Wednesday, September 28, 2016

Hurricane Watch: "Tropical Storm Matthew Forms in the Lesser Antilles Islands"

First up, Wunderblog:

By: Jeff Masters , 3:23 PM GMT on September 28, 2016
Tropical Storm Warnings are flying in the Lesser Antilles Islands thanks to newly-formed Tropical Storm Matthew. An Air Force hurricane hunter aircraft found on Wednesday morning that Invest 97L had finally developed a closed circulation, and had surface winds near 60 mph in a powerful cluster of thunderstorms that was located about 50 miles east of Martinique at 9:22 am EDT. These strong winds will move over the islands of Martinique and Dominica early this afternoon, given Matthew’s westerly motion at 20 mph. At 11 am EDT, Dominica reported sustained winds of 33 mph, gusting to 53 mph, and Martinique reported sustained winds of 28 mph, gusting to 40 mph. Radar imagery out of Martinique and Barbados on Wednesday morning showed plenty of rotation to the storm’s echoes, and an increase in their intensity and areal coverage. Satellite loops showed that Matthew was developing a well-defined surface circulation, and had an increasing amount of heavy thunderstorm activity that was growing more organized. Aiding development was moderate wind shear of 10 - 20 knots and warm ocean waters of 29.5°C (85°F). The 8 am EDT Tuesday SHIPS model output analyzed 50 - 55% relative humidity at mid-levels of the atmosphere over Matthew, which is lower than optimal for tropical cyclone formation, and water vapor satellite loops showed Matthew was butting into a region of dry air that lay just west of the Lesser Antilles Islands. Lack of spin from being too close to the equator was less of a problem for Matthew than before, as the system had worked its way northwards to a latitude of 13°N. This is far enough from the equator for the storm to be able to leverage the Earth’s spin and acquire more spin of its own. ...MUCH MORE
Here's the Cone of Uncertainty:

Tropical Storm Matthew

And from the Washington Post's Capital Weather Gang:

Tropical Storm Matthew’s forecast is eerily similar to Hurricane Hazel in 1954
 Hurricane Hazel took this track in 1954. It made landfall in the Carolinas as a Category 4. (NOAA/Angela Fritz)
Tropical Storm Matthew formed just east of the Caribbean Sea on Wednesday morning, and the storm’s future track is concerning. After this weekend, forecast models are honing in on a path north and toward the U.S. coast. Amazingly — maybe foreboding-ly — it’s the same track that Hurricane Hazel took in 1954, which raked through the Mid-Atlantic and Northeast after making landfall as a Category 4. 
Hazel was just one of three major hurricanes that struck the coast that year, but that storm in particular prompted large and lasting efforts to improve hurricane observations, forecasts and warnings. 
Tropical Storm Matthew is expected to track west into the middle of the Caribbean through early next week. That is a high-confidence forecast. Beyond Monday, though, two of our most-trusted forecast models, the European and the GFS, are suggesting the storm will strengthen into a hurricane and take a dramatic turn to the north....MORE
Please note: These images are not actual official forecasts. They are possible scenarios....

Shimon Peres Goes Job Hunting Is Funnier than Bill Gates' Last Day

I'm not sure who sent this but thank you.
In Hebrew with English subtitles.

For comparison, see the embed in this old post:
"Bill Gates’ Children Mock Him With ‘Billionaire’ Song"

"Ready to deal, Saudi Arabia waits on Iran"

Brent $47.26; WTI $45.18 up 51 cents.
From Petroleum Economist:
The kingdom is ready to ditch its laissez-fair market strategy and cut production. Iran needs to come on board, but an agreement is close

The guts of an Opec deal to remove up to 1m barrels a day of oil from the market are in place. It may take several weeks for the terms to be ironed out but Saudi Arabia has signalled that the period of Opec passivity is over.

Russia is on board with the deal and its energy minister Alexander Novak says it will freeze its output, “once Opec agrees”. Iran remains the final obstacle and is sticking to its wish to recover pre-sanctions production levels. But it is understood to be flexible and the mood within Opec is upbeat. Secretary-general Mohammed Barkindo is said to be “cautiously optimistic”. Khalid al-Falih, the Saudi oil minister, says the agreement “will give clarity to the market”.

The timing is not yet clear. In a closed briefing in Algiers on 27 September, Falih and Novak – who sat shoulder-to-shoulder – suggested it would be agreed by the Opec meeting on 30 November. It could come much sooner.

Although Falih said there “won’t be an agreement tomorrow”, meaning at another Opec meeting in Algiers on 28 September, several sources suggested this remained possible. Novak, who briefed the gathering alongside Falih in a show of unity, said Russia was waiting for Opec to agree, but Russia “will help make a swifter rebalancing of the oil market”. Senior Russian officials later told Petroleum Economist this was “open to interpretation” but Russia “will not put additional oil on the market in the short term”.

