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Markets, including GE and HK are rising.

Whenever you show a profit, there is always that temptation to take a fast [small] profit. The problem is, what do you replace it with? Is there a better opportunity? At the moment I’m happy to continue to hold both.

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Scientists and lawyers do not get along. There’s a reason for that. Simply put, scientists and lawyers do not think alike.

I was smacked in the face by this reality when I was called into jury duty in 2011. The case involved a car accident, and the standard in Washington State for the jury to decide in favor of the plaintiff is a “preponderance of evidence,” which is a fancy way of saying, “51 percent.” Essentially, a coin toss decides if the plaintiff wins a bunch of money.

The judge asked if any of the potential jurors objected to that. I did. “I’m a scientist,” I explained, “and I need more evidence than that.” So, I was shown the door.*

That experience taught me that scientists and lawyers live in two completely different worlds. Scientists want 95% confidence and margins of error; lawyers want 51% confidence. Scientists want all evidence to be considered; lawyers do everything in their power to dismiss evidence they don’t like. Scientists rely on reports written by experts; lawyers often consider them inadmissible hearsay. At their best, scientists pursue truth; at their best, lawyers pursue the truth, so long as it benefits the client.

These are fundamentally irreconcilable worldviews that are forever destined to be in conflict. And the lawyers are winning.

Will Lawyers Destroy Science?

Consider Mark Jacobson, the climate scientist who is suing a prestigious journal for $10 million because it hurt his feelings. There is good reason to believe that the lawsuit will be dismissed, but not before lawyers have collected a nice fee for themselves. Jacobson’s attorneys and the journal’s attorneys can both make a lot of money arguing with each other, even if the suit never actually goes to trial. Routinely, lawyers are required to solve problems that they themselves created. If something like this were to occur in any other area of life, it would be called racketeering.

Recently, RealClearScience wrote an article that covered a paper published in the journal Case Reports in Gastrointestinal Medicine about how a particular herbal tea was linked to acute liver failure. The maker of the tea threatened to sue RealClearScience, which pulled the article because it didn’t want to deal with a lawyer.

In both examples, the scientific enterprise is collateral damage. The mere threat of a lawsuit can be used to shut down scientific debate. This is deeply troubling.

A Lawsuit-Happy Nation

Unfortunately, there are no signs of such lawsuit abuse stopping. Researchers at Harvard’s John M. Olin Center for Law, Economics, and Business published a report that showed that the number of lawsuits filed in the United States far exceeds those of similar countries:

On a per capita basis, the lawsuit rate in the U.S. is higher than Canada (by 4 times), Australia (3.8x), Japan (3.3x), France (2.4x), and the UK (1.6x).

Beware, science. A lawsuit-happy nation turns its eyes to you.

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Only just got my electricity back after an almost 3 day outage. As all my water [pumps] work based on electricity, that has meant no water.

Anyway lesson learned. Apparently Tesla batteries are available and can be fitted to charge from normal electric supplies and will take over in the even of a power cut. I’m going to buy at least 1, more if I can afford them and avoid this risk into the future.

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1. China finally decides that a nuclear capability in the hands of an unpredictable leader on its border is not tolerable even though North Korea is a communist buffer between itself and democratic South Korea. China cuts off all fuel and food shipments to North Korea, which agrees to suspend its nuclear development program but not give up its current weapons arsenal.

2. Populism, tribalism and anarchy spread around the world. In the United Kingdom Jeremy Corbyn becomes the next Prime Minister. In spite of repressive action by the Spanish government, Catalonia remains turbulent. Despite the adverse economic consequences of the Brexit vote, the unintended positive consequence is that it brings continental Europe closer together with more economic cooperation and faster growth.

3. The dollar finally comes to life. Real growth exceeds 3% in the United States, which, coupled with the implementation of some components of the Trump pro-business agenda, renews investor interest in owning dollar-denominated assets, and the euro drops to 1.10 and the yen to 120 against the dollar.  Repatriation of foreign profits held abroad by U.S. companies helps.

