Video of the Day – Famed Venture Capitalist Discusses How Decentralization is the Current Mega Trend

Decentralization is a trend I have discussed on many, many occasions in the past. My personal attraction toward the movement comes from a political and social perspective, rather than merely an appreciation of its economic implications. My most recent piece on the subject highlighted the importance of worker owned co-ops. If you missed it the first time around, I suggest checking it out: The Co-Op Movement – A Decentralized Solution to Solving Inequality and Avoiding Serfdom?

Last night, I came across a phenomenal 30 minute video in which famed venture capital investor Fred Wilson discusses what he thinks are the mega trends of our time. In a nutshell, he thinks decentralization is the biggest trend, which he partly defines as “networks replacing traditional bureaucratic, pyramidical hierarchies.”

In this way, “the crowd” decides what it is important and what is popular, whether it is a news story, a documentary film or music. We are still in early days of this process, but it is inevitable.

This is simply a must watch for anyone interested in the dynamic world around them.

In Liberty,
Michael Krieger

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Bitcoin for Rent – Real Estate Transaction Completed in NYC’s NoLita Neighborhood for BTC

I’m currently at the Javits Convention Center in New York City attending the Inside Bitcoins Conference. In keeping with the spirt of the day, I want to highlight this story of a NYC resident who just completed a real estate rental transaction entirely in Bitcoin.

While I previously highlighted the fact that Alvic Property Management in NYC had announced it would accept BTC, this is the first instance I can recall of someone paying rent, security deposit and a broker fee all in Bitcoin. The total was $18,000.

From Crain’s:

The head of a bitcoin-friendly real estate firm based in SoHo late last month completed what it is billing as the first real estate transaction in the country to fully use the virtual currency.

Nick Spanos, founder of Bitcoin Center NYC, an advocacy organization that promotes the use of the currency, who also happens to be the head of real estate brokerage Bapple, said that on March 24 a tenant paid in rent and deposit to a unnamed landlord in NoLita and commission to the brokerage for a total of nearly $18,000. The lease began on April 1.

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Zillow Study Shows 1 in 3 Homes are Unaffordable, Meanwhile Vacation Home Sales Soar

In a further demonstration of the socially destructive and ever widening gap between the haves and have nots, we see that the affluent are buying second homes at an ever increasing clip (up 30% last year), while first home buyers recede into the abyss as private equity and Chinese buyers make purchasing a home unaffordable for the average American.

Specifically, a recent study from Zillow showed that more than half the homes in seven major American cities are unaffordable based on historical standards. Those cities are: Miami, Los Angeles, San Diego, San Francisco, Denver, San Jose and Portland, Ore. Nationwide, it found that 1 in 3 homes were unaffordable. The results seem to back up housing analyst Mark Hanson’s recent conclusion that despite low interest rates, housing is even less affordable than the most bubbly year ever, 2006.

This also appears to be a primary reason behind Zillow now actively pitching its U.S. real estate listing to the Chinese, many of whom are corrupt and looking to launder ill gotten gains.

First, from Housing Wire:

More than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, and one-third of homes for sale are unaffordable by historic standards.

That’s the conclusion from a Zillow analysis of income, mortgage and home value data in the fourth quarter of 2013, which puts to question the regular industry claim that housing is more affordable than ever because of the current price and interest rate levels coming out of the housing crash.

“As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,” said Zillow chief economist Stan Humphries. “We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas.”

Zillow calculated affordability by analyzing the current percentage of an area’s median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000.

More than half of homes currently listed for sale in Miami (62.4%), Los Angeles (57.2%), San Diego (55.3%), San Francisco (55.2%), Denver (52.8%), San Jose (50.9%) and Portland, Ore. (50.3%) are unaffordable by historical standards.

Nationally, Zillow found that one-third of homes are currently unaffordable, and in many metro areas, the majority of homes remain more affordable now than they have been historically for buyers making the area’s median income.

Moving along, trite concerns such as housing affordability don’t impact the increasingly small group of people who do have considerable financial resources. For these folks, things have never been better, and they are splurging on second and third homes at an increasingly brisk pace. Don’t forget to send that Christmas card to Benny Bernanke.

