skewed towards smaller capitalization companies, Market Vectors India Small-Cap Index (SCIF) – exclusively focused on small capitalization companies, iShares India 50 (INDY) – exclusively focused on large capitalization companies.

Risks

If there is a terrorist strike in India like the 2008 Mumbai attacks, the right-wing BJP government may initiate military strikes on Pakistan. A direct military conflict between two nuclear armed countries will be a severe negative shock to the Indian economy.

The BJP was founded as the political wing of the Rashtria Swayamsevak Sangh (RSS), which started life in 1925 as a right-wing nationalist paramilitary organization. The RSS is said to have drawn inspiration from European right-wing fascist groups during World War II and is said to have participated in anti-minority (Muslim and Christian) violence. Most senior BJP leaders have an RSS background and Narendra Modi, who will lead the new government, has been a member of the RSS since the early 1980s. Muslims and Christians account for 13.4% and 2.3% of the Indian population. If the new government directly or indirectly supports organized oppression of the minorities in India, it may lead to negative socio-economic consequences.

Since the anticipation of a potential election victory by a Narendra Modi led BJP, the Indian equity markets (SENSEX) has risen 20% compared to a 4% rise in a basket of emerging market stocks. During the same period, small capitalization stocks in India have risen 40%. As a result, some of the upside has already been priced into the stocks. Further, the stocks are likely to be very volatile going forward.

While the NDA government has complete control of the lower house of parliament (Lok Sabha), India’s federal system means negotiating through the upper house (Rajya Sabha), in which they are a minority, and negotiating with state governments for faster implementation of key policies.

The new government will also have to deal with headwinds from structural economic issues of high inflation, high fiscal deficit and high current account deficit. Further bad monsoon rains can have a severe negative impact on the critical agriculture sector.

Conclusion

Last week’s election results in India, which resulted in the first stable, single-party government after 25 years, may have started a long term (10+ year) bull market. Weak governance due to multi-party coalition politics has been the primary cause for India’s growth being significantly below potential. Narendra Modi, leader of the new government, has a reputation as a pro-business aggressive leader with the willingness and ability to quickly push through major changes through the complicated, slow moving and corrupt Indian bureaucracy. Once unshackled, the Indian economy can capitalize on significant tailwinds: demographic dividend, large and growing highly educated workforce, large and growing middle class. While there are risks (detailed above), the risk-reward is very attractive.

(Source : KL Investment partners)