Alpha Z Advisors offers an alternative to options investing

(GLOBALINTELHUB.COM) — Dover, DE 8/8/2017 — Global Intel Hub exclusive interview — Elite E Services sat down with Mike Connor, Principal and Senior AP of Alpha Z Advisors, LLC – a trading advisor offering alternative investments based on strategies incorporating research on price anomalies, behavioral biases and institutional practices. In November of last year, Alpha Z Advisors LLC was ranked #1 Options Strategies Category by Barclay Hedge, a service that tracks funds’ strategies. So we wanted to learn more about on the Alpha Z Advisors strategy, as we have always supported options as a great way to not only hedge investments but also provide additional alpha to any portfolio. Also, futures options are generally traded on regulated exchanges – unlike FX which are mostly traded over the counter (OTC).

Who is Mike Connor?

Professional risk manager and former member of the Chicago Mercantile Exchange, who has more than 40 years’ experience in the futures and options industry.

What is the story behind Alpha Z Advisors?

Professor William Ziemba started Alpha Z Advisors, LLC with trading capital from friends and family. The initial investors were individuals he knew from the academic world in addition to a few referrals from the initial investors. The fund has grown in size from trading profits from the initial capital without attracting new investors.

How has the performance been?

2015 had great performance, more than 100% return, but it probably will never happen again due to a management decision to reduce initial margin to equity risk.

Why has it been so consistent?

The fund primarily trades options based on CME’s S&P 500 E-mini contract. Trading centers around the extreme prices of puts on the E-mini contract. The big money in trading options is made from being long, but returns are inconsistent (but the risk is usually very well controlled). The consistent money is made by being short options, but it comes with risk, and to stay in the game the risk has to be controlled.

How do you control the risk?

By properly hedging the positions either with other options or a futures position, and by margin to equity control. Short (selling) options positions are no different than an insurance company policies – you are selling price insurance. Like any insurance company, we’re going to have occasional disasters, like Katrina – but they should be manageable. Over a long time horizon, well managed market disasters should not prevent us from continuing to perform. We have had our share of ups and downs, and fortunately we have been able to survive all drawdowns. Good risk control and position sizing are the most important factors in any trading campaign.

What factors may impact the strategies’ performance?

Implied Volatility. Volatility is opportunity, but left unchecked it can be a horrible threat.

Considering the results, why do you think there’s not larger AUM?

Until recently we have not solicited publicly. This is our first concentrated effort at soliciting investors. In addition, we put together a minimum account size so high ($250K for the managed account, $100K for the fund). Our account size should eliminate many potential investors. We are looking for sophisticated investors that can take a part of their portfolio and take greater risk for a higher return.

How can investors ‘prove’ that the performance is ‘real’ – is there an institutional My FX Book ? There’s been a lot of CTA frauds that were real CTAs but used fake performance to lure investors – what assurances can we offer them about Alpha Z?

All the accounts – all the funds’ assets – all the performance results are compiled every month by an independent CPA firm. The statements themselves can be verified by the FCM.

Positions are manually stress-tested intra-day.

What makes Alpha Z Advisors LLC different than other CTAs?

I’m not sure if that’s the case, we have a very professional trading plan. You can go to Amazon and buy books published by our founder Dr. William Ziemba, actually he’s published more than 50 books on statistical abnormalities and opportunities in the stock market. It certainly does not mean we cannot lose, or have losing open positions – we are going to have losing positions there is no way around it. But overall, if we can control the risk and keep margin to equity at a reasonable level we should be able to survive during the bad times. We have, I think, enough excess margin to sit through a significant rise in implied volatility and still survive, if the positions and margin to equity can be properly controlled. Like any market position whether it is options or futures an unexpected giant gap opening is always a threat to open market position’s stability.

What makes the strategy different?

Trades are well positioned and I believe are market entry timing is very good. Our exposure is laid out over a broad time horizon (we don’t trade in nearby month, for example). If futures were a bullseye, you’d have to hit the target almost dead center to make a profit, with options, you can just hit the wall and still make a profit – of course, only with properly controlled risk and other parameters. I do not know how other CTA’s manage their positions and stress test their market risk, but I am confident our process is robust. What we do is not magic, it’s simply neutralizing the risk as much as possible, and there is a number of ways we accomplish that. It is all about understanding what the options can do if they move against you, and how you can respond adverse market activity.

The execution is done by a professional service. One way we keep our costs down other than accounting, is to try and soft dollar expenses through a soft dollar basis.

Customers are free to choose any brokerage house they want that clears at the CME. If customers do not have any preference, we are happy to set them up with our preferred FCM.

For more information contact:

Mike Connor


Or visit

This article/interview is for information/educational purposes only and is privileged, confidential and proprietary. This article/interview is NOT an offer to sell or a solicitation of any investment products or other financial product or services, is NOT an official confirmation of any transaction, or an official statement. Past performance is not indicative of future results. There is a substantial high and unlimited level of risk of loss in trading commodity futures, options, options writing, equities and off-exchange foreign currency products; such trading is not suitable for all investors.  Investors should only invest money they can afford to lose.

Summary1:  Options investing is a difficult subject few dare to explore. In this candid interview we explore the innards of a real life options CTA.

Anti rich sentiment growing globally

GIH: The sentiment against the so called 1% is growing, as the gap between the ‘rich’ and ‘superrich’ has gone parabolic.  The majority of the world’s wealth is now concentrated in the hands of a few thousand people.  Questions are now being raised about how they are helping the economy, as the velocity of money is an all time low, and the Fed’s QE program seems to have little effect on the real economy (but it has helped the 1% inflate their portfolios one more time.)

The co-founder of one the nation’s oldest venture capital firms fears a possible genocide against the wealthy. Residents of Manhattan’s tony Upper East Side say the progressive mayor didn’t plow their streets as a form of frosty revenge. And the co-founder of Home Depot recently warned the Pope to pipe down about economic inequality.

The nation’s wealthiest, denizens of the loftiest slice of the 1 percent, appear to be having a collective meltdown.

Economists, advisers to the wealthy and the wealthy themselves describe a deep-seated anxiety that the national – and even global – mood is turning against the super-rich in ways that ultimately could prove dangerous and hard to control.

President Barack Obama and the Democrats have pivoted to income inequality ahead of the midterm elections. Pope Francis has strongly warned against the dangers of wealth concentration. And all of this follows the rise of the Occupy movement in 2011 and a bout of bank-bashing populism in the tea party.

The collective result, according to one member of the 1 percent, is a fear that the rich are in deep, deep trouble. Maybe not today but soon.

“You have a bunch of people who see conspiracies everywhere and believe that this inequality issue will quickly turn into serious class warfare,” said this person, who asked not to be identified by name so as not to anger any wealthy friends. “They don’t believe inequality is bad and believe the only way to deal with it is to allow entrepreneurs to have even fewer shackles.”

And so the rich are lashing out.

In the latest example, Thomas Perkins, co-founder of legendary Silicon Valley venture capital firm Kleiner Perkins, wrote a letter to The Wall Street Journal over the weekend comparing Nazi Germany’s persecution and mass murder of Jews to “the progressive war on the American one percent, namely the ‘rich.'”

He went on to say he feared a progressive “Kristallnacht,” referring to the 1938 German pogrom in which nearly 100 Jews were killed and more than 30,000 arrested, a dark omen of the murder of 6 million that would follow.

People, to put it mildly, went nuts.

Even Perkins’s old firm disavowed him and his comments and said he no longer has anything to do with the company. Perkins then went on Bloomberg television, ostensibly to apologize for the remark. But instead he doubled down on the analogy, saying “when you start to use hatred against a minority, it can get out of control.”

Perkins was not the first wealthy investor to invoke Nazi Germany as a warning over current attitudes toward the wealthy. In 2010, when Obama suggested raising the tax on “carried interest” earned by private equity executives, Blackstone CEO Stephen Schwarzman said, “It’s a war. It’s like when Hitler invaded Poland in 1939.”

Obama still hasn’t managed to persuade Congress to hike the 20 percent rate on carried interest even though most on Wall Street expect to lose the perk at some point. Schwarzman eventually apologized for his Hitler remark.

