Looking For Seed Capital? I Can Help

Looking For Seed Capital? I Can Help

Hi there,

Before we get started.

Soooo… if you’re looking for seed capital let me know. I’ll put you in touch.

Silent Wednesday?

I’ve a friend who never works Wednesdays. It’s the middle of the week, he tells me. Why work when everyone else is?

Fair point. And so this past Wednesday I did just that. Well, for some of the day, anyway. And I received complaints for not writing a pithy, intelligent, mind-blowing blog for you.

I’m sorry. I was seeing a man about a horse. No, really!

Finicky bloody beasts – horses. I thought they were like hydrogen molecules, all exactly the same.

But I’m assured this isn’t the case. I can guarantee you this, though: It’s easier to figure out parabolic curve theory or quantum mechanics than it is to understand all the complexities of these beasts.

And then there’s the little issue of cost.

You think cars are expensive until you buy a horse, which actually means that you’ve got to upgrade your car because pulling a half ton nag about can’t be done with just any car.

No, no, no. You need something that Schwarzenegger would drive when heading into battle with aliens. And once you’ve got one of those, you’ve got to spend even more money on the carriage to cart your nag around in. You’d be forgiven for looking at these “floats” as they’re called, and coming to the conclusion that they’re simply glorified tin cans on wheels and as such would be as cheap as chips.

Your former evaluation would be correct (boxes on wheels), but your latter conclusion (cheap as chips) would be as wrong as Miley Cyrus swinging naked on a wrecking ball. So, of course, they’re ludicrously expensive, which means you’ll need to sell your Porsche and your boat to get one.

That’s just for starters.

And don’t get me going on “horse people.” They’re all collectively off their rocker. I mean a horse can kick a child’s head clean off and it’ll get all the sympathy of an old lady tottering across a pedestrian crossing. The poor darling got “spooked“. The now headless child and parents for their part will be scolded for upsetting the poor thing. Crazy. I’ve never seen anything like it. Horse people are completely mad.

And this got me thinking how similar horse crazies people are to fanatics of all stripes.

Now, I know I’ll get hate mail for this but hear me out.

It’ like a religion. I mean you can explain to the Zulu’s that their belief in the Tikoloshe, an evil little creature that can become invisible by drinking water and can cause illnesses and even death, is up there with the tooth fairy.

And it wont matter a jot. This is their belief, and it’s as unshakeable as our Wahhabi Saudis’ belief in their own gods or indeed ISIS, who’ve been on a murderous rampage due to their beliefs in some medieval superstitious nonsense that was supposedly handed down to an illiterate peasant in the desert.

In fact, history is littered with beliefs and religions which have since disappeared, though we have evidence that folks killed each other over those beliefs. Powerful stuff, beliefs.

Every investor thinks they’re immune, but the evidence proves they’re not.

Show a gold bug that gold will get cut in half, and they’ll nod their head, furrow their brow, and mutter away. But there is NO WAY they’re selling. No, Sirreee!

You see, gold has that magical attribute to convert people to believers. And as such, it’s really excellent for manias.

Show a Japanese bond fund manager, who’s known nothing but positive returns for 25 years why the risks to owning JGBs may not really be as peachy as commonly thought and you’re an heretic. And yet there’s the other side of asymmetry you never hear about.

And this is what’s to love about any setup where folks can have an ideological, religious-like belief.

Without them it’s literally impossible to have truly epic, tell-your-grandkids-one-day manias.

Every market mania is rooted in an ideological, religious-like belief.Click To Tweet

The dot-com era was one such epic mania.

Believers could never be told that even though the Internet was revolutionary there is no such a thing as “no price is too high,” which is basically the tenet of every mania.

Sure, the Internet completely changed our world. In fact, it’s why I suggested Jamie Dimon should learn about lemons, but remember we’ve got that odd old curmudgeon from Omaha to remind us that…

Believers are absolutely necessary. Or should I say, the ingredients to allow for the formation of believers are necessary for truly epic manias. And this is something we should all love. Why?

Who doesn’t want to ride a mania, provided you know it’s a mania? Or indeed bet against one as market saturation becomes evident.

We’re doing ourselves a disservice if we’re not on the lookout for these attributes all the time. They’re quite easy to spot. Especially if we’re lucky enough to have a cult leader as they’re more evident that way.

And this is one reason to love Bitcoin.

For the believers there is no price too high for it… or too low. They’ll never sell.

Side note: If someone wants to launch “The Church of Bitcoin” right now, hit me up. I’ll structure the deal for you, we’ll run an ICO, and then take the sucker public. Call me!

Speaking of true believers…

Let’s all hope that we see it at US$490,000 in 3 years.

“So we need to be afraid and get out, Chris?”

Let me put it this way: “Buckle up, you ain’t seen nothing yet.”

And if ever you needed evidence that the bubble in Bitcoin has a way to go yet, I present to you the WSJ:

Well, the one thing I have learned over the years is that economists, who, let me remind you, never manage money, will be more wrong than central bankers, which is saying something.

Right now, they think we all ought to be losing sleep over Bitcoin. The simple fact that they believe this makes me sleep like a rock.

