Authored by Katabella Roberts via The Epoch Times,

San Francisco has launched a new pilot program offering guaranteed monthly income to a number of low-income transgender residents of the city, Mayor London Breed announced on Wednesday.

Known as the Guaranteed Income for Transgender People (G.I.F.T.) program, the new plan will provide “economically marginalized transgender people with unrestricted, monthly guaranteed income as a way to combat poverty our most impacted community members face,” according to its official website.

Specifically, the website states that the monthly guaranteed income of $1,200 a month for up to 18 months will be granted to 55 low-income transgender residents.

Those residents will receive the funds via a pre-loaded debit Visa card which will be reloaded every month.

The program is being run by the Transgender District, which was founded by three black transgender women, and Lyon-Martin Community Health Services, in partnership with municipal city departments in the City and County of San Francisco.

Applications Close in December

Applications for the program are open from Nov. 15 to Dec. 15, 2022, and applicants must be age 18 years or over and identify as transgender, nonbinary, gender non-conforming, or intersex.

Individuals who apply for the program must also not be receiving more than $600 a month in income, must be living in the City and County of San Francisco, and must be willing to complete a survey every three months aimed at helping to improve the program.

The program will prioritize enrollment of “transgender, non-binary, gender non-conforming, and intersex people who are also Black, indigenous, or people of color (BIPOC), experiencing homelessness, living with disabilities and chronic illnesses, youth and elders, monolingual Spanish-speakers, and those who are legally vulnerable such as TGI people who are undocumented, engaging in survival sex trades, ​or are formerly incarcerated,” the website states.

The program will run for 18 months from January 2023 to June 2024 and participants will not have to report to officials exactly what they are spending the money on.

Participants will also receive gender-transition treatment, mental health care, and an array of other benefits, according to multiple reports.

Inflation Hits American Families Hard

The program comes as inflation has soared across the country, impacting American households, which are facing increasingly costly energy bills and having to fork out more for everything from food to accommodation.

A report from The Heritage Foundation published on Nov. 10 found that working families have lost $6,100 in real annual income under “Bidenflation.”

“Our Guaranteed Income Programs allow us to help our residents when they need it most as part of our City’s economic recovery and our commitment to creating a more just city for all,” Breed, a Democrat, said in a statement.

“We know that our trans communities experience much higher rates of poverty and discrimination, so this program will target support to lift individuals in this community up.”

This is not the first time that San Francisco has launched programs aimed at low-income residents.

Last year, the city rolled out a Guaranteed Income Pilot Program for artists aimed at “dismantling structural racism and oppression” in “the everyday lives of artists of color, their families, neighborhoods, and communities.”

In 2020, Breed announced the launch of a pilot program providing a basic income to black and pacific islander women during pregnancy.

According to a 2015 U.S. survey (pdf) of 27,715 transgender people across the District of Columbia, American Samoa, Guam, Puerto Rico, and U.S. military bases overseas, 29 percent of respondents reported living in poverty.

Ukrainian President Volodymyr Zelensky is doing some belated backtracking after his prior false and highly dangerous claims that Russia launched a missile attack against NATO member Poland, killing two Polish citizens Tuesday. 

As of Thursday Zelensky says he’s not sure about what happened. “I don’t know 100 percent — I think the world also doesn’t 100 percent know what happened,” he said. “We can’t say specifically that this was the air defense of Ukraine.”

This after everyone from NATO Secretary Jens Stoltenberg to Poland’s president to US President Joe Biden assessed it was most likely a Ukrainian anti-air missile that errantly struck the Polish border town of Przewodow. A flurry of accusations from Western officials and media ensued, with fears dominating Tuesday into Wednesday of the potential to spark WWIII. 

“Zelensky previously insisted that the rocket was not Ukrainian and wanted evidence if Ukraine’s air defense was responsible,” The Hill writes. “But he softened his position at Bloomberg’s New Economy Forum in Singapore on Thursday, saying that Ukrainian military leaders told him that the crater from the blast site suggested that a Ukrainian anti-air rocket could not be solely responsible.”

According to more via The Hill: 

Polish President Andrzej Duda said on Wednesday that it was “highly probable” that the strike resulted from Ukrainian air defense and appeared to be an accident. 

Zelensky said in the interview that he was “sure” that it was a Russian missile but also knew that Ukraine launched weapons to defend against the Russian attack. 

Recall that Tuesday night, almost immediately following the explosion on the Polish border and without evidence, Zelensky had demanded “action” from the West over the supposed brazen aggression against a NATO member. 

“Hitting NATO territory with missiles… This is a Russian missile attack on collective security! This is a really significant escalation. Action is needed,” Zelensky said his Tuesday night video address.

In referencing “collective security” of NATO he was attempting to convince Brussels that military intervention was needed against Russia in defense of Poland. But now it seems with world opinion diverging from Ukraine’s blanket assertions for once, Zelensky is slowly backing off his initial claims.

If we needed more proof that Kiev is trying to embroil US and NATO in direct, possibly nuclear war, with Russia it’s these reckless, false claims by @ZelenskyyUa. In fact no Russian missiles hit Poland. As even NATO governments admit, these were Ukrainian https://t.co/GpZv1qtMTW https://t.co/GYpVVxhh1E

— Ali Abunimah (@AliAbunimah) November 16, 2022

CNN subsequently cited Ukrainian military sources who are belatedly admitting the likelihood that it was their own missile. “The Ukrainian military told the US and allies that it attempted to intercept a Russian missile in that timeframe and near the location of the Poland missile strike, a US official told CNN,” the report says. “It’s not clear that this air defense missile is the same missile that struck Poland, but this information has informed the ongoing US assessment of the strike.”

