tag:blogger.com,1999:blog-65581922716185692882024-03-21T07:00:38.257-04:00The CrucibleUnknownnoreply@blogger.comBlogger59125tag:blogger.com,1999:blog-6558192271618569288.post-76216996282700164592022-12-26T10:30:00.002-05:002022-12-26T10:35:03.912-05:00The Hibernating Bear<p><span style="background-color: white;">4700 words (15 minutes)</span></p><p><span style="background-color: white;">It's very human to get seduced by concepts in your head that don't map to the limits or reality of how the physical world works. I seem to be less burdened by this phenomenon because the only things in my head are tumbleweeds and crickets. </span><span style="background-color: white;">Recently, I promoted myself to chief economist at my house, and I hosted a symposium in my basement called Rages In The Cages. My announcement as keynote speaker was met with mockery and derision. A hater might describe the attendance at this inaugural</span><span style="background-color: white;"> event next to the laundry room as underwhelming. In fact, the only one who showed up was my five-pound yorkie who I tricked there with her favorite treat, and even she left during intermission when the bagpipes came out. Despite the profound lack of media coverage, I remain undeterred. What follows are the highlights from my speech "Monkeys Throw Turds." </span></p><p><span style="background-color: white;">This rise in CPI certainly had causes based in supply chain disruptions and the Putin oil spike, but it was at least half, and I'd argue more, due to the Covid Cash.</span></p><p style="background-color: white;">Inflation is only a <b>monetary</b> phenomenon and there are several reasons. When M2 increases it <i>improves</i> the balance sheets of individuals and businesses for as long as the money flows. When oil rises it <i>hurts</i> the balance sheets of individuals and businesses like a tax by consuming disposable income and compressing margins. CPI driven by money is potentially infinite in nature, as seen in hyperinflations where the nominal prices of everything spirals ever upwards. CPI driven by oil is finite in nature and causes an economic slowdown to restore balance when it hits the limits of balance sheets. </p><p style="background-color: white;">You can't compare the current inflation to the 1970s, which, despite its reputation of stagflation, was one of the strongest economies ever. Is there another decade that absorbed oil rising 10x while interest rates rose to 20% with only a couple brief recessions? If you take a median oil price over the last decade of $60 that would be like oil going to $600. The pain at $130 over the summer was palpable. The reason the 70s could absorb such a tax was because the underlying economy was driven by a decade of peak baby boomer borrowing, which was the inflation that subsided as the bulge of boomers tapered off. There was also less indebtedness so balance sheets were able to absorb the expense. Our current inflation is an unprecedented one-off Covid stimulus package with nothing in its wake. Technically, we've been in a structural inflation for 100 years, but CPI measures the rate of change. This is not to say a structural oil deficit doesn't have investing implications. </p><p style="background-color: white;">The current inflation is not the result of the Fed repressing interest rates and doing QE for a decade, which is a symptom, not the cause. Interest rates were low because the economy was weak due to globalization stripping away our manufacturing base and overall risk aversion post GFC, so the Fed inflated asset bubbles with only a minor effect on CPI from a weak wealth effect because reserves don't end up in the hands of consumers. The US has been in a stealth depression since the turn of the century as globalization kicked into high gear. Fiscal and monetary policies have simply masked the symptoms along with unprecedented-in-size global companies that boosted the stock market and intensified the illusion. There is no such thing as a service based economy. That is called a <i>broken</i> economy. The whole idea is to produce goods and services and sell them to the rest of the world. To be fair, globalization has uplifted the living standards of other parts of the world by introducing them to the need to gather money instead of food directly. Globalization can also be viewed through the lens of funding the expansion of freedom and democracy, albeit deeply corrupted by self-interest and systemic flaws, but it's still better than allowing socialist dictatorships to flourish in its absence. Some set of culturally organizing ideas are going to be in charge. Do you want it to be a socialist dictatorship or the flawed expression of American ideals that can be course corrected if enough people cared?</p><p style="background-color: white;">Deglobalization implies jobs are moving back here. They're not, and they won't be. An accurate way to describe an exodus from China would be <b>re</b>globalization and it won't have the slightly impact on CPI for several reasons: 1. It would take a decade and CPI measures the rate of change. 2. China isn't even the lowest cost labor anymore. 3. It's not just cheap imports suppressing CPI, it's the lack of (what could have been) 20+ million <i>onshore</i> well-paying, stable, union jobs, and the dollars circulating domestically. <i>That</i> would move the needle on CPI. <b>RE</b>globalization won't, at all. That doesn't mean prices won't go up. It's the pace that matters. And the subsidies for Chips, which only mask the actual cost of the products with taxpayer funds, have to be permanent now; otherwise, when they expire and the real costs are not competitive with chips made overseas, they will fail. So we have a new permanent bill, which btw, I agree with as a geopolitical strategy, I'm just saying it's not happening organically because the global structure is changing; it's being forced by government. </p><p style="background-color: white;">Oil is disinflation wrapped in inflation's clothes. There has never been a hyperinflation caused by the supply side. And the Treasury is limited by the Joe Manchin effect, which prevents egregious spending Acts outside a crisis. The usual annual deficits are too narrowly focused to influence CPI. The current inflation was caused mostly by distributing money directly into people's hands (amplified by supply disruptions and Putin, of course). Married couples with 3 kids received $24k (including the regular credit tax credits) and that doesn't include if either of them worked under the table and collected the extra $600/week in unemployment. (Details of the Acts are at the end if you never added it up). </p><p style="background-color: white;">When that lotto money is spent it will end up in the bank accounts of businesses and be restrained by banking practices to qualify for a loan (aka creditworthiness) and the proper stewardship of money controlled by business owners, which is keeping velocity in check. If this was an expanding economic environment like the 70s, you would see businesses investing that lotto money in all kinds of Capex that could keep the inflation going, but they're not. Inflation has to be <i>funded</i>. In fact, inflation <b>IS</b> the funding. Bank of America and JP Morgan estimate there's about 1.2 Trillion of the Covid cash left, but a lot of that is in the hands of people who don't need it, so quite a bit could go unspent. The only structural inflation argument I agree with is Russell Napier's notion that the government will start guaranteeing bank loans of all kinds. </p><p style="background-color: white;">A "wage price spiral" is the most absurd concept in finance. We want wages to go UP. That's how we would avoid recession and reduce the burden of debt by increasing the nominal prices of everything around it. Is there a single instance in any culture in history when a nation collapsed because wages were too high? Omg, did you hear what happened in Madagascar? Their currency collapsed because everyone was making so much money. It's silly. If this was a problem there would be instances in history called The Great Wage Price Spiral of 1867. This is the same mistake as the "oil is inflation" idea, which is the false assumption of an infinite consumer balance sheet. Wages tend not to keep up and raises don't happen to everyone simultaneously, which acts as a spiral limiter. </p><p style="background-color: white;"><span style="font-family: times;">I don't get the impression everyone realizes the financial system is in stage four terminal cancer, which is probably due to a "frogs boiling in water" effect. The evidence is staring at you in the form of the balance sheet of the Fed and the US gov't, which are enormous malignant tumors that will continue to worsen over time. The only cure is either a new innovation like fusion that essentially creates near free energy, or a new monetary system, which is what will happen <i>reactively</i> like the three other times in the last century if we don't do anything proactive to stop it. </span></p><p style="background-color: white;"><span style="font-family: times;">Here's what our country would look like if it was run by responsible adults from the beginning: </span></p><p style="background-color: white;"><span style="font-family: times;">We wouldn't have a general treasury market because the politicians wouldn't be able to spend money beyond what they collect in real-time taxes. The only treasuries that existed would have a specific purpose like The Mississippi Bridge Project etc.. They would pay whatever interest rate the buyers demanded and the debt would extinguish at maturity. The problem of allowing unaccountable politicians to spend future taxpayer money via nonspecific treasury bonds to appease voters is so deeply ingrained that we teach the treasury market like it's a natural part of how the world works when no, it's not, it's a cultural choice, and it has inevitable consequences. </span><span style="font-family: times;">Our predecessors made decisions that are nearly impossible to undo. Once you deviate from sound money, once you export your manufacturing base, once you institute a policy of the Fed put, there is no going back, and they end in a currency crisis unless we choose to course correct with innovation. </span></p><p style="background-color: white;">The inflation to be concerned about is when the dollar is collapsing. That's the one that takes away the Fed put. This is not it. And if Powell thinks he can be the tough guy to end the Fed put, he will learn the same lesson as all the armchair Austrian would-be Fed chairs who claim if they were in power they would raise rates and tame that junky stock market only to realize upon its collapse that the real problem is the structure of globalization that forces the Fed and Treasury to continually inflate the gaping holes caused by a lack of domestic production. It's not a person or the people in power to blame, it's the institutional decisions made long ago that now must be perpetuated in cycles of easing and tightening, inflating and deflating, ad infinitum. </p><p style="background-color: white;">I've noticed a pattern of people who are value investors, or sound money advocates, or those who don't participate in the bubble expansion phase, always saying this is the time the Fed put won't be there, or this is the time we're returning to normal, but they are simply not adapting to the bind the Fed is in. They want the economy to be back like it was pre-globalization when things made more sense to them. </p><p style="background-color: white;">Apparently, if you read the Fourth Turning, you're assigned a therapist and put on suicide watch. Pessimism and repression win battles while optimism and freedom win wars. If you want to know the future, extrapolate optimism, freedom, and technology to its logical conclusion, and you will realize the world is turning into a giant interconnected computer with a mysterious intelligence emerging within it as its innate designer. The challenges and conflicts along the way are a feature not a bug. </p><p style="background-color: white;">Of the current 7.1% YoY inflation rate, <b>6.1%</b> happened last Feb - July (release dates). If we grant the upcoming print on January 12th a .2 or .3 and then annualize the previous six months, the current economy is running at a 2.4% - 2.6% inflation rate, so the Fed's target will be hit in July. This easy run of CPI comps, which were caused by the freakish rate of change of peak stimmy spending, peak reopening, and peak Putin oil spike, is not repeatable outside World War 3. </p><p style="background-color: white;">The easy CPI comps end around the same time Jamie Dimon estimates most of the remaining Covid cash will be spent. It also happens to be around the time when the lagged effects of Fed tightening will be kicking in for realz yo. Here's an updated version of the CPI chart with the easy comps in yellow. </p><p style="background-color: white;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHiAIAgDJBVCZuTqXTcVe8KP-WEy3Q1AjVVVwqEoP-1MNu87F3zvWgYNiIpAriztAkgBqYWE1JHAXl-9VvpfLYXmJzeQgQAsIGym6L7VdPqjxQpXzkLi2wlwnqXEXWXHmvec9gQcY5XT6TUPeU94mSG-iYV_HnZaM1AXnMENBYNlem8VuX5ywzKNaIGw/s634/Screen%20Shot%202022-12-20%20at%208.36.09%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="634" data-original-width="628" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHiAIAgDJBVCZuTqXTcVe8KP-WEy3Q1AjVVVwqEoP-1MNu87F3zvWgYNiIpAriztAkgBqYWE1JHAXl-9VvpfLYXmJzeQgQAsIGym6L7VdPqjxQpXzkLi2wlwnqXEXWXHmvec9gQcY5XT6TUPeU94mSG-iYV_HnZaM1AXnMENBYNlem8VuX5ywzKNaIGw/s320/Screen%20Shot%202022-12-20%20at%208.36.09%20AM.png" width="317" /></a></div><p></p><p style="background-color: white;"><br /></p><p style="background-color: white;">I don't see why CPI won't collapse from Feb - July, which, in theory, should cause quite a bounce in stocks, gold, treasuries, the Euro, and possibly the dream killer: oil. In other words an unwind of the Fed must-tighten-to-infinity inflation trade. </p><p style="background-color: white;">However, I believe this bounce in stocks no matter how high it goes will be a bear market rally. If it happens, you'll hear excited chatter about a soft landing and how the market is endorsing higher rates, etc., but what would really be happening is a freak window of easy comps before the true effects of Fed tightening emerge, powered by a FOMO that, if harnessed, could end the energy crisis, and a complete devastation of shorts and puts.</p><p style="background-color: white;">Here's some things that could go wrong: </p><p style="background-color: white;">1. The economic data could deteriorate so severely during the process that the "recession now" narrative poses a bigger problem for stocks than a plunging CPI can overcome. I'm more inclined to think there's enough Covid cash, wage increases, and people in jobs that the data will hold up enough, and earnings will be weak but not catastrophic (yet). And the dollar should help this quarter. For stocks, though, it's definitely a race between the easy run of CPI comps and recession. </p><p style="background-color: white;">2. As CPI collapses, oil could rally enough to ruin the last three months of it, offsetting the effect. This would be temporary because it would consume disposable income, but it would likely keep Fed Funds high and even moving higher to stop a dreaded second wave. Powell has repeated ad nauseum he wants to be an anti-Burns mafioso tough guy so he doesn't repeat the second wave of the 70s. Once the easy comps are over it won't take but a blip in oil for CPI to rise, which could develop such a twitchy trigger finger in Powell that he starts doing pressers in a grim reaper costume. </p><p style="background-color: white;">3. I've never seriously considered a geopolitical threat as something to worry about, but it's worth considering what would happen to your portfolio if a nuclear weapon was detonated this spring by that cornered animal, or a China invasion of Taiwan. Do you shrug your shoulders like you can't make investment decisions on unknowns like that anyway, or do you maintain a more defensive approach because this geopolitical environment is rife with potential disasters unborn in previous decades? </p><p style="background-color: white;">4. The CPI collapse could be right but the markets react in a way that is suboptimal. Or maybe CPI drops but PCE sticks and Powell shakes his fist and reminds everyone they're focused on that. In other words, stocks have economic data risk whereas something like gold only has second wave risk. </p><p style="background-color: white;">This is actually a three phase idea because a CPI collapse <i>should</i> cause rates to fall across the curve, so anyone still sitting on Covid cash looking to move will see lower mortgage rates and buy a house, which could result in a <i>less severe </i>second wave which could have a <i>more severe</i> PTSD effect. If Fed Funds stay at 4.5 during the CPI collapse, and oil starts rising, and homes get bought up, once the easy comps are over, and CPI rises from zero base effects alone, I suspect the Fed will push even higher. The terminal rate might end up in the 6-6.5% range, and despite all the grand theories, we live in the same 2% world we lived in before the pandemic. There's been no population boom, no free energy discovery, and no productivity innovations that would have a lasting effect on growth or inflation. The only thing that happened was a sugar rush of free money that is working its way through consumer spending to once again get stuck behind a wall of creditworthiness at banks. This is the only reason the Fed is even capable of raising rates. Even a mild second wave would cause a resumption of the bear market that likely breaks something as Fed overtightening ripples through the economy, THEN we get the real Fed pivot as economic data quickly deteriorates into recession while the stock market plunges. There will be no bull market until QT stops and the Fed pivots. There will be no bull market with short-term rates above 4%, or even 3%. Even a move back to the highs would be a hibernating bear. </p><p style="background-color: white;">While I am open to the "recession now no matter what CPI does" view, which causes stocks to go down as bond prices and gold go up in the first half of 2023, I favor the delayed version of recession not coming until late 2023 or even 2024, which would result in everything going up in the first half of 2023. In this delayed scenario, the first rate cut wouldn't happen until like October 2024, so the Fed Funds inversion will be correct, it just might be early and need to push out again. </p><p style="background-color: white;">*I don't need to point out this is my understanding, and my <i>speculation</i> on the turn and river cards to come, which are always unknown. Disagree as you please. Here's some charts. </p><p style="background-color: white;">SPX Daily. I don't have an opinion for January. It could rise to the trendline or a Fib retracement into the 3980 area, but I don't see how this could possibly breakout until after earnings, and I'm thinking it might be setting up for the big breakout on CPI day in Feb. There's a lot of time until then. Ideally, this chops around and fills in this triangle for a month and then either takes out the low of the January price action with a classic reversal or a double bottom. The first week of February has the Fed meeting on the 1st (along with ISM), AMZN is the last megacap to report on Feb 2nd, and NFP is on Feb 3rd. </p><p style="background-color: white;">Let's say the top of the triangle is 4050 and the bottom is 3650. I expect there will be too many sellers at the top and too many buyers at the bottom for a sustainable breakout without a major change, which is likely to occur either around Fed day, or CPI on Feb 14th. If you ask yourself what is the nastiest thing that could happen it is violent chop with a downward bias toward the bottom of this triangle through earnings, then a washout on Fed day with a massive reversal during the presser if Powell suggests a pause, then I would expect dips get bought into CPI and a big breakout. Too perfect? Yes. The ideal scenario never happens, but that's an idea of what I'm thinking at the moment. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1MnmRmy7ol833GY_a0qyo0kVna2qis4U4G93OMLLTtLN-vq6EjDgCOMTEbIVTbMSaFnzILKFesAIVE9P7oP2Drkv-39Xcd4x6kp1nPrZ9XitDBpkfHqfZUdLjFnkSNofJZnKJ91pmdfDe1Sdm5-qlH8fQhtvj41CpJemP5FQ-Qqx-s9RlYmKjCzszAg/s1426/z%20SPX%20daily.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1MnmRmy7ol833GY_a0qyo0kVna2qis4U4G93OMLLTtLN-vq6EjDgCOMTEbIVTbMSaFnzILKFesAIVE9P7oP2Drkv-39Xcd4x6kp1nPrZ9XitDBpkfHqfZUdLjFnkSNofJZnKJ91pmdfDe1Sdm5-qlH8fQhtvj41CpJemP5FQ-Qqx-s9RlYmKjCzszAg/s320/z%20SPX%20daily.png" width="320" /></a></div><br /><p style="background-color: white;">Gold daily. This is a tough one. I have the highest conviction in gold going lunar but the challenge is not screwing it up. I have some call spreads and I bought a put spread to hedge a retracement in January, but that's only a starter position. This is kinda the same problem as stocks. If you get too big too early then a simple retracement that you should be waiting to buy, hurts, and what if it's wrong? And yet the really strong trends don't retrace much, so you end up waiting for Godot. </p><p style="background-color: white;">I've learned nearly every trading decision boils down to this: what will you regret less? I prefer to miss out then give back. You have to pick one, and the only way to soften that is to layer in and out. You sell some when you're the most excited, and if you don't have on your full position, which you shouldn't, you add when you're most disappointed and ready to throw in the towel. You're supposed to use the same size on every trade and never lose more than .5 - 1%. But some trades are just better setups than others so I don't believe in that myself. The problem is if you're wrong on the special setups, it takes an even more special run of normal wins to make it up. But if you're right, boom stick. The bottom line for gold is the chart pattern isn't complete. It may not complete, but if this comes down closer to 1700 it will form a perfect inverse head and shoulders. The left shoulder low is 1679. Gold is a notorious heartbreaker. I think it's setting up for a huge move. In five years, I think gold will be double in price. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJ6Axy3EoZW1NrKd7ycx-x3QHPg4Iz_fEqg3KLSbvS3BJk-k-BfKj7FFLYURT1XNexNLNN1_fT_PoCmNNkFVnCpR3AllqxrbomXvOoOKBoNzzcP1Ww5fLGRsEnVuDV5eEt7cCgFcdSuaNVLDO_1TsrrTBL6hM0wmwuToQDDihsewnEFDZZOXnnxucMLA/s1426/z-%20gold.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJ6Axy3EoZW1NrKd7ycx-x3QHPg4Iz_fEqg3KLSbvS3BJk-k-BfKj7FFLYURT1XNexNLNN1_fT_PoCmNNkFVnCpR3AllqxrbomXvOoOKBoNzzcP1Ww5fLGRsEnVuDV5eEt7cCgFcdSuaNVLDO_1TsrrTBL6hM0wmwuToQDDihsewnEFDZZOXnnxucMLA/s320/z-%20gold.png" width="320" /></a></div><br /><p style="background-color: white;">Oil daily. I don't care about oil except that it could ruin everything. Incidentally, the psychopath trade is long oil, short treasuries, and short equities. If that's your jam you might want to keep it on the low, or show up outside homes and businesses with a flamethrower and torch them directly. At least, you'd be seeing the people you're hurting. Do I mean that? As a trader, no, but as a business owner, yes. Incidentally, my business continued similar results. Q4 was approximately 60% of the Q4 in 2020 & 2021, but up 50% from 2019. Not catastrophic, but reflective of the Covid cash spike. Through Xmas, December is the same as 2019, but 1/3 of 2020 and 1/2 of 2021. People are spending less on consumer discretionary, which makes sense since they ran out of lotto winnings. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh4cJnHOfYlKWf_C0VpKHshgFuabRsRoTLZaI2087YHGMWhYi7KG_s9ej-1N9hTEK4seFFuou9bCdQzTlUnqMWfw3CbtvbqrkjrcrICv2IYlfw3II_TRp38BzYsNwZiV18RlNvEMBCzZ6InOx-6dfxLtWxyh9DE0xHEqftdMiJwtYDipjHg4NxymHWYg/s1426/z%20oil%20daily.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh4cJnHOfYlKWf_C0VpKHshgFuabRsRoTLZaI2087YHGMWhYi7KG_s9ej-1N9hTEK4seFFuou9bCdQzTlUnqMWfw3CbtvbqrkjrcrICv2IYlfw3II_TRp38BzYsNwZiV18RlNvEMBCzZ6InOx-6dfxLtWxyh9DE0xHEqftdMiJwtYDipjHg4NxymHWYg/s320/z%20oil%20daily.png" width="320" /></a></div><br /><p style="background-color: white;">10-year yields, daily. Fib retracements: 38% is where we're at, 50% is 3.86, and the 61% is basically 4. There's nothing magical about Fib retracements. They're just levels you'd expect the one side of the trade to defend if they're in control, and when they don't it's an insight into underlying strength.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYIYdpk-N1BCxQB6VnSHLYeN0ph0S67bDeUjxPq1LG1TwlH-MjoKuhI4l8ENewY43mBHonuyFY2oqn0zNZMfPSIO6ABkB9-iUjNJDSmld41wkUBSDd0_ZGSOBhRYH-Z9YjASPhmoU5o1QvXElpthLxyEy6nisNlED2AYvfbUxA7eySTcy8WetsOp04CA/s1426/z%20note%20yields.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYIYdpk-N1BCxQB6VnSHLYeN0ph0S67bDeUjxPq1LG1TwlH-MjoKuhI4l8ENewY43mBHonuyFY2oqn0zNZMfPSIO6ABkB9-iUjNJDSmld41wkUBSDd0_ZGSOBhRYH-Z9YjASPhmoU5o1QvXElpthLxyEy6nisNlED2AYvfbUxA7eySTcy8WetsOp04CA/s320/z%20note%20yields.png" width="320" /></a></div><div><br /></div><div>USD weekly. If my CPI collapse dream trade comes to be, I would expect the dollar to retrace just below 100. That would put the EUR/USD around 1.12 which is the underside of a major trendline. I hope January is dollar up, gold down, stocks down, yields up just to setup a big reversal. </div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJCBLtw9E3sO-GEcrxbY57lBonwzYwKoDmbdLPFCFSL2tF25HmtUQg2z4t7CbGZapkEZzyCNEzUoMVNnRqFr91-7t9hCy9heYLyxLqr7JWEwbEsxpLEJWseSxjjD49L24lj0IDvFKxAlQ4hjgwY5OEf99z2BcRfW-rn31DnuqjziyQRkFVaXHjf0CNsw/s1426/z%20usd.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJCBLtw9E3sO-GEcrxbY57lBonwzYwKoDmbdLPFCFSL2tF25HmtUQg2z4t7CbGZapkEZzyCNEzUoMVNnRqFr91-7t9hCy9heYLyxLqr7JWEwbEsxpLEJWseSxjjD49L24lj0IDvFKxAlQ4hjgwY5OEf99z2BcRfW-rn31DnuqjziyQRkFVaXHjf0CNsw/s320/z%20usd.png" width="320" /></a></div><br /><p style="background-color: white;">EUR/USD daily. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigCAA3qGH14YdKBpxcSWZxxEdoF5oiBntSLA2kHOAsjrodwQUoHAs5skQuYjOGdfNhkG5on1lmti9I71TKqjbz9ImjrL2X1IiImhpWmBGe4wx0XBjAd8raM2C0QI7o_uWVYYRHiTCo6AFEt1Ex6Fraz0TL60UMeTry_SuHTXP25-CkRJjjQzyAoR-PGw/s1426/z%20eurusd.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigCAA3qGH14YdKBpxcSWZxxEdoF5oiBntSLA2kHOAsjrodwQUoHAs5skQuYjOGdfNhkG5on1lmti9I71TKqjbz9ImjrL2X1IiImhpWmBGe4wx0XBjAd8raM2C0QI7o_uWVYYRHiTCo6AFEt1Ex6Fraz0TL60UMeTry_SuHTXP25-CkRJjjQzyAoR-PGw/s320/z%20eurusd.png" width="320" /></a></div><br /><p style="background-color: white;">I will note again these are just probabilities. The whole game is losing small when you're wrong, and winning big when you're right. </p><p style="background-color: white;"><b>BONUS </b>(details on the Covid cash Acts)</p><p style="background-color: white;"><b>Stimmi-flation</b></p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>Cares Act</b>: $1200 per individual, $2400 per married couple, $500 per dependent under 17 (phase out above $75k for the individual and $150k for couples)</p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>Coronavirus Relief Act</b>: $600 per individual, $1200 couple, $600 dependent under 17 (same phase out)</p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>American Rescue Plan</b>: $1400 individual, $2800 couple, $1400 dependent under 19 (24 if student) (similar phase out)</p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>Total Stimulus Checks:</b> $804B</p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>Small Business PPP Grants</b>: $1T+ </p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;"><b>Unemployment <i>Extra</i> Benefits:</b> $567B</p><p style="background-color: white; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 13px;">Plus, there was an extra $1600 child tax credit (in addition to the usual $2k) for children 6 and under, and an extra $1k for those older than 6. </p><p style="background-color: white;">If you haven't added it up, <span style="font-family: times;"> a married couple with 3 kids was entitled to: $6400 (for the couple) + $7500 for dependents + $6k (for normal child tax credits) + $4200 in additional child tax credits (say 2 kids below age six and 1 above). </span><span style="font-family: times;">That equals <b>$24,100</b> (and it's not considering if one (or both) of them collected extra unemployment money. </span></p><p style="background-color: white;"><span style="font-family: times;">Consider how many self-employed, contractors, and other businesses who found a way to operate during the shutdown and paid themselves or their employees in cash so they could collect the extra unemployment. I know a 19-year-old who collected over $16,000 in unemployment while he worked under the table. Pretty much anyone working a cash business could have done this, so it's not unreasonable to assume a healthy percentage of the married with kids people who collected the $24,100 also collected an additional amount like this 19-year-old in unemployment, which means it was possible for households to collect $50k as a family </span><i style="font-family: times;">and</i><span style="font-family: times;"> work under the table on top of it, and while I'd assume most were closer to the baseline, it may have averaged out closer to $30k. </span></p><p style="background-color: white;"><span style="font-family: times;"><b>Fancy Pants Livin'</b></span></p><p style="background-color: white;"><span style="font-family: times;">If you live in a fancy pants town you might not realize how much more affordable real estate is in other parts of the country and therefore probably dismissed the idea that the Treasury sent down payments to everyone for houses. In mid-size cities like mine (or smaller), a pre-Covid 1970s/80s 1800 sq ft 4-bedroom house in the 'burbs with 1/4 acre yard where you never have to lock your door was like <b>$140k-$160k</b>. It peaked around $225k-$250k. One of my employees had a starter house he bought in 2015 that was 1100 sq ft for $85k. He just sold it in October for $195k to upgrade because they had another kid. In comparison, my friend in Maui has a 1600 sq foot house with a tiny yard that was $600k pre-Covid and it's now $1.1M. </span></p><p style="background-color: white;"><span style="font-family: times;">Since the stimmies were directed at the lower 75% of the income scale (and definitely the lower half), most of the recipients were in the market for houses $150k and less, so a 10% down payment would be in the ballpark of $15k, and as prices rose maybe up to $25k. This housing bubble inflated from the lower end up as all these people suddenly had down payments, which pushed up the prices of the middle and higher end houses too, and those in more expensive areas. A lot of people in the middle income cohort already had the down payment, so the stimulus provided the added confidence to go for it, which was often motivated by the newfound freedom of remote work. </span></p><p style="background-color: white;"><span style="font-family: times;">The bubble inflated from both a supply shortage because Blackrock is buying up America to turn the country into renters (as well as the Covid shutdown stopping construction for awhile), and from the demand side as buyers flush with stimmy cash chased offers ever higher, and I've never met a real estate agent who didn't have a hot competing offer on the other line to drive up the price. Not to mention the moral hazard of the Fed buying up MBS so the banks don't have to worry about issuing mortgages at the top of a bubble because they'll just flip them to the Fed if there's any trouble. </span></p><p style="background-color: white;"><span style="font-family: times;">The same thing happened in the auto market. The Covid cash was not money restrained by banking practices that require provable income, or collateral, and it wasn't a loan that needed to be repaid. It was the rocket fuel of actual inflation that was broadly distributed, and caused the prices of CPI to rise. </span></p><div><span style="font-family: times;"><p style="background-color: white; font-family: Times;"><span style="font-family: times;"><b>A Horse Named CPI</b></span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;">Imagine it's the Kentucky Derby but there's only one horse named CPI and he's trotting toward the starting gate at his natural pace of 1.5, then all of a sudden he comes to an unexpected halt in the gate. The politicians and central bankers freak out and load a rocket engine on his back. The gate finally reopens and he launches forward at an unprecedented acceleration, but eventually the fuel runs out, so he can't do anything else but slow down to his natural pace all on his own - there's nothing else that can happen. But the politicians and central bankers start freaking out in the other direction because they misjudged the effect of the rocket fuel, so they start piling sandbags on the horse in ever increasing amounts, instructing the jockey to pull back the reins! </span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;">If you measure the rate of change in CPI's speed as he burst from the starting gate (both from the reopening and the stimmies) and compare that to measurements of the rate of change at 10 yards, 50 yards, 100 yards...it would show a burst followed by a leveling off followed by a descent back to his natural pace. It's impossible for the artificial rocket-fuel-tainted initial rate of change to be sustained without ever increasing amounts of fuel. </span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;"><b>THOUGHT EXPERIMENT</b></span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;">What would happen if after the Fed enabled the Treasury's Covid cash distributions, they closed the institution and left with Fed Funds at zero? The answer is the entire point: markets would take care of the inflation. High prices would cure high prices. There would be no wage price spiral. The inflation would simply burn through the system like a drug followed by a hangover. But what if I'm right (I am) that the structure of globalization is the underlying disease that is forcing the Fed and Treasury to treat the symptoms of low growth, populism, civil unrest, balance sheet debt saturation etc. with continual stimulus in ever increasing amounts to prevent a deflationary collapse? </span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;">There's only 3 possible cures: a new monetary system that allows the world's sovereign currencies to be devalued into it, thereby reducing the burden of debt; a new innovation that creates practically free energy, thereby reducing the burden of expenses; or a breakthrough in general artificial intelligence that launches an era of enhanced productivity, thereby improving the flow of incomes. </span></p><p style="background-color: white; font-family: Times;"><span style="font-family: times;">I believe all three are coming - when the time is right. </span></p></span></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-28970790314625924392022-12-11T10:33:00.000-05:002022-12-11T10:33:12.737-05:00BUNCHA CHARTS<p>I have a solid thesis forming but I don't have time today and there's no hurry because it's a next year thing. I plan on posting it after xmas with an updated view from my recent quarter and holiday sales (spoiler: not good). </p><p>Here's a handful of long-term charts. I'm thinking there will be consolidation/chopping around for a month or two. It would be nice to see knee jerk reactions to the downside in stocks on Tuesday and Wednesday because they are usually tradable, but the real deal is gonna happen next year. It's quite possibly the best setup I've ever seen. </p><p>USD monthly. Backtesting the breakout. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh--kozhsRDXHK6TlhywJAPMfSIayATS__zg_bQnUed1jJS1WBc7NHx4lshT02cS69XqtIcLZCOh0GTsF378j2qmRfpXe740SeCS9JHvpzGfV6mXuKtjsVwaxnC2Zosng5PK6OHdKQf3f8AVaKWvfdh53OXzar3ZOE8Hxjb0PRtgHDG0jlc_24XHrjX5Q/s1426/DXY%20MONTHLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh--kozhsRDXHK6TlhywJAPMfSIayATS__zg_bQnUed1jJS1WBc7NHx4lshT02cS69XqtIcLZCOh0GTsF378j2qmRfpXe740SeCS9JHvpzGfV6mXuKtjsVwaxnC2Zosng5PK6OHdKQf3f8AVaKWvfdh53OXzar3ZOE8Hxjb0PRtgHDG0jlc_24XHrjX5Q/s320/DXY%20MONTHLY.png" width="320" /></a></div><br /><p>EUR/USD monthly into resistance. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG_iKSiU3v0l7vc7tI7jUCOPU6UVtA-uft2P9oM78BvmyQSFIPLnaHzBBXFGZsV-xddrYQflR_k2I469OMIoHd7JOLbteAoUbOCxuTPnV4Bns57YyiYJf_AMkfgZLj8W0CvF1ApLUFRVFmGZUCiquXSV1VEjluoZsZme4l3sEu8myi3q3l_Bndb2LR5Q/s1426/EUR:USD%20MONTHLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG_iKSiU3v0l7vc7tI7jUCOPU6UVtA-uft2P9oM78BvmyQSFIPLnaHzBBXFGZsV-xddrYQflR_k2I469OMIoHd7JOLbteAoUbOCxuTPnV4Bns57YyiYJf_AMkfgZLj8W0CvF1ApLUFRVFmGZUCiquXSV1VEjluoZsZme4l3sEu8myi3q3l_Bndb2LR5Q/s320/EUR:USD%20MONTHLY.png" width="320" /></a></div><div><br /></div><div>Gold daily. This is setting up to skyrocket, but it could pullback to form a right shoulder first. </div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-CBp5rj0O2_QvNBoR4WoWeLWie38JC1XBG1Ibqgj9npsXp0PHJX0l4qeSQXeG2dNaog0ShhL-ILaEeAlqMlPmn8Nq5nW_3cnopQxMEd7iHyM4bc8A4AQXM6018c_5hq53f4rJSIrRVCHnohXape2LRsqernymG9X42d_o4OcMJF7NNc9zn97Q4z6fGA/s1426/GOLD%20DAILY%2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-CBp5rj0O2_QvNBoR4WoWeLWie38JC1XBG1Ibqgj9npsXp0PHJX0l4qeSQXeG2dNaog0ShhL-ILaEeAlqMlPmn8Nq5nW_3cnopQxMEd7iHyM4bc8A4AQXM6018c_5hq53f4rJSIrRVCHnohXape2LRsqernymG9X42d_o4OcMJF7NNc9zn97Q4z6fGA/s320/GOLD%20DAILY%2012.png" width="320" /></a></div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div><br /></div><div>Silver weekly formed a perfect base around long-term support at $18. I'd prefer if this consolidates or pulls back - even all the way to the moving averages. </div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ2cGydYc4QOo9j3HwirhUru14lPxnQQHHSeu59kCURTfAHKVn8CtgqiZQoq2eHz52Y9UeGw-HOtNnDU4pDbDDW8HG8pBii9NcLp5RbxlucX9SuF94P7wpncRw7ZUZHaiqE_h3f0JkSVwY7CVVXF0wNQL2BQ3V6QgDAWGQE9uLSWYYRhwUAbmofx0DZg/s1424/SILVER%20WEEKLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="711" data-original-width="1424" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ2cGydYc4QOo9j3HwirhUru14lPxnQQHHSeu59kCURTfAHKVn8CtgqiZQoq2eHz52Y9UeGw-HOtNnDU4pDbDDW8HG8pBii9NcLp5RbxlucX9SuF94P7wpncRw7ZUZHaiqE_h3f0JkSVwY7CVVXF0wNQL2BQ3V6QgDAWGQE9uLSWYYRhwUAbmofx0DZg/s320/SILVER%20WEEKLY.png" width="320" /></a></div><div><br /></div><div>Oil monthly. The 2 yellow lines are the 50% & 61.8% retracements. </div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhJAIDfxwAEqCo6zNJvzRmWwRSQUDTpi6NhrIxToAmGjwsgKdlVmeaRio3EihYcUX_hakWOOm_SBk8keWecBkInpp-LoyazPldL6NHAcbzWb8uyHrAQ2SI-JQM2I-8FKfip4G2phidwH-9ccYQWdpAULCwC0gKcfAwAj4BFEfkU7vIQWKbh4W3Xr3-Cg/s1426/OIL%20MONTHLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhJAIDfxwAEqCo6zNJvzRmWwRSQUDTpi6NhrIxToAmGjwsgKdlVmeaRio3EihYcUX_hakWOOm_SBk8keWecBkInpp-LoyazPldL6NHAcbzWb8uyHrAQ2SI-JQM2I-8FKfip4G2phidwH-9ccYQWdpAULCwC0gKcfAwAj4BFEfkU7vIQWKbh4W3Xr3-Cg/s320/OIL%20MONTHLY.png" width="320" /></a></div><div><br /></div>SPX daily. There is an unfilled gap from 3818 - 3859. The yellow line is the 50% retracement around 3800. This area seems like the source of chop and backfilling to me. Above the downtrend are the 50% & 61.8%. <div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxJ6wrMcd7TxaVjSB0iXxi8pCJa1PwkmbEvnnm3j_kvJGrUqqAwSCKWur7fv9JnQDZh-e6DONVP8KqsPk9FdAm7WtZR2PlqdCxzGFztZsXMPyj3yNyL7Fh9qy7sb4J_LGOg2Zj3ChUy9NlZWe2lnvHx9iHcziX0zM-6U8YkrjklxC-AU6MbISthYjxOw/s1426/SPX%20Daily.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxJ6wrMcd7TxaVjSB0iXxi8pCJa1PwkmbEvnnm3j_kvJGrUqqAwSCKWur7fv9JnQDZh-e6DONVP8KqsPk9FdAm7WtZR2PlqdCxzGFztZsXMPyj3yNyL7Fh9qy7sb4J_LGOg2Zj3ChUy9NlZWe2lnvHx9iHcziX0zM-6U8YkrjklxC-AU6MbISthYjxOw/s320/SPX%20Daily.png" width="320" /></a></div><br /><p><br /></p></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-13970151512404634802022-10-30T16:05:00.001-04:002022-10-30T16:06:42.845-04:00Rocket Launch<p>What if we actually got follow through up to the 200-day? </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYH7jODrBXmcyIceaK0S9ODCK3FregMpmjsjs36fQeh1wPHvNYh3GrCsKPvzqsqhpzckwQmgdd-avlcXZNYYFsjkXKWH9TuiCq1b37lomaP3pmzHs6U5Jn62aEfzf8lqfeVowaqGF4l88-HSANo2AHj70I4EYOB0ChXjLFUSIUwlm_iauq61qYzIabyQ/s1426/nasdaq.