Wednesday, March 21, 2018

Is Walmart Mooving Into Farming? (WMT)

Apologies for the headline, I can't stop myself.

From CB Insights:

Walmart is applying for a range of patents using drones to automate farming. The move could support its grocery business and give the giant greater control over its supply chain.
As Walmart goes head to head with Amazon, it is focused on shortening its supply chain and improving its grocery delivery business — including patenting automated storefronts in people’s homes and technology that can help improve online food shopping.

Today, we picked up on a signal that Walmart is looking to manage more of its supply chain at the source.

The retail giant applied for a series of 6 patents targeting farm automation. The applications propose using drones to identify pests attacking crops, monitor crop damage, spray pesticides, and pollinate crops.

To compete against Amazon, Walmart has been busy building up its grocery business. Last year, Walmart started offering same-day grocery delivery in certain areas. It also acquired delivery startup Parcel and just last month partnered with Instacart to roll out same-day delivery for its Sam’s Club business.

Walmart has even piloted a smart lock partnership, so Walmart delivery people could unload grocery orders directly into shoppers’ fridges when they’re not home.Amidst all this competition, we also know brands and shoppers are moving toward more natural food products and transparent labeling.
By taking more control over how its produce is grown, Walmart could a) potentially save on costs, by vertically integrating its food supply chain, b) manage crop yields more effectively, and c) increase its emphasis on transparency and sustainability to attract shoppers....MORE
Additionally, Walmart is getting into the dairy business in a big way. From WITF, Harrisburg, PA:
Milk processor cancels farm contracts as Walmart makes own milk
As if low milk prices aren't nerve-wracking enough, dairy farmers are worrying about getting a steady monthly milk check.

Milk processors face dramatic changes in the marketplace. They buy the farmers' milk, or at least most still do.

"The fluid milk market has always been competitive, but we're in unprecedented times," said Reace Smith, a spokeswoman for Dallas-based Dean Foods.

Dean Foods, branded as Swiss Premium, is ending contracts this spring with more than 100 farmers in eight states, including Pennsylvania. The company's reasons: Consumers are drinking less milk, and other companies are entering or expanding their presence in milk processing.

Industry observers say a recently constructed Walmart milk plant in Fort Wayne, Indiana, played a major role in Dean Foods' decision. The new plant will bottle 100 million gallons of milk annually for 600 Walmart stores.

"By operating our own plant and working directly with the dairy supply chain in the Midwest, we'll further reduce operating costs and pass those savings on to our customers so that they can save money," said Tony Airoso, senior vice president of sourcing strategy for Walmart U.S.

Americans are drinking 28 percent less milk than they drank in 2000, 42 percent less than in 1970. Cheese and yogurt consumption has increased, but not enough to mend the hole in a farmer's pocket.
U.S. farmers meanwhile have more cows, each increasingly producing more milk, according to the U.S. Department of Agriculture. The industry is producing about 350 million more gallons of milk each year than the year before, Smith said.

Local milk processors are taking other actions....MORE

"China Unveils How It Will Retaliate To US Tariffs, USDJPY Snaps"

If I was a pig in the Midwest I'd be tempted to vote for Donald Trump in 2020.
And I'm not talking deplorables.
As my favorite translator of Mandarin tells me, Chinese people love pork. And we've been babbling on about China's Strategic Pork Reserve for over a decade. Here's 2010's '"...Pork Signals Record Meat Prices' and China's Strategic Pork Reserve (SFD)":
I just threw Smithfield's symbol into the headline, neither story directly mention's the country's largest hog and pork producer. We first mentioned the Strategic Pork Reserve in an October 2007 post "Is China Going to Own the World?".
As it turned out, Smithfield was purchased by China's largest protein processor, Shuanghui International Holdings (now WH Group), in 2013 in a move that triggered a national security review in the U.S., I kid you not,

Anyhoo, China has been playing power politics for something like 5000 years and should President Trump go through with the threatened tariffs the Chinese will strike directly at his base while the porkers breathe a little easier as a major export market is taken off the table, so to speak.

First up, ZeroHedge with the headline story, March 21:
While it will hardly come as a surprise considering that trade wars always evolve in an escalating tit-for-tat manner, the WSJ reports that just hours ahead of Trump's announcement of as much as $60 billion in tariffs targeting Beijing, China is preparing to hit back with its own countertariff aimed at President Donald Trump’s support base, including levies targeting U.S. agricultural exports from farmbelt states in retaliation to the mounting trade offensive from Washington.

At the same time, and in hopes of avoiding further escalation, Beijing is also reportedly weighing concessions, including easing restrictions on foreign investments in securities firms and insurance companies.
In taking a stick-and-carrot approach, President Xi Jinping is seeking to avoid escalating trade tensions with the Trump administration.
“Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making.
Should the carrot not work, China's "stick" is said to target U.S. exports of soybeans, sorghum and live hogs....

And from Bloomberg via AgWeb, March 20:

US Pork 'Easy Target' for China Tariffs
 A boost in China’s sow herd means pork from the U.S. is an “easy target” amid escalating trade tensions between the nations.

Pork prices in China have dropped after hogs tumbled as much as 30 percent in the past three months, analysts at Vertical Group, a New York-based investment bank, said in a report. For the Asian nation, “the timing would be opportune for a ban on pork exports in more ways than one,” the report said.
China, the world’s top pork consumer, is one of the leading buyers of U.S. agricultural goods and is the second-largest market for the meat by volume, industry data show....MORE
Here's the ten second tutorial on Ag cycles:

The Hog Cycle
No not Harley-Davidson, although I imagine some econ grad student has written the paper.
Wheat and hogs are two commodities with long price series. We mentioned the hog cycle back in January:

The hog price series is one of the longest we have records for, back to the 1200's. The cycle is:
slaughter begets scarcity begets higher prices begets breeding begets over-supply begets slaughter. It's been going on for a while....

Tale of the Tape: "Tesla's debt price is deteriorating" (TSLA)

For the equity, as noted way back on December 1st:

$300 Looks Like an Important Line For Tesla's Stock (TSLA)
It's not that $300 is some magical round number, rather looking at the chart if the stock moves decisively through that line there is a lot of air down to the $240 base where the run began.
TSLA Tesla, Inc. daily Stock Chart 

That one day dip below the line on February 9th, $294.76 low print, almost got us to pull the trigger on a (very) rare Tesla short but the recovery started so fast, actually that very day, $310.42 close, that we were saved from our own lightning fast reflexes.
Or something.

From FT Alphaville;
Let's examine Tesla's $1.8bn unsecured bond, which reached a near all-time high yield of 6.57 per cent this week.

Should stock market investors care?

A rule of thumb on Wall Street is that corporate bond investors are the 'smart money' - able to identify distress at companies long before the equity traders catch on.
Bondholders' sole concern is the preservation of their original investment, and the interest payments they are due.

So even a small upward move in the yield of a corporate bond can signify potential problems with a company and their expected cash flows.