I’ll go on record here and now, and you, readers, can hold my feet to the fire. I’m going to say that these economists are going to be spectacularly wrong, and when they’re justifying some truly insane prices my rock-like sleeping habits will be severely disrupted.

Yes, Bitcoin returns have been insane. To show you how insane, here is a Bitcoin chart.

Shoot, I’m sorry. Wrong chart. What was I thinking?

Something Else to Remember

And this is important to understand context of where we’re likely at.

Here’s Amazon at the peak of the Nasdaq bubble and the subsequent bust.

But in hindsight we now all know that the underlying technology and way of doing business was fundamentally changed forever, and Amazon managed to gobble up market share in the same way that a pack of lions would gobble a herd of one-legged antelope.

The parallels with Bitcoin and blockchains of many flavours are striking.

The jury’s still out on whether the Bitcoin blockchain (remember Bitcoin the currency is the mechanism by which the bitcoin blockchain operates and provides security) captures that market share in the long run or not. But back to manias, right now we’ve the ingredients:

  1. Revolutionary technology,
  2. A completely screwed massively over leveraged financial system,
  3. Fiat currency that by any metric and in any other circumstance would be completely 100% worthless
  4. Eroding faith in political and corporate establishments
  5. A fanatical religious following, and
  6. An entire (Wall Street) sector who’ve not even begun to have their fun yet.

You wanna short that?

Have yourself a wonderful weekend!

– Chris

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” — George Soros

 

Could Central Banks Dump Gold in Favor of Bitcoin?

Could Central Banks Dump Gold in Favor of Bitcoin?

Exhibit One: here’s your typical central bank, creating trillions of units of currency every year, backed by nothing but trust in the authority of the government, created at the whim of a handful of people in a room and distributed to their cronies, or at the behest of their cronies.

And this is a “trustworthy” currency?

Exhibit Two: central banks can’t become insolvent, we’re told, because they can create as much currency as they want, whenever they want. And this is a “trustworthy” currency?

Exhibit three: and here’s what happens when trust in the currency is lost due to excessive currency issuance: the currency goes from 10 to the US dollar to 5,000 to $1 and then to 95,000 to $1, on its way to 2,000,000 to $1:

Yes, this was once a “trustworthy” currency.

While many people expect China to issue a gold-backed currency some day, they overlook the inconvenient reality that China is creating far more fiat currency than it is adding in gold reserves. They also overlook that gold-backed means nothing if the currency isn’t convertible into gold.

If it isn’t convertible, it isn’t gold-backed. Claiming there’s gold somewhere in a vault doesn’t make a currency gold-backed, as the central bank can devalue the currency it issues at will. Gold-backed means the currency is pegged at X units of currency to 1 unit of gold, and X units of currency can be exchanged for 1 unit of gold.

All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged: Could Bitcoin (or equivalent) Become a Global Reserve Currency?(November 7, 2013)

Since there is no real-world commodity backing the digital currency, its value must be based on scarcity and its ubiquity as money. The two ideas are self-reinforcing: there must be demand for the digital money to create scarcity, and the source of demand is the digital currency’s acceptance as money that can be used to buy commodities, goods, services and (the ultimate test) gold.

Speaking of gold, correspondent Liberty Philosopher recently posed a scenario that was new to me: if gold continues losing value, could central banks dump their gold in favor of cryptocurrencies?

Yes, I realize this is anathema to those who anticipate a gold-backed currency becoming the dominant form of centrally issued currency, but the idea of governments that have debauched their currencies building reserves of decentralized and limited-in-issuance cryptocurrencies may not be as farfetched as you might imagine.

Here is Liberty Philosopher’s commentary:

My understanding is that gold is kind of a reserve asset held by governments that provides the ultimate assurance that they are able to pay their debts. If the value of the assets they hold, which are a guarantee of their ability to pay, begins to erode, and the erosion in value is not a temporary or passing phenomenon, but a continuous and long-term trend, this would imply that the ability of governments to ultimately pay their debts would be eroding. If the value of gold begins to decline, governments who have gold reserves, but whose ability to pay their debts may be somewhat in question, would come under pressure to fortify their reserves as proof that they remained able to pay their debts.

If the price of gold were to continue to decline, my thought is that governments would be under pressure to sell the reserve asset that was declining in value, because the continuing decline in value would call into question their ability to repay their debts. They couldn’t just sit there and allow their reserves to decline in value year after year. They would have to act. If the need for having some kind of “hard” currency reserve remains (creditors may not want to accept newly printed bank notes in lieu of “hard” reserves), and they are forced to begin selling their gold reserves, what other hard reserve asset could they obtain or purchase? I think they could become purchasers of the most valuable cryptocurrencies as a replacement for their gold reserves.

The ideal reserve gains in purchasing power over time. If Venezuela had purchased bitcoin in size when it was $100, or even $1,000 in January 2017, its own currency wouldn’t be heading to near-zero quite so quickly.

In my book A Radically Beneficial World, I proposed that nations which had debauched their centrally issued fiat currency could acquire the labor-backed currency I propose as reserves.

