Thursday, April 28, 2016

"First Solar Crushes Q1 Earnings, Shares Slide on Revenue Miss" (FSLR)

In late pre-market trade the stock is off 3 1/2% at $59.85.
From Zacks:
First Solar, Inc. announced financial results for the first quarter of fiscal 2016, posting earnings of $1.66 per share and net sales of $848 million.
Currently, First Solar has a Zacks Rank #3 (Hold), but it is subject to change following the release of the company’s latest earnings report. Here are 5 key statistics from this just announced report below.
First Solar:

1. Beat earnings estimates: The company posted $1.66 per share, surpassing our Zacks Consensus Estimate of $0.91.

2. Missed revenue estimates: The company saw revenue figures of $848 million, completely missing our estimate of $962 million.

3. First Solar raised the low end of its 2016 earnings per share guidance from $4.00 to $4.10...

"Financier John Gutfreund’s Sprawling Fifth Avenue Co-Op Asks $120 Million"

From the Wall Street Journal's Private Properties:

The duplex of the former Salomon Brothers CEO includes a roughly 1,600-square-foot master suite, three staff rooms and a walk-in safe for storing silver
The sprawling 834 Fifth Avenue co-op that for decades was home to former Salomon Brothers chief John Gutfreund is listing for $120 million.
The sprawling Fifth Avenue co-op that for decades was home to former Salomon Brothers chief John Gutfreund is listing for $120 million.
A 38-year veteran at Salomon, Mr. Gutfreund was CEO of the firm during the 1991 Treasury-note auction scandal, and was pressured to resign. He died in March at age 86.

Measuring around 12,000 square feet, the 20-room duplex is one of the largest apartments on Fifth Avenue, according to John Burger of Brown Harris Stevens, one of the listing agents. The apartment has been owned since the 1980s by Mr. Gutfreund and his wife Susan, Mr. Burger said.

Located on the seventh and eighth floors of the co-op 834 Fifth Avenue, the apartment has three bedrooms in addition to a roughly 1,600-square-foot master suite with a dressing room and sitting room, Mr. Burger said. An entrance gallery has ceilings about 24-feet high and a grand marble staircase. The gallery opens into a roughly 50-foot-long living room with two fireplaces and numerous windows overlooking Central Park. Off the dining room, which also has park views, there is a large butler’s pantry with a felt-lined, walk-in steel safe for storing silver, Mr. Burger said.

The lower level of the apartment has three staff rooms and a servants’ hall, but the asking price also includes another staff room—originally for the chauffeur—on the second floor, Mr. Burger said. The apartment also comes with a wine cellar and storage space in the basement....MORE

"Bloomberg turning to robots to deliver the news"

From the New York Post:
Bloomberg Editor-in-Chief John Micklethwait told his 2,400 journalists in a memo on Tuesday that he was forming a 10-person team to lead a study on how to use more automation in writing and reporting.

Micklethwait called the robot-generated copy “smart automated content (SAC).”

A company spokesman insisted no journalists will be sacked as a result of the SAC.

“Why do we need you, if the basic idea is to get computers to do more of the work?” Micklethwait asked in the memo, obviously addressing an unspoken concern among his staff.

“One irony of automation is that it is only as good as humans make it. That applies to both the main types of automated journalism. In the first, the computer will generate the story or headline by itself. But it needs humans to tell it what to look for, where to look for it and to guarantee its independence and transparency to our readers. In the second sort, the computer spots a trend, delivers a portion of a story to you and in essence asks the question: Do you want to add or subtract something to this and then publish it? And it will only count as Bloomberg journalism if you sign off on it.”...MORE
And from MIT's Technology Review, computers captioning pictures:
When social-media users upload photographs and caption them, they don’t just label their contents. They tell a story, which gives the photos context and additional emotional meaning. 
A paper published by Microsoft Research describes an image captioning system that mimics humans’ unique style of visual storytelling. Companies like Microsoft, Google, and Facebook have spent years teaching computers to label the contents of images, but this new research takes it a step further by teaching a neural-network-based system to infer a story from several images. Someday it could be used to automatically generate descriptions for sets of images, or to bring humanlike language to other applications for artificial intelligence.

“Rather than giving bland or vanilla descriptions of what’s happening in the images, we put those into a larger narrative context,” says Frank Ferraro, a Johns Hopkins University PhD student who coauthored the paper. “You can start making likely inferences of what might be happening.”

Consider an album of pictures depicting a group of friends celebrating a birthday at a bar. Some of the early pictures show people ordering beer and drinking it, while a later photo shows someone asleep on a couch.

