Chair Yellen is no Joe Namath

All I’m going to say is the Fed chair Yellen is no Joe Namath.

On Wednesday in a speech the Fed head said, “Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

Namath guaranteed the New York Jets would win Super Bowl III and backed it up.

Yellen, who seems to be on the path of bursting asset bubbles with a credit-busting, rate-raising strategy, also said, “asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates.”

Even if you discount the 2.5% drop in Google yesterday on the huge European regulator’s $2.7 billion fine for skewing its search results, stocks sold off hard on her comments.

Now I’m not one to pandered to ageism, however at 70 years old, Chair Yellen has a different time horizon than the rest of us.

But if the Fed thinks it can burst stocks, art and home asset bubbles by constricting credit in a low inflation environment, then Yellen & Co are looking at a possible deflationary crisis, which they have little in their toolbox to combat.

One can think that the Fed can always lower rates again and expand its balance sheet to fight deflation, but that’s just continuing the boom/bust cycles.

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Miranda Kerr turns over $8.1M to feds in Malaysian fund ‘gifts’

The Malaysian sovereign wealth fund scandal has claimed another celebrity figure.

Miranda Kerr surrendered more than $8.1 million worth of jewelry to the Justice Department a week after civil lawsuits said it was purchased for her by Malaysian financier Jho Low with allegedly stole the funds.

Low has been tied to actor Leonardo DiCaprio, who also had to fork over artwork, after also being sued by the Justice Department.

Justice seized a Picasso and Jean-Michel Basquiat paintings given to Leonardo DiCaprio, as well as rights to two Hollywood film comedies, in complaint filings to claw back $540 million they say was “stolen” from the Malaysian sovereign wealth fund, 1MDB.

Kerr dated Mr. Low for about a year in 2014 as the Malaysian money man was blowing through some $400 million by buying gifts for the somewhat rich and famous to launder the money stolen from 1MDB, according to the feds.

The Justice Department says that during that time he gave her four gifts of jewelry. Ms. Kerr was married last month to Snap co-founder Evan Spiegel.

Low also had connections with a former Goldman Sachs Far East director Tim Leissner, who helped the government set up the sovereign wealth fund and profited from its many bond offerings to allegedly funds airports, roads  and other infrastructure projects.

Leissner also had a Hollywood connection with his second wife Kimora Lee Leissner, the ex-wife of Russell Simmons, the cofounder of Def Jam Records. Leissner resigned from Goldman in 2016 has been barred from the securities industry in Malaysia for 10 years.

Bitcoin still seems to be blue chip in crypto market

Here’s what stumps me. Why would you invest in a newer derivative of volatile newish alternative investment?

I have written extensively on bitcoin. I’ve told readers about its soaring run up in price and its less than equally roller coaster rides down. Pointed out it reaching $3,000 and the $500 drop in the span of 18 minutes soon after.

Also questioned the exchanges that seem to have outages as prices begin to fall.

However when I wrote of the other cryptocurrencies that have popped up in response to bitcoin, such as litecoin and ethereum I was a bit more skeptical. Some of these digital currencies are not currencies at all and are based off bitcoin pricing, but not 100% correlated.

You can see this in their pricing over the last 10 days, while bitcoin is in a range between 2,550 and $2,700, these alt coins are falling faster on a percentage basis.

I still have a somewhat conventional investing philosophy, stay in the best-known entity in the space. While bitcoin’s pedigree is somewhat questionable, it still has a far longer track record of trading than any of these other instruments.

Oh, and one other thing, ethereum has an instrument attached to it called “gas”, which you can purchase with the crypto to enhance your ethereum investment. Gas is something that vaporizes quickly and that may be what happens to your investment in these other digital instruments.

FAANGs are the teeth for 2017 returns

As we begin the second half of 2017 astronomically , let’s look how the stock markets did so far.

  • The Dow Jones industrial average is up 8.3%.
  • The S&P 500 rose 8.7%
  • The Nasdaq soared 15.9%

On the backs of FAANG stocks, the tech index is a very crowded trade. The ironic part of the gains in Facebook, Apple, Amazon, Netflix and Google is held by “hedge funds” and foreign central banks.

  • Facebook: +33%
  • Apple: +25.7%
  • Amazon: +33.5%
  • Netflix: +25.1%
  • Google: +23.2%

Certainly there are losers in the tech sector during this run up in prices. Twitter and Snap are two of the once promising darlings that failed to attract investor interest.

Now why would hedgies be in these stocks, unless the hedge is not to show negative returns on their other bets.

As a point of comparison bitcoin is up roughly 64% for the first half of 2017.

Many market pros are saying this could be the top for these stocks. That makes sense from the strong first half returns, but my question is if this is true, then where will capital go to find the next crowded trade? Because that’s where you make money.

Ethereum exchanges need to right flash crash losses

The cryptocurrency market suffered a major flash crash on Wednesday losing 96% in value in 10 seconds, before bouncing back.

Ethereum — which is a derivative off of bitcoin — plunged from $315 to $0.10 on massive volume created by a deluge of stop-loss orders and margin squeezes.

A stop-loss order is a trade that is executed automatically once a security – in this case ethereum – hits a particular price.

Again as I wrote earlier, the culprit in the crash is the exchanges, which could not correctly process a large sell order. Of course the exchange alleges that there could be market manipulation behind the crash, due to a large sell order.

Adam White, the vice president of GDAX which is an exchange run by Coinbase, posted on the firm’s blog, outlining what took place at around 12:30 p.m. PT on Wednesday. According to White, the multimillion dollar market sell order resulted in a number of orders being filled from $317.81 to $224.48.

“Our initial investigations show no indication of wrongdoing or account takeovers. We understand this event can be frustrating for our customers. Our matching engine operated as intended throughout this event and trading with advanced features like margin always carries inherent risk,” White said in a blog post.

“We are continuing to conduct a thorough investigation and will keep customers updated with any resulting actions.”

Some investors point the  initial coin offering (ICO) demand on Ethereum to a funding launch for an ethereum-based messaging app called Status which took plenty of processing power off of the network.

Message boards point to Ethereum buy orders at $0.10, which were fulfilled and as the price soared back to $300, made millions on the crash.

When stock exchanges flash crashed in May 2010, trades such as the one above were cancelled. It is still unclear what will happen to crypto investors who had their Ethereum was sold for pennies on the dollar, due to stop-loss orders that were executed at far lower levels than the contract specified.

Ethereum is trading at $328 Thursday morning.