As if the crypto world wasn't hit hard enough yesterday with a sudden vacuum drop lower in prices across all the major coins, it appears US regulators may be getting a little more aggressive in their actions (and not just words).
"Some really sketchy behavior coming out of the SEC recently."
That is the first sentence in a lengthy Twitter tirade from Brian Armstrong, the CEO of Coinbase, as he revealed last night that the securities regulator had threatened to sue over the crypto exchange's new lending program.
As CoinTelegraph.com reports, Armstrong explained that the crypto exchange approached the SEC earlier this year to brief the enforcement body over the up-and-coming Coinbase Lend program that intends to offer 4% annual yield returns on deposits of the USD Coin (USDC) stablecoin.
According to the Coinbase CEO, the SEC responded by telling the firm that the lending program is a security without any explanation and threatened to sue if the service was launched:
“They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why.”
Armstrong pointed out that there are other crypto firms on the market that currently provide similar lending services to their customers and called for the SEC to provide regulatory clarity on the topic. The SEC’s actions, if Armstrong has reported them accurately, appear to be bad news for competitors BlockFi and Celsius, which already offer crypto yield products. BlockFi is facing investigations in a number of states over its high-interest products.
Coinbase's Chief Legal Officer, Paul Grewal, announced the SEC threat in a blog post on Tuesday night. Decrypt.co reports that in the post, Grewal described how the company had been in discussions with the SEC about Lend for six months but that the agency then abruptly warned last Wednesday it may sue if Coinbase goes forward.
Coinbase publicly announced its plans to launch Lend in June. At the time, the company touted the product as a way for crypto owners to earn far high interest than what is offered at regular banks, and promised to offer a "peace of mind" guarantee as a substitute for the FDIC insurance that comes with traditional interest-bearing accounts.
The Lend proposal did not appear controversial at the time Coinbase announced it. The high yield product it described only applied to USDC stablecoins, which are akin to cash - a more conservative approach than the likes of BlockFi, which has for many months advertised returns of up to 8% on a variety of crypto assets.
In response to the SEC's legal threat, Coinbase CEO Brian Armstrong lashed out at the agency on Twitter, complaining that his company had attempted to do the right thing, but that the SEC has failed to be transparent about its crypto policies, and is instead "engaging in intimidation tactics behind closed doors."
8/ But in this case they are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors. Whatever their theory is here, it feels like a reach/land grab vs other regulators.— Brian Armstrong (@brian_armstrong) September 8, 2021
Armstrong also complained that the SEC has failed to enforce its policies evenly, allowing other companies that failed to seek out the agency's approval in the first place to operate for many months. He also hinted that Coinbase may choose to fight the SEC in court, but described that as a "last resort."
20/ If we end up in court we may finally get the regulatory clarity the SEC refuses to provide. But regulation by litigation should be the last resort for the SEC, not the first.— Brian Armstrong (@brian_armstrong) September 8, 2021
The new developments between Coinbase and the SEC are likely to frustrate consumers who have looked enviously at the high yields earned by veteran crypto traders, but who do not have access to easy-to-use investment platforms like the one Coinbase proposed in the form of Lend.
CoinTelegraph notes that SEC boss Gary Gensler has regularly urged crypto firms to work with the SEC so that they can operate under public frameworks and ensure their survival. Grewal said the SEC’s actions appear to contradict Gensler’s statements:
“The SEC has repeatedly asked our industry to ‘talk to us, come in.’ We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.”
“A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation,” he said.
Billionaire Mark Cuban, who has had his fair share of run-ins with the SEC's over-reaching, explained to CEO Armstrong that this is their M.O....
Brian, this is "Regulation via Litigation". They aren't capable of working through this themselves and are afraid of making mistakes in doing so. They they leave it to the lawyers. Just the people you don't want impacting the new technologies. You have to go on the offensive— Mark Cuban (@mcuban) September 8, 2021
Meanwhile, the CEO of Ripple, which is ensnared in its own high stakes lawsuit with the SEC, tweeted a popular meme from the movie Die Hard to "welcome [Coinbase] to the party."
Having said all that, while COIN is lower this morning on the threat of litigation...
Bitcoin has bounced back from the overnight tumble after the Coinbase news...
Perhaps, as Mike Novogratz noted during a Bloomberg TV interview yesterday:
“There’s been a giant realization that crypto is not just Bitcoin being bought as a hedge against bad monetary and fiscal policy. More importantly, it’s the web 3.0,” Novogratz said Tuesday in an interview with Bloomberg TV.
“No investor wants to miss the next internet. I think we just got too excited and this was a little air being popped out of the balloon.”
As for the overall crypto market, it’s “really difficult to understand” where it’ll be in the short-term, he said. But over the long-term, he says Bitcoin’s trajectory is clear.
“There are enough institutions that have said they believe it’s a store of value,” he said.
Where Do Monetarists Think PCE Price Level Is Going To?
From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…
From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):
I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)
The conclusion is based on the following reasoning:
In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,
• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.
Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)
What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.
Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.
The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.
Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.
Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.
In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).inflation monetary reserve fed
These Factors ‘Could Drive Gold and Silver Prices Much Higher’
Source: Crescat Capital for Streetwise Reports 09/22/2021
In a Sept. 10, 2021 Crescat Capital broadcast from the Precious Metals Summit in…
Portfolio Manager, Tavi Costa, noted that his funds firm, Crescat Capital, believes we are in a secular bull market for gold and silver and because we are now amid a pullback, the time is right to be taking advantage of stocks in the space over time. He showed a slide of silver's weekly candles and noted that the precious metal looks technically sound for taking advantage of.
"Cryptocurrency is getting a lot of attention these days, but Crescat Capital likes precious metals."
Looking forward, Costa added, "I think there are a lot of fundamentals behind what could drive gold and silver prices much higher and perhaps really benefit the explorers and a lot of the companies we have in our portfolio," he added.
Costa purported that we could be on the cusp of a new phase of mergers and acquisitions given the high level of liquidity among the mining majors. They have generated free cash flow at a pace never seen before and have lots of net cash available.
"I truly believe that tangible assets continue to be something very important for investors to own in their portfolios," Costa said.The portfolio manager said platinum is also at a good entry point and showed a slide of the metal's quarterly candles.
"Gold, we believe, has intrinsic value."
Also in the broadcast, he presented three slides depicting how various economic metrics are trending. The first metric was the Taylor Rule to the Fed funds rate Spread, and it showed that the spread today is the largest it has been since about 1975. Costa said the spread indicates interest rates should be at around 6 percent, but obviously they are not.
"It's a good reminder of how trapped the Federal Reserve is," he added.
Second, the cost of ride sharing with Uber and Lyft increased 92 percent between January 2018 and July 2021, Costa said. However, the intercity transportation component of the Consumer Price Index (CPI) that takes into account taxi, Uber and Lyft fares is up only 5 percent during the same period.
"This is example of how the CPI is massively understated in regards to the real inflation in the system," added Costa.
Third, the Duke survey of chief financial officers showed that internal company optimism about wages and sales is at a record high.
"The cost of living rising started to create a demand for higher wages and salaries, and we're seeing this in a lot of fronts," Costa said.
Next, Kevin Smith briefly summarized today's economic macroenvironment and with that as the backdrop today, what parts of the market Crescat Capital favors.
Smith reiterated that inflation is rising, growth is slowing and the stock market is in a bubble. Real interest rates are negative, and money printing continues. Deficits are the highest they have ever been.
Thus, cryptocurrency is getting a lot of attention these days, Smith said, but Crescat Capital likes precious metals.
"Cryptocurrencies, they're faith-based currencies," he said. "Gold, we believe, has intrinsic value, and the junior mining industry has been through essentially a 10-year bear market."
Read more about the companies Quinton Hennigh, Crescat's Geologic and Technical Director, discusses in part two of the Sept. 10 briefing.
Streetwise Reports Disclosures:
1) This is contributed content from Crescat Capital compiled by Doresa Banning for Streetwise Reports LLC. Doresa Banning provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. Her company has a financial relationship with the following companies referred to in this article: None.
2) The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in any securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Important Crescat Disclosures Provided by Crescat Capital
Please read Crescat’s important disclosures.
Nothing herein should be construed as personalized investment advice or a recommendation that you buy, sell, or hold any security or other investment or that you pursue any investment style or strategy.
Case studies are included for informational purposes only and are provided as a general overview of Crescat’s general investment process, and not as indicative of any investment experience. There is no guarantee that the case studies discussed here are completely representative of Crescat’s strategies or of the entirety of its investments.
Crescat has compiled its research in good faith and while it uses reasonable efforts to include accurate and up-to-date information, it is provided on an “as is” basis with no warranties of any kind. Crescat does not warrant that the information on this site is accurate, reliable, up to date or correct. In no event will Crescat be responsible or liable for the correctness of any such research or for any damage or lost opportunities resulting from use of its data.
You should assume that as of the publication date, Crescat has a position in the securities discussed and therefore stands to realize significant gains in the event the price of security moves. Following the publication date, Crescat intends to continue transacting in the securities, and may be long, short, or neutral at any time.
gold silver inflation reserve metals mining interest rates fed bubble money printing precious metals
Household Net Worth Hits Record $142 Trillion, Up $31 Trillion Since COVID, But There Is A Catch…
Household Net Worth Hits Record $142 Trillion, Up $31 Trillion Since COVID, But There Is A Catch…
Another quarter, another record high in…
Another quarter, another record high in (1%er) household net worth.
The Fed's latest Flow of Funds report released at noon today showed the latest snapshot of the US "household" sector as of June 30 2021, which confirmed that one year after the biggest drop in household net worth on record when $8 trillion was wiped out in Q1, 2020, in the 2nd quarter of 2021 the net worth of US households soared by another $5.85 trillion, or 4.3%, rising to a new all time high of $141.7 trillion.
