Saturday, June 25, 2016

Totally Not Brexit: How To Plate Food

If you can do this you have found your calling.

From Sad and Useless:

Low Budget Gourmet Meals



...MORE

HT: MetaFilter


Also at Sad and Useless: How to Pass Time on the Train 

Brexit: Elon Musk Is Not Going To Invite Izabella Kaminska To Fly To Mars (plus guys in wigs)

Mr. Musk, in a 'tell' that he may be coming under some stress, said earlier this month:
"Most likely the form of government on Mars would be a direct democracy, not representative"  
Wrong, wrong, wrong.

And this is where Ms. Kaminska risks her chance at interplanetary travel.
In a series of posts on referendum day she pointed out one of the problems with direct democracy e.g.

Here's more, from The Diplomat, June 25, 2016:

The American Founding Fathers Had it Right: Direct Democracy Is a Dead Duck
David Cameron should have heeded Alexander Hamilton’s skepticism of ‘pure democracy.’  
“When legend becomes fact, print the legend”–in the lead up to the June 23rd referendum on Great Britain’s membership in the European Union the majority of UK media appeared to have adopted the advice of a conniving reporter in the legendary Western film The Man Who Shot Liberty Valance: British tabloids have fed the public a steady stream of half-truths and distortions  painting the picture of an undemocratic out-of-control bureaucratic behemoth in Brussels that needs to be discarded as quickly as possible, lest it grabs the last remnants of ancient British liberty.

As a consequence, throughout the run-up to the Brexit referendum, it was impossible to have informed public debates on the costs and benefits of Britain’s membership in, or exit from, the European Union. The voices of reason were further drowned out in the echo chambers of social media platforms that only reinforced pre-existing opinions held by voters on the Brexit—destroying any chances of genuine dialogue.

Indeed, the whole spectacle of a referendum—a “device of dictators and demagogues,” in the words of Margaret Thatcher—underlined a salient point: our soundbite culture, combined with political populism, renders direct democracy in the form of a referendum entirely unsuitable as a tool for deciding complex policy issues.

This is not a new revelation. Some of the American Founding Fathers were vehemently opposed to direct democracy. They feared the consequences of an uninformed public formulating a country’s policy on a particular subject, realizing that one of the most important preconditions for direct democracy, i.e. a rational discussion of the issue where all points of view are carefully weighed, would not be possible amidst demagogy and the “tyranny of the majority,” as John Adams put it.
For example, Alexander Hamilton believed in America but not in Americans when he said in a June 1788 speech defending the ratification of the U.S. Constitution: “That a pure democracy if it were practicable would be the most perfect government. Experience has proved that no position is more false than this. The ancient democracies in which the people themselves deliberated never possessed one good feature of government. Their very character was tyranny; their figure, deformity.”

Hamilton participated in the American Revolution, an event that left him with a deep fear of mob rule and made him question the wisdom of the masses after witnessing revolutionary excesses in New York City (including witnessing how a mob tried to lynch the headmaster of his university). As a result of his experiences, he firmly believed throughout his life that it was often necessary to leave the public in the dark during important political deliberations. Participating in the Constitutional Convention in 1787, Hamilton observed: “Had the deliberations been open while going on, the clamors of faction would have prevented any satisfactory results.”

Indeed, the issue of ratifying the U.S. Constitution was so heatedly debated that it led to a copy of it being burned during a Fourth of July parade in Albany, which resulted in bloody riots that left one dead and over a dozen wounded. One opponent to the constitution, according to Ron Chernow in his book Alexander Hamilton, went as far as to say that “rather than to adopt the Constitution I would risk a government of Jew, Turk, or infidel.” The media contributed its fair share in inflaming public opinion in the nascent American Republic. In the early 19th century, one Federalist newspaper, The Wasp, chose as its motto: “To lash rascals naked through the world,” by which it was referring to its political opponents.

Other Founding Fathers concurred with Hamilton’s skepticism. In the tenth essay of the Federalist Papers, written in defense of the U.S. Constitution, James Madison argued for representative democracy over direct democracy in order to protect the individual from what Edmund Burke called the “swinish multitude:”
Those who hold and those who are without property have ever formed distinct interests in society. (…)  The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government. (…)
[A] pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit no cure for the mischiefs of faction. A common passion or interest will be felt by a majority, and there is nothing to check the inducements to sacrifice the weaker party. 
...MORE

An Astounding Amount of Information About The Brexit Vote and Its Aftermath--UPDATED

Update below.
Original post: 
 
I'm more and more coming round  to the view that there will be no exit.

From the scheming and dreaming anti-democracy eurocrats to the million people demanding a do-over to self-appointed elites like Tony Blair you just have so many constituencies that "couldn't-care-less-what-the-vote-was-the-break-up-is-not-going-to-happen".

