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The Hutch Report

Expert-Tease

By | Education, Psychology

We seem to have an ever increasing amount of experts online which begs the question, “What classifies a person as an expert?” The Oxford Dictionary defines expert as “A person who is very knowledgeable about or skilful in a particular area.” However, the big challenge with this definition is quantifying “very knowledgable”. According to Psychology Today, “it turns out surprisingly difficult to provide a formal definition that everybody can agree with.  There are in fact many definitions, but most are unsatisfactory.” The lack of a reliable measure of expertise has enabled a large number of people to consider themselves experts in their chosen field. We call them “self-proclaimed” experts. 

In today’s digital economy there are literally hundreds of thousands of pieces of user-generated content published every minute. It is inexpensive and quick to create a video, write an article or produce a podcast. With the evolution of social media that number continues to grow exponentially. It is believed that 90% of the worlds data has been created in just the past 2 years.

With so much content and less time to filter through it all, people are overwhelmingly seeking out “experts” and high impact content to help them make purchase decisions, investment decisions, career choices, travel choices or even relationship decisions. The label of “expert” is powerful and weilds influence. In an  article in Forbes Magazine a study performed by Nielsen showed that expert content was 88% more effective in creating brand lift than a brands’ own content. It was also learned that expert content was the most influential at every point in the new buyer’s journey. However, more often than not, people are ignoring the fact that not everyone that writes articles, makes videos or produces podcasts is an expert.

The average content consumer has the challenge of determining what is real from fake, correct from false or simply what content can be trusted. They need to determine for themselves who is an expert versus who is just an online user creating content. But does that get determined at the site level or is there some sort of advanced criteria that you can run someone against to determine whether or not they are really credible in a particular area and moreover if they are an expert?

Financial television personalities such as Mad Money’s Jim Cramer provide investment advice on a daily basis. The efforts previously made to actually quantify the performance of his picks, here, and here, found that the results have been less than flattering. It is for this reason that most of these financial programs will flash a disclaimer at the end, which essentially removes them from liabilites that may arise from investors losing money following his expert recommendations.

“All opinions expressed by Jim Cramer on this website and on the show are solely Cramer’s opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL or their parent company or affiliates, and may have been previously disseminated by Cramer on television, radio, internet or another medium. You should not treat any opinion expressed by Cramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Cramer’s opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Cramer, CNBC, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Cramer’s statements and opinions are subject to change without notice. No part of Cramer’s compensation from CNBC is related to the specific opinions he expresses.”

One explanation of our will to follow these experts is the Authority bias. Authority bias is the tendency to attribute greater accuracy to the opinion of an authority figure (unrelated to its content) and be more influenced by that opinion. This concept is considered one of the so-called social cognitive biases or collective cognitive biases. 

Our digitally driven world has led us to become less patient and lazy. Therefore the deference to authority can occur in an unconscious fashion as a kind of decision-making short cut. This is not to say don’t follow experts, just don’t be teased by the term expert. There are obvious domains where experts are not just the product of a society exercise in labeling (just try conducting a brain operation, teaching a class in Physics or compete in the Olympics). 

While there is no 100% foolproof way to tell between an expert and their “self-proclaimed” counterparts, there are some simple things readers can do if they are seeking to assure that their expert content really comes from an expert. Consider the source, check the facts,  and research the author.

The Hutch Report

The joy of earning billions…and paying no taxes!

By | Finance, Politics

Our previous article focused on the ways in which companies are moving away from generally accepted accounting principles (GAAP) and towards non-GAAP adjustments in order to manipulate their balance sheets in a way that suits them best. 

These new methods of clever accounting have far ranging effects as we have seen, in spite of new tax laws set up by the Trump administration, corporate tax avoidance remains rampant. 

According to a new report by the “Institute on Taxation and Economic Policy,” it was found that 60 profitable Fortune 500 companies managed to avoid all Federal Income Taxes in 2018. The companies that managed to avoid paying the taxes were not distinct to one segment of the economy but represented a wide range of segments. 

Included in the report were examples such as computer maker International Business Machines (IBM) which earned $500 million in U.S. income and received a federal income tax rebate of $342 million. The retail giant Amazon reported $11 billion of U.S. income and claimed a federal income tax rebate of $129 million. The streaming service Netflix paid no federal income tax on $856 million of U.S. income. Beer maker Molson Coors enjoyed $1.3 billion of U.S. income in 2018 and received a federal income tax rebate of $22.9 million. Automaker General Motors reported a negative tax rate on $4.3 billion of income.


