Friday, October 9, 2015

Down In The Valley: Last Call For Unicorns

From Fortune:

Fear and sadness in Silicon Valley
The party isn’t entirely over, but you can hear someone shouting “last call.”

Every couple of months I leave my small Massachusetts town — where most people still shop for their own groceries and drive their own cars — and head for the Bay Area. Suddenly, all of my cynicism and bubble worries are drowned out by the kind of unfettered optimism that only $1 billion valuations (on $0.00 earnings) can buy.

But not today. Not this time.

Since landing in San Francisco on Wednesday, I’ve met with an assortment of senior venture capitalists, bankers, entrepreneurs and crossover investors. All of them have, in one way or another, been involved with so-called ‘unicorn’ companies. As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear.

The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity — and still lots of it — but not necessarily at the terms they were receiving just two months ago.

“This shift is only five or six weeks old, so most companies haven’t felt it yet,” a senior tech banker explains. “But I know of many companies who raised money at $1 billion valuations last year that are now being told that, to raise money now, they need to take around $700 million or $800 million. Probably with some serious structure that protects investors, like ratchets, on top of it.”...MORE
See also:
Sept. 2015
Where Are The Tech Unicorn IPOs?
Aug. 2015
Venture Capital: Who Will Buy My Sweet Young Unicorn?
Dec. 2014
Cracks in Silicon Valley’s Billion-Dollar Startup Club: Two Firms Are Proposing IPO's as Downrounds

And many more. Use the search blog box, keywords silicon valley, if interested.

Former NFL Star Warrick Dunn Gets A House For A Single Mom, For The 145th Time

From CBS10 News, Tampa:

Former Bucs star helps Tampa single mother get new home
In 1993, Warrick Dunn lost his mom. She was a police officer in Baton Rouge, La. Warrick would immediately become the leader of his family.

The former Florida State University Seminoles and Tampa Bay Buccaneers star knows what it's like to grow up in a family that needs stability. That's why, for nearly the last two decades, he's been helping single-moms find forever homes.

"Congratulations," Dunn said, handing over the keys to a new home in Seminole Heights to Xeniya McBroom.

Dunn's charity, along with Habitat for Humanity, helped make this dream happen for McBroom and her 2-year-old daughter. Dozens of people gathered to surprise McBroom with a house she may have never gotten without the help of Dunn and Habitat.

"Thank you to all the volunteers from Habitat for giving me an opportunity to own my own home," she said. "I'm very excited about moving in and making it my home. Thank you everyone."

Dunn has now given away 145 homes in the last 18 years, spread out among 13 different markets. It was a mission he embarked on during his first year of pro football....MORE
HT: Curbed

Clarification: The home is not free to McBroom, it was sold on a zero-interest loan with a $5 G downstroke provided by Dunn. Payments go to Habitat to build more homes.The furnishings are hers to keep.

"The Beps process is the most significant development ever in the history of international tax rules"

That's Irish KPMG partner Conor O’Brien in the Irish Times, who sounds more like a rainmaker than a CPA.
With the Oct. 5 release of the final OECD BEPS package and the not coincidental meeting of the G20 Finance Ministers in Lima, BEPS has been on every tongue.

From The Economist:

Corporate taxation
New rules, same old paradigmA plan to curb multinationals’ tax avoidance is an opportunity missed
IN 2013 investigators from America’s Senate shone a harsh light on a highly profitable unit of Apple that was registered in Ireland, controlled from America—and not paying tax in either country. That this “stateless-income” structure was perfectly legal highlighted a big loophole in the global system for taxing multinationals.

There are many such gaps, and the reason is that the patchwork of national rules and bilateral treaties governing how much tax companies owe, and to whom, is horribly dated. It was designed for the manufacturing age. Business today is increasingly digital, services-based and driven by intangible assets, including rights to exploit intellectual property (IP), from patents to logos. These are easier than physical assets to shuffle from subsidiaries in high-tax countries to those in low-tax ones. In short, they make the old rules easier to game.