Issued at par with a yield of 5.30 per cent in August, the bond's price has been grinding downwards since, its yield going in the opposite direction: 
Quill Cloud

And by request, the spread:
Quill Cloud
Tesla's bond yield is trading 366 basis points above the 7-year Treasury note. It isn't the highest the spread has ever been, but is a lot more than fellow cash-guzzling market superstar Netflix's 2025 unsecured bond, which is trading 202 basis points above its benchmark, according to Bloomberg....MUCH MORE

"Germany’s Pivot From Russian Gas Will Be Costly"

This is what the Poles have been trying to tell the EU for at least the last half-decade.
Poland has an understanding of their neighbor to the east that Brussels (and even Berlin) seems to lack. As noted in the introduction to January's "Poland's Plan to Dominate Europe, Continued", the Poles built their LNG terminal knowing full well the cost of various sources:
Following the December series of posts* on Poland I had intended something on a gas pipeline or two or geopolitics or the Baltic-to-Black Sea (and Greece) Via Carpathia Highway or the new (security-at-a-cost) LNG terminal but....but...Bambi !!
Some things you can't measure in zlotys alone.
(or rubles or euros or krone or...)

From OilPrice, March 20:
More problems are mounting for Russia’s oil and gas sector. This time it’s coming from Germany, which until recently usually gave Russia’s energy sector more lead way than the U.S. or other allies.
But now it seems that German Chancellor Angela Merkel has also had enough. On Monday, Bloomberg reported that Merkel’s government is seeking to build a liquefied natural gas (LNG) industry in Germany basically from scratch to reduce the nation’s dependence on supplies arriving by pipeline from Russia and Norway.

Merkel backs “all initiatives supporting further diversification of gas supply -- whether from different regions or means of transporting gas,” said German Economy and Energy Ministry spokeswoman Beate Baron.

The move comes as natural gas resources from the UK and the Netherlands are depleting, and Germany is forced to rely more on Russian gas. Merkel’s newly formed coalition has a “coalition contract” that among other policies sets out energy agenda including LNG for the next four years, the Bloomberg reported added.

Germany, for its part, is Europe’s largest gas consumer.  In 2015, the country consumed 7.2 billion cubic feet per day (Bcf/d) of natural gas, according to U.S. Energy Information Administration (EIA) data. According to the German energy research group, AG Energiebilanzen, imports account for about 90 percent of Germany’s total natural gas supply, while most imports come from three countries: Russia (40 percent of total imports in 2015), Norway (21 percent) and the Netherlands (29 percent).

Moreover, German companies are participating in Russia’s controversial Nord Stream 2 pipeline, an expansion of an existing route for gas to flow from Russia to Europe under the Baltic Sea. The U.S., Poland and others have recently condemned the pipeline as a threat to European security.
As Russia becomes increasingly aggressive, even wreckless geopolitically, the security threat to not only the EU but to Germany is apparent, causing the country of some 83 million people to do an abrupt energy policy about face.

Germany’s LNG pivot also comes as a geopolitical storm between the U.K. and Russia intensifies over an alleged Moscow-orchestrated nerve-agent attack on British soil against what the BBC called a double spy and his daughter.

British Prime Minister Theresa May retaliated last week by expelling Russian diplomats and seeking alternatives to Russian gas, including LNG produced at its new Arctic plant, the Yamal LNG export project. Addressing the UN Security Council last week, the U.K.’s deputy UN ambassador, Jonathan Allen, accused Russia of breaking its obligations under the Convention on the Prohibition of Chemical Weapons.

The U.S. for its part also condemned the nerve agent attack. U.S. ambassador Nikki Haley said that Washington stood in "absolute solidarity" with Britain, citing the "special relationship" between the two countries and saying that Washington would "always be there" for the UK.

Germany’s abrupt LNG pivot...

Related at Bloomberg, March 18:
Russia Says Its Gas Is Best Deal for Europe Amid U.K. Spat

Oil/Gas and Geopolitics: Keeping the Politicians Warm Edition
"Europe’s Energy Geopolitics is Getting Dicey"
Natural Gas: "Polish PM: Nord Stream II Would Make Russia Free to act Against Ukraine, So Must Not be Built"
"U.S., Poland Oppose Gas Pipeline Linking Russia And Germany"
The Nord Stream 2 Natural Gas Pipeline Is A Game Changer For Gazprom

Germany May Be Trying to Destabalize Poland But No Worries
New Russian Pipeline In Baltic Sea Could 'Collapse' Ukraine

See also:
"Berlin, Moscow Negotiate New Trade Accord".
-Reading Eagle
Feb. 12, 1940

Tuesday, March 20, 2018

President Zuckerberg To Address The Nation On Cambridge Analytica

First public comment since the surprising results of the collaboration with Cambridge Analytica became public.
From The Verge:

Mark Zuckerberg is ‘working around the clock’ on the Cambridge Analytica controversy, Facebook says
After nearly four days of silence from top executives on the unfolding controversy around Cambridge Analytica’s misuse of user data, Facebook on Tuesday made a statement about what Mark Zuckerberg and Sheryl Sandberg are doing. “Mark, Sheryl and their teams are working around the clock to get all the facts and take the appropriate action moving forward, because they understand the seriousness of this issue,” Facebook told The Daily Beast. “The entire company is outraged we were deceived. We are committed to vigorously enforcing our policies to protect people’s information and will take whatever steps are required to see that this happens.”

The company’s statement is notable for three reasons. One, it escalates the emotional tone of Facebook’s response — on Friday, it called Cambridge Analytica’s actions “unacceptable”; today they are an outrage. Two, the statement frames the story as a deception in which Facebook was not the bad actor but the victim. Three, it buys the company time amid growing demands to hear from Zuckerberg himself....MORE
In another example of the power of the Facebook - Cambridge Analytica Partnership for a New World, Pan-Arabia Enquirer, March 20:

Egyptian President Sisi Tempted to Try Cambridge Analytica to Push Election Win Past 100%
Despite having forced all other candidates to withdraw from next week’s election, Sisi says he “just wants to be sure”
Egyptian president Abdel Fattah el-Sisi has revealed that he’s considering employing the services of under-fire data analyst organisation Cambridge Analytica in order to boost his ongoing election campaign.

“Sure, I may have locked up or intimidated every other potential candidate ahead of next week’s elections....MORE

"Self-driving Uber ‘likely’ not at fault in pedestrian fatality"

From Boy Genius Report via the New York Post:
Uber’s reputation is still in a downward spiral, especially after the numerous scandals and lawsuits it had to face over the past year alone. The fact that an Uber self-driving car was the first such vehicle involved in a fatal accident won’t help either. But it looks like it’s not Uber’s fault, at least according to preliminary findings.

One of Uber’s autonomous Volvos killed a pedestrian on Sunday night in Tempe, Arizona — 49-year-old Elaine Herzberg. Uber’s CEO, Dara Khosrowshahi, announced a halt of the self-driving car pilot program in the wake of the incident, as the company and authorities launched independent investigations.

