Whitney Tilson on Shorting 3D Systems (DDD)

From ValueWalk:

The following is from an email Whitney Tilson sent to ValueWalk.

Ya can’t make this stuff up! From a friend who met with the CEO of 3D Systems Corporation (NYSE:DDD) (not some penny stock, but an $8 BILLION company):
Avi told me during a 1×1 that “his company is 50% technology, 20% innovation and 30% awesomeness.”

What is the appropriate discount rate to apply to “awesomeness”?

...MORE 

And from Barron's Tech Trader Daily Dec. 4:

3D Systems Reminds Tilson of Segway; Not Short Stratasys, the Better Business, He Argues

A short while ago I spoke with Whitney Tilson of hedge fund Kase Capital, who yesterday issued some damning remarks about 3-D printing stocks, and 3D Systems (DDD) in particular. This morning, Tilson presented his views on the matter, along with some other short-sale candidates, at a forum held by the Harvard Business School Club of New York. (Note that Tilson changed the name of his firm from T2 Partners after he split with his business partner.)

Tilson tells me he has about 2% of his $70 million in assets under management sold short in shares of 3-D printing stocks, or roughly $1.5 million, spread pretty much evenly across shares of 3D Systems, The ExOne Company (XONE), and VoxelJet (VJET). He is not shorting Stratasys (SSYS), as he believes it is “more of a real company,” by which he means that Stratasys has not engaged in as much M&A as 3-D systems and has focused more on managing its business by steady product development.

Tilson notes it is harder to short shares of XONE and VJET, as the shares are harder to borrow, and that given their smaller market caps — $812 million and $675 million, respectively, versus $8 billion for 3D Systems — the trade can turn against a short seller more easily. “A half-billion stock can turn into a $2.5 billion stock overnight.” Despite not making as much noise about ExOne and Voxeljet, Tilson argues the two are the “2nd- or 3rd-place companies, the kind of me-too outfits that tend to jump aboard” a hot sector. He thinks they are actually not as high quality as 3D Systems.

Tilson’s view is that the market, and the products, are certainly real, but that the stock multiple of 17 times trailing revenue for 3D Systems stock is unreasonable given what will be a small, slowly growing market for years to come. He compares the enthusiasm for the names to the enthusiasm for the Segway scooter, which was a good piece of technology, but has failed the most exuberant hopes for its success:

3-D printing has been around for decades and will continue to exist and grow. But I think there is zero chance there will be enough growth to justify DDD at 17 times revenue. It should trade at perhaps 1 to 2 times revenue. Just look at what the CEO of [contract manufacturer] Foxconn said. He was asked if he would be making 3-D printers for consumers anytime soon, and he said, No way, it’s a joke....

...MORE 

And TTD Dec. 3:
3D Systems: One of the Great Shorts in Market of Massive Stupidity, Says Tilson

He's right,

If you look at each company's recent acquisitions, Makerbot for DDD and Objet for SSYS, there's no comparison on who has the smarter long term strategy.
Now if only Stratasys would buy Arcam...

Why Do Koala's Sound Like Barry White? An Organ Unique in the Animal Kingdom

From ScienceDaily:

Koalas' Low-Pitched Voice Explained by Unique Organ

The pitch of male koalas' mating calls is about 20 times lower than it should be, given the Australian marsupial's relatively small size. Now, researchers reporting in the Cell Press journal Current Biology on December 2 have discovered their secret: koalas have a specialized sound-producing organ that has never before been seen in any other land-dwelling mammal. The key feature of this newly described organ is its location outside the voice box, what scientists call the larynx.

"We have discovered that koalas possess an extra pair of vocal folds that are located outside the larynx, where the oral and nasal cavities connect," says Benjamin Charlton of the University of Sussex. "We also demonstrated that koalas use these additional vocal folds to produce their extremely low-pitched mating calls."...MORE

HT: The Awl

Chalk Up Another One For Elon Musk: Space-X Delivers First Commercial Cargo

From io9:

SpaceX Just Made History. Again.

SpaceX scored a spectacular launch success last night when the maiden flight of their upgraded Falcon 9 rocket scorched the sky of the Florida Space Coast and successfully delivered a commercial space satellite to geostationary orbit for the first time ever – thereby revolutionizing the commercial space industry from this day forward.

Top Photo via SpaceX.

The third time was finally the charm as the Falcon 9 blasted off precisely on time at 5:41 p.m. EST from Launch Complex 40 at Cape Canaveral following a pair of launch scrubs last week on November 25th and Thanksgiving Day, November 28th, caused by technical problems with the first stage engine. The booster thundered off the pad and pierced the completely cloud-free evening sky soon after sunset as the blistering roar rumbled deafeningly all across the space coast viewing area....MORE

Natural Gas: Polar Air Sweeps Into U.S. Bringing Snow and Ice

On November 21 we posted the North American forecast temperature anomaly map for the first time in almost a year:

I know it's cryptic but what it meant was demand had just become more determinative of price than supply.
That was at $3.7250.
We followed up on the 25th with:

There was a reason we posted the temperature anomaly map last week, the first time since January 2013.
$3.77 settle, up 7 cents.... 

Now get this, the Arctic Oscillation is still in it's positive, warmer, phase. Here's the current index from NOAA's Climate Prediction Center:

And here is James Hansen, former head of NASA's Goddard lab explaining the AO:

"The degree to which Arctic air penetrates into middle latitudes is related to the AO index, which is defined by surface atmospheric pressure patterns. When the AO index is positive, surface pressure is low in the polar region. This helps the middle latitude jet stream to blow strongly and consistently from west to east, thus keeping cold Arctic air locked in the polar region. When the AO index is negative, there tends to be high pressure in the polar region, weaker zonal winds, and greater movement of frigid polar air into middle latitudes."

Nat gas front futures $3.96.
From Bloomberg:

A wave of polar air is sweeping into the U.S. with snow and ice, sending energy use soaring and threatening to damage crops and disrupt natural gas production.

Temperatures will plummet as the cold moves south, east and west from Canada. Readings in Chicago will tumble from today’s high of 57 degrees Fahrenheit (14 Celsius) to a low of 5 degrees next week, according to forecasts.

“It’s pretty impressive stuff; it’s going to set some records,” said Rob Carolan, owner of Hometown Forecast Services Inc. in Nashua, New Hampshire. “A lot of the country is going to be feeling the effects of the cold weather by Monday.”

Below-normal temperatures, especially in eastern and Midwestern cities, tend to increase energy consumption as more people heat homes and businesses. Arctic temperatures can also crimp gas production by creating freeze offs, in which ice forming in and around wells can disrupt output.

As of today, there probably won’t be widespread disruptions in natural gas production, said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland.

“This is a very impressive air mass,” Rogers said in e-mail. “I’d lean against major damage at this time, but do agree the risk of some problems has increased this morning.”...MORE

The last time we did the AO thing:
Jan. 9, 2012
Dear Europe: Arctic Oscillation About to Go Negative, Try to Stay Warm
Jan. 30, 2012
Brrrr: Arctic Oscillation Goes Deeply Negative, Here Comes Winter
Which resulted in:
Feb. 14
Death toll rises to 600 in European cold snap

A total 824 deaths from freezing in February 2012
AonBenfield 11 page PDF

Serious business.

Macquarie: The Drop in Corn Values Is Enough to Depress Food Prices in 2014

I debated whether to use "deflation" in the headline but checked the OECD stat bank which lists the food component weighting of U.S. CPI at 8.6%. The impact of food alone only strips 0.82% off the current 1% headline inflation number i.e. still positive albeit barely.
If anyone should care to double check the weighting at the source here's the BLS.