Authored by Simon White, Bloomberg macro-strategist,

The macro landscape is changing. Inflation will remain in an elevated and unstable regime, but the first stage of the crisis is drawing to a close. That means the dollar in a downward trend, bonds in an upward trend, stocks underperforming bonds, and growth outperforming value.

Regime shifts can be almost imperceptible in real time, but in retrospect they mark fundamental turning points. Inflation today is going through one of these shifts, analogous to the 1970s. In that decade, inflation could be understood as a play in three acts, a drama that is likely to be repeated in this cycle.

• In the first act, inflation makes new highs and the Fed tightens aggressively.

• The second is when inflation begins to recede, allowing the central bank to pull back from tightening.

• The final act is when we see inflation return with a vengeance, eliciting a Volcker-esque monetary response and a deep recession in order to fully snuff it out.

So what’s brought the curtain down on the first act? Three important indicators have made a decisive turn:

1. The market is now ahead of the Fed’s rate projections (the Dots)

2. The real yield curve is emphatically flattening

3. My Advanced Global Financial Tightness Indicator (AGFTI) is rising

All through this cycle, the market has been anticipating a lower peak rate than desired by FOMC members. That changed in the last couple of months, signaling that Fed hawkishness was peaking as the market was amplifying — not inhibiting — the Fed’s intended policy.

The real yield curve had steepened relentlessly as shorter-term real rates kept falling while the Fed rate lagged inflation. But the trend definitively turned in July, pointing to a peak in the dollar. The greenback’s rise has been one of the defining aspects of the macro environment over the last 18 months, and its turn lower signifies an easing of pressure on, most significantly, EM equities and commodities.

Global monetary conditions are likely at their tightest.

It’s not just the Fed that has been raising rates; central banks globally have been doing likewise. However, even though many began to raise rates after the Fed, any sign the US may not need to tighten much further will be enough to let other central banks take their foot off the monetary brake too.

What does the second act in the Inflation Play mean for asset prices? As just mentioned, the flattening in the real yield curve indicates the dollar has likely peaked for now. This opens up room for greater support in the euro, yen and sterling as most of the weakening in these currencies can be attributed to dollar strength.

Treasuries should see more upside. As well as a more economy-friendly Fed, higher US short-term yields have stifled foreign demand for Treasuries, while both positioning and seasonal factors are very favorable for them.

Stocks will face less formidable headwinds, but until excess liquidity begins to definitively turn up and the looming threat of a recession persists they will continue to be stuck in a bear market, facing the risk of sharp sell-offs. That being said, recent price action points to a bias for upward surprises in the short-to-medium term.

What is more certain is that stocks will continue to underperform bonds.

The stock-bond ratio remains only marginally below its fair value, and tends to overshoot to the downside, reaching its nadir in the depths of the recession.

Within stocks, though, there should now be a window where growth starts outperforming value again. Growth stocks, especially tech, have lagged and have been the worst performing sectors. A change of regime and the rising threat of a recession likely means potential for tech to outperform. As the chart below shows, tech tends to underperform before a recession, and outperform afterward.

A warning: the second act is only an intermission before inflation and higher rates return for the finale. Positions should be rented, not owned.

It certainly seems like people are taking off some of their US Equities “risk rentals” which have rallied so violently over the past week since the CPI downside surprise…

…and thematically, have even begun to lay back into their Shorts in all the trash that exploded 20% over the week…

…hence, US Equities Long Term Momentum factor +3.1% and Low Risk factor +3.0% again yday, respectively, as they feel the recent move has “overshot” particularly on the “expensive” / “unprofitable” stuff

And this morning, St.Louis Fed’s Jim Bullard poured even more cold water on the pause/pivot prayers as he hinted at even higher rates for longer.

As Nomura’s Charlie McElligott notes the resilience of the US economic data sits at the core of this renewed confidence in taking some shots again on “FCI tightening” trades, as we see the Bloomberg US Economic Surprise index reaching highs last seen in mid-May ’22, as data continues to beat expectations on the margin – Labor, Retail / Wholesale and Surveys / Biz Cycle Indicators bearing the concentration of the gains (while Housing, Industrials and Personal / Household sectors continue to drag)…

Translation: ”Good (data) is Bad (for assets)”…

As McElligott lays out, this all keeps coming-back to this recent NY Fed research paper concept of R* (neutral rate for the real economy) simply sitting in a totally different universe from R** (neutral rate for financial stability)…

It now seems abundantly clear that “markets” cannot handle much more rate hiking after a decade + of duration- and leverage- binging, as evidenced by the list of “market breakages” experienced over the past 12 months…

…but in the meantime, the real US economy (admittedly outside of Housing and structurally-shrinking Manufacturing sector) keeps banging along, where in peak (cringe) anecdotal fashion, restaurant ressies are “no offer,” luxury malls like Short Hills are packed with lines out of some of the most high-end retailers doors, airports are foaming at the mouth and airline tickets are running 2-3x’s ‘sanity levels,’ there is no locate on new Range Rovers in New Jersey until 2024….and all while New Yorkers are apparently lifting $21k Taylor Swift tickets for next Summer…

And this is why “High for Longer” continues to persist (Fed “Terminal” projections back above 5.00% this morning – but our house view is that it’s gonna have to push through 5.50-5.75, while GS took their Fed projection up yday as well)…

…it’s the same thing: the Inflation is going to soften down to 4-5% on pure base-effect math – but it’s not going to head back to 2% target if you don’t see actual job losses mount…bc right now, Labor and Wage gains are just too strong.

