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The earnings disappointments continue with CAT and 3M the latest to add to fears about "peak earnings" after 3M not only missed Q3 earnings but slashed its full year EPS guidance, while CAT warned about rising material and freight costs.
Starting with 3M, the multinational conglomerate reported 3Q EPS $2.58, which while a 10.7% increase Y/Y, missed estimates of 2.70 on net sales $8.15 billion, also missing estimates of $8.40 billion.
3M reported operating cash flow of $2.1 billion, of which almost all was repaid to shareholders, with $794 million paid in cash dividends to shareholders and $1.1 billion in stock repurchased in the quarter. On a geographic basis, core results were ok with sales growing 1.6% in Asia Pacific and 1.3% in the U.S.; however, total sales declined 3.9% in EMEA (Europe, Middle East and Africa) and 5.5 percent in Latin America/Canada.
The top-line was ugly: industrial net sales were $3.02 billion in the 3rd quarter, increasing 2.2% in local currency terms but down 2.1% after the foreign currency translation. Operating income was $667 million, a decrease of 0.7 percent year-on-year; operating margins were 22.1 percent.
The revenue pain continued:
- Healthcare revenues of $1.45 billion were even worse, down 2.8% in U.S. dollars.
- Electronics and energy sales were $1.4 billion, down 4.8% in U.S. dollars.
- Consumer sales were $1.2 billion, down 3.4% in U.S. dollars.
But the biggest disappointment was the company's guidance, which now sees full year adjusted EPS of $9.90 to $10.00, below the consensus est. $10.28, and down versus the prior expectation of $10.20 to $10.45. The cut reflects an estimated full-year earnings headwind of $0.05 per share from foreign currency versus a prior expectation of a benefit of $0.10 per share.
Separately, Caterpillar reported Q3 results which beat on adj EPS $2.86, vs the estimate $2.85 and revenue $13.5 billion, also above the estimate $13.31 billion.
But while earnings were strong, what traders were worried about was the company's warnings that “manufacturing costs were higher due to increased material and freight costs," adding that "Material costs were higher primarily due to increases in steel prices and tariffs."
Also hitting CAT stocks was the company 2018 EPS guidance, which while in line with the prior range of $11.00 to $12.00 adjusted, with the lower range of that forecast falling short of the $11.65 EPS estimated by analysts.
After earnings, CAT - which beat - is down 6% while 3M is tumbling over 7%...
... and the two key Dow members are dragging the Dow Jones even lower, with the industrial index now down over 400 points in the pre market.
Turkish President Erdogan's didn't quite deliver on his promise to reveal "the naked truth" in the killing of Saudi journalist Jamal Khashoggi during a speech on Tuesday before the Turkish parliament, though he did raise important questions while providing the most detailed public statement yet on the killing, which corroborated several anonymously sourced reports that surfaced in recent days.
Though it was conspicuously timed to overlap with the opening of Crown Prince Mohammad bin Salman's "Davos in the Desert," Erdogan's speech didn't include any previously unreported bombshell allegations, nor the "smoking gun" to connect the killing directly to MbS, Erdogan did assert that the "savage" killing had been pre-planned by the Saudi government, contradicting the Saudi government's official story that Khashoggi's death was the result of a botched interrogation, and that he died after a brief struggle...with 15 Saudi intelligence operatives, as the Financial Times pointed out. Though his statement was the most aggressive yet from the Turkish government, it notably stopped short of directly accusing the Saudi leadership of murder.
"We have significant signs that this was not something that happened instantaneously, spontaneously," Mr Erdogan said in speech to members of his parliamentary party. "Khashoggi was murdered in a ferocious manner."
Erdogan said the gathering of the 15 intelligence operatives in Istanbul was clearly no accident, and that the Turkish government wants to know "on whose orders" they were sent. While the Saudis had taken "an important step" in admitting to the killing, Erdogan said more details - such as the location of Khashoggi's remains - must be shared with Turkish investigators.
"People who had qualifications related to the incident gathered in Istanbul," he said. "On whose orders did they come . . .? We want an answer."
"Why has the body not been found?"
Erdogan also questioned why the Saudis had refused to open their consulate to Turkish investigators until days after Khashoggi's disappearance.
"Dear members, let me tell you that the Saudi authorities have taken an important step confirming the crime, the killing. Now we ask Saudi authorities to work hard to reveal the names of those involved from bottom to top."
As Bloomberg pointed out, hours before Erdogan’s speech, the Turkish newspaper Sabah, which is closely tied to the Turkish state, reported that Ahmad Abdullah al-Muzaini, the attaché of the Saudi Consulate in Istanbul, helped orchestrate the murder on the ground and was the main Saudi intelligence representative there. Meanwhile, Reuters reported Monday that a close confidant of MbS whom the newswire described as "the Saudi Steve Bannon" helped plan the killing and even spoke with Khashoggi via Skype before ordering that he be killed.
Watch the full video of Erdogan's speech below:
Yesterday morning, Morgan Stanley declared that the "dead cat bounce is over. One day later, the bank's thesis was confirmed with global markets a sea of red on Tuesday, as a violent rout in Asia carried over into Europe, slamming tech and industrial stocks, and crossing the Atlantic, sending US equity futures retesting the lowest level hit during the October 10/11 two-day rout.
An ugly start to European trading pushed world shares towards their lowest level in a year on Tuesday, as negative drivers from Saudi Arabia’s diplomatic isolation to worries about Italy’s finances, trade wars and a slew of ugly earnings piled on the pressure.
Selling escalated from Wall Street into a heavy selloff in Asia before hitting Europe, which was facing a fifth day of uninterrupted declines.
One day after relentless Chinese jawboning sent the Shanghai Composite surging 4.1%, its biggest gain in two years, Chinese stocks resumed their slide as traders overpowered Beijing much to the surprise of professional traders, especially after Beijing announced fresh measures to ease the funding strains of private companies, as top officials - including president Xi - sought to restore confidence in the world’s second-largest economy. The State Council announced it would support bond financing by private firms, and said the central bank will provide funding to facilitate this. It was not enough however, and the Shanghai Composite resumed its slide, dropping 2.3% overnight and reversing more than half of Monday's gain, while China's CSI300 tumbled 2.7%.
The sudden, sharp moves in Chinese stocks in either direction have made the Shanghai Composite the most volatile world index, as vol spiked to the highest level since March 2016.
Despite the return of China's rout, the yuan was little changed and stood near Monday’s 21-month low, trading at 6.9464 per dollar in the onshore market on expectations China will pursue looser monetary policy to cope with pressure from U.S. President Donald Trump on tariffs.
"This morning weaker stocks in Asia raised some eyebrows and overall sentiment is suffering from trade tensions, Italy to Brexit; a concoction of concerns," said ING strategist Benjamin Schroeder.
Asia’s overnight tumble gave back much of the ground the region had clawed back over the last two sessions with MSCI’s index of Asian shares dropping 2.1% to a one and a half year low and on the verge of a bear market...
... with declines in many of the region’s heavyweight markets even more pronounced. South Korea’s Kospi and Hong Kong’s Hang Seng both fell 3% and Japan’s Nikkei lost 2.7%.
“We’ve got a few negative factors when market sentiment was already fragile,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management. “And earnings from some Japanese companies were weaker than expected, with some starting to blame trade wars.” Hurting local stocks, the yen gained 0.5% amid the risk-off mood to 112.30 to the dollar.
Meanwhile, all major European indices were "drowning in a sea of red" as sentiment continued from Asia amid trade woes and growing concerns surrounding Saudi and the West. Indeed, Asia's weakness only added to Europe's ugly mood, with the European STOXX 600 index dropping to a two-year low with almost half of its stocks now in bear-market territory — down 20 percent from their peak.
The bloodbath has spared nobody: Germany’s DAX fell to late 2016 lows with Bayer one of the worst performers, dropping 8% after a U.S. court found the company liable for Monsanto weed killer Roundup’s link to cancer; London’s FTSE was down near April lows, and MSCI’s world share index was just two points of a one-year low.
Eurpope's rout was led by industrial and tech names as the tech sector index, SX8P dropped as much as 4.4%, hitting the lowest level since August 2017, led lower by AMS and Atos. Apple supplier AMS plunged as much as 32% after its margin outlook disappointed; Atos fell 24% after it also cut its outlook. The SX8P is down 18% from peak in June, getting close to bear territory; technical chart shows 50-DMA crossing below 200-DMA for first time since August 2016, triggering bearish “death cross” signal.
Other tech heavyweights also tumbled with ASML -4%, SAP -3%, Infineon -4.8% all dragged lower in sympathy. According to Bloomberg, the European tech sector now trades at 17.8x fwd earnings, down from 22.4x in June.
Also hit were European industrials with the Stoxx 600 Industrial Goods & Services index falling as much as 2.5%, touching the lowest level since Feb 2017 following a slew of warnings and disappointing results in the sector. Swedish defense company Saab (-14%) led the sector lower after posting weaker-than-expected 3Q earnings and announcing a rights issue, while Finnish power plant components manufacturer Wartsila fell 9.5% after 3Q results which disappointed on "several fronts." Swiss elevator maker Schindler dropped 8% after 3Q results which were a slight miss across the board, sparking more fears about earnings in 2019.
“Global financial markets continue to struggle to rally as various geopolitical concerns weigh on investor confidence,” Nick Twidale, chief operating officer at Rakuten Securities Australia, said in a note. “With the rest of the world looking much more pessimistic in the current environment,” markets were poised for “a firm correction,” he added.
And with both Asia and Europe crumbling, not even US equity futures, usually resilient to offshore turbulence, were able to stage a rebound, and tumbled 37 points, or 1.3%, retesting the lows from the October 10/11 two-day rout.
In FX, the euro also fell towards a two-month low and Italian bonds struggled before a European Commission meeting that could see Brussels take the unprecedented step of demanding changes to Italy’s recently laid out budget plans. That has bred some doubt about the European Central Bank raising interest rates next summer, leaving the euro at $1.1470.
“The prospect of a normalization of (ECB) monetary policy was the main reason why the euro was able to appreciate over the past year. However, there is a rising risk that this support is now going to crumble,” Commerzbank analyst Thu Lan Nguyen said.
The Bloomberg dollar index trimmed the overnight haven bid, which capped just shy of 2018 highs. The pound rose above $1.30, rebounding from an almost three-week low, as the threat of an imminent leadership challenge to U.K. Prime Minister Theresa May faded. Former Brexit minister Steve Baker dropped a parliamentary attempt to sabotage the withdrawal talks, and Conservative Party challengers judged they don’t have the numbers to overthrow May.
All that contributed to the risk-averse mood, with the safe-haven Japanese yen and Swiss franc strengthening while higher-yielding currencies like the Australian and New Zealand dollars fell. The worst performing Emerging Market currency was the Turkish lira which dropped more than 3%, leading declines among emerging-market currencies, after the leader of the nationalist MHP said he’d end a voting alliance with President Recep Tayyip Erdogan’s ruling AK Party at local elections scheduled for March 31.
In global rates markets, BTPs reversed early losses, bolstered by a press report that Italy hopes ECB will buy country’s debt if spreads get out of control. Bund/BTP spread broadly steady around 300bp.
U.S. growth data later in the week as well as earnings from companies including Amazon, Alphabet, Microsoft and Intel could be key to how far much further the drop will go. In the meantime, uncertainty over the death of a Saudi journalist, Italy’s budget and Brexit are among the factors weighing on sentiment.
Meanwhile, fears about diplomatic escalation with Saudi Arabia over the Khashoggi murder festered after Turkish President Erdogan said the information and evidence shows journalist Khashoggi was murdered savagely and was part of a planned operation, he added the Saudi King acknowledged the murder in a phone call. Riyadh faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns. U.S. President Donald Trump said on Monday he was not satisfied with what he had heard from Saudi Arabia about the killing, but expressed reluctance to punish the kingdom economically.
Investors worry that may lead to Saudi retaliation through crude oil, although a pledge by the Saudi energy minister to play a “responsible role” and keep markets supplied while not ruling out that Saudi output should be 1-2m b/d higher held down crude prices on Tuesday; as a result, WTI and Brent are both in the red with prices currently hovering under USD 68.50/bbl and USD 78.50/bbl respectively. Saudi Energy Minister Al Falih said the oil market is in a good place now and will continue to monitor the oil market, but supply and demand have their uncertainties. Al-Falih sees a lot of output decline in many regions and does not rule out that Saudi output is going to be 1-2mln BPD higher. He said that the nation will be able to produce 12mln bpd of oil in less than three months.
Gold is trading with gains in excess of 1% amid safe haven flows. Elsewhere, China’s alumina exports for September have increased by over 5 times to 165.8k tonnes compared to August. Separately, world refined copper market showed a 47k tonnes deficit in July vs. June’s deficit of 38k tonnes.
Verizon, McDonald’s, 3M and Texas Instruments are among companies reporting earnings. Richmond manufacturing survey is due.