However...
Should one want to know more, the hundreds of entries at the FT's Westminster Blog Brexit Live are a hell of a resource. Here are a couple of the early Friday posts:

 
Another vignette from a stunned City of London, via our roving reporter Naomi Rovnick:
A commodities broker, who declined to be named, having a small beer and
a cigarette at a cafe in Broadgate Circle, said:
“This morning between 7 and 9 there was no liquidity. It was more difficult than usual to get prices, extremely hard. We saw general panic to start and now reality is returning to markets. There is now a sense of relief as people thought this morning that the FTSE would have dropped more. Now our markets have returned to normal, liquidity is coming back to the assets we trade, but all eyes are now on the US market open.”


 
The French are starting to talk tough on the consequences for British banks of the Brexit vote Michael Stothard reports.
Frédéric Oudéa, president of the French Banking Federation, the European Banking Federation and Societie Generale, said the vote will have “significant consequences for the city of London”.
He said banks based predominately in the UK would be most affected by the vote, which could prompt the ECB to try and drive euro trading activities – today done largely in London- back to the continent.
“The deal [between the ECB and the UK] has clearly changed now”.
He said banks moving staff to the continent will not dawdle.
“The banks that are only in the UK will not be able to wait… If they are moving 500 or 1000 people, it takes time,” he said.
French banks would be some of the least impacted by the vote because they are already in the eurozone, he said, predicting there “will not be a quick or large move” of staff out of London....
Here's the last post from Friday:

It has been a momentous day in British and European politics with repercussions felt around the world as financial markets were hit sharply. The UK is set to quit the EU after 43 years but it will happen under a new prime minister, after the incumbent David Cameron said he would stand down by the time of his Conservative party’s annual conference in October.
The EU has said it will begin planning for a Brexit as early as next week and is pushing London to trigger Article 50, the so-called release clause.
Meanwhile, the break-up of the UK is also back on the agenda after Nicola Sturgeon, leader of the Scottish National Party, which rules Scotland, says she will prepare for a new referendum on Independence.
Most of the country had turned against the EU with only London, Scotland and Northern Ireland delivering big wins for Remain.
We are going to close this blog for the night and will return on Saturday morning UK time.
...MUCH MORE

UPDATE: I forgot to include the link for today's liveblog, "Brexit live: EU calls for new PM in ‘days’".

Friday, June 24, 2016

How Russia Tamed Inflation

As noted in the intro to June 10's "Bank of Russia Cuts Rate First Time Since July as Risks Fade":
Considering what she has had to work with, sanctions, oil prices etc., the central bank's performance has been as good as one could hope for....
From Forbes, June 23:
Russian Inflation Is (Mostly) Back To Normal
In the period after the 2008-09 financial crisis, for the first time in its post-Soviet history, Russia’s Central Bank moved towards a policy of explicit inflation targeting. People in the West tend to think that a central bank setting interest rates to help increase or decrease the change in prices as “normal,” but while this certainly seems like the most effective way to conduct monetary policy, it is by no means the only one.

The early results of this policy were solid, if not spectacular: prices still grew at a rate (around 6%) that would seem excessively high in developed markets, but were significantly lower than at any other point since the beginning of Russia’s market transition. However the Russian Central Bank, while generally regarded as a well-run and effective institution, is not omnipotent, and forces entirely beyond its control (the war in Ukraine and the resulting sanctions, a massive decline in the price of oil, and a large decline in the value of the ruble) started to push prices higher towards the end of 2014 and the beginning of 2015. Consumer prices in 2015 grew by almost 13%, higher than at any other point since the Central Bank made the switch to inflation targeting.  
RussiaInflationOverview
At the end of 2014, in an urgent bid to stem the ruble’s free-fall, the Central Bank dramatically hiked rates from 10.5 all the way to 17%. At first this didn’t appear to have much of an impact (in January 2015 alone, prices grew by about 3.8%) but with a little more hindsight the situation looks a bit different. In the first five months of this year, prices grew at the slowest pace since 2013. It’s always possible that oil plummets and the ruble resumes its downward march, but at the moment it looks like the threat from inflation is largely in the rear-view mirror.
inflationspecific
Now, this “success” hasn’t come without costs. While the Central Bank has gradually ratcheted down most of its hike (including a cut from 11% to 10.5% on June 10th) businesses were understandably wary of borrowing when rates were at 15 or 14%....MORE
Ms Nabiullina has given herself some leeway to continue decreasing rates and should probably shave a few hundred points off the official rate. Of course she probably knew this long before it occurred to me.
See also:
Nabiullina named Euromoney Central Bank Governor of the Year 2015

In Non-Brexit News: "More than 30 people burned after Tony Robbins urges them to walk on hot coals to ‘unleash power within’"

From the National Post:
DALLAS — More than 30 people who attended an event with motivational speaker Tony Robbins have been treated for burns after Robbins encouraged them to walk on hot coals as a way of conquering their fears, Dallas fire officials said.

Five people were taken to a hospital Thursday night, while the rest were treated at the scene for burns to their feet and lower extremities, Dallas Fire-Rescue spokesman Jason Evans said.

