Thursday, July 24, 2014

"Hackers try to extort European Central Bank after email theft"

Via Kitco:
Frankfurt ( Alliance News ) - Hackers tried to extort money from the European Central Bank (ECB) after they stole about 20,000 email addresses from one of the bank's databases, it said Thursday.

The hacking of the bank's distribution lists for journalists and those participating in events organized by the Frankfurt -based bank emerged after it was contacted by someone asking for money for the return of the addresses.

"The theft came to light after an anonymous email was sent to the ECB seeking financial compensation for the data," the bank said in a statement....MORE 
Journalist's contact info? Ummm... good luck with all that.

Dublin Property Prices Up 24% Year-on-year

From True Economics:
Irish Residential Property Price Index for June is out today. Headlines are burning hot with

  • 12.5 hike in prices nationwide (y/y);
  • June m/m rise of 2.9% - faster than 2.3% in May
  • Dublin property prices up 3.3% m/m and 23.9% y/y
  • Dublin House prices up 3.1% m/m and 24.4% y/y
There is no avoiding the talk about a 'new bubble'.
In the past, I clearly said that in my view:
  1. Current levels of prices are not signalling bubble emergence in Dublin
  2. Rates of increases in Dublin prices are concerning, but levels are yet to break away from the national historical averages
  3. Trend-wise, we are way below the levels of Dublin prices consistent with normal long-term behaviour in the series.
Here are updated charts on long-term trends...MORE

Real Estate Investment Trusts Down On The Farm: Farmland Partners Looks to Buy $100 Million Worth of Land (FPI; LAND)

Gladstone Land is the other publicly traded vehicle. There a a few private partnerships that let in outsiders.
In February 2011 I noted:
...We've been following this trend for the last three years and have been asked when will it top?
One sign will be when Optima Fund Management brings their American Farmland Company public, still a few years away....
Optima have not yet made the move, and have been correct to keep the cash flow and cap gains to themselves but I have a feeling we are getting close.
From Agrimoney:

Farmland Partners has sights on $100m of farmland
Farmland Partners revealed a $100m shopping list of US farms as its unveiled plans to raise cash from a further share sale, only three months after raising some $50m at its stockmarket flotation.
The farmland investment group said its staff had "identified, and are in various stages of reviewing" more than 10 potential farm purchases, covering a total of 20,000 acres, and with an estimated aggregate price of $100m.
"We have engaged in preliminary discussions with some of the owners and commenced the due diligence process on certain of these farms," the group said.
However, it said that it did not expect to seal a deal until the completion of an offering of 3.71m shares, with the option to underwriters to sell a further 557,620.
That would make the offering larger, in share terms, than the group's initial public offering of 3.80m shares completed in April, at which it raised $48.0m, net of costs.
It forecast net proceeds of $54.4m from the latest offer, assuming underwriters exercise the opportunity to sell the extra shares.
Although that sums falls well short of the price needed to acquire all the land in its sights, Farmland Partners said that it was to borrow a further $30.0m from state-backed Farmer Mac Mortgage Securities, and had extra firepower from selling partnership interests.
This scheme allows farmland owners to defer the crystallisation of capital gains on land sales.
'Economies of scale'
Farmland Partners has announced four farm acquisitions since its April flotation, taking its portfolio from 7,300 acres to nearly 25,000 acres, and expanding out of Midwest row crop land....

A Model For the Price of Gold

Nothing new as far as the inputs to model but laid out in a smart, straightforward fashion.
From Crossing Wall Street: 

The Gold Model Revisited
Four years ago, I wrote a post discussing my thoughts on how to build a model for the price of gold. That post received by far the most attention of anything I’ve written. I still get emails about it today.
Over time, I’ve thought more about this issue, and I’ve altered my thinking somewhat. I also want to clarify some points from my original post. Instead of writing an addendum to it, though, I thought it would be clearer to rewrite the whole thing. What follows is the updated version.
One of the most controversial topics in investing is the price of gold. Fifteen years ago, gold dropped as low as $252 per ounce. The yellow metal then enjoyed a furious rally as it soared above $1,920 per ounce, easily outpacing the major stock-market indexes. Over the last three years, however, it has sunk back down to $1,300.

Like Linus in the pumpkin patch waiting for the Great Pumpkin, many gold bugs hold out hope. They claim that any day now, gold will resume its march upward to $2,000, then $5,000 and then $10,000 per ounce. But my question is, “How can anyone reasonably calculate what the value of gold is?”
For stocks, we have all sorts of ratios. Sure, those ratios can be off, but at least they’re something. With gold, we have nothing. No assets or liabilities. Not even a dividend. After all, gold is just a rock (OK, OK, an element). How can we even begin to analyze gold’s value? There’s an old joke that the price of gold is understood by exactly two people in the entire world. They both work for the Bank of England, and they disagree.

In this post, I want to put forth a possible model for evaluating the price of gold. The purpose of the model isn’t to say where gold will go but to look at the underlying factors that drive the price of the precious metal. Let me caution you that as with any model, this one has its flaws, but that doesn’t mean it isn’t useful. More importantly, I’ll explain why our model makes theoretical sense, rather than just mashing up numbers and seeing what correlates.

The key to understanding the gold market is understanding that it’s not really about gold at all. Instead, it’s about currencies, and in our case that means the U.S. dollar. Properly understood, gold is really the anti-currency. It serves a valuable purpose in that it keeps all the other currencies honest—or exposes their dishonesty.

This may sound odd, but every major currency has an interest rate tied to it. It doesn’t matter if it’s the euro, the pound or the yen. In essence, that interest rate is what the currency is all about.
Before I get to my model, we need to take a slight detour and discuss a fascinating paradox known as Gibson’s Paradox. This is one the most puzzling topics in economics. Gibson’s Paradox is the observation that interest rates tend to follow the general price level and not the rate of inflation. That’s very strange, because it seems obvious that as inflation rises, interest rates ought to keep up. Similarly, as inflation falls back, rates should move back as well. But historically, that hasn’t been the case. Instead, interest rates have risen as prices have gone up, and only fallen when there’s been deflation.

This paradox has totally baffled economists for years. Yet it really does exist. John Maynard Keynes called it “one of the most completely established empirical facts in the whole field of quantitative economics.” Milton Friedman and Anna Schwartz said that “the Gibsonian Paradox remains an empirical phenomenon without a theoretical explanation.”

Even many of today’s prominent economists have tried to tackle Gibson’s Paradox. In 1977, Robert Shiller and Jeremy Siegel wrote a paper on the topic. In 1988 Robert Barsky and none other than Larry Summers took on the paradox in their paper “Gibson’s Paradox and the Gold Standard.” It’s this paper that I want to focus on. (By the way, in this paper the authors thank future econo-bloggers Greg Mankiw and Brad DeLong.)

Summers and Barsky agree that the Gibson Paradox does indeed exist. They also say that it’s not connected with nominal interest rates but with real (meaning after-inflation) interest rates. The catch is that the paradox only works under a gold standard. Absent that standard, the Gibson Paradox fades away....MORE

Wednesday, July 23, 2014

"Be Careful What You Tweet For"

From re/code:
Joy of Tech 2025
Here's The Joy of Tech at GeekCulture

"United Arab Emirates Plans to Create Space Program, Land Mars Probe"

From Mashable:

An image from the NASA Mars rover shows rocks on the surface of the planet.

The United Arab Emirates has jumped into the international space race at a full sprint, announcing plans on Wednesday to create a space program and send an unmanned probe to Mars by 2021.

"The UAE Mars probe represents the Islamic world’s entry into the era of space exploration," UAE President Sheikh Khalifa bin Zayed Al Nahyan said, according to Reuters. "We will prove that we are capable of delivering new scientific contributions to humanity."