More recently, the New York Post dedicated considerable ink to complaints from residents of the Upper East Side that newly elected progressive mayor Bill de Blasio directed plows to avoid the neighborhood as some kind of revenge for their wealth and support of de Blasio’s opponent.

“He is trying to get us back. He is very divisive and political,” Upper East Side resident Molly Jong Fast told the Post. “By not plowing the Upper East Side, he is saying, ‘I’m not one of them.'”

The mayor dutifully trundled up to the neighborhood to admit mistakes in plowing but strongly denied any ulterior motive.

It doesn’t end there.

Ken Langone, a wealthy investor and co-founder of Home Depot, recently told CNBC that the Catholic Church in New York might see a decline in donations if Pope Francis did not tone down his comments about the dangers of economic inequality. “You want to be careful about generalities. Rich people in one country don’t act the same as rich people in another country,” Langone said.

New York Times columnist Paul Krugman this week wrote that even plutocrats who manage not to invoke Nazi Germany “nonetheless hold, and loudly express, political and economic views that combine paranoia and megalomania in equal measure.”

The phenomenon is not limited to the U.S. Bankers across the globe who gathered for the World Economic Forum in Davos, Switzerland, last week complained publicly and privately that in their view vilification of the rich, particularly in the financial industry, has gone far enough.

“Life is hard enough, and I think this constant lecturing on ethics and on integrity by many stakeholders is probably the most frustrating part of the equation. Because I don’t think there are many people who are perfect,” Sergio Ermotti, chief executive of UBS AG, told The Wall Street Journal. “We are far from being perfect … but it’s not going to be very helpful to be constantly bashing banks.”

But perhaps nowhere is the collective freakout more pronounced than the financial capital of the world. Here in New York, even wealthy donors who tend to favor Democrats are deeply concerned about the current political discourse at the city level in which de Blasio wants to increase taxes on the rich, and the national level, in which Democrats have pledged to make the 2014 midterm elections about addressing economic inequality.

“I think this is going to be disastrous for the city,” one top executive at a large Wall Street bank said on the eve of de Blasio’s election. “The people who pay taxes could move out, the businesses could leave. What’s keeping us here?”

At one level, the reaction seems dramatically out of proportion to anything any politician is actually proposing. And recent comments from the super-wealthy can seem baffling – and infuriating – to the vast majority of Americans who occupy much less rarefied air and now have myriad social media forums to castigate what they view as deeply out-of-touch whining from the plutocrat class.

Nothing Obama proposed in his relatively mild State of the Union address would do much to impact the lives of the nation’s top earners. Raising the minimum wage wouldn’t do it. Nor would extending unemployment benefits or instituting universal pre-kindergarten.

Even the president’s toughest lines on the issue of inequality were hardly the kind of fire-and-brimstone condemnation that Franklin D. Roosevelt heaped on bankers’ heads in the 1930s.

“After four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better,” Obama said. “But average wages have barely budged. Inequality has deepened. Upward mobility has stalled.”

That was pretty much it.

Obama made no call to raise taxes further on the rich, who still enjoy rates dramatically lower than they were through most of the booming 1980s. He did not summon Occupy Wall Street protesters back to the barricades or threaten new actions to bust up big banks.

Meanwhile, de Blasio has no power to raise taxes unilaterally on the rich despite his fiery campaign rhetoric.

On a practical level, the wealthy are jumping at shadows.

“None of the issues currently on the table would have a large effect on the very rich,” said Justin Wolfers, economics professor at the University of Michigan. “If there is anything driving this rise in rhetoric, it’s that the president pivoted to talking about inequality, which some interpret as taking from the 1 percent and giving to the 99 percent.”

People who counsel the wealthy for a living say there is both an unease with growing income disparity and a fear of even greater persecution.

“I think that with Occupy Wall Street there was a sense of the heat getting turned up and a feeling of vilification and potential danger,” said Jamie Traeger-Muney, a psychologist whose Wealth Legacy Group focuses on counseling the affluent. “There is a worry among our clients that they are being judged and people are making assumptions about who they are based on their wealth.”

Much of the current anxiety is also driven by the precarious nature of the recovery from the worst financial crisis since the Great Depression.

The U.S. economy is showing signs of picking up speed with job creation and consumer confidence on the rise. But there is still an enormous sense of national pessimism about the future, as evidenced in the latest NBC News/Wall Street Journal poll that showed 68 percent of Americans believe the country is stagnant or worse off since the president took office in 2009.

And the recent stock market swoon, the bad December jobs report and gyrations in emerging market currencies could convince some wealthy Americans that their pessimism is well-founded and that another economic downturn is not far off – and might carry even greater risks for the rich.

“People are very anxious about the decline in the stock market and feel that this may be just a hollow shell of a recovery, and we may see in the next few years that things really haven’t changed,” said Louis Hyman, a historian of capitalism at Cornell. “They are afraid the critics are right and that inequality really is a driver of all this, and are afraid of what that means for them.”

Perfect Storm: energy, finance and the end of growth

The following leading analysis is a well-documented objective view from a historical perspective, outlining the global challenges we face as we head into the new paradigm of modern society.  Tullett Prebon is one of Britain’s oldest money brokers, this report is prepared by their chief analyst.  download Perfect Storm here


Click for larger view of Summary

download Perfect Storm here

Indian Bitcoin Exchanges Halted As Government Shifts Capital Control Attention Away From Gold

Another government is going after Bitcoin, the anonymous virtual currency gaining momentum as traditional asset classes are questioned.  In a surprise move, the Indian government has raided one Bitcoin seller and urged citizens to not use the virtual currency:

Having failed miserably in the “control” of capital outflows from the Rupee (via Gold), the India government (following a Reserve Bank Of India advisory) has raided one Bitcoin seller and issued a warning cautioning citizens against acquiring and trading virtual currencies. As VentureBeat reports, the RBI did not outright ban the currencies, but it slammed them as risky and potentially illegal. On Thursday, the “Enforcement Division” raided the premises of Mahim Gupta who provides trading platform through his website – – finding it in clear violation of Foreign Exchange Management Act (FEMA) rules. Whether smuggling gold or utilizing Bitcoin, it seems the government is fighting a losing battle…cue confiscation?

India practically “bans” Bitcoin (via VentureBeat)…

Several Bitcoin exchanges in India have suspended operations amid fears they could violate anti-money laundering and financial terrorism laws.

They’re reacting to a warning issued on Tuesday by the Reserve Bank of India, the country’s central bank, which cautions citizens against acquiring and trading virtual currencies. The RBI didn’t outright ban the currencies, but it slammed them as risky and potentially illegal:

It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.

There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

First Bitcoin exchange raid has occurred (via DNA India),

We have found that through the website 400 persons have recorded 1,000 transactions that amount to a few crores of rupees. We are gathering the data of the transactions, name of the people who have transacted in the virtual currency from Gupta’s server that is hired in the US. At present, we believe that this is a violation of foreign exchange regulations of the country. If we are able to establish money laundering aspect then he can be arrested,” said a top ED official.

As per sources, a separate raid was also conducted in Satellite area of the city,however, the person the investigation agency was looking for could not be found. “When we reached his office, he was not there. We have sealed the premises,” the official added.

Sources also added that there are a handful of entities that provide trading in the virtual currency in India. “I think there are only five entities. Of these, we believe two are operating from Ahmedabad. We believe that they have channel of agents or people who promote the use of such currency but entities that provide online platform are few,” official said.

Perhaps it is time to confiscate all the gold, computers, and internet access for anyone not invested in stocks?

Colossal Fraud – There are No Free Markets

There may have been a day when markets were truly free, achieving price discovery through the simple mechanism of supply and demand for capital to assets.  That day has long past, we can argue about when it happened.  But now, many markets, most notably financial markets, commodity markets, the stock market, are highly controlled.  Talk about the plunge protection team is largely sidetracked, hiding the real elephant in the room, the derivatives market.  Futures, derivatives, and other artificial financial instruments can be bought and sold using near unlimited leverage with funds that are created out of nothing, creating a situation where a central bank, such as the Fed, can literally set the price.  Rob Kirby says that the game will end when larger players not part of this charade, such as China, will not receive the physical Gold they have paid for:

Financial analyst Rob Kirby says, “There is colossal fraud and price control going on. There are no free markets.” Kirby goes on to say, “What we’ve seen over the last six months is a ramp-up in interest rate swaps to the tune of $12 trillion . . . . What the build in these interest rate swaps is achieving, it’s stemming the rise in interest rates.” Kirby, who has 15 years experience in trading derivatives, says these complicated derivatives overseen by the U.S. Treasury control the price of virtually everything. Kirby contends, “I refer to this as a price control grid.