The significance of events in Algiers for oil cannot be underestimated. After almost two years of letting the market drift, Saudi Arabia is ready to ditch the policy. Domestic pressures – including a slumping stock market, the urge for higher oil prices ahead of an Aramco IPO, cuts to state salaries – are all in the background. The kingdom is also increasingly worried that the collapse in upstream investment risks damaging price spikes in the coming years.

Falih says the deal will involve “gentle adjustments and reassurances to the market” but added: “it will be called a freeze but involve individual cuts”.

It is understood that the terms of the deal are the following: Saudi Arabia and other Opec members, excluding Iran, Libya and Nigeria, would reduce production back to levels earlier in the year. January 2016 is the month that has been mentioned most. The three countries under special measures would be allowed to produce at “maximum levels that make sense”, says Falih.

In other words, the deal in its essence is the one that had been agreed in Doha in April, before being rejected at the last minute by Saudi deputy crown prince Mohammed bin Salman.

But those are hazy terms and the market, sceptical of Opec promises, will need much more detail. The month chosen for a baseline will be critical. January 2016 would bring a big cut from Saudi Arabia, but actually allow Iraq and Venezuela, on paper at least, to produce more compared with August. A different formula may be necessary.

Thus, excluding Libya, Iran, Nigeria (and Gabon), if the rest of the group returned to January production levels the combined cuts would amount to just 334,000 b/d. In that context, the “maximum that makes sense” from Libya, Nigeria and of course Iran is a fraught notion. Libya hopes to add up to 0.5m b/d more oil this year alone. Nigeria, the same. Either of them could more than wipe out the cuts made by others.

Iran’s ambitions remain the biggest problem. Its maximalist negotiating position has been that it wants to regain the 12.7% of Opec’s market share that it held in November 2011, before sanctions were imposed. At current Opec production, this would imply 4.173m b/d, it says.

Those are unacceptable terms for Saudi Arabia, because the kingdom would be left, as usual, shouldering the bulk of the cuts while its geopolitical rival gets a pass. So Iran will need to rein in its production target too. Word among several Opec watchers is that a plausible compromise could see Iran postpone the longer-term target and accept a freeze around 3.6m-3.8m b/d, while a formula be found that restores Saudi output to 10.2m b/d, implying a cut of 400,000-500,000 b/d, and involves others trimming output too, for a total of 0.8m b/d. Against August’s group-wide production of 33.237m b/d, this would imply production of around 32.5m b/d....MORE

Contra Merkel, "German government prepare Deutsche Bank rescue plan: Die Zeit"--UPDATED

From Reuters:
The German government and financial authorities are preparing a rescue plan for Deutsche Bank (DBKGn.DE) in case the lender would be unable to raise capital itself to pay for costly litigation, German weekly Die Zeit reported.

According to the draft plan, Deutsche Bank would be enabled to sell assets to other lenders at prices that would ease the strain on the lender and not put an additional burden on the bank, the paper said.

In an extreme emergency, the German government would even offer to take a direct stake of 25 percent, the paper added without saying where it got the information.

A Deutsche Bank spokesman referred to an interview Chief Executive John Cryan gave German daily Bild on Wednesday and denied the report.

"At no point did I ask the chancellor for support. Neither did I suggest anything like that," had told Cryan Bild in response to a different report that said he had asked German Chancellor Angela Merkel for her support with a $14 billion U.S. demand to settle claims it missold mortgage-backed securities....MORE
Update d'Alphaville:

The Deutsche domino
Is there something particularly hubristic about a German bank being the bank to trigger a renewed eurozone banking panic? We think so. 
Here’s Deutsche’s share price as of pixel time (about €10.75 per share). It’s up about half a euro following news on Wednesday that it would be selling off its UK insurance business, the Phoenix Group, to Abbey Life Assurance for $1.2bn.... 
...The German finance ministry, meanwhile, denied a report in Die Zeit that the German government and financial authorities are preparing a rescue plan, which would involve the government taking a stake in the worst case scenario....MORE

"Two Years Into Oil Slump, U.S. Shale Firms Are Ready to Pump More"

From the Wall Street Journal, Sept. 27:

Shale industry has proved resilient despite low prices thanks to cost cuts, efficiency improvements
When oil prices began to plunge two years ago due to a global glut of crude, experts predicted U.S. shale producers would be the losers of the resulting shakeout.

But the American companies that revolutionized the oil and gas business with hydraulic fracturing and horizontal drilling are surviving the carnage largely unbowed.

Though the collapse in prices caused a wave of bankruptcies, total U.S. oil production has only fallen by about 535,000 barrels a day so far this year compared with 2015, when it averaged 9.4 million barrels, according to the latest federal data.

As the oil markets ponder where production will resume when prices pick back up, one clear answer has emerged: America. Goldman Sachs forecasts the U.S. will be pumping an additional 600,000 to 700,000 barrels of oil a day by the end of next year—making up for every drop lost in the bust.