Hence the relentless rise of tax planning as a core part of multinationals’ business plans. The OECD reckons that the resulting revenue losses to national exchequers have grown to as much as $240 billion a year, or 10% of global corporate income-tax receipts—an estimate it considers very conservative. The share of American firms’ profits that they book in low-tax havens has more than doubled since the 1980s; this has helped reduce the actual tax rates they pay, relative to their home country’s headline rate (see charts). America’s 500 largest firms hold more than $2 trillion in profits offshore. Its tax laws encourage this, because profits its companies make abroad are taxable in America only when repatriated.  

Two years ago the Group of Twenty (G20), a forum for big economies, asked the OECD to produce reforms aimed at curbing these corporate-tax gymnastics and ensuring that multinationals were taxed “where economic activities take place and where value is created”. The request was motivated in part by growing public anger over firms not paying their “fair share”, and partly by hunger for more tax revenue in an era of austerity.

The resulting “Base Erosion and Profit Shifting” (BEPS) proposals were released this week. They are the biggest shake-up of multinational taxation since the basics of the current framework were put in place in the 1920s. G20 governments are expected to approve them at a summit in November.
OECD officials were predictably upbeat as they unveiled the plan. Angel Gurría, the organisation’s secretary-general, declared that it will “put an end to double non-taxation”. Pascal Saint-Amans, the OECD’s tax chief, said it marked a “change of paradigm” that should help to make tax planning “marginal” rather than “a core part of business models” (though he accepted there was still much work to do; two years is but a blink of an eye in global tax diplomacy). The reality is less cheering: the project was flawed from the start because it was impossible to achieve consensus in favour of the radical overhaul that was needed. The result is a patch-up job that offers improvements in certain areas but fails to deal with the core problems.

Start with the good bits. Companies will be required to do more country-by-country reporting of where they really earn their revenues, hold their assets and employ people, and where they book their profits—information that is often lacking in their published accounts. This will give tax authorities (though not the public) a clearer picture of how much profit is being shuffled around for tax purposes. National tax authorities will also get more information on “comfort letters” that other countries’ taxmen have provided to companies, blessing their tax arrangements. The European Commission, the EU’s executive arm, is investigating what it suspects are unfair sweetheart deals that the Netherlands, Ireland and Luxembourg have struck with companies ranging from Starbucks to Fiat Chrysler. This week the EU countries got a head start in implementing the OECD’s reform proposals by agreeing on the automatic exchange of information on their cross-border tax rulings.
Double Irish on the rocks

Anticipating new regulations requiring greater transparency, some firms are backing away from tax practices once deemed uncontroversial. Amazon, for instance, has opened taxable branches in European countries where it has lots of customers; no longer are all its profits diverted to low-tax Luxembourg. Some companies are pre-emptively paying more tax: the Luxembourg arm of a large international bank waived a favourable tax ruling in order to raise its effective tax rate, because it feared that paying only 15% might attract negative headlines, admits one of its directors. And low-tax countries are dismantling their most invidious tax-minimisation structures, such as the notorious “Double Irish” (see next story)....MUCH MORE

EIA: Natural Gas Weekly Supply/Demand Report

Front futures: $2.4920 down 0.006.
From the Energy Information Administration:

In the News:
Natural gas heating bills expected to be lower this winter
Nearly half of households in the United States use natural gas as their primary heating fuel, and they can expect a 10% decrease, on average, in their winter natural gas bills this year compared with last year. The decrease is the result of both lower year-over-year forecasted residential prices and a warmer winter compared to last year. The average natural gas consuming household can expect a total winter natural gas bill of $578 this winter, $64 less than last winter's average, according to EIA's Short-Term Energy and Winter Fuels Outlook. Markets are currently characterized by relatively low prices and strong supply.