The hot coals were spread outside the Kay Bailey Hutchison Convention Center as part of a four-day Robbins seminar called “Unleash the Power Within.”
 Some people were not concentrating on walking across the coals because they were taking selfies.
Representatives for Robbins didn’t immediately return messages Friday, but in a statement provided to KTVT-TV organizers said about 7,000 people walked across the coals and only five “requested any examination beyond what was readily available on site.”

“Someone not familiar with the fire walk observed the event and called 911 erroneously reporting hundreds of people requiring medical attention for severe burns,” according to the statement....MORE
Via: Mugatu

See also:
Florida Man Performs Fire-Breathing Routine at High School Pep Rally, Eight Hospitalized 

"Now London Wants to Exit Britain"

From The Week:
Ready for a Lexit? A day after Britain voted in favor of exiting the European Union, Londoners flocked to social media Friday to urge the capital to exit the country and become an independent state.

There's even a petition up on Change.org that already has thousands of signatures, calling for London's mayor, Sadiq Khan, to declare the city's independence. "Let's face it — the rest of the country disagrees," the petition reads. "So rather than passively aggressively vote against each other at every election, let's make the divorce official and move in with our friends on the continent."...MORE
Except for the five boroughs, Barking and Dagenham, Bexley, Havering, Hillingdon and Sutton who voted leave and who will probably secede from London:

 Graphic of London results

And then the neighborhoods within those boroughs....Are we not men? We are devolution.

Evans-Pritchard: "The sky has not fallen after Brexit but we face years of hard labour"

There is no guarantee that the referendum leads to an exit so a lot of the commentary is speculative.

That said, there is a greater-than-trivial chance that "the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new dark age made more sinister, and perhaps more protracted, by the lights of perverted science."

Oh wait...*

From The Telegraph:
Brexit
The City is already changing its tune, insisting 
that it can prosper outside the EU after all 
It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the EU would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil.

The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the EU against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care.

The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status. The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too.

Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitroglycerin.

Angry reproaches are flying in all directions, but let us not forget that the root cause of this unhappy divorce is the conduct of the EU elites themselves. It is they who have pushed Utopian ventures, and mismanaged the consequences disastrously. It is they who have laid siege to the historic nation states, and who fatally crossed the line of democratic legitimacy with the Lisbon Treaty. This was bound to come to a head, and now it has.

The wild moves in stocks, bonds, and currencies this morning were unavoidable, given the positioning of major players in the market, and given that the Treasury, the International Monetary Fund, and the Davos brotherhood have been deliberately – in some cases recklessly – stirring up a mood of generalized fear.

But let us separate the noise from what matters. This is not a ‘Lehman moment’. The sterling rout has not been as bad as some feared.  You could almost say that we have had a miraculous reprieve, at least for now.

The pound has fallen by 6pc to €1.23 against the euro, slightly below where it was in April. This is a far cry from warnings of parity, never credible since the eurozone itself faces an existential risk if Brexit is bungled.

The slide against the US dollar has been steeper, but at $1.37 ‘cable’ is only down 4pc from its trading range over the last four months. The apparent violence of the drop was amplified by the upward spike hours earlier.

The FTSE 100 is down just 3.15pc, cushioned of course by the effects of devaluation on repatriated earnings. The broader FTSE 250 index has fallen 7pc. There are horror stories: house-builders Persimmon and Taylor Wimpey have crashed by more than 25pc; Barclays is off 17.7pc.

It is unpleasant but it is not a systemic financial crisis, and it is not global. The S&P 500 index of Wall Street stocks opened down 2.6pc, a bad day but not a drama. The warnings of inter-galactic destruction already look like a campaign hoax.

The yield on 10-year Gilts has dropped almost 29 basis points to an historic low of 1.08pc, the result of flight to safety, recession fears, and hopes of more quantitative easing. These collapsing borrowing costs expose the fallacy behind George Osborne’s ‘punishment Budget’.

There was never any chance that Parliament would enacted his demented plan to crash the economy with a violent fiscal squeeze when macro-economic logic called for the exact opposite. His credibility is shattered. He must go immediately....MUCH MORE
*That's Churchill in his "Finest Hour" speech.
I was actually thinking of a line in the paragraph immediately preceding the snippet quoted above:
...However matters may go in France or with the French Government, or other French Governments, we in this Island and in the British Empire will never lose our sense of comradeship with the French people....
Those final two paragraphs constitute the peroration of the speech and pretty much cemented C-dog's reputation as a guy who talked good English.

We didn't do anything with Ambrose's widely linked Brexit pieces as we weren't posting on anything  Brexit, (except David Keohane's 'Brexit the drinking game' tweet) but if interested here they are:

June 13
Brexit: It is with a heavy heart that I will be voting Leave
June 22
UK and Europe face Mutual Assured Destruction if they botch Brexit

Greenspan: It's The End Of The World As We Know It

And in a a self referential vortex* descending into madness, from ZeroHedge, Greenspan:

Greenspan: "This Is The Worst Period I Recall; There's Nothing Like It"
During a CNBC inteview today, when discussing the historic Brexit vote outcome, Alan Greenspan unleashed a fiery sermon that could have been prepared just by reading a random selection of posts from this website, the former Fed chairman told his shocked hosts that the current period, far from the raging "Obama recovery" spun every day by adaministration propaganda appratchicks and one that prompted the Fed to unleash a ridiculous rate hike cycle in December just as the US is sliding into a recession, and is instead the "worst period" he has seen, surpassing even the infamous Black Monday in severity.