The acquisition of decentralized cryptocurrencies as reserves may sound crazy now, but as central banks destroy the purchasing power of their fiat currencies, all sorts of ideas that seem crazy now will start looking practical once the death spiral of the current unstable monetary regime begins. 

I’m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20).

Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

A Gift From The Oldies

A Gift From The Oldies

I bumped into a friendly bloke at my local gym last week. Jim is his name.

Jim tells me he just started because, and I quote, “my doctor says I’m going to die unless I do something”.

Now, I assure you it doesn’t take a doctor to figure this out.

One glance in Jim’s direction and you can tell that underneath all that weight there’s a big struggling heart in there… just ready to explode. He was surprisingly frank and tells me it’s so bad that he can only do little bits of exercise because if he pushes it too hard, there is a very serious risk that his ticker just says, “You know what… f*ck it,” and gives up.

Jim’s 52, which is really a ripe old age and about normal life expectancy — if we lived in the 1700’s. But we don’t.

I feel for Jim, told him so, and naturally we all hope that he can bring himself back from the brink. But the fact is many people aren’t like Jim. As mentioned in a previous article on pensions, they’re living longer and stronger.

Years ago it seemed that when you hit 65 you’d retire, receive a gold watch, and proceed to spend your pension money on a rocking chair and pot plants. Ten years later you’d be in a box and, since pot plants are cheap, the cost of keeping you alive wasn’t prohibitive.

Not anymore. Today things are different. My wife belongs to a running club and there are a bunch of octogenarians there who put us both to shame. Nope, today you retire and spend your pension on kickboxing classes and second wives, with no plan of dying anytime soon.

Now, this second group (our kickboxing oldies) pose a grave problem.

You see, unlike Jim, these folks, who’ve spent their life exercising, go on and on and on.

70 is spring chicken young for them, and many make it well into their 80’s and 90’s when inevitably they need nappies, nursing care, accommodation, and mushy food to eat. And then finally machines on wheels need to be wheeled in and they end up with tubes in their noses. Don’t laugh. We’re all going to get there, unless we’re fortunate enough to just drop dead quick and fast. The point is this all costs a boatload of money.

Now, I’m aware that this topic isn’t rosy Friday red or shampoo advert fresh and clean, but there are some serious implications that I think you’ll thank me for so hear me out.

Demographics and Pensions

Demographics is an elephant in the room we shouldn’t ignore. It’s stomped around, defecated in the corner, and is now proceeding to knock over all the furniture. Ignore it at your peril. Rather, there are a number of ways to invest.

Let’s explore a few…

Old people (Mabel and Bob) pay for their retirements with pensions, and those pensions are held in pooled accounts at the DTC and managed by folks with pointy shoes and Tom Ford suits.

And because old Mabel and Bob are closer to the box than younger folks, the pointy shoed gents are extremely risk averse (as they should be), and this is where it gets exciting because you know what?

They’re presently engaged in the worst possible leveraged speculation you can think of.

Nope, it’s not Bitcoin.

First, to understand the insanity we have to take a step back and examine how these pointy shoed gents think.

They like fixed income because it’s far less volatile and ostensibly less risky than equities.

They hate small caps and frankly can’t invest in them due to their size, and they have a disdain for commodity markets. That volatility thing again…

In fact, volatility is like a barometer in their world by which everything else is measured.

The problem is with central banks shatbit crazy interest rate policies none of them have been able to make any money in a yield starved world and so they’re, wait for it, selling volatility.

Either through tailor made products from the investment banks or by buying any number of the low volatility ETPs out there.

Volatility isn’t even an asset.

In fact, the VIX is an index of volatility on 1 month to expiry ATM puts and calls on stocks in the S&P 500.

But now the geniuses on Wall Street have figured that they can actually package this animal, which as you can see, is a derivative of a derivative, and treat it like a bond. Fun, heh?

In all fairness, hats off to the asset managers who’ve had the balls to do this. They believed in the central banks’ liquidity machine, and they backed their belief and for that they deserve to be paid. I sure wouldn’t have been able to do it.

Now, I’m not some miserable jealous git here to tell you that armageddon is coming and I’ve the answers.

God knows there’s enough of that nonsense in the financial publishing blogosphere for you to get your fill elsewhere. What we do know, however, is that this entire game: the selling of vol, the passive indexing — all of it is predicated on one thing. The central banks keeping rates low and pumping liquidity into the market. It’s why BTFD has become a meme.

The problem that I have with it, other than the distortions made, is that when so many are on one side of the boat like right now and that boat has many moving pieces, then I begin to wonder.

I’m reminded that markets change at the margin, where the slightest hiccup can act like a spark to light the fire of volatility, and these poor suckers who’ve managed to earn steady incomes selling puts find out what “unlimited risk” actually looks like as they’re forced to cover in a market that’s gapping the other way.

I’ve thought about this a lot and, in fact, we recently published how we are going “long vol” for members. And no, it’s not buying puts on VIX because that is, in my humble opinion… how do I say this politely, like begging to be stabbed in the eyes. repeatedly.

In any event that’s just one angle to this market. Here’s another.

Redemptions

I would be remiss in mentioning that as retirees retire, these pension funds will be drawn down.