Few predicted that in the fall of 2014, when Saudi Arabia signaled that it wouldn’t curb its output to put a floor under crude prices. Oil pundits concluded that a brutal culling would force higher-cost players known as marginal producers—a group that includes shale drillers—out of the market.

But the greatest consequence of the Saudi decision and subsequent price drop is that it has delayed costly oil megaprojects, from deep-water platforms off Angola to oil-sands mines in Canada.

Even if members of the Organization of the Petroleum Exporting Countries, which are meeting this week in Algiers, manage to strike a deal to cut oil production later this year, U.S. producers will step into that void.

“The U.S. isn’t the marginal barrel but the most flexible,” said R.T. Dukes, an analyst at Wood Mackenzie. “We’ll be the fastest to snap back.”

More than 100 North American energy producers have declared bankruptcy during this downturn, but even companies working through chapter 11 keep pumping oil and gas. Many exit bankruptcy stronger thanks to a balance sheet that has been wiped clean. SandRidge Energy Inc., which filed in May, will exit next month after erasing nearly $3.7 billion in debt.

Many shale operators are still struggling at current prices, drilling at a loss and tapping Wall Street for new infusions of cash. But the strongest producers, including EOG Resources Inc. and Continental Resources Inc., soon will be able to generate enough money to pay for new investments and dividends—as well as boost production—even at low prices, analysts say....MUCH MORE

Questions America Wants Answered: "Is The Yield Curve Flattening? Does It Even Matter?"

From The Capital Spectator:
You can find any answer you want by comparing the current curve to various points in its history. Over the past 30 trading days, for instance, the curve is more or less unchanged. But comparisons over longer periods reveal a modest flattening.

A flatter curve may be a precursor to an inverted curve, which would cast a bearish shadow over the economic outlook. As economists are fond of pointing out, inverted yield curves (short rates above long rates) tend to precede recessions. In other words, the normal state of the curve (higher rates for longer maturities) is turned on its head when the state of macro turns dark.

The question is whether the yield-curve signal for estimating business-cycle risk has been rendered null and void thanks to manipulation of short rates in the extreme by the Federal Reserve via extraordinary monetary policy? That’s an ongoing debate, and threatens to remain so for some time. Meanwhile, let’s take the curve at face value and ask: Is it flattening?

One way to keep the spin to a minimum is to look at the current shape of the curve in context with history. For example, the chart below shows the current set of yields (red line) as of yesterday, Sep. 27, based on daily data from The historical range of daily curve data since 2011 is depicted in gray. The main takeaway: short rates are near the top of this range while long rates are approaching the bottom.
In sum, the curve is relatively flat compared with the last five years.

But that’s been true for some time. The question is whether it’s becoming even flatter compared with recent history? Let’s consider one example—90 trading days as the look-back window. By that standard, the curve has become a touch flatter, as shown above by the red line dipping below the blue line across the yield spectrum....MORE

Food Prices Are Plummeting

From Bloomberg via the Chicago Tribune:

Eight-cent eggs: Consumers gobble cheap food as grocers squirm 
Call it the Great Grocery-Store Giveaway of 2016.
In Austin, Texas, Randalls slashed prices for boneless beef ribs by 40 percent, to $3.99 a pound. Not to be outdone, the H-E-B grocer down the street charged $1 a pound less. Albertsons recently advertised a deal you don't normally see on your finer cuts of meat: "buy 1 get 1 free" specials on "USDA Choice Petite Sirloin Steak."

And what does $1 buy these days? In North Bergen, New Jersey, you could pick up a dozen eggs at Wal-Mart. (OK, the price was actually $1.14.) A mile away, check out Aldi, the German supermarket discounter, which can actually break the buck -- 12 eggs for 99 cents. A year ago you would have paid, on average, three times that price.

In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It's the longest streak of food deflation since 1960 -- with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit.

Eggs and beef have have grown especially inexpensive, and it isn't only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 -- a little more than the price of a pint of beer.

"The severity of what we're seeing is completely unprecedented," said Scott Mushkin, an analyst at Wolfe Research who has studied grocery prices around the country for more than ten years. "We've never seen deflation this sharp."

Mushkin, who researches local markets, recently found that prices of a typical basket of grocery items in Houston had fallen almost 5 percent over the past year.

He credits, in part, the discerning behavior of shoppers like Manny Sinclair. On a weekday lunch break, the 43-year-old contractor stopped by a Wal-Mart in Secaucus, New Jersey, to pick up turtle food and paper towels.

Sinclair typically buys groceries at his local ShopRite but has recently noticed the steals he now finds at discounters. He glanced at the meat case, where a 12-pack of "Angus steak burgers" fetched $15.82 and grass-fed ground beef could change hands for $4.96 a pound.

