Saturday, July 4, 2015

"Adam Smith on the Economics of U.S. Independence"

From The Conversable Economist:
For economists around the world, 1776 means the publication date of Adam Smith's classic The Wealth of Nations.  Book IV, Chapter 7, is entitled "Of Colonies." Smith expresses the view that Europe contributed very little to the economic success of its American colonies--except for some talented people. He also believed that the while England benefited from trade with its colonies, England also had to bear the costs of defense and of the monopolies on trade that it created. He painted a picture of how the American colonies might be allowed democratic representation, but viewed it as a politically unlikely outcome. He also predicted that even when a nation didn't benefit from having colonies, it was still reluctant to let the colonies go peacefully. The quotations here are from the ever-useful "Library of Economics and Liberty," which has number of classic works  of economics freely available in searchable form on-line.


Here's Smith on the topic of what Europe contributed to its American colonies (with footnotes  omitted for readability): 
"The policy of Europe, therefore, has very little to boast of, either in the original establishment or, so far as concerns their internal government, in the subsequent prosperity of the colonies of America. Folly and injustice seem to have been the principles which presided over and directed the first project of establishing those colonies; the folly of hunting after gold and silver mines, and the injustice of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality.... MUCH MORE
HT: Fourth of July: Economics and Ruminations

Thursday, July 2, 2015

Chartology: Oil At Support

From the NYMEX:
$56.60 down 36 cents.

Very interesting, eh what?
More tomorrow to come.

Blackstone's Byron Wein On The Only Way to Make Serious Money

It means stepping outside of one's comfort zone.
Back in the day you could maybe out-analyze the crowd on the home-team utility or some Graham and Dodd net-net but no more. You must have some exposure to growth.

On the other hand if you are just trying to keep the loot you've already plundered you have a few more options.
But that's a story for another post.

From Barron's Wall Street's Best Minds column:

The Wall Street veteran interviews a wise colleague who argues that tech and biotech is where the action is.
 For the past fifteen years I have written annually about a person I have come to call “The Smartest Man in Europe.” For new readers, he is a finance person in his 80’s who has built his reputation by identifying important trend changes early and putting serious money behind his conclusions. Descended from a mercantile family that operated canteens selling food and weather protection along the Silk Route, he was educated in Europe, trained in New York and returned home to take advantage of the wealth-creating opportunities resulting from the post-war recovery. Listening to conversations around the dinner table, he was encouraged to focus on the major events early, and his success is a product of this skill. That success is reflected in his homes and other comforts he enjoys. His art collection spans centuries, from Canaletto to Koons, but what keeps him vibrant is ideas.

Notable among the past events he was early to observe are the rise and fall of Japan, the opportunities in China after the death of Mao, the end of the command economy in Russia and the unrealistic valuations of technology at the end of the last century. We get together a few times a year, but this year our conversation was by telephone. 

“The whole world is suffering from too much debt. As a result, growth almost everywhere is going to be slow. I know you believe the problem is insufficient demand, but the major industrialized countries already have considerable debt and do not want to add any more to it to stimulate the consumer. Japan is an exception. They already have the highest debt to Gross Domestic Product (GDP) of any major country and they are willing to add more. China is an exception on the other side. They are in a position to take on more debt because their debt to GDP ratio is low. Without more fiscal stimulus, demand will be tepid and growth will be disappointing. This is the state of the world now, and it is likely to endure for some time. In the near term, I don’t see a calamity, just sluggish economies and many equity markets not doing much. 

“It is not easy to make money these days. In the past, if you had the right asset allocation, you could do well for institutional investors. Now most asset classes are fully valued. The bond market is expensive, equities are not cheap anywhere, gold is dead; other commodities are in bear markets, the emerging markets are generally not attractive, China is dangerous, and Europe and Japan are reasonably fully priced. As I said last year, the only way to make serious money is by carefully investing in innovation. You can make a modest return in equities in the major markets – I agree with you that the U.S. market will end the year higher than it is now. But if you want to make real money investing, you will have to do it by picking stocks in technology and biotechnology, and I would emphasize the latter. 