“A captioning system might just say, ‘A person lying on a couch,’” Ferraro says. “But a storytelling system might be able to say, ‘Well, given that I think these people were out partying or out eating and drinking, then this person may be drunk.’”...MORE

"Central Banks Roil Markets"

From Marc to Market:
The Bank of Japan defied expectations and its economic assessment to  leave policy unchanged.  The inaction spurred a 3% rally in the yen and an even larger slump in stocks.  The financial sector took its the hardest and dropped almost 6%.  The yen's surge helped underpin other Asian currencies, especially the South Korean won, which gained nearly 1%.
At the end of January, the BOJ surprised by adopting negative interest rates for a small part of Japanese banks' excess reserves.  The yen strengthened markedly.  Now the BOJ disappoints in not easing policy.    Prior to the BOJ's announcement, and in response to poor data that showed the most deflation in three years (-0,3% year-over-year on a core measure of CPI that excludes fresh food), a larger than expected slide in overall household consumption (-5.3% year-over-year), the dollar had approached JPY112.00.  The dollar dipped briefly below JPY108 in early European activity.  The greenback sits near its lows ahead of the start of the North American session. 
The BOJ did do something.  It cut its inflation and growth forecasts and delayed for the fourth time in around a year when it would achieve its inflation target.  It now stands at some time in the next fiscal year.  We have long argued that it is unhelpful for the BOJ cast its inflation target as a near-term objective.  Other major central banks are talking about their inflation target as a medium-term objective, and this provides more degrees of freedom. 
BOJ Governor Kuroda sounded dovish, and the pressure to ease policy in the coming months, perhaps in July, remains possible.  The ostensible argument for standing pat is to monitor the impact of the recent easing.  However, the BOJ's economic forecasts are consistent with the aggressive easing having little positive impact.  Some speculate the Kuroda was sending a message to the Abe government, consistent with the G7/G20 concerns about the over-reliance on monetary policy.  The lack of new monetary action may add pressure on the government for a bolder fiscal policy initiative. 
The Nikkei sold off hard.  We had warned yesterday that should the BOJ disappoint, the Nikkei could fall toward 16773.  In fact, it fell to 16652 and closed on its lows.  Depending, of course, on what happens over the next 12 hours, the Nikkei could gap lower tomorrow.  The downside risk extends toward 16000 now. 
Most Asian markets fell, and the MSCI Asia-Pacific Index slipped 0.2%, extending its declining streak to the fifth consecutive session.  Recall losses at the start of last week snapped an eight-day advance.   European bourses are lower, and the Dow Jones Stoxx 600 is off 1.25%, led by health care and financials.    The S&P 500 is trading nearly 0.8% lower. 
The push higher in global bond yields ended with a bang today.  Core 10-year benchmarks in Europe are off six bp.  Of note so is the 10-year Portuguese bond.  Tomorrow DBRS will review Portugal's credit rating.  It is the only rating agency that the ECB uses that give Portugal an investment grade.  If it takes it away, Portuguese bonds will not qualify for purchases under the ECB's bond-buying program.  It would join Greece and Cyprus. 
The US 10-year yield, which had been approaching 2.0% earlier this week, fell yesterday after the FOMC failed to alter investors skepticism about a June hike.  Perhaps in anticipation of easier BOJ policy would spur Japanese demand for US Treasuries also weighed on yields.  Today the yield is close to 1.80%....MORE

Wednesday, April 27, 2016

" is the 13th company to be granted a license to test autonomous vehicles on public roads in California..."

From IEEE Spectrum: Brings Deep Learning to Self-Driving Cars is the 13th company to be granted a license to test autonomous vehicles on public roads in California. This is exciting news, especially because we had no idea that even existed until just last week. The company has been in stealth mode for the past year, working on applying deep learning techniques to self-driving cars. We spoke with two of's co-founders, Sameep Tandon and Carol Reiley, about why their approach to self-driving cars is going to bring us vehicle autonomy that's more efficient, more adaptable, more reliable, and safer than ever. came straight out of Stanford's AI Lab about a year ago. Its core team is made up of experts with a wealth of experience developing deep learning systems in all kinds of different domains, including natural language processing, computer vision, and (most recently) autonomous driving. “This team helped pioneer how to scale deep learning, which is one of the reasons why deep learning has been successful as of late,” says Tandon, the company’s CEO.

After working for several years on the problem at Stanford, these researchers felt that a startup would be the best way to commercialize their ideas and technology and turn them into a product. So they decided to put their PhDs on hold and started

“ is a deep learning company,” Reiley says. “We're solving the problem of a self driving car by using deep learning for the full autonomous integrated driving stack—from perception, to motion planning, to controls—as opposed to just bits and pieces like other companies have been using for autonomy. We’re using an integrated architecture to create a more seamless approach.”

What is deep learning? And why should we care that it's being applied to autonomous driving? Says Tandon:
When you're developing a self-driving car, the hard part is handling the edge cases. These include weather conditions like rain or snow, for example. Right now, people program in specific rules to get this to work. The deep learning approach instead learns what to do by fundamentally understanding the data. 
“Generally, before deep learning, doing machine learning was all about feature selection,” Reiley adds. “It was a very crude way of doing it, and it was difficult and time consuming to get these algorithms to recognize anything.” Deep learning, she says, is much more analogous to the way humans learn. “You show an algorithm good and bad examples, and it learns to generalize. For a dynamic environment that is extremely complex, we believe this is best way to solve the problem.”...MORE

"Forex Traders Brace for Wild Yen Ride as BOJ Announcement Looms"

From MoneyBeat:
Currency investors are bracing for whipsaw trading in the yen heading into the Bank of Japan’s policy announcement Thursday.

The cost of insuring against overnight swings in the dollar/yen currency pair, called the implied volatility rate, has surged to its highest level since at least 2011, according to Thomson Reuters data.
The implied volatility rate rose to 35.05% Wednesday from 7.875% on Tuesday.

