Wednesday, February 28, 2018

OT: Russia Monitors Everything?

With all the news about Russia in the US political arena, I thought I would toss out this bit of off topic information. It appears that Russia monitors just about everything on the internet including this blog at times. 

I have noticed that for some reason I get a large number of "page views" coming from Russia here on this blog at times. It seems to happen whenever I mention certain key words like Bank for International Settlements (BIS) or IMF, etc. Below I pasted in my blog page views by country for the recent past few days so you can see what I mean.

                                                                    page views

United States
United Kingdom
Hong Kong

Not sure why they would care about this blog, but I suspect they simply have programs that constantly automatically monitor the internet for certain key phrases etc. I can go for weeks with no page views from Russia and then suddenly they show up in mass for whatever reason (sometimes several hundred in just a few seconds). I am certain these are not individual people reading this blog as the volume of sudden page views is too large too fast for that to make sense.

Monday, February 26, 2018

Andrew Maguire Announces "Kinesis" -- Gold/Silver Backed Cryptocurrencies

This is a followup on news we have covered here for awhile. Recently, Andrew Maguire posted this news on his Twitter feed. It is announcing the startup of "Kinesis".  Andrew Maguire is a member of the Allocated Bullion Exchange (ABX) Advisory Committee.

Kinesis is a new effort at a gold and silver backed cryptocurrency with plans to expand beyond that. You can take a look at the detailed blueprint released for Kinesis here. Below is a key section from page 5 of the Kinesis blueprint (I added the underline for emphasis).


"This model is highly revolutionary alone, however to take it the next step further, already in place is a highly disruptive retail and institutional commercialisation strategy with unique distribution and committed adoption from day one of launch.

Pre-existing investment commitments are in place for the Kinesis currency suite which will surpass the largest ICO to date by a significant multitude. Kinesis is being developed and being brought to launch by a consortium of industry leading organisations in the precious metal trading, mining, refining, exchange, technology, blockchain, mobile banking, vaulting, postal system and marketing spheres. From launch the system will have extensive institutional and retail distribution, integration, liquidity and adoption.

Our liquidity, which will be provided by professional bullion market participants and others, will enable billions of dollars of value to efficiently enter and exit the market. Direct and indirect integrations will provide for immediate adoption into hundreds of millions of users."

My added comments: I believe the paragraphs posted just above are a major key for readers to watch for as this product rolls out during 2018. When I originally tried to cover this story back in the summer of 2017, I was aware that there was supposed to be significant institutional support behind this concept at its launch. For whatever reasons, that launch was aborted

Later the Allocated Bullion Exchange (ABX) released this news and this news that confirmed some of the information I had heard about back in the summer of 2017 (but did not publish since no public announcement was made at that time).

Now it appears that the ABX is ready to launch this new gold and silver backed cryptocurrency product during 2018 with a new partner called Kinesis. They plan an ICO (Initial Coin Offering) in mid 2018 which has a goal to raise $200 million in capital (see page 40 of the blueprint).

Based on the earlier news releases from the ABX cited above and the information on pages 5 and 20 of the Kinesis Blueprint document, I am assuming that Kinesis is saying that this product will launch with support from the Indonesian Post Office and with the support of an Islamic organization that claims to have 100 million members (refer to the chart on page 20 of the blueprint which says under "Kinesis Distribution Partners" -- "the largest Islamic organization in the world with 100 million members"). 

If this kind of support does indeed emerge as this product rolls out, then we will continue to follow this as a news item to cover for readers here. Obviously, that kind of support could impact the physical gold and silver markets.

Saturday, February 24, 2018

Latest News Bites on Central Bank Currencies

The idea of central banks moving towards issuing their own "central bank digital currencies" seemed to be gaining a lot of momentum for awhile, but lately the idea seems to have taken a back seat. Below are links to a few news articles on this that provide some insight on various central banks activities related to central bank digital currencies.


Bundesbank - Digital bank run a risk if central banks issue their own virtual currency

"The head of the Deutsche Bundesbank has warned of the risks to financial stability should central banks issue their own virtual currencies, including from a potential "digital bank run".