Sinclair was intrigued but, in the classic logic of a shopper in an age of deflation, figured he might find even lower prices elsewhere. Along with two Wal-Marts, a Target and an Aldi, the area even offers a Family Dollar that features a small refrigerated section....MORE
This is not news to our long time readers but it does reflect what the ag commodities  markets have been saying for the last few years. Falling grocery prices are not news to the United Nations either although they have to be careful about recency bias in their reports; when things turn it could be fast and dramatic.
See, for example July 5's:

Commodities: 'Era of high ag prices quite likely over' - OECD, UN report
Gosh, I don't know. We're bearish, have been, unabashedly and out in public for what seems a long time but that is quite a statement.*
On the other hand, wheat prices collapsed (again), down 16.25 cents (3.65%) to hit generational lows:

...So we're now up to 26 consecutive years without a major weather problem in the U.S. and with only (relatively) minor disruptions in the rest of the world over that time. Knock wood.
January 2016
Deflation: "Food prices fall at fastest pace in 7 years amid 'timid demand'"
Sept. 2015
"World food prices hit lowest level in almost seven years, UN agency reports"
Remember, the rule of thumb is it takes around 10 crude oil calories to produce 1 row crop (mainly corn and soybeans) calorie.
Most other food prices are similarly dependent on their input costs.
One oft-cited bit of nuttines is the fact it takes 127 calories of aviation fuel to get a head of lettuce from California to London.... 
And many more. 

Dollar Mostly Firmer, but Going Nowhere Quickly

From Marc to Market, Sept. 28:
The US dollar is enjoying a firmer bias today, but it remains narrowly mixed on the week.  It is within well-worn ranges.   Of the several themes that investors are focused on, there have not significant fresh developments.  
In terms of monetary policy, both Draghi and Yellen speak today.  The former is behind closed doors with a Germany parliamentary committee.  While Draghi's prepared comments will likely be made available, this is a defensive venue.  No new policy insight can be expected.  Instead, Draghi can be counted on to offer a robust explanation for the easy monetary policy, which has had the support of the vast majority of the ECB.  
He may also reiterate that countries, such as Germany, who have fiscal space, ought to use it.  He may also note that part of the reason interest rates is low in Germany is that the country, in defiance of the EC, has excess savings relative to investment (i.e. large and sustained current account surplus).   Also, interest rates are low because monetary policy is being asked to do more than it should.  Governments, including Germany, have been slow to enact structural reform.  
For her part, Yellen is also unlikely to be breaking new ground in testimony before the House Panel on Bank Supervision.  This is not the forum in which monetary policy is the focus.  At least four regional presidents will be speaking through the day, though only two, Bullard and Evans speak during the market sessions.  They are speaking on community banking.  Later, after the markets close, two dissenters Mester and George speak.  
Earlier, Shafik, a Deputy Governor of the Bank of England spoke.  She suggested that even though the economy has performed a bit better than expected, further easing may still be needed.  This is not new news as the MPC had already indicated that this was likely.  
Another development that investors have been tracking is the pressure on Germany's largest bank.  Shares are Deutsche Bank recovered yesterday and are building on those gains today.  News that it agreed to sell its Abbey Life unit to a UK company was also seen as supportive.   One of the challenges that the bank is facing is that Chinese authorities may make it difficult for it to repatriate the full amount of the $3.9 bln sales in a local lender.  Ironically, as the yuan is about to formally join the leading currencies in the IMF's SDR, Chinese restrictions on capital outflows may pinch.  Reports suggest that the bank may be asked to repatriate the funds from the sale in several batches (over time) rather than in one go, for example.  
Investors have been monitoring developments within OPEC and today's meeting in Algiers.  An agreement is not likely today.  However, what many seem to be focusing on, however, is the prospects for an agreement before the end of the year.   One of the key hurdles has been Iran's efforts to return its output to levels seen before the embargo.  Saudi Arabia is reluctant to surrender market share to it.  Oil prices are consolidating at the lower end of yesterday's range.  During the first half of this week, the price of the Nov light sweet futures contract seems comfortable $44 and $46 a barrel....MORE

Tuesday, September 27, 2016

"Is an Editable Blockchain the Future of Finance?"

So the lady asked, "Inquiring minds want to know: can blockchain reconcile 200% institutional ETF ownership?".
Sure, why not.
Of course this is no longer blockchain, it's some sort of database combined with an eraser head. We'll call it 'blockhead'.

From MIT's Technology Review:
Designed to make the technology more attractive to large banks, the change doesn’t seem to be welcomed by purists—but they may have to tolerate it.

Blockchain, the technology that underlies the cryptocurrency Bitcoin, has been celebrated as a way to change the way transactions of all kinds are made. But a suggestion to make an editable version of the technology is now dividing opinion.

The consultancy firm Accenture is patenting a system that would allow an administrator to make changes to information stored in a blockchain. In an interview with the Financial Times (paywall), Accenture’s global head of financial services, Richard Lumb, said that the development was about “adapting the blockchain to the corporate world” in order to “make it pragmatic and useful for the financial services sector.”