Heading into the winter, EIA forecasts supplies will be abundant and working inventories of natural gas in storage will be at a record high of 3,956 billion cubic feet (Bcf) on October 31. If weekly injections remain strong in the coming weeks, it is possible that working inventories could surpass 4,000 Bcf. This would exceed the previous record of 3,929 Bcf set at the end of October 2012. EIA projects inventories next March will end this winter at 1,892 Bcf, which would represent a drawdown of 2,064 Bcf. This represents high March levels and a lower winter drawdown than in the previous five years (2011 — 15) —the five-year average end-of-March inventory level is 1,622 Bcf, and the average winter drawdown over these years is 2,176 Bcf.

In addition to forecasts for record storage levels, EIA expects production growth will continue this winter. While production growth has slowed in recent months, EIA expects production will remain well above year-ago levels. This month's STEO projects total dry production will average 75.2 Bcf/d between October and March, about 2.5% greater than the 2014-15 winter.

The projections for heating bills are based on forecasts of residential natural gas consumption and prices. While EIA expects residential prices will remain lower than in previous years, they are not directly correlated with changes in Henry Hub spot prices. EIA projects residential prices overall in the United States to average $9.51 per thousand cubic feet (Mcf) this winter, which is 40¢ lower than the per-unit price last winter. EIA forecast that consumers in all four census regions (West, Northeast, South, and Midwest) will see lower natural gas bills this winter.

The National Oceanic and Atmospheric Administration (NOAA) projects this winter will be substantially warmer than last year in the Midwest, Northeast, and South. In the West, which was warmer than average last year, NOAA expects cooler temperatures.

In 2008, homes heated with natural gas made up slightly more than half of total U.S. homes. Over the past several years, natural gas-heated homes have declined as a share of the total, while homes using electricity as their primary source of heat have increased. This pattern is likely caused by increases in population in southern states where electricity is the predominant source of heat....MUCH MORE
If interested see also:
Oct. 1
"Natural Gas Breaks Three-Year Low"
Sept. 14
Natural Gas: This Could be The Year Prices Go Down In Winter
Combine an El Niño winter with an uptick in production and you've got dogs and cats living together, mass hysteria at the NYMEX, etc....

Sept. 4
Natural Gas: EIA Weekly Supply/Demand Report
As we enter the autumn shoulder season, our obsessive preoccupation with supply gives way to El Niño and whither/whether weather.
More on that next week....

Like Yelp, But For Website Visitors (plus-woman who reviews peeple doesn't like getting reviewed)

There has, apparently, been a coup d'Etat at FT Alphaville where founder Paul Murphy is not to be found swinging on his usual Markets Live perch.

We'll have more if communications with Mr. Murphy can be restored but for now it appears the inmates are running the asylum.

And speaking of crazy...
From FT Alphaville:

A little more on China’s rumoured plan to one-up the only somewhat dystopian plans of Peeple by putting in place an invasive credit rating system.

Yelp for people, meet Yelp for citizens — may you both choke on the outrage you generate. Assuming the outrage is well founded, of course.

And we wonder if, where China is concerned, the outrage is accurately targeted. And whether this says more about where the world is heading generally, and less about China’s nefariousness in particular (this time around).

From the FT’s Lucy Hornby:
Chinese internet companies are battling it out to create credit ratings based not just on citizens’ finances but also their social networks, raising fears that Big Brother could take up residence in consumers’ wallets.
Sesame Credit and other credit rating systems are responding to a glaring need for a credit rating database in a country that has seen rapid growth in personal credit cards, mortgages and online payments systems. About a third of Chinese own credit cards, up from 15 per cent five years ago....MUCH MORE, including this chilling bit:
... Just so you know, plans for Alphaville to apply rankings to readers based on the sincerity of their comments are proceeding well.
All of which reminded me on the Register's take on Peeple, Oct. 1:

Woman makes app that lets people rate and review you, Yelp-style. Now SHE'S upset people are 'reviewing' her
Here comes the irony grenade for Peeple founder

It was oh so predictable.

The founder of new slander-app Peeple has been surprised to discover people slandering her online.
Julia Cordray, of Calgary, Canada, landed herself and her company a ton of publicity this week, appearing everywhere from the Washington Post to ABC News, talking about how the app – due to be launched next month – would enable people to rate others.

