Bad Case of Unaffordable Housing: Shelter CPI Rises >2x Core Inflation (“Inflation” Cools Ahead of FOMC Meeting)

The Fed’s Open Market Committee (FOMC) meeting is today.  And according to the SF Fed’s calibration of the Taylor Rule, the Fed Funds Target rate should be 6.13% (it is only 1.25%, a spread of 488 basis points TOO LOW).

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There was nothing in this morning’s inflation report that is likely to cause the FOMC not to increase the upper bound of The Fed Fund’s Target rate to 1.5%. Why? Core inflation (less food and energy YoY) declined to 1.71%.  Core PCE Prices YoY is at 1.45% YoY (well below The Fed’s Target Rate of 2%.

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Owner’s equivalent rent of residences YoY fell to 3.12%, still over twice that of core inflation. And FHFA’s house price index YoY is 2.78x hourly earnings YoY for most of the population.

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Doctor, doctor (Yellen), stop driving up house prices for average Americans.

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The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market (Bitcoin Bubble?)

ILLUSTRATION: PATRIK MOLLWING FOR BLOOMBERG BUSINESSWEEK

On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.

Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.
 
About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.
 

“I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

Regulators have been slow to catch up with cryptocurrency trading, so many of the rules are still murky. If traders not only pushed the price up but also went online to spread rumors, that might count as fraud. Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices. The law might also be different for other digital coins. Depending on the details of how they are structured and how investors expect to make money from them, some may count as currencies, according to the U.S. Securities and Exchange Commission.

Asked about whether large holders could move in concert, Roger Ver, a well-known early bitcoin investor, said in an email: “I suspect that is likely true, and people should be able to do whatever they want with their own money. I’ve personally never had time for things like that though.”

“As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”

The recent rise in its price is difficult to explain because bitcoin has no intrinsic value. Launched in 2009 with a white paper written under a pseudonym, it’s a form of digital payment maintained by an independent network of computers on the internet‚ using cryptography to verify transactions. Its most fervent believers say it could displace banks and even traditional money, but it’s only worth what someone will trade for it, making it prey to big shifts in sentiment.

Like most hedge fund managers specializing in cryptocurrencies, Samani constantly tracks trading activity of addresses known to belong to the biggest investors in the coins he holds. (Although bitcoin transactions are designed to be anonymous, each one is associated with a coded address that can be seen by anyone.) When he sees activity, Samani immediately calls the likely sellers and can often get information on motivations behind their sales and their trading plans, he says. Some funds end up buying one another’s holdings directly, without going into the open market, to avoid affecting the currency’s price. “Investors are generally more forthcoming with other investors,” Samani says. “We all kind of know who one another are, and we all help each other out and share notes. We all just want to make money.” Ross says gathering intelligence is legal.

Ordinary investors, of course, don’t have the cachet required to get a multimillionaire to take their call. While they can track addresses with large holdings online and start heated discussions of market moves on Reddit forums, they’re ultimately in the dark on the whales’ plans and motives. “There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it’s very difficult to figure out what’s going on.”

Ordinary investors are at an even greater disadvantage in smaller digital currencies and tokens. Among the coins people invest in, bitcoin has the least concentrated ownership, says Spencer Bogart, managing director and head of research at Blockchain Capital. The top 100 bitcoin addresses control 17.3 percent of all the issued currency, according to Alex Sunnarborg, co-founder of crypto hedge fund Tetras Capital. With ether, a rival to bitcoin, the top 100 addresses control 40 percent of the supply, and with coins such as Gnosis, Qtum, and Storj, top holders control more than 90 percent. Many large owners are part of the teams running these projects.

Some argue this is no different than what happens in more established markets. “A good comparison is to early stage equity,” BlockTower’s Paul wrote. “Similar to those equity deals, often the founders and a handful of investors will own the majority of the asset.” Other investors say the whales won’t dump their holdings, because they have faith in the long-term potential of the coins. “I believe that it’s common sense that these whales that own so much bitcoin and bitcoin cash, they don’t want to destroy either one,” says Sebastian Kinsman, who lives in Prague and trades coins. But as prices go through the roof, that calculation might change. 

BOTTOM LINE – It’s not necessarily illegal for big holders of some cryptocurrencies to discuss trading with one another. That puts small buyers at a disadvantage.

Bitcoin actually broke through the 17,000 barrier yesterday before retreating and is now back to 14,500 area.
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Bitcoin has no intrinsic value? And that makes it different than the US Dollar, how?
Here is the Elizabeth Warren commemorative $5 Dollar bill.
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Dot.com Bubble II? SOX Seminconductor Index At All-time High

First, there was the dot.com bubble from 2000 in the last year of Bill Clinton’s Presidency. The SOX index,  a Philadelphia Stock Exchange capitalization-weighted index composed of companies primarily involved in the design, distribution, manufacture, and sale of semiconductors, is now at an all-time high exceeding the high from the dot.com bubble.

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This time the dot.com bubble sequel has been fueled by The Fed’s monetary policy.

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Existing Home Sales Inventory Tanks To 1.8M Units As Median Prices Remain Steady At 5.5% YoY (Low Wage Growth and Super Accomodative Monetary Policy, What Could Go Wrong?)

Existing home sales rose 2% in October to 5.48M units SAAR, according to the National Association of Realtors.

But what was interesting in the October report was the continuation of the shrinking inventory of existing home sales which shrank to 1.8 million units, less than half the available inventory during the housing bubble years of the last decade.

The good news is that existing home sales median price YoY remains steady at 5.5%.

This is good news, except for the fact that US Avg Hourly Earnings Private NFP Prod&NonSup In Nom$ YoY is only 2.3%. That is an (un)affordable gap of 5.5% price growth and 2.3% earnings growth for most Americans. That ratio is over 2X.

Limited inventory, low wage growth and super-accomodative monetary policy since 2008. As Parks and Recreation’s Ken Wotate said regarding a Native American tribe making a deal with the government, “What could go wrong?”

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The Yellenburg Omen! Are Fed Rate Hikes Nailing The Stock Market?

Recently, the Hindenburg Omen has been flashing red, signifying a coming stock market correction. But the Omen has flashed several times since 2008 and nothing has happened.

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A closer look at the McClellan Oscillator.

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The VIX stock market volatility index is on the rise.

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But will another rate hike in December by Yellen and crew cause further declines in the stock market? It lends itself to a new term: Oryellian.

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Bitcoin Drops >1,000 (A Hindenburg Omen Moment?)

The crypto-currency Bitcoin just plunged over 1,000!

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The NYA seems to be experiencing a Hindenburg Omen moment of its own.

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But the correction/plunge in Bitcoin is clearly larger than the NYA. Bitcoin has broken through the first band in the Bollinger Band study.

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And for the Elliot Wave, Bitcoin’s decline looks like a tsunami.

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Bitcoin even broke through the Ichimoku base.

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Let’s see what Monday brings.

MONDAY UPDATE! Bitcoin has actually bounced back somewhat.

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Venezuelan State Electric Company’s Trustee Declares Default (CDS Skyrockets To Over 16,000!)

The news the Venezuela is actually defaulting on its electric company bonds is hardly a surprise. Yet 1 year credit default swaps on Venezuela and their energy company PDVSA skyrocketed!

(Bloomberg) — Venezuela’s state electricity company was declared in default by Wilmington Trust, the trustee for the company’s bonds.

Electricidad de Caracas owed investors $27.6 million in interest payments on the notes due in April of next year. Its 30-day grace period expired on Thursday.

The $650 million of bonds had fallen to an all-time low of 23 cents on the dollar, showing that investors perceived them as the riskiest notes maturing during the next year in the world’s riskiest nation. While a default by the state oil company Petroleos de Venezuela, and possibly even the sovereign, could lead creditors to try to lay claim to the crude producer’s assets, Elecar, which PDVSA bought a decade ago, has nothing for overseas investors to seize.

“The Issuer’s failure to pay the overdue interest on the Notes on or before
November 9, 2017 constitutes an Event of Default under Section 5.1(ii) of the Indenture,” Wilmington Trust wrote in the letter to bondholders.

Some traders had long suspected that the bond could be a candidate for selective default because it contains no cross default clauses with PDVSA or sovereign notes. While bondholders may try to establish an “alter-ego” argument, that would most certainly be a lengthy legal battle.

The reaction in the CDS market?

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Hey, at least Venezuelan oil prices are rising!

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