Click here to read the full article on

Reuters - Chinese Think Tank - Central Banks Should Consider Using Digital Currencies

"Central banks should consider using digital currencies in cross-border payments that could cut transaction time and costs, researchers at the Chinese Academy of Social Sciences (CASS), a top government think tank, said in a report."

Click here to read the full article on Reuters

Reuters - Swiss Bank Has No Plan for Digital Currency

Meanwhile, it is obvious that central banks and governments are still struggling with what to do about private virtual currencies (if anything). For now, they seem to mostly be interested in just issuing warnings and statements of concern:

Independent UK - ECB Wakes up to Digital Currency Concern - Polish Central Bank funds Youtube video to warn about digital currencies

And then we have some central banks trying to partner with digital currency:

Reuters - Saudia Arabia's central bank signs deal with Ripple

My added comments: I think readers can see from these articles that the idea that we are on the verge of some new global reserve currency that everyone will be using in place of the US dollar is simply not reality. We have been reporting here for some time that things seemed to be going in the opposite direction as these articles continue to show.

This is why we have put a mid 2018 deadline here on this blog for something significant to happen that would justify ongoing regular articles regarding the replacement of our current monetary system with some new version based on something that replaces the US dollar. 

Until there is actual evidence that something like that is really happening, it is simply misleading to report otherwise. We'll continue to monitor events and watch for any hint of change. But for now, there is simply no evidence to report that we are on the verge of some kind a major change in the global monetary system unless some kind of new major global financial crisis emerges to force the issue. We'll continue to watch for that as well, but at some point there is no sense in continuing to write regular articles about such an event with no evidence to suggest it is on the near term horizon (even though it could arise at any time).

The biggest events we know of to keep an eye on at this time are what happens with North Korea and if there were to be some kind of major and sharp decline in the US stock market alongside a sharp further drop in the US dollar. In his latest article, Jim Rickards says we should also keep an eye on Turkey. Those are the kinds of events to watch for and what we monitor here. 

The horrific US debt situation should be causing more concern than it does, but so far no one anywhere seems to care about it. Who knows when or if that will change any time soon. Our lawmakers in both political parties just doubled down on policies likely to explode the debt even higher, so they obviously are not concerned. And US debt keeps selling just fine, so why would anyone care?

Beyond that, the US Fed just proved over the last several years that it stands ready to create the money to buy trillions of US bonds should everyone else decide to opt out. Perhaps this is why our political leaders are no longer all that concerned how much debt they run up? The markets seem fine with trillions in new central bank money to keep things running over at Treasury if need be.

Wednesday, February 21, 2018

Petro-Yuan contracts expected to begin on March 26th

There has been a fair amount of what I call "internet buzz" on various media sources about an upcoming effort to get a "petro-yuan" oil trading contract going. The reaction to this ranges from a yawn from those who think this wil be a nonevent to those predicting this will herald in the fall of the so called "petro-dollar" world we live in now.

Below are some excerpts from an article in Vanguard that takes a look at the upcoming event.

"In the next four weeks the global international finance system would witness adjustments as the Chinese launch its oil futures contracts in its currency, the Yuan.

The  March 26, date fixed by the Chinese authorities would signal a prop up of the Yuan, its use as global currency, and probably put an end to the entrenched practice in paying for crude oil in United States dollar."  click here to read the full article in Vanguard

Added news note: Venezuela announces issuance of its new "petro" cryptocurrency and says it will follow that up with a new "petro-gold" token next week. Not sure what you actually own with either of these new currencies if you buy them which are supposedly backed by oil and gold. Here are the article links:

CNBC - Venezuelan oil backed cryptocurrency raises $735 million in one day

Zero Hedge - Petro is Born Today

Reuters - Venezuela aims to release "Petro-Gold" token

Also, a thank you to Dr. Leeanne Ussher for passing along a link to the white paper for the Venezuelan petro which you can review here:

And a thank you to reader Doug below for adding this news link in the comments section below:

"And now Iran is saying they may issue a cryptocurrency to avoid the economic sanctions."

Sunday, February 18, 2018

BIS Study on Stock Market Spillovers

This new study from the BIS has some technical jargon in it, but the main point is that what happens with the US stock market clearly does spill over into other world stock markets. Below are some excerpts.