- S&P 500 futures down 1.3% to 2,720.50
- STOXX Europe 600 down 1.3% to 355.20
- MXAP down 2.1% to 150.51
- MXAPJ down 2.1% to 475.27
- Nikkei down 2.7% to 22,010.78
- Topix down 2.6% to 1,650.72
- Hang Seng Index down 3.1% to 25,346.55
- Shanghai Composite down 2.3% to 2,594.82
- Sensex down 0.9% to 33,826.52
- Australia S&P/ASX 200 down 1.1% to 5,843.09
- Kospi down 2.6% to 2,106.10
- German 10Y yield fell 0.7 bps to 0.441%
- Euro up 0.04% to $1.1469
- Brent Futures down 1.2% to $78.89/bbl
- Italian 10Y yield rose 0.7 bps to 3.118%
- Spanish 10Y yield fell 2.2 bps to 1.674%
- Brent Futures down 1.2% to $78.89/bbl
- Gold spot up 1.2% to $1,236.25
- U.S. Dollar Index down 0.1% to 95.92
Top Overnight News from Bloomberg
- Erdogan said the murder of Saudi journalist Jamal Khashoggi in Istanbul was part of a planned operation as he tries to turn the death into a catalyst for changing the balance of power in Saudi Arabia and regaining influence across the Middle East
- Equities failed to get any reprieve after China announced fresh measures to ease the funding strains of private companies, as top officials seek to restore confidence in the world’s second- largest economy. The State Council announced it would support bond financing by private firms, and said the central bank will provide funding to facilitate this
- French Finance Minister Bruno Le Maire said euro-area limits on budget deficits must be respected and the Italian government has an interest in upholding the restrictions. The European Commission will likely decide Tuesday on whether to formally demand a member state to take back, revise and resubmit its budget, a step it has never taken before
- The Italian government hopes that the European Central Bank would purchase the country’s securities if the bond yield spread with German bunds gets out of control in the coming months, newspaper La Stampa reported, without saying where it obtained the information
- U.S. President Donald Trump’s surprise call to cut middle-income families’ taxes by 10% could mean top earners get a break, too. It’s still unclear how Trump will propose to reduce the tax burden on middle-class Americans, but one of the most straightforward ways would be to lower rates by 10% for single filers making up to $82,500
- A small group of British currency traders didn’t have the power to fix prices in a $5.1 trillion-a-day market where hundreds of competitors were battling to get the best price, a foreign-exchange expert told a U.S. jury considering criminal antitrust charges against the lot known as “The Cartel”
Asian equity markets were lower across the board following the uninspiring performance on Wall St where most major indices finished in the red amid underperformance in financials and in which the S&P 500 posted a 4th consecutive loss. ASX 200 (-1.05%) was dragged lower by weakness across the large industries including financials, energy and resources, while Nikkei 225 (-2.67%) slumped as Japanese exporters suffered the ill-effects of a firmer currency. Hang Seng (-3.08%) and Shanghai Comp. (-2.26%) conformed to the downbeat tone as buying in the mainland eased following the prior day’s over 4% rally, while US equity futures declined alongside their Asian peers with pressure exacerbated as the E-mini S&P broke below US session lows around the 2750.00 level. Finally, 10yr JGBs were quiet and only marginally benefitted from the downbeat risk tone, while the enhanced-liquidity auction for 10yr, 20yr and 30yr JGBs failed to spur any meaningful demand with the b/c unchanged from the prior.
Top Asian News
- Indonesia Holds Key Rate as Run of Hikes Helps Stabilize Rupiah
- China’s Central Bank to Offer More Funds for Private Companies
- Agarwal Says Trying to Combine Anglo, Hindustan Zinc Ops: CNBC
- J&J to Buy Rest of Japan Skin-Care Company Ci:z for $2 Billion
All major European indices are drowning in a sea of red as sentiment continues from Asia amid trade woes and growing concerns surrounding Saudi and the West; Germany's DAX (-2.1%) is lagging its peers, largely due to downside in Bayer (-8.0%) after a US judge affirmed a verdict in regards the weed-killer which was linked to cancer. Key sectors are broadly in the red, with IT (-3.8%) the lagging index, significantly weighed on by Atos (-22.4%) following a cut to their financial year growth guidance. Meanwhile, AMS (-27.0%) slumped amid earnings, with the likes of STMicroelectronics (-4.8%), Infeneon (-5.0%) and Wirecard (-5.8%) dragged lower in sympathy.
Top European News
- Car Stocks Fall as Renault Sales Miss Offsets Confirmed Guidance
- French Are Target of Widespread Spying by Chinese, Figaro Says
- BTPs Rise on Report That Italy Hopes ECB Will Buy Nation’s Debt
In FX, the Yen was the standout G10 outperformer on safe-haven grounds, with Usd/Jpy retreating further from Monday’s near 112.90 highs towards 112.25 where stops are anticipated down to 112.20 and Jpy crosses also trending lower again as big figure levels give way (like 129.00 vs the Eur and 80.00 vs the Aud). GBP - A sterling effort to avoid another leg-down and loss of a round number, as Cable rebounds firmly from sub-1.2950 lows to retest 1.3000 with the aid of reported model buying around 1.2985. However, the Pound remains precarious and prone to further Brexit-related pressure, as Eur/Gbp hovers above 0.8800 having broken above a couple of Mas yesterday. NZD - The Kiwi is also relatively resilient to broad risk aversion and hovering around 0.6650 vs its US counterpart, albeit partly on favourable cross-flows again as AUD/Nzd remains capped around 1.0800 and the Aud loses 0.7100 support alongside ongoing weakness in the Yuan. EM - The Lira has lost more of its recent recovery momentum on a mixture of factors including a move from the CBRT ahead of Thursday’s rate meeting to raise the RRR on Usd, renewed political uncertainty following the national party announcing that it will not continue its AK party allowance and a further deterioration in consumer confidence. Usd/Try just off near 5.8700 highs, but still significantly above lows circa 5.6670.
In commodities, WTI and Brent are both in the red with prices currently hovering under USD 68.50/bbl and USD 78.50/bbl respectively, this price dip comes as Saudi Arabia pledges to be responsible in energy markets removing some of the market’s risk sentiment ahead of the step-up in Iranian sanctions. Saudi Energy Minister Al Falih said the oil market is in a good place now and will continue to monitor the oil market, but supply and demand have their uncertainties. Al-Falih sees a lot of output decline in many regions and does not rule out that Saudi output is going to be 1-2mln BPD higher. He said that the nation will be able to produce 12mln bpd of oil in less than three months. Iran said they are not concerned about maintaining oil production. Iranian Oil Minister said the country's oil exports cannot be stopped and sanctions on Iran will keep the market volatile. Gold is trading with gains in excess of 1% amid safe haven flows due to political tensions between Saudi Arabia and Western countries. Elsewhere, China’s alumina exports for September have increased by over 5 times to 165.8k tonnes compared to August. Separately, world refined copper market showed a 47k tonnes deficit in July vs. June’s deficit of 38k tonnes.
Today, we get the October Richmond Fed manufacturing index. Away from data, BOE Governor Carney and Chief Economist Haldane, and the Fed's Kashkari and Evans will be speaking at different times. In addition, Caterpillar, Verizon, Texas Instruments, Lockheed Martin, United Technologies, and Harley Davidson will release their earnings.
US Event Calendar
- 9:30am: Fed’s Kashkari Speaks at Early Childhood Development Event
- 10:00am: Richmond Fed Manufact. Index, est. 24, prior 29
- 1:30pm: Fed’s Bostic Speaks on Economy and Monetary Policy
- 2:15pm: Fed’s Kaplan Speaks at Economic Development Event in Texas
- 8pm: Fed’s George Takes Part in Payment System Conference in Sydney
DB's Jim Reid concludes the overnight wrap
It was another disappointing day for markets after a bright start with China and Italy rallying hard. Italy as we’ll see later reversed these gains with China equity markets also selling off around 1.5% overnight (more also later). The S&P 500 closed -0.42% yesterday, its fourth consecutive daily loss and remarkably the 17th day of losses over the last 22 trading session (a month). This is the worst such stretch of losses since October 2000. I have to hat tip my colleague Quinn for this stat. Hopefully he’ll return the favour by sharing me in on his winning lottery ticket.
The DOW also fell in sympathy, dropping -0.50%, though tech had a positive session, with the NASDAQ and FANGs gaining +0.48% and +1.44%, respectively. An impressive out-performance. Banks underperformed sharply, dropping -2.55%. US HY credit sold-off, with the generic US HY CDS index rising +4bps to the highest level since December 2016. Note that the US cash HY index is only marginally wider YTD now but has risen over 40bps from recent tights. In Europe, the STOXX 600 fell -0.42%, with banks underperforming as well (-1.17%). Italian assets gave up strong initial gains with 10yr BTPs climbing 1bps after rallying nearly 20bps near the open as relief over Moody’s stable outlook from Friday night kicked in. That completed a 50bps rally (3.80% to 3.30%) in less than one full trading day from early Friday morning before the yesterday’s reversal. We eventually closed just below 3.50% last night.
The Italian government officially replied to the European Commission’s letter asking for clarification on several budget points. Finance Minister Tria said that he knows that Italy’s spending plans do not comply with EU rules, but that he wants "constructive" talks on the issue and that the government will stand ready to ensure its 2019 budget deficit doesn’t exceed its 2.4% target. Contrary to speculation in press on Friday, there were no indications that Italy might lower its headline deficit to a more fiscally-sustainable target of 2.1% of GDP. The EU may implement the never-before-used step of demanding revisions to the budget as soon as today. Contrary to last week, there were limited signs of contagion today, with Spanish spreads tightening -2.8bps, though the euro depreciated 0.43% versus the dollar. The greenback rallied to its strongest level in 2 months, gaining +0.33%, with gains coming against both developed and emerging market currencies.
This morning in Asia, the risk off sentiment from Wall Street has continued with the Nikkei (-2.26%), Hang Seng (-2.03%), Shanghai Comp (-1.37%) and Kospi (-2.40%) all lower along with most Asian markets. Elsewhere, futures on the S&P 500 (-0.89%) are pointing to a weak start. In the meantime, China’s state council yesterday announced that it would support bond financing by private firms and added that the PBOC will provide funding to facilitate this. The PBOC also announced a plan shortly after to support such issuance, without providing any details on how it would work, the size of the plan, or when it would begin.
So a lot of intervention in China at the moment.
Back to yesterday and the British Pound had its worst day in a month, dropping around -0.85% versus the dollar as Brexit negotiations continued and Prime Minister May faced down the conflicting flanks of her governing coalition. First, Steve Baker of the Eurosceptic European Research Group proposed an amendment that would have required the Northern Ireland Assembly to approve anything that would treat NI separate from the rest of the UK, making it more difficult for Prime Minister May to negotiate a backstop deal with the EU. Baker ultimately withdrew his amendment, avoiding a more direct confrontation within the Conservative party. Second, media outlets (Including Bloomberg) reported that a “centrist” MP is supporting a no-confidence vote in PM May, which might signal that a political crisis is more imminent than most people realize. Our strategists have held this view for weeks, and continue to think that the fundamental tension within the governing coalition is more significant than discounted in the market. Exemplifying this yesterday Ireland’s Foreign Minister Coveney said that any attempt by the UK to move away from the backstop arrangement "is not going to fly with Ireland or the EU as a whole." So the NI issue does not appear to be any closer to a solution.
Today’s most important event could be Turkey’s President Erdogan promise to unveil details of the Turkish investigation over the killing of Saudi Arabia’s journalist Khashoggi. So, one to keep an eye out on amidst rising geopolitical risks. Turkey has found itself as a huge power broker over this story so today’s announcement will be fascinating and has numerous sub plots and implications just as the ill fated Saudi investor conference starts. Separately, Saudi Energy Minister al-Falih downplayed the spillovers from geopolitical tensions into the oil markets, asserting that Saudi Arabia would increase production as planned and would not try to use oil prices as a weapon.
In other news, the German Bundesbank said in its monthly report that Germany’s growth may have stalled in the third quarter as carmakers struggled with a switch to new emissions testing. However, the report added, the “upswing in Germany is still fundamentally intact” and the “growth break shouldn’t be long-lasting.” This is consistent with our economists’ view, which sees the recent softness in hard data as transitory, though they note downside risks to the third quarter GDP print in a few weeks.
On the earnings front, US companies mostly missed expectations yesterday. Toy-maker Hasbro reported that sales fell in North America and that it was struggling to meet demand for its products. Halliburton, the energy services giant, reported slow activity growth in US fracking and lowered its fourth quarter guidance. Management cited bottlenecks in the Permian Basin and increasing pressure on firms to generate a profit rather than maximize production volumes. Finally, the household products manufacturer Kimberly-Clark (maker of Kleenex and other consumer products) cited high commodity prices and currency volatility for its disappointing earnings guidance. All three stocks traded lower and weighed on sentiment. On the economic data front, the only major release in the US was the Chicago National Activity Index, which printed at 0.17 versus expectations for 0.21. A positive value indicates an above-average rate of economic expansion.
Today, we get the Euro Area's October consumer confidence, Germany's September PPI, Spain's August trade balance and in the UK, October CBI Trends total orders, selling prices and business optimism. In the US, we get the October Richmond Fed manufacturing index. Away from data, BOE Governor Carney and Chief Economist Haldane, and the Fed's Kashkari and Evans will be speaking at different times. In addition, Caterpillar, Verizon, Texas Instruments, Lockheed Martin, United Technologies, and Harley Davidson will release their earnings.
An employee of billionaire investor George Soros discovered a bomb placed in a mailbox at Soros’s Westchester County home on Monday. The explosive device was later "protectively detonated" by an FBI bomb squad after the employee moved it to a wooded area.
According to the New York Times, federal and state law enforcement officials responded to the scene in Katonah, NY, a hamlet in in the town of Bedford in northern Westchester, after the Bedford Police Department received a call about a suspicious package at around 3:45 pm on Monday.