Tempe police now say the accident might have actually been Herzberg’s fault. The woman was crossing the street within 100 yards of a crosswalk. The Volvo, meanwhile, was traveling at 38 mph in a 35 mph zone on a Sunday night, and the human sitting in the driver’s seat made no attempt to break.

“It’s very clear it would have been difficult to avoid this collision in any kind of mode (autonomous or human-driven) based on how she came from the shadows right into the roadway,” Tempe police chief Sylvia Moir told the San Francisco Chronicle after viewing videos that recorded the accident....MORE

"Concerned about your health? Don't become an investment banker..."

From City AM:

Investment banking worst for your health says giant survey of British bank employees
Investment bankers think their jobs are the more damaging to their health than their counterparts in business or retail lending, according to a massive survey of British bank employees.

Some 29 per cent of investment bank employees said their job is having a negative impact on their wellbeing, a poll of more than 36,000 bankers by the Banking Standards Board (BSB) will show today.

On average across the banking sector 26 per cent of employees had a negative perception of their job’s effect on their health.

Investment banking was the outlier on wellbeing in both the 2016 and 2017 surveys, in spite of investment bankers reporting they felt under less “excessive pressure” than other branches. The BSB’s report suggested high levels of pressure are par for the course for banks’ dealmakers.
Investment bankers were also the least likely to respect their risk and compliance departments.

The poll also found women were significantly more likely to believe that turning a blind eye was a problem at their bank, at a time when the spotlight on sexual harassment in the workplace has become more intense.

The huge survey was started to help banks work out how to improve their cultures, after the string of misconduct scandals which has besmirched the reputation of the sector and lead to billions of pounds of fines....MORE

Real Estate: It Doesn't Look Like Turkey Will Be Leaving Syria Any Time Soon

From Al-Monitor, March 19:

Erdogan vows to carry fight beyond Afrin
Turkish-backed forces faced little resistance when they rolled into the Syrian city of Afrin, seizing a Kurdish stronghold and knocking back their dreams of self-rule in northern Syria.

NATO member Turkey’s blitz in Afrin has further complicated Syria’s seven-year war, which has also drawn in external powers Russia, Iran and the United States. President Recep Tayyip Erdogan vowed on Monday his army would press on to undo Kurdish territorial gains all the way to Iraq.

A faction of the Free Syrian Army, backed by Turkish tanks and warplanes, entered Afrin on Sunday, just two months after Turkey launched an offensive to expel the People’s Protection Units (YPG) from the northwest Syrian province, arguing the Kurdish militia posed a security threat at its borders.

Civilians escaped the arrival of the FSA forces in Afrin, which had a pre-war population of 35,000 people, as the fighters raised their rebel flag and the Turkish banner in the city center, news footage showed.

“The symbols of peace and security now wave in Afrin’s city center, not the rags of the terrorist organization,” Erdogan said in a speech hours after the city fell. “Most of the terrorists tucked their tails between their legs and fled. Our special units and members of the Free Syrian Army are cleaning up the remains of the sword and the traps they left behind.”

Turkish newspapers celebrated the fall of Afrin for coinciding with the 103rd anniversary of an Ottoman victory in the battle of Gallipoli during World War One.

“Same spirit, same faith,” Daily Sabah's headline read. The paper compared the relatively unscathed Afrin to the devastation wrought on Mosul and Raqqa after US-backed Kurdish forces took those cities from the Islamic State last year.

Turkey sees the YPG as part and parcel of the armed Kurdistan Workers Party (PKK), which has waged a three-decade insurgency within Turkey that has killed more than 40,000 people, and the United States’ collaboration with the YPG as a betrayal.

Before Turkey had encircled Afrin, analysts had warned it would face bloody urban street battles. But the YPG withdrew before dawn on Sunday without putting up a fight.

Withdrawal from one battle doesn’t mean [the loss] of war and giving up the struggle,” tweeted Saleh Muslim, the former chairman of the Democratic Union Party, the YPG’s political wing.

In a statement, the YPG said its fight would now enter a new stage, transitioning from direct confrontation to “hit-and-run tactics." It read, “Our forces are everywhere in Afrin. These forces will strike the positions of the Turkish aggression and its mercenaries at every opportunity,” promising “a constant nightmare for them.”

The YPG decided to pull out to prevent more civilian deaths in an area that had been largely peaceful before the Turkish incursion, absorbing thousands of displaced Syrians fleeing fighting elsewhere, said Mutlu Civiroglu, an independent Kurdish affairs analyst, citing sources within the Kurdish administration.

“From the perspective of Kurds, naturally it is a demoralizing situation when Afrin had been spared throughout the war and is home to different cultures. But there is also the feeling among Kurds that this isn’t over,” Civiroglu told Al-Monitor. “They don’t assess this as the fall of Afrin. The YPG is saying that it is changing its war tactics from holding ground to undertaking raids,” he said.

For his part, Erdogan said Afrin was merely a “comma” in Turkey’s battle against Kurdish militants. “We will now add the full stop, God willing … We will now continue to Manbij, Ain el-Arab, Tal Abyad Ras al-Ain and Qamishli until the terrorist corridor is gone,” he said, adding that Turkey was prepared to go into Northern Iraq’s Shinjar region, where PKK fighters are based.
Meanwhile, Israel  is a bit concerned about Turkey adjusting their southern border. From the uber-translators at MEMRI, March 7:

Turkish Newspaper Close To President Erdogan Calls To Form Joint Islamic Army To Fight Israel
On December 12, 2017, ahead of the summit of the Organization of Islamic Cooperation (OIC) in Istanbul,  the Turkish daily Yeni Şafak, which is close to President Recep Tayyip Erdoğan and his ruling AKP party, published an article  titled "A Call for Urgent Action,"[1] which also appeared on the paper's website under the title “What If an Army of Islam Was Formed against Israel?"[2] The article called on the 57 member states of the OIC to form a joint "Army of Islam" to besiege and attack the state of Israel. It notes that such a joint army will greatly exceed the Israeli army in manpower, equipment and budget, and presents statistics to prove this. It also advocates establishing joint bases for the army's ground, air and naval forces that will arrive from all over the Muslim world to besiege Israel, while noting that Pakistan, as the only nuclear country, has "a special status" among the OIC countries. An interactive map provides information on military forces stationed in various locations and the role they can play in the potential joint Muslim attack on Israel.