“Most people still don’t recognize the gigantic implications of this phenomenon. Major breakthroughs are going to be taking place in cancer, heart disease, Alzheimer’s, diabetes, multiple sclerosis and other diseases. Picking the right companies can produce impressive returns in a difficult overall market environment. Right now there are literally hundreds of small companies working on significant products. Many of them will fail, but a few will change the world the way Google and Facebook did. Most are located in California and Boston, but there are also some in Europe and Asia. The United States is dominant, however. You should spend your time trying to understand what these companies are doing. The returns for picking the winners could be huge. What’s more, the pace of innovation is quickening. The rewards for proper asset allocation will be very modest. I like Facebook (ticker: FB ); Salesforce.com ( CRM ); biotech ETFs; an industrial company, CS Industries ; Visa ( V ); Apple ( AAPL ) , of course; Alibaba ( BABA ); and Palo Alto Networks. I am out of Google. 
 
“Think of all the tasks your smartphone can do for you. There is almost no question that comes to mind that cannot be answered with a Google search, from politics to sports to business to entertainment. I am convinced technology has made the world more productive, but it is hard to measure. The recent figures on productivity are negative, meaning there is less output per worker hour, but the benefits of information technology may be difficult to determine in traditional ways. 

“There is also a question of the impact technology is having on the middle class. Millions of jobs have been eliminated through robotics and other forms of technology. The technical skills required to get and hold a good job are increasing all the time. Service jobs are growing, but manufacturing jobs are rising more slowly, and service jobs generally are lower-paying. Many kids completing college cannot find jobs in their chosen field and are forced to work at something temporary to pay the bills and student loan debts. This is a problem that is likely to get worse as more technology breakthroughs take place, so the social implications of this phenomenon are enormous. Advances in biotechnology also have the social costs, as more people live longer.

“In addition there is the problem of wasting time. Playing video games rather than reading books, and communicating with followers on Twitter, can keep a young person busy. The typical Facebook user is said to be spending twenty hours a month on that site. According to recent studies, the average college student only spends one hour a night studying alone, perhaps because of other distractions. These numbers could signal problems for American competitiveness going forward, so there is a downside to what is happening in technology....MORE

Minneapolis Fed Interview With A Nobel Laureate: "Stanford economist on matching theory, kidney markets and the importance of coffee"

HT up front to The Conversable Economist for this pull-quote:
God makes wheat, but the Chicago Board of Trade makes #2 hard red winter wheat. It has a lot less variance than wheat. You know what you’re going to get and, therefore, you don’t have to care who you’re buying it from....
From the Federal Reserve bank Of Minneapolis
Published June 15, 2015
Interview conducted March 11, 2015
Alvin Roth
In “normal” markets, prices adjust to equate demand and supply; the market clears. This simple premise is at the core of economic thought. But with surprising frequency, prices are not enough and can even be irrelevant. These markets are broken in the sense that price adjustment won’t clear them, and economists have long struggled to understand efficient allocation in such cases.
Alvin Roth began studying these “broken” markets in the 1970s. Decades later, in 2012, this body of work was recognized with the Nobel prize. By extending theory developed by mathematician Lloyd Shapley, his Nobel co-recipient, Roth had “generated a flourishing field of research and improved the operation of many markets,” said the Nobel committee. “An outstanding example of economic engineering.”
Roth’s theoretical, empirical and experimental research has transformed how medical residents find jobs, parents find good schools for their children and renal patients find kidneys that save their lives. Economics is often deemed impractical—too abstract from the real world to have pragmatic importance. Roth’s career is solid refutation of that notion.
Inspired by Shapley’s mathematical proof with David Gale that stable matches—those in which currently paired partners see no benefit from a different match—can exist in theory, Roth discovered that the mechanism used successfully since the 1950s to match U.S. medical residents with hospital jobs was quite similar to the Gale-Shapley algorithm. This careful analysis led to a 1995 invitation from doctors who had found that the growing number of married couples seeking hospital posts undermined the existing algorithm. No longer were matches stable. Roth helped redesign the algorithm, used with success ever since.
Similar analysis and redesign have been at the heart of Roth’s work, applied to kidney donations, public schools, law student clerkships and a wide variety of health care labor markets. Others have extended it into financial intermediation, Internet advertising auctions and even dating services. He addresses many of these topics in the following conversation, along with the success of experimental economics, the ubiquity of “repugnant” markets and the vital importance of coffee.
Photos by Peter Tenzer

MATCHING MARKETS

Region: Perhaps we could begin with some general background on matching markets. In your Nobel lecture, you said, “You can’t just tell Google that you are showing up for work. They have to hire you.”
Roth: They do indeed.