From Agrimoney:

A slump in values of the likes of corn and soymeal will feed through into a fall in food prices for a third successive year in 2014, before a small recovery kicks in in 2015, Macquarie forecast.

The bank, launching its own food price index, said that food prices would fall by 9.6% next year, only marginally short of the 10.9% expected for 2013.

However, prices will return to growth in 2015, of 2.8%, with values rising across a range of agricultural commodities, with soymeal, wheat and cocoa notable among exceptions.

"The index entered the downside in 2012 and will stay in this overall bearish trend until 2015, when we expect both agricultural and soft [commodity] prices to recover," Macquarie said.

Corn to fall

The prospects for prices of feed ingredients, which Macquarie is using in its index as a proxy for meat values, look particularly poor for next year, with losses for corn and soymeal forecast at more than 20%.

"The animal feed components will again drive the index lower," said the bank, which is relying largely on futures, rather than physical, prices in compiling the index, called the MacPI.

However, staple grains, a segment including rice and wheat, will be the weakest performer in 2015.

"All commodity groups, except staple grains, should finally turn bullish by the end of 2015, with the animal feed and sugar components contributing the most to the MacPI recovery."...

...MORE

Everything You Ever Wanted To Know About Minimum Wage Arguments

Cardiff Garcia does the heavy lifting on what may be the most comprehensive linkfest of viewpoints I've ever seen. I actually started giggling there are so many links.
It was a manly giggle.

From FT Alphaville:

Should the US raise the minimum wage? (That’s not a hook. We actually don’t know.)

You can’t turn a virtual corner this week without tripping over a discussion about the US minimum wage.

The case in favour of raising it has been made by Arindrajit Dube, Paul Krugman, Ed Luce, and Kevin Drum. Arguing against have been Tyler Cowen, Scott Winship, and Adam Ozimek.

...MUCH, MUCH MORE

"EIA analysis: big draw in crude oil inventories"

WTI $97.27 up $1.23, Brent $111.89 down $0.73.

From Platts:

Analysis of U.S. EIA data: U.S. crude oil stocks dip 5.6 million barrels, marking first drop in 11 weeks
U.S. crude oil stocks dropped 5.6 million barrels the week ended November 29 to 385.8 million barrels on a bump-up in refinery run rates, U.S. Energy Information Administration (EIA) data showed Wednesday.

The draw was the first reported by the EIA in 11 weeks, but was far lower than the 12.4 million-barrel decline in crude oil stocks reported late Tuesday by the American Petroleum Institute (API).

The draw narrowed the crude oil stock surplus to the five-year average to 11.7%, or about 40.4 million barrels, for the week ended November 29. The surplus had reached 13.3% the week ended November 22.

Analysts polled by Platts were anticipating a 1.25 million-barrel draw for the week ended November 29 as refiners were expected to be returning from maintenance periods.

Refiners did increase utilization rates, which rose to 92.4% of capacity, from 89.4% of capacity the week ended November 22. The increase was mainly from a ramp-up in U.S. Atlantic Coast (USAC) run rates, which rose 8.1 percentage points to 84.3% of capacity.

Oil Market Analyst Torbjorn Kjus of DNB Bank said the reason for the large stock draw was record-high crude oil for this time of the year, most likely due to exports of refined product to Europe and elsewhere, not domestic demand.

The surge in USAC run rates could be related to the likely end of maintenance at Phillips 66's 238,000 barrels per day (b/d) Bayway refinery in Linden, New Jersey. On November 22, sources said there was talk that the fluid catalytic cracker at the Bayway refinery was coming out of turnaround...MORE

Earlier today:
Saxo Head of Commodities: "Were you caught short on crude?" (and a look at WTI options volatility skew)
Oil: Libya Hopes to Restore Output, Iran and Iraq Threaten Price War, Market Shrugs Ahead Of U.S. Data

Dear Teamsters, United Auto Workers: Google Is Trying To Crush Your Unions and Your Members (GOOG)

The Google self-driving car will actually roll out as self-driving trucks on dedicated routes.
And they will be built by robots, not the UAW.
Oh dear, have I said too much?

From the New York Times:

Google Puts Money on Robots, Using the Man Behind Android

PALO ALTO, Calif. — In an out-of-the-way Google office, two life-size humanoid robots hang suspended in a corner. 

If Amazon can imagine delivering books by drones, is it too much to think that Google might be planning to one day have one of the robots hop off an automated Google Car and race to your doorstep to deliver a package? 

Google executives acknowledge that robotic vision is a “moonshot.” But it appears to be more realistic than Amazon’s proposed drone delivery service, which Jeff Bezos, Amazon’s chief executive, revealed in a television interview the evening before one of the biggest online shopping days of the year. 

Over the last half-year, Google has quietly acquired seven technology companies in an effort to create a new generation of robots. And the engineer heading the effort is Andy Rubin, the man who built Google’s Android software into the world’s dominant force in smartphones. 

The company is tight-lipped about its specific plans, but the scale of the investment, which has not been previously disclosed, indicates that this is no cute science project. 

At least for now, Google’s robotics effort is not something aimed at consumers. Instead, the company’s expected targets are in manufacturing — like electronics assembly, which is now largely manual — and competing with companies like Amazon in retailing, according to several people with specific knowledge of the project. 

A realistic case, according to several specialists, would be automating portions of an existing supply chain that stretches from a factory floor to the companies that ship and deliver goods to a consumer’s doorstep.

“The opportunity is massive,” said Andrew McAfee, a principal research scientist at the M.I.T. Center for Digital Business. “There are still people who walk around in factories and pick things up in distribution centers and work in the back rooms of grocery stores.” 

Google has recently started experimenting with package delivery in urban areas with its Google Shopping service, and it could try to automate portions of that system. The shopping service, available in a few locations like San Francisco, is already making home deliveries for companies like Target, Walgreens and American Eagle Outfitters. 

Perhaps someday, there will be automated delivery to the doorstep, which for now is dependent on humans.

“Like any moonshot, you have to think of time as a factor,” Mr. Rubin said. “We need enough runway and a 10-year vision.” 

Mr. Rubin, the 50-year-old Google executive in charge of the new effort, began his engineering career in robotics and has long had a well-known passion for building intelligent machines. Before joining Apple Computer, where he initially worked as a manufacturing engineer in the 1990s, he worked for the German manufacturing company Carl Zeiss as a robotics engineer. 

“I have a history of making my hobbies into a career,” Mr. Rubin said in a telephone interview. “This is the world’s greatest job. Being an engineer and a tinkerer, you start thinking about what you would want to build for yourself.” 

He used the example of a windshield wiper that has enough “intelligence” to operate when it rains, without human intervention, as a model for the kind of systems he is trying to create. That is consistent with a vision put forward by the Google co-founder Larry Page, who has argued that technology should be deployed wherever possible to free humans from drudgery and repetitive tasks. 

The veteran of a number of previous Silicon Valley start-up efforts and twice a chief executive, Mr. Rubin said he had pondered the possibility of a commercial effort in robotics for more than a decade. He has only recently come to think that a range of technologies have matured to the point where new kinds of automated systems can be commercialized. 

Earlier this year, Mr. Rubin stepped down as head of the company’s Android smartphone division. Since then he has convinced Google’s founders, Sergey Brin and Mr. Page, that the time is now right for such a venture, and they have opened Google’s checkbook to back him. He declined to say how much the company would spend....MORE

See also the Times' companion piece:
Shooting for a Moon Filled With Robots

Over the last half-year, Google has quietly acquired seven technology companies in an effort to create a new generation of robots. Below, a selection of Google’s acquisitions....

