Thursday, August 13, 2020

EIA Natural Gas Storage Report, August 13: Coin Flip With Slight Upside Bias

First, FX Empire offers up a condensed version of their roundup of estimates going into the release:
According to a consensus estimate, this week’s Energy Information Administration (EIA) weekly storage report is expected to show a 51 Bcf injection. Meanwhile, Energy Aspects is estimating a 60 Bcf injection in its preliminary report.
Last year, the EIA recorded a 51 Bcf injection for the similar week, and the five-year average is a build of 44 Bcf, according to government records....
And from the Energy Information Administration:
....Working gas in storage was 3,332 Bcf as of Friday, August 7, 2020, according to EIA estimates. This represents a net increase of 58 Bcf from the previous week. Stocks were 608 Bcf higher than last year at this time and 443 Bcf above the five-year average of 2,889 Bcf. At 3,332 Bcf, total working gas is above the five-year historical range....
We'll post the afternoon-released EIA Natural Gas Weekly Update tomorrow morning with an especial interest in whether LNG shipments have begun ticking up.

And finally the price action via the CME, one week of 30-minute prints:

Eugene Fama: "Inflation is Totally Out of The Control of Central Banks"

From The, August 10:
Eugene Fama, Nobel laureate and Professor of Finance at the University of Chicago, doesn’t believe in a stock market bubble. But he is worried about the high levels of government debt. He warns that investors could stop perceiving government bonds as risk-free. A conversation with the «father of modern finance».

Few economists have had a greater influence on the financial markets than Eugene Fama. According to his Efficient Market Theory, competition among investors is so intense that all information and expectations are immediately and correctly priced in. Therefore, it’s impossible to beat the market in the long-term.

Never shy of making pointed statements, the Professor of Finance at the University of Chicago doubts the power of the central banks. «The business of central banks is like pornography: In essence, it’s just entertainment and it doesn’t have any real effects», he says. In contrast, he warns that investors could begin to question the credit worthiness of governments because of the high national debt levels.

In this in-depth interview with The Market/NZZ, which has been edited and condensed for clarity, Prof. Fama explains why he welcomes the boom in passive investing and why he sees no problem in the high capital concentration at tech giants like Apple, Amazon or Microsoft. In his view, absurd price swings such as negative oil prices are no reason to doubt the rational behavior of markets.

Professor Fama, the efficient market hypothesis has revolutionized the way people invest. What goes through your mind when you look at the wild swings the stock market made this year?
The market seems pretty good. It held up even though the economy is deep in the bucket. This is a good example of how forward looking the market really is: It’s looking past what we are going through now, and it’s saying that the future doesn’t look that bad.

Do you think that’s the correct assumption?
If I could forecast, I wouldn’t be a professor.

Still, since the crash in February/March, we basically went from 1929 to 1999 in just a few months. What are the chances stocks are in a bubble?
Bubbles are things people see in hindsight. They don’t identify them in advance. Sure, you can look at the behavior of prices, and you may be able to identify cases where they are too high. But if you only look back and say: «Oh, stocks went down a lot, so that was a bubble», then that’s 20/20 hindsight. At the time, there was no evidence that there was a bubble.

On the other hand, sometimes there are obvious signs of excess. Let’s take the final stage of the great dotcom bull market of the late nineties as an example.
Let’s go back to that period before the crash. Alan Greenspan, the head of the Federal Reserve, made his famous «irrational exuberance» speech about the market being too high in early December 1996. But even after the crash, the market never went back to the level when he made that speech. So what do you think of that forecast?

Is there really no way to spot a bubble?
Here’s another example: In the fifties, there was a famous professor at Stanford who was an agricultural economist. He brought plots of agricultural prices into the faculty lounge and asked people to identify bubbles. Of course, they saw the ups and downs, and all of them identified bubbles. Afterwards, he told them that these were just numbers he had randomly generated. That tells you how good people are with identifying bubbles.

Against that backdrop, what do you make of the growing discipleship of behavioral finance which focuses on the influence of psychology on investment decisions and questions the efficiency of markets?
What I say is that we agree on the facts but we disagree on the interpretation. In my view, there is no such thing as behavioral finance. Essentially, it’s just a criticism of efficient markets. They don’t have a theory of their own. Hence, that makes me the most important person in behavioral finance. Without me, they don’t have anybody to disagree with. So I think behavioral finance is just a branch of efficient markets.

But what about factors like emotions, herd mentality or cycles? Aren't they important at all?
Tastes and behavior are important in economics. Nobody denies that. But you have to translate these things into something testable, so we can take the data and test it, looking forward and not looking backward. That’s my response to all that stuff. It never works out.

Yet, we also know that investors regularly mix up similar-looking stock tickers or company names and thereby cause absurd movements in stock prices. How is this rational behavior?
It isn’t. You can identify mistakes like that. It’s common that names confuse investors and as a result, you can get temporary price movements. But they are usually tiny and go away quickly. I don’t say markets are completely efficient, but they’re efficient for most questions that I address. Models are never a 100% true. If they were, we would call them reality, not models. But for almost all purposes, market efficiency is a very good approximation. I’ll go even further: Almost all investors should regard markets as efficient for their own investment decisions. If they do that, they will be better off in the long-term....

HT: Alhambra Investments, "Fama 2: No Inflation For Old Central Banks"

"Iowa's corn yields could be cut in half where hurricane-force winds flattened fields"

The tornado warnings and knocked-over trees in Chicago got the headlines but it looks as if the real damage was done in Iowa.
From the DesMoines Register, August 12:
Yields may be cut by as much as half where a derecho flattened crops as it swept through Iowa this week, agriculture officials said.

