Tuesday, January 13, 2015

Copper & Crude Convolutions: "The More This Goes On The More It Looks Like 1937"

Submitted by Jeffrey Snider via Alhambra Investment Partners, (ZeroHedge)

The primacy of the monetary pyramid in 2015 is not really about money as it is all ideology. If you believe that monetary policy provides “stimulus” then you immediately remove all thoughts of any economic decline during times when monetarism is most active. Since “it works” then all else must fall into place. Contrary indications are thus given extraordinary lengths to maintain logical consistency.
Economic commentary as it exists is incredibly short-sighted, though there is no reason to believe that is anything other than exactly what I stated above. The state of economics even as a discipline has internalized Keynes so deeply that all that matters is what happens month-to-month. That makes it easier to maintain the status quo of opinion about “stimulus” – in the short run it is very easy to find a suggestion for something behaving “unexpectedly.”
That was certainly the case with crude oil prices these past few months, as the initial impulse was uniformly and incessantly prodded to over-supply. Again, the reasoning behind that was simply since “stimulus” works and it was being practiced and replicated all over the world there was no possible means by which “demand” might drop, and so precipitously. After a few weeks of oil “unexpectedly” falling further, re-assurances were more difficult and increasingly derivative by nature.
The parallel excuse was that oil prices were oil prices and that very little else “important” was behaving as was crude. And whatever commodity prices were falling in parallel fashion, that was distilled as being nothing more than either an oil “echo” or supply everywhere. This was written in November 2014:
The simple reason for the dip in commodities prices, these experts say, is that we have too much of a good thing: too much gold; a bumper crop of corn; a glut of iron ore because the big three producers, Rio Tinto, Vale and BHP Billiton have all increased output. In crude oil, members of the Organization of Petroleum Exporting Countries keep pumping out oil, while US production is at its highest level since 1986…

That lack of demand is why the commodity markets aren’t forecasting bad times in the future; they’re mirroring the current dark “mood” of the commodity investor, said analysts at Citi Research in a research note from 16 November.
The article should have just come right out and stated the central theme: commodity “investors” are in a “dark mood” because the world is so good right now. And while that may hold some minor plausibility on the surface, it is, again, far too narrow and focused solely on this moment. Even if commodity prices were, in fact, trading only on over-supply, therein lies the seeds of the next economic problem anyway. What factor in this economic world would lead to such an imbalance in the first place?
After all, businesses are supposed to be set on expectations for future conditions, and this narrative more than suggests that they were decidedly bad at doing so. Producers that so over-produce themselves into big trouble are either really stupid, or led astray by prices that, at their core, don’t make fundamental sense.
In other words, even if you follow this tendency to excuse “unexpected” weakness, it still amounts to largely the same problem – an artificial “boom” predicated on artificial prices rather than something more fundamentally sound and thus sustainable. It all ends up in the same place as an imbalance that will have to be cleared via retrenchment; a fact that is missed in the euphoria of “this month is compared only to last month.”
One reason Haworth said he’s not worried about a bigger global recession is the behavior of copper prices. Because the red metal has many industrial uses, commodity watchers will sometimes say copper has “a PhD in economics”, and it can be a gauge of future industrial demand. US copper futures prices have dipped below $3 a pound on rare occasions in 2014, but it’s always bounced back up. Prices currently are around $3.04.

Haworth called that “heartening” and posits copper prices are suggesting that while global growth is not strong, it’s not falling apart.