Here's how the Teamsters reacted to stress in 1934, the management guy heading for terra firma  died almost instantly of a crushed occipital lobe:

Saxo Head of Commodities: "Were you caught short on crude?" (and a look at WTI options volatility skew)

Well yes, yes we were, thanks for your asking.
From Saxo's Ole Hanson's Trading Floor blog:

Wednesday's jump in crude oil took many traders by surprise, not least Saxo Bank's Head of Commodity Strategy, Ole Hansen. WTI futures went from a six month low to a one month high to more than USD 97.50 per barrel. The spike was caused by news that another pipeline is due to come on line in January from Cushing in Oklahoma, which is the delivery hub for WTI. That will help alleviate bottlenecks that we've been seeing building up in recent months.

Ole says we've now got positive momentum right across the energy sector. We're also at the time of year when traders are keen on defending their profits and positions. He says that unless we get any adverse news over the next few days we could potentially see this trend continue into the new year.

Ole says that the fact we're now above the USD 93 to 96 range, USD 99.60 is "now in sight" as far as WTI is concerned. Brent, however, looks "toppish" right now and the August peak of USD113.30 could offer some resistance. Ole says he's not keen on Brent at current levels....

Also from Mr. Hanson:
WTI crude options point towards stability — calls in demand

Saxo's Chief Economist Steen Jakobsen and CEO Lars Seier Christensen also blog (infrequently) on the Trading Floor platform.

Chief Investment Officer of Buffett-owned General Reinsurance Blasts the Fed (BRK)

General Reinsurance is Berkshire Hathaway's reinsurance operation, owner of New England Asset Management ($63bil) and co-marketer with Cologne Re under the GenRe label
(plus a few other things that would be sizable in their own right).
It is a heavyweight.

From GuruFocus:

History Ignored, Again - General Re CIO John Gilbert

 John Gilbert CIO of General Re New England Asset Management in the recent December issue of Reflections blasted the Fed for their role in the biggest mess of the financial system that he has seen. He calls Twitter todays lottery winner and vaguely states emerging markets vulnerabilities when the Fed begins to taper. He compares Cisco (of 1999) and Twitter (of today) and the outcomes of irrational exuberance over a long period of time. There are great accompanying charts and the full PDF can be found below. I included a few excerpts that I found interesting.


"Lest one think it does not affect the U.S. and other developed market countries, recall the Asian crisis chronology. Thailand devalued its currency in the summer of 1997 and few outside of Thailand cared. But contracting Asian demand reduced demand for oil, and Russia (whose exports are 80% oil) defaulted in August of 1998. Risk spreads widened, and five weeks later, Long Term Capital Management was insolvent."



"It would seem fair if Twitter were to share. The company’s initial public offering was a staggering success, of course. Priced at $26, the stock closed its first day of trading at $45 per share. The company was thus endowed with a market capitalization of $25 billion. The company has no earnings, but who cares. Adding back non-cash charges to produce earnings before interest, taxes, depreciation and amortization, then adding back the financial value of non-cash employee compensation, the company can be regarded as profitable. Such a number for 2013 may approximate $50 million or so. The company is valued at 500 times such results, which exclude expenses that do have economic value. Correctly accounted, the company makes not a dime. But who cares when circumspection is the investment equivalent of tuberculosis."




"This is a major component of the downside to the Fed’s program. They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way."

(Full PDF)

The Last Word On Asness' Alpha, Buffet's Beta and The Failure of Commodity Quants (and how to turn hyperlinks into footnotes)

I was informed that the theses that took me three five posts to present was wrapped up by Matt Levine in one little package two days prior to my attempts.
And he does it better, backwards and in heels.
Plus, to get the alliteration in the headline I had to mix up the alpha and the beta.

From Bloomberg:

You Can Invest Just Like Warren Buffett, If You're a Quant Hedge Fund

The Internet has paid a lot of attention today to this National Bureau of Economic Research working paper called "Buffett's Alpha,"1 whose principal conclusions are:

1. You could build a robot that replicates Warren Buffett's stock-picking performance.

2. The ingredients of that robot are (1) 1.6x leverage, which is what Buffett runs at Berkshire Hathaway Inc.,2 and (2) a statistical factor-weighting investment approach that overweights what the authors call "high-quality" (growing, high-payout, profitable) companies with low betas.

3. AQR Capital Management LLC, the quantitative hedge fund that employs the paper's authors, can build such a robot with trivial ease, really by just pushing a button, it's no problem, watch, they will do it for you.

So that is interesting, I guess, if you like robots. It is also great advertising for AQR obviously, though they'd need to go match Buffett for the next 40 years before anyone would entirely believe in their robot-building skills. Actually it was initially somewhat puzzling to me that the venue for this is an academic paper written by three AQR affiliates, rather than a flashy launch of the AQR Buffett Replicator fund, but you can probably figure out why that is.3 Anyway, they seem to regard the Buffett-replicating exercise as trivial; it vindicates some of the quantitative signals that they like, but for them the point is not replicating Buffett but rather picking the signals that offer the best risk-adjusted returns.

So why write about Buffett at all? You'd sort of think that the goal of the research done at quantitative hedge funds is to find things that make money and then go do those things, and generally you'd be right in thinking that. (Sometimes it doesn't work.)

But there is another, subtler goal, which is to fit those things into a narrative about the world that is comprehensible by humans.4 "My computer told me to buy these 800 stocks and sell those 700 stocks, and historically my computer has been right 63.4 percent of the time" is a terrible story. Computers crash and go haywire and try to murder their creators. Statistical anomalies vanish. Signals work until they don't. Markets mean revert. Correlation without causation is suspect. Building a computer program to grind out gains in the markets using a complex of factor weightings sounds like the sort of over-complicated, short-term, zero-sum, high-frequency, incomprehensible financial engineering that landed us in various messes and that is not particularly in public favor these days....MORE

My secret weapon to take on Mr. Levine's footnote fetish? The Arc90 Labs hyperlink converter!
Unfortunately at the moment it only works on the reader's side of the conversation, the method for doing it from the writer's side is still to come. Still, quite cool.

Previously:
Buffett's Alpha or How To Generate Better Risk Adjusted Returns Than Anyone Else in the Biz (BRK)
AQR’s Asness on ‘Smart Beta’: ‘Call a Bet a Bet’
UPDATED--The Economist On How the Commodity Quants Lost It
Warren Buffet: The King of Leveraged Low Beta (BRK.B) 
How to Make Big Money in Small Markets: Commodities

Oil: Libya Hopes to Restore Output, Iran and Iraq Threaten Price War, Market Shrugs Ahead Of U.S. Data

Brent down 1/2% at $112.04, WTI up $1.13 at $97.17.
First up, Gulf Business:
OPEC Seen Keeping Oil Cap; Naimi Says Market in Best Shape

The current 30 million barrel-a-day target for the 12-nation group adequately matches demand, say officials.
Energy ministers from at least eight OPEC countries expect the group to keep its crude output target unchanged at a meeting today while Saudi Arabia’s Ali al-Naimi said the market is in the best possible condition.

The current 30 million barrel-a-day target for the 12-nation group adequately matches demand and is unlikely to change much in 2014, Suhail Mohammed Al Mazrouei, the oil minister for the United Arab Emirates, said shortly before closed-door talks began at about 10:30 a.m. local time in Vienna. Ministers from Qatar, Angola, Ecuador, Venezuela, Iraq, Algeria and Nigeria also said they expect the limit to be maintained.

Some analysts warn that excess supply, including U.S. shale oil and a potential resurgence in exports from Iran, Libya and Iraq, may push prices lower next year if production cuts aren’t made. Brent crude has settled above $100 a barrel for all but five days so far this year.

