The Steingenberger hotel is located on the west shore of Bodensee in Konstanz, a German town known colloquially as the “playground for the rich”.
I walked downtown in the evening on Saturday, and it seemed to me that the standard issue car here is a dark Mercedes G-Wagen, which sounds like a jet taking off, a car that is absurd which is precisely why I love it. It’s crazy that a decades old military box could rise to prominence among the glitterati who don’t even know what a differential lock is, much less how to engage one of the G’s triumvirate of them.
It was late night when I was sitting in my room on the 4th floor of the hotel thinking about something that got my attention recently.
Here it is.
Talks about Bitcoin tend get emotional because of the highly speculative nature of it.
People often ask: “is Bitcoin money?” Well, if you even need to ask that question it means it is not.
Is it a store of value? No, because it’s price gyrates wildly.
Is it a medium of exchange? Maybe.
Then you have the blockchain, the spine of bitcoin, the technology that makes it work. Blockchain is in essence a distributed ledger with a hash function that uses compression to create a fixed length output.
Which means that it will compress what I just wrote above in the same 256 bits length output like it would do with all the volumes of Tolstoy’s “War and Peace”. That way all the entries on the ledger are in the same format, regardless of the length of information provided. Pretty neat trick, but for the last ten years that blockchain is around I have yet to see a practical application of it.
When Chicago Board Options Exchange started to let people trade Bitcoin futures on December 10, 2017, it was greeted with enthusiasm in the crypto-bedazzled media. Within 24 hours bitcoin jumped by $2,000 to $17,382.
Then the Chicago Mercantile Exchange (CME) launched Bitcoin futures on December 18, 2017. But on that day the price of Bitcoin had already begun its epic collapse.
When it comes to impeccable market timing, few events can hold a candle to those two launch dates, asfutures trading can be used to bet on rising or falling prices.
These trading platforms gave investors the opportunity to bet against the ludicrous run-up of Bitcoin and now the bearish bets were the ones that made money.
There is an interesting concern rising from the too numerous exchanges for Bitcoin. A WSJ study has revealed that the market is being manipulated to create the impression that there is a $6 billion trading volume every day. This manipulation is all about boosting the image of volume using what is known as “wash trades” where the same party is buying and selling at the very same price.
Bitcoin may be an example of “pump and dump”, which professional market players love, but there is something new on the horizon that makes way more sense.
There is increasing hype and speculation regarding a Facebook Coin which is the polar opposite of Bitcoin. It will be pegged to a fiat currency, or perhaps a basket of currencies, held in Facebook bank accounts and it will use blockchain technology. It will not be possible to invest in it so it would not be a trading vehicle like Bitcoin. That means it would be more of a store of value. Clearly, Facebook is interested in a real-world market by creating its own payment network independent of Visa and PayPal, that would compete for deposits like banks, but globally. With Facebook’s immense user base, such a payment network would be extremely competitive in the banking world.
And Facebook’s total stock has a market cap of $463 billion is closer to 4 times that of the entire crypto market cap of $130 billion, so it’s an elephant waking up.
Still a brilliant, simple idea that makes you want to ask – what took you so long?
By the time I was done typing the stars lost the war and the red sunrise took over.
The Grand Hotel was not far from the casino in the town called Divonne-les-Bains on the French side of the border. For the weekend I booked the best room they had on the menu, belle époque finishes and all.
And I invited a woman I know forever by now, and she wore a lemon skirt to colour in the cold grey night. A man likes to stare, and, as the song goes, “he turns his money into light to look for her”.
We had an excellent dinner at La Terrasse Fleurie and then a glass of Chablis wine at the hotel bar.
I wanted to make it to France for a weekend before the yellow vests really start a revolution. It’s been 18 weeks of protests now and they can only intensify as the warm weather comes.
For now, president Macron decided to wait it out.
Historically, if the disapproval rating of a government rises above 65%, there is a fertile ground for violence. At this time 71 percent of French have no confidence in Macron, as a poll shows. And he dropped 4 points from last month.