“In order for me to become worried about a recession, I think we’d need to see a much bigger fall in the price of copper and that’s not happening,” Haworth said. [emphasis added]
Almost immediately upon having those words printed, the price of copper declined below $3 and has remained lower ever since; in fact still falling further even now. I don’t profess to know at what price Mr. Haworth would consider low enough to change his global recession stand, but in wider context it is clear that the possibility has already been more than suggested.
ABOOK Jan 2015 Copper Long
As of this morning, the front month futures price of copper delivery is almost exactly the same price as it was in June 2010 at the lows when recovery after the Great Recession was very much in doubt – leading to QE2 and the last great “rip” in commodity prices (as if that were a good thing). It only matters that copper prices are not wholly collapsing right now, in scale closer to what happened starting July 2008, if your view of the world is temporally tapered. Taking a longer view, copper prices have been falling since the 2011 apex of the $/€ crisis, with the longer-term trend established in early 2012 as global growth (demand) has done nothing but wane.
In a physical world where supply and demand have to clear at some price, it is not really surprising that a slow attrition in economic activity would show up as a much more durable and extended slide in not just copper, but almost every economically-sensitive commodity. Since that trend includes the beginning and end of QE 3 & 4, as well as innumerable “stimulus” programs in Japan, Europe, China and elsewhere, with nary a durable upward impression, it speaks very ill of the impact of monetarism on actual “demand”, even if it were “over-supply.”
ABOOK Jan 2015 Copper IMF Indices
The mainstream impression of all of this is one of independent and discrete trends with no unifying nature. That fits the idea that “market” prices can be as they are without disrupting the narrative of an economy on the upswing. But the financial system, especially globally, does not behave as a segregated and compartmentalized price engine – and certainly not for extended periods. The fusion of all these pieces, and why crude collapse is really indicative of the underlying trend, is, of course, the “dollar.”
ABOOK Jan 2015 Copper Short
In a globalized and financialized world, financial disruption, which is what a “rising” dollar signifies, is not an independent paradigm. The more prices trend exactly opposite of how “stimulus” is supposed to work, the less these convolutions will hold up whereby, eventually, reality sets in. The significance of the action in December is that there are no more lines in the sand left to defend the “honor” of monetarism; copper isn’t anywhere near $3 anymore and the long-predicted crude oil bounce to $70 is instead $45 and falling. Only equities remain, and at these valuations they signify nothing but the folly of the artificial economy. The more this goes on, the more it looks like 1937 lives again.
© 2014 Alhambra Investment Partners

Source, Alhambra Investment Partners

Thursday, January 8, 2015

Part 1: Bitcoin, Internet Security and Consumer Safety

With the holiday season over, now is an important time to reflect on our economic and structural security online and at retail locations. When consumers shop, they put valuable information about their identity out into the open. While the majority of consumers never think twice about swiping their credit card or putting their personal information online, the cold reality of identity theft and personal information leaks are alive and well. Some reports state that in America, “A new identity fraud victim was hit every two seconds...with the number of victims climbing to 13.1 million over the year...”(Rogers) Beyond credit cards, online security relating to mobile applications, social media and recent scandals with Sony and Apple show how vulnerable this system truly is.

Many pundits and “experts” will discuss how we need to revamp the infrastructure, placing chips into cards and using solutions like iPay to “move forward”. These talking heads miss the entire point (maybe on purpose) and avoid the true problem: centralization. The question is rarely brought up;

What if the system itself is inherently flawed? What if there is no real solution to fixing this infrastructure? What if the solution is not patching and building more on top of an already cracked foundation, but replacing the entire infrastructure with a new, systemically different philosophy and platform? This of course, is the distributed model of decentralized, consensus based technology.

Take for instance the new hyper chatter of Apple Pay and it's “revolution” in the payment space. Here we have a centralized model, based on a single company taking millions of consumer credit cards, storing them on localized servers and then allowing for touchpay and other means of payment to vendors. While many may respect Apple for their contributions to smart-phone technology, Apple simply cannot handle the disruptive and consistent attacks by hackers around the globe. Hackers need not look anywhere else, but towards Apple to think, “Hey, Apple is now holding X million credit cards, time to focus here.” A centralized point of infrastructure is a point of failure. And we've seen this with Apple, during the recent “Celebgate” attack on Apple iCloud.

If scandalous pictures of celebrities can get hackers to break the Apple protected wall, millions of credit cards will do that much quicker. Do we really want to trust Apple with our personal information if they cannot even contain top-level A-list celebrity pictures?

Now, many individuals will understand this centralization model and it's inherent failures, but they often seek to see real world examples of this distributed and decentralized model. Fortunately for us, there are many examples, with the biggest names being BitTorrent, Bitcoin( Blockchain Technology) and the Dark Web. A notable example is the move of peer to peer technology from Napster to BitTorrent. What we saw here was the State intervening in a peaceful activity of sharing via Napster, which exposed to individuals the issue of the centralized model. This lead to creative and entrepreneurial pushes towards solving an issue that wasn't visible before. From Napster, we end up with BitTorrent and the technologies as mentioned above.

