No Image

The Candle Problem (Why Bitcoin Is Misunderstood)

November 26, 2017 Capitalist Exploits 0

By Chris at
Karl Duncker, that’s who came up with it.

The Candle Problem, that is.

If you haven’t heard of the candle problem, here’s the skinny.
In 1945, just as Hitler was murdering himself (thankfully), psychologis…

The post The Candle Problem (Why Bitcoin Is Misunderstood) appeared first on

The post The Candle Problem (Why Bitcoin Is Misunderstood) appeared first on Forex news forex trade.

No Image

“But The Elites Will Just Ban Bitcoin!”

November 11, 2017 Capitalist Exploits 0

By Chris at
I was thinking about this as I’ve been reading….and re-reading the absolutely brilliant book “Sapiens: A Brief History of Humankind” by Yuval Noah Harari, who is one of my new favourite thinkers.

In partic…

The post “But The Elites Will Just Ban Bitcoin!” appeared first on

The post “But The Elites Will Just Ban Bitcoin!” appeared first on

No Image

Jamie Dimon Should Learn About Lemons

October 29, 2017 Capitalist Exploits 0

By Chris at

A tale of two James’.

What does this guy:

Captain James Cook

…have in common with this guy:

Two things:

  1. Same first name, and
  2. similar opportunities.

Let me explain.

Captain James was probably just another ruffian salty with poor hygiene and bad teeth. But you know what the catalyst to his fame was? And by extension what turned muddy old Britain into an empire?


You see, the thing holding back Captain Jamie from extended ocean going voyaging was a nasty disease called scurvy. We know now that Jamie was dead eager to get out there and bring nasty European diseases to natives in faraway lands and upon arrival announce, “By George it’s nice and lush here, we’ll take it.”

And so when Scottish physician James Lind figured out via controlled experiments that, in fact, a diet including vitamin C rich foods cured this pesky disease, the advantage presented to sailors was enormous. After all, those poor sods used to routinely lose up to 60% of their crews to scurvy on voyages.

Imagine setting out knowing such odds.

Da Gama, for instance, lost 116 if his 170 crew, and Magellan 208 of his 230. You’d have better odds skulling a bottle of Absolut and then playing chicken with Mack trucks on a freeway.

It took the Brits about 40 years to put this knowledge to good use, but it has been argued by historians to have been a catalyst to the founding of the British Empire. At the time, there were plenty other countries who could quite easily have stacked up some lemon juice in the hull, set sail, and begun planting flags. But they didn’t.

Isn’t that amazing? The bloody British Empire owes its fortunes to the humble lemon. And, by golly, old Jamie Cook took advantage of that didn’t he? And the rest, as they say, is now history.

And this brings me to the other Jamie.

You see, Jamie (the old Brit Jamie), used something quite revolutionary at the time to alter the course of history and become a major player in it.

And Jamie (the not so old yank), Captain of the JPM ship has a similar opportunity today.

It’s why he should learn about lemons.

It seems he knows little about modern day “lemons” and their properties. Here’s some major ignorance points he shared with us all on his views just recently.

I think Alex Gurevich said it best:

I was mentioning this all to my lovely wife the other night, and you know what she said?

She said that if he was a she (Jamie that is), he probably wouldn’t be so arrogant and may look at the manual. Which in this case is, of course, Satoshi’s white paper.

And, as usual, she’s right. When we got our last DVD thingy player she immediately pulled out the manual to learn about how it all works so that when she wants to, she’ll be able to play exactly what she wants without delay and mess and fuss.

Me? I stabbed away at the buttons, safe in the knowledge that even if I’m trying to get the Blu-ray to play, I’ll probably get the USB figured out, and who knows what excellent films are on the thumb drive I’ve shoved in there.

I console myself with the fact I’m male, and as such, reading the manual is against my religion. But I tend to make up for it by diving in and learning by doing.

Jamie, bless him, isn’t even prepared to do either, and that’s fine.

It just means that when Bitcoin hits another all time high and history books are written (by the robots, of course), he won’t even make the pages. He’ll simply be like all those other sailors in Portugal, Spain, France, and the Netherlands who, in the 1800s, were sailing around at the same time Captain James Cook was.

And you know what? We don’t know anything about them, and neither will future generations know anything about the present Captain of the USS enterprise JPMorgan’s Jamie “I don’t know isht about Bitcoin” Dimon.

And that’s probably how it should be.

– Chris

“Do just once what others say you cannot do, and you will never pay attention to their limitations again.” — Captain James Cook


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post Jamie Dimon Should Learn About Lemons appeared first on

The post Jamie Dimon Should Learn About Lemons appeared first on

No Image

We Have Met The Enemy… And He Is Us

October 19, 2017 Capitalist Exploits 0

By Chris at

Warning: I’m going to jump all over the show today. Live with it.