And its not all his fault, by all means – what we’re witnessing is the collapse of socialism. People are mad and out on the street because of declining living standards, as there is less disposable income left after taxes every year. And many say that capitalism is the problem, the big cash rich companies, but these are just the oligarchy. Government is the real problem.
And France is not alone in this – we have used every trick in the book to prolong this borrowing scheme: offshoring of jobs, negative interest rates, and massive government interventions in the markets. Capital controls are probably next.
Macron took a hard stand on Brexit, saying that another failure by the U.K. Parliament to back Theresa May’s proposed deal “will guide everyone to a hard exit.”
As if this was ever a surprise – a hard Brexit was backed-in from the beginning, there was never any other possibility. And it will cost the British the London financial center at a minimum.
But that weekend I was enjoying life and the things that make it special.
I’m an engineer but I think in scenes, it makes me a good storyteller sometimes.
Kurt Vonnegut was one too, I am not the first one trying to connect these two areas of life.
He was the writer I most enjoyed reading when I was growing up. He never got a Nobel Prize, possibly because he bankrupted a Saab dealership in New England, which he owned for a while, and the Swedes never forget.
He tells this story, which I like to no end. Here it is:
The last years of his life he was living in Manhattan.
So, he wrote a few new pages by hand and wanted to send it to the lady that types it for him for many years now. He leaves his apartment and walks down the street to buy an envelope. And his wife tells him that he can order envelopes and they will deliver them to the house, and that he is not a poor man so why go. And he says “shhh, shhh”.
And he goes out to this stand by the United Nations where an Indian lady runs the store, and she asks what’s new and he says that he just wrote a few pages. She has her hair done in a nice way, and he likes her smile, so they chat friendly for a bit, he mails the letter and he goes back home having the best of time.
The nice little things in life, don’t let them get away from you.
There is an ending to my French hotel story – after my wife read this text she said: “my skirt colour was sunflower not lemon!”
Perhaps love makes me color blind, or no guy can possibly tell the difference.
I am of the opinion that the world has changed.
Many of us are looking for some sort of mean reversion, but it’s not going to happen.
European Union, for one, is a wild thing.
It was originally a French project, which is what people tend to forget.
After World War II, the French looked around and said – hey, where did everybody go?
The Brits had gone home, the Spanish were languishing under their own dictatorship, Germany and Italy were divided and occupied, and the Soviets were considerate enough to drop an iron curtain, which basically blocked half of Europe from interaction, so the French realized – hey, this is a competition we can win!
So they created the Union as a platform to project political power over Europe (the initiative had a different name back then).
Well, they didn’t like 1989, when Germany reunited and quickly took control of the business.
For starters, they moved their parts suppliers to Eastern Europe, where the wages are three times lower, but competencies are not.
It’s kind of globalization, but only within the area. An excellent 8-speed automatic transmission is built in Romania and shipped to South Carolina to be bolted to a BMW assembled there, sold to American clients and still considered a German car.
If you’re in Eastern Europe or you are Germany, you’re selling to the Chinese and the Americans, and you make off like a bandit.
But when you look at France, Spain or Italy – they can’t play that game.
They’re not big export countries, they are consumption economies.
If somebody is running a surplus, then logically somebody else has to run a deficit.
Now, if you don’t allow them to run deficits, as the austerity policy requires, then the only way to react to it is to permanently constraint their economies, meaning shrinking them.
So basically the French, the Italians and the Spaniards are forced into austerity policy, so the German, the Poles or the Romanians can make money selling to the rest of the world.
Do you think that may push the National Front over the edge one day?
The big problem with Euro is that there is no unified European debt that should be a basis for the currency (the money now is debt based, not gold based, but the mechanism is the same). Each of the member countries prints their own Euros, and their national debt (bonds of each country) guarantees the currency.
Or, as they say elegantly in textbooks – the currency is guaranteed by the ability of the government to tax its citizens. And if you need a moment to regain your composure after that sentence, take your time.