For instance, from the Wall Street Journal we find that:

Sales of vacation homes are surging again, the result of rising wealth in higher-income households and renewed confidence in the housing market.

The number of second homes acquired for part-time personal use jumped 30% last year to 717,000 homes, according to an annual survey by the National Association of Realtors. The gain was the largest since the association started tracking second-home sales in 2003.

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Conspiracy Fact – How the U.S. Government Covertly Invented a “Cuban Twitter” to Create Revolution

It appears the U.S. government is doing its best to ensure that nobody anywhere in any corner of planet earth will ever trust American technology again (or U.S. aid for that matter). This process of distrust first really got going with the Edward Snowden revelations, which demonstrated that essentially all major U.S. tech firms are mere wards of the state with little to no privacy protections, and absolutely zero backbone.

This story of the U.S. government covertly creating a “Cuban Twitter” called ZunZuneo in order to overthrow the regime there has enormous long-term ramifications on many, many levels, which I will address throughout this post.

From the AP via The Washington Post:

WASHINGTON — In July 2010, Joe McSpedon, a U.S. government official, flew to Barcelona to put the final touches on a secret plan to build a social media project aimed at undermining Cuba’s communist government.

McSpedon and his team of high-tech contractors had come in from Costa Rica and Nicaragua, Washington and Denver. Their mission: to launch a messaging network that could reach hundreds of thousands of Cubans. To hide the network from the Cuban government, they would set up a byzantine system of front companies using a Cayman Islands bank account, and recruit unsuspecting executives who would not be told of the company’s ties to the U.S. government.

McSpedon didn’t work for the CIA. This was a program paid for and run by the U.S. Agency for International Development, best known for overseeing billions of dollars in U.S. humanitarian aid.

Now we can pretty much guarantee that foreign nations will forever be skeptical of any U.S. “aid”. Great work morons.

Documents show the U.S. government planned to build a subscriber base through “non-controversial content”: news messages on soccer, music, and hurricane updates. Later when the network reached a critical mass of subscribers, perhaps hundreds of thousands, operators would introduce political content aimed at inspiring Cubans to organize “smart mobs” — mass gatherings called at a moment’s notice that might trigger a Cuban Spring, or, as one USAID document put it, “renegotiate the balance of power between the state and society.”

At its peak, the project drew in more than 40,000 Cubans to share news and exchange opinions. But its subscribers were never aware it was created by the U.S. government, or that American contractors were gathering their private data in the hope that it might be used for political purposes.

“There will be absolutely no mention of United States government involvement,” according to a 2010 memo from Mobile Accord, one of the project’s contractors. “This is absolutely crucial for the long-term success of the service and to ensure the success of the Mission.”

The program’s legality is unclear: U.S. law requires that any covert action by a federal agency must have a presidential authorization. Officials at USAID would not say who had approved the program or whether the White House was aware of it. McSpedon, the most senior official named in the documents obtained by the AP, is a mid-level manager who declined to comment.

“The program’s legality is unclear”, as if that matters!

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Zillow Opens the Floodgates to Chinese Buyers in Order to Keep Housing Bubble 2.0 Inflated

Earlier this week, Michael Snyder made quite a splash in the alternative media world with his article: The Chinese Are Acquiring Large Chunks Of Land In Communities All Over America.

Meanwhile, just last year I covered how corrupt Chinese are laundering their money through U.S. real estate in my post: Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate.

This is a very important trend that we must keep our eyes on in the years ahead. Particularly since private equity buyers and hedge funds can no longer make a return on buy-to-rent, the real estate industry will become increasingly desperate to pitch American property to anyone willing to keep Housing Bubble 2.0 inflated.

From Bloomberg:

Zillow Inc. agreed to make its U.S. property listings available to Chinese consumers through a partnership with a Beijing-based website.

E-House Holdings Ltd.’s Leju real estate site will carry Zillow listings that include homes for sale by agent and owner, units in projects under construction and foreclosures and short-sale properties, Seattle-based Zillow said today in a statement.

Chinese buyers spent more than $11 billion on U.S. real estate last year, with an average $425,000 purchase, Zillow said. The Leju-Zillow site, to be operated by the U.S. company, will be ready around midyear, according to the statement.