They are able to dictate and arbitrarily set the price of all strategic goods in the market, whether it’s capitol, whether it’s energy or whether it’s precious metals.” As an example of control, Kirby explains, “We have 10-year U.S. bond rates under 3%, and I would say the United States is actually insolvent, and we have countries like Greece where 10-year bonds are yielding over 9%.” When does this end? Kirby points to the finite physical gold market and massive Chinese global buying for a clue. Kirby says, “When China doesn’t get their gold, that’s when this ends, and that might be when we have a war.” Join Greg Hunter as he goes One-on-One with Rob Kirby of

The World’s 2170 Billionaires Control $33 Trillion In Net Worth, Double The US GDP

Apparently, 2170 people control more wealth than twice the GDP of the United States, supposedly the most economically strong country in the world.  Their wealth has increased by 60% since 2009.  They largely operate behind the scenes, but considering their economic influence, they should not be disregarded as just benefactors of a good economy.  If they are looked at like an entity, a new type of social economic entity, and not as individuals, how would this entity operate in order to protect its newly established wealth?  Certainly they would be investing in policies that protect what they’ve created and ensure that any policy that does otherwise is destroyed before it’s contemplated.  That means this entity is buying politicians, globally,  not puts on the S&P500.

From Zero hedge:

Before it became a conspiracy fact, the traditional response to all suggestions of a massive Libor/FX/commodity/mortgage [5]rigging cartel was a simple if stupid one: too many people are involved and so it can never be contained. As it turns out not only can it be contained, but when the interests of the “conspiracy” participants are alligned, it can continue for decades. Naturally, the same applies for the pinnacle of the global wealth pyramid: the world’s billionaires and their plan of wealth preservation and accumulation.

Not only have the world’s richest been the biggest beneficiaries of the monetary and fiscal policies since 2009, with the current 2170 global billionaires representing a 60% increase since 2009 according to UBS, but their consolidated net worth has more than doubled from $3.1 trillion in 2009 to $6.5 trillion now. At the same time, the net worth of the “bottom 90%” of the world’s not so lucky population, has declined. Yet, somehow, the Fed is still revered.

Naturally, as in global financial conspiracies, the question arises: is it possible that instead of representing the interests of the general population, what the central banks simply do is follow the instructions of a far smaller cabal, that of the world’s uber wealthy?

In case there is any confusion, the above is a rhetorical question. It goes without saying that what the world’s largest wealth accumulators want above all else, is to preserve a status quo that allows their capital-based wealth to increase as fast and as much as possible in a regime of reflating asset prices, while keeping the bulk of the world’s population distracted, entertained, and collecting their daily welfare check.

Consider the downside: according to a new report by Wealth-X and UBS, “the average billionaire is incredibly well connected, with a social circle worth US$15 billion – five times the net worth of the average billionaire. This figure is based on a calculation of the net worth of only the three top connections of billionaires, and so it is likely to be even higher when considering the number of UHNW individuals the average billionaire interacts with while attending various meetings, dinners, and events.” It is during these “meetings, dinners and events” that the real policy defining the future of the world is set – far beyond the theater of a corrupt, dysfunctional Congress or incompetent Executive. And the policy is simple – “more for us, nothing for everyone else.”

The bottom line from Weatlh X: “factoring in all of the connections between the world’s billionaires, this equates to a total social circle worth a combined US$33 trillion” or double the GDP of the US.

The estimated “circle of influence” among the friends of just the US’ richest is shown below.


Source: Wealth-X

When Countries Go Broke

Submitted by Simon Black of Sovereign Man blog,

It’s become almost cliche these days to point out how many governments are broke beyond belief.

In Japan, where the country’s debt level already exceeds 200% of GDP, the government has to finance 46% of its budget by issuing more debt.

In the United States, the governments add a trillion dollars each year to the already unsustainable debt, and fails to collect enough tax revenue to cover mandatory entitlement spending and interest payments on the debt.

The theater playing out in the US right now is irrelevant. America’s debt challenge is not a political problem. It’s an arithmetic problem. Same in Japan and most of Europe.

However, most of these ‘rich’ western nations aren’t doing anything about it. It’s business as usual, and their debts are only getting bigger.

Poorer countries don’t have this luxury of kicking the can down the road and delaying the inevitable. They must face their financial reckoning now.

In some cases, like Cyprus, they resort to plundering people’s savings. Or Argentina, where the government nationalizes everything that isn’t nailed down.

Others are falling back on more creative measures.

Puerto Rico, for example, is in the midst of its own epic debt crisis. It’s gotten so bad that the commonwealth has effectively been shut out of the bond market.

So last year, the government of Puerto Rico codified a number of special incentives aimed at attracting wealthy foreigners, particularly from the United States.

Puerto Rico’s tax agreement with the US government allows US citizens who are resident in Puerto Rico to pay only Puerto Rican tax, not US tax.

According to the law, US citizens who become residents of Puerto Rico are exempt from any taxation on their Puerto Rican-sourced ordinary income, dividends, or interest, plus long-term capital gains. And they’ll pay no US tax either.

Malta is another example. That country’s debt level is almost as bad as in Cyprus. Yet the government of Malta has recently announced a new citizenship by investment program which could potentially raise billions of euros for the tiny country.

And just over the weekend, Antigua officially joined the ranks of Dominica and St. Kitts as the latest Caribbean nation to offer citizenship by investment.

Antigua is drowning in debt at nearly 100% of GDP. And after spending nearly two years exploring this idea of raising cash by selling citizenship, the Prime Minister formally launched the program over the weekend.

Briefly, foreigners can obtain Antiguan citizenship by investing $400,000 in Antiguan real estate, or $1.5 million in a local business, or merely donating $250,000 to the government.

Other government fees total roughly $60,000 for a single applicant, plus an additional amount for each dependent; it’s possible to apply with your spouse, children under the age of 25, and parents over the age of 65.

Then there’s places like Turks & Caicos– which is in a ‘less desperate’ debt situation, but is still taking proactive steps to raise revenue.

The T&C government has recently reintroduced a ‘permanent residency through investment’ program whereby a foreigner can make investments between $300,000 (for real estate) up to $1.5 million (for a business) and obtain permanent residency in the island nation.

Candidly, all of this is an encouraging sign, and it gives us a glimpse of how the system will be in the near future.

Rather than governments being the enemy of commerce and liberty who treat citizens like milk cows, governments will become interested stakeholders who are forced to compete with one another to attract talented, productive people.

Dr. Jim Willie-Big Banks in Danger of Imploding

Cyprus-Style Wealth Confiscation Is Starting All Over The World

As we warned two years ago, “the muddle through has failed… and there may only be painful ways out of this.” [18]

Submitted by Michael Snyder of The Economic Collapse blog [19],

Now that “bail-ins” have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again.  In fact, Cyprus-style wealth confiscation is already starting to happen all around the world.  As you will read about below, private pension funds were just raided by the government in Poland, and a “bail-in” is being organized for one of the largest banks in Italy.  Unfortunately, this is just the beginning.

The precedent that was set in Cyprus is being used as a template for establishing bail-in procedures in New Zealand, Canada and all over Europe.  It is only a matter of time before we see this exact same type of thing happen in the United States as well.  From now on, anyone that keeps a large amount of money in any single bank account or retirement fund is being incredibly foolish.

Let’s take a look at a few of the examples of how Cyprus-style wealth confiscation is now moving forward all over the globe…


For years, there have been rumors that someday the U.S. government would raid private pension funds.

Well, in Poland it just happened.

According to Reuters [20], private pension funds were raided in order to reduce the size of the government debt…

Poland said on Wednesday it will transfer to the state many of the assets held by private pension funds, slashing public debt but putting in doubt the future of the multi-billion-euro funds, many of them foreign-owned.