The Source Of The Yeni Şafak Article: The SADAT Company Website
The main points of the article are taken from the website of the Turkish SADAT International Defense and Consulting Company, which provides consultancy on defense and warfare, both conventional and unconventional, and on military organization, training and gear. The company has an agenda of promoting pan-Islamic military cooperation. According to its mission statement, it seeks "to establish defense collaboration and defense industry cooperation among Islamic countries, to help the Islamic world take its rightful place among the superpowers by providing... strategic consultancy and training services to the militaries and homeland security forces of Islamic countries."[3]
According to Israeli security sources, the SADAT company is involved in aiding Hamas, and seeks to assist – with funds and military gear – the creation of a "Palestine Army" to fight Israel.[4]

SADAT Founder Adnan Tanrıverdi
The SADAT company was founded by Erdoğan’s senior advisor on military affairs, retired general Adnan Tanrıverdi, and is chaired by his son, Melih Tanrıverdi. Adnan Tanrıverdi (b. 1944) served in the Turkish army's Artillery Corps and headed the Home Front Command in northern Cyprus.  He is an expert on assymetric warfare, and was dismissed from the Turkish military in 1996 for his Islamists leadnings. A former Turkish army officer, Ahmet Yavuz, described him as "an enemy of Atatürk" and stated that his dismissal from the army was not surprising.[5]....

Fortunately for the Israelis, Erdogan's purge of the military seriously degraded Turkey's offensive capability vs. a state vs against the Kurds.

Quant Stuff: Past Performance of Facebook Stock Following 5% Daily Declines (FB)

This stuff is not a forecast, it is only past performance which we all know is not indicative of future returns, your mileage may vary, close cover before striking etc. etc.
From Schaeffer's Investment Research:

The FTC is reportedly probing whether FB violated a consent decree
The shares of social media stock Facebook Inc (NASDAQ:FB) plummeted on Monday, suffering their worst one-day loss since March 2014. The ripple effects of the company's data-mining scandal could be felt across the tech sector, dragging FAANG stocks and the Nasdaq into the red, and sending Wall Street's "fear gauge" soaring. What's more, if past is prologue, FB stock could continue to struggle in the short term.

Facebook stock yesterday dropped 6.77% -- its first one-day loss of more than 5% since Nov. 3, 2016, just before the U.S. presidential election. Prior to that, you'd have to go back to Feb. 5, 2016, for a single-session drop of at least 5%. There were no drops of this magnitude in all of 2015, though the equity racked up quite a few in 2014 and 2013. Most of the drops of 5% or more occurred shortly after Facebook went public in May 2012, according to Schaeffer's Quantitative Analyst Chris Prybal.
 FB after steep drops since IPO
Prior to yesterday, there were 25 one-day drops of at least 5% for FB....MUCH MORE

U.S Federal Trade Commission Investigating Facebook (FB)

Following up on "Facebook and Google: The Data Monopolists Face Regulatory Backlash".

From Bloomberg:

  • Agency investigating whether data use violates consent decree
  • Facebook is under 2011 FTC settlement for privacy violations

Facebook Inc. is under investigation by a U.S. privacy watchdog over the use of personal data of 50 million users by a data analytics firm to help elect President Donald Trump.

The U.S. Federal Trade Commission is probing whether Facebook violated terms of a 2011 consent decree of its handing of user data that was transferred to Cambridge Analytica without their knowledge, according to a person familiar with the matter.

Under the 2011 settlement, Facebook agreed to get user consent for certain changes to privacy settings as part of a settlement of federal charges that it deceived consumers and forced them to share more personal information than they intended. That complaint arose after the company changed some user settings without notifying its customers, according to an FTC statement at the time.

Spokesmen for Facebook and the FTC didn’t immediately respond to requests for comment.

If the FTC finds Facebook violated terms of the consent decree, it has the power to fine the company thousands of dollars a day per violation.

Facebook declined in New York trading, falling 3.2 percent to $167 as of 9:31 a.m. in New York. That follows a drop of 6.8 percent Monday....MORE
Following yesterday's tumble the stock is at $165.75 down another $6.81 (-3.95%).


Facebook and Google: The Data Monopolists Face Regulatory Backlash

Some Insight Into Facebook's Capabilities For Politicians: The Obama Campaign (FB)

Facebook's Regulatory Risk Is Real and It Is Magnificent (FB)

"Is Profit-Maximizing Data-Mining Undermining Democracy?" (FB; EVIL)

Facebook and Google: The Data Monopolists Face Regulatory Backlash

The heart of the matter. This piece is a couple weeks old so pre-Cambridge Analytica.
From Grizzle, March 4:

Facebook and Google: The Data Monopolists Face Regulatory Backlash
Regulatory Risk Looms Large Over Wall Street’s One-way FANG Trade
Before the renewed stock market correction that commenced on Wall Street on Tuesday, FANG stocks were back trading at a record high on Monday (see following chart). FANG of course stands for Facebook, Amazon, Netflix and Google. At this record high these stocks had a combined market capitalization of US$2.2 trillion or 9% of the S&P 500 (see following chart).


Note: FANG = Facebook, Amazon, Netflix and Google (Alphabet). Source: CLSA, Bloomberg


Source: Bloomberg

What are the risks of continuing to own these stocks after the huge gains of recent years? The FANG stocks, for example, have risen by 63% since the beginning of 2017, compared with a 20% gain in the S&P 500. One obvious risk is an accelerating monetary tightening scare on rising inflation concerns in America, given that highly rated growth stocks are most vulnerable to higher interest rates. But to this writer a probably greater fundamental risk is regulatory, most particularly in the cases of Facebook and Google.

This risk is being driven by the increasingly evident backlash against social media as people finally wake up to what should have been obvious years ago. That is the sinister aspects of search engine and social media monopolies. But if such a backlash is building, with a recent cover of The Economist magazine titled ‘The new titans: And how to tame them’, the issue is whether this backlash turns into regulatory action creating meaningful downside risk for the relevant companies’ share prices. This is certainly a risk.

The best critique of social media seen by this writer is a book published last year titled, Move Fast and Break Things, by Jonathan Taplin. This book, written by a former 1960s music producer turned academic, highlights the monopolistic aspects of Google and Facebook, as well as the way they are engaged in a process that is destroying critical cultural infrastructure such as news and art, as well as fanning partisan politics by encouraging extremes only to communicate with each other in the by now well understood “echo chamber effect”.....MUCH MORE

We had originally linked to ZeroHedge's copy of the piece on March 7 but the article turned out to be so timely here's credit where credit is due.

Some Insight Into Facebook's Capabilities For Politicians: The Obama Campaign (FB)

We left the last FB post with "Cambridge Analytica's Ad Targeting Is the Reason Facebook Exists".
For some more insight here's a deeper dive into the political via the other side of the aisle.
Carol Davidsen, former director of integration and media analytics for Obama for America on the 2012 Presidential race:
And a short talk she gave a few years ago. Try to ignore the Valley Girl upspeak (high rising terminal [HRT]):

More to come.
Here are a few older posts on the subject:
July 2014
Seeing More Politics in Your News Feed? Facebook Boosts Partisan Sites
January 2016
How Facebook Tracks Its Users To Profit From And Influence a $10bn US Election
May 2017 
Former Facebook Exec: "They're Lying Through Their Teeth" (FB)
I always wondered about the ad guys telling the makers of stuff like Chocolate Frosted Crunchy Sugar Bombs* how much sucrose they can peddle while at the same time telling Congress that "No, advertising has no impact on buying behavior".
It seems Facebook has embraced the "duplicity-as-a-service" (DaaS) business model wholeheartedly.** 

Cooley on the State of Fourth Quarter Venture Capital: SoftBank Advisors (Vision Fund)

Our standard boilerplate on Cooley:
Cooley is one of the big dogs of the VC legal eagle biz. Something like a third of the unicorns on the WSJ's Billion Dollar Startup Club list have used Cooley for one purpose or another.
Additionally, 20 or 21 of the companies on the "Technology Review's 50 Smartest Companies 2017" list have been represented or counseled by the firm. As I said, one of the biggies.
And From CooleyGo:

Q4 2017 Quarterly VC Update: Michael Ronen on the State of Venture Capital Investing
In conjunction with our Q4 Venture Financing Report, I sat down with Michael Ronen from SoftBank Investment Advisers to get his take on the state of venture capital investing.