60 Companies Avoiding All Federal Income Taxes in 2018

U.S. Income and Federal Tax figures in millions of dollars.
Company U.S. Income Federal Tax Effective Tax Rate Industry
Activision Blizzard
$447
$-228
-51%
Computers, office equip, software, data
AECOM Technology
$238
$-122
-51%
Engineering & construction
Alaska Air Group
$576
$-5
-1%
Transportation
Amazon.com
$10,835
$-129
-1%
Retail & wholesale trade
Ameren
$1,035
$-10
-1%
Utilities, gas and electric
American Electric Power
$1,943
$-32
-2%
Utilities, gas and electric
Aramark
$315
$-48
-15%
Miscellaneous services
Arrow Electronics
$167
$-12
-7%
Retail & wholesale trade
Arthur Gallagher
$322
Financial
Atmos Energy
$600
$-10
-2%
Utilities, gas and electric
Avis Budget Group
$78
$-7
-9%
Motor vehicles and parts
Celanese
$480
$-142
-30%
Chemicals
Chevron
$4,547
$-181
-4%
Oil, gas & pipelines
Cliffs Natural Resources
$565
$-1
0%
Oil, gas & pipelines
CMS Energy
$774
$-67
-9%
Utilities, gas and electric
Deere
$2,152
$-268
-12%
Industrial machinery
Delta Air Lines
$5,073
$-187
-4%
Transportation
Devon Energy
$1,297
$-14
-1%
Oil, gas & pipelines
Dominion Resources
$3,021
$-45
-1%
Utilities, gas and electric
DTE Energy
$1,215
$-17
-1%
Utilities, gas and electric
Duke Energy
$3,029
$-647
-21%
Utilities, gas and electric
Eli Lilly
$598
$-54
-9%
Pharmaceuticals & medical products
EOG Resources
$4,067
$-304
-7%
Oil, gas & pipelines
FirstEnergy
$1,495
$-16
-1%
Utilities, gas and electric
Gannett
$7
$-11
-164%
Publishing, printing
General Motors
$4,320
$-104
-2%
Motor vehicles and parts
Goodyear Tire & Rubber
$440
$-15
-3%
Motor vehicles and parts
Halliburton
$1,082
$-19
-2%
Oil, gas & pipelines
Honeywell International
$2,830
$-21
-1%
Industrial machinery
International Business Machines
$500
$-342
-68%
Computers, office equip, software, data
JetBlue Airways
$219
$-60
-27%
Transportation
Kinder Morgan
$1,784
$-22
-1%
Oil, gas & pipelines
MDU Resources
$314
$-16
-5%
Oil, gas & pipelines
MGM Resorts International
$648
$-12
-2%
Miscellaneous services
Molson Coors
$1,325
$-23
-2%
Food & beverages & tobacco
Netflix
$856
$-22
-3%
Retail & wholesale trade
Occidental Petroleum
$3,379
$-23
-1%
Oil, gas & pipelines
Owens Corning
$405
$-10
-2%
Miscellaneous manufacturing
Penske Automotive Group
$393
$-16
-4%
Motor vehicles and parts
Performance Food Group
$192
$-9
-4%
Retail & wholesale trade
Pioneer Natural Resources
$1,249
Oil, gas & pipelines
Pitney Bowes
$125
$-50
-40%
Computers, office equip, software, data
PPL
$1,110
$-19
-2%
Utilities, gas and electric
Principal Financial
$1,641
$-49
-3%
Financial
Prudential Financial
$1,440
$-346
-24%
Financial
Public Service Enterprise Group
$1,772
$-97
-5%
Utilities, gas and electric
PulteGroup
$1,340
$-44
-3%
Miscellaneous manufacturing
Realogy
$199
$-13
-7%
Miscellaneous services
Rockwell Collins
$719
$-16
-2%
Aerospace & defense
Ryder System
$350
$-23
-7%
Transportation
Salesforce.com
$800
Computers, office equip, software, data
SpartanNash
$40
$-2
-4%
Retail & wholesale trade
SPX
$66
$-5
-8%
Industrial machinery
Tech Data
$203
$-10
-5%
Retail & wholesale trade
TOTAL, THESE COMPANIES
$79,025
$-4
-5%
Trinity Industries
$138
$-19
-14%
Miscellaneous manufacturing
UGI
$550
$-3
0%
Utilities, gas and electric
United States Steel
$432
$-40
-9%
Metals & metal products
Whirlpool
$717
$-70
-10%
Electronics, electrical equipment
Wisconsin Energy
$1,139
$-218
-19%
Utilities, gas and electric
Xcel Energy
$1,434
$-34
-2%
Utilities, gas and electric
Source: Institute on Taxation and Economic Policy analysis of SEC filings 