The Polish government is doing the best that it can to make this sound like some sort of complicated legal maneuver, but the truth is that what they have done is stolen private assets without giving any compensation in return…

The Polish pension funds’ organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation.


Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.


He said that what remained in citizens’ pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.


For years, Iceland has been applauded for how they handled the last financial crisis.  But now it is being proposed that the “blanket guarantee” that currently applies to all bank accounts should be reduced to 100,000 euros [21].  Will this open the door for “haircuts” to be applied to bank account balances above that amount?…

Following the crisis in October 2008, Iceland’s government declared all deposits in domestic financial institutions were ‘blanket’ guaranteed – an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing to restrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an ’emergency’ measure as a positive, it is of course sadly reminiscent of the European Union “template” to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls – which have restricted the outflows of around $8 billion.


European finance ministers have agreed to a plan that would make “bail-ins” the standard procedure for rescuing “too big to fail” banks in the future.  The following is how CNN [22] described this plan…

European Union finance ministers approved a plan Thursday for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers.


The new framework requires bondholders, shareholders and large depositors with over 100,000 euros to be first to suffer losses when banks fail. Depositors with less than 100,000 euros will be protected. Taxpayer funds would be used only as a last resort.

What this means is that if you have over 100,000 euros in a bank account in Europe, you could lose every single bit of the unprotected amount if your bank collapses.


As Zero Hedge [23] reported on Tuesday, a “bail-in” is now being organized for the oldest bank in Italy…

Recall that three weeks ago we warned that “Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization [24]” although we left open the question of “who will get the haircut including senior bondholders and depositors…. given the small size of sub-debt in the capital structures.” Today, as many expected on the day following the German elections, the dominos are finally starting to wobble, and as we predicted, Monte Paschi, Italy’s oldest and according to many, most insolvent bank, quietly commenced a bondholder “bail in” after it said that it suspended interest payments on three hybrid notes following demands by European authorities that bondholders contribute to the restructuring of the bailed out Italian lender. Remember what Diesel-BOOM said about Cyprus – that it is a template? He wasn’t joking.

As Bloomberg reports [25], Monte Paschi “said in a statement that it won’t pay interest on about 481 million euros ($650 million) of outstanding hybrid notes issued through MPS Capital Trust II and Antonveneta Capital Trusts I and II.” Why these notes? Because hybrid bondholders have zero protections and zero recourse. “Under the terms of the undated notes, the Siena, Italy-based lender is allowed to suspend interest without defaulting and doesn’t have to make up the missed coupons when payments resume.” Then again hybrids, to quote the Dutchman, are just the template for the balance of the bank’s balance sheet.


Why is this happening now? Simple: the Merkel reelection is in the bag, and the EURUSD is too high (recall Adidas’ laments from last week [26]). Furthermore, if the ECB proceeds with another LTRO as many believe it will, it will force the EURUSD even higher, surging from even more unwanted liquidity. So what to do? Why stage a small, contained crisis of course. Such as a bail in by a major Italian bank. The good news for now is that depositors are untouched. Unfortunately, with depositor cash on the wrong end of the (un)secured liability continuum it is only a matter of time before those with uninsured deposits share some of the Cypriot pain. After all, in the brave New Normal insolvent world, “it is only fair.”

Fortunately, it does not appear that this particular bail-in will hit private bank accounts (at least for now), but it does show that European officials are very serious about applying bail-in procedures when a major bank fails.

New Zealand

The New Zealand government has been discussing implementing a “bail-in” system to deal with any future major bank failures.  The following comes from a New Zealand news source [27]…

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.


Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.


“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.


“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.


“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.”


Incredibly, even Canada is moving toward adopting these “bank bail-ins”.  In a previous article [28], I explained that “bail-ins” were even part of the new Canadian government budget…

Cyprus-style “bail-ins” are actually proposed in the new Canadian government budget.  When I first heard about this I was quite skeptical, so I went and looked it up for myself.  And guess what?  It is right there in black and white on pages 144 and 145 [29] of “Economic Action Plan 2013” which the Harper government has already submitted to the House of Commons.  This new budget actually proposes “to implement a ‘bail-in’ regime for systemically important banks” in Canada.  “Economic Action Plan 2013” was submitted on March 21st [30], which means that this “bail-in regime” was likely being planned long before the crisis in Cyprus ever erupted.

So what does all of this mean for us?

It means that the governments of the world are eyeing our money as part of the solution to any future failures of major banks.

As a result, there is no longer any truly “safe” place to put your money.

One of the best ways to protect yourself is to spread your money around.  In other words, don’t put all of your eggs in one basket.

If you have your money a bunch of different places, it is going to be much harder for the government to grab it all.

But if you don’t listen to the warnings and you continue to keep all of your wealth in one giant pile somewhere, don’t be surprised when you get wiped out in a single moment someday.

The Top 10 Questions About Twitter’s Real Value

The number whispered on Wall Street is $10 billion (or $14-$15 if you ask The Saudis), but potential investors in the micro-blogger’s IPO will need more to go on than simple valuation math and guided judgment.  As ConvergEx’s Nick Colas notes, Tech firms are particularly dependent on innovation and human capital for their viability. So while Twitter may come out with a double-digit billion dollar IPO, Colas points out the most important question – Is it actually worth buying there?

The bottom line to the success of thriving tech companies (historically names such as Amazon, Google and Apple) is that they consistently and reliably build products that people want to purchase and use.  Colas explores multiple avenues to determine whether Twitter has the engine to do this, or whether it could emerge more “Groupon” than “Google” in the public company tech arena – and the answer lies in how you weigh the pros and cons of our top 10 points related to the social network’s IPO.   

As for Colas, he’d prefer a clearer picture of Twitter’s vision (i.e. a pipeline of new innovative product ideas) before tossing his dollars in the ring.


Via ConvergEx’s Nick Colas,

Twitter is the most anticipated Initial Public Offering of 2013, but that doesn’t mean we actually know very much about its real value.  Thursday’s news of a confidential S-1 filing with the SEC does little to remedy that, since we don’t get to see the company’s financials.  Still, Beth steps into that breach today with some thoughts about how to assess Twitter’s future value based on its business strategy and current operating model.

Twitter is worth somewhere in the neighborhood of $9-$11 billion, according to the standard Wall Street approach.  And now, after the company’s September 12 IPO filing, you can expect the speculation and bickering over the micro-blogger’s value to continue.  A quick internet search will reveal a handful of analyses, ranging from BlackRock’s recent $9 billion valuation to a Greencrest Capital conclusion that pegs Twitter’s worth at upwards of $11 billion.  The basic math behind these valuations is loosely as follows:

With more than 200 million active users at latest count and expected 2014 advertising revenue ranging from $808 million to $1 billion (according to advertising-data firm eMarketer Inc.), Twitter’s per-user revenue is somewhere between $4 and $5.  However, the 200 million user count is a dated number – it’s likely higher now and will likely be even higher in 2014 – meaning that this calculation could be overstating per-user revenue.


The most popular per-user ad spending estimate is about $7 by 2015, based on the rate analysts’ expect Facebook’s revenue to grow and the $4 per-user revenue figure.  And in the last three quarters of 2012, the population of Twitter users grew by more than 40%.  Assuming this pace slows to 30% for the next three years – and that is a giant assumption – Twitter will have about 440 million users by 2015.  Multiplied by the $7 per-user ad spending estimate, that comes to $3.1 billion in ad revenue by 2015.


Meanwhile, many folks in the venture community believe that Twitter’s margins are as high as 30% to 40%, though the Wall Street Journal’s Dennis Berman elected to play it safe by assuming Google’s astronomical 21% margins and the search engine’s 17x multiple.  Using the Google figures, that $3.1 billion expected ad revenue in 2015 translates to a cool $11.1 billion valuation.

But despite the natural affinity for number crunching, pinning a number on Twitter is more like speculative fun than it is an exact science.  Company analysis goes way beyond throwing a 16x multiple on next year’s earnings – especially for private companies – so we’ve compiled a list of the top 10 hashtags related to the Twitter IPO to determine the company’s strategic capabilities and whether or not the social networking service has the horsepower to follow in the footsteps of the Amazons and Googles of the world.  We outline our top 10 in the form of a SWOT analysis (strengths, weaknesses, opportunities, threats) and then conclude with a brief note on Clayton Christensen’s Innovator’s Dilemma.