Iowa Agriculture Secretary Mike Naig said in a call with reporters that no other Midwestern state along the storm's 770-mile path suffered the level of wind or hail damage that struck an estimated 10 million acres across central Iowa.

That's about a third of Iowa's 30 million acres of crops — acreage typically split between corn and soybeans in Iowa, the nation's largest corn producer.

The derecho's straight-line winds reached nearly 100 mph in parts of Iowa, officials said. The storm swept across Nebraska, Iowa, Illinois, Indiana, Wisconsin and Michigan before losing steam....

Yesterday's WASDE report predicting a record U.S. corn harvest overshadowed the storm damage but it appears word is getting out this morning, CME 30-minute prints:

So Yesterday Was Schrödinger's Birthday

A few years ago The Independent celebrated with some Schrödinger jokes:
Schrödinger's cat walks into a bar. And doesn't. 
Baa baa Schrödinger's sheep, have you any wool? Yes sir, no sir, three bags simultaneously full and empty 
It's not every day you get to make weak jokes about Schrodinger on Twitter. And at the same time, it IS.
Every time I hear a joke about Schrödinger's cat a little part of me dies and simultaneously doesn't die. (@GeorgeGavin1)
And I missed it completely.

The upside is: I had to look up Heisenberg's DOB. Get ready for some big uncertainty yucks. 

Insurance/Private Equity: KKR Decides To Play The Float, Buffett Style

From Artemis:
KKR’s acquisition of Global Atlantic shows PE’s attraction to float & sidecars
Private equity and alternative investment giants of the world are increasingly demonstrating why access to insurance premium float, as a form of assets under management, is an attractive prospect, with KKR’s acquisition of Global Atlantic the latest clear example. It also shows their appreciation for bringing third-party capital into re/insurance.

As we explained when the deal was announced in early July, private equity and buyout giant KKR & Co. L.P. (or Kohlberg Kravis Roberts) was clearly showing its appetite for insurance-linked returns with its plan to acquire life and retirement focused insurance and reinsurance firm Global Atlantic Financial Group.

It’s not just the underwriting returns, as you’d expect from an insurance-linked securities (ILS) style investment, that attracts private equity giants like KKR to these types of transactions.
The long-term, almost permanent nature of the capital generated from insurance premiums, which is converted to assets under management (AUM) to fund its buy-out business, are a very attractive prospect and even for a firm like KKR can be relatively transformational in how they ramp up its scale.

As a result, the returns generated are not from the underwriting, or product offering, but are multiplied by the way KKR puts the float-like capital it inherits from the deal to work.
With Global Atlantic set to increase KKR’s AUM by a massive 33% to $294 billion, it’s clear that once put to work in the kinds of transactions KKR enters into, this added capital pile could be transformational for the private equity firms returns and profits.

On a pro-forma basis, KKR estimates that adding Global Atlantic’s business will drive overall assets under management to $294 billion, of which fee-based AUM will rise by 45% to $233 billion and insurance / reinsurance related AUM will rise by an impressive 261% from $28 billion to $101 billion....
August 5; 
Insurance/Private Equity: As Apollo Global Emulates Berkshire Hathaway, Assets Reach $414 Billion (APO)

"Palantir Is Said to Plan Direct Listing for Late September"

Readers who have been with us for a while know we don't invest in new offerings, whether taken down by investment banks or direct listings or the resurgent blind pools. What we do want is the information divulged, which, in the case of data companies like Palantir is a bit of turnabout is fair play.
From Bloomberg:
Palantir Technologies Inc. is planning to go public through a direct listing of its shares in late September, according to people familiar with the matter.

The company, which sells data analysis software used by governments and large companies worldwide, might still change its plans, said the people, who asked not to be identified because the information wasn’t public.

A company spokeswoman declined to comment.

A direct listing would allow the company’s current investors to sell their shares on the first day of trading rather than having to wait for a lock-up period to expire, as would be required in a traditional initial public offering. Unlike an IPO, though, the company doesn’t raise capital in a direct listing.

Palantir is in the process of raising $961 million, $550 million of which it has already secured, according to a July filing with the U.S. Securities and Exchange Commission. That includes a $500 million investment from Sompo Japan Nipponkoa Holdings Inc. and $50 million from Fujitsu Ltd.
Those sums make listing the stock directly a more accessible path for Palantir, following in the footsteps of Spotify Technology SA and Slack Technologies Inc.

Billionaire Peter Thiel founded Palantir in 2003 with a group of business partners including Alex Karp, the chief executive officer. In 2015, Palantir reached a valuation of $20 billion, though in recent years stockholders have sold blocks of shares for much less.

The company told investors this year that it expects to break even in 2020 on revenue of about $1 billion....

Capital Markets: "Dollar Remains Offered"

From Marc to Market:
Overview: The poor price action on Tuesday in the S&P 500 was shrugged off, and new highs for the recovery were made as the record high nears. The dollar, on the other hand, seemed to find plenty of sellers against most of the major currencies. The yen was a notable exception. The dollar traded above JPY107 for the first time nearly three weeks yesterday, but could not sustain the move today. The yen is also trading at new lows for the year against the euro. The soft yen gave Japanese shares a boost. Most markets in the region rose except Hong Kong and Australia. The MSCI Asia Pacific Index made new six-month highs today. European shares are slightly lower, and US stocks are flat. Bond yields are a little lower across the board, with the US 10-year pulling back three basis points to around 0.65%. New Zealand's benchmark 10-year yield fell nine basis points following yesterday's decision to expand its bond purchases. The dollar is on its back foot, slipping against all the major currencies but the New Zealand dollar. The euro, which tested support in front of $1.17 yesterday, is knocking on $1.1840, highs for the week. Among emerging market currencies, the Turkish lira remains under pressure as the government's defense has crumbled. Gold is firm, but below yesterday's $1950 high. Light sweet crude for September delivery is flat near $42.75. Last week's high was around $43.50, where the 200-day moving average is found.