Soros wasn't home at the time.
"An employee of the residence opened the package, revealing what appeared to be an explosive device," the police said in a statement. "The employee placed the package in a wooded area and called the Bedford police."
Bedford is about 50 miles north of Manhattan and has been home to many well-to-do city transplants, including Martha Stewart, Glenn Close and Ralph Lauren. Katonah, where Mr. Soros has a home, is known for its cultural offerings, including the Caramoor Center for Music and the Arts and the Katonah Museum of Art.
The police said they had turned the case over to the FBI, which didn’t immediately respond to requests for comment by the NYT. The bureau’s New York office tweeted late on Monday that it’s investigating Soros's residence.
We are conducting an investigation at and around a residence in Bedford, NY. There is no threat to public safety, and we have no further comment at this time.— FBI New York (@NewYorkFBI) October 23, 2018
Soros, a hedge fund billionaire, became heavily involved with Democratic politics during the George W Bush administration, when he poured millions into the unsuccessful campaign of John Kerry. Through an $18 billion gift to his Open Society Foundations, Soros has stepped up giving to far-left groups, though he nominally claims to oppose the far left and support democracy.
Saudi Arabia's Future Investment Initiative kicked off on Tuesday despite reports that one of its most high-profile guests, Softbank's Masayoshi Son, has decided not to speak at the event (though he will reportedly still attend and hold meetings on the sidelines).
However, the event was overshadowed by remarks from Turkish President Recep Tayyip Erdogan, who shared details of the timeline of the killing, as Turkish investigators understand it. And as if to tease Erdogan's remarks, Reuters published a blockbuster report Monday night offering new details about the role of a (now former) Saudi intelligence official and MbS confidant, Saud al-Qahtani, in the killing of Saudi journalist Jamal Khashoggi. Al-Qahtani, who, according to several anonymous Saudi officials (a notable departure from the Turkish officials who have been the primary source of Western media leaks so far), presided over the interrogation and murder of Jamal Khashoggi via Skype, where he gave the order to the 15-man team assassination squad to dispose of Khashoggi, saying "bring me the head of the dog."
Despite al-Qahtani's years of loyal service to the Saudi ruling family, Crown Prince Mohammad bin Salman has left him to take the fall for the killing. Following reports of al-Qahtani's demotion, he changed his twitter biography recent days to exclude his former title of royal adviser to chairman of the Saudi Federation for Cybersecurity, Programming and Drones. A Saudi official said Qahtani had been detained after being fired, but he continued to tweet afterwards, suggesting that he was not under arrest, as some believed.
Even before the confrontation inside the Saudi consulate in Istanbul, al-Qahtani had been in regular contact with Khashoggi, whom al-Qahtani had urged in several phone calls to return to Riyadh after Khashoggi had started publishing columns critical of MbS in the Washington Post. Khashoggi took the calls, but told friend that he didn't trust al-Qahtani, believing that the intelligence chief would have him thrown in prison if Khashoggi were to return.
Qahtani had tried to reassure the former newspaper editor that he was still well respected and had offered the journalist a job as a consultant at the royal court, the friends said.
Khashoggi said that while he found Qahtani gentle and polite during those conversations, he did not trust him, one close friend told Reuters. "Jamal told me afterwards, ‘he thinks that I will go back so that he can throw me in jail?"
The second senior Saudi official confirmed that Qahtani had spoken to Khashoggi about returning home. The ambush in Istanbul seems to have been another way to get him home.
Some of Reuters sources protected MbS, claiming that it's possible that MbS wasn't aware of the killing, citing a standing order to "negotiate" with dissidents to return to the Kingdom. However, it is hard to imagine that the crown prince could have not known about such a high-profile operation.
Most of the 15 hit-man team identified by Turkish and Saudi authorities worked for the kingdom’s security and intelligence services, military, government ministries, royal court security and air force. One of them, General Maher Mutreb, a senior intelligence officer, who is part of the security team of Prince Mohammed, appeared in photographs with him on official visits earlier this year to the United States and Europe.
The high-ranking Arab official and the Turkish intelligence source said it was Mutreb’s phone that was used to dial in Qahtani while Khashoggi was being interrogated.
Al-Qahtani, who rose through the ranks of the Saudi intelligence service in what some have described as a spectacular rise, was also reportedly responsible for another high-profile interrogation that occurred last year: The detention of Lebanese Prime Minister Saad al-Hariri. The Saudis were reportedly dissatisfied with Hariri's inability to stand up to Iran and Hezbollah, and decided to try and force him to resign and install a more amendable leader. It was only the intervention of French President Emmanuel Macron that led to al-Hariri's release.
The Saudis lured Hariri to Riyadh for a meeting with MbS. Upon his arrival on Nov. 3, 2017, there was no line-up of Saudi princes or officials, as would typically greet a prime minister on an official visit. Hariri later received a call that the meeting with the crown prince would take place the next day at a royal compound.
When Hariri arrived, he was ushered into a room where Qahtani was waiting for him with a security team, according to three Arab sources familiar with the incident. The security team beat Hariri; Qahtani cursed at him and then forced him to resign as prime minister in a statement that was broadcast by a Saudi-owned TV channel.
"He (Qahtani) told him you have no choice but to resign and read this statement," said one of the sources. "Qahtani oversaw the interrogation and ill-treatment of Hariri."
Another source said it was the intervention of French President Emmanuel Macron that secured his release following an international outcry.
Macron claimed credit in May for ending the crisis, saying an unscheduled stopover in Riyadh to convince MbS, followed by an invitation to Hariri to come to France, had been the catalyst to resolving it. Lebanese officials confirmed to Reuters that Macron’s quick intervention secured Hariri’s return.
As Reuters pointed out, Qahtani, 40, has earned a reputation in Saudi as a violent enforcer for the royal family, and also as a vocal nationalist who, in blogs and on social media, relentlessly pushes the family's line. Some have even described him as the Saudi Steve Bannon. And looking ahead, the international community will be watching to see whether al-Qahtani remains frozen out, or whether MbS moves to reinstate him when the prince thinks the international media attention has largely died down.
The other day I wrote a piece “When will chasing the hot stock no longer work?” which outlined how “price momentum” was the main driving factor during the recent stock market rally. I went through how value stocks have been sucking wind ever since the Great Financial Crisis.
The article got a lot of feedback, but there was one email that I wanted to share. It comes from Andy Mayer - Albion Green founder - a financial markets trainer, lecturer, consultant, and just all-around-good-guy. He sent me an interaction he had with one of his students:
This brought to mind a conversation I had with an undergrad finance student last month. At a course presentation, students were comparing various stocks using a few standard valuations, and this student was recommended to buy the stocks with high PE. Myself and the other trainers told him that we compare valuations to find under-valued stocks, not to buy over-valued ones. But he was not swayed, he was firmly of the opinion that good and growing companies have high PEs and companies that are badly run have low PEs. Finally the debate was settled when he said - look, there is real empirical evidence that buying high PE stocks and selling low PE stocks is a winning strategy. And over the past few years he was right of course!
This is the way that young people in the markets think these days - they have been trained by the market to think totally differently to the old school, and until value starts doing well, they will be the ones making money.
Ahhh... Millennials... You gotta luv ‘em. Fully convinced they know better, but making the exact same mistakes every other generation has made.
Now don’t take my chiding as a belief we are somehow better. My generation had the “DotCon” bubble. There were plenty of stock-market-wunderkids who were “experts” at picking stocks for the “new economy.”
Heck, we even took one of these knobs and elevated to him to mythical status after he made this speech:
You want winners? You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.
OK. Here goes. Write them down – no handouts here!: 724 Solutions ( SVNX), Ariba ( ARBA), Digital Island ( ISLD), Exodus ( EXDS), InfoSpace.com ( INSP), Inktomi ( INKT), Mercury Interactive ( MERQ), Sonera ( SNRA), VeriSign ( VRSN) and Veritas Software ( VRTS).
We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over – and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don’t even have earnings per share, so we won’t have to be constrained by that methodology for quarters to come.
The date for Jim Cramer’s keynote speech? February 29th, 2000.
Now we all have some bad calls, so I shouldn’t be too harsh on Cramer, or the current batch of millennials embracing growth stocks. After all, if you had started your investing career in 2010, you probably would also think that “growth only goes up” and that “value is at best, dead money.”
As I was thinking about this post, I was reminded of a story about a famous trader in Jack Schwager’s second book, The New Market Wizards. Randy McKay is probably one of the least known figures from Jack’s books, and deserves way more attention. So many of his stories are timeless classics that any young trader would be wise to study religiously.
Randy’s foray into stock trading was no exception. From The New Market Wizards:
In 1982, I began to notice on the evening news that the Dow was up almost every day. I started getting very strong bullish feelings about the stock market. This was the first time I had ever had any market feel based on something other than watching futures. I was reluctant to start picking stocks, because that was someone else’s game.
I opened an account with a friend of mine who was a stockbroker, instructing him to buy a cross section of stocks because I felt the market in general was going higher. At the time, I didn’t know that his method of picking stocks was exactly opposite to my approach in the futures market. His theory was to buy the weakest stocks on the premise that they could go up the most. Well, that certainly wasn’t my theory. He ended up buying me only three stocks, his favorites, which he had been in love with for the past ten years; After watching the Dow go up for about three months while my account went down at the same time, I asked him to send me charts on the stocks I owned. I discovered that he was steering me into stocks that were near their lows, while my natural inclination was to buy stocks that were moving higher. I decided the arrangement wasn’t working out, and I closed the account.
I pulled out the phone book and found that there was a Merrill Lynch office nearby at the comer of Michigan and Wacker [in Chicago]. One summer afternoon after the market had closed, I walked over to the bank and withdrew a cashier’s check for $1 million. I then went to the Merrill Lynch office, walked through the door and asked, “Who’s in charge here?” The branch manager came over, and I told him, “I want to talk to your least experienced broker.” That’s the honest truth. I wanted somebody without any opinions.
He turned me over to a broker who was about twenty-three years old. I put the check down in front of him and said, “I want to open an account, and here’s what I want you to do. I want you to start out by investing three-quarters of this money in a wide variety of stocks, all of which are at or near all-time highs. After that, each week, I want you to send me a list of stocks broken down by market sector ranking the stocks in each sector by how close they are to their all-time highs.
He followed my instructions exactly, and I did very well in that account. However, that same year, the Chicago Mercantile Exchange began trading the S&P 500 futures contract, which solved my problems on how to trade the general stock market. I thanked my broker for his efforts, closed the account, and switched into buying S&P futures. I felt bad about closing the account because he had done exactly what I had wanted him to do. He broke the market down into different sectors and bought the strongest stock in each sector.
What I love about this story was Randy’s ability to understand that in a bull market, you don’t want to own the laggards. You want to own the stuff that’s rising.
And that’s the lesson that all these millennials have embraced whole-heartedly over the past bull market. All of us old-timers that remember 2008, or even 1998, were scarred with the realization that the current darling-go-to stocks can go down just as fast as they went up. Millennials have no such nightmares. They only know Facebook, Google, Amazon and whatever crazy-over-priced-growth-stock-they-have-recently-discovered chugging higher. Dips were only buying opportunities to add to their position.
During the past year, one by one, other world stock markets have sagged and dipped into negative territory. Yet American growth stocks were impervious to this fact. They kept rising. Then recently, certain sectors of the U.S. market started showing some weakness. All this time, the millennials were there with their stacks of blue tickets - keeping growth bid.
But something has changed during this last sell off. It’s no longer such a clear dip buying opportunity. And most importantly, growth is no longer leading the way higher.
There is a famous saying about being young and your political views. It goes something like this:
If you are young and aren’t liberal, you have no heart. If you are old and aren’t conservative, you have no brain.
I feel like we should change that to:
If you are young and don’t believe in growth stocks, you have no vision. If you are old and aren’t buying value stocks after a decade of massive underperformance, you probably had a head injury as a child.
There is nothing new under the sun, and this overstaying in growth is a mistake every generation makes. I am by no means picking on the millennials, after all, my generation somehow thought this video was cool…
(Seriously, if you were born between 1965 and 1975, don’t watch this video. It will instantly become apparent how bad our youth was for fashion and will forever ruin your pleasantly distorted memories.)
Italy, on the Euro, has a currency that is 9% too high. Germany, on the Euro, has a currency that is 11% too low.
There was much discussion last week about the US Treasury report that determined China was not a currency manipulator.
However, there are six countries on the manipulation watch list: China, Japan, Korea, India, Germany, and Switzerland.
Japan, Germany, and Korea have met two of the three criteria in every Report since the April 2016 Report having material current account surpluses combined with significant bilateral trade surpluses with the United States.
Germany has the world’s largest current account surplus in nominal dollar terms, $329 billion over the four quarters through June 2018, which represented its highest nominal level on record. Germany also maintains a sizable bilateral goods trade surplus with the United States, at $67 billion over the four quarters through June 2018. There has been essentially no progress in reducing either the massive current account surplus or the large bilateral trade imbalance with the United States in recent years, in part because domestic demand in Germany has not been sufficiently strong to facilitate external rebalancing and because Germany’s low inflation rate has contributed to a weak real effective exchange rate.
Try Fixing This
The Euro is 11% undervalued in Germany, the largest Eurozone economy.
The Euro is 9% overvalued in Italy, the third largest Eurozone economy.
The normal way central banks make adjustments to fix over-valued or undervalued situation is through interest rate policy or direct currency intervention.