"This is the worst period, I recall since I've been in public service. There's nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away. I'd love to find something positive to say."

Of course, what he is referring to was a market shock which was the result of a massive capital account imbalance resulting from the aftermath of the Louvre Accord coupled with the then trendy Portfolio Insurance (in which everyone was on the same side of the boat, much like now) and not so much an all out economic malaise. Which, however, does beg the question when a Black Monday-like market crash is coming?

Rhetorical questions aside, Greenspan was referring to the unprecedented combination of economic stagnation, deteriorating demographics, insolvent entitlement programs, social inequity and wealth division, and of course, a historic debt overhang which could and should have been cleared out in the crash of 2008 but instead was preserved to avoid wiping out the same "equityholders" who also happen to be the Fed's direct and indirect stakeowners.

To be fair, Greenspan, who in recent years has become one of the loudest advocate of gold alongside billionaires such as Druckenmiller and Soros, did not say anything our readers did not know. The former Fed chairman said that the root of the "British problem is far more widespread." He said the result of the referendum will "almost surely" lead to the Scottish National Party trying to "resurrect Scottish Independence." 

Greenspan said the "euro currency is the immediate problem." While the euro and the euro zone were major steps in a movement toward European political integration, "it's failing," he said.  "Brexit is not the end of the set of problems, which I always thought were going to start with the euro because the euro is a very serious problem in that the southern part of the euro zone is being funded by the northern part and the European Central Bank," Greenspan said....MORE
*Credit Alphaville's Cardiff Garcia for the "vortex" as referenced in "Why strange loops could be an argument for artificial intelligence".

Meanwhile Paul Krugman is a little ray of sunshine:
Brexit: The Morning After, by Paul Krugman, NYTimes: Well, that was pretty awesome – and I mean that in the worst way. ...
That said, I’m finding myself less horrified by Brexit than one might have expected – in fact, less than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming. The political consequences might be much more dire; but many of the bad things I fear would probably have happened even if Remain had won.
Start with the economics. Yes, Brexit will make Britain poorer. It’s hard to put a number on the trade effects..., but it will be substantial. ...
But right now all the talk is about financial repercussions – plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. ...

Native Advertising In The Age of Brexit

Native advertising is a type of disguised advertising, usually online, 
that matches the form and function of the platform upon which it appears.

Here are a couple examples of the evolution of native advertising over the last few weeks:

May 26 
Is the atomic weight of cobalt 58.9?
...Is this an egregious attempt at native advertising for Camp Alphaville? You betcha.
Note the self-awareness, the self-conscious pointing out of what once was almost considered an ethical transgression. Compare with:

June 24
We’ve reloaded the Brexit research pack in the Long Room…
It’s on the Strategists table, in the usual place.

The Long Room is our virtual library, reserved for finance professionals. Membership is free, but you have to fill out a form here and wait for us to ok your application.

Applications are processed quicker if you’ve bought a ticket for Camp Alphaville – which is happening in London on Friday, July 1....MORE
The brazen "Bloody hell, I suppose I'll have to secure the property and keep the whole damn edifice afloat myself" subtext comes screaming through.

Or maybe that's just me.

On the other hand, the good news is, as the WaPo's Joel Achenbach said:

(Rule one of blogging is that the End Of The World will be good for page views.)

"...IMF calls on UK and EU to play nicely during divorce proceedings"

"We take note of the decision by the people of the UK...."
-Christine Lagarde
Yes.
We also noted it.

From City AM:
The head of the International Monetary Fund (IMF) has urged the UK and the EU to reach an amicable divorce, as the fallout from the vote for Brexit ripples across the world.

Christine Lagarde, who warned Brexit could trigger a recession, called on both sides to work together to reach a new settlement which helps to minimise turmoil on the financial markets.

She also welcomed steps taken by central banks to ensure markets have access to emergency funds to prevent the kinds of sharp movements which were driven by weak liquidity during the darkest days of the financial crisis.

In a statement issued this afternoon, Lagarde said:
"We take note of the decision by the people of the UK. We urge the authorities in the UK and Europe to work collaboratively to ensure a smooth transition to a new economic relationship between the UK and the EU, including be clarifying the procedures and broad objectives that will guide the process."
The call comes as the two sides appeared at odds over how quickly the UK should begin the painstaking process of formally exiting the EU. David Cameron said he will leave the decision to trigger Article 50 - the mechanism by which a member can leave the EU - to his successor, who is expected to be in place by October.
How well the UK performs is now dependent on whether the fallout from Brexit is "limited" or "adverse", according to the IMF.
...MORE 

In other news, the Spanish are thinking of firing up an armada to retake Gibralter and the Cornish Pasty Association is in anguish.