Asia Pacific
The New Zealand dollar proved resilient to the central bank's decisions to boost its bond purchases and threaten negative yield and buying foreign bonds if necessary.
After falling to one-month lows near $0.6525, the Kiwi recovered to $0.6600 in the North American morning before consolidating. It found support near $0.6560 today. A decision will be made after the weekend about the election scheduled for September 19. The development of the outbreak and length of the needed lockdown will be better understood. Prime Minister Arden and the governing Labour Party is widely expected to win the election and is ahead in recent polls 55%-28% over the National Party. A decision to postpone the vote would have the National Party's support. The leader suggested a new date in November or even next year would be acceptable. Ostensibly, it would give the National Party time to muster a stronger campaign.

Australia created 114.7k jobs in July, half the revised 228.4k in June (210.8k initially). The unemployment rate edged up to 7.5% from 7.4% as the participation rate jumped to 64.7% from 64.1%. The median forecast in the Bloomberg survey called for an increase of 30k jobs, and in the actual report, the full-time positions rose by 43.5k after falling a revised 23.6k in June. Part-time employment rose by 71.2k after a 252k revised increase previously. The full impact of the outbreak and lockdown in Victoria will likely be seen in next month's report.

The People's Bank of China is one of the few major central banks that has not engaged in long-term asset purchases associated with quantitative easing. However, a small item in its balance sheet caught analysts' attention, and some argue this could represent bond purchases by the PBOC. More data due tomorrow may shed light on it. A category of sovereign bond ownership that includes central banks and clearing houses rose about CNY18 bln to CNY1.78 trillion ($256 bln) in July. While this could be PBOC helping to facilitate smooth auctions, we are skeptical. The amount is too small to be of policy significance. We are more persuaded by suggestions that it is likely the result of a foreign central bank buying Chinese bonds through its currency swap arrangement with the PBOC. China's 10-year bond yields 2.94%....
....After the markets close today, the Fed makes its weekly report. Recall that its balance sheet peaked two months ago and has fallen in six of the past eight weeks for a cumulative decline of about $223 bln. During the same eight week run, the ECB's balance sheet has grown by around 755 bln euros. The euro has appreciated against the dollar for the last seven consecutive weeks....

Wednesday, August 12, 2020

"China’s Claim to the Spratly Islands is Just a Mistake"

It's just a misunderstanding, surely you can Xi that?
From the Center for International Maritime Security, May 16, 2018:

This article is an adaptation of an academic publication by Bill Hayton published in ‘Modern China’ as ‘The Modern Origins of China’s South China Sea Claims: Maps, Misunderstandings, and the Maritime Geobody.’ A version of this article was published in Vietnamese by BBC and may be read here.
By Bill Hayton
The South China Sea is a dangerous place because of the layering of several different struggles on top of one another. There are struggles over the future of the world order, struggles between regional powers, and struggles over maritime resources. But underlying them all is a knot of territorial disputes over a few hundred tiny rocks and reefs. Given how much attention the disputes currently attract, it is surprising how little attention has been paid to their origins. A few flawed accounts were written several decades ago but more evidence has come to light since then and it is time to revise the conventional wisdom. Governments like to pretend that their claims to the hundreds of rocks and reefs in the sea are historical and logical. However, after several years of studying them, it is clear that this is far from true.

The focus of most of the current trouble in the South China Sea is the Spratly Islands and a few underwater features that are closer to the coasts of Vietnam and Borneo. These are a very long way from the Chinese mainland and China has never made clear the precise origins of its claim to them. My own research – just published in the academic journal ‘Modern China’ – leads me to conclude that the Chinese claim only emerged because of some poor translation and bad map-making during the 1930s. My conclusion is that China’s claim to the Spratly Islands is actually a mistake.

The First Claim
The story of China’s claims in the South China Sea began in 1907 with the discovery of a Japanese merchant digging up petrified bird droppings on the island of Pratas (between Hong Kong and Taiwan). Nishizawa Yoshiji was one of many Japanese entrepreneurs mining guano for fertilizer all over the Pacific. However, there were rumors that Japan was also planning to build a naval base on Pratas and that concerned the United States and its newly-acquired colony in the Philippines. The American government informed officials in Beijing in late 1907 but it took well over a year before a Chinese ship was sent to investigate. In March 1909, Chinese officials confirmed Nishizawa’s presence. That triggered large protests in southern China and a boycott of Japanese products. The Japanese government agreed to negotiations, which eventually led to Japan recognizing Chinese sovereignty over Pratas.

However, at the same time, the southern Chinese authorities learned about the existence of the Paracel Islands, apparently for the first time, and became concerned that Japan might try to annex them. This led to an expedition in May and June 1909 during which China formally claimed sovereignty over the Paracels for the first time. The Chinese ships spent three days among the islands firing cannon and planting flags before returning home. However, it was immediately clear to the expedition leaders that the Paracels were not going to deliver any riches. Newspaper accounts mention a plan to turn them into a penal colony but within weeks the authorities had completely lost interest in the islands. They did not return until the 1920s.