It’s what Mabel and Bob do to pay for their mushy food, viagra, and bingo nights.

Now, I’m sure you’re all sharp enough to figure out what can happen to the assets these guys have been buying when they have to go from flat out full throttle, to stall, to reverse.

How big is this problem?

Well, for some context global institutional pension fund assets in 22 major markets stood at US$36.4 trillion at year end 2016, amounting to 62% of global GDP.

That is a staggeringly large amount of money.

Pension funds are big cumbersome dumb money. And they’re all allocated in equally dumb indexes, passive strategies, and bonds. So what happens when pensioners draw down on their funds?

You tell me…

Talking of staggeringly large amounts of money, the passive bubble grows bigger as I write this because this beast is fuelled not just by our pointy shoed friends but by Joe Sixpack himself.

Bloomberg just ran a piece:

BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion

Two towers of power are dominating the future of investing.

Dominating indeed. Here’s how come the pointy shoed crowd can afford Tom Ford suits.

The article goes on to say:

Investors from individuals to large institutions such as pension and hedge funds have flocked to this duo, won over in part by their low-cost funds and breadth of offerings. The proliferation of exchange-traded funds is also supercharging these firms and will likely continue to do so.

Sometimes when everyone is zigging and you zag, you just get run over. But think about it…

We don’t need to go the other way. All we need to do is look where others are no longer.

These behemoths don’t do battle in the little unloved sectors or with stocks that don’t make it into an index. They can’t because they’re too big.

This means that there are a lot of orphans out there and here’s the good news. If it’s not in an index, passives aren’t buying it. And if passives aren’t buying it, it’s only active money that’s even looking at it.

Which brings me to the double helping of good news.

Here’s your competition in active with the accompanying passive.

Right now, it’s a mosh pit food fight to grab and create the next index or ETF so that more capital can be attracted, earning more fees, buying more suits.

This is all well and good.

Markets do what markets do, and I’m not here to grumble about it. I’m here to make money. And indeed if I was in the passive business, I’d be enjoying the steady stream of fees and hoping like hell the market keeps going up.

QE more? Yes, please.

But I’m not.

I’m a humble squirrel searching for nuts in the forest. And gosh, with all this moshing going on it’s wonderful how few other squirrels there are about. The same Bloomberg article makes a good point on this.

While bigger may be better for the fund giants, passive funds may be blurring the inherent value of securities, implied in a company’s earnings or cash flow.

Nah. You think?

Stocks in the index funds no longer trade on fundamentals but rather on asset flows, which sucks the oxygen out of the small guys who don’t make it into the indexes where brain dead passive money is playing.

It means we can gladly play in a sandpit with all the toys and there are very few we have to share them with.

The Cracks Have Already Appeared

Nothing lasts forever, and as I argued when discussing the impact of the incoming strong men on the global economy, there are 3 critical points worth thinking about:

  1. Political cohesion and stability can no longer be relied upon as politics becomes inward looking with everything from trade deals to central bank swap lines being renegotiated or cancelled altogether.
  2. Global coordinated central bank action. The era of global coordinated monetary policy which we’ve been experiencing since the GFC, especially with the three largest players (ECB, FED and BOJ), will be looked back upon with nostalgia by the current clutch of central bankers who muddy the halls of power. Policy will increasingly be driven with greater sensitivity to nationalist rather than international concerns, which brings me to…
  3. Liquidity in the financial system which has stemmed from easing monetary policy is already contracting. In a world where derivatives traverse borders, connecting financial systems like never before, a liquidity crisis presents enormous tail risk in a leveraged world.

Invest accordingly, and thank you for reading.

– Chris

“If you can’t take a small loss, sooner or later you will take the mother of all losses.” — Ed Seykota

Adoption, Not Just A Game For Brangelina

Adoption, Not Just A Game For Brangelina

Who would have guessed that US Patent No. 3,906,166, granted in 1975 to Martin Cooper of Motorola would completely change the world?

My kids tell me that was a long time ago, which I suppose it was….

Here’s global cell phone penetration over the last decade. Not bad…

With hindsight we can look at this adoption phase and marvel, but let’s not miss some key points.

Specifically, how radically phones have infiltrated so many aspects of our lives. And no, I’m not talking about Sally who’s addicted to the endorphin rush she gets from hitting refresh on Instagram to see how many “likes” her stupid photo of her chicken-avocado salad is getting. I’m talking about real isht. Life changing isht.

Like the millions of Africans who now receive anti-malaria texts from football hero Didier Drogba:

It’s 9pm, are you and your family safe under nets? This is Didier Drogba, sleep well.

Ah… the humble mobile phone — doing more to fight Malaria than the UN, the WHO, or any government ever has. Power distributed and decentralised.

Or…

The Indonesian midwives’ mobile phone project, which has drastically reduced infant mortality rates as villagers place more trust with midwives who can now talk to obstetricians and gynaecologists in the cities and provide better care.

Or…

Farmers, who prior to the mobile phone used to walk in blazing heat for up to two weeks to get to market, where they’d sell their livestock…. and sometimes wouldn’t because demand wasn’t there.