And because of that economic ‘strength’, equities still feel fragile:

• The “sign of possible regime change” I highlighted in the last note – where US Equities Index Option Skew has steepened for 5 out of the past 6 days while Stocks violently rallied, standing in stark contrast to the perpetual flattening in Skew to 0%ile over the course of 2022 YTD – I believe has been a function of folks actually needing to hedge again, because they were starting to actually put on some exposure again after this violent “force-in” rally that very few people actually wanted to happen

• And also as previously mentioned in recent weeks, my spidey senses too have been tingling with this persistent VIX Upside being sought for 6 consecutive weeks in size, most of it “wingy” / “crash” stuff

The S&P has tumbled back down to its 100DMA this morning…

…as we see Spot selloff this morning, we now see SPX back at “Gamma Flip” level as we speak (3918), while both QQQ and IWM have pushed back into “Short Gamma” territory

And as SpotGamma notes, that ‘negative gamma’-inspired volatility could be triggered with Fridays OPEX, and we have been therefore recommending adding some puts (here & here). The concern here is that we do not see much support of any kind from 3900 down to 3600 (chart here, description here).

Submitted by QTR’s Fringe Finance 

I had a conversation with my good friend Tom Bodrovics from Palisades Gold Radio earlier this week. Tom is a private investor from western Canada with a background in oil and gas. In 2014 he identified the top of the housing cycle and sold his home to invest in the junior resource sector. He gained a libertarian and contrarian perspective in 2013 when he attended an entrepreneurship course in Europe and has been studying markets of all types ever since. He operates a successful business servicing the oil and gas sector in Alberta and is the host of one of my favorite podcasts, Palisades Gold Radio.

We took an hour this week to discuss all things FTX, crypto, the Fed, the economy, monetary policy, some of my recent blog posts and, of course, gold. Our entire conversation was recorded as a podcast and is available to listen to, for free, at the end of this post.

The first topic Tom broached with me was the ongoing FTX saga. He asked about what I thought about Sam Bankman-Fried blowing up his firm and I told Tom that I couldn’t believe how quickly it happened and how swift the fall was.

“A week ago this guy was the savior. He was just generally being praised,” I told Tom.

“Then, what we found out is that it was just another straight up ponzi scheme fraud, which is just incredible,” I said, stunned by how quickly it came crumbling down.

“I’m often saying to people ‘Everything is fine until one day you wake up and it isn’t.’ That’s my stance on equities right now. I think we have a 400 bps pipe bomb making its way through he economy right now and we’ll wake up limit down. That’s what happened with Bankman-Fried. One day he was the man and the next day we woke up and there was a tremendous shift in psychology.”

I summed it up: “We woke up one day and the guy that was supposed to be the end-all be-all turned out to be nothing more than a run-of-the-mill fraudster. It was just a bunch of kids playing with billions in customer deposits like they were playing World of Warcraft. I don’t know if the reality has sunk in for them as to how big of a deal this is, but I’m sure it will. You had a group of kids just…fucking around with customer deposits. It’s not fraud on the blockchain, its not decentralized fraud…it’s just run of the mill fraud.”

Tom then directed the conversation away from FTX and SBF and onto the broader topic of bitcoin. He asked me why I owned and continue to buy a very small position in bitcoin, which Tom referred to as a “religion”.

I responded: “I’m pretty religious about gold actually. I think gold is going to be the answer come hell or high water for this looming global economic mess. Bitcoin I’m interested in probably moreso as just a contrarian – watching a huge blowup like this cast a negative light on crypto in general is something that piques my interest.”

“I think 95% of coins out there will have no use case,” I told Tom. “To the extent that Bitcoin remains the grandaddy of them and the underlying, I’m more interested in listening to the bull case when Forbes is doing a cover story on how crypto is the biggest fraud of our generation.”

“Really, it’s just pure speculation and I’m fine with taking 100% loss,” I said about my Bitcoin position. “I’m still very skeptical that it’ll become a global reserve currency. Now it’s going to be a time for far more regulation [thanks to FTX].”

From there, we moved the conversation on to where more blowups in the crypto space may take place. I mentioned to Tom that Michael Saylor, Binance and Tether are all in my crosshairs.

“Either way I think we’re going to see more blowups,” I said. “How do you let Tether go forward now without producing a full and complete audit of all of their assets at this point? This is a company with $60 billion in stablecoins that’s deeply intertwined into the crypto universe.”

From there, we moved on to the topic of the Fed, monetary policy and interest rates. Tom asked about my contention that I still think equities will move lower, as I wrote about just days ago in a piece called Keep Your Nerve.

I told Tom: “I think that if the Fed even came out tomorrow and cut 100 bps…I think even in a case where the Fed came out and cut rates tomorrow that there would still be a looming blowup. The speed with which we’ve raised rates so far is breakneck and stunning. The reason the market hasn’t reacted yet is there’s a lag.”

“That’s all playing out now and will continue to play out regardless of what the Fed does in December,” I added.

