Ken Karachi

Ken Karachi

One month ago I walked through the macro influences behind Bitcoin's price pop and drop in "The Macro Truth About The Big Bitcoin Pop and Drop: The Mainstream Media Doesn't Have A Clue". Well, we're close to the peak again at $1,157.77 per coin, and the macro scene still holds a lot of explanation....

The PBOC has been expending an unprecedented amount of resources in the form of it's FX reserves in an attempt to support the Renminbi (this article assumes you've read "The Macro Truth About The Bitcoin" article, if you haven't its a prerequisite). The initial deployment of this capital to force CNY onshore caused violent capital repatriation. The result was rapid drop in BTC, as those who used CNY to purchase it were put in a predicament where CNY was too expensive to hold offshore. Long story, short, the PBOC succeeded in its goals short term. But... and there is always a but, did so at a cost. The amount of capital being deployed to manipulate the markets is quite significant, and it is now showing - exactly as I anticipated 30 days. ago - to wit:

The problem is, when you have to go to such extreme measures to draw currency back into the country, it becomes quite obvious to the prudent speculator that... 

$CNY #Yuan leaking from China into $BTC #blockchain, nearly $20M per hour, showing power of public blockchain & #Bitcoin in capital controls pic.twitter.com/T3mxP6OEkb

— ReggieMiddleton (@ReggieMiddleton) January 3, 2017

Seeing is believing... 

2017 promises to be a tumultous year of geopolitical uncertainty and macro risk. This is an environment in which Bitcoin thrives. 

 China's remnimbi has finally received reserve currency status, but with said status comes certain responsbilities that is running counter to the controlling methods China has employed in the past. Oh no! It's.... the Trilemma!

 Mucho yuan fiat was leaking (gushing?) into the bitcoin blockchain. Bitcoin's blockchain is already a global, anitfragile, counterparty risk-free P2P value exchange. This is what our technology, Veritaseum, is built upon.

 Here, I warned that the Chinese government would likely step in. Quite the prescient comment, since lo and hehold several days later... 

Chinese Regulators Exploring Bitcoin Connection to Capital Flight, and then we got China to Restrict Bitcoin Marketing, But Blockchain Firms Unaffected. Again, I was right on point!Restrict Bitcoin Marketing, But Blockchain Firms Unaffected

 As I've been warnng, think tanks and research firms interviewed by Bloomberg agree.

 Reference my notes above...

 This is something you dont' see in the mainstream media or most research notes. If China doesn't completely shut down bitcoin AND get the cooperation of other major offshore centers, any half assed attempt will simply increase the draw to bitcoin due to its very unique properties. China can actually usher in the P2P economy, by mistake. Reference The Onramp to Peer-to-Peer Capital Markets..

 Uh huh...

 Again, I reiterate the significant and material macro component in Bitcoin adoption, use and pricing...

This is the point, chronologically, where I warned about the BTC pullback... 

For those (apparently the majority of the punditry who choose to opine) who don't know what Bitcoin is.... 

Even with the pullback and (now, 15%) drop, Bitcoin has performed very well.... 

I've seen reports on the ground in China that way capital control avoidance was not a major contributor to Bitcoin activity. Well, the evidence that I've found says otherwise. 

Here comes the benefit of doing macro analysis. It all fits in... 

 China is painting itself into a corner with thier old school policies on capital controls... The amount of money they are spending is stupendous. The problems is, no matter how much they spend, the fundamentals are still going to be the fundamentals.

Of course, in the short run, their brute force methodology is working as yuan spikes and availability offshore dwindles. 

Here you go... 

I suppose a little strongarming doesn't hurt, no? 

The problem is, when you have to go to such extreme measures to draw currency back into the country, it becomse quite obvious to the prudent speculator that... 

Like I said earlier it will obviously work for the short run, but in the medium term, look out below! 

The Chinse are painting themselves into a tight corner, and telegraphing it to boot.

This is probably the most important tweet of the series. The FUNDAMENTALS HAVE NOT CHANGED!!! No matter how much money China spends, or how draconian they decide to become to trap capital, it's all about the fundamentals, silly! 

 This is the Trilemma in effect!

