26.6.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Tsipras Calls July 5 Referendum on Creditors’ Demands; Merkel Says No Alternative to Creditor's "Generous" Offer

Posted: 26 Jun 2015 05:21 PM PDT

In a surprise move that's sure to deflate the nannycrat's hope of early elections that could force prime minister Alexis Tsipras out of power, Greece's Tsipras Calls July 5 Referendum on Creditors' Demands.
Greek Prime Minister Alexis Tsipras called a referendum on whether he should accept the latest demands of the country's creditors, the most dramatic move yet in a debt crisis that started five years ago.

Greek ministers, including the defense chief, joined the fray, urging the country of 11 million people to vote "no." 

In a nationally televised address after midnight in Athens, Tsipras said the vote will take place on July 5 and excoriated a take it-or-leave it offer as a violation of European Union rules and "common decency." A Greek official, speaking on condition of anonymity, said the government has no plans to impose capital controls and banks will stay open on Monday.

"After five months of tough negotiations, our partners unfortunately resorted to a proposal-ultimatum to the Greek people," Tsipras said. "I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect."

The surprise development throws into turmoil planned talks Saturday among euro-area finance ministers on their latest proposal, which would unlock 15.5 billion euros ($17.3 billion) and extend Greece's program through November, in return for a commitment to pension cuts and higher taxes that Tsipras opposes.
No Alternative Says Merkel

Amusingly, Merkel Tells Tsipras No Alternative to Creditors' Offer.
Chancellor Angela Merkel on Friday pleaded with Greek premier Alexis Tsipras to accept an "extraordinarily generous offer" from international creditors, making clear there was no alternative and that she would not intervene directly to broker a compromise.

But Mr Tsipras rejected the creditors' offer, saying Greece would not be threatened with "blackmail and ultimatums".
Clear Alternative

Clearly there is an alternative, that being to tell the Troika to go to hell. Tsipras was smart putting this to a vote. July 5 is interesting in that Greece will default before the vote.

What's the ECB to do now? Shut off the ELA, or keep it going 10 more days?

Instead of discussing "Plan B" on Saturday, the eurozone ministers are faced with "Plan C" .

Meanwhile, the run on the banks continues.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

BitGold Now Available in US! Why BitGold?

Posted: 26 Jun 2015 06:33 AM PDT

BitGold USA

Effective today, BitGold Announces Platform Launch in the United States.
BitGold, a platform for savings and payments in gold, is pleased to announce the launch of the BitGold platform for residents of the US and US territories. As of today, US residents can sign up on the BitGold platform and buy, sell, or redeem gold using BitGold's Aurum payment and settlement technology. US residents will also have access to the BitGold mobile app and a prepaid card when these features launch over the coming weeks. Send and receive gold payment features are not initially available in the US.

About BitGold

BitGold's mission is to make gold accessible and useful in secure savings. The BitGold platform provides innovative solutions to the challenge of transacting with fully allocated and securely vaulted gold. BitGold accounts are free and convenient to open by anyone, anywhere* in just minutes. BitGold provides users with a secure vault account to purchase gold using a variety of electronic payment methods. All physical gold acquired through the platform is owned by the customer, stored in vaults administered by The Brink's Company, acting through Brink's Global Vault Services International, Inc. ("Brink's"), which insures gold through third party insurance providers.
First Ever Debit Card Backed by Gold in Real Time

I explain below what the buyout of GoldMoney by BitGold means, but first let's start with a look at details of the announcement of the first ever debit card backed by gold in real time.

  • First Transactional Gold Account – Gold can be used in payments in addition to savings.
  • First Gold Merchant Platform – Process Credit/Debit Cards and earn gold!
  • First "Real" Gold Card
  • BitGold is an online bank account that is backed by gold as opposed to currency
  • Gold can be redeemed in as little as 10 gram increments (approximately $370 at today's price)
  • Publicly Traded, Audited by PwC, Insured, Backed by Strong Investors

Unlike other cards that sell gold at a premium then issue a debit card, BitGold is a gold-based settlement system in real time. It is also the first gold-based card of any kind available in the US.