The rate is so elevated in part because the options contract covers volatility stemming from both the U.S. Federal Reserve and the BoJ’s policy decisions. The dollar/yen was little changed after the Fed on Wednesday afternoon released a policy statement acknowledging that the economy remains mixed.

The Bank of Japan, combating the perception that it has run out of policy tools, carries greater risk for investors.

“A lot of expectations have built up going into this meeting,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. Mr. Esiner expects the BoJ to ramp up its asset buying program and expand its negative rate policy to some bank loans.

But it’s unclear how the market will react to the BoJ’s decision. Consider the yen’s recent rally. The currency has been one of the year’s best-performing currencies despite the BoJ’s move into negative rates in January, which should have made the currency less attractive to investors....MORE
Also at MoneyBeat:
The Bank of Japan’s Monetary Policy Pickle

The Annotated Fed Statement

This may be the best format for comparison available on the interweb.
From the Aleph Blog:

March 2016April 2016Comments
Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. FOMC shades GDP down and employment up.
Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft.Shades down household spending.
A range of recent indicators, including strong job gains, points to additional strengthening of the labor market.A range of recent indicators, including strong job gains, points to additional strengthening of the labor market.No change.
Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports.Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.Shades energy prices up, and prices of non-energy imports down.


"Economists React to the Fed Decision: ‘More Optimistic…Than in March’"

From Real Time Economics:
Federal Reserve officials voted to hold rates steady at the conclusion of their two-day policy meeting Wednesday. They appear to be in no rush to move them higher in the weeks ahead amid signs of slower economic activity and lingering concerns about inflation and global developments. Here’s what economists had to say about the latest policy statement:
The statement was more optimistic-sounding than in March…consistent with tightening again soon—potentially in June—if the data and markets are supportive. And while the formal risks assessment was not reinserted, the reference to ‘global economic and financial developments’ posing risks was dropped. Instead, officials will ‘monitor’ ‘global economic and financial developments,’ along with inflation indicators.”—Jim O’Sullivan, High Frequency Economics

“On the domestic economy, the statement draws attention to the split between the ‘further’ improvement in the labor market ‘even as growth in economic activity appears to have slowed.’ They don’t say explicitly that the labor data are more reliable than the GDP numbers but it’s easy to conclude that that’s what they think.…Overall, the shifts in the language suggest the Fed wants to keep its options open, and to make sure markets know it. June is therefore in play, but we still think the Brexit referundum just eight days after the meeting is a serious barrier to action.”—Ian Shepherdson, Pantheon Macroeconomics

Facebook is Offering $250,000 for 20 Video Posts Per Month Over a Three-month Period

From BuzzFeed:

As Social Shifts To Video, Content Creators Win Power And Dollars
The social platforms are all competing for quality video, but only a select few can deliver it. Which means if platforms want the programming, they’ll have to pay up.

In December, a pack of widely followed Vine stars made their way to Twitter’s San Francisco headquarters for an unprecedented meeting. These stars, who helped propel Vine to popularity by creating a unique brand of entertainment to fit its short, looping format, wanted to finally get paid for their work. Other social networks had plans in the works to pay content creators, and these Viners wanted in too. It was a bit of a watershed moment: After years of the platform acting as supreme ruler, the leverage was beginning to shift. 
In the meeting, the stars sent a message to Twitter: Facebook, Instagram, and Snapchat all want our videos too; cut us a check if you want to keep us. “We made Vine a cultural phenomena,” one of the Vine stars in attendance told BuzzFeed News. “We would like finally make a living off of the platform.”

The meeting displayed something new that major social companies are now starting to reckon with: Very few people, relatively speaking, are capable of regularly creating compelling videos that others want to watch. And as social platforms look to saturate their feeds with video — live or otherwise — rather than just pictures and text, they’re essentially competing for the same limited set of good videos. So those who create the ​quality​ stuff can demand payment.

In recent weeks, those payments have begun flowing. Twitter and Facebook both started handing out multimillion-dollar wads of cash to bring quality video content to their platforms. Twitter announced earlier this month that it would spend millions to stream 10 NFL games during the 2016 NFL season. And Facebook is offering six-figure checks to celebrities who agree to use its live-streaming product. Periscope’s CEO, in an interview, wouldn’t rule out paying content creators down the road either. When those Vine stars marched into Twitter’s Market Street headquarters in San Francisco demanding financial compensation for their work, it wasn’t an outlier. It was the new normal.

“In video we are seeing just how hard it is to make great content people watch on a recurring basis,” Josh Elman, a partner at venture capital firm Greylock Partners who has invested in the live-streaming app Meerkat, told BuzzFeed News. “Given that, the platforms are starting to compete for those hundreds or thousands of creators who can do that, rather than hoping just anyone can become a star.”

The Vine stars’ demand in their meeting with Twitter was similar to the demands TV content companies make during negotiations. Viacom, for example, last week threatened to remove its content (including Comedy Central and MTV) from Dish Network if the satellite provider didn’t fork up more cash for the rights to air it. If Dish didn’t pay, Viacom’s “blackout” would make Dish’s competitors more attractive to the market. Dish agreed to fee increases, and Viacom remains on the network.

Multichannel video programming distributors — Comcast, Verizon, Dish Network, DirecTV, and more — transmit programming into people’s living rooms. But they pay content producers and programmers to fill the airwaves so they don’t have 1,000 channels of public access town hall meetings. Sound familiar? Just substitute Twitter for Dish and Vine stars for Viacom. The social platforms don’t want to fill their feeds with hours of boring video either.