We've seen this movie a few decades before. Remember when the Band of England was determined to join the EMU by any means necessary? They said they would defend the pound no matter what, foolishly and simultanesouly telegrpaphing the promise to feed trades from macro funds such as Soros & Co. all day long. So guess what? That's exactly what happened until the BOE tapped out, permanently pushed out of the EMU. As it turned out, that was actually a good thing for the Brits, but that's a story for another time. If you really must here the reason, view...

And now, China is paying the piper, exactly as I have foretold, Bank of England style when Soros manipulated their folly. Reference Reuters - China FX reserves fall $99.5 bln in Jan:

Feb 7 China's foreign exchange reserves, the world's largest, fell by $99.5 billion in January, the central bank said in a statement on Sunday. Foreign reserves fell to $3.23 trillion at the of January, the lowest level since May 2012. The figure was higher than a Reuters poll forecast of $3.20 trillion. China's gold reserves rose to $63.57 billion at the end of January, from $60.19 billion at the end of 2015, the People's Bank of China said on its website. Gold volume stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December. China's International Monetary Fund (IMF) reserve position was at $3.76 billion at the end of January, down from $4.55 billion in the previous month. The bank held $10.27 billion of IMF Special Drawing Rights at the end of last month, compared with $10.28 billion at the end of 2015. 

This is what that looks like graphically...

And just as BTC got whacked when the offshore CNY liquidity got tight, the visibility that China may not be able to keep this up for long loosened the reigns - just as I told you exactly 30 days ago...

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Bitcoin.com reports "Chinese Exchanges Suspend Withdrawals for One Month": The two largest Chinese Bitcoin exchanges have suspended Bitcoin and Litecoin withdrawals for one month. The news follows China’s central bank inspections at nine smaller Bitcoin exchanges this week.

 In an effort to stem the flow againt China's capital controls, the PBOC is inspecting various onshore bitcoin exchanges - 11 all told, including the largest - OkCoin and Huobi (the smaller exchanges include Chbtc, Haobtc, Btctrade, Yunbi, BTC100, Dahonghuo, Jubi, Bitbay, and Yuanbao). While this caused some fluctuation in BTCUSD prices, it regained its ~$1,070 price farily quickly. This morning, EST, it quickly dropped $100 (~10%) as news came out that "exchanges  Okcoin  and Huobi  announced they would suspend BTC and LTC withdrawals for one month"

The apparent reason is that the PBOC (Chinese Cenral Bank) is strictly enforcing KYC/AML rules. Rules that the Chinese exchanges do not seem to have the infrastructure to implment or enforce. Thus, a major systems upgrade is in order. As quoted from Bitcoin.com:

Both companies have stated their exchanges will be “upgrading” in order to comply with “anti-money laundering efforts, foreign exchange management and other financial laws and regulations.” The pausing of withdrawals and the upgrades are expected to last one month but “may also be substantially ahead of the development process,” says Huobi’s announcement. This “in order to avoid possible illegal transactions that may continue before the system upgrade is complete,” Huobi’s announcement concludes.

In the BoomBustBlog post "Those Who Say Bitcoin Has No Intrinsic Value Need to Imbibe the Gospel of True Education" I warned about, and reviewed the folly of, keeping your "b"itcoin on heteronomous (someone else's) wallets versus your own (autonomous) wallet, using "B"itcoin. Confused? You see, if you were using Veritaseum, or any other autonomous system, you would never be subject to someones else exercising said control over your assets. It's a matter of heteronomy vs. autonomy. As excerpted and to wit:

What is the significance of differentiating between "b"itcoin and "B"itcoin?

You see, the network that "b"itcoin travels on, "B"itcoin, adds significant and material value. It allows bitcoin to be used on a fully automomous basis.

In addition to full autonomy, you can program bitcoins - so much so that you can cause a simple bitcoin transaction to behave as an equity/public stock sale or an interest rate swap or any swap-style transaction using any of over 30k active tickers found on Bloomberg, tracking the underlying basis point by basis point - all without counterparty or credit risk.

Here's a screenshot of our smart contract-enabled bitcoin wallet that is sitting on the same tablet that I'm using to type this article...

In case your wondering... Yes, Bitcoin can replace the prime brokerage function of an investment bank - without the balance sheet exposure. Here's a video of a simple Apple equity exposure trade.

Wow! I didn't know it could do all that? So, why isn't everybody using it?