BitGold Signup

I encourage everyone to Sign Up for a BitGold Account. I have done so myself.

Promote gold!

Transactions in gold and settlement in gold, in real time are now possible.

One Plus One Equals Three

Due to my long-standing relationship with GoldMoney, many readers have asked what the purchase of GoldMoney by BitGold means.

After careful review over the past couple weeks with both James Turk, founder of GoldMoney, and Roy Sebag, the co-founder of BitGold, I am pleased to report the news is 100% positive.

Storage fees will drop, and the idea of a debit card backed by gold is a fantastic idea for numerous reasons.

Email From James Turk

Here is an email I received from James Turk regarding the GoldMoney/BitGold relationship.
Hi Mish

Once the transaction is complete, GoldMoney will become a subsidiary of BitGold, a publicly traded company on the Toronto Stock Venture Exchange, which adds yet an additional level of oversight to GoldMoney's industry-leading governance. BitGold just completed a financing for C$18 million, which included some top name institutional investors.

After this financing, BitGold's two main owners are the shareholders of GoldMoney and Roy Sebag, whose understanding of gold is as deep as anyone I have ever met. He becomes CEO of the group, and I have no hesitation seeing the baton passed to him.

With its IT expertise, C$35 million of cash in the bank and other resources, the combined BitGold/GoldMoney has resources far beyond what GoldMoney alone was able to put together. So I really see the combined company as a true 1+1=3 situation - the whole is greater than the sum of its parts.

GoldMoney will continue to operate in Jersey as a wholly-owned subsidiary of the Toronto parent. It will have the same governance procedures and controls that enabled GoldMoney to build its business. So nothing really changes in that regard.

Additionally, me and two of my fellow GoldMoney directors will join the board of the parent company in Canada.

All of us in GoldMoney and Roy and his team in BitGold have the same objective - to enable digital gold currency to circulate in global online commerce as an alternative choice to national currencies. My expectation is that our combined company will take GoldMoney up to the next level.

Regards
James
Follow-Up Discussion

In a second email, James Turk introduced me to Roy Sebag and Josh Crumb, the co-founders of BitGold.

Since then, Roy and I have spoken on many occasions. Following those discussions, I echo the views expressed by James Turk.

Seldom does one plus one equal three, but that idea makes sense here. I back promotion of gold as a currency, and BitGold has the resources and institutional backing to do it properly. Attempts by others have failed or languished.

Bullion Vault Rebuttal

Some readers have asked about the Bullion Vault article Bitcoin, BitGold, GoldMoney - and BullionVault.

In the article, BullionVault makes a number of allegations that took me a while to sort out. For a rebuttal, please see Roy Sebag's Instablog, Roy Sebag And Josh Crumb View On BullionVault.