A few highlights from Michael:

On market fluctuations: Investing is a cyclical business, but we continue to feel good about our outlook because we generally take a long-term view, backing seasoned management teams and differentiated technologies with significant capital to weather transitory fluctuations.

On SoftBank’s position: The thrust of where we play the best, and where we are the best partner, is where we are going to become a patient, strategic shareholder and partner to management teams and earlier investors that are willing to take a long-term view with us.

On M&A: With tax reform and the repatriation of cash, M&A should continue to be robust. That’s also an opportunity for us as we look for strategic partners for our portfolio companies.

On cautious optimism for 2018: It doesn’t mean that we’re not cautious. We are highly selective in our investments, but, at this point, we are cautiously optimistic about 2018.

Michael, thank you for your time with today’s interview. I’ve been looking forward to it for quite some time.

I would love to start with your thoughts about the market for private financings, how it’s evolved over the last year and whether it’s consistent with the data that you’re seeing which basically shows, at least over the last three quarters, continued strengths, company-favorable terms and high valuations.

Firstly, thank you – I appreciate the opportunity to discuss these results with you and have lots of respect for what Cooley is doing in the market.
The short answer to your question is yes, we’re in a good market overall. Your data reflects the fact that we’re on the back of several years of strong public markets, low interest rates, generally favorable investor sentiment and, despite political macro risks that come and go, the tech investing landscape continues to be favorable. For the best companies out there that are in unique positions in the market, it is their financing to define. They call the terms, and they are in great shape to do that and for the right reasons – because they’ve put themselves in a position to be a leader.

It has been fascinating to me over the last several years to see how many new industries not classically thought of as tech industries, but with a sort of tech layer to them, have been insulated from larger global macroeconomics. I’d be foolish to think that this trend will last forever, but it’s pretty resilient overall, and it sounds like that’s what you’re saying.

It’s resilient, but you’re right that it won’t last forever. We will go through cycles. They’re part of investing life; they challenge investors and provide opportunities as well. Technology – as we obviously are a tech-focused fund – while affected in downturns, is also more resilient as long as you’re investing behind the right macro trends, and with the right management teams and companies that are in the place they should be. Generally, while cycles can always introduce unpleasant volatility, tech has less sensitivity to those types of macro risks – it has an enduring value.

Because of the size of your fund and the access you have to the most special outlier companies in various industries, is it safe to say there’s some insulation from all of that fluctuation? In terms of your ability to get deals done, to get access to great companies and to deploy capital – or do you see there’s risk that that changes either with significant sustained macroeconomic trends, or what could be perceived to be some amount of encroachment and competition from others?

We’re clearly a large fund, but we’re also part of a large global group. We are an affiliate of one of the largest technology groups out there and one that has been investing for 25-30 years. While this structure is new, SoftBank has been active in technology markets for a while, and Masa Son has accumulated an incredible track record of investing over the years. I think the combination of affiliation with our global technology group, plus our unique US/EMEA/Asia/Japan footprint combined with the size of our capital base, does differentiate our position. I don’t think it puts us in a place where we’re not going to be affected by macro trends. However, we’re in a place where the effects are somewhat different and more nuanced than if we were a pure early stage investing group.
Also, by virtue of the fact that we are a late-stage fund, the companies we invest in have reached a certain critical mass, either in innovation or scale or both, so the risk-return profile of our fund is different....MUCH MORE

Monday, March 19, 2018

Facebook's Regulatory Risk Is Real and It Is Magnificent (FB)

So far this year we have had over thirty posts on TheFacebook, as it was once known, with almost all of them being critical of the company in one way or another.
The risks highlighted can be broken down into four broad areas:
1) The media backlash to having their business models undermined by Facebook and Google.
2) The surveillance capabilities of the platform companies and the privacy/security risks they pose.
3) The deliberate addiction of users brains via neurotransmitter manipulation and psychological engineering.
4) The use of the above characteristics by political operators to achieve their own ends and the various outrages, faux and otherwise, elicited.
Our motivation is pretty straightforward: How can we make a buck or two off what appears to be going on?

Recognizing risk before the computers do is one approach. The dirty little secret of machine learning is that the computers can very quickly categorize what they are witnessing only if they have seen the situation previously. We used one of the funnier examples in the outro from December 2017's:

Artificial Intelligence in Risk Management: Looking for Risk in All the Wrong Places
Opportunity is where you find it, turn your risk manager into a profit center. ...
From naked capitalism, November 15:...
...AI cannot cope well with uncertainty because it is not possible to train an AI engine against unknown data. The machine is really good at processing information about things it has seen. It can handle counterfactuals when these arise in systems with clearly stated rules, like with Google’s AlphaGo Zero (Silver et al. 2017). It cannot reason about the future when it involves outcomes it has not seen....MORE 
"When Google was training its self-driving car on the streets of Mountain View, California, the car rounded a corner and  encountered a woman in a wheelchair, waving a broom, chasing a duck. The car hadn’t encountered this before so it stopped and waited."
This introduction is getting a bit wordy so we'll chop things into a couple more posts tomorrow but that's the premise, look for risks that AI hasn't yet been trained on in an attempt to gain some asymmetric advantage.

If, in the meantime you can convince yourself you are performing some sort of societal good, all the better. Speaking of the meantime here's some good insight until we get around to parts II and maybe III.
From Motherboard:

Cambridge Analytica's Ad Targeting Is the Reason Facebook Exists
Thousands of third party apps were designed solely to obtain and sell your data. It's no surprise that the data ended up being used again on Facebook, one of the biggest advertising platforms on Earth.

This weekend, while Facebook was quibbling about whether the information used by Cambridge Analytica to target voters in the lead up to the 2016 election was obtained in a data “breach” or somehow using fraudulent means, I decided to check my privacy settings.

Since creating a Facebook in 2006, I have associated my account with 100 separate third party apps. Besides common ones like Spotify, Venmo, and Uber, I have given access to my account to apps like “Typing Maniac,” “I bet I can guess your favorite color,” and “Crazy Cabbie,” among others. Many of these apps I remember only as a faint memory. According to these settings, however, lots of these apps still have access to the same information Cambridge Analytica used to target Facebook users with political ads that helped Donald Trump win the 2016 presidential election.