Well, the FIRE (finance, insurance and real estate) industries are really trying to use it, but they are confused and compromised. They are confused because the word bitcoin has become anathema among the financial elite. Why? Well, because they believe what they read in the pop media and the pop media has attached bitcoin to drug dealing, child porn and all other sorts of underworld murky things (the same things that the USD and the EUR are used for more than any other currency). So, instead of doing their own independent investigation, they jumped to inaccurate conclusions.

 

After my many, many warnings about Donald Trump and his administration (I'll list those a little later)... It's official, Fitch has actually warned that the Trump administration is detrimental to sovereign ratings around the world. Keep in mind that we are in this world.

You've hear similar from me before the man was sworn in, which begs the question, what took the Fitch, et. al. so long??? You know how I feel about these guys, right?

Reference the timeline and associated videos wherein I made the risks crystal clear...

Is Time to Short America? Macro Risks +

The animal spirits are whispering... They are calling into question the stability of the US in light of the significant geopolitical uncertainties introduced by the new US administration and how...

Is It Time to Short America?, Part 2

Continuing the conversation of whether it's time to short America, we investigate the administration's plans for protectionism and a tax holiday for corporate capital repatriation. The first question that needs...

Donald Trumps actions, behavior and machinations have already (with less than a month in office) trascended national politics, even geopolitics, and are now literally and existential global macro risk.

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Update: T-Mobile responds to Sprint & Verizon price cuts but adding additional features to its fixed rate plan. Competition continues to benefit the consumer, but net margins will be/are hovering close to or below zero for some carriers -T-Mobile responds to Verizon by improving its own unlimited data plan.

In The Slow Death of the Deadbeat Carriers, pt 4 I reminded all about the price competition kicked off by the upstart T-Mobile that reconfigured the US wireless industry.

 T-mobile eliminated plan contracts, eliminated handset financing (at least usury style financing) and made the unlimited data plan a mainstay. Look at what those changes did to T-mobiles subscription business

 

Of course, like any truly economic market, gaps and inefficiencies tend to get filled and rectified. The T-Mobile net adds came directly from AT&T, Verizon and Sprimt. Thus...

Sprint offers five unlimited lines for $90, but only for a year

In comparison, you'd have to pay $180 a month for five unlimited lines on T-Mobile, or $270 a month for AT&T, and now apparently Verizon is dropping prices significantly, reference Verizon Brings Back Unlimited Data Starting At $80/Month

4 lines $45/line
3 lines $54/line
2 lines $70/line
1 line $80/mo.

So, T-Mobile, the original disuptor shaves pricing once again, throuh fee inclusion...

 

So, what does all this mean? Well, T-Mobile reports Q4 2016 results tomorrow, but until then...

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Be aware there is a lot more to this story... A proponent that makes me think one of carriers may bold and merge (by force). Subscribers can hit me directly and ask my opinion via email (regge AT the site's name). Click here to subscribe

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After reading what is essentially Fake News about Bitcoin from Financial Times, London Business School and Credit Suisse, I have created an easy to understand metric that allows anyone to compare the risks and rewards of Bitcoin to basically any currency, commodity, stock or asset class.

Here are the risk and return units over the last 6 years, annually...

Here is a another way of gauging the risk-adjusted return relationship between BTC and EUR, and that is units of return received per units of downside risk (for long investors) exposed to. This is easy to understand, and should make many holders of euro consider grabbing some BTC as well...

This ability to empirically and accurately gauge the risk vs reward payoff of Bitcoin relative to other investment opportunities comes none too soon as not only is Bitcoin being maligned by institutional Wall Street (see It's Time To Beat Up On Credit Suisse and Their Woefully Misinformed Bitcoin Advice) to understand why), but it's within .06% (as of my typing this) of its all time high.

I will make the risk vs reward calculator available to paying BoomBustBlog subscribers, click here to subscribe.

Next up, I will show all how to create a bitcoin investment portfolio an blend it into your more conventional investments. If you are interested in such, you'd probably want to catch up by reading these:

We also have a blockbuster Apple analysis coming on tap in a couple of weeks, and our very unique take on the television network space, including our own interactive, proprietary content. Much is coming soon, stay tuned!

