The world of mainstream economics rarely mentions asset price inflation. They refer to “inflation” but they are (almost) always referring just to CPI inflation in that regard — the rise or fall in the daily cost of living. CPI stands for Consumer Price Index.
So let’s look at the world of Asset Price Inflation — BOOM likes to call it API.
BOOM recently saw a rather brilliant chart produced by a major US investment bank that showed the relative total returns of asset prices versus real economy prices in local currency since 2009.
The chart showed that the S & P 500 Stock Index in the US had appreciated by almost 250% in that timeframe. The return on European High Yield Bonds had been almost as good.
In contrast, the returns in the real economy prices were horrible. Commodities had fallen by 50% in that 10 year time frame (the worst performance) and the US Nominal GDP cumulatively had risen by only about 40% (the best performance). US house prices and wages had risen by about 20% cumulatively.
So, in the last 10 years since the global financial crisis of 2008, the holders of investible financial assets such as US stocks and European high yield bonds have seen their prices more than double while holders of houses and commodities have seen very small results in total returns (or a large loss in regard to any holdings in commodities).
This means that CPI Disinflation (progressively lower and lower levels of inflation) or even CPI Deflation – (negative inflation) has co-existed with surging asset price inflation over the last 10 years. This is the direct result of central bank and central government policies to rescue the financial sector since the Global Financial Crisis of 2008.
BOOM readers will be pleased to know that bank senior management bonuses and pay scales are now back to where they were prior to 2008. They have been made whole in more ways than one. All of the crimes committed by the banking sector, especially in the US, have been simply swept under the carpet. Does that make you feel good if you are not a banker?
MULTIPLE DISRUPTIONS IN CRYPTO WORLD
Some people say that the world of Crypto and its so-called “cryptocurrencies” are a disruption to the conventional currency system. BOOM is generally not a fan of this argument but BOOM does suspect that there are new developments in the world of crypto that will probably disrupt many aspects of life going forward into the future. Last week, the world of Crypto was disrupted itself by five events of some significance.
The first event to take note of was the decision by the Chicago Board of Exchange CBOE to halt its Futures markets on Bitcoin. The reason given was that the CBOE was “reassessing its plans for trading digital asset derivatives amid slumping volumes”. In a statement on Thursday, the CBOE said that currently listed CBOE Bitcoin futures contracts, which expire in June, remain available for trading but that they will not be trading other contracts after that.
Crypto derivatives such as Futures and ETF’s allow investors and traders to effectively buy and sell Bitcoin (and other cryptos) without ever having to deal with an unregulated online crypto exchange (the wild west) and without ever having to use an eWallet (with its associated security issues). The futures contracts and the ETFs can effectively be purchased with any fiat currency and the sales are settled, likewise, in a fiat currency.
The CBOE is not the only regulated exchange dealing in Bitcoin futures. The Chicago Mercantile Exchange CME, for example, also runs an exchange dealing in Bitcoin Futures contracts. You can look at the current contracts here — https://www.cmegroup.com/trading/equity-index/us-index/bitcoin.html
The second event to take note of was the announcement that Swiss company Amun AG and U.S. investment firm Invesco are bringing new crypto and blockchain-centric exchange-traded products (ETPs) to market at Switzerland’s SIX stock exchange and the London Stock Exchange. Currently, they offer ETPs in Bitcoin and Ether on the SIX exchange. They apparently have approval from SIX to soon list ETPs for Bitcoin Cash, EOS, Litecoin and Stellar.
Note: ETP’s are not the same as ETF’s. Please do your own research on that matter.
Late last year, Amun launched its so-called “HODL” crypto basket ETP, a type of ETF, on SIX. HODL tracks the prices of bitcoin, bitcoin cash, litecoin, ether, and XRP in an algorithmic calculated basket and there has been significant trade volumes on the mainstream Swiss exchange since then.
Earlier this year, the SIX Swiss Exchange announced it would be testing blockchain integration for its forthcoming parallel digital trading platform Six Digital Exchange (SDX), and would use the technology to tokenize stocks, bonds and possibly ETFs.