The loop holes and tax breaks used by these companies are varied and range from accelerated depreciation, stock options, and energy tax subsidies to name just a few. 

One of the most egregious loopholes in the tax code, known as the stock option loophole, allows companies to deduct millions or billions from their taxable income for compensating executives in the form of stock options. Corporations can take these deductions even though granting stock options costs them nothing. 

In a report produced in 2016, Citizens for Tax Justice (CTJ) reviewed five years of corporate filings and found this loophole allowed companies to annually avoid an average $13 billion in taxes. It should also be highlighted that the average sum corporations are currently avoiding could be understated because not all corporations report information about stock options.

The ITEP report also pointed this out as they stated, “In many cases, the company’s disclosures don’t fully clarify which tax breaks were used.“ Therefore, analysis of the balance sheet does not always lead to the true picture of a companies financial health. 

“All data cited in this report come from the 10-K annual financial filings published by these companies. In many cases, the company’s disclosures don’t fully clarify which tax breaks were used. For example, Chevron’s annual report for 2018 discloses that unspecified “tax credits” reduced the company’s income taxes by $163 million.”

They go on to say that despite these companies managing to avoid paying their share of taxes, there is nothing illegal about what they are doing. They are simply taking advantage of legal tax breaks that have been provided to them in order for them to shelter a large portion of their earnings from Federal taxes. There are, however, a number of moral and ethical questions that can be raised. 

If these companies are to be reigned in the only true change will come from sustainable tax reform which only the government can accomplish. The big problem facing the government as an institution is as the years pass, the debt and deficits grow, the working population pays a larger and larger portion of taxes as the public’s confidence in elected officials continues to weaken. 

The Hutch Report

Mind the GAAP!

By | Finance, Markets

With the earnings season upon us we now go through the same dog and pony show. Companies report earnings, then the success of those earnings are based mainly on whether or not they beat consensus analyst’s estimates. Curiously enough, many often beat by one penny. What methods do they possibly use to beat by a penny per share? 

Prior to earnings, analysts tend to be busy estimating what earnings they think will be reported. Their estimates are based on guidance from the company itself, economic conditions and their own independent models and valuation techniques.

Companies prepare their accounting using generally accepted accounting principles, also referred to as GAAP. GAAP, are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. GAAP are controlled by the Financial Accounting Standards Board (FASB), a non-governmental entity. The FASB creates specific guidelines that company accountants should follow when compiling and reporting information for financial statements or auditing purposes. GAAP is not law, and there is nothing illegal about violations of its rules unless those violations happen to coincide with other laws. Today, all 50 state governments prepare their financial reports according to GAAP. While a little less than half of them officially require local governments to adhere to GAAP.

The Hutch Report

However, more and more, companies are finding that by following a standardized set of GAAP rules, their earnings often come out less than attractive. So, over the years corporate accountants have become more and more creative through the use of “non-GAAP” methods to improve their bottom lines. 

A study published by Audit Analytics noted that 96 percent of S&P 500 companies used non-GAAP measures in earnings releases during the fourth quarter of 2016. In addition, a study published by FactSet indicated that for the first quarter of 2017, 63 percent of the companies in the Dow Jones Industrial Average reported non-GAAP earnings per share and that, on average, the difference between the GAAP and non-GAAP earnings per share was approximately 54 percent. The most common adjustments were found to be restructuring charges, acquisition-related items, stock compensation costs, and, to a lesser extent, debt costs and legal costs. 

As companies battle to present themselves as profitable, non-GAAP measures are becoming the norm as the disparity between GAAP and non-GAAP results grows larger and larger. So if you think you are going to get the true story from a company’s statements or earnings reports, think again. 