Rebuttal Highlights

  • BullionVault's net assets are comprised of intercompany loans (yes, there is money reported as loans moving back and forth between the company and the CEO at above market interest rates). This practice raises a fiduciary red-flag both for shareholders of the business, but also for customers because it introduces counterparty risk and undue reliance on one individual to the overall business. The balance sheet also includes a lot of outstanding short-duration lending facilities, adding more risk. In contrast, GoldMoney and BitGold are debt-free.
  • BullionVault is an unregulated private company that operates in the UK, outside of the protections offered by the Financial Conduct Authority to customers of financial service companies. I am personally at a loss for words as to why the FCA or the Money Service Business regulators in the UK have not approached BullionVault requiring it to register as an E-Wallet or Money Service Business given the size and amount of customer holdings. When Josh and I founded BitGold, we spent nearly a year in an open dialogue with Canadian regulators, establishing a legal framework that would allow us to offer our service before proceeding with a plan of operation.
  • BullionVault does not use an internationally recognized auditor and in contrast to GoldMoney, does not complete audits in accordance with ISAE standards. Its company accounts are prepared by a little known firm in Southwest England (Albert Goodman) publicly available as required under UK law, and not a voluntary disclosure purporting to offer governance. Put differently, BullionVault's financial statements add little to the governance of customer assets, and certainly cannot be compared to the quality and integrity of the audits made available by GoldMoney/BitGold.
  • At BitGold, Josh and I take an annual salary of $1 and have personally invested over $3 million throughout the years in building the business. We don't need an annual salary, let alone "double dip" by also lending money back to the company [as does BullionVault].
  • BullionVault has paid no significant dividends, while the company's CEO extracts via the company's loan arrangements favorable terms to the disadvantage of minority shareholders. Compare that to GoldMoney, which has paid out cash dividends democratically to all shareholders for several years highlighting owners income and free-cash-flow generation.
  • The culture we are building at BitGold/GoldMoney is one that understands gold; we are passionate about the potential gold holds for people's savings.
  • Our service at BitGold is significantly less expensive than BullionVault. They charge a minimum storage fee of $4 per month for gold and $8 for silver. That means if you own $1000 worth of each metal you are paying 4% and 9.6% per annum respectively just for storage! That same $1,000 worth of metal would carry no storage fees at BitGold and between 0.12%-0.39% fees through GoldMoney.
  • The saddest part about the negative energy that BullionVault and others have instigated is that we should all be working together, not against each other. Gold still represents a tiny fraction of global financial assets. Together, BullionVault and BitGold/GoldMoney account for less than .00001% of the world's financial assets. The market is massive and BullionVault should be focused on expanding the category as we are doing each day. BullionVault's CEO should focus on building his business and serving his customers, not attacking a new generation of entrepreneurs trying to broaden access to gold.

Additional Points

I am aware of two additional points not directly mentioned in Sebag's rebuttal:

  1. Last week, the combined companies raised an additional $21 million in cash bringing their combined cash position to nearly $40 million. This is impressive given the overall state of the gold market and indicates the principals support from institutional investors. 
  2. BullionVault is unregulated and does not have an ISAE Audit by a Big Four Acounting Firm. GoldMoney is regulated by the JFSC and maintains an ISAE Audit by Delloitte. 

After reading the rebuttal and talking with Roy Sebag on numerous occasions, I firmly believe it is not GoldMoney/BitGold that has issues, but rather GoldMoney/BitGold competitors.

Free Conversion!

GoldMoney now offers free conversion from any other platform such as Perth, BullionVault, even GLD. GoldMoney will pay any associated friction costs (sell-buy costs, etc.) to complete the transaction.

To discuss this offer with GoldMoney, please email Transfers @ GoldMoney.Com (removing the spaces before and after the @ symbol).

On most browsers this link will automatically open up your email client application: Email Goldmoney Regarding Transfers to GoldMoney

Gold is Money

I still view gold as money. Widespread acceptance of a BitGold card will go a long ways towards alleviating any doubts and disagreements some have over this issue.

My intent is not to use BitGold for major purposes as I believe gold is to be accumulated over time, and a core position held at all times. Yet, I do intend to use the card occasionally as I want to encourage merchants to accept the idea that gold is money. Once merchants become convinced that the price of gold has bottomed, many will choose to hold a percentage of their profits in gold.

Moreover, merchants will like the idea because BitGold does not have processing fees. It does have fees for exchange to other currencies, but those fees are lower than normal processing fees.

This is a win-win situation for all involved.

Disclosure

In the sake of full disclosure, I have a relationship with GoldMoney that continues, and a new one with BitGold.

Yet, and as I have stated on many occasions, my reputation is very important to me. I do not enter relationships easily. If I genuinely thought there were major issues with GoldMoney or BitGold, my relationship with them would be over.

Instead, I have taken the time to research this matter thoroughly, and have concluded the GoldMoney/BitGold deal is a good one for the industry, for merchants, and individuals alike.