Accenture aims to create a so-called permissioned blockchain—an invitation-only implementation of the technology, and the one currently favored by banks. That’s in contrast to permissionless blockchains, such as Bitcoin, which rely on the fact that they can’t be edited as a means of providing an immutable record of transactions. Accenture insists that the feature would be used only in "extraordinary circumstances," so that troublesome errors could be undone.

Blockchain purists, however, seem unimpressed by the idea. Speaking to Reuters, Gary Nuttall of the consultancy Dislytics, said, “An editable blockchain is just a database. The whole thing about blockchain is that it’s immutable, so this just defeats the object.”

It seems unlikely, though, that records of edits would be cast aside. Financial institutions are legally bound to keep complete records of transactions, so even if it were only held privately for the sake of regulatory requirements, the information would probably persist in one form or other.

It’s not the first time that corporate organizations have decided to put their own spin on the idea of a blockchain....MORE
Technology Review refers us to the Sept. 19 FT article: "Accenture to unveil blockchain editing technique" among others.

Grains- Traders Cover Shorts Ahead of Inventory Report:1-2% Upticks

Last Chg
Corn 331-6s+2-6
Soybeans 952-4s+7-2
Wheat 404-0s+8-0

From Agrimoney:

Traders cover grain market shorts as US stocks report looms

Grain futures rallied on short covering, ahead of this week's US stocks data, aided by news of slower-than-expected US harvest progress. 

And wheat gained support from wet weather worries in Australia, as well as good export demand in the US. 

Weekly harvest data from the US Department of Agriculture showed the corn harvest there was 15% complete, showing just how much rain has delayed the start to the harvest. 

Analysts forecast the harvest to be about 20% complete, compared to 25% at this time last year. 

Good harvest prospects this week
But the harvest is expected to continue mostly uninterrupted into the weekend. 

Kim Rugle, at Benson Quinn Commodities, said that "weather looks favourable for good harvest progress through the end of this week". 

"A large portion of the Corn Belt should get some decent weather which will help aid harvest," said Brent Hasbargen at CHS Hedging. 

"The eastern Corn Belt is expected to be drier that normal and the upper Midwest is looking to have above normal precipitation," he said. 

But weather is currently expected to turn wetter over the 6 to 14 day period. 

Stocks report
And markets are gaining from some short-covering ahead of the USDA grain stocks report, and small grains summery, which come out on Friday, particularly in wheat and corn where funds are heavily short. 

"Grain markets are higher as grain market bulls look for support from a 'turn around Tuesday'," said Paul Georgy, at Allendale. 

December corn futures finished up 0.9%, at $3.31 ¾ a bushel....MUCH MORE

Hedge Funds: "Tudor's Existential Moment"

Global macro is hard.

From Bloomberg Gadfly, Sept. 26:
In general, the hedge-fund industry is starting to stabilize after more than a year of severe withdrawals. But there's one significant exception: For a handful of large macro funds, the pain continues.
These strategies -- which bet on broad economic and market trends -- reported $3.4 billion of withdrawals last month, the most of any hedge-fund type, according to a Sept. 21 report from eVestment.

Among those feeling the heat is Paul Tudor Jones's Tudor Investment Corp., one of the oldest and most expensive hedge-fund firms. After suffering more than $2 billion of investor withdrawals this year, it has cut 15 percent of its staff, including the closure of its Singapore trading desk, and lowered fees to retain clients, according to Bloomberg News reports.

On one level, this isn't surprising given the fact that Tudor's macro funds have lost value this year, despite bonds and stocks both posting substantial rallies.

Down Time
Tudor's macro hedge funds have disappointed investors, posting losses this year
As a whole, macro funds reported average gains that were significantly lower than returns on broad indexes of stocks and bonds, making it hard to justify the higher fees charged more broadly throughout the hedge-fund universe.

The Laggards
Macro hedge funds have generally underperformed stocks and bonds this year on a total return basis...
But the problems within macro hedge funds go beyond just near-term performance.

It's getting harder to read economic tea leaves and determine the future path of markets. Some of the traditional gauges of market stress are increasingly dismissed as irrelevant or less accurate in an era of central-bank interference and new banking regulations....MORE 
Here's some of our commentary from a 2009 post repeated in 2016's "Global Macro: Paul Tudor Jones Interview at Institutional Investor":
...The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

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

Palantir Is Demanding The U.S. Army Give It Some Business

Interesting approach to business.