No matter which the ECB does, it will impact Italy and Germany in opposite directions.
Meanwhile, interest rates are on the verge of spiraling out of control in Italy.
Italy vs Germany 10-Year Bond Spread
Theory vs Practice
In theory, German, Italian, and Greek 10-year bonds should all have the same yield. In practice, they clearly don't.
The spread between German 10-year and Italian 10-year bonds is 330 basis points (3.3 percentage points).
The difference is perceived default risk. The odds of Italy leaving the Eurozone are rising.
On September 28, Italy's proposed budget deficit of 2.4% sent bond yields soaring. And they haven't stopped.
Today, ECB president Mario Draghi warned "Undermining EU budget rules carries high price for all" and yields surged again.
For discussion, please see Italy Bond Yields Surge In Confrontation with ECB President Mario Draghi.
Sudden Stop of Capital
Italian bonds are just two steps above Junk.
Again, this should not happen "in theory". All Eurozone sovereign debt should have similar ratings.
Practice is another matter, as Goldman Sees Italy Junk Risk Leading to ‘Sudden Stop’ of Capital.
Capital Flight Underway
Capital flight is already underway. Proof can be found in Target2 Imbalances.
Italian Money Heads to Switzerland
With the euro weakening against the Swiss franc and Italian stocks and bonds tumbling once again on reports that the European Commission is planning to reject the Italian draft budget plan submitted earlier this week - a repudiation of Italy's populist leaders that was widely anticipated - the Telegraph's Ambrose Evans-Pritchard offered a glimpse into how middle-class Italians are reacting to the deteriorating relationship between Italy and the EU, and its attendant impact on the country's banks and capital markets.
In a trend that's eerily reminiscent of the banking run that precipitated the near-collapse of the Greek banking system (most recently in 2015), Italians are scrambling to convert their euros into Swiss francs and stash them across the country's northern border with Switzerland.
Big Players Already Out
The Swiss group Albacore Wealth Management told Italy's Il Sole had received a wave of inquiries from Italians with €5m to €10m in liquid capital. The super-rich are already a step ahead. "The big fish have been organizing the expatriation of their wealth for some time," it said.
"There is fear creeping in," said Massimo Gionso, head of family wealth managers CFO Sim in Milan.
"People are concerned that if we get into the same situation as Greece, they might find the banks are closed and they can take out only €50 a day from cash machines. They don’t want to risk it," he told the Daily Telegraph.
"These are families with savings of €200,000 or €300,000. They want to set up accounts in Lugano or Chiasso across the border in Ticino where everybody speaks Italian. The big players have already got their money out," he said.
How Much Money Is Leaving?
Italy July Target2 : -471.1 Billion Euros
Italy August Target2: -492.5 Billion Euros
Between July and August, Italy's Target2 imbalance rose by 21.4 billion euros. That was before these budget concerns became apparent.
Fatally Flawed Setup
The ECB's interest rate policy, was fatally flawed from inception.
Target2 is a failed construct
German productivity vs peripheral Eurozone productivity is yet another issue.
EU policies take all 27 nations to agree, or nothing gets done. So the broader EU is fatally flawed as well.
These flaws were generally recognized actually. So were problems with Greece. Yet, they welcomed Greece with open arms.
The global economy is slowing, Trump's trade polices are wreaking havoc and Brexit is going to damage trade ralations as well.
We have had a 10-year recovery, yet the ECB is still expanding its balance sheet. The ECB is supposedly going to cease those asset purchases in 2019.
Good luck with that.
Who will buy Italian bonds, and at what price? And what about the Italian bond inevitable downgrade to junk?
Good luck with that, too.
Word of Advice
If you have money in Italian banks, get it out now, while you can. Capital controls are coming and Italy is increasingly likely to leave the Eurozone entirely.
"Paid protesters are real," writes the Los Angeles Times, after a lawsuit filed by a Czech investor against a business rival spotlighted the seedy, and very real business of people hired to express fake outrage, support, and everything in between.
According to a lawsuit filed by investor Zdenek Bakala, Prague-based investment manager Pavol Krupa hired Beverly hills company Crowds on Demand (COD) to stage a protest near Bakala's home in Hilton Head, SC.
In the Bakala case, Crowds on Demand is accused of spreading misinformation through a website, putting on protests and organizing a phone and email campaign targeting several U.S. institutions with ties to Bakala, who got an MBA from Dartmouth’s Tuck School of Business and had an estimated net worth topping $1 billion earlier this decade, according to Forbes. -LA Times
Crowds on Demand provides pop-up "protests, rallies, flash mobs, paparazzi events and other inventive PR stunts," according to its website.
The dispute between Bakala and Krupa goes back for several years, and has been the subject of inquiries by the European Commission and the Czech government, involving a formerly state-owned coal mining business, OKD, which Bakala assumed control of in 2004. Bakala has been accused of bribing officials to buy the government's equity in the mining company at a below-market price, which broke a promise to sell company-owned apartments to employees before the company ultimately filed for bankruptcy in 2016.
According to Bakala, the COD smear campaign didn't stop there, claiming that the company also called and sent emails to the Aspen Institute and Dartmouth College, where Bakala sits on advisory boards, urging them to cut ties with him. Bakala claims that Krupa threatened to ramp up the COD campaign unless the Czech investor coughs up $23 million.
Bakala, who holds U.S. and Czech citizenship, says in his lawsuit that all of those allegations are false and are part of Krupa’s extortion campaign. He alleges that Krupa offered to cease his campaign if Bakala paid $23 million for OKD shares owned by Krupa’s investment fund.
Crowds on Demand founder Adam Swart and Krupa neither confirmed nor denied that they are working together. They declined to answer specific questions about Bakala’s allegations, though Swart, in an emailed statement, called the claims meritless.
"Defendants are pursuing a campaign of harassment, defamation, and interference in the business affairs of Zdenek Bakala, which they have expressly vowed to expand unless he pays them millions of dollars," reads Bakala's lawsuit (see below).
That said, it's not clear that Krupa's alleged campaign had the desired effect.
Elliot Gerson, an executive vice president at the Aspen Institute, said in an emailed statement that the institute has received calls and emails from “individuals associated with Crowds on Demand” and that the nonprofit’s general counsel has spoken with Swart “about this campaign of harassment.”
“From the beginning, we assumed that these manufactured communications were linked to political issues in the Czech Republic and Mr. Bakala’s high profile in that country,” Gerson said. “Nothing we received has altered our views about Mr. Bakala.” -LA Times
So paid protesters are a thing...
Bakala's lawsuit brings to light an ongoing debate in the national dialogue over paid protesters. President Trump, for example, has repeatedly claimed that protesters have been paid by left-wing billionaire activist George Soros and others in order to disrupt and undermine conservative events.
"There are hundreds of lobbying firms and public affairs firms that do this work, though not all in the same way," said USLA sociology professor Edward Walker - who wrote a book on the business of paid protesting, also known as Astroturfing. "Some only do a little bit of this grass-roots-for-hire, but things adjacent to this are not uncommon today."
In 2014, ABC's "Nightline" reported that a group backed by the beverage industry was hiring people to protest a soda tax measure - posting ads on Craigslist for paid protesters at $13 an hour.
During the confirmation hearings for Supreme Court Justice Brett Kavanaugh, many noted what appeared to be a man, Vinay Krishnan - who works for progressive activist organization Center for Popular Democracy, paying a woman named Vickie Lampron who was later seen in the Kavanaugh hearing.
Krishnan said that the money was given to people to pay fines in case they were arrested.
As the Times notes, paid protesters aren't a recent phenomenon.
Longtime California political consultant Garry South, who was a campaign strategist for California Gov. Gray Davis, said it’s long been common for campaigns and political parties to pay people a few bucks or perhaps provide a meal in exchange for attending a rally. He recalled a 2002 rally in San Francisco where he said that tactic was used.
“It turns out, the San Francisco Democratic Party, to bolster the crowd, had basically gone down to skid row and paid people $5 or something to tromp up to Union Square,” South said.
But he sees a big difference between that kind of activity and the paid protests allegedly organized by Crowds on Demand.
“What’s different is the commercialization of the process,” he said. “It just contributes to the air of unreality that exists in this day and age with essentially not being able to believe your own eyes or ears. I don’t think it’s particularly healthy. But it probably inevitably was going to come to this.” -LA Times
Crowds on Demand, meanwhile, shamelessly boasts on their website that they were hired by a business rival to "cripple the operations" of a manufacturing business owned by a convicted child molester, which resulted in the hiring company buying the molester-owned business for "5 percent of its previous value."
In another "case study," COD brags about staging a rally to support an unidentified foreign leader who was visiting the United Nations.
"The concern was ensuring that the leader was well received by a U.S. audience and confident for his work at the U.N. We created demonstrations of support with diverse crowds.," says COD.
"A lot of times, companies don’t want to be known for using this kind of strategy,” Walker said. “Crowds on Demand, they’re more out about it. ... It is strikingly brazen."
Aside from Saudi Arabia, the other long forgotten about Middle East autocratic ally of the United States known for arresting journalists, authors and activists is President Abdel Fattah al-Sisi's Egypt.
On Sunday Reuters reported that police arrested author Abdul Khalik Farouk for a writing book criticizing the government's handling of the economy. Egyptian authorities further seized copies of the book, “Is Egypt Really a Poor Country?” from the publisher, which analyzed various economic and social crises afflicting Egypt.
This comes as in a separate case an American citizen was recently sentenced to 15 years in prison on political charges of "attempting to overthrow the government" — though unlike the (now freed) Pastor Andrew Brunson case, it is receiving almost no media attention whatsoever.
Per Reuters, Farouk is currently being detained on "charges of publishing false news, security sources and the author’s wife said" — upon orders of the public prosecutor — for authoring the book which analyzed the Egyptian economy. He was taken from his home in a Cairo suburb on Sunday by police officers who confirmed he was being arrested precisely for writing the book.
Since President Sisi came to power in 2014 after rising to power as the youngest member of the Supreme Council of the Armed Forces, a military junta that temporarily ruled Egypt after former President Hosni Mubarak was forced to to step down amidst a wave of so-called "Arab Spring" protest in 2011, he's arrested thousands in what's seen as a broad crackdown on political dissent.
Human rights groups say that Sisi is attempting to muzzle all dissent and freedom of speech while the authorities have cited the necessity of fighting terrorism and stopping outlawed groups like the Muslim Brotherhood from "spreading of false information". The Egyptian military and police have also faced accusations of torture by human rights monitoring groups.
Meanwhile, it what appears a close parallel to Turkey's two year detention of the now released Pastor Andrew Brunson, Egypt has actually held an American for five years in prison on politically related charges. 53-year-old Moustafa Kassem, who worked as a cab driver in New York, was swept up in mass arrests in 2013 related to the protests and violence that accompanied the Sisi government's rise to power.
Kassem was finally in court in September, where he was sentenced to 15 years in prison on charges of attempting to overthrow the government in a mass trial of 700 defendants. Similar to Brunson, Kassem's case constitutes an American citizen being held as a political prisoner.
Vermont Sen. Patrick Leahy, the top Democrat on the Appropriations Committee, has vowed to withhold up $105 million in US military aid to Egypt until Cairo shows progress toward releasing the Egyptian-American.
According to a report in Al-Monitor:
Leahy’s office previously told Al-Monitor that the senator was withholding Egypt aid until Cairo fulfills a variety of human rights conditions. These include paying for medical treatment for an American citizen wounded in an Egyptian military attack, giving prisoners fair trial rights and overturning the 2013 convictions of NGO workers. Kassem’s case is now part of that hold. The aid is part of an annual $1.3 billion military aid package.
Interestingly, the Al-Monitor report makes the case that Kassem's plight is very similar to that of Brunson's — though the latter has been largely ignored in American press and among leading politicians.
Kassem’s lawyer, Praveen Madhiraju, told Al-Monitor, “For many, many months, this was soft-pedaled in various arms of the US government.” He added, “If you look at the Andrew Brunson case, that was an all-hands-on-deck case. I don’t know why Moustafa’s case should be any different.”
Indeed, the case of Jamal Khashoggi, murdered by a Saudi hit team and the kingdom's Istanbul consulate, could serve to shine a spotlight on other US allies in the region long known for cracking down on press freedoms. However, without the corresponding media pressure, Washington's military relationship with Egypt and others will give it every excuse to keep looking the other way.
“Here’s where we hold ’em by the nose, and kick ’em in the ass”
If you ever want to know who’s losing an argument simply look at who’s doing the most threatening.
Not who’s shouting the loudest or who’s the angriest, but who is threatening.
Those who threaten are doing so because they feel their power is, itself, under attack.
It doesn’t matter if it is an argument with your kids or a big, geopolitical disagreement, as I always say, he who goes nuclear is losing.
Now, you might think I’m talking about the U.S. and President Trump’s incessant financial bullying of allies and enemies alike. I am somewhat, but not primarily.
Because as important as Trump’s mad flailing to try and remake the U.S.’s trade position around the world is, it pales in comparison to the acute crisis brewing in Europe.
Yes, Europe is more important. Why?
Because the EU just went nuclear on Italy.
Former Dutch Minister of Finance and former President of the Eurogroup, Jeroen Dijsselbloem, went on CNBC on Friday to declare all-out financial war on Italy.
That’s the way Zerohedge put it.
As a ‘former’ big wig it was his job to go out and state the position of those currently in power who can safely hide behind his words.