Typing Maniac—a game I vaguely remember from college—has access to my public profile, my friend list, my relationship status, my “relationship interests,” my birthday, my work history, my status updates, my education history, my events, my hometown, my current city, photos I’m tagged in and that I’ve uploaded, my religious and political views, my videos, my website, my personal description, and my “likes.”...MORE 
Related, January 8's '"Facebook Can’t Be Fixed' (FB)":
Facebook’s fundamental problem is not foreign interference, spam bots, trolls, or fame mongers. It’s the company’s core business model, and abandoning it is not an option.  
More to come.

Uber Self-Driving Car Kills Pedestrian In Arizona

Reades may recall that Uber shifted its autonomous vehicle testing to Arizona when California demanded the company get off the roads until they received a permit and began turning over the data that Uber was collecting on accidents and near-misses. More after the jump.

From the New York Times:

Self-Driving Uber Car Kills Arizona Pedestrian
A woman in Tempe, Ariz., has died after being hit by a self-driving car operated by Uber, in what appears to be the first known death of a pedestrian struck by an autonomous vehicle on a public road.
The Uber vehicle was in autonomous mode with a human safety driver at the wheel when it struck the woman, who was crossing the street outside of a crosswalk, the Tempe police said in a statement. The episode happened on Sunday around 10 p.m. The woman was not publicly identified.
Uber said it had suspended testing of its self-driving cars in Tempe, Pittsburgh, San Francisco and Toronto.

“Our hearts go out to the victim’s family. We are fully cooperating with local authorities in their investigation of this incident,” an Uber spokeswoman, Sarah Abboud, said in a statement.
The fatal crash will most likely raise questions about regulations for self-driving cars. Testing of self-driving cars is already underway for vehicles that have a human driver ready to take over if something goes wrong, but states are starting to allow companies to test cars without a person in the driver’s seat. This month, California said that, in April, it would start allowing companies to test autonomous vehicles without anyone behind the wheel.

Arizona already allows self-driving cars to operate without a driver behind the wheel. Since late last year, Waymo, the self-driving car unit from Google’s parent company Alphabet, has been using cars without a human in the driver’s seat to pick up and drop off passengers there. The state has largely taken an accommodating approach, promising that it would help keep the driverless car industry free from regulation. As a result, technology companies have flocked to Arizona to test their self-driving vehicles....MORE
A month of uber-nonsense
Dec. 13, 2016
"Uber to put self-driving cars on the road in SF 'very soon'"
Uber Rolls Out S.F. Self-Driving Cars, California Says Uber Needs A Permit For Autonomous, Uber Says No, It Doesn't, California Says...

Uber Tells California It Won't Be Applying For An Autonomous Driving Permit, California Tells Uber The State's Attorney General Will Be In Touch
Uber Throws Tesla Under the Autonomous Bus

More On "Uber Throws Tesla Under the Autonomous Bus"

As Uber Pulls Autonomous Vehicles Off San Francisco Streets, A Meta-Analysis Of Uber's Bargaining Stance In California

December 29, 2016 
Uber Picked Up Its Toys and Went To Arizona
Arizona’s Uber gain is not necessarily California’s loss 
January 9, 2017 
Contra Uber, "California Welcomes NVIDIA Corporation to the Self-Driving Big Leagues" (NVDA)

"Is Profit-Maximizing Data-Mining Undermining Democracy?" (FB; EVIL)

Tomorrow we'll take on peace in the Middle East.
But right now Charles Hugh Smith at OfTwoMinds:
If targeting political extremes generates the most profit, then that's what these corporations will pursue.
As many of you know, was falsely labeled propaganda by the propaganda operation known as ProporNot back in 2016. The Washington Post saw fit to promote ProporNot's propaganda operation because it aligned with the newspaper's view that any site that wasn't pro-status quo was propaganda; the possibility of reasoned dissent has vanished into a void of warring accusations of propaganda and "fake news" --which is of course propaganda in action.
Now we discover that profit-maximizing data-mining (i.e. Facebook and Google) can--gasp--be used for selling ideologies, narratives and candidates just like dog food and laundry detergent. The more extreme and fixed the views and the closer the groups are in size (i.e. the closer any electoral contest), the more profitable the corporate data-mining becomes.
Meanwhile, back at the ranch, the data-mining gets all the important stuff wrong. As correspondent GFB explains, was identified as "propaganda" by data-mining, which concluded that any site that posted content that wasn't pro-Hillary was automatically propaganda:
At least we now know why your site was flagged as a source of Russian disinformation:
Cambridge Analytica is hired by the Russians to data mine to find the most efficacious targets for their disinformation campaign - and in the course of doing research, they find that a number of individuals who visit your site have shown - in other social media actions - to have anti-Hillary, or anti-powers-that-be tendency. They conclude the number of visitors that have that data profile would suggest that it is likely most, if not all visitors to your site would likely have the same view - and so any visitor to your site gets flagged to be targeted, if possible, by the disinformation campaign./Now look at in reverse - someone who is investigating possible unscrupulous data mining re: the campaign, and through there own data mining notice that visitors to your site get an inordinate amount of targeted disinformation - - - and they conclude (incorrectly) that is likely the source of that targeting.
Setting aside the quasi-monopoly on vast data-mining of users held by Facebook and Google, we have to ask: what sort of "democracy" do we end up with...

The Creator of the iPod and the iPhone Seeks to Dethrone Tech’s Giants

Coming up with the iPhone was pretty cool. I'm not quite as enthusiastic about Nest and the whole Internet of Things thing.
From Surface Magazine:

Tony Fadell Wants to Disrupt Silicon Valley

It’s a crisp January morning in Paris’s 13th Arrondissement, and outside Station F, the former freight terminal that is the epicenter of France’s startup scene, twentysomethings climb out of cars hailed using iPhone apps. They approach the huge, glass-fronted concrete arches, heads bowed over screens, thumbs dancing out social media updates, pristine white earphones poking out from under beanies or from behind shoulder-length hair. The gates are activated by QR code, so they hold out their iPhones to get into work, where they’re probably building iPhone apps themselves, to connect our homes, cars, everything, to the device in our pocket.

This is the world that Tony Fadell helped build. Fadell is known in Silicon Valley as the father of the iPod, which, with its iconic wheel and those classic white earbuds, helped transform Apple’s fortunes from a struggling computer manufacturer to the most valuable public company in history. He played a central role in the creation of the iPhone, helping Steve Jobs and Jony Ive usher in the smartphone age. After leaving Apple, in 2010, Fadell founded the smart-home company Nest, which Google bought in 2014 for $3.2 billion. Few have played bigger roles in shaping today’s technological landscape. No iPod, no iPhone. No iPhone, no Instagram, Snapchat, Uber, or Pokémon Go.