Al-Naimi said that 30 million isn’t too much for OPEC’s target. “No, no, is enough,” the Saudi minister said when asked about it. He later said “wait and see” when asked if the target would be rolled over today. He also said there’s no need for Saudi Arabia to cut its own production level. The kingdom is OPEC’s biggest oil exporter and produced 9.65 million barrels a day last month, according to a Bloomberg survey....MORE

And from Reuters, headline #1:
UPDATE 2-Libya hopes to restore full oil output in two weeks
and #2:

UPDATE 4-Brent slips towards $112; WTI boosted by pipeline news

Keystone XL pipeline may relieve Cushing supply bottleneck
* API data showed drop in U.S. stockpiles
* Iran, Iraq and Libya optimistic on oil output
* OPEC expected to leave production target unchanged
* Coming Up: U.S. EIA stockpiles due 1530 GMT (Updates lead, prices, quote, paragraphs 9 and 10) 
 
Brent crude oil slipped towards $112 a barrel on Wednesday, although the U.S. benchmark rose more than $1 to a five-week high as the oversupply outlook loosened.

U.S. crude oil was boosted by data from the American Petroleum Institute (API) showing a drop of 12.4 million barrels in domestic inventories. That snapped a 10-week streak of builds that had added nearly 36 million barrels.

This followed the news TransCanada Corp would begin operations at its Keystone XL pipeline on Jan. 3, allowing stockpiles of crude oil inventories at the Cushing, Oklahoma, oil hub to move to the U.S. Gulf Coast, where a large share of the country's refining capacity is concentrated.

"This is the start of a period of draws in U.S. crude stocks," said Bjarne Schieldrop, chief commodity analyst at SEB Bank.

Brent crude for January delivery was 54 cents lower at $112.08 a barrel at 1210 GMT, after settling $1.17 higher in the previous session. U.S. crude was up $1.16 at $97.20 per barrel, after ending up $2.22 on Tuesday.

An inventory report from the U.S. government Energy Information Administration (EIA) is due at 1530 GMT.

"Today all eyes are on the EIA to see if that (API) draw is reaffirmed," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas.

A Reuters poll forecast a build of 300,000 barrels.

Weighing on Brent crude oil were comments from OPEC members Iran, Iraq and Libya.

Iran said it would lift oil production back to 4 million barrels a day once sanctions are lifted, and Iraq's oil minister said he saw no need for the country to trim oil output next year.

Libya's oil minister said he was "optimistic" that pressure on armed protesters to allow the resumption of production would see Libyan oil output restored to 1.5 million barrels a day later this month....MORE

Pakistan's The Dawn has more:
Iran, Iraq put Opec on notice of big increases

What If the Selfish Gene Hypothesis is Incorrect?

Here's a bit of serendipity. One of the alerts we have searching the internet every couple days is "Locusts".
Catch that one before your opponent's man in Khartoum and you have a fighting chance to make a buck (Egyptian/Sudanese pound, shekel, riyal etc) one way or another.

This article isn't immediately actionable though, and actually shouldn't have been spidered in the first place as we are a few months from the high season but here it is and there is quite a bit to it.
And, if you are curious, the response from Richard Dawkins is, aahhh, interesting.
 
From Aeon:

Die, selfish gene, die
The selfish gene is one of the most successful science metaphors ever invented. Unfortunately, it’s wrong  

A couple of years ago, at a massive conference of neuroscientists — 35,000 attendees, scores of sessions going at any given time — I wandered into a talk that I thought would be about consciousness but proved (wrong room) to be about grasshoppers and locusts. At the front of the room, a bug-obsessed neuroscientist named Steve Rogers was describing these two creatures — one elegant, modest, and well-mannered, the other a soccer hooligan.

The grasshopper, he noted, sports long legs and wings, walks low and slow, and dines discreetly in solitude. The locust scurries hurriedly and hoggishly on short, crooked legs and joins hungrily with others to form swarms that darken the sky and descend to chew the farmer’s fields bare.

Related, yes, just as grasshoppers and crickets are. But even someone as insect-ignorant as I could see that the hopper and the locust were wildly different animals — different species, doubtless, possibly different genera. So I was quite amazed when Rogers told us that grasshopper and locust are in fact the same species, even the same animal, and that, as Jekyll is Hyde, one can morph into the other at alarmingly short notice.

Not all grasshopper species, he explained (there are some 11,000), possess this morphing power; some always remain grasshoppers. But every locust was, and technically still is, a grasshopper — not a different species or subspecies, but a sort of hopper gone mad. If faced with clues that food might be scarce, such as hunger or crowding, certain grasshopper species can transform within days or even hours from their solitudinous hopper states to become part of a maniacally social locust scourge. They can also return quickly to their original form.

In the most infamous species, Schistocerca gregaria, the desert locust of Africa, the Middle East and Asia, these phase changes (as this morphing process is called) occur when crowding spurs a temporary spike in serotonin levels, which causes changes in gene expression so widespread and powerful they alter not just the hopper’s behaviour but its appearance and form. Legs and wings shrink. Subtle camo colouring turns conspicuously garish. The brain grows to manage the animal’s newly complicated social world, which includes the fact that, if a locust moves too slowly amid its million cousins, the cousins directly behind might eat it.

How does this happen? Does something happen to their genes? Yes, but — and here was the point of Rogers’s talk — their genes don’t actually change. That is, they don’t mutate or in any way alter the genetic sequence or DNA. Nothing gets rewritten. Instead, this bug’s DNA — the genetic book with millions of letters that form the instructions for building and operating a grasshopper — gets reread so that the very same book becomes the instructions for operating a locust. Even as one animal becomes the other, as Jekyll becomes Hyde, its genome stays unchanged. Same genome, same individual, but, I think we can all agree, quite a different beast.

Why?

Transforming the hopper is gene expression — a change in how the hopper’s genes are ‘expressed’, or read out. Gene expression is what makes a gene meaningful, and it’s vital for distinguishing one species from another. We humans, for instance, share more than half our genomes with flatworms; about 60 per cent with fruit flies and chickens; 80 per cent with cows; and 99 per cent with chimps. Those genetic distinctions aren’t enough to create all our differences from those animals — what biologists call our particular phenotype, which is essentially the recognisable thing a genotype builds. This means that we are human, rather than wormlike, flylike, chickenlike, feline, bovine, or excessively simian, less because we carry different genes from those other species than because our cells read differently our remarkably similar genomes as we develop from zygote to adult. The writing varies — but hardly as much as the reading.

This raises a question: if merely reading a genome differently can change organisms so wildly, why bother rewriting the genome to evolve? How vital, really, are actual changes in the genetic code? Do we even need DNA changes to adapt to new environments? Is the importance of the gene as the driver of evolution being overplayed?

You’ve probably noticed that these questions are not gracing the cover of Time or haunting Oprah, Letterman, or even TED talks. Yet for more than two decades they have been stirring a heated argument among geneticists and evolutionary theorists. As evidence of the power of rapid gene expression mounts, these questions might (or might not, for pesky reasons we’ll get to) begin to change not only mainstream evolutionary theory but our more everyday understanding of evolution.

Twenty years ago, phase changes such as those that turn grasshopper to locust were relatively unknown, and, outside of botany anyway, rarely viewed as changes in gene expression. Now, notes Mary Jane West-Eberhard, a wasp researcher at the Smithsonian Tropical Research Institute in Costa Rica, sharp phenotype changes due to gene expression are ‘everywhere’. They show up in gene-expression studies of plants, microbes, fish, wasps, bees, birds, and even people. The genome is continually surprising biologists with how fast and fluidly it can change gene expression — and thus phenotype.