4. The U.S. economy has a better year than 2017, but speculation reaches an extreme and ultimately the S&P 500 has a 10% correction. The index drops toward 2300, partly because of higher interest rates, but ends the year above 3000 since earnings continue to expand and economic growth heads toward 4%.

5. The price of West Texas Intermediate Crude moves above $80. The price rises because of continued world growth and unexpected demand from developing markets, together with disappointing hydraulic fracking production, diminished inventories, OPEC discipline and only modest production increases from Russia, Nigeria, Venezuela, Iraq and Iran.

6. Inflation becomes an issue of concern. Continued world GDP growth puts pressure on commodity prices. Tight labor markets in the industrialized countries create wage increases. In the United States, average hourly earnings gains approach 4% and the Consumer Price Index pushes above 3%.

7. With higher inflation, interest rates begin to rise. The Federal Reserve increases short-term rates four times in 2018 and the 10-year U.S. Treasury yield moves toward 4%, but the Fed shrinks its balance sheet only modestly because of the potential impact on the financial markets. High yield spreads widen, causing concern in the equity market.

8. Both NAFTA and the Iran agreement endure in spite of Trump railing against them. Too many American jobs would be lost if NAFTA ended, and our allies universally support continuing the Iran agreement. Trump begins to think that not signing on to the Trans-Pacific Partnership was a mistake as he sees the rise of China’s influence around the world.  He presses for more bilateral trade deals in Asia.

9. The Republicans lose control of both the Senate and the House of Representatives in the November election. Voters feel disappointed that many promises made during Trump’s presidential campaign were not implemented in legislation and there is a growing negative reaction to his endless Tweets. The mid-term election turns out to be a referendum on the Trump Presidency.

10. Xi Jinping, having broadened his authority at the 19th Party Congress in October, focuses on China’s credit problems and decides to limit business borrowing even if it means slowing the economy down and creating fewer jobs. Real GDP growth drops to 5.5%, with, only minor implications for world growth. Xi proclaims this move will ensure the sustainability of China’s growth over the long term.

ALSO RANS

Every year there are always a few Surprises that do not make the Ten because either I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are “probable.”

11. Investors recognize that the earnings of companies in Europe, the Far East and the emerging markets are growing faster than those in the United States while the price earnings ratios in those regions are lower than those in America. Global investments become more broadly represented in institutional portfolios.

12. The Mueller investigation of the 2016 presidential election fails to implicate any members of the Trump family in collusion with Russian operatives.

13. Artificial intelligence gains visible momentum. Service sector jobs are automated, particularly clerks in legal and finance professions, as well as workers in fast food outlets and healthcare. Economists begin to question the unemployment data because the rate drops below 4% while so many people still appear to be out of work and seeking government assistance.

14. Cyberattacks become more prevalent and begin to affect consumer confidence. A major money center bank suspends deposits or withdrawals for three days because its system is penetrated. Numerous retail organizations report that customer personal information has been obtained by hackers. Those invading corporate information systems appear to be smarter and more innovative than the internal employees protecting the computer data, suggesting that the systems themselves need to be upgraded.

15. The regulatory authorities in Europe and the United States finally get concerned about the creative destruction of Internet-related businesses.  As a result of pressure from retailers and traditional media companies, they begin an investigation of anti-competitive practices at Amazon, Facebook and Google.  The public begins to think these companies have too much power.

16. The risks in Bitcoin are so great that regulatory authorities restrict trading.  Among their concerns are: no regulatory oversight; no safety and soundness measures; no recourse in the event of mistaken or miscalculated transactions; high cyber risk; no deposit insurance.

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GE has made a bit of a jump higher today. I intend to hold the options to expiry and exercise them. GE is a company that is worth holding for a long period when purchased at these prices.

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Block.one, a software startup registered in the Cayman Islands and lacking a central office, has accomplished an astounding feat: So far, it has extracted $700 million in real money from the global public by selling tokens, called EOS, in an initial coin offering. It is by far the largest ICO ever.