And if you watch the clip from CNBC in the linked article you’ll note that CNBC excised the most important quotes, where Dijsselbloem threatened the Italians that no exit from the euro is on the table.
But, why would he say this when Italy hasn’t brought it up at all?
In fact, Italy’s leadership has been nothing but supportive of the European Project while standing firm on it adopting fairer rules for member countries.
The response from Italy was calm and direct, not hyperbolic. They would not violate their budget deficit targets and are trying to work with the European Commission on this.
Ignore the reality that Italy can’t grow their way out of this without shaving the scalps of bondholders and issuing its own currency. Italy’s calm demeanor is what is important.
Dijsselbloem is lying when he says that most of the Italian debt is domestically owned. A large portion of it is.
But, tell me again, Jeroen, what is that $1+ trillion TARGET 2 balance on the ECB’s books?
A lot of it is Italian debt.
Seeing marginal improvement in Italy’s 42% Non-Performing Loan portfolio after seven years of enforced austerity is not an endorsement of the policy but an indictment.
It’s a real liability which ECB President Mario Draghi says Italy must re-pay before it can leave the euro.
Of course Draghi is acting like a loan shark, continuing to backstop purchases of Italian debt under TARGET 2 and then telling the debtor, Italy, it needs to pay up.
The bigger these TARGET 2 imbalances get the more leverage Italy has in these budget negotiations. Because no one is buying that the European banking system is not exposed to horrific losses if Italy defaults.
And while Dijsselbloem would have no problem bailing-in Italian depositors and ruining the Italian banking system I don’t think he realizes just what the secondary and tertiary effects of that action would be.
Why would anyone ever invest in a European bank that can be seized and sold leaving the investors to suffer 100% losses all because the technocrats in Brussels refuse to give up one iota of power?
That’s what he’s saying in the video, though.
So, note Italy’s response. Calm, assertive.
“We will do what is right for Italy and reform the EU.”
“We chose to start the process before it became a crisis. Now you are threatening us with one.”
This is an astute political move which has moved Italian voters firmly on their government’s side. Strategically this was always their best move.
The latest polls have more than 56% of Italians would leave the EU if an Italeave referendum were held today.
Brexit never polled that well.
As always, the heavy-handed Djisselbloem has his thumb on the pulse of the EU’s problems, opening his mouth and making things worse, just like he did with Greece.
In Greek negotiations, the EU was calm. It told Greece over and over, “No.” Greece threatened the nuclear option, leaving the euro and its bluff was called.
So, Dijesselbloem’s warning is just like Greece’s threats and they are going nuclear on Italy.
They have to. The EU has zero leverage over Italy.
The so-called populists in charge in Italy know exactly what they are doing. They are killing the EU with kindness. Five Star Movement leader Luigi Di Maio reiterated over the weekend that there is “no Plan B” for leaving the EU.
The goal is to reform it from within.
That’s a talking point from the campaign they needed to cultivate a “Good Cop” to Matteo Salvini’s “Bad Cop” that talks openly about the euro being a monstrosity and “a crime against humanity.”
Italian polls have Salvini’s League more popular now than Di Maio’s Five Star. They are becoming more radicalized. The more Salvini lobs rhetorical grenades at Brussels, the more popular he becomes.
Together they command more than 60% of Italians. Syriza, in Greece, never had more than 30%. And no more than 30% of Greeks ever backed leaving the euro.
Trump went nuclear on Kim Jong-un before Kim lit off a couple of nukes himself to prove his point. Then he went to the Seoul Olympics and ended the war of words. Peace is breaking out on the Korean peninsula and the U.S. cannot stop it now, though many want to.
Dijesselbloem just told Salvini and Di Maio the EU has no truly has no Plan B.
You can bet that the Italians actually do.
* * *
Join my Patreon because I will never go nuclear.
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Elite Forex Blog - Market Research & Analysis
The three former traders told jurors that, at the urging of the defendants, they altered the rate or pressured others to submit false data to benefit trading positions held by Connolly and Black. Parietti said Connolly ordered him to disclose positions to the submitters in London because Connolly believed his team was being undermined by others at the bank who were rigging the rate in their favor.The defense argued that there were no clear guidelines on how banks should submit their rates for the calculation of Libor until at least 2008, and that they weren’t expressly forbidden from taking derivative trading positions into account when making the submission until 2013.During cross-examination, attorneys for Connolly and Black attempted to portray the government’s witnesses as liars who initially defended their practices to investigators and changed their stories only in exchange for a deal with prosecutors.
Good Friday claims a sacred spot on the Maltese calendar, and this year the holiday was casting its reliable spell. In the late afternoon, hundreds of people streamed from Baroque cathedrals outside the capital city of Valletta, forming slow parades through steep and narrow streets. Men in biblical robes lugged crosses, children clutched bright flowers, and small brass bands marched behind with raised trumpets and inflated cheeks. A breeze wrinkled the Mediterranean, and the sun slipped to a flattering angle, encasing all that charm in amber.
At the same time, the nation’s top-rated prime-time television show was wrapping up a special daytime broadcast: an annual telethon to raise money for children receiving cancer treatments abroad. In the bottom-left corner of the screen, a digital counter tallied the donations. When the number finally hit €1.26 million ($1.46 million), the studio audience began to stir, eager to applaud the fundraising record.
That’s when Prime Minister Joseph Muscat called into the telethon’s phone bank. He, too, seemed in a celebratory mood. The day before, the country had announced that it had registered a €182 million surplus for 2017, its second straight year in the black after decades of deficits. Patched through to the telethon’s host, Muscat pledged €5 million to the cancer charity on behalf of the government, nearly quadrupling the previous telethon record in an instant. The audience erupted. Some of the operators on the dais behind the stage removed their headsets and laid them on the table, as if to declare victory.
But these days in Malta, feel-good stories never seem to last. When Muscat hinted that the donated money would come from a fund fed by Malta’s Individual Investor Programme—a government initiative that sells Maltese passports to foreigners for €650,000 (less for additional family members), plus a €150,000 investment in government bonds—Good Friday took a turn.
Prime Minister Joseph Muscat and his wife, Michelle.PHOTOGRAPHER: DANIEL LEAL-OLIVAS/WPA POOL/GETTY IMAGES
An opposition Parliament member wrote on Facebook that, as a cancer survivor, he was disgusted by the possibility that the patients’ care was being financed by money from “criminals and the corrupt.” Another suggested Malta was trying to clean its dirty money by funneling it through a good cause. “It’s [like] thinking that prostitution is OK once part of the proceeds are donated by the pimp to charity,” Jason Azzopardi, a Parliament member, complained on Facebook.
The story of how Malta got to this point—where a holiday donation to a children’s charity can spark outrage and lament—starts brightly enough. A tiny country carves a small but lucrative niche in the global economy. Money flows in, thousands of jobs are created, and the government intensifies the strategy, opening the country to more partners and funding sources. Then comes the twist: Allegations of money laundering, political skulduggery, smuggling, organized crime, and even a murder.
Multiple investigations—by local magistrates, American prosecutors, and European politicians and banking regulators—have been rattling Malta’s financial and political networks for more than a year. Some of the most powerful countries in the world have suggested that a nation of about 450,000 people might pose a serious threat to global efforts to track money laundering, enforce economic sanctions, and maintain fair transnational standards.
A 15-month inquiry into one of the most contentious of the allegations—one suggesting that Muscat’s wife was directly involved in setting up a shell company for money laundering—wrapped up in late July without uncovering evidence that would justify criminal charges. “One hundred threads of suspicion don’t stitch together a single strand of proof,” the investigating magistrate concluded.
The story isn’t over yet, because some of those threads still dangle, and critics of the government both inside and outside Malta remain convinced that they tie into other scandals, other crimes. The government continues to try to nurse its battered reputation back to health, and how it all turns out will likely depend on how the Maltese ultimately answer the question lingering over their country: To supercharge its financial-services sector, did the smallest country in the European Union sell its soul?
Taking a sunset dip in Sliema Harbor, near Manoel Island.
Taking a sunset dip in Sliema Harbor, near Manoel Island.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
South of Sicily, east of Tunisia, and north of Libya, Malta’s three tiny islands have been eyed as well-placed steppingstones by the Phoenicians, Greeks, Romans, Byzantines, Arabs, Normans, French, and British. All coveted Malta as a staging ground, which makes its history a swashbuckling saga of raids, sieges, bombings, and rotating occupations. When the last British military base finally left in 1979, it took with it the country’s main economic engine. Malta turned to tourism, doing its best to sell ancient ruins, fortress walls, sloping medieval streets, and sheer limestone cliffs. The country eventually discovered, as most sunbaked islands do, that while it’s possible to get by on atmospherics, it’s hard to do much more.
In the early 1990s, Malta’s two major political parties argued over whether to take a shot at EU membership—generally speaking, the Labour Party didn’t like the idea and the Nationalist Party did. By the mid-’90s, with the Nationalists in power, the country began to prepare its application to join the bloc.
To convince the rest of Europe that it could be a trusted partner, Malta began instituting a series of financial and regulatory reforms. In the process, the country was reinventing itself as a new sort of steppingstone: a transit hub not for ships or soldiers but for money, in an environment of regulatory legitimacy, transparency, and stability. Malta discovered that the residue from centuries of turmoil (an ingrained adaptability, strong links to disparate cultures, the English language) was an asset, as was the country’s size, which allowed it to nimbly sidestep bureaucratic delays and cater to rapidly evolving industries that valued good computer connections more than natural resources. The traditional downsides of island economies—the high costs of transporting supplies in and out, for one—didn’t apply to the financial-services industry.
By the time the country’s membership in the EU was formally approved in 2004, Malta had staked out its place within Europe’s economy, and the nation’s attractive tax schemes—effective rates as low as 5 percent for foreign-owned companies, vs. an average of 22 percent for other European countries—helped attract investment funds, banks, and financial-services firms from all over the world. The steady influx of new business helped the local economy avoid a significant downturn during the 2008 financial crisis. Shortly after Muscat and his Labour Party took office in 2013, effectively ending 25 years of Nationalist electoral dominance, the country instituted the controversial passport-selling scheme, which was denounced by EU officials who feared it could create a back door for shady individuals or dirty money to gain access to Europe’s financial markets. But Muscat energetically pushed the plan, traveling abroad to sell it to prospective citizens, and it quickly took off. In 2014, Malta began a three-year run as the fastest-growing economy in Europe, and Muscat and his allies described the passport program as a complete success. By the beginning of this year, the government had collected about €600 million through it.
Muscat’s opponents in the Nationalist Party, as well as some members of the Maltese press, weren’t sold. In 2016 investigative journalist Daphne Caruana Galizia dug into the documents released in the Panama Papers leak and discovered that two of Muscat’s closest aides had established companies in Panama. She accused them of using those businesses to launder money from kickbacks she said they’d received for helping to arrange the sales of passports to Russian nationals. They denied it; a separate magisterial inquiry regarding those allegations is under way.
Later, Caruana Galizia reported that Muscat’s wife, Michelle, had established her own Panamanian shell company through the same middleman who’d set up those for Muscat’s aides—the accusation that the magistrate this summer said he’d found no proof to support. Caruana Galizia also accused Pilatus Bank, a Maltese institution founded in 2014, of handling much of the money in those alleged transactions, as well as those involving the shell companies set up by the prime minister’s aides.
Additionally, the journalist alleged that the first lady had received at least $1 million from Azerbaijan’s ruling family. Last year an international consortium of investigative journalists accused members of Azerbaijan’s ruling elite of operating a $3 billion scheme to launder money, pay off European politicians, and buy luxury goods; the reports cited “ample evidence” tying the ruling family to the schemes. Azeri President Ilham Aliyev last year labeled the accusations “totally groundless, biased and provocative.”
Caruana Galizia’s blog became the most-read news source in Malta. And even though she criticized both parties, it was a clearinghouse for critics of Muscat’s government. On any given day she might have accused a Maltese official of visiting a prostitute; or exposed an alleged local oil smuggling ring that helped Libya evade sanctions; or traced personal connections between government officials and suspected criminals; or slammed Muscat for trying to pitch Malta as a cryptocurrency capital, which she suggested would attract more corruption; or detailed alleged links between the country’s growing online gaming sector and the Italian Mafia. The list of her enemies was large and growing, and by last fall she faced 47 lawsuits—42 civil, 5 criminal—about 70 percent of them from government officials, according to her sister, Corinne Vella.
Prime Minister Muscat was one of those suing her, and he labeled her accusations as “the biggest lie in Malta’s political history.” Many in Malta seemed to believe him; in June 2017, as the allegations swirled, Muscat called for a snap election, and he was reelected with 55 percent of the popular vote.
Last October, as she drove away from her house, Caruana Galizia was killed by a car bomb. Police later arrested three men, low-level criminals, for planting and detonating the device. But no one in Malta considers the crime solved. Whoever ordered the killing remains unidentified. Some speculate that criminals involved with the Libyan smuggling ring might have targeted her, or that the Sicilian Mafia put out the hit. Many others blame the government.
Muscat and his administration loudly condemned the murder, calling it a tragedy and energetically denying any link to it. But the killing marked a turning point for Malta. The notion that corruption might have overtaken Malta’s economy now spread far beyond the confines of an opposition party, and the eyes of the world turned toward the tiny country. It has been struggling to clear its name ever since.
Protesters call for action following the killing of Caruana Galizia last October.