Problem is, the national bonds have widely different interest, or rather they would if it wasn’t for constant interventions by the European Central Bank in the bond market. Their balance sheet now equals to 40% of GDP of the Euro zone. And there is no plan how to exit these positions without triggering a mother of a crash. This is the proof, if you still need one, how bad of a design the Euro is.
So here is a suggestion for the brave boys and girls at the ECB in Frankfurt– buy a big paper-shredding machine, put it in the basement and start trashing the bonds you sitting on.
In my view, there never will be a unified European debt - the Euro will fall first. There is a simple reason for it – unified debt will sell at interest that is some amalgamation of rates that member states get in the market.
For countries like Germany, this would mean that the cost of capital would go up, perhaps way up.
Try to sell this to the German industrial elites – good luck with that Frau Merkel.
I will slow down now.
You don’t get to replicate the past. The very thing that you lived the past means simply that the past can’t come up again. The world is always a world of becoming and you live it forward into the unknown. As humans we like to see patterns where there are none, because the world is actually much more random. And it can be brutal, I know.
Welcome to the Masterpiece, but remember - you shape it too, it will never be the same without you.
I was sitting in a fish restaurant called Iaccato, deep inside the Brindisi harbour, right where the Italian military zone starts and where a large destroyer was parked dominating the view.
To the right of me, as the harbor opened to the sea, was a number of private yachts, not quite Monaco crowd, but interesting still. I was marveling at the name of the closest one – Marietta Barreta, and you got to love Italian, it just rolls down your tongue.
“Welcome to paradise!” said the waiter.
“That’s a bit of a stretch, but I like it here.”
Brindisi is a city in southern Italy, strategically located on the coast of the Adriatic Sea. It is a major port for trade with Greece and the Middle East.
The port was inhabited since prehistoric era – archeological findings date back to at least 12’000 years ago, at least this is what the locals say. Very early on it became a major center of Roman naval power and maritime trade.
Later, with the opening of the Suez channel it became the main port of shipment and communication route between Western Europe and the East.
In 1960 a USAF base was activated in San Vito dei Normanni, just outside of Brindisi.
It’s main purpose was COMINT (communication intelligence) and it was staffed with up to 10’000 support personnel. In 1994 the base’s mission was withdrawn, but it re-opened later to support air strikes during the Bosnia and Kosovo wars. In 2000 it was officially closed, however many soldiers decided to stay in the area. I saw a couple of them riding heavy Harleys on Via Appia, the ancient Roman road – they’re easy to spot: once a soldier, always a soldier.
There is also a large British presence here – many settlers are pensioners, buying villas in the Brindisi countryside.
As I sipped red wine after the dinner, the discussion between the Brits at the bar turned into the real possibility of Italy leaving the Eurozone. Obviously, they were fueled by beer from early on, so it was impossible to miss the loud conversation.
“Third largest economy in Europe, it will be a trouble if they leave the EU, it will start a chain reaction.”
“Or even worse,” said the other one, “what if they stay?”
In the real life always the little things make the difference. There is one such problem in Italy that is potentially huge, but totally missed by the press.
The most threatening issue here is likely the attempt to raise inheritance taxes as being forced by EU in Brussels.
Culturally, Italy has the lowest inheritance tax in all of Europe.
The German inheritance tax rates range from 17% to 50%, depending on your relationship to the decedent.
In Italy, the Italian Inheritance Tax is applied to all the assets worldwide belonging to the deceased if the person is a resident of Italy ONLY. If the person lives outside of Italy, then the tax is applied only to assets in Italy. Where everyone else has generally inheritance taxes of 15% or higher for the immediate family, Italy that rate is just 4%.
Rental income in Italy is extremely low. People have plowed their savings into real estate BECAUSE of the inheritance tax.
If the inheritance tax is tripled, as Brussels wants, what you will see in Italy is the biggest crash in real estate in modern history.
Who down here in paradise has the appetite for that?
So, I had a great dish of raw seafood on ice at the Iaccato. Then, as the sunset came, I left the harbour and drove back north.