Sunday, September 30, 2012

Who the Heck is Braeburn Capital? (AAPL)

You already know, don't you.
From ZeroHedge:
The world's largest hedge fund is not located in the top floor of some shiny, floor-to-ceiling glass clad skyscraper in New York, London, Hong Kong or Shanghai. It isn't in some sprawling mansion in Greenwich or Stamford which houses a state of the art trading desk behind a crocodile-filled moat. Instead it can be found in tiny, nondescript office in Suite 225 located on 730 Sandhill Road in Reno, Nevada.

"That's not possible" one may say - the world's largest hedge fund is Ray Dalio's Bridgewater, which at last check had about $100 billion in AUM (and which has so far had a less than stellar performance in 2012, underperforming the S&P by a substantial margin). Turns out it is: the fund which was at $117.2 billion as of June 30, and which has lately been growing at a pace of about $15 billion per quarter (which would put it at about $130 billion currently), is none other than Braeburn Capital, a Nevada-based asset management corporation.
Who is Braeburn?

Braeburn is a subsidiary of another far more famous company, which since 2006 has had one simple task: manage the cash of the parent company.
At Braeburn's inception, the cash pile was modest, yet absolutely massive in unlevered terms, at just over $10 billion. Fast forward 6 years, and the massive cash pile has now grown to be epically gargantuan. Of course, the parent company in question is none other than Apple, whose publicly reported cash horde at June 30, 2012 was a whopping $117,221,000,000.
This is the AUM of Braeburn.

Any substantial follow up diligence on Braeburn will not reveal much if anything.

CapitalIQ has the following description of the firm: "Braeburn Capital Inc. is the asset management arm of Apple Inc. The firm invests in the public equity markets. Braeburn Capital Inc. was founded in 2006 and is based in Reno, Nevada." And that's it - there is no breakdown of which "public equity market" investments Braeburn is invested in, as is to be expected....MORE

Chemical plant explosions in Japan kill one, may cripple global diaper output

From CNBC:
Explosions at a chemical plant in Hyogo Prefecture on Saturday killed a firefighter and injured dozens of people, the Japan Times reported, citing local fire department and police officials said. Global production of diapers could be affected because the plant made a key ingredient in a resin used in them, Japanese media reported.

A fire broke out about 2 p.m. after an abnormal chemical reaction at Nippon Shokubai Co.'s plant in Himeji, the Japan Times said.

The first explosion occurred about 2:40 p.m. as firefighters were spraying an acrylic acid tank with water, and the second followed shortly afterward, the Times said, citing Nippon Shokubai. The blasts set ablaze a fire engine.

A 28-year-old firefighter was killed and at least 30 people were reported injured.

Nippon Shokubai is one of the world's biggest makers of acrylic acid, the main ingredient of a resin called .

The plant produces about 20 percent of the world's SAP and 10 percent of global output of acrylic acid....MORE

Cost of Water Doubles in 25% of Communities

From USA Today:
USA TODAY analysis: Nation's water costs rushing higher
While most Americans worry about gas and heating oil prices, water rates have surged in the past dozen years, according to a USA TODAY study of 100 municipalities. Prices at least doubled in more than a quarter of the locations and even tripled in a few.

Consumers could easily overlook the steady drip, drip, drip of water rate hikes, yet the cost of this necessity of life has outpaced the percentage increases of some of these other utilities, carving a larger slice of household budgets in the process.

"I don't know how they expect people to keep paying more for water with the cost of gas and day care and everything else going up," complains Jacquelyn Moncrief, 60, a Philadelphia homeowner who says the price hikes would force her to make food-or-water decisions. She gathered signatures on a petition opposing a proposed water rate increase in her city this year.

USA TODAY's study of residential water rates over the past 12 years for large and small water agencies nationwide found that monthly costs doubled for more in 29 localities. The unique look at costs for a diverse mix of water suppliers representing every state and Washington, D.C. found that a resource long taken for granted will continue to become more costly for millions of Americans. Indeed, rates haven't crested yet because huge costs to upgrade or repair pipes, reservoirs and treatment plants loom nationwide.

In three municipalities — Atlanta, San Francisco and Wilmington, Del. — water costs tripled or more. Monthly costs topped $50 for consumers in Atlanta, Seattle and San Diego who used 1,000 cubic feet of water, a typical residential consumption level in many areas. Officials in the three municipalities and elsewhere, however, say actual consumption is often lower. But conservation efforts counter-intuitively may raise water rates in some localities.

The trend toward higher bills is being driven by:

-- The cost of paying off the debt on bonds municipalities issue to fund expensive repairs or upgrades on aging water systems.
-- Increases in the cost of electricity, chemicals and fuel used to supply and treat water.
-- Compliance with federal government clean-water mandates.
-- Rising pension and health care costs for water agency workers.
-- Increased security safeguards for water systems since the 9/11 terror attacks.

Higher rates still ahead
The costs continue to rise even though residential water usage dropped sharply nationwide in the past three decades amid conservation efforts....MORE

Rabobank Report: China's demand for pork could see corn imports reach 20 million tonnes per year

From the Charlotte Herald:
— /PRNewswire/ -- Rabobank has published a new report looking at China's increasing role in the global pork industry, particularly the rising influence that China's fluctuating imports have in affecting global supply and demand balances and prices.

In the report, titled "The Industrialization of China's Pork Supply Chain," Rabobank's Food & Agribusiness Research and Advisory group says that if current trends in China's pork production and industrialization continue, corn imports could approach 20 million tonnes per year within a five-year time frame.  This is one of the changes in the landscape of China's pork industry that will have major reverberations on world markets.

The pace and success of the industrialization that is rapidly taking place across China's pork sector will be a major determinant of whether China will move back towards self-sufficiency or become an even bigger importer. If China could improve its corn yields and swine feed conversion ratios towards U.S. levels, then goals of self-sufficiency are achievable.  If China does not have to import pork, it would need to import corn, and if current trends in China's pork production and industrialization continue, corn imports would rise significantly....MORE

Read more here:

"Housing Was at the Root of the Great Depression, Too"

 A bit simplistic to say "Housing" and " the root" for it was real estate in general but anyone who was paying attention in the '20's knew what had transpired in the Florida Land Boom and what was happening on the farms prior to the dust bowl, see below.
From Bloomberg:
The U.S. economy slips into recession. The stock market takes a tumble as heady expectations for future growth cool. Interest rates fall as the Federal Reserve quickly trims the discount rate in hope of cushioning the business cycle.

The low interest rate environment sets off a massive wave of home construction and an asset bubble in real estate. By the time the Federal Reserve takes action, the boom is completely out of control. Bank balance sheets and household savings have become dependent on the profound mispricing of real estate and other equity holdings.

The heedless extent of leverage makes the financial system extremely vulnerable to capital losses. As the housing bubble implodes, it pushes the economy into a long, deep recession.
This is the economic story of the last decade -- and of the 1920s.
After a sharp deflationary recession at the end of World War I, the newly created Federal Reserve slashed interest rates, setting off a housing bubble of such an incredible scale that it dwarfs its recent counterpart. When the bubble ended, what seemed to be a calm and contained contraction turned violent, culminating in the macroeconomic implosion of the Great Depression.

Milton Friedman and Anna Schwartz famously pinned the Great Depression on passive tightening of monetary policy, and Fed Chairman Ben Bernanke and other scholars highlighted the role of the gold standard and the collapse of international monetary order. But economists and commentators have largely overlooked the role of housing in the causation and intensification of the Great Depression.

After an encore performance of macroeconomic calamity, this long-standing oversight deserves correction.
A graph of the interest rates of the 1920s shows a U-shape. After curbing the inflationary excesses of World War I with a discount rate of 7 percent at the Federal Reserve Bank of New York, the Fed brought interest rates to 3 percent and below by the middle of the decade.