A recent protest over the killing of journalist Daphne Caruana Galizia, murdered last October.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
Everyone knows everyone in Malta. It’s an exaggeration, of course, but among the nation’s financial elite, the people who run the banks and institutions and sit on the governing boards, the notion is all but taken for granted. “There are, unofficially, some 10,000 people who work in Malta’s financial industry, and the guys in charge—there are maybe 50 or 70 of us—we know each other fairly well,” says Joseph Portelli, chairman of the Malta Stock Exchange.
In describing the financial community as small and closely knit, Portelli is defending it. He grew up in New York with his Maltese parents, and 15 years ago moved to Malta to manage his own fund, which specializes in emerging-market investments. He entered a financial-services industry that was fiercely protective of its reputation and keenly sensitive to insinuations of corruption. Now, as allegations of wrongdoing swirl, that defensive sensitivity is more acute than ever. Portelli has adopted it as naturally as any lifelong resident.
“We’re getting this blemish that we’re money launderers,” he says, “and that’s the worst irony.” There have been a few small problems, he concedes, with a handful of small banks. “You know what they all have in common?” he asks. “Not one of the principals was Maltese, they were all foreigners.” The locals, he suggests, police one another.
It’s a variation on an argument that’s been around since Plato and Aristotle. Small states tend to be less susceptible to corruption for two reasons: It’s more difficult to hide indiscretions, and higher levels of social cohesion discourage dishonesty. In the early 2000s several academic studies used data to support this theory, and some analysts suggested that globalization might be of particular benefit to small countries—freer trade and the increased mobility of labor and capital would reduce the costs of being small, they argued, while the advantages associated with less corruption could be retained.
An alternative theory is that small states will be susceptible to cronyism—all those close connections might enable, rather than discourage, financial subterfuge. More recent studies, including research conducted by the World Bank, have found that the data used in the earlier reports were incomplete, and the suggestion that smaller countries are statistically less corrupt than large ones remains unproven.
By the beginning of this year, the government had collected about €600 million through the passport program
For critics of Muscat, one powerful symbol of cronyism is Ali Sadr Hasheminejad, head of Pilatus Bank, the institution allegedly in the middle of the suspicious transactions involving the Panamanian shell companies linked to government officials. Sadr is an Iranian national, but when establishing and registering the bank in Malta he used a passport he’d purchased from St. Kitts. While Sadr was enmeshed in controversy in Malta, a parallel investigation into him and his bank culminated in his arrest by U.S. authorities, who charged him this spring with setting up a network of shell companies and bank accounts to hide money being funneled from Venezuela to Iran—transactions that allegedly violated economic sanctions against Iran. Prosecutors also alleged that Sadr established Pilatus Bank using illegal funds. Sadr pleaded not guilty and has been released on bail in the U.S.; his lawyer didn’t respond to requests for comment.
Malta’s government attempted to distance itself from Sadr, but the same sort of intimate connections found throughout the financial sector have undermined those efforts. Local news outlets reported that among the 250 guests at Sadr’s 2015 wedding in Italy were Muscat, his wife, and one of the aides accused of moving money from kickbacks related to the passport program through Pilatus Bank.
The July magistrate’s report stated that some of the evidence used by Caruana Galizia and others to implicate Michelle Muscat—including Pilatus Bank documents suggesting she was the owner of the shell company at the center of the scandal—bore falsified signatures. Muscat and the lawyers for Pilatus Bank immediately presented the findings as a “certification” that the whole story had been a lie cooked up by Caruana Galizia and foreign critics, and they denounced it in terms familiar to anyone conversant with the new vocabulary of political grievance: It was “fake news,” part of a “witch hunt.” They also drove home the point that the magistrate’s report identified serious improprieties on the part of their critics.
But the family of Caruana Galizia pointed out that the identity of the owner of the Panamanian shell company is still a secret. Furthermore, the European Banking Authority just weeks before had cited “serious and systematic shortcomings” in how Maltese regulators monitored Pilatus Bank before and after Sadr’s ties to Iran were exposed. A confidential 2016 regulatory report that was leaked last year confirmed that the bank’s profitability depended on politically involved clients from Azerbaijan. And the U.S. allegations that Sadr founded Pilatus Bank with criminal proceeds remain unaffected by that magisterial report.
The result of all this is a contagion of suspicion. Many of the allegations of money laundering and other financial crimes have proved difficult to either verify or dismiss outright, but collectively they make it increasingly hard to swallow the idea that corruption is strictly a foreign import here. The country’s only independent think tank, the Today Public Policy Institute, ceased operations in April. Its stated reason for closure was bluntly condemnatory: “a sense of defeatism over the government running roughshod over standards of professionalism, transparency, and accountability.”
Muscat and those in his government generally have responded to such criticisms by going on the offensive: Instead of putting the brakes on controversial policies, they’ve stomped on the gas. Muscat this year pushed for an expansion of the passport sales program, arguing that such investments and the economic activity they spur could help Malta become one of the wealthiest countries in Europe within his lifetime. Last year alone, private wealth in Malta jumped by more than 20 percent, thanks in part to its newly minted citizens.
“Globalization is like a treadmill—you can’t say you are tired, because the second you stop, you will fall off,” Muscat said during a press conference earlier this year. “Once in the race, we must not simply be there to take part, but we are there to win.” Previously he’d outlined the types of policies that would power Malta’s sprint toward success: “some sensible, others risky, yet others which might sound, and be, outright insane.”
In April, just as several Asian countries were cracking down on cryptocurrencies, Muscat announced that Malta would become the first country in Europe to create a regulatory and legislative framework specifically designed to attract virtual currencies. Shortly thereafter, Binance Holdings, the world’s largest cryptocurrency exchange, announced it was moving its headquarters from Hong Kong to Malta. Within weeks, Morgan Stanley analysts were reporting that a majority of the world’s crypto trading volume was moving through companies based in Malta.
There are people who insist that the government’s continued success in attracting investment and generating revenue is itself an answer to the disputed allegations of money laundering, kickbacks, and other financial crimes. “Luckily, this comes at a time when it washes off,” says Edward Scicluna, the country’s finance minister. “The false and fake parts are washing off, because Malta is being so successful that it’s very hard to accept them and to correlate them with a successful country. Normally corruption is rife in backward countries where there are no investments. So you find it very difficult to reconcile these two.”
A yacht moored in Sliema.
Yachts have largely displaced fishing boats in the harbor in Sliema.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
In Sliema, one of the most affluent towns in Malta, open-air restaurants line the harbor road. A few decades ago, diners here would look out upon dozens of Maltese fishing boats bobbing in the water, their prows upturned and their wooden hulls painted in rainbow stripes. Now the harbor is crowded with hundreds of fiberglass yachts—large, modern, colorlessly impressive.
The view helps explain why many Maltese are ambivalent about their country’s progress: They know that economic opportunities are more plentiful than they used to be, but they fear progress might be smoothing away the country’s distinctive edges. The skyline is dotted with cranes rising above the cathedral domes, and those cranes always seem to be hovering over the same sort of building: tall, rectilinear, and cut in clean angles. Malta is the most densely populated country in the EU, and the economic boom of recent years has intensified the pace of construction. Locals often complain of the dust from all of the building sites; when it rains, the drops sometimes hit windshields as small, powdery explosions—tiny puffs of brown smoke.
Competing real estate agencies line Sliema’s coast road, stretching for several blocks. Constantly changing listings for apartments and houses paper their windows. “There’s big demand, and the prices keep getting higher,” says Carl Peralta, director and founder of 77 Great Estates, one of the agencies.
Driving that demand is a new genus of Maltese resident that, Peralta insists, can easily be spotted in the cafes and restaurants of Sliema. Many are from northern Europe, and almost all are young—20s, maybe early 30s. They carry backpacks, they don’t drive cars, and they’re rarely spotted anywhere before 10 a.m. They work for the hundreds of internet gaming companies that have flocked to Malta in recent years. The companies offer the range of gambling services, from online poker and games of chance to sports betting.
In the early 2000s, only two online gaming companies could be found in Malta; now there are up to 300, and the sector accounts for an estimated 12 percent of the economy, according to the Malta Gaming Authority. Both the governing party and the opposition agree that the growth was a result of commendable foresight: In 2004, Malta became the first country in Europe to regulate online gaming, helping to legitimize an industry that previously stood on the fringes of respectability and legality.
“Laugh all you like, prime minister. But we will insist that you don’t get off scot-free”
The new arrivals who’ve bought citizenship through the passport program maintain a much lower profile than the gaming-industry workers. You can’t pick them out of a crowd on the street, and it’s difficult to even identify them in government documents. When Malta last released its annual list of new passport holders, it was maddeningly difficult to decipher; purchasers were listed in order of their first names, without a country of origin, and mixed among thousands of others who obtained their citizenship though birth or naturalization.
The Maltese press has discovered that the list of new citizens includes Russian oligarchs and even a woman who was suspended from the Vietnamese parliament for having dual citizenship, which is illegal in Vietnam. Roberta Metsola, who represents Malta in the European Parliament, suggests that many of the passport purchasers want nothing to do with Malta; they simply want the financial and travel access that an EU passport provides. “We’ve had cases of people arriving on a private jet, meeting a real estate agent, taking out a basement flat somewhere here for a year, never even seeing it, and leaving in the afternoon,” Metsola says.
Peralta, the real estate agent, says that rings true to him. Those who are buying passports, he says, know the minimum they must spend on housing—either €350,000 for a purchase or rental payments of at least €16,000 a year for five years. Meeting those minimum requirements, Peralta says, is often the only feature they’re specifically looking for in a property. “I know there are checklists they have that say they need to open the water taps once a month, or send a cleaner once a month,” he says. “But no one is living there.”
The town of Sliema is a popular destination for expats and new citizens.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
Jonathan Ferris speeds through Valletta’s darkened streets, jumps off his motorcycle, and walks briskly into the lobby of the Phoenicia Malta Hotel, where he finds a table in the noisy lounge. His features are lean, and he moves with a restless energy. His eyes scan the room, and he raises his voice just loud enough to be heard above the lounge singer, who is halfway through a slow and torchy version of Fleetwood Mac’s Songbird.
“I was the top man,” Ferris says, “the top investigator of financial crimes in the country. Type my name in the internet. All bloody hell comes up.”
The European Parliament is concerned enough about Malta to have sent an investigative delegation to the country multiple times this year. The committee’s report, issued recently, described an atmosphere of fear had settled over the country—and a sense that criminals could operate with impunity. Ferris believes his life during the past year perfectly represents the intersection of both phenomena.
He says that in 2017 his bosses at Malta’s Financial Intelligence Analysis Unit, the national agency tasked with policing money laundering, asked him to step aside from the investigation of the allegations involving Muscat’s wife and aides. He had told them he didn’t trust one of the known sources that had fed Caruana Galizia information regarding Michelle Muscat’s alleged ownership of the shell company—a source Ferris had investigated before and who, incidentally, was later discredited by the magisterial inquiry. Ferris’s bosses told him they believed his history with that source compromised his objectivity. That angered him, and he told his bosses that within 72 hours he could determine the true owner of the company that Michelle Muscat was allegedly involved in. He explained to them how he would consult tax returns, political party documents, and bank records. The next day, he says, he was fired and stripped of access to investigative documents and records. His firing further fueled suspicions against Muscat and his wife.
Investigator Jonathan Ferris.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
After Caruana Galizia was killed, Ferris says, he began to fear for his own life. He takes his bloodhound out for walks in the early morning, and several months ago he began to notice cars following him with the headlights off. “I decided, from now on, I’m always going to carry my gun around,” he recalls. Police officers now monitor his house for eight hours each night. “What good does it do? I don’t know, because for the rest of the 16 hours out of 24, I and my family are all alone.”
After Caruana Galizia’s murder a similar anxiety spread quickly among those seen as unfriendly to the government. Some of Malta’s neighbors pointed to that generalized unease as emblematic of the current state of the country. The European Parliament report described “systemized and serious deficiencies” in the rule of law in Malta, which had eroded the population’s general sense of security. Additionally, a police investigation in Italy has alleged that the Sicilian Mafia infiltrated companies in the online-gaming sector, using them to launder illicit funds.
When Muscat sat in front of European Parliament members during a plenary hearing to discuss the rule of law in Malta last June, he dismissed the allegations publicized by Caruana Galizia as politically motivated, setting a tone for his denials that he’s used ever since. His relaxed attitude—and particularly his periodic smiles—during the questioning rankled some of the politicians.
“You can laugh all you like, prime minister,” said Werner Langen, a German member. “But we will insist that you don’t get off scot-free.”
A vigil held to remember Caruana Galizia at the Great Siege Monument, nine months after she was killed.
A memorial for Caruana Galizia at the Great Siege Monument.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
This past year was supposed to be Malta’s chance to showcase its economic gains to the outside world, to take a victory lap after years of growth. It assumed the presidency of the EU in 2017—a first for the country—and this year Valletta was named the EU’s Capital of Culture, another rotating title that was cast as a big deal for such a small country. Earlier this year Muscat went so far as to claim that national pride in Malta had hit an all-time high.
The country’s tourism authority kicked into high gear to take advantage of the promised attention. All sorts of cultural galas and grand openings were organized, and the National Museum of Archeology, a grand 16th century building in the middle of Valletta, became a nucleus for the celebrations.
One afternoon in April, tourists filed through the museum’s entrance and wound their way past exhibits that guided them along the country’s circuitous story. On the second floor, dozens of people entered the majestic Gran Salon, which centuries ago served as a banquet hall for the knights of the Order of St. John. Enormous tapestries, ancient and colorful, hung from the walls, and a small crowd gathered in front of a podium for a special event that had been organized just the day before. Scicluna, the minister of finance, stepped to the microphone.