“Brokers and agents with listings on Zillow are now able to reach Chinese home shoppers who are ready to invest in the U.S. market, with no additional cost or effort,” Errol Samuelson, Zillow’s chief industry development officer, said in the statement.

Have fun being a peasant under your Wall Street and Chinese feudal lords.

Full article here.

In Liberty,
Michael Krieger

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Reverse Mortgages Spike 20% in 2013 as Baby Boomers Scramble for Cash

So what exactly is a reverse mortgage?

In a nutshell, it’s a specific type of home equity loan available only to people aged 62 and over, which has the added benefit of not carrying any interest payments and is only due upon death or once the homeowner is no longer using it as a primary residence. As you can see, this might be viewed as an attractive cash flow option for older Americans who didn’t save for retirement. That could be a lot of people, considering that Fidelity estimates 48% of baby boomers have not put away enough to retire.

While I have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle I have been missing.

These mortgages are not insignificant either. According to Inside Mortgage Finance, originations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage.

Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook!

Let’s start out with some excerpts from the U.S. Department of Housing and Urban Development’s post: Frequently Asked Questions about HUD’s Reverse Mortgages.

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

See there really is a magic money tree. Thanks FHA!

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

Moving along, we learn from the New York Post that:

Cash-strapped baby boomers, taking the TV advice of the Fonz and former US Sen. Fred Thompson, have opted for reverse mortgages in increasing numbers.

Inside Mortgage Finance, a trade publication covering the housing industry, said borrowers took out some $15.3 billion of these loans last year, an increase of 20 percent over 2012.

Reverse mortgages, which let homeowners age 62 and up borrow money against the value of their homes, have become a popular way for boomers without significant assets to fund retirement.

Is this something you’d expect to see five years into a genuine economic recovery, or it is a reaction to a ponzi consumption based economy plagued with zero income growth?

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Guest Post: Why is the Bitcoin Price So Weak?

It’s been a wild 2014 so far for Bitcoin. On the one hand, there has been some very bad news in the space. We’ve had the Mt. Gox disaster and the potential overhang those stolen coins have on the market, as well as rumors of an effective Chinese ban (we still don’t have confirmation of anything).

On the other hand, there has been a lot positive news as well. We have seen some of the most brilliant venture capitalists in the world continue to put a great deal of time and money into crypto-currency related enterprises, as well as continued merchant adoption, with the biggest news being Overstock.

One of the leaders in the Bitcoin space, helping people spend their BTC at a wide range of traditional stores ranging from Target and Whole Foods Market, to the recent addition of Wal Mart is Gyft, led by its CEO Vinny Lingham. I’ve known for some time now how intelligent and entrepreneurial Vinny is, but as of today I have also discovered he is a strong writer.

With his permission I am republishing his excellent piece, Finding Equilibrium: Searching for the true value of a Bitcoin, below.

I agree with pretty much all of Vinny’s main points. I have been on record saying the recent surge and plunge is eerily similar to the 2013 surge and plunge. If that pattern repeats, we should see the next big move this summer. Vinny thinks the price may flatline for longer than that before moving strongly again.

Enjoy.

Finding Equilibrium: Searching for the true value of a Bitcoin.
by Vinny Lingham

Bitcoin has a number of headwinds which is keeping the price in check. I’m expecting it to stabilize around the $400 mark for at least the next quarter (although predictions in the Bitcoin space are very hard to do past a couple of weeks).


As Bitcoin stabilizes below $500 for the first time since it’s eye-popping run to over $1,000 in November 2013, many crypto pundits are scratching their heads and trying to make sense of the current weakness — especially given the excitement & innovation that we are seeing within the global Bitcoin community. Venture capital has also been pouring into Bitcoin startups at a rabid pace (north of $100m so far this past year). However, over the past couple of days, I’ve had numerous friends contact me asking the same question : “What’s happening with Bitcoin?”.

Bitcoin is currently trying to finding an equilibrium point — at least at the current volume levels — given all the recent disruptions to the ecosystem (including the recent MtGox collapse). Equilibrium would be defined for me as the point of stability in price where there is symetric volume and consistent growth on a daily basis between buyers and sellers (utopian, but right now there is asymmetric growth which is not being quantified — so traders are having a problem predicting where it would go).