Keeping Things In Perspective











And many more.

"It's Not The Despair....

...I can stand the despair. It's the hope."
-"Clockwise"


Thursday, June 23, 2016

Russia, Belarus Consider Rebuilding Fertilizer Monopoly

From Reuters via CNBC:

UPDATE 2-Belarus may revive potash cooperation with Uralkali
The Republic of Belarus said it might cooperate with Uralkali, the first sign the two sides might work together since the Russian potash producer broke off an alliance in 2013 and triggered a drop in global prices.

Belarus President Alexander Lukashenko's comments on Thursday sent shares of rival potash companies higher as previous co-operation between the world's two biggest miners of the crop nutrient helped manage supplies and underpin prices.

Potash Corp of Saskatchewan and Mosaic Co gained 6 percent in New York, while Germany's K&S AG added 5 percent in Frankfurt.

Uralkali is the world's biggest potash producer, while state-controlled Belaruskali ranks second.
"New Uralkali shareholders are coming to me every month saying: 'Accept us,"' Lukashenko said at an event in Minsk, Belarus' capital. "We are not against it. Let's unite, on our conditions.
"Let's resume work and agree how much we will produce."

Lukashenko did not disclose his conditions. The previous joint venture was based in Minsk, which was then a crucial condition for Belarus and the main concern for Uralkali.

Uralkali declined to comment. Its major shareholder, Uralchem, was not available for comment.
The collapse of Uralkali's joint venture with Belaruskali caused competition to intensify and drive down prices, which have not fully recovered.

Talk of cooperation among major players comes after Germany's K&S AG said this week it would carefully manage output of its new Canadian mine, Scotiabank analyst Ben Isaacson said.
"We think there could not be a better signal for investors to revive optimism," he said....MORE

News You Can Use: "The Weird World Of Expensive Wine "

Following up on Sunday's "Alternative Investment With Liquidity: 2015 Bordeaux First-growth Up 60% From 2014".

From FiveThirtyEight:

Cases of a 2000 Bordeaux from Chateau Latour stacked up at Du Vin in West Hollywood.
William Koch — yes, one of those Kochs — is giving a tour of his wine cellar when he asks the obvious question: “Did you see the wine bathroom?” he asked. “Wanna see it?”

It’s an opulent cellar, replete with Roman mosaics, a Guastavino-style ceiling and a Dionysian bust. The bathroom is, one can’t help but assume, where Koch and his guests unzip the flies of tailored Brioni suit pants and catch final glimpses of $1,000 bottles of Burgundy and Bordeaux, since metabolized and micturated.

But some of Koch’s bottles will now meet different ends. Koch gave a tour of the wine bathroom for a promotional video ahead of the sale of more than 20,000 bottles from his cellar, at Sotheby’s, in New York. The sale, which took place over three days last month, fetched $21.9 million, going down as one of the richest wine auctions in history.

I watched the sale’s final day unfold, fascinated — and a little dismayed — by the wines fetching these handsome sums, where they came from, and where they were going. Questions like that are sparks a FiveThirtyEight writer is obligated to kindle.

Off I went in search of data, and I found it in the form of a juicy, dense spreadsheet containing 140,000 wines from 10,000 producers in 33 countries, and their prices. The data was sent to me by Peter Krimmel, the CTO of Vinfolio, a fine wine retailer. It’s wide-ranging, assembled by the company using auction results from 12 major houses, including Sotheby’s, representing “the vast majority of the fine wine auction market.” For the 140,000 wines covered, it has data on the producer, year (the wine’s vintage), bottle size, region, subregion, American Viticultural Area (where applicable), color (red, white or rosé) and price.

After quaffing the data, what I found was a high-end wine market, and a blockbuster auction, with notes of geography, chemistry, economics, culture and thousands of years of history — with a detectable aroma of bullshit. Let’s have a taste.

France
“Starting in Bordeaux, with the Latour,” auctioneer Jamie Ritchie said, as he opened the Koch sale’s third and final day. Bids flew in via the telephone, the Sotheby’s website, and the floor of the auction room on New York’s Upper East Side. It was a good place to start the day — no place gives a better introduction to the history, and economics, of wine than France.

Château Latour, in Pauillac in southwestern France, traces its history back to 1331. It was a favorite of Thomas Jefferson’s. Koch had set out to collect a thorough “vertical” of the wine — owning at least one bottle of Latour from each of the past 100 years. Today, Latour sits at or near the apex of the some 7,000 producers in France’s Bordeaux wine region. It’s a storied region; the Romans were the first to cultivate vineyards there. Millennia later, it’s a useful place to show what almost any wine drinker knows: The older stuff is the pricey stuff.1
roeder-wine-1
In Bordeaux, as almost anywhere else in the world of fine wine, wines get more expensive as they get older, and that effect accelerates the older the wine becomes.2 There’s a lot going on here — aging and its complex chemistry, market scarcity (people do sometimes drink the wine, after all), vintages perceived as particularly desirable or undesirable as a result of the weather, the scope of the data set.
The increasing value of older wines is an essentially universal phenomenon in the high-end auction market. But for the rich oenophile, old wines may not be such a bad deal. “Although old wines are expensive, I think they’re actually priced more reasonably than new wines,” Robin Goldstein, editor of “The Wine Trials,” told me in an email. “Old wines’ value is driven by their age-worthiness and verifiable storage history, which really does impact their taste, whereas new wines’ value is driven by critics’ rating scores and hyper-inflation in the high end of the market, neither of which correlates with taste.”