“I’m very proud, and very pleased, to be the person to launch this national Anti-Money Laundering and Combatting of the Financing of Terrorism strategy and plan,” Scicluna said.
Despite the introduction, he didn’t appear to be particularly pleased to be delivering a speech denouncing money laundering, drawing more attention to a problem that he clearly sees as a threat to Malta’s reputation and livelihood. The reputational damage resulting from continued scrutiny from various quarters—the European Parliament, the European Banking Authority, Italian police, the U.S. Department of Justice—could trigger a backlash against the tiny country that might pose a real threat to its economic foundations.
As the investigation into Mafia involvement in Malta’s online-gaming sector continues, European lawmakers have several times proposed restrictions on cross-border betting, a change that would classify the services provided by many Maltese companies as illegal. Ana Gomes, a Portuguese parliamentarian who leads the EU commission investigating rule of law in Malta, has said the country’s low corporate tax rate is “anti-European” and saps billions in revenue from other member states. In March, the European Parliament voted to pursue a “tax harmonization” scheme that would create one common corporate tax rate applied throughout the EU. A U.K.-based nonprofit advocacy group, Tax Justice Network, issued a report estimating that such a policy would cut Malta’s tax base by more than half.
In the midst of these pressures, Scicluna stood at the podium and delivered a string of statements that should seem so self-evident that they’d never have to be uttered. “I’d like to say that Malta—and this is an important statement to make—is deeply committed to preventing, detecting, and prosecuting money laundering and terrorist financing activities. Financial crime threatens the safety of our society, the integrity of our financial system, and the stability of our economy.”
That economy, Scicluna hastened to add, was healthy and strong, and this year the International Monetary Fund’s executive board singled out the country’s “sound policies” as the root of its success.
When he wrapped up his remarks, the crowd in the Gran Salon filed out of the museum, where they joined the current of pedestrians flowing along Republic Street toward the Great Siege Monument, which sits in front of the main courts building in one of the city’s central squares.
Since last fall, people have been placing candles, flowers, and signs at the base of the monument as a makeshift memorial to Caruana Galizia. At least eight times since then, someone has swept away the items in the dark of night; each time, the flowers and candles and signs are quickly restored. Recently, a local governing council lobbied to ban the temporary memorial for good, arguing that it was time for the country to move on.
On this day, dozens of tourists stopped in front of the monument and faced the plaques that explained the historical significance of the statues. But none of them pointed their cameras up at the statues. Every one of them focused on the marble base and the makeshift memorial, and on the sign that read, “No Justice.”
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As Hurricane Florence bears down on the southeastern United States, nearly 759,000 homes are in the storm’s path, and a worst-case rebuilding scenario could cost more than $170 billion, according to an estimate from real estate data provider CoreLogic.CoreLogic calculated the reconstruction cost value, which is the total expense of completely rebuilding a property in case of 100% destruction, for 12 metro areas in the Carolinas and Virginia. The table below shows those estimates for a Category 4 storm, which is Florence’s current designation. Additional estimates based on other categorizations is available on CoreLogic’s web site.
Equity investors are closely tracking Hurricane Florence as the worst storm to hit North Carolina in decades could also have a menacing effect on the insurance, retail, agriculture and restaurant industries. More than 1 million people are evacuating their homes as the Category 4 storm is expected to make landfall over the weekend. Analysts say the event could also be a boon for companies that specialize in roof repairs or disaster-related services, as well as transportation providers.
According to National Hurricane Center, Hurricane Harvey is second only to Hurricane Katrina as the costliest hurricane to hit the United States at $125 billion. Katrina cost about $161 billion. By the time December 2017 had rolled around, the United States government had sent about $11 billion in federal disaster aid to Texas, and the state was asking for $61 billion more in federal assistance. After Hurricane Katrina, Louisiana had received almost $115 billion in federal aid. Multiple organizations and companies have raised money and provided aid for the people of Houston. The companies and aid listed below have provided a combined amount of at least $26.82 billion of the $125 billion that Harvey caused.
A protectionist policy that must be individually tailored to each product category requires large numbers of administrative staff, and a period must be established during which companies can apply for exemptions. Exchange rate-based adjustments, on the other hand, entail no such costs.In that sense, the more problematic administrative delays become and the more industry opposition mounts, the greater the likelihood that President Trump will replace tariffs with exchange rates as his main tool for addressing US trade imbalances.
Such a move would be a long shot by any stretch of the imagination, but with Trump invoking national security to impose tariffs, Patel says he can’t “completely rule out” the possibility.
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About this podcast: EP 137: The horse bettor exploiting anomalies in financial markets – Dr. William Ziemba Dr. William Ziemba’s an academic, a practitioner, gambler, trader and an author. He’s worked with and consulted to many well-respected names in the field, such as; Edward Thorp, Blair Hull and the very successful horse bettor, Bill Benter. In the beginning, horse betting was William’s field of expertise (he even published a book titled, Beat The Racetrack!) And in many ways, for William, horse betting worked as a gateway to trading financial markets—which he’s been doing since 1983.
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Enter Crypto Currency which was relatively undeveloped as a traders' market until the huge rise of BTC/USD in the fall of 2017. Now there is a quickly growing community of Crypto Day Traders and Total Cryptos is here to facilitate that. The problem with trading Crypto vs. other markets is there is a huge amount of fake data in Crypto. As any trader knows, information is king - which is why it's important to have real-time information that matters. Just like in FX, that may mean looking at multiple exchange prices. It means having multiple sources of news and data. It means paying for information. How bad is the problem of bad data? Just look at today's news, from Coin Desk, where 'A CoinMarketCap "data issue" caused significant artificial inflation of several coins listed on the platform on Friday, with some prices inflated by nearly 1000 percent.':
While bitcoin's price spiked 12 percent on the crypto data site, other coins saw more drastic increases. The price of aeternity, the eighth most valuable cryptocurrency, increased more than 951 percent, while MOAC increased by 905 percent and bitcoin diamond saw an 876 percent jump on the site. The site's exchange tracker feature was also affected, and falsely indicated that bitcoin was trading above $73,000 on some exchanges. While crypto Twitter speculated about potential price manipulation, bugs and hacking, CoinMarketCap told CoinDesk that the inflation was caused by a data error. "There was a price calculation error on tether which caused any listing with a tether market to become artificially inflated," marketing vice president Carylyne Chan said in an email. While most of the data appeared to have normalized at press time, the 24 hour change percentage for VeChain's VET token was listed as a question mark and its price graph was unavailable on the home page. The VeChain page also had no historical data listed. The popular analytics platform has promised to release a "post-mortem" with further details in the near future.Imagine that happened in the stock market. So the good news, any new market presents new and uncharted opportunities. With that as always comes big risks, but it is a traders job to manage and maintain control of those risks. Having the right tools is par for the course. Or take a look at this article "Why intra-day trading crypto can be better than holding":
If you are relatively new to trading crypto currencies, then this tutorial is what you need. In this tutorial I will try to explain how you can use crypto to grow your capital base by at least 1% per day.The reason why holding isn’t a very practical move for well established coins is because of their volatility. For instance, Bitcoin (see chart below), increased by ±30% over a period of ±20 days. But it doesn’t mean it had a linear increase of 1.5% per day, some days went down while others went up.
Total Cryptos is extensively researching this new market as well as working on our development of real time trading systems for Crypto Day Traders. We've opened a public forum on the topic for open discussion which can be found here: https://portal.totalcryptos.com/forum/trading-cryptos Registration is free so join the discussion today!
- Private Equity investors or Pre-IPO investors may want to look at this hot new Crypto option.
- Cornucopia is an example of how Blockchain is really innovating the alternative investment space.
William B. Thompson, who was in Petrograd from July until November last, has made a personal contribution of $1,000,000 to the Bolsheviki for the purpose of spreading their doctrine in Germany and Austria ....Washington Post, February 2, 1918
As the digital money frenzy of the past few years cools, the crypto coin graveyard is filling up. Dead Coins lists around 800 tokens that are bereft of life, while Coinopsy estimates that more than 1,000 have bought the farm.The carnage is mostly the consequence of failed projects from the thousands of startups that used initial coin offerings to raise billions in funding, and a global regulatory crackdown on questionable practices and scams. Names like CryptoMeth, Droplex and Roulettecoin may have been a clue to the coins’ dim prospects.“There has obviously been a lot of fraud and hype in the ICO market,” Aaron Brown, a business author and investor who writes for Bloomberg Prophets, said in an email. “I accept figures I have seen that 80 percent of ICOs were frauds, and 10 percent lacked substance and failed shortly after raising money. Most of the remaining 10 percent will probably fail as well.”
CME’s bitcoin futures derive their final value from prices at four bitcoin exchanges: Bitstamp, Coinbase, itBit and Kraken. Manipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
But virtual currencies may – will – become part of the economic practices of any country, anywhere. Let me repeat that: these currencies are not going away and they will proliferate to every economy and every part of the planet. Some places, small economies, may become dependent on virtual assets for survival. And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.We are witnessing a technological revolution. Perhaps we are witnessing a modern miracle. -Rostin Benham
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself. The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.
http://Bitcoin.org just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.
- As a secure notepad, for taking notes, or for programming Solidity, or your website.
- As a secure private ledger, for recording your Crypto transactions.
- As a store of account usernames and passwords, including 2FA info.
“If bitcoin ends up being the cyber equivalent of gold and it has a great potential left and it’s a very different kind of thing from what people in Silicon Valley focus on—companies, not algorithms not protocols, but this might be maybe one exception that is very underestimated,” the Silicon Valley elite said.
The question with something like bitcoin is whether it can become a store of value. And the thing it would replace is something like gold. The analogy is it's like bars of gold in a vault that never move and you get it and it's a hedge of sorts against the whole world falling apart.""The objections that people have to bitcoin are also objections to gold. It's this weird currency that's not backed by any government. Same thing is true of gold. It's not clear what the intrinsic value of bitcoin is. Same thing is true of gold. It may well be a bubble, but - and most bubbles are unstable and end - one of my friends has this line that 'money is the bubble that never pops', so if it is a bubble, then it is money.""If everybody decided that a $100 bill was worthless then you wouldn't want to have a $100 bill."
Currently, buying or selling large quantities of digital currencies is tricky because the market is fragmented across more than 100 crypto exchanges around the world. Connecting to all of them requires setting up a separate account with each one, and crypto exchanges generally impose limits on daily flows in and out.That makes it cumbersome and time-consuming to pull off a big trade, and the price of a digital currency can move dramatically before the investor finishes buying or selling.Tagomi hopes to make it easier to make such bulk trades by borrowing a page from the stock market. In U.S. equities, broker-dealers use systems called smart order routers that dispatch their clients’ buy and sell orders to various venues, including a dozen exchanges and more than 30 off-exchange “dark pools.”These routers make rapid-fire decisions about which market is the best place to execute a trade at any given time. Tagomi is looking to develop a similar tool for the crypto markets, according to people with knowledge of its plans.