Tom asked about the idea of a soft landing, to which I replied: “Everyone is acting as though Powell has already achieved a soft landing. CPI came in at 7.7% – not exactly where we want to be. If I had told you 2 years ago that’s what CPI would be at you would have had a f*cking heart attack. And now we’re going to celebrate it as a win?”

“The Fed is going to do what it always does: too much, too late. And it’s not going to stop the selling when it starts,” I added. “Imagine in 2018 when we were trying to do unlimited QE to get from 1.7% to 2%…imagine if I told you rates were at 4% and the market is celebrating. You would think that I’m smoking some shit. I mean, even when I’m high I make points that make more sense than that.”

Get 50% off: If you enjoy this article, I would love to have you as a subscriber and can offer you 50% off for life: Get 50% off forever

Finally, Tom asked me about whether or not the Fed was ‘winning the war’ on inflation – and where I see inflation going next year.

I told Tom: “There’s so many unknowns. A lot depends on Russia and Ukraine, China has basically been conditioning their economy with this Covid Zero policy to shut down and open up whenever the government says. Xi Jinping is flipping the economy on and off like a light switch. Then you have Russia, and then OPEC – and who knows what color their mood ring is on any given day – and then the BRIC nations trying to start their own global economy. So who knows where CPI will come in?”

“It’s completely opaque, other than what we can do just tracking spot prices. That can be helpful.”

Finally we talked about the idea of a Santa Claus Rally, which I wrote about days ago in an article called The Santa Pause Rally.

“The point of the article is basically ‘look, we’ve spent the last 3 or 4 years trying to make investing, which is a risky business, dumbed down for retail investors’,” I explained.

“If there’s one piece of nefarious patronizing lingo that I hear every year it’s the idea of a ‘Santa Claus Rally’ – just another bullshit term made up by the financial media to further the Keynesian monetary policy experiment as if it is some virtuous undertaking that is never going to end poorly. It’s terminology that tells people it’s OK and normal for markets to only go up.”

I added: “That kind of stuff does a disservice to amateur investors.”

“The same monetary policy experiment that the media is trying to legitimize and encourage is the same policy that got us into the current crisis that we’re in,” I said.

I continued: “Rather than celebrating it and passing it off as some raging success, I think people need to recalibrate themselves and understand monetary policy is why we’re watching Sam Bankman-Fried blow up and incinerate people’s cash. The Fed sent a behavioral incentive to markets that speculation was fine for way too long – a signal to markets that there was no risk when, in fact, risk was everywhere.”

You can listen to the full interview below.

Time Stamp References:

• 0:00 – Introduction

• 0:50 – FTX Crypto Carnage

• 9:03 – Massive Deception

• 13:14 – Bitcoin and Gold

• 19:44 – Fed Pivot & Reality

• 26:58 – ‘War’ on Inflation

• 30:20 – Statistics & Signs

• 40:07 – Rates & Housing

• 47:50 – Fed & Credit

• 55:50 – Central Bank Gold Buying

• 1:01:12 – Wrap Up

You can listen to the full interview here:

QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.

One month after stepping into his new role as UK Chancellor for the Exchequer, Jeremy Hunt has raised taxes on the UK’s top earners and tightened spending in an effort he says was needed to repair the country’s public finances amid a predicted 1.4% contraction in 2023.

Hunt is also lowering the threshold for paying the top 45% rate from £150,000 ($176,000) to £125,140 ($150,000). Those who earn at least £150,000 per year will pay an additional £1,200 as well in order to help pensioners and low-income households, Bloomberg reports.

Jeremy Hunt lowers the top-tier 45% tax rate threshold to just over £125,000, a major U-turn from Kwasi Kwarteng’s plan to scrap the rate https://t.co/SwVLpP1Sc2 pic.twitter.com/dcswVwqEzU

— Bloomberg UK (@BloombergUK) November 17, 2022

There will also be a significant increase in the energy and windfall taxes.

Hunt has been tasked with stabilizing the country’s finances following ‘one of the most chaotic periods in British history,’ when his predecessor, Kwasi Kwarteng (and short-lived PM Liz Truss) pushed for unfunded tax cuts – resulting in a run on the pound.

Since taking office last month, he’s been warning the British public — and the Tory backbenchers who’d cheered on the tax cutting plan — that he would have to take “difficult decisions” to win back the confidence of investors. -Bloomberg

“Today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy,” Hunt said in a Tuesday statement to the House of Commons. “We also protect the vulnerable because to be British is to be compassionate and this is a compassionate Conservative government.”

Ironically, Cable is lower on Hunt’s Austere budget…

Hunt’s plan should provide an annual cost saving of £55 billion in 2027-28 (around 2.5% of GDP), according to Goldman.

Here are five key takeaways from Bloomberg:

• The outlook is grim: the country is already in recession and households face the biggest hit to disposable incomes ever as the government seeks £55 billion of fiscal consolidation

• Tories will hate this, because the government is taxing the rich to help the poor. That’s the opposite of the Liz Truss plan they were cheering a couple of months ago

• The poorest will get some protection, with pensions and benefits to rise in line with inflation. The energy aid is also extended, albeit with a higher cap on prices

• Energy firms are in the firing line with a new windfall tax on low-carbon generators and an extension to the raid on oil and gas companies

• The pound and bonds were lower, but market reaction was generally muted when compared to the fallout from the Kwasi Kwarteng budget

What won’t change? Thresholds for paying into the national insurance system, and the inheritance tax – at least until 2028.

State pensions and benefits were raised by 10.1%, in line with inflation, while the minimum wage was boosted 9.7% to £10.42. Rent hikes for social housing have been capped at 7%.