These discoveries closely follow the recognition, during the 1980s, that gene-expression changes during very early development — such as in embryos or sprouting plant seeds — help to create differences between species. At around the same time, genome sequencing began to reveal the startling overlaps mentioned above between the genomes of wildly different creatures. (To repeat: you are 80 per cent cow.)...MUCH MORE

The Next Five States About to Go Oil-Boom

This concludes our triad of detonative-headlined posts.
From the Fiscal Times:

The Next North Dakota: 5 States About to Go Oil Boom

The black-gold rush in North Dakota—a technological revolution in oil production—is creating a new class of rugged millionaires.

North Dakota might be grabbing headlines, but horizontal drilling and “fracking” to tap into newly accessible oil reserves is by no means limited to that state. The shale revolution is still in its “early innings,” as a recent report by Credit Suisse put it. OPEC’s 2013 World Oil Outlook, published last month, said that new oil supply from the U.S. and Canada would hit nearly 5 million barrels a day within five years, up from last year’s forecast of 1.7 million barrels a day by 2018. As that boom plays out, tens of billions of dollars in new infrastructure and development will likely be invested in the coming years.

Where will the new investment be concentrated? Though oil and gas companies across the U.S. are busy buying up acres of mineral rights in oil shale hot spots in an effort to be early players in the next booms, most are staying quiet about early production numbers.

 If they let on that they’ve uncovered another Bakken or Eagle Ford Shale, land and production costs could skyrocket. In Texas’s Eagle Ford, for example, companies were paying $250 to $450 an acre in 2009 when the area’s potential was unknown, but by 2011, an acre was going for $21,000 to $22,000.

The U.S. Geological Survey (USGS) and the Energy Information Administration (EIA) have only recently started to assess reserve areas, and the EIA estimates 482 trillion cubic feet of natural gas and 33 billion barrels are recoverable, revised from a mere 4 billion barrels in 2007. That estimate could still be conservative, however. The amount of recoverable oil in an area only becomes evident after companies begin to drill. “Early on, we didn’t have much experience on how these wells would be producing,” says Doug Duncan, associate coordinator of the energy resources program at the USGS. “We typically need about three years of production data from a large number of wells before we can start to reduce the uncertainty in our assessments.”

In North Dakota, the USGS estimated there were 3 to 4.3 billion barrels in 2008, but this year, it revised its number to 7.4 billion barrels. The USGS is now working on an assessment of the Monterey Shale in Southern California....MORE 

HT: Carpe Diem

Who or What Is Turning Hog Manure Explosive? (the pig bang theory blames ethanol)

From Nautil.us:

The Curious Case of the Exploding Pig Farms

At first, the manure was just harmlessly foaming. Only later on did things get lethal. 

Hog farms in the Midwest are great big barns sitting on top of great big pits filled with a great deal of awful-smelling manure. The pigs walk about on a slatted floor that lets manure fall into the pit several feet below. Around 2007, farmers began noticing pig poop acting funny. The normally liquid mixture started producing foamy bubbles, rising up and up, past the slats, right to the pigs’ cloven hooves.

Then it got worse. Among the gases in the bubbling in the foam are two of special note: methane and hydrogen sulfide—both highly flammable. All it takes is a small spark and Kaboom! In September 2011, a barn explosion killed 1,500 pigs and seriously injured one worker. It was just the most serious in a string of barn explosions that have cost farmers millions of dollars in the past several years.

Scientists have scrambled to solve the mystery of the exploding hog-manure foam, but no straightforward answer as emerged so far. As a matter of physics, every foam needs three components: gas, stabilizer, and surfactant. Manure is normally teeming with microbes, which produce gases like methane and whose cells can act as stabilizers. Therefore the surfactant—any chemical such as soap that lowers the surface tension of liquids to allow bubbles to form—is a likely candidate for what’s new.

Around the same time that foaming manure became a problem, farmers also started feeding their pigs more and more distiller’s dried grains with solubles (DDGS), a cereal-like byproduct of ethanol production. DDGS is full of plant fibers and long-chain fatty acids—plausible surfactant candidates. Since the US provides huge subsidies for making ethanol from corn, DDGS was cheap and plentiful source of animal feed. It makes economic sense, at least.

 DDGS has been a suspected culprit of foaming manure from the beginning (one magazine called it a “pig bang theory”), but experiments are still inconclusive....MORE

HT: io9

Tesla Explodes Higher on Morgan Stanley Report (TSLA)

Well it's about time, links below.
I probably shouldn't use the word 'explodes' until they have the battery problem completely squared away.
Up $18.17 (14.63%) at $142.34.
From ValueWalk:

Finally some good news for Tesla Motors Inc (TSLA). Shares surged today after analysts issue positive reports and German regulators find no fault with the Model S after the recent fires.
In addition, analysts from at least two firms have issued positive reports on Tesla this morning, adding fuel to the fire, so to speak.

Morgan Stanley calls Tesla’s plunge a buying opportunity
Analysts at Jefferies and Morgan Stanley weighed in on Tesla Motors Inc (NASDAQ:TSLA). Morgan Stanley analyst Adam Jonas listed Tesla as his top pick out of the 26 different companies his firm follows in the U.S. auto industry. Jonas said although the slide after the three Model S fires may have been justified, he expected shares to bounce back because the automaker’s long-term trajectory was still intact. He said the fires shouldn’t cause any “material damage” to Tesla’s business and that they would buy shares.

The analyst has a $153 per share price target on Tesla Motors Inc (NASDAQ:TSLA). He said at the automaker’s highest point, it was “due for a big correction” because there was “little or no valuation support on near-term expectations.” Jonas reiterated his Overweight rating on the automaker.

Jefferies weighs in on Germany news
Analysts at Jefferies issued their report after Tesla Motors Inc (NASDAQ:TSLA) revealed last night that German regulators ruled not to issue a recall on the Model S after their investigation into the three fires. Jefferies analyst Elaine Kwei reiterated her Buy rating on the automaker, although she did lower her price target to $190 from $210 per share....MORE

Loyal readers know that I was playing a dangerous game with this one.
Watching (and posting on) the run from pre-IPO to $195.
Catching a decent short on the way down: $164.50 to $126 and then reversing (early)
We started prepping for a bounce with Nov. 8's "Chartology: Tesla Getting Near a Bounce (TSLA)" at $137.80.
That was followed on the 12th by "Tesla's Musk as Equity Analyst: "Stock's high price was a distraction, seems a better deal now" (TSLA)".

Here are some of the posts (for more use the search blog box):
Oct. 7
"Jim Chanos Hints He is Shorting Tesla Short (Sorta)" (TSLA)

The stock is up $2.41 at $183.39.

Oct. 23 
Chartology: Tesla's Head and Shoulders Formation (TSLA)

The stock is trading down $7.04 at $164.50....

Oct. 29 
Chartology: Tesla Breaks Down

 $156.52 down $6.34.

Oct. 31 
Watching for a Head-and-Shoulders Chart Formation in Tesla (TSLA)

If one was going to form the next few days should be up.
$158.98 down 24 cents.

Nov. 5
Tesla Disappoints ( Verb-3rd person present-fail to fulfill the hopes or expectations...) (TSLA)

In early after-hours the stock is down $16.01 at $160.80
From this morning's "Smart Research: "Tesla's VIN Numbers Indicate The September Quarter Could Have Been Quite Strong" (TSLA)":

This is shaping up as a "Buy on mystery, sell on history" trade. $173.73 down $1.47....

November 8 
Chartology: Tesla Getting Near a Bounce (TSLA)

The stock is changing hands at $137.80 down $1.97 after bottoming at $132.32.