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYH7jODrBXmcyIceaK0S9ODCK3FregMpmjsjs36fQeh1wPHvNYh3GrCsKPvzqsqhpzckwQmgdd-avlcXZNYYFsjkXKWH9TuiCq1b37lomaP3pmzHs6U5Jn62aEfzf8lqfeVowaqGF4l88-HSANo2AHj70I4EYOB0ChXjLFUSIUwlm_iauq61qYzIabyQ/s320/nasdaq.png" width="320" /></a></div><br /><p><br /></p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-23595651905563154862022-09-18T14:23:00.012-04:002022-09-18T14:51:33.353-04:00Inflation Causes Deflation<p>I can't believe there are still people saying inflation isn't transitory, so instead of expressing the <i>concepts</i> like last time, I'll anchor them in my actual experience of owning a business through all of this to show you how inflation <b>causes</b> deflation, then we'll explore a time frame, and see if the market is confirming this view (spoiler: it is). </p><p>Let's start with the customer. Whether people are aware of it or not, everyone is running a business by being alive. At the end of every month you can subtract your expenses from your income and calculate your month's profit. Pick a number, but for the bottom X% of the population that disposable income is very limited, and it gets squeezed by rising costs if their wages don't keep up. I assume we can agree on that. </p><p>My small business used to have seven employees; now it has five. My number 1 & number 2 have been with me from the beginning. My number 3 replaced two part-time family members who graduated and moved on. At the end of each year I give everyone a raise and a bonus. I already paid above market rates because I value loyalty over squeezing out a little extra profit, and I think of them like family. This year I overheard them grumbling about rising living costs, so I gave them an additional raise in the summer. I plan on another at the end of the year. Thus far I've been able to grow revenues to compensate for this, so the bottom line has increased. In fact, in four years, I've grown the top and bottom line 3x while paying my employees nearly twice what the previous owner paid hers. Some of this was due to skill in selecting the right business and executing on it, some was luck, and some was divine intervention. </p><p>My suppliers have all been complaining about their input costs rising, so they've been raising their prices to maintain their margins and free cash flow because obviously they too are a business. </p><p>With the disposable income of my customers getting squeezed by higher expenses, last quarter (Q3) (ending August 31st) is the first time my revenue and net profit is significantly down (the net profit is 50% of Q3 2020 and 25% of Q3 of 2021). I also had to run a 20% and 10% discount this Q3 to move "inventory," so the net profit is down due to higher employee costs, higher supplier costs, and less demand. If I was a publicly traded company I would have to pre-announce to soften the blow and give vague guidance because I don't know for sure that some of the cause isn't people spending way more on vacations this summer, but I do know there is a significant drop in customer spending. </p><p>One thing I did was consolidate hours. I had 2 employees who only worked one day a week (for depth of staff), but they didn't take it seriously because they kept calling in, and since my number 2 wanted more hours, I gave their shifts to him. Even though it's the same amount of hours, in theory, 2 people lost their part-time job. </p><p>I've also negotiated with my suppliers for better prices, hinting that I may have to look elsewhere (meaning, I'm the customer not wanting to pay full price, so give me a discount). Business is a game of who needs who more? Do I need the employees more than they need the job? Do the suppliers need me more than I need them? Do I need this customer wanting a discount more than they need me? It's a balancing act of negotiation that requires constantly reading people. Fortunately, I'm good at that. So the suppliers came down a bit to share the burden, which means it eats into their margins and free cash flow too, but if this continues we are both going to get squeezed even more. </p><p>With demand down I will be careful not to order too much, in fact, I'm ordering less, so the supplier gets the feedback to produce less, which translates into less economic activity. When customer demand softens, particularly if it's because their discretionary income is shrinking because their expenses are rising faster than their wages, then I have to <i><b>lower</b></i> my prices to clear "inventory," but most of my expenses are fixed, so it leads to less earnings as seen in Q3. Since I'm in year four of a six year lease, rent hasn't gone up - yet. Utilities are up, which, of course, is tied to commodities as the baseline input to everyone's business on every level.</p><p>Do you see how inflation <i><b>causes</b></i> deflation? It's all about the free cash flow of the customer, which is limited. If it gets squeezed by expenses being higher than wage increases they will spend less and it spirals downward back onto businesses and their supply chains, squeezing margins, and causing less production and economic activity. If it keeps going it leads to layoffs and spending cuts that perpetuates the cycle, but debts remain, so inevitably people start using credit cards to pay bills, but eventually they run out of credit, so they stop paying credit cards, then mortgages, then cars. If it keeps going, centralized credit institutions get impaired, which causes either significant write-downs, or systemic risk if it's bad enough, which forces the central bank to socialize losses by buying up toxic debt, so the downward spiral must be stopped and reversed at some point. This is why there will always be a Fed put. It's not a choice. The only bright spot is the shortage of labor could help keep wages up while we go through this, but it doesn't seem sufficient to me. </p><p>With what I just described in mind, how is it possible to have a permanent condition of inflation? The term transitory is not to predict the length of time, it's to describe the mechanism of markets limiting the effects of inflation because it causes its own demise by consuming disposable income, which starts a deflationary spiral that destroys earnings, spending, and jobs. This has nothing to do with the Fed. It's simply markets at work. Wages lag rising costs. The Fed can't print creditworthy borrowers, wage increases, or money into my customer's bank accounts. They can cause the stock and bond markets to inflate, which has some degree of wealth and psychological effect, but it doesn't put money into the hands of my customers to spend. I don't care what the economic textbooks say - I'm living it. And I should note just because my Q3 was down so much doesn't mean the greatest businesses in the world will see the same result, but it sure is a potential warning sign for the next 6-12 months. Deflation is at work, as seen with Fedex and Walmart. </p><p>Let's do a reality check to see if the market is confirming this view:</p><p>Treasury curve: inverted, doesn't care about CPI</p><p>Eurodollar curve: inverted, no fucks given. </p><p>5y 5y Forward Inflation Expectation: 2.27%</p><p>5-year breakeven: 2.49%</p><p>Oil, lumber, copper, silver, wheat, corn, gold, and nearly every commodity: currently downtrending. </p><p>Housing: coming down, but kinda sticky. With mortgage rates very high relative to recent years, and disposable income getting squeezed, this should continue to slow down. This lags the most because it's not driven by speculators pricing in the future like the other markets, so it's not surprising it will be last to be dragged down by a contracting economy as people tighten their spending or lose their jobs. Meaning, derivative markets look ahead and price in the future while housing and OER reflects the sentiment of the present and policies of the past. </p><p><b>CPI - Reverberations of the Past</b></p><p>The inflationists are strutting around like proud peacocks again, but they aren't making sense. And I do give the ones who aren't perma-inflationists all the credit for the correct call <b>when inflation was happening two years ago. </b>The CPI data we see now is the reverberations of the inflationary policies from 2020, which have long ago ended. Why is the concept of time so disregarded? I don't get it. It's like someone drank a bottle of whiskey and started acting intoxicated buying up everything on the internet, then the booze starts wearing off as fatigue and confusion sets in, and he's still flailing at the button for that last available foot massager, but as the pain of the impending hangover starts kicking in, the inflationists are saying he's gonna stay drunk forever, in fact, next year he'll be double digit drunk! How? The alcohol ran out. It's just working through his system. If your thesis is inflation will happen again when the Fed pivots, which will cause the dollar to descend (especially if the war ends and Europe's acute woes subside), so commodities will rally and increase input costs, that makes sense, which means you agree inflation is transitory, and so is the deflation happening now that will cause the Fed pivot. It's all cycles. And the next wave of inflation is going to depend on how low commodities like oil go during the deflation because don't forget the Fed doesn't put money into people's hands, so demand will be a concern. (Let me note as well, if commodity prices were to relentlessly rally <i>despite</i> collapsing consumer disposable income, then I would agree CPI would resume an uptrend, or stay elevated until equilibrium occurred. I've noted before my concern about oil supply, but based on what I'm seeing in my business and what the leading indicators are pricing, it doesn't seem possible because the demand will come down just as fast as supply during a deflationary period, but should that occur, then what I'm writing would be wrong. I don't really care about my opinion. I let the markets tell me what to think and adjust when necessary. Is there any other way?) </p><p>Unfortunately, it seems like we will have to listen to the inflationists for a few more months due to base effects. Here's the actual CPI data of the last year. Note the big MoM% changes in yellow that will drop off as we get to them. We also have to keep in mind that housing is slooow moving, so OER could be what I would argue as falsely elevated for awhile (in relation to what is actually happening in the surrounding economic data reflecting actual customer spending affected by squeezing disposable income). </p><p>Also, residential rents renew yearly, so that's a rolling issue going forward, but as housing slows it will slow too. Certainly, food was a bigger problem than it has been, both recently, and this year, and gasoline last month was down 10%, so if gas stops going down at this rate of change, other items have to go down to makeup the difference. Probably the biggest short-term concerns are housing and food from the fertilizer disruption. Also note over the last 3 months the level of CPI (in the 296's) has stopped going up. </p><p><google-sheets-html-origin></google-sheets-html-origin></p><p><google-sheets-html-origin></google-sheets-html-origin></p><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="100"></col><col width="100"></col><col width="100"></col><col width="100"></col></colgroup><tbody><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Date"}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Date</td><td data-sheets-value="{"1":2,"2":"CPI Level"}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">CPI Level</td><td data-sheets-value="{"1":2,"2":"% MoM"}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">% MoM</td><td data-sheets-value="{"1":2,"2":"% YoY"}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">% YoY</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44825}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9/21</td><td data-sheets-value="{"1":3,"3":274.31}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">274.31</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0027}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.27%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.054}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">5.40%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44855}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">10/21</td><td data-sheets-value="{"1":3,"3":276.59}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">276.59</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0083}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.83%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.062}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">6.20%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44886}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">11/21</td><td data-sheets-value="{"1":3,"3":277.95}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">277.95</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0049}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.49%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.068}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">6.80%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44916}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">12/21</td><td data-sheets-value="{"1":3,"3":278.8}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">278.8</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0031}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.31%</td><td data-sheets-numberformat="{"1":3,"2":"0%","3":1}" data-sheets-value="{"1":3,"3":0.07}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">7%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44583}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1/22</td><td data-sheets-value="{"1":3,"3":281.15}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">281.15</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0084}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.84%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.075}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">7.50%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44614}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2/22</td><td data-sheets-value="{"1":3,"3":283.72}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">283.72</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0091}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.91%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.079}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">7.90%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44642}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">3/22</td><td data-sheets-value="{"1":3,"3":287.5}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">287.5</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0134}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.34%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.085}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8.50%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44673}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4/22</td><td data-sheets-value="{"1":3,"3":289.11}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">289.11</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0056}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.56%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.083}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8.30%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44703}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">5/22</td><td data-sheets-value="{"1":3,"3":292.3}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">292.3</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.011}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.10%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.086}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8.60%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44734}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">6/22</td><td data-sheets-value="{"1":3,"3":296.31}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">296.31</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.0137}" style="background-color: yellow; border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.37%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.091}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9.10%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44764}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">7/22</td><td data-sheets-value="{"1":3,"3":296.28}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">296.28</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":-0.0001}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-0.01%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.085}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8.50%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44795}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8/22</td><td data-sheets-value="{"1":3,"3":296.17}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">296.17</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.001}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">0.10%</td><td data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.083}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">8.30%</td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44826}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9/22</td><td data-sheets-value="{"1":2,"2":"Oct 13th "}" style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Oct 13th</td><td style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td style="border: 1px solid rgb(204, 204, 204); overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-numberformat="{"1":5,"2":"m/d","3":1}" data-sheets-value="{"1":3,"3":44856}" style="-webkit-text-stroke-width: 0px; border: 1px solid rgb(204, 204, 204); color: black; font-family: Arial; font-size: 13.3333px; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; orphans: 2; overflow: hidden; padding: 2px 3px; text-align: right; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; vertical-align: bottom; white-space: normal; widows: 2; word-spacing: 0px;">10/22</td><td data-sheets-value="{"1":2,"2":"Nov 10th"}" style="-webkit-text-stroke-width: 0px; border: 1px solid rgb(204, 204, 204); color: black; font-family: Arial; font-size: 13.3333px; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; orphans: 2; overflow: hidden; padding: 2px 3px; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; vertical-align: bottom; white-space: normal; widows: 2; word-spacing: 0px;">Nov 10th</td><td style="-webkit-text-stroke-width: 0px; border: 1px solid rgb(204, 204, 204); color: black; font-family: Arial; font-size: 13.3333px; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; orphans: 2; overflow: hidden; padding: 2px 3px; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; vertical-align: bottom; white-space: normal; widows: 2; word-spacing: 0px;"></td></tr></tbody></table><br /><div><b>Markets</b></div><div><br /></div><div>I think the markets are reacting appropriately. Stocks are coming down to price in an earnings slowdown, and who knows how much is priced in so far, or how long it will last. This week is probably the last chance the S&P has to make a move up before rolling over again. </div><div><br /></div><div>The bullish thesis is this: 75bps is peak hawkishness from the Fed, so if we do get a "buy the news" on Wednesday AND there's <b>follow through</b> on Thursday, we could see a short covering rally to the downtrend line (or the next CPI in Oct). The bearish view would simply be emboldened shorts who win the battle because they have conviction of a coming earnings disaster, CPI which only has a .27% rolling off next month, a Fed trying to regain credibility so they will overtighten because the world only sees the lagging data they're looking at (like employment and housing) and not <i>leading</i> data. It's kinda like being an amateur trader making decisions off present time data and not anticipating the headlines of the future. If the stock market gets crushed this week, it's likely to be an ugly October. There is hope in November with a big .83% rolling off on the 10th, a lesser Fed raise Nov 2nd, and the midterms behind us, so if oil stays chill or even goes lower, we could finally see headline CPI start to really come down. You'll have to game out the housing and core yourself. </div><div><br /></div><div>Personally, I'm just waiting. I think the best trade on the board is the 2-year at 4%. I started my position around 3% so I'm underwater on that as well as just about everything else, but I'm mostly cash still. I'm thinking the 2-year will rally before the stock market bottoms, so I might scale all of my available cash into it at 4, then 4.5%, then all-in if we get to 5%, which I doubt, but I'm surprised it's at 4, so who knows. This is literally free money. The worst case is just sitting on it for 2 years. The only bad scenario would be if stocks screamed higher without the 2-year rallying ahead of it to sell first, but I think that's unlikely. The 1-year is about the same yield but it will only get half the price appreciation return if yields collapse. As someone who doesn't have clients I have the appropriate stock exposure to be disappointed in either direction: if stocks somehow go back to the highs because this is all overblown and the war ends, I'll be disappointed I don't have more; and if they go to the lows I'll be disappointed I have too much. That's the sweet spot of disappointment for me. If we get down to 3150, I plan to blindly buy with limit orders up to 60% of my intended amount and wait for confirmation for the rest, but that's just a guess. </div><div><br /></div><div>One final note to the guy who wrote me an angry message about oil: I never endorsed any political policy or party. If I was in charge I'd be subsidizing oil production to make energy <i>cheap</i> as the cost of EV's comes down over time through scale and innovation while I built regional nuclear plants and upgraded the grid to seamlessly shift energy around. That kind of infrastructure spending would pay for itself as the increased economic activity from a widespread boost in the disposable income of all consumers and businesses via cheap energy led to more income and sales tax receipts for the government. Energy should be the number one priority of any government. It's not rocket science. </div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-1168064109386457442022-08-20T10:45:00.004-04:002022-08-20T13:34:40.809-04:00The Natural Restraints on Inflation<p><b>Intro</b></p><p>I might be losing my motivation for this blog because I keep choosing to look for my golf ball on the wrong fairway than write this article. Here's my argument for why structural inflation is impossible. </p><p><b>The Two Faces of CPI</b></p><p>Traditionally, inflation is defined as a monetary phenomenon, which is when CPI rises due to an increase in the money supply, so technically a supply shock that causes CPI to rise is not inflation, it's just CPI rising. The reason this is an important distinction is because supply shocks are anchored in the law of supply and demand and the incentives of free market participants, so they always return to equilibrium; whereas an increase in the money supply could be the result of a structural economic boom in a fractional reserve system, or the structural recklessness of excessive fiscal money. In other words, the bond market doesn't care about supply shocks because the companies involved are restrained by free market competition, so the prices can't spiral out of control permanently. If the profit becomes too large it will attract competitors to bring it back to the cost of production plus the market allowed profit, or if the price rises too high it will kill its own demand. There's no escaping this restraint, except for temporary dislocations, so the treasury market will look past it. The reason CPI was over 9 with the 10-year yield under 3 is because trillions of dollars in the treasury market is saying the bulk is CPI is not inflation; it's other temporary reasons like the labor gap, supply chain issues, and a temporary disruption in oil. </p><p><b>The Fed Rides Caboose</b></p><p>The Fed has <i>almost</i> nothing to do with the current increase in CPI, and they're not even capable of causing it to rise. It's not a power they have. Here are the three biggest false assumptions many on Wall Street believe: QE is inflationary; the Fed controls interest rates; and banks loan out deposits. All three have profound downstream effects in how the economy and markets behave, so let's explore them. </p><p>The Fed couldn't make CPI rise if they tried (and they did for 10 years), mostly because their transmission mechanism into the real economy is weak and diluted. If the money they create doesn't enter the economy it can't drive up consumer prices, so let's follow the money because there's some nuance here. </p><p>When the Fed buys treasuries it indirectly funds the government beyond their tax receipts, which is the definition of inflation, but all government spending programs (until Covid) were narrowly focused on specific Acts that created winners and losers in certain sectors, so it was never broad enough to cause CPI to rise as a whole. </p><p>When the Fed buys MBS it frees up room on the balance sheet of banks, which allows them to make loans they wouldn't otherwise be able to make, which creates money into circulation and is also the definition of inflation. While banks create the bulk of the money supply through loan issuance, they are not restrained by deposits or reserves - they're restrained by the creditworthiness of borrowers and the viability of the loan, which is why the Fed was unable to cause CPI to rise for a decade. They needed creditworthy borrowers with down payments in order to have a broad based effect on consumer prices. </p><p><b>Light My Fire</b></p><p>Along comes Covid, and the MMT crowd gets to see their foolish ideas play out as a real-time experiment. Combine several rounds of stimulus checks, additional unemployment money, the PPP loans, the extra child tax credits...and all of a sudden the country was full of creditworthy borrowers with down payments, which created a housing and car boom. Clearly, there is nothing better for the economy than a strong housing market since there's abundant ancillary spending that surrounds it. What resulted is the typical "pig through a python" inflation of CPI as this free fiscal money worked through the system, but without a continual source of funding it can't be anything more than a transitory, albeit exaggerated, effect. That money will be spent and end up in the bank accounts of businesses and once again get stuck in the banking system, restrained by the need for creditworthy borrowers with down payments or collateral to keep it circulating in the economy bidding up consumer prices. </p><p>In contrast, the 1970s inflation was driven by a relentless, persistent demand for money by a freak demographic boom all moving through peak borrowing years at the same time <b>for a long stretch of time</b> (amplified by the oil supply shock, of course). Since CPI is a measurement of change, in order to maintain a high and rising CPI, the borrowing and spending must persist over years, which it did in the '70s because it wasn't driven by an artificial and temporary source of funds like government stimulus. </p><p><b>Spiral Squeeze </b></p><p>You might argue there's a psychological effect that takes over and creates a wage/price spiral that pressures CPI higher continually unless it's stopped, but this too has natural restraints because it doesn't happen broadly all at once, so it tends to be haphazard, staggered, and narrow. In an inflationary environment businesses are faced with higher input costs and the simultaneous shrinking of a customer's discretionary income, so they can try to raise their prices to maintain their margins, but some businesses have more pricing power than others, and some customers receive quicker and better wage increases than others, so the haphazard and staggered distribution of these increases acts like a built-in mechanism that prevents a runaway upward spiral in wages and prices as both customers and businesses get squeezed, which results in spending cuts and layoffs to counteract it. </p><p>Technically, we've been in a wage/price spiral for a century. The average salary in 1913 was $575 per year, and it's now $54,000, so while wages often lag, they do rise because that's how markets adjust. An environment of 9% CPI doesn't mean you're losing that much purchasing power if your wages went up or you own assets that countered it. It also depends on what you're spending it on. If it's sitting in a brokerage account and what you want to buy went down 30%, then not only did your purchasing power go up by that amount, but also by the 30% to get back to where it started (assuming it does). It's not a simple calculation. </p><p><b>Fed Bread</b></p><p><span style="background-color: white;">When the Fed buys treasuries, most of the money printed out of thin air ends up sitting in the bank reserves of primary dealers. Fed apologists claim this is an asset swap, but it's not because the Fed doesn't have any assets. To illustrate the difference, if the Fed ran an underground bakery and they produced the best bread you can imagine and they stole market share from other bread companies by selling their bread to consumers who paid for it with the money they earned by owning, or working for, profitable businesses, the Fed would end up accumulating savings, and if they used those savings to buy treasuries in a QE program </span><i style="background-color: white;">that</i><span style="background-color: white;"> would be as asset swap. The Fed doesn't have any assets. It's accounting gimmickry. </span></p><p><b>Purchasing Power Pilferage</b></p><p>The people who get hurt the most by inflation are the ones who need to not get hurt the most by inflation because they don't own assets or have enough cash to buy stocks that went down, or they are living on fixed income that understates their loss of purchasing power, so their fixed income doesn't keep up with their rising expenses. Inflating away the debt means stealing purchasing power from savers, the poor, and those living on fixed income, so a better alternative might be knocking on the door of poor people and punching them in face. Runaway inflation is impossible because the market forces of competition and the need for creditworthy borrowers will restrain prices even without the help of the Fed, which does not even control interest rates. </p><p><b>The Inversion Rebellion </b></p><p>If the entire Treasury curve bear-steepened in proportion as the Fed raised overnight rates, then I would agree the Fed controls interest rates. If mortgage rates followed Fed Funds in lockstep, then I would agree the Fed controls interest rates, but they don't. Interest rates are controlled by the market. This is the whole idea of why a yield curve inversion is such a powerful signal. It's the vast, diverse participants in the market disagreeing with the Fed as it responds to the same evolving economic data. Banks are going to charge as much interest as the customer will pay in the context of the bank's competitors. Mortgage rates skyrocketed as the housing market boomed, which created high prices in both housing and interest rates, and caused their own demise by cooling off demand. And if you eliminated the fiscal stimulus it wouldn't have mattered how many MBS or treasuries the Fed purchased, there would be no rise in CPI - just like the post-GFC decade - because there wouldn't be creditworthy borrowers with down payments. The Fed does not have the power to cause CPI to rise. They need the Treasury as an accomplice to send people money. </p><p>Fed critics like to say "the Fed is causing financial repression by artificially holding down interest rates," but ZIRP and QE happen during weak economies, so interest rates are already low from a widespread willingness to buy treasuries at lower and lower yields. I'm not saying the Fed buying treasuries has zero effect, but it's not nearly as much as the "financial repressionists" proclaim. Evidence for this would be the Taper Tantrum of 2013. Yields initially raced higher, then stopped at the appropriate yield for the time, and resumed their downtrend because globalization has stripped the engine out of our economy, which is the real cause of financial repression.</p><p><b>Poppycock Talk</b></p><p>Offshoring our manufacturing base not only removed tens of millions of the most secure high paying blue collar jobs, but it also resulted in exporting trillions of dollars. This is the disinflationary black hole in our economy that forces the Fed and Treasury to continually reinflate asset bubbles. This is the reason interest rates are structurally low. This is the cause of financial repression. And the people who think we're entering an era of deglobalization are full of poppycock. </p><p>The entire reason our CEO's moved those jobs offshore is to lower their expenses by evading our taxes, regulations, and unions. None of that has changed. There's no way any CEO is going to reshore those jobs back to the same exact conditions that prompted the exodus in the first place, voluntarily increasing payroll expenses many times over. Pointing to a few semiconductor plants as evidence of deglobalization is disingenuous because they are being heavily subsidized as a geopolitical strategy to protect our semiconductor production. There is nothing better that can happen to this country than reshoring our manufacturing base, but it is not a choice a CEO can make. If they don't like China anymore they can move to Vietnam or Africa or Mexico, but not the US. And I'm sure every single one of them <i>want</i> to reshore, but I <i>want</i> to flap my arms and take flight, which is equally as likely, so go ahead and scratch that off your structural inflation bingo card. Deglobalization would be career suicide for whoever attempts it. No one is going to buy a $10,000 iphone. The math doesn't work.</p><p><b>Thug Life Currencies</b></p><p>And this idea that somehow Russia and China are making a power play to create a new currency that's going to displace the dollar is not appreciating the fact that no one is going to denominate their international business in the currency of lawless communist dictators who don't respect the rule of law or free markets. The US might be flawed but we're not communist-dictator flawed. It's our rule of law, individual rights, democracy, and free markets that stand behind our dollar and override its flaws. There is no alternative. At the end of this, Putin will be dead, and Russia will be devastated for a generation as the whole world accelerates their flight away from Russian energy. </p><p><b>The Great Conflation</b></p><p>One reason everyone thinks the Fed has more power than they do is because the stock market is so dependent on the shortest end of the yield curve, which the Fed does influence, so people conflate the stock market effects with the real economy. Any institution, corporation, or fund that is able to borrow at practically zero can leverage up risk assets, which unquestionably forces more and more people out the risk curve, and amplifies an expansionary period. Money flows into tech as a proxy for duration because the cash flows of the present are dwarfed by returns from growth stocks pricing in the cash flows of the future, so multiples expand. This has almost no effect on CPI in the real economy at all besides a very weak wealth effect that comes from people seeing their retirement accounts, or the value of their house, increasing. Additionally, if the Fed buys bonds from non-banks the cash can bid up stock prices. </p><p>When the Fed keeps overnight rates below where the market would set them, zombie companies are kept alive that shouldn't be, but those jobs and that economic activity is not nearly enough to nudge the broad prices of CPI higher. When corporations can borrow cheap to fund buyback programs, reduce their share count, and drive up both their EPS and the stock price, the effect is also not broad enough to nudge CPI higher. QE and ZIRP only inflate asset prices, so the Fed's bubble blowing machine is constrained to financial markets.</p><p>Financial bubbles don't need higher interest rates to pop - simple human psychology is enough. People have an intuitive sense of what the price should be, and while that gets muted by greed and irrational thinking during bubbles, eventually the buyers hesitate, and the whole thing implodes. That's literally the restraint on every speculative market in history. The Fed just quickens the end.</p><p><b>Dodo Bird Death </b></p><p>The lack of oil capex is certainly a compelling narrative, not so much as a source of runaway CPI, but as a catalyst for recession. The way to gauge the burden of oil is to determine what percentage of discretionary income oil consumes and compare it to other eras, as opposed to thinking $80 oil is twice as bad as $40 in the 90s because wages have gone up to compensate, and debt levels are higher too. As the slow transition to EV's unfolds over the decade and oil companies are disincentivized to keep drilling, oil could find an equilibrium at a higher price, but that doesn't have to be any more disruptive than when it's moved up in the past. Until the '70s oil was well under $10 a barrel. Since then everything has moved up in price permanently, including the wages to pay for it. And why is everyone so sure that the current capex spending isn't the right amount given EV adoption will be moving from the lower left to the upper right? That seems like an assumption which is hard to calculate and may or may not be true. </p><p>It is certainly an interesting dynamic, and while there might be crazy spikes from temporary geopolitical dislocations, and a mismatched timing of wages catching up, the price of oil can only rise so much in such an indebted economy before it causes its own demise by killing the demand. </p><p>(I do agree the most self-evident solution to our energy problem is to power the grid with nuclear, and power vehicles with batteries - and if you're concerned about lithium, research sodium-ion batteries and perovskite solar cells - both are not ready for primetime, but they are steadily improving their charge capacity and efficiency. Innovation will lead the way.) </p><p><b>Great Temptations</b></p><p>The only cause of structural inflation would be a permanent Universal Basic Income program that artificially overrides the natural restraints of the banking system by sending money directly to the people without the need for collateral, down payments, or adequate income since it's not a loan. The MMT crowd refuses to acknowledge the money they want the Treasury to spend comes from someone else. There's no free lunch. If you imagine a dollar bill made up of 100 little squares of purchasing power, inflation is taking handfuls of those squares from those who hold cash (or cash equivalents), or those who earn cash but don't own assets, and distributing them to those who own assets that adjust higher in price as the currency is diluted. </p><p>The increase in house prices is a transfer of purchasing power from existing debt instruments like cash and bonds, and it disproportionately hurts the poor because they don't own assets, so their lagging wages squeezes their spending. If the Treasury determined the magic number was $10,000 to send to everyone making less than $30,000 a year, it would offset the pain on the poor, but it still comes from someone else. UBI would be a persistent, structural inflation the treasury market would have to account for, so purchasing power would be transferred from bondholders to UBI recipients to the stockholders of the businesses with the products and services they spend it on. Any inflationary impulse short of this lacks the persistent source of funds to maintain it, so it will be restrained by the natural forces of the markets, even if it takes longer for the money to work through the system than anyone believes. Underlying economic principles don't change just because things take time.