The third disruption event — Invesco, an American firm, and Elwood, a British digital asset investment company launched an Invesco Elwood Global Blockchain ETF on the London Stock Exchange (LSEG) last Monday, March 11th. Invesco’s ETF doesn’t follow crypto prices. It tracks the performance of nearly 50 companies related to the blockchain “industry”. For example, the fund includes companies such as Square, Overstock, GMO Internet, the CME Group (Chicago Mercantile Exchange), the miner and manufacturing company Taiwan Semiconductor Manufacturing, and other manufacturers such as IBM, Samsung, and other companies like Verizon. The blockchain ETF is a partnership between Invesco and investment specialists Elwood Asset Management. The trading code is BCHN:LN
The Invesco Elwood Global Blockchain UCITS ETF is an open-end Exchange Traded Fund incorporated in Ireland. The investment objective of the Fund is to achieve the performance of the Elwood Blockchain Global Equity Index, less fees, expenses and transaction costs. Settlement is through ICSD, Clearstream.
Bloomberg Reference: https://www.bloomberg.com/quote/BCHN:LN
To date, a crypto-based ETF has yet to be approved for listing in the U.S. Many applications have been made but all have so far proved unsuccessful. Regulators there are concerned that the unregulated online crypto eschanges are too prone to criminal market manipulation. The U.S. Securities and Exchange Commission (SEC) has said that it is worried about such manipulation infecting the mainstream American markets.
The fourth event — The first Crypto Bond like investment was offered by BitBond in Germany. It is offering a Security Token with a 10 year duration. Interest of 4% is payable annually (1% per quarter) plus a variable bonus coupon payment annually. It is called the BitBond Token (BB1). After 10 years, the BB1 matures and is bought back at its original face value of 1 Euro per token. The funds raised will be used to create loans for SMEs based all around the world.
The issuer of the token is Bitbond Finance GmbH, a company fully owned by Bitbond GmbH. Bitbond is a crypto-currency based lending platform for business loans that operates globally. Founded in 2013, Bitbond now facilitates more than $1 million in business loans every month.
BOOM has alerted readers previously that Crypto Credit will be one of the future pathways for the world of Crypto.
Germany’s first security token will be issued on the Stellar blockchain. With a processing capacity of over 1,000 transactions per second, transaction costs at a fraction of a cent, a built in decentralized exchange and a global network of active partners using the platform, Stellar is one of the most efficient blockchains for payment processing and token issuance.
Who can invest in the BB1 token? Answer — Anybody around the world who is not a US or Canadian citizen. The project received approval to issue tokenized bonds from Germany’s Federal Financial Supervisory Authority (BaFin) last week.
BitBond are hoping to raise a maximum of US$ 113 Million and a minimum raise of $ 3 Million. They have already raised almost $ 1 Million in the first 24 hours.
And the fifth disruption event (much anticipated) was the news from some sources that the leading Stablecoin, Tether, is perhaps not actually backed by equal amounts of official US Dollar currency deposits. The company now claims that each coin is backed by “reserves, which include traditional currency and cash equivalents and, from time to time may include other assets and receivables from loans made by Tether to third parties.” As far as BOOM is aware, Tether has previously maintained that the coin was 100% backed by an equal number of U.S. dollars in reserve.
The company now states on its website — “Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”
This is significant news as Tether makes up about 70% of the Stablecoin universe supply. It is also the largest Stablecoin based upon daily traded volume.
Further Statement from the Tether Website: —
Tether’s Transparency Page: https://wallet.tether.to/transparency
And Note — Further Statement from the Tether Website: — “Tether Limited is pleased to confirm that it has established a banking relationship with Deltec Bank & Trust Limited (“Deltec”), a 72-year-old financial institution with headquarters in the Commonwealth of The Bahamas.
The acceptance of Tether Limited as a client of Deltec came after their due diligence review of our company. This included, notably, an analysis of our compliance processes, policies and procedures; a full background check of the shareholders, ultimate beneficiaries and officers of our company; and assessments of our ability to maintain the USD-peg at any moment and our treasury management policies. This process of due diligence, was conducted over a period of several months and garnered positive results, which led to the opening of our bank account with this institution. Deltec reviews our company on an ongoing basis.