Those same farmers now use mobiles to determine ahead of time market prices for their goods before deciding where best to trade their livestock or crops. Not only that, but receiving live pricing of livestock and crops allowing them to more accurately plan and run their farming practices. Power distributed and decentralised.

And speaking of farmers in the third, world it was back in 2003 or 2004 — I can’t remember exactly — when my lovely lass (before she succumbed to my charms and became Mrs. Chris) and I were traveling in Kashmir, and I vividly remember realising then just how powerful the mobile phone really was.

We were chatting to a peasant rice farmer, I’ll call him Ranjeet. Because his father had done it before him, and his fathers father before him, and he himself had been at it for over 30 years since, Ranjeet was doing the only thing he knew: He was growing rice.

And like his forefathers before him, Ranjeet simply took whatever price was offered by the Delhi traders when they turned up at harvest time. Together with his fellow rice farmers in the village Ranjeet had no way of knowing whether the price he got from the traders from Delhi was fair or not.

Enter the mobile phone.

He, together with fellow farmers, had all clubbed together and bought a WAP phone. Remember those?

It was man’s first crack and connecting a mobile phone to the internet.

Ranjeet and his buddies would huddle around the phone, getting live pricing from the rice market in Delhi. And whoo… boy, had it made them mad. Ignorance, they say, is bliss.

Try telling that to Ranjeet, and he’d have punched you in the face. So when those slimy rice traders from Delhi rolled into town to buy Ranjeet and his buddies’ rice, these dirt poor peasant farmers could no longer be hoodwinked into selling it at deeply discounted, “kill my family, make me starve” prices any longer. Power distributed and decentralised.

For most of us, we’re lucky enough to live in a developed country where we don’t think about this stuff.

The mobile phone helps us do many of the things we were already doing, but now we just do it without getting off the sofa.

But for those in emerging and submerging markets mobile phones help people do things they could never do before. They are, in other words, not a luxury but a necessity.

Ask folks today, and I’ll bet they’d sooner leave home without their underpants on than leave home without their phone.

What else?

Education. The mobile phone has revolutionised that, too. I was reading that in Vietnam 75% of the kids use their phones for educational purposes. This is good news because it means that Brangelina and Brangelina wannabes won’t have to adopt starving illiterate Vietnamese orphans any longer.

It was Malcolm Gladwell, the author, journalist, and speaker, who said:

Poverty is not deprivation. It is isolation.

I’m going to put my neck out and say that the mobile phone has probably done more to break isolation and reduce poverty than almost anything else in the last 50 years.

So What?

Well, the mobile phone is similar to how to think about blockchain, and of course the most powerful (to date) blockchain is Bitcoin, which I spoke about last week. One changed the world. The other will change is changing our world.

Like the impact of the mobile phone before it, it’s going to be HUUUGE!


HUUUGE! I tell you!

Now, I’m going to suggest that Martin Cooper was an amateur, compared with Satoshi Nakamoto, whoever the hell she is. This is because blockchain technology has the potential to do what the mobile phone has already done but on steroids.

Applications are already being built in: Asset management (trade and processing settlement), insurance (claims processing), payments, title registry, deed registries, personal identification, distributed cloud storage, and an entire squadron of other applications far too long to mention here.

Many will scoff and laugh at it… and many do. This is how it must be, but I warn you. To ignore this is like ignoring the impact mobile phones were going to have on society when the first mobile handset went on sale in 1973. Completely revolutionary and disruptive technology would be neither revolutionary nor disruptive if it didn’t… how do I say this… disrupt.

And it’ll be fought hammer and tongs, especially by those who see it as a threat to their own business models. Hello Jamie 🙂

But ultimately new technologies become overwhelming, and even those who poo poo it will be dragged kicking and screaming into its clutches because the utility function is too powerful.

And we should all be as happy about this as these guys.

Because power in the hands of many is always everywhere better than power in the hands of the few.

Power in the hands of many is always everywhere better than power in the hands of the few.Click To Tweet

To the future… and a jolly fine weekend. Thanks as always for reading!

– Chris

“Disruption is a process, not an event, and innovations can only be disruptive relative to something else.” — Clayton M. Christensen

 

 

(Visited 344 times)

Risk Of Online Accounts Seen As One of Largest Brokerages In World Stops Trading After “Glitch”

Risk Of Online Accounts Seen As One of Largest Brokerages In World Stops Trading After “Glitch”

– ‘Technical issue’ at Fidelity blocks access to online accounts, stops online trading
– Fidelity is 3rd largest brokerage by client assets: $1.7 trillion at the end of 2016
– NatWest, RBS, Ulster Bank  have experienced online banking “issues” in November
– Clients left without access to funds & failed payments & little to no recourse
– Social media exposing the banks’ and online trading platforms’ shortcomings
– Reminder that online accounts can be rendered non-viable and vulnerability of absolute dependence and digital cash, digital gold etc

Editor: Mark O’Byrne

Yesterday, customers of Fidelity, the third largest brokerage in the world, found themselves unable to access their online accounts.