Leah Hammer, Vinfolio’s director of cellar acquisitions, echoed this idea. She told me that one reason older wine is expensive is because it was too good to drink right away. So, say 1960 was a bad year for Bordeaux wine because of weather. The bottles from that year would tend to get drunk right away, as the Bordeaux faithful consumed the swill they didn’t think was worth keeping. The best stuff — from 1961, say — was saved for later. Two effects — the aging of the wine and the selection of the good vintages — drive the price increase in the chart above.

The most expensive Bordeaux wine, on average, and one of the most expensive wines in the world, comes from a tiny little place called Château Le Pin. (Two double magnums of 1995 Le Pin were sold for a total of $30,000 at the Koch sale.) It sits on less than seven acres (less than four soccer fields) on Bordeaux’s Right Bank and produces just 5,000 to 6,000 bottles a year. A single bottle averages over $2,000. One other Right Bank producer, Petrus, a 12-minute drive from Le Pin, also cracks the four-figure average. (For those of us who can’t afford a bottle and would like to taste vicariously: Robert Parker, the influential wine critic, found flavors of lead pencil, roasted nuts, smoke, spice, fruitcake, black cherries, white chocolate, cola, kirsch and black raspberry in the 1995 Le Pin.)...MUCH MORE

Wednesday, June 22, 2016

More On SolarCity/Tesla and Fairness Opinions (SCTY; TSLA)

Credit where credit is due.
Looking at the twitter timestamp, this writer was quite a few steps ahead of yours truly in thinking of the exchange ratio, a topic of intense interest to a vanishingly small subset of humanity but actually quite important.*

From FT Alphaville:

Tesla/Solar City: An exchange of ideas

Sorry investment banking analyst, you are going to have work this weekend. As the press release explaining the surprising Tesla offer for Solar City says, Tesla is offering not an explicit price for Solar City but between 0.122x and 0.131x of its shares. And that kind of offer is going to create twice as much number-crunching. A dollar of cash offered is worth… a dollar of cash. But how much is a share of Tesla worth? And why should a share of Solar City be entitled to between 0.122x and 0.131x Tesla shares?

In a formal fairness opinion, the respective bankers are opining on the reasonableness of the exchange ratio, itself. As an example, read the language from Zillow’s stock-for-stock acquisition of Trulia completed last year.
J.P. Morgan rendered its oral opinion to the Trulia board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Trulia exchange ratio in the proposed mergers was fair, from a financial point of view, to the holders of the Trulia common stock.
And so JP Morgan, Trulia’s advisor, first simultaneously valued Trulia and Zillow. Then from those valuations, it then figured out the corner points for an exchange ratio....MORE
*See, for example, the fact that during today's regular market SolarCity's June 21 afterhours 15% gain on the news of the buyout offer shrank throughout the day to end at a 3.26% premium to the prior day's close.
That 69 cent gain continued to dwindle in today's afterhours action by another 51 cents, giving a net 18 cent move after all the hubbub.

Tesla's $22.95 whack was a part of SCTY's lack of exuberance, along with a slew of bets on whether the deal even gets done.
Tesla traded up a buck after today's close.

Related:
So, Who Will Write A Fairness Opinion On The Tesla/SolarCity Deal? (TSLA; SCTY)
SolarCity/Tesla: Analysts React (SCTY; TSLA)

Ha! The English Are Different

We have studiously avoided contributing to the almost overwhelming blather but this is too fortuitous a chance at juxtaposition to pass up.
Alphaville's Matthew Klein flags this line:
"many of the leaders of the Remain camp are of Norman origin, 
while most of the leaders of the Leave campaign are Anglo-Saxon" 


Which naturally enough leads us directly to a sometimes jingoistic wordsmith (and pretty good rhymer):

Norman and Saxon

A.D. 1100
    "MY son," said the Norman Baron, "I am dying, and you will be heir
    To all the broad acres in England that William gave me for my share
    When we conquered the Saxon at Hastings, and a nice little handful it is.
    But before you go over to rule it I want you to understand this:-- 
     
    "The Saxon is not like us Normans. His manners are not so polite.
    But he never means anything serious till he talks about justice and right.
    When he stands like an ox in the furrow with his sullen set eyes on your own,
    And grumbles, 'This isn't fair dealing,' my son, leave the Saxon alone. 
     