Tether Limited is registered with the Financial Crimes Enforcement Network of the US Department of the Treasury and maintains the highest standards of AML/CFT procedures. USDT in the market are fully backed by US dollars that are safely deposited in our bank accounts.”
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EMAIL: gerry [@]
HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR
(but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans”
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 16th March 2019:
NO CHANGES THIS WEEK – ALL PRICE PULSES UNCHANGED
NOTE — RED ARROWS INDICATE BOOM PRICE PULSE DOMINANCE in the present moment (as indicated by the date of the chart and taking into account the 3 year time frame shown). The charts are now arranged in PRICE PULSE RED ARROW DOMINANCE. NOTE: All Charts are WEEKLY Charts over the last 3 YEARS time frame. Arrows indicate PAST price action (not future). No predictions are implied from past action.
Comments refer to past PRICE PULSE (Red Arrow DOMINANCE) over the last 3 years, the week ended 16th March 2019. You can RIGHT CLICK a chart and OPEN in a New Tab. Make your own conclusions, do your own research. BOOM does not offer investment advice.
PLEASE NOTE — Many charts are ETF’s from NY Market (not the base commodity or currency etc). The NY Stock Code is in the Top Left Hand Corner of each chart.
Charts are produced from http://www.stockcharts.com
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
PRICE PULSE RISING — (RED ARROW UP DOMINANCE)
# SHANGHAI STOCKS — UP Arrow Dominant
# COPPER PRICE — UP Arrow Dominant
# SWISS STOCKS — UP Arrow Dominant
# SOIL (POTASH ETF) — UP Arrow Dominant
# SINGAPORE STOCKS — UP Arrow Dominant
# US JUNK BOND PRICES — UP Arrow Dominant
# HANG SENG — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — UP Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — UP Arrow Dominant
# EMERGING MARKETS ETF (EEM) — UP Arrow Dominant
# YUAN (AGAINST USD) ETF (CYB) — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# GOLD PRICE in USD — UP Arrow Dominant
# GOLD PRICE (in Aus Dollars) — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# BRAZIL STOCK INDEX — UP Arrow Dominant
# PALLADIUM PRICE — UP Arrow Dominant
# ARGENTINA STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# RIO STOCK (Iron Ore) — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant
PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)
# TED SPREAD — DOWN Arrow Dominant
# NATURAL GAS (SPOT PRICE) — DOWN Arrow Dominant
# US DOW STOCK INDEX — DOWN Arrow Dominant
# US BIOTECHNOLOGY INDEX — DOWN Arrow Dominant
# JAPAN STOCKS — DOWN Arrow Dominant
# WEST TEXAS OIL PRICE — DOWN Arrow Dominant
# US TRANSPORT INDEX — DOWN Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — DOWN Arrow Dominant
# QUAL (Quality ETF) — DOWN Arrow Dominant
# MTUM (Momentum ETF) — DOWN Arrow Dominant
# RUSSELL 2000 INDEX — DOWN Arrow Dominant
# TRIM TABS US FLOAT (TTAC) — DOWN Arrow Dominant
# FINANCIAL SECTOR ETF (XLF) — DOWN Arrow Dominant
# US KBW BANK INDEX — DOWN Arrow Dominant
# NASDAQ COMP INDEX — DOWN Arrow Dominant
# COMMODITIES INDEX (USCI) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# FRANCE STOCKS — DOWN Arrow Dominant
# AUSSIE ALL ORDS INDEX — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# GERMAN DAX — DOWN Arrow Dominant
# TAIWAN STOCKS — DOWN Arrow Dominant
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# COAL ETF (KOL) — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant
PRICE PULSE UNCERTAIN NON-DOMINANCE OF RED ARROW –
# US LONG BOND PRICE (TLT) — NO Arrow Dominant
# DENMARK STOCKS — NO Arrow Dominant
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