Region: And you continued: “Matching markets are markets in which you can’t just choose what you want (even if you can afford it). You also have to be chosen.”
That suggests that prices alone don’t clear markets in certain cases. Could you elaborate on which markets that applies to, and why prices don’t equate supply and demand in those situations?
Roth: Well, it might be easiest to first talk about commodity markets because they are markets where we think price does do all the work. It takes a lot of design to make something into a commodity market....MUCH MORE

CJR: Inside the Tensions At Bloomberg News

A major piece from the Columbia Journalism Review:

Bloomberg’s new regime and tensions over the editorial vision
In April, Zachary Mider’s groundbreaking story on corporate tax inversions won Bloomberg News the first Pulitzer Prize in its 25-year history. When Mider collected his award a month later, at the annual Pulitzer luncheon at Columbia University, the rest of his team was there to applaud him, as were the highest-ranking editors from other winning newsrooms, including Dean Baquet at The New York Times, Marty Baron from The Washington Post, and Gerard Baker of The Wall Street Journal. The missing editors? Bloomberg’s top ranks, including editor-in-chief John Micklethwait and chief content officer Josh Tyrangiel.
Company officials, it turns out, offer quite plausible reasons for not attending. Micklethwait, for example, was said to be visiting the UK for his son’s graduation, while Tyrangiel was said to be in Hong Kong. But fair or not, several editors and reporters in the newsroom took their absence from the lunch as a snub. To them, it symbolized what they fear are the shifting priorities of the new top editors at Bloomberg, ever since Michael Bloomberg returned to the helm in January.**

In the intervening months, the former mayor’s homecoming has reshaped the newsroom, giving rise to dramatic changes to the masthead and a tense struggle over its editorial vision. The regime change has also produced a series of resignations, bitter disagreements over what stories to pursue, and an intricate Kremlinology of the newsroom’s future. One of the chief concerns is that Micklethwait, who replaced Matt Winkler seven months ago, may not be as committed to pursuing the kind of ambitious, hard-edged journalism that brings home Pulitzer Prizes.

The departures in recent months have included several highly respected journalists. The team that Winkler brought in to raise investigative ambitions at Bloomberg News, many lured away from The Wall Street Journal, have been either sidelined or pushed out. Among them were senior executive editor Laurie Hays, who was at one point in line for Winkler’s job until she got nudged aside in favor of Micklethwait; executive editor of enterprise John Brecher, who quit in April, around the same time that Tyrangiel was promoted to chief content officer of Bloomberg LP; and Jonathan Kaufman, the executive editor for company news, who resigned earlier this month after overseeing Mider’s Pulitzer project. Friday’s resignation of star reporter Renee Dudley was the most recent to draw newsroom attention. After her newsy scoop on a Wal-Mart executive, Dudley was hired away to do investigations for Reuters. In September, Daniel Golden, the celebrated investigative journalist who directly edited Mider’s series, will be taking a leave of absence to write a book.

These developments have all but dismantled an approach that Winkler and Hays created, a system that paired Bloomberg News reporters, some of whom had never written more than 1,000 words before, with experienced enterprise editors who nurtured their skills and ideas into award-winning investigative series. Modeled after legacy newsrooms, it was an approach that yielded investigative series that explored a broad range of issues, and typically took months to report. Notable examples were “Education Inc.,” which was supervised by Kauffman and won Polk and Loeb awards, and Mehul Srivastava’s award-winning series about malnutrition and political corruption in India. Winkler is now editor in chief emeritus.*...MORE

What Happens When Greece Votes On Sunday?

From The Economist's Buttonwood's Notebook:

An Oxi-dent waiting to happen
WHAT happens if the Greeks vote Oxi, or No, on Sunday? Of course, what might happen is that the Greek government's wishes are fulfilled and that creditors come back with a new, better, offer. But thoughts are now turning to the more likely scenarios - that Greece leaves the euro (Grexit) or is stuck in the position of being formally within the euro zone, but without access to ECB credit (dubbed Grimbo).

