What is going on in China?

Edward Tj Gerety IIIChina’s central bank cut its benchmark lending rate by 25 basis points to 5.1 percent on Sunday, its third reduction since November, as economic growth cools to levels not seen since the global financial crisis.

The People’s Bank of China (PBOC) also reduced one-year benchmark deposit rates by 25 basis points to 2.25 percent, it said in a statement on its website, adding that the reductions would be effective on May 11.

The central bank said the move would support the healthy development of the economy. Economists had said it was not a matter of if, but when China eased policy again after economic growth in the first quarter cooled to 7 percent, the slowest pace since 2009.

Initial indicators and industry surveys for April released over the last few weeks had pointed to a further loss of momentum heading into the second quarter. “Currently, the pace of domestic economic restructuring is quickening and the fluctuation of external demand is relatively big. China’s economy is still facing relatively big downward pressure,” the central bank said.

Liquidity in the banking system is generally adequate and market interest rates are falling, providing a good window to open up the upper limit for deposit rates, it said. The central bank has now cut interest rates and relaxed banks’ reserve requirements five times in six months, and many economists expect more easing measures over the course of the year as the world’s second-largest economy is weighed down by a weak property market and slackening growth in manufacturing and investment.

It is simple to see that the growth model powering China’s economy is running out of steam as the world’s second-largest economy is too reliant on exports and municipal debt to build infrastructure. And rebooting China’s economy is easier said than done, he said.

China had a set of policies that served them very well for a long time. Anyone who says they’ve developed a better form of capitalism I think is wrong. There’s a bigger risk in overestimating China’s strength as it is in underestimating it.

China’s economy grew at its slowest pace since 2009, building the case for further stimulus from policymakers. The government said Wednesday that gross domestic product expanded 7 percent in the three months to March.  When I look at the growth, I would much rather, and I know they would much rather, grow at a slower rate but have the right sources for growth.

Those right sources of growth for China are opening up markets and having the private sector do more to stimulate the economy.

People aren’t spending their savings from Cheaper Gas.

Edward John Gerety IIIThe first-quarter gross domestic product report put several dents in popular Wall Street economic narratives, none of which bode well for growth ahead.

Worst among current economic fallacies was the notion that consumers, buoyed by big savings at the gas pump, would propel U.S. GDP to higher levels. Rather than spend the savings at the pump, which saw the average price for a gallon of unleaded gas sink below $2 in several states as 2014 drew to a close, consumers saved that money and actually pulled back on their spending pace.

As a percentage of the economy, the consumer actually grew in 2015’s first three months. Personal consumption expenditures now account for 72 percent of GDP, a mathematical phenomenon attributable at least in part to a retreat on business investment at the corporate level.

But actual spending increased just 1.9 percent in the quarter, a steep drop-off from the 4.4 percent gain in 2014’s fourth quarter and the worst rate by a fairly wide margin since the same period a year ago. The end result was an anemic 0.2 percent gain overall for GDP. At one time, economists had been predicting 3 percent growth.

The spending slide was “particularly disappointing given that the decline in energy prices generated a massive 6.2 percent annualized jump in real disposable income,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a report for clients.

Personal savings jumped to 5.5 percent from 4.6 percent. If consumers didn’t spend their savings while oil was falling, it’s hard to imagine them parting with their cash now that gasoline prices are rising again. The price for a gallon of regular has jumped 15 cents just over the past two weeks, according to AAA. That has happened as benchmark West Texas crude prices have surged about 28 percent over the past three months.

With the winter fading away, albeit slowly, “we would expect to see signs of a pickup in consumption growth emerging soon,” Ashworth added, expressing widely held hopes among economists that nonetheless have not materialized.

In fact, economists whiffed significantly on their first-quarter growth expectations, even after weeks of lowering projections. The Wall Street consensus was a comparatively optimistic 1.0 percent heading into Wednesday morning’s data release; only the GDPNow tracker, tabulated by the Federal Reserve’s Atlanta branch, had a strong handle on the situation, predicting a 0.1 percent rise.

“The downward pressure on profits, the large drop in oil-related investment and the strong dollar are holding back the U.S. economy,” Gad Levanon, managing director of macroeconomic and labor market research at The Conference Board, said in a statement. In the past 12 months, the dollar has risen 19.7 percent against a trade-weighted basket of global currencies.

“While the weak consumption of goods was partly a result of bad weather, it seems that most of the boost from oil prices already took place in the previous quarter,” Levanon added.