In the digital world, social platforms are the content conduits to the masses, and the power relationship between them and content creators is similar. Ultimately, people care about good content, not who distributes it....MORE

Oil: Prices Still Positive Despite Inventory Build (quick, hire a kid)

And it's this behavior, boys and girls, that led me to write, on another EIA report day back in March:

EIA Reports Giant Inventory Build, Oil Trades UP
...It's action like this that makes the agricultural futures attractive at the moment.
That was at $34.83 up 43 cents.
Today, despite the continuing inventory overhang, the front futures are at $44.21 up 17 cents.
The current market leaves the geriatric set only two options for survival.
1) Withdrawal from activity until one has a countertrend opportunity or
2) Adaptation to the current, apparently irrational, go-go mentality.
On the latter point, if you'll indulge a brief diversion before we come back to today's EIA numbers, here's our March 2012 post, "Transports, Small Caps Hit New Highs" (Quick! Hire a kid!):

...There's an interesting dichotomy developing in the markets, one that we've seen before.
The old pros are cautious, befuddled and a bit scared. Folks with less than a decade at the market are making money.

Adam Smith noted it in the 'sixties bull market (The Money Game):

There is one wonderful chapter where the consummate pragmatic speculator, the Great Winfield, is lamenting his performance problems in a wildly speculative bull market.
“My boy,” said the Great Winfield over the phone. “Our trouble is that we are too old for this market. The best players in this kind of a market have not passed their twenty-ninth birthdays. Come on over and I will show you my solution.”
 So Adam Smith goes over and finds three new faces in the Great Winfield’s office. 
My solution to the current market,” the Great Winfield said. “Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” The three Kids stood up without taking their eyes from the moving tape, shook hands, and called me “sir” respectfully.
“Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.”
Winfield then describes how much money Billy the Kid is making in computer leasing stocks like Leasco Data Processing and Randolph Computer that he has heavily leveraged with bank borrowing....

And the really spooky bit, for me anyway, SHALE: 
...Sheldon the Kid waved his hand for recognition.

“This one will really take you back,” said the Great Winfield. “Sheldon’s Western Oil Shale has gone from three to thirty.”

“Sir!” said Sheldon. “The Western United States is sitting on a pool of oil five times as big as all the known reserves in the world – shale oil. Technology is coming along fast. When it comes, Equity Oil can earn seven hundred and fifty dollars a share.

It’s selling at twenty-four dollars. The first commercial underground nuclear test is coming up. The possibilities are so big no one can comprehend them.”

“Shale oil! Shale oil!” said the Great Winfield. “Takes you way back, doesn’t it. I bet you can barely remember it.”

“The shale oil play,” I said dreaming. “My old MG TC. A blond girl, tan from the summer sun, in the Hamptons, beer on the beach, ‘Unchained Melody,’ the little bar in the Village.”

“See? See?” said the Great Winfield. “The flow of the seasons. Life begins again. It’s marvelous. It’s like having a son! My boys! My Kids!”

The Great Winfield had made his point. Memory can get in the way of such a jolly market, that malaise that comes with the instantly gone, flickering feeling of déjà vu. We have all been here before.

“The strength of my kids is that they are too young to remember anything bad, and they are making so much money they feel invincible,” said the Great Winfield.

“Now you know and I know that one day the orchestra will stop playing and the wind will rattle through the broken window panes, and the anticipation of this freezes us. All of these kids but one will be broke, and that one will be the multi-millionaire, the Arthur Rock of the new generation. There is always one, and maybe we will find him.”
And today's EIA report via ZeroHedge:

Following last night's surprise inventory draw (1.1m via API), WTI soared above the week's high holding $45 into this morning's DOE data which was dramatically different. Instead of a draw,DOE reported a bigger-than-expected 2.00m build along with a major build at Cushing and Gasoline stocks also rose. Despite a small drop in production, WTI prices are plunging, erasing the hope-driven API ramp.API
  • Crude -1.1m (+1.75m exp)
  • Cushing +1.9m
  • Gasoline -400k
  • Distillates -1.02m
  • Crude  +2.00m (+1.75m exp)
  • Cushing +1.746m
  • Gasoline +1.61m
  • Distillates -1.70m
The biggest build at Cushing since Dec (after the pipeline delay ends) and surprisingly large build overall...
Production fell modestly on the week...down 13 of 14 weeks

...MORE, including a couple nice gasoline charts that should give the kids pause.

But won't

Here's the EIA's Weekly Petroleum Status Report.

China: Hard, Harder, Hardest Landing

Q-carbon* hard, baby.
From FT Alphaville:

What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing? 
The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come. 
You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example: 
The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP. 
The evidence for this can also be found in the money supply growth figures and the growth in the assets and liabilities on the balance sheets of Chinese banks. M2 money supply growth has recovered from trough levels witnessed in mid-2015. However, it is M1 money supply growth – the measure of the more liquid component of the money supply – that has really taken off. Meanwhile, we have seen a surge in the growth of Chinese domestic banks’ assets and liabilities since the start of 2015.