"The Peeple app allows us to better choose who we hire, do business with, date, become our neighbors, roommates, landlords/tenants, and teach our children," the company pitches. Cordray and co-founder Nicole McCullough feel it is a "positivity app for positive people."

Except of course it took the rest of the world about two seconds to figure out that filtering the world to only include those with positive feelings was not exactly realistic, and all the app was likely to do was invite an endless stream of abuse, bullying, and stalking.

Right on cue, the internet popped up to make that point.

"One of my clients is a counsellor and your app is probably going to allow him to retire from the droves of people that are about to get their lives destroyed by your app. To be honest it is going to be pretty interesting to see how much of a legal disaster this turns into, might be a lesson for everyone else," wrote one poster on the company's Facebook page.

Another: "We get that there may be folks out there who also think this is just a grand idea, but surely SURELY you can appreciate the ground-swell of hundreds of thousands of people who think this is just an appalling idea?? Doesn't it make you stop and think?"

The, ahem, feedback continued:
This is not Yelp for people. This is a harassment tool for abusers. You can talk about all the planned safeguards you want, but abusers live to game systems, and you're handing them the biggest present they could ever hope for, guaranteed.
And these are the polite posts.

Both the company's social media accounts and the personal accounts of the founders have been hit hard. It didn't take long for Peeple's positivity to fizzle out. Cordray whined:
Bullying IS WHAT YOU ARE DOING and that is what are [sic] app is NOT. You are the reason we have an app.
Both founders have been deleting critical and aggressive comments and tweets as fast as they can all day – and failing miserably.

In one now-deleted Facebook post, Cordray asked: "Anyone know how to prevent people from posting on the comments on a company Facebook page? I know how to prevent people from posting on our page just not commenting on our posts."...MUCH MORE 
...Updated to add
Cordray has posted a long message on her website. We'll just leave it here for you to marvel.
An Ode to Courage: Innovators are often put down because people are scared and they don’t understand. We are bold innovators and sending big waves into motion and we will not apologize for that because we love you enough to give you this gift. We know you are amazing, special, and unique individuals...
Anyone who talks like that is prima facie hateable.

Musk Says The People Apple Hires From Tesla Are The 'Failures' (TSLA; AAPL)

What a nasty little man.
From Investor's Business Daily:
Tesla Motors (NASDAQ:TSLA) CEO Elon Musk says Apple (NASDAQ:AAPL) isn't a serious electric threat, telling German newspaper Handelsblatt that Apple hires from Tesla are failures.
"They have hired people we've fired," Musk said. "We always jokingly call Apple the 'Tesla Graveyard.' If you don't make it at Tesla, you go work at Apple. I'm not kidding."

Musk conceded that a "car is the next logical thing" for Apple, but says that iPhones and the Apple Watch are not nearly as complex as an automobile.

While Musk says Apple is a threat, his story has changed. As recently as May, Tesla said it hadn't lost any engineers to Apple.

Analysts have turned negative — or at least less bullish — on Tesla's stock in recent days. A common refrain is that the Model X price is too high. But some also have noted that Apple could be a serious rival to Tesla for cool tech factor....MORE

"Goldman Sachs: This Oil Rally Is Not Going to Last"

Well duh.
But we'll let GS explain.
$49.77 up 34 cents after hitting $50.92. We're just trying to figure out where the top is.
From Bloomberg:
Nothing has really changed.
Oil has been surging this week but Goldman Sachs is calling for gains to be short-lived.
The front-month West Texas Intermediate futures contract enjoyed a double-digit advance in recent days, breaking above $50 per barrel on Thursday for the first time since July:

"While this rally has occurred alongside a broader re-risking across assets after last week's U.S. non-farm payrolls release, the oil move has been larger, exacerbated by still large short positioning and the break of key technical levels," wrote Jeffrey Currie, head of commodities research at Goldman Sachs.

Currie writes that we've seen this play before, pointing to the parabolic surge in oil prices in late August that occurred following the massive equity market selloff.