An ICO is similar to an IPO, but here buyers got nothing other than the digital tokens – no ownership in the company (unlike what an IPO offers), no promises of any kind, no participation in anything, not even any fake promises of free future products. No matter how awesome and world-changing the blockchain platform or whatever the company might be developing might turn out to be, it won’t be connected to the tokens.

The purchase agreement that buyers in the ICO must sign states this very clearly and explicitly:

The EOS Tokens do not have any rights, uses, purpose, attributes, functionalities and features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities and features on the EOS Platform.

By comparison, with an IPO, investors actually end up with shares in the company. They become part-owners of the company.

The only thing buyers in this ICO got was the hope that the price of the token, given the current cryptocurrency mania, would surge by thousands of percent in the shortest time span – on the principle that the less people get, the more they’re willing to pay for it, and if they got nothing at all, they’d be willing to pay the most. Those hopes have been realized.

The price of the token has skyrocketed, though prices vary around the globe, depending on the exchange where EOS is traded. At the moment I’m writing this, on the top 10 exchanges by EOS volume, prices range from $9.67 at Bithumb to $8.54 at Binance.

In mid-October, the price was still in the 50-cent range. So to people who bought at the time, it doesn’t matter that they own not even one iota of the company or its world-changing technology platform or whatever because since mid-October the price has multiplied by 19. That’s all that matters (via Coinmarketcap.com):

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To pull off the mega-ICO, block.one “made a public relations splash, hosting numerous informational sessions, sponsoring post-conference receptions, giving out free t-shirts and even advertising on a Times Square jumbotron,” Coindesk observed. Its executives “have spoken at myriad conferences and met colleagues and potential clients at “meetups” in cities like London, Amsterdam, Singapore and New York,” the Wall Street Journal observed.

The sale of EOS has started in late June. And it’s not finished yet. Every day, block.com sells two million tokens via an auction process. According to Brock Pierce, a co-founder of block.comcited by the Wall Street Journal, the company plans to keep the ICO going until next June to raise “well north of” $1 billion.

But even at $700 million raised so far, this ICO is leagues ahead of the prior records:

  • The second largest ICO, Filecoin, raised $262 million from August 10 to September 7, which broke the all-time record for ICO funding at the time.
  • The third largest ICO, Tezos, raised $232. It is now embroiled in lawsuits, controversy, and allegations of US securities laws violations and investor fraud.

The most recent class-action lawsuit, filed in the Tezos case a few days ago, stated:

In sum, Defendants capitalized on the recent enthusiasm for blockchain technology and cryptocurrencies to raise funds through the ICO, illegally sold unqualified and unregistered securities, used a Swiss-based entity in an unsuccessful attempt to evade U.S. securities laws, and are now admittedly engaged in the conversion, selling, and possible dissipation of the proceeds that they collected from the Class through their unregistered offering.

Practically anyone can sell tokens in an ICO. So far in 2017, 165 companies have raised more than $4 billion via ICOs, up from $226 million in 2016. Often, companies promise investors something of perceived value for their money, such as something for free down the road, other than ownership. It’s really more like a donation. The main thing is the digital token that can be traded for instant riches if enough buyers can be dragged out of the woods.

Regulators are just now beginning to wake up. A week ago, the SEC ruled Munchee’s $15-million token sale illegal and halted it. SEC Chairman Jay Clayton, still rubbing his eyes from having slept through much of the mania so far, warned “main street investors”:

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.”

Since the SEC started issuing warnings about ICOs in June, block.one has closed its ICO to residents in the US. China too cracked down recently on ICOs, and block.one also closed its ICO to residents of China. But cryptocurrencies are transnational, exchanges are everywhere, and people in China and the US who want to buy into the ICO can probably figure out how to do it.

Oh, and over the time that it took me to write this, EOS spiked another 23.8% on Bithumb, to $11.97. So it really doesn’t matter that it doesn’t convey any kind of ownership of the company or anything else, as long as it continues to surge exponentially forever.