Currency swaps

Overheard: 23 countries, and 60% of the world's GDP, are right now setting up new currency swap lines. The list of the 23 countries which are creating new swap lines outside of the dollar include China, Russia, India, Germany, France, and the United Kingdom. What started in September of last year between China and Russia had turned into quite a movement towards setting up the infrastructure to replace the USD in global transactions.

Fed Taper Likely in Coming Months?

Today's article on Bloomberg:
Fed Taper Likely in ‘Coming Months’ on Better Data
http://www.bloomberg.com/news/2013-11-20/fed-taper-likely-in-coming-months-on-better-data.html


How many months? Fed to taper voluntarily? No way. Only the market will force them to taper.
Better data? That's a joke. That's mainstream headlines.
Why the mainstream news and traders are not looking at government bonds data continue to amuse me.

Perspective on bitcoin

Bitcoin went close to $1000 yesterday. That's about a 50x increase this year. Percentage-wise, it's 5000%! It was a great opportunity to short, because in the short-term, I think this is a huge mania. Even when the Cisco stock went up 100x (or 10000%), it did so over a period of about 10 years. The current bitcoin mania looks similar to the tulip mania in 1637. Anyhow, I promptly shorted bitcoin 2 days ago. Of course, I'm using my speculative account to do this, not my main investment account. I do not understand Bitcoin enough even though I followed it in the past 2 years, so it will not be part of my investment portfolio.

Bitcoin is an amazing money born in the private sector. For me, the best money is made in the market, not by governments or central banks. Wouldn't it be great if this becomes reality?

Unfortunately, history doesn't offer us much hope on this matter. Private, 'virtual' money has come and gone for thousands of years. Whenever it becomes lucrative and becomes a serious competitor to the currencies issued by the government, the government will slap regulations on it or control it. A very recent example is the QQ coin in China, which I doubt many people are aware of. Because the QQ coin got so popular, the government and central bank moved in to limit its use. If my information is correct, QQ coin is now not allowed in transactions of real goods, but are only allowed in transactions of virtual goods such as online-game items.

Assuming that governments and central banks allow competition to their own fiat currency monopolies, Bitcoin faces another headwind in the form of competition. There are already several virtual currencies in existence. What if the costs of mining for other currencies are lower? What if other credible institutions or companies issue their own virtual currencies? If private currencies are allowed to compete freely with central bank currencies, "Facebook" coins can become big quickly and compete with Bitcoin. Or better yet, "Ebay" coins. Ebay sees a huge volume of transactions involving real goods. It will not be hard for people to adopt Ebay's own virtual currency. 

One reason why gold and silver survived competition for thousands of years is because, well, there is lack of competition. Other metals are either too abundant, or too rare, too hazardous, or too reactive.

What will it take bitcoin to be a real currency? It will take a world-wide collapse in all major currencies. It will mean governments repeal their legal-tender laws and allow for competition to their monopoly in the ultra-lucrative currency-issuance business. It will mean middle-aged people like my parents become tech-savvy enough to use it. It will mean people will rather not store their wealth in gold or silver, the traditional haven. All these may happen, but it is very unlikely as of this point in time.

There are lofty predictions that a Bitcoin will be worth $10,000 or $100,000 or $1,000,000 in the future. I don't know. It may or may not happen. All I know now is that this is a mania in the short- to medium-term. Going up 5000% in a year is no laughing matter. In my mind, this rapid rise is caused more by speculators than by people who really want or are desperate to use the coins in daily transactions. There are multi-million dollar funds on wall street that have sprung up to take positions in Bitcoin. But as always, all speculative frenzies will crash in the end.

For Bitcoin proponents, a big and prolonged crash should really be welcomed if Bitcoin is to be a stable long-term alternative currency. Then the speculators will be flushed out. Right now, though, it remains a mania. 