Cross-stock market spillovers through variance risk premiums and equity flows



We first calculate the "variance risk premiums" (VRPs) that investors require for taking on stock market volatility risk in major advanced economies (AEs) and emerging market economies (EMEs) over 2007-15. We test whether the US and eurozone AEs' risk premiums affect those of other economies. We also examine the US premium's impact on equity fund flows to other economies.


To our knowledge, this is the first paper that uses a parametric model to estimate the VRP in EME stock markets. We decompose the VRP into a part that compensates for the risk of continuous price changes and one that compensates for the risk of discontinuous price changes. We then investigate the cross-market correlations of the three premiums. Moreover, we consider equity fund flows as a possible path through which such premiums spill over globally.


We find evidence of significant VRP spillovers from the United States and the eurozone AEs to other economies following the Global Financial Crisis of 2007-09. Also, increases in the size of the US premium significantly reduce equity fund flows to all other AEs and some EMEs during the same period.


We estimate variance risk premiums (VRPs) in the stock markets of major advanced economies (AEs) and emerging market economies (EMEs) over 2007-15 and decompose the VRP into variance-diffusive risk premium (DRP) and variance-jump risk premium (JRP). Daily VAR analysis reveals significant spillovers from the VRPs of the United States and eurozone's AEs to the VRPs of other economic areas, especially during the post-Global Financial Crisis (GFC) period. We also find that during the post-GFC period, shocks to the DRPs of the United States and the eurozone's AEs have relatively strong and long-lived positive effects on the VRPs of other economic areas whereas shocks to their JRPs have relatively weak and short-lived positive effects. In addition, we show that increases in the size of US VRP, DRP and JRP tend to significantly reduce weekly equity fund flows to all other AEs and some EMEs during the post-GFC period. Finally, US DRP plays a more important role than US JRP in the determination of equity fund flows to all other AEs and some EMEs after the GFC, while the opposite holds true for equity fund flows to all other AEs during the GFC. Such results indicate the possibility of equity fund flows working as a channel of cross-market VRP spillovers.

Thursday, February 15, 2018

WSJ - How Blockchain Can End Poverty

Former US Senator Phil Gramm co authors a recent article in the Wall Street Journal that argues that blockchain technology could it easier to record private property ownership and therefore promote financial inclusion. Below is an excerpt from the article.


"For a long time, Western economists failed to appreciate the relationship between private property rights and economic development. Karl Marx saw private property as the source of wealth and called for its elimination to promote equality. A century and a half later, we know that a country without a formal system for registering property rights limits its own economic development and prevents its citizens from realizing their full potential. It’s a simple yet startling fact: The road to economic development runs through the county clerk’s office at the local courthouse."

The great economic divide in the world today is between the 2.5 billion people who can register property rights and the five billion who are impoverished, in part because they can’t. Consider what happens without a formal system of property rights: Values are reduced for privately owned assets; wages are devalued for workers using these assets; owners are denied the ability to use their assets as collateral to obtain credit or as a credential to claim public services; and society loses the benefits that accrue when assets are employed for their highest and best purpose. The Institute for Liberty and Democracy, founded by Hernando de Soto in 1979, estimates that two-thirds of the world’s population lacks access to a formal system of property rights, resulting in undeveloped resources and assets worth an estimated $170 trillion, or 63% of the value of the assets of the U.S."   . . . . . .        click here to read the full article

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. de Soto is author of “The Mystery of Capital” and a former CEO of UEC, Switzerland’s largest consulting engineering firm.

Monday, February 12, 2018

BIS General Manager - Bitcoin is "a bubble, a ponzi scheme, and an environmental disaster"

The new General Manager of the Bank for International Settlements decided to take on the topic of Bitcoin and cryptocurrencies in general in this recent speech. He made it pretty clear where he stands. He describes Bitcoin as "a bubble, a ponzi scheme, and an environmental disaster". Below are some excerpts.