When your umbilical cord was severed, and you’d only just entered this world, you had approximately 100 billion brain cells. At some point in the future (hopefully very distant), an old man in sturdy boots and a trench coat will throw dirt on you and there’ll be a whole lot less.

Apparently it’s like an expiring option.

Our cells fizzle and die slowly during the course of our life and then much more rapidly until we’re gone. It’s basically Black and Scholes inside our skulls.

The thing is, based on the sheer number of neurons we arrive on this planet with, we should all be geniuses at birth. We’re not.

It takes a good number of years for us to figure out that we shouldn’t stick our bits in a toaster… or chew on barbed wire… or play with electricity in the bath while a 2 year old would have no problem thinking those are perfectly reasonable things to do. This is despite the fact that at age 2 our brains are about 80% of the size of a fully grown adult and about 85% by early childhood.

The reasons for this is due to the connections made between neurons – synapses.

When we’re only 2 years old, we’ve not made and strengthened these necessary connections in our brains. A child’s brain actually has twice as many synapses as an adult’s brain, and in a process called pruning, the neural connections that are used and reinforced most often — like those used for language — are strengthened, while the ones that are not utilized as much fade and die.

It’s not, therefore, entirely about the number of neurons, but rather how they’re trained to connect and the consistency of that training.

The more connections made with regularity, the more adept we become at whatever that connection provides. If it’s a series of connections allowing us to speak a language, then it’s no surprise that a 2-year old still struggles while a grown adult manages the task perfectly well while driving a complex machine down the freeway and munching on an apple.

It also explains why a relatively dim Joe Sixpack can be trained to perform a complex task and execute it efficiently (provided he’s experienced sufficient repetition of the task). This could be a task which a genius, at first crack, may underperform at.

It’s true. Repetition is indeed the mother of skill.

As investors we should try to remember this.

What else?

The terrible twos are pretty awful. You know why?

Because at this age we start developing the synapses that allow us to experience emotion. Emotions such as frustration.

So you know what we do?

We practice those emotions. After all, if we’re to control them we need to strengthen them. It’s just a bit of a “terrible” experience for those around us while we’re busy “practicing” frustration. But only once we’ve mastered those experiences and more fully developed, those connections do we begin to learn how to actually control them.

It’s a bit like hopping into a supercar when you don’t really know how to drive. At first, you’re a wee bit out of control, careening all over the place and figuring out how the accelerator works and the breaks and so forth. Eventually, we get the beast under control and we’re off.

As adults we can all lapse under stressful conditions.

Have you ever been running late for some important meeting and you can’t find your car keys?

You go into a whirlwind rush. Blind panic. Where the fffff are my keys???

“Honey! You seen my keys?”

Your darling loved one answers with, “but I told you to put them on the hook.”

What’s your response?

Typically it’s something like this.

You FFFFF!!!

 Don’t tell me that. Just help me find them.

What’s happening in your brain is that your rational brain has completely shut down at this point. In this state you simply can’t function rationally. The 2-year old has taken over, and only once you’ve calmed down can you go about searching for your keys… thinking rationally where you had them last and so forth.

You’re literally returning to what a 2-year old experiences when they’re still developing those neural connections and haven’t fully developed them yet. The 2-year old brain doesn’t understand context. It’s reverting to our primary DNA, which actually tells us that we’re going to die.

So what does this have to do with investing?

Well, I was thinking about this all as I wrote the weekly Insider subscription letter. Take a look at this.

On the 19th April of last year, after hearing the news that Mitsubishi Motors Group had “doctored” some of their fuel efficiency datam a number of investors went all 2-year old. Their brains reverted to our most basic DNA and yelled “I’m going to fu****g die”, their reaction being ironically somewhat self-fulfilling.

Proof that we can go from rational to 2-year-old in the blink of an eye. 

You only needed to wait for one week to find the bottom.

Yet Another Example

I alluded to it in a post about the land of football, gorgeous women, and trading opportunities in May of this year.

Here’s what it looked like at the time:

“We’re all going to die!”

And here’s what we did — an excerpt from the Insider trade alert:

Buy the Jan 2019, 33 Strike (currently at 5.50) Simultaneously sell the Jan 2019, 40 Strike (currently at 3.15) For a spread cost of 2.4.
So if EWZ closes at or above 40 by Jan19 we will make 7 on the spread (40-33), less the cost of the spread (2.4) = 4.6/2.4 = 190%.
Of course, you could have just bought the ETF itself. Very vanilla and something a trained monkey could do.