The next major incident in the South China Sea created complete confusion – a muddle that infected the earlier academic accounts of the Chinese claim and still affects historical discussions to this day. In December 1931 France – the colonial power in Indochina – claimed sovereignty over the Paracel Islands and, nine months later, China protested. In July 1933, while the two governments were still arguing over the Paracels, France also announced the annexation of six of the Spratly Islands. This led to great confusion in China. It is clear from official documents and newspapers of the time that the Chinese authorities did not know the difference between the Spratlys and the Paracels. They thought that the islands that France had just annexed were the same that China had claimed in 1909. It took several weeks for the confusion to be cleared up. During the discussions the Chinese Navy even sent a telegram to the Chinese Foreign Ministry asserting that the Spratly Islands did not exist! The situation was only cleared up with the help of maps provided by American officials in Manila. In the end, the Chinese government decided that it could not prove a claim to the Spratlys and so did not protest against France’s actions.
However, this confusion led the Chinese government to instruct its ‘Land and Water Maps Review Committee’ to investigate the situation. Among the committee’s other tasks, it inspected and translated maps to show which islands were the Paracels and which were the Spratlys. It also gave Chinese names to them – but these were simply translations or transliterations. North Danger Reef became Beixian 北險礁 (a translation from English). Spratly Island became Si-ba-la-tuo 斯巴拉脫島 (a transliteration of the name of the English sea captain, Richard Spratly), and Luconia Shoals was transliterated as Lu-kang-ni-a 盧康尼亞滩. My own research suggests that the list of names the committee translated was probably taken from the China Sea Directory, published in 1906 by the United Kingdom Hydrographic Office.

However, in the process, the committee made some mistakes. It seems to have been particularly confused by the English nautical terms “bank” and “shoal.” Both mean an area of shallow sea—the former describes a raised area of seabed, the latter is a nautical expression derived from Old English meaning “shallow.” However, the committee chose to translate both as tan 灘, which has the ambiguous translation of “sandbank,” a feature that might be above or below water.

The committee gave one particular underwater feature, James Shoal, the Chinese name Zengmu tan 曾姆滩, and another, Vanguard Bank, the name Qianwei tan 前衛滩. Zengmu is the transliteration of “James,” Qianwei is a translation of “vanguard,” and tan is the translation of “bank” and “shoal.” This translation choice has had major consequences, as we shall see. Why it decided to make a particular point of selecting these two underwater features for its list is also something of a mystery....

But what about Scarborough Shoal?

SOURCES- South China Morning Post, USNI, Eurasia Review

"Germany okays funding for major green hydrogen project"

From Renewables Now, August 6:

A project in Germany that aims to establish a regional hydrogen economy on an industrial scale has received support and funding approval from the federal energy ministry.
As part of the “real-world laboratories fostering the energy transition” programme, the Westkueste100 project got approval for EUR 30 million (USD 35.6m) of funding for the project’s launch this month. It has secured EUR 89 million in total, the project consortium said Monday.

EDF Deutschland, Holcim Deutschland, OGE, Ørsted Deutschland, Raffinerie Heide, municipal utility Thuega, and thyssenkrupp Industrial Solutions are part of this consortium. The Region Heide development agency and the Westküste University of Applied Sciences are also participating. Together they will produce hydrogen with renewable energy, use the gas network to transport it, and then supply it to industrial plants, while also interlinking different material cycles within the existing infrastructure.

In the first phase a 30-MW electrolyser powered by offshore wind will be installed to produce hydrogen. This is expected to take five years. The facility will bring insight into the operation, maintenance, control and grid compatibility of the system. It will be built by H2 Westkueste GmbH, a joint venture established by EDF Deutschland, Ørsted and Raffinerie Heide....MORE

That Time Poland Saved Europe

No, not 1683 when Sobieski decisively defeated the Turks and turned back the Ottoman empire at the gates of Vienna.
And not "That Time Poland Took The Nazi's Most Precious Treasure, Gave It To the French and British and Changed History".
No, this was the event that culminated 100 years ago on August 15.

A repost from 2015,
From Badass of the Week:
August 15th, 2015 marks the 95th anniversary of the greatest military victory in modern Polish history. And before you assholes out there start talking about how they finally built a mosquito-proof submarine because they installed screen door hatches or some other such bullshit, you should know that on August 15, 1920, the battered, war-torn country of Poland defended their capital against the onslaught of Leninist Soviet Russia, halting the progress of Communism across post-World War I Europe despite being outnumbered, outgunned, and almost completely surrounded by hardcore enemy soldiers wanting nothing more than to stomp Polish faces into proletariat borscht with the bootheels of militant Bolshevism. With their own capital city at their backs, the Poles utterly demolished the entire might of the Soviet army during the “Miracle on the Vistula”, and they did it in the most badass way imaginable – by straight-on bayonet charging a superior force in the hopes of breaking their morale with one ultra-brave display of the Polish military’s giant kielbasa dongs.
In their desperate attack, sweeping through the demoralized conscript forces of the Red Army and rolling up their flank, the Poles were led by the greatest military commander in modern Polish History – Marshal Jozel Pilsudski. Take a look at that dude for a second. Honestly, his amazing moustache and badass manly 1900s crew cut alone should convince you of his crippling badassitude, but this guy was a revolutionary, bank robber, guerilla, underground writer, General, and political activist who shanked faces with a razor-sharp saber and survived hardcore imprisonments in everything from Siberian gulags and St. Petersburg Mental Institutions to Polish castles and inescapable German mountain fortresses....

Apple Contract Manufacturers To Shift Some Production From China To India, Create 55,000 Jobs

From IndiaTimes:
Boycott China: Apple Mac, iPads To Be Made In India, Create 55,000 Local Jobs
Ever since COVID-19 -- the disease that originated in a small market in Wuhan, China -- wreaked havoc on the world, global players in tech have become more cautious about doing business in China.