</p><p><b>Summary</b></p><p>Without creditworthy borrowers with down payments or collateral there is a natural restraint on the inflation created by banks, and the only other source of inflation is the Treasury since the Fed by itself has a weak and dilutive transmission mechanism, and they don't really control interest rates, except the shortest of durations, which is contained to financial markets. Treasury spending programs are not broad enough to create lasting inflation with the exception of UBI, and since rising oil kills its own demand, especially in an environment of heavy debt, any and all CPI spikes have built-in natural restraints that will make them transitory. And since Congress is likely to become even more divided this November, the conditions for structural inflation do not currently exist, and don't appear to be on the horizon. </p><p>If this view is correct, what you would expect to see is the YoY% change in M2 go straight up and straight back down, commodity prices go straight up and straight back down, earnings go straight up in the Covid beneficiary businesses then revert to normal, inversions of the Treasury and Eurodollar curves, the rising price of oil hurting spending at businesses like Walmart, and if recession happens from here just about all businesses and their stocks will suffer. </p><p><b>Possible CPI Delays</b></p><p>Since nothing goes in a straight line, here's two main concerns: </p><p>1. I don't see why Putin wouldn't use his power over natural gas flows to accomplish what he wants this winter when Europe is the most vulnerable. If he does (and to his credit he did allow wheat exports, which is somewhat surprising for a sociopath), it will likely cause another temporary geopolitical spike in the front months of oil that could cause CPI to stick even longer, but all geopolitical dislocations of price eventually revert to the cost of production plus the market allowed profit. Personally, I'm not into trading the irrational behavior of sociopaths, so I'll stick to my long-term investing allocations. If this does occur, it will be recessionary. Maybe this is what the inverted curves are anticipating, unless it's just a growth slowdown from a Fed overshoot. </p><p>2. Another concern is the 2-for-1 job openings-to-unemployed ratio of the labor gap. Covid caused upwards of a million domestic deaths, baby boomers scrambled into retirement, and the flow of immigrants slowed to a halt, putting upward pressure on wages, so if this labor gap doesn't close it could continue to squeeze employers and profit margins. There seems to be an enormous discrepancy between the Establishment and Household methodologies, so I don't know what data to believe anymore, but the people making a stagflation argument have a valid point if oil becomes a problem again at the same time labor keeps putting upward pressure on wages. </p><p>However, stagflation is supposed to be driven by a weak dollar, <b>which is how commodity prices keep input costs high regardless of weakening demand</b>. Otherwise, the burden of existing debt leaves no room in discretionary income to weather a period of rising oil, so demand is quickly cooled. While the Fed has no power to cause CPI to rise, they can certainly cause it to fall by inverting the yield curve for as long as it takes to kill any remaining bank lending, which would hurt the consumer and cause the layoffs needed to induce a recession. Combine that with an oil supply shock and you get temporary stagflation, but because there isn't underlying growth caused by a high demand for money like the 70s, and the dollar isn't falling, it's more likely to be a disinflationary recession instead of stagflation. Meaning, in a period of weak economic demand the only thing that can maintain high prices is a supply shock or a weak dollar. </p><p>3. There's three things working against stocks: Putin tightening the screws; the labor gap squeezing margins; and, <b>most importantly,</b> QT. The Fed wants to wind down its balance sheet, which is impossible, but I don't see why they would stop unless a plunging stock market forces them like in 2018. That's my belief. If you disagree, it's on you to explain why QE excites stock prices up, but QT doesn't depress them down. </p><p>In fact, if you'd like to disagree with this article, here's ten questions to answer:</p><p>1. How does money sitting in bank reserves make broad consumer prices go up? </p><p>2. How can the consumer afford oil at $150 without devastating their other spending and then dragging down oil? </p><p>3. Without a strong demand for bank loans in ever increasing amounts for many years, where is the source of funds coming from to continually pressure consumer prices in ever increasing amounts since CPI is a measurement of change? </p><p>4. With CPI over 9, why did treasury yields stop between 3-3.50%? </p><p>5. If inflation was a concern why is the yield curve inverted? Shouldn't it be bear-steepening aggressively? </p><p>6. If the Fed controls interest rates, how is it possible for the yield curve to invert? Why don't mortgage rates track Fed Funds in lock step? </p><p>7. How is a CEO going to reshore any jobs that aren't subsidized if it increases input costs many times over? How will the consumer afford those prices? </p><p>8. Why would international businesses choose to transact in Thug Life currencies? </p><p>9. If growth slows and commodity prices drop to reflect it, what's the mechanism to drive consumer prices higher? </p><p>10. How can a wage/price spiral maintain upward pressure if it doesn't happen broadly all at once? And why would now be different than the last 100 years of rising prices and wages? </p><p>The bottom line is nothing has changed. There is a deflationary fire in the black hole of missing manufacturing at the heart of the developed world that is pulling interest rates and growth lower as central banks and governments attempt to fight it with hoses of liquidity. </p><p>One chart - SPX daily. Note it's between the 200-day EMA and 200-day SMA. A backtest of the 4168 area would be normal, then we'll see if it can assault the downtrend line. Also, note the positioning on the COT chart that follows. Dealers are extremely net long. They almost never lose. All they need to do is bid the market into Sept OPEX and they will make out like bandits as a huge percentage of those contracts expire and all that money transfers to their accounts. That's not a prediction, it's just a highly unusual situation, and with oil still languishing it's not likely CPI is going to be a huge upside miss. I suppose Powell or NFP could be downside catalysts, but if you ask yourself what is the nastiest thing that could happen it would be a breakout of this triangle into OPEX. The short yellow line is the 61.8% retracement. Look at all the shorts who are currently trapped. Don't you think they have to puke up their position before the market goes lower? Just food for thought. Personally, I don't think the bear market will be over until we revisit the lows or likely make new ones, but that doesn't mean we can't double top, or reverse off the 61.8 retracement. From a trading perspective, these are the key levels setting up for Sept. I'm mostly an investor now, so I don't really care. Apple's going to $350, so if it makes new lows first, isn't that a good thing? </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGse08CZNevFzt3Q09pqIzIsutw7yrJoclsCzquyCPn1JpfZptQUTgqMCvFjtTo4wnPVP-FyoMhg0IBiRxJW4gc6vm7oEq7vjIxZ3UtL3hwUOeFawOb8FKIXlCOZK-3JcnCOtLfANLfh1DXcqICo-xjtw4Hm6_xFq0BN0Tx4WhlOePFek7Fny5GJZjzw/s1424/SPX.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="710" data-original-width="1424" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGse08CZNevFzt3Q09pqIzIsutw7yrJoclsCzquyCPn1JpfZptQUTgqMCvFjtTo4wnPVP-FyoMhg0IBiRxJW4gc6vm7oEq7vjIxZ3UtL3hwUOeFawOb8FKIXlCOZK-3JcnCOtLfANLfh1DXcqICo-xjtw4Hm6_xFq0BN0Tx4WhlOePFek7Fny5GJZjzw/s320/SPX.png" width="320" /></a></div><br /><p>COT chart</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj65KMtVdDCH-nbGSszgKePhqByFS0dVq7qpPKnjvgAU-IAVDqKGg7syYHWx0VYrWHDsjb98vQae43nhMGaOTNXkAV71Ytp8FpYO9sxxzJ09VGiVmSUdTAwBsJhcjye513u591xo8JFCkqXDLI31ocfeBMscPZ0MCX_owdJd6-fgoM68QBCRdLbmSMtvQ/s2149/Screen%20Shot%202022-08-20%20at%2010.08.06%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1324" data-original-width="2149" height="197" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj65KMtVdDCH-nbGSszgKePhqByFS0dVq7qpPKnjvgAU-IAVDqKGg7syYHWx0VYrWHDsjb98vQae43nhMGaOTNXkAV71Ytp8FpYO9sxxzJ09VGiVmSUdTAwBsJhcjye513u591xo8JFCkqXDLI31ocfeBMscPZ0MCX_owdJd6-fgoM68QBCRdLbmSMtvQ/s320/Screen%20Shot%202022-08-20%20at%2010.08.06%20AM.png" width="320" /></a></div><p><b>Bonus Song - </b>if this doesn't blow your hair back, we can be cordial acquaintances, but we will never really know each other. </p><p><b><a href="https://www.youtube.com/watch?v=fV9IJVoFR_Q&list=WL&index=112" target="_blank">RHCP - Don't Forget Me</a><br /></b></p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-36278257968045985492022-05-01T10:28:00.003-04:002022-05-01T10:33:55.190-04:00Dear Elon<p> Dear Elon, </p><p> How's this for a proposal of how to fix Twitter in three easy steps:</p><p>1. Verification. Eliminate the bots through some form of verification that a real human is behind an @. There are several ways to do this. You can use some kind of zero knowledge proof service, or whatever the IRS uses where it matches the picture on your government issued ID to your live face, or you can give people the option of putting down a deposit, but once every address is a real person, the intelligence of the crowd can be leveraged to self-police everyone by aligning incentives. </p><p>2. Weighted Voting On Truth. Install a new button on each tweet, or maybe a simple drop down menu, that allows the community to vote on its truth from 1 - 10. Obviously, a lot of tweets are just self-expression and wouldn't need to be voted on at all, so the community wouldn't, but the option is always there. The backend programming would keep track of everyone's ability to recognize and vote for the Truth, and then weight the votes of the.people who are consistently correct more than people who aren't. The idea here is to incentivize voting for the truth to eliminate bias or agendas. The assumption being that a broad based diverse community of people can determine the Truth better than any other method, so if an individual is consistently voting with the overwhelming majority of votes, they are rewarded for their objectivity and dedication to the Truth by earning a more weighted vote. Maybe there's a threshold that requires any Tweet considered to be the Truth to have at least 90% agreement (adjusted as needed). This way nothing get censored and only what everyone agrees is factual is treated as fact. Everything else is opinion. </p><p>The Tweet itself would display the percent in the corner showing how trusted the community feels this information to be. Or factual content could be another color to stand out amongst the noise of opinions. The backend programming would also keep track of the Tweeter's track record of expressing what the community feels is the Truth. This percentage would be prominently displayed next to their name to incentivize sincere attempts at expressing the truth <i>when they are trying to</i>, as opposed to self-expression. Maybe tweets that are getting a lot of votes linger at the top of feeds to encourage more engagement. When initially posting, an individual could privately opt out of the need for votes because they are knowingly just expressing an opinion, so those tweets don't drag down their percentage. The tweets that achieve a majority endorsement from the community as factual truth will be displayed with a percentage of agreement and different color. Everything else is opinion and self-expression, so there' no restraints on free speech. </p><p>3. Eliminate Excessive Negativity. Thoughtful disagreement or constructive criticism is an important process in the discovery of Truth, so there's nothing wrong with lively debate. The problem is people have a tendency to devolve into angry trolls through online platforms and lash out at the world with excessive and unnecessary negativity, including hate speech, which could also be policed by the community through voting on comments with a scale of 1-10 in terms of excessive anger and hate, or thoughtful critique. If a person gets a 90% unnecessary meanness vote five times there's some kind of penalty whether they lose their deposit (if there is one), or they are suspended for a time, or they have a Wall of Shame color red appear on their tweets and comments for month. This would allow people to say whatever they want, but provide a way for the community to train everyone like a puppy to figure out how to express their disagreement without the toxicity that exists today. </p><p>Here's a motto: The Toxic Cleanse - Incentives Realigned. </p><p>Or even better: Twitter 2 - Electric Boogaloo. </p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-78809766800430374872022-05-01T10:28:00.002-04:002022-05-01T10:33:27.183-04:00Inflection Pointy<p> While I still think markets are likely headed lower until the Fed capitulates on tightening, this week could provide a great risk/reward if it's another buy the news event coupled with goldilocks NFP and maybe the first downward miss in CPI next week, although it doesn't really matter - if the market decides it's time to send the shorts into assisted living facilities again, the dips will get gobbled up regardless of the data. Meaning, if the market reverses it could have 400+ points in it back to the range highs, and if it breaks down and stays down, the loss would be a fraction of that with proper risk control. I find when trading reversals it's better to use offsetting puts than stops, then dump them later because a 30+ VIX is actively trying to ruin to life. Gotta keep those losses small.</p><p>NDX daily. SPX is the same. A signal would be a washout below the Feb low and a reversal. The tricky part about several news events stacked up in a row is it could happen twice, but that's the nature of trading. You never know, and you don't need to.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjiAw54AMEeWm57KddppWfBBQhExO1lFMmTIOW2KPyuuiq2Wb_mXDcdkq5dnG5GFiPb0Gf8Ny47D7k_SH5ZHpZhJiLD8YHpO4nC1KayH5gkYGSTBiEVcFkPLuIgRBWW3Nyw2OWqo2o8urZlPNenMWxDAKfM4BaPK_BwtzuH1HZt2Sv-l3YD7AV0lzg4kQ/s1426/ndx.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjiAw54AMEeWm57KddppWfBBQhExO1lFMmTIOW2KPyuuiq2Wb_mXDcdkq5dnG5GFiPb0Gf8Ny47D7k_SH5ZHpZhJiLD8YHpO4nC1KayH5gkYGSTBiEVcFkPLuIgRBWW3Nyw2OWqo2o8urZlPNenMWxDAKfM4BaPK_BwtzuH1HZt2Sv-l3YD7AV0lzg4kQ/s320/ndx.png" width="320" /></a></div><br /><p>Apple weekly. The $152 area needs to hold or it's gonna get ugly - it's kinda inflection pointy. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrjzPjE884SH1qM_vN_vhYlyuJDEDURn7s6Vy9uL2XXQ0PskWwdTuRFtfCzTnU0pgWzM2wTNsPJCNWCGGQW10MHlB26ToTXoY2Uxl7bZaFRxofbWv1mC8-9qKFtgYGUQQbakHAGy9KH0_G70ai4w0ZCWiy67PtIOJhbXPhZ8JuCGNzHZbH6B5peJRfJQ/s1426/apple%20weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrjzPjE884SH1qM_vN_vhYlyuJDEDURn7s6Vy9uL2XXQ0PskWwdTuRFtfCzTnU0pgWzM2wTNsPJCNWCGGQW10MHlB26ToTXoY2Uxl7bZaFRxofbWv1mC8-9qKFtgYGUQQbakHAGy9KH0_G70ai4w0ZCWiy67PtIOJhbXPhZ8JuCGNzHZbH6B5peJRfJQ/s320/apple%20weekly.png" width="320" /></a></div><div><br /></div>TNX monthly. The 10-year yield seems like it's on a mission to tag that 3.2% level. It clearly took off after the initial Ukraine invasion risk off move reversed due to awareness of how the supply shocks would cause CPI to stick longer. I'm working on an article that disagrees completely with anyone saying inflation is structural, mostly because it's impossible. <div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJcijIcvQIkmyMupaX-_ZrRtqiwfohVW8kLxMtp2BAtYjOD1HQBQOKls2ZZoM-VwBXM5xNfZLRqiiY86Upi1woSZEH-tK2jTpW2LR-Hh-jBZqehcnhj6haf7akY1Ymvm1c0phIXLMWG-fTQr7XfU4-TdBhJIMNu3rRQM-y2Du5rQscxZo_pE7mOusVMQ/s1426/tnx.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJcijIcvQIkmyMupaX-_ZrRtqiwfohVW8kLxMtp2BAtYjOD1HQBQOKls2ZZoM-VwBXM5xNfZLRqiiY86Upi1woSZEH-tK2jTpW2LR-Hh-jBZqehcnhj6haf7akY1Ymvm1c0phIXLMWG-fTQr7XfU4-TdBhJIMNu3rRQM-y2Du5rQscxZo_pE7mOusVMQ/s320/tnx.png" width="320" /></a></div><br /><p>There's two stock market scenarios starting this week: one is a major reversal bounce that likely rolls over near the range highs and continues bear marketing until the Fed stops. Or, get your black painter's tape ready to cover the parts of your screen that you don't want to see for anymore. </p></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-11744502680673530612022-02-12T15:32:00.001-05:002022-02-12T18:25:52.475-05:00Cyclical Is Not Secular<p> There's a lot of people out there calling this cyclical move in rates a secular one. And if you already have an inflationary bias, these cyclical numbers will just confirm your bias and make it nearly impossible to make the right read. The much discussed secular disinflationary forces are debt, demographics, globalization, and technology. They've been applying downward pressure on interest rates for 40 years. These are deep forces that are way beyond the temporary disruptions seen today. The current inflation is being driven by several cyclical forces: </p><p>1. The government stimulus checks and added unemployment money gave millions of people down payments for houses and cars, money to fix up the house, buy goods, etc.. Some of this money just replaced lost income, but a lot of it exceeded that. When you amplify this with people relocating, and not enough supply of houses, it's no wonder house and car prices went up so much. Since there tends to be an 12-18 month lag in the numbers, it's not surprising CPI is so high. However, the source of that inflation ended long ago. This is not a secular force. This is cyclical. </p><p>2. The supply side suffered from rolling periodic shutdowns globally. Since the supply chain tends to be scattered with different components coming from all over, it's also not surprising that prices would go up as businesses are forced to pay whatever is necessary to get what they need. Some of this gets absorbed by the business, some gets passed onto the customer. However, unless you think there will be supply chain bottlenecks from now until the end of time, this is not a secular force. It is cyclical. Supply chains will self-correct as Covid dissipates. </p><p>3. The wage increases are caused by workers staying home to avoid Covid risk and the relocation shuffle. Workers also left jobs they didn't like for other jobs they won't like. This creates upward pressure on wages as businesses like mine have to pay more to keep or hire competent people. Some of this is absorbed by the business, some is passed on to customers with higher prices. Last month I questioned if boomers were going to come back when this is over, but they will have no choice simply due to fixed income not keeping up with the new level of prices. In fact, we might see even more boomers emerge to make up the difference, which will close the labor gap and stop the upward pressure on wages, which is not a secular force. It is cyclical. It will end.</p><p>4. Commodity prices are going up, but unless you think the increased demand of the consumer is permanently rising, then high prices will extinguish themselves like every other time since the beginning of Earth. The cure for high prices is higher prices. Rising oil is the only real concern due to the potential reduced supply from lack of capex, but high oil prices is what kills business cycles and causes its own demise. I'm not saying this is imminent. I own XOM too. I'm just saying this isn't enough to sustain inflation and it murders itself in time. Oil is cyclical, not secular. Backwardation is saying the oil market doesn't believe in sustained oil prices. Obviously, that's not a timing signal and can stay that way for prolonged periods, or even change, but it should be noted. To be clear, I'm not saying oil can't test its all-time highs. I am saying high oil prices will undo themselves. </p><p> We lived in a 1.5% - 2% world since the GFC due to secular disinflationary forces. Along comes Covid and throws a wrench in the economic machine. Everything goes haywire for awhile, but none of the secular forces have changed. In fact, they're all worse. There is no self-reinforcing cycle. People paid their debts or spent the stimmy money at businesses like mine and now it's in bank accounts like mine. I'm not spending any different than I was before. I'm looking to invest it when the time is right. </p><p> What we're seeing now is a potential preview of how the whole thing blows up, but it's not the real deal because these aren't sustainable causes of inflation. Real monetary inflation is caused by a demographic explosion all demanding bank loans for a sustained period of time in a pre-globalization world before an explosion of technology. Since that is no longer even possible, the only other way to get sustainable inflation is through sustained fiscal stimulus like Universal Basic Income because it bypasses the bank/loan equation and sends inflation directly to people to spend every week. There's no chance of that happening right now, and Congress is likely to turn more red than blue in November, but in the future if there's a severe recession and the Fed is buying junk bonds and equities and doing yield curve control and it's still not working, that's when the end game begins as the Treasury sends out free money permanently as they battle the deflation of this historic bubble. The Fed will be forced to raise rates to contain inflation while pinning the long-end by buying every bond, which will cause gold to skyrocket as the dollar implodes. If that was happening now, I would agree with the inflationists, but it's not. The deflationists are right that deflation is the problem, but the inflationists are right that the Fed and Treasury will not go down without deploying the full arsenal of tools to keep reinflating until their hands are tied and they must stop inflation (and/or a plunging dollar) by popping the bubble, or the bubble will pop under its own weight. I think we're years away from that. Bond bears need to understand they're actually gold bulls. Bonds have a perma put under them. </p><p> It's impossible to predict exactly when this cyclical inflation will start to rollover, but my guess is a couple more months. I'm looking for the stock market is seek out the Fed put, which it will be able to provide because inflation will start going down. In the meantime, the combination of inflation and Russia fears will likely cause a meaningful drawdown. I'm thinking we're in a Fib retracement of the Covid rally. Here's a few charts. </p><p>30-year monthly bonds. This is almost at the point where it's free money. Maybe the Russian invasion will prevent it, but if this starts breaking down through this long-term trendline, I'll be layering in. The conditions don't exist for a secular move down in bonds. I don't really care if I miss this. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhvV13FKN7MiTv-E2Mswnj2Y95JTgZZJ7VXWjIRokgcgwIWXTzfE2WNBljU4mj9g17MBPkXg3It-48KFc3FxlUQIV8PvflpHOVcq2TvbyOjUcZXPIHdnJ2sO8uKVSpaBHpsdOvg609SUhvia8S8A3jqSIW_39UV1mMfRYyzxmGUeD5s6qi0NpCrMjjDMg=s1426" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/a/AVvXsEhvV13FKN7MiTv-E2Mswnj2Y95JTgZZJ7VXWjIRokgcgwIWXTzfE2WNBljU4mj9g17MBPkXg3It-48KFc3FxlUQIV8PvflpHOVcq2TvbyOjUcZXPIHdnJ2sO8uKVSpaBHpsdOvg609SUhvia8S8A3jqSIW_39UV1mMfRYyzxmGUeD5s6qi0NpCrMjjDMg=s320" width="320" /></a></div><br /><p>10-year monthly notes. Same thing. Inflation is a train running out of fuel. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgGvb7p4SguXIccAO8K78Nj2tEsRq4c1xB9Rmy0ag2D8HX4PD79wapoL2vd1stpfK8uLiS40ITm40m6Jn46vMqTY8Y1AF8EZMQ9v7JXamDXVXANOx_JAQkgPjDmZUeKLfSXPVWSDFvkEEy2JozdnH2e1OGzsPrQGMyiLFyPFJ9mgblFrA7WwWixjk--Xg=s1424" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="1424" height="161" src="https://blogger.googleusercontent.com/img/a/AVvXsEgGvb7p4SguXIccAO8K78Nj2tEsRq4c1xB9Rmy0ag2D8HX4PD79wapoL2vd1stpfK8uLiS40ITm40m6Jn46vMqTY8Y1AF8EZMQ9v7JXamDXVXANOx_JAQkgPjDmZUeKLfSXPVWSDFvkEEy2JozdnH2e1OGzsPrQGMyiLFyPFJ9mgblFrA7WwWixjk--Xg=s320" width="320" /></a></div><br /><p>SPX daily. This double topped at exactly the 61.8% retracement of the impulse leg lower. If there's a series of bullish developments like Russia not invading combined with Fed officials admitting there's no inter-meeting move etc., it will likely rally once more but be a dead cat bounce. Bears held their ground, so you have to assume they're in control until these headwinds lift. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiLVgY1oIF2f5V5vb3N0h3wJDT4_szgVYUa66wk0pGHbhycTlBM-wERFu78yXiphwKxBF3Os6PA3v6LnhP6MZ8IzGahqwBzWV4Kd8TKPSvcmZ1dbNGTUbbwp3gwk06ZyHBcyQpmD0nwd0D32frooD2BIq5juH_sREJ0fet4RlltjuiBCsOln1d-555pfQ=s1426" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/a/AVvXsEiLVgY1oIF2f5V5vb3N0h3wJDT4_szgVYUa66wk0pGHbhycTlBM-wERFu78yXiphwKxBF3Os6PA3v6LnhP6MZ8IzGahqwBzWV4Kd8TKPSvcmZ1dbNGTUbbwp3gwk06ZyHBcyQpmD0nwd0D32frooD2BIq5juH_sREJ0fet4RlltjuiBCsOln1d-555pfQ=s320" width="320" /></a></div><br /><p>Here's the Fib levels of the Covid rally. Don't be surprised to see a sharp move down. Honestly, I'm looking at between the 50% and 61.8%, but that could be wishful thinking because I'm not even close to fully invested. If the market finds a way to correct sideways instead of down, I'd be willing to change my mind on a break and close above the 4600 level for a couple of days. I give that possibility a zero percent chance of happening, but the market is in control. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhumbPMlfBcUdmeMD3DF5FtREWz9SbJ-EqjwGb34RW4eySwnKc4ePZRgojGsmfzIlqkZvD5zWBdsRG3RwMWIIKTiySnOujcnCbEuvAwW-Um5cNl5q3S8cy5xpYRkywVwKY4EIsXMD19h9P5cHFpj2DRBwv0mb2T_9FdnWhBoglG0GilpI6f7er2I8jbkQ=s1426" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1426" height="160" src="https://blogger.googleusercontent.com/img/a/AVvXsEhumbPMlfBcUdmeMD3DF5FtREWz9SbJ-EqjwGb34RW4eySwnKc4ePZRgojGsmfzIlqkZvD5zWBdsRG3RwMWIIKTiySnOujcnCbEuvAwW-Um5cNl5q3S8cy5xpYRkywVwKY4EIsXMD19h9P5cHFpj2DRBwv0mb2T_9FdnWhBoglG0GilpI6f7er2I8jbkQ=s320" width="320" /></a></div><br /><p>Fib levels for the NDX. Taking out the Biden presidency could be a thing. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgIsIs6y1JQNFtTMGKb5YmTWQ_ilPAC4DqZ0lxwHcvCl-FLapDlBJndff1wUsEdxMpxlagAWI4sglqjP-OcnCRno1UTQYnhbCIUwHeUpJ9xVqVRaa3ACUGt7Y2jktui66iV33fnLk7PIi3fqOQg6bXIfBXfrKOAaLXihvbJ4bvBjMtoeyrURuhhaIP0KQ=s1424" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="1424" height="161" src="https://blogger.googleusercontent.com/img/a/AVvXsEgIsIs6y1JQNFtTMGKb5YmTWQ_ilPAC4DqZ0lxwHcvCl-FLapDlBJndff1wUsEdxMpxlagAWI4sglqjP-OcnCRno1UTQYnhbCIUwHeUpJ9xVqVRaa3ACUGt7Y2jktui66iV33fnLk7PIi3fqOQg6bXIfBXfrKOAaLXihvbJ4bvBjMtoeyrURuhhaIP0KQ=s320" width="320" /></a></div><div><br /></div>Another point on the chart to reconsider bearishness is the 200-day EMA on the NDX. If the market can close above there, that would force a change of thinking. This is how you can avoid getting caught in a meltdown. Force the bulls to prove themselves first. This is the first real impulse leg lower since the Covid bottom. It should be respected. <div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgWJrmD39utFooLVVZ71kcinudnEBLlLQ_uCFKN4i3bXKu3FEoMuHa5j7vVWi-0dL8_TzML-xybGDVBIMk1jBaBdlI_6BdRZTG7NxfA7ImQpq8GGxbVBau-0PzJbSJL4230X3GYByq_MA2QBzOLFn-A4XySmBvEI3_LddNNOtyzZPuXV2D7AjRKICyF2g=s1424" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="1424" height="161" src="https://blogger.googleusercontent.com/img/a/AVvXsEgWJrmD39utFooLVVZ71kcinudnEBLlLQ_uCFKN4i3bXKu3FEoMuHa5j7vVWi-0dL8_TzML-xybGDVBIMk1jBaBdlI_6BdRZTG7NxfA7ImQpq8GGxbVBau-0PzJbSJL4230X3GYByq_MA2QBzOLFn-A4XySmBvEI3_LddNNOtyzZPuXV2D7AjRKICyF2g=s320" width="320" /></a></div><br /><p>The megacap tech stocks are going to crush everything else out there once this is over. This is not the dotcom crash, which was fledgling technology. These are the world's greatest businesses producing record profits and cash flow with enormous global TAM, new products and services, and incredible growth ahead. This drawdown is a gift. All that happened is the fiscal/monetary-unleashed-pent-up-demand-and-reopening thesis got ahead of itself. Now it's time to correct and backfill, shake people out, and let the Fed get off the zero bound, etc. By April/May the market will have priced in the entire hiking campaign and recession, inflation will be dropping, and the Fed will be able to slow jam their dance, eventually pause, and maybe reverse. That's my view. Disagree as you see fit. </p><p>BONUS CHART: AAPL drawdowns from 2004-2018. Over this time period one out of every 4 days you were in 20% drawdown or more, 61% of the time spent in 5% drawdown or more, but if you held through it, you made 36% annually. And that's not counting since the end of 2018 (which isn't fair because it's the bottom of a 40% drawdown, but it's up 5x since then). And they're producing record profits and cash flow. Since 2018, you can add Sept 2020 -17%, May 2019 -21%, Mar 2020 -38%. And every time there's a bunch of risk averse people who shake their fists at the sky and proclaim it's over. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjx-WqaEsSvcUjchS7U7wRVeactw6zlGNaPhVr2v0YFhWj9bxetGXzqLxu6XVF1HNzlJQvE7bT7rBQLuNXY5u7bB4F6NevM8JksQQFPYPSaBtknKknr9pL3o5W_-lIJ5zs-ktNvviuZwCJo_Klbqg-xI3xdf4WpxQOJ7dXKZQI2gjB-HwaukUHnLPRKNQ=s1027" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="761" data-original-width="1027" height="237" src="https://blogger.googleusercontent.com/img/a/AVvXsEjx-WqaEsSvcUjchS7U7wRVeactw6zlGNaPhVr2v0YFhWj9bxetGXzqLxu6XVF1HNzlJQvE7bT7rBQLuNXY5u7bB4F6NevM8JksQQFPYPSaBtknKknr9pL3o5W_-lIJ5zs-ktNvviuZwCJo_Klbqg-xI3xdf4WpxQOJ7dXKZQI2gjB-HwaukUHnLPRKNQ=s320" width="320" /></a></div><br /><p> </p><p> </p></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-30917193237308820242022-01-23T13:10:00.000-05:002022-01-23T13:10:04.982-05:00Random Market Thoughts<p> I'll start by both praising and criticizing the recent chest pounding of value investors. Clearly, you were right about Fed tightening compressing multiples and hitting hyper growth stocks first. I did figure it out because I purposely pay attention to people who have the opposite view of mine. The criticism I have of value investing can be best expressed in a story. I recently stumbled on a video of a value guy from May 2012 doing DCF analysis on Disney, which was trading at $44, and the 10-year yield he used as the discount rate was 1.79 at the time, so the discount to book value price he came up with was $40, therefore he said he would never buy Disney because it was overvalued. For technicians, on the chart Disney was breaking out above three long-term technical peaks around $42. Last March Disney was up nearly 500% since then (not including dividends). You could sell right now 30% off the highs and still be up over 300%. And that's just one stock. Apple split-adjusted is around $36,000, and it's not likely it fit in any value investor framework for many years unless you broke the rules like Warren Buffet did. If digging through the dredges for near bankrupt companies trading below book value works for you, then have at it. I would never succeed at that. </p><p> I like clearly established megacap tech companies with huge growth potential and eyes on the metaverse. That includes APPL, GOOGL, MSFT, AMZN, TSLA. I've always irrationally hated NFLX. I think FB will be good in the long-term, but I'm too worried about the issue with Apple in the short-term. I like Disney for its metaverse potential and think Omnicron and the Fed is offering a good buying opportunity, although I happen to think the upcoming short-covering rally will fizzle so everything has lower to go, but who knows. My guess is TSLA revisits the $600's and then 10x's from there. I expect megacap tech to double from here. It's just likely to go down a lot more before then. In smaller size I also like RBLX and U, and other metaverse stocks that have taken a beating. </p><p> Here's another reason value investing doesn't work for me. Twenty years from now after TSLA has grown 200,000% from inception like Apple did, and they have so much cash they're buying back shares and distributing dividends, and the P/E ratio is like 20, it will finally pop on the radar of value investors scrapping the barrel for safe dividend yields. Valuations are misleading. Here's what matters:</p><p>1. Is the business meeting or exceeding growth expectations? (Meaning, are you right that you bought a world class business that is expanding its market share and TAM.)</p><p>2. Position size.</p><p>3. Time in the market. </p><p>4. Outside income to dollar cost average. </p><p>5. Cross-asset and cross-strategy diversification.</p><div> What you want is a balanced portfolio that can weather different market regimes. The problem with balancing bonds with tech is they both go down when rates rise. Value stocks will hold up better than tech, but when the market really gets hit all correlations go to 1, and the idea of beating a benchmark because you lost less is absurd if you don't have clients to appease. You can sell into strength or rebalance in a tax deferred account, but the reality is unless you're good at trading, which requires a specific skill set, and the dedication to put in the time, most people are better off not making decisions. The only thing you can control is how much you're willing to risk and then gauge the probabilistic drawdowns based on your portfolio construction, and be aware of what market regimes will hurt or help you, and make adjustments, or put on hedges, accordingly (although that's decisions). The number one rule in investing and trading is you have to know how much you're risking and then deeply accept that risk. If you're risking too much you find out at the worst possible time. </div><div> The worst case scenario for nearly every portfolio construction (and how this entire bubble blows up) is when the Fed loses the ability to ease because inflation is spiraling out of control. I happen to think both camps are right about the current situation. It isn't fair to call it transitory, but it also isn't going to last because it's mostly supply chain problems that will self-correct, and the bond markets are saying this. There are two concerning elements, though. </div><div> 1. The labor gap seems to be largely caused by boomers retiring to avoid Covid risk, which is creating upward pressure on wages to fill those positions. I'm not sure if they will come out of retirement or not when this is over. Wage increases that level off will cause price increases that level off. But if the boomers stay retired for good, it could be a longer-lasting change. </div><div> 2. If the long oil crowd is right about the lack of capex leading to reduced supply, then a reopening economy going back to full tilt will keep upward pressure on oil, which is fine as a trade, but it's as dumb as being short bonds for any length of time because the success of the trade causes its own demise. Higher rates and higher oil cause lower rates and lower oil. In comparison, Apple is $36, 000 a share because its success causes more success. </div><div> I want less decisions in my life, so the more I can buy great businesses with a time frame of forever and with size I can tolerate drawdowns and dollar cost average, the better. It's unfortunate that I developed decision fatigue and realized this after the market doubled in 18 months, so I'm being cautious because dealing with drawdowns is not my speciality, but that's because size in trading is way different than size in investing, which I've already learned the hard way. I also suffered from mixing up time frames doing both myself, so I gave half my money to a broker friend for investing, and half I'll have for shorter-term or opportunistic stuff. </div><div> Now that the market making banks stole billions from option buyers by crushing the market into OPEX, maybe we get an oversold rally. I personally think any rallies will be hard to sustain due to lack of conviction and emboldened shorts in a rising rate environment, but as long as the Fed doesn't surprise hawkishly, it would make sense to chase shorts out before rolling over again, especially into earnings. Personally, I'm thinking of waiting until the first rate hike. We'll see.</div><div> This market seems like it's not a V bottom kind of market. Obviously, anything is possible, but it sure seems like there's not much fear of missing out, so before I get fully invested, I want to see a double bottom, or a clear reversal hammer on the weekly. It sure seems like it can go a lot lower. Another way is waiting for a downtrend line to break for several days and then buy weakness. If your time frame is 5-10 years, then why fret over a couple of percent? A trick I've used on shorter time frames is picking a spot on the chart that means the bottom is <i>likely</i> in, and then waiting for it to cross over that area, which is usually a breakout of some sort, then waiting for weakness because breakouts never work in stocks. You do miss out on some gains, but you also avoid a lot of fake-out rallies that go south before you can finish a sandwich. </div><div> Everyone is looking for an answer and there isn't one. What you realize at some point is the worst thing you can have is an idea because if the market goes in your direction you will feel like you are right when you might be, but those are two separate things most of the time. And when the market goes against you, you'll end up not wanting to sell and miss out on your thesis, which can turn into deep trouble. How much are you risking? After you make both mistakes enough times, or misjudge a market regime, or get blindsided in one way or another, or your thesis doesn't work out, what you figure out is that it's best to be balanced and never risk too much in one thing, except I must admit I do agree with the notion that once in awhile your perfect pitch comes along (and it's different for everyone) (one for me was Oct Opex), so that is the time to swing for the fences and be aggressive. The rest of the time it's more important to figure out how to keep the gains. At some point in the future, and I'm currently thinking it's years away, the Fed's hands will be tied and the market will once again go down 80% and erase a generation of gains. That's what happens in debt-fueled markets. I like the idea of thinking about how you would construct a portfolio that lasts 100 years with no changes. Usually, lessening drawdowns means giving up some upside too, but how do you make it through the waterfalls? </div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-91419147172036102322022-01-08T05:09:00.002-05:002022-01-08T08:14:56.993-05:00The Universal Stablecoin <p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">~3500 words </span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; white-space: pre-wrap;">~15 minutes</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Dear Federal Reserve Board and Bank For International Settlements,</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The history of this world is a relentless battle between freedom and power - militarily, economically, and philosophically. The three-branch self-governing American system is built on a foundation of restricting power to protect freedom. The original purpose of using non sovereign gold to back the currency was to silo political power from economic power and prevent the corruption of overruling kingdoms from whence our founders fled. But gold proved to be insufficient as the chains of restraint were broken and a historic tsunami of fiscal spending and private debt enabled by the monetary policies of the Fed have engulfed this world like a degenerative disease. For the first time in history, modern technology has created an opportunity to redesign our monetary system in a way that reasserts the separation of economic and political power, which will avert and transcend the human causes of economic collapse littered throughout history. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This article explores private and public money, Bitcoin, gold, and the nature of value to illuminate a path forward in the spirit of public service. The thinking of government officials leans too far in the direction of control and surveillance while free market participants dismiss the need for regulation and protection of the people. The problems with our financial system date back to decisions made before any of us were born when technology was lacking to solve limitations of the physical world. Today, we stand at the dawn of a new digital age that can give birth to a system not cobbled together with haphazard and hasty ideas patched together from the remnants of the previous collapse, but thoughtfully, and proactively, designed for long lasting, even permanent, stability. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Universal Monetary Problems</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The flaws with our financial system are all solvable with blockchain technology, but it requires a recognition and willingness to fix them proactively, or we will be doomed to repeat the same mistakes seen throughout history. Here are four major flaws: </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><ol style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Interest rates underpin our entire debt-based financial system that emerged from a barter/gold system to meet the demand for credit. Since the only way to access capital was to borrow from someone else, the time value of money was born as borrowers and lenders negotiated the price of interest rates. Until now, there was no other way to do it. </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Centralized credit institutions arose as lenders attracted capital at one interest rate and loaned it out at a higher rate to make a profit. This evolved into complex derivatives and daisy chains of collateral connecting massive sources of capital as centralized hubs in an international network supporting the world economy.</span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Single sovereign fiat currencies are debt instruments borrowed into existence at the prevailing interest rate for both the public economic activity of government spending and the private economic activity of businesses and people borrowing from banks. But using the same currency for both private and public borrowing creates systemic risk since the government is incentivized toward fiscal profligacy, which dilutes the purchasing power of the money borrowed in the private realm as well. Until now, there was no other way to do it. </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Using public money as the unit of account to denominate the prices of goods and services in the economy creates an unstable inflation/deflation variable based on the market’s outlook of how government policies will affect the single sovereign currency. Until now, there was no other way to do it.</span></p></li></ol><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Foreign Exchange Problems</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Throughout history we’ve tried different systems of exchange rates for our global monetary system, but all of them have tradeoffs. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><ol style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Gold Standard</span><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> is commodity money, which introduces the variable of supply and demand for gold that has nothing to do with its role of money. However, when gold backs the issuance of a paper currency it does create a restraint on the issuance of debt, and a check-and-balance on power because if too much paper currency is issued, or a problem with counterfeits arises, people (or nations) can redeem their currency for gold. As it turns out, this restraint is easy to break because it happened twice in the 20th century, so while gold does restrain governments it lacks the flexibility to meet the legitimate needs for credit in a growing economy, and it requires centralization for borrowing. </span></p></li></ol><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-left: 36pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><ol start="2" style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Fixed Exchange Rates </span><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">provide certainty in international trade, which makes foreign investments safer because it eliminates currency risk. Fixed rates constrain government policies from excessive spending or it results in a run on foreign exchange reserves to exit the profligate currency much like the gold standard. However, there’s no mechanism for the government to respond to shocks that cause a balance of payments crisis between countries. Fixed rates also require enormous foreign reserves, which could result in liquidity issues or opportunity costs, and while there’s no ongoing speculation, if forex markets sniff out an imminent revaluation or devaluation, event speculation amplifies it. But the biggest tradeoff of fixed rates is the inflexibility with domestic economic policies for growth, inflation and unemployment whether the rate is too high or too low. Fixed rates hamstring the government to a degree that causes its own demise - much like gold.</span></p></li></ol><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-left: 36pt; margin-top: 0pt;"> </p><ol start="3" style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Floating Exchange Rates</span><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 400; vertical-align: baseline; white-space: pre-wrap;"> provide protection from external shocks because policymakers can respond to unexpected events - like spiking oil prices. This flexibility allows the government to pursue policies they feel are appropriate for the domestic economy. A floating rate can depreciate to compensate for a balance of payments deficit and restore competitiveness of exports. However, uncertainty of the exchange rate causes currency risk for international firms because foreign investment and trade may be adversely affected. The lack of constraint on domestic policy also allows governments to pursue </span><span style="background-color: transparent; font-size: 12pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 400; vertical-align: baseline; white-space: pre-wrap;">excessively</span><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 400; vertical-align: baseline; white-space: pre-wrap;"> expansionary policies, which leads to abuse of the currency to avoid short-term volatility, or for political gain. </span></p></li></ol><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-left: 36pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The common problem of these exchange rate systems is the use of single sovereign currencies as the basis for the entire monetary system in each country. What is needed is a dual system of public money and a separate universal currency based on the value creation of private businesses and the labor of people, which maintains the stability of fixed exchange rates in international trade, but leaves policymakers the flexibility of floating rates to adjust the public currency to domestic conditions. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> What would be the best source of a universal currency to fill this role? </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Bitcoin Problems</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If you analyze the history of goods and services of this world, there is an underlying economic law: with the exception of art and collectibles, </span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">value is determined by utility</span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. Apple is the largest market cap in the world because its products and services are embedded in our everyday life. The only time my iphone isn’t within three feet of me is when water is involved. Maybe one day it will be a chip in my head with tiny waterproof speakers implanted in my ears. That is utility. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> While gold is no longer embedded in our everyday life, it functioned as physical money for thousands of years due to its innate qualities of being fungible, divisible, durable, malleable etc., which gave it utility as a medium of exchange and a store of value. When gold was demonetized and slowly dropped out of use, its price maintained a relationship to fiat currencies and real interest rates. As the value of the dollar was diluted, gold went up in price, thereby storing value. That utility carried on from history. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The US dollar could not be more embedded in our everyday lives. It’s the most widely used currency in the world. We get paid in it, everything is priced in it, we need it for taxes, and we use it for nearly every transaction everyday. The dollar’s widespread utility is the main reason it hasn’t collapsed in the face of unprecedented fiscal and monetary policies.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Bitcoin is an innovative payment mechanism that solves the issue of trustlessly transferring value, but a group of people cannot </span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">decide</span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> something has value just because they’re buying it. Whether it has the necessary properties to develop the utility of being embedded in our lives is pure speculation, and the reasons Bitcoin bulls give are not convincing. I own a business. There’s no way I would risk my profit margins accepting a form of payment that can drop 10% in an hour from leveraged speculation that will never change. If I want to speculate, or hedge inflation risk, I can allocate after tax net profits to buy whatever is necessary to accomplish that. None of the layer one cryptocurrencies have the stability to be used as a currency in everyday transactions, which will prevent them from ever gaining the widespread utility of public money. It’s not their purpose. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Another reason layer one cryptos won’t work as currencies is because people buy them as investments. No one would spend their Apple stock to buy groceries either. The whole idea of investing is because you expect to make a return on the price appreciation or cash flow. Investments and currencies are two separate things, which is the primary reason for public money to exist. Public money has its own set of problems, but it works great as a currency because it’s not an investment, so people freely spend it because they’re not trying to profit on its price appreciation. The properties of gold didn’t require believing in them to give it utility, and the deep network of public money is way less volatile. The role of layer ones is to track the transfer of value on the distributed ledger and act as a seedbed for Dapps to blossom into our everyday lives to create value from utility, not to function as a currency in transactions, which requires stability.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Solution: A Universal Stablecoin</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The goal of a stablecoin is to solve four problems:</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><ol style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Create a restraint on the issuance of public money.</span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Provide a stable currency to spend and accept in everyday business transactions domestically and internationally that is separate from public money. </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Create decentralized credit by utilizing trustless blockchain technology to allow people and established businesses to issue the stablecoin within limits. </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Use the value of the stablecoin as a universal unit of account.</span></p></li></ol><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The universal stablecoin is a version of SDR + gold. Each sovereign currency would have a weighting in the basket determined by a formula based on the size of the economy, balance of payments, debt-to-GDP, interest rates etc., so the basket always equals 1. Since gold has deep historical roots as physical money and has maintained a relationship with fiat currencies, its inclusion acts as a counter to prevent a race to the bottom of all sovereigns devaluing simultaneously. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> For example, if the weighting of the US dollar is .35, but the US debt to GDP ratio is steadily climbing past a predetermined threshold of 80% (we wish), the weighting would slowly inch downward to .34, which means another component of the basket must go up to maintain the value of 1. If the US is growing its debt faster than Europe (all else equal), then the Euro inches upward in proportion. If both are growing their debt equally, then some combination of the other sovereigns goes up, or if they’re all the same, then gold goes up, but the stablecoin always equals 1. This stable value can then function as a universal unit of account to denominate the prices of goods and services worldwide.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Universal Unit Of Account</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Having a stable unit of account that isn’t a single sovereign currency and doesn’t fluctuate in value eliminates the currency risk for foreign investment and international trade because the same universal currency is accepted everywhere. In the U.S. a loaf of bread might cost 3.50 Unis, and while there could be local supply and demand issues temporarily affecting certain products and services, or other variables like local cost of living or other business expense differentials between countries that make the real prices of the same goods somewhat different, the inflation/deflation variable caused by prices denominated in the constantly fluctuating sovereign currencies would be eliminated. This would result in truly stable prices and offer a riskless universal currency created by private economic activity to hold your savings in as a true store of value that is accepted in worldwide business transactions. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Issuer Of The Currency </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Every sovereign nation would keep its own currency to spend on government programs. Sovereign bonds would enable that spending and be interest-bearing. Banks would continue issuing interest-bearing loans to riskier borrowers. But people and established businesses would issue the Universal Stablecoin (Unis) - limited by their discretionary income - as interest-free money because there’s no middle man creating a loan and expecting a return. It is decentralized self-created credit enabled and restrained by blockchain technology.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This money would be backed by the products, services, and future labor of the people and businesses, which creates a dual system of interest-bearing fiat sovereign currency borrowed into existence as debt, and interest-free universal currency issued by people and businesses creating goods and services. This separates the policies of the central banks and governments from affecting business activity as Unis flow through the world as the universal currency of the private realm.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> All sovereign currencies would fluctuate in value against 1 Uni, which prevents excessive fiscal spending because if everything is priced in Unis, the government currency would lose purchasing power against it and cause everything to be more expensive. By separating government currency from the universal currency issued by the value creators of people and businesses it eliminates the point of failure of using single sovereign currencies for both public and private economic activity. Central bank policies would only affect their own sovereign currency, so governments would finally be restrained from the systemic risk created by their misaligned incentives. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Universal Bank </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 13pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">An individual would have several accounts of interest-free credit (denominated in Unis) available to them based on their discretionary income for a house, a car, college, and credit cards. The available credit in each of these accounts would grow or shrink based on their real-time finances, and their wallet would project future credit based on increases or decreases in income and expenses. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The credit in each account is created out of thin air but backed by their future labor, which is the exact same process as a bank loan today except without the bank. The debt is a liability for the individual and an asset on the ledger of the system itself, which acts as a universal bank. Qualified, established businesses would issue interest-free Unis to pay their employees and supply chain to create their products and services, which would act like a currency and not a stock investment, so there wouldn’t be a hesitancy to spend it. (I wrote more about this in <a href="http://thetradingcrucible.blogspot.com/2021/09/the-universal-bank.html" target="_blank">The Universal Bank</a>.)</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Universal Wallet</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Zero-knowledge proofs allow wallets to be linked to a real person without revealing their identity. This makes it possible to have a system of verified users who can only send money to other verified users, and allows the wallet to be programmed to automatically send taxes to the government but without revealing the identity. The government would know who paid their taxes, but not the wallet the individual owns, so it would be impossible to evade taxes, and yet still maintain privacy of transactions. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Personally, I think a consumption tax system would be better but it could work either way. Consumption taxes are very regressive, but the wallets could be programmed so if you make under a certain income threshold you don’t pay any taxes at all. And the sales taxes could be automatically sent to the government wallet in real-time. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Universal Wallets also solve a lot of SEC issues about regulating securities because the wallets could be programmed to only “unlock” access to accredited investment opportunities if the person is qualified by income, net worth, or a course they took. Wallets that offer investment opportunities could only accept money from wallets unlocked for that tier of investment, which could also send any information the SEC requires, so there wouldn’t be any concerns over investor protection in a predominately decentralized system because it’s all controllable through open source programming people could see and trust. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The wallets would contain all your stocks, bonds, and currencies (US dollars and Unis), and only be allowed to spend with some combination of security features like facial recognition, 2-step text, whitelist…etc.. Smart contracts could even embed money spent with a 7-day clawback feature akin to how chargebacks work to reduce fraud. Insurance and custody solutions would naturally arise. (I wrote about this in <a href="http://thetradingcrucible.blogspot.com/2021/09/the-universal-wallet_12.html" target="_blank">The Universal Wallet</a>.)</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;"> Permissioned Problems</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The government wants a permissioned centralized system where everyone has an account at the Fed or the Treasury, and while the most important feature of what I’m proposing is the interest-free credit and universal stablecoin, which could be done that way, it’s extremely important to not allow a purely centralized system to happen for no other reason than the government (present or future) would be able to enforce negative rates and other incentives or interventions that perpetuate the same behavior of repressing short-term volatility for long-term instability, not to mention invasive surveillance of our transactions, all in the name of political gain and control. The system must be designed to be dictator proof so any kind of unforeseen hostile takeover in the future is impossible. The entire point of the universal stablecoin is to impose a restraint on power like our three branches of government. A controlled, permissioned system is the opposite of that, and it’s exponentially more vulnerable to security attacks, which creates systemic risk. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Path</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I understand this proposal sounds impossible to implement, but it’s not, mostly because it benefits everyone except banks. Even politicians would love to run on the people pleasing idea of interest-free credit. When something is as beneficial as this to as many people as this it’s not a matter of whether it’s possible, it’s a matter of what path it will take, and while there are two avenues forward, both involve the governments of this world recognizing we’re headed for global standards. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> While the status quo doesn’t tend to be proactive, I believe our political and monetary leaders recognize the fragility of our financial system and can’t admit it publicly, so I implore them to not bury their heads deeper in denial and do nothing because they will force a revolution when the current system implodes, which I don’t believe is imminent, but time will run out. It is broken. With the amount of fiscal spending that happens nowadays it would be wise to at least develop this as a backup. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Alternatively, this could be privately developed. The free market could choose to use the stablecoin and wallet in everyday business transactions, but the interest-free credit would still require the government to allow it as legal tender. Founding investors would make billions from tiny transaction fees. I believe this project would be better funded by public money for public good, but if no one in government is interested, the private path of revolution would be scintillating.</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Once the stablecoin and universal wallet system was ready, and the government recognized the need - whether proactively or through revolt amid a crisis - everyone would transfer their interest-bearing house, car, college, and credit card loans from banks into their universal wallets denominated in interest-free Unis. Nationalizing the banks implies government ownership, which this is not. It’s more like universalizing the banks, which would dramatically shrink their size, and the vulnerability centralized credit creates. Financial crises would become obsolete. </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Here’s a few basic categories of a wallet: </span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;"> UNIS: 44,876 USD: $22,438</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"> </p><div align="center" dir="ltr" style="margin-left: 0pt;"><table style="border-collapse: collapse; border: none;"><colgroup><col width="118"></col><col width="140"></col><col width="124"></col><col width="134"></col><col width="123"></col></colgroup><tbody><tr style="height: 0pt;"><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Loans</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Car</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">House</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">College</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Credit Cards</span></p></td></tr><tr style="height: 0pt;"><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Balance</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">17,985</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">156,931</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">34,549</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">7,902</span></p></td></tr><tr style="height: 0pt;"><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Tiers</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Income Bracket</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Sales Tax</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Investor Status</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Bills</span></p></td></tr><tr style="height: 0pt;"><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><br /></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">75,000</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">18%</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Intermediate</span></p></td><td style="border-color: rgb(0, 0, 0); border-style: solid; border-width: 1pt; overflow-wrap: break-word; overflow: hidden; padding: 5pt; vertical-align: top;"><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Utility…</span></p></td></tr></tbody></table></div><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Notes</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p><span id="docs-internal-guid-2ab24cb5-7fff-a3d4-c640-cf588836e8b8"></span></p><ol style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The fluctuations within the Universal Stablecoin as one fiat goes up countered by other components going down could be determined solely by a formula, or utilize forex markets that trade every currency against 1 UNI: USD/UNI, EUR/UNI, JPY/UNI etc.. (or both) </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Another idea beyond the scope of this article is attaching interest to the issuance of the stablecoin beyond a predetermined threshold. For example, the first 100% of a person’s discretionary income is interest-free, the next 25% has 1% interest attached and so on, which is automatically extracted from their income, and increases up to a limit where it’s capped. This would create a market of people who want to hold that money to collect interest, which would reduce the need for banks even further. This could also be applied to riskier businesses like the way junk bonds function, except it’s currency they create with high interest attached. Government money could also function the same: the higher the level of debt, the higher the level of interest </span><span style="background-color: transparent; font-size: 12pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">automatically</span><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. In theory, the bond market wouldn’t exist because the interest rate would be determined by a mathematical formula, attached to the created currency, which would cap the level of debt as it gets prohibitively expensive. </span></p></li><li aria-level="1" dir="ltr" style="color: #1d2228; font-family: Arial; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-size: 12pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The second half of Freebird is the best four minutes of music ever recorded. </span></p></li></ol><p> </p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-58714231515338620662021-09-19T10:29:00.001-04:002021-09-19T10:38:51.392-04:00Market Thoughts for Week of 9/20/21<p>It seems everyone, including myself, is expecting a deeper pullback in stocks. Usually, that means the opposite will happen, but sometimes the crowd is right. It's plenty overdue and there's a lot of good reasons like seasonality, the China issues, Fed tapering, a huge jobs miss in either direction Oct 8th, mean reversion, Fib retracement etc.. If it happens, I'm thinking it will be a dramatic shaking of the leverage tree on the order of about 20% to ES 3640, which is the 38% retracement of the rally off the March lows, and then a V reversal into year end. </p><p>It certainly could fall apart Sunday night, gap down and go, but with stocks you always have to ask yourself: what is the nastiest thing that could happen? And that would be first a move up above the consolidation over the 50-day to lure in FOMO longs and shake out the shorts into the Fed on Wednesday, then a nasty reversal that sets off the down move and closes the week below where we are now. It should be noted this could be wishful thinking because I'm currently flat equities hoping for a big down move to buy for a long-term hold. If for some reason stocks hold up this week, it's probably cancel crash, which would suck because I don't know how anyone buys at this level. </p><p>Daily ES.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhE0s1YDzSmbT3_0EqjEdnwDyUiinghTjjhA41Xb3AgvFw9p4wym9yIr3vaTiuDFqTdXrHXhVezhaPfQy0FbyfwGKRGr12NdpyHcKDC2PRYjRZYsxKYWsD4LvzX9VwwmEURE9azS3N6pCDZ/s1426/daily+es.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhE0s1YDzSmbT3_0EqjEdnwDyUiinghTjjhA41Xb3AgvFw9p4wym9yIr3vaTiuDFqTdXrHXhVezhaPfQy0FbyfwGKRGr12NdpyHcKDC2PRYjRZYsxKYWsD4LvzX9VwwmEURE9azS3N6pCDZ/s320/daily+es.png" width="320" /></a></div><br /><p><br /></p><p>Weekly ES.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVjAjU5zjXEmG8OhiIV4OZW8t5Ss9GGAT7MRE_T5kXtsMS1dHFVG2Q-epXvNk7WKrhsFQwZteEhlg1qj25IyTUzqEke71HSD8rtq8ZAtbAQP7Fx-3vsbZc5pCiuH_pnWAkthrdvRdzjZom/s1426/es+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVjAjU5zjXEmG8OhiIV4OZW8t5Ss9GGAT7MRE_T5kXtsMS1dHFVG2Q-epXvNk7WKrhsFQwZteEhlg1qj25IyTUzqEke71HSD8rtq8ZAtbAQP7Fx-3vsbZc5pCiuH_pnWAkthrdvRdzjZom/s320/es+weekly.png" width="320" /></a></div><br /><p><br /></p><p>Weekly Bonds. Will it be a risk parity meltdown across the board if taper is announced? Looks pretty head and shouldery in bond land. The tricky part is if stocks meltdown, bonds could catch a bid, so I'd rather wait on this myself because if the risk parity meltdown happens, it will create a great opportunity to put it on since bonds have no chance of sustaining downside beyond the long-term trend line. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuosr0SxNC4-9km_CSGXq-vEKKjhO1am9qyXC2kbyt0ngTEYAf1fCMXEHWteVSsaXQHZ5_3Maru7daEPm3wuYUmh2cczoQuvAjx0Z34Y_gTjIk_BlriP7F7SG44HzURai0BTtMoPu-W6f9/s1426/bonds+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuosr0SxNC4-9km_CSGXq-vEKKjhO1am9qyXC2kbyt0ngTEYAf1fCMXEHWteVSsaXQHZ5_3Maru7daEPm3wuYUmh2cczoQuvAjx0Z34Y_gTjIk_BlriP7F7SG44HzURai0BTtMoPu-W6f9/s320/bonds+weekly.png" width="320" /></a></div><br /><p>Weekly Notes are looking like they want to go lower. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh50Nm7XoYY_DqeHeKN-hH1nGEuqlsfQTFh8vMI88pEWNe592qHtg5xqBWcdaMIwWdaTEm-eX5sEbPcrq7vqv79IwZQXifIjGtYz2uxToaLza9ELFKL14eIIoLZnGzO1hSlT7e49UCKYDrt/s1426/notes+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh50Nm7XoYY_DqeHeKN-hH1nGEuqlsfQTFh8vMI88pEWNe592qHtg5xqBWcdaMIwWdaTEm-eX5sEbPcrq7vqv79IwZQXifIjGtYz2uxToaLza9ELFKL14eIIoLZnGzO1hSlT7e49UCKYDrt/s320/notes+weekly.png" width="320" /></a></div><br /><p>TNX. From yield perspective, it looks on the verge of a breakout. 1.429 is the level. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh778dYb5sH6YkSv06OwUtvw-hWUv3TPPqee8RJA8ga7k7yLIvDU4my_8KTjAP0AoLH4386493vbFaZ8RNqCJojRmFcuKLWz5eVeIq1gEI-wfcfXOVMixKzRqL68TMq2m1Vfdi0OGm0M79a/s1424/tnx.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="1424" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh778dYb5sH6YkSv06OwUtvw-hWUv3TPPqee8RJA8ga7k7yLIvDU4my_8KTjAP0AoLH4386493vbFaZ8RNqCJojRmFcuKLWz5eVeIq1gEI-wfcfXOVMixKzRqL68TMq2m1Vfdi0OGm0M79a/s320/tnx.png" width="320" /></a></div><p><br /></p><p>Weekly Dollar. If this breaks out and closes the week strong, it might test the long-term downtrend line. You can't deny everything is setting up for tightening, and this seems like the week it's waiting for. What do you say, Fed? Gotta pull the bandaid sometime. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf1pi3-s9-8BqZ5f2l4uuoBuGAr7ByLUtK5ciCsZqjafJenmOF7zb1InGDzkpGqIzWjqmkS0cjXeBAe6t9qpDcMlgXS3rKNpuRz2SuCIgq9ppw3ooXoxo5aMxhcoVB-bAkHSQVFhYSfFSn/s1426/weekly+dollar.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf1pi3-s9-8BqZ5f2l4uuoBuGAr7ByLUtK5ciCsZqjafJenmOF7zb1InGDzkpGqIzWjqmkS0cjXeBAe6t9qpDcMlgXS3rKNpuRz2SuCIgq9ppw3ooXoxo5aMxhcoVB-bAkHSQVFhYSfFSn/s320/weekly+dollar.png" width="320" /></a></div><br /><p>Weekly Gold. If the dollar jumps, gold likely dumps. Triple bottoms usually don't last long.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU-eGCKAyPi3DQ1Q_nunVjpDz3zmrx9UMx20PGUltKUBfVdLw0uhV3djUCWfJoRPrXMC7iyUMq6YSdgaMwhgtbKWEc1NtiXx0lTNFm4W-rP44Ng4_FJwExOtdElP33KBpCMY06X3Lq50PZ/s1426/gold+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU-eGCKAyPi3DQ1Q_nunVjpDz3zmrx9UMx20PGUltKUBfVdLw0uhV3djUCWfJoRPrXMC7iyUMq6YSdgaMwhgtbKWEc1NtiXx0lTNFm4W-rP44Ng4_FJwExOtdElP33KBpCMY06X3Lq50PZ/s320/gold+weekly.png" width="320" /></a></div><br /><p>Weekly silver is looking nasty. I've been thinking for awhile if silver comes all the way to backtest the breakout of the $18/19 level it's a buy, but now that it might actually happen I'm second guessing myself because the metals suffer from so much supply from hedging, and I'd rather buy tech or crypto. We all know the Fed will never be able to normalize, so maybe silver and gold come down and make a new base to jump from in anticipation of the next time the Fed is forced to capitulate. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiRO3egw4mdsOXUvgSC0L8wo04SD-KyJ70sCvP9CQnBb_ItlfuTVHGdcZ7MIrGnZLY2xmb8U8lD668ESv2msMgHSErjinT10rSvrbHvaP-vA9OVligQZyeuBCkX-b_v3UYvUkkdjRWvxtm/s1426/silver+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiRO3egw4mdsOXUvgSC0L8wo04SD-KyJ70sCvP9CQnBb_ItlfuTVHGdcZ7MIrGnZLY2xmb8U8lD668ESv2msMgHSErjinT10rSvrbHvaP-vA9OVligQZyeuBCkX-b_v3UYvUkkdjRWvxtm/s320/silver+weekly.png" width="320" /></a></div><div><br /></div><div>Weekly Apple is looking breakdowney. If everything blows up, I bet it will end during OPEX week in October with a V reversal. </div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCa8Z1CWaJ2I0LpGR4PcArNqUNObYrMTVmCcVpU9PsNByl2SvMMH4Uy8wOikk8TcRgrUg3aECJftX3ehYb9CuaFOpIcLqIDOMYUNgKtPkVHQoZEY0Iz8MTFMga-0wRvngPAJ87A1COA9ZM/s1426/aaple+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="716" data-original-width="1426" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCa8Z1CWaJ2I0LpGR4PcArNqUNObYrMTVmCcVpU9PsNByl2SvMMH4Uy8wOikk8TcRgrUg3aECJftX3ehYb9CuaFOpIcLqIDOMYUNgKtPkVHQoZEY0Iz8MTFMga-0wRvngPAJ87A1COA9ZM/s320/aaple+weekly.png" width="320" /></a></div><br /><p>So here's the thing. I've forced myself to transform into an equity bull. And since I no longer put in the necessary screen time for short-term trading, I sent away for the PermaBull kit. It comes with a Tom Lee poster and Jim Cramer mug. And a t-shirt that says: I'm with them now (which could be a really bad sign, btw). I've always loved tech, and while it's overdue for a whacking in the short-term, I look at the world and think it's all going to follow our lead and adopt developed world technology, meaning, globalization has expanded the TAM for tech in ways that aren't even close to saturated. And that's not even counting new tech. As far as I'm concerned the internet bull market from the 90s is still the "general conditions" of the world. It's still evolving and expanding and penetrating markets. It popped in 2000 from overzealous buying, popped in 2008 from housing shenanigans, drawdowns in 2018's volmagedon, Covid in 2020, but it's still the same bull market in tech. </p><p>It's easy to fall into too much cynicism or focus too much on the end game problems caused by fiscal and monetary interventionism, but there's so much room for tech to penetrate developing worlds in the meantime, so I'm down with Cathie Wood and Elon Musk. She's onto all the great new tech themes, and I think Elon and crew are going to figure out FSD. I do think exponential trends need to be distinguished between physical and digital products, though, and between one company and its sector. Meaning, physical products are more challenging to scale exponentially due to production limitations, but digital products are not, so Tesla's valuation is very dependent on them solving FSD using only vision and neural nets because that allows them to license their digital intelligence to every car that's made in the future, including a robotaxi network. It's the digital tech that will scale exponentially. Without that, it's hard to imagine they can scale their physical cars enough to justify being valued so much more than the rest of the sector. </p><p>The other major limitation for Telsa is potential regulation, but a lot of that is optics. Every accident of FSD is going to blow up in the media while 10x that many human accidents go unreported, so it's largely a case of public perception. The future will look back and show an exponential trend of electric vehicles as a sector, but any single manufacturer within that sector is still limited by their production capacity. </p><p>Cathie Wood takes a lot of criticism, but most of that is unfair. She's investing in hyper growth companies, so the present day numbers are irrelevant. She's literally the definition of "skating to where the puck is going." Some people just overvalue the present and undervalue the future. Michael Burry might be right for about a month, but then he's gonna get smoked. It's kinda like people who focus on Ethereum's present day network numbers and don't see how superior Cardano is in its design, so they can't project into the future and see how they'll surpass Ethereum in every metric. </p><p>I must have spent well over 100 hours studying Cardano. There's not even a close second. They have over 100 peer-reviewed white papers about their design solutions. They've solved staking without custody or slashing. They've solved how to keep stake pools from centralizing. They've solved stable deterministic fees. They have a self-funding and voting mechanism, so in the future the stakeholders can find the optimal fee to incentivize validating, but not so high that it deters user growth. They're making it interoperable with other chains, so developers from Ethereum can easily migrate, or be on both. They're going to broaden the coding languages to those used by the majority of developers in the world outside of crypto. The hydra rollout will make it nearly infinitely scalable. And many of the most intelligent people in this space don't get it yet. Cardano could make this easier with a video that contrasts the pros and cons of their design decisions against other cryptos, but they will flip Ethereum within 2 years, Bitcoin within 5 years, and Apple within 10 years. Hopefully, while they're all going UP. If you've come to another conclusion, I would suggest spending more time studying what they are doing. </p><p>This next pic is an example of a 24hr period of recent stats. Transaction volume: Cardano 14.9B, Ethereum 9.9B. Active addresses: Cardano 148k, Ethereum 540k. Fees: Cardano $14k, Ethereum $33M. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2BAjJ0sjkYwVhEQzd0W5Ho_kUc0lb9ooLxyyXTFZMQXcoGLC_N0s0ViRf_DulDURw3RdnfJLuanow1VM81g2CUkuxXYlKhYUAq_tA2s9Sb8JRFX8c9Rsm5KqKVKtM1EV2TdgBhOryfvih/s1200/E_gOvWpWEAAG5wj.