Off-balance sheet financing is another method of non-GAAP financial engineering. A business tries to keep certain assets and liabilities off its balance sheet in order to present to the investment community a cleaner balance sheet than would otherwise be the case. It does so by engaging in transactions that are designed to shift the legal ownership of certain transactions to other entities. The transactions are designed to sidestep the reporting requirements of the applicable accounting framework, such as GAAP or IFRS. So, therefore, considered non-GAAP.

Off-balance sheet financing played an important role in the Lehman Brothers bankruptcy. Through the use of off-balance sheet entity ‘Repo 105’, Lehman was able to move $50 billion of debt off of their balance sheet, making them appear more financially stable before the end of the quarter. Since it was classified as a repurchase agreement, it was ‘bought back’ after the reporting period. When the debt was originally moved off-balance sheet, the bank recorded the debt as a ‘sale’ and booked the $50 billion as revenue. This type of accounting manipulation contributed to the largest bankruptcy in U.S. history, wiping out the life savings of thousands of employees of the bank. 

Adjusted EBITDA is another non-GAAP financial measure that has gained a lot of popularity. Speaking on Jim Grant’s Current Yield Podcast, Adam Cohen, founder of Covenant Review, stated, “Some version of adjusted EBITDA is quite common, but we are seeing things turn into absolute fantasy land.” He took a recent example using the company WeWork, currently valued at roughly $47 Billion, with a stated annualized revenue of $2.5 billion. Cohen explained that the WeWork 2017 income statement started with a net loss of $933 Million. Once they got themselves to adjusted EBITDA, they reduced that to a loss of $193 Million, however since they wanted to sell a bond yield, this wasn’t good enough, so they invented something called “adjusted EBITDA before growth investments” but that still wasn’t good enough, so they invented a third version called “Community adjusted EBITDA,” which at what point they achieved a positive $233 Million community adjusted EBITDA. That is a $1.1 Billion swing from net loss to profit, which is more than the amount of revenues they booked that year. 

As an update to this example, the Financial Times just reported on March 26th, 2019, “WeWork bond prices slipped on Tuesday after the provider of shared office space said that its losses had more than doubled from a year earlier, as the company ploughed money into a breakneck expansion that has captivated the real estate industry.”

So, as a word of caution to those investing in the next potential Lehman, as all these fairy tale companies go public, and as the earnings season takes off,  “MIND THE GAAP.”

The Hutch Report

The Battle for Venezuela – Maduro vs. Guaido

By | Politics

Self-proclaimed President of Venezuela, Juan Guaido has now been stripped of his parliamentary immunity.  The National Constituent Assembly voted unanimously on Tuesday to approve a measure that strips Guaido of his immunity and authorizes the Supreme Court to criminally prosecute him for proclaiming himself the leader of the country. In addition, The court ruling cited Guaido’s violation of a ban on his travel outside Venezuela when he visited Argentina, Brazil, Colombia, Ecuador and Paraguay from late February to early March. For this he can also be prosecuted. 

This should start to make things very interesting since Guaido has been recognised as interim president by more than 50 countries, while Russia, Cuba and China are backing Maduro.  The Trump administration has threatened Caracas with a strong response in an event of his arrest. Just before the vote against Guaido was announced, US Republican Senator Marco Rubio accused the Venezuelan government of plotting a coup d’état and trying to “abduct” Guaido.

The situation in Venezuela has gone from bad to worst. In addition to the political battle, the country has been hit by a series of debilitating blackouts that have left millions without water. Maduro’s reaction has been to replace the country’s energy minister and institute power rationing in a bid to address the outages. Venezuela experienced three major blackouts in March, worsening already dire living and economic conditions in the country, and prompting authorities to take steps aimed at curbing the outages. Maduro and his government blamed “terrorists” for alleged attacks that have damaged the country’s main hydroelectric power plant, while providing no proof. 

At the heart of the battle for control of Venezuela are the oil reserves. Venezuela sits upon the world’s largest oil reserves. PdVSA is Maduro’s primary source of cash, Venezuela’s state-run energy company, PDVSA, kept oil exports near 1 million barrels per day in March despite U.S. sanctions and power outages that crippled its main export terminal, according to PDVSA documents and Refinitiv Eikon data.