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The Fiduciary Rule demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It does not allow for the concealment of any onflicts of interest, and demands all fees and commissions be clearly disclosed in dollar form to clients. It also exands the actual definition of the term "fiduciary" to include any professional making a recommendation or solicitation, where previously the professional would have to had give ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

This news bite is quite timely, for I just reviewed Apple's quarterly (non)earnings report, see Apple's 2017 1st Quarter Results as Viewed Outside the Reality Distortion Field and the result was an opportunit for rampant conflicts of interest in the sell side. Despite a horrendous showing, not only is the press lit on reality distorting euphoria, but the sell side is screaming BUY! BUY! BUY! Let those commissions roll! 

Hey, did you know that Azimut is launching a new line of yachts right at the price point of a healthy Wall Streeet bonus?

It's not just the mom and pop investor that gets hurt here. If you remember in 2006 and 2007 when so many of the buy side got duped into those MBS packages, you realize that although many didn't like the Fiduciary Rule, it prevented many people's jobs and retirement savings from being used to cushion that pad under that sexy brunnete's buttocks in the pic above.

If you haven't already, see  Apple's 2017 1st Quarter Results as Viewed Outside the Reality Distortion Field for more. Now, more than ever, the services of BoomBustBlog are needed by both individuals and institutions!

y the Obama administration. 

Credit Suisse has been posting cryptocurrency advisories over the last few weeks. They are quite one-sided, although couched in the appearance of objectivity. To explain why it's couched in the appearance of objectivity, and not actually objective, let me give you some background. 

The Obama administration enacted a law known as the Fiduciary Rule, as per : 

The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conceal any potential  style="color: #005b9d; cursor: pointer; font-family: sourcesanspro-regular-webfont, Helvetica, Arial, Verdana, sans-serif; font-size: 15px;">conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

Although the Trump administration looks like it will repeal this law. the question is still begged, what conflcts of interests and hidden "gotchas" are not exposed? Well, here are videos that explain why banks will likely never be pro bitcoin, regardless of how tranformational it may be.

So, if banks are not going to benefit from Bitcoin, chances are their employees are not going to support bitcoin. Who are the most published bank employees? Analysts, to wit, Credit Suisse, stage left - Is Bitcoin Safe?

Bitcoin does carry some unique risks. The value of the cryptocurrency has been three times as volatile as the price of oil and 11 times more than the post-Brexit exchange rate between the dollar and the British pound.

With all due respect, this is a very ignorant, malinformed, incomplete viewpoint. I actually do mean that with respect intended. I'm not trying to maligh Credit Suisse, but... Look at this: 2+2=?.

Tell me, what do you get from that? If you said 4, then you get my point. To really gather meaning from an equation, you have to look at both sides of the equal sign. Credit Suisse state the unique financial risks of bitcoin, yet ignores the very unique financial benefits. Look at these numbers from a guy who does not have a financial or stragetic inventive to downplay Bitcoin.

Annually, since 2011, Bitcoin has had 75x the volatility as WTI crude oil. Credit Suisse (who gave a much lower vol. number, but that depends on how often you sample the data) will have you believe that is bad, but for long investors, volatility is not the enemy. The enemy is downside risk. When you strip out upside movements, which is what we all really want, Bitcoin only has .15x more downside risk than oil. Wait! I'm not finsished yet. Remember, we need to look at both sides of the risk/reward equation. When comparing the upside, BTC has 203x the average excess return of WTI crude oil. To be clear, .15x more downside risk, and 203x more upside. 

Credit Suisse, are you sure you made a valid comparison between oil and bitcoin?

 Hey, it's not just Credit Suisse, its all of the major banks and central banks as well. It's also the Financial Times, the London Business School and CNN Money, amomt many, many others. Reference 

 BTW, these numbers hold up just as well for the comparison to GBP as well. As compared to the GBPUSD forex pair, Bitcoin has 333x the volatity, but onl 7x the downside risk (remember, if you're holding long, you ony want to concern yourself with prices going down, not up), and 1,017x the return. Again, Credit Suisse, as financial professionals, what the hell were you measuring?