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="675" data-original-width="1200" height="180" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2BAjJ0sjkYwVhEQzd0W5Ho_kUc0lb9ooLxyyXTFZMQXcoGLC_N0s0ViRf_DulDURw3RdnfJLuanow1VM81g2CUkuxXYlKhYUAq_tA2s9Sb8JRFX8c9Rsm5KqKVKtM1EV2TdgBhOryfvih/s320/E_gOvWpWEAAG5wj.jpeg" width="320" /></a></div><br /><p>Here's a link to their design rationale material: <a href="https://docs.cardano.org/explore-cardano/cardano-design-rationale" target="_blank">Cardano</a> </p><p>BTC Daily - probably needs to take out the recent low and fill out the triangle before going higher (if I'm right about the Bitcoin thesis being wrong, it could take a year or two for the other crypto ecosystems to develop enough for that to become obvious, so I hope in the meantime Bitcoin keeps trending up since the whole space still trades as one). </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4mKVAw4ugYNcCGNnRoJhszKdRQmbTNQ78ey7jDyrGPbLqg6Dmtg5b2ADH6T5nzVdY11XovxKAnLtn7-X5p5Nkf1fmlpLJfE60tL9ZPtdoACb3A3gljmMi5qft9nypaxFHb6MXYzK0xMU6/s2048/BTCUSD_2021-09-18_17-38-17.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1098" data-original-width="2048" height="172" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4mKVAw4ugYNcCGNnRoJhszKdRQmbTNQ78ey7jDyrGPbLqg6Dmtg5b2ADH6T5nzVdY11XovxKAnLtn7-X5p5Nkf1fmlpLJfE60tL9ZPtdoACb3A3gljmMi5qft9nypaxFHb6MXYzK0xMU6/s320/BTCUSD_2021-09-18_17-38-17.png" width="320" /></a></div><br /><p>ADA Daily. I'm thinking ADA trades down to possibly double bottom around $2, but crypto is just as nasty as the ES, which means usually structure has to get penetrated to shake the tree before reversals happen. $2 would be ~50% retracement of the rally from $1, and Bitcoin $40k would be ~50% of the rally from $29k to $52k. Maybe the whole world goes risk off for a month. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKvG8kXoVymygHmuYMZ1728lO3UZZZ8w8cQupMlBHZrksp6MO43tRV-77gZRFQYoIxml6WuhIOyCnq-hfykkRH1avDIHz_ednZjK_XENVugtOCJf9ohwAhbUV-9_vDSFNRu-u-6Nn_B74Q/s2048/ADAUSD_2021-09-18_17-35-16.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1205" data-original-width="2048" height="188" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKvG8kXoVymygHmuYMZ1728lO3UZZZ8w8cQupMlBHZrksp6MO43tRV-77gZRFQYoIxml6WuhIOyCnq-hfykkRH1avDIHz_ednZjK_XENVugtOCJf9ohwAhbUV-9_vDSFNRu-u-6Nn_B74Q/s320/ADAUSD_2021-09-18_17-35-16.png" width="320" /></a></div><br /><p>Another interesting development are the social tokens and how they could change the nature of employment. When I've had time, I've noticed Raoul and the Real Vision crew do a great job staying on top of this constantly shifting landscape. Here's an interesting video on DAOs and social tokens: <a href="https://www.realvision.com/shows/the-interview-crypto/videos/how-daos-are-kindling-the-ownership-economy-model?autoplay=true" target="_blank">Realvision</a></p><p><br /></p><p><br /></p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-76906121324154747962021-09-12T20:31:00.007-04:002021-09-12T21:21:22.135-04:00The Universal Wallet<div style="text-align: left;"><span style="font-family: arial;"> <span style="font-size: 11pt; white-space: pre-wrap;"> This is a dualistic world where the answers are always in the synergistic balance of the middle. The realm of cryptocurrencies exists on the continuum of individuals on one side and the government on the other. The extremists on the individual side are the crypto anarchists who want total anonymity, no regulation, and pure decentralization of transactions where everyone is responsible for themselves. The extremists on the government side want to control and regulate every transaction and exchange, so they know exactly who is doing what for the purposes of taxation, tracking criminal behavior, and defending their sovereign currency. </span></span><span style="font-family: arial; font-size: 11pt; white-space: pre-wrap;">Both sides need each other. The crypto world has to accept that the government makes the rules. And the government has to accept that this innovation is the best hope we have to grow our way out of the systemic burden of debt. </span></div><span id="docs-internal-guid-fc500e58-7fff-f646-acc8-9c4d408098b7"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> What individuals want the most is privacy and freedom, which comes from the need for physical security in a world of survival after millennia of repressive power structures. Having anonymity is not a cloak to hide illegal activities, it’s a shield of protection from the overreach of government and the invasive power of big tech companies. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> The government is tasked with the chore of protecting the individual, but the only method it has is the enforcement of laws, so it seeks awareness of what everyone is doing to maintain order, which creates a dynamic tension between both sides: the government wants information for control; and the individual wants privacy for freedom. These two diametrically opposed forces are colliding over the role of cryptocurrencies, and how they can be regulated, so here’s a pragmatic solution from the center. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> The way to regulate cryptocurrencies and decentralized finance is not through enforcing onerous KYC data collection on the exchanges - it’s through the wallets. The solution is to verify the identity of a digital wallet owner through an encrypted KYC process that protects anonymity. For example, let’s say there’s a government database that contains our name, social security number, passport and/or driver’s license - anything needed to verify our identity, but each part is encrypted and broken into pieces on a decentralized protocol, so it’s nearly impossible to be hacked. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> A universal wallet could be designed so the individual enters all their identifying information, so it can connect to the government database to assemble the pieces and verify the identity as real, but there’s no record kept that links this particular wallet to that particular person. It’s a one-way “read only” KYC process that has no memory - it just verifies and gives a “blue checkmark” to the wallet, which unlocks its full functionality, but the government database doesn’t retain any wallet information, and the wallet deletes the identifying information too. </span></span><span style="font-family: arial; font-size: 11pt; white-space: pre-wrap;">The database could limit the number of wallets to one, but the identity of the wallet owner would remain anonymous. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> Then a law could be created that states all smart contracts and defi exchanges can only allow execution between two verified wallets. And the wallets could be programmed to only work with other verified wallets. Since all businesses will eventually take payment exclusively from digital wallets, this forces everyone, including criminals, onto the legitimate system, or they become exiled from the economy altogether. An unverified wallet could only be used with other unverified wallets, but those funds would never be able to access the verified system unless they get verified.</span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> By maintaining anonymity, there’s no need to trust the government isn’t overreaching with surveillance into our life. And from the government’s point of view, the wallets could be designed to keep track of every transaction like a bank statement, including realized and unrealized gains or losses for tax purposes. At the end of the year, anonymous wallets could automatically send tax information from capital gains to the identities in the government database, but it would be a “read-only” process that doesn’t remember the wallet. This way, the government gets its taxes, and they force everyone onto a verified system to prevent money laundering, yet the individual keeps their privacy and freedom. There could even be a banned substance/product list - like the materials needed to make a chemical bomb - so if any wallet purchases those things, a government agency is notified. Meaning, the only way for the government to have the right to see your transactions is through a warrant that needs proof of purchases from the banned list. Otherwise, they have no right to see what you’re doing. This is how you balance the privacy of the individual with the safety of the community. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> The same process could be applied to internet browsing and social media. Our digital wallets will be the passport to login everywhere, so we need the ability to toggle on/off our identity for purposes of social media, yet maintain control over the privacy of the data collected for ad targeting. Personally, I like be targeted by ads for products I’m interested in, however, I don’t think Facebook or Google should connect any of that data with my identity, so the wallet could provide relevant businesses with whatever basic demographics I opt into, but not my identity, even if I turn on my name for my friends and family to see. Essentially, the wallet should be designed to silo the identity of the individual from their demographics, browsing, and transaction history. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> Obviously, there are nuances that would have to be solved, but this is the basic idea. The crypto world needs to move beyond the notion that somehow decentralized currencies are going to be integrated into everyday life without government regulations to enforce our laws. And the government needs to understand that individuals are tired of the invasive overreach of powerful institutions, so if they attempt to stifle this innovation with onerous control, all they will do is transform what could be a seamless transition into an ugly revolt. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> All the government has to do is reiterate emphatically the US dollar is the only legal tender. As expressed below in “The Universal Bank,” we will have the fight over legal tender in ten years. Until then, blockchain can focus on the multitude of other innovations from supply chain tracking to microfinance to the creation of video game and virtual world economies, which is our only chance to grow out of this burdensome debt without a destabilizing devaluation of the sovereign currencies. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: arial;"> If a billionaire with political connections would like to develop a universal wallet, or the universal bank idea below, send me a message. </span></span></p><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-46215709786375413002021-09-12T20:25:00.001-04:002021-09-12T20:50:23.178-04:00The Universal Bank<p style="text-align: left;">(~10-minute read) </p><p><span style="font-family: Arial; font-size: 11pt; white-space: pre-wrap;"> In the future, our primary monetary relationship will be with an artificial intelligence that determines the amount of interest-free credit we can have based on our potential and projected earning power, so let’s examine how interest-free money would work for an individual, a business, and the government. </span></p><span id="docs-internal-guid-b7096d0d-7fff-603f-a455-f5931e07920f"><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Individual</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The amount of interest-free credit will be restrained by the discretionary income of the individual, but what about teenagers in high school before they have a job and expenses? How would they position themselves to qualify for an interest-free college tuition? Could the system truly be designed to create equal opportunity for all? </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Obviously, not everyone has the same starting point in life, or the same degree of intelligences and skills, but the additional challenges of growing up in an impoverished home - whether financial or psychological - or in a violent part of town, or the many other circumstances that create extraneous hardships is beyond the scope of this article, which will focus solely on merit. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Keeping track of a student’s performance through a combination of their grades and teacher assessments from kindergarten through high school would create an academic snapshot of each person’s intellectual and emotional aptitude, ambition, and discipline. Think of qualifying for interest-free credit for college as distinguishing yourself in the eyes of an artificial intelligence that is continually assessing your future ability to pay back the loan through feedback from the education system. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Another piece of an academic snapshot could include a psychometric personality test the A.I. analyzes to help project the future income potential of the individual. The overall assessment would qualify everyone for an amount of interest-free credit to use for college with a predetermined payment schedule that automatically garnishes their future paycheck at a reasonable pace that isn’t burdensome. Being able to open your digital wallet and see the amount of tuition you qualify for as it continually adjusts to your academic performance would inspire and motivate students from junior high school through university, particularly if it was contrasted to basic living expenses to display how much discretionary income they would have on the path they’re currently on, and what it would take to improve it. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Once an individual is in the workplace, their digital wallet would have several accounts of interest-free credit available to them based on their personal balance sheet for a house, a car, and credit cards. The available credit in each of these accounts would grow or shrink based on their real-time finances, and their wallet could project future credit based on increases or decreases in income and expenses. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If the person loses their job, payments could be automatically (and temporarily) frozen, or the repayment timeline extended, or even some degree of forgiveness if an unfortunate circumstance like injury or disability caused a loss of earning power, but since there’s no 3rd party issuers of the credit, or a predatory collection process, there’s no need for bankruptcy proceedings. You owe what you owe. The artificial intelligence will automatically extract it at a reasonable pace, and limit the possibility of exceeding the capacity to repay it.</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The credit in each account is created out of thin air but backed by their future labor, which is the exact same process as a bank loan today except without the bank. For those mired in double-entry bookkeeping, the debt is a liability for the individual and an asset on the ledger of the system itself, which acts as a universal bank. Every paycheck would be automatically garnished according to a predetermined formula to slowly pay off the loans over time. When the debt is paid off, it’s retired the same way debt is extinguished at a bank. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> There’s literally no difference in the credit creation process except for the elimination of a middle man collecting interest, which also eliminates the interconnected chain of counterparty risk and exotic derivatives between mammoth centralized institutions using a common currency vulnerable to the boom/bust business cycles that cause a domino effect of credit impairment that puts the whole system at risk. With every individual creating their own credit it’s like millions of currencies backed by their houses, cars, credit card purchases, and labor, but siloed from each other, which eliminates the risk of credit contagion and “too big to fail” because there wouldn’t be any centralized institutions at the source of it. It’s simply transferring the power of currency creation from banks to individuals, who would be algorithmically restrained by their discretionary income. This is how you create the liquidity needed to replace our current system’s dependency on single sovereign currencies. The legacy banking system would dramatically shrink in size, so any distress it faced from defaults on its interest-bearing loans would truly be a tempest in a teacup. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I cannot overemphasize how transformative this would be. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">A Business</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The main difference with interest-free credit for a business is how the corporate legal structure protects an individual from the consequences of the business failing, much like a politician disconnected from the consequences of their spending, so a business would have to qualify for credit creation. I’m sure a mathematician could analyze the stats of thousands of businesses and develop a formula based on things like how long the business has been established and </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">profitable</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, debt vs equity, market size, etc....to distinguish between Joe’s Rocket To Outer Space Inc., and Apple. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> A startup or a growth company wouldn’t qualify because their business model is either unproven, unestablished, or has too much debt. One way to align the consequences of the people making decisions with their actions is requiring the board of directors to maintain 50% of their net worth in the company stock, and when it’s bought back, 50% in the company currency. Allowing deeply established companies like Apple to create their own currency backed by their products and services supplements the liquidity of currencies created by individuals to transition the monetary system from dependency on single sovereign currencies to truly decentralized credit. The size of the stock market would dramatically shrink in size and it would free the overall economy from dependency on its performance. This would temper the boom/bust cycle from the extremes of mania and depression to a slow, steady, balanced growth. And it would relieve the Fed from its mandate drift of constantly juicing the stock market higher. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Most likely, there will never be a company that survives forever, so the entire point of having thousands of currencies is to diversify the risk from single government currencies that perpetually get diluted by politicians and central bankers whose actions aren’t linked to their consequences with currencies from as many viable sources of productivity as possible, so any failures of single businesses would be siloed and isolated from contagion because each currency would be like .1% (or less) of the savings and purchasing power in each person’s digital wallet. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Government</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The government doesn’t actually exist as an independent entity. It sits on top of the productive layer of the economy and extracts taxes from the profits of viable businesses to fund itself. Meaning, if you take the government away, the private sector still exists; but if you take the private sector away, the government does not because it's not self-sustaining. Sure, it could create its own currency, but without the ownership incentive to self-organize productivity, a government currency would have nothing sustainable to back it except the power to mandate its acceptance as legal tender and jail its citizens for disobedience - until it collapsed. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The reason capitalism works is because ownership stake incentivizes innovation, efficiency, and hard work to compete for every penny of profit since the owner(s) get to keep the excess once all the expenses are paid. Ignoring the incentive of ownership stake is the main flaw of Modern Monetary Theory and why Socialism fails. For example, I know someone who was hired as the head of maintenance for a local school district. During his first year he thought he was doing a great job saving the department money, but at the end of the year when his boss found out how much money he saved them, he was told to spend the rest of their budget on </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">anything </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">or it would get cut the following year. That wouldn’t happen in a business with ownership stake, and it’s the perfect example of government waste. The MMT proposal of buckshot government spending to fill the bathtub of aggregate demand is not grounded in the personal incentives that create and sustain the price discovery of a productive free market economy. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The real question is not how a government currency would work - it’s why should the government create its own currency at all? When the incentives of politicians are to appease the voters, they’re actually incentivized to be fiscally irresponsible, so they need to be restricted in their ability to spend, or the public debt will continually expand until the currency collapses. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The answer is simple: all government spending must come from taxes. If it’s worthwhile and necessary spending, the bill will get passed. If a natural disaster or World War Three pushes us over the budget, THEN a bond with a specific purpose can be issued with a repayment schedule that extinguishes the debt after it’s paid. The public will recognize when emergency spending needs to happen. The public will recognize when a military intervention is in the best interest of the nation, so the money to fund it will come from savings and not the monetary debasement programs of the Fed that steals purchasing power from the masses. All spending should be extracted from the </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">current</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> generation of taxpayers and not foisted upon people who aren’t even born. And the idea that a government who issues its own currency can never default is disingenuous. If the principal is repaid with money that lost half its purchasing power, that’s a default. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Alternatively, once we have thousands of currencies to choose from, and the ability to reject the government currency at will, go ahead with MMT - let the politicians spend like drunken lotto winners; it wouldn’t matter because blank check MMT spending restrained by inflation would quickly hit its limit and force raising taxes to save the plummeting currency. It’s the choice of competing currencies that would restrict politicians from profligacy. If you allow individuals and businesses to create thousands of currencies, and every merchant and customer has the choice to save and transact in whatever ones they want as legal tender, the value of the government currency would be kept in check by the public’s willingness to hold it. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Implementation</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This system would run as a layer two application on one, or multiple, decentralized crypto currencies. It wouldn’t even matter if it was a </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">decentralized</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> government blockchain if it had the right design because it’s the protocol in charge, but I suspect the coming FedCoin whitepaper will reveal a permissioned centralized ledger, which will be resoundly rejected as an extremist continuation of failing institutions. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The recent fuss over AML and KYC regulations is not even the warmup act. The real fight will be about the legal tender status of alternative currencies in developed world economies. The government simply cannot allow mainstream adoption of cryptocurrencies as legal tender because the value of the dollar would collapse. It’s literally a national security threat. There is no cryptocurrency, no matter how well designed, that will be allowed to slowly replace the dollar as legal tender in everyday transactions. The only way for an alternative system to be implemented is through the legislative process. And the only way to generate enough political pressure from the public to truly change the system is if the new way is so </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">beneficial</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> to the general population that they don’t have to be convinced to fight for it because they will do it naturally. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This is why none of the cryptocurrencies will succeed in mainstream monetary adoption without the system of interest-free credit I am proposing. Most people don’t care what currency they use in their daily life, nor do they care enough to learn why cryptocurrencies would benefit them, so they won’t fight for cryptocurrencies alone. That revolt would look like Occupy Wall Street. In contrast, </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">everyone</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> would fight for interest-free credit. That revolt would look like American Revolution 2.0. In fact, a change of this magnitude would likely require a constitutional convention, so other important amendments could be included like campaign finance reform, terms limits, and other fundamental changes to course correct a corrupt Congress. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> First, this alternative system of interest-free credit needs to be created and implemented in the developing world (like Africa) where this technology is needed to create their cultures with property rights, fair elections, and a sound currency. Once the system is operating in real-time and proves the concept, it won’t be hard to find support to implement it everywhere. Do you know anyone who would like to not pay interest on their house, car, credit cards, and college loans? I’m thinking 7.9 billion people would be interested in that once the vision is expressed. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I'll end with one of my favorite quotes: </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> “If you want to build a ship, don't drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.” - Antoine de Saint-Exupery</span></p><br /></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-43848629936756130742021-05-13T13:09:00.001-04:002021-05-13T13:09:31.774-04:00An Open Letter To Charles Hoskinson<p> <span style="font-family: Arial; font-size: 11pt; text-align: right; white-space: pre-wrap;">~5300 words </span></p><span id="docs-internal-guid-655f7ce4-7fff-1f58-fe36-953212449b3e"><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Dear Charles,</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">(The first half of this article is for context since you know it better than me. It’s the real revolution of the second half that I’m writing to you about.) </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I’ll start with my conclusion: in ten years Cardano will be the largest market cap of any corporation or cryptocurrency in the world, and I believe I can help you. Here’s a quick background of my unfortunate relationship with crypto so far: I found Bitcoin when it was a dollar, studied it for weeks, and came to the conclusion that it will never work due to security issues. A couple of years later I realized it also won’t work because it’s a proof-of-work protocol. I have the same opinion today. Much to my dismay, the world hasn’t figured out that Bitcoin will occupy a corner in a museum and be studied by historians while Cardano changes the world. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Around 2016 I checked back in with crypto and thought Ethereum’s smart contracts were a game changer, but it was still based on proof-of-work, so I checked back out. Then I found Hedera and thought it was exciting, but I felt something was missing. A few months ago I stumbled upon your whiteboard video explaining Cardano, which caused me to watch a few other videos, and I recognized in you what I’ve been waiting for. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Perfect Recipe</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Your approach of interoperability and scaling while including governance with funding through a treasury and the use of a proof-of-stake protocol is the perfect design. And your Africa strategy is brilliant. Bitcoin bulls have been preaching about adoption for years, but investment adoption is meaningless; it’s real-world adoption that matters, and that’s where Africa fits in.</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Truthfully, the developed world doesn’t </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">need </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">this technology. We have rule of law, a justice system, a voting and banking system, a medical records system etc. (albeit siloed and flawed), and while all of it would be drastically improved through the immutable record of a blockchain, it’s the developing world that </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">needs </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">this technology to build their culture with property rights, identity, fair elections etc.. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Creating digital identities and gaining real-world adoption in developing nations will establish the network effects and proof-of-concept for the developed world to be disrupted in its wake (some of it simultaneously). Many people compare the blockchain revolution with the internet in the late 90’s, but there is a massive and very critical difference. The internet was the best thing that ever happened to the government in the form of dramatic increases in economic activity and therefore tax revenue. Blockchain, however, is an actual real-world threat to the power structures of both the government and banking systems unlike anything this world has ever seen. Where the internet helped, blockchain will disrupt, so let’s distinguish the disruptions.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Distinguishing Disruption</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> There are four main disruptions happening simultaneously, but only one of them threatens the government:</span></p><br /><ol style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Tokenization</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">A peer-to-peer payment system</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Smart contracts </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: decimal; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">A digital currency </span></p></li></ol><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The first three will facilitate an economic boom as they disrupt nearly every industry on the planet; the last one is a threat to the power structures of this world. I do believe the government does not want to stifle the innovation of the first three, but they will defend their fiat monopoly like their job depended on it. While AML and KYC regulations are certainly coming to level the playing field with legacy banks and to track taxation, the existential threat to government would be bypassing fiat currency as legal tender to pay for real-world expenses, so it will never be allowed to happen - without the missing piece in the second half of this article. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Risky Banksness </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Bitcoin evangelists preach that we can be our own bank, but why would anyone want to be their own bank? Banks were invented for a reason. How many times did Yosemite Sam have to break into houses by gunpoint and steal everything valuable until the need for banks arose? Not only are banks the guardians of our assets, but they have fraud protection and risk protocols that would be stripped away in a purely peer-to-peer payment system, leaving the end user with no protection or recourse if their entire life savings were stolen. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Settlement and bank transfer delays in the developed world are mostly the result of risk management, not technology issues. I don’t know if it’s possible, or even desirable, to eliminate third party custodians when it comes to the implementation of a mainstream monetary system because the ensuing fraud would force the government to crack down with stifling regulations or ban peer-to-peer payments altogether. </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Trusted third parties are not the problem. </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The problem is the centralized power we grant banks to issue credit with interest, and a monopoly of single sovereign currencies that allows the government to socialize losses and put the whole system at risk because the incentive structure of the people in power is skewed toward fiscal and monetary profligacy to appease the voters. A fiat monopoly is like being forced to hold a penny stock that keeps getting diluted but you can’t sell. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Power Vacuum (and not a Kirby)</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I know you have Libertarian roots, as do I, but I’m a pragmatist, as are you, so I hope you’ve accepted the same annoying but fundamental truth that life has taught me. There are two options in this world: a power structure that protects and defends freedom and fairness; or a power structure that represses it. The absence of the former creates a power vacuum for the latter to emerge. When humans are involved there is no decentralization of power. Someone will always seek to be in charge - to either enforce their way of life on others, or protect it from being enforced upon. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Personally, I think war is the most economically wasteful activity humanity can engage in. I remember in the idealistic days of my 20s questioning why we waste so much money every year on a foreign military presence when there are people starving on the street, but the unfortunate reality is if we don’t provide the global power structure to protect and defend freedom, China and Russia will fill the vacuum left behind. (Crypto provides a solution to this, but more on that later.)</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Likewise, our monetary system needs a power structure to protect the masses from criminals. Cryptocurrencies have not been truly tested in everyday life with people constantly exposing their wallets in transactions on a mass scale, which will attract cybercriminals from stealing credit cards to hacking wallets by installing spyware and keyloggers etc.. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Call 1-800-Bitcoin</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> When someone makes a purchase at a store with their credit card, the terminal sends metadata from the transaction to the processor through the payment network to the card issuing bank, which scans for fraud, the buying pattern of the customer (ie strange location, transaction size, known scams), then approves or declines the transaction. If approved, a receipt is printed, signed, and the customer funds are frozen, then there’s a delay of hours to days before the funds are transferred to the merchant’s bank account. This is not caused by outdated technology. The funds could be instantaneously transferred, if desired, but they’re delayed as risk prevention to give the bank and customer extra time to recognize fraud. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Cryptocurrencies eliminate the intermediaries of the credit card processor, payment network, and issuing bank to allow peer-to-peer transfers of value at the point of sale, but it transfers the risk of fraud from banks to customers and merchants. If someone steals your credit card, there is recourse. Banks take that risk and absorb the loss as the cost of doing business within the larger profits they make from lending. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> With cryptocurrencies, there’s no 1-800-Bitcoin to call if Yosemite Sam hacks your wallet and steals everything you own. And what about chargebacks? What if the merchant doesn’t uphold their refund policy? In peer-to-peer transactions there’s no larger authority to reverse the transaction, so small claims court cases would boom. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> And what exactly is gained? Eliminating the custodians of our assets and their risk and fraud management systems is all risk and no reward, and iIt’s not the point of decentralized platforms. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Restrict Me, Please </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The pragmatic answer is to implement a hybrid approach of utilizing a multi-step and customizable digital wallet that connects to a trusted custodian who provides insurance. There’s a universe of difference between people locking up a percentage of their liquid assets in cold storage on the moon in anticipation of the great monetary system of the future, and the reality of people exposing their entire life’s savings every time they enter the password of their digital wallet to buy Cheetos. The monetary future of cryptocurrencies will be determined by security. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> For ease of daily use, let’s say a digital wallet on your phone holds a user chosen amount of $1000 and it’s programmed so any spending under $100 happens with just a fingerprint, but depending on the person’s spending habits, maybe the next gate is $300, which requires both a fingerprint and a retinal scan. Maybe anything over $500 also requires voice recognition, and transactions over $1,000 involve the custodian. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Maximum transactions in a day could also be a gate, so the first 3 require nothing special, then increasing levels of approval are required to prevent a malicious bot from siphoning $1 a thousand times. Ideally, at a specified time near the end of each day, the wallet owner would get an email or text showing their transactions during the day and how the wallet topped off their $1000 daily balance by transferring the funds from the custodian to their wallet while the rest of their life savings, stocks, bonds, house & car titles etc. are safely stored and </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">insured</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. So the most they could lose if they got hacked is $1,000.</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If it’s not a bank acting as custodian who also makes profit by loaning out deposits and paying interest to people to save with them, then a pure custodian/insurer would have to charge a fee, so it better be way less than 1% or it’s the same thing as losing that percentage a year to inflation in fiat currencies protected by banks. No matter how secure the wallet, once the masses are using it in everyday transactions and attracting criminals, if there isn’t a third party custodian with insurance, the regulations in the wake of the ensuing fraud will sabotage all the hard work of this industry. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I hope creating this security functionality along with the other features of a robust digital wallet (and possibly being the custodian) is a top priority of Cardano. As this technology matures, the safest, most trusted crypto platform with the least fees and most functionality will win, and if you want something done right, you have to do it yourself. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Immutable Reputation Incentive</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If there’s anyone reading this who still doesn’t understand the revolution of blockchain, here’s a practical example to extrapolate. I know someone who recently bought a puppy from a store, then a few months later looked into doggie day care while she went to work. The daycare place needed proof the pup had its kennel cough and rabies vaccinations. She had a rabies certificate from the vet, but there was only a date written on the store paperwork for the kennel cough, so she called the store who called the breeder and found out there’s not an individualized (and therefore trackable) label on the kennel cough bottle to prove it was given. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If an immutable blockchain system existed, the vaccination bottle could be given an individualized barcode tracked by the blockchain from its source so it could only be used once. The puppy could be microchipped with a digital identity created on the blockchain and its health record attached, which transfers to the store and then the final owner. The vaccinations at the vet could be added to the health record, so the daycare facility would have access to an immutable chain of ownership and health records they could trust. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Obviously, supply chain tracking depends on the honesty of the breeder, the store, and the vet along the way, so it’s not foolproof, but linking each person to some kind of reputation tracker like Google reviews incentivizes everyone to do the right thing. Even the reviewers could have reputation scores so someone with a political agenda couldn’t falsify reviews to make companies or people look bad without it reflecting poorly on themselves because their integrity would come to light from people they know (a feature Google does not currently have). </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Extrapolate This</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If you extrapolate this to the titles of cars, mechanical work, oil changes, and transfers of ownership, or the deeds of houses recorded with the county, you’d be able to track any component of anything you own back to its source. Whether it’s a TV, computer, or a couch, it would be possible to track where it was manufactured, so each company of each component could be linked to a reputation tracker where employees or other vendors and customers could share their experience of working with them. Giving consumers access to more awareness of where their products and services come from would create bottom up pressure on companies to treat everyone in a way that complements, informs, and transcends top down regulations. The obvious example is China. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This kind of pragmatic, real-world utility of the platform creates value. Whether it’s storing and tracking our own medical records in our digital wallet, simplifying health insurance administration, revolutionizing our voting system, making campaign donations transparent (even if anonymous), the instant settlement of stock trades, controlling what data we want to share with online advertisers, using simple contracts between landscaper and homeowner that execute upon job completion, or the infinite other use cases of smart contracts, the entire world is about to be blockchained, and none of it requires the horse and buggy technology of Bitcoin. The value is the platform, and the platform must provide security, desired functionality, and infinitesimal transaction costs (looking at you Ethereum). </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">N-moFo-ing-T</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Non-fungible tokens demonstrate another aspect of blockchain that will revolutionize the entertainment industry, in particular, especially for content creators who can collect royalty payments whenever their work is sold, or even played. There wouldn’t be a need for subscription models like Spotify or Netflix or cable TV because the artist and/or production company could host their work on the blockchain and get paid every time it’s played. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Why does someone have to pay Netflix except for the things they produce themselves? And why would content creators sell to Netflix when they can easily get paid by going directly to the consumer? One simple community-fueled review site could aggregate ratings into the Top 100 trending movies, TV shows, songs, documentaries etc. with links directly to the content, which sends payment from the wallets of every view or listen to the creator. Maybe subscription models could survive due to the ease of distribution to subscribers, but affiliate programs that pay people to promote their favorite shows to their peers could be more effective than centralized marketing. The Spotify or Netflix algo that recognizes patterns of people with similar tastes and makes recommendations doesn’t seem difficult to replicate for free. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Sports and concerts tickets wouldn’t really need a middleman either. Maybe for promotion, but the tickets would be secure and transparently owned by digital wallets, so they could be safely transferred. Why wouldn’t every seat of a hot ticket be owned by season ticket holders who sell the nights they’re not going to be there on a website designed for that purpose because the people and venue could trust they aren’t counterfeit? </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Companies could issue stock directly to buyers who could trade peer-to-peer, so there wouldn’t be a need for a brokerage, or a stock exchange, or a clearing house. No more commissions on anything. Optimal asset allocation strategies created by algos would be abundant and could be selected from a menu by the wallet owner, so why would anyone need a human to recommend stocks? Pretty much every middleman will be eliminated as the world becomes direct-to-consumer and peer-to-peer, if it’s done securely. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Matrix</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Where blockchain technology will really flourish without any threat to the government is in the realm of video games and virtual reality. The entire movie and television industry will become obsolete as virtual reality technology develops. Why would anyone want to watch the stories of other people on a TV or movie screen when you can be fully immersed in worlds upon worlds in a metaverse where everything is happening to you directly? </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Virtual reality will allow us to live multiple lives simultaneously that will be (eventually) indistinguishable from the physical one (I wrote a screenplay about this). Blockchain allows virtual worlds to operate monetary systems in a way that can be both trusted in the internal logic of the virtual world itself and allow a transfer of value back to the physical world (or from one virtual world to another). The ecosystem of video games and virtual reality will merge with the physical world economy. You could level up by slaying a dragon and win a coveted diamond sword and then buy a pizza with it because your wallet could exchange its value instantaneously. There’s literally no limit to the number of worlds that could operate with trustless transactions and transfers of value, and the creation of these worlds would be an economic boom unlike anything in history. Imagine the possibilities when general artificial intelligence fueled by quantum computing is creating all the worlds.</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> But despite the exciting and immeasurable promises of the future, the real revolution is disrupting the monetary monopoly of the world we live in now. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Real Revolution</span></p><p dir="ltr" style="background-color: white; line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> </p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The underlying problem with our monetary system is a disconnect between incentive and consequence. Politicians are actually incentivized to be fiscally irresponsible, so we are legally forced to use the currency they dilute as legal tender, or we would abandon it for an alternative that maintained its purchasing power over time by being outside the influence of their spending. The value of the dollar would collapse if we weren’t forced to use it. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> It’s the lack of currency choice that prevents the self-correcting mechanism of the free market from restricting government spending by sending a signal to stop via the plummeting value of the dollar. Fiscal and monetary recklessness could not happen if the free market could choose to transact in alternative currencies. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This is why Bitcoin bulls who think the developed world central banks are going to adopt an inelastic, uncontrollable, decentralized currency are profoundly misguided. That would be like Superman choosing to eat Kryptonite. It would be asking them to voluntarily give up control and restricting themselves with a monetary straight jacket. The sovereign currency monopoly is not a problem that can be fixed by politicians proactively changing the law because it would require a majority of politicians to put the good of society over themselves (and it could be reversed when the next generation takes power anyway). </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The obvious solution of allowing people a choice of currencies to use as legal tender in everyday transactions requires the digital replacement system to already be in place, then the real revolution can begin as the people and businesses, who are the real value creators, pressure the politicians to enact a change for the benefit of us all. But that requires a new understanding of money and a system that properly incentivizes its adoption. This is the purpose of cryptocurrencies. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Real Source of Value</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> A definition of money needs to apply to every situation universally throughout all time, so we have to consider how it worked thousands of years ago before land ownership when people created products (ie food, clothes) from the natural resources in their geographic area. What exactly is the value being exchanged when two farmers trade wheat for clothes? </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Each farmer has to come up with a price for their goods based on their time, energy, and cost of previously acquired resources, as well as other factors like demand and the nearby supply of other farmers with the same product. The underlying universal principle to define the value being exchanged is simply everything the free market factors into the price of the product. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The medium of exchange used to facilitate the transfer of that value is secondary as long as it has qualities that make it hard to counterfeit or duplicate. Gold was the chosen medium of physical exchange for centuries because it had those qualities, but the gold itself is not what’s valuable. It simply </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">transferred </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">the value within the products and services flowing through the economy. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Beyond Interest</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> In our current system, money comes into existence mostly through bank loans, which provides the funding for buying a house, a car, a business, or the many products and services of the economy with a credit card. Obviously, any credit created beyond the level of deposits in a fractional reserve system is inflationary and dilutes the purchasing power of the money already in existence. A fractional reserve system pulls forward future economic activity, which is something a hard money system with 100% reserve ratios doesn’t allow, but there’s nothing innately wrong with borrowing from your future revenue if the issued debt doesn’t exceed the productive capacity to repay it. The monetary system must be elastic. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Government spending beyond what it collects in taxes is funded by issuing treasuries, but we need to distinguish whether those treasuries are purchased with money already in existence or with money created out of thin air. Shadow banks, and now decentralized crypto lending pools, also issue loans, but, again, the distinguishing feature is whether they are collateralized with money already in existence, which is sterilized, or created out of thin air, which is inflationary. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> At the heart of the money creation and lending process is a middleman (whether it’s a defi smart contract or not) who charges interest based on the prevailing time value of money and the credit risk of the borrower established by the market (and influenced by the Fed). Decentralized finance is certainly game-changing for the unbanked in how it can provide credit to developing nations, but it’s the same exact process we have now, except the lender is not a centralized institution. How is replacing centralized banks who charge interest with decentralized lending that charges interest any different? It’s still interest bearing debt that is owed to someone trying to generate a yield. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> In our current system, if someone applies for a credit card, the bank will analyze a number of factors including their credit history, debt-to-income ratio, employment situation, house equity etc, then determine the amount of credit they qualify for and the interest rate. All of that can be done with a smart contract and an application layer that allows people to generate a currency in their own name, which they are legally obligated to repay and shows up on their credit report, so they are restricted in the amount they can create to a percentage of their projected discretionary income. The monthly payment schedule could be created upon issuance but with no interest attached. Maybe large purchases like a house require another step of human supervision, but there’s no reason a bank can create money out of thin air and an individual can’t. A smart contract could perform the same function of qualifying creditworthiness based on the financial situation of the borrower. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The time value of money only exists when there’s a middleman trying to collect interest on the loan. The real revolution, and the true potential of cryptocurrencies, is to decentralize the money creation process by allowing businesses and individuals to borrow from their future revenue by creating their own currencies backed by their products, services, and labor. This distributes credit creation from the banks and government to businesses and people with an elastic system that algorithmically restrains any private or public actor from abusing it. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Interest-free, endogenous money not only can be done, it will be done. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Corporate Currencies</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Real value IS the products and services of our economy. The medium of exchange, and the payment mechanism, is irrelevant. The power of currency creation needs to be connected to, and restrained by, real world economic activity. If large scale viable businesses created the currencies by paying their employees, expenses, and supply chain in a currency they create, the money supply would be anchored to real-world production capacity, flow through the economy and provide liquidity, then get redeemed for the products and services created. Without this, the entire crypto revolution will amount to nothing more than replacing our current system with one that’s more efficient and hosted on a decentralized platform. Banks charging interest will become defi pools charging interest. The true potential of distributing credit creation among the value creators of the economy will be unrealized. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The current cryptocurrencies are just government fiat in digital clothes. The whole crypto world is built upon the layer of single sovereign currencies, and because the government will never allow the widespread use of cryptocurrencies as legal tender in everyday transactions it’s necessary to have channels back to fiat to pay your expenses. The only way the single sovereign currency system can fundamentally change is if the replacement system is so beneficial to the majority of people transacting within it that they become naturally motivated by the incentives to force the change. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Unless someone can get paid in their currency of choice, and pay all of their expenses with their currency of choice, nothing is solved. Unless the citizens can operate their lives without using government fiat, nothing is solved. Unless businesses can pay their employees and supply chains with their own currency created by the production process itself, nothing is solved. The only way to transcend the sovereign currency monopoly in a sustainable way is through a distributed, elastic system of money creation anchored to the production process itself. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Corporate currencies of AAA rated companies would flow through the transactions of the economy as the first medium of exchange in history that reflects true value as they return to the originating source upon redemption. (I’ve explained this in detail in an article called </span><a href="http://thetradingcrucible.blogspot.com/2018/04/the-universal-dollar_1.html" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">The Universal Dollar</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. By allowing businesses and individuals to create their own currency, which would be restricted by their balance sheet, credit rating, and projected income, the debt created would be owed to the system itself and not require interest because there’s no middleman trying to collect a yield. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> The question is: how would thousands of currencies get valued against one another? </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Universal Unit of Account </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> A few years ago, when I wrote about </span><a href="http://thetradingcrucible.blogspot.com/2019/08/the-universal-unit-of-account.html" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">The Universal Unit of Account</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> as the way corporate currencies could be valued against one another, I didn’t understand the difference between the platform layer of a native cryptocurrency and the application layer on top of it. I’ve recently realized the universal unit of account can actually be the native currency of ADA while an application built on top of it would allow corporations and individuals to create their own currencies (like tokens) in their name but denominated in ADA. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This would allow truly decentralized credit. The defi lending pools, and a smaller form of our current banking system, which use interest rates, will always exist for riskier, unproven credit, so the hunt for yield will be focused solely on this. Once corporations can issue their own currencies, the largest, safest ones would no longer need a corporate bond market, or stock issuance. As their currencies, backed by their products and services, flow through the economy, most of the financial world would transcend the time value of money and operate interest-free, which would make financial crises obsolete. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> While interoperability allows many different platforms to operate in harmony, and it’s certainly possible we end up with several cryptocurrencies interacting with gov’t stablecoins, it’s also likely this ends up “winner take all” determined by the platform that can handle the transaction load, support a native digital wallet with the necessary anonymity (to control our data) and security features that connects to a custodian with insurance, and includes the application layer allowing corporations and individuals to create their own currencies, which will usher in a golden age of decentralized prosperity that transcends the boom/bust cycles of history. Smart contracts from the losing platforms will simply migrate to the one with the least fees, most functionality, and ability to evolve as real-world adoption creates a self-fueling network effect. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> As the Cardano smart contract era rolls out and developers realize the superiority of the platform and migrate from Ethereum, and Bitcoin bulls realize the value of a cryptocurrency is about the functionality of its platform and not about scarcity, money will flow to Cardano. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Over the next decade, it’s entirely possible Cardano consumes the entire economy as everything becomes coded on it. Once ADA fully integrates the world economy by disrupting every industry with its smart contracts, the system will be in place for people and businesses to pressure the politicians into making it the non-sovereign unit of account and settlement layer between government coins, which means the final stage of denominating all the world’s goods and services in one unchanging universal unit of account would be complete, so if you went to the grocery store to buy bread the price would be 2.45 ADA. Toyota, Apple, and Microsoft currencies would be denominated in ADA. The digital wallet of individuals would spend according to user-selected currency ratios and keep the system in balance by returning the currencies in circulation back to the source as redemption for their products and services. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> This is the real revolution, and real potential, of cryptocurrencies.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">The Torch of Hope</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Real-world adoption is a marketing game. Countries can’t adopt what they don’t understand or know exists. Local boots on the ground in Africa can surely win the trust of their leaders, but what Cardano needs are dynamic marketing videos - both long-form and bite-sized - to express why the design of Cardano is superior, and how it</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">will revolutionize the world. After full adoption in the developing world, a long-formed documentary that inspires people and businesses in the developed world with the vision of transcending interest rates with truly decentralized credit will force the politicians to enact the change. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I don’t believe our politicians and central bankers conspire against us. They are normal people who are pressured into choices by the warped incentives of our system, and none of them can change this through the legislative process without the backup system being in place and an angry, or inspired, populace who remind them who votes and funds their political campaigns. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> An inspired idea, clearly expressed, cannot be stopped. As a safe, secure platform like Cardano revolutionizes both the developed and developing worlds, as blockchain penetrates and disrupts every industry on the planet, as the custodial infrastructure develops, the people and business leaders of the world will be incentivized to pressure the politicians. Once corporations can issue their own currencies, and every value in the world fluctuates against a stable unit of account, which doesn’t change in value from the actions of politicians and central bankers, financial crises will become obsolete. When the government can no longer spend at will without crushing the value of its own stablecoin in real-time, and their expenses must be paid with real-time tax revenue, </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">it will be impossible to create and sustain war</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. Empires will become obsolete because governments will finally be restrained, permanently. </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> If that sounds like a golden age of prosperity and peace it’s because it is. It’s a revolution on a global scale that is both inevitable and knocking on our door. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> I can help you design and strategize marketing videos to inspire this vision of hope. Give me a shout.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Sincerely,</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Jeff</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">BATTLE SONG: </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Since this is going to be a fight, here’s the battle cry I picture in the hearts of humanity. The middle gets me every time. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><a href="https://www.youtube.com/watch?v=oi3QmAmrG6M" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Knights Of Cydonia</span></a></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">DISCLAIMER</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: I have 5% allocated to Cardano. I am riding it to the largest market cap in the world, or zero. When global regulations come out, the entire space could get crushed, so this is not investment advice. Unfortunately, I’ve been so busy, in the time it took to write this, Cardano has more than doubled. I think it’s 200x from here, but that doesn’t mean it can’t go down by 80% first, and it doesn’t mean I’m right. I’m just a schmo like you trying to figure it out. </span></p><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-92066286397740072142020-08-23T12:46:00.015-04:002020-08-23T21:23:27.338-04:00Sold To You!<p><span style="background-color: white;">FANTASY: I picture the old S&P pits from the 80s with mobs of intense buying pushing the market to all-time highs, and there I am hovering above the chaos, rigged to a wire like a character in a stage play that allows me to hover over the clamoring arms and sprinkle pink tickets on them like the petals of a rose - sold to you! - sold to you! - and yet the buyers can't get enough, so I attach a dispenser to my rear that unravels pink tickets by the hundreds, and I glide across the room in the Heisman trophy pose with my right arm straight out, doing a slow-motion bicycle kick while I crop-dust the eager buyers with pink confetti flying out my arse - sold to you! - sold to you! - sooooooold to you! Oh, baby birds, little robins, eat it up, daddy's got more where that came from - SOLD TO YOU!</span></p><p><span style="background-color: white;">That image has played through my mind all summer. </span></p><p><span style="background-color: white;">SUMMARY: With stocks priced to perfection, it's time to look ahead and calculate the baked-in degree of delusion by considering how the election and second wave risks will affect different asset prices. I'm thinking we get mean reverting reversals into the election to shake people out of their position. Covid is an unknown, but I don't see why anyone should believe the worst is behind us. </span></p><p>Things to consider: </p><p>The expected short-term rate of change improvements in the data is probably close to over, but the virus uncertainties are clearly not, and yet the market is priced like the worst of the Covid is behind us and it's all rainbows and unicorns from here. </p><p>There won't be any Fed action anytime soon, so the only positive catalyst left is a fiscal package, which, even if it does happen, why wouldn't it be sell the news?! And if not, how come? You can make the case that the fiscal and monetary actions of the last six months has replenished the missing economic activity, but now what? People need more money. What about all the closing businesses, reduced hours, layoffs etc., and that's before we even find out if there's a real second wave that makes it all much worse. </p><p>It seems to me this is the worst risk/reward for stocks in all of recorded history. And that's not even considering the algo dynamics of shaking people out of their position like the last election. In the face of all this known economic damage, the Fed on pause, and the uncertainty of a second wave, my question to you is: how will the buyers maintain a bid into the most binary event in years? </p><p>But to start the selling, we need a catalyst, right? The obvious ones are the upcoming NFPs, or the Fed meeting, or sometimes stocks get marked up into quarter end, or Sept OPEX etc. For someone who doesn't have clients to appease, selling here is a no-brainer. Even if the market breaks out for real, does anyone think it's not going to come back and test these levels after the election, after we know whether there's a second wave? Then why should I hold through all of that uncertainty if I can get back in at the same level or better after there's more clarity? It's this thinking spreading like a virus that should cause the market to rollover. If this was poker, staying long is like going for the gut-shot straight draw on the river. Sure, it could work, but you won't be winning many tournaments if you do that a lot. </p><p>Selling longs is not the same as getting short, however, I am looking for a signal to short the ES, but I plan on buying ATM calls against it to limit the damage if I'm wrong. I'd like to see a breakout in the ES on one of those potential catalyst days that fails. The smart thing to do is to actually wait for the reversal signal to close back below the high, and it should be on a weekly candle, but I'd rather be part of trying to stuff it - if I happen to be available on the day, and I'll buy the offsetting calls to limit the loss to under half a percent. </p><p>Then, if there's continuation to the downside, I'll either drop the calls, or more likely sell deeper OTM calls against it to make it a pure short or close to it. If the breakout holds, I bet I could get out for less than half a percent because it would only be a couple of days. I'd be willing to try this twice. It's probably 10-1 for account sizes that can get in and out with a few clicks of a button (although, I personally recommend to never short stocks). If I was a hedge fund that can't be that nimble, I'd sell futures into a breakout to hedge my long book, which doesn't mean it's going to work, but this game is the same as poker: if you consistently play positive risk/reward setups the positive expectancy will play out over time in your favor. </p><p>I honestly don't know why some people stake their entire reputation on a particular call. Anyone who puts real money on the line could not care less when someone else gets something wrong, or right. It's all in your head. I've made money being wrong, and lost money being right many, many times. It seems fairly self-evident that it's not a good idea to tie your self-esteem to predicting the unknowable. And that's not to say there isn't a fun endorphin rush being right, or a torrid wave of worthless shame being wrong, but if you turn the volume down on that and not overly indulge in either, there's a freedom that comes with it that's priceless, so, seriously, pumps the brakes on the self-loathing - no respectable person cares if you get something wrong. </p><p>It's not often that we have massive upcoming catalysts and now there's two in the months ahead: election scenarios, and Covid second wave risks. Someone smarter than me will put more time into these possible election scenarios, but here's a start. The first two seem straightforward to me:</p><p>1. Trump + blue houses = crazy infrastructure spending and retaining the lowered taxes because Trump will become a Democrat with no nothing to lose and only a legacy to gain. I would think this would be: dollar bearish, gold & silver bullish, stocks bullish, oil bullish, and bonds I don't know-ish, probably bearish. </p><p>2. Biden + blue houses = higher taxes so stock market goes way down initially, but then it gets priced in, and the realization that insane fiscal and monetary policies are coming is bullish for everything, so stocks go way up over his term. This is the most direct path to inflation because it's likely the only way Universal Basic Income gets passed - like for real, not just patchwork periodic Acts. (I will add, though, option one is also a way UBI could happen because Trump's only belief is whatever will cause the stock market to go up, he will do.) Dollar bearish, gold & silver crazy bullish, stocks bullish even crazily so in the right ones, oil back to $100, and bonds bearish but capped by yield curve control, so it doesn't make a lot of sense to short bonds. </p><p>The split house route is much more murky:</p><p>3. Trump + split houses = dragged out fights over everything, so somewhat of a restraint on fiscal, but they'll still get things passed because that's what politicians with no accountability do, so MORE EVERYTHING, however, it's not as clear as option number one in how it will affect the different asset classes. Bonds would likely stay firm with stocks more volatile, the dollar rangey, oil who cares, gold rangey, and silver restrained. This one would suck. And so would the next. </p><p>4. Biden + split houses = stocks way down with a more difficult path back up. I suppose you could argue split houses will make tax hikes impossible, so maybe stocks don't react that much, but after long battles the Republicans would likely say if you keep taxes low, we will spend like drunken sailors on infrastructure. So the two split houses scenarios will likely still continue to expand the everything bubble, but in a much more restrained, difficult path. In all of the above, I think stocks eventually go back up and way higher, but how low do they go in the meantime is dependent on the scenario. </p><p>*And it should be noted I'm only trying to grease the wheels in your own mind. We just have to react to what the market does, but I find it helps conviction if the market responds in the way you anticipate. </p><p>The Covid risk is more important because it will trump any scenario above in the short and medium term. I read an article the other day suggesting that fading antibodies doesn't matter because people still develop long-term immunity after infection, which would be great if true, but it still means we need to develop herd immunity, which requires massive virus spreading and long-lasting economic damage. I don't find much hope in a vaccine because it will take so long to rollout and so many people won't do it anyway, myself included. I'm not letting the government stick a rushed vaccine into my arm. </p><p>All I know is if schools reopen, kids don't care like adults do, and winter is when other colds and flus cause coughing and sneezing and mucus and indoor life for the north with people touching doorknobs and faucets with infected hands etc., so I don't see a reason why anyone should be expecting the worst of Covid to be behind us. The fact is no one knows, and despite all the figuring of election scenarios, the real risk is the degree of a possible second wave. </p><p>ES Weekly. I'm looking for at least a 10% - 15% pullback to 2900-3000, and if the wrong election result happens, or a second wave occurs, then it's back to the March lows to form a giant W, which honestly should be the base case. Good Covid news really should be a welcome relief, not the base case, meaning, if you think a virus that's asymptomatic for two weeks, and this contagious, will be contained, what are you basing that on? </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgMgpgVCElEJ-FgbzBs0IlVnuRKQ1JCRFWiBzQBVzrJJxIE76BKdm-0AtotJwnD2R7RcPYG9ILgi2ZQLat1XOAC4Bv3RU_FlIR7sRUThGnVv-SYtpFGhFTu4tmyflIBG1-ufaO3yrDZ_rH/s1609/es+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgMgpgVCElEJ-FgbzBs0IlVnuRKQ1JCRFWiBzQBVzrJJxIE76BKdm-0AtotJwnD2R7RcPYG9ILgi2ZQLat1XOAC4Bv3RU_FlIR7sRUThGnVv-SYtpFGhFTu4tmyflIBG1-ufaO3yrDZ_rH/s640/es+weekly.png" width="640" /></a></div> <p></p><p>DXY weekly. A mean reverting bounce would be pretty normal, mostly because it's going to be hard to maintain conviction into the election, but sometimes there's that one last annoying move lower, which requires either small position size or a stop out and another try. Even with this reversal candle it's still in a downtrend. A higher high would happen above 93.91. </p><p>Unless it happens on a catalyst day, I likely won't get involved. 95 is an important level the bears would want to defend. If you apply the "what is the nastiest thing that could happen" mindset to this, it would be: a poke higher through 93.91 that reverses back down, then a new low below 92 that reverses back up and moves into 95 for the election, then a big spike into the triangle during the election debacle that reverses and closes back below the triangle. I probably don't need this in my life right now. </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlkzRbPCarsSH-6A-IY_IYv7XmIuI8BQJuExsTuFYG8tsZyx2te8lAkfWyrK29ik4XotGcKDozBhIYV9O9uYVBNx5YDQ0qrwRzHAp12ki7szesnBlIbgB2_x2ekUcHIBWp3rkXdLNpNCK8/s1609/dxy+weekly.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlkzRbPCarsSH-6A-IY_IYv7XmIuI8BQJuExsTuFYG8tsZyx2te8lAkfWyrK29ik4XotGcKDozBhIYV9O9uYVBNx5YDQ0qrwRzHAp12ki7szesnBlIbgB2_x2ekUcHIBWp3rkXdLNpNCK8/s640/dxy+weekly.png" width="640" /></a></p><p>EURUSD weekly. This is exactly where you would think a reversal would happen. If this market is going to breakout higher it likely needs to pullback and/or consolidate for weeks and then assault this level again. I don't see why it will continue this relentless upside into the uncertainty of a binary event. Note: the giant triangle finally broke to the upside, but what about a quarterly close back inside it at the end of September? Doh. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2vi63U0wc9Y8k9Ypc6ljV1SEsmC6DcKXErD3sPIJ2N5e2xshO5bNeSVkV8t5HvB63vYyBq-QzO-K8_CT1bqFBPKt-SKGKp3qhaRpcTp3hnNCi8cJlWyBPaZ1gHQJ10CHfzVKsVPirxlba/s1609/EURUSD+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2vi63U0wc9Y8k9Ypc6ljV1SEsmC6DcKXErD3sPIJ2N5e2xshO5bNeSVkV8t5HvB63vYyBq-QzO-K8_CT1bqFBPKt-SKGKp3qhaRpcTp3hnNCi8cJlWyBPaZ1gHQJ10CHfzVKsVPirxlba/s640/EURUSD+weekly.png" width="640" /></a></div><p>GC weekly. Gold will try to hold its old high at $1923, and maybe it succeeds because there's really no end to future monetary and fiscal easing, but a deeper pullback is probably likely and shouldn't be ruled out. I'm hoping to see it come down and reverse off the $1800 consolidation level. If it did, I'd add to a core position, and if there's some kind of sharp reversal, I'd play a spec position from there as well. </p><p>END GAME: deflationary vs inflationary </p><p>This is the main macro thing to figure out in an overall outlook. Will the dollar spike uncontrollably upward and force a Plaza Accord devaluation, or will it plunge all-time lows and force the Fed's hand to tighten, thereby ending the secular everything bubble? </p><p>Ten years ago, my natural way of being was an inflationary end game person, but then I morphed into a deflationary person (mostly because I anticipated the dollar bull run), then last year I morphed back into an inflationary person. It seems to coincide with where I think the market is going in the next six months. If it wasn't for the flawed structure of the Eurozone, this would be easy: the dollar is toast. </p><p>I understand the "global dollar short" argument, and maybe it's right, but I think all those reasons are why the dollar will go down, not up, as we've seen over the last few months. Every liquidity and solvency event will be met with fiscal and monetary fire hoses. There is no limit - UNTIL a plunging dollar forces their hand. THEN you get the deflationary spike. If you add a Democrat controlled political structure and UBI then the inflationary scenario is a lock. The only concern is if the Eurozone hits a wall about debt mutualization and comes under political pressure to breakup. Then you get the dollar spike that forces intervention. </p><p>So, to me, if Covid worsens, and solvency events happen, that's dollar bearish. If a blue wave takes power, that's dollar bearish. If Trump wins, Covid resides, and the Eurozone comes under political unrest, that's dollar bullish. So, unless there's a return of the Eurozone fracturing narrative, all dollar strength and gold weakness is corrective within their respective larger trends. And the upside to gold is still staggering in potential. You just have to remember pacing. A move up from its breakout last year is supposed to consolidate for awhile before advancing again. That could happen through time, or price. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF-pK9Gm8I4EAcHJZmliHlgUkEbmNFqZQeptdVofAqjI1bQRAuByUUjM9fg5NUg13vwkmI3LRiA09_HDAPj5vZsg5Ci3Un3KEUrbtpasYRykFCyOjMK1hyphenhyphenpGvZ865hvZyJzpgpps9IGDaS/s1609/GC+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF-pK9Gm8I4EAcHJZmliHlgUkEbmNFqZQeptdVofAqjI1bQRAuByUUjM9fg5NUg13vwkmI3LRiA09_HDAPj5vZsg5Ci3Un3KEUrbtpasYRykFCyOjMK1hyphenhyphenpGvZ865hvZyJzpgpps9IGDaS/s640/GC+weekly.png" width="640" /></a></div><p>Bonds weekly. I don't see why bonds won't breakout and test those highs, especially if stocks selloff into the election. If Dems sweep, I wouldn't want to be long bonds. It could work if stocks selloff as a risk-off play, but the anticipated flood of treasuries would worry me. There's certainly spec plays into the election, but not through it. At least not unhedged - as a position in a portfolio or with protection. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQiZQyiArXn3h09jDrcXlk-swS4NDk6w2D6DBHULxad2k3f9iWsoQXi5RVfeMvMV8vbsdCc9upAwo3cHhbSAGEEz-nNDYFgvsqk3V37D4dBcyxH1t81Vq7TnpNR8tao8jV-46XtqUKFqtv/s1609/bonds+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQiZQyiArXn3h09jDrcXlk-swS4NDk6w2D6DBHULxad2k3f9iWsoQXi5RVfeMvMV8vbsdCc9upAwo3cHhbSAGEEz-nNDYFgvsqk3V37D4dBcyxH1t81Vq7TnpNR8tao8jV-46XtqUKFqtv/s640/bonds+weekly.png" width="640" /></a></div><p>AAPL Weekly. I'm a buyer of Apple around $325, which is $81 after the split. I hope I get the chance. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4gl9UI6kTWlQK7KBdcUfz8uGMAjCMtxoRElBMWqFigT8RTK0Q-idRmKEsieTqHZ1tzX00Xa3iQaHlJeA0xFykzjybsbV4er1pOyHkh9yauelPTvvt9j2lPfz7CBgd2msL3WrUiY9Pn59z/s1609/aapl+weekly.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4gl9UI6kTWlQK7KBdcUfz8uGMAjCMtxoRElBMWqFigT8RTK0Q-idRmKEsieTqHZ1tzX00Xa3iQaHlJeA0xFykzjybsbV4er1pOyHkh9yauelPTvvt9j2lPfz7CBgd2msL3WrUiY9Pn59z/s640/aapl+weekly.png" width="640" /></a></div><p>In closing, I'd like to remind you that I don't know anything, and it wasn't long ago I had pink confetti flying out my arse. </p>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-13219574561800916352020-05-25T09:44:00.001-04:002020-05-25T10:15:33.326-04:00Challenging Your BiasI have a lot to say but none of the energy to say it. I'm pretty exhausted. My billion dollar idea is less "billion-ey" and more "sit on the shelf-ey". I successfully took over my every aspect of my business and navigated this pandemic almost like I know what I'm doing. But I happen to be in the right business due solely to intuition and whatever you want to call the higher force deciding I've suffered enough so I can sit this one out. I just wrote the best TV pilot of my life and my consultant is going to refer me to her uncle who is an agent. If this is finally the door that opens for me I think this entire trip through Wall Street was for one thing.<br />