Nov 20
Tesla and the Barclays Downgrade (TSLA)

That's just perfect. Wait patiently for signs of a bottom and finally make the formal buy rec last night* at $126.
Have BARC junior analyst come out with the downgrade and I'm right back to 2009...

...The stock is down $6.27 at $119.82, yesterday's low print was $119.22. A solid double-bottom would be an undercut of yesterday's low either today or tomorrow morning to get that Abandon-hope-all-ye-who-enter-here vibe and then onwards to glory.
Or something.

That 2009 call worked out but markets are easier than stocks, no death car fire factor to deal with, for example. Yesterday's pre-market low was $115.60.

Anyhoo the question is "What now?"
Using cutting edge analytical techniques we answered that query in Nov. 19's "UPDATED--By Elon Musk: "The Mission of Tesla"":

...Pulling a number out of one's backside, $160 as a target.

Equities: All right Kids, I Think It's Safe to Go Back in the Water

 naked capitalism

Buffett's Alpha or How To Generate Better Risk Adjusted Returns Than Anyone Else in the Biz (BRK)

From City A.M:

This new paper reveals the secrets of investment guru Warren Buffett It's an old question - and until now an unanswered one - just how does Warren Buffett manage to make all that money?

The investment guru is an anomaly, and the chart below is a reminder (if you needed one). It's a representation of the success of Buffett's company, Berkshire Hathaway. Its returns are a complete outlier. 

More fully that chart shows how Berkshire stacks up against common stocks, and the numbers have been crunched by Andrea Frazzini, David Kabiller, and Lasse H. Pedersen in their new paper "Buffett's Alpha".

Berkshire Hathaway has realised a Sharpe ratio (a measure of risk-adjusted performance) ahead of any other stock or mutual fund with a history of more than 30 years.

Buffett says it's not luck either - he thinks it's no coincidence that many stock market winners come from the same intellectual village. And that Sharpe ratio - 0.76 - is less than many would imagine (despite being nearly double the ratio of the overall stock market).

The paper's authors try to explain Buffett's staggering success with statistical techniques. Most common theories - based on the "alpha" and "beta" of stocks don't stand up.

You can also throw out the idea that Buffett's success comes from his influence on the companies whose stocks he owns - his publicly traded stocks perform better than the companies he owns in whole.

The researchers find that exotic returns have a less than alien explanation, "neither luck nor magic". Leverage The authors show that Buffett is rewarded for the use of leverage (the authors estimate a leverage of about 1.6-to-1). That leverage ratio boosts his risk and excess return in that proportion....MUCH MORE

The City AM folks didn't provide a link so here's the version at Yale (45 page PDF)

Back in September 2012 we looked at an early draft of the paper at The Economist:
Warren Buffet: The King of Leveraged Low Beta (BRK.B)

See also Institutional Investor's "Is Alpha Dead? Beating the Market Has Become Nearly Impossible".

Alphaville's Izabella: When She Is Good She Is Very, Very Good...

...And When She Is Bad She's Terrific.*

Here she is being bad in that Lady Caroline Lamb on Lord Byron "mad, bad and dangerous to know" kind of way.

From Dizzynomics:

Re. Central bank manipulation

To: All fiat currency sceptics
From: me (in a bad mood).
This is a comment on the following response to one my Bitcoin posts by Julien Noizet, note the bold bits.

Izabella Kaminska in the FT wrote a new piece on Bitcoin and other alternative electronic currencies. She complains about the multiplication of such currencies that nothing backs and pretty much only see speculative motivations underlying them. I am not going to comment on the whole thing, but whether right or wrong, she should ask herself why there is such frenzy about those currencies at the moment. My guess is that, governments’ and central banks’ manipulation of their own currencies have unleashed a beast: people afraid to hold classic currencies started to look for alternatives, pushing up their prices, in turn attracting speculators. The process is similar to ‘bad’ financial innovations (the ones designed specifically to bypass restricting regulation): they often start as a benign innovation for the ‘common good’, but the surprising demand for them and large profits attract speculators until the market crashes. Not the fault of the innovation, but the fault of the regulation that triggered them…

First Julien, thanks for telling me to ask myself something that I have very publicly been asking for a long time. I appreciate you don’t have to read every single post I ever write, but the post you link to actually says it plainly:

The natural consequence, perhaps, of a leisure economy with nothing more productive to do — or, more simply, nothing more productive that has as great a potential for quick speculative profit. Though, not to overlook the influence of the idea that it is wise to protect oneself from a fiat currency armageddon that still hasn’t happened yet, and against which there are fewer viable diversification tools. So what we have created instead is a veritable Weimar-style notgeld issuance frenzy. A parallel private money expansion outside of the government’s money supply control, created by the public itself. (Though, at least with notgelds, the units issued were always redeemable for the issuing companies’ underlying goods and services.)

If you didn’t understand that paragraph, let me explain it to you one more time. People have been sold an inflation myth....MUCH MORE 

*Paraphrased from Walter Mathau on Barbara Stanwyck:

'Barbara Stanwyck has played five gun molls, two burlesque queens, half a dozen adulteresses and twice as many murders. When she was good, she was very, very good. And when she was bad, she was terrific.'

Gentle reader has probably noticed I don't refer to the young lady as 'Izzy' very often. For one thing the familiarity of the truncated diminutive doesn't seem altogether appropriate: We've never met, never even corresponded so any time I do use the nickname I am aware that it almost sounds like a hypocorism.

The other, more immediate, and frankly, profoundly disturbing reason, is that any time I see the name Izzy I think of a five hundred pound Hawaiian guy.

This is a video I used to post as part of our Sweet Dreams, Wall Street series during the downdraft summer of 2008 (before the real downdraft hit):

UPDATED--The Economist On How the Commodity Quants Lost It

Updates below the chart.
Original post:
I am having great difficulty with the idea that hedge funds couldn't find a way to make money, more after the jump.
From The Economist, November 30:

Hedge funds looking to spot and ride market trends are hoping for a fresh start

IF SOMETHING has not worked for five years, most people would conclude that it was broken. Tell that to the geeks managing “quant” hedge funds, who craft elaborate algorithms to profit from market movements. Once money-spinners, their prized formulae have misfired since 2009, losing money in four of the past five years. Unless their results improve markedly, the giant funds will finish this year as the worst-performing of the most common hedge-fund strategies.

“Trend-following” involves programming computers to analyse market movements and try to infer where they might go next. Practitioners speak with reverence of “crossover levels” and “momentum speeds” leading to “breakout points”. A rough translation is that a trend that lasts a few days or weeks can profitably be invested in until it reverses, at which point a new trend may already be forming. Whether the markets are going up or down does not matter. Nor does the underlying asset being analysed—typically a futures contract linked to a commodity or a security.

After prospering through the market rout of 2008 (the prolonged slump gave even the dimmest trend-follower time to cotton on), the sector swelled from $91 billion to $215 billion, according to Hedge Fund Research, a data provider. Winton Capital, Man Group’s AHL fund, Cantab, BlueCrest and other “black box” traders, as their critics dub them, became darlings of the investing world. Unfortunately, the influx of investment coincided with the reversal in the strategy’s fortunes (see chart).

The main problem is not with the quants’ models, practitioners insist, but with the markets themselves. In the aftermath of the financial crisis, they have been dancing to the tune set by politicians and central bankers. Efforts to save the euro or stave off deflation regularly send markets into convulsions, in the process distorting the historical patterns that the algorithms are designed to exploit. The ensuing jolts and crashes have no precedent, leaving even the most finely crafted trade at risk from political meddling. Not even the world’s wiliest supercomputers can predict what the European Central Bank will dream of next, apparently.