Again, that seems pretty bad. 
Which leaves us to ask, where hard landings are concerned: how would you describe what we’ve already experienced? 
Speaking of, you may remember this:

And, even if you don’t, here’s SocGen’s opening few pars: 
Our core scenario is that China will grow by 7.4% in 2013. There is still a chance however that China could land hard, with growth of less than 6%. 
A survey of global investors suggests that most underestimate how much asset prices would fall if China does land hard. 
We believe base metals could drop 50%, while the USD rallies and treasuries outperform other debt markets and global equity markets. 
We thought some compare and contrast might be in order. 
To be clear, this isn’t meant as a shot at SocGen. Frankly, they did a pretty good job mapping this stuff out and were admirably sceptical about China’s growth path. And they got the primary issue right, that it’s “the top leaders’ choices during the difficult times ahead that will determine the fate of the Chinese economy.”...

*Every few years it seems there is a new entrant in the "Harder than diamond" stakes.
The perennial contender was rhenium diboride but that was only on one dimension of hardness.
The most recent discovery is a new phase of carbon titled Q-carbon because it is superheated and then quenched.
It goes to 11 on Mohs hardness scale.

(technically >10, the 11 bit was just a cheap Spın̈al Tap ref)

Frontrun: UBS Buying Asian, Indian Art For The Bank's Collection

From Barron's Penta:

UBS’ Global Art Buyer Eyes More Asian Works
Mary Rozell heads the bank’s art collection and is looking at pieces from India, Taiwan and the Philippines. 
You wouldn’t often associate the works of ground-breaking contemporary artists like Andy Warhol and Tracey Emin with the buttoned-down world of investment banking. In today’s art market though, corporate collections are in vogue. With more than 30,000 pieces, Swiss bank UBS’s contemporary is one of the biggest.
The pieces aren’t on display in public galleries, but they’re not sat in warehouses gathering dust either - thankfully. “Most of it’s hanging on walls in our 800 offices around the world,” says Mary Rozell, UBS’s recently-appointed global head of the collection. Rozell, a former art historian and lawyer, is out to dispel the idea that corporate collections are drab and anti-septic.

Penta Asia sat down with Rozell at Hong Kong’s recent Art Basel event.

Penta Asia: How do you source the collection’s artworks?

Mary Rozell: We have a team in Switzerland, one in London, one in New York and one in Hong Kong. You need to cast a wide net to know what’s going on. You need people going to galleries every week and building relationships – not just showing up at an art fair once a year. As the chief curator I approve all the purchases up to a certain amount. For higher end purchases we’ve got an art board which consists of people from the bank and a few outside advisors. They’ve got to ratify any big purchases.

Most of the artworks are so vetted that we know they’re going to hold their value to a certain extent. That latter point’s not really our purpose, though. It’s just by chance when you’re buying out of passion, knowledge and interest that you’re most likely to have your values go up over time. Some of our works were actually acquired from other collections. UBS acquired Paine Webber in 2000, which had a fantastic collection and those works are now very valuable.

Q: So what’s the current value of the entire collection?

A: I’m not telling you that....MUCH MORE
HT: eFinancial News

Barclays Plans Its Own Brexit

In a way. In France.
From FundStrategy:

Barclays in sale talks on French banking and wealth arm
Barclays is in exclusive talks with private equity firm AnaCap Financial Partners over a deal to sell its French retail banking operations.

The French arm includes a network of 74 branches, a life insurance business, and wealth and investment management operations.

AnaCap holds stakes in challenger bank Aldermore, as well as banks in Belgium, Malta, the Czech Republic and Poland.

It also bought French digital insurance broker AssurOne in 2014.

Barclays group chief executive Jes Staley says: “Barclays’ French retail and wealth and investment management business is attractive, but no longer fits with our strategic ambitions.... MORE

Ahead Of Today's Fed (non)Action, Korean Central Bank Says Negative Rates Don't Work

From Reuters:

Negative interest rates to have limited impact on economic growth - BOK paper
Negative interest rates adopted by a number of central banks in Europe and in Japan are expected to have only a limited impact in shoring up economic growth, a research paper from South Korea's central bank said on Wednesday.
Several factors could lead to negative policy rates failing to achieve their goals, the Bank of Korea (BOK) report said, including half-hearted declines in bank deposit rates as commercial banks try to keep their customer base intact.

Negative rates cannot fully influence the economies implementing them if they are still trapped in structural low growth and low inflation, it said.

Although the research paper did not mention the implications negative rates would have on South Korea, it was released just a day after the country's president said she favours moving in the direction of quantitative easing.

The mere fact that below-zero rates are adopted could also hurt sentiment by kindling fears that a country is in economic trouble, the report said.

"If economic agents accept the institution of negative interest rates as a bad signal, that the economy is shrinking or deflation is worse than expected, it may hold back economic activity," said the paper, jointly authored by BOK officials Kim Bo Sung, Park Ki-dok and Joo Hyun Do.

Bank customers may hoard cash instead to avoid negative interest rates, leading to instability in cash flows, the paper added....MORE
HT: The Capital Spectator

Tuesday, April 26, 2016

There's A Transcript For The "Jim Chanos: The Art Of Short Selling" Podcast

Having planned to listen to the podcast this weekend I put the link in the mental file cabinet until it was pointed out to me that there's a searchable transcript.
Here's the intro to the podcast but be forewarned, Chanos has a legendarily dry sense of humor. Over the years I've found it best to assume that when I don't understand something he says that he is either making a joke or actually skipping ahead a couple spaces.