The proposed space program is the latest costly project for the country, which has one of the top 10 GDP per capita income in the world. It previously constructed the world's tallest skyscraper and recently announced plans to create a climate-controlled city.

In the statement announcing the space program, officials said they are seeking to foster growth in the country's technology sectors and diversify its economy. According to the National, the UAE has already invested 20 billion dirhams (approximately $5.9 billion) in space technology, and plans to launch the Mars probe in 2021 in tandem with its 50th anniversary....MORE
See also the WaPo:
U.A.E. plans Arab world’s first mission to Mars
...The oil-rich Gulf state is never short on hubris. It's home to the next iterations of global museums like the Louvre and the Guggenheim in Abu Dhabi and the world's tallest building and busiest airport for international travelers in Dubai. The royal family in Abu Dhabi has even plowed national wealth into owning and improving the reigning English soccer champions, Manchester City....MORE

Who the Hell Is Rima Senvest Management LLC? Up 11% in the First Half After an 80% Return In 2013

Make everyone else look bad...
From ValueWalk:

Senvest also explains the rationale behind adding YRC Worldwide as a core position in its latest letter
Richard Mashaal and Brian Gonick’s Rima Senvest Management LLC beat the market in June, gaining 3.7% against the S&P 500 (INDEXSP:.INX)’s 2.1%, putting it up 10.6% through June versus 7.1% for the S&P 500 over the same period. The hedge fund’s June gains made up for its losses the previous month and put it back on track to maintain its 20.7% annualized returns since inception in 1997. The star Canadian hedge fund returned a whopping 80% in 2013.
senvest partners june earnings 0714
Senvest explains its investment in YRC Worldwide
In this month’s investor letter Mashaal and Gonick gave a more detailed explanation of why they added less-than-truckload (LTL) trucking company YRC Worldwide, Inc. (NASDAQ:YRCW) as a new core holding. They initially took a short-term position on YRCW at the beginning of the year because a combination of labor union negotiations and debt refinancing were depressing its stock price....MORE
Here's the March 31, 2014 13F via NASDAQ: 

110 EAST 55TH STREET, NEW YORK, New York, 10022, (514) 281-8082
Report Date: 03/31/2014
Position Statistics
Total Positions 104
New Positions 18
Increased Positions 59
Decreased Positions 32
Positions with Activity 91
Sold Out Positions 9
Total Mkt Value (in $ millions) 1,162

Institutional Holdings information is filed by major institutions on form 13-F with the Securities and Exchange Commission.
Sector Weighting
Basic Materials
Capital Goods 0.16%
Consumer Cyclical 1.82%
Consumer/Non-Cyclical 2.63%
Energy 7.44%
Financial 7.19%
Healthcare 13.56%
Services 20.34%
Technology 35.51%
Transportation 5.01%
Utilities 0.33%

"If Your Firm Appoints a Chief Happiness Officer, You Should Definitely Run Away"

Run fast, run far.

Adrienne at GC seems unhappy with this latest bit of management mysticism.
From Going Concern:
Beyond the typical grunt and senior grunt titles -- associate, manager, partner -- there are a group of people employed within public accounting firms whose sole job it is to get quoted in the New York Times, push mythical work/life balance arrangements, make sure the firm has enough "other" people so as not to appear to be racist or sexist or homophobic, and manage sugary sweet social media accounts. So far, we haven't seen a Chief Happiness Officer pop up yet but as it's starting to catch on in Corporate America, don't be all that surprised if one shows up at your firm in a couple years.
From New Republic:
Happiness isn’t something you find, or work towardit’s something you buy and have delivered. Or at least that’s the premise of one of the newest jobs over in the C-suite. Now, alongside the CEO, CFO, and their ilk, we have the CHO, or chief happiness officer. As the name clearly suggests, the CHO is responsible for the contentment of individual employees, sort of like an h.r. manager, but on steroids; the theory goes that happy workers are productive workers, so happiness turns out to be in the company’s best interest. Perhaps unsurprisingly, many CHOs reside in Silicon Valleyboth at start-ups and more blue chip tech companies. But it’s starting to spread: Southern restaurant company Hopjacks created the position in 2012 and the Quality of Life Foundation, an education nonprofit, created one in 2010.
This is really supposed to be management's job, best achieved by creating a work environment that doesn't feel like an episode of Oz but hey, whatever.

Delivering Happiness, according to CEO and CHO Jenn Lim, devotes its time to measuring the contentment of clients and to laboring to improve their working conditions. So how exactly does one create joy? “We take a snapshot of all the employees, and basically identify their happiness levels,” Lim says. “And using [the Happy Business Index], we can see, what are the key points of unhappiness?”...MORE

What the Collapse of Crop Prices Means For Corporate America (DD; MON; DE; CAT)

Agriculture, being the base of pretty much every civilization since 8,000 B.C., probably bears watching.
Here's corn over the last few years via FinViz:
From Agrimoney:

DuPont highlights threat from crop price falls

DuPont restated its long-term faith in the agriculture market despite acknowledging the threat to prospects from the tumble in crop prices, particularly of corn, a key earner for its seeds business.
The chemicals-to-healthcare conglomerate, whose agriculture assets include seeds company Pioneer, is "closely watching the development of [US] corn and soybean crops, and the impact on commodity prices", said Jim Borel, executive vice-president of DuPont's agriculture division.
"Another strong harvest in North America, if realised, will continue to pressure overall economics for corn and soybean farmers.
"If the current supply dynamics persist and corn planted area remains under pressure, it will temper short-term growth rates for the agriculture segment, particularly in our seed business."
'We comprehended the trend'
Elle Kullman, the DuPont chairman and chief executive, said that the group had already taken action in response to soft corn seed sales behind a drop of 11.2% to $836m in agriculture sector operating profits in the April-to-June quarter, as announced separately on Tuesday and heralded in a profits warning last month.
"If you take a look at the restructuring charge that we announced in the second quarter, you will see an ag component on that, so obviously we comprehended the trend and are taking steps," she told investors.
DuPont announced a $263m pre-tax group restructuring charge for the quarter, of which $48m were attributed to the agriculture division.
'Committed to continued investment'
Nonetheless, Mr Borel said that DuPont retained faith in the agriculture sector, and the support to the sector's prospects for a growing world population and increasing consumer prosperity....MORE

The depression of the '30's actually began in the '20's with the collapse of grain prices. Here's wheat from way back when:


Can Algorithms Replace Politicians?

From The Guardian:
The rise of data and the death of politics
Tech pioneers in the US are advocating a new data-based approach to governance – 'algorithmic regulation'. But if technology provides the answers to society's problems, what happens to governments?
US president Barack Obama with Facebook founder Mark Zuckerberg
Government by social network? US president Barack Obama with Facebook founder Mark Zuckerberg. 
Photograph: Mandel Ngan/AFP/Getty Images
...In this context, Google's latest plan to push its Android operating system on to smart watches, smart cars, smart thermostats and, one suspects, smart everything, looks rather ominous. In the near future, Google will be the middleman standing between you and your fridge, you and your car, you and your rubbish bin, allowing the National Security Agency to satisfy its data addiction in bulk and via a single window.

This "smartification" of everyday life follows a familiar pattern: there's primary data – a list of what's in your smart fridge and your bin – and metadata – a log of how often you open either of these things or when they communicate with one another. Both produce interesting insights: cue smart mattresses – one recent model promises to track respiration and heart rates and how much you move during the night – and smart utensils that provide nutritional advice.