Many countries already started asking for their facilities to be shifted back to their nation, whereas other manufacturers looked at markets like Thailand and Vietnam and India to manufacture and export goods. 
We’ve been already hearing about how Apple is ramping up its production in India and has now started making iPhone 11, alongside iPhone XR. And it looks like Apple’s contract manufacturers are getting more serious about shifting their facilities from China to India.

According to a recent report by TOI, a major contract manufacturer for Apple is shifting six production lines from China to India with a target to export around $5 billion worth of iPhones in India, while simultaneously catering to the Indian market....

Shipping: "Container Lines Resume Calls to Beirut as Terminal Restarts Operations"

I'd have bet they could get roll-on, roll-off service going by now but getting container ships in can move a lot more stuff to the people than the ro-ro's could.
From Reuters via gCaptain:
Container lines have resumed calls to Beirut after last week’s explosion, with the terminal having sustained only minor damage, leading companies said on Tuesday.

The Aug. 4 blast in Beirut’s port, which killed more than 160 people and injured 6,000 more, demolished entire neighbourhoods of Lebanon’s capital in seconds.
Container lines diverted ships to Lebanon’s smaller port of Tripoli to keep vital supply lines running.
“We are glad to advise that the container terminal suffered only minor damage and it has restarted operations,” German container line Hapag Lloyd said in a note to customers on Tuesday, adding that its first ship to call at Beirut since the disaster is due to dock on Aug. 14.

“Alongside our service reinstatement, we are also reopening booking acceptance for cargo to and from Beirut,” the company said, adding that it was still evaluating the extent of damage to its containers that were in the port at the time of the blast.

Hapag Lloyd’s office in Beirut had been completely destroyed but staff were unharmed....

Leave Madagascar Alone: "Researchers, growers seek vanilla production in Florida"

We've followed the highs and lows of the vanilla trade for quite a while, some links below.
From United Press International, August 11:
Growers and researchers in Florida hope the aromatic vanilla bean can provide a lucrative, high-margin crop for the state's farmers.

The University of Florida is heading research into vanilla, which comes from a tropical orchid and carries a hefty price around the world.

The goal is to determine how well the plants grow in Florida's subtropical climate, where the dominant crop -- citrus -- has suffered from destructive diseases and hurricanes that have shut groves and put growers out of business.

Already, the university reports that hobbyists, bakers and breweries are calling to line up more vanilla production.

"The interest in this as a new crop is huge," said Alan Chambers, assistant professor of tropical plant genetics at the university's research station south of Miami....

Well yes, people like vanilla.
And Madagascar is the world's largest producer.
December 2019
Commodities: "Madagascar - Vanilla producers say cyclone damaged 30 pct of crop"
June 2019
Commodities: Vanilla Fever
A topic of abiding interest.
From The Economist's 1843 magazine, June/July 2019:
How did hunger for the humble vanilla pod lead to greed, crime and riches? Wendell Steavenson travels to Madagascar to meet the new spice barons....
Sept 2018
Getting In Front Of Madagascar's Vanilla Boom
June 2018
"Why One Island Grows 80% of the World’s Vanilla"
May 2017
So, How Will You Deal With The Great Vanilla Shortage of '17?

"A $1 Trillion Glut of Bonds Is Dwarfing Central-Bank Demand"

This is old news (July 21) but I want to hammer home the point we've been making for a while now:
June 22
Wolf Richter: " I, Who Hates Shorting, Just Shorted the Entire Stock Market. Here’s Why"
....Either way though, he also gifted us with this lovely little Easter Egg:
Fed Ends QE, Total Assets Drop. Liquidity Injection Ends
by Wolf Richter • Jun 18, 2020 
That reduction in support for risk assets will take a while to play out, maybe August which would set up first a bond and then an equity decline going into September - October.
Something that some very big money wishes to see happen. 

As noted in the introduction to July 30's "Tech stocks set to lead market higher Friday after the big four post blowout earnings, QQQ gains 1%":

The thing to keep an eye on are rates, not equities.
Sometime in August we expect Treasury issuance to exceed Fed buying causing a backup in rates.
Current ten year: 0.5410% -0.0380% .
Since the Fed can buy any amount they want, up to and including all issuance (and even all outstanding!), the mismatch will by definition have to be a deliberate decision, although it won't be communicated as such.
Right now equities are a distraction that will trade higher for a few weeks....
August 6
"Treasury Announces Record $112BN Quarterly Debt Sale, Unveils Tsunami Of New Bond Issuance"

And from Bloomberg, July 21:
As fast and furiously as the world’s central banks are purchasing debt, there’s still about $1 trillion of sovereign bonds coming to market in the months ahead that will be looking for buyers.