The problem, according to Goldman, is that the fundamentals have not changed: in spite of the start of a roll-over in U.S. production, the market remains oversupplied. While the shale revolution was what provided the impetus for the plunge in oil prices seen over the past year, Currie claims that the oil glut is now being sustained by production outside the U.S.

The U.S. dollar index has given back ground over the past two weeks amid growing confidence that the Federal Reserve will refrain from lifting interest rates in 2015. But Currie claims continued inaction from the central bank isn't necessarily a boon for crude prices; in fact, he contends that it would have the opposite effect....MORE

Thursday, October 8, 2015

"WTI Crude Surges Back Above $49 After OPEC Comments"

We don't have much to say at the moment.
Oil has been in an uptrend since last Friday's rig count and, as noted in Tuesday's "Oil Prices Climb To Five-Week High" what matters now is: "The next question is where is the top of the new range?"
WTI $49.49 up $1.68.
From ZeroHedge:
WTI Crude has recovered the losses following yesterday's DOE-reported inventory and production rise as it appears comments from OPEC Secretary-General Al-Badri told The IMF that demand will climb more this year than previously projected (coming on the heels of EIA's comments that oil companies worldwide will cut investments in oil exploration and production by a record 20 percent this year.) USD weakness is also helping drive algos to run stops in crude....MORE

Oil: Possible Major Discovery In Israel

Well this is interesting.
If the field is actually under the Golan Heights the ownership is going to be debatable.
Israel took the Golan from Syria in 1967 when Israel was attacked by Syria, Egypt, Jordan, Iraq and Lebanon, who were supported by

 The PLO
 Saudi Arabia

So Syria, now supported by Russia, Iran, Iraq, Lebanon and China may claim the goo.
Which is the point Russia's mouthpiece RT makes in the second sentence.
From RT:

Huge oil discovery in Golan Heights - Israeli media
A big oil deposit has been found in the Israeli-occupied Golan Heights, with enough reserves to last Israel for decades, according to the country's media.

The Israeli presence in the Golan Heights is in dispute. The region is internationally recognized Syrian territory that has been occupied by Israel since the 1967 Six-Day War between Israel and several Arab states. UN Resolution 242 (1967) demands the withdrawal of Israeli armed forces from the territories occupied in the conflict. Israel disagrees with the wording of the resolution, saying the territories are disputable.

Reportedly, the potential production may reach billions of barrels, while Israel consumes 270,000 barrels per day. Israel currently imports up to three quarters of its oil from the semi-autonomous Kurdish region in Iraq, the Financial Times reported in August. 
"We are talking about a strata which is 350 meters thick and what is important is the thickness and the porosity. On average in the world strata are 20-30 meters thick, so this is ten times as large as that, so we are talking about significant quantities. The important thing is to know the oil is in the rock and that's what we now know," Israel business website Globesquotes Yuval Bartov, chief geologist of Afek Oil and Gas as saying. Afek is a subsidiary of the America’s Genie Energy. 
The reported discovery coincides with the civil war raging in Syria. Israel has been accused of taking advantage of the conflict. The Israeli-occupied Golan Heights also border Syrian territory controlled by anti-government rebels. Israel has reportedly provided medical aid to the rebels and has responded to rocket fire from rebel-controlled territory by striking Syrian Army positions. Israel's explanation has been that it "holds the Syrian military responsible for all events stemming from its territory."
 © United Nations

Computer Simulations Reveal Benefits of Random Investment Strategies Over Traditional Ones

This is a repost from March 2013.

The Joy of Randomness: Central Bank Strategy, Management Technique and Stock Selection
From Technology Review's Physics arXive blog:

Computer Simulations Reveal Benefits of Random Investment Strategies Over Traditional Ones
Central Banks could use random investment strategies to make markets more stable, say econophysicists   

Back in 2001, a British psychologist carried out an unusual experiment in which he asked three people to invest a virtual £5000 in the UK stock market. The three people were a professional trader, an astrologer and a 4 year old girl called Tia.