The Hutch ReportAs long as the oil is flowing, Maduro is well financed. Therefore, U.S. President Donald Trump is considering imposing sanctions on companies from other countries that do business with Venezuela, according to White House national security adviser John Bolton. According to Treasury Secretary Steve Mnuchin, the measures will block $7 billion in assets and could result in more than $11 billion in lost assets over the next year.

However, that may be easier said than done as China is one of the largest buyers of the oil. That is likely to put additional pressure on the current US/China trade negotiations. Although as the amount of oil to China has decreased, the amount to India has increased. How India will react to a trade skirmish with the US is anybody’s guess.

The Hutch Report

 

The Hutch Report

Drowning in Nestle

By | Economics, Health

Did you know that the human right to safe drinking water was first recognised by the UN General Assembly and the Human Rights Council as part of binding international law in 2010?

However, whenever something is so important that our lives depend on it, there are those that will exploit it for their own gain. Studies in Africa and Asia show that the poorest 20% of the population spend between 3 to 11% of their household income on water. 

Today there are thousands of bottled water companies worldwide but Nestlé is the biggest globally in terms of sales, followed by Coca-Cola, Danone, and PepsiCo, according to Euromonitor International.

Nestle Waters is the water division of Nestle. It owns nearly 64 bottled water brands produced from roughly 100 bottled water factories in 34 countries around the world with 5 million litres sold worldwide. Some of its most popular water brands are PureLife (having the largest market share worldwide), Deer Park, Poland Spring, Acqua Panna, San Pellegrino, Perrier, springs, Water Park, Waterline.

Nestlé states that it supports the human right to water as a basic need, yet they makes billions bottling water that they pay nearly nothing for. 

Their marketing efforts for water have very little to do with it being necessary to sustain life and more to do with selling to the consumer. As they highlight on their site. 

“It is sometimes believed that water is just… water. In fact, every water is different. These differences depend on their origin, consistency, composition, type of protection, and treatment. As a result, every water tastes different. Nestlé Waters offers three categories of water, represented by our 51 unique brands.”

They often overlook the necessities of the water sources to communities when they step in to take them. 

Nestlé faced boycott threats in 2016 after the company purchased a well in Ontario that a small Canadian township had been trying to buy. The Swiss company was also criticised that year for increasing the amount of water it was pumping from a source in Michigan, 120 miles from Flint, a city known for its water crisis. The company was paying just $200 in extraction fees, according to a 2017 investigation by Bloomberg

State of California officials carried out a 20-month investigation and concluded in December 2017 that the company took an average of 62.6 million gallons of water from the San Bernardino spring each year from 1947 to 2015, but didn’t have valid rights for much of the water it has been drawing. However, Nestlé is disputing the findings of the investigation, arguing the company is entitled to keep piping water out of the San Bernardino National Forest — even more water than it has been bottling and selling in the past few years.

More recently, on April 2, 2018, the Michigan Department of Environmental Quality approved a widely-protested plan that would allow Nestlé to pump 250 gallons of water a minute from White Pine Springs. Although there is plenty of water in the Great Lakes area of Michigan (except maybe for Flint), groundwater is rapidly depleting across the United States, and therefore, drought looms ever and ever larger.

Nestlé’s annual sales of bottled water alone total roughly CHF 10 billion ($10.05 billion).

The Hutch Report

Trump News Network – The Master Plan

By | Media, Politics

The 2016 presidential campaign of Donald Trump was formally launched on June 16, 2015, at Trump Tower in New York City. However, some wonder if becoming president was Trump’s main goal all along. There have been a number of clues that have surfaced over the years that could lead us to believe that what Trump really was planning was to start his own international news network to rival that of CNN and others. Then something unexpected happened, he actually won. 

Although this has all the hallmarks of classic conspiracy theory, when Donald Trump is involved, we have come to learn that anything is possible so we decided to look into it a bit deeper. 

Reports surfaced throughout the 2016 election that Trump was reportedly considering overseeing the creation of a new news network if he had not won the election, that would focus on conservative perspectives and voices on current events. 

Back in August of 2016, The New York Times initially reported that Donald Trump’s son-in-law Jared Kushner had explored the possibility of either creating a media property or acquiring one, according to a person briefed on the discussions, who asked for anonymity to discuss private conversations.