The company is responsible for an estimated 8% of total US wealth management. With such a huge responsibility, Fidelity,  like most companies, works hard to ensure clients have access to online accounts at all times.

Yet it still happened, reminding investors of the risks posed by digital assets – be they stocks, gold or indeed deposits – held solely through online accounts and platforms – the ‘Single point of failure’.

Fidelity is just one of many online “outages” or “glitches” reported by financial institutions in the last year. In Europe, particularly the United Kingdom, banking customers have found themselves regularly facing bank account ‘glitches’. It is thanks to social media that some of these even come to the fore, with many organisations keen to sweep them under the carpet.

Investors, savers and, in fact, any user of online services needs to be aware of the risks and how to protect themselves in the case of a sudden ‘access denied’ message or worse, a prolonged period of not being able to access, trade and or withdraw funds from an online account.

Not like the old days…

Click here to continue reading on GoldCore.com

The Candle Problem (And Why Bitcoin Is Misunderstood)

The Candle Problem (And Why Bitcoin Is Misunderstood)

Karl Duncker, that’s who came up with it.

The Candle Problem, that is.

If you haven’t heard of the candle problem, here’s the skinny.

In 1945, just as Hitler was murdering himself (thankfully), psychologist Karl Duncker was turning his attention to how humans solve problems. He came up with “the candle problem,” a cognitive performance test measuring the influence of functional fixedness on a participant’s problem solving capabilities.

Here’s the problem he presented…

Participants are given the following task: They have to fix and light a candle on a cork board that’s attached to a wall in such a way that the candle wax won’t drip wax onto the table below. To do so, they can only use the following objects:


A book of matches, a box of thumbtacks, and a candle

Here’s what most do…

Oh, and by the way, if you think you’re different… This has been tested on numerous “subjects” including MBA students. Odds are you’re not.

Many subjects try all sorts of creative, but inefficient, methods such as trying to tack the candle to the wall. Nah, doesn’t work. Others attempt to melt some of the candle’s wax and use it as an adhesive to stick the candle to the wall. Nope. Doesn’t work either.

Here’s the sneaky little kicker. When the task is presented with the tacks piled next to the box (rather than inside it). Like this:


Tacks… outside the box

Virtually all of the participants manage to achieve the optimal solution, which is…

Thinking of the box as something other than a mere receptacle, participants quickly find the solution.

A “box of thumbtacks” vs. a “box and thumbtacks”. You’d think we homo sapiens are smarter. Proof if you ever needed it we’re only a half chromosome away from chimps.

Which Brings Me Neatly to the Internet…

Grab your beanie babies and holster your Pokémon cards. We’re stepping back in time to the 90’s — you know when the internet was just cranking up. 1995 to be precise when famous astronomer Clifford Stoll wrote an op-ed for Newsweek stating:

“The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”

Around the same time, Nicholas Negropone, director of the MIT Media Lab, predicted:

“We’ll soon buy books and newspapers straight over the Internet.”

Ah… no.

And just one more for good measure.

“We’re promised instant catalog shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obsolete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month?”

Hindsight is a wonderful thing, and we can all scoff and laugh now, but the truth is 99% of people who use the internet today don’t know how it works. And guess what? They don’t need to. The fact that it does is what matters.

The internet solved problems we never even knew existed with respect to communication, shopping, banking, trading, entertainment, authentication, education, marketing, finding out what the hell a tranny is, and a zillion other things.

The pieces necessary for it had existed for some time — the proverbial thumbtacks, candles, boxes, and matches if you will. But until it actually happened, nobody saw how to put it all together, let alone how thoroughly it would transform our lives.

And here’s why it was so hard to understand what the internet was and how it would work.

Search and Retrieval Systems

That’s what our brains are. If I’d never seen a pear before, how would you explain it to me?

You: “Well, Chris do you know what an apple is?”

Me: “Sure, of course. I’m working on one now. Only kidding. Yes, red, crunchy, sweet… got it.”

You: “Well, it’s like that only green and a bit fatter at the bottom than at the top. But it’s quite similar.”

My brain does the search and retrieve thing and comes up with this.

Ok, I say to myself, so a pear is basically a wonky apple… and green. I think I understand.

But as you can see, I don’t really, though I’ve a better idea now thanks to your explanation, but I’m still unlikely to visualise this.

So when the internet came along, people used their search and retrieval databases (brains) to come up with what it was and what it could look like.

But there was nothing in there to retrieve. And so unless you’d taken way too much LSD as a teenager and seen things that the rest of us hadn’t, you had nothing to go on. Which is why folks struggled to see the pear. Heck, it was like having no idea what fruit was.

And then bam! Along came a pear.

The reason I bring up the internet is because we all know about it now. And that’s important because it’s easily the best reference point we’ve got to understanding bitcoin.

Who Owns the Internet?

The answer to this is the reason Bitcoin is succeeding where E-Gold (shut down by the USG) didn’t.

For reference, E-Gold was a gold backed digital currency. Its flaw? Centralisation.

Things which are decentralised are much tougher to kill. This is why the US army. despite being the world’s largest, is still embroiled in places like Afghanistan fighting guerrillas (decentralised). It’s the same reason that the stinger missile changed the power balance of warfare.

The internet is owned by everyone.

Ok, sure there are significant players in it, but there is no single party, rather hundreds, actually thousands of parties that make up the pieces that we today call the internet.

Should one or more of these significant players get taken down, rest assured the arbitrage and value gap that would open up would be filled faster than you can say “Darling, take a look, this site’s not working anymore.”

And this doesn’t even get into mesh networks, IPFS, and an entire smorgasbord of fun stuff like that which is coming and will further decentralise the internet. The point is this: Sometimes there is push, and sometimes there is pull.

As we sit here today, we all know it. We can all feel it. The existing government and financial systems are creaking and groaning under their ever increasingly incompetent weight. The foundation cracked in 2008 but they all banded together to “solve” the problem.

The thing is instead of repairing the shonky foundations, they dug out more of the existing foundation and piled it on top of this creaking groaning mess. And that nearly non-existent foundation is what folks are relying on.

Now, let me introduce a really radical monetary (Shatbit crazy really) experiment to you…

Imagine you’re a little green alien just landed. You know nothing about the world but you understand that value needs to be transferred, thus money is needed.

Now, imagine a type of money. This money is issued by a cluster of central authorities. These central authorities determine what the price is to borrow this type of money, they issue it with wild abandon most regularly to their friends, and here’s the mind blowing part:

More than 20 of these central authorities in control of this money have their interest rates at negative. It’s never happened before in the history of mankind, though I’m sure it’s ok because men with badges and letters and authority stand behind it.

And then you take a look at Bitcoin.

Which of these sounds like a radical monetary experiment to you?

So, you might ask, “well, if these incompetent sociopaths stand behind this monetary system, then who stands behind Bitcoin?”

Well, none of that. Mathematics and cryptology. Which would you trust more?

What is Money

Bitcoin as money? Sure, why not?

Money is anything that we believe is money. Heck, money is simply an abstract token of value. Humans have gone through 5 distinct phases of money.

  1. Barter exchange
  2. Things such as sea shells, salt, beads, etc.
  3. Precious metals
  4. Paper money, followed by plastic money
  5. And now we’re moving into the stage of using network based, cryptographically secure, programmable, digital money

Furthermore, prior to nation states and kings and queens, transactions were conducted using anything that was deemed to have value, which had nothing to do with a centralised authority or issuer.

Bitcoin takes us back to such a time, which is why most people can’t get their head around it. They are still looking around for someone with a uniform or a badge (or both) to tell them it’s OK and their government approves of it.

The world needs a global currency. Not one that is so deeply flawed as the one we have.

The world desperately needs a global currency, not one so deeply flawed as the one we currently have.Click To Tweet

Have you ever asked yourself why should banks and intermediaries make money from you when you exchange dollars to yen, yen to baht, or any other currency?

Have you ever asked yourself why should they have the power to create wealth and distribute it to whomever they please?

Have you ever thought of the incredible friction caused and constraints placed on human progress by the inefficient and corrupt systems of central banking?

Now, if you’d asked me these questions 10 years ago, I would have shrugged my shoulders, nursed my beer, and acknowledged grudgingly that I could see your point but it all looked pretty hopeless. We’re just destined to roll from one disaster to the next, and the best we can do is to navigate our way through it all.

Blockchain can actually solve this problem. Crazy to think about, sure, but true nonetheless.

It was crazy to think that a bootstrapped currency maintained by literally anyone who cares to code for “core-dev” on something called Bitcoin could be utilised to transact value securely and efficiently all around the world. But here we are today.

Looks like a bubble right?

Of course, if you’re using your old search and retrieval system looking for that pear it does.

Let me show you something else.

Here’s another chart showing the relationship between the number of users and price. I prematurely nicked this from some work we’ve been doing here at Capitalist Exploits HQ.

By the way, if you’re on the mailing list, you’ll get access to what I promise you will be a very cool report as soon as we’re finished with it. To get on the mailing list just go here.

Bitcoin doesn’t fit into anything we’ve seen before, aside maybe from the Internet, and so nobody’s seen this before. And the easy thing to do is to compare it to something you’ve seen before.

I think that’s a mistake.

Now, before you run out and mortgage the house to start buying frantically remember this: 90% of the crypto coins being issued will almost certainly vaporise and become worthless, taking with them all the dreams and hopes of those who invested.

Peter Brandt pointed this out the other day and I replied.

Come what may this is, I believe, the future of money.

Right now, there are thousands of very sharp geeks worldwide who are building the infrastructure of a completely new financial system. Much of what they’re building and have already built requires looking at the box and thumbtacks — not the box of thumbtacks.

If only to educate yourself, I believe everyone should learn the ropes. Because picking the 10% that make it will be next to impossible if you don’t know where to start, and the odds are that the clutch of winners in this round will bring the world’s first trillionaire.

Right now, this space is still wide open.

I think it’ll be Bitcoin which acts as the final settlement ledger system for what will ultimately be millions of coins used for millions of applications, but I’m not so foolish to think I know the future. And so I’ll be keeping my beady eye on what takes place regardless.

Best of luck and thanks for reading. Have yourself a great weekend!