The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in the U.K., Canada and Australia, according to Bloomberg calculations. Policy-maker purchases will also lag issuance in the U.S. and Japan, where a continuing tilt toward buying short-maturity debt would risk allowing yields on longer-dated bonds to rise unchecked, hurting pension funds and life insurers that rely on these markets.
By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.
The debt deluge comes after a flurry of interest-rate cuts and expanded asset-purchase plans by central banks left investment playbooks in shreds. Of course, investors buy debt worth hundreds of billions of dollars every year. But in an era where some assume central banks’ support is all encompassing, the trillion-dollar gap between supply and policy-maker demand highlights just how important conventional investors still are for governments looking to fund record stimulus.
With a net surplus of $980 billion in expected issuance beyond central-bank purchases, here’s a look at the supply and demand dynamics in the world’s major markets in the second half of the year.
Treasury Tussle
The Treasuries market alone could see more than $1 trillion in net bond supply in the six months through Dec. 31, and strategists are predicting sales will comprise fewer bills and more longer-dated notes.
So far, domestic buyers have supported U.S. debt. But some of the market’s most loyal investors appear to be stepping away just when they’re needed most. Pension funds typically buy Treasuries to match their long-term liabilities, yet a proxy for their purchases of longer-maturity bonds -- holdings of so-called stripped Treasuries -- has fallen consistently since February.
With this in mind, positioning for a steeper yield curve -- when longer-maturity bond yields rise faster than their shorter-dated counterparts -- has become a popular trade.
Still, the latest 30-year bond auction was rock solid with a group of buyers that included foreign central banks bidding via the Federal Reserve Bank of New York taking 72%, a record.
JPMorgan Chase & Co.’s Jay Barry projects a 35% increase in Treasuries supply over the second half, “along with a moderate demand gap,” and recommends investors consider steepener bets that benefit with the gap between yields on five- and 30-year bonds widen.
However, others on Wall Street warn that the curve is more likely to flatten, with longer-dated bond yields falling, given that the Federal Reserve could increase the pace of its Treasury purchases as early as this month, or even extend the duration of its purchases.
“The Fed’s main commitment is, was and will always be to the Treasury market,” said Mark Spindel, chief investment officer at Potomac River Capital. “The long end of the Treasury market has looked attractive and should remain so for a while.”
Buoyant Europe
It’s a different story in Europe. Government bond sales in the euro area look set to fall short of the European Central Bank’s purchase plans and investor redemptions by 222 billion euros ($251 billion) from June 30 through year-end, according to Bank of America strategist Erjon Satko.
That’s a positive backdrop for European bond markets and should allow for some outperformance versus peers, he wrote in a recent note.
But Germany is bucking the positive trend, with 150 billion euros of supply due in the second half, more than any of its regional peers, according to Jorge Garayo, a rates strategist at Societe Generale SA. The bulk of sales is expected in maturities beyond seven years, which could push up yields on longer-maturity debt, he said....

After bottoming at  0.5040% on August 6th the 10-year's yield—proxied by the CBOE's TNX—has backed up to 0.675%, after trading at 0.69% earlier today:

All that being said today may be setting up an "Evening Doji" reversal, tomorrow's action will tell us more. 

And Today In Not Very Efficient Markets: Triple-Inverse Nat Gas ETN Goes Berserk, Explodes By $10,000 In Minutes

From ZeroHedge:
It's a quietish day in Nattie futures - down just over 2% but coming back a little now...
The NatGas term structure is 'normal'...
But you wouldn't know that if you are "invested" in the VelocityShares Daily 3x Inverse Natural Gas ETN...
For some context, this is a $12,000-plus surge in the price... as one market watcher exclaimed "something's f**king broken."...

"Uber CEO Says Its Service Will Probably Shut Down Temporarily in California If It's Forced to Classify Drivers as Employees" (UBER)

What a long strange trip.
From NBC New York a few minutes ago:
Uber and rival Lyft both have about a week left to appeal a preliminary injunction granted by a California judge on Monday that will prohibit the companies from continuing to classify their drivers as independent workers. Following the order will require Uber and Lyft to provide benefits and unemployment insurance for workers

Uber would likely shut down temporarily for several months if a court does not overturn a recent ruling requiring it to classify its drivers as full-time employees, CEO Dara Khosrowshahi said in an interview with Stephanie Ruhle Wednesday on MSNBC.

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi said.

Uber and rival Lyft both have about a week left to appeal a preliminary injunction granted by a California judge on Monday that will prohibit the companies from continuing to classify their drivers as independent workers. Following the order will require Uber and Lyft to provide benefits and unemployment insurance for workers....

 And from Reason, August 11:
San Francisco Judge Rules Drivers With Ride-Sharing Companies Are Employees. Uber Warns It'll Have To Raise Prices By as Much as 111 Percent.

If interested, here are a few hundred of our Uber posts.

Imagine You Wanted To Destroy Journalism And Get Rich Doing It

From Quillette:
"Upon further reflection, it’s clear that the broken system is ad-driven media on the Internet. It simply
doesn’t serve people. In fact, it’s not designed to. The vast majority of articles, videos, and other
“content” we all consume on a daily basis is paid for—directly or indirectly—by corporations who 
are funding it in order to advance their goals. And it is measured, amplified, and rewarded based on
its ability to do that. Period. As a result, we get… well, what we get. And it’s getting worse."

 ~Evan Williams, co-founder and former CEO of Twitter

Journalism’s Death by a Thousand Tweets
Imagine you want to create a digital platform that will both destroy—or, at the very least, seriously enfeeble—the journalism profession, and simultaneously make you a vast amount of money. How should you do it?

Well, first you should ensure that the primary goal of your platform has absolutely nothing to do with the stated goals of the journalism profession. More specifically, the aim of your platform should not be to hold the powerful to account or, more broadly, to report on stories that are in the public interest. Rather, the platform’s main objective should ideally be the opposite of this: It should be to service the aims of powerful and private interests. The most obvious way to do this—whilst simultaneously making a lot of money—would be to sell millions and millions (and millions) of dollars’ worth of advertisements on behalf of these interests.

Then you should try to get as many journalists to use your platform as much as possible. (After all, what better way to destroy journalism than to get the vast majority of journalists to compulsively use a platform the aims of which are antithetical to those of their own profession?) The most straightforward way to do this would be to design a digital platform that is highly addictive (or, to use a less medically-loaded and industry-friendly term, “habit-forming”). To ensure that this platform is sufficiently habit-forming, it should conform to what author Nir Eyal has called the “hooking model,” to which every other major digital platform, consciously or unconsciously, scrupulously adheres. In particular, this platform should encourage or even require some kind of investment by its users (in the form of, for instance, content creation or profile curation). This habit-forming quality will have the further, collateral benefit of encouraging non-journalists to use it too—this is a very good thing, as it will allow you to sell targeted ads to them as well, and (hence) allow you to make even more money than you otherwise would. More importantly, it should feature variable rewards as one of the defining characteristics of its users’ platform experience (in the form of, say, a “newsfeed”).