Three reports have just been published, a short blog from the Peterson Institute and longer (but private) reports from Standard & Poor's and Citigroup. They don't agree on all the details but they do suggest that the widely-touted benefits of Grexit (the reduction in debt service costs, the boost to competitiveness from a lower currency) need to be heavily qualified. S&P suggests that Greek GDP may be 20% lower than it would otherwise have been if Grexit occurs. The effect on the rest of Europe would be much more limited; perhaps a cut of 0.3%-0.5% in GDP growth over the next 1-2 years, says Citigroup.

The immediate impact of a No vote would presumably be that Greek banks will still be cut off from additional liquidity funding from the ECB. This would make it impossible for Greece to repay the various debts due over the next weeks and months (including money owed to the ECB). This will exacerbate...MORE

Oil: There Go The Shale Driller's Hedges

From Bloomberg: 

Shale Drillers' Safety Net Is Vanishing
The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

Now the safety net is going away.

The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

“A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.”

The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies.

Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

Increased Efficiency
West Texas Intermediate for August delivery added 23 cents to $57.19 a barrel in electronic trading on the New York Mercantile Exchange at 11:46 a.m. London time.

Hedges purchased from banks or other traders allow drillers to lock in a sale price. Some guarantee a specific value. Others ensure a minimum payment regardless of how much the market moves, but require the oil company to pay some of it back if the price exceeds a certain threshold.

SandRidge, the Oklahoma City-based producer, had about 90 percent of its oil and natural gas liquids output hedged in early 2015, according to a regulatory filing. Next year, the hedges cover less than a third. SandRidge stock traded yesterday at 85 cents, down 88 percent in the last year. More than $3 billion of its bonds are trading at 62 cents on the dollar or less.

Jeff Wilson, a spokesman for the company, said declining well costs and increased efficiency are helping SandRidge achieve returns comparable to what the company made at higher prices. SandRidge issued $1.25 billion in bonds last month, which gives the company the liquidity it needs, Wilson said....MORE
Previously:
Apr. 2015
Who Is On the Hook For $26 Billion In Oil Industry Hedges?

And on the King of the Bakken, Continental Resources:

Oct. 29 
Godfather of the Bakken: "There Is No Oil Glut" (CLR)
Whatevs.
Nov. 7
Oil: Bakken Bigwig Calls It a Bottom, Pulls All His Hedges (CLR)
If I were a psychologist I'd wonder if this stubbornness was in any way related to his impending divorce.
December WTI $78.92 up $1.01.  

"How Social Networks Create The Illusion Of Popularity"

From MIT's Technology Review:

The Social-Network Illusion That Tricks Your Mind 
Network scientists have discovered how social networks can create the illusion that something is common when it is actually rare. 
One of the curious things about social networks is the way that some messages, pictures, or ideas can spread like wildfire while others that seem just as catchy or interesting barely register at all. The content itself cannot be the source of this difference. Instead, there must be some property of the network that changes to allow some ideas to spread but not others.

Today, we get an insight into why this happens thanks to the work of Kristina Lerman and pals at the University of Southern California. These people have discovered an extraordinary illusion associated with social networks which can play tricks on the mind and explain everything from why some ideas become popular quickly to how risky or antisocial behavior can spread so easily.

Network scientists have known about the paradoxical nature of social networks for some time. The most famous example is the friendship paradox: on average your friends will have more friends than you do.
This comes about because the distribution of friends on social networks follows a power law. So while most people will have a small number of friends, a few individuals have huge numbers of friends. And these people skew the average.

Here’s an analogy. If you measure the height of all your male friends. you’ll find that the average is about 170 centimeters. If you are male, on average, your friends will be about the same height as you are. Indeed, the mathematical notion of “average” is a good way to capture the nature of this data.

But imagine that one of your friends was much taller than you—say, one kilometer or 10 kilometers tall. This person would dramatically skew the average, which would make your friends taller than you, on average. In this case, the “average” is a poor way to capture this data set.

Exactly this situation occurs in social networks, and not just for numbers of friends. On average, your coauthors will be cited more often than you, and the people you follow on Twitter will post more frequently than you, and so on.

Now Lerman and co have discovered a related paradox, which they call the majority illusion. This is the phenomenon in which an individual can observe a behavior or attribute in most of his or her friends, even though it is rare in the network as a whole.

They illustrate this illusion with a theoretical example: a set of 14 nodes linked up to form a small world network, just like a real social network (see picture above). They then color three of these nodes and count how many of the remaining nodes link to them in a single step.