Here’s today’s chart:

Jeezuz…nobody died. Whoudathunkit?

Are we super genius?

Hell no! We just refrained from going all 2-year old, took a breathe, and put things into context.

There’s another side to this.


Have you ever been driving along behind some old dotty goat who’s trawling along well BELOW the speed limit? You’re agitated and then excited when you see that just ahead the lane goes to double lanes. Ah… at last a chance to drill past old Betty in her Suzuki snowflake, 1-point-nothing tin can that’s been annoying you for ages.

And then, we all know what happens next.

Here comes the double lane and Betty, bless her socks, suddenly guns the car and is now going OVER the speed limit. Whaaat??

There is a reason for this. It’s all about our DNA.

Back when we were restless creatures scrubbing for roots and berries our social status could have meant the difference between survival and death. It was pretty important that our social status remained as high as we could get it. Those at the bottom of the social rung could quite literally starve. Not pleasant.

Today, we’re not going to starve but our DNA doesn’t recognise that. It still reacts the same way.

We see this in any bubblicous market. In fact, I was cutting my teeth in the investment banking world in London during the dot-com boom and truthfully never understood at the time what was going down. (gimme a break I was just 20-something).

EVERYONE was getting in on the IPOs and making fortunes. It was as much a social status activity as it was about making money. NOT participating meant that you were old Betty getting overtaken at speed. Not good says our brain.

There is hope, though.

Don’t drive yourself around the bend letting your 2-year-old brain run the show. Breathe, relax, and put everything into context. Most of the time you should be doing nothing at all except observing.

Good luck!

– Chris

“Resisting temptation and instilling self-control are general human goals, and repeatedly failing to achieve them is a source of much of our misery.” ? Dan Ariely


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post We Have Met The Enemy… And He Is Us appeared first on

The post We Have Met The Enemy… And He Is Us appeared first on

No Image

SDR: The New Global Currency

October 8, 2017 Capitalist Exploits 0

By Chris at


Hi there,

I’ve been hearing a lot from private bankers lately (they’re always trying to flog you product), though the topic being discussed amongst themselves is that of the SDR going mainstream, and they’ve been asking my opinion.

We don’t have to look far to understand why.

End of the US Dollar Rally says HSBC’s Bloom, Cuts Forecasts for USD

Bearish bets on dollar rise ahead of Fed meeting

Here’s the dollar index going back to December 2016.

Which itself has brought a not unsurprising but potentially valuable (depending on how you position) setup.

Here’s COT positioning.

Speculators haven’t been this short since 2014— back when… oh, never mind. This time is different, right?

Global Players Circumventing the Dollar

Fuelling this narrative has been talk about those sneaky Chinese and their moves to disintermediate the dollar through the development of gold contracts and oil traded in yuan.

All of this appears to be painting a particularly nasty picture for the greenback, and the bears, as we can see, are all in and betting on black.

This is the backdrop to the discussions those private bankers are having around the SDR. After all, if one hegemonic currency is to go away, it surely can’t do so without another replacing it.

Enter the SDR.

Let’s briefly define what an SDR exactly is so we know what we’re talking about.

Think of it as an ETF of international currencies which adjusts its weighting according to the prominence of currencies in terms of international trade and FX reserves. It’s currently made up of the following five currencies: USD 41.73%, EUR 30.93%, RMB 10.92%, JPY 8.33%, and GBP 8.09%.

It is the brainchild of the IMF, an organisation that should be taken outside and shot. No trial, no last meal, and no flowers, please. The ideas coming out of this creature pretty much guarantees they should be avoided like a bubonic rat. 

And speaking of the IMF, we have the head, one Christine “I’m a wretched old goat” Lagarde riding the coattails of the crypto currency boom.

LONDON (Reuters) – Global usage of the International Monetary Fund’s in-house currency, the special drawing right (SDR), could get a boost from the growth of digital currencies, the Fund’s managing director, Christine Lagarde said on Friday.

Like I said. Bollocks!

Let Me Explain

What do all of these have in common?

  • Bretton Woods
  • USD reserve status
  • The formation of the United Nations
  • The IMF and,
  • The IMDB and,
  • The World Bank
  • The Gold standard, and lastly….
  • Quantitative easing

The answer to this question explains why we’re extremely unlikely to see any SDR implemented — at least not yet… and not particularly soon.

All of these organisations, except for QE which isn’t an organisation at all (and I’ll get to it in a minute), were formed at the end of World War 2.