Number One: #ShopTilUDrop

Twitter’s biggest strength right now is its growing importance in the land of social commerce sales.  The micro-blogging network accounted for 22% of social-generated e-commerce sales during the second quarter of this year, according to AddShoppers, which relies on tracking codes embedded in retailers’ websites to determine which revenue dollars resulted from a social media site referral.  Facebook was the clear winner, with a 28% share of social-generated internet revenue dollars, though just one year ago Facebook dominated the space with a 55% share, compared to just 15% for Twitter.  Although social media still represents a relatively small share of e-commerce traffic, keep two points in mind.  One, there is a secular shift among advertisers toward directing a greater portion of ad dollars to social media, so the overall importance of social-generated internet sales has a bright future.  Secondly, Twitter is gaining on Facebook in terms of social media e-commerce sales referrals – and gaining fast.  Advertisers are bound to take notice, and Twitter recently hired its first head of commerce to discover how users can shop via tweets.

Number Two: #YoungRichPeople

A broader strength for Twitter lies in the demographics of its users.  Twitter users tend to live in upper-income households and to fall within the 18 to 35 year old category that advertisers target.  A study published last month by Pew research determined that 30% of internet users between the ages of 18 and 29 had Twitter accounts, while 17% of those between 30 and 49 used Twitter.  This compares to just 13% of 50 to 64 year olds and only 5% of people over the age of 65.  Additionally, 22% of internet users who are on Twitter live in households earning more than $75,000 a year, versus 15% living in households making less than $30,000 a year.

Number Three: #IPOWindowOpen

And then there’s the current IPO landscape.  Through the end of August, 131 companies have filed for an IPO this year, compared with just 91 during the same time period in 2012, according to Renaissance Capital.  Pricings, too, are up over last year – a substantial 38%.  So for companies in the market for an IPO, now is broadly-speaking a good time to get in on the action.  Of course, we’ll have to wait and see how much stock Twitter wants to sell.  The illusion of scarcity that makes for a good IPO is hard to pull off if there are billions of dollars of stock for sale.

Number Four: #LosingControl

Twitter’s most high-profile weakness is the widespread gossip about its corporate culture.  Despite having the standard perks you’d expect from a well-funded startup aiming to create a fun workplace environment, word on the street is there’s a downside too.  One anonymous blogger and apparent employee described the work culture as “good but chaotic” and said the firm was getting so big so fast that “communication is difficult, and duplicate work is starting to happen.”  Business Insider spoke with a former employee who depicted the workplace as a “self-congratulatory, complacent environment” with a mentality of “This is our product, just perfect it.”  That attitude, if accurate, is a 180 from the likes of Facebook, which is constantly aiming to reinvent itself and make its products more innovative.

Number Five: #ClimbingTheCorporateLadder

Former employees also opened up to the press about structural flaws.  According to Business Insider, sources say Twitter started with mediocre engineering talent (which isn’t all that uncommon in Silicon Valley), but it magnified the issue by promoting them into positions of power and allowing them to hire their own teams, rather than choosing the best talent for the most important roles.  In other words, “old-timers” became leaders based on their length of time with the company and not necessarily their talent.  Another source said that Twitter hasn’t been enough of an “engineer-driven company” and that at a good tech company, roughly half of the employees should be engineers and this has not been the case at Twitter.

Number Six: #PleaseBuySomething

E-commerce conversion rates are another thorn.  Depending on who did the study, Facebook’s social commerce conversion rate is anywhere from 1.08% to 3.30%, meaning that once users are referred to e-commerce sites via Facebook, there is a 1.08% to 3.30% chance they will purchase something.  These numbers are nothing to brag about, but Twitter’s projected conversion rate range of 0.36% to 0.90% is significantly lower.

Number Seven: #WhereMyMoneyAt

As for opportunities, Twitter has several in the pipeline, as it focuses on building out its advertising system and firming up revenue growth in the wake of its IPO.  The social networking site is now charging $200,000 a day for promoted trends, up from $150,000 last year and $80,000 when they were introduced in 2010.  Promoted trends are advertiser-sponsored versions of Twitter’s trending topics that allow brands to stimulate conversation around a particular topic.  And because promoted trends tend to be self-perpetuating, brands find them especially attractive.  Promoted tweets, which turn a tweet into an ad and show up in users’ streams or against a search, reportedly fetch anywhere between $15,000 and $25,000.  The opportunity to continue raising ad prices and improve the appeal of promoted tweets represents potential key drivers of revenue.

Number Eight: #TVSportsRule

Another opportunity involves Twitter’s deal with ESPN.  The sports broadcaster has agreed to display video highlights of football, soccer and the X games within individual tweets in return for a guaranteed allotment of promoted tweets that will parallel ads inside the videos themselves, basically allowing users to watch replays on their phone.  This finally affords Twitter access into the world of TV, something the company had been interested in for a while, confirmed by its acquisition of Bluefin Labs, a firm that delivers statistics regarding conversations about TV on social networks.

Number Nine: #CorporateBrandingLove

Corporate customer service accounts, too, could offer future benefits for Twitter.  According to a quarterly study by Simple Measured, 32% of top brands have separate customer service Twitter accounts (aside from their main accounts) as of the first half of 2013.  This up from 23% at the end of December 2012 and will likely continue to grow.  It’s clear that top brands are making the effort to communicate with their customers via social media platforms, though the process has yet to prove efficient.  The same study discovered that the average customer response time originating through Twitter was 4.6 hours, while a different study (conducted by Social Bakers) found the average response time to be 6.6 hours.  Once tidied up, however, corporate reliance on Twitter for customer relations stands to be a strong exit barrier.

Number Ten: #WhoAreThoseGuys

Facebook dominates the social media arena right now, but Pinterest appears to be Twitter’s greatest threat.  We mentioned previously that Twitter is rapidly catching up to Facebook in terms social-generated e-commerce sales (in the past year Facebook’s share of the social referrals market sank to 28% from 55%, as Twitter simultaneously saw its share rise from 15% to 22%).  But perhaps even more impressive was Pinterest’s ascent – from a mere 2% last year to eclipse Twitter this year with a 23% market share in the space.  Separately, three distinct studies on the average value of online orders stemming from social media sites all came to the conclusion that Pinterest leads both Facebook and Twitter in referring big spenders to retailers’ websites.

Another concern is Twitter’s susceptibility to the Innovator’s Dilemma.  First penned in 1997 by Clayton Christensen, in a book by the same name, the innovator’s dilemma refers to an outcome when successful companies place too much emphasis on customers’ current needs and fail to adopt new technologies or business models that are able to meet customers’ future needs, some of which are not yet apparent.  Christensen argues that such companies will eventually fall behind.  By all outside accounts, it seems the world in unsure what Twitter’s next step will be.  Yes – they have a successful product – but one successful product isn’t enough to make it big in today’s rapidly changing technology playing field.  So the ultimate question revolves around Twitter’s potential pipeline of new products.  Does current management have the right vision?  Do current employees have the right skills?  Or is everyone so focused on the original Twitter that new products are an afterthought?

Twitter’s founders, including current executive director Jack Dorsey, didn’t set out to create a mega billion dollar company.  In fact, the service began as an experimental pet project that consumers turned into a social powerhouse; in 2010 company executives made substantial investments in infrastructure to make the service more reliable, as its inner workings were not designed to accommodate the hundreds of millions of users.  All that is in the past, though, and Dorsey (also founder and CEO of Square, a mobile payments company) has gone and returned.  Joining him in top management positions are the folks briefly described below.

Dick Costolo, Twitter’s current chief, has a background in improv comedy and consulting and is a former Googler with experience in co-founding several web-based companies.


CFO Mike Gupta is a former investment banker, as well as alum of Yahoo and Zynga.


Former CFO and current COO Ali Rowghani used to hold the top finance spot at Pixar.

From an outside perspective, it certainly seems as though management is more business savvy than technologically innovative, and while Twitter may have initially been an accidental success, its future success must be perfectly intentional.