History shows that it needs to find a very stable price point for a few months before it can really retest any previous highs. External factors like Russia, Ukraine, China, etc will contribute to Bitcoin volatility and changes in the supply/demand curve globally.

I spent some time at the CoinSummit conference in San Francisco last week and my panel discussion, “Bitcoin transactions — what are the barriers for merchant and consumer adoption?” was well received by the community.

Its very clear that Bitcoin has amazing potential but the fact remains that we are still in the very early stages of it’s evolution — which many have likened to the Internet in 1993. Mainstream consumer adoption is just not there yet. We’re waiting for the “Netscape moment” for Bitcoin.

I also don’t believe Bitcoin is suitable as currency — I think it’s a commodity that can be traded for goods and services. It may become a currency in time, but it just isn’t one right now. It’s a scarce, digital commodity — and the trading that takes place on exchanges really reflects the market sentiment around the value of this digital commodity.

In the not too distant future, entrepreneurs & technologists will use the actual Bitcoins themselves in new and interesting ways (think smart contracts, etc.) —how many will be ultimately needed is unknown, and that’s what creates the imbalance in price. Right now it’s all speculation as to what that future value of a Bitcoin will equate to. This is what makes the Blockchain far more interesting than the actual Bitcoin — but I’ll leave that for a future post.

I have some alternative views (i.e. not stuff the mainstream press totally gets), as to why Bitcoin is trading below $500 right now, but I want to point out that I am a Bitcoin bull for the long term. I even predicted at the Silicon Valley Bitcoin Conference in May 2013, it would reach over $1,000 in 2013 when it was trading at $100 to audible sniggers and laughs from a very Bitcoin friendly audience.

That said, conversely, here are the key reasons why I think the Bitcoin price may not organically reach $1,000 again this year, without an external event shifting the supply/demand curve for Bitcoin. It is difficult to predict anything further out than a single quarter in the Bitcoin world, so instead of making bold predictions I would rather focus on highlighting some issues that are suppressing the Bitcoin right now.

TechCrunch published a story yesterday about the recent IRS rulings around Bitcoin — which classifies it as an asset, not a currency (which effectively makes transactions using it taxable). To be frank, anyone who thought that Bitcoin would not be subject to taxes in some form is living in a dream world.

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Saudi Arabia Passes New Law that Declares Atheists “Terrorists”

Nothing like being close allies with one of the most despotic, Medieval and backwards societies on planet earth.

Never forget, the USA brings democracy to the world!

With the exception of puppet governments sitting on billions of barrels of oil reserves and disturbing ties to the 9/11 attacks. Those governments we love.

From the UK Independent:

Saudi Arabia has introduced a series of new laws which define atheists as terrorists, according to a report from Human Rights Watch.

In a string of royal decrees and an overarching new piece of legislation to deal with terrorism generally, the Saudi King Abdullah has clamped down on all forms of political dissent and protests that could “harm public order”.

Article one of the new provisions defines terrorism as “calling for atheist thought in any form, or calling into question the fundamentals of the Islamic religion on which this country is based”.

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Neo-Con Republicans Make Pilgrimage to Vegas to Kiss the Ring of Oligarch Sheldon Adelson

Oligarchs are ruining America. They are ruining the economy through their rampant theft and corporate welfare handouts. They are ruining our social structure with their billions used to buy and sell politicians as well as entire Presidential elections. They represent an existential threat to the Republic and the cancer needs to be addressed at once.

Oligarchs now control both phony political parties. On the Democratic side, we have Warren “tax loophole” Buffett and George Soros. On the Republican side, we must become increasingly aware of casino mogul Sheldon Adelson, who boasts an estimated net worth of around $37 billion.

For those still daydreaming that the GOP may nominate a more libertarian-leaning candidate in 2016, rather than the typical big government, warmongering neo-con, the biggest obstacle in your way is Sheldon Adelson and his billions. This threat was on clear display this past weekend in Vegas when Chris Christie, Paul Walker and Jeb Bush all made the pilgrimage to “kiss his ring.”