How do you get 44 nations, whose people speak different languages, pray to different gods, eat different foods, and have completely different domestic laws, to agree on one set of rules?

Rules such as a dollar standard backed by gold. Organisations such as the UN, IMF, the World Bank, and others.

You have a great big shocking brutal war. So devastating, so exhausting, and so physically and mentally sickening that in desperation society strives to create something that will create stability, peace, and an end to the mayhem. There is a cohesiveness in shared tragedy and by 1945 there was a helluva lot of tragedy going around with entire cities left in smouldering ruins, nations bankrupted, leaving society poor, desperate, and exhausted.

Nearing the end of WW 2 we all looked at one another and basically said, holy cow, let’s not do THAT again. In fact, let’s make damned sure it never happens again, heh folks.

The European Union itself was setup with the purpose of ending the frequent and bloody conflicts of European neighbours which culminated in World War 2. Many of the institutions and social structures of any scale were birthed in crisis.


Never worked. That it all ended up with people eating grass never stopped society from giving it a jolly good whirl — 1922 to 1991 is still 69 very long years. Imagine those were YOUR 69 years. Then they’d certainly have mattered.

That it failed as miserably as the euro will surely fail is missing the point. The collective decision to give communism a go was a by-product of World War 1, beginning with the Bolshevik seizure of power in Petrograd in October 1917.

Good ideas, bad ideas.

Any ideas implemented at scale across political divides are more often than not achieved during and often after a crisis.

The bigger the crisis the greater the probability of something being implemented. A domestic crisis can birth a large domestic response but typically it takes an international crisis together with a shared political view to birth something like the various organisations that came out of Bretton Woods.


Was a coordinated effort in a time of crisis where participants from the world’s global central banks all chose to act together with self preservation being the obvious goal. That took political cohesion together with a shared crisis.

Now, this is where it’s important because a crisis where there is no global political cohesion does NOT result in coordination. All we need do is look at individual crisis which regularly take place and where global powers pay little to no attention to them, certainly not at a global coordinated level. Venezuela today, Argentina in 2003, even the Asian crisis never amounted to a true global coordinated effort to do something.

This comes back to an article I penned almost exactly a year ago on the incoming “strong men” and their impact on the global economy where I stated the 3 important things to watch for.

  1. Political cohesion and stability can no longer be relied upon as politics becomes inward looking with everything from trade deals to central bank swap lines being renegotiated or cancelled altogether.
  2. Global coordinated central bank action. The era of global coordinated monetary policy which we’ve been experiencing since the GFC, especially with the three largest players (ECB, FED and BOJ), will be looked back upon with nostalgia by the current clutch of central bankers who muddy the halls of power. Policy will increasingly be driven with greater sensitivity to nationalist rather than international concerns, which brings me to…
  3. Liquidity in the financial system which has stemmed from easing monetary policy is already contracting. In a world where derivatives traverse borders, connecting financial systems like never before, a liquidity crisis presents enormous tail risk in a leveraged world.

Over the last decade, we’ve been moving rapidly towards a world of “us vs. them”. A world of insular inward looking politics, xenophobia, rising nationalism, rising religionism, and an increase in secessionist movements.

Catalonia is simply the most recent example, though preceded by Brexit.

When I look around the world today, I just don’t see the political cohesion necessary to implement the SDR.

Unless someone rounded up the existing political elite from all over the world and severely and heavily medicated them, their interests are simply not aligned for this to take shape. Barring the snapping of some anchoring ligament in their current psyche, there exists no political will to act in a coordinated fashion.

The trend is, dare I say it, quite firmly in the other direction, and unless that changes, the implementation of the SDR at scale grows increasingly unlikely with each day.

Oh, and one last thing.

Let me ask you a question: If Europe has had such trouble managing a monetary policy amongst the Eurozone, which incidentally is a basket of countries with similar social, political, and economic structures, then how the heck does one manage such things on a global scale, across countries with distinctly different social, political, and economic structures?

– Chris

“We are met here in Bretton Woods in an experimental test, probably the first time in the history of the world, that forty-four nations have convened seeking to solve difficult economic problems. We fight together on sodden battlefields. We sail together on the majestic blue. We fly together in the ethereal sky.” — Fred Winson, U.S. delegate at the Bretton Wood conference


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post SDR: The New Global Currency appeared first on

The post SDR: The New Global Currency appeared first on

No Image

Warning: Danger Lurks Here

September 27, 2017 Capitalist Exploits 0

By Chris at

Take a look at the volume of stocks listed vs. indexes listed going all the way back to the days of bellbottoms, loud hair, and orange wallpaper.