A recent example occurred in August.
Chanos was shorting SolarCity and when apprised of this fact, Lyndon Rive, CEO and cousin of Elon Musk said he'd never heard of Chanos.

On CNBC the next day Chanos was being interviewed and Musk's name came up.
Without missing a beat or cracking a smile Chanos asked "Elon who?"

A couple months later SCTY dropped 21% in one day.

From FT Alphaville:
Alphachatterbox is available on Acast, iTunes, and Stitcher.

Many people like it when stocks go up, and feel bad when prices go down.

Pension plans look healthier in bull markets. Dealmakers have more work to do when rich valuations encourage executives to go on buying sprees. Brokerage houses get more fees when amateur punters decide they need to own more shares. Corporate bosses get paid extra for hitting shareholder return targets. Politicians enjoy the boost to tax revenues and the (implied) vindication of their terms in office. Central bankers are glad to see traders betting on stable growth.

But markets aren’t supposed to make us feel good — they’re supposed to help us allocate finite resources towards their best uses. In a dynamic society, most companies should fail and be replaced by newer, better ones. Entire industries should get wiped out on a regular basis because they’re no longer necessary, even as new fields of endeavour, previously unimaginable, are born. Capitalism needs creators, but it also needs destroyers.

Alphachatterbox recently had the chance to talk to one of finance’s foremost destroyers, Jim Chanos, the founder and boss of Kynikos Associates. Chanos has been betting against companies for more than 30 years, with successes ranging from Enron to Eastman-Kodak.
We covered a lot of ground in our conversation, including, but not limited to:
  • His firm’s research process
  • The mechanics of short-selling
  • How Kynikos manages risks
  • The role of a short-seller in a diversified portfolio
  • How Chanos and his partners invest their own money
  • How he bet in anticipation of the global financial crisis
  • How Kynikos decided to start betting against China’s economic model in 2009
  • The importance of accounting standards and enforcement in making markets work
  • The big opportunities Kynikos has missed over the years
Our first excerpt is part of Chanos’s description of how he and his colleagues realised the short-selling opportunities presented by China’s overinvestment:...
...MORE, including podcast. 

Here's the transcript (27 page PDF)

Ford, Google and Uber Hook Up In Self-Driving Car Coalition (GOOG; F)

From Bloomberg via the Houston Chronicle's FuelFix blog:

Coalition forms to bring self-driving cars to American roads
A group of companies including Alphabet Inc.’s Google, Ford Motor Co. and Uber Technologies Inc., are forming a coalition to advocate for safety regulations for self-driving cars and help bring them to American roads.

The group, which also includes Volvo Cars and Lyft Inc., aims to work with lawmakers, regulators and the public to “realize the safety and societal benefits of self-driving vehicles,” according to a statement Tuesday.

Some 1.3 million people die every year in traffic accidents — many of them young people, according to a statement from Uber. “Self-driving cars can help save millions of lives,” it said.

Autonomous cars will make roads in the U.S. safer and less congested, according to the group, but “one clear set of federal standards” is needed to help facilitate bringing the vehicles to market. One of the group’s first tasks will be to work with civic organizations, municipalities and businesses to accomplish that goal, according to the statement.

“Fully autonomous vehicles will help people travel more safely and efficiently, as well as facilitate mobility for those currently unable to drive,” Ford said in a separate statement....MORE

Global Macro: Paul Tudor Jones Interview at Institutional Investor

I had intended to include this oldie-but-goodie in last Friday's "Global Macro: There Are Many Ways To Approach It, Here's A Good One" but reality intruded before I could pull it up.
Here's a repost from May 22, 2009:

Paul Tudor Jones Interview at Institutional Investor
...Last July we visited Mr. Jones in "Paul Tudor Jones on Oil"Here's the Alpha Magazine introduction:
Paul Tudor Jones II founded Tudor Investment Corp. in 1980 at the age of 25. Since then this extraordinary investor has never suffered a losing year. His old-school macro approach is built on what he calls tape-reading, which involves analyzing price trends and riding momentum — with an uncanny knack for balancing risk and return — rather than obsessing over the fundamentals, as less intuitive or less self-confident traders might. Jones’s core belief is that often prices move and trends unfold only because of investor behavior (in this he and George Soros are similar). Business schools, Jones laments, are sometimes too steeped in teaching economic postulates and market theory. Through his Robin Hood Foundation, he pours millions of dollars into antipoverty and education programs in New York City. The Memphis-born manager, who began his career as a cotton trader, first made a name for himself in 1987, when he called the market crash and rode a heavy short position in stock index futures to a 201 percent gain. Today he oversees more than $18 billion in assets. Tudor’s flagship BVI Global Fund has returned roughly 23 percent annually since its 1986 inception.
Although I haven't researched it, I believe he did end up breaking that "Never a losing year" string last year. He's still one of the best in the business. Here's the interview:

What’s so special about macro hedge fund managers?