    "You can horsewhip your Gascony archers, or torture your Picardy spears;
    But don't try that game on the Saxon; you'll have the whole brood round your ears.
    From the richest old Thane in the country to the poorest chained serf in the field,
    They'll be at you and on you like hornets, and, if you are wise, you will yield. 
     
    "But first you must master their language, their dialect, proverbs and songs.
    Don't trust any clerk to interpret when they come with the tale of their wrongs.
    Let them know that you know what they're saying; let them feel that you know what to say.
    Yes, even when you want to go hunting, hear 'em out if it takes you all day. 
     
    "They'll drink every hour of the daylight and poach every hour of the dark.
    It's the sport not the rabbits they're after (we've plenty of game in the park).
    Don't hang them or cut off their fingers. That's wasteful as well as unkind,
    For a hard-bitten, South-country poacher makes the best man-at-arms you can find. 
     
    "Appear with your wife and the children at their weddings and funerals and feasts.
    Be polite but not friendly to Bishops; be good to all poor parish priests.
    Say 'we', 'us' and 'ours' when you're talking, instead of 'you fellows' and 'I.'
    Dont' ride over seeds; keep your temper; and never you tell 'em a lie!"
     
    -Rudyard KiplingSongs Written for C.R.L. Fletcher's "A History of England" [1911]

SolarCity/Tesla: Analysts React (SCTY; TSLA)

Not only is Tesla taking on almost $3 billion in SolarCity debt, it is also buying into the problem of even more negative cash flows, both Operating and FreeCashFlow.

Which of course, along with the corp. governance nastiness, explains why Tesla has lost almost 11% of its market cap, amounting to $3.14 billion on the 133 million shares out and more than the entire market cap for SCTY (98,296,422 shares at $22.30, up 5.2%).

The market is saying SCTY is worth less than zero to Tesla.

We'll have a lot more to say about this in the coming days.
In the meantime here's hoping the stock closes down $23.454 on the day so I can make humble pi jokes.

From MoneyBeat:
Elon Musk is shuffling his chips again.

Mr. Musk’s Tesla Motors on Tuesday made an acquisition offer to, well, to Mr. Musk’s SolarCity The two companies count Mr. Musk as both chairman and their largest shareholder. The idea is to have one company, with one brand name, producing electric cars, batteries, and solar panels. It would also make Tesla an even more complicated company, and add an unprofitable operation to its already-strained finances.

Here’s what the Street had to say:

Colin Langan, UBS (Rates Tesla sell, SolarCity neutral) We are cautious on the deal as synergies seem limited, it adds complexity, and most importantly it could potentially be an unneeded distraction for Tesla management.

Tesla already is facing aggressive Model 3 production targets of 500,000 by 2018 and the production ramp of the Model X has been slow. Adding SolarCity may increase the operational and accounting complexity as the business is very different from auto and storage. Although SolarCity would only be ~10% of combined Tesla-SolarCity sales, SolarCity’s GAAP losses could be a significant drag. SolarCity would continue to require at least upfront upfront capital investment to grow its business, likely increasing overall cash burn for Tesla.

SolarCity and Tesla have worked together on a battery offering, and there may be some potential future synergies on the SG&A front, but we note Elon Musk was unaware of how many Tesla customers have solar – implying customer acquisition synergies may not be the primary focus.

Pavel Molchanov, Raymond James (strong buy rating on SolarCity) The key word, of course, is “proposal.” This is not a done deal, and we are skeptical that the initial terms will prove acceptable to SolarCity’s board. Put simply, we think there is a deal to be made here, but at a higher price point.

Historically, the stock has traded at more than two times and even three times [net present value], and while that is probably not realistic for the foreseeable future, a takeout multiple of (at best) 1.35x NPV does not look very appealing. Because this stock is (as always) a special situation, there is no objective way to gauge what is the right multiple, but we think that a $30+ deal value would be more appealing, both “optically” and fundamentally.

Sven Eenmaa, Stifel (downgraded SolarCity to hold from buy) Reward to risk looks balanced on proposed acquisition price. The proposed acquisition price is 26%-36% above SCTY’s 7/21 closing price, but is at the range midpoint only marginally above SCTY’s 2016 YTD average closing price of $26.95. Nevertheless we would expect Tesla’s proposal to set the baseline for SolarCity’s acquisition valuation, particularly given Elon Musk’s 22% ownership and role at SolarCity, and given recent risk perceptions around SolarCity’s growth and financing strategy execution, which would benefit from increased backing from a company such as Tesla. With Tesla’s proposal pointing to an intent to negotiate and complete the combination in an expedited manner, and given the complexity of and recent execution challenges at SolarCity, we see very limited potential for competing bidders to emerge....
...MORE

So, Who Will Write A Fairness Opinion On The Tesla/SolarCity Deal? (TSLA; SCTY)

Some years ago I got caught in a similar situation.

The CEO of the company we were long was the largest shareholder of a struggling little manufacturer he had spun out of our holding some years prior and now wanted to reacquire in a stock-for-stock deal.
The net result would be to increase his percentage ownership of our holding with no positives for us from the combined companies that we could see.