Authored by Paul Joseph Watson via Summit News,

A Polish politician has blamed Ukraine for causing a “provocation” by falsely claiming its own missile that struck Przewodow had been fired by Russia.

Immediately after news broke of the incident, President Zelensky called on NATO to take action against Russia, accusing Moscow of firing the rocket.

However, within hours it became clear that the accident, which killed two people, was actually caused by a Ukrainian air defense missile.

That didn’t stop British Prime Minister Rishi Sunak, NATO and other prominent officials blaming Russia for the incident anyway, despite it clearly being Kiev’s fault.

Now the former chairman of the city council of Lublin, the seat of the region where Przewodow is located, is calling for Poland to rethink its approach to the war in light of the incident.

Having up until now been a staunch supporter of Ukraine, Jaroslaw Pakula said the missile accident showed Warsaw needed to send a blunt message to Kiev rather than telling its own citizens “fairy tales.”

“Of course, this is a Ukrainian rocket. Of course, this is a provocation on the part of the Ukrainian authorities,” Pakula posted on his Facebook page.

“The rocket could not be fired 100km in the opposite direction by mistake,” he added, asserting that the incident was an attempt to scare the EU into sending more money to Ukraine.

Demanding that Warsaw should “no longer put up with this behavior” from Ukraine, Pakula remarked, “I urge you to rethink Poland’s position [regarding] this war in the event that the red line is crossed again!”

Despite all evidence indicating the missile was fired by Ukraine, Zelensky has doubled down, denying that Kiev was involved and asking for his country to be at the forefront of an investigation.

However, after President Joe Biden swiftly said the evidence for Russia’s involvement was minimal, CNN reported that Ukrainian military officials told their American and western allies that they were responsible for the blast.

Kiev had “attempted to intercept a Russian missile” at the same location and in the same time france as when the missile strike at the Polish village of Przewowdow occurred, according to the report.

The Associated Press also had to issue a retraction, noting that it had “erroneously” reported that “Russian missiles” had killed two people in Poland, and that this was based on a claim by one single anonymous senior US intelligence official.

Thank you AP, for correcting a story that nearly launched WW3. Now maybe you can also name the “senior American intelligence official who spoke on condition of anonymity” and who may have had ulterior motives in bringing the world to the edge of nuclear war pic.twitter.com/xtruXlv6U3

— zerohedge (@zerohedge) November 16, 2022

“Subsequent reporting showed that the missiles were Russian-made and most likely fired by Ukraine in defense against a Russian attack,” AP reported.

If Alex Jones must pay $1.5 billion for being wrong, then how much do the “Russian missile attack of Poland triggered Article 5,” hoaxers owe?

— Cernovich (@Cernovich) November 17, 2022

*  *  *

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A few days ago we asked how much longer do we have to wait for the “first-day affidavit” in the FTX bankruptcy, traditionally the most detailed and comprehensive summary of how any given company collapsed into Chapter 11 (and in FTX’s case, Chapter 7 soon, as this will soon become a full-blown liquidation)…

Well, it’s out, and boy is it a doozy https://t.co/HLTS3c3cQF

— zerohedge (@zerohedge) November 17, 2022

… and this morning we finally got our answer when it hit the docket (22-11068, U.S. Bankruptcy Court for the District of Delaware), almost a full week after FTX filed on Nov 11… and boy is it a doozy.

Because how else would one describe it when FTX’s new CEO and liquidator, John Ray III,  who also oversaw the unwinding and liquidation of Enron, admits that “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

And just in case his shock at FTX’s fraud of epic proportions was not clear enough, he adds that “from compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

Courtesy of the affidavit, here is what the company’s org chart looks like as of Nov 17:

According to Ray, he has located “only a fraction” of the digital assets of the FTX Group that they hope recover during the Chapter 11 bankruptcy. They’ve so far secured about $740 million of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks. This is just a fraction of the $10-$50 billion in liabilities the company disclosed in its bankruptcy filing.

It gets better: Ray said that company’s audited financial statements should not be trusted, Ray said, adding that liquidators are working to rebuild balance sheets for FTX entities from the bottom up.

FTX “did not maintain centralized control of its cash” and failed to keep an accurate list of bank accounts and account signatories, or pay sufficient attention to the creditworthiness of banking partners, according to Ray. Advisers don’t yet know how much cash FTX Group had when it filed for bankruptcy, but has found about $560 million attributable to various FTX entities so far.

Although restructuring advisers have been in control of FTX for less than a week, they’ve seen enough to depict the crypto company as a deeply flawed enterprise. Lasting records of decision making are hard to come by: Bankman-Fried often communicated through applications that auto-deleted in short order and asked employees to do the same, according to Ray.
Corporate funds of FTX Group were used to buy homes and other personal items for employees, Ray said.

Corporate funds were also used to buy homes and other personal items for employees and advisers, sometimes in their personal names.

“In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas,” Ray said, who also noted that the company didn’t have appropriate corporate governance and never held board meetings. There was no accurate list of bank accounts and account signatories, as well as insufficient attention paid to the creditworthiness of banking partners.

The filing sheds light on the sloppy business practices, such as FTX employees asking to be paid through an online “chat” platform “where a disparate group of supervisors approved disbursements by responding with personalized emojis.”

Below we excerpt some of the most notable highlights from the affidavit, which we embed at the bottom of the post and which everyone should read to get a sense of just how massive Sam Bankman-Fried’s fraud was.