"Authorities must be prepared to act against the invasive spread of cryptocurrencies to protect consumers and investors, Bank for International Settlements (BIS) General Manager Agustín Carstens said.
In a lecture "Money in the digital age: what role for central banks?", Mr Carstens said that for money to keep its value, it must be backed by accountable institutions which enjoy public trust. Here, central banks are key.
"The meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust," Mr Carstens said in the lecture in Frankfurt, organised by Sustainable Architecture for Finance in Europe (SAFE), the Center for Financial Studies and the Deutsche Bundesbank. "Private digital tokens masquerading as currencies must not subvert this trust."
New technologies hold great promise, for example in making payment systems more efficient. But new currencies are not required for that promise to be realised. Authorities have a duty to make sure technological advances are not used to legitimise the profits from illegal activities, and to educate and protect investors and consumers, Mr Carstens said. They must also ensure cryptocurrencies do not become entrenched and pose a risk to financial stability.
"Novel technology is not the same as better technology or better economics," Mr Carstens said.
"That is clearly the case with Bitcoin: while perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster."
Large price swings, high transaction costs and a lack of consumer and investor protection make cryptocurrencies unsafe and unsuited to fill money's role as a shared means of payment, store of value and unit of account, he said.
Central banks and financial authorities should pay particular attention to the ties linking cryptocurrencies to real currencies, and ensure they do not become parasites on the institutional infrastructure of the wider financial system. To ensure a level playing field for all participants in financial markets, access to legitimate banking and payment services should be limited to those exchanges and products that meet accepted high standards, Mr Carstens said.
"This means 'same risk, same regulation'. And no exceptions allowed," he said."
Added note: The US tries to move forward with cryptocurrency regulation

Friday, February 9, 2018

China's Currency Nowhere Near Overtaking the US Dollar

We see a lot of talk about the Chinese Yuan taking the title of global reserve currency away from the US dollar. But this article explains the facts for now don't show that. It appears the process will be gradual if it ever happens at all. Below are some excerpts.

"China is on a drive to promote the use of its currency globally but the yuan is still far from upsetting the greenback, according to an important global metric.

Data released this week from Swift, the global interbank system that transfers trillions of dollars worth of currency daily, showed that just 1.61 percent of domestic and cross-border payments processed in December were denominated in yuan (also known as renminbi, or RMB.)

"The RMB has had a difficult year in 2017 and struggled to realize its potential for growth," Michael Moon, Swift's head of payments markets for Asia Pacific, said in a news release."   . . . . .    please click here to read the full article
Added note: Jim Rickards does this new interview (below) on Fox in which he says to expect more market problems due to exploding US debt. He also predicts Bitcoin will end up at $200 eventually.

Wednesday, February 7, 2018

Jim Rickards Renews Warning on Potential for Bubbles to Pop

In our recent article covering the sharp drop in the stock market, one of the scenarios we mentioned we should watch for is the view that central bank policies in recent years may have led to bubbles forming in various markets including the US stock market. 

In this new article Jim Rickards renews his warning on this potential scenario. Below are some excerpts from the article.


"Barely a week after it set another record high, the Dow just suffered its worst one-day loss in its entire history.

Warnings about an imminent collapse of developed economy stock markets, especially the U.S. markets, have been everywhere."

. . . . .

"Anyone can sound warnings about doom and gloom or stock market crashes. But those Cassandras are not worth listening to unless they offer facts and analysis to support their views. Opinions without something solid to back them up are just that — opinions. The warnings I pay most attention to are those from establishment insiders."

. . . . .

"William White is such an individual. He was former head of the OECD review board and former chief-economist for the BIS, the “central bankers central bank” based in Basel, Switzerland.

In a recent interview, White flatly declared, “All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten.”

You can’t get much more of a blinking red light than that."


My added comments: One thing I would add here is that if the worst case scenario on markets that Jim Rickards and others talk about does come to pass, you cannot ignore the highly charge political atmosphere that exists right now that would surround such an event. 

If we do get a major stock market (and bond market) selloff for any reason, the blame game is going to ramp up even higher with the stakes being very high. In such an environment, not only is it less likely that our leaders would come together to try and solve the problem, the infighting and dysfunction would more than likely make the problem worse. 

This is a situation that we will need to watch carefully during this highly charged political environment and election year.

Added news note 2-8-18 at market close: Looking at the chart below after the over 1,000 point drop in the Dow today, it looks like this market needs to hold at the 200 day moving average around 22,778. If that does not hold, we may have something significant going on here to keep an eye on.