(Bloc10 4/29/2018) -- This is a macro-deep-analysis of how Crypto can create a new parallel system by feeding off the old carcass of the dying fiat central banking model.As we explain in our book Splitting Pennies – the financial world is not as it seems. Gurus from many, non-correlated financial disciplines have been predicting for years that the current financial system is going to collapse. But just like Planet X that never came, and the false alarm of the Y2K bug, it seems that collapse has been postponed. There’s an answer for this, that isn’t being reported in the financial media. We must look at the whole picture here, so think macro, think global, and read carefully. First let us state plainly that this collapse theory is all based on solid data – the debt bubble, over leveraged banks like DB who is 50:1, growing stagnant economic growth, etc. the list of apocalyptic economic data goes on and on – so what’s keeping the system afloat? Greed? There is one difference and it’s a big difference, a huge one, that all the doom and gloomers need to consider. It’s not a ‘this time it’s different’ argument, but we have to consider global system dynamics and how they were different in Rome and other ‘empire collapse’ metaphor scenarios; today there are powerful Artificial Intelligence systems that are so powerful, they can out think any opponent 10 moves ahead. Perhaps it is this intelligence that suggested the creation and proliferation of Bitcoin to replace the economic position that traditional fiat banks failed to provide? If you look at the system as a whole, Bitcoin is an extremely intelligent solution to economic decay that Quantitative Easing alone cannot solve (and QE has proven to be impotent). Facebook is at the end of it’s use cycle. Perhaps the most important Fakebook article here on ZH is this one:"Every part of this has made me sadder and sadder and sadder. I feel like my baby has turned out to be something horrible, and these people I trusted and helped along have forgotten where they came from," he said in a conversation with Kevin Delaney, Quartz’s editor-in-chief. McNamee has become an outspoken critic of the company, comparing its role in the 2016 US election to "the plot of a sci-fi novel" while at the same time admitting that he has "profited enormously" by backing Facebook early on. The organization he helped found, the Center for Humane Technology, has made it a mission to expose Facebook’s multiple flaws, and to try to fix them.How is Fakebook related to Crypto? You should have read Michael Lewis’ The New New Thing – A MUST READ. These ideas are not dated. Silicon Valley, Wall St., and DC still operate in this way. Fakebook created a massive bubble out of nothing, 462 Billion as of today. Facebook isn’t anything, they don’t build anything, they are just programming the minds of the less gifted and in the process keeping tabs on what their neighbors feed their dogs. Here’s what one Fakebook insider had to say:During his talk, he echoed criticisms by early Facebook executive, Chamath Palihapitiya, who compared Facebook to “Internet crack” and said it’s “ripping apart the social fabric of how society works.”Fakebook did it’s job. It ripped apart the social fabric of how AMERICAN society works. While Facebook is a global app, it doesn’t have the same significance in other countries. Perhaps a few US friends like UK, Australia, etc. are in the same boat – but most countries not. Facebook is from the beginning an intelligence collection apparatus and means of social control, first and foremost. Incidentally, investors made a bundle on it and it’s a darling of Wall St. (until recently). Let’s be practical, without InQTel behind it, Fakebook would have never got off the ground. The CIA needed a slimy weasel like Suckaburger to do their electronic bidding as the spy game globally and domestically was moving to an electronic paradigm. Don’t forget that the military created the internet, it wasn’t developed by 2 dudes in their mom’s garage. The internet has always been and perhaps always will be a military communications system used by the public. There’s a price to pay for ‘free’ networks! Now of course, there are groups of private networks who have setup peer to peer encrypted communications systems and their own private social networks and chat systems like Telegram, but that represents a small percentage of the overall population which is irrelevant. If we look at Facebook on the surface, for what it is – a pump and dump scheme backed by the Military sold by Wall St. to Main St. to control them and suck more of their hard earned dollars from them, meanwhile keeping tabs on their every move, and making a buck for America’s owners – Bitcoin is the same thing! Let’s call a kettle a kettle. Bitcoin is popular for one reason – some people made millions on it. And the people who made millions on Bitcoin are mostly average folks, mostly advanced or above average technical people. With a few exceptions like Mike Novogratz, few Wall St. types, few Elite aristocrats (if any). Sound familiar? Remember Fakebook in 2007, 2008 even before the massive control systems, the gamed news feeds, before things just ‘vanished’ like if you write something they didn’t like (disappearing sentences, accounts, etc.) There was a time before Fakebook went ‘viral’ that it was ‘hip’ and only for ‘techies’ not the ‘main stream’ and then suddenly it ballooned. So there are some obvious technical differences here, just like there are differences between Fakebook and the Real Estate / Sub Prime pump and dump scam, and Bitcoin, and the scams before it. Scam is a harsh word but the fraud is so elaborate and malicious that much more harsh words are called for. Fakebook literally can be credited with destroying the social fabric of America. Some would argue that’s a good thing – but it’s another topic. Bitcoin is a Crypto Currency but like any investment, it has a lot of features like social media. The interesting link here is that Social Media made Bitcoin popular. For years the price stagnated, and it didn’t get much attention. Once the price started going up – then it went viral. People love making money! It was an alternative investment for the masses. You could buy Bitcoin with as little fiat money as you had. This, and the fact that it was digital, and global, gave it the mass appeal finally shooting the price to stratospheric levels. So hold on to your horses in case you don’t know this and you start screaming and spook them – As we explain in our book Splitting Bits – we believe based on available public evidence that the creator of Bitcoin was the NSA, either as a sub-unit or an individual working for the NSA. We have no smoking gun evidence – but no one else does as far as any alternative creator. Our scenario is simply the most plausible – it’s not necessarily the facts. There is not 100% fact showing the real face of the creator of Bitcoin. And the NSA will not confirm or deny it’s involvement, but it will provide a statement to an FOIA request that it will not confirm nor deny if such information would be or would not be classified (of course). But what’s interesting is that, the NSA is reportedly monitoring Bitcoin transactions under a program called MONEYROCKET: For instance, one memo from the NSA, the report cited, suggested the agency has collected private information such as bitcoin user passwords, internet activity and device identifiers.According to the report, the NSA has been monitoring the internet activities of bitcoin users since 2013 through a program with codename as OAKSTAR. And yet the new leak suggested that with MONKEYROCKET, another sub-program under OAKSTAR, the NSA may be moving closer to pinpoint users who initiate a cryptocurrency transaction."SSG11 analysts have found value in the MONKEYROCKET access to help track down senders and receivers of bitcoin," one memo reads.If these memos are real, and there is no reason to believe they are not, they are likely an indicator of what’s really going on, such a program would likely involve a team of people, millions of dollars, and hundreds or thousands of documents. NSA didn’t setup MONKEYROCKET to track down a few money launderers. It’s not their job, really.. Going back to the Facebook analogy, we have to consider 1) how Bitcoin goes up and 2) how Bitcoin is primarily a grassroots movement from the fringe. Crypto is the next bubble, we can ride the bubble – but here we will make a bombastic claim: Bitcoin is the MySpace. Bitcoin isn’t ‘the bubble’ actually Bitcoin is a poorly designed currency and remember that for Bitcoin there was no ICO. This ICO terrible idea was popularized mostly by quasi criminals who were ineligible for registration. We’re referring to financial criminals, the new mafia (they have evolved from the days of protection insurance, etc.), fraudsters, Ponzi scammers, and other similar elements the Crypto world has attracted. Bitcoin is the social media of finance. But instead of sharing photos of old friends and breakfast choices, Bitcoin enabled a higher element of socialization, i.e. ‘hey I just made 10,000% return on my money, you might want to check this out.” It’s like the .com boom on steroids, and it was global (Bitcoin isn’t a US product per se). In order to ‘spend’ Bitcoin it was necessary for early adopters to engage in viral marketing to make Bitcoin viable. The concept of fully electronic money is not new, but in 1989 David Chaum’s DigiCash failed, for a number of reasons but the most likely was the fact that the internet didn’t have the penetration in 1990 as it did in 2010. Social Media and the internet was a conduit for Bitcoin. And Bitcoin quickly gave birth to Ethereum, and now there are more than 2,000 crypto currencies being built and developed on an exponential pace. Ironically though, there is only one regulated futures contract at the CME, Bitcoin Futures, and only 1 regulated ICO – the tZERO ICO (*it is ‘registered’ not ‘regulated’ but the point here is that tZERO has followed SEC guidelines, and they are a regulated company – they aren’t based in BFE with a bunch of John Doe’s as their Advisors). Our point here is that Bitcoin did what it set out to do – start a race of development which is fueled by the mania created by the 1,000,000% BTC/USD chart. Something like a million percent return never happened, and likely will never again. The group that created Bitcoin whoever they are, know very well that the large banks control the system and there is no hope of creating a ‘parallel’ system without the blessing of Wall St. and DC, this was most notably proven with Chile’s Project Cybersyn:Project Cybersyn was a Chilean project from 1971–1973 during the presidency of Salvador Allende aimed at constructing a distributed decision support system to aid in the management of the national economy. The project consisted of four modules: an economic simulator, custom software to check factory performance, an operations room, and a national network of telex machines that were linked to one mainframe computer.Project Cybersyn was based on viable system model theory and a neural network approach to organizational design, and featured innovative technology for its time: it included a network of telex machines (Cybernet) in state-run enterprises that would transmit and receive information with the government in Santiago. Information from the field would be fed into statistical modeling software (Cyberstride) that would monitor production indicators (such as raw material supplies or high rates of worker absenteeism) in real time, and alert the workers in the first case, and in abnormal situations also the central government, if those parameters fell outside acceptable ranges. The information would also be input into economic simulation software (CHECO, for CHilean ECOnomic simulator) that the government could use to forecast the possible outcome of economic decisions. Finally, a sophisticated operations room (Opsroom) would provide a space where managers could see relevant economic data, formulate responses to emergencies, and transmit advice and directives to enterprises and factories in alarm situations by using the telex network.The project was so head of its time, what a desktop computer can calculate was 10x more powerful than warehouses full of computers in 1971. But the idea had to be squashed and Allende was taken out and replaced with a US friendly regime. The timing of this dismantling of the world’s first AI economic management system, coinciding with Nixon’s creation of the floating FX regime, perhaps the opposite of intelligence, should be noted. Analysis & Conclusion So here’s the deal with Bitcoin and Crypto. The big wave, the paradigm shift – it’s going to be in the regulated coin space – the Dollar Cryptos, Fedcoin, Crypto Rubble, and Crypto securities. When you can buy and sell Crypto on regulated exchanges – then you’re going to see a real paradigm shift. And that’s coming – but slowly.IBM claimed it had as many as 20 central bank clients, which even if they were smaller central banks – would be huge news for the Crypto world:Over the past year, Lund says he’s met with 20 central banks exploring the potential benefits of issuing their own fiat cryptocurrency on a blockchain. Specifically, he described the “most durable digital asset” as one that is “issued by a central bank that represents a claim on fiat deposits in the real world,” but still maintains “some semblance of monetary policy.” Though he wouldn’t reveal the names of most of the central banks with which he’s meeting, he described them as largely comprised of banks from the G20, an international forum with members including China, Russia, the U.S. and the EU. Lund further described the central banks as “clients in some capacity.” Based on these conversations, he said he expects the first central banks to issue a fiat currency on a blockchain will be “the smaller ones” with a high concentration of interest in Asia and North America.Is Bitcoin going to 50,000? Probably not. But Bitcoin’s rise to 20,000 surprised many, so it would not be surprising if it went to 100,000. Just remember one thing – the only thing that makes Bitcoin go up is buying and no selling. Selling pressure from Mt. Gox trustees put sell side pressure on Bitcoin as they unloaded Billions of USD worth of Coins on the market. Bitcoin whales that control a huge chunk of available supply could sell. The only thing that can make Bitcoin go up to 50,000 are billions in USD worth of buy orders. There is a physical limit to the price of Bitcoin based on how much fiat currency there is in the world. For example if every available US Dollar, Euro, and all other fiat currencies converted ALL of themselves to Bitcoin it would go very high, and we can calculate what that number might look like. But it is a number it is not infinite. The same can be said for stock, real estate, or other bubbles – this is bubble dynamics 101 something that the Bitcoin crowd mostly misses. Here’s the demotivational speech. So we are claiming that Bitcoin is the MySpace and the “Facebook” of Bitcoin is still to be developed. Just like in the pre-IPO space, investors are looking at in the best case 20x – 100x returns if they catch it. Of course, it will not be easy to know WHICH of the 10,000 new coins is going to be the next Facebook. But likely it will be one backed by Goldman Sachs, it will be made in Silicon Valley or in Berlin, and it will be regulated. Regulated Crypto is the future. 10 years from now probably all assets will be Crypto assets – only because of the security and efficiency features. The global FX markets for example, something Crypto stands to revolutionize, are really outdated, and didn’t really change their model since FX was created by Richard Nixon in 1971. Even until 2007 banks engaged a majority of their volume on ‘voice orders’ ! The global financial system has been ripe for an upgrade, and what Bitcoin did it said this to the world. It sent a message which was well received by Main St. investors, Wall St. financial engineers, and politicians alike. Now, they are pedal to the metal coding and designing around the clock. The first coin in the class we are referring to here is Basis, backed by Wall St. and Silicon Valley and cooked up in a frat room at Princeton, perhaps the most Elite of the finance schools depending on who you are debating.Basis recently got about $133 Million in a registered capital raise (we aren’t sure whether the ICO label is appropriate as it was a private offering, done as offerings should be done):Investors apparently love what Basis is cooking up. The upstart is announcing today that it has raised a somewhat stunning $133 million in funding from Bain Capital Ventures, GV, longtime hedge fund manager Stan Druckenmiller, one-time Federal Reserve governor Kevin Warsh, Lightspeed Venture Partners, Foundation Capital, Andreessen Horowitz, WingVC, NFX Ventures, Valor Capital, Zhenfund, Ceyuan, Sky Capital, Digital Currency Group and others.The coin idea here is a ‘Stable Coin’ – which isn’t a unique idea, it is more of a sub-movement in the Crypto community. While Bitcoin got the world’s attention, it is a poor spending currency, certainly not a store of value, and the Blockchain technology behind Bitcoin is basic, although stable, does not represent the best of what Blockchain can do, as many other coin startups have pointed out. How this will save the financial system? It is a transition to a new global financial regime. Crypto Currency itself is not such an amazing development. In Scandinavian countries they have been using digital electronic money for years. What’s the difference really between Bitcoin in your wallet or your 100,000 USD at the bank? The banking system has become bloated, inefficient, and in great need of reform. New markets will open up which are Crypto-denominated. Trading strategies will evolve that were not before possible. The establishment will not be destroyed, by design – Bitcoin requires vast amounts of electricity to be mined. So unless the next ICO is going to raise $10 Billion to build ‘clean’ Thorium nuclear reactors, Bitcoin is not so different than the Petro Dollar as it must pay it’s utilities in USD from mining. Of course that’s just one model as shown by Bitcoin – but there are others – countless others. Bitcoin started a chain of events (pun intended) that will lead to the next ‘paradigm’ of currency.Document Information This deep analysis report was commissioned by Bloc10 authored by Global Intel Hub. 4/29/2018 for the 'Blogosphere'Bloc10 update Bloc10 released recently Total Cryptos Android App (Free) , the Desktop Website @ www.totalcryptos.com and soon will release an Apple App. Coming soon: Machine Learning Engine to predict the price of Crypto Currencies (paid service) and Blockpad, the world’s first secure Notepad for Crypto investors, Blockchain developers, and intelligence operatives. To stay tuned on further developments in the Crypto space plugin to Bloc10 @ www.bloc10.com/joinLinks: NSA MONKEYROCKET DOCUMENTS: Global Intel Hub Libraryhttps://wp.me/P6ZQKC-4X New New Thing Book