Two versions of this setup are shown above. In the left-hand example, the uncolored nodes see more than half of their neighbors as colored. In the right-hand example, this is not true for any of the uncolored nodes....MORE

Wednesday, July 1, 2015

"US oil settles down 4.2%, at $56.96 a barrel"

From Reuters via CNBC:
Oil prices slumped 4 percent Wednesday, with U.S. crude headed for its sharpest daily loss since late May, on signs of progress in Iranian nuclear talks and after the first rise in crude stockpiles in the United States in more than two months.

U.S. crude broke below its two-month trading band as an Iranian diplomat said technical experts from Iran and six world powers had finished a draft agreement on the country's nuclear program and foreign ministers would review it Thursday and Friday in Vienna.

U.S. crude futures closed down 4.2 percent, at $56.96 a barrel—the lowest since April 22. Front-month Brent crude futures were trading at $62 per barrel at, down $1.60 or 2.6 percent.

World powers and Iran held talks throughout Wednesday, extending an original June 30 deadline for a nuclear accord by a week.

"If the nuclear negotiations with Iran are brought to a positive conclusion, there is also the 'threat' of additional oil reaching the market from Iran," said Carsten Fritsch, analyst at Commerzbank....MORE 
Earlier:
Major Oil ETFs Nearing Collapse (XLE; XOP)
Oil Falls as Inventories Rise

Major Oil ETFs Nearing Collapse (XLE; XOP)

Following up on Friday's "Major Integrated Oil Stocks Once Again At Support (XLE; XOP)".
You have a lot of hot money that came into the sector that really didn't know what it was up against and now the hot is not and the playas are spooked. Back in November we posted "Energy Stocks Are Not Declining As Fast as Crude: So Which Is Wrong? (XLE)":
This has frustrated yours truly. When I go into the Monday meeting and say, "No, really, the equities should be trading lower." and I get "Or crude trades higher?"
Brent $82.84 down 2.13%, WTI $76.77 down 2.55%; XLE $83.99 down 2.38%....
Well, come Monday it's probably going to be the reverse.
Here's where the ETFs stand at the moment:
XLE-The Energy Select Sector SPDR ETF, $74.03 down $1.13 and $2.33 above the Jan. 14, 2015  $71.70 multi-year low:

XLE  The Energy Select Sector SPDR Fund daily Stock Chart
And the one that tipped us to the potential downside:
XOP- The SPDR S&P Oil & Gas Exploration & Production ETF, $45.13 down $1.53 and $3.50 above the January low.
XOP  SPDR S&P Oil & Gas Exploration & Production ETF daily Stock Chart

A break below the prior lows opens the gates of hell the way lower for the longs.

Oil Falls as Inventories Rise

NYMEX WTI traded down to $57.73, currently $57.99, off  $1.48.
From the Wall Street Journal:

Oil Declines on U.S. Inventory Data
Futures fell as weekly data showed the first increase in crude-oil supplies in nine weeks
 Oil prices extended their losses on Wednesday after weekly inventory data showed the first increase in U.S. crude-oil supplies in nine weeks.

Light, sweet crude for August delivery recently fell $1.55, or 2.6%, to $57.92 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.04 cents, or 1.6%, to $62.55 a barrel on ICE Futures Europe.

Commercial crude-oil inventories in the U.S. rose by 2.4 million barrels in the week ended June 26, the U.S. Energy Information Administration said Wednesday. Analysts surveyed by The Wall Street Journal had expected a decline of 1.2 million barrels.

U.S. oil supplies have shrunk in recent weeks since hitting a record high in April, as refineries have processed more crude into gasoline and other fuels. The inventory drops have helped boost U.S. oil prices by 25% in the second quarter.

But last week, stockpiles rose even as refinery utilization increased from 94% to 95% of capacity, the EIA said.

“Even at these high utilization rates, we are not drawing enough inventory,” said Andy Lipow, president of Lipow Oil Associates in New York. “This portends continued crude-oil price weakness through the balance of the year,” especially in the fall when refineries shut units to perform seasonal maintenance, he said. ...MORE
Here are the last couple weeks of trading via FinViz:

Largest U.S. Public Employee Pension Fund, CalPERS. To Fall Short Of Assumed Returns Once Again

This is not the same as oops, "missing your target".
The return assumptions are part of the actuarial funding matrix required to keep the pension fund solvent. We've been calling CalPERS out for faulty assumptions since 2007, and are starting to think maybe they aren't very good at what they do.