As expectations of growth returned, the persistence of low interest rates directed investment into real estate. Facilitated by a massive boom in mortgage financing, prices soared. In New York City, the value of real estate rose 80 percent in real terms, with even larger increases for higher-end speculative properties, according to one study.

The magnitude of the 1920s bubble was even more impressive in terms of construction. Housing starts more than doubled, as did the real value of residential construction. That is four times as large as the housing boom of the 2000s.

The culture of the 1920s also emphasized home ownership and home improvement, a grim precursor to sentiment in the last decade. Following a surge of interest, the magazine Better Homes and Gardens was founded in 1922, taking its name from a now-forgotten public policy initiative, the "Better Homes Movement." No fewer than three presidents -- Warren Harding, Calvin Coolidge and Herbert Hoover -- encouraged home ownership and investment through public campaigns....MORE
Here are some snips from Frederick Lewis Allen's Only Yesterday.(1931):
“There was nothing languorous about the atmosphere of tropical Miami during that memorable summer and autumn of 1925. The whole city had become one frenzied real-estate exchange. There were said to be 2,000 real-estate offices and 25,000 agents marketing house-lots or acreage. The shirt-sleeved crowds hurrying to and fro under the widely advertised Florida sun talked of binders and options and water-frontages and hundred thousand-dollar profits; the city fathers had been forced to pass an ordinance forbidding the sale of property in the street, or even the showing of a map, to prevent inordinate traffic congestion....

...“For this amazing boom, which had gradually been gathering headway for several years but had not become sensational until 1924, there were a number of causes. Let us list them categorically....

...A lot in the business center of Miami Beach had sold for $800 in the early days of the development and had resold for $150,000 in 1924. For a strip of land in Palm Beach a New York lawyer had been offered $240,000 some eight or ten years before the boom; in 1923 he finally accepted $800,000 for it; the next year the strip of land was broken up into building lots and disposed of at an aggregate price of $1,500,000; and in 1925 there were those who claimed that its value had risen to $4,000,000. A poor woman who had bought a piece of land near Miami in 1896 for $25 was able to sell it in 1925 for $150,000. Such tales were legion; every visitor to the Gold Coast could pick them up by the dozen; and many if not most of them were quite true-though the profits were largely on paper. No wonder the rush for Florida land justified the current anecdote of a native saying to a visitor, "Want to buy a lot?" and the visitor at once replying, "Sold."

...As a matter of fact, it was due for a good deal more than that. It began obviously to collapse in the spring and summer of 1926. People who held binders and had failed to get rid of them were defaulting right and left on their payments. One man who had sold acreage early in 1925 for twelve dollars an acre, and had cursed himself for his stupidity when it was resold later in the year for seventeen dollars, and then thirty dollars, and finally sixty dollars an acre, was surprised a year or two afterward to find that the entire series of subsequent purchases was in default, that he could not recover the money still due him, and that his only redress was to take his land back again. There were cases in which the land not only came back to the original owner, but came back burdened with taxes and assessments which amounted to more than the cash he had received for it; and furthermore he found his land blighted with a half-completed development.

Just as it began to be clear that a wholesale deflation was inevitable, two hurricanes showed what a Soothing Tropic Wind could do when it got a running start from the West Indies.
No malevolent Providence bent upon the teaching of humility could have struck with a more precise aim than the second and worst of these Florida hurricanes. It concentrated upon the exact region where the boom had been noisiest and most hysterical-the region about Miami. Hitting the Gold Coast early in the morning of September 18, 1926, it piled the waters of Biscayne Bay into the lovely Venetian developments, deposited a five-masted steel schooner high in the street at Coral Gables, tossed big steam yachts upon the avenues of Miami, picked up trees, lumber, pipes, tiles, debris, and even small automobiles and sent them crashing into the houses, ripped the roofs off thousands of jerry-built cottages and villas, almost wiped out the town of Moore Haven on Lake Okeechobee, and left behind it some four hundred dead, sixty-three hundred injured, and fifty thousand homeless.

...By the middle of 1930, after the general business depression had set in, no less than twenty-six Florida cities had gone into default of principal or interest on their bonds, the heaviest defaults being those of West Palm Beach, Miami, Sanford, and Lake Worth; and even Miami, which had a minor issue of bonds maturing in August, 1930, confessed its inability to redeem them and asked the bondholders for an extension.
The cheerful custom of incorporating real-estate developments as "cities" and financing the construction of all manner of improvements with "tax-free municipal bonds," as well as the custom on the part of development corporations of issuing real-estate bonds secured by new structures located in the boom territory, were showing weaknesses unimagined by the inspired dreamers of 1925.

...“The final phase of the real-estate boom of the nineteen-twenties centered in the cities themselves. To picture what happened to the American skyline during those years, compare a 1920 airplane view of almost any large city with one taken in 1930. There is scarcely a city which does not show a bright new cluster of skyscrapers at its center. The tower building mania reached its climax in New York-since towers in the metropolis are a potent advertisement-and particularly in the Grand Central district of New York. Here the building boom attained immense proportions, coming to its peak of intensity in 1928. New pinnacles shot into the air forty stories, fifty stories, and more; between 1918 and 1930 the amount of space available for office use in large modern buildings in that district was multiplied approximately by ten. In a photograph of uptown New York taken from the neighborhood of the East River early in 1931, the twenty most conspicuous structures were all products of the Post-war Decade. The tallest two of all, to be sure, were not completed until after the panic of 1929; by the time the splendid shining tower of the Empire State Building stood clear of scaffolding there were apple salesmen shivering on the curbstone below. Yet it was none the less a monument to the abounding confidence of the days in which it was conceived.

The confidence had been excessive. Skyscrapers had been overproduced. In the spring of 1931 it was reliably stated that some 17 per cent of the space in the big office buildings of the Grand Central district, and some 40 per cent of that in the big office buildings of the Plaza district farther uptown, were not bringing in a return; owners of new skyscrapers were inveigling business concerns into occupying vacant floors by offering them space rent-free for a period or by assuming their leases in other buildings; and financiers were shaking their heads over the precarious condition of many realty investments in New York. The metropolis, too, had a future, but speculative enthusiasm had carried it upward a little too fast.”

Here's the Wikipedia entry on the Great Florida Land Boom.

Here's how they marketed:

Florida Land Rush

The Great Miami Hurricane was referenced in this release from the NOAA:
Increased Hurricane Losses Due to More People, Wealth Along Coastlines, Not Stronger Storms, New Study Says
...The results illustrate the effects of the tremendous pace of growth in vulnerable hurricane areas. If the 1926 Great Miami Hurricane were to hit today, the study estimated it would cause the largest losses at $140 billion to $157 billion, with Hurricane Katrina second on the list at $81 billion.

Saturday, September 29, 2012

Startup Salaries and Equity Shares

From the Upfront blog:
...Today, Wealthfront is launching a Startup Compensation Tool to help our clients with that part of their financial lives: their careers. The Tool offers data on the tech startup job market, including cash compensation and equity packages for a range of jobs, so that you can maximize the return on your career. You can embed the Tool by using the toolbar at the bottom.


We’ve licensed data typically used by human resources departments and made it available for free – one more example of how Wealthfront is democratizing access to sophisticated financial advice and information....

HT: Chart Porn

Warren Buffet: The King of Leveraged Low Beta (BRK.B)

Very smart analysis.
From The Economist's Buttonwood blog:

The secrets of Buffett’s success
Beating the market with beta

IF INVESTORS had access to a time machine and could take themselves back to 1976, which stock should they buy? For Americans, the answer is clear: the best risk-adjusted return came not from a technology stock, but from Berkshire Hathaway, the conglomerate run by Warren Buffett. Berkshire also has a better record than all the mutual funds that have survived over that long period.