Don’t expect help from corporate America, either.

The oil price decline boosted neither consumer nor company spending. Capital expenditures, or capex, actually dropped 3.4 percent in the quarter, even as companies have spent, according to market data firm TrimTabs, $237.1 billion buying back their own shares just since March.

The ball on growth is now in the Fed’s court. The central bank, which meets this week and will release its post-meeting statement later Wednesday, has indicated a desire to normalize interest rates even amid the tepid economic growth.

Though most Wall Street economists likely will hold to the story line that elevated levels of consumer confidence will translate to stronger growth ahead, full-year GDP gains seem likely to fall short of 3 percent expectations, posting yet another challenge to Fed policy.

“We knew Q1 was going to be weak with only the degree in question and we expect to have a bounce back in Q2 with also the degree in question,” Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. “For the full year though, 2 percent-type growth is still with us and the hoped for 3 percent growth rate that too many still expect is highly unlikely to happen.”

Orange Seeks to Invest in Bitcoin Startups

Edward John Gerety IIIOrange SA is looking to invest in bitcoin startups in the coming months, making it one of the first big international phone carriers to become interested in the technology behind the digital currency.

“There’s something intriguing in this technology, so we want to be there as early as possible,” said Georges Nahon, chief executive officer of Orange Silicon Valley, a division of the Paris-based company. “This could be a digital platform of the future,”

While bitcoin’s price has almost dropped in half in the past year and the prospects of the digital currency are uncertain, its underlying software is attracting investors. The technology can be tweaked to record changes in ownership of any asset in a public ledger using a distributed network of computers, and could help facilitate transactions at businesses like carriers, banks, stock exchanges or insurance providers.

The bitcoin blockchain technology, as it is called, could be used to cheaply transfer money between different countries, Nahon said. Like other carriers, Orange is building up its mobile-payment business as more people use their smartphones to make purchases or transfers. Orange already has more than 12 million users for its money transfer service Orange Money in Africa and the Middle East, and is looking to expand the business.

Chatting up Start-ups

Orange Silicon Valley has been holding bitcoin events at its offices in San Francisco and is talking to two bitcoin companies, Nahon said. The group can invest $20,000 per startup and is part of global team that can spend up to 3 million euros ($3.2 million) per company.

The carrier recently expanded its venture-capital effort with the creation of Orange Digital Ventures. The goal is to have supported 500 startups worldwide by 2020, Orange said in March.

“Even though we have a large internal R&D organization, given the pace of innovation we need to compliment our own initiatives and projects with what the outside world is doing,” Nahon said.

Bitcoin venture-capital investments hit an all-time quarterly high of $233.95 million in the first quarter, according to researcher CB Insights.

Google Ventures and venture arms of several other large tech companies have made investments in bitcoin-related startups. Even the biggest U.S. stock exchange operators are taking steps to embrace bitcoin. This year Nasdaq OMX Group Inc. licensed its technology to a bitcoin trading company, while the New York Stock Exchange invested in bitcoin startup Coinbase.

While telecommunications companies have mostly stayed on the sidelines, several have begun to dabble in bitcoin. Perseus Telecom, which provides high-speed global connectivity services for traders, announced it would begin supporting bitcoin trading. Dish Network Corp. began accepting bitcoin payments last year.

What is Hallowing out the US Middle Class?

Edward Tj GeretyPerhaps the biggest question in American political economy right now is why middle-class wages have been falling. There are three main hypotheses. Roughly, these are: Robots, unions and China.

The robots theory gets by far the most play in the news media, since it’s by far the scariest — if automation is replacing big chunks of the human workforce, things are only going to get worse as robots become more capable and efficient. This interpretation has tentatively been embraced by many on the political right, since it doesn’t imply a need for substantial government intervention in the economy (though it might imply a need for redistribution). The unions theory is favored by the political left, since it implies that giving more institutional power to this traditional liberal power bloc would shift the distribution of national income toward workers.

Neither side really wants to blame China. The right generally represents business interests and capital owners who have made a lot of money off of China, and hope to make a lot more. The left is afraid to go against the free-trade orthodoxy that has dominated postwar American economic thinking, and also fears a potential cold war with China.

But there’s just one problem: The evidence may point to least favored answer being the right one.

A new National Bureau of Economic Research paper by economists Avraham Ebenstein, Ann Harrison and Margaret McMillan examines the impact of offshoring to China. They compare industries and occupations based on their exposure to Chinese offshoring after China’s accession to the World Trade Organization in 2001. They find that when exposure is greater, wage declines are much bigger. They also find that competition from Chinese imports affects wages, but to a much smaller degree.

