Bitcoin Bursts To 11,500 Then Back To 9,500 As Consumer Purchasing Power Continues To Weaken

Are crypo-currencies like Bitcoin the new gold … or potential de-facto US currency? OR is Bitcoin and related crypto-currencies (e.g., Ethereum) in an appalling bubble? That is, few actual investors driving the price over 11,000. Time will tell.

But what we do know is that Bitcoin has just breached the $11,000 barrier while consumer purchasing power of the US Dollar keeps declining.

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Ethereum is showing a similar meteoric rise.

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UPDATE: Like any bubble,  Bitcoin and Ethereum Classic have lost a little air after 9am highs.

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Of course, the creation of The Federal Reserve System in 1913 under President Woodrow Wilson helped to constantly devalue the US Dollar ever since.

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With the Franklin Roosevelt’s Executive Order of 1933 preventing the hoarding of gold (and the subsequent Richard Nixon unilateral cancellation of the direct international convertibility of the United States dollar to gold) …

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we haven’t had to listen to fiery speeches like William Jennings Bryan on July 9, 1896, at the Democratic National Convention in Chicago. The issue was whether to endorse the free coinage of silver at a ratio of silver to gold of 16 to 1.

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The way it was in the United States.

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Hey, now we have FIAT currency (not backed by any precious commodity like gold or silver).

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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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Short-Volatility Funds Are Being Flooded With Cash (VIX Evaporating)

The SPX volatility index VIX is near an all-time low as The Federal Reserve attempts to raise their target rate and unwind their $4.46 trillion balance sheet. The question remains as to how further rate increases and balance sheet unwinding will impact equity volatility.

(Bloomberg) Exchange-trade products betting that volatility will sink lower have never been more popular.

Even as the CBOE Volatility Index plunges to its lowest on record and U.S. stocks march to fresh highs, investors have continued to give the short-volatility trade their vote of confidence this year. With $2.4 billion in assets, short volatility exchange-traded funds are backed by the most cash on record, according to data compiled by Bloomberg.

The funds’ meteoric rise is to some degree a bet that the U.S. stock market will keep rising, since the VIX and S&P 500 move in opposite directions about 80 percent of the time. With the S&P 500 up 16 percent and at its highest on record, the $1.1 billion VelocityShare Daily Inverse VIX ETN has surged 141 percent, heading toward its best yearly performance in five years.

For now, the volatility bears have the momentum. Inverse VIX funds have nearly tripled in size this year alone. The amount of assets tracking short-volatility products rose above that of their long-volatility counterparts for the first time in two years in the third quarter.


In fact, regardless of direction, volatility itself is an in-demand asset class. The popularity of volatility products far outweighs that of other prominent corners in the U.S.-listed ETF market. With $4.6 billion in assets, they are larger than funds tracking any single European country, other than Germany. They also have more assets than those tracking all frontier markets and all ESG (environmental, social and governance) strategies combined.

However, despite the growth and the stellar returns, it’s unlikely most short-volatility investors have stuck around to see all of their triple-digit profit. Because of the funds’ structure, holding periods tend to be as short as a few days or even just a few hours.

With Central Banks practicing volatility suppression (monetary easing), the equity volatility index is near all-time lows (under 10)

Here is the VIX volatility surface.

For the TYVIX (10 year Treasury note volatility), it remains near the all-time low.

 

10 Years After: Bank of England Raises Interest Rate for First Time in More Than Decade (Goin’ Home)

(Bloomberg) — Bank of England policy makers raised interest rates for the first time in a decade, yet expressed concern for Britain’s Brexit-dented economy by indicating that another increase isn’t imminent.

Led by Governor Mark Carney, the Monetary Policy Committee voted 7-2 on Thursday to increase the benchmark rate to 0.5 percent from 0.25 percent. The minutes of their meeting underscored worries that the economy is fragile as the 2019 split with the European Union nears.

Crucially, policy makers omitted language from previous statements saying that more hikes could be needed than financial markets expect. That implies that officials are comfortable with pricing for two more quarter-point increases, roughly one by late next year and another in 2020.

The more dovish outlook than investors anticipated pushed the pound down nearly 1 percent against the dollar to as low $1.3096 and gilts rose. U.K. money markets pushed back expectations for the next shift to September 2018 from August 2018 previously.

“Interest rates are likely to rise only very gradually over an extended period of time,” said Colin Ellis, managing director for credit strategy at Moody’s Investors Service. “This benign outlook for interest rates differs from past monetary cycles, when policy rates rose more swiftly and more sharply after they reached their previous floors.”

Thursday’s decision removes the emergency stimulus introduced in the wake of last year’s EU referendum. It will push against the fastest inflation in five years, boosted by a weaker currency and the lowest unemployment rate in four decades.

Inflation is now running a full percentage point above the bank’s 2 percent target. The dilemma for the central bankers is that underlying price pressures aren’t stemming from stronger demand, but flaws in the economy aggravated by Brexit, namely weak productivity.

Well, the last time the BoE raised their rates was in July 2007.

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And the pound Sterling reflected the dovish nature of the BofE statement.

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UK inflation YoY is around 2.7 – 3%.

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So, Mark Carney and the BofE are going home.

The Doves are still in charge of the central banks.

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Speculators Place Biggest Bet EVER Against US Treasury 5Y Note Futures (It Will Be Powell As Fed Chair and 83.6% Prob Of A Dec Rate Hike)

(Bloomberg) — Hedge funds and other large speculators extended their net-short positions on five-year U.S. Treasury note futures to a record last week, data from the Commodity Futures Trading Commission through Oct. 17 show. They’re making the bets as speculation ramps up over who will be nominated as the next Federal Reserve chief and as odds increase that the central bank will raise interest rates again in December. The five-year note yield ended last week at 2.02 percent, the highest since March.

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First, it is going to be Jerome Powell, the DC lawyer and undergraduate history major.  Heaven forbid that a monetary economist like Stanford’s John Taylor would be chosen (Yellen was a labor economist).  Plus, rates would likely rise under Taylor and decline under Powell.

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Second, Yellen the FOMC will likely raise the target rate come December. The implied probability from Fed Funds Futures indicate a 83.6% probability of a December rate hike.

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The FVZ7 Comdty US 5YR NOTE (CBT) Dec17.

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Yes, we call Jerome H. Powell part of the STATIST-quo.

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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.

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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