Some academics have discounted Mr Buffett as a statistical outlier. Others have simply stood in awe of his stock-picking skills, which they view as unrepeatable. But a new paper* from researchers at New York University and AQR Capital Management, an investment manager, seems to have identified the main factors that have driven the extraordinary record of the sage of Omaha.

Understanding the success of Mr Buffett requires a brief detour into investment theory. Academics view stocks in terms of their sensitivity to market movements, or “beta”. Stocks that move more violently than the market (rising 10%, for instance, when the index increases by 5%) are described as having “high beta”, whereas stocks that move less violently are considered “low beta”. The model suggests that investors demand a higher return for owning more volatile—and thus higher-risk—stocks.

The problem with the model is that, over the long run, reality has turned out to be different. Low-beta stocks have performed better, on a risk-adjusted basis, than their high-beta counterparts. As a related paper illustrates, it should in theory be possible to exploit this anomaly by buying low-beta stocks and enhancing their return by borrowing money (leveraging the portfolio, in the jargon).

But this anomaly may exist only because most investors cannot, or will not, use such a strategy. Pension schemes and mutual funds are constrained from borrowing money. So they take the alternative approach to juicing up their portfolios: buying high-beta stocks. As a result, the average mutual-fund portfolio is more volatile than the market. And the effect of ignoring low-beta stocks is that they become underpriced.
Mr Buffett has been able to exploit this anomaly. He is well-known for buying shares in high-quality companies when they are temporarily down on their luck (Coca-Cola in the 1980s after the New Coke debacle and General Electric during the financial crisis in 2008). “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he once said. He has also steered largely clear of more volatile sectors, such as technology, where he cannot be sure that a company has a sustainable advantage.

Without leverage, however, Mr Buffett’s returns would have been unspectacular. The researchers estimate that Berkshire, on average, leveraged its capital by 60%, significantly boosting the company’s return. Better still, the firm has been able to borrow at a low cost; its debt was AAA-rated from 1989 to 2009....MORE
HT: Abnormal Returns

The article doesn't link to the papers, here's what a quick searc turns up. Via the NYU Stern School:
 Betting Against Beta
And from Yale:
Buffett's Alpha

US Farmers Scramble to Buy Brazil's Farmland Ahead of Legislation

From Al Jazeera:

Foreigners are buying up prime agricultural land, but proposed legislation could curtail the booming trade
Phil Corzine, a fourth-generation farmer from Illinois, is living the American dream, but it's happening on dusty soy farms in the interior of Brazil, rather than the cornfields of Iowa.
Corzine, 53, owns or manages seven farms in Goias and Tocantins states in the agricultural heartland of Brazil.

He started farming in Brazil in 2004, and now his company, South American Soy, has 100 foreign investors from the US, is worth about $6m, and has started to turn a profit the past two years.
"I could have never dreamed I would be down here managing a farm in Brazil. It’s quite a leap from where I started," Corzine told Al Jazeera, while watching tractors off in the distance churn up soil preparing the land for a soybean season.

For Corzine, the difficulties of navigating Brazil's bureaucracy and the poor infrastructure are offset by cheap and plentiful farmland that is a fraction of the cost of the US.

A productive, sought-after piece of farmland in the US sells between $12,000 and $15,000 an acre, Corzine said, while a comparable piece of land in Brazil costs between $500 and $1,500 per acre.

"I can buy a lot more land down here with a lot less money," Corzine said. "For example, a 5,000-acre track of farm pasture with sufficient rainfall for soybeans is hard to find for sale in the US right now. And that is what I have down here in Brazil, and there is a lot more of it available here. So it’s price and availability that drives what we are doing."

Foreign sales questioned
With soy prices soaring and a lingering drought in the US, farmers like Corzine are looking at places like Brazil to add new land. But they are facing new challenges, as Brazil debates restricting the amount of farmland foreigners can purchase.

In August 2010, Brazil’s attorney general issued a re-interpretation of a 1971 law - which was never enforced - that would limit sales of farmland to foreigners to "50 modules" - roughly equal to 5,000 hectares or 12,000 acres.

The decision called for strict enforcement of the law, saying foreigners could not own more than 25 per cent of any municipality. No more than 10 per cent of a municipality could be owned by foreigners of the same nationality, and the same rules should also be applied to Brazilian agricultural companies with more than 50 per cent foreign capital....MUCH MORE (including video)
From our September 2011 post "How They Harvest Soybeans in Brazil":
Northern Brazil: (AP Photo/Andre Penner)

Western Brazil:

More Mato Grosso:

Here the corn planters are following immediately behind the combines.
No till farming on steroids.

It appears the sleeping giant has awakened.
Brazil is now second only to the United States in soybean production.
They are third in corn production but distantly trailing the U.S. and China,

"Recapping the “The Jetsons”: Episode 01 – Rosey the Robot"

From Smithsonian Magazine's Paleofuture blog:
Jane Jetson working out her strained fingers in the premiere episode of “The Jetsons” (1962)

This is the first in a 24-part series looking at every episode of “The Jetsons” TV show from the original 1962-63 season.

Episode 01: “Rosey the Robot,” originally aired: September 23, 1962
If you flipped through the Cedar Rapids Gazette on September 23, 1962 the news looked fairly typical for the early 1960s.

There was a short item about a Gandhi memorial being planned in London. There was an article about overcrowded schools and the need for new junior high schools, since the baby boom had inundated the schools and enrollment in the Cedar Rapids public school system was increasing by about 1,000 students each year.

Newspaper ad for color TV in the September 23, 1963 Cedar Rapids Gazette

The Gazette also had an editorial about “lame-brain bigots” in Georgia who were burning down black churches, and a column about the fact that one out of every 38 children born in Linn County in 1961 was born out of wedlock. The paper had recipes for poached eggs and peas with lemon butter sauce, as well as ads for the Smulekoff’s furniture store imploring you to buy a brand new color TV—with prices starting as low as $495 (about $3,500 adjusted for inflation).

But tucked away within the TV listings for that week was the mention of a show that would radically shape the way Americans would talk about the future for decades to come. The newspaper had an article about the arrival of color on ABC’s Cedar Rapids affiliate, KCRG channel 9. NBC had been “carrying the color ball almost singlehandedly” for years in Cedar Rapids but starting that evening, ABC would join the color fray with a new show called “The Jetsons.” At 6:30 pm that night “The Jetsons” would debut against “Dennis the Menace” on channel 2, “Car 54 Where Are You?” on channel 6, and the season premiere of NBC’s immensely popular “Walt Disney’s Wonderful World of Color” on channels 7 and 13.

Of course, it wasn’t just the people of Cedar Rapids who were tuning in on Sunday to watch a middle class family stumble through modern life in the year 2062. People all over the United States got their first taste of the Jetsons’ vision for tomorrow on that autumn evening.

Push-Button Living
There’s perhaps nothing more Jetsonian than the push-button. Jane Jetson pushes buttons to make dinner, to clean the home, and even to wake up her husband George. The running gag throughout the entire series is that the only thing George does all day at work (all three hours of it) is push a button.
From the very first scene of the first episode we learn precisely how difficult the people of the future have it. Jane Jetson is standing in front of a flat panel “3D” TV and conducting a strenuous workout — of her fingers. Of course, we’re meant to laugh at the fact that people of the year 2062 are living in the lap of luxury needing only push a button to accomplish what used to take hours, but it was also a subtle jab to those viewers at home who may complain about how difficult life is when all the modern conveniences of 1962 were at their disposal.

It’s important to recall that some scholars have argued that modern appliances didn’t actually save nearly as much time as originally envisioned. That’s because these gadgets impose higher standards of household efficiency and cleanliness—we take it for granted that our closets will always be filled with clean clothes; that our yards should boast perfectly maintained lawns and gardens; that our shiny kitchen appliances will make it possible to enjoy diverse and tasty meals. Many people today question this same line of thinking about technological progress, arguing that computers and smartphones have made us more productive, but that the standards for how much one person needs to accomplish have simply risen with it. Not to mention the “always available” culture that our devices have cultivated.