But lately Fadell, like many in Silicon Valley, has been reconsidering the changes he and  his colleagues have brought about. In recent months, several former engineers and executives from Google and Facebook—including the inventor of the “like” button—have spoken out publicly about the dangers of smartphones, in particular the design of apps that are intentionally addictive. In June 2017, Fadell told an audience at London’s Design Museum, “I wake up in cold sweats every so often thinking, What did we bring to the world?” This January, after two of the largest investors in Apple called on the company to take action against smartphone addiction in children, Fadell joined in, publicly urging both his former employers to do more.

When I meet him two weeks later, the subject is still on Fadell’s mind. To be clear: He doesn’t blame Apple—“We can’t say all iPhones are bad”—or even social media companies, although he admits there are “what some people judge as bad actors out there.” Instead, he believes that today’s shocks are a symptom of society reckoning with an unprecedented technological change.

We’re sitting on a bright yellow sofa in Station F, where he has set up his own investment firm, Future Shape. At 48, he is a lean, energetic presence, wearing a teal V-neck, cords, and black zip-up boots. “My first son was born three weeks before the iPhone was released, so my kids have never known a world without them,” Fadell says. He believes Silicon Valley’s current crisis of conscience can be traced back in part to the architects of the mobile age having children and seeing the impact of their creations. “Your worldview changes dramatically when you have your first kid. You change from ‘me, me, me’ to family and community.” Fadell has three children and, although two of them have smartphones, the family imposes time limits, “screen-free Sundays,” and parental controls.

“When I think about digital well-being, I go back to packaged and mass-produced foods,” he says. “We have created a nomenclature around fats, sugars, proteins. What is obesity? What is bulimia?” Like food, Fadell argues, apps should be subject to their own health classifications. But our smartphones, he says, are just refrigerators. “They’re not going to cause you to be an addict or not. But they always stock themselves, and will give you the ability to buy anything you want.”

The first time Fadell tried to create the iPhone, it was 15 years too early. Born in Detroit, Fadell picked up engineering from his grandfather, a lifelong tinkerer who helped Fadell buy his first computer. Fadell showed a prodigious talent for computing; in college, he even sold a new microprocessor design for the Apple II to Apple itself.

After graduation, Fadell joined General Magic, a now-storied Silicon Valley company (alumni include eBay founder Pierre Omidyar and Android creator Andy Rubin) that was working on an early personal communications device. “We had email, we had downloadable games, downloadable apps, we had shopping, we had books,” Fadell recalls—in other words, the key features of today’s smartphones. General Magic built two devices, for Sony and Motorola, but neither took off, and the company folded. “It was too soon,” says Fadell....MUCH MORE
iPod and Nest Creator Tony Fadell Talks About Apple and Google (AAPL; GOOG)
Internet of Things: The Biggest Problem With Smart Homes
The Internet of Things Moves Outside: Sensors In the Garden

BigLaw: "Latham & Watkins Discusses SEC Charges Against BitFunder and the State of Digital Asset Trading"

Seriously big.
I think they are still the top-grossing law firm in the world.

From Columbia Law School's CLS Blue Sky blog, March 19:
The SEC continues to send messages to the nascent cryptocurrency market. The agency has recently brought enforcement actions and issued a public statement that illustrate the agency’s views on how the federal securities laws apply to crypto or digital asset trading platforms. In the latest enforcement action,[1] the SEC in U.S. District Court, Southern District of New York alleging that a bitcoin trading platform functioned as an unregistered exchange, facilitated unregistered offerings and trading of securities, and defrauded investors by failing to disclose a cyberattack on the platform. The SEC’s Divisions of Enforcement and Trading and Markets also issued a joint public statement on digital asset trading platforms.[2] These latest developments provide insight into the SEC’s views on key issues participants in the digital or crypto asset market face, especially those participants currently operating or seeking to operate a crypto asset trading platform or exchange.

The SEC’s Enforcement Action

On February 21, the SEC filed an action against BitFunder and its founder in federal district court alleging violations of the federal securities laws. The SEC’s key allegations are as follows:
  • BitFunder is an unincorporated entity founded by its operator, Jon E. Montroll, in October 2012 and operated out of Montroll’s home in Texas. BitFunder was an online bitcoin fund raiser and trading platform, on which users could create, offer, buy, and sell shares in various virtual currency-related enterprises (referred to as “Assets” and “Asset Shares” on the BitFunder website), using bitcoin as the form of payment.
  • BitFunder required users to register with an Australian virtual currency exchange, WeExchange, and deposit bitcoins into a single digital wallet maintained by WeExchange in order to trade on BitFunder. Users’ bitcoins were commingled in the wallet and Montroll had control over WeExchange and the wallet maintained by WeExchange.
  • Users on BitFunder’s platform could buy and sell Asset Shares in initial and follow-on offerings by listing Asset Shares on the platform. Users also could buy and sell Asset Shares in secondary market trading. In exchange for the trading services it offered, BitFunder charged a transaction-based fee whenever a user sold Asset Shares. Montroll manually calculated how much BitFunder was owed in accrued transaction fees and withdrew those fees from the WeExchange wallet from time to time.
  • Separately, in July 2013, Montroll individually offered and sold certain securities, called Ukyo Notes or Ukyo Loans, on BitFunder’s platform as one of the platform’s listed Assets and represented that he would use the proceeds from the offering for private investment purposes, including Bitcoin related activities and “offline business opportunities,” and promised to pay investors certain daily interest.
  • Shortly after the beginning of the Ukyo Notes offering in July 2013, BitFunder’s platform suffered a cyberattack over the course of five weeks, which resulted in the theft of approximately two-thirds of the bitcoins in the wallet maintained with WeExchange, which had a value of approximately US$775,000 at the time of the theft. As early as the first week of the cyberattack, and during the offering of the Ukyo Notes, Montroll knew of the cyberattack and the bitcoin theft. Yet, Montroll did not restore the wallet to its previous bitcoin balance prior to the theft or inform BitFunder users of the theft. He also did not disclose the cyberattack to Ukyo Notes investors.
  • After the cyber theft of bitcoins, Montroll continued to operate BitFunder and solicit new users and accept their bitcoin deposits, earn transaction fees, and raise funds from Ukyo Notes investors. When BitFunder users had problems withdrawing their bitcoins because of the bitcoin deficit caused by the theft, Montroll claimed that the delays arose from technical issues with BitFunder’s platforms. Montroll also withdrew bitcoins from the WeExchange Wallet and converted them to fiat currency to pay personal expenses. The bitcoin deficit ultimately caused Montroll to shut down BitFunder by November 2013.
The SEC’s charges fall into four categories:
  • Unregistered Exchange: The SEC alleges that BitFunder violated the exchange registration requirement in Section 5 of Securities Exchange Act of 1934 (Exchange Act) for acting as a securities exchange and effecting transactions in securities without being registered as a national securities exchange or exempted from such registration.
  • Securities Fraud: The SEC alleges that, BitFunder and Montroll violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 (Securities Act) (with respect to Montroll only), for misrepresenting the use of money raised from the offering of the Ukyo Notes, failing to disclose the cyberattack and the resulting bitcoin theft to Ukyo Notes purchasers and continuing to operate and solicit and accept bitcoin deposits from new users, and defrauding purchasers of the Ukyo Notes and users of BitFunder.
  • Unregistered Securities Offering: The SEC alleges that Montroll violated Section 5 of the Securities Act by offering and selling unregistered securities (Ukyo Notes) without filing a registration statement with the SEC.
  • Control Person Liability: The SEC charged Montroll as a “control person” liable under Section 20(a) of the Exchange Act, alleging that he controlled BitFunder and was a “culpable participant” in BitFunder’s failure to register as a securities exchange.