• I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.
• Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.
• For purposes of managing the Debtors’ affairs, I have identified four groups of businesses, which I refer to as “Silos.” These Silos include:
  • (a) a group composed of Debtor West Realm Shires Inc. and its Debtor and non-Debtor subsidiaries (the “WRS Silo”), which includes the businesses known as “FTX US,” “LedgerX,” “FTX US Derivatives,” “FTX US Capital Markets,” and “Embed Clearing,” among other businesses;
  • (b) a group composed of Debtor Alameda Research LLC and its Debtor subsidiaries (the “Alameda Silo”);
  • (c) a group composed of Debtor Clifton Bay Investments LLC, Debtor Clifton Bay Investments Ltd., Debtor Island Bay Ventures Inc. and Debtor FTX Ventures Ltd. (the “Ventures Silo”);
  • (d) a group composed of Debtor FTX Trading Ltd. and its Debtor and non-Debtor subsidiaries (the “Dotcom Silo”), including the exchanges doing business as “FTX.com” and similar exchanges in non-U.S. jurisdictions. These Silos together are referred to by me as the “FTX Group.
• Each of the Silos was controlled by Mr. Bankman-Fried.2 Minority equity interests in the Silos were held by Zixiao “Gary” Wang and Nishad Singh, the co-founders of the business along with Mr. Bankman-Fried. The WRS Silo and Dotcom Silo also have third party equity investors, including investment funds, endowments, sovereign wealth funds  and families. To my knowledge, no single investor other than the co-founders owns more than 2% of the
  equity of any Silo.
• The diagram attached as Exhibit A provides a visual summary of the Silos and the indicative assets in each Silo. Exhibit B contains a preliminary corporate structure chart. These materials were prepared at my direction based on information available at this time and are subject to revision as our investigation into the affairs of the FTX Group continues.

There is much more information on each of these silos in the affidavit at the bottom of this post, but what we are curious about at this stage is what the Alameda balance sheet looks like: after all, that’s what started this whole avalanche in the first place. Here are the details:

The parent company and primary operating company in the Alameda Silo is Alameda Research LLC, which is organized in the State of Delaware. Before the Petition Date (as defined below), the Alameda Silo operated quantitative trading funds specializing in crypto assets. Strategies included arbitrage, market making, yield farming and trading volatility. The Alameda Silo also offered over-the-counter trading services, and made and managed other debt and equity investments. In short, the Alameda Silo was a “crypto hedge fund” with a diversified business trading and speculating in digital assets and related loans and securities for the account of its owners, Messrs. Bankman-Fried (90%) and Wang (10%).

Alameda Research LLC prepared consolidated financial statements on a quarterly basis. To my knowledge, none of these financial statements have been audited. The September 30, 2022 balance sheet for the Alameda Silo shows $13.46 billion in total assets as of its date. However, because this balance sheet was unaudited and produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it and the information therein may not be correct as of the date stated.

The chart below summarizes certain information regarding the Alameda Silo’s consolidated assets as reflected in the September 30, 2022 balance sheet:

 Silo’s consolidated liabilities as reflected in the September 30, 2022 balance sheet:

The problem, as we now know, is that the value of the assets was woefully overrepresented. But we’ll get to that. First, let’s look at the immediate history that led to the bankruptcy filing:

EVENTS LEADING TO CHAPTER 11 FILING

The Debtors faced a severe liquidity crisis that necessitated the filing of these Chapter 11 Cases on an emergency basis on November 11, 2022, and in the case of Debtor West Realm Shires Inc., on November 14, 2022 (collectively, the “Petition Date”). In the days leading up to the Petition Date, certain of the circumstances described in Part III below became known to a broader set of executives of the FTX Group beyond Mr. Bankman-Fried and members of his inner circle. Questions arose about Mr. Bankman-Fried’s leadership and the handling of the Debtors’ complex array of assets and businesses.

As the situation became increasingly dire, Sullivan & Cromwell and Alvarez & Marsal were engaged to provide restructuring advice and services to the Debtors.

On November 10, 2022, the Securities Commission of the Bahamas (the “SCB”) took action to freeze assets of non-Debtor FTX Digital Markets Ltd., a service provider to FTX Trading Ltd. and the employer of certain current and former executives and staff in the Bahamas. Mr. Brian Simms, K.C. was appointed as provisional liquidator of FTX Digital Markets Ltd. on a sealed record. The provisional liquidator for this Bahamas subsidiary has filed a chapter 15 petition seeking recognition of the provisional liquidation proceeding in the Bankruptcy Court for the Southern District of New York.

In addition, in the first hours of November 11, 2022 EST, the directors of non-Debtors FTX Express Pty Ltd and FTX Australia Pty Ltd., both Australian entities, appointed Messrs. Scott Langdon, John Mouawad and Rahul Goyal of Korda Mentha Restructuring as voluntary administrators.

At the same time, negotiations were being held between certain senior individuals of the FTX Group and Mr. Bankman-Fried concerning the resignation of Mr. Bankman-Fried and the commencement of these Chapter 11 Cases. Mr. Bankman-Fried consulted with numerous lawyers, including lawyers at Paul, Weiss, Rifkind, Wharton & Garrison LLP, other legal counsel and his father, Professor Joseph Bankman of Stanford Law School. A document effecting a relinquishment of control was prepared and comments from Mr. Bankman-Fried’s team incorporated. At approximately 4:30 a.m. EST on Friday, November 11, 2022, after further consultation with his legal counsel, Mr. Bankman-Fried ultimately agreed to resign, resulting in my appointment as the Debtors’ CEO. I was delegated all corporate powers and authority under applicable law, including the power to appoint independent directors and commence these Chapter 11 Cases on an emergency basis.