BitTorrent is a peer-to-peer way to distribute information and data over the Internet, without having a central point of failure. While there are some centralized aspects of torrents, such as the indexing pages where users can find certain information, these “centralized” parts are merely the leaves, not the root. While these websites can be shut down, it doesn't disable the protocol of BitTorrent itself. However, there are new applications, such as Tribler, which uses internal searches via P2P networks rather than by websites to find torrent information. Moreover, removing these “leaves” of the tree actually strengthen the tree as a whole, due to the resiliency of the market and programmers in the space itself. As with anything on the open market, when a flaw or issue is detected, market participants see profit and opportunity, eliminating that issue, which then strengthens the system itself.

Stay tuned for Part 2
Thanks for reading, please share! Sharing is caring!

Harrison Fischberg is a Bitcoin entrepreneur, writer and enthusiast

Thursday, August 21, 2014

Bitcoin Adoption and the Path Forward

The world of Bitcoin and alternative cryptocurrencies are shaking up finance, payment services and State institutions around the globe. As a small, but growing community, cryptocurrency advocates recognize the value that this new decentralized, trustless system brings to the table. We can see the community that backs cryptocurrencies putting their real money where their mouth is, such as with the recent Ethereum sale of Ether, raising a minimum of 27 thousand bitcoin or 12+ million USD. This new type of crowdfunding and community support is what backs the crypto community like no other and as time proceeds, it is guaranteed that advocates will find themselves as the new leaders in a world of true freedom and autonomy from our current monopolized and bureaucratic scheme of State infringement. Bitcoin adoption and cryptocurrency advancement will depend upon we the people to push this new technology forward. As with the Internet, early skeptics barraged the concept of email and online shopping as something that only a few people would partake in. Marc Andreessen, American entrepreneur, investor, and software engineer, notes in an interview with Vox.com, that skeptics of crypto today put the same criticism against it as they did with the Internet. Andreessen states that these common criticisms against bitcoin adoption are,
  • It's for nerds. "Fine, you nerds can do what you want but normal people are never going to use this thing."
  • It's completely decentralized, which means you can't trust it. No business is ever going to do anything on it because businesses won't work on an untrusted environment. There won't ever be any e-commerce.
  • There will never be any internet payments. No one will put their credit card on the internet.
  • It's an open-source kind of thing so there will be no Internet companies.
  • It's got all these technical deficiencies. It's slow. It's unreliable. It doesn't work right. When you do a search, sometimes you get an answer back and sometimes you don't. Sometimes when you dial in you get a busy signal.
  • What happen if your ISP goes out of business? Then you can't get back online.
  • Once you get on the internet, even assuming you get on the internet, there's nothing to do. There's no content. Time magazine isn't online, the New York Times isn't online. It's just a bunch of nerd stuff. (Andreessen, Vox.com)1
As clearly displayed by Andreessen, these criticisms have been evaporated almost completely since Bitcoin hit the scene in 2009. Initially, all one could do was trade BTC back and forth, with little else available for the "nerds" to do. However, faster than the Internet, bitcoin adoption has soared ahead, giving legitimacy to the "magical online currency" despite all the trials and tribulations. However, that does not mean we are out of the woods yet. As of late, the price of bitcoin and cryptocurrencies have been tumbling, although not much indication gives reason to the average person as to why such a fall is occurring. With companies such as Dell.com, Overstock.com, Expedia.com, Newegg.com, Dish.com, Wikipedia.org, OKCupid.com, reddit.com and many more, the adoption rate is certainly picking up, but one must question what "picking up bitcoin" really means. Sadly, only a few of these companies and others are actually keeping bitcoin itself or a portion of it in true holdings, while the majority are simply converting out to fiat. As reddit user junkit33 notes,
The way merchants have adopted bitcoin is doing nothing but driving the price down. They're all immediately cashing out, so at best, it's net neutral for the bitcoin price. Realistically, some percentage of buyers are using bitcoin they already owned, so it's a net sell, and thus a decrease. None of these merchants really care about bitcoin, they just want to win the money of people who are eager to buy things with bitcoin.(junkit33, reddit.com/r/bitcoin)2
Expanding upon this point, we as a community need to push on merchants to truly embrace the crypto sphere for the benefits it offers. Having merchants adopt a platform of instant fiat conversion does not take crypto seriously and only aims to grab market share from BTC consumers, without supporting the system it purports to stand behind. Moreover, merchants need to show BTC users incentives by offering discounts and benefits on purchases, rather than simply allowing for bitcoin to be used. Incentives will drive consumer adoption, but without benefits, users see no real tangible difference in BTC and may in fact be at a loss due to lack of protection, fees from purchasing bitcoin and other variables. Some of the benefits merchant must understand for their own good are:
  • You can make and receive payments using the Bitcoin network with almost no fees. In most cases, fees are not strictly required but they are recommended for faster confirmation of your transaction.
  • Any business that accepts credit cards or PayPal knows the problem of payments that are later reversed. Chargeback frauds result in limited market reach and increased prices, which in turn penalizes customers. Bitcoin payments are irreversible and secure, meaning that the cost of fraud is no longer pushed onto the shoulders of the merchants.
  • Bitcoins can be transferred from Africa to Canada in 10 minutes. In fact, bitcoins never have any real physical location, so it is possible to transfer as many of them anywhere with no limits, delays, or excessive fees. There are no intermediate banks to make you wait three business days.
  • Bitcoin is an emerging market of new customers who are searching for ways to spend their bitcoins. Accepting them is a good way to get new customers and give your business some new visibility. Accepting a new payment method has often shown to be a clever practice for online businesses.
  • Many organizations are required to produce accounting documents about their activity. Using Bitcoin allows you to offer the highest level of transparency since you can provide information your members can use to verify your balances and transactions. Non-profit organizations can also allow the public to see how much they receive in donations. (Bitcoin.org)3
Finally, we also must consider the fact that at this rate, 3,600 new coins are being introduced into the Bitcoin network everyday, meaning 1.5-3 million dollars worth of new coins are possibly being sold off. As these new coins come in, miners very well may try to offload them onto exchanges to pay for electricity and new mining rigs. While the price had been stable up until this point, meaning that new coins were being met with fresh money, the recent drop may show lack of engagement or fear from new regulations. Jeremy Allaire, CEO of Circle.com states,
...BitLicense is likely to have the opposite impact—radically limiting those who can participate in this industry, pushing firms offshore and into sometimes shadier jurisdictions. Furthermore, as currently written, it would be technically impossible to comply with the BitLicense proposal. Without some material changes, Circle will have no choice but to block New York customers from accessing our services.(Jeremy Allaire, Circle.com)4
With such intrusions by the State and bureaucrats worldwide, the community of crypto needs to take a stand and support efforts that bring Bitcoin and other cryptocurrencies back to their initial goal of freedom from coercive, monopolized State enforcement of our most vital lifeline in the economy: money. Please check out some of these projects below to help restore freedom to the people and bring money back to its rightful owners:
Dark Wallet
Mycelium Entropy
1: http://www.vox.com/2014/6/30/5839436/marc-andreessen-on-bitcoin
2: http://www.reddit.com/r/Bitcoin/comments/2dvlq3/lets_have_a_serious_discussion_as_to_wtf_is/cjti4g2
3: https://bitcoin.org/en/bitcoin-for-businesses
4: https://www.circle.com/2014/08/13/thoughts-new-york-bitlicense-proposal/
Harrison Fischberg is a Bitcoin entrepreneur, writer and enthusiast.