Worse, such interference prompts stocks, bonds and commodities to move in unison. When in May the Federal Reserve hinted at a “tapering” of America’s ultra-loose monetary policy, for example, both government bonds and shares tumbled. What had started out as a good year for the trend-followers turned into a drubbing. One of the sector’s main selling-points, that its returns are uncorrelated to those of other asset classes, is at risk....MORE

HT: Business Insider

The bolded bit points up one of the failures of the fund managers.
They get paid to figure out the intertemporal arbitrage, a fancy way of saying the task at hand is to understand the time period that gives the fund the greatest advantage versus the market.

The classic example is the individual investor realizing that he can't compete with HFT and looking at longer than nanosecond time periods. This opens up the possibility of not just not-competing with the traders with the lowest latency but of taking advantage of mispricings caused by their behavior. This is exemplified by one of Buffett's baseball metaphors (he has quite a few):

In investments, there's no such thing as a called strike. You can stand there at the plate and the pitcher can throw a ball right down the middle; and if it's General Motors at 47 and you don't know enough to decide on General Motors at 47, you let it go right on by and no one's going to call a strike. The only way you can have a strike is to swing and miss.

The point is, you don't have to be at the market every second You are afforded the luxury of just waiting for the perfect pitch.

Now for a fund manager it get's tricky writing the quarterly report and saying "We didn't do much in Q3, we're waiting for Mr. Market to give us the high hanging curve ball" but if you've been honest with the investors that the tactic you've pulled from the toolbox is akin to the military's hurry-up-and-wait sense of time it is doable.

As a side note anyone who considers a move that is measured in weeks to be a trend is nuts. A trend is John Templeton going into the Japanese markets at 2 times earnings and catching a 40-fold move 1965-1989.

To quote myself for the second time in two days, from October's "Commodity hedge funds face bleak future":

The thing I don't get about these whiny little commod (no 'e', yet) artists is the apparent failure to understand the words hedge or macro.
Dudes, you can go long or short. And do it in multiple, disparate commodities anywhere in the world.

Unless of course the folks who were proclaiming commodities an asset class were simply full of it and were nothing more than longside trend followers charging alpha sized 2-and-20 for what was actually leveraged beta....

See also yesterday's:
How to Make Big Money in Small Markets: Commodities

Small that is compared to forex or treasuries.
There is no magic secret, just bet the multi-year trends and be right....

...The directional trade for most commodities has been down for at least two years so price action alone would have guided you....

In the recent past it was the two year decline in precious metals or the one year decline in corn that allowed folks with a feel for this stuff to recalibrate the computers and get some bets down.

As for the "move in unison" excuse, here's the S&P 500 ETF vs the gold ETF over the last 365 days:

Correlated markets my ass.

See also:
AQR--"Demystifying Managed Futures" (Returns and Anomalies)
UPDATED--Cliff Asness' AQR Capital: A Century of Evidence on Trend-Following Investing; Since 1903
UPDATE--More on "A Century of Evidence on Trend-Following Investing 

Climateer Line of the Day: Things I Never Imagined Reading With a Straight Face Edition

Driverless cars and delivery drones are likely to increase property values in big cities as such innovations are aimed at urban areas and make living there more efficient, an economist writes.... 

That's the link to the New York Times' Economix blog:

Robots and Property Values
Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.” 

As robots begin to move goods and people from place to place, urban land might become more valuable.

Amazon.com has announced that it is testing package delivery by drones — small, unmanned helicopters that would bring a purchase from Amazon’s fulfillment center to the customer’s front porch. Driverless cars are being developed to help move goods and people from place to place.

“Location, location, location” is the saying in real estate: a property’s value is determined primarily by its location. An apartment in central Illinois might be worth 20 times as much in Manhattan, because a Manhattan apartment gives its resident access to many more goods, activities and high-paying jobs.

This is not to say that urban living is always the best, or that all urban properties are created equal. Locations involve trade-offs, and rural areas offer amenities that big cities cannot. But for centuries, real estate markets have shown that people and businesses are willing to pay more for urban properties....MORE

A heads up to our younger readers-don't believe the hype, the Amazon idea won't be realized anytime soon.
Business Insider had the best explanation for why the "news" was leaked on last night's '60 Minutes':
 $3 Million In Free Advertising On Cyber Monday

AQR’s Asness on ‘Smart Beta’: ‘Call a Bet a Bet’

Getting deep into the weeds, having Asness say this about a strategy popularized by his buddy and scholarly paper co-author Rob Arnott is kinda funny.*
An excellent catch by Barron's Focus on Funds column:

AQR Capital Management co-founder Cliff Asness has a must-read in the forthcoming Financial Analysts Journal.

“My 10 Pet Peeves” includes a peeve about “smart beta,” which is the buzzword for index ETFs driven by something other than standard market-weighting. These funds are built to own stocks according to juicy or growing dividends, improving earnings and revenues or some other set of factors besides what drives the SPDR S&P 500 ETF (SPY). 

I think people should call a bet a bet. If you own something very different from the market, you’re making a bet and someone else is making the opposite bet. You might believe in your bet because you are being compensated for taking a risk, because the market has behavioral biases, or because your research is just that good. Your bet might be low or high turnover. But, regardless, you aren’t passive.

And here Asness explains the intuition of why “smart beta” is really market exposure plus something else — usually the “something else” is a bet on the superiority of value investing. All which means “smart beta” proponents are effectively trashing themselves when they trash active investment management...MORE

Again, "My Top 10 Peeves" (9 page PDF)

*Here's a nice little paper that über-quant Asness did with Arnott:
Surprise! Higher Dividends= Higher Earnings Growth

How to Make Big Money in Small Markets: Commodities

Small that is compared to forex or treasuries.
There is no magic secret, just bet the multi-year trends and be right.
From October's "Commodity hedge funds face bleak future":

The thing I don't get about these whiny little commod (no 'e', yet) artists is the apparent failure to understand the words hedge or macro.

Dudes, you can go long or short. And do it in multiple, disparate commodities anywhere in the world.
Unless of course the folks who were proclaiming commodities an asset class were simply full of it and were nothing more than longside trend followers charging alpha sized 2-and-20 for what was actually leveraged beta....

The directional trade for most commodities has been down for at least two years so price action alone would have guided you. Stepping up to the junior analyst level of granularity, a look at mining company (for example) capital expenditures over the last decade tells you to beware of supply/demand imbalances.

The next level, analyst or assistant fund manager, has you looking at global macro: Worldwide demand for most everything is satiated.

Finally, at the really old guy level you do the pattern recognition thing, "Say this reminds me of the agricultural depression of 1920" and go take a nap.

From Bloomberg:
Worst Raw-Material Slump Since ’08 Seen Deepening: Commodities

The commodity slump that spurred bear markets in everything from gold to corn to sugar this year will deepen by the end of December as prices head for their first annual loss since 2008, if history is any guide.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell in December 83 percent of the time since 1971 when the benchmark gauge was posting losses for the year through November, data compiled by Bloomberg show. The average December loss was 3.9 percent, which if it happened this time would mean a 7.8 percent drop for the year.

Investors pulled a record $34.1 billion from commodity funds since the end of December, according to EPFR Global, which started tracking the flows in 2000. Ample rains boosted global crops, increased mine output spurred supply gluts in metals and the U.S. is extracting the most crude oil since 1989. Economic growth in China, the biggest user of everything from soybeans to zinc to cotton, is poised to slow for a third year in 2013, according to economist estimates compiled by Bloomberg.

“It’s likely that the trend will hold through the end of the year,” said Michael Cuggino, who manages about $11 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “Investors see anemic or slowing economic growth in the world’s mature and emerging-market economies, while there’s more supply on hand. That translates to lower prices.”