As has traditionally been the case, real estate ($34.9 trillion) and directly and indirectly held corporate equities ($47.0 trillion) were the largest components of household net worth. Meanwhile, household debt (seasonally adjusted) was $17.3 trillion.
This means that over the past 12 months, US household net worth has increased by:
- Q2 2020: $7.92TN
- Q3 2020: $4.26TN
- Q4 2020: $7.9TN
- Q1 2021: $5.1TN
- Q2 2021: $5.85TN
... a grand total of $31 trillion. And since the bulk of this wealth goes to a fraction of the wealthiest 1% (see chart at the bottom), it means that the covid pandemic has been the biggest wealth transfer in history, making America's richest even richer.
Looking at the composition of the wealth change, $3.54 trillion came from a gain in stocks, $1.2 trillion was from an increase in real estate values - the biggest quarterly increase in housing values on record - and another $1.1 trillion coming from "other sources."
It wasn't just housing and real-estate: net private savings grew at an annualized pace of almost $2.9 trillion in the second quarter after a $4.8 trillion surge in the prior quarter -- which while still a high number, suggests that almost $2 trillion in excess savings have already been spent. Excess savings have been a key driver of consumer spending, including last quarter, where consumer outlays jumped at one of the fastest paces on record.
Of course, in addition to assets, liabilities also grew, and in Q2 2021 household debt grew at a 7.9% SAAR, a more rapid pace than in previous quarters as home mortgages surged by 8.0%, spurred by rising home prices and sale activity as well as by the Fed keeping borrowing costs near zero. That’s led to record-low mortgage rates, which have bolstered demand for homes. The median selling price for previously owned homes is at a record high. Homeowners’ real estate holdings minus the change in mortgage debt rose $879.7 billion (a positive value indicates that the value of real estate is growing at a faster pace than household mortgage debt).
Meanwhile, nonmortgage consumer credit increased by 8.6%, as credit cards, auto loans, and student debt all increased.
Nonfinancial business debt grew at a rate of 1.4%, reflecting continuing growth in commercial mortagages, nonbank loans, and corporate bonds and a decline in nonmortgage depository loans. Federal debt rose 9.6%. State and local debt increased 3.1%. As GDP continued to grow, the ratio of nonfinancial debt to GDP edged down a bit further. In the second quarter of 2020, the ratio had spiked, driven by the drop in GDP and the expansion in federal debt related to the fiscal stimulus.
Looking at the various components of nonfinancial business debt, nonmortgage depository loans to nonfinancial business decreased $143 billion in the first quarter. Contributing to the decline was the forgiveness of many loans extended under the Paycheck Protection Program (PPP), which more than offset the extension of new PPP loans. However, nonmortgage depository loans declined even excluding PPP loans. More than 400 billion of PPP loans were on the lenders’ balance sheet at the end of the second quarter and thus are still included in our measure of nonfinancial business debt. However, a large fraction of them is expected to be forgiven.
In contrast to nonmortgage depository loans, commercial mortgages and nonbank loans continued to increase. Corporate bonds also increased, though at a slower pace than in the first quarter.
Overall, outstanding nonfinancial corporate debt was $11.2 trillion. Corporate bonds, at roughly $6.6 trillion, accounted for 59% of the total. Nonmortgage depository loans were about $1.0 trillion. Other types of debt include loans from nonbank institutions, loans from the federal government, and commercial paper.
The nonfinancial noncorporate business sector consists mostly of smaller businesses, which are typically not incorporated. Nonfinancial noncorporate business debt was $6.7 trillion, of which $4.7 trillion were mortgage loans and $1.6 trillion were nonmortgage depository loans.
And while it would be great if this wealth increase was spread across most Americans, there is - as usual - a catch as unfortunately, most Americans aren’t benefiting from recent gains in wealth, and while the pandemic has led to a surge in savings and opportunities for many to buy a home or invest while pushing up the financial assets of the "top 10%" to record highs, the downturn has disproportionately impacted low-income workers, many of whom rent and don’t participate in the stock market.
Indeed, the latest data as of Q1 shows that the top 1% accounts for over $41.5 trillion of total household net worth, with the number rising to over $90 trillion for just the top 10%. Meanwhile, the bottom half of the US population has virtually no assets at all. On a percentage basis, just the Top 1% now own a record 32.1% share of total US net worth, or $45.6 trillion. In other words, the richest Americans have never owned a greater share of US household income than they do, largely thanks to the Fed. Meanwhile, the bottom 50% own just 2% of all net worth, or a paltry $2.8 trillion. They do own most of the debt though...
A closer look at the percentile breakdown:
And the saddest chart of all: the wealth of the bottom 50% is virtually unchanged since 2006, while the net worth of the Top 1% has risen by 132% from $17.9 trillion to $41.5 trillion.
Bottom line: the data underscore how the government's fiscal scramble to speed up the "economic recovery" paired with the Fed's continued ultra easy monetary policy have helped to protect and grow the wealth of the richest Americans: those who own assets, and who have seen their net worth hit an all time high... unlike the bottom 50% of Americans who mostly "own" debt.
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