Another paper, by economists Michael Elsby, Bart Hobijn and Aysegul Sahin looks at the China story from a different angle. They ask why the share of income going to labor has decreased in the U. S. They examine two variants of the robots story and also the unions story, and find that these explain only a small part of the decline in the labor share. But when they look at industries exposed to imports, they find that import competition is responsible for most of the variation in the payroll share of value added. Our biggest new source of imports, of course, has been China.

And then there is the famous 2013 paper by economists David Autor, David Dorn and Gordon Hanson, entitled “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” They compare areas of the U.S. based on how exposed they were to Chinese import competition from 1990 to 2007. Their abstract states their conclusion in no uncertain terms:

Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import competing manufacturing industries…[I]mport competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment.

In other words, there is a growing body of research showing that globalization — and, in particular, the rise of China — has been the biggest factor hollowing out the American middle class. Naturally, supporters of the robots explanation have challenged some of this research, but the papers keep piling up.

Meanwhile, the robots hypothesis is also starting to get serious pushback on other fronts. Celebrity economist Larry Summers, who has expressed concern over the possibility of automation replacing human jobs, has hedged his bets. He points out that productivity hasn’t surged as fast as one might expect from a robot revolution. He also notes that if robots were replacing humans, we’d expect to see a temporary boom in human labor, since people would be needed to build and install the robots. We haven’t seen that. Although Summersstill believes robots are a factor, he points out some reasons to be skeptical of the story.

So if the U.S. middle class has been gutted because of China instead of robots or de-unionization, what do we do? Reshoring initiatives are becoming popular, but so far they have had limited effect. Trade barriers against China are unlikely to do much, since offshoring investment will just shift to other low-wage countries — as it is already doing as Chinese wages rise. And the globalization cat is already out of the bag — now that markets and supply chains are global, walling off American industry will probably just cut American companies out of fast-growing global markets, and lead to slower growth in the U.S.

The only solution to the problem of globalization may be to wait. Chinese wages have risen a lot, and only India is big enough to take China’s place. As global economic convergence proceeds, the U.S. will look more attractive as an investment destination, and reshoring will increase. That isn’t an answer that people want to hear, but it may be the right one.

BitCoin is growing in Africa!

africaIt is a well-documented fact that Africa has a huge number of unbanked, which in some countries goes beyond 70%, and also incurs very high costs of money transmission. It follows then that when Bitcoin is mentioned in the same breath as Africa, it is often as a technology that is in a position to help solve these problems.

However, there is another opportunity in cryptocurrency that is attracting attention, at least in some quarters of the continent’s population. And that is being a source of income as a tradable currency online.

A few weeks ago I was added to a Kenyan Bitcoin Social Media group, where members share all manner of information on Bitcoin and other cryptocurrencies. And for the time I have been there, I noted that apart from how to get into mining, the other question that kept coming up is how one can trade Bitcoin online and generate income.

In line with this demand, TagPesa and BitPesa, two Bitcoin exchanges operating in Kenya have recently made efforts to facilitate online trading in bitcoins. Indeed, BitPesa did hold an event on February 13, 2015 dubbed ‘Hustle with Bitpesa’, which was specifically targeted at traders. Since then, the company has been holding similar events in other major towns around the country.

The same is being replicated in other African countries. The South African Bitcoin exchange ICE3X that took place last January launched its services in Nigeria, which will help the locals buy and sell bitcoins using naira, the local currency.

New phenomenon

Of course, it would accurate to say that online trading in Africa is still in its early age. Online Bitcoin trading will probably furthermore remain marginal for many years to come even as internet penetration grows at a relatively high rate.

Nevertheless, there is some activity taking place in this area.

Tech-savvy, mostly young people in cities like Nairobi, Cape Town and Lagos are taking the initiative to learn the ropes. I must mention however that almost all of these pioneers are people who have been trading online before using other methods.

One perfect example of such a trader is Nelson Lemashon, a Kenyan, who has been trading currencies on the ForEx market for close to five years. He decided to venture into BTC in 2012, and he believes there is an opportunity for Africans in this area too.

Challenges

Lemashon acknowledges however that just like with other Bitcoin traders around the world, those trying it from Africa have to overcome a number of teething problems and other challenges.