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Here's something else I've learned. Everyone has a bias that feels natural to them. Most people are not aware of how deep their bias goes because it's so subtle and pervasive and built on assumptions that are so deep and natural to your thinking that you don't even recognize them as a point of view tainted by bias.<br />
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I agree with all the bearishness of how bad this pandemic is, but that's not how the stock market trades. Think of the people who want the market to go up: every politician on Earth (ok maybe not China), every central banker on Earth, every CEO on Earth, every money manager on Wall Street with career risk of missing out and losing clients trying to be short, every successful person on Earth who has money exposed to the market. Here's who thinks the market will go down: five guys who think sound money and value matter to the stock market.<br />
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The market went down due to long liquidation, not the short side winning. That is a big difference. I know this is annoying, but the actual fundamental data matters like 1% of the time. Markets move based entirely on positioning and who wins the battle at key inflection points. And I submit to you that it remains impossible for the short side to win a battle because the algos move too fast, so all it takes is one piece of good news to chase out all the recent shorts. This lesson has been taught over and over for not only the last 10 years, but look at the chart going back 100 years. You can title that chart: The Short Side Loses Again. The modern algos just make it worse.<br />
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The nasty 30% draw down priced in a recession and it pretty much bottomed on the first horrible jobless claims data. Since then every historic piece of bad data that's come out was in the price. Everyone already knows the economy changed, so what is the bad data that's going to come out to allow the short side to win an inflection point battle? Isn't it possible that as everything slowly reopens the data will get marginally better and better unless there is a true 2nd wave and why couldn't that take until fall? So how are the shorts going to win a battle against the entire world who wants the market to go up? I am open to a legitimate answer here.<br />
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I propose the only way the market will sustain downside again is long liquidation via a 2nd wave, and I'm thinking that won't happen until the fall when the weather gets cold and/or people start to get complacent about protection. If this whole pandemic started from one single person, then why shouldn't a 2nd wave be the base case? However, it's a mistake to latch onto an idea mentally and not think about the factor of time. The market has been sending the message that it doesn't care about the data. It already knows.<br />
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Here's a couple charts. ES Weekly. Note the yellow trend line. I'm thinking the ES will arrive there about the same time the Nasdaq hits its old highs, so it makes sense to pause and even retrace. Meaning, that's a profit taking zone for longs and where shorts can setup camp to lose another battle.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJuEihRcQkJDNN7iwP3WBWoQzqlNB8rZkVT5V-wbUa6xjG82SQDZBqmm9J33W_JlAARDT5UW5IQAyhc15ejQBwW3AkCCHmncHIGn_F55qLUR5OTqUjJmwQWQtAkHev9CVsTHlNyq_jp5Nm/s1600/SPX+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJuEihRcQkJDNN7iwP3WBWoQzqlNB8rZkVT5V-wbUa6xjG82SQDZBqmm9J33W_JlAARDT5UW5IQAyhc15ejQBwW3AkCCHmncHIGn_F55qLUR5OTqUjJmwQWQtAkHev9CVsTHlNyq_jp5Nm/s320/SPX+weekly.png" width="320" /></a></div>
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ES Daily. I prefer using the EMAs. Note the 200-day (red) was almost exactly the 61.8 retracement (not shown).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLwybv5CzEyqj6n-VZch5dCRabKPFruJ6POqvyTk4x9dQzZxsrdza0RZjUAboVDmjYxL_0vWE4Oqaa5V6BKD7kucfnbe3qkWMQD-9yOyod6xzr3lZ_gkWWnGeUgTlliLsO0Rb7G3G3zKl9/s1600/es+daily.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLwybv5CzEyqj6n-VZch5dCRabKPFruJ6POqvyTk4x9dQzZxsrdza0RZjUAboVDmjYxL_0vWE4Oqaa5V6BKD7kucfnbe3qkWMQD-9yOyod6xzr3lZ_gkWWnGeUgTlliLsO0Rb7G3G3zKl9/s320/es+daily.png" width="320" /></a></div>
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SPX Daily. Here I added the 200 simple a lot of people look at. Don't be surprised if the market trades on both sides of this to ruin as many lives as possible.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlMILttfKk4pGWgdDnDSdyuputoEtumN7t_iK0AHGs4tCxm8W8zRBhWzIZnoHNNNmhZEkDDC5SYbGuIN_6WrtClUIkHWuD5kvHbXeX2_2WC73ZYFKZKLzyktWBw7hhAbaDJwmfzikFjoRS/s1600/spx+daily+simple.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlMILttfKk4pGWgdDnDSdyuputoEtumN7t_iK0AHGs4tCxm8W8zRBhWzIZnoHNNNmhZEkDDC5SYbGuIN_6WrtClUIkHWuD5kvHbXeX2_2WC73ZYFKZKLzyktWBw7hhAbaDJwmfzikFjoRS/s320/spx+daily+simple.png" width="320" /></a></div>
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Gold is fairly extended, so we'll see how it acts if the stock market breaks out and holds the 200-days. It really shouldn't be surprising to see gold sell off during a stock rally back to the highs. But the fundamental reasons to hold gold are not going away anytime soon. I'm thinking gold in the mid $2,000's in a lock, so maintaining a core position and adding short term levered trades on specific setups continues to make sense to me.<br />
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Gold Weekly. Note the steepness of the moving averages. The ideal scenario would be a contained pullback that holds gains and works off overbought going sideways through time like bonds are doing.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzF3JDBirLZTLwtm2QXB_VX7YZuhLQjy7L4xsb2DSwHvSTDygtGYzIyyDZKMGhDlCQzXP-og_zcmNSqjwzhA0ydrejGZqv3DXJYCw14b9N87HV8Cb7DeNEyYzu2VzDoW3vhg48HOXcifm0/s1600/gold+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzF3JDBirLZTLwtm2QXB_VX7YZuhLQjy7L4xsb2DSwHvSTDygtGYzIyyDZKMGhDlCQzXP-og_zcmNSqjwzhA0ydrejGZqv3DXJYCw14b9N87HV8Cb7DeNEyYzu2VzDoW3vhg48HOXcifm0/s320/gold+weekly.png" width="320" /></a></div>
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Bonds Weekly. They are holding the gains above the old highs. It would be nice to see them sell off under the consolidation area and break back into range as stocks near the highs (IF they do).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaXKhoUFVuuzL7JyEG1-cd_r-jnrGOw99NrwChxIjyK2keYMeuSyg6q4iHYwV32pi_T3QA3OywyXAVZnSQg9mUIi3d_Zrdve-l_OX88zAOZhDJlQcsiNtHX9XpyhveNH9Aq_wNhKJJYEp3/s1600/bonds+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaXKhoUFVuuzL7JyEG1-cd_r-jnrGOw99NrwChxIjyK2keYMeuSyg6q4iHYwV32pi_T3QA3OywyXAVZnSQg9mUIi3d_Zrdve-l_OX88zAOZhDJlQcsiNtHX9XpyhveNH9Aq_wNhKJJYEp3/s320/bonds+weekly.png" width="320" /></a></div>
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Oil weekly. I think oil is the most dangerous trade out there and should be avoided because you don't know what it's responding to: is it stimulus like stocks or data like bonds or price war supply demand stuff...etc. But if it pulls back to the $26 area it could be the bottom of a right shoulder.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihvrlsF6k1gPSQDHSPCHNVqBB5swnYdzfe5FdheiHSi3AKsOLC5XPkgZWU0x3JxODPRPhl7hJH30eW5WuXug2FlWsnkA4jwhMpxxcxvi4Ppp0MYxkE_JcHmHQCmVsP1l2nFFJczNcuMiAK/s1600/oil+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihvrlsF6k1gPSQDHSPCHNVqBB5swnYdzfe5FdheiHSi3AKsOLC5XPkgZWU0x3JxODPRPhl7hJH30eW5WuXug2FlWsnkA4jwhMpxxcxvi4Ppp0MYxkE_JcHmHQCmVsP1l2nFFJczNcuMiAK/s320/oil+weekly.png" width="320" /></a></div>
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EUR/USD weekly. To me, this market showed it didn't care about Fed stimulus or the "global dollar short," which I think is more isolated to other crosses. You have to remember there is no dollar. The dollar index IS the EUR/USD, so I'm thinking this will move based on one of two things: Either a perceived Eurozone deepening via fiscal union with Eurobonds, or a perceived Eurozone fracturing via a banking crisis and rejection of Eurobonds. (Corona bonds don't count, but could be a start). It doesn't seem to be in a hurry to breakdown. I guess a historic pandemic is not enough of a catalyst at this point.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjgNW5IyHh4Qx7OssKpPeCFwdEuiT2Jw7LocnjwO-jHB1W594S-xT8-0QOelCzDEeIKnuKrUrGGUxFuBHdq-BWg3WoHf7psKAMXhyUn1pxC55pEBXcs9dBxFthLS1x_0_FsG5MAiF_8Tsi/s1600/eurusd+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjgNW5IyHh4Qx7OssKpPeCFwdEuiT2Jw7LocnjwO-jHB1W594S-xT8-0QOelCzDEeIKnuKrUrGGUxFuBHdq-BWg3WoHf7psKAMXhyUn1pxC55pEBXcs9dBxFthLS1x_0_FsG5MAiF_8Tsi/s320/eurusd+weekly.png" width="320" /></a></div>
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If I sell my TV show, I will put up a two word post that will be the end of this blog. Peace.<br />
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<br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-39509946434260664502020-05-18T20:29:00.000-04:002020-05-18T20:29:26.753-04:00Back To The HighsI'm playing the S&P back to the highs, hoping to add on dips, then I'm going to sell. That is all. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-20843955310686942972020-01-26T10:05:00.002-05:002020-01-26T10:13:59.750-05:00The Year Of The Boomerang<div>
This is brief and all I have time for, so here's the SUMMARY: long gold, long silver, long treasuries, flat oil, flat equities, flat dollar. </div>
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My favorite candidate for the next big trade is silver. It's making higher lows. Methinks a breakout is coming. Weekly.<br />
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Daily. </div>
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Gold may very well have a perfect storm coming for the resumption of its bullish trend. Not that it can't thrash around for awhile still, so position sizing is key. Weekly </div>
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Daily. </div>
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I expect bonds to also trade higher in price, lower in yield, and benefit from flight to safety flows. Weekly. </div>
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Daily. </div>
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Sure, the corona virus could be the catalyst to end the stock rally for awhile, but there's so much uncertainty to it. The other virus to worry about is corona Sanders. I personally don't think he will beat Trump but I can't see this clearly because I understand economics (which is why I don't like Trump either). However, the machines need a reason to sell and now they have plenty. I do not know the exact timing, but I do know the risk/reward on the long side of equities has evaporated, so for me it's an easy decision to go flat and wait to see if a short opportunity presents itself, which I will likely NOT take because I don't want to deal with it. I'm focused on other things. Look how far down stocks need to go to take out the uptrend, which is why if a big selloff occurs, the amount of Fed easing that will be forced to happen will be staggering. ES weekly. </div>
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Daily. </div>
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The dollar is still uncertain to me. You tell me what happens first: a Eurozone banking crisis, or the Fed returning to staggering amounts of QE? </div>
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Personally, I'm not willing to short the dollar unless the EUR/USD puts in a higher low or a double bottom and then it needs to forcibly take out the recent high, but the better risk/reward is playing near a double bottom because you'll either have superb trade location or a small loss. I'm thinking at the moment that unless a banking crisis or QE happens, this will thrash around until the presidential election and then hopefully make a strong decision, but I still have my eyes on the triangle. Without a clear catalyst, though, you have to be careful of the fakeout. </div>
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EUR/USD weekly</div>
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The oil trade has been annoying for both sides. I'm thinking if stocks rollover, then oil keeps going down, but when the Fed steps back in the game, it should lead to a massive rally. I don't understand why people think reflation can't happen again in a major way. The Fed has no limits to their balance sheet. The only limit is a plunging dollar taking out all-time lows. Until that happens, they have enormous ammunition. The ideal scenario for oil would be a deep false breakdown reversal. Daily. </div>
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I might have a billion dollar idea, so my attention will be on that for awhile. Till next time...</div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-58518886514859795912019-11-03T09:00:00.004-05:002019-11-03T09:01:55.129-05:00The Border Neutralization Adjustment~1850 words<br />
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Today, the group of people I have the privilege of annoying is the free trade crowd. Their belief that free trade always produces the most beneficial outcome is one of the main causes behind our economic imbalances, the heavy hand of central banks, the unsustainable dominance of the US dollar as the world's reserve currency, and the prevailing political sentiment of populism. <br />
I'll start where we agree: without question, <i>within a single currency region (or culture)</i> the unrestricted, unimpeded freedom of trade results in the most optimal outcome for not only the parties involved, but the surrounding society as a whole. The problem occurs when trade happens across currency regions between one culture and another.<br />
The incentive structure of our corporations, which forces CEOs to prioritize profits to appease shareholders over ethics to appease their workers - combined with the unquestioned belief in free trade - has created the distorted economic imbalances of today mainly through offshoring. And while there's an evolving sentiment of corporate leaders in the media talking about "ethical capitalism," the truth is there are limits because the bottom line <i><b>is</b></i> <i>the bottom line</i> and free market decisions are often forced in order to stay competitive - or to keep your job - despite the best of intentions. Similar to the epidemic of how many baseball players felt "forced" to take steroids to compete with their peers as they witnessed their outperformance while the commissioner looked the other way because historic home run chases were profitable and fun. It's not the players' fault steroid use spiraled out of control; it's the fault of Major League Baseball for not enforcing a standard.<br />
Likewise, I don't blame CEOs over the past three or four decades who moved their manufacturing bases offshore to reduce labor costs. The initial ones were just doing their job of maximizing profits, and the latter ones were forced to stay competitive. I'm not sure to what degree the corporate leaders and their lobbyists in the 90's - who sold the offshoring vision to our politicians (and Bill Clinton in particular) - are to blame since the prevailing philosophical sentiment even among people to this day is that unrestricted free trade creates a win-win for everyone, so the corporations got their agenda pushed through Congress, which led to NAFTA, the WTO, and the hemorrhaging of 13+ million manufacturing (and ancillary) jobs offshore. This is the single biggest cause of our economic problems today and it continues to be underappreciated, or ignored, because no one questions the notion of free trade, so justifications about how we transitioned to a "service" based economy abound, but here is the insight everyone misses: <b>the free market is suppose to organize economies around the </b><i style="font-weight: bold;">comparative </i><b>advantages of raw materials and natural resources within each </b><span style="font-weight: bold;">country</span><i style="font-weight: bold;"> </i><b>- NOT the </b><b>differences of individual rights in each culture</b><b>. </b>Creating third world slaves is not a comparative advantage - it's a cultural choice. And it has consequences.<br />
The global supply chains of today are organized around corporations seeking the cheapest labor with the least amount of worker rights; whereas, the natural order - if all cultures treated their citizens equally - would organize around the natural resources indigenous to each land (and the transportation costs influenced by geographic terrain). There is nothing natural about our modern supply chain - it's the result of cultural choices, which were influenced by the unquestioned belief that free markets always produce the most optimal outcome, so CEOs - incentivized by profit - and politicians - funded and influenced by corporations - created laws and trade deals to exploit cheap labor overseas and poof! went our manufacturing base. All the expansionary fiscal and monetary policies of the last thirty years are desperately trying to fill the domestic economic hole left in its wake, but it only masks the problem like heroin suppressing signals of pain.<br />
The consequences of massive and mounting trade imbalances has shaped every aspect of our economy from the opiod epidemic in our devastated blue collar towns to the widening political divide driving the prevailing sentiment of populism to the fiscal deficit spending and monetary madness attempting to ease the loss of manufacturing. The flow of dollars out of the country in the form of our trade deficit helped create the base for the global Eurodollar system of today, which amplified the world's over dependence on the US dollar and created an unsustainable "exorbitant privilege" for the US to become a superpower because it allows our fiscal and monetary profligacy to delay the consequences of runaway inflation and the rising interest rates that would naturally keep it in check.<br />
The idea that we are benefiting from this perverse arrangement is disingenuous and blinded by ideology. Yes, corporations can exploit overseas labor and manufacture cheap gadgets for US consumers to buy, but we don't simply exchange our pieces of fiat paper for the TVs, phones, and computers foreigners produce. They take those US dollars and buy our property and our businesses, or invest in whatever they want, so essentially, if you strip away the medium of exchange, we're trading our US real estate, and businesses, for disposable devices. That's the reality of running a trade deficit. The fact that our trading partners bought our Treasury Bonds for so long is their mistake. As soon as they stop (and it seems like they are slowing down), we will have to finance our government deficits internally, which is why this entire unnatural "free trade" philosophy that infected our CEOs and politicians like a virus, and created unsustainable economic imbalances must be corrected, or the system will force it upon us. The wrong way to do it is with tariffs. So, what's the right way? I'm glad you asked.<br />
Like the universal unit of account, what the world needs is a mutually agreed upon global standard. Anything less is a haphazard tit-for-tat trade war that solves nothing, and while I do understand that a global standard seems politically impossible, the current imbalances will end in such a devastating crisis that it will force open the minds of everyone involved to real solutions, so one day miracles will indeed become possible.<br />
I call this global standard to correct our current system the Border Neutralization Adjustment (or BNA), which is designed to neutralize the cultural differences in worker rights, so the global supply chain can once again organize around natural resources. As opposed to tariffs that target specific products and countries, the BNA would be based on a computer algorithm that calculates a wide range of inputs from each culture (like wages, benefits, entitlements, shipping, regulatory costs...) to determine how much the same product would cost to manufacture in each country and then use the differences as an automatic "tariff" that's added in trade across those regions (also factoring in currency differentials). For example, if it costs $30 to make a certain motherboard for a laptop in China, but it would cost $55 to make it in the US (due to our wages, benefits, and regulatory costs...) then the Border Neutralization Adjustment would add $25 to import that product from China. If the BNA between Brazil and China is only $5, then the adjustment would reflect that, so each country would have a BNA calculation in relation to every other country for every component of every product, which a well designed computer program could figure out in real-time. And if you think China would not be interested, wait until their manufacturing base flees to Africa or some other 3rd world country and they realize they made the same mistake we did.<br />
I understand not only the profound change this would cause in supply chains, which is why it would have to be phased in over a long time, but also the enormous resistance this idea would meet, but that doesn't make the result any less true: a Border Neutralization Adjustment would incentivize <i>local</i> manufacturing across the globe, which would dramatically reduce our fossil fuel usage, and it would encourage raising worker rights to a higher standard in areas where humans are exploited for profit by corporations. The result would be supply chains as close to the end consumer as possible and organized around the natural resources that are the real comparative advantages of each country.<br />
Yes, this would mean the prices of our gadgets (and all our imports) would go up significantly, but it would also mean a return of the higher paying, stable jobs that fled offshore under the false idea that free trade always leads to the most optimal outcome. Yes, it would mean our fiscal and monetary profligacy would have more immediate consequences since we would no longer be exporting our dollars (and therefore inflation) overseas. Yes, it would create a shortage of overseas dollars that would need to be converted or written off the books of offshore shadow banks (and likely bailed out by the Fed). Yes, companies like Fedex, UPS, and other global shippers could lose a lot of business. Yes, it would force a global military cooperation because the US could no longer afford to run an empire. Every change creates winners and losers, but the point is our current system is culturally created around the idea that free trade always leads to the most optimal result when clearly it does not, and the imbalances it created over the last four decades are reflective of that, and destined to fail.<br />
If supply chains flee China due to unilateral tariffs in a haphazard trade deal, corporations will simply seek out other countries with low wage workers to exploit. The only real solution is a global standard like a Border Neutralization Adjustment to reverse the trend in offshoring that evolved over the last 40 years (which happens to coincide with falling interest rates). Whether our current system needs to end in a crisis that opens people's minds to real solutions, or whether we continue to patch together band-aid individualistic ideas fueled by division and populism is yet another choice we face that will dramatically shape our future.<br />
Here's the calculus in a nutshell: profit seeking corporations funded politicians to create trade deals to exploit cheap labor overseas. Millions of stable jobs fled offshore from First World countries to Third World countries in the name of free trade. Inflation got exported in massive trade deficits, which contributed to 40 years of falling interest rates and made expansionary fiscal and monetary policies impotent to inflate anything but asset bubbles. US consumers got cheap gadgets. China got US dollars, which they recycled into Treasury bonds, funding profligate politicians. Central bankers misdiagnosed the problem and scratched their heads about the lack of inflation. Politicians cranked up the deficit machine. The wealth gap widened, voters got mad and elected a showman promising to bring back jobs because trade wars are easy to win. But jobs didn't come back because unilateral tariffs don't work. Central bankers pour over data and shrug their shoulders: full employment and no inflation, so they cut rates and resum QE. Politicians spend like lotto winners... Rinse, wash, repeat: wealth gap widens, voters get angry, lunatic politicians emerge. Nothing gets solved. No one questions free trade. Bubbles get bigger, pressures the currency. The currency pops.<br />
OR...<br />
We realize our mistakes and make proactive choices to fix them - before it's too late. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-26360005372033324942019-08-04T15:52:00.000-04:002019-08-04T15:52:03.400-04:00The Universal Unit Of Account~2800 words<br />
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<b>Dear Politicians and Central Bankers,</b><br />
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Our financial system is deeply flawed, but so are all of the proposed solutions to replace it (a gold standard, Bitcoin, Libra, any permissionless distributed ledger, SDRs, commodity backed currencies, digital sovereign currencies...) and the reason is because they all lack a universal unit of account, so I will make another attempt to explain why this is the most important quality of a robust monetary system and how it will make financial crises obsolete.<br />
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Here are the flaws of our current Eurodollar/Petrodollar fractional reserve fiat system:<br />
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1. It's based on centralized credit issued by banks (and shadow banks) that lack personal accountability, which has led to a daisy chain of interconnected derivatives and counter party risk that makes the whole system vulnerable to a big failure of one of its parts.<br />
2. The lack of competing currencies within a single country creates monopolies of government fiat that must be accepted as legal tender, and since there's nothing backing the sovereign currencies to restrain government spending (like gold), and the politicians in each country have no personal accountability because they will be out of office when the bill comes due, the system incentivizes endless debt to appease the voters, which inevitably puts the entire system at risk.<br />
3. Too much of the world financial system is priced in, or pegged to, one country's currency: the US dollar.<br />
4. MOST IMPORTANTLY (and the solution to all of this): there is no universal unit of account to act as the unchanging measurement for all currencies to fluctuate against and the master check-and-balance to keep excesses from forming in the first place.<br />
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These flaws combine to create massive and unsustainable imbalances in wealth, debt, and trade, which forces central bankers to continually reflate asset bubbles because a sizable and sustained drop in asset values will put the entire worldwide financial system at risk due to the interconnected nature of its centralized derivatives structure.<br />
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The solution is a robust, worldwide, digital system based on competing currencies, decentralized credit, and a universal unit of account. Our destiny is a globally agreed upon system that is uncompromising in its balance and fairness. It's just a matter of time before each country realizes it.<br />
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<b>The Universal Unit of Account</b><br />
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The easiest way to understand a universal unit of account is to imagine all the products and services in every country of the world priced in one currency. To avoid using a gov't currency, let's use silver, which is roughly $16/ounce, so 1 US dollar is .06 ounces of silver. In this system, when you fill up your gas tank, instead of paying $3/gallon, the sign would say .18 ounces of silver/gallon. In France, instead of seeing 1.54 Euros/liter the sign would say .10 ounces of silver/liter. The silver, of course, could be represented by a paper substitute, but everything would be priced with the same universal standard. The implications of this are profound.<br />
Using one worldwide standard to measure the purchasing power of currencies IS the restraint that limits the issuance of excessive debt because the value of all currencies would fluctuate against an unchanging standard, so if one country (in our silver standard example) ran up crazy amounts of debt, other countries could reject their currency and require their trade imbalances be settled in silver, so a check-and-balance is thrust upon the politicians of the world to keep their currency stable.<br />
However, there is no need to use silver, or gold, or anything tangible as the universal unit of account, especially since commodity prices fluctuate to supply and demand, so you'd have to use a fixed exchange rate, which creates an unnatural force upon the market price. Another drawback of using a tangible asset to back currencies is how it restricts borrowing from our future labor to the amount of available gold or silver on hand, unless we repeated the same mistake of devolving into fractional reserve lending, which ultimately leads to breaking the chain of the asset backed currency completely because the demand for credit will force politicians and bankers to break the restraint, so returning to some form of a gold or silver standard (or any asset backed currency) would result in the same outcome. Fortunately, there's no need for a tangible asset at all. What we need is an unchanging, universal standard to measure the purchasing power of currencies in the same way that inches and centimeters measure length. This is what a fixed exchange rate with a tangible asset is trying to accomplish.<br />
The way to implement a universal unit of account is to freeze the present value of the US dollar and use that value as the arbitrary, culturally chosen standard to convert the pricing of products and services across the world at the prevailing exchange rates into this new standard called Universal Dollars. From that moment on, all currencies would fluctuate against that fixed value of 1 US Dollar at the time of conversion, so over time even the US dollar would lose value against the fixed standard of its old self (if we continued our fiscal and monetary profligacy), but so would the Euro (and at the same time! - unlike now where they can't both go down together against each other).<br />
So instead of using a neutral asset like gold or silver at a fixed exchange rate to settle international trade, other countries would have the freedom of rejecting a profligate nation's currency by making them go onto the market to buy whatever asset they want (like oil or steel or whatever...) and since a weakening currency will buy less and less of that asset, it forces restraint on politicians to keep their currency stable. But the benefits of not using a tangible asset as the universal standard go WAY beyond enforced stability of currencies and flexibility in trade settlement. The real benefit of a Universal Dollar standard is its capacity for truly decentralized credit and infinite currencies - something none of the other proposed monetary systems can offer.<br />
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<b>Decentralized Credit</b><br />
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If we use a tangible asset as the universal unit of account (like gold, or silver, or oil, or Bitcoin, or SDRs, or sovereign currencies, or Libra...), we will remain stuck in the box of centralized credit, and limited by our capacity to acquire that asset for loans. For example, if we used gold, then the only source of credit would be someone who has gold to loan. This is how our banking system got created in the first place, and we know how that story ends: first, fractional reserve lending, then breaking the chain into fiat, then quadrillions of derivatives and interconnected counter party risk putting the whole system at risk.<br />
One of the insights that Modern Monetary Theory gets correct is we don't have to borrow first in order to spend. Their mistake, however, is granting that power to the government, which has no accountability to restrain the spending, but there's no reason a person or a corporation couldn't spend their own currency into existence to whatever extent the market would accept because it would be backed by their product, service, or labor.<br />
I already explained this in great detail in my Universal Dollar article. The point is: in a gold backed system, people and corporations can't spend gold into existence (which is both the point and the curse of gold), so a tangible asset backed system requires centralized banks to create loans because they're the ones who have the asset, and if you don't allow fractional reserve lending, the available credit is limited by the amount of gold on hand to loan (the same is true for all the other asset backed options - you need to possess it to issue credit). A system like that would eventually devolve into the system we have now. The only way to have truly decentralized credit is to implement a universal unit of account that isn't based on a tangible asset, which allows anyone the ability to issue their own credit because a free market of competing currencies will enforce discipline since the created currencies could be rejected at will and there would be thousands to choose from.<br />
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<b>Competing Currencies</b><br />
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If we truly want to create a robust system immune from financial crises, we need to allow competing currencies within each country, and the freedom to choose or reject them. Until now, this was impractical because carrying around multiple physical currencies with different values was too cumbersome, but in the digital age there's no limit to the amount of currencies with various values that a digital wallet could handle. It does, however, require a universal unit of account for the currencies to fluctuate against.<br />
Using Universal Dollars would allow anyone in the world to issue this worldwide currency in their own name, which they would be legally obligated to redeem with their product, service, or labor. Companies would arise to back the currencies of people on the fringe of acceptance, and everyone else would be restrained by their credit score, which would reflect the amount of currency they've already created and their income to redeem it, or in the case of a large corporation, the demand for their products and the choices the company makes to keep them viable in the future.<br />
All of this is only possible if we utilize a universal unit of account that is not a tangible asset and only acts as the singular standard of purchasing power everything is priced in.<br />
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Let's compare and contrast several alternative monetary system ideas to illustrate why Universal Dollars is not only more robust and elegant, but it solves all the flaws of these other systems.<br />
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<b>Gold/Silver/Commodity Backed</b><br />
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We already lived this story. The restraint on credit, which is the feature of a gold-backed system is also a bug, and it would cause this system to be broken once again, so we'd end up exactly where we are now. This system requires centralized institutions to create loans, so people would have to borrow first in order to spend, and unless we allowed fractional reserve lending (which would happen eventually anyway) the credit would be limited by the available gold on hand. Not to mention that commodity prices fluctuate with supply and demand, and the universal unit of account needs to be unchanging in the way a meter is always a meter. This system would fail.<br />
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<b>Libra</b><br />