 Now, of course, Credit Suisse did have some positive things to say about bitcoin - just not the stuff you can invest in directly, to wit: Forget Bitcoin, but Remember Blockchain? Why, you ask? Well, banks are attempting (not necessarily wholeheartedly, though) to rebuild there backends on top of technology that underpins bitcoin. Of course, since banks don't make markets in bitcoin (the token) itself, it's too risky for their clients (unless said clients read BoomBustBlog). Next up, I will show all how to create a bitcoin investment portfolio an blend it into your more conventional investments. If you are interested in such, you'd probably want to catch up by reading these:

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 Donald Trump's recent Tweet discusses how Russia has gotten stronger at the behest of President Obama.

 For eight years Russia "ran over" President Obama, got stronger and stronger, picked-off Crimea and added missiles. Weak! @foxandfriends

— Donald J. Trump (@realDonaldTrump) March 7, 2017

 Let's take an empirical look at that claim.

During the first and second quarter of 2014, the Obama Administration has put significant pressure on Russia in the form of personal, corporate, financial, trade and infrastructure related sanctions and related stress - as stated in the US Treasury web site:

WASHINGTON – In response to Russia’s continued attempts to destabilize eastern Ukraine and its ongoing occupation of Crimea, the U.S. Department of the Treasury today imposed a broad-based package of sanctions on entities in the financial services, energy, and arms or related materiel sectors of Russia, and on those undermining Ukraine’s sovereignty or misappropriating Ukrainian property.  More specifically: 

  • Treasury imposed sanctions that prohibit U.S. persons from providing new financing to two major Russian financial institutions (Gazprombank OAO and VEB) and two Russian energy firms (OAO Novatek and Rosneft), limiting their access to  U.S. capital markets; 
  • Treasury designated eight Russian arms firms, which are responsible for the production of a range of materiel that includes small arms, mortar shells, and tanks;
  • Treasury designated the “Luhansk People’s Republic” and the “Donetsk People’s Republic,” which have asserted governmental authority over parts of Ukraine without the authorization of the Government of Ukraine; and Aleksandr Borodai, the self-declared “prime minister” of the Donetsk People’s Republic, for threatening the peace, security, stability, sovereignty, and territorial integrity of Ukraine;
  • Treasury designated Feodosiya Enterprises, a key shipping facility in the Crimean peninsula, because it is complicit in the misappropriation of state assets of Ukraine; and
  • Treasury designated four Russian government officials, including Sergey Beseda, a senior Russian Federal Security Service official. 

Here's an infographic that show's the flow...

Sanctions graphic

On top of these sanctions, Russia's primary export (oil) has been on a startk structural and cyclical decline in price as supply outstrips demand in an uncertain macro environment. I have written extensively on this below:

  • The Bearish Case Against Oil Gets... Bearier
  • As Experts & Speculators Await Higher Oil Prices, I Anticipate A New Energy Paradigm: Monetize Your Outlook Through Veritaseum

As a matter of fact, the Russian oil and gas industry didn't start doing better in the equity markets until indications that Trump could win, and eventually did win the election.

 The combination of weakening oil prices and punishing sanctions have definitely taken their toll on the Russian economy. While the rest of Europe showed some economic growth, Russia stagnated and fell into negative growth right about the time Obama's sanctions were implemented and then tightened. The Obama admin and the EU have made it illegal for their companies to buy debt with maturity of more than 30 days from key Russian banks. The U.S. sanctions bar American companies from providing goods or services for the deepwater, Arctic and offshore and shale energy projects of five Russian companies: Rosneft, Gazprom, Gazprom Neft, Lukoil and Surgutneftegas.

Russia’s total export revenues have dropped significantly, causing  it to cut its imports by half. The oil crunch was strategically tighted by the financial sanctions, which prevent the country from accessing the cash flow to mitigate the drop in export revenue. Normally, Russia is considered quite credit-worthy with a what was a 10% public debt to GDP ratio. The problem with that is if you can't access public credit markets it really doesn't matter, with the result being you are now not creditworthy. On Jan. 9, 2015 Fitch Ratings cut Russia’s credit rating to BBB-, which is the final notch above a junk rating. This is the history of Russia's credit rating from 4 years before the sanctions were implmented to now. Take note, that the latest numbers do not take into consideration the most recent round of Obama administraton punitive measures which are likely clandestine and will resulte in a lag before they show up in economic numbers.