The results were something of an eye-opener. At the end of the year, the trader had lost 46.2 per cent of the original investment and the astrologer 6.2 per cent. Tia, on the other hand, had made 5.8 per cent. Others have carried out similar experiments with similar results in which investments were chosen by a chimpanzee or by throwing darts.

The implication in these experiments is that random investment strategies are as good as, or even better than, traditional ways of making investments. 

Today, Alessio Biondo from the University of Catania in italy and a few pals test this idea for themselves. These guys have simulated the performance of four traditional strategies using 10 years of historical data from the UK, German and US stock markets. They then compare the results with those from an entirely random strategy.

The traditional approaches are all based on the past performance of the market and include, for example, the “momentum strategy” which measures how fast the price of something has changed in the recent past and then uses this to predict how much it will change in the near future. Another approach is called the “up down strategy” in which the prediction for tomorrow’s market behaviour is exactly the opposite of today’s....MORE  
We've looked at the phenomena  in a couple other contexts:

Random Stock Selection Again Beats Index; 99.9% of High Priced Managers
There may be a problem or two with the sample size, replication, error bars, pretty much the whole statistical schmear, but if I put that in the headline would you have read this far?
From Joe Meth (Stock Chartist)...

Okay, Enough With Politics: Attention Managers, You Can Improve Corporate Efficiency by Randomly Promoting Employees

That last piece of research was awarded Harvard's own Ig Nobel prize in 2010.

Ya see, ya got your complex systems and ya got your chaotic systems and then ya got your complex-chaotic systems like weather or the economy or the stock market and when you endeavor at those levels of sophistication you realize:

"Nobody knows anything"
-William Goldman

Completely off-topic sidebar:
If you're interested, Mr. Goldman will show you how to write a movie script.

"Google buys domain"

Easy alpha.
I must be losing the edge though, this one was so obvious.
From CNBC:
Google has bought the alphabet. 
Not literally of course (if that's even possible), but it has acquired the domain name, just a few days after Google officially became a subsidiary of Alphabet, its new holding company. 
 Google Alphabet
The domain was created in 1999 and was updated on Wednesday when Google took control of it, according to domain database Whois. It is unclear how much it was bought for.Google announced its restructuring in August in a bid to separate its core businesses such as search and Android from its "moonshots" like driverless cars. At the time, Google unveiled its website with a URL of 
The purpose of the new domain is unclear given that the page did not load on Thursday morning. 
"We realized we missed a few letters in, so we're just being thorough," a spokesman for the company told media. 
Google owns 18,095 other domains, data on Whois shows. It's the owner of and, so if people misspell Google, they will still be redirected to the search engine....MORE

Bill Gross Is Suing PIMCO For $200 Million

For what, definition of character?
The man has been losing both his skill and his mind over the last few years.
From Bloomberg:
Bill Gross sues Pimco for at least $200M

  • Says Pimco executives conspired to get his share of bonus pool
  • Claims firm refused to pay his bonus for the third quarter