Since 1995, the supply of stocks, particularly in the US, has been shrinking faster than Trump’s approval ratings. At the same time, the number of indexes have exploded like one of Kim’s shiny new missiles.


In a falling interest rate environment, the twin pressures of reduced returns and relative cost pressures have meant that investors, in order to make a buck, have flooded into the low fee structures offered by passive strategies. These include indexing, ETFs, and those truly insane creatures I’ve written about before: low volatility ETFs.

But what about those alpha generating hedge funds? Aren’t they meant to be smart and able to beat the market… any market?

Those alpha generating hedge funds have things called LPs. And though LPs may be smarter, and certainly wealthier than Joe Sixpack, they’re no less human. And human attention span and patience level has been in decline… correlated no doubt with the rise of social media and the Kardashian crowd. Like a virus, it infects everything.

As performance from hedge funds has been poor relative to the benchmarks, a self reinforcing situation where hedge funds, in order to ensure LPs don’t redeem, have landed up hugging the indexes.

This is the exact opposite of what hedge funds were meant to do, of course. In many cases, they themselves are simply buying the indexes, trying desperately to figure out how the hell they’re going to survive through the next quarter but determined simply NOT to underperform the index. It’s a losing strategy no matter how you slice and dice it.

For those hedge funds who refuse to chase the indexes… Well, they are now fighting the tidal wave of capital that has been shifting into passive investments, which forces those passive investments even higher.

This, in turn, leaves active hedge funds who refuse to get sucked in with increasingly substandard returns. They can explain until they’re blue in the face why certain indexes make no sense but when those indexes just keep rising day after day, month after month, it becomes a very tough stance to keep. Redemptions follow, and so by doing the right thing, they’re punished. And by doing the wrong thing (following the mob), they may get to stay alive just a little longer and this is what many have resorted to.

We all know that at some point there are no new buyers available to enter the market and hoo boy, do we then have a problem.

So… you either join the party or you leave the party.

The last to leave the party is Hugh Hendry and his baby Eclectica.

Hugh Hendry Murders His Hedge Fund

Og aye, tis tae tough

Hugh follows Eton Park and Perry Capital to name but a few more.

Paul Singer of Elliot Management fame put it well in his July investor letter to stakeholders.

“In a passive investing world, small shareholders have little-to-no voice and no realistic possibility of banding together, while the biggest shareholders have no (repeat, no) skin in the game so long as the money manager does not underperform the index.”

Make no mistake, the rise of passive indexing is a bubble in dumb money.

We have a situation where the market is becoming completely lopsided and increasingly so at a blistering pace.

If it gets anymore lopsided, it’s going to be upside down. What’s more, the market participants have no interest or even determination of valuations.

An index doesn’t give an isht what the P/E ratio of any stock included in the index is, and the investors buying it have even less idea. It doesn’t care if the aggregate of stocks sitting inside its womb are over or indeed undervalued. It’s just a dumb bloody index, and you can’t blame it anymore than I can blame my dog for not understanding Shakespeare.

Those investing in passive have done so partly due to relative fee differentials, partly due to performance. But now also dangerously so… due to increasing inflows, which have continued to push values higher.

Now, having markets or sectors get silly is obviously as normal as a peanut butter sandwich, and provided you’re aware of it, we’ve little to worry about.

But what’s more frightening than the Kardashians in skinny pants is that as capital has fed into passive, the usual countering forces (active managers) of the market have been leaving the party, which has left the passive world to increasingly swell like a neglected infected wound.

What we need to think about is that increasingly there is no active market to stabilise this. It’s akin to having a 5-year-old’s party, inviting a troop of the critters, and then promptly sending all the parents down to the pub for a few hours.

Just as short sellers provide a balance to a market so, too, active management (who incidentally typically have skin in the game) have always provided a stabiliser to the overall market. What happens when the stabilisers all leave the room?

We can see this manifesting itself in the volatility index. As more capital enters at a steady pace so, too, the volatility falls.

And here’s the thing. The algos constantly feed back the daily data to recalculate their probabilities (read this article on VAR shocks). Risk? Nah!

At the extreme of the passive world sits volatility.

Selling volatility works really well. Just ask Neiderhoffer who has made godawful amounts doing it over the years.

Look closely, though, and you notice that even Neiderhoffer, who knows what game he’s playing, blows himself up spectacularly from time to time… and I mean complete armageddon wipeout stuff. Until that blow up comes, though, you just keep plugging away at it day after day and it just keeps paying you… day after day. You make money, make money… and then, well…

It all turns to isht and blows up in your face.

My friend Mark Yusko from Morgan Creek Capital places capital with the smartest strategies and hedge funds – active capital.