AgencyRatingOutlookDate
Moody's Ba1 stable Feb 17 2017
Fitch BBB- stable Oct 14 2016
S&P BB+ stable Sep 16 2016
Moody's Ba1 negative Apr 22 2016
IE 51 negative Apr 16 2016
TE 43 negative Apr 16 2016
Moody's Ba1 negative watch Mar 04 2016
Moody's Ba1 stable Dec 03 2015
Moody's Ba1 negative Feb 20 2015
S&P BB+ negative Jan 26 2015
Moody's Baa3 negative watch Jan 16 2015
Fitch BBB- negative Jan 09 2015
S&P BBB- negative watch Dec 23 2014
Moody's Baa2 negative Oct 17 2014
Moody's Baa1 negative Jun 27 2014
S&P BBB- negative Apr 25 2014
IE 61 negative Apr 22 2014
Moody's Baa1 negative watch Mar 28 2014
IE 61 negative Mar 21 2014
Fitch BBB negative Mar 21 2014
S&P BBB negative Mar 20 2014
IE 61 stable Oct 15 2013
IE 61 stable Jul 18 2013
IE 61 stable Jun 10 2013
Fitch BBB stable Jan 16 2012
IE 61 stable Nov 28 2011
IE 61 stable Aug 05 2011
IE 61 stable Aug 02 2011
IE 61 stable Jul 14 2011
IE 61 stable Jul 13 2011
IE 61 stable Apr 18 2011
Fitch BBB positive Sep 08 2010

This all started during the 2nd quarter of 2014 sanction implementations. Take a look at the Russian economy as of that point, keeping in mind that most of the rest of Europe started to grow (albeit with ridiculously drastic NIRP and QE policies).

 Long story, short - it is extremely misleading to state that Russia has walked all over the Obama administration. If numbers and math mean anything, it is the Obama administration which has done such to the Russians. It's quite likely this 3rd set of punitive measures and sanctions as the result of Russian's alleged meddling in the US elections will push the country deep into recession as the majority of the US capability is not public. Obama has expelled 35 diplomats and frozen some addition assets, but the US has alleged to have significant control over Russian financial, energy and communications infrastructure as well. The recent Wikileaks #Vault7 data dump gives us a peek into what's possible from a remote location.

I've issued several warnings late last year warning of the real estate bubble peaking and popping. I feel I'm especially qualified to do such since I quite accurately called the bubble burst of 2007 - namely housing (look here andhere), homebuilders (look here), commercial real estate and banks Bear Stearns and Lehman among many others). Well, exactly ten years later, guest what?

I warned thoroughly last year about the NYC markets. Reference Is There A New Real Estate Bubble? Well, Prices Have Past Their 2007 Highs & Outstripped Income Growth and Using Veritaseum To Streamlining Real Estate Sales At The Peak Of A Bubble and several vdieos.

The Real Estate Crash Is Starting

Reggie Middleton

  • 5 months ago
  • 5 months ago

The real estate crash is about to start. Here's how it's going down in 2016 - 2017. See

On Potential Banking Crisis & Real Estate Crashes

Reggie Middleton

  • 1 year ago
  • 2,029 views

Discussing the Blackstone Stuyvesant deal and how it's related to Morgan Stanley's 40% earnings drop, and Goldman and JPM and Citi, and the Blockchain... 

Welcome to Harlem NYC, Poster Child of Central Bank Excess, Causing the Next Real Estate Crash

Reggie Middleton

  • 5 months ago
  • 1,431 views

I sit down on 125th and Malcolm X Blvd to discuss the extreme price appreciation In Harlem, how it got that way, and what connections the bubble has with greater NYC, the US and

This Tiny Part of NYC is the 6th Priciest Place in the WORLD! Bubble, Bubble, Pop, Pop

Well, today look at numbers at that tiny part of Brooklyn, NY...
Now, I know many of you are saying, "Wow, that's a good think isn't it?" Well, if you take a look at the long term appreciation rate of housing, you see a very diferent number, something along the lines of 3% to 5%.
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BREXIT is now official (almost), and it will be very expensive for Britain. Now, the question that so many fail to ask, "How expensive will it be for the EU?" Here are some more questions:

  1. Will EU members such as Ireland, France and Germany be able lure enough talent from London to endanger their financial centre status?
  2. Will the UK use the nuclear option, turn into tax haven haven and then suck the capital out of the EU?
  3. How well can the EU handle losing it's 2nd largest economy?
  4. Will the EU lose any more economies? After all, those on the periphery are looking hard and if the UK shows a net benefit of any fashion, look out below. That means the EC has to negotiate hard, causing the UK to return the favor. That tax haven nuclear option is looking more and more likely and appears to already have a contigency in the works. 