In addition to making our lives more efficient, this smart world also presents us with an exciting political choice. If so much of our everyday behaviour is already captured, analysed and nudged, why stick with unempirical approaches to regulation? Why rely on laws when one has sensors and feedback mechanisms? If policy interventions are to be – to use the buzzwords of the day – "evidence-based" and "results-oriented," technology is here to help.

This new type of governance has a name: algorithmic regulation. In as much as Silicon Valley has a political programme, this is it. Tim O'Reilly, an influential technology publisher, venture capitalist and ideas man (he is to blame for popularising the term "web 2.0") has been its most enthusiastic promoter. In a recent essay that lays out his reasoning, O'Reilly makes an intriguing case for the virtues of algorithmic regulation – a case that deserves close scrutiny both for what it promises policymakers and the simplistic assumptions it makes about politics, democracy and power.

To see algorithmic regulation at work, look no further than the spam filter in your email. Instead of confining itself to a narrow definition of spam, the email filter has its users teach it. Even Google can't write rules to cover all the ingenious innovations of professional spammers. What it can do, though, is teach the system what makes a good rule and spot when it's time to find another rule for finding a good rule – and so on. An algorithm can do this, but it's the constant real-time feedback from its users that allows the system to counter threats never envisioned by its designers. And it's not just spam: your bank uses similar methods to spot credit-card fraud....MUCH MORE

Venture Capital: "It’s Worth What!? Pressure-Testing Companies with Sky-High Valuations"

From Knowledge@Wharton:
Are the sky-high valuations that have put companies like Uber and Airbnb constantly in the headlines proof of their staying power? Not necessarily, says Derek Lidow (Twitter: @DerekLidow), author of Startup Leadership: How Savvy Entrepreneurs Turn Their Ideas into Successful Enterprises, who teaches entrepreneurship, innovation and creativity at Princeton. 

In this opinion piece, Lidow, who was the founder and former CEO of iSuppli Corporation, offers a four-part test for how companies can evolve from “top draft picks” to “wily veterans.” 

Uber recently set a record when it was valued at $17 billion. The transportation start-up both disrupts and leverages the incumbent infrastructure of taxis and town cars. Airbnb, the home room rental start-up, was recently valued at $10 billion, giving it a greater worth than most of its larger traditional hotel rivals. Sky-high valuations have become commonplace. The question is: Are these companies really worth it?

Some start-ups hit upon the right idea at the right time — though almost all must iterate several times before they perfect their offering. Some get the imprimatur of a savvy investor with a strong track record. Others catch the fancy of the media. Each of these can boost a firm’s valuation; but none is a guarantor of ultimate long-term success.
The most critical factors to assess in a start-up and its long term potential for success are what stage it has reached on the journey, and whether its leaders are likely to navigate each of the remaining transitions successfully.
As an entrepreneur, investor, and professor of entrepreneurship, I have learned that every start-up must traverse four distinct stages as it matures. No stage can be skipped and each has its own leadership and strategy imperatives. The most critical factors to assess in a start-up and its long term potential for success are what stage it has reached on the journey, and whether its leaders are likely to navigate each of the remaining transitions successfully. Few entrepreneurs have the natural gifts to excel at all four stages; they can, however, learn how to master them either through personal development or by supplementing their skills through other members of their team.

These four stages must each be navigated in turn as a company evolves from what the founders think to what they know. Stage One is customer validation. The entire focus is to find a customer willing to try your minimum viable product or service. Stage Two is operational validation. In this stage, your strategy focuses on execution to satisfy that customer and find more people willing to try the product. You begin to understand who will buy your product, on what terms and what it will take to deliver it. Stage Three is financial validation, when you discover if your business can survive in the hurly-burly of a competitive market place. Your strategy focuses on scaling. Stage Four is self-sustainability. At this stage, the strategy focuses on innovation as you introduce new products to attract new customers. Your business demonstrates that it is viable beyond the original concept....MORE

Technician Who Called Gold Bust Predicts $700 gold

We aren't looking for that big a drop ($875) but we're betting sooner rather than later.
From CNBC, July 15, 2014:
When Yoni Jacobs' book "Gold Bubble: Profiting from Gold's Impending Collapse" was published in April 2012, gold was trading around $1,650 per ounce. Now gold is below $1,300. But Jacobs, the chief investment strategist at Chart Prophet Capital, doesn't think the gold plunge is over just yet.
"The long-term target is still $700, which sounded a lot more ridiculous a few years ago" Jacobs said on Tuesday's "Futures Now."

"If you look at the long-term chart, you'll see that we reached $800, around $700 in the late '70s, in the '80s bubble of gold. In the 2008 recession, gold bottomed right around $680, which is around $700. So there's a clearly defined trend line there," he said.
Gold suffered two tough days on Monday and Tuesday, as the metal lost $40 over the course of two sessions.

Still, Jacobs doesn't think it will be a straight path down.

"Obviously, nothing falls dramatically that fast. It has to take some pauses on the way down," he said.
Currently, he sees support levels at $1,000 and $1,200, and notes that gold could bounce higher from there. But over the long-term, the picture is clear....MORE
The August contract is trading at $1307.3, up a buck.

About All that Spyware Apple Puts In Your iPhone (AAPL)

From arstechnica:

Undocumented iOS functions allow monitoring of personal data, expert says
Apple has endowed iPhones with undocumented functions that allow unauthorized people in privileged positions to wirelessly connect and harvest pictures, text messages, and other sensitive data without entering a password or PIN, a forensic scientist warned over the weekend.

Jonathan Zdziarski, an iOS jailbreaker and forensic expert, told attendees of the Hope X conference that he can't be sure Apple engineers enabled the mechanisms with the intention of accommodating surveillance by the National Security Agency and law enforcement groups. Still, he said some of the services serve little or no purpose other than to make huge amounts of data available to anyone who has access to a computer, alarm clock, or other device that has ever been paired with a targeted device.

Zdziarski said the service that raises the most concern is known as It dishes out a staggering amount of data—including account data for e-mail, Twitter, iCloud, and other services, a full copy of the address book including deleted entries, the user cache folder, logs of geographic positions, and a complete dump of the user photo album—all without requiring a backup password to be entered. He said two other services dubbed and may have legitimate uses for app developers or support people but can also be used to spy on users by government agencies or even jilted ex-lovers. The Pcapd service, for instance, allows people to wirelessly monitor all network traffic traveling into and out of the device, even when it's not running in a special developer or support mode. House_arrest, meanwhile, allows the copying of sensitive files and documents from Twitter, Facebook, and many other applications.

"Apple really needs to step up and explain what these services are doing," Zdziarski told Ars by phone on Monday. "I can't come up with a better word than 'backdoor' to describe file relay, but I'm willing to listen to whatever other explanation Apple has. At the end of the day, though, there's a lot of insecure stuff running on the phone giving up a lot of data that should never be given up. Apple really needs to fix that."...MORE

As Google Energy Czar Argues For Public Funding of R&D, Salon Calls For the Nationalization of Google and Amazon (GOOG; AMZN)

The problem with centralized funding schemes boils down to who hands out the funding.
In the arts world you end up with cliques shoveling money to their in-clique buddies.
In the social-thought-leader world you end up with a daisy-chain of crony foundation folks funding crony NGO pals.

If you think it's any different with science you haven't spent enough time observing academics in their natural habitat.

It was ever thus when people hand out other people's money because you run into the same problem you encounter with representational democracy: the people who are attracted to the job are precisely those who are pathologically hooked on power and are thus eminently corruptible.

Fortunately, I'll be long dead before the worst of the ill-effects take root.
Go get 'em, kids.