Now the thing to know about fairness opinions in situations where both companies are publicly traded is no matter how gussied up with jargon and analysis they basically come down to the acquirer paying some percentage of the acquiree's stock price over some period of time, often the 90 days prior to the date of the fairness opinion on the deal.

Here's the chart on SCTY from FinViz:
SCTY SolarCity Corporation daily Stock Chart
Over the next couple days we'll be back with a meatier piece or five on SCTY, including how we dealt with that CEO, but that long ago deal was the first thing I thought of when I saw the news. The second thing I thought of was the insty-intro to last year's post on Musk's SpaceX funding Musk's SolarCity:
One of the things they teach you in Junior Forensic Analyst school: watch for related party transactions.
One of the things they don't teach you, extrapolating this discovery to the logical question: "How important is cost-of-funds to SolarCity's very survival?"...
At the time I hit publish on that post SCTY was at $52.25 down $3.09 on the day.
Just to memorialize the numbers for handy reference, the stock closed yesterday at $21.19 before the news broke. After hours it jumped 15.01% ($3.18) to $24.37

Tuesday, June 21, 2016

Questions America Wants Answered: "What exactly is Transferwise?"

It is starting to sound a bit like a black-box scam.*
From FT Alphaville:

What exactly is Transferwise?
For a company that prides itself on transparent fee structures, Transferwise — the UK-based FX money transmitting unicorn — has a fairly opaque way of delivering attractive exchange rates.

Competitors who have tried to reverse engineer TW’s rates have struggled, not least because pure brokerage models are not supposed to take principal trading risk when they aren’t able to immediately match buyers and sellers in the market.

To the contrary, they pass orders onto the wholesale interbank market through properly licensed institutions who take on the risk of supply/demand imbalances in their place. But this, alas, means brokers have to factor in the cost of wholesale liquidity, which inadvertently puts a floor on how low their own customer fees can go (at least if they plan to break-even).

So on the one hand, brokers who don’t take risk on to their balance sheets have to pay to access wholesale markets. And on the other hand, FX operators who do take principal risk generally charge a premium to cover the risk of warehousing imbalances on their own balance sheet.

Transferwise CEO Taavet Hinrikus freely admits the company is highly dependent on third party liquidity. Some cross-rates the company offers aren’t matched on their own platform at all, thus are 100 per cent dependent on interbank liquidity.

In the past Hinrikus has declined to divulge the exact ratios the company matches directly, but he did tell Bloomberg’s Jeremy Kahn earlier this month that at least 60 percent of its transaction volume on 20 “routes” among Europe, the U.S., the U.K., and Australia does get offset in this way....MORE
*Here's an audacious one from The Guardian and the New York Daily News' "Con artists sentenced to jail after $10 million Monopoly money scam in England":
Go directly to jail. Do not pass Go. Do not collect $200.

A group of con artists were sentenced to jail Monday after scamming jewelry dealers in England out of almost $10 million.

Gianni Accamo, 44, Dusica Nikolic, 45, Dragoslav Djordjevic, 44, Juliano Nikolic, 26, and Bruno Nikolic, 27, were sentenced after ripping off English dealers by hiding stacks of Monopoly money inside real euro notes, according to The Guardian.

In the heist, the group swindled London jeweler John Calleija — whose clients include Zara Phillips and Colin Firth — out of more than $8.5 million.

Accamo posed as a gem expert and met Calleija in a Covent Garden hotel to inspect the precious stones.

After agreeing on a price, Calleija used a cash-counting machine to verify the total, the Guardian reported.

After he was convinced, Accamo and his crew switched the real euros for Monopoly money, then picked up the jewels at the store.

Calleija said he didn’t realize he’d been scammed until the thieves were long gone.

“You can imagine the horror when he goes to check the cash. It is immediately apparent it is not the same that he had counted in the hotel. It’s counterfeit,” prosecutor David Hughes said in court....MORE
Not saying that Transferwise is doing anything illegal. just that when they can't explain how they do that voodoo that they do so well it flies a ruby (so to speak) banner at ya.

"WTI Crude Spikes Above $50 On Massive Inventory Draw"

August futures 50.28 +0.32.
From ZeroHedge:
Having v-shape recovery-ed intraday - as Nigeria news came and was denied - WTI Crude (Aug) was hovering around $49.90 before API data hit.Following 4 weeks of crude draws in a row, and with expectations of a 1.15mm draw, API reported a massive 5.2m barrel draw - the most in 6 months. Across the entire complex, inventories drew down more than expected, sending WTI surging back towards $50.50.

API
  • Crude -5.22m (-1.7m exp.)
  • Cushing -1.311m (-50k exp.)
  • Gasoline -1.47m (-300k exp.)
  • Distillates -1.699m (+300k exp.)
...MORE

That's a big pull but I'm a little surprised the price action isn't even more dramatic.
For the last three weeks we've seen non-confirmation from the EIA so that may be part of the reticence.

Related:
"With Oil Price Near $50, Resilient U.S. Shale Producers Eye New Chapter"