From Beyond Search, Sept. 25:

Bam! Pow! Zap! Palantir Steps Up Fight with US Army
Many moons ago I worked at that fun loving outfit Booz, Allen & Hamilton. I recall one Master of the Universe telling me, “Keep the client happy.” Today an alternative approach has emerged. I term it “Fight with the client.” I assume the tactic works really well.

imageI read “Palantir Claims Army Misled to Keep It Out of DCGS-A Program.” As I understand the Mixed Martial Arts cage match, the US Army wants to build its own software system. Like many ideas emerging from Washington, DC, the system strikes me as complex and expensive. The program’s funding stretches back a decade. My hunch is that the software system will eventually knit together the digital information required by the US Army to complete its missions. Like many other US government programs, there are numerous vendors involved. Many of these are essentially focused on meeting the needs of the US government.

Palantir Technologies is a Sillycon Valley construct. The company poked its beak though a silicon shell in 2003 and opened for “real” business in 2004. That makes the company 12 years old. Like many disruptive unicorns, Palantir appears to be convinced that its Gotham system can do what the US Army wants done. The Shire and its Hobbits are girding for battle. What are the odds that a high technology company can mount its unicorns and charge into battle and win?

Image result for comic book pow zapThe Palantirians’ reasoning is, by Sillycon Valley standards, logical. Google, by way of comparison, believes that it can solve death and compete with AT&T in high speed fiber. Google may demonstrate that the Sillycon Valley way is more than selling ads, but for now, Google is not gaining traction in some of its endeavors. Palantir wants to activate its four wheel drive and power the US Army to digital nirvana.

The Defense News’s write up is a 1,200 word explanation of Palantir’s locker room planning. I noted this passage:
The Palo Alto-based company has argued the way the Army wrote its requirements in a request for proposals to industry would shut out Silicon Valley companies that provide commercially available products. The company contended that the Army’s plan to award just one contract to a lead systems integrator means commercially available solutions would have to be excluded.
Palantir is seeking to show the court that its data-management product — Palantir Gotham Platform — does exactly what DCGS-A is trying to do and comes at a much lower cost.
I like the idea of demonstrating the capabilities of Gotham to legal eagles....MORE

"Uber launches global assault on food delivery market"

From Reuters:
Uber is making an aggressive drive into meal delivery, backed by a wave of staff recruitment, with the U.S. tech heavyweight gearing up to enter at least 22 new countries and take on local rivals.In a measure of rising ambition beyond its taxi business, Uberwill begin delivering meals in Amsterdam on Thursday just as Dutch market leader, begins trading on the city's stock market.

And according to current job listings on Uber and other recruiting sites - for about 150 roles ranging from general managers and sales staff to bike couriers - UberEats is planning to enter at least 22 new countries across the world in the near future. That is on top of the six countries where it already operates.
As recently as May, Uber executives were signaling that UberEats' international ambitions were a modest extension of its core business of transporting people. But its job hiring efforts over the last three months suggest something more ambitious is taking shape.

"UberEats is one (business) we feel incredibly confident is resonating across the world and resonating across the footprint of the cities in which Uber operates the transport business," Jambu Palaniappan, recently named head of UberEats for Europe, Middle East and Africa, told Reuters in an interview on Tuesday.

He named eight cities including Dubai and Johannesburg that UberEats plans to enter by the end of the year, but declined to spell out later targets.

Europe is home base to many of the most active international players in the online food takeaway business. They are counting on their local ties, established customer bases and sprawling restaurant networks to insulate them from U.S. tech giants.

The biggest international players - Britain's Just Eat (JE.L), Germany's Delivery Hero and - focus on advertising local takeaways and booking orders for nearby users, while leaving deliveries to the restaurants themselves.
They have been raising fresh capital or swapping assets to bulk up in the expectation that Uber would ratchet up its challenge.

Meanwhile, smaller players - Belgium's Take Eat Easy, delivering in 20 European cities, and London-based Pronto, which cooked meals as well as delivered them - have shut down in recent months, as the rush of funding that created dozens of start-ups modeled on Uber in recent years has dwindled.

Investors have poured nearly $10 billion (8.9 billion euros) into 421 food delivery deals since the start of 2014, but funding dropped by more than half in the first six months of 2016, according to research from CBInsights....

Iran Doesn’t Want Oil Deal; Goldman Cuts Oil Price Target From $50 To $43

And market participants are getting desensitized to the swings.

Much like Seligman's dogs in the learned helplessness/electric shock experiments traders eventually stop trying to avoid the torture and instead brace themselves but do nothing.
In the words of one commentator:
...You are just like these dogs.
If, over the course of your life, you have experienced crushing defeat or pummeling abuse or loss of control, you learn over time there is no escape, and if escape is offered, you will not act – you become a nihilist who trusts futility above optimism....
We saw this in 2008 during the inexorable spring/early summer run to $147 with Goldman calling for $200. In July of aught-eight I dropped a comment at the WSJ's Environmental Capital blog, repeated as we approached the 1-year anniversary of the day the shorts joined the dogs and just cowered as they waited for the next shock, with some background:
...As best as I’ve can tell approx. 40% of the move from $80 to $147 (25-28 bucks) came from “speculation”. I use quote marks because of the terminology problems most of the talking heads have when the subject is commodities. Speculators in commodity parlance take the other side of a hedgers trade, thus performing a societal good.
The problem was, until last week, the shorts had been beaten up so bad by the relentless flow of “investor” money that were out of the game. The $10.75 uptick on June 6 was their capitulation.
They covered and said screw it.
Try trading this:
WTI $44.87 down 2.31%; Brent $46.27 down 2.28%.