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Libra is definitely an improvement upon our current system of single gov't currencies since it's backed by a basket of them, which would help mitigate, but not prevent, too much change in Libra's value, but using sovereign currencies solves nothing about the lack of accountability in the issuance of government debt and it prevents decentralized credit because in order to issue it you would need the sovereign currencies or the Libra on hand to loan. Libra is no different than a new worldwide bank with a payment system via its messenger that 2 billion people already have access to, so it certainly helps bring "unbanked" people online, and makes money easier to send internationally, but it solves nothing about the flaws of our financial system.<br />
If Libra was used as the universal unit of account, and all the world's products and services were priced in it, that would be a game changer, but it would still have all the flaws of using a tangible asset, so the system would remain anchored to centralized banks who have the sovereign currencies or the Libra on hand to issue loans. It would not decentralize credit at all, and it wouldn't do anything to limit the eventual destruction of the fiat currencies that back it. Libra does nothing but steal market share from the banking industry. Fail.<br />
(I'm not saying we shouldn't allow it to happen because it could be the bridge to Universal Dollars in the future.)<br />
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*On a side note, all these concerns about data privacy - whether in Facebook and Google ad targeting, or with Libra - have a solution. All they have to do is change the coding under the hood, so all of our activity and purchasing patterns are tracked (for purposes of ad targeting), but it's done anonymously. Meaning, disconnect the identity of the individual from the data by accumulating their patterns to an unidentified number, then target all the relevant ads you want. We don't have to destroy their business model while protecting the individual from having their data fall into the hands of someone who can cause them harm. There just needs to be anonymous IDs and the only way to open it would be if that ID was acquiring materials to do harm to society. If Facebook and Google don't do this, someone else will. (And if you make a billion dollars from this idea, I can be reached through the contact form.) :)<br />
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<b>Bitcoin </b>(or any permissionless distributed ledger)<br />
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Bitcoin is a fascinating study of human behavior. I understand the ideal of having no one in charge who can impose their heavy hand upon you, but the disadvantages of no central authority are even worse. It lacks all security, it's not insurable, it's a breeding ground for fraud, it can't handle the transaction load, it's a waste of electricity, it's way too volatile, and it's deflationary, which would never work as a currency. If we made Bitcoin the universal unit of account by converting all the prices in the world into Bitcoin, it would have the same problem as gold - only far worse. Bitcoin would require centralized banks to issue loans since no one can issue Bitcoins into existence on their own, and once the final number of Bitcoins were mined, the amount of worldwide credit would be frozen despite any growth in population.<br />
I don't understand the argument that it's a store of value. If it can't ever be used as a currency due to all its flaws, then it has no utility at all, so what exactly is the value being stored? Why would the nations of this world use Bitcoin when they can create their own digital currencies? Bitcoin only has value because people believe it has value. If you park US Dollars or Euros in Bitcoin to avoid a depreciation of the currency, then what? One day you still have to transfer your Bitcoins back into a currency that can actually be used in transactions, which is another way of saying you hope to one day sell your Bitcoins to someone in the future at a better price. This isn't a serious proposal for a monetary system, it's a call option on price appreciation.<br />
Unless one of the other permissionless distributed ledgers can solve the problem of preventing the smartest hackers in the world from stealing the private key of grandma's wallet and taking ALL of her life savings, then none of them will ever work as the basis for a complete monetary system. In order for a digital currency to be viable you have to think about the reality of digitizing EVERYTHING you own. Are you going to do that without insurance? And who's going to insure a currency like Bitcoin when the reality is once grandma loses her life savings to a hacker, it's GONE, POOF! Forever. Fail.<br />
(This is not a comment about the price path of Bitcoin - just its functionality as money.)<br />
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<b>Digital Sovereign Currencies</b><br />
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Allowing central banks, and the governments of this world, to create blockchain versions of our current system using the US dollar, the Euro, the Yen...is the worst possible system that could happen by orders of magnitude. This would take our deeply flawed, corrupt system, and make it WAY worse. Imagine if the central banks created a permissioned ledger so they could control the monetary system and force everyone to digitize all their assets onto it. Sure, they'd be able to control fraud and save grandma from losing her savings to a hacker, but they would also be able to impose negative interest rates on everyone and there's nothing you could do about it.<br />
There would be no way to know how much digital currency they created. If you wanted to design a monetary system to enslave humanity this is how you would do it. Any of the other alternatives would be exponentially better than this. Mark Zuckerberg in charge of the entire monetary system would be better than this. In our current system, if the banks charged us negative interest on our savings, at least we can withdraw our money and keep it under the mattress without the fee. In a world of digital sovereign currencies, our savings would fund banks and governments with increasing negative interest. This would truly be Orwellian in nature. Double fail.<br />
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<b>The Universal Dollar</b><br />
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This is the only system that solves the flaws of centralized credit and a lack of personal accountability tied to its issuance. It should start as a hybrid system of sovereign currencies and our largest multinational corporations as a permissioned ledger run by the G-20 and the selected corporations and <i>based on a universal unit of account to keep them in check.</i> Over time, we could invite more of our largest multinational corporations to create their own currencies by spending them into existence as they create their products and services, which would then be redeemable for their currency and therefore backed by real value. Eventually, everyone would be able to issue Universal Dollars in their own name to whatever extent the market would allow (based on their credit score, and demand, and it could be insurable) because its issuance isn't restricted by a tangible asset backing the currency. (Compare a system like Universal Dollars where the currency is backed by real productivity against Bitcoin where the currency is backed by what? A consensus network funded by sovereign currencies? How is that anchored to economic growth? This is not value.)<br />
The digital wallets of the future could be user-customized to prevent money from being extracted over a certain amount without multi-step authentication, and because it's a <i>permissioned</i> ledger the transactions can be insurable and reversed to prevent fraud, so we can all put everything we own onto the digital system without concern over it being stolen and gone forever. Everything could be trackable to an anonymous ID. Yes, being a permissioned ledger means there's an authority (the hybrid combination of multinational corporations and G-20 who run the ledger), but the advantages of fraud protection and the rule of law is the only way to digitize everything safely. A distributed permissionless ledger is just not viable as the basis of a monetary system.<br />
For a more in-depth look at this, read my article The Universal Dollar.<br />
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<b>The Choice</b><br />
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This is a clarion call for the leaders of this world. There are two divergent future paths ahead of us. We can bury our heads in the sand and pretend everything will be okay, or we can be proactive and prepare the future monetary system now - before our current one implodes. Devaluing the debts of the world into Universal Dollars will deliver us into an unbounded age of prosperity fueled by decentralized credit and worldwide competing currencies anchored to our ever evolving productivity, which will make financial crises obsolete. Let's hope it doesn't take a worldwide crisis to force the need for change.<br />
If you are in a position of power, you stepped into a story already in progress with problems caused by the people who came before you, so your choices have been constrained by the rippling effects of history and the institution you serve, but you still have a choice. You can do what's in your personal self-interest and serve the institution you work for to preserve the status quo, or you can look to the bigger picture and serve the greater good of humanity.<br />
The choice is yours.<br />
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Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-59889091165010544682019-07-14T11:56:00.001-04:002019-07-14T15:07:54.699-04:00Market Thoughts 7/14/19Powell basically wore a t-shirt that said "we're cutting in July." I personally think it's strategic error because they only have a handful of bullets to use and they can never let the stock market go down, and stay down, again. Ever. It took me until 2014-ish to figure that out, but they validated that view in January and June, so it's still alive and well. And, of course, the reason is both because of the reverse wealth effect, and the Pension crisis resulting from insane assumed returns, which must be supported by higher asset prices going forward forever. I don't get the impression this is appreciated enough. The stock market can never stay down again.<br />
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This is a unique time in history and I totally understand everyone who puts out all the charts of the similarities to previous markets tops, and no one actually knows, so maybe you'll be right, but I think all that data from the past is useless now. Everything changed in 2009 when the Fed started telling everyone they will never let the stock market stay down again. The only real limitation to perpetual levitation is if the dollar is plunging to new all-time lows and the Fed is FORCED to tighten to save the currency. This would also coincide with skyrocketing oil like you see in end of cycle expansions, so I think we're years from a stock market top. With this being the case, you would think the Fed would wait for consistently weak data or a falling stock market to use one of their precious bullets, but Powell didn't take the opportunity to walk it back, so I guess they plan on cutting.<br />
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How's this for an idea: Powell is a markets guy, right? What if he sees the extreme socialist views on the far Left and thinks it's in the best interest of the financial stability for the country to keep a bid under the market to help Trump get reelected? Is it that much of a stretch? And you would think Trump will be on his best Sunday school behavior until the election, so unless the polls next winter/spring start showing him way behind, why wouldn't the deepest pullback until then be contained to 5%? Bad data means more easing and campaign-mode Trump means less volatility, no? This, of course, excludes a black swan, but that's always the case. <br />
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The real question for things like the dollar/gold/bonds is whether we're in a one-and-done "insurance cut" muddle-through goldilocks-data phase or whether we're entering a full easing cycle to ward off a recession. The reason I flipped my long bias on the dollar is because the Fed has WAY more room to ease than the ECB. Where's the ECB going? They're already negative. In fact, the whole dollar rally from 80 was predicated on the idea that the US economy is back in full swing, and I'm not trying to argue there's not any real growth, clearly there is due to globalization particularly, but also from the overall sentiment and years of cheap money. But I do argue all that growth is completely dependent on fiscal and monetary policies being loose and expansionary. We saw in real-time the Fed's inability to normalize either the interest rate or their balance sheet, so shouldn't all us crazies who said it was impossible get vindicated? What if we're right about the end game being a collapse of the financial system?<br />
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I understand the bullish thesis of the dollar being based on the global "short" of all the loans made in the overseas Eurodollar system, which keeps the demand for dollars high, but that reasoning could also be used to be bearish the dollar because when interbank credit tightens, the Fed will be forced to flood the world with dollars through every discount window, swap line, and tool in its toolbox. And credit will only tighten if the global bubble starts to burst, so if the global central banks all return to easing mode, then the "global dollar short" should remain gasoline poured over everything without a spark to set it on fire, which means the real narrative driving the market should be more about the relative easing differential between the Fed and ECB and/or the Eurozone potential for disintegration, which was the real reason I was uber bullish on the dollar to begin with. So, ultimately, if the Eurozone can keep a lid on the political fire of countries to exit, and the "global dollar short" doesn't ignite due to a return to coordinated easing, and the Fed has way more room to ease than the ECB, then why wouldn't the dollar retrace its entire rally from 80?<br />
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In terms of a trade, I don't think there's much of an edge right now. The 200-day false breakdown reversal in the dollar was a bullish signal, but if it's taken out again, that's a real sign of weakness.<br />
I'm waiting until either the 200-day is taken out again, or 98 is taken out to the upside, so this is just a reference point for my other trades like gold and oil. There's really no reason to be too bearish or bullish the dollar or the Euro until the giant triangle is taken out in the EUR/USD, which means this could be noisy for months.<br />
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Gold<br />
The gold breakout is holding like a champ so far. In fact, it's forming a bullish flag-like structure. I've adapted my style to hold a core position, which is a normal size that I can easily sit through volatility like a backtest of the breakout, and to make strategic strikes with more size that I will take off into strength because I know if I don't, and it pulls back deeper than I thought, then I'll get shaken out at the lows. In this case I prefer to wait for a shakeout of some degree, whether that's breaking below the flag and reversing or breaking out above $1442 to increase size.<br />
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Gold Daily - this broke out into overbought conditions, so consolidating like this is very bullish as it works off overbought through time instead of price. The RSI on the weekly will be overbought for a long time, so eventually it will need to unwind, but that could be from $1600 first.<br />
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Oil<br />
Obviously, oil responds to its own supply/demand issues more than gold, but I feel like trying to figure out the fundamentals of oil is a waste of time. I can't compete in that space, so I just play the technicals and when they align with the dollar, I look for opportunities to get more aggressive. Oil broke out of a minor trend line on Wednesday. I believe it has plenty of room to run into the $65-$67 levels, and will ultimately retest the long-term downtrend line around $70. However, it has not backtested the 200-day/trendline breakout, so this too is core position only for me. If it backtests the breakout, and reverses strong, then I plan to size up, especially if the dollar is weakening. (Just listening to myself type this out, I am definitely bearish on the dollar, which I did not realize.)<br />
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Oil Daily had several 200-day breakout failures, and then it finally broke through. The moving averages are about to cross. I plan on using either the 50-day or 200-day as a guide for a stop but taking profit into the resistance levels. I think oil will outperform gold to the upside.<br />
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Oil Weekly<br />
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Bonds<br />
My belief is we live in a deflationary world that the central banks will continue to fight with temporary bouts of inflation through cheap money and QE until they ultimately lose because at the end they will have to save the dollar and burst their bubbles with market enforced tightening.<br />
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Inflation of prices in the real world need to be broken down into categories where you can isolate the cause. For example, healthcare prices have been skyrocketing for years, and the inflationists will point to that as validation of their view, but the real cause is government programs and baby boomers pushing up demand. College tuition is driven by government guaranteed loans that artificially boosts demand. Overall prices of real goods are driven by the credit in our fractional reserve world that pulls forward consumption and boosts demand, so all the debt in existence is inflation that already happened, and if everyone is in debt to their eyeballs, where's the demand for credit going to come from to create overall generalized inflation in a sustainable way?<br />
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College grads have less secure job prospects. Wages are stagnant. Manufacturing moved overseas. The Fed went full dove for years and the cheap credit surely boosted the economy, but it mostly fueled buyback schemes that inflated the stock market. That's where the inflation went. And I'm not saying we're not going to get commodity driven inflation if the dollar weakens, but that is not sustainable. The real cause of inflation for the dollar bears will come if we go to crazy town <i>fiscally </i>through "QE for the people" in some form of sending people free money, but you can't forget the Fed will be buying those bonds because MMT is impossible since it would eliminate the need for the bond market entirely, which is the collateral supporting the entire financial system and the "risk free" rate of return needed by so many funds, so it won't happen that way, therefore it's dangerous to think the long end is going to selloff due to fiscal recklessness when the biggest buyer in the world is there to inhale the whole treasury complex. (Note to the Fed: you should proactively change the Federal Reserve Act now before you are forced to, so you can buy up anything you want, particularly junk bonds, but you'll also want to buy equities in the future. Jus' sayin' - get on it.)<br />
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If you're a bond bear who refuses to learn from Japan and Europe, at least hedge your bad bet by buying the short end in proportion, so your losses are contained. I used to be a debt doomer too, but then I figured out the central bank is going to push the entire treasury complex to zero - because they have to - since then there won't be any interest payments for the government. Some folks think once the central bank owns the entire bond market, they can cancel the debt, but they won't do that because they would lose the ability to withdraw the currency from circulation if inflation gets out of control, so there's no reason to do that. They'll just pin interest rates at zero forever and monetize gov't spending until one of the major currencies loses public confidence and develops a narrative to be abandoned, then the whole financial system blows up, but that could literally be ten years from now (or more). In the meantime, the central banks have plenty of firepower to inflate and reinflate asset bubbles while the digital currencies of the future get worked out. I used to be a critic of the Fed, but now I think they're doing the <i>only </i>thing. Just keep the system going until the digital currencies arise (which, again, won't be Bitcoin), then we can devalue the whole world into a new monetary system that will likely operate concurrently as a hybrid for awhile. (more on this another time)<br />
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As for bonds, put it this way: we will never get sustainable real world credit driven inflation caused by real growth due to structural deflationary forces, so the only way the long end is going to sell off significantly is if the dollar plummets, so there's probably a pairs trade to put on if you insist being short bonds, but the better trade in my opinion is long the whole treasury complex and short the dollar because that could easily win on every aspect of the trade - huge. If the dollar skyrockets that would contain inflation and destablize the system, which will put a bid under treasuries, so you're hedged. And the dollar has the giant triangle of the EUR/USD to make an adjustment, meaning, the dollar trade will eventually become obvious, even if it thrashes around for awhile.<br />
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One more attempt to talk some sense into bond bears. Consider what just happened late last year as the equity markets plummeted because bonds were breaking down through that long-term trend line and finally creating some yield competition. The flight to safety bid is like a perma put under bonds. We live in a 1.5% - 2.5% world. So if you want to be bearish bonds you have to explain how we're going to become a 5% GDP world? Massive tax cuts combined with QE <i>and </i>MMT? Don't you think skyrocketing oil causing inflation to push on 3% would lead to some brake pumping by central banks to calm the angry public going WTF with gas prices dude? And how is the gov't supposed to pay the interest in a 5% world? It's too late, homie, we're going to zero across the board, if for no other reason than to allow the government to avoid the interest liability. It's just a matter of time.<br />
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Bonds Weekly - this could pull back into the 152 trendline, which is fairly steep, or even down to 147, which is a backtest of the horizontal breakout level of the H&S bottom. Either one will form a massive H&S bottom. Imagine how long a symmetrical right shoulder would take to form if symmetry happens.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXwUfNZ1TckanPOn67_5lbJgcsiHZiYVntwAfVAsAasfAnbTtkyo8IFBlmAZ14yQfAV5wRALfXC-WZSKoEipfMQojwyEAoPSgOwxebyE8shnNtFFebScmxsgPsjCkxjx5MMyGon3qr9m8f/s1600/Bonds+Weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXwUfNZ1TckanPOn67_5lbJgcsiHZiYVntwAfVAsAasfAnbTtkyo8IFBlmAZ14yQfAV5wRALfXC-WZSKoEipfMQojwyEAoPSgOwxebyE8shnNtFFebScmxsgPsjCkxjx5MMyGon3qr9m8f/s320/Bonds+Weekly.png" width="320" /></a></div>
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Notes Weekly - the 124/125 level would form a shallow right shoulder, but if it pulled all the way back to 122 it would back test the H&S breakout.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisnOmIC8BWep4QQlVWt9C40wBNhBLY1gxF4VaUCDvb9LX5_IlWlXZgK4z__L4zcWr9zNalvhXNa9hbswd61_5usWy48hpJ18wwXC4eDQoec0RkPRDQiYTmL32lDAfMVUc-Gvk7sqZdAg2k/s1600/notes+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisnOmIC8BWep4QQlVWt9C40wBNhBLY1gxF4VaUCDvb9LX5_IlWlXZgK4z__L4zcWr9zNalvhXNa9hbswd61_5usWy48hpJ18wwXC4eDQoec0RkPRDQiYTmL32lDAfMVUc-Gvk7sqZdAg2k/s320/notes+weekly.png" width="320" /></a></div>
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Stocks<br />
This is another example of holding a core position and waiting for selloffs to leverage up. I've already made the case about why I think there's huge upside in stocks. You have to remember the stock market is the nastiest market there is, so it would not surprise me to see the breakout levels get taken out to the downside at some point to shake people out before going higher again, but the point is I think we're in a low vol regime and I don't see why that will change. The Fed showed it's hand. You're either listening to what they're saying, and more importantly, WHEN they are saying it: "we got you" - or you're not. They will support every down tick until they have no bullets left. It's literally the only thing that matters. My hold time on AMZN and APPL is infinity, or a doubling, whichever comes first.<br />
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ES Daily - stocks broke out into overbought. The NQ is 100 points from its 10-day. While they certainly can grind higher and work off overbought through time, buying here is dumb - unless you're hedged by selling calls against it or buying puts, whatever. The stock market never lets breakout traders get a free ride. It's just a matter of time.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBNXLgJ6rPwvhaXNLivhkJR75R8L9Y4uGeh0CflJ91je7vTArKvWZsbDpd8od1Zptdr82cpzWIr1MkeMgv7OJkKjYk5X4qIHFbtrVjm4HOpRnU5Hy6iM60TZB8ooxESJN-yEtvhtckCaQL/s1600/es+daily.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1600" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBNXLgJ6rPwvhaXNLivhkJR75R8L9Y4uGeh0CflJ91je7vTArKvWZsbDpd8od1Zptdr82cpzWIr1MkeMgv7OJkKjYk5X4qIHFbtrVjm4HOpRnU5Hy6iM60TZB8ooxESJN-yEtvhtckCaQL/s320/es+daily.png" width="320" /></a></div>
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This is all I have to say for awhile. To summarize my overall view (not timing related): Long stocks, long oil, long gold, long treasuries, probably short dollar. I do have a post about Libra brewing in me, but it's summer. Best of luck to you. And me. lol. Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-70461592881171209072019-07-08T10:26:00.001-04:002019-07-08T10:26:39.381-04:00Never Go Full GartmanIt's pretty clear my flip-flop on the dollar was wrong, so I gathered in my chips and will wait on what I hope is the part I got right: the Fed ain't cutting in July. <br />
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Right now the market has it priced at a 94.1% chance they're cutting 25bps, BUT what if the market is off by 94.1% because I think there's 0% chance they cut in July. What if Powell walks back the cut at his testimony this week by saying something like: "we are ready to act, but why would we waste one of our precious bullets in July when the stock market isn't going down yet?" <br />
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If so, I would think gold would backtest the breakout and likely fall back into range to shakeout the leverage; you would think stocks would selloff, but at this point does anything matter to the stock market? And most importantly treasuries should continue pulling back. And the dollar would break out. <br />
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This was supposed to be fun. What happened to the fun?<br />
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PS: Honestly, I think the right move is going full Gartman. That dollar reversal was a 200-day shakeout. It's going higher. <br />
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<br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-84557075603579795342019-06-19T23:46:00.001-04:002019-06-19T23:46:43.969-04:00Buh-Bye USDSo that's the end of my bullish bias toward the USD, which should make for a fun environment for awhile since the reflation trade should be on now. Meaning, unless something dramatic happens, which I can't figure out - I guess improving data, or an uber dovish Draghi - everything should go up now. The best trades will likely be gold, silver, the miners, emerging markets...the anti-dollar trade. Bonds are stretched, but I don't see why the whole complex doesn't go to 0% rates and beyond. I'm thinking July won't happen, so there will likely be buyable pullbacks from the disappointment, or maybe some surprise good data. September seems more likely to me. I'm pretty heavy in Amazon and Apple and some NQ. Just got heavy into gold after the Fed today. Bought oil small and I'm gonna buy the miners on consolidations. I've been in the 2-year and 10-year not big or anything, but I don't think I can hold anymore. Maybe end of week and then I'll look for pullbacks into the averages. <br />
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I think you have to look at the dollar like this was all a pullback in an ongoing bear market, which has been the view of Peter Schiff and Jeffrey Gundlach all along. To me, that's not confirmed until the giant triangle in the Euro is taken out, but you'd be a fool not to consider it now.<br />
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Monthly dollar.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYe2JHdvTPkBwEuupAO6CI1hNuXiWogRDRwWAYVkSs0hnY_fhlSo88ecCmZAhj8ltDTxKbWfAcXcFpe4-xXmUFS8kLgZI9kFDCrABQO_eHbJMQD1-ivSF7eFVC0vwBZCNMlsZX578hOajw/s1600/dollar+monthly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="967" data-original-width="1600" height="193" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYe2JHdvTPkBwEuupAO6CI1hNuXiWogRDRwWAYVkSs0hnY_fhlSo88ecCmZAhj8ltDTxKbWfAcXcFpe4-xXmUFS8kLgZI9kFDCrABQO_eHbJMQD1-ivSF7eFVC0vwBZCNMlsZX578hOajw/s320/dollar+monthly.png" width="320" /></a></div>
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Monthly Euro<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPhA4Jw_wq914SM-Hg-qvObtdh4HW0i4MbkpfEbMku13PJbDqQQKqPK1gJuuf1unTx6N1AfBMudi_0trbuMzJ1djnHDHWXUkx5IBhkKgRyrobKJIIXIgi4Q63syOOwaeMB0ilM-HWM8fel/s1600/eurusd.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="967" data-original-width="1600" height="193" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPhA4Jw_wq914SM-Hg-qvObtdh4HW0i4MbkpfEbMku13PJbDqQQKqPK1gJuuf1unTx6N1AfBMudi_0trbuMzJ1djnHDHWXUkx5IBhkKgRyrobKJIIXIgi4Q63syOOwaeMB0ilM-HWM8fel/s320/eurusd.png" width="320" /></a></div>
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Why won't Apple and Amazon double from here? Amzn $1908, Apple $198<br />
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I would reconsider the reflation trade if the dollar took out the recent highs just over $98. And it better not. This should be fun. The first step will be the dollar taking out the 200-day to the downside. If I wake up and gold gave back the breakout I'm gonna need a therapist. <br />
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<br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-8101801064088607992018-09-23T20:55:00.000-04:002018-09-23T21:21:26.657-04:00The Relentless Rise of The US Dollar My base case is the US Dollar is going to 140. Yes, that sounds absurd, but that's what I think is going to happen and it's my blog. One might wonder how? And the short answer is the disintegration of the Eurozone because its design goes against human nature.<br />
There's not a word the dollar bears say that I don't agree with, but the EU has all the same problems PLUS the design flaw of how it's structured, and since the Euro is 57% of the DXY, if the EU monetary union comes undone, the dollar goes boom to the upside.<br />
Betting on the dollar going down is betting against the entire history of humanity. Humans in power always do whatever is most advantageous to them in the short-term, regardless of the long-term consequences to anyone who is not them, and the Euro acts as a restraint on politicians to do what they do best: lie, cheat, and steal other's people's money for political favors and unrealistic promises to voters to stay in power. So the logical conclusion of the restraint of the Euro on the European politicians is they will break it just like the restraint of gold was broken. Politicians must be able to spend without limitation so the voters can steal from future generations to pay for their pensions, entitlements, and feasts of free! So being bullish the Euro is betting against human nature, but a successful trade is direction <i>and </i>timing, and this is the kind of fundamental idea that can get you into trouble without a technical guide to manage the risk, so the question is: where is this idea wrong?<br />
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EUR/USD monthly. While this has a year or so before it's boxed in, I believe this will break to the downside on a continued fracturing of the Eurozone over the coming years. If right, the reward is thousands of pips to all-time lows.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEqKba7-nCksQye-erRVr_2VlP9UyPGeiIrf0m9LIlotb8V_SI66sYUlPPrDXMVU1RkSxjLnwdgkeSbDeY-RTIgJ6edWsvSxfalxqinlMmL3Sj_NCyP0RYJCBCt8CU-3wIT8J6lPHSAWN1/s1600/EurUSd+monthly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="684" data-original-width="1366" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEqKba7-nCksQye-erRVr_2VlP9UyPGeiIrf0m9LIlotb8V_SI66sYUlPPrDXMVU1RkSxjLnwdgkeSbDeY-RTIgJ6edWsvSxfalxqinlMmL3Sj_NCyP0RYJCBCt8CU-3wIT8J6lPHSAWN1/s320/EurUSd+monthly.png" width="320" /></a></div>
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Here's the zoomed in view of the weekly chart. There are three levels where I'm looking for a reversal and four dates when I'm looking for it to happen: this Wed the 26th is Fed day; Thursday, Oct 25th is ECB day; Thursday, Dec 13th is ECB day; and Wednesday, Dec 19th is Fed day. You'll note there are dueling H&S bottoming patterns trying to emerge on both. I'd call the Euro neckline to be at 1.1880. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjU5UfHRN-HiB8oNT0dUNUI7x8v5TuLP_DbnrEGGF4Fry_4bopi7x3oHPFqdcEEGH5_MYBM4sQ8bG0jZ6GhbEzdoSXKp2tv_vVQWEMMj8BnDV_2hZBw-3a_FGhQRjBQx1DzSk7S5_v27gzz/s1600/Eurusdweekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="684" data-original-width="1366" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjU5UfHRN-HiB8oNT0dUNUI7x8v5TuLP_DbnrEGGF4Fry_4bopi7x3oHPFqdcEEGH5_MYBM4sQ8bG0jZ6GhbEzdoSXKp2tv_vVQWEMMj8BnDV_2hZBw-3a_FGhQRjBQx1DzSk7S5_v27gzz/s320/Eurusdweekly.png" width="320" /></a></div>
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Here's the DXY. I don't pay any attention to the summer spike shakeout. The neckline breakout level is 95. And the best risk/reward is if a reversal happens to form the right shoulder, particularly on one of those central bank meeting dates. The H&S pattern failure happens if the dollar takes out the left shoulder low at 91. I don't believe that's how this will play out, but you have to know your levels.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkmAneOwEG9MQeuqsmvrOwqpvBbxsTAbk3bRU690HL7LNx_C0x5MyaBCgnX5FgWbWU1bG_1ttZvI7ngpcRpUNrgn-Dupmb5nGv9KO_wLBxMCaGxO_UjQAF3QL4wTlOKZVZ8muft8Tr91JN/s1600/DXY+weekly.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="684" data-original-width="1366" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkmAneOwEG9MQeuqsmvrOwqpvBbxsTAbk3bRU690HL7LNx_C0x5MyaBCgnX5FgWbWU1bG_1ttZvI7ngpcRpUNrgn-Dupmb5nGv9KO_wLBxMCaGxO_UjQAF3QL4wTlOKZVZ8muft8Tr91JN/s320/DXY+weekly.png" width="320" /></a></div>
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An interesting hedge is to be long oil in half size against a long dollar position, mostly because the political/geopolitical dynamics in the oil market could keep a bid under it even in the face of a stronger dollar, and if it reasserts it's traditional inverse relationship, it makes a decent hedge until the dollar breaks out.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjH7422k-yIZW9-CZTrA28PiXXqZygICBaHcKmKRk9hjpyBONqI_VvNq9W2puIJi17A6Elqff_CZB_h7po3DgQ8FKoXcNLFEgR9FPatARsPdeA0Tq0-VMGIIPrtoBSIbGScP751XJPxuppm/s1600/oil+daily.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="684" data-original-width="1366" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjH7422k-yIZW9-CZTrA28PiXXqZygICBaHcKmKRk9hjpyBONqI_VvNq9W2puIJi17A6Elqff_CZB_h7po3DgQ8FKoXcNLFEgR9FPatARsPdeA0Tq0-VMGIIPrtoBSIbGScP751XJPxuppm/s320/oil+daily.png" width="320" /></a></div>
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Gotta go. On a personal note, I did end up buying a small business on July 25th. This is so contrarian that I can't even say it out loud because it's cringe worthy, but I'm betting on the power of intuition to triumph over rationality. I'll be happy to tell the story after I spike the ball in the end zone, not before. Till next time... Unknownnoreply@blogger.comtag:blogger.com,1999:blog-6558192271618569288.post-21047560319509704702018-09-23T20:48:00.003-04:002018-09-23T20:48:33.894-04:00The Universal Dollar - Follow Up Last time, I focused on the thousands of corporate currencies that would be created if we decentralized credit by allowing corporations to issue their own currency, and how the value of all the currencies would be measured against one another through a new unit of account called the Universal Dollar, but there's a flip side to this coin, and it's a much better way to explain it.<br />
Instead of seeing the thousands of currencies, there would actually be only one worldwide currency called the Universal Dollar, but every Uni would be denominated in someone's name as a legally binding instrument of purchasing power that anyone could create to whatever extent the market would allow. This is the solution to our repeating cycles of debt because it uses the power of choice in a free market of competing currencies and decentralized credit that has accountability.<br />
Everything would be priced in Universal Dollars, but instead of trying to figure out how many Apple Unis are worth compared to Google Unis, the value would be worked out by the market and be reflected in the price of their products and services, so instead of seeing 1 Apple Uni is worth 2 Google Unis, the price of an iPhone would be 1,000 Unis vs the comparable Galaxy at 2000 Unis. While the price of one product is not a perfect reflection of the value of the currency, that's how the value of the currencies would express itself in the marketplace of goods and services that use the same unit of account that doesn't itself change in value. <br />
The idea of having one world currency would be a really bad idea if we used a government-issued currency and centralized institutions of debt creation that have no accountability because there's no legal liability attached to the currency they create, but the best way to think of how the Universal Dollar system would look is to imagine if the entire world used US dollars to price their products and services and pay their employees, EXCEPT every dollar was in the person or corporation's name that spent it into existence, which legally obligates them to redeem those dollars they created with their labor, product, or service. The market sorts out how much currency each person or corporation is allowed to create through its willingness to accept the currency. This is how we eliminate the ability of politicians and bankers to manipulate the money supply and continue to repeat the booms and busts of endless debt cycles. <br />
I haven't figured how I'm going to make this a documentary yet, but I'm going to do it because this is not only the ideal monetary system - made possible by our technology - and beneficial to everyone except bankers and politicians - but I think it's inevitable. So rather than ask how it's possible it could happen, the better question is how is it possible this <i>doesn't </i>happen? Boom.Unknownnoreply@blogger.com