Who’s willing to bet with me that over the next decade being long smart active strategies and short passive (low volatility ETFs) will be a winning trade?

Wow Poll - 27 Sep

Cast your vote here and also see what others think

– Chris

“What could be more advantageous in an intellectual contest – whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?” – Warren Buffett, 1985 Berkshire Hathaway Letter to Shareholders


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post Warning: Danger Lurks Here appeared first on

The post Warning: Danger Lurks Here appeared first on

No Image

India Stack and Bitcoin (An Insider’s View)

September 22, 2017 Capitalist Exploits 0

By Chris at

Before the good stuff… the fun stuff.

Here’s a fan mail I received in response to this.

I guess he/she never made it as far as this part:

“Don’t get me wrong. I’m not against EVs, and I’m all for technological innovation.”

Though, in all fairness, it may be the collagen talking. Either way, definitely not an Insider member, otherwise he/she/it would be well aware of where we’re actually invested. Ha!

Dregs from the bottom of the barrel occasionally drift into my corner of cyberspace. That they respond like this must be due to this fascinating misconception that I give a damn.

Still, if we poke them hard enough in the chest, they’ll bugger off leaving us with the fine specimens that make up the overwhelming majority of our distinguished readership. Which brings me neatly to:

“Hi Chris,


I’m not sure if this gets to you or is stuck in the admin box.


Love your work, really enjoy it.


Your current one on the knock off effects of banning gasoline and diesel cars made me want to bring up another point that is seldom discussed when people talk about the future of EVs… the profitability of refineries when they don’t have a market for gasoline.


When a barrel of crude is refined, about half of its volume ends up as gasoline.  The other half ends up as diesel, jet fuel, bunker oil, chemical feedstocks, etc… Gasoline is great for running automobiles, but pretty lousy for any other industrial process.  Industrial processes such as mining, refining, transporting, and processing cobalt, lithium, and molybdenum into EV parts.  These processes depend on the other half of the barrel.


Driving away (pun intended) the demand for gasoline by mandating EVs means that refineries have half of their product become much less valuable.  I don’t have the research or know of who has done the research, but I wonder what such a move would mean for the price of diesel, jet fuel, bunker oil, chemical feedstocks, etc…?

Hope all is well, cheers!”

Fair points and worth thinking about.

For example. Do those industries taking up the “other half of a barrel” benefit? To what degree? For how long? And is the market pricing this?

All fun stuff which we spend all most of our time doing here.

Anyway, today I’ve got something special for you and it’s got nothing to do with EVs or gasoline.

Bitcoin and India Stack

It was Raoul Pal who first brought to my attention the incredible galactic sized project that is India Stack.

I’ve since spoken with quite a variety of people both in India and out in order to better understand the dynamics of what’s taking place in India. I think it provides a fascinating and illuminating view into how certain problems can be dealt with.

In particular (and I’ve not seen anyone mention this), the ability to recapitalise a banking system on the brink and to do so while transitioning over a billion citizens onto a digital system.

Pre-cash elimination, India’s banks were in a shocking state. What better way to “fix” them than to get the poor to bail them out.

Ever since man began forming communities, we’ve had a setup where those at the top manufacture ways and means to have those at the bottom pay for the things they want.

Kings told stories about their “divine rights”, people believed it, priests told stories about the church’s relationship with God, people believed it. And today politicians tell stories about “the greater good”… and people believe it. Some things never change.

Aside from the banking system being recapitalised…

It’s been fascinating to watch what was up until recently one of the world’s largest cash economies and where millions never even had a bank account suddenly goes digital.

So there were two steps here.

The first being the elimination of cash in the economy, and the second bringing online the digital platform otherwise known as IndiaStack, an open source platform where information is a utility.

The set of open API for developers includes:

  • The Aadhaar for authentication
  • The e-KYC documents that have been generated
  • Digital lockers
  • e-signatures (software based as against the present dongle based e-signs)
  • The Unified Payments Interface which rides on top of the National Payment Corporation of India’s Immediate Payment System.

You can check out a presentation which provides a decent overview of it here.

I’ve spoken with a lot of guys who see this as being a major boon for India’s economy, eliminating fraud, destroying swathes of bureaucracy, and bringing millions of people into the economy who previously never had access.

I don’t disagree with any of this, but what I wanted to do was to find someone who wasn’t very bullish, someone who would challenge some of these thoughts. And with that in mind, I found and spoke to Deepankar Kapoor.

Deepankar Kapoor – as you can probably infer from his name – is not only Indian but he’s also the founder of Bitcoinwiser, a well known face in the digital advertising industry in India with his most recent stint being as the Vice President & National Strategy Head at Ogilvy India.