– Chris

“Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” — Marc Andreesen, inventor of the first browser, thought leader, and top VC

(Visited 1,156 times)

Addictions: Social Media & Mobile Phones Fall From Grace

Addictions: Social Media & Mobile Phones Fall From Grace

For everyone who remembers the Early Days of social media and mobile phones, it’s been quite a ride from My Space and awkward texting on tiny screens to the current alarm over the addictive nature of social media and mobile telephony.

The emergence of withering criticism of Facebook and Google is a new and remarkably broad-based phenomenon: a year or two ago, there was little mainstream-media criticism of these tech giants; now there is a constant barrage of sharp criticism across the media spectrum.

Even the technology writer for the Wall Street Journal has not just curbed his enthusiasm, he’s now speaking in the same dark tones as other critics: Why Personal Tech Is Depressing.

The critique of social media and mobile telephony, has reached surprising heights in a remarkably short time. Consider this article from the Guardian (UK) which compares Facebook and Google’s social media empire to world religions in terms of scale, and unabashedly calls them addictive and detrimental to health and democracy: How Facebook and Google threaten public health – and democracy.

A decade ago, social media was considerably different. One of the first social media sites to break into the mainstream was My Space, which began as a forum for bands to post new songs and interact with their fans. This was a great tool for thousands of musicians who had few ways to publicly post their songs and establish public communications with their fans. My Space was a useful idea, and even I posted a few songs my friends and I had recorded.

Around the same time frame, Facebook was limited to college students. I recall reading about FB and going to the site to see what it was all about: the splash screen asked you for your college affiliation.

Mobile telephony featured tiny little screens and an awkward double-click method of texting that only teens could master.

Keeping up on mass-media related technologies is part of my job as a blogger, as bloggers inhabit a little village of the mass-media world that seems to be shrinking as social media expands. I joined Twitter in June 2008, about two years after its initial launch, and Facebook in 2009.

I was struck by this quote from the above Guardian article:

“The term ‘addiction’ is no exaggeration. The average consumer checks his or her smartphone 150 times a day, making more than 2,000 swipes and touches. The applications they use most frequently are owned by Facebook and Alphabet (Google), and the usage of those products is still increasing.”

Wow! Do you check your mobile phone 100+ times a day? Even if this is an exaggeration, it still represents an addictive attachment.

I think we can safely call anything that people interrupt sex to do (like check their mobile phones) addictive.

What’s the source of social media and mobile telephony’s addictive power?

I think we can start with the innate attraction of distractions and novelty. The higher the density of inputs in our environment, the more quickly we become bored and fidgety. So we turn to our phones for distraction and novelty.

Being social creatures, we want to stay connected to our tribe, group, family, etc. Social media and mobile phones feed this desire directly.

But social media and mobile telephony have peculiar qualities that are unlike actual face-to-face interaction. They don’t require the same kind of commitment or engagement; it’s understood everyone can log off at any time.

It’s also easier to dump on people in the safety of anonymity.

While many people form longlasting online friendships, myself included, as a generalization social media tends to superficiality because it rewards being “liked”, i.e. receiving positive feedback, even from those we don’t even know.

The broad reach of the dynamic of winning approval is explored in this Guardian article on the rise of “fake news”: How did the news go ‘fake’? When the media went social.

As social creatures, we all desire a positive standing in our tribe, and the respect and approval of our peers. Social media is like a lens that can make us appear bigger, shinier and more deserving of respect than we might otherwise be.

The temptation to post self-congratulatory Christmas letters (“Josh just graduated with honors, Mia is on her semester abroad, my new painting won first prize, and we’re all meeting in Barbados for the holiday”), or divulge TMI (too much information) to elicit sympathy is strong; it’s also tempting to express righteous indignation to solicit “likes” from like-minded members of our ideological tribe.

I’ve commented previously on the relative poverty of opportunities to feel respected and admired in our society; most of us don’t have a lot of power or control over our lives, nor do we have the high-status positions and signifiers that automatically earn respect in our centralized, hierarchical social structure.

I think we should acknowledge the power of our natural desire to “be somebody” in our social circle, and in the world at large, and acknowledge the attraction of social media in furthering this desire.

So by all means, we should honor the accomplishments of our loved ones, and proudly display our winning painting, and post photos of our fabulous family holiday. But we also have to acknowledge that “likes” online are not substitutes for the recognition and respect of a real-world circle of peers, or for the self-respect we all desire.

Social media is real enough in its own terms, but it is not a substitute for real relationships and positive social roles. Perhaps this is the addictive pull of social media: the idea that we can substitute a carefully controlled social-media substitute (avatar) for our less-than-perfect real-world self.

If Facebook vanished, our “real” lives would still be intact. If we turned off our phones and social media, how much would we miss them in a week, or a month? How much “smaller” would we become? What would we lose, and how much of ourselves would we lose? What might we gain that’s been lost?

These are questions worth exploring, for identifying social media and mobile phones as addictive is only the first step in a much more complex investigation.

This essay was drawn from Musings Report 45. The Musings Reports are emailed weekly to subscribers and major patrons / contributors. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.