Two screenshots from The Jetsons showing Jane Jetson doing housework

While we often associate leisurely push-button living with the Jetsons, longtime readers of Paleofuture will know that this futuristic cartoon family didn’t invent the concept. In December 1950 an Associated Press article ran in newspapers across the country that gave readers a peek at the year 2000. Experts across all kinds of fields were consulted and the article took it as a given that the American home of the future would be much more automated than it was mid-century:
People will live in houses so automatic that push-buttons will be replaced by fingertip and even voice controls. Some people today can push a button to close a window – another to start coffee in the kitchen. Tomorrow such chores will be done by the warmth of your fingertip, as elevators are summoned now in some of the newest office buildings – or by a mere whisper in the intercom phone.
But, as is often the case in the Jetsons’ world, the gadgets of tomorrow in the premiere episode don’t always work as they were intended. Gadget malfunction is rampant and a source of financial stress in the Jetson home, recalling an article in the Chicago Tribune Sunday Magazine just a few years earlier.
Writing in the September 13, 1959 Chicago Tribune, Evelyn Zemke projects herself into the futuristic world of the year 2000. The “pizza for breakfast?” bit is nearly identical to what we see play out in the Jetson household during the premiere episode.
“Call a service man,” my husband always says when one of our appliances refuses to function.
Sounds simple enough, doesn’t it? Well, it is. At the very worst, probably only the washer, dryer, dishwasher, and TV would give up one day. But what about the housewife of the future – say of the year 2000, when the electronic era will be at its peak?
I can just picture myself in her place - ready to start another care-free day sitting around reading a science fiction thriller while the gadgets do all the work. Already the electronic brain in my kitchen is busy preparing and serving breakfast.
My husband, arriving at the table exclaims, “Pizza? For breakfast?”
“I pushed the button labeled BACON AND EGGS, but-”
“There’s a wire crossed somewhere. Call a service man.”
After doing so, I dispose of the garbage in the electronic disposal unit and pile the dishes in the ultra-sonic dishwasher. Then, after pushing the button which starts the electronic vacuum cleaner, I go out to the garage to set the timer for our radar controled lawnmower.
“Ki-yi-yi!” Sounds like Fifi, our pet poodle.
My daughter, standing in the doorway, calls, “Mom! The cleaner is vacuuming Fifi!”
Judy and her mother Jane Jetson in their home in the premiere episode “Rosey the Robot”

Baby Boom
The premiere episode also shows viewers an interaction with Jane and her daughter Judy that hints at what would later be called the generation gap. Many of the same fears parents have here in the 21st century about their kids “growing up too fast” were splashed across popular media of the 1960s. The August 10, 1962 issue of Life magazine ran the story “Boys and Girls Too Old Too Soon: America’s Subteens Rushing Toward Trouble.” The story included a provocative photo essay showing 12 and 13-year-olds going on dates and engaging in “heavy necking.”...MUCH MORE

Friday, September 28, 2012

Natural Gas Ends at Front-futures 2012 High, Up 19% for September

The crew that Reuters has on the natural gas beat is very, very good.
From Reuters:
UPDATE 3-US natgas futures gain for 4th day, front posts 2012 high

Sat Sep 29, 2012 1:51am IST
* Cool extended weather outlook backs recent gains
    * Above average nuclear plant outages also lend support
    * Front-month futures gain nearly 19 pct in Sept

 (Releads, adds analyst quote, rig data, production data,
updates prices)
    By Joe Silha
    NEW YORK, Sept 28 (Reuters) - U.S. natural gas futures ended
higher on Friday for a fourth straight session, with the
front-month contract notching a 2012 high on cooler weather
forecasts for next month that should boost heating demand.
    After early pressure from profit taking, prices climbed late
even though data from the U.S. Energy Information Administration
that showed gas output rose in July in the lower 48 states.
    While extended forecasts show cooler weather slipping into
the Midwest and possibly the East in early or mid-October, many
traders and analysts remained skeptical of the upside with
storage and production still at or near record highs.
    "When you look at the fundamentals, it doesn't seem like
these prices will last. There are below average temperatures
expected by the middle of October which suggest more heating
load, but it's not anywhere near peak winter demand," said
Summit Energy analyst Eric Bickel in Kentucky.
    Front-month gas futures on the New York Mercantile
Exchange ended up 2.3 cents at $3.32 per million British thermal
units after climbing late to a 2012 high of $3.33.
    The front month is up 17 percent in the last four sessions.
It would be the biggest four-day gain in more than three months,
 but much of the increase occurred on Wednesday, when November
took over front position with a 20-cent premium to the expiring
October contract.
    For September, the nearby contract posted an 18.6 percent
rise, the biggest monthly gain in three years.      
    A third-quarter price gain of almost 18 percent was decent
but well short of the 33 percent spike in the previous quarter...MORE 

Weekend Read: "The New Tycoons: Inside The Trillion Dollar Private Equity Industry That Owns Everything'

Bloomberg excerpts the book from Bloomberg press:

Kravis Shared DNA With Roberts Makes Buyout Men Unique
Ten thousand bucks.

Henry Kravis and his cousin George Roberts each scribbled out a check in that amount, smaller companions to the $100,000 draft their more established colleague, former boss and partner Jerome Kohlberg, had written.

That formed the entirety of the startup capital for what became Kohlberg Kravis Roberts & Co., known then unofficially, and now officially, as KKR. None of the three men would ever need to put any more money in. The two cousins would become billionaires several times over. Kohlberg would go on to create his own firm, Kohlberg & Co., based in suburban Mt. Kisco, New York, the following decade after disagreeing with the cousins on the strategy of the firm.

Today, the original bank documents hang framed near Kravis’s corner office on the 42nd floor of KKR (KKR)’s headquarters at 9 W. 57th St. in Manhattan. A gift from JPMorgan Chase & Co.’s Jimmy Lee, the matting features logos of companies KKR has bought in the intervening years, from Safeway Inc. (SWY) to Motel 6. Since Lee tracked down the documents, KKR has gone on to buy everything from Del Monte Foods Co. to Oriental Brewery Co. At three different points, it’s held the title of pulling off the biggest leveraged buyout in history.

LBO ‘Barbarians’
By dint of one of those deals, the $30 billion purchase of RJR Nabisco in 1989, KKR is the most famous of all the leveraged-buyout firms, at least by the measure of asking a random passerby or a relative over Thanksgiving dinner. The extraordinary details of that hotly contested deal gave rise to “Barbarians at the Gate,” one of the most compelling business stories of all time. The book, by Bryan Burrough and John Helyar, captured vividly the back-room dealings, egos and gamesmanship that people on Wall Street recognized as being all too accurate and everyone else reacted to with some combination of admiration and horror.

KKR’s New York headquarters are majestic. Security is tight, with a guard posted behind glass before a visitor can pull open the wooden doors that open onto a view of Central Park. The carpeted halls are lined with art from Kravis’s own collection, which tends toward the modern. His wife, Marie-Josée Kravis, curated what’s on display around KKR headquarters, picking from the Kravises’ wide-ranging art collection.
Creepy Clowns
While the corridors have mostly understated modern art, some of the meeting rooms feature more provocative pieces. There’s a small meeting room down the hall from Kravis’s office with two massive Cindy Sherman photographs hanging on opposite walls, from a series the artist did featuring what can only be described as creepy clowns. Vestiges of the earliest days are sprinkled throughout the offices of KKR, beyond the bank paperwork framed in the anteroom to Kravis’s office. In the small library adjacent to his office, where he holds most meetings, there’s a picture of Joe and Rose’s, the restaurant in midtown Manhattan where Kravis and Roberts had dinner right after they left Bear Stearns Cos. The site of the restaurant is now a Dress Barn.