Want to promote gold as money? Then please Sign Up for your BitGold Account today!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Greece Bank Deposits Drop to 11-Year Low; Creditors Offer 6 Month's Financing; Round One of Saga Nearly Over

Posted: 26 Jun 2015 05:57 AM PDT

Delay Game

If anyone has blinked, it now appears to be Germany and France, rather than Greece. The latest proposal does not include any new money, but it will free up enough cash until December. The game today is to continue the talks forever, or until Greece finally says OK.

It is already a couple days past midnight, and the creditors, despite the harsh talk from Germany, seem to be the ones who really want a deal.

Financing Dangle

Please consider Merkel, Hollande Dangle Financing Before Greece's Tsipras.
The leaders of Germany and France offered to release billions in frozen aid on Friday in a last-minute push to talk Greek Prime Minister Alexis Tsipras into contentious pension reforms in exchange for filling Athens' empty coffers until November.

The leftist premier's response, according to a Greek official, was that he could not understand why his country's creditors were seeking to impose such harsh conditions in return for money to avert imminent default and damage to the euro zone.

The creditors laid out terms in a document that went to Greece on Thursday and was seen by Reuters on Friday. It said Greece could have 15.5 billion euros in EU and IMF funding in four installments to see it through to the end of November, including 1.8 billion euros by Tuesday as soon as the Athens parliament approved the plan.

The total is slightly more than Greece needs to service its debts over the next six months but contains no new money.

"PLAN B"

If Greece refuses, the ministers will move on to discussing a "Plan B" on preparing to limit the damage from a Greek default to Greek banks and other euro zone countries and markets, the official said.

However, Merkel and Hollande have refused to talk publicly about a "Plan B", saying their efforts are focused on getting an agreement to keep Greece in the euro zone.
Greece Says No

The Financial Times reports Greece Refuses to Abandon Tax and Pension Plans
Greece is refusing to abandon its tax and pension plans despite the strong objections of its creditors to the proposals, in a sign of the gulf remaining between the two sides on the terms of a bailout deal.

According to its latest counterproposals to its creditors, Athens is sticking to its demand for a one-off 12 per cent tax on all corporate profits above €500,000 and a rise in employee pension contributions. Bailout monitors believe the plans would crimp economic growth and in their own final offer earlier insisted on alternative savings measures.

The stark differences in the two proposals come amid mounting evidence that several European leaders are preparing for the prospect that no deal will be reached at a make-or-break meeting of eurozone finance ministers on Saturday.

According to EU officials, Mark Rutte, the Dutch prime minister, told his fellow leaders at an EU summit on Thursday night that they may need to reconvene to discuss Greece — not to negotiate, he said, but to deal with the fallout from a Greek default.
Deposits Drop to Eleven-Year Low

Bloomberg reports Greek Bank Deposits Fall to Eleven-Year Low.
Official data from the Bank of Greece today showed deposits fell €3.8 billion to €129.9 billion at the end of last month, marking a 21 percent plunge since November. That was just before then-Prime Minister Antonis Samaras brought forward a vote for a new president that led to his government's downfall.

With Greece's continued presence in the euro hanging in the balance, and the threat of capital controls looming if Prime Minister Alexis Tsipras fails to reach a bailout deal with creditors, the outflow has continued in June.
Greek Bank Deposits



That's capital flight in a simple picture. It will continue as long as the ECB provides Emergency Liquidity Assistance (ELA).

I suspect ELA ends tomorrow or Monday.

Round One of Saga Nearly Over

Default is just round one. In spite of the Troika threatening to expel Greece from the eurozone and EU, the "damage control" operation starts as soon as default occurs.

Neither side wants Grexit, so expect prolonged wrangling as to how to make that happen.

Of course, Greece could just say to hell with it all right now, and be done with it. I actually suspect something in the middle.

The key to how this plays out following default is Russia. Greece holds a big trump card. It can end sanctions on Russia as soon as December.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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