From Bloomberg, Sept. 27: 

Iran Doesn’t Want Oil Deal in Algiers, Won’t Freeze Output
  • Gulf nation seeking to raise output to 4 million barrels a day
  • OPEC could reach a formal deal in November, Zanganeh says
Iran is not willing to freeze its oil output at current levels and doesn’t intend to forge an agreement with other major crude producers at talks in Algiers this week, the nation’s oil minister said.

Iran wants to raise its crude production to 4 million barrels a day, Bijan Namdar Zanganeh told Bloomberg Television in an interview Tuesday. OPEC’s third-largest producer -- with daily output of 3.6 million barrels last month -- will talk to other members at the International Energy Forum in the Algerian capital and it’s possible the group could reach a formal supply deal at its November meeting in Vienna, he said.

“It’s not our agenda to reach agreement in these two days,” Zanganeh said. “We are here for the IEF and to have a consultative informal meeting in OPEC to exchange views. Not more.”.....CONTINUE
And from ZeroHedge:
While we await every new headline out of Algiers, overnight Goldman threw in the towel on its "transitory" oil market bullishness, and in a note by Damien Courvalin looking "Beyond Algiers, Weakening Oil Fundamentals", the bank cut its Q4 oil price target from $50 to $43, as the bank admits the previously anticipated rebalancing will take longer to achieve, and now expects "a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously."
Speaking of the Algiers meeting, Goldman also notes that "while a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals."

Here is the summary from Courvalin:
Oil prices have remained range bound ahead of the OPEC consultation in Algiers this week and as production disruptions have yet to meaningfully ramp up. Statements by participants suggest potentially greater collaboration between OPEC members than in previous attempts, although the outcome of this advisory meeting remains uncertain. Our production forecast continues to reflect a seasonal Saudi production decline into year-end and no growth elsewhere (the equivalent of a deal) with OPEC exc. Libya/Nigeria production growth only resuming in 1Q17.

Nonetheless, our 4Q16 oil supply-demand balance is weaker than previously expected given upside surprises to 3Q production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously. Importantly, this forecast only assumes a limited additional increase in Libya/Nigeria production of 90 kb/d vs. current estimated output. As a result, we are lowering our 4Q16 forecast to $43/bbl from $50/bbl previously. While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals....

Business Insider Testing a Reader Paywall, and an Ad-Blocking Response

From AdvertisingAge:
Business Insider, according to co-founder and CEO Henry Blodget, has long harbored ambitions to create a dual-revenue business model, buoyed by both advertising and subscriptions.

The company plans to test those ambitions, starting this week, with a "small," randomly selected group of readers, who will be prompted to subscribe to Business Insider. As is standard with so-called metered paywalls, the readers selected for this test will get an allotment of free articles. Multiple meter levels will be tried, starting at 10 free stories. For those impacted, the meter will re-start every 30 days.

These selected users will see the subscription message three times, at the beginning of the test, at the mid-point of their free story allotment, and with one story remaining.

Business Insider, which was sold last year to European publisher Axel Springer, will charge $1 for the first month of a subscription, and $9.95 for the successive months. It's probably not a coincidence that the Financial Times, which Mr. Blodget mentioned as an inspiration and a competitor, also charges $1 for the first four weeks of a subscription, an approach the company introduced in early 2015.

At the same time, Business Insider is getting tough with ad-blockers. Also starting this week, readers that have installed and enabled an ad blocker will be told to either whitelist Business Insider's website or pay up for a subscription, the same one offered to the small group of paywall-testers. (The New York Times is experimenting with a similar, whitelist-or-pay approach, which CEO Mark Thompson said in June is seeing results.)

The subscription offering will be "ad light," which means paying customers will see branded content but not display advertisements, which are considered to be more distracting. Mr. Blodget said Business Insider has been materially hurt by ad-blocking, but that the impact has been small, "not huge," relative to the industry average.

The company already has a "very expensive" market research service, BI Intelligence, which Mr. Blodget said has been very successful. (The service starts at $495 annually for newsletters, and all-access memberships begin at $2,495.)...MORE

Monday, September 26, 2016

"Can Iceland be to data what Switzerland is to money?"

For folks keeping track, Facebook opened a Swedish data center in 2013 nicknamed the "Node Pole" although it's actually about 1° latitude south of the Arctic Circle.