This is an article I wrote using recycled snippets from as far back as 2010... 

So, Brexit. And... Czexit, Pexit, Frexit as EU referendum CONTAGION sweeps Europe amid political quake.

Go to 5:38 and you will see I predicted this day exactly 3 months ago. The accuracy is uncanny...

I also called it in 2010 as well. Reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, to wit:

What about the UK?

I'm glad you asked. We just finished our UK analysis (subscribers, see 2010-03-24 09:32:01 617.23 Kb), and the Greek theme has continued into the land of the Brits.

uk_economic_estimtes.pnguk_economic_estimtes.png

... and in terms of government balance over-optimism???

uk_gaovernment_balance_projections.pnguk_gaovernment_balance_projections.png

The UK government’s projections are based on real GDP growth of 1.3% and 3.5% in 2010-11 and 2011-12, respectively while the (extremely and unrealistically optimistic) consensus estimates stand at 1.2% and 2.1%, respectively. The latest estimates announced by the EIU (Economist intelligence unit) in March 2010 are even lower at 1.2% and 1.5% for 2010-11 and 2011-12, respectively. The European Commission has also raised similar concerns with the Commissioner for Economic and Monetary Affairs, Olli Rehn, criticizing governments after scrutinizing the strategies of 14 countries, including Germany, France, Italy, the U.K. and Spain, that “their budget projections were based on favorable macroeconomic assumptions after 2010 that may not materialize” (stated in a press article on March 18, 2010)
Raising concerns on the UK, the European Commission also stated that “The U.K. won't meet the EU's recommended target of reaching a 3% budget deficit by 2014-15, and projections for economic recovery may also fall short. Details on how the U.K. government, whose budget deficit is expected to hit 12.7% in the current financial year, will rein back its spending are also lacking. The absence of detailed departmental spending limits is a source of uncertainty”.

Continuously rising fiscal deficit has led to a continuous increase in the government total debt, which increased from 43.3% of GDP in 2007-08 to 72.9% in 2009-10. Moreover, according to EU Commission estimates, after Ireland, the UK is poised to incur the worst deterioration in the gross debt ratio in the EU, from 44.2% of GDP in 2008 to 88.2% of GDP in 2011. Though the average maturity of UK’s debt is considerably higher compared to other nations (thus no refinancing risk in the near future), the expanding interest burden is exacerbating the already strained fiscal deficit.

Moreover, rising debt not only restricts government’s fiscal stimulus and support to the economy, but is also forcing the government to undertake sharp fiscal consolidation measures to moderate the adverse impact of rising interest expenses on the fiscal deficit. This is bound to have an internal deflationary effect.

The government expects an increase in its debt from 55.5% of GDP in 2008-09 to 90.9% in 2012-13. In absolute terms, the government debt is expected to grow from £796.4 billion in 2009-10 to £1,486.2 billion in 2012-13. However, we expect the debt to increase much higher off higher primary deficit owing to relatively lower GDP growth assumptions.

And what about Italy???

Again, we're glad you inquired. Subscribers should download our archival analysis: Italy public finances projection 2010-03-22 10:47:41 588.19 Kb. We also reviewed Ireland pdf Ireland public finances projections 040710 ( 568 KB ) .

This is Italy's presumption of economic growth used in their fiscal projections:

italian_real_gdp_growth.pn

image006.pngimage006.png

Those interested in the 2010 analysis of Spain shoud download: 

spreadsheet Spain maturity extension 010610 (The Man's conflicted copy)

pdf Spain public finances projections 033010

For those that don't subscribe, there is still a lot of nitty gritty that I made publicly available on Italy here:Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

More on Euro stretching of the truth

If you haven't had your fill of innuendo, ambiguity, creativity and sleight of hand (my polite way of saying "lying"), you can peruse Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

For the complete Pan-European Sovereign Debt Crisis series, see:

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

On a closing note....

Contact me to learn more about Veritaseum's unbreachable, blockchain-based smart contracts. reggie at veritaseum.com

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