From FT Alphaville:
Safeguarding the future with public endowments​ for research
This is a guest post by Arun Majumdar, former founding director of ARPA-E and undersecretary of energy (acting), US department of energy; Jay Precourt Professor, Stanford University (starting August 1, 2014); Vice President for Energy, Google (until July 31, 2014), in which he argues that a public endowment dedicated to transformational technology is essential for safeguarding the interests of our children and grandchildren in the future.
You can watch a livestream of today’s speakers, including Arun Majumdar, at the Mission-Oriented Finance Conference here.

We routinely use our smart phones without realizing the research and development that produced it: the transistor, integrated circuits, wireless communication, the laser and optical communication, the internet, the Unix operating system, and so on. None of these existed during World War II. But four decades of post-war research created the foundation for today’s products (as Mariana Mazzucato has shown in her book The Entrepreneurial State).

Can we learn any principles about research and how it should be funded as a result of this example?
Here are some observations.

Basic and applied research should not be separated.
Basic research, which tries to understand “how nature works”, is often inseparable from applied research, which is focused on “can we do something useful with it.” There isn’t one-way traffic between basic to applied, but rather a feedback loop in which applied research generates questions that stimulates basic research, and the cycle keeps on going.

Both basic and applied research take time to mature.
The first paper on the protocols used in today’s internet was published by Kahn and Cerf in 1974 and they were implemented on the ARPAnet in 1983, nine years later. It took another 9-10 years of persistent funding and advocacy for it to become the internet. Transformative technologies for which industries do not even exist at the early stages often take 15-20 years for new industries to be created.

R&D is not a straight line
While the development of the smart phone may seem obvious to some, its historical path was far from it. The first transistor was a point contact transistor made of germanium, which no one uses today. The idea of a field-effect transistor, the workhorse of the integrated circuit, and silicon as the material of choice, came much later. Did Kahn and Cerf ever think the internet would develop to take on the shape and form it is has today? I seriously doubt it. There is plenty of serendipity involved and the paths to successful technologies and products contain many twists and turns. Some humility regarding the ability to predict the direct business impact of research is much needed....MORE
And from Salon:

Let’s nationalize Amazon and Google: Publicly funded technology built Big Tech
They're huge and ruthless and define our lives. They're close to monopolies. Let's make them public utilities

Let's nationalize Amazon and Google: Publicly funded technology built Big Tech 
Jeff Bezos (Credit: AP/Reed Saxon/Pakhnyushcha via Shutterstock/Salon)
They’re huge, they’re ruthless, and they touch every aspect of our daily lives. Corporations like Amazon and Google keep expanding their reach and their power. Despite a history of abuses, so far the Justice Department has declined to take antitrust actions against them. But there’s another solution.
Is it time to manage and regulate these companies as public utilities?

That argument’s already been made about broadband access. In her book “Captive Justice,” law professor Susan Crawford argues that “high-speed wired Internet access is as basic to innovation, economic growth, social communication, and the country’s competitiveness as electricity was a century ago.”

Broadband as a public utility? If not for corporate corruption of our political process, that would seem like an obvious solution. Instead, our nation’s wireless access is the slowest and costliest in the world.
But why stop there? Policymakers have traditionally considered three elements when evaluating the need for a public utility: production, transmission, and distribution. Broadband is transmission. What about production and distribution?

The Big Tech mega-corporations have developed what Al Gore calls the “Stalker Economy,” manipulating and monitoring as they go. But consider: They were created with publicly funded technologies, and prospered as the result of indulgent policies and lax oversight. They’ve achieved monopoly or near-monopoly status, are spying on us to an extent that’s unprecedented in human history, and have the potential to alter each and every one of our economic, political, social and cultural transactions.
In fact, they’re already doing it.

Public utilities? It’s a thought experiment worth conducting.

Big Tech was created with publicly developed technology.
No matter how they spin it, these corporations were not created in garages or by inventive entrepreneurs. The core technology behind them is the Internet, a publicly funded platform for which they pay no users’ fee. In fact, they do everything they can to avoid paying their taxes.
Big Tech’s use of public technology means that it operates in a technological “commons,” which they are using solely for its own gain, without regard for the public interest. Meanwhile the United States government devotes considerable taxpayer resource to protecting them – from patent infringement, cyberterrorism and other external threats.
Big Tech’s services have become a necessity in modern society.
Businesses would be unable to participate in modern society without access to the services companies like Amazon, Google and Facebook provide. These services have become public marketplaces.
For individuals, these entities have become the public square where social interactions take place, as well as the marketplace where they purchase goods.

They’re at or near monopoly status – and moving fast.
Google has 80 percent of the search market in the United States, and an even larger share of key overseas markets. Google’s browsers have now surpassed Microsoft’s in usage across all devices. It has monopoly-like influence over online news, as William Baker noted in the Nation. Its YouTube subsidiary dominates the U.S. online-video market, with nearly double the views of its closest competitor. (Roughly 83 percent of the Americans who watched a video online in April went to YouTube.)...MORE
Salon is owned by the publicly traded Salon Media Group.
Finally, a lot of folks who would regurgitate the term 'military-industrial complex' at the drop of a lobbyist's hat haven't read the rest of the speech it came from:
...Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.
In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.
Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.
The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present--and is gravely to be regarded.
Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite....
-President Eisenhower's Farewell Address to the American People, January 17, 1961.

Tuesday, July 22, 2014

Signposts: New York, San Francisco Gold Mining Conferences Suspended

We're seeing some of the indications* one would expect as gold approaches a bottom but no surge in bankruptcies or "strategic" mergers yet.
If we are going to be right on our 15-month call from last year, $875 by the end of Q3 2014 we need the disarray to arrive pretty soon.

This may be why the first lesson in Junior Analyst class is: "If you're going to set a price target, for God's sake don't set a date".
Kitco spot $1306.70-1307.70.

From Kitco:

Mining Industry Feeling The Crunch As Mining Show Staples Suspended Indefinitely
As the gold mining industry continues to navigate through difficult waters, mining investors will have to do without a few key conferences as the Metals and Minerals Invest Conference circuit has been suspended indefinitely.

Both the San Francisco and New York conferences were suspended July 16 as Euromoney Institutional Investor Plc acquired Summit Professional Networks, the parent company which hosted the shows. Euromoney did however announce that they would keep the Mining Indaba conference in South Africa on the conference circuit. Mining Indaba is considered one of the largest mining investor conferences in the world.

A veteran of the conference circuit, Brent Cook, editor of Exploration Insights, was surprised to see both the New York and San Francisco shows suspended.

They’ve been around for awhile and were considered the best conferences out there,” he told Kitco News over a telephone interview. “I guess it does reflect on where the mining industry is at right now.”...MORE
*Junior Gold Miners Consider Cashing Out, Pursuing Medicinal Marijuana Opportunities

"When Big is Beautiful: Megacaps Break Out"

From Barron's Focus On Funds:
Big, slow-growth, safe: These are a few of the adjectives frequently attached to some or all of the market’s biggest stocks. Lately, you can add outperforming.

The S&P 100, the index of the market’s truly giant stocks such as Apple (AAPL) and Exxon Mobil (XOM), is showing signs of life versus the plain-vanilla S&P 500.

The attached chart from Bank of America Merrill Lynch technicians Stephen Suttmeier and Jue Xiong show how these giant stocks are breaking resistance versus their merely large peers lately, having punched through the 200-day moving average.
“Sustaining the break above the 200-day moving average and relative chart resistance at the October 2013 low and April 2014 peak for the OEX vs. SPX ratio would confirm a bottom for mega caps relative to large caps,” Suttmeier and Xiong write.

“OEX” is the S&P 100. SPX refers to the S&P 500.