Any conversation with someone who works or has worked at the firm, including the cousins, makes it clear that Henry and George together are running the show. There are no other major investment firms today beyond theirs whose figurative DNA is linked to actual shared DNA....MORE

Traders Liking Facebook Inc Call Options (FB)

I'm thinking it's not Monday's big meeting between Russia's Prime Minister Dmitry Medvedev and "Princely"* Zukerberg
The stock closed up 6.59% at $21.66 and is up a couple more cents in early after-hours action.
From Insider Monkey:
Facebook Inc (NASDAQ:FB) – Shares in the largest social networking company are bucking the trend today, trading up 6.7% on the day at $21.68 as of 11:50 a.m. in New York. Trading traffic in weekly options on Facebook Inc (NASDAQ:FB) this morning suggests some traders are positioning for shares in the name to extend gains in the near term. The company yesterday launched a new gift-giving feature that allows users to buy items for friends without exiting the site. Traders anticipating continued gains the share price next week snapped up more than 2,000 calls at the Oct. 05 ’12 $21 strike for an average premium of $0.83 apiece this morning....MORE
*That's his mom's nickname for Zuck, awwwwww.

Why the Minneapolis Fed Head Changed His Mind and Backed QE3

As Brad DeLong said in his link to FT Alphaville's* post:
The Kocherlakota Shift at the Fed Is a Big Deal...
From Real Time Economics:

Another Reason Kocherlakota Changed His Mind
 In articles today and last week, the Journal documented the remarkable transformation of Minneapolis Fed President Narayana Kocherlakota from a policy hawk against the central bank’s easy-money policies, to policy dove, who is strongly supportive. As today’s article explained, Federal Reserve Chairman Ben Bernanke played a role in Mr. Kocherlakota’s changing views.

There’s another economist who played a role in shaping Mr. Kocherlakota’s views, and you probably haven’t heard of this one. He is a 38-year-old Argentine professor at the Massachusetts Institute of Technology named Ivan Werning.

Mr. Kocherlakota cited a paper by Mr. Werning in his speech last week in which he called for strong new commitments by the Fed to keep interest rates low until unemployment has dropped substantially. In an interview, Mr. Kocherlakota said Mr. Werning is a “brilliant economist” and that this paper is “really important.”...MORE
*Alphaville has been on top of Kocherlakota's importance for a while now:

Sept. 20
The Kocherlakota Rule
Sept. 2
Jedi Kocherlakota on the ways of the FOMC force
Aug. 16 
Stop the market – the Fed wants to get off
Aug 17 
A telling speech

Zuckerberg and Medvedev to Meet Oct. 1 (FB)

Is it just me or does this seem like an odd pairing?
From the Moscow Times:
Facebook founder and CEO Mark Zuckerberg will meet with Prime Minister Dmitry Medvedev on Monday at an undisclosed location to discuss cooperation on startups at the Skolkovo innovation hub, Medvedev's spokeswoman Natalya Timakova told Interfax on Friday.

It was first reported Tuesday that preparations for such a meeting were being made.
Timakova said Zuckerberg and the prime minister, a self-professed technology buff, would discuss cooperation in the areas of technology and startup companies at Skolkovo....MORE

Natural Gas Rig Count DROPS 19, Futures Hit YTD High

The futures were trading up 2.3 cents, $3.32 last.
From Oilk & Gas Journal:
 The US drilling rig count fell 11 units during the week ended Sept. 28, with the total number of rotary rigs in the US reaching 1,848, reported Baker Hughes Inc. This compares with 1,990 rigs working in the comparable week last year.

Land rigs fell 6 units to 1,781. Rigs drilling in inland waters dropped 2 units to 17 rigs. There were 50 rigs drilling offshore, 3 fewer than a week ago. Of these rigs, 48 were drilling in the Gulf of Mexico, 2 fewer than reported last week.

Of the recent week’s total, rigs drilling for oil reached 1,410, an increase of 8 units from a week ago. Rigs targeting gas fell 19 units from last week to reach 435 rigs. Three active rotaries were unclassified, unchanged from a week ago....MORE
We're putting together a  pretty big post on the outlook for the heating season, more next week.

UBS: New Coal Power Plants Will Save the European Emissions Tradng Scheme.

Over the years we've pointed out, with an eye to making a buck or two, some of the perversities, absurdities and anomalies of carbon trading. One of my favorites is the fact that as it gets colder the price of carbon rises.
Think about it.

Here's a variation from Luboš Motl's The Reference Frame blog.
Mr. Motl is a theoretical physicist who in the late '90's proposed a type of superstring theory called Matrix String Theory. This got him enough academic cred that Harvard hired him, first as a Harvard Fellow and later as an Assistant Professor.

Then something happened and he left Harvard and headed back to the birthplace of Pilsner lager.
The reason for his departure in 2007 was very mysterious although I've narrowed it down to two possibilities:

1) During her 2007 installation as Harvard's 28th President, Drew Faust spoke on the topic "Unleashing our most ambitious imaginings" and, fueled by his hometown elixir, Prof. Motl was inspired by her subject and made a pass at the incoming Prez.
2) He was recruited by the CIA to sabotage the Iranian nuclear program, which personal act-of-war violated some obscure provision of Harvard's Faculty Code of Conduct. ("The Faculty of Arts and Sciences seeks to maintain a learning and work environment free of private acts of war..."}

Anywho, here's The Reference Frame:
An hour ago, I saw a fascinating article on Patria.CZ, a Czech server for investors, which revealed a highly paradoxical, nearly comical plan.

Analysts at UBS are predicting that by 2015, energy giants such as E.ON and RWE will build lots of new coal power plants – in fact, their capacity will be 6 times greater than the capacity of previously preferred gas-based alternatives. That may send the price of carbon permits up by 73% by 2013. Note that the U.N.-based carbon indulgences' price, CER, dropped by 80 percent in the most recent year....MORE
And here's Bloomberg last week:

Coal Era Beckons for Europe as Carbon Giveaway Finishes

Coal Era Beckons for EU as Carbon Giveaway Ends
Power producers from EON AG to RWE AG will open six times more coal-burning plants than gas-fed units by 2015, UBS AG said in a Sept. 5 research note. Photographer: Hannelore Foerster/Bloomberg
European utilities are poised to add more coal-fired power capacity than natural gas in the next four years, boosting emissions just as the era of free carbon permits ends. 

Power producers from EON AG to RWE AG (RWE) will open six times more coal-burning plants than gas-fed units by 2015, UBS AG said in a Sept. 5 research note. Profits at coal-fired power stations may more than double by then, according to a Goldman Sachs Group Inc. report published on Sept. 13. 
The new stations, replacing atomic and aging fossil fuel- based plants, will boost demand for emission permits because coal-fired generators need twice as many credits as gas users under climate protection rules. The price of UN credits may rebound 73 percent by the end of next year from an all-time low on Sept. 18, according to the Euro Carbon Macro Fund in Luxembourg, which manages about $32 million....MORE

For more on the scams frauds and plain silliness of the ETS use the 'Search Blog' box with the keywords:
China HFC23 
Gazprom leaky pipes
ArcelorMittal windfall
or simply, Europe carbon.

UBS: "U.S.A. Wins In Beer Affordability Index"

Knowing there are some who question whether the American product should even be called beer and aware that, with this being the start of the second weekend of Oktoberfest, I am probably calling the Bavarian version of a Fatwah down on myself, here's Reason's Hit&Run blog:

UBS Bank gets set for Oktoberfest with a chart of beer affordability around the world. Using median income figures and prices for a pint, the chart calculates how long the Average Jose has to work in various countries to buy some suds. Raise your glass and chant "U.S.A.! U.S.A.!"

Cost of a beer in hours worked.