I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

Is it possible to teach someone to be a tape reader — what some might call a trend follower or technical analyst?
Certain people have a greater proclivity for it because they don’t have the need to feel intellectually superior to the crowd. It’s a personality thing. But a lot of it is environmental. Many of the successful macro guys today, they’re all kind of in my age range. They came from that period of crazy volatility of the late ’70s and early ’80s, when the amount of fundamental information available on assets was so limited and the volatility so extreme that one had to be a technician. It’s very hard to find a pure fundamentalist who’s also a very successful macro trader because it is so hard to have a hit rate north of 50 percent. The exceptions are in trading the very front end of interest rate curves or in specializing in just a few commodities or assets....MUCH MORE Oops, that link has died. Fortunately the II story was backed up on one of our servers and the interview will continue after my 2009 verbiage.

HT: The Pragmatic Capitalist who highlighted that first question as his teaser. PC also has a link to one of his global macro posts that is worth checking out.

The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.

Continuation of Paul Tudor Jones interview at Institutional Investor:
What's your take on the next generation of managers?
I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear!
You're not necessarily a fan of hiring people straight out of business school.
Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I'm a staunch advocate of higher education, there is no training - classroom or otherwise - that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market. There's typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it - a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.
How will macro investing fare over the next five years?
The macro space will be great. I think we're going into one of those slow or zero-growth periods in the U.S., which will give us a lot of volatility.
Will hedge funds do as well as they have done in the past?
Average returns will drop. The amount of money that was made by hedge funds in the past two decades was so outsize relative to anything in civilization in the past couple of centuries that it naturally attracted the best intellectual capital in the world. As a result, the inefficiencies that existed in the '70s and '80s and even the '90s are not as readily seen. But in this business there will also always be that upper tier - that top 10 or 20 percent of managers who will outperform everyone else.
What experience had the biggest impact on your career?
Trading commodity markets back in the late '70s - when they were still extraordinarily volatile - allowed me to experience repeated bull and bear markets across a variety of different instruments. Remember, in agricultural markets the cycle can be just 12 months. I lost my stakes a couple of times, which taught me risk control and risk management. Losing those stakes in my early 20s gave me a healthy dose of fear and respect for Mr. Market and hardwired me for some great money management tools. Oh, incidentally and by necessity, I became a pretty good fundraiser, which has helped me in the not-for-profit world.
Who's had the biggest influence on your career?
My first boss and mentor, Eli Tullis, of New Orleans. He was the largest cotton speculator in the world when I went to work for him, and he was a magnificent trader. In my early 20s, I got to watch his financial ups and downs and how he dealt with them. His fortitude and temperament in the face of great adversity were great examples of how to remain cool under fire. I'll never forget the day the New Orleans Junior League board came to visit him during lunch. He was getting absolutely massacred in the cotton market that day, but he charmed those little old ladies like he was a movie star. It put everything in perspective for me.
What was your single best trade or investment?
Probably buying March put options on the Japanese stock market in early February of 1990. The volatility was an absurd 5 percent, owing to the newness of the options market, with which many Japanese had little experience. Much like the U.S. stock market just before the 1929 crash, the Japanese stock market in early 1990 was following the same price pattern with remarkably similar fundamentals and valuations that provided enormous profit opportunities in a truncated period of time. I actually felt sorry for the people who were on the other side of that trade when I was buying those puts.
Your biggest missed chance?
I missed the subprime opportunity of 2007, and it rankles me every time I hear the term. We have studiously avoided mortgages at Tudor specifically because it is a big-carry game that does not adequately compensate for the inherent tail risk. That unfamiliarity, though, came with a huge opportunity cost.
Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?
It's a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments - principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn't highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it's going to end badly. We've seen it play out hundreds of times over the centuries, and this is no different. It's just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.
Should hedge funds be more closely regulated?

I selfishly do not want to be regulated, but I understand the necessity of it.

"A Bright Side to the Financial Stumbles of Digital Media"

From the New York Times' The Upshot blog:
People who don’t work in the news media might not have noticed the outbreak of angst that followed the recent financial stumbles at young publications like BuzzFeed and Mashable.

It is true that the outlook is not great. But there is a bright side: The shakeout may end up taking all the air out of a little bubble that had inflated in the media world. With less hype, we may get to see which new ways of doing things actually work and which don’t. In fact, everything suggests that news consumers are going to get a product that is much more attuned to how they now find, read and discuss the news.

So while Mashable, a website that recently announced cuts, BuzzFeed and others may not yet have found the secret sauce, many of the ingredients are there. Those will now be used, improved and added to new ingredients, in the hope of building news operations that can reach millions of readers with strong journalism while generating reliable profits.

This probably isn’t going to happen soon, and the news industry seems likely to continue to shrink over all in the near term, but the future need not be grim for innovative publishers that produce well-reported and engaging stories.

One of the strengths of new publications was that they really understood that people found articles through social media sites like Facebook, where they are shared and used to start conversations. Last year, for instance, a survey by the Pew Research Center found that 61 percent of millennials got their news about politics from Facebook. Where the newer publications may have gone wrong is in producing too many stories that were designed primarily for sharing and quick clicks, a trick that readers can grow tired of.

The solution for this is not easy or cheap. It requires producing articles that are likely to start conversations on social media but also don’t overpromise and then underdeliver.

There are no shortcuts to producing such articles, but skilled social media editors with a nose for good stories that will also excel on Facebook, Twitter, Reddit and other digital hangouts can make a big difference. Many already have.