Monday, February 5, 2018

Stockmarket Drop - Just a Correction or a Potential for Something Worse?

Obviously, the US stock market is now into a pretty sharp drop that has many people wondering what we are seeing. It is natural to wonder if this falling market is just a much needed "normal correction" for a market that has moved almost relentlessly higher for a long time now  OR  if we are seeing an end to the bull market and the start of a much more severe decline. 

If we are seeing the latter (the start of a much deeper decline), then we have to wonder if this could eventually lead to the "snowflake that triggers the avalanche" that Jim Rickards and others have been expecting for a long time now . Let's review some ideas on the situation.

First, we must quickly admit that there is no way we can know for sure what this stock market drop may mean longer term. When a drop like this begins after a market has gone up and up for a long time, the first pullback may just be part of a normal market correction (let's say 10%) before the market resumes moving higher or it really could be the end of a long term bull move and the start of a long term bear move. We won't even try to guess here what the answer to that question may be.

Instead, we will focus on things to watch for now that we do have a falling market. Let's examine a few possible scenarios:

1) Normal market correction - In this scenario the market might pull back 10% (or even a bit more) and then stabilize and start to move higher again. Those favoring this view would say that the US economy is improving and the recent tax cuts will add momentum in the coming year to help improve corporate earnings, spendable income, etc. 

2) Bubbles Bursting - In this scenario this market drop would be indicating that both the stock and bond markets have overshot to the high side based on the easy money policies (low interest rates and QE policies) of recent years. This view sees rising interest rates as the pin that might pop these "bubble markets". Janet Yellen recently added some credence to this view by saying markets are "high" in recent interviews as she departs the Fed. She adds she is not sure if the markets are in a bubble. Some will find some irony in her comments since they believe it is Fed policies that may have created or contributed to any bubble that exists in these markets. Even Minneapolis Fed President Neel KashKari says low interest rates from the Fed may help bubbles form in the addendum section of this article he wrote last year.  (see quote from the addendum just below):

"Could it be that such low rates make bubbles more likely to form and, if so, what should we do about it?" 

3) The Trump Factor - Here we branch into an alternative view on the situation. It is obvious that there is an ongoing battle/war between President Trump and some who are viewed as "the Washington establishment" who probably would prefer to see someone else occupy The White House. We have seen this battle seesaw back and forth all during the first term of President Trump. It must be noted that the President has now tied himself directly to the stock market by claiming that its big move higher over the past year is due (at least in part) to his pro business Administration and policies. He has attempted to use the stock market gains to acquire political capital which has worked well while the stock market is moving higher. So, what happens if the stock market has peaked and is headed into a long term bear market? Obviously, the political opponents of the President will attempt to use that against him in the same way he has attempted to use it in his favor. Those with a conspiratorial view may even suggest that there are forces within the so called "establishment" who would intentionally bring on a big stock market decline as part of this ongoing battle. (I see this kind of view is now appearing already in articles). Regardless of what causes it, a big stock market plunge leading into a major bear market will have political consequences so we must watch this carefully. If the markets were to fall into a deep crash, we then have the potential for the systemic instability "trigger" that Jim Rickards and others have long predicted.

What to do?

Here, we will encourage readers to do what we have always done in the past. Be diligent to monitor market events closely and watch for any signs that could indicate that true systemic risk is in play. Hopefully, that won't happen. But if it were to happen, readers should have a backup plan in mind as to what they would do if the entire system were to come under severe pressure for any reason. This should include an emergency fund and some idea how to deal with a disruption in normal banking transactions etc. If possible, it is a good idea for such a fund to include some precious metals available outside the banking system along with some cash. We view this as prudent behavior all the time, but especially when we see something like a sharply falling stock market in play.

Added notes: At 10 pm Monday 2-5-18, CNBC is reporting that market futures are pointing towards a rocky market open on Tuesday 2-6-18. They show US pre market futures prices here.

Something else to note: Usually when we see widespread market selling (including the crypto markets now), we also see a strong move into the US dollar. While the US dollar has had a minor bounce, so far we are not seeing much flight to safety to the dollar. Gold and silver have performed a bit better. This is something to keep an eye on during the course of this market event until things stabilize. If gold and silver continue to outperform, that might be significant information to pay attention to.