The Economist, where this chart appears, never seemed like a magazine for inexpensive beer drinkers. Nevertheless, they may be overstating the price-per-hour slightly....MUCH MORE
No fatwahs here (although the guy on the right is a bit chubby):

Young men and women toast after getting their first beer on the opening day of Oktoberfest in Munich, on September 22, 2012. (Reuters/Kai Pfaffenbach)

Prospect List: "Africa May Have Up to 200 Hidden Billionaires, Mobius Says"

One example of a billionaire hiding in plain sight is South Africa's Minister for Human Settlements.
The minister, Mr. Tokyo Sexwale, through his Mvelaphanda Group is a major player in S.A. mining and energy and through their subsidiary Mvelaphanda Resources has interests in Russia and J.V.'s with the Kazakhs. There is also a tie-up with Robert Mugabe's favorite hedge fund, Och-Ziff Capital Management.

Now be a rainmaker and go out and find the other 199.

From Bloomberg via the San Francisco Chronicle:
Africa may have as many as 200 “hidden” billionaires operating in the unofficial economy who will seek to legitimize their wealth in future, investor Mark Mobius said.

“There is a lot of hidden wealth,” Mobius, who oversees more than $40 billion as executive chairman of Templeton Emerging Markets Group, said yesterday in London. “You hear about Dangote but there are maybe 200 with the same kind of resources that we do not see. The black economy is very big.”

Aliko Dangote, Africa’s richest man, is benefiting from the continent’s economic growth, adding $3 billion to his wealth this year, taking him to $13 billion, according to the Bloomberg Billionaires Index. Africa’s gross domestic product is forecast to expand an average 6 percent a year for the next five years if Europe, the largest trading partner, records 0 percent to 2 percent annual growth, Moody’s Investors Service said today.
Dangote controls Dangote Group, one of the continent’s largest conglomerates with publicly traded businesses in cement, sugar, flour and salt that make up about a third of the Nigerian Stock Exchange’s market value. Many of the continent’s richest individuals don’t have publicly traded assets, Mobius said.
“What we see is that these very wealthy people will begin to want to legitimize their wealth by a listing, by putting these assets together, forming a company, listing it,” Mobius told reporters yesterday. “Many of these people escaped to London or other countries in order to preserve their wealth. But it is going to get more and more difficult because of anti- bribery and all the rest that is going on in the U.S. and other parts of the world.”

A lot of “hidden wealth” is concentrated in mining, Mobius said. Dangote said in May he “needs” to invest $7.5 billion in industries including mining in the next four years....MORE

Hard Landing: "One-third of Taiwan firms in China face closure"

From the China Post:
Taiwan's intelligence chief yesterday warned that one in every three Taiwanese companies based in China are facing closure this year due to rapidly decreasing profits, a  media reports said. 

Another 30 percent of Taiwanese firms are also “struggling” in China, Tsai Der-sheng, head of the National Security Bureau, told a parliamentary session without giving details, the United Evening News reported.
“There is both risk and opportunity to invest in China. However, we can not deny the benefits of economic exchanges between Taiwan and China despite the growing risks,” he was quoted by Taiwanese news radio BCC as saying.

The bureau's officials were not immediately available for comment.

Taiwanese firms are facing rising labor costs in China since 2008 under new rules requiring fewer working hours and higher pay, according to a report by the bureau cited by the media....MORE

Thursday, September 27, 2012

I Dream of Gini: "What Is the Relationship Between Income Inequality and Revolution?"

From Freakonomics:
A pair of interesting-looking papers, particularly interesting when paired, about income inequality and its relationship (or not?) to revolutions. From “Russian Inequality on the Eve of Revolution,” by Steven Nafziger and Peter H. Lindert:
Just how unequal were the incomes of different classes of Russians on
the eve of Revolution, relative to other countries, to Russia’s earlier history, and to Russia’s income distribution today? Careful weighing of an eclectic data set provides provisional answers.    We provide detailed income estimates for economic and social classes in each of the 50 provinces of European Russia.  In 1904, on the eve of military defeat and the 1905 Revolution, Russian income inequality was middling by the standards of that era, and less severe than inequality has become today in such countries as China, the United States, and Russia itself.  We also note how the interplay of some distinctive fiscal and relative-price features of Imperial Russia might have shaped the now-revealed level of inequality.
And from “American Incomes 1774-1860,” by Lindert and Jeffrey G. Williamson:

Building what we call social tables, this paper quantifies the level and inequality of American incomes from 1774 to 1860.  In 1774 the American colonies had average incomes exceeding those of the Mother Country, even when slave households are included in the aggregate. Between 1774 and 1790, this income advantage over Britain was lost, due to the severe dislocation caused by the fight for Independence. Then between 1790 and 1860 US income per capita grew even faster than previous scholars have estimated....MORE

Atlanta Fed: "How Big Is the Output Gap?..."

I know the neo-Keynesians are all up in that as the young  people say (in a slightly different context) but I've recently started thinking that the number is pretty much meaningless.
From the Federal reserve bank of Atlanta's Macroblog:
Opinions vary widely about how much slack there is in the economy these days. Some say a lot—some say not so much.

Last month, we reached out to members of our Business Inflation Expectations (BIE) panel for their take on the issue. The panel indicated they had more pricing power in August than they did last October. OK, that doesn't exactly gauge the amount of slack businesses think they have, but it does suggest that, however much slack there is, it's been shrinking.

Another detail revealed by our August inquiry was that retailers think they have more pricing power compared with manufacturers—a pretty good sign the latter is experiencing more slack than the former.
In this month's BIE survey we went fishing in the same murky waters, but this time we took a more direct approach. We asked our panel to provide a percentage estimate of how far their sales levels are above/below "normal." Here's what we found: On a gross domestic product (GDP)–weighted basis, the panel estimates that current sales are about 7.5 percent below normal. That's more slack than the conventional estimates, like the Congressional Budget Office's (CBO) measure of the GDP gap, which puts the economy about 6 percent under its potential.

But perhaps a more interesting observation from our September survey is how widely current performance varies by sector and size within our panel. Retailers, for example, say their current sales are a little less than 2 percent below normal. And firms in the leisure/hospitality and the transportation/warehousing sectors—sectors where growth has been particularly robust in recent years—say they are operating at, or just a shade above, normal levels.

Compare these estimates with those from durable goods manufacturers, which report that their current sales levels are nearly 12 percent below normal, and finance and insurance companies, which say they are almost 17 percent below normal. And construction firms? Well, best not even ask them....MORE
If by "normal" the respondents are referring to the 2005-2007 bubble days I should hope things are down.
An economy built on 125% LTV mortgages, San Francisco realtors knocking down $600K or any of the other effects of the loose-as-a-goose lending and monetary policies of that long-gone era is, simply put, delusional.

If capacity utilization rates use capacity designed to feed the bubble you have an imaginary number as your denominator.
Besides not being sustainable, economic fantasy can be downright dangerous.

"Is the Great Mirror Stagnation over?"

From Marginal Revolution:
“There hasn’t been much innovation with the mirror,” said Ming-Zher Poh, who, as a graduate student at the Massachusetts Institute of Technology, developed a bio-sensing system called the Medical Mirror.
Introduced in 2010, the Medical Mirror uses a camera to measure a person’s pulse rate based on slight variations in the brightness of the face as blood flows each time the heart pumps. A two-way mirror creates a reflection while keeping visible the pulse reading on a computer monitor behind the mirror’s surface.
And this:
Japanese electronics conglomerate Panasonic Corp. initially considered targeting household consumers with its digital mirror—a flat-screen display powered by a computer behind a two-way mirror—but the company decided to target business customers instead because of the price....MORE
Here's a mirror installed at the Redwood Library and Atheneum Newport RI earlier this year:

The mirror placed above the pediment above the original entrance to the 
Redwood Library reveals the institution's role as a mirror of the world....