Two years ago, the mobile apps for large newspapers mostly presented readers with simple lists of stories with dull headlines. Now they are far livelier, and play a role in driving readership and subscriptions higher. 
The new publications also understood that a media organization has to acknowledge the enormous reach of Facebook or Google and work with them to gain revenue. An article this week from my colleague John Herrman contained a chilling number: In this year’s first quarter, 85 cents of every new dollar spent on online advertising will go to Google or Facebook....MORE
HT: Ritholtz@Bloomberg

Natural Gas: The Impact Of Spring Storage Surplus On Summer Prices

Soon-to-be front month June's $2.182 down 0.005.
From RBN Energy, April 21:
The U.S. natural gas market ended the winter withdrawal season with inventories carrying a record high overhang and an enormous surplus versus previous years. Since then, the historic surplus has begun to contract, and the CME/NYMEX Henry Hub futures contract has responded, rallying 11.2 cents since April 1st to settle at $2.068/MMBtu Thursday. Now, well into the third week of injection season, the big questions are whether the recent bullishness can be sustained and what it will take to relieve the surplus in storage. In today’s blog, we assess how the existing surplus will impact summer storage activity and prices.

This is Part 2 in our “Carry That Weight” supply/demand update series. In Part 1, we recapped the winter withdrawal season, in which mild weather suppressed demand even as production set new record highs, resulting in oversupply and some of the lowest daily futures settlement prices in 17 years. U.S. natural gas storage inventories ended the winter heating season at a record high of 2,480 Bcf as of April 1, 2016, which translated to a 1,004-Bcf surplus to the corresponding week in 2015. Daily futures prices this winter averaged just $2.05, $1.175 (36%) lower than last winter.

As we noted in Part 1, storage inventory levels at the end of the winter season typically set the tone for storage activity and prices through the injection season, which runs from April 1 through October 31.  Natural gas storage has a seasonal pattern as regular as clockwork, driven largely by fluctuations in weather. In the winter, daily gas demand is historically higher than daily production, resulting in withdrawals from storage – spurred by contractual obligations of storage capacity holders and higher winter prices that entice gas out of storage to help meet heating demand. 

Thus, at the end of winter, inventories are generally at their lowest point for the year. On the other hand, Injection season begins as weather warms up to the point where demand becomes lower than daily production; the surplus is put into storage for use when it is needed again -- the next winter. Thus, inventory levels usually peak some time in November, just before winter demand kicks in again. That peak typically falls well short of the theoretical total U.S. working gas storage capacity, which (as of capacity data through November 2015) the EIA estimates at 4,343 Bcf. The highest observed level historically is the 4,009 Bcf we saw last November (2015).

The big deal this year is that the lowest point (2,468 Bcf, seen in the week ended March 25, 2016) and the subsequent winter-ending volume in storage as of April 1 both were exceptionally high – as high as levels typically seen in late June or early July, at least 9 weeks into injection season. As we noted previously in our March storage update blog Nat Gas Storage Limits, the combination of the high inventory level at the beginning of injection season and the looming storage capacity ceiling inherently means there is physically less storage space left available for the market to inject this summer. We also know from that analysis that because of the capacity limitations, the market theoretically cannot withstand much more than a 300-Bcf surplus on top of last year’s 4,009-Bcf peak inventory.  One catch however, is that ‘theoretical’ caveat.  No one really knows what the real maximum inventory level is.  It could be higher than the EIA’s number of 4,343 Bcf, or lower.  But if we assume that level really is the maximum, then injections must average much lower this season than they did last year or historically....MORE

Currencies and Stuff: "Greenback Mostly Softer, Sterling Shines"

From Marc to Market:
The gains the US dollar registered in the second half are being pared, but it is sterling's strength that stands out.  It is difficult to attribute it to Obama's push against Brexit, but there does appear to have been a change in sentiment.  
Sterling is the best-performing currency not only today but for the past five sessions, rising 1.25% against the US dollar to its best level since mid-February.  The next target is $1.4600 and $1.4670, the high from early February.  Sterling is rising against the euro for the eighth consecutive session.   The next target for the euro is near GBP0.7685, which corresponds to the 38.2% retracement of the euro's rally off the mid-November low near GBP0.7000. 
However, investors need to be careful extrapolating too much from the decline in the benchmark three-month volatility and call-put skew.    The issue here is the calendar.  Three-month optionality goes well beyond the referendum, which has now moved within the two-month window.  The pressures have been squeezed into two-month duration.   Two-month sterling volatility is at new six-year highs today, reaching more than 14.5% earlier, surpassing three-month volatility which has fallen below 13%.  
Similarly, the call-put skew (25 delta risk-reversal) is being reduced in the three-month options and rising sharply in the two-month period.  In the three-month period, the premium for sterling puts over calls finished last week at 4.45% and is now quoted near 3.68%.  The 2-month skew favors sterling puts by 3.8% compared with 1.22% before the weekend. 
The news stream remains light ahead of tomorrow's conclusion of the FOMC meeting and Thursday's BOJ conclusion.  Many observers seem to be exaggerating how important the former is for the latter.  Recall that the Fed's rate hike in December, and indications at the time that most at the Fed thought four hikes this year would be appropriate, did not deter the BOJ from adopting negative interest rates at the end of January.   Nor did the ECB easing in early December preclude the Fed from tightening a fortnight later....MORE