For funds, watch iShares S&P 100 ETF (OEF) or Vanguard Megacap ETF (MGC) versus the broad market....MORE
See also: 
Big Tech Surges Back - Barron's

"Donald Sterling Ready To Go All Argentina On Estranged Wife"

From DealBreaker:
He may not even be allowed to set foot in the Staples Center parking lot on game nights, but Donald Sterling is motivated by a much higher force: spite. Strong, powerful spite....MORE
They've lost me on the Argentina reference, I figured Mrs. Sterling would somehow be pari passu with the earlier Mrs.' Sterlings but that wasn't the case. The tags on the story appear to be clues:
but I don't really know how to interpret them.

While I ponder mixed-up memes here's a cat selfie getting photobombed:

Photobombers are literally everywhere these days, and they can completely ruin the effect of a selfie, especially if you are trying to look intellectual.

14 Tips For Taking The Perfect Cat Selfie 
So you’re a cat, and you’ve decided you need to update your profile pic. Don’t panic! Just follow these simple DOs and DON’Ts, and you will be well on your way to a high-quality cat selfie that your friends will absolutely love....

Hurricane Watch: Two Tropical Waves Coming Off Africa

Tropical Depression #2 doesn't look to develop but behind it are some potential mischief makers.
From Wunderblog:
...ELSEWHERE in the Atlantic, there are 2 Tropical Waves over the far eastern Tropical Atlantic that have brought along more ‘moisture laden air’ (versus dry, Saharan air). In addition, there are now several somewhat stronger appearing Tropical waves upstream over Africa (only 2 are shown in Fig 9) that will reach the Atlantic later this week and early next week, with one of these systems having a significantly higher potential for development next week.

Fig 8: Aside from TD#2, only 2 significant Tropical Waves are present over the eastern most Atlantic, and they are entangled in the African Monsoonal TROF and/or ITCZ.

Fig 9: Tropical Waves over Africa have become somewhat stronger over the past week, with the easternmost one in the above image showing a mid-level 'turning' on imagery loops.

In the meantime, however, no new tropical cyclone formation is expected during the remainder of the week.... 

"Banksy, Bitcoin, And The Winklevoss Twins: An Online Art World Love Story"

Figure out how to short "art as an asset class" and earn enough to bet against the Qataris.
From Fast Company:
Somewhere Andy Warhol is smiling a crooked smile.

Cameron and Tyler Winklevoss, the Internet entrepreneurs perhaps best known for their associations with Facebook and Bitcoin, are the latest techies to leap into the art world. This week, the twins’ Winklevoss Capital announced an investment round in Paddle8, a New York-based art auction house known for their high-profile charity events including a recent Faberge Egg auction. Paddle8 has flirted publicly with the use of Bitcoins for art transactions in the past and is one of the more tech-savvy of the online auction houses looking for a piece of the international market. Winklevoss Capital declined to discuss the specifics of the investment but said it was their first in the art or auction arenas....MORE
HT: Art Market Monitor who highlights this bit:
...After being introduced by an existing investor, Julka said, “we talked about how there has been so much conversation about art as an asset class, and while some people think of Bitcoin as a currency other think of it as an asset class. There’s a lot of commonality about how Bitcoin is thought of, and as we spoke with them it became clear they could be very helpful both in terms of global expansion and company building.”
By email, Tyler Winklevoss wrote to Fast Company that “The art market is global and like many global markets it currently feels the pain, inefficiencies, and high-costs of our current payment systems. Bitcoin rethinks the way we transfer value. It is borderless, frictionless, and instant and should be able to bring these qualities to art transactions just like any other transaction.”...

Google's $1,000,000 Little Box Challenge Is Now Open

From GigaOm:
Is anyone out there working on an innovation that can shrink a power inverter from cooler-sized down to tablet-sized? An inverter is a device that converts direct current, from sources like solar panels or batteries, into alternating current to be used in homes. Google has a brand new contest, called the Little Box Challenge, that is offering $1 million to a team that can make a powerful inverter as tiny as possible....MORE

What's Moooving: Cows as Safe Assets

As Carnegie Mellon Financial Engineering prof. Dogbert explains, we are dealing with aggregates here:

December 13, 2008

This, however, leads to a whole new set of problems that come from physically* bundling the gals into the Collateralized Cow Obligation wrapper.
They ask questions like "Does this CCO make my butt look fat" and seriously, how can you answer that without incriminating yourself?
For this reason some practitioners prefer to stick with synthetic livestock, not to be confused with....ummm..., where was I?

From FT Alphaville:

In defence of cows as safe assets
You’ll remember this from last year, we’re sure:
Our main finding is that, on average, [rural Indian] households earn negative returns on their investments in cows and buffaloes if labor is valued at market wages: we estimate average returns of negative 64% and negative 39% for cows and buffaloes respectively. If we value the household’s own labor at zero, estimated average returns increase, to negative 6% for cows and positive 13% for buffaloes… if cows and buffaloes earn such low, even negative, economic returns, why would rural Indian households continue to invest in them?
That, from Anagol, Etang and Karlan, led to a host of speculation about various economic and cultural factors which might explain India’s ability to slide past the “central tenets of capitalism”… h/t’s to the Onion all round.

Which is fine. India does have a religious, cultural, and political affinity with the cow — see the hindu nationalist RSS in 1952 or the just completed elections for a snapshot — and the lack of financial inclusion over here, something the RBI is working on, might add to the rationality of owning a negative yielding cow. (Gold too for that matter)

BUT whether those are sufficient explanations for the willingness to hold such negative returning assets (and the suspicion had to be they weren’t, and not just because buffaloes also came up negative) may be an oversimplified question. Because, well, the whole “cows disprove central tenet of capitalism” call seems a touch overdone....MUCH MORE
*Fortunately the Reserve Bank of India takes a very liberal view of dematerialized assets, with many purveyors offering 'demats' served up with a soupçon of quasi-mysticism:
"Dematerialising physical shares can be a horrible experience. It can take anywhere between three months to three years," warns Kartik Jhaveri, director, Transcend India....
Somehow related:
Can Hindu Deities Open Brokerage Accounts Allowing them to Trade Securities?

UPDATE: Bombay High Court Rules Hindu Deities MAY NOT Trade Securities
No demat accounts for Hindu gods...
Indian Central Bank Issues Guidelines on Dematerialized Gold in Effort to Reduce Need to Import Physical

Ya Baby! "The hunt for a monopoly position in business"

Having the Holy Roman Empire postal monopoly worked out pretty well for the Thurn und Taxis fam who Wikipedia describe as "well known as owners of breweries and builders of many castles."

From Simon Taylor's blog:
Economics students learn early in their microeconomics course that there is a desirable market condition called perfect competition, which consists of large numbers of more or less identical firms competing aggressively to meet the customer’s wants. The competition is so fierce that no firm has any ability to charge a price above the absolute minimum needed to stay in business. So the customer is assured of a low price and the economy makes efficient use of resources, since only the most cost effective companies can survive.
They then learn about how bad monopoly is. That is the opposite type of market in which there is a single supplier who naturally charges whatever the market will bear and has little incentive to be cost efficient or to be attentive to customer needs. A market with monopoly will be inefficient (*), will charge customers more than in perfect competition and probably won’t be innovative or offer a decent service.

The problem with this picture is that very few actual industries are like either case. Perfect competition is a fiction, an “ideal type”. The nearest we get to it is in agriculture and some other basic commodities, where the product is identical and firms have no market power or ability to add any sort of value or service that would merit a higher price. Many markets are competitive but with only a few companies, and the product is usually slightly differentiated.