Attention Prognosticators: "Italian Prosecutors Target Scientists Who Failed To Predict the Future"

We've been following this story for the last couple years, links below.
From the Telegraph:
'Scientists should get four years for failing to predict L'Aquila earthquake'
Prosecutors in Italy have called for a group of scientists to be sent to prison for four years each for allegedly failing to give adequate warning of the L'Aquila earthquake in 2009 that killed 309 people and injured hundreds more. 
The trial of the seven experts has proved immensely controversial, with the international scientific community saying that earthquakes cannot be predicted and that the experts are being made scapegoats for an unforeseen natural disaster.
But critics say that by downplaying the risks, they consigned hundreds of people to their deaths when the quake struck at 3.32am on April 6, 2009, reducing centuries-old buildings as well as modern apartment blocks to dust.
In calling for the jail sentences, prosecutors accused the experts of offering "an incomplete, inept, unsuitable and criminally mistaken analysis" of the dozens of tremors which rattled the mountain city in the days before the massive quake....MORE
Sounds like a few analysts I've known.
HT: Reason's Hit&Run blog.

Attention Prognosticators: "Italian scientists charged with manslaughter for failing to predict earthquake"
Attention Market Pontificators: Witches to be Fined, Jailed if Predictions Don't Pan Out
Market Prognosticators Rejoice! Federal Judge Strikes Down Anti-Fortunetelling Law

John Hussman: Current Market Gains are Destroying Future Expected Returns

Expected future returns.
One of our favorite topics, along with agricultural commodities and production, materials science, really, really fast computers, advanced manufacturing technology, energy and Dogbert's schemes for world domination.

From the Hussman Funds:
Imagine there’s a $100 bill taped to the far corner of the room, near the ceiling and way above your head. You will receive that $100 bill ten years from today. Suppose that you reach your hand out directly in front of you and pay $46.31 today for that future $100. Assuming no credit risk, you have now bargained for an 8% annual return. 

Now reach higher, about eye-level, and offer $67.56 for that future $100. You have now bargained for a 4% annual return.

Now reach far above your head, jump as high as you can, and offer $84.49 today for $100 ten years from today. You are now an investor in 10-year Treasury securities, which presently yield 1.7% annually.
Every security on Earth works like this. The higher the price you pay for a given set of expected future cash flows, the lower your prospective future rate of return. Higher prices essentially take from future prospective returns and add to past returns. Conversely, lower prices take from past returns and add to future prospective returns. 

At the top of your jump, as you hover like Michael Jordan in mid-air, let’s ask all of the other investors who already hold Treasury securities whether they are “wealthier” because of the elevated price you are paying. At first glance, the obvious answer seems to be yes: each of those investors, individually, could sell their Treasury bond at a price that would enable them to command a greater amount of current output than they could before.

But if you think carefully, you’ll realize that regardless of today's price, someone will have to hold that security until it delivers $100 a decade from now - no more, no less. So the price change itself does not create aggregate wealth. Unless something happens to materially change that future cash flow, it is not at all clear that elevating current prices makes investors - in aggregate - any wealthier in terms of consumption. While any individual investor could sell the bond in order to consume today (abandoning the reason they had saved in the first place, which was to provide for their future consumption a decade from now), some other investor now has to defer consumption to purchase the bond and hold it to maturity. 

An increase in price alters the profile of investment returns by turning prospective future returns into past returns (and vice versa when prices fall), but economic wealth is only created by the generation of additional goods and services (and cash flows from an investment standpoint) that actually emerge in the future. Security prices are a place-holder until the expected future goods, services and cash flows actually arrive. Raising the price that investors pay today for in return for some fixed payment in the future does not create wealth in aggregate....MORE

Australia, Spain Grabbing Private Pensions

A trend appears to be emerging.

Back in 2008 Argentina did the grab-n-go and in 2010 it was Hungary.

Last year the U.S. Treasury "borrowed" from Federal employee pensions, something they are allowed to do under the rules.
More seriously big-time policy wonk Teresa Ghilarducci has been pitching the nationalization of 401K's and calling for allowing private sector workers "to enroll in cost-efficient and professionally managed state-operated retirement programs."
She is getting a very good reception from the powers-that-be.

Yesterday the Gillard government in Australia, while not outright appropriating the superannuation funds said they would tax the retirement money at higher rates:
Super 'shouldn't be a honeypot'
Leave our superannuation alone, Treasurer Wayne Swan

Today it's Spain
Spanish Budget: Spain to tap EUR 3 billion from pension fund to cover liabilities
Rajoy Raids Reserve Fund for 1st Time to Pay for Higher Pensions

Now it's no skin off my nose if governments raid retirement funds, I've never had a paid vacation or even holiday and I sure don't count on anyone to finance my retirement but this could get troubling long about the next recession.

We Knew Société Générale's Albert Edwards Was Crazy But This is Nuts (Sept. 27, 2012)

 Back in May 2011 I commented:
Albert does not wear the devil-may-care look well:

Our Hero

In fact he appears a bit deranged when he tries to smile.
Here's the latest via FT Alphaville:
A bear bath
“The Fed will destroy the world”
As top lines go it’s pretty decent… and when you follow up with a pic of a strategist in a bath you leave us no choice but to post (we tried to resist, we really did):

Many market participants have linked the surge to increased confidence in a rebound in China’s economy. I have to own up. My wife has just purchased the bath on the front page for our new house. I did ask her if we really needed a bath with that much cast iron content (not to mention the expense, which might be why I look so glum), as I only ever have showers. But she put the order in and it seems to have led to September’’s pop in iron ore prices. Expect the market to relapse once again now the bath is in position.
That’s Albert Edwards, SocGen’s strategist in chief, who is once again stocking up on tinned food and hyperbole...MORE
Albert, as someone who cares deeply about your mental state, the next time you're in Germany, a stop by the Max-Planck-Institut für Psychiatrie München might be in order. As the leading European researchers and clinicians in anxiety and depression disorders they might be able to help. Okay?


"US natgas futures hold gains despite big EIA storage build" (80 Bcf)

The new front futures are up 0.007 at $3.222.
From Reuters:

U.S. natural gas futures held
gains early Thursday, with the front-month contract still
trading near its high for the year despite a government report
that showed a weekly inventory build above market expectations.
    The U.S. Energy Information Administration report showed
total domestic gas inventories rose last week by 80 billion
cubic feet to 3.576 trillion cubic feet. Traders and analysts
polled by Reuters had expected a 76 bcf gain. 
    At 10:32 a.m. EDT (1432 GMT), front-month gas futures 
on the New York Mercantile Exchange were up 5.6 cents, or nearly
2 percent, at $3.271 per million British thermal units after
climbing earlier to a new 2012 high of $3.287.
    Just prior to release of the weekly storage data at 10:30 
a.m., the front month was trading in the $3.265 area.    
More to come
From the EIA:
Released: September 27, 2012 at 10:30 a.m. (eastern time) for the Week Ending September 21, 2012.
Next Release: October 4, 2012 

Working gas in storage was 3,576 Bcf as of Friday, September 21, 2012, according to EIA estimates. This represents a net increase of 80 Bcf from the previous week. Stocks were 296 Bcf higher than last year at this time and 282 Bcf above the 5-year average of 3,294 Bcf. In the East Region, stocks were 75 Bcf above the 5-year average following net injections of 46 Bcf. Stocks in the Producing Region were 159 Bcf above the 5-year average of 994 Bcf after a net injection of 29 Bcf. Stocks in the West Region were 48 Bcf above the 5-year average after a net addition of 5 Bcf. At 3,576 Bcf, total working gas is above the 5-year historical range. 