If you’re going to invest in Twitter, then you should be thinking c-level management can intentionally massage it into a $100 billion company.  How does it do that?  Well, either the strengths overcome the weaknesses and the opportunities overcome the threats, or they do not.  Any of the following three paths (or a combination therein) are capable of leading the social networking firm to a triple-digit dollar valuation, but it must choose at least one direction otherwise face the real risk of flatlining.

Grow organically.  Back to the math discussion from the beginning of this note, organic growth can occur via a greater than expected increase in incremental users (more unlikely than likely), higher than anticipated ad revenue (quite possible since the future of social network ad dollars is both bright and unpredictable), or through bigger than predicted margins (+20% is huge so this is a tough one).


Get bigger and better.  In other words, become Google not Amazon.  The latter developed other businesses but at its core it remains a giant retailer, and that is its focus.  In becoming a packaging of offerings (a la Google) either by itself or with partners, Twitter could splinter itself to become more relevant to more people (as in its ESPN deal) or create alternate sites.


Become an acquisition target.  Though it’s unlikely to be a bargain, we’re betting that some company out there would be will to pay a hefty price tag for the micro-blogger.

Twitter seems to have overcome the management shakeup and exodus of 2011, and the company is clearly growing.  Twitter is hiring across all functional units – there are 202 open positions to be exact, including 55 engineers.  Expansion is evident, but missing from the story is a clear corporate vision.  The underlying factor in all successful tech companies is the ability to create products that people will pay for and enjoy, over and over and over.  People thought Groupon, too, was worth about $10 billion before its IPO, and that hasn’t turned into a success story.  If Twitter is going to go the way of the Amazon, Google, Apple, etc. then investors need more clarity on its path.  Otherwise we’re in for another Groupon.

How a 1% Gain Can Destroy Your Retirement Dreams

Sep 10, 2013 – 01:47 PM GMT

By: Money_Morning

Robert Hsu writes: This has been the bond market’s worst showing in 19 years, thanks to the recent spike in the 10-year Treasury yield. But bond investors aren’t the only ones getting hit.

A higher “risk-free” rate affects you, too. And me. And anyone else trying to grow their money.

It’s time to make an adjustment.

A big one.

So let’s look at three new “dead money” investments, and one that’s “living large” – a company that can give you what few others still provide: a steady double-digit annual return, year after year.

But we’ll start with the shift itself, because this seemingly benign 1% move has triggered what could be the single greatest risk to your retirement dreams…

Like 1994, But (Much) More Devastating

The yield on the 10-year Treasury note is just under 3%, and though that doesn’t seem like a very destructive number, it is the highest rate on this benchmark interest rate metric since July 2011. More important, however, is the tremendous rate of change in the 10-year yield over the past four months, and it demonstrates how a 1% “spike” in interest rates can have a devastating effect on your retirement plans.

On May 10, the yield on the 10-year was 1.90%. Nearly four months later that same yield was 2.90%. This 1% headline move in the yield actually represents a 52.5% spike in the metric, an extreme rate of change that has sent bond prices tumbling, and with it the value of millions of retirement accounts holding Treasury bonds.

Indeed, the move higher in the 10-year yield has wreaked havoc on traditional income investments, because as bond yields rise, bond prices fall. This inverse relationship between yields and bond prices is the main reason why the bond market is having its worst year since the notoriously destructive 1994.

This time around, the spike higher in bond yields and concomitant drop in bond values could have an even more detrimental overall effect, and that’s because there are many more investors that are either in retirement or nearing retirement, which means there are more traditional fixed-income investors today than there were 20 years ago.

Unfortunately, the Wall Street marketing machine has sold retirees on the idea that Treasury bonds are “low-risk” assets, but as we’ve seen this year, these bonds offer little or even negative returns in exchange for this so-called “low risk.”

For example, one of the most widely held bond funds right now is the iShares Barclays 20+ Year Treasury Bond (TLT), which yields approximately 2.90%. In exchange for that yield, you’ve been dealt about a 15% loss in the price of that fund since May. Another widely held bond fund is the iShares iBoxx $ Investment Grade Corp. Bond (LQD). This fund offers investors a yield of 3.9%, but since May the share price has plummeted more than 8.5%.

As you can see, these so-called “low-risk” bond funds are anything but low risk.

Unfortunately, the idea promulgated by the big brokerage houses and sold to unsuspecting income seekers has caused many trusting investors to pile into the same “safe” investments. And as we’ve seen this year, when a trend reverses and catches so many investors off guard, the risk of a big panic selloff is exacerbated.

Think of this phenomenon as akin to shouting “Fire!” in a crowded theater. When the stampede for the exits ensues, people tend to get hurt badly.

So, what can you do to make sure you don’t get trapped in a wealth-destroying mass exodus?

Invest in the “New Income”

The latest “1% move” in the 10-year yield is, in my opinion, the first of many such moves. In fact, we could see the yield on the 10-year rise to 5% or even 6% over the next several years, back to the level where this metric was before the global financial crisis hit.

If I am right about this, it means that the value of traditional income investments will continue to decline for years to come. It also means that if you want to capture the income you need to fuel your retirement, you have to start looking at your money with a growth-oriented eye. (You’ll see what I mean.)

You’ll also benefit from more sophisticated income-generating strategies involving options and unconventional income-producing assets, such as energy transport partnerships and other growth-oriented assets – if, that is, you want to keep your money from getting destroyed by rising interest rates.

Source :

Poland Confiscates Private Pensions – Yours Are Next

Sep 11, 2013 – 01:26 PM GMT

By: Jeff_Berwick

We have been saying for the last four years that as Europe, the US and other Western and global nation-states continue their debt-fueled collapse the governments of these countries will continue to consider their citizens’ wealth to be their own and seize more of their assets.

We have, unfortunately, been vindicated already numerous times.

  • In March, 2009, Ireland seized €4bn from its Pension Reserve fund in order to rescue its banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.
  • In December, 2010, Hungary told its citizens that they could either remit their private pension money to the state or lose their state pension funds (but still have to pay for it nonetheless)
  • In November, 2010, the French parliament decided to earmark €33bn from the national reserve pension fund FRR to reduce the short-term pension scheme deficit.
  • In early January 2011, $60 million in private retirement funds were transferred to the state’s pension scheme in Bulgaria.  They wanted to transfer $300 million, but were denied on their first attempt

And, of course, this spring, Cyprus took it a step further and outright confiscated up to 50% of the funds from bank account holders in that country.

Last week the Polish government announced it would transfer to the state (aka. confiscate) the bulk of assets owned by the country’s private pension funds (many of them owned by such foreign firms as PIMCO parent Allianz, AXA, Generali, ING and Aviva), without offering any compensation.


Think again if you don’t think this will occur all across the Western world until The End Of The Monetary System As We Know It (TEOTMSAWKI).

To begin, the Social Security (or as I call it, the Socialist Insecurity) program in the US is, by dictionary definition, a ponzi scheme.

According to Investopedia: “The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.”

In fact, Social Security is even worse than a ponzi scheme.  At least with a ponzi scheme you have the choice whether or not to “invest” with someone like Robert Madoff.  You aren’t forced into it.

Plus, completely fraudulently, the US government shows all Social Security (SS) incoming funds as actual revenue and then immediately spends the money and gives an IOU (unpayable, bankrupt US Treasuries) in return to the SS system.  Let me repeat that: they immediately spend the money and deposit an IOU into what is already a Ponzi scheme. And in past years Congress has held committees to consider nationalizing private pension funds, just as Poland did last week (and held committees on doing it in 2010).

What was the main reason that all these governments such as Ireland, Hungary, France, Bulgaria and Poland began stealing with their citizen’s private wealth?  It was because their governments were too indebted vis-a-vis their economy and in order to continue operating (and borrowing) they reached out and just took their own citizens’ retirement savings and, in almost every case, mandated that the only assets they can hold is government debt (which will collapse or pay 0-3% at a time when inflation often is running over 10%, meaning a net loss of 4-6%+ per year).

So, let’s take a look at the debt-to-GDP of all these countries and a few other Western countries.

As you can see, with the exclusion of France, all the other countries who have outright stolen private pension funds are all in less debt than the Western countries (or those who have bought into Western-style Keynesian central banking democracies like Japan) who have yet to do so.

Why?  It’s mostly because the larger Western countries have yet to lose the confidence of the market.  While the smaller countries with tinier economies and less ability to float their currencies as reserve currencies get the attention of the market first.