Bill Gross sued Pacific Investment Management Co. and parent Allianz SE for “hundreds of millions of dollars,” claiming he was wrongfully pushed out as the bond giant’s chief investment officer by a “cabal” of executives seeking a bigger slice of the bonus pool. 
“Driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of Pimco managing directors plotted to drive founder Bill Gross out of Pimco in order to take, without compensation, Gross’s percentage ownership in the profitability of Pimco,” according to the complaint, which Gross’s lawyers said was filed Thursday in California state court in Santa Ana. “Their improper, dishonest, and unethical behavior must now be exposed.” 
A draft of the complaint was obtained by Bloomberg. The filing couldn’t be immediately confirmed in court records....MORE
While that may strike the uninitiated (to this type of thing) as some mighty fine bloviating, it is amateur compared to an incident I recounted in 2007's "Planktos Highlights Real Ocean/Climate Crises & Responds to Recent Misinformation Campaigns":
But first, one of my favorite examples of a stock scam (I told you, I have a morbid fascination with the underbelly of the markets, it's like watching the lions approach the wildebeest at the watering hole, you don't want to see it but you can't look away): 
...Peter Uttley, Equisure's chairman and a former Lloyds of London executive, took control of the company this week, assuming the chief executive post.... 
...Uttley said in the press release that his chairman role had been a "passive" one, but he now plans an active reorganization of the company, whose reputation has been stained by allegations that it is a scam insurance operation.... 
...In an unusually emotional statement to the press, sent from an Equisure board meeting Friday in London, Uttley told his version of events over the summer, which eventually led to the delisting of Equisure shares on the American Stock Exchange. 
"The simple truth was consumed in the belly of deception, but now has been vomited for the world to see," Uttley began. 
He then proceeded to tell a story of three men, whom he described as "liars," "cheats," and "scallywags," who worked with law enforcement officials and the press to spread false rumors about the company with the intent of buying Equisure out at 50 cents a share, a tiny fraction of the stock's trading price of $15, before AMEX suspended trading Aug. 1.
"Consumed in the belly of deception" is a pretty high bar, especially when followed by "vomited" and "scallywags".

Uttley et al made off with around ~$100 mil.

Ha! Ahead of the 2015 Economics Nobel, The Federal Reserve Proves Economics Is NOT A Science

The winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2015 will be announced October 12.

For the last seven or eight years our watchword has been something akin to this idea from 2013's "The Next Time Someone Tells You Economics is a Science Remind Them of Mendeleev":
...Two other points to consider:1) The mere fact that economists use the tools of science (Maths) to do their work no more makes economics a science than bid and ask spreads make carbon trading "market based"....
This is a subject I've been known to lose it over-see link below-but for now I'll just say if someone can't reproduce your results, what you did wasn't science. It might be religion, or some other belief system but no replication, no science.
Thanks for playing though.
(was that snarky enough? I could turn up the snark if that would help, it goes to eleven. I'm new to this nasty stuff, it's not really my style and frankly I'm not very good at it)

Via Barry Ritholtz at The Big Picture:

Is Economics Research Replicable? “Usually Not”

Previously in Rantville:

August 2014
"Most Financial Economics Research is ‘Likely False’"

Reproducibility is pretty much the cornerstone of science. And yet some Bozo can come out and say:
People on all sides of the recent push for direct replication—a push I find both charming and naive—are angry....
and keep his pathetic little job. As the young people used to phrase the rejoinder: L

By the way, that was  James Coan, who calls himself  "Dr." although he apparently didn't have the intellectual horsepower to become a Chiropractor or D.D.S., writing in the Journal Medium.

Rather than the two honorable professions named above he's a freakin' Associate Professor of Clinical Psychology at the University of Virginia.

Jefferson weeps.

See, the thing is, if what one is writing about can't be reproduced, that kind of writing is called 'Literature'.

And, although gentle reader probably doesn't care, yes, I know the difference between replication and reproducibility.

With that note on the current state of the so-called soft sciences here's Barron's Focus on Funds with a much more upbeat post:

You might have heard of the study “Why Most Published Research Findings are False.” But who knew Ph.D.s had this much righteous indignation?...
...By-the-bye, should Coan decide against the rigor of writing for Medium or appearing on CBS' Sunday Morning there is always The Journal of Irreproducible Results.
HT on Coan, the invaluable Retraction Watch.

EIA: "Nationwide, electricity generation from coal falls while natural gas rises"

From the Energy Information Administration's Today in Energy, yesterday:

graph of U.S. net electricity generation from coal and natural gas, as explained in the article text
The monthly natural gas share of total U.S. electricity generation surpassed the coal share in July for the second time ever, with natural gas fueling 35.0% of total generation to coal's 34.9% share. Compared to the previous July, coal-fired generation fell in every region of the country, while natural gas-fired generation rose in every region. 
Earlier this year, natural gas-fired generation surpassed generation from coal for the first time. This switch occurred in April, generally the month with the lowest demand for electricity. In times of low electricity demand, many generators schedule routine maintenance, and utilization rates for