Take coffee shops. There are plenty of choices for a customer in Cambridge looking for a coffee. There are the three big chains (Costa, Nero and Starbucks) plus various independents. All offer broadly the same product (though for my taste the brown milk that you get in Costa or Starbucks barely rates the name coffee) but they each have subtle differences in ambience, style, service and location. They compete on these features, not on price, but their products are broadly priced the same, which suggests some degree of restraint from competition.

That type of market is called monopolistic competition in economics textbooks because the product or service is not identical and each firm has some degree of influence over demand. Innovation is encouraged in that type of market because a small enhancement can cause customers to switch. But other customers are loyal or just conservative, which means that the coffee shops aren’t relentlessly trying to retain every single customer each day, which is the miserable fate of a company in a perfectly competitive market.

Pure monopoly in the sense of a single supplier is rare except in the natural monopolies of network utilities, where there is a strong cost argument for a single electricity transmission wire or water pipe. Competition would be wasteful and no new entrant would expect to make money. So these industries are inevitably monopolistic and are usually regulated as such.

But quasi-monopolies, in the sense of a dominant supplier, are quite common. And the goal of many businesses is precisely to try to establish such a position. Peter Thiel, the co-founder of Paypal and an early investor in Facebook, taught a course on start-ups at Stanford University in 2012 and this blog provides some notes on the course (it’s written by Blake Masters, Thiel’s co-author of the new book Zero to One so the notes are likely to be a reliable guide to what Theil said). One thing that struck me was his argument that successful capitalism and monopoly are not opposites, as the textbook view of economics might suggest. On the contrary, he argues that a start up should be intending to find or build a monopoly or at least dominant position that it can completely own. Unless a start up has that ambition or potential it’s not worth investing in or working for.

So monopoly is both the goal of a dynamic business and an outcome that reflects success. Perfect competition is neither a good guide to what most business looks like, nor a desirable goal that any business should accept.

Successful examples of quasi-monopolies would include Google, Facebook, LinkedIn and for a while Apple and Microsoft. None of these is or was a 100% monopolist, though Microsoft came very close with the dominance of Windows for a while. And none of them has an unassailable position, because technological change makes new disruptive entrants a possibility, which is why so few companies keep their monopoly position....MORE

Lay Off the Almond Milk, You Ignorant Hipsters

The main concern is the 1.1 gallons of water it takes to grow each almond.
As to the rest of it, hell, who cares?
From MotherJones:

Take almonds and just…wait, why add water?
Almonds are a precious foodstuff: a crunchy jolt of complete protein, healthful fats, vitamins and minerals, and deliciousness. Given their rather intense ecological footprint—see here—we should probably consider them a delicacy, a special treat. That's why I think it's deeply weird to pulverize away their crunch, drown them in water, and send them out to the world in a gazillion little cartons. What's the point of almond milk, exactly?

Evidently, I'm out of step with the times on this one. "Plant-based milk" behemoth White Wave reports that its first-quarter sales of almond milk were up 50 percent from the same period in 2013. In an earnings call with investors in May, reported by FoodNavigator, CEO Greg Engles revealed that almond milk now makes up about two-thirds of the plant-based milk market in the United States, easily trumping soy milk (30 percent) and rice and coconut milks (most of the rest).

Dairy is still king, of course, comprising 90 percent of the "milk" market. But as our consumption of it dwindles—down from 0.9 cups per person per day in 1970 to about 0.6 in 2010, according to the US Department of Agriculture—plant-based alternatives are gaining ground. Bloomberg Businessweek reports that sales of alternative milks hit $1.4 billion in 2013 and are expected to hit $1.7 billion by 2016, with almond milk leading that growth.

Now, I get why people are switching away from dairy milk. Industrial-scale dairy production is a pretty nasty business, and large swaths of adults can't digest lactose, a sugar found in fresh dairy milk. Meanwhile, milk has become knit into our dietary culture, particularly at breakfast, where we cling to a generations-old tradition of drenching cereal in milk. Almond milk and other substitutes offer a way to maintain this practice while rejecting dairy. (Almond milk has been crushing once-ubiquitous soy milk, perhaps partly because of hotly contested fears that it creates hormonal imbalances.)

All that aside, almond milk strikes me as an abuse of a great foodstuff. Plain almonds are a nutritional powerhouse. Let's compare a standard serving (one ounce, about a handful) to the 48-ounce bottle of Califia Farms almond milk that a house guest recently left behind in my fridge....MORE
Possibly also of interest:
Trading the California Drought: Almonds and Water
California Drought: Why Farmers Are 'Exporting Water' to China  
"California Almonds Saved by Diverting Water From Veggies" 

How Forbes Got to a $475 Million Valuation

From the Columbia Journalism Review:

That’s what a Hong Kong investor has agreed to pay for a firm that two years ago had trouble paying its rent
Integrated Whale Media Investments of Hong Kong is now the majority owner of Forbes Media, valuing the company at a whopping $475 million.

What the buyers get is a dwindling print magazine, digital growth, and the Forbes brand, which has been seriously diluted in the last four years. It’s hard to imagine an American investor paying half the price.

Fortunately for the Forbes family (and for Bono), the brand apparently still has outsized allure for rich people in Asia. The $475 million valuation, if it’s accurate, is an enormous number for a company that projected late last year that it would take in $21 million in earnings before interest, taxes, depreciation, and amortization in 2013, according to a pitchbook obtained by Ken Doctor. Ebitda doesn’t include the cost of servicing debt, and Forbes’ is large enough that it went into technical default in 2011. It also had trouble paying its rent in 2012.

Its business fortunes have turned since then, but that has come at the expense of Forbes’ journalistic credibility.

It may be hard to recall now, but Forbes was a journalistic force not so long ago. Now it has a boss whosays things like “content marketing just might be the full employment act for journalists.”
Four years ago, Forbes acqui-hired Lewis DVorkin and installed him as chief product officer. DVorkin implemented the model he had pioneered at True/Slant, where writers get paid by the traffic they bring, particularly repeat visitors.

This model allows Forbes to have a far larger stable of writers than it could ever employ under more traditional models of work that are subject to things like minimum wage laws. It’s sharecropper journalism. Writers effectively are tenants on, and Forbes gets a big cut of what they bring in. Or it gets everything: The median Forbes writer gets zip.

Forbes has just 40 staff reporters, but it churns out 400 pieces of content a day thanks to its 1,200 contributors. Four hundred of those are “paid freelance contributors,” who must write at least five times a month and interact with commenters. Sixty of them make more than $45,000 a year from Forbes, which means 85 percent of them make less than that. Throw in the unpaid contributors and that moves to 95 percent....MORE

Monday, July 21, 2014

DÏGG PÏCKS: The New Yorker Opened Their Archive — Here's Where To Start

You had me at superfluous umlauts.
From Digg:
In case you haven't heard, America's favorite magazine to carry in public has pulled a Willy Wonka and opened up part of their robust archive to the general public. Now you can finally join the ranks of your friends whose grandparents gave them the complete New Yorker on CD-ROM and see what all the fuss is about. But where to begin?