And we aren't even looking at Google and Facebook.
Although Google's Page and Brin are worth $100 billion between them, Zuckerberg's pile is that big all to himself.

"Retail Chains Abandon Manhattan: 'It's Unsustainable'"

This story goes on for thousands of words yet somehow doesn't mention the riots and the looting.
I mean when I first saw the flagship Saks Fifth Avenue store wrapped in fencing topped with razor wire I thought it was some sort of butch, 70's-gritty-industrial, psuedo-downscale  promotion for the brand:
Saks shields flagship New York store with razor wire, security ...

But no, it was defense-in-depth: security guards, then the fence, then the plywood.
And around the corner the guards have attack dogs described as "Not very nice."

From the New York Times, August 11:
For years, Bryant Park Grill & Cafe in Midtown Manhattan has been one of the countrys top-grossing restaurants, the star property in Ark Restaurants portfolio of 20 restaurants across the United States.
But what propelled it to the top has vanished.
The tourists are gone, the office towers surrounding it are largely empty and the restaurants 1,000-seat dining room is closed. Instead, dinner is cooked and served on its patio, and the scaled-down restaurant brings in about $12,000 a day an 85 percent plunge in revenue, its chief executive said.
Five months into the pandemic, the drastic turn of events at businesses like Bryant Park Grill & Cafe that are part of national chains shows how the economic damage in New York has in many cases been far worse than elsewhere in the country.
In the heart of Manhattan, national chains including J.C. Penney, Kate Spade, Subway and Le Pain Quotidien have shuttered branches for good. Many other large brands, like Victorias Secret and the Gap, have their kept high-profile locations closed in Manhattan, while reopening in other states.

Michael Weinstein, the chief executive of Ark Restaurants, who owns Bryant Park Grill & Cafe and 19 other restaurants, said he will never open another restaurant in New York.

Of Ark Restaurants five Manhattan restaurants, only two have reopened, while its properties in Florida where the virus is far worse have expanded outdoor seating with tents and tables into their parking lots, serving almost as many guests as they had indoors.

Theres no reason to do business in New York, Mr. Weinstein said. I can do the same volume in Florida in the same square feet as I would have in New York, with my expenses being much less. The idea was that branding and locations were important, but the expense of being in this city has overtaken the marketing group that says you have to be there.

Even as the city has contained the virus and slowly reopens, there are ominous signs that some national brands are starting to abandon New York. The city is home to many flagship stores, chains and high-profile restaurants that tolerated astronomical rents and other costs because of New Yorks global cachet and the reliable onslaught of tourists and commuters.

But New York today looks nothing like it did just a few months ago.
In Manhattans major retail corridors, from SoHo to Fifth Avenue to Madison Avenue, once packed sidewalks are now nearly empty. A fraction of the usual army of office workers goes into work every day, and many wealthy residents have left the city for second homes.

Many stores are still closed, some permanently, while those that are open have very little foot traffic.
For four months, the Victorias Secret flagship store at Herald Square in Manhattan has been closed and not paying its $937,000 monthly rent. It will be years before retail has even a chance of returning to New York City in its pre-Covid form, the retailers parent company recently told its landlord in a legal document....

"Are We Entering a New Golden Age of Guano?"

One can dream but there's not all that much of the stuff left.
As with whale oil, it is a natural resource we came closest to running out of.
And as with whale oil, substitutions save the day.
A history of civilization could be written in fertilizers. And the history of guano—bird poop—tells us a lot about slavery, imperialism, and U.S. expansion.

A history of civilization could be written in fertilizers. Since the advent of agriculture more than 10,000 years ago, the essential problem has been the same: How do we replace the nutrients extracted from soils by crops? Humans have added all sorts of things to soil in hopes of enriching it—manure, peat, bones, horseshoe crabs, blood meal, sewage sludge, even whale carcasses. Although the list of traditional fertilizers is long and bizarre, none has so strange a history as guano, which was once the agricultural equivalent of gold.

Guano is bird poop. There are other ways of saying this, but there is no way around this basic excremental fact. The substance is the end result (so to speak) of the tiny marine plants that feed the small fish that seabirds eat. Rich in nitrogen, phosphate, and potassium, guano makes exceptionally good fertilizer. (A tall tale of the 1850s, for instance, has a boatload of the potent stuff supercharging a ship’s cockroaches, making them big enough to haul up the anchor. The wooden boat itself also goes through a growth spurt, sprouting new twigs, leaves, and even fruit.)

The best guano is Peruvian. In the arid conditions of that nation’s Chincha Islands, the plant-friendly nutrients aren’t washed out in the rain. Peru’s hot, dry climate also inhibits bacterial breakdown, such that guano stays viable for longer. An estimated 60 million seabirds—including guanay cormorants, piquero boobies, and Peruvian pelicans—build up 150-foot-high mounds of guano on the small islands and rocks that line the coast.

Peruvians knew guano made fantastic fertilizer from at least the 13th century. The Incans are supposed to have decreed death to anyone who harmed guano birds. (The word guano is the Spanish version of the indigenous Quechua word wanu.) European and American farmers have been aware of it since the 1820s, but Peru’s “celebrated guano dung” wasn’t transported north until the 1840s, when a “guano mania” took hold on distant farms.