“We have to face the challenges of not well-developed trading tools,” says Lemashon. “For instance, apart fromBTC-e, few other bitcoin trading platforms have the MT4 software. Also in order to leverage on volume, you have to invest a larger amount of value as compared to when trading other currencies or assets.”

Michael Kimani, a founding member of the African Digital Currency Association, thinks that more Africans are going to interact with Bitcoin through trading.

“It can happen as the means of moving money between local currencies and bitcoins are becoming available,” says Kimani

Indeed, it will take time for a vibrant community of online Bitcoin traders to grow. However, with the continent holding its first Bitcoin Conference on April 16-17, 2015, and a growing list of exchanges opening up shop on the continent, there is little doubt that it will happen.

Bank Suspends Polish Bitcoin Exchange’s Accounts

bitcoin-europePolish bitcoin exchange BitMarket.pl has had its bank accounts suspended by Bank BPH.

BPH initially said the suspension was the result of a technical glitch, but later claimed it was due to outstanding debt and lack of credentials, according to BitMarket.pl. The exchange said it discovered its BPH accounts were suspended on 26th January.

BitMarket.pl founder Michal Pleban told CoinDesk that the real reason for the bank’s decision was prompted by a query filed by the local district attorney’s office. The filing revolved around one particular transaction on the exchange, which was allegedly performed with stolen funds.

“For that reason, the bank decided to close all our accounts and refuse our business,” he said.

The exchange never received a notification from the bank or the authorities, according to Pleban. He said he was unable to see the query that eventually prompted the bank to freeze the accounts.

In addition, Pleban said the bank’s compliance team made a mistake by closing the account before it disabled the IT connector. This resulted in transactions being channelled to the already disabled account. The bank said the transactions would eventually be returned to their senders.

CoinDesk has contacted BPH for additional comment on the matter, but no response had been received at press time.

New bank account

Pleban said the exchange has decided to create a new company to take ownership of BitMarket.pl and is seeking to open a new account with a different bank.

He added that the exchange is trying to normalise operations:

“This should take no more than two weeks. In the meantime, we have re-enabled electronic fiat transfers which will be warehoused at the payment processor until a new bank account is opened. We also re-enabled crypto deposits, and all withdrawals are performed normally from my own personal account. Normal (non-electronic) fiat transfers will be re-enabled once a new bank account is established.”

Pleban is also looking into the possibility of taking legal action against the bank, claiming his lawyer is preparing the necessary paperwork.

“I am currently on a quest to find a bitcoin-friendly bank in Poland,” he added.

BitMarket.pl opened in March 2014, promising to offer superior security following a number of attacks on local exchanges.

One of the Largest Bitcoin Exchanges Just Went Dark After Getting Hacked

Edward Tj GeretyJust a few days after reports emerged that the infamous Mt. Gox meltdown was an inside job, one of the biggest, oldest, and most trusted bitcoin exchanges—Bitstamp—just went offline after a security breach. Bitcoin exchanges come and go all the time, but this is different. Bitstamp is supposed to be the reliable one.

A hack is never good news in the bitcoin world, though Bitstamp’s breach sounds like it could’ve been much worse. The company reassured its customers that the hack only affected its “operational wallet,” that is only “a small fraction of customer bitcoins” that were stored on internet-connected servers were vulnerable. The vast majority of Bitstamp’s bitcoin are kept in “cold storage,” servers that aren’t connected to the internet.

This latest bitcoin exchange breach doesn’t have anything to do with the Mt. Gox bitcoin blunder, except for the fact that it sends a message to the world that bitcoin is far from secure. Bitstamp’s CEO referred to his company as “the backbone of the entire Bitcoin industry” last year, and if that statement’s true, that bone has just been broken by a bunch of greedy hackers. This, as the cryptocurrency’s price continues to tumble, is bad news for everybody.

Does Bitcoin deserve Worst Investment in 2014 Award? — I think not!

Bitcoin is worst investment of 2014Bitcoin has been called the worst investment of 2014 after its price dropped by over 50% during the last 12 months.

The unenviable title has been bestowed on the world’s best known and most valuable cryptocurrency by the business website Quartz, which compared the dollar price of bitcoin at the beginning of 2014 to its current value, saying it has declined by 52%.

The title of worst investment of 2014 is given more weight when you consider the huge price drops seen in the price of Brent Crude oil and the price of Russian rouble in recent weeks. Though considering the on-going issues in Russia in the last 24 hours, bitcoin could potentially lose its title before the end of the year.

However if you take into account that bitcoin was trading at over $1,160 in December last year, the fall to its current value of around $330 is even more dramatic.