Norway's Green Mountain operates a data center at Stavanger with plans for another at Telemark.
There is some development talk for a couple other sites, one of which is actually in the Arctic.
Additionally, the Lefdal Mine Datacenter at Måløy is supposed to be the largest in Europe when it is completed.

From Inverse:
In the satellite town of Keflavík, a forty-minute drive from the center of the Icelandic capital of Reykjavík, sits a 200,000-square-foot data facility containing 400,000 servers. Poking up above the snow-covered hills, the whitewashed exterior of the complex resembles a military barracks. Inside, winding, sterile corridors are flooded with the hard light of fluorescent ceiling bulbs.

The place feels dystopian — like the wrong side of a quarantine fence — but it isn’t. Not at all. Owned by a company called Verne Global, the world’s first zero-carbon data center represents both the future of big business (BMW keeps ones and zeroes here) and a national ambition. Data centers are sprouting up from Iceland’s cold soil as the country races to build out a data infrastructure sufficient to make it a global “Data Capital.”

Innovation in data infrastructure, both physical and legislative, is an Icelandic speciality. In 2010, the Icelandic Modern Media Initiative (IMMI) was passed unanimously by the oldest standing parliament in the world. This legislative framework was designed to transform the country and its capital city into safe havens for information by providing strong legal protections, unrivaled by any other country on Earth.

“Icelanders are gadget freaks. We live on this tiny island with 330,000 people. It’s a very long winter, so we’re like a completely indoor culture,” says Birgitta Jónsdóttir, the parliamentarian who co-founded the Icelandic Pirate Party and appears poised to become the country’s next prime minister.

Iceland’s journey towards data haven status began on the streets of Reykjavik in 2008, when the global financial crisis hit and Iceland’s economy imploded. Unlike the rest of the world, the island nation didn’t freeze. The Icelanders made moves: They jailed the bankers responsible for the crash, crowdsourced a new constitution and got behind the Pirate Party — the once fringe political movement that’s expected to win a majority in next month’s parliamentary elections.

Jónsdóttir’s work has been instrumental in drafting, championing and implementing the IMMI legislation that underlies Reykjavik’s metamorphosis into the forward operating base for the digital rights movement. “95% of Icelanders are on the Internet and almost as many are on Facebook. We are not a technology-afraid nation and that really changes what is possible,” she explains.

There’s also a lot of local expertise. Having homed NATO bases for the US nuclear early-warning system during the Cold War, Iceland has been a key data hub since the inception of the internet. Data sent back and forth between Europe and North America is bounced along submarine data cables that plug directly into Iceland’s internet infrastructure.

More impressive still, Reykjavik’s energy grid is powered entirely by geothermal and hydroelectric sources. Iceland’s volcanoes and glacial rivers provide virtually unlimited sustainable energy for data centers, and at dirt cheap prices too. When the servers get too hot, smart ventilation systems open up and allow the sub-arctic winds to cool the systems at near-zero cost.

Because of its unique natural assets and its population’s determination to leverage them, Reykjavik, which has the same population as Evansville, Indiana, could become a global leader for all things digital. Two-thirds of Iceland’s population live in the metropolitan area, which is poised to become to data what Zurich is to finance....MORE

Agricultural Commodities: Corn, Wheat Soybeans Fall Again

Last Chg
Corn 329-0s-7-4
Soybeans 945-2s-9-6
Wheat 396-0s-8-6

The big three are all within a few percentage points of recent lows, again.*
Corn and wheat are flirting with life-of-contract lows.

From Agrimoney:

PM markets: grain futures fall back, as US turns drier

Corn futures tumbled, as US weather forecasts suggested that the US Midwest will turn drier, allowing the harvest to pick up pace. 

The harvest got off to a slow start this year, due to wet weather, and there were fears that if the wet weather persists disease problems could develop.

US harvest progress due to be released this afternoon to show the harvest about 15% complete, compared to an average of 25% at this time of year. 

Harvest pressure
"Harvest activity is expected to pick up pace this week," said Brent Hasbargen at CHS Hedging.
"This week traders will be closely monitoring harvest progress and actual yield reports coming out of the field," said Mr Hasbargen. 

"Look for harvest progress to ramp up if the weather turns dryer which could add a little pressure to the market," Mr Hasbargen said. 

Drier outlook
And that drier weather is on its way, according to the latest forecasts. 

"Showers will favour the eastern Midwest over her next few days, but drier weather should prevail over the Central US this week, favouring corn and soybean drydown and harvesting and allowing wetness to ease across the north-western Midwest," said Kyle Tapley at MDA Weather Services.
The dry weather should continue into the 6-10 day period, but rains should return to the north-western Midwest late in the 6-10 day period," Mr Tapley said. 

US corn export expectations were reported at 1.34m tonnes, compared to 1.30m tonnes last week.
December corn futures finished down 2.3%, at $3.29 a bushel, breaking back below the 20 and 40-day moving average....

*Here are soybeans as the most extreme example viz recent prices: