Bitcoin Hits All-time High (Market Cap Almost As Big As Goldman Sachs)

The crypto currency Bitcoin just hit another all-time high, reaching 5,606.

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Here is Bitcoin relative to gold.

Bitcoin’s market cap is now $93.5 billion.

Making Bitcon almost as large as Goldman Sachs in terms of market capitalization.

While not quite bigger than Goldman Sachs, Bitcoin is on its way.

But unlike Goldman Sachs, Bitcoin is NOT Too-big-to-fail (TBTF).

Here is Lloyd Blankfein, Goldman Sach’s CEO, doing his best Hyman Roth impression from The Godfather 2.

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Juggernaut: Equity Volatility (VIX) 2nd Lowest Since 1990 As Stock Market Soars To All-time High (What Can Go Wrong?)

As of this morning, the VIX (Chicago Board Options Exchange SPX Volatility Index) was at 9.34, the second lowest level since 1990. Only December 22, 1993 is lower.

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And since The Fed’s overzealous entrance into capital markets, the overnight VIX was the lowest while the S&P 500 is at an all-time high.

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The VIX has rebounded slightly from overnight lows.

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Super low volatility as the S&P 500 surges to another all-time high?

As Ken Hotate, the tribal elder of the Wamapoke Native American tribe in Parks and Recreation, said “An Indian tribe striking a deal with the government. What can go wrong?”

The same holds true for the stock market, The Federal Reserve and historic low volatility. “What can go wrong?”

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BIS Hunts for ‘Missing’ Global Debt, Inflation (Try Including Housing!)

Just like global central banks, the Bank for International Settlements can’t seem to find inflation and $114 trillion in off-balance sheet FX derivatives.

ZURICH – Nonfinancial companies and other institutions outside of the U.S., excluding banks, may be sitting on as much as $14 trillion in “missing debt” held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.

These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS — a consortium of central banks based in Basel, Switzerland — used global banking data and surveys to estimate the size of this debt for the first time.

The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt “has to be repaid when due and this can raise risk,” the authors wrote.

According to the paper, published with the BIS’s quarterly update on global financial conditions, non-banks outside the U.S. owed roughly $13 trillion to 14 trillion through foreign-exchange swaps and forwards. That exceeds the nearly $10.7 trillion in dollar debt held on their balance sheets at the end of the first quarter

“Non-banks” include nonfinancial companies, households, governments, and certain financial institutions that aren’t classified as banks and international organizations.

Globally, there are $58 trillion in FX swaps and related exposures, BIS said, which equals about three-quarters of global gross domestic product.

The authors explained that “in an FX swap, two parties exchange two currencies spot and commit to reverse the exchange at some pre-agreed future date and price.” In a forward contract, parties agree to swap currencies at a future date and price. “Accounting conventions leave it mostly off-balance sheet, as a derivative, even though it is in effect a secured loan with principal to be repaid in full at maturity,” the paper noted.

This short-term funding is backed by cash and it carries little credit risk. “Even so, strains can arise,” the authors wrote, citing the funding squeeze experienced by European banks during the global financial crisis.

The BIS’s quarterly review didn’t just examine missing debt, it also examined what it called “missing inflation” in the global economy, which has helped spur risk taking and drove up financial asset values in recent months.

The implications are big for stock and bond markets that have moved largely in tandem, with bond yields staying super low while equity markets reached record highs. Whereas faster growth typically implies higher inflation and central bank rate increases, the prospect of significantly tighter monetary policy in the U.S. and other big economies has receded.

“This puts a premium on understanding the ‘missing inflation’, because inflation is the lodestar for central banks,” said BIS chief economist Claudio Borio.

Annual inflation in the U.S., measured by the price index for personal-consumption expenditures, was 1.4% in July. Annual eurozone inflation was 1.5% in August. Both are well below the 2% rate that most big central banks consider optimal. Economists typically cite sluggish wage growth, heightened global competition, low oil prices and the effects of technological changes as explanations for subdued price pressures.

“Despite subdued inflation in advanced economies, the global macro outlook was upbeat. Market commentators label such an environment the Goldilocks scenario — where the economy is ‘not too hot, not too cold, but just right,'” BIS said.

Still, there are risks if bond yields eventually start to rise on the back of firmer global growth, given the sensitivity of the private and public sectors to debt.

Thus, the absence of inflation “is the trillion dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” said Mr. Borio.

Dear Federal Reserve and BIS. Try including house prices which are growing at fantastic rates of growth.

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Tell folks in New Zealand and Australia that there is “no inflation.”