Here's a post from July 2012:
FAIL: CalPERS Posts 1% Return for Fiscal Year Ended June 30, 2012.
CalPERS is the largest pension fund in the United States with assets of $233 Billion.
California taxpayers are on the hook for any shortfall in investment gains vs. the benchmark.

We have dozens of posts on the behemoth, does anyone else remember this from Patricia K. Macht, Assistant Executive Officer, Office of Public Affairs in March '09

Read more here: http://blogs.sacbee.com/the_state_worker/2009/03/calpers-other-pensions-oversta.html#storylink=cpy
Beware of the anti-pension ideologues who come out of the woodwork during market downturns. Like vultures, they prey on the highly charged and negative investment environment, looking for ways to convince you a temporary performance downturn will be typical for all time!

They know -- but don't tell you so -- that we set our rates based on a fiscal year investment return. They don't tell you that our assumed rate of return is made based on advice from a range of experts within CalPERS and within the industry and that it is regularly evaluated every two to three years in public session. They don't tell you what you would learn from a textbook on pension management: that some years investment returns are as expected; other years, they will be more than expected and yes, some years they will be less than expected...
They put that out when the fund assumed a 7.75% annual return.
They only this year were shamed into lowering it to 7.5%.

Following up on January's "CalPERS Earns 1.1% in Calendar 2011, a Bit Less Than the 7.75% They Need"....
As that post, and others, goes on to say, the embedded assumptions in the 1999 pension law, SB 400, are 25,000 on the Dow Jones Industrial Average by 2009 and 28,000,000 by 2099.

And the latest, from the Los Angeles Times:
CalPERS likely to fall short of annual investment goals
The nation's biggest public pension fund is falling far short of its annual investment goals, a setback for a system already straining to keep up with looming obligations.

The California Public Employees' Retirement System earned only 3% in the 10 months that ended April 30 and is likely to fall short of its 7.5% annual target when the fiscal year ends Tuesday, the pension giant's investment chief said.

Absent a "remarkable rally in the global stock market," said Ted Eliopoulos, CalPERS' chief investment officer, the ground to make up in two months is too great to avoid a likely shortfall.

"We don't like to get too excited about any one-year return," he said. "As the board is well aware, we would like to look at longer time periods as they are much more meaningful in measuring our performance."
Eliopoulos' remarks came in a prepared statement to the CalPERS board last week. A video of the public meeting was posted on YouTube, but not yet on CalPERS' website. CalPERS posted monthly financial data Thursday.

The performance of CalPERS, with investments totaling $304.9 billion at the end of April, is closely watched in the financial world and has broad implications for California taxpayers.

Charged with paying benefits to 1.7 million current and future retirees, CalPERS has the power to compel government employers to make up any shortfall in its fund. The pension plan was only 77% funded at the end of last June....MORE
We have so many posts on CalPERS (and the slightly smaller CalSTRS) that it is easiest, if interested, just to do a Google search rather than list individual posts which run into the hundreds:
site:climateerinvest.blogspot.com calpers 

Major Asset Classes | June 2015 | Performance Review

From the Capital Spectator:
The markets staggered to the year’s midpoint with a thud, with most of the major asset classes suffering losses in June. The exception: broadly defined commodities (Bloomberg Commodity Index), which posted a modest 1.7% gain last month. The rest of the field was either flat or (in most cases) in the red. The big loser: US real estate investment trusts (REITs), which shed a hefty 4.6% in June....MORE
http://www.capitalspectator.com/wp-content/uploads/2015/07/gmi.01jul2015.png

Despite the uptick in commods see also last week's "Commodity Producers Still Struggling (CRBQ)".