To help make sense of the overwhelming collection, the Digg editorial team has put together a selection of personal favorites. Of course we highly suggest reading as much of the New Yorker archive as possible, but if you're strapped for time and/or looking for some place to start, you can't go wrong with these:
Regrets Only by Louis Menand
Part intellectual history, part biography, Louis Menand's article about Lionel Trilling gave me my first real introduction to one of our most significant (and arguably last) public intellectuals. It's a piece about what happens when leading a life of the mind makes you famous. — Anna Dubenko
Life At The Top by Adam Higginbotham
Adam Higginbotham's look into New York City's most complex window-washing rig pulls you in with whimsy, carefully walks you through a history of the trade, and leaves you with a true appreciation of window cleaners. It's a great example of what reporting a story into the ground can produce. — Steve Rousseau

Digg highlights one of the better recent New Yorker pieces that we also studied, back in 2013:

"The Spectacular Thefts of Apollo Robbins"

I'm Tellin' Ya: "Nervous Jitters Will Subside - Market Wants To Head Higher - Earnings Have Been Good"

S&P500 1973.63 down 4.59, DJIA 17,051.73 down 48.45, SPY 197.34 Down 0.37 (AH down another 0.23)

From Options 1:
Posted 11:00 AM ET – Last Thursday, the market declined when the US and Europe imposed new economic sanctions against Russia. Hours later, a commercial jetliner was shot down by Ukrainian rebels and the situation deteriorated. There is little doubt that the weapons and training were provided by Putin and we can expect additional economic sanctions against Russia. The bid to the market is strong and stocks rebounded Friday.

If not for the political turmoil (Ukraine and Gaza), the market would be making new all-time highs. Earning season has started off on a strong note. Profits are up almost 7% and revenues are up 3.5%. Healthcare got a boost from UNH and HMOs have been strong. Cyclicals benefited from Alcoa’s strong number and growth in China is back on track (7.5%). Banks prepared for bad news and the results were better than feared. The financial sector has been moving higher. Intel set the tone for tech and Google also made a nice move after earnings.

We need tech to tread water after recent gains. Apple and Microsoft will post results after the close Tuesday. This is going to be a very busy week for earnings. The recent jobs recovery should be confirmed in statements made by CEOs. Guidance for Q3 needs to be positive if the market is going to extend this rally....MORE

Insurers May Not Get Hurricane Benefit From El Niño This Year: "High chance of cyclone near Lesser Antilles" Within 48 Hours

As the hype-n-tout about this season's El Nino begins to fade* the hurricane forecasts are going to have to be changed to reflect the increased risk of cyclone formation.
(see NOAA)

The largest change is in decreased wind shear which allows more storms to spin up. There are additional teleconnections that affect steering winds and even some hypothesized changes in sea surface temps. See below.
And today's blurb, from Reuters:
An area of low pressure located east of the Lesser Antilles now has a high, or 70 percent, chance of becoming a tropical cyclone during the next 48 hours, the U.S. National Hurricane Center (NHC) said in its latest advisory on Monday.

"Only a small increase in organization of shower activity would result in the formation of a tropical depression as the system moves westward to west-northwestward at 15 to 20 miles per hour during the next day or two," the Miami-based weather forecasters said.
*NOAA Changes El Niño Forecast From "We're All Gonna Die" to "Weak to Moderate"

From the University of Illinois:

AtlanticEastern Pacific

Average El Niño Avg. Average El Niño Avg.
Named storms 9.4 7.1 16,7 17.6
Hurricanes 5.8 4.0 9.8 10.0
Intense Hurricanes 2.5 1.5 4.8 5.5
The primary explanation for the decline in hurricane frequency during El Niño years is due to the increased wind shear in the environment.
In El Niño years, the wind patterns are aligned in such a way that the vertical wind shear is increased over the Caribbean and Atlantic. The increased wind shear helps to prevent tropical disturbances from developing into hurricanes. In the eastern Pacific, the wind patterns are altered in such a way to reduce the wind shear in the atmosphere, contributing to more storms.

"A New Digital Currency Whose Value Is Based on Your Reputation"

As an adjunct to Izabella Kaminska's July 16 Dizzynomics riff "Does trust imply collaboration?" we have Wired, July 18:

Bitcoin turned money into something completely virtual. Using a worldwide network of machines and the power of pure mathematics, it put currency in the hands of computer programmers, free from the rules and regulations of big government and big banks. But J. Chris Anderson wants to do something even more radical.

Anderson is starting a new digital currency project tentatively dubbed Document Coin. It’s a bit of an odd duck, but it’s intriguing, and Anderson is worth listening to. He’s the co-founder and chief software architect of Couchbase, a kind of new-age database with some serious cred among Silicon Valley developers.
Instead of using pure mathematics to prevent things like the same person spending the same money twice, Document Coin will rely on personal reputation to keep all transactions in order. And each unit of currency created using Document Coin could have different values in different situations. If you use a coin in one place, it might be worth more than if you use it in another. The goal, Anderson says, is to get people to completely rethink the entire idea of money.

Unlike with bitcoin, anyone will be able to create a new Document Coin anytime they want.
Unlike with bitcoin—which keeps its currency scarce by rewarding it only to those who participate in what amounts to a race to solve complex cryptographic puzzles—anyone will be able to create a new Document Coin anytime they want. The value of each coin will be completely subjective, depending on who creates the coin and why. “For example, the coin my disco singer friend created and gave me at my barbeque might be what gets me past the rope at the club,” Anderson says. A coin minted by tech pundit Tim O’Reilly might be highly prized in Silicon Valley circles, but of little interest to musicians. “It’s a bit like a combination of a social network with baseball trading.”

Ultimately, he hopes to get developers thinking about the social implications of crypto-currencies, and to get people to question the idea that everything needs to have a set, numeric value. “If bitcoin is the toy version of what we’ll all be using the future, then I want to build the crazy art project version of the future,” he says. Document Coin’s usefulness as a real currency is limited, but Anderson does hope people will eventually want to use it. “If you build something, you don’t want to be disappointed if it succeeds,” he says. “You need to build things that you would be happy to see take off.”

To that, end, Anderson is working on getting the technology right. The idea is that each new Document Coin will be a cryptographically unique token that contains two parts: a set of encrypted data that only the owner of the coin can see, and a set of public data about the coin. “I could show you that I have a Tim O’Reilly coin without showing you exactly which one,” he says....MORE

Grantham, Mayo, Van Otterloo: "A Farmland Investment Primer"

From Grantham Mayo Van Otterloo:
July, 2014 White Paper
Julie Koeninger
Farmland is a real asset that combines solid investment fundamentals with the potential for attractive cash yields, inflation hedging, and consistent returns from biological growth. Furthermore, farmland total returns tend to be uncorrelated with financial asset returns, offering genuine portfolio diversification for institutional investors. While institutional ownership within the asset class has grown steadily over the past few years, it still accounts for less than 1%1 of total global agricultural land ownership, presenting significant opportunity for sustainable yield enhancement through targeted farmland investment in certain regions.

The pages that follow present an overview of the key characteristics and potential risks of farmland investing, consider the routes for implementation, and make the case for a diversified, cross-regional approach to the asset class.

Farmland Investments Defined
Farmland investments consist of direct investments in rural land along with crop and livestock assets that produce food, fiber, and energy. Farmland investments focus on the productive capacity of the land base, and returns are based on the biological growth of crops and livestock, as well as appreciation of land and related assets. By their nature, farmland investments are long-term illiquid investments in real assets.
Investments are grouped into three general categories:
1.Row crop investments include annual crops such as corn, soybeans, cotton, wheat, and rice.
2.Permanent crop investments include perennial crops such as fruit and nut crops, which have both pre-productive and mature periods. Pre-productive or “greenfield” investments where trees or vines are planted on bare ground have a “J-curve” return profile. Some mature permanent crops, like almonds, peak in productivity and then decline, so orchard age is an important factor in estimating productivity and value.
3.Livestock investments include land leased to local operators for grazing or direct livestock ownership and operation.

