Bill Blain: "We’ve Heard JPM Traders Bragging In The Pub How Much They’ve Made From Bitcoin"

Submitted by Bill Blain of Mint Partners

Blain’s Morning Porridge – September 20th 2017

     “New Car, caviar, four star daydream, think I’ll buy me a football team….”

Will they? Won’t they?  I’m not talking about Donald’s playground bluster about nuking North Korea back to the 1950s. Shocking and intemperate. Yes. But, plays to his audience.

Of more import are Central banks and how they wriggle out of their current chains. Will the Fed put another nail into QE this afternoon? We think they will announce the end of coupon reinvestment: de-facto normalisation/tightening. Get on with it! US markets are resilient enough to cope – but we really need to see serious spread decompression between the fixed income asset classes.

As we’ve written before, it’s more a problem for the ECB. They are caught in a horrible decision matrix: the imperative to continue QE infinity to maintain the illusion nothing is wrong, the Germans sticking to their guns about normalisation and no debt mutualisation, and electorates who aren’t anywhere near ready to surrender that kind of economic sovereignty to Brussels.

I suspect the stories about the ECB being split as it sounds off on setting a firm date in October for scaling back their bond buying is a bit of Kite Flying. If they asked me, I’d say bite the bullet and say it’s going to happen. It make Angela Merkel’s job constructing a new German coalition next week much easier, but will just fuel electoral tensions across the various Italies.. (Yes.. I wrote Italies..)

Personally, I suspect Draghi is praying for a crisis.

It would allow him to play his “Kick-the-Can-Card.” Remember he said: “Unless a risk that is not seen today materialises, we should be ready to take the bulk of these decisions in October.” A nice little bond crisis, stock market collapse, or renewed Global Financial Crisis (maybe even some unpleasantness in Asia or Middle East), would allow him to put the back the decisions, massage some votes and keep the QE illusion in place till after next year’s Italian vote. It’s all about timing.

As they used to say on Stringray: “Anything can happen in the next 20 minutes. (I guess there may still be a few of us who remember Troy Tempest and Aquamarina.. if you are one of them, I’ll see you in the bond traders’ retirement home shortly)

Regular readers will know I’m worried about the unintended consequences of QE – and just how distorted markets have become as a result. I’m not alone in that view – I’ve read many reports of other market watchers saying similar.

For instance, one bloke says: “Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy.. with respect to QE, there are good reasons to be sceptical that it works as advertised, and some economists have made a good case that QE is actually detrimental”. Same chap says asset prices have climbed but inflation remains elusive.

But this wasn’t some jumped up teenage scribbler like myself – this was a senior Federal Reserve economist – Stephen D Williamson - reported on CNBC! A “No Sh*t Sherlock” award on his way to him then.

On the other hand, Bloomberg report European economists saying that monetary policy is now working across Europe, and the key moment was when TLTROs went negative rate, allowing peripheral banks to really start lending across the European periphery states. I’d always assumed the main effect of free ECB money to banks was for them to buy Government bonds (safe in the knowledge the ECB would be the buyer of last resort) – but apparently I’m wrong: the reason we’re seeing 3% growth in Spain and close to it in Portugal is due to renewed lending.

That would be lending by the same European banks that have experienced massive Non-performing loans and enforced capital rises then? I must look into this.. I hae ma doots.

And thanks to all the readers who commented on yesterday’s porridge and my note on Greece. As expected I got pillioried by European chums (you know who you are!) for my lack of faith in the European dream and got well put in my place about the failure of the UK to exploit the weak currency.

But I also had some Europeans agree with me. A very senior banker told me he doubts the EU will survive much beyond the end of ECB QE – and he’s French!

A bigger worry was my blithe assumption the Global economy is on the road to recovery. More than one reader pointed out their fears the last 18 months of sluggish growth will shortly run out of steam and we’re heading into a new recession, which could be exacerbated by the negative sentiment from a market slowdown. This morning I’ve just been sent articles hinting of a China slowdown next year hitting commodity markets..

Gosh.. this global economic thingymaboab is complex stuff.. 

Meanwhile… I’ve been asked a number of times to comment on cryptocurrencies.

I try not to – on the basis I don’t really understand the underlying logic. But a blog I read this morning struck a chord. I can’t grasp why they have taken off - except to make things like Silk Road the modern equivalent of smuggling as it hides transactions from financial scrutiny raising questions of illegality and tax. That is legally and morally wrong. Their valuations are bubbletastic, and there are now over 1200 of the things looking ripe for legislative sideswipes.

Neither can I figure how Bitcoin can possibly work – apparently the Blockchain underlying it can only handle 6 transactions per second, unlike your average credit card which can handle hundreds of thousands of simultaneous deals. In other words, you could never run a global economy off it!  More to the point, I’m not quite sure why we need it when we have well established offshore currency markets and accepted “stores-of-value” like the gold brick.