He has 9+ years of full time recognised experience in digital business transformation of Fortune 500 brands and won many accolades throughout his career. Academically, he holds an MBA from University of Calcutta wherein he majored in Marketing [Forecasting & Econometrics], BMS from Symbiosis International University and a Diploma in Cyber Laws from the Government Law College, Mumbai. Additionally, he is a Google and Twitter Certified Professional.

You can listen to our conversation below. I apologise for the dodgy line at times – Kenyan Wi-Fi isn’t the best in the world.

And a Question for This Week

Wow Poll 21 Sep
Cast your vote here and also see what others think

– Chris

“Change is opportunity.” — Suresh Prabhu, Union Minister for Commerce


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post India Stack and Bitcoin (An Insider’s View) appeared first on

The post India Stack and Bitcoin (An Insider’s View) appeared first on

No Image


September 8, 2017 Capitalist Exploits 0

By Chris at

When I set out over a year ago to just once a week highlight one element of absurdity (because it is absurdity which often leads to asymmetry and thus profits) on this ball of dirt we call home, it was inevitable that I wouldn’t have much trouble in finding things to jeer and laugh at.

With the torrent of rules and regulations, manipulations, and interventions that fill statute books each day… and with governments and central bankers doing what they do best (stupid things), it was a statistical certainty that I would reach a day when I looked around and finding far too much to show you my head would simply explode. And this week that day arrived…

And so… with an exploded head I’m useless to you.

So instead, I figured I’d go back and review all the voting on the
World Out of Whack posts I’ve done. And by George, there are a sh*tload. June of 2016 was when the fun began. I don’t know if I’ll get through them all but you never know unless you start so here’s the first three.

1. Bat isht crazy real estate

Vancouver real estate. Investors thought it was such a great idea… except you. Cos you’re smart. Well done!

Now a year on, Vancouverites would rather weld their children together with molten metal than dive in and buy.

There’s more, though. I threw some crumbs. Now, don’t say I don’t love you:

Side note: While the focus today is on overvalued RE markets, as an investor I can’t help myself from pointing out that with a P/E ratio of just 9x, Hong Kong’s equity markets are today the cheapest in the world, with the Hang Seng Index trading at the biggest discount to global shares in 15 years.


As a reference point consider that most major stock markets typically trade at a P/E of between 15-20x, so we’re looking at an equity market some 40-50% of its highs and an overvalued real estate market at the same time.

Here’s that undervalued market I was talking about:

I then mentioned those fiendish orientals… and why you should buy Bitcoin. This is a game not just for round eyes in Silicon Valley to play:


2. Next up was just after Brexit

…and we asked you:

Crikey… you lot are sharp. Certainly French elections registered as a crisis in confidence with the first time that an incumbent never even made it to the runoffs. Ha! Take that Hollande… and put it in your pipe and smoke it.

3. And then in the third issue of WOW, we covered global bond markets

We asked the question:

So that was published on 29th June.

Though gold is about where it was in June of last year, this question will only be answered in the next crisis… and I’m willing to put some shiny ones on you being right once again because I promise you this: In the next crisis, gold is likely to fair much better than trying to conjugate the modern day version of Julius Caesar’s paper.

And really… if there is one thing I’d like to get across, it is encapsulated in this wonderful chart below. Because once you realise this, you’ll begin to start thinking the right way:

Happy Wednesday!  

– Chris

“Never attribute to malice, that which can be reasonably explained by stupidity.” — Spider Robinson


Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post Cubed! appeared first on

The post Cubed! appeared first on

No Image

VAR Shocks!

August 31, 2017 Capitalist Exploits 0

By Chris at

How much money can you lose on any given day according to an entire squadron of dynamic variable factors?

It’s called value at risk (VAR), and because every hedge fund, investment bank, prop house, and algo firm wants to assess their own risk — while at the same time sneakily wanting to know how the rest of the market is assessing and quantifying their own risk — the models are all built on much the same inputs and, as such, are basically mirrors of each other.

So, you see VAR models eventually conform to the very thing they’re designed to protect us against. You see they are mostly like milk bottles — exactly the same, and they’re used widely, because they’re widely used.

Understand? Good!

Back when I had more hair… actually any hair, and I didn’t have to do 200 bloody sit-ups everyday just to keep flab from attaching itself to my stomach like some unwanted starved leech, I worked for a firm who, in order to protect their anonymity, I’ll just call PMJordan.

Anyway, while working at Lucifer, I worked on a project with the quants who built these VAR models.

These were very, very smart people. They were so smart that normal people had difficulty communicating with them.