2013 Losses
Fifteen members of the S&P GSCI are heading for annual losses, with grains and precious metals leading the declines. Corn tumbled 40 percent, on track for the biggest annual slump since the data begins in 1960. Gold is heading for the first yearly retreat since 2000 and silver is poised for the worst rout in three decades...MORE

If you had wanted to stick to equities a short of the gold miners is up over 50% unleveraged.
Getting a bit of gearing:
Selling corn in December last year at $7.50 to  today's $4.19 has been good for $3.31 per bushel of which there are 5000 in a contract. $16,550 on your initial $2363.
Gear it up some more, either by going to your prime or buying the options...
Say, have I ever told you about natural gas?

Just be right.

Here's corn and some of the posts:

We've been posting on this price weakness since  December 2012: 

Dec 2012

Macquarie "Wheat 50% overvalued - corn to hit three-year low"

March
Corn Hammered Limit Down on Stocks/Intentions Report
May
Corn: Deutsche sees potential for price below $4
July
Macquarie Calling For Corn in the Low $4's 
August
4 Reasons Why Corn Could Get Cheaper Still
Corn Futures Resume Normal Service, Collapse
September
Iowa State's Worst Case Corn Prices: $2.89 By 2017

And many more. It's almost depressing how monotonic the declines have become.

Gold Resumes Decline, Down $22 To 5-Month Low

Gold $1227.60 down $22.80, platinum $1353.97 down $10.13. We're including platinum in the quotes because of last week's "Platinum deficit to widen while prices decouple from gold" and "If You Absolutely Have to Have Precious Metals Exposure, Consider Platinum (HSBC)"

The June 28, 2013 low was $1179.40. When we get there we'll have to take a look at the charts.
The ultimate target is $875 in Q3 2014.

As for the miners the GDX and GDXJ are among the worst performing ETF's of 2013 with more downside to come.

From Kitco:

UPDATE: Comex Gold Falls To 5-Month Low on Technical Selling Pressure, Firmer Greenback

Monday December 02, 2013 10:30 AM

(Kitco News) - Comex gold futures have dropped to a five-month low in mid-morning dealings Monday. Gold and silver are seeing selling pressure tied to very weak technical postures that continue to invite fresh short positions into the futures markets. Also, some generally upbeat U.S. economic data Monday morning has helped to boost the U.S. dollar index to its session high. The firmer greenback is a bearish daily outside market force working against gold and silver. February gold last traded down $20.80 an ounce at $1,229.60.

Recently:

Gold Miners: What a Long Strange Trip (GDX; GDXJ)
"Cash Costs A Better Indicator Of Pressure On Gold Mining: Citi" (GDX; GDXJ)
As Gold Prices Retrace to the June Lows Mine Output to Reach Record High (Junior Miner ETF Approaches All-time Record Low) GDX; GDXJ
Chartology: "Gold’s Bearish Technical Setup"
Gold Miners: A Fool And His Money (GDX; GDXJ; GLD)
Gold Forwards: "Look For More Weakness In Gold"
Gold Down $22.30 As Longs Lose Hope

That gets us back to Nov. 8.

Goldman Sachs’s Big Idea #4: Long China/Short Copper

From MoneyBeat:

After a pause for Thanksgiving and Black Friday, part four of the daily drip-feed of Goldman Sachs's top trade ideas for 2014 is finally in our inbox.

And here it is: “Long China equities/short copper”.
Specifically…

“Open long China equities via HSCEI index and short copper Dec 14 LME future, opened at 0.0% (on return basis, corresponding to respective price levels of 11542.1 and 7064.5) on 2 Dec 2013, with a target of 25% and a stop on a close below -13%.”

Confused? You should be.

As the bank notes, copper prices are usually positively correlated to Chinese equities.
That relationship has to change for the trade to work best. Since late October the two assets have been heading in opposite directions, and Goldman sees that continuing. The bank reckons Chinese stocks will rise next year as the country’s growth stabilizes, but commodity prices will come under pressure because of abundant supplies.

“This long equity/short commodity trade is a way of isolating exposure to China equity risk via a long HSCEI position, which we think is underpriced by the market given our views of stable growth and ongoing rebalancing there, while the copper short hedges out exposure to China’s economic growth, which we think will be stable but not stellar,” Goldman’s analysts wrote in a note to clients Monday....MORE

Earlier:
"Goldman Sachs Explains How To Make Money In 2014, Parts One And Two"
We didn't care for #3.
Can't get enough EONIA?
"On the ECB and EONIA"

"Does QE cause deflation?"

This morning Alphaville's Further Reading post linked to "Is QE lowering the rate of inflation?" at St. Louis Fed VP David Andolfatto's personal blog.
Mr. Andolfatto takes a look at the Williamson paper "Scarce Collateral, the Term Premium, and Quantitative Easing".
The first thing I thought of was Minneapolis Fed head Kocherlakota's Road to Damascus moment when he renounced the QE-causes-deflation-idea.
(as far as I can tell, it doesn't. it doesn't seem to work either but that's a different story)

Swooping in on the question is Not Quite Noahpinion with the headline post:

Oh my gosh. I am really excited. For years, I've been waiting for a chance to disagree with Brad DeLong about something econ-related, and the day has finally come!! It's enough to make me break my blogging hiatus a few days early.

Remember back in 2011 when Narayana Kocherlakota theorized that low interest rates cause deflation? Well, on Wednesday, Steve Williamson made a similar claim, writing that in a liquidity trap, QE will cause long-term deflation. Williamson based his post on this paper.

In a testy response, Nick Rowe called Williamson's post "horribly wrong," lamenting: "What the hell has gone wrong with some of the best and brightest in economics?" Brad DeLong then jumped in, accusing Williamson of mistaking an unstable equilibrium for a stable one. Paul Krugman echoed that accusation.

But David Andolfatto, in this excellent post, showed that DeLong and Krugman's criticisms are misplaced. In a typical New Keynesian model - the kind that now mostly dominates business-cycle theory, and the kind preferred by Rowe and Krugman - it's true that Williamson would be picking an unstable equilibrium. But Williamson is not using a New Keynesian model! Williamson's model is actually quite different. And as Andolfatto points out, there are macro models out there that are very similar to New Keynesian models, but have one small twist that makes the "QE-causes-deflation" equilibrium the stable one!

 So DeLong and Krugman have gone too far. They are arguing from their preferred model, and that's fine. But to say - as Brad does - that Williamson doesn't deserve a "union card as an economist" is wrong. And to say - as Krugman does - that Williamson has made a simple "misconception" by forgetting about stability is wrong. Williamson is simply using a different model than the standard model, and DeLong and Krugman have not yet examined that model carefully....MORE

One of the more sensible things from an economist this year.
Now a bit of humor. Here's Modeled Behavior from August 26, 2010:

Wonk City: More on Deflation and Interest Rates

My once and future dream is that the blogosphere would replace academic journals as the primary medium of intellectual exchange. We are far, far, far from that but this debate over deflation is getting sufficiently wonky that a boy can dream. If only there was some easy way to incorporate an equation editor into a blog writer, we would be off to the races.

Now to the subject at hand. Stephen Williamson rides in to defend Kocherlakota:

What [Krugman, Rowe, Thoma and Harless] are objecting to in Kocherlakota’s speech is one of the most innocuous things he said. Here’s the simplest example I know. Suppose a cash-in-advance model with a representative consumer, period utility u(c), discount factor b, constant aggregate endowment y. c is consumption....MORE

It appears to me damn near the same cast of characters.
I don't care who you are, that's funny right there.
I wish I had the time to observe economists in a clinical setting, it would be, to borrow a word: Fascinating.