But, this is very rapidly changing.  Here is the interest rate change of US government debt in the last few months (yearly chart).

The interest rate has nearly doubled in the last four months.  This will have massive repurcussions in all markets… and it will also mean that as interest rates rise the US government will look more and more insolvent by the day.  With $17 trillion in current debt (not GAAP adjusted – GAAP adjusted is over $85 trillion) an interest rate of 10% will mean $1.7 trillion in interest payments alone.  The total tax (theft) revenue base of the US was only $2.4 trillion in 2012.  If interest rates were to rise to 10%, that would mean over 70% of the taxation revenue of the US government would go to paying interest alone.

But, remember, $841 billion of that “revenue” was payments into the Social Security scheme.  No company on Earth would include payments into an employee pension plan as income.  So, the more realistic revenue of the US government was $2.4 trillion minus $841 billion in 2012… or approximately $1.55 billion.  In other words, an interest rate nearing 10% would mean that every semi-legitimate cent of tax revenue for the US government, and more, would go to interest payments on the debt alone.

And so expect the US government and most if not all Western governments to do what has happened in places like Hungary, France, Cyprus, Poland and more… attempt to stay alive a little while longer by taking the assets of their citizens.  And tax-sheltered retirements will be the easiest pickings.


Since retirement/pension savings will be the easiest target, immediately divest yourself of as much of those assets as possible — while they are still assets — and internationalize them.  Get as much outside of the country with the government that purports to own you and your assets as possible.  I did that in 2008 in Canada and have never regretted it.

If you are not willing or able to cash in retirement/pension savings, look to alternative options.  In the US, for example, you can easily convert your IRA into a self-directed IRA for a few thousand dollars and then you are able to invest in almost any asset worldwide.  You can buy racehorses in Dubai, gold in Switzerland or real estate in Galt’s Gulch Chile, just as example.  For advice/info or to turn your current IRA into a self-directed IRA,

A self-directed IRA makes sense for anyone with IRA assets over $20,000.  Below that level it becomes debatable in terms of the cost/benefit ratio.

For those with assets inside or outside (total assets) of an IRA of more than $1 million you should contact TDV Wealth Management for an initial consultation about your options.

And, of course, you can always subscribe to The Dollar Vigilante for the latest news, information and actionable intelligence on surviving the coming dollar (and all other fiat currency) collapse.

Because this collapse is going to be messy.

Are your funds safe with your custodian?

A custodian maintains custody of your funds.  When you open an account at a bank, brokerage house, or hedge fund, at some point you transfer assets to the institution who holds them for you in your name (Your account name).  If funds are not on your person in cash or on your property, they are usually kept with some institution.  This could be a bank, broker dealer, hedge fund, futures broker, credit union, or an individual known as a ‘fiduciary’ who usually is licensed to hold funds.  In an electronic world this is mostly cash and cash equivalents, stocks, bonds and other instruments.  But our regulations and laws were written before computers existed.  As one interesting example, it used to be possible to open an account at a commodity brokerage with land or a herd of cattle.  The FCM would create a cash margin account for you with the cattle held as collateral (which made sense for farmers who needed to hedge their business by trading futures contracts).

While financial institutions are generally heavily regulated, you no longer own your funds when held at a custodian.  A deposit is not considered bailment, meaning when you deposit money in a bank you are transferring ownership to the bank and your account statement is effectively an IOU.

A deposit, by legal definition, is not considered a bailment, but even if there was a question involved, all contracts with all commercial banks explicitly state that deposits of funds are a full title transfer of ownership to the financial institution. The fact that funds can be ‘repaid’ to you ‘on demand’ is incidental. When you make any bank deposit, you are giving up title to your funds to the bank, and the bank does not have to store them, and may do with those funds as it pleases. Your funds become the immediate property of the bank, in return for what is essentially an IOU.

Under normal conditions, technicalities such as this are irrelevant.  But in the case of institutional default or fraud, they can mean the difference between getting your funds back, or not.

We’ve seen due to the financial crisis situations like PFG, MF Global, and Bernie Madoff, where investors were subject to their custodian default in varying ways.  Banks have been considered to be historically speaking the safest of any type of financial institution mostly because of FDIC protection (and similar protection in other countries) and their regulation.  But we’ve seen bank failures since the crisis started.  More importantly, we’ve seen banks in Cyprus have their deposits wiped out to ‘shore up’ bank balance sheets.  Now, the bail-in policy is a template that could happen anywhere, in the US, the EU, and even New Zealand has proposed similar solutions for bad banks.  Now there is talk of potential IRA confiscation, based on rumor, but also chilling requests for information such as the US Department of Labor’s “Fact Sheet – Lifetime Income Options for Retirement Plans.”  See what CFTC disclosures are now required to be included in CTA/CPO disclosure documents:


That means if you have an account at an FDM (Forex Dealer Member) and they become insolvent, creditors may be paid before account holders if a judge deems them as ‘priority.’

So what is the solution?

For many it’s not possible or they are not willing to convert all of their assets into physical assets (even including cash) to keep on their property, and those not in financial services are not sophisticated enough to open their own private bank (which is what the elite do).

Solutions have been presented such as by finding AAA+ rated banks and credit unions, looking at their balance sheets to determine the possibility of failure.  This is a very prudent practice, however, it doesn’t guarantee that bank won’t be seized by the government, bought by a bigger bank, or is managed by a lone fraudster who just got hired recently to improve profits.  Before it’s collapse, PFG was considered to be one of the most honest and credible futures brokers in the industry.  Russ Wasendorf, Sr. would speak about the importance of compliance at industry events, and was on the advisory committee of the NFA.

Actually it’s possible to insure your deposit externally by use of derivatives (Buy CDS on your institution), or by non-cash funding of an account by use of letter of credit or bank guarantee.  But the minimum transaction for these options is millions if not tens of millions.

Questions to ask about the institution where your funds are held

  • What is the legal system in the jurisdiction where the institution is registered?
  • Who are the owners of the institution?
  • What is the background of the management of the institution?
  • Are there any damaging reports or rumors circulating about the institution or it’s managers (Google “REPLACE THIS TEXT WITH MY INSTITUTION fraud”) – Years before Madoff was uncovered a lone analyst Harry Markopolos published documents proving mathematically that Madoff was running a Ponzi scheme.
  • If a bank, what is the leverage of the institution (loan to asset ratio)?
  • If regulated, are there any past complaints, fines, or other marks against the institution or it’s managers?
  • If available, what are CDS trading at and what are the spreads?  (CDS indicate chances of default)

Due diligence techniques

DO NOT directly ask questions like this to your institution, it’s a waste of time and has no real information value.

Google is a great tool, you can combine your institution name with ‘fraud’ or ‘default’ or ‘bankrupt’ or other terms to see if there is anything returning in search results.  If you don’t find anything it’s not proof of that there’s nothing to find, as it’s unlikely such information would be found on the public web but it does happen.

Forums and review sites are great ways to engage other concerned customers and read any complaints, if any.

Ask an independent financial adviser to do due diligence for you.  With connections inside financial services they may have contacts or other means to collect info not available to the public.

Remember, each type of institution will have a different regulatory structure, which is also different in each jurisdiction.  For example hedge funds, although regulated, have reporting requirements in the US but are not required to publish statistics about data such as Assets Under Management and other key data.

Global Intel Hub Due Diligence Services

MEMBER OFFER – Structured Consulting can provide professional due diligence & research services about your institution(s) Please contact SC for more info.  Members of Global Intel Hub can also suggest a topic for research that will be published for all members.


The FDIC failed bank list:

Likely to fail resources

How to think Chinese – Developing a long term view

Before we begin we need to clear a few biases.  People confuse culture, politics, and economy.  For example, there is confusion about the differences between socialism and communism; many people think they are the same.  Also people equate communism with USSR style communism, which was less communist than your local community.  The most communist organization in modern times is the Jewish Kibbutz.  To see more about communist ideas read about it here.  The USSR is best described as state capitalist, similar to what China is today.  That means it was a capitalist society but controlled by the state.  It certainly was not ‘classless’ and it was not a democracy.  Real communism as a political system includes a democratic approach whereby everyone has a vote and a say in what the group does.  Family is a small communist organization (sometimes ruled by a tyrant dictator!).