Public Statement of Divisions of Enforcement and Trading and Markets on Online Trading Platforms
On March 7, 2018, the SEC Divisions of Enforcement and Trading and Markets (Staff) issued a joint public statement on digital asset trading platforms. The Staff pronounced that many of these platforms may be required to register with the SEC as a national securities exchange or be exempt from registration. The Staff alerted investors that the SEC did not review the standards for picking digital assets for trading or the trading protocols used by the trading platforms and that these standards or protocols should not be equated to, or assumed to meet, the standards of an SEC-registered national securities exchange. In addition, although many online digital asset trading platforms appear to perform exchange-like functions, investors using these platforms should not believe that the pricing and execution data offered by the online digital asset trading platforms would have the same integrity as that provided by national securities exchanges.

What the Latest Developments Mean to Crypto Market Participants...

Previously from CLS' Blue Sky blog: 
"Perpetual Dual-Class Stock: The Case Against Corporate Royalty"
The author is a commissioner on the SEC and a recovering academic.
(enough footnotes to make Matt Levine envious)  
Finance:Taking Modigliani-Miller To Court 60 Years On
Columbia Law School: "Risks of Classifying Employees as Independent Contractors"
Governance: The Growing Concentration of ETF (and mutual fund) Voting Power
Something that doesn't come up in casual conversation but may be important. ...

"The Anatomy of a LIBOR Panic: New Wides For LIBOR/OIS"

From Macro Man, March 19:
Welcome back MM readers--apologies for the unscheduled hiatus last week. I spent a few days enjoying the technological miracles of the US healthcare system. Keen readers may notice I almost never make a call on stocks, stock sectors, or egads….single name stocks--but it is tough for a trader to walk away from a couple of days in and around a hospital without thinking that there is a lot of capital and profit sloshing around in that place.

Since I was disconnected from markets much of last week I’m going to circle back to the widening in LIBOR/OIS spreads that has continued unabated since I wrote about it a few weeks ago. I'm sure this has been to the erm...consternation of more than a few traders like our good friend here:...

...Actual footage of a macro trader reacting to the latest LIBOR fixings
JPM published this chart showing that the current 3mo libor/ois spread is at its widest post-crisis level.
That’s amazing, given nobody has really noticed outside of this small sector of the fixed income market. Even the 2016 money market reform move made some headlines in the financial media, even if it didn’t penetrate the white hot din of the US election media coverage....

Sunday, March 18, 2018

"Companies Are Betting on Lab-Grown Meat, but None Know How to Get You to Eat It"

The dream of any right-thinking change agent is to mandate that people use your product.
If that approach is not feasible the fallback is to tax the competition

Here at Totalitarian Marketing Group we supply strategies for the power-mad while making life easier for the top 0.0000001%. TMG, when nudge just isn't fast enough.

From Futurism:
IndieBio wants to feed you dog food. More specifically: they want to feed you dog food made of non-animal protein grown in a lab.

If you’re already grossed out, we don’t blame you.

Nonetheless, IndieBio is part of a growing wave of companies betting that lab-grown protein is the future of food. Meat consumption is both environmentally hazardous and ethically a bit, uh, hard to swallow, so there are more people than ever working to find a solution. So many people, in fact, that a future rife with lab-grown meat feels inevitable.

But there’s a significant factor that these companies seem to not have considered: the “ick factor.” That is, how will companies get people accustomed to this understandably off-putting concept?
“People will get used to clean meat in a hurry if it tastes right, if it smells right,” asserts culinary biochemist Ali Bouzari in a video interview with Wired. “If it doesn’t, it’s gonna be a monumental thing to overcome.”

The Uncanny Valley of Food
Think about the last time you bit into something that was way slimier than you expected. Even if it tasted amazing, your brain probably responded with a wave of nausea that made it impossible for you to keep eating.

That reaction is what Bouzari calls the “uncanny valley” of food (yes, our aversion to almost-lifelike robots isn’t the only uncanny valley in our strange psyches).

“The uncanny valley of meat, and with food in general, is when you get to something that’s a highly sophisticated imitation but not quite there, it forces your brain into a very small window of context,” Bouzari explained to Wired. “Where you say, I’m convinced I’m gonna be eating a chicken nugget, this better behave exactly like a chicken nugget in every way, shape, and form, or I’m going to freak out.”
That’s because evolution has hard-wired our brains to make food seem incredibly repulsive if it might sicken or kill us. As a result, if a food doesn’t fit our expectations of what it’s supposed to feel or taste like, our brains involuntarily reject it....MUCH MORE
Here's an excellent example of the Uncanny Valley effect in virtual reality that we've been using to illustrate the problem:

Seinfeld, Virtual Reality and Mild Revulsion
The Uncanny Valley, Interior-Design Edition

Greg Miller
The "uncanny valley" usually applies to human aesthetics. It describes that vague sense of revulsion you get when you see a fabricated person—a robot, usually—who looks aaaaalmost human … but not quite....
You know what the image is supposed to represent and you know it is not that place.
Soooo close

And previously on the Protein Channel:

The Largest U.S. Protein Processor (chicken, beef, pork) Is Investing in Lab Grown Meat
Dealflow: "New Investors Flock To Food"
"Silicon Valley and the Search for Meatless Meat"
"Where’s The Beef? China Signs $300 Million Deal with Israel to Import ‘Lab Meat’"
Bill Gates Invests In Another Lab-Grown Meat Company
"Bill Gates headlines an all-star list of investors pumping $75 million into meatless burgers"
Mr. Gates also partnered with Li Ka-Shing and Khosla on Hampton Creek which is attempting to pivot from Just Mayo into laboratory-grown 'meat'.*
"Mayo-scandal firm Hampton Creek from San Francisco going whole hog for Frankenmeat: report"
Just Mayo Guy, Hampton Creek's Josh Tetrick, Pivots to Industrial Scale Ingredient Supply Biz
Hampton Creek: Remember All Our Vegetarian Talk? Never Mind    
Questions America Wants Answered: Is Eating Lab Grown Human Flesh Cannibalism?
"People buying meat from strangers on social media is a serious problem"
Seven Startups Creating Lab-Grown Meat
"Can Planet Earth Feed 10 Billion People?"
We might have to go lower down on the protein chain though.
I hear crickets are yummy but haven't yet verified this claim..