The Financial Times then reported in October 2016 that Kushner had discussed the possibility of a Trump-branded television network with Aryeh B. Bourkoff, the chief executive of LionTree, a boutique investment bank that had helped advise media deals.

NBC news wrote in October of 2016, “The Donald Trump TV Network Could Be Just Three Months Away.”

Trump has been attacking CNN in particular since the beginning, claiming the network’s international operations represent the United States poorly. He tweeted most recently back in November 2018, “While CNN doesn’t do great in the United States based on ratings, outside of the U.S. they have very little competition,” “Throughout the world, CNN has a powerful voice portraying the United States in an unfair and false way.”

“Something has to be done,” he added, “including the possibility of the United States starting our own Worldwide Network to show the World the way we really are, GREAT!”

Trump has certainly not hidden his feelings about which networks he admires and those he despises. If Trump did launch his own network, “You could easily see Sean Hannity defecting from Fox News,” said NPR media correspondent David Folkenflik. 

It should therefore not be surprising that just yesterday, in a new piece for the New Yorker, investigative journalist Jane Mayer reported that a few months before the Justice Department filed its lawsuit, Trump pressured Gary Cohn, the former director of the National Economic Council, to tell the Justice Department to block AT&T’s Time Warner deal (Time Warner being CNN’s parent company).

Dr. Pippa Malmgren, who has previously served as Special Assistant to the President of the United States, George W Bush, for Economic Policy on the National Economic Council recently spoke on the Macrovoices Podcast and expressed the idea that Donald Trump never expected to win. He ran for President to pursue an ulterior motive. She went on to say, that a news network would provide Trump with “less constraints and freedom to tweet anything he wants.” Creating the Trump News Network (TNN) would help Trump transition into a global brand and enable him to have “more influence” than he has as president. She believes that for this reason, “Trump will decide not to run again,” instead, he will launch TNN and that he will wait just weeks before the election to announce this and thereby completely disrupt the whole process. The net result would drive massive attention to his cause.

Conspiracy theory? Maybe, but we will have to wait for the elections to see how this one turns out.  

The Hutch Report

Trump has a socialist agenda (when it benefits him)

By | Politics

Everyone who lives in a capitalist society wants capitalism to work for them, but when it doesn’t they scream for socialism support. This is not a bad thing. There are a number of programs such as medicare, social security and food stamps that people are thankful for when they can use the help (“socialism” is commonly applied as a term for using government programs as a social welfare state to help people who need assistance). 

However, if you are going to apply these programs then at least accept the hybrid economic model as is and don’t slam one against the other. 

Formal economies operate within limits of established and monitored policies and regulations. Informal economies do not and therefore include underground economies. Capitalism and socialism are considered formal economies. 

The major differences between capitalism and socialism are based on the role of the government and equality of economics. Capitalism allows for economic freedom, consumer choice, and economic growth. Socialism, which is an economy controlled by the state and planned by a central planning authority, provides for a greater social welfare and decreases business fluctuations. The truth is, there are elements of socialism in all capitalist economies, although many would not like to admit.

We can start with the Federal Reserve. The Federal Reserve is a “central” bank with centralised power over interest rates and the power to print money under the guise of financial system “stability.” Although one wonders what is meant to be stable in a capitalist society? Capitalism is inherently unstable and prone to boom/bust periods, or crises, even during a period of strong and stable growth. There is a history of recessions that prove it. However, lately the Fed is doing everything in their power to avoid recession.

Consider the two following statements;

“Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.”

Congress shall have power to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”

The second statement comes from the United States Constitution, Article 1 Section 8. The first statement was written by Karl Marx and Friedrich Engels in 1848 in their infamous “Communist Manifesto.”

The Federal Reserve could never exist to operate the way it does in an open democracy. They have a strong recent history of socializing risks (making taxpayers responsible for bankers’ losses) and privatizing their profits (letting the bankers keep their bonuses) for the benefit of its members (the banks). An audit of the Federal Reserve uncovered details about how the U.S. provided an astounding $16 trillion in secret loans to bail out American and foreign banks and businesses during the crisis of 2008. This highlights that the Federal Reserve has to transform America to a socialist model in order to maintain its own growth and ultimate power which it has shown to do quite effectively.