Britons can't stand the heat when it goes above 28 degrees (82.4°F)

From CityA.M.:

Seriously, it's hotter than the Sun right now (Source: Getty)
Today's heatwave will push temperatures several degrees above what Britons consider acceptably warm.
Today is expected to be the hottest day of the year, with the Met Office forecasting temperatures as high as 35 degrees in some parts of the country. 
Despite spending the vast majority of the year complaining about the cold, it seems we're not that keen on the heat either. 
A YouGov study found that the optimum temperature for the average Briton is in fact 21 degrees. [69.8°F]
By the time it gets to 28 degrees, we've decided it's too hot. 
We're definitely more comfortable further down the thermometre. On average we consider six degrees to be too cold – although Scots can take it down two more notches to four degrees. Londoners have a lower tolerance, however: their cold cut-off point is seven degrees. ...MORE
Which may explain why Paul Murphy, honchō of FT Alphaville and Godfather of today's main event posted: What to wear at Camp Alphaville yesterday.

Tuesday, June 30, 2015

"PM Markets: Corn Futures Climb 7% as US Data Rocks Markets"

Corn          422-0s    +30-0
Soybeans  1037-2s    +57-2
Wheat        615-6s    +32-2

From AgriMoney:
Corn futures ended up more than 7% on Tuesday, as grains soared on data from the US Department of Agriculture which showed stocks and acreages sowed behind analyst's expectations.
Grains are making 2015 highs, as the markets adjust to a double whammy of lower than expected sowings, and surprisingly thin stocks.

Soybeans saw the biggest surprise in the USDA numbers.
US stocks of soybeans as of June 1 were seen at 625m bushels, compared to trade expectations of 670m bushels.
'Another big surge'
Soybeans acreage estimates, based on early June surveys, were seen at 85.139m acres, compared with analyst's expectations of 85.171m acres, though still exceeding 2014 plantings of 83.701m acres.
The latest planting data may not even show the full extent of the decline in soybean acreage, as it will not reflect the most recent changes in farmer intentions as a result of the heavy Midwest rains, which could have caused farmers to take out prevented planting insurance, leaving the ground unsown....MORE

"Bill Gross Warns About Liquidity In Next Crisis"

I think various journalists have been talking liquidity longer than M. Gross, reminding yours truly of the Revolution of 1848, Alexandre Auguste Ledru-Rollin, and the quote attributed to him:
"Il faut bien que je les suive, puisque je suis leur chef".*
Phrase historique prononcée à Paris - 1848EVEN.fr

From MarketBeat:
The markets have not been put under stress in years, Janus Capital 'sJNS +2.97% Bill Gross noted in his latest investment letter, and if and when that day comes, the  outcome may look very different from the last crisis.

The reason: thanks to legislation and lawsuits, regulators and central bankers may have fewer options in the next crisis than they did in the last.

“Investors and markets have not been tested during a stretch of time when prices go down and policy-makers’ hands are tied to perform their historical function of buyer of last resort,” he wrote. “It’s then that liquidity will be tested.”

In another of his folksy, rambling, occasionally uncomfortable pieces, Mr. Gross spends much of his time breaking down the liquidity profile of the so-called shadow-banking system (after an extended ode to the shower in his Laguna Beach home that skirted dangerously close to providing far too much information.) His main point is that the real-world effect of the Dodd-Frank law hasn’t necessarily been to make banks less risky, but that it merely transferred that risk, from the well-regulated, capital-cushioned banks to the world of mutual funds, hedge funds, and ETFs that make up part of the shadow-banking system.

Another firm that’s part of that shadow-bank world: Pacific Investment Management Co. Mr. Gross, of course, messily exited Pimco, the massive asset-management firm he co-founded, last September. He worked in a few mentions of his former employer amid the discussion of his concerns about liquidity.

Liquidity has been a red flag in the markets for some time now, ever since the 2008 financial crisis and the 2010 flash crash illustrated just how fast it can disappear. More recently, the unusually fast-paced selloff in the government bond market this spring raised the specter that a flash-crash type of liquidity-starved selloff could hit the bond market....MORE
*Schoolboy translation: "I must follow them for I am their leader."

Here's an imagined scene of Bill leading the journalists in an earlier (1830) French uprising:
Artprint of  La liberté guidant le peuple

Aux Barricades!, Dude.

"Surging Pentair, Peltz’s Latest Target, Boosts Water ETFs" (PNR; PIO; PHO; CGW)

This is a first rate company, I wish Mr. Peltz would go muck-about somewhere else.
From Barron's Focus on Funds:
Activist billionaire investors Nelson Peltz is giving a boost to a cadre of water-themed exchange-traded funds on Tuesday.