Update 3:30 pm 2-6-18: The market rebound put an end to the sharp down move for now. Obviously volatility is very high and we should continue to monitor events to see if this ends a correction or is just the start of a longer term downward projection for the stock market.

Saturday, February 3, 2018

Peterson Institute - China's Central Bank Backed Digital Currency

A thank you to Dr. Warren Coats for alerting me to this article on The Peterson Institute site. It says that the central bank in China is now ready to launch a central bank digital currency which would just be used as a replacement for cash. This would be the first major central bank to implement such a thing. Below are some excerpts.



"While the Chinese government views digital currencies it cannot control as a threat, it wants to capture some of their benefits by embracing the technology underlying bitcoin without relinquishing control. The PBOC has been exploring issuing its own digital currency since(link is external) at least 2014. Ramping up this exercise in 2017, the bank set up small scale experiments(link is external) with mock transactions between it and commercial banks. But on January 27 of this year, the PBOC went much further into this experiment than many people expected.

In an interview(link is external) with Yicai, one of China’s leading business news publishers, PBOC Vice Governor Fan Yifei made a groundbreaking announcement detailing the PBOC plan for issuing a digital currency. There will be little to no resemblance to cryptocurrencies like bitcoin. It will remain centrally controlled and aim primarily to replace cash, rather than compete with bank deposits and other financial products. In effect, the plan allows China’s government to use digital currencies to increase control. Cash is virtually untraceable and can be transacted with no records, but the digital version replacing it will have “controllable anonymity.” The plan has clearly made strides not only on the technical side but also in the arguably more difficult process of obtaining consensus in a cautious political system and buy-in of banks. The plan could have a powerful effect beyond China, as other central banks learn from China’s example and ponder their own plans to issue digital currencies.

Much of the PBOC announcement focuses on the limited scope of the proposal, surely meant to reassure banks that their traditional functions will not change and that they will have a strong role to play in the digital currency. The crux of the proposal is to replace only cash (in monetary economic parlance: M0) with the digital currency, not bank deposits (M1 or M2). In a traditional financial system, cash and reserves represent central bank money (direct claims on the central bank). Bank deposits, though they are denominated in the same unit (say renminbi) as central bank money, are actually liabilities of commercial banks. This is a public-private partnership, where the central bank permits commercial banks to create money in exchange for submitting to its regulation. Some speculation has focused on whether central bank–issued digital currencies would upend this longstanding tradition by allowing individuals to have an account directly at the central bank(link is external) rather than rely on commercial banks. The PBOC says this will not be the case in China, and that it will aim to “avoid disintermediation.” In fact, Vice Governor Fan makes the insightful argument that bank deposits are already digital, making it redundant to make then digital once more. Cash is what is not yet digital."

. . . . .

                                                Assessment : Bold yet cautious plan

"The proposal is a bold, if cautious step towards issuing a central bank–backed digital currency. There are many technical details to iron out, and keeping a system with so much monetary value secure will be of great concern. I expect that other central banks will follow the Chinese example, starting only with a digital substitute for cash that allows for institutional learning and experimentation without requiring a fundamental rethink of money and monetary policy. That said, the limited scope will surely not last forever if the pilot proves successful. The trade-off between privacy and control will be one of the great political battlegrounds of the coming decades, and these currency experiments are sure to raise the urgency of these debates. Central banks like China’s that have built up trust and credibility over decades or centuries have little use for “mining” or other systems that allow one to put trust in computer code instead of in centralized institutions. Characteristics of the plan show that political authorities will try to capture some of the benefits of digital currencies like bitcoin to marginally improve their existing monetary systems and control, while eschewing the decentralized, mostly trustless ledgers that made bitcoin truly innovative."

My added comments: Often I see articles on China that imply that China is about to issue a gold backed Yuan. However, this article which features actual PBOC plans, again illustrates that there is no indication that China plans anything like this anytime soon. Some have said that the PBOC will first implement a central bank digital currency and then later back that with gold. However, there is no mention of backing this central bank digital currency with gold by the PBOC. Instead, they talk in terms of a slow and cautious process of simply using it to replace physical cash.