Working gas stocks in the Producing Region, for the week ending September 21, 2012, totaled 1,153 Bcf, with 232 Bcf in salt cavern facilities and 921 Bcf in nonsalt cavern facilities. Working gas stocks increased 15 Bcf in the salt cavern facilities and increased 14 Bcf in the nonsalt cavern facilities since September 14....MORE

Wednesday, September 26, 2012

Natural Gas Sept. 26, 2012 = Whiskey, Tango, Foxtrot? ( Contango, Short)

Uh yeah, there was some contango.
From FinViz:

That action in the electronic session is tradable to the downside. $3.197, last.
Yesterday I had the sense to point out that something had changed:
Natural Gas Pops 3.6% Ahead of Tomorrow's October Expiry
The front futures are up 10.2 cents at $2.939.
This is a bit different. The last three expirations saw flat trading with a pop on the contango as the next month became the front month.
Not sure exactly what it means but any change in behavior is worth paying very close attention to....
I did not have the sense to know what it meant.
I do however know that Whiskey, Tango, Foxtrot is the NATO alphabet for the letters WTF.
And I knowwhat that gap means.

Here's the Journal commentary:
--Market awaits Thursday inventory data
--Record high inventory, but slimmer year-on-year surplus expected
--New buyers emerge as winter nears
   By David Bird 
NEW YORK--Natural-gas futures settled at a two-week high Wednesday, as the October-delivery contract went off the board.
The gain in the incoming front-month November contact outpaced October's rise, as traders noted new buyers coming into the market as the winter heating season nears.
The price gains played out ahead of the scheduled Thursday release of U.S. weekly gas storage data. The figures, due at 10:30 a.m. from the Energy Information Administration, are expected to show an increase in storage that is smaller than a year ago, but in line with the five-year average. Stocks are expected to climb to another record high for this time of year, but the year-on-year supply surplus is expected to contract...MORE
And Reuters:

* Short cover, cool outlook firm October futures at expiry
    * Nuclear plant outages also lend some price support
    * Mild near-term weather slows demand, limits upside
    * Coming up: EIA, Enerdata natgas storage reports Thursday

 (Recasts, adds trader quote, updates prices)
    By Joe Silha
    NEW YORK, Sept 26 (Reuters) - U.S. natural gas futures ended
higher on Wednesday for a second straight day, with technical
buying and forecasts for cooler weather next month lifting the
expiring October contract more than 3 percent.
    Extended forecasts show cooler weather slipping into the
Midwest and possibly the East in early or mid October. But with
storage and production still running at or near record highs,
many traders remained skeptical of the upside for prices despite
some book squaring or technical buying before October went off
the board.
    "I think the bottom is in for now. HDDs (heating degree
days) look like they pick up (turn colder) in October, and
traders are starting to focus ahead to (more demand in) winter,"
a New England-based trader said....

See also this morning's "Commodities: Focus on Rolls Not Spot".

Risk: The Quadra Quake--"Largest quake of its kind ever recorded"

From Earth Times:

Largest quake of its kind ever recorded
This map of the Indian Ocean region shows boundaries of Earth's tectonic plates in the area, and the epicenters (red stars) of two great earthquakes that happened April 11, 2012; Credit: © Keith Koper, University of Utah Seismograph Stations

Possibly the largest earthquake of its kind has been recorded in the Indian Ocean, say seismologists.
At least four faults in the Indo-Australian plate caused a magnitude-8.7 earthquake in April last year, say experts from the University of Utah and University of California, Santa Cruz.

The quake was previously believed to be of 8.6 magnitude, 40% smaller than the latest estimate, the scientists have reported in the Nature journal.

It happened when at least four undersea fault ruptured southwest of Sumatra, Indonesia, in less than three minutes. At least 10 people died from the quake or resulting heart attacks. The effects were felt from India to Australia, including South and Southeast Asia.

Taken as separate quakes, the magnitude of the ruptures would have been 8.5, 7.9, 8.3 and 7.8 on the "moment magnitude" scale that calculates the largest quakes, the seismologists say....MORE

Money Manager to the Stars

We like Dogbert's little tail, especially when he has an idée transformatif.
Via  the  Dilbert blog:

The Official Dilbert Website featuring Scott Adams Dilbert strips, animations and more

Glencore, Xtrata: "Short 'em All, They Aren't Worth the Paper They're Printed On" * (XTA.L; GLEN.L; BHP)

Back on Sept 17 we cautiously cautioned "Be cautious" regarding this Reuters headline: "Hedge funds see further profit from Glencore-Xstrata (XTA.L; GLEN.L)":
Although it's up 25% from the post-IPO low Glencore's stock isn't priced high enough that a smart management would want to use it as currency. I'm not sure there will be any higher offer so, at today's Glencore quote it looks like an 1131p price for XTA or 7.4% higher than the current 1053.
That's a big spread for a deal that is being talked about as a lock. We'll know the answer by Sept. 24....
Today Xtrata is down 9.2% from nine days ago at 956.30, the 3.05 conversion is indicating 1032.27, down from that 1131, the deal has been delayed from the Sept. 24 drop-dead date and the mining business looks worse than ever, warnings from CAT etc.

Here's Bloomberg's Management blog:
The $35.1 billion Glencore-Xstrata merger saga continues to rumble on, with the Xstrata board delaying its response to the proposed takeover by another week to resolve management and board issues at the new company. All the political and personal intrigue in this deal is masking the much bigger issue, namely the imminent sell-off of the mining sector. Some investors seem to be worried about whether their holding should be in Glencore (GLEN) or Xstrata (XTA) stock. My view is: Short them both.

It’s no secret that the mining industry is heading for a fall. China’s economy has driven the decade-long super-cycle in metal prices. But China’s growth is slowing to perhaps 6 percent to 7 percent a year, and infrastructure spending is slowing more quickly than that. The iron ore spot price has dropped 35 percent from its peak in 2011.

How are the mining companies responding? There is some belt-tightening going on, for sure. BHP Billiton (BHP) just shelved a $30 billion investment in a copper and uranium mine. Fortescue Metals Group (FMG) laid off hundreds of workers, and cut back expenses on everything from airport parking to the company-funded barbecues. But it won’t be enough. During the 15-year boom in the mining industry, expenses rose at least fivefold. Every expense from worker pay to infrastructure, shipping, and equipment has mirrored the increases in commodity prices. Prices can drop overnight, but costs take years to correct themselves. Xstrata and Glencore are heading for tough times.

The real issue here is the supreme inability of companies to respond quickly to changes in their operating environments. Markets are designed to allocate resources quickly according to changes in supply and demand. But companies have team-based decision processes that make it hard for them to agree on the need to change, and even harder to respond effectively. Layoffs, closures, reallocation of resources, cost-cutting exercises: All of these are politically charged debates between people with vested interests and personal loyalties....MORE
*I've mentioned* that one of my mentors was the best trader I've ever met. Creative, intelligent, disciplined (and bankrolled).
From time to time though, he would lose his mind and run around the floor screaming
"Sell 'em all, they aren't worth the paper they're printed on".
or the variant  "Short 'em all...":

* Jan. 9, 2008-Can you trust the First Bank of Nigeria?
...One of my mentors, and one of the sharpest traders I ever met, had the most common flaw of students of markets, hubris. In his case it was non-fatal, more of a cost of doing business:

1) He had somehow ended up with some of the Boston Chicken-Einstein/Noah bagel bonds. We know how that worked out:
...Short-sellers got teary-eyed this week following word that old faithful Boston Chicken (Nasdaq: BOST) finally bit the Chapter 11 bankruptcy dust. Though hardly unexpected, Monday's announcement dropped the stock to $0.50 a share, down an astonishing 97% from its 52-week high near $16.
Source (scroll to "A Chicken Autopsy")
He knew it was a finance scam "but the debentures paid 11%"

2) He got into a rigged blackjack game in Yugoslavia. Lost half-a-mil. Said he started to think it was was fixed when he was down a couple hundred.
Wife: "Then why the hell did you keep playing?"
Him: "I thought I could beat it".