Category Archives: Manias

Blockchain RIP?

The blockchain technology is a partial solution to the Byzantine generals problem. A full solution to the problem has been mathematically shown to be impossible. As a result, blockchain systems are vulnerable to attack by introducing enough fraudulent voting power to improperly modify the blockchain.

Apparently this is now happening to some of the smaller networks.

The potential prizes on the larger ones are rich enough that it is probably just a matter of time until one of them is compromised for serious money. Then we’ll see what happens.

The New Gilded Age

The Gilded Age, roughly 1870-1900, was a period where abject poverty and fabulous wealth coexisted.

Unlike today’s New Gilded Age, the original was a period of rapid economic growth. Today, wealth has been concentrated in the hands of a tiny elite by the actions of the Fed, which have inflated asset prices.

I offer as evidence:

24Karat gilded chicken wings. Serving no purpose whatsoever except ostentation. (The gold is tasteless and passes unchanged through the digestive system).

Wag The Dog

As I have said many times before, I believe the biggest mistake the CFTC has ever made is the securitization of VIX. This decision has allowed VIX futures, options and ETFs, trading in any and all of which provides staggering leverage on the overall market. Here’s a piece which shows both how easy it is to manipulate VIX, and the effect of VIX manipulation on the overall market.

I’m watching this as I write, as the manipulators crush price discovery. Of course the eventual consequences of this will be catastrophic – the “Volgasm” of early February was just the fat lady clearing her throat.

Perspective

“Just a flesh wound,” said the Black Knight.

The PhD Standard

James Grant (Grant’s Interest Rate Observer) in 2011:

“The 2007-2009 real estate debacle is the monetary equivalent of a chain reaction on a foggy California freeway. The trouble with our monetary mandarins is they [the Fed] believe impossible things. They have persuaded themselves that the central bank can pick the interest rate that will cause the GDP to grow, payrolls to expand, and prices to levitate by just two percent a year, as they measure it. It is impossible as experience and common sense attest. Yet, they hold it to be true.

… William F. Buckley famously and persuasively said that he would rather be governed by the first 400 names in the Boston phone directory than by the faculty of Harvard. Unaccountably, this Congress has entrusted the value of the dollar that we own, that we transact to an independent committee dominated by monetary scholars. In one short generation we have moved to the PhD standard from the gold standard.”

The insanity continues.

Facebook

From messaging records dating from when Mark Zuckerberg was 19, first leaked to the media in 2010.

Zuckerberg: Yea so if you ever need info about anyone at Harvard, just ask. ‘i have over 4000 emails, pictures, addresses, sms

Friend: what!? how’d you manage that one?

Zuckerberg: people just submitted it. i don’t know why. they “trust me”. dumb f***s.

Credit Impulse

The credit impulse isn’t the sudden urge to borrow – it is the additional income and concomitant spending that results from an increase in aggregate debt. Spending capacity = net income + credit impulse. Credit impulse (annual) = current debt amount – year ago debt amount. Not complicated.

The credit impulse is how easy money creates economic expansion as economic entities – households, corporations, governments, etc. are able to spend more than they earn.

The downside is that, sooner or later, the entities reach the limit of their ability to borrow. The credit impulse disappears and the economy shrivels. Incomes diminish and defaults begin as entities can no longer service their debt. Credit becomes very difficult to obtain, lenders fail as capital losses mount and the economy accelerates downhill as the credit impulse goes negative as borrowers are unable to roll over their debt.

Let’er Rip, Potato Chip

Larry Kudlow, newly minted economic advisor, was on CNBC last night, advising that the Fed should “Let the economy rip.”

Larry, if you want to see what happens when a country monetizes its deficits, look south.

Credit Impulse

US household debt ended the year at $13.15 billion, a y-o-y increase of $402 billion and a record. This means that about 2% of GDP came from the increase in household debt alone. It is likely that when corporate and government debt increases are taken into account that the economy is operating at a substantial loss.

They’re Back

OK I give up. According to this report from zero hedge, the Beanie Baby bubble is back. Apparently the supply of Beanie Babies has been somewhat depleted during a 20-year hiatus on speculation, leading to new opportunities.

You really cannot make this stuff up.