Intelligence Bulletins 29 January 2016

Norway bank calls for cash ban 

DNB, Noway’s largest bank, has called for the country to ban cash and move to purely digital currency. A DNB executive said that most transactions in cash couldn’t be properly traced. “60% of money usage is outside of any control,” he told IBT, adding that “there are so many dangers and disadvantage associated with cash, we have concluded that it should be phased out.” 

Hong Kong is the world’s most expensive property market 

Think London property prices have gone off the handle? Hong Kong is much worse, according to a new study. Property in London costs around nine times the median pre-tax earnings for a household. In Hong Kong, property costs around twice that amount. For years, the government has vowed to reel in prices – to no avail. Regulations on speculators and foreign buyers haven’t stopped money from flowing into the country. Prices have risen 370% from 2003 to September 2015. Hong Kong pegs its currency to the dollar and is an export-driven economy. Ultra-low interest rates in the US are helping to fuel these out-of-control prices.

Deflation rears its head

Zimbabwe – the country whose $1 trillion notes weren’t worth the paper they were printed on – has gone from hyperinflation to deflation. Did the country’s enlightened central bankers suddenly convert to Austrian economics? Sort of. Back in 2008, inflation hit a record 89.7 sextillion%. Authorities, perhaps satiated by the sheer magnitude of their disastrous policies, finally gave up the Zimbabwean dollar altogether. Instead, the country uses the US dollar, which is strengthening against its trade partners, in particular South Africa. The result? A shortage of US dollars and falling prices. 

Famed hedge fund managers lost big in 2015 

David Einhorn and Bill Ackman are some of the big names among billionaire hedge fund managers. And they’re both getting flogged by today’s stock market. David Einhorn runs the Greenlight Capital hedge fund; he’s credited with shorting Lehman Brothers before they declared bankruptcy. And he made big bucks betting on Apple and Microsoft. But Einhorn’s fund made several big mistakes in 2015 and lost around 20% of its value, even though the stock market held steady. And fellow Wall Street superstar Bill Ackman, who runs Pershing Square Holdings Ltd., disappointed investors with a 20% loss over 2015. For 2016, he’s already down 10%! Investors in top hedge funds must be wondering where to turn. Even Warren Buffet’s mythical fund, Berkshire Hathaway, is down around 16% over the last 12 months.

This pin could pop luxury real-estate

A stock broker, a bank, or a money manager have to report anything that could be a sign of money laundering. But real-estate agents don’t. So if you’re trying to hide the source of your gains from the authorities, real estate is a prime choice. A lot of the purchasers in today’s market for upscale real estate could be from China, where investors are desperate to get their wealth out of the yuan and away from the authorities. But the federal government is cracking down on real-estate purchases and requiring real-estate companies to reveal the names of their clients. This could frighten foreign buyers and hit real-estate prices in places like Manhattan and Miami.

Prices have gone negative for some types of oil 

There’s such a huge supply of oil in the US that one oil refinery is charging to accept a certain type of low-quality crude. Normally, refiners buy crude oil from producers. They then process the oil into useful products, such as gasoline. But Flint Hills Resources LLC, which is owned by billionaire brothers Charles and David Koch, was offering -$0.50 for a barrel of North Dakota Sour on Friday. The negative price is due to the lack of pipeline capacity for that type of low-quality crude oil, which accounts from around 15,000 barrels-per-day of production in North Dakota.

The Federal Reserve is monetizing half of this year’s federal debts 

The Fed might have ended quantitative easing (QE), but it’s still set to purchase around $216 billion in Treasury debt this year. Why isn’t this being called a stimulus program? Because instead of outright buying Treasury bonds (T-bonds) in the open market, the Fed is just rolling over the debt it holds from prior purchases. According to JP Morgan, this represents around half of the new debt that will be issued over the next 12 months. And that’s just the start. The size of the maturing debts will increase year-by-year. In 2017, the Fed will effectively purchase $194 billion in government debt. In 2018, it’s projected to be around $373 billion. Don’t be fooled by talk that QE is over… the Fed is still juicing the bond market to enable the US government