Cash management… or lack thereof:

The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partner around the world. Under my direction, the Debtors are establishing a centralized cash management system with proper controls and reporting mechanisms.

During these Chapter 11 Cases, cash that the Debtors are able to locate and transfer to the United States without adverse consequences, including substantially all proceeds of the global reorganization effort, will be deposited into financial institutions in the United States that are approved depository institutions in accordance with the U.S. Trustee Guidelines. Each Silo will have a centralized cash pool, and the Debtors will implement appropriate arrangements for allocating costs across the various Silos and Debtors. The Debtors expect to file promptly a Cash Management Motion that will describe the new cash management system in more detail.

Because of historical cash management failures, the Debtors do not yet know the exact amount of cash that the FTX Group held as of the Petition Date. The Debtors are working with Alvarez & Marsal to verify all cash positions. To date, it has been possible to approximate the following balances as of the Petition Date based on available books and records:

The Debtors have been in contact with banking institutions that they believe hold or may hold Debtor cash. These banking institutions have been instructed to freeze withdrawals and alerted not to accept instructions from Mr. Bankman-Fried or other signatories. Proper signature authority and reporting systems are expected to be arranged shortly.

Effective cash management also requires liquidity forecasting, which I understand was also generally absent from the FTX Group historically. The Debtors are putting in place the systems and processes necessary for Alvarez & Marsal to produce a reliable cash forecast as well as the cash reporting required for Monthly Operating Reports under the Bankruptcy Code.

And now it gets really good: read this section on the company’s “Financial Reporting”

The FTX Group received audit opinions on consolidated financial statements for two of the Silos – the WRS Silo and the Dotcom Silo – for the period ended December 31, 2021. The audit firm for the WRS Silo, Armanino LLP, was a firm with which I am professionally familiar. The audit firm for the Dotcom Silo was Prager Metis, a firm with which I am not familiar and whose website indicates that they are the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform  Decentraland.

 have substantial concerns as to the information presented in these audited financial statements, especially with respect to the Dotcom Silo. As a practical matter, I do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these Silos.

The Debtors have not yet been able to locate any audited financial statements with respect to the Alameda Silo or the Ventures Silo.

Next, human resources: even more insanity here.

he FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility. At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.

Nevertheless, there is a core team of dedicated employees at the FTX Group who have stayed focused on their jobs during this crisis and with whom I have established appropriate lines of authority and working relationships. The Debtors continue to review personnel issues but I expect, based on my experience and the nature of the Debtors’ business, that a large number of employees of the Debtors will need to continue to work for the Debtors for the foreseeable future in order to establish accountability, preserve value and maximize stakeholder recoveries after the departure of Mr. Bankman-Fried. As Chief Executive Officer, I am thankful for the extraordinary efforts of this group of employees, who despite difficult personal circumstances, have risen to the occasion and demonstrated their critical importance to the Debtors.

… and better: here are FTX’s “Disbursement Controls”

The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of  supervisors  approved disbursements by responding with personalized emojis.

Digital Asset Custody

The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets. Mr. Bankman-Fried and Mr. Wang controlled access to digital assets of the main businesses in the FTX Group (with the exception of LedgerX, regulated by the CFTC, and certain other regulated and/or licensed subsidiaries). Unacceptable management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds, the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom Silo (in which third parties had invested.

The Debtors have located and secured only a fraction of the digital assets of the FTX Group that they hope to recover in these Chapter 11 Cases. The Debtors have secured in new cold wallets approximately $740 million of cryptocurrency that the Debtors believe is attributable to either the WRS, Alameda and/or Dotcom Silos. The Debtors have not yet been able to determine how much of this cryptocurrency is allocable to each Silo, or even if such an allocation can be determined. These balances exclude cryptocurrency not currently under the Debtors’ control as a result of (a) at least $372 million of unauthorized transfers initiated on the Petition Date, during which time the Debtors immediately began moving cryptocurrency into cold storage to mitigate the risk to the remaining cryptocurrency that was accessible at the time, (b) the dilutive ‘minting’ of approximately $300 million in FTT tokens by an unauthorized source after the Petition Date and (c) the failure of the co-founders and potentially others to identify additional wallets believed to contain Debtor assets.

More as we read through the full filing, which is also embedded below:

Authored by Tuomas Malinen via The Epoch Times,

Cryptocurrencies have been on the doldrums since the ‘Crypto Carnage’ of Spring 2021. Over the weekend, a Bahama-based crypto exchange FTX Exchange collapsed. It will probably not be the last one.

Due to the massive financial speculation, induced by the credit (QE) programs of central banks, the crypto market grew into a hub of speculation. During their first global crash in spring 2021, it was rumored that some players had been engaged in speculation with leverage of 100x. That is, by borrowing 100 times the value of the underlying asset (cryptocurrency) and investing it back into the market. I have to admit that I had never heard of anything similar. In standard economic thinking, leverage of 12x was considered extreme. That “rule of thumb” was shattered in the crypto markets.