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Monday, August 18, 2014

Bitcoin and The Return to Free Markets

In order to understand how society has arrived at its current state, one must understand its past. Confucious said, “The beginning of wisdom is to call things by their proper name.” and with this, one can understand how propaganda, through the State apparatus, has skewed and subjectivized everything in society. Orwellian double-speak is in full swing, with words holding contradictory meanings, effectively destroying wisdom, evidence and reason, allowing for the enlargement of our rulers. But with the advent of the Internet and now Bitcoin, the tides are quickly turning, showing these evils for what they truly are. As society has grown, understanding of property ownership and free-markets has allowed for the vast majority of human kind to flourish. A Yale study shows that,
We are in the midst of the fastest period of poverty reduction the world has ever seen. The global poverty rate, which stood at 25 percent in 2005, is ticking downwards at one to two percentage points a year, lifting around 70 million people – the population of Turkey or Thailand – out of destitution annually. Advances in human progress on such a scale are unprecedented, yet remain almost universally unacknowledged.(Yale Study)1 
However, this does not mean we are out of the jungle. Regulation, taxation, inflation, confiscation and war are still in good health and gaining at an ever-faster pace. But, as with everything in life, each action has an equal and opposite reaction, with liberty and markets pushing against the regulation and domination that is so ever present in our lives. Bitcoin is leading the fight for true deregulation and giving back control of one’s money, property and resources at an astonishing rate. Thanks to the Internet, the double-speak that is so prevalent is being hacked away at an increasing pace. Famous Austrian economist Murray Rothbard notes that the,
“Free market is a summary term for an array of exchanges that take place in society.”
Bitcoin is now providing a platform for peaceful and voluntary exchanges to occur outside of the statist paradigm.
To show how Bitcoin is restoring the broken structure of peaceful exchange, it is important to note the difference between control and ownership. Ownership has degrees of control within it, but it does not truly retain the exclusive rights of control in full capacity. Control on the other hand has the complete package of exclusivity when it comes to property and this is where Bitcoin reigns king. For instance, one may claim to “own a house”, but this is more accurately stated as a “permission slip of partial control”, by State privilege. One may be able to occupy, arrange, destroy or discard a house, but in Western countries and others, property taxes exist as a defacto “right to use” grant from State institutions. Legitimate control is never allowed for those outside of the bureaucratic regime. The same intrusive and destructive measures apply to money and value mechanism.