US Fiscal Year 2013

Forget about the debt-ceiling. When will the lenders impose a lending-ceiling is anyone's guess. Imagine this happening in Singapore:

For fiscal year 2013,

Tax revenue is about $2,700,000,000,000.
Spending is about $3,500,000,000,000.

To keep the government in cash during fiscal 2013, which ended on Sept. 30, the Treasury had to borrow $8,323,949,000,000 in new debt.

The government's single largest expense in fiscal 2013 was paying off $7,546,726,000,000 in debt that matured during the year.

For the first 6 weeks of fiscal 2014 (started Oct 1, 2013), the Treasury had already borrowed $1,014,215,000,000. It needed to redeem $879,734,000,000 in maturing debt during the first six weeks of the fiscal 2014.

Fed trying to do the impossible

Peter Schiff said something like this: A hard trick is like pulling the cloth out from under the dishes on the table. What the Fed is trying to accomplish is to pull the table out from under the cloth and leave the cloth and dishes suspended in mid-air. 

Where is the exit strategy that for years, so many have touted is possible?

Fed Ponders How to Temper Tapering Without Rate Increase
http://www.bloomberg.com/news/2013-11-19/fed-ponders-how-to-temper-tapering-without-rate-increase.html

GST in singapore

Many people love the government to provide lots of services - education, healthcare, housing, transport, etc - which are better provided by the private sector. But many people do not want to pay for it? Take away the GST and we're talking about a $6.5 billion deficit for the government. Be realistic!

Also, consumption tax such as GST is better than an income tax. You want to tax spending and consumption, and encourage savings and hard work.

Former Fed Official says sorry to America

A former Fed official says sorry to America and confesses that QE doesn't work and the US economy is fundamentally unsound. He tells his story in this article. 

Need to verify this.

Andrew Huszar: Confessions of a Quantitative Easer:
http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

People hope for a recovery

There sure are a lot of good news over the years about recovery, including in recent months. Unfortunately, recovery is not built based on mere hope and gut feelings.

When confronted with inconvenient truths such as this data, many simply brush it aside, and fall back to their favourite tactic of name-calling, in the hope of discrediting the person who show this data.

Bailouts don't make economic sense

Smaller, more prudent banks should be buying up failed companies' assets and gaining market shares when a financial crisis bankrupts big banks. But as usual, people will ask for bailouts because the world is going to end. 

Fact: Prior to the 2008 crisis, there were more than 7,000 commercial banks in the US. So the world isn't going to end when the big banks fail. It just means that the services will be done by someone else. This is what happens in sound economies throughout history.

One hundred big banks could go, warns McKinsey:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10431438/One-hundred-big-banks-could-go-warns-McKinsey.html

Twitter

It seems like traders are so hungry for yields, that they are willing to price twitter at 20x of revenue (note: revenue, not profit). This is a company that has not made any profit! I started shorting quite a lot at $49. Will stay in for a while and see how it goes.

Update 19/11/13: Closed all shorts at $40.

Crazy debt

It took 40 presidents 193 years to put $1 trillion of debt on the nation. The current administration has managed to repeat this feat 7 times over in only 5 years.

Wrong call on taper

Singapore's top bank: We got our Fed call wrong:
http://sg.finance.yahoo.com/news/singapores-top-bank-got-fed-055000336.html

A lot of market participants got it wrong in September. They were all expecting the Fed to taper by an average of $10b. In August, I was saying that it is more likely that the Fed will continue/increase QE rather than taper. Turns out that they couldn't even do a token $1b or $5b taper!

To reiterate, the Fed's priority is the bond market! They want to keep the government afloat.

Now the market is expecting the Fed to taper later this year or early next year.

The next surprise for the market will be when the Fed does not taper or when they increase the size of QE. Even if they do taper, they will return after a few months, because the pain will be too great.

Nobel Prize in Economics

44 years of Economics Nobel Prize, and only 1 winner from Asia. Meanwhile, Asia has been booming and the other nobel-winning regions have been declining on a relative basis. What a sham!