Throughout 2014 bitcoin’s price continued to fluctuate wildly on a day-to-day basis with hundreds of companies being founded on the back of the cryptocurrency, driving interest in bitcoin and its potential.

According to data obtained by Reuters, many of the bitcoin wallets which continue to be created on a regular basis are lying empty with liquidity in the cryptocurrency still remaining limited.

A libertarian’s economic dream 

Bitcoin continues to confuse many as regulators struggle to get to grips with something which is not really a currency at all.

The anonymous nature of bitcoin and its decentralised nature make it a libertarians economic dream, but these very traits also make it an attractive proposition for those looking to purchase illegal goods on the dark web or carry out money laundering.

Indeed it is these very uses for bitcoin which have waned in 2014 thanks to increased scrutiny of law enforcement agencies (see Silk Road) and it is the decrease in use of bitcoin for these activities which could have led to price depression overall.

Bitcoin will continue to intrigue and confound in 2015 and it is entirely possible that in 12 months time we will be hailing it as the best investment of the year, but as we know, with bitcoin, you can never really tell.

Is this a Bitcoin Price Correction? Maybe…

Bearish pressure has pulled the Bitcoin price into a deeper correction. The advance is on hold pending ongoing price correction. Most markets including Gold and equities are engaged in sudden counter-trend price movement – a condition that seems temporary.

Many strong reversals are evident across the board in the past 48 hours. The Gold price dropped to $1,227 from $1,250 today. The S&P500 has surged back to support near 1,970, and the US Dollar has resumed advance toward 86. Possible factors underlying these changes, as well as the sudden Bitcoin drop, are not evident, and a return to the longer-term trends should resume in the coming days or by next week.

Unless a swift reversal takes price back above $368 and then $400, we can only assume that wave 2 will target one of the Fibonacci retracement levels at 50%, 61.8% or 89% of the entire advance of the past three weeks from $275. The following Bitstamp hourly chart shows the Fibonacci retracement levels on the righthand side. The 50% (.5) retracement is at $346 and the 61.8% (.618) retracement level is at $330.

Yesterday, before price broke out below the consolidation triangle, the correction had been labeled a-b-c-d-e. A new wave count is annotated and shows price action in wave 3 of wave C. We’ll refine that as more of the wave structure becomes apparent.

The final wave in the expected sequence, wave 5, is shown to terminate at $330 although it may equally well extend all the way to the .89 Fib retracement level at $290. We cannot know at this stage whether wave 5 will end nearer $330 or $290, but a sensible trade strategy is outlined below.

Edward J Gerety III

 

 

 

 

 

 

 

 

Trading The End of Wave 2 

The same advice given during the past week applies: It is recommended that traders do not short trade this decline. Doing so is risky because the decline’s lower target is unknown and, once terminated, reversal could be swift.

One trading strategy is to systematically buy into wave 2 as it approaches its potential reversal levels at $346 (50% retracement), $330 (62%), etc. down to $290. A stop-loss placed at $275 would then close the position at a loss should price continue declining to $260 or $205 to make a new decline low. However, this strategy is wasteful and resembles stepping in front of an approaching bus.

A more sensible strategy and the one with the highest probability and lowest risk is to wait patiently for wave 2 to complete. Once price action reverses and starts heading up in those first few long green candles, the urge to buy into the apparent advance will be strong, but don’t pull the trigger just yet. Wait longer still. The risk remains that what appears to be a reversal at the end of wave 2 (at say, $330) is not the end of wave 2 at all.

Once price action has drawn some long green candles and makes a correction without making a new low – this is the time to buy into the advance. Place a stop-loss just below the reversal level where the advance started from.

If price does turn down again to make lower lows, your loss is minimal, and the process can be tried again at 62% retracement and again at 89%. If reversal occurs at one of these points, you will have gotten in near the beginning of wave 3 which is characterized by swift advance and great distance.

Edward J Gerety

 

 

 

 

 

 

 

Summary

Wave 2 is drawing the Bitcoin price into a deeper correction than was initially expected. Prepare to buy in lower at $346, $330 or even $290, but don’t short-sell the market here since the reversal level is not certain.

Edward J Gerety

 

 

 

 

 

 

Price may eventually print a new decline low, but we’ll deal with that scenario once the wave down declines below $275.

Once wave 2 reverses, the advance in wave 3 can be expected to commence with great vigor. For now, we observe and wait for a reversal above $275.