Thanks to a string of screw-ups and bugs, an unsuspecting developer recently took possession of an estimated $US390 million worth of the Ethereum cryptocurrency by accident. In an attempt to give back the money, however, the guy ended up locking up the funds permanently. Essentially, the money has just evaporated.

It turns out that hackers started the trouble getting into the cryptocurrency wallet service stealing about $42 million. To then patch the vulnerability to their block-chain technology, they introduced a bug that affected multi-signature wallets. These are wallets which require several people to enter keys before funds get transferred. This was intended to be top security for Ether which is the second largest cryptocurrency. Somehow, a guy called “devops199” triggered the bug and took control of all multi-sig wallets unintendedly. Then devops199 attempted to reverse the process to give back the money which then triggered they bug. The result was the destruction all of the funds. The bug caused a chain reaction of events that locked all multi-signature wallets that cannot now be unlocked.

Welcome to the world of Cryptocurrency.

Leonardo da Vinci’s 500-year-old painting known as Salvator Mundi (Saviour of the World) is the only work in private hands. It just sold at Christie’s auction room in New York for a record $450m – almost half-billion. The painting apparently once belonged to King Charles I of England back in the 1600s. The last time it was sold at auction was 1958 when it was sold in London for a mere £45. At that time, it was generally believed to have been the work of a follower of Leonardo rather than the work of Leonardo himself.

The painting was sold by the family trust of the Russian billionaire collector Dmitry E Rybolovlev, who is reported to have bought it in a private sale in May 2013 for $127.5m. So that’s a pretty good profit. It is the highest auction price ever paid for any work of art.  There are fewer than 20 of Leonardo paintings in existence. The Salvator Mundi, is believed to have been painted sometime after 1505. The bidding began at $100m and the final bid for the work was $400m, with the buyer’s premium, the full price up to $450.3m. The unidentified buyer was involved in a bidding contest, via telephone, that lasted nearly 20 minutes. The mystery buyer hopefully lives outside of New York so that avoids the sales tax. Purchases above $110 are subject to a 4.5% New York City Sales Tax and a 4% NY State Sales Tax. That makes anything bought in New York City subject to a total Sales and Use Tax of 8.875%. What is astonishing, is that with taxes, rates rise with the more people. That is counter to capitalism which dictates that prices decline with scale. Government costs rise with the scale showing something is just not right!

Obviously, this is serious money still moving off the grid!

COMMENT: Mr. Armstrong; First I want to say I greatly admire your work. You are unbiased with markets, politics, and religion. Your cycle which targets 2032, agrees with the Islamic cycle some call the cycle of power which will peak. According to the Quran, there is a cycle of power, and this is mentioned in chapter 30 “the Romans”, verse 9,

30:9 Have they not traveled through the earth and observed how was the end of those before them? They were greater than them in power, and they plowed the earth and built it up more than they have built it up, and their messengers came to them with clear evidence. And Allah would not ever have wronged them, but they were wronging themselves.

REPLY: Yes, the Quran recognizes that there is also a cycle of about 300 years. What is interesting, is that in Christianity, the Revelations also expressly recognizes a cycle:

Revelation 20:3 He threw him into the Abyss, and locked and sealed it over him, to keep him from deceiving the nations anymore until the thousand years were ended. After that, he must be set free for a short time.

Saṃsāra (Sanskrit, Pali; also samsara) in Buddhism the cycle of death and rebirth to which life in the material world is bound. Samsara is considered to be dukkha, unsatisfactory and painful, perpetrated by the desire and avidya (ignorance), and the resulting karma. In Buddhism, rebirths occur in six realms of existence, namely three good realms (heavenly, demi-god, human) and three evil realms (animal, ghosts, hellish). Samsara ends if a person attains nirvana, the gaining of true insight into impermanence and non-self reality.

It is fascinating that we do live in a world of ignorance denying that cycles exist because this gives power and justification to the government. They seize power to eliminate cycles and create the perfect existence, but corruption destroys the best intentions. We have risen in the cycle of corruption and that is a peril. I agreed with Buddhism insofar as the cycle is created by our ignorance of it.

Edward Gibbon wrote in his Decline and Fall of the Roman Empire:

“The hill of the Capitol, on which we sit, was formerly the head of the Roman Empire, the citadel of the earth, the terror of kings; illustrated by the footsteps of so many triumphs, enriched with the spoils and tributes of so many nations. This spectacle of the world, how is it fallen! how changed! how defaced! The path of victory is obliterated by vines, and the benches of the senators are concealed by a dunghill.“

However, he too illustrated how corruption destroys civilization. Once the rule of law crumbles into the self-interest of the government, then the very purpose of creating a civilization no longer exits. He explained how the fall of the Roman Empire began with the collapse in the rule of law under Commodus (177-192AD).

“[D]istinction of every kind soon became criminal. The possession of wealth stimulated the diligence of the informers; rigid virtue implied a tacit censure of the irregularities of Commodus; important services implied a dangerous superiority of merit; and the friendship of the father always insured the aversion of the son. Suspicion was equivalent to proof; trial to condemnation. The execution of a considerable senator was attended with the death of all who might lament or revenge his fate; and when Commodus had once tasted human blood, he became incapable of pity or remorse”

(Book 1, Chapter 4).

Subtly, the EU is looking to establish preparations for the coming banking crisis and how to protect the banks from massive withdrawals. The solution? The EU wants to be able to temporarily free up credits for the banks and at the same time to freeze bank deposits, In other words, like Greece, you just won’t be able to withdraw funds.  Obviously, everything will be frozen. The current EU plan envisages blocking account disbursements for five working days and with the authority to extend any suspension to up to 20 days. They may need longer!

I recommend that you have 30 days worth of cash on hand. What the authorities do not understand is that if they freeze one bank, a run will unfold on all banks. The public will not believe whatever the government says. Therefore, banks that are not in crisis can be pushed into a crisis by a contagion. That is simply how it all unfolded in 1931-1933. The only way to stop a contagion will be a bank holiday and you have to close them all.

CASH will be KING in the middle of such a contagion.

QUESTION: Mr. Armstrong; I want to thank you for a spectacular WEC. I was amazed at how many pension funds were there. They were some of the biggest and we hear that they are listening to you and had shifted into equities. Some were talking at the cocktail party how you have really helped them even selling the strategy to their boards. The ones who were there were from Europe, Japan, and Canada. Do any American pension funds listen to you?

Can’t wait for next year!

Thank you for opening my eyes.

LW

ANSWER: I am not at liberty to discuss who are clients and who are not. It is true, that our biggest clients in pensions are ALL outside the USA. They see the world from an international perspective more so than American firms who still do not understand currency. We have been the currency specialists since the 1970s. Consequently, non-Americans have been a major component of our global business. American funds tended not to understand or even consider currency risk. To this day, schools do not teach hedging currency risk. It is not even discussed.