Institutional farmland investing typically focuses on globally competitive agricultural sectors including:
■Corn, soy, wheat, rice, and other bulk commodity row crops that can be produced most efficiently at scale.
■Relatively storable permanent crops such as nut crops or wine grapes.
■Large-scale livestock production, including dairy and beef cattle operations.
Efficient global producers, such as U.S. corn, soybean, and nut crop, New Zealand dairy, and Australian beef producers, benefit from participation in export markets, and receive a globally determined price for their output.
Management Style: Leasing vs. Direct Operation
In many regions of the U.S. and some other parts of the developed world, row crop properties can be leased to high- quality local farm operators at fixed or variable rents that provide attractive yields to the investor. These farmers leverage the scale and productivity of their operations by owning some land, but also leasing land from investors in order to maximize their return on investment. In other geographies lacking a robust farmland rental market, particularly in developing regions, a lack of leasing demand from qualified farmers makes direct operation the best approach to maximize returns. In direct operation, the farmland investment manager employs a farm manager to operate the farm. While direct operation involves a higher risk/return profile because the investor assumes both price and yield risk, it is often the preferred management style for permanent crops and livestock as it ensures that the long-term asset is well-managed and value is maintained.

Property Management
Like most real estate investments, farmland investment requires specialized property-level management. While more intensive property management is required for direct operations, property managers also provide critical oversight of tenants operating leased farms. Property management may be vertically integrated with investment management or outsourced to third-party providers. Outsourcing allows the investment manager to hire the property manager best suited to manage each type of investment in each region and can be more cost effective as the fund manager need not invest in property management infrastructure in multiple locations. Utilizing a third-party property manager enhances transparency, as it allows for a true separation of fund- and property-level expenses.

Investment Vehicles
Investors can participate in the farmland asset class through direct investments or through the use of a specialist farmland investment manager, that may offer funds, co-investments, or separately managed accounts. For most investors, developing a well-diversified portfolio of direct investments is prohibitively complex and time-consuming. Investing in farmland through a farmland investment manager can provide the benefits of diversification, experience, and scale. Closed-end funds have a fixed term with some potential for extension, but are generally illiquid for the term. As with private equity, fund terms can vary widely. Open-ended funds and publicly-traded REITs provide more liquidity, but valuation at entry and exit can be an issue in open-ended funds, and the performance of public REITs can be influenced by capital market trends and other factors apart from the underlying farmland investment. Co- investments and managed accounts often require a larger minimum investment, but offer investors a greater measure of control.

Sources of Return
Returns typically consist of current income from annual lease payments or from annual crop or livestock sales, plus land and related asset appreciation. Appreciation reflects the income-producing capability of the investment based on anticipated future crop/livestock prices and yields. While soil quality and climate/water availability are relatively fixed determinants of a property’s potential yield, technological and management improvements can be brought to bear on individual properties to enhance yields and returns to investors. Capital improvements such as irrigation, laser leveling, and drainage can increase current income as well as future value, as improvements that permanently increase productivity are eventually capitalized into land values.

The timing of cash flow distributions from farmland investments is dependent on both the investment vehicle and the actual investments in the portfolio and how they are managed (leased vs. direct operation). Cash flow available to distribute will depend on the relative proportion of developmental (pre-productive) properties and cash-flowing properties in the portfolio. Lease payments are typically received before the farmer enters the field, while revenue from direct operations is received as crops are sold over time. A leased U.S. row crop property may produce a relatively consistent annual income return of 3-5%, depending on its quality and location, while some directly- operated permanent crop properties can produce double-digit annual income returns, but with significant variability due to annual fluctuations in price and yield. Closed-end funds typically distribute cash flow net of working capital reserves and cannot reinvest income in additional properties, while evergreen funds and separate accounts may choose to reinvest a portion of income and realized gains. A REIT must distribute at least 90% of its taxable ordinary income to shareholders annually in the form of dividends.

How Farmland Fits in an Institutional Portfolio
Farmland has historically generated attractive returns, with excellent capital preservation and portfolio diversification at a low to moderate level of volatility. Some institutional investors allocate to farmland in the context of a diversified real asset portfolio that may include investments in real estate, infrastructure, forestry, and farmland. Others may include farmland in private equity or other illiquid asset categories. The exhibit below shows the 20-year realized correlation of U.S. farmland to other asset classes. While exhibiting low correlation to financial assets like stocks and bonds, farmland investments can provide a bond-like current income stream from lease payments or more variable income from direct operations, along with the potential for capital appreciation. In addition, through thoughtful portfolio construction, the risk/return profile of a farmland allocation can be varied to meet different risk/return preferences.2

Portfolio Diversification
Farmland portfolios can be structured as a balanced mix of row crops, permanent crops, and livestock or can be focused on a particular strategy/sector or other variations across the spectrum from fully-diversified to targeted investments. Portfolios may include ongoing farming operations or developmental “greenfield” or timber conversion strategy investments. As described above, leased row crops offer the lowest risk/return profile because the farmer takes on the price and yield risk, paying the investor a modest bond-like rate of return before beginning to farm each year. Participating or crop share leases allow both the farmer and investor to participate in some portion of annual upside/ downside. Directly operated permanent crops and livestock can provide higher returns, but the investor is exposed to both price and yield risk, thus increasing return volatility and potential for operating loss. Mixing low-risk leased investments with higher-risk directly operated strategies (including developmental/conversion properties) can provide current cash flow along with upside potential. Focused portfolios invested in a single sector such as leased row crops or livestock may fit a specific investor objective such as a desire for stable but modest returns (leased row crops), or an interest in higher income and appreciation potential (livestock and permanent crops), but more diversified strategies can help mitigate non-systematic risk.

Geographic diversification is also related to strategy choice. For example, globally competitive dairy and beef production might dictate investment in New Zealand and Australia, while leased row cropland is the norm in the U.S., but not necessarily in other geographies. In some regions, mixed-use properties that may include crops, livestock, and timber offer value-oriented opportunities relative to pure single strategy investments. Investing in emerging countries can provide greater upside potential, but at higher risk levels than developed country investments. Portfolios can be tailored to desired levels of diversification, but relative value and opportunity across sectors and geographies should be considered as well.

Investment Performance
Historical returns to direct farmland investments have been relatively high over the past two decades and particularly over the past decade as farmland investing has gradually gained popularity among institutional investors. Initially a long-term investment utilized by a small number of insurance companies and large pension plan investors, farmland investing has become more mainstream due to a convergence of factors: favorable supply/demand fundamentals, globally low investment yields in traditional “safe” assets like bonds, and increasing investor interest in diversifying real assets capable of providing an inflation hedge.
The National Council of Real Estate Fiduciaries (NCREIF) reports nominal annualized time-weighted total returns of 12.5% for its Farmland Index over the past 20 years and 17.5% over the past 10 years. On average, over the 20-year period, income has provided at least 50% of Farmland Index returns. Over both time periods, farmland, as represented by the Farmland Index, has generated higher returns than equity indices, with less volatility. It should be noted that this reduced volatility reflects in part the fact that farmland investments are not daily valued, but are typically appraised annually.3 The Farmland Index reflects the investment performance of a large pool of individual agricultural properties acquired in the private market for investment purposes only, and held in a fiduciary environment for the benefit of tax-exempt institutional investors, primarily pension funds. It includes property-level returns to U.S. farm properties only and is net of property management fees, but gross of fund-level fees. Given its tax-exempt, property-level focus, only the effect of property taxes is included in the Farmland Index. Despite its shortcomings as a benchmark for global agricultural investments funds, the NCREIF Farmland Index does provide evidence of trends in investment-quality farmland performance and is currently the only available index of its kind.

Supply-Demand Fundamentals
Given the strong performance of farmland in recent years, the question as to why today is a good time to invest is a reasonable one. The answer depends on global macroeconomic forces, but also on the specific global strategies employed and locations targeted for investing in farmland today....
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HT: Abnormal Returns