One guy, who I’ll call “Frenchie” (to protect the anonymity of his origins), could explain parabolic curve theory to you with exquisite detail while simultaneously solving math problems in his head in mere seconds. Problems, I might add, which I would need a spreadsheet, half an hour, and intense frowning to complete.

What solidified my faith in his planet-sized brain was the fact that he was so awkward and almost completely incapable of social engagements. After the head of Lucifer in the London office addressed him, he promptly gazed up, flinched awkwardly, and stared out the window. Clearly a genius.

And “Frenchie” wasn’t the only one, because quants just like him can be found across the investment landscape developing VAR models and staring into space while their brains whirr and click away. But still, with all this brain power VAR models continue to be proven crap.

VAR models never managed to help those caught off balance when the CHF broke, and they never helped those caught off balance with Brexit.

Part of the problem, I suspect, is that in order to develop them you need a whopping great data set. Clearly the statistics based on data over, say, 10 years is better than that of 5, 100 better than 50, and so on.

One of my team here at Capitalist Exploits HQ referred me to the work of one Paul Schmelzing. Schmelzing is a visiting scholar at the Bank of England from Harvard University where he concentrates on 20th century financial history and he wrote an excellent piece on the history of bond bubbles going all the way back to the 1285. THAT’s a decent data set!

Probably the most important takeaway from Paul’s work — for me at least — is that at no period in history has there ever been the sort of bat sh*t crazy central bank intervention in the bond markets we’ve enjoyed in the last decade or so. VAR models don’t account for this.

That quite literally means that this time it is different.

I nicked this chart from Paul’s work. It provides us a clear picture over hundreds of years and thus puts things into perspective very nicely.

So here we sit in 2017 with some interesting data points, namely that back in July of last year the peak in the bond cycle was reached. Remember when I ranted about how bonds were trading as commodities?

Well, that was just one month after the peak in bonds. When we had over $13 trillion in bonds trading at negative yields.

This was the lowest level the risk free rate has ever reached in sovereign bond market history in 800 years.

This is one of the most remarkable bond bull market in all of recorded history. Lucky us!

Does this sound crazy? I think so.

How we got here? Fiscal expansion – the flip side of the bond bull market. Here we have the FED (US), the BOE (UK), ECB (EU), and BOJ (Japan).

There are a few things that turn any market. In the bond market, there are 3 that come to mind:

  1. Inflation is one of those things
  2. Geopolitical events are another
  3. Volatility is the third

Let’s look at all three.

Let’s take a look at unemployment rates — historically very closely tied with inflation. The second lowest rate since the late 60’s. Mmmm…

In the UK, we have to go back to the 70’s to find lower unemployment figures:

The EU is not faring as well but the trajectory and trend are clear:

And Japan? Same trend:

Where are you going with all this, Chris?

China just printed a 5.5% PPI number.

And over in the US….This just out from Bloomberg.

U.S. second-quarter growth was revised upward to the fastest pace in two years on stronger household spending and a bigger gain in business investment, putting the economy on a stronger track, Commerce Department data showed Wednesday.

  • Gross domestic product rose at a 3% annualized rate from prior quarter (est. 2.7%); revised from initial estimate of 2.6%
  • Consumer spending, biggest part of the economy, grew 3.3% (est. 3%), most since second quarter of 2016 and revised from 2.8%
  • Nonresidential fixed investment rose 6.9%, revised from initial increase of 5.2%
  • Corporate pretax earnings rose 7% y/y; up 1.3% q/q

And… our sauerkraut-eating, beer-swilling friends are experiencing the highest rate of accelerating inflationary growth in the last 23 years:

Our pasty friends in the UK? Bam!

Ok, so now we have all of this taking place.

Inflation being not so benign… central bankers actually getting what they want… while geopolitical risks, which I don’t have time to discuss here today but have written about extensively, are far higher than the market is pricing. And almost nobody seems to be paying much attention to them!

The connection between the structural political breaks and how these affect and feed both central bank policies and market participants behaviour is, I think, one of the most critical elements that bond investors are not considering.

Remember, both inflation or geopolitical shocks can impact the bond markets negatively. And what about the third one?

Volatility. Well, take a look for yourself.

Given that the treasury market volatility index just plunged again, the answer is that there are still trillions of dollars out there that believe in reward free risk. Are those planet sized brains building VAR models going to get it wrong again?


VAR Poll

Cast your vote here and also see what others think

– Chris

“Take calculated risks. That is quite different from being rash.” — George S. Patton



Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).


The post VAR Shocks! appeared first on

The post VAR Shocks! appeared first on