And then there is the story Jamie Dimon of JP Morgan will sack any of his bankers who own them. (Hah.. we’ve heard them bragging in the pub about how much they’ve made from holding Bitcoin.)

Step back and the kinds of gains Crypto-currencies have made scream “bubble”! – fuelled by the sillies now pilling into them looking for big bucks, lured in by unverifiable stories about the riches to be made.

When a London taxi driver tells you he’s long Bitcoin… Sell! And all the folk who say they look like a Ponzi scheme – they might well be right.

But, for all their faults, the dodgy trading arenas, and the desperation of buyers, the bottom line is Bitcoin and others have made money for early investors. Why? It’s gone through successive waves of enticing reasonings: first it was the smart technological solution to a perceived crisis of confidence in currencies, before morphing into the “insider” financial trade, and now it’s a sure fire route for “Lovely Linda from Liverpool” to turn her £20k retail wages into million.

There will be tears.

Maybe Bitcoin was a well intentioned attempt to practically demonstrate the monetary theories of the Japanese bloke who is said to have invented the concept.. but today? They are a scam designed to tap the spigot of idiocy. Caveat Emptor. 

Like I say.. I don’t really understand cryptocurrencies..

In a world where the biggest real definable threat may be cyber attacks on banking systems, perhaps they might be a secure store of value. But I also suspect the first place cyber crims will ransack accounts will be the cryptocurrencies themselves.

I really don’t like this digital world..


Fizzy Head This Might Hurt Wed, 09/20/2017 - 08:26 Permalink

The question to ask is.. what is JPM et al's end game with their crypto manipulations.. is it just making a buck without taxation or prop and drop to scare everyone out of it? All good questions to consider when investing in a digital number stored on sillicon...One thing remains certain, bitcoin and a number of cryptos are being heavily maipulated by power hands. 

In reply to by This Might Hurt

mtl4 Fizzy Head Wed, 09/20/2017 - 08:37 Permalink

When a billionaire comes out in the media and proclaims something, you can damn well bet money they are doing the exact opposite behind the scenes........just look at Buffet telling everyone he doesn't deal in commodities and then he tries to manipulate the silver market (130 million oz!!!) back in the late 90's.  They are ironically predictable at this point.

In reply to by Fizzy Head

cheech_wizard tmosley Wed, 09/20/2017 - 11:11 Permalink

True statement by the author or not?Neither can I figure how Bitcoin can possibly work – apparently the Blockchain underlying it can only handle 6 transactions per second, unlike your average credit card which can handle hundreds of thousands of simultaneous deals. In other words, you could never run a global economy off it! Standard Disclaimer: A simple yes or no answer will suffice on the "6 transactions per second", unless of course you need to expound on your answer, in which case, it will be subject to extreme scrutiny... If you are going to say, it will be to do that, but not yet, give a time frame, and the names of the people working to make it happen.

In reply to by tmosley

booboo JRobby Wed, 09/20/2017 - 08:56 Permalink

"Hah.. we’ve heard them bragging in the pub about how much they’ve made from holding Bitcoin"Is that how you make money? holding it? I thought you had to sell it first to realize gains. ahhh, so they are bidding it up with free money and selling it to the greater fool.

In reply to by JRobby

Deep In Vocal … Wed, 09/20/2017 - 07:17 Permalink

look at that picture............ thats the people you want..... well you are what you eat...... you are what you vote for.... you are a disgusting, little filthy fucking human being......yeah....take a look in the mirror.....then take a shotgun and blow your head off hey all you people in suits...please explain how fucking important you are.....yeah wow im an investor yeaah im a business man.....yeah im an economist.........yeahh im important you know thats why i have a suit................. ill give you a suit to wear you fucking disgusting human.....

Anopheles lester1 Wed, 09/20/2017 - 09:01 Permalink

Not just sell, but get your money out and into your own bank!   Exchanges don't hold your CASH, they hold a credit for you.  Reality is the exchanges don't have the cash!  They only get the cash when there are infusions of NEW cash to pay your withdrawl. They are exchanges, not banks!  They hold no assets! Doesn't that sound like a ponzi scheme? People who downvote this post don't understand that there is zero cash backing the $60 billion dollar bitcoin valuation!  The only way to get $60 billion out, is if people put NEW $60 billion in! 

In reply to by lester1

Anopheles nomofiat Wed, 09/20/2017 - 10:50 Permalink

Try withdrawing a million or 10 million from an exchange, when you haven't deposited any cash or just a tiny bit of cash into that exchange.   What do you think they are going to tell you?  That they'll transfer it all immediately?  Hahahhahaha What part of NO CASH RESERVES and NO ASSETS in the SYSTEM don't you understand?   

In reply to by nomofiat