In the American South, as historian Weymouth T. Jordan elaborates, the “guano gospel” held sway among enthusiasts. Guano increased agricultural output and popularized the use of commercial fertilizers better than anything else. (And “anything else” seems like a good description of the materials used before guano: coal tar, hair, rags, fish, bone, feathers, night soil, and malt dust.) Jordan notes that the terrible, slave-like conditions on the Chincha Islands were publicized in the South, but similar abolitionist reports on Southern slaves were not. Regardless, guano mining conditions were horrific: Chinese laborers—some kidnapped, others conned into thinking they were headed for California’s gold fields—killed themselves en masse rather than face the hell of digging through mounds of ancient ammonia in the blistering sun.

In the 1860s, Peruvians and others would make slave raids through Polynesia, decimating some of the smaller islands in their wake, in search of guano laborers. Meanwhile Peru, which had bankrupted itself in its war of independence against Spain in the 1820s, used its guano resources to secure loans in London. A boom resulted, running until the mid 1870s. This was Peru’s guano golden age (for all except for the unfortunate guano miners). As economist Catalina Vizcarra shows, guano made Peru a model debtor state: The country consistently pledged guano revenue to foreign creditors even as it lurched chaotically through 14 changes of government between 1850 and 1875.

Because London’s banks were the chief creditors, the English ended up controlling the guano monopoly. The resulting high prices inspired a rush for non-Peruvian sources of guano, as well as fakes, adulterated products, and other competing materials. In an extraordinary move, the U.S. responded to demand for cheaper guano among farmers by declaring that any American citizen could claim uninhabited islands, islets, cays, and rocks anywhere in the world for guano production....

For I too have experienced the siren call of the guano islands:
The Allure of Guano

New York Guano

"Guano Mania"

Today In Guano
We have an odd fascination with guano.
Let me rephrase that.
From Law 360:
Judge Kills Suit Seeking $213M On 140-Year-Old Guano Notes

Tuesday, August 11, 2020

"Who owned the chemicals that blew up Beirut? No one will say"

De facto or De jure?
From Reuters, August 11:
In the murky story of how a cache of highly explosive ammonium nitrate ended up on the Beirut waterfront, one thing is clear — no one has ever publicly come forward to claim it.

There are many unanswered questions surrounding last week’s huge, deadly blast in the Lebanese capital, but ownership should be among the easiest to resolve.

Clear identification of ownership, especially of a cargo as dangerous as that carried by the Moldovan-flagged Rhosus when it sailed into Beirut seven years ago, is fundamental to shipping, the key to insuring it and settling disputes that often arise.

But Reuters interviews and trawls for documents across 10 countries in search of the original ownership of this 2,750-tonne consignment instead revealed an intricate tale of missing documentation, secrecy and a web of small, obscure companies that span the globe.
“Goods were being transported from one country to another, and they ended up in a third country with nobody owning the goods. Why did they end up here?” said Ghassan Hasbani, a former Lebanese deputy prime minister and opposition figure.

Those linked to the shipment and interviewed by Reuters all denied knowledge of the cargo’s original owner or declined to answer the question. Those who said they didn’t know included the ship’s captain, the Georgian fertilizer maker who produced the cargo and the African firm that ordered it but said it never paid for it.

The official version of the Rhosus’ final journey depicts its voyage as a series of unfortunate events.
Shipping records show the ship loaded ammonium nitrate in Georgia in September 2013 and was meant to deliver it to an explosives maker in Mozambique. But before leaving the Mediterranean, the captain and two crew members say they were instructed by the Russian businessman they regarded as the ship’s de facto owner, Igor Grechushkin, to make an unscheduled stop in Beirut and take on extra cargo.

The Rhosus arrived in Beirut in November but never left, becoming tangled in a legal dispute over unpaid port fees and ship defects. Creditors accused the ship’s legal owner, listed as a Panama-based firm, of abandoning the vessel and the cargo was later unloaded and put in a dockside warehouse, according to official accounts.

The Beirut law firm that acted for creditors, Baroudi & Associates, did not respond to requests to identify the cargo’s original legal owner. Reuters was unable to contact Grechushkin.
The empty ship eventually sank where it was moored in 2018, according to Lebanese customs.
The Rhosus’ final movements are under fresh scrutiny after the ammonium nitrate caught fire inside the warehouse and exploded last week, killing at least 158 people, injuring thousands and leaving 250,000 people homeless....

Action Baby, Action: "Shanghai bourse launches aluminum, zinc options"

For some reason I'm hearing Elvis doing Viva Las Vegas as I read this.
From The Asia Times:
China has launched 18 commodity options over the past three years to become the world's largest market for commodity derivatives

China launched the trading of aluminum and zinc options at the Shanghai Futures Exchange on Monday to improve the country’s commodities and derivatives market system.

On the first trading day, call and put options contracts of the two commodities were listed with underlying aluminum futures contracts to be delivered from October 2020 to January 2021, and zinc futures contracts to be delivered in October and November 2020.

The total trading volume for the contracts of the two options was 10.7 million yuan (US$1.53 million) on Monday, reflecting active transactions.

China is the world’s largest production and trading market for non-ferrous metals. Related futures and options products have been used on a large scale to hedge risks. Among them, aluminum futures contracts have been listed for 28 years, comprehensively serving as a tool of risk management for the production, sale and trading of aluminum....

Though instead of Elvis I should probably substitute the daytrading Chinese grandmothers:
Image result for chinese day traders

And just a heads up: DO NOT play mah jong with this crew.
They'll strip you of any cash you may have on hand and they accept Alipay for the balance.