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The US almost looks tame in terms of housing pirces compared to Britain and its former colonies where housing prices are growing over twice as fast as wage growth for the majority of the population.

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New Zealand takes the cake for crazy housing prices, particularly in Auckland, their largest city.

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There BIS. We found your missing inflation. 

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How Bad Is Venezuelan Inflation? It Is Giving Bitcoin A Run For Its Crypto-money

Just how bad is inflation in Venezuela? A computer game with infinitely spawning enemies has a better exchange rate than the Venezuelan Bolivar.

Venezuela has a staggering inflation rate. Thanks to Venezuela’s horrid fiscal and monetary policies. there are 8,493.97 Bolivars per US Dollar in the black market.

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Then we have Bitcoin, the original cryto-currency. It has gone from under $1,000 in December 2016 to $2,755 as of Friday. Bitcoin was at $13.28 on January 3, 2013.

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Of course, Bitcoin is not issued by a Central Bank like the US Dollar. And the US is experiencing low and declining inflation.

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Except for healthcare spending per capita and college tuition.

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Yes, the US is suffering from rapid rates of increases in healthcare spending per capita and college tuition/textbooks. But even they are no where near the ridiculous levels of Venezuela’s inflation rate.

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LIBOR To Be Phased Out By 2021 ($350 Trillion In Securities At Risk)

The world’s most important reference index, LIBOR, setting the price for $350 trillion in loans, credit and derivative securities, is being phased out by 2021.  UK’s Financial Conduct Authority which regulates Libor, said the index would be phased out and that work would begin for a transition to alternate, and still undetermined, benchmarks by the end of 2021.

The Federal Reserve has already been gearing up for the replacement: last month the Alternative Reference Rates Committee, a group made up of the largest US banks, voted to use a benchmark based on short-term loans known as repurchase agreements or “repo” trades, backed by Treasury securities, to replace U.S. dollar Libor. The new rate is expected to be phased in starting next year, and the group will hold its inaugural meeting in just days, on August 1.

For reference, here is a chart of several short-term rates including the doomed LIBOR  1 month, The Fed Funds Target rate, the EFFECTIVE Fed Funds rate and the USD 1 Month GC Govt Repo rate. In this chart, you can see the problem with LIBOR during the financial crisis.

The last five year track record for several short rate measure illustrates the potential problem with replacing LIBOR with another index. Obviously, The Fed Funds Target Rate has little volatility. The Effective Fed Funds rate is noisy. LIBOR 1 Month is out. Perhaps the Repo rate (the discount interest rate at which a central bank or bank repurchases government securities) is one candidate.

The problem is that the 1 month Reverse Repo rate is more volatile than 1 month LIBOR. And notice in the first chart that Repo (or Reverse Repo) rates had some unsmooth readings on the downside (where LIBOR had some unsmooth readings on the upside).

Since millions of dollars of adjustable-rate mortgages (and CMOs) are indexed to LIBOR, this should represent an interesting transition.

The Heat Is On! Venezuela 10Y Yield Spikes to 30% (2Y Yield at 60%!)

In the immortal words of the late Glenn Frey, “The Heat is on!!”

And its not Arizona-type heat. But protesters outraged at President Nicolas Maduro with threats of a new constitution and staggering inflation. And no toilet paper.

Venezuela’s 10 year sovereign yield just spiked to 30%.

And near 60% at the 2 year mark.

Now that the Dodger’s ace Clayton Kershaw is on injured reserve for a while, here is a possible replacement from Venezuela. I mean, this dude throws fire!

Black-market Rate For Venezuelan Bolivar Collapses Beyond 8,700 Per Dollar For 1st Time

How bad are things in Venezuela under President Nicolas Maduro for the once prosperous South American nation? Well, the Caracas Stock Exchange is showing explosive growth in terms of price.

However, staggering inflation rates for the black market currerncy makes the Caracas Stock Market (valued at $2.57 trillion) only worth $3 billion based on the black-market rate.

The meltdown in Venezuela’s currency is deepening as a crippling dollar shortage and a threat of oil sanctions take their toll on the economy. The black-market rate for the bolivar traded weaker than 8,700 per dollar for the first time, according to dolartoday.com on Friday, compared with the official rate of around 10 and a more widely used alternative rate of 2,757. That’s creating an illusion for foreigners observing the country’s stock market, which appears to be valued at $2.57 trillion — bigger than Germany’s, France’s, India’s or Canada’s — but is worth only $3 billion based on the black-market rate.

And things are only going downhill for the once prosperous country, particularly with crude oil prices hovering around $43.48.

Here is President Nicolas Madura showing his people the true value of Venezuela after several years of his leadership.