Pro Publica has been tracking where taxpayer money has gone in the ongoing bailout of the financial system. Their impressive database accounts for both the broader $700 billion bill and the separate bailout of Fannie Mae and Freddie Mac.

How about the President? Where does he stand on the socialist agenda? He has had a lot of praise for many socialist leaders. Does this make him one? Probably not. This could be a simple mafia strategy of keeping your friends close and your enemies closers, or he actually has a real admiration for them. 

But how about his actions? In spite of his public distain for the socialist agenda, he recently announced that he is going to implement price controls (socialism) on prescription drugs.  Since he was elected, GM has got more than $600 million in federal contracts plus $500 million in tax breaks. Some of this has gone into the pockets of GM executives. Chairman and CEO Mary Barra raked in almost $22 million in total compensation in 2017 alone. As the Trump administration continues trade talks with China, the U.S. Department of Agriculture (USDA) has paid out a total of $7.7 billion in aid to farmers to offset the effects of tariffs. 

So, the US clearly has shown to exercise a socialist will on many occassions (and will most likely do so on a much bigger scale during the next economic downturn). Does this put it in the same category as Russia or China? Of course not, but don’t slam socialism ideals when you are taking advantage of them. 

The Hutch Report

The Fate of Blockchain

By | Cryptocurrency, Finance, Technology

Nasdaq reported today that they are investing in blockchain technology, and pushing for crypto and blockchain adoption. According to an official press release, Symbiont successfully closed a $20m Series B funding round. Nasdaq Ventures led the round which also included investors such as Mike Novogratz’s Galaxy Digital, Citi and Raptor Group among others.

Adena Friedman, President, and CEO of Nasdaq commented, “It is difficult to ignore the huge amount that investors, including some of the most sophisticated global investors, have poured into digital currencies in recent years. The invention itself is a tremendous demonstration of genius and creativity, and it deserves an opportunity to find a sustainable future in our economy …

At Nasdaq, we are working to help cryptocurrencies gain investors’ trust by offering our technology for trade matching, clearing, and trade integrity to start-up exchanges. We have also invested in ErisX, an institutional marketplace for cryptocurrency spot and futures. While this year will be another proving ground for cryptocurrencies, we believe digital currencies will have a role in the future. The extent of its impact will depend on the evolution of regulation and broader institutional adoption.”

The MIT Technology Review recently stated that the blockchain will become more useful, however, they also believe that blockchains will start to become boring this year. After the Great Crypto Bull Run of 2017 and the monumental crash of 2018, blockchain technology won’t make as much noise in 2019.

The blockchain enthusiasts are still working towards gaining world adoption for the technology, however as often cited, the level of investment into the technology should not be taken as a sign of its inevitable success. If that were the case the fate of so many grandiose startups in the 1999 – 2000 boom would have turned out quite different considering the level of investment that went into many of them. A leading venture capitalist told me once, “the graveyard is littered with many brilliant technologies.”

If google trends is any indication then interest in bitcoin and blockchain have been declining, or at least for the moment.

The Hutch Report
The Hutch Report

On this past Wednesday, January 23, 2019, VanEck, the firm that had sought SEC’s approval to trade Bitcoin ETF on the CBOE exchange, withdrew its application. Analysts and crypto followers believed that the launch of a regulated Bitcoin ETF would attract billions of dollars in investments and saw these initial moves as a positive step towards global adoption. Yet, now that they have withdrawn their application, the news is being spun as something positive for the crypto industry, or at least according to NewsBTC

As the great baseball-playing philosopher, Yogi Berra once said, “It’s tough to make predictions, especially about the future.” Nassim Taleb views those trying to predict the future as simply “charlatans.” The problem is that almost all forecasters work within the parameters of the Gaussian bell curve, which ignores large deviations and thus fails to take account of “Black Swans”. Taleb defines a Black Swan as an event that is unexpected, has an extreme impact and is made to seem predictable by explanations concocted afterwards. It can be both positive and negative. 

One of these so called deviations could be the advances of Quantum Computing, as we previously wrote about here, or it could be something not yet determined. 

The simple fact is that you have two groups — interested participants and non-interested participants. The interested participants will keep investing time and funds in order to realise the original objective of creating a decentralised peer-to-peer network where no single institution or person controls it. The non-interested participants will only adopt the technology once they believe it is in their advantage to do so and it becomes as simple as handing a friend a dollar bill.