Now, the situation is a bit similar but different. Leverage used in the crypto market has most likely fallen from the previous extremes, but now the ‘Ponzi schemes’ are starting to reveal themselves in the crypto markets. Some crypto exchanges seem to have used the money invested there to speculate on assets or to other suspicious activities.

FTX Exchange

To top of it all, the now defunct FTX Exchange released a note on Saturday stating that it had been hacked and hundreds of millions of dollars removed from its accounts. So, the situation with FTX Exchange looks like fraud. It has also been rumored to have dubious connections to the Democratic Party, but that may just be a political gimmick.

The FTX logo is seen on a computer in Atlanta, Ga. on Nov.10, 2022. (Michael M. Santiago/Getty Images)

I and the company I am running, GnS Economics, have warned about the instability of cryptocurrencies for some years. In a special report published in June 2021, we concluded that:

“While the technology itself is promising and even “revolutionary”, its application alone does not add a tremendous amount of value. Nobody owns blockchain technology and anyone can make a new cryptocurrency, and many have done just that. While artificial scarcity is induced by design for particular cryptocurrencies, there is no limit to the potential number of different cryptocurrencies. As a result, new competing cryptocurrencies are popping up with no end in sight. Which—if any—will survive in the medium or long run?”

Controlling Money

When the current carnage in the crypto markets is over, and the dust settles, they are likely to face another existential threat from central banks and governments who want to control money. They may try to regulate the cryptocurrencies that survive the crash to death. Cryptocurrencies have thus, most likely, entered a battle from which only few will survive.

However, I don’t consider the all-but-necessary reshuffling of the cryptocurrency scene as the main foretelling of the current crypto carnage. This is because the collapse of the crypto scene implies that speculation and leverage are being pulled from the financial system, starting from the most-speculative end, i.e., the crypto market.

There are three reasons for this: monetary tightening by the central banks, approaching recession, and the coming winter in Europe.

The last time central banks tried to diminish their global balance sheet, first asset and credit markets nearly crashed (in the turn of 2018/2019), and then the repurchase or repo markets imploded (September 2019). This event ended the global quantitative tightening. Now the central banks are trying to diminish their balance sheets from a much higher level. I wish them the best of luck, but I fear the worst.

A figure presenting the combined balance sheet of the Bank of Japan, European Central Bank, the Federal Reserve, the Fed Funds rate, and the major market events from Jan. 2018 to Dec. 2019. (GnS Economics, BoJ, ECB, Fed)

A figure of the balance sheets of the Bank of Japan, European Central Bank, the Federal Reserve, and the Peoples Bank of China in U.S. dollars. (GnS Economics, BoJ, ECB, Fed, PBoC)

I have been warning about the approaching recession for months. The European Commission now expects the Eurozone to fall into recession by the year-end, and it appears recession is also finally reaching the United States. Recently, FedEx, the global logistic giant, announced it would start furloughing the workforce due to “current business conditions impacting volumes.” There probably cannot be a clearer sign of impending recession that a logistics company announcing workforce diminution during the main holiday season of the year.

According to the forecasts, winter will arrive in Europe (it has been long overdue) this week. It will most likely lead to another spike in energy prices and, in the worst case, to rolling blackouts or even energy lockdowns down the line. An energy crisis is likely (it has already) hit the industrial mainland of Europe, Germany, hard and it will continue to reverberate across our continent.

It is questionable will the financial sector be able to handle yet another series of shocks just three months apart. My fear is that the hit may start the next stage of the economic collapse that began already in 2020.

The fact is that the global financial sector is in dire straits, which is visible when one analyzes the sources of global liquidity (credit). I will return to these issues in more detail in my following posts.

In the meantime, I am urging everyone to continue preparing for the winter, which may be the darkest we have seen for a very long time.

Wheat prices slid Thursday after a United Nations-brokered deal allowing exports of farm goods from Ukraine was extended for 120 days, reported Bloomberg. 

The Black Sea Grain Initiative was initially agreed upon in July and ended a five-month Russian blockade of Ukraine’s seaports, allowing millions of tons of farm goods to leave Ukraine — a major ag exporter to the world — to countries across Asia, Europe, and Africa. 

“I welcome the agreement by all parties to continue the Black Sea Grain Initiative, “UN Secretary-General Antonio Guterres said in a statement, while Ukraine’s President Volodymyr Zelensky tweeted that Guterres and Turkish President Recep Tayyip Erdogan worked together to extend the deal. He added: “waiting for an official announcement from partners.” 

Grain Deal will be prolonged for 120 days. together with @antonioguterres and @RTErdogan made key decision in the global fight against the food crisis. Waiting for official announcement from partners – and .

— Володимир Зеленський (@ZelenskyyUa) November 17, 2022

There was no comment from Moscow, and Russian state-run media Tass said discussions continued.

Last month, Russia suspended its participation in the deal after a swarm of drones targeted at least one Russian warship from the Black Sea navy. Only days later, Moscow rejoined the agreement to allow for the continued export of Ukrainian grain through the Black Sea ‘safety corridor’. 

News of the extension sent grain market prices sliding Thursday morning. Chicago wheat futures fell more than 2%. 

In mid-Oct., Moscow had “repeatedly” voiced concern about the deal because its implementation presented Russian exporters with challenges to sell farm goods and fertilizer into global markets. 

The UN said it’s “fully committed to removing the remaining obstacles to exporting food and fertilizers from the Russian Federation.”

There are still mounting concerns that an ongoing global food crisis could worsen in 2023 and cause continued havoc for emerging market economies.