The serious threat to our political system posed by Adelson was covered by both “left-leaning” and “right-leaning” commentators (although I hate those terms). First, Juan Cole writes at Bill Moyers that:

A series of pro-corporation Supreme Court decisions and the latter’s disingenuous equation of money with speech, including Citizens United, have turned the United States from a democracy to a plutocracy. It is not even a transparent plutocracy, since black money (of unknown provenance) has been allowed by SCOTUS to flood into elections. These developments are not only deadly to democracy, they threaten our security. It is increasingly difficult to exclude foreign money from US political donations. We not only come to be ruled by the billionaires, but even by foreign billionaires with foreign rather than American interests at heart.

The perniciousness of this growing plutocracy was on full display on Saturday, as GOP governors Scott Walker, Chris Christie and John Kasich trekked off to Las Vegas in an attempt to attract hundreds of millions in campaign donations from sleazy casino lord Sheldon Adelson. Since Adelson is allegedly worth $37 billion, he could fund the Republican side of a presidential election (which costs $1 billion) all by himself. In the last presidential election he is said to have donated $100 million.

One important thing he thing he failed to mention was that Jeb Bush was also there, featuring prominently at a private dinner with Adelson and others.

The case of Adelson exhibits all these issues of corruption and eccentricity. Much of his current fortune is recent and derives from the Macao casino, and Adelson has admitted to “likely” breaking Federal rules against using bribes to do business in other countries. (A reference to allegations that his company was involved in rewarding legislators of the Chinese Communist Party for supporting his Macao project.) There was a time when this admission alone would put the donor off limits for mainstream politicians.

 Adelson has a right to vote and advocate for his candidates. But the idea that he and his like should choose the next president is too awful to contemplate. One person, one vote isn’t one person, $100 million worth of votes. That isn’t democracy…

CBS has also chimed in with some interesting commentary:

Both Christie and Bush are cut from the same mainstream Republican cloth: well liked by the donor class and viewed suspiciously by conservative activists. If they both compete in 2016 — and to be clear, neither has decided on a bid — they’ll be fighting for the roughly same slice of the Republican pie, and perhaps more importantly, many of the same donors.

But as Christie stumbled, Bush soared. The former governor was feted at a private dinner on Thursday to kick off the weekend. The dinner was held at Adelson’s private airplane hangar.

Bush delivered brief remarks at the dinner, and after one attendee urged him to run for president, the crowd of donors burst into applause, according to a report in the Washington Post.

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Buy-to-Rent is Officially Dead in California

I’ve chronicled the saga of “buy-to-rent” for well over a year now. From some of its most exuberant phases to its now epic retreat (investment firm property purchases are now down 70% year-to-date).

It seems as if the pullback of private equity and hedge funds from this asset class is even more brutal in certain regions, with Blackstone now reporting its purchases in California down a staggering 90% this year.

Not to worry, I’m quite certain unemployed and deeply indebted recent college graduates will soon pick up the slack due to the anticipated resurgence of subprime lending.

From the LA Times:

This time last year, investment firms raced to buy dozens of single-family homes in neighborhoods from Fontana to South Los Angeles to lease them out, transforming the mom-and-pop rental business into a Wall Street juggernaut.
  
But now the firms themselves have all but stopped buying in Southern California, the latest evidence that home prices have hit a ceiling. The professional investors no longer see bargains here.
 

The real estate arm of Blackstone Group, the largest buyer, has cut its California purchases 90% over the last year, a spokesman said. Santa Monica company Colony Capital reports a similar retreat. Oaktree Capital of Los Angeles, meanwhile, is looking to cash out by selling its portfolio of more than 500 homes, many of them in Southern California.

But prices have since been flat in Southern California. Many families are taking a pass on the more expensive homes. And the math doesn’t work on Wall Street either.

“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it and still make a reasonable return,” said Peter Rose, a spokesman for Blackstone, which owns roughly 41,000 rental houses nationwide. “There was a moment in time where it made sense.”
 

On Wednesday, some of the bigger players launched a trade group, the National Rental Home Council, to advocate for their interests in Washington.

Yep, just what we need.
 

“People want to live here, whether they buy or rent,” said Gary Beasley, chief executive of Oakland company Starwood Waypoint Residential Trust.

“Most of the low fruit has been harvested, but there’s still plenty of fruit in the tree,” Beasley said. “And we’ve got fruit pickers.”

Seriously, where do they find these people…

Full article here.

In Liberty,
Michael Krieger

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