This is best seen in the public/private relationship of central banking, where coercive control is instituted by States and prohibitions are established against all other forms of monies/currencies from competing with State functions. The most notable recent case with Bernard von NotHaus and Liberty Dollar. Control of money has been sized and any legitimate attempt by individual actors to opt-out is quickly snuffed out. Through manipulation of interest rates and legal tender laws, double-speak is seen again where the “Federal Open Market Committee” “goes to market” to “discover prices”. Obviously, this has nothing to do with the market operations of peaceful individuals and voluntary exchange. But now, individuals are taking a stance against such violations and are using Bitcoin to finally regain authentic control again of their resources and life.

With Bitcoin, the mechanism of freedom are finally being reverted back to cooperative market forces. Control of property is the true pinnacle of individual autonomy and with the Internet and Bitcoin shaking the statist world, sovereign peoples are now the sole controllers of their money and resources. Blockchain technology has revolutionized property rights, by allowing for mass disclosure of assets, property, value and resources on a trustless, decentralized, mathematically validated structure, which means individuals have direct control of what is theirs. To further elaborate, Murray Rothbard states that property,
…begins with the basic axiom of the “right to self-ownership.” The right to self-ownership asserts the absolute right of each man, by virtue of his (or her) being a human being, to “own” his or her own body; that is, to control that body free of coercive interference. Since each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish, the right to self-ownership gives man the right to perform these vital activities without being hampered and restricted by coercive molestation.” (Rothbard, Ethics of Liberty)2
Because of these inherent characteristics, Bitcoin finally allows for a pipeline out of the coercive State institution and provides a break-point for individuals to truly opt-out of the regressive and detrimental system of fiat and legislative domination.

With these crucial definitions put into place, one can now begin to understand how crypto is giving true control back to the individual and allowing for markets to flourish once again. We have seen a massive boom in the space of Bitcoin and now, with alt-coins, competition is growing at a spectacular rate, testing the market for which features and prospects are in demand and which are not. As these coins test the water for market demand, the crypto-space will expand and grow to satisfy all market participants. Andreas Antonopolous, Bitcoin enthusiast and entrepreneur states,
Once you break the link between a fixed market for these things – like we’ve had with publishing institutions or financial institutions – you allow anyone to use those as a tool of expression, and in response, people will start using them(bitcoin/alt-coins)…Once you look at it from that perspective, the question about how many alt-coins there will be is equivalent to the question of how many bloggers there will be on the Internet. (Andreas Antonopoulos)3
With all these points taken into account, one can truly begin to see how the waters are parting when it comes to State monopoly vs. free-market experimentation. For too long, the most crucial parts of society have been defined, occupied and manipulated by institutions such as the State, but with the Internet and the cryptospace finally in full bloom, the rulers are effectively trying to put a stranglehold on sand. As each individual takes charge of their life, property and money, another sand particle slips out and it is only a matter of time until the stranglehold squeezes its own body out of existence.
1: http://yaleglobal.yale.edu/content/little-notice-globalization-reduced-poverty
2: https://mises.org/rothbard/newlibertywhole.asp#p45
3: http://www.verymuchwow.com/2014/06/30/vmw-interviews-andreas-antonopoulos-july-2014/
Harrison Fischberg is a Bitcoin entrepreneur, writer and enthusiast.