Another misconception is the current model of the United States, which is not democratic and not purely capitalist.  First, the US is a republic, not a democracy.  In a real democracy individuals vote (such as in referendums) on laws or other rules passed.  In the US system elected officials vote on rules on the behalf of voters which is a Republic.  Second, the US is not pure capitalism because there are government regulations.  Also large corporations control markets which is closer to an oligopoly or plutocracy.  Moreover, the US government is a big economic actor, actually employing more Americans than any single corporation.  Capitalism as described as it’s original thinkers requires a political system similar to anarchy, complete rule by the markets and free enterprise with virtually no regulation.  Clearly this is not the system used in the United States.  This confusion can be traced to the British where they were trying to sell their mercantilism approach as a means of economic colonialism, as not to appear as an invading army when taking over a countries resources.  So they promoted ‘capitalism’ as the new freedom, and giving the lesser classes the hope that if they work hard, they can make a life for themselves.

But cultural influences also need to be considered.  For any system, it will look different in different cultures.  Americans have a free enterprise wild west mentality embedded in their culture so while the US is really a Republican Plutocracy, it resembles Anarchistic Capitalism because of the culture.  Americans are risk takers, mostly.  Americans comprise of people from all origins who risked everything to start a better life in a new alien world.  Once there, policies such as the land grab of the west created by the government to expand US territory, exacerbated these traits.  Millions of businesses have been started and failed.  The biggest myth about America is the statistics of success; it’s true there have been cases of people rising from nothing to great power and wealth, but for every one Rockefeller you have thousands of losers who have bankrupt or died.  The American Dream is really a dream, like commoners who discuss what they would do if they won the lottery.  People do win the lottery but you have a higher chance of getting struck by lightning or dying in a car crash.  But these hopes and dreams kept lower class Americans slaving away in factories and plowing fields in a subsistence existence not much different than people lived in Feudal Europe.  But the hope kept them plowing.

Now that we’ve briefly discussed some important biases, let’s try to think Chinese, culturally speaking.

China is a big place with thousands of sub-groups that speak different languages.  It’s more fragmented than any part of the world.  We commonly believe there are 2 main languages, Cantonese and Mandarin, but there are thousands of sub-cultures and sub-dialects.  Without a unified China, the place would be a collection of villages and probably constant war.  The greater state of China keeps them all under one rule.  This is acknowledged by regional leaders such as the founder of Singapore.

The Chinese are not creative as such.  They are an extremely conservative group, one thing shared among most of the sub-groups.  They believe in traditional values, whatever they may be, and they are not innovative, culturally speaking.

They think in terms of 100 years or 1000 years.  This is difficult for Westerners or Western educated people to understand.  In some respects, Indians have succeeded by placating Western creativity while holding similar traditional values like the Chinese.

Farmers can understand this, especially those with fruit trees.  It may take 5 or 10 years for a tree to grow to the maturity required to produce nice tasting fruit.  Good wine, in addition to the growing process, is more valued when aged for decades.  The entire process can mean a lifetime.

It should be also noted that any nation-state strives to increase the wealth and power of their nation by any means, whether by mandate or by lust for power, regardless of the system used to do so.

Investing implications

It’s hard for Western Investors to take a Chinese view of the markets, that is to say, a long term global macro view.  Certain hedge funds and analysts do this, realizing that macro fundamentals will ultimately overwhelm any short term market dislocations.  But it’s harder for investors.  Saying that investors had a ‘buy and hold’ mentality for 20 years during the 80’s and 90’s is unfair because during this period the market relatively went up.  Would they have had the same view in a bear market?

This doesn’t mean investors should sit on losing positions forever hoping they will return.  Simply, that with the right analysis, it can’t lose.  Use any analogy; if you are selling water in the desert and people are dying of dehydration, it’s just a question of time before business will explode.  Smart marketers use arguments to invest in their company, such as those promoting their business models using similar analogies.  Ultimately, reality always wins.  You can’t fight gravity and you can’t turn Iron into Gold for a price that would justify the process.

The mathematical analysis especially on a macro level, if done correctly, cannot be completely wrong.  Of course other factors may come into play, a common one recently are Fed speeches that have little information value but large impact on the market.  But these reactions are usually short lived.

Other implications

The same long term thinking can apply to any aspect of our lives; health, business, relationships, or projects.  The modern version of capitalism teaches us to think in the next 24 hours.  If we can’t make a buck this quarter, it doesn’t exist.  Taking a long term view requires patience, perseverance, and understanding.  If you look at any person’s career, only after years of experience do they gain mastery of their industry.  Child development is another good example, it takes an entire decade for a small child to grow into a full adult.  Why do we take a different view on investing, or in our business?

Long term thinking isn’t about disregarding the present, it’s about understanding macro (global) implications on a longer time frame in synergy.  Those who have suffered through natural disasters like Hurricane’s Katrina and Sandy are examples of how to look only in the short term.  In great contrast, the Great Pyramids in Egypt were actually built to withstand large earthquakes by using a brick locking system of non standard sizes (think Tetris).  Other ancient structures have also survived thousands of years, and new theories indicate the Pyramids may be actually much older than we think.  Whoever built such structures certainly had a long term view on construction.

How to do it

The first step is to develop a method of analysis, collect as much research and information as possible, and make a long term plan.  This should include considerations for social and political changes, market changes, technology influences, having a backup and redundancy, and long term suitability.  For example when investors have been creating portfolios they are not considering institutional risk, such as the collapse of their institution.  Now they are not considering the new ‘bail-in’ policy whereby deposits can be confiscated to shore up bank balance sheets.

If building a business, considerations should be made about potential future government regulations, market impacts based on demographic shift changes, and technological impact.  A good example of technology impact is in the internet industry where the technology shifts every few years.  Getting stuck in a legacy application will not give you the flexibility to adapt to new changes.

A good business example has been the growth of the water industry.  Only 10 years ago, it would have been difficult to imagine that something as simple as water would be a big business.  This has been seized by entrepreneurs offering both water to places where it’s become difficult to find potable drinking water, and a growing demand for consumers for designer waters.

Just remember that if big companies are always on top of this, then Microsoft, Google, and Facebook wouldn’t exist.  IBM was practically a market monopoly when Microsoft was founded, yet IBM didn’t cash in on the growing PC business.  Microsoft grew and became a niche IBM, missing the trend in the internet giving rise to Google.  And Google did the same, missing the social media trend giving rise to Facebook.  This exists in all industries but it most obvious in the tech sector.

One could argue that the key is not trend spotting but proper planning.  It was obvious to many that a search engine would be needed with the rise of the internet.  Google capitalized on it.  It should be noted however that while Google is a common example because of it’s notoriety, there were hundreds of other groups that capitalized on it, either being bought by Google or some other company.


A good start is to read Sun Tzu – which has been recommended reading in business schools and especially for traders.  Download the book here: The Art of War, by Sun Zu

The interesting thing about Sun Tzu is that the strategy outlined in this ancient manuscript still applies to business and the markets today.  In other words, good analysis and strategy is timeless.  It can be applied to your portfolio, business, or anything.  Sun Tzu isn’t a particular strategy per se (unless you are doing battle in Ancient China) it’s a set of rules, or a doctrine, on which you can base your analysis system.  The problem with developing a strategy is the influence of biases and opinions.  “Thinking” that something will happen doesn’t a good strategy make.  Sun Tzu provides an framework for developing “Chinese Thinking” or a long term view based on.  Sun Tzu isn’t the only analysis framework.  A more modern approach has been developed by Carl von Clausewitz which to this day is taught at West Point.

Why all the military examples?  Simply, military analysis is by design no different than trading, or business.  As the Japanese say “Business is War.”  With the military, and with trading, a flawed strategy that causes losses in money or life can be devastating.  The military is used when a diplomatic solution (political) is not possible, so any military is focused on strategy, tactics, operations, completing the mission.  Politics on the other hand, is a completely different animal, it’s more similar to dating than to war-fighting.

Of course investing is not the only application of such an approach, although it may be more useful for investors and traders than in other applications.  Long term project development can use the same thinking to build strong foundations for their projects, and defend against outside threats, for a lasting success.

Further Research