U.K.-based Pentair (PNR), whose shares trade on the New York Stock Exchange, jumped 5% after Peltz’s Trian Fund Management revealed a 7.2% stake in the company. Barron’s Ben Levisohn notes that at least one analyst is less than enthusiastic.

Pentair, which makes pumps and valves, is a top holding in water-themed ETFs including the PowerShares Global Water ETF (PIO), PowerShares Water Resources ETF (PHO) and Guggenheim S&P Global Water Index ETF (CGW), all of which are edging the SPDR S&P 500 ETF’s (SPY) gains....MORE
The referenced Levisohn 'Stocks to Watch' post, Pentair: Don’t Chase Trian, is probably correct.

Possibly also of interest:

A Look at the World's First Water-focused Hedge Fund
Since the first Earth Day in April 1970 and more importantly since the establishment of the EPA in December of that year, folks have been trying to make money out of water in the U.S..
Put simply, the returns have not been market-beating.

Because so much of the opportunity was my-little-crony stuff, at the whim of politicians, there was no consistency of growth at a time when other portfolio investments offered very competitive comparisons.
The alternative was to own the cash flow, private equity style, but unless one felt a passion for grit chambers and sludge pans it was pretty pedestrian, utility type ROI.

In fact the most reliable water investment in the U.S. has probably been York Water Company of York PA.
They've been paying dividends for 199 consecutive years and just announced their 575th divi.
The announcement carries the boilerplate "This release contains forward-looking statements".

Anyhoo, here's a piece we've been sitting on since January, from Mother Jones:...
A Look At A Second Water Focused Hedge Fund
Aug. 2012
It's So Hard to Find a Decent Bet on Water (investment vehicles)
May 2013
Swiss Private Bank Pictet Making Money in the Water Biz (XYL; DHR)
July 2013
"Can Powdered Water Cure Droughts?"
October 2010
Muni's: "Water Scarcity a Bond Risk, Study Warns"

And many more, use the search blog box if interested.  

Today Is The Longest Day in Years, Computers at Risk, Here's Why

From The Weather Network:
Today will be the longest in three years as timekeepers add an extra second — known as a leap second — to the official time before Wednesday starts. Here's why.

At just after 23:59:59 p.m. Greenwich Mean Time on Tuesday, June 30, the world will experience a temporal oddity. Clocks around the world will not immediately switch over to next hour, but will pause — for just one second — before doing so.

This inserts a "leap second" into the day, giving us just a moment where the unusual sight of 23:59:60 appears on official clock faces before they switch over to 00:00:01 on Wednesday, July 1.
However, this leap second will also produce a moment when computer systems around the world may suffer problems, as they have in the past.

REMEMBER: The Leap Second occurs at 23:59:60 GMT, which is 9:29:60 p.m. NDT, 8:59:60 p.m. ADT, 7:59:60 p.m. EDT, 6:59:60 p.m. CDT, 5:59:60 p.m. CST, 5:59:60 p.m. MDT, 4:59:60 p.m. PDT.

In 2012, when the last leap second was applied, several websites experienced problems due to the extra time, including FourSquare, Gawker, LinkedIn, Mozilla, Reddit and Yelp. In addition, over 400 Qantas Airlines flights were delayed when the Amadeus airline booking service went down for two hours, forcing staff at airports to switch to manual check-ins for passengers....MORE
HT: MetaFilter

"So accountant trading cards are a thing...."

From Going Concern:

Accountant Trading Cards: I'll Give You a Luca Pacioli If You Give the Accounting Profession Its Dignity Back
Because there’s nothing more thrilling than the adrenaline rush of trading cards combined with the raw excitement of accounting.

Accountant trading cards are similar to the Most-Wanted Iraqis playing cards issued by the Bush administration during the Iraq War. The main difference is that the Most-Wanted Iraqis cards explicitly told soldiers who to shoot; owning accountant trading cards implies that you should maybe shoot yourself....MORE
 Confucius
IMG_0688.JPG
Confucius got his card because, as it says on the back, “First Job: Accountant.” My first job was at a pharmacy which is why I’m considered one of history’s greatest drug lords.
Confucius’s stats include:
  • Career Billable Hours: 1,897 1
  • Deadlines Met: 0 2
  • Religions Founded: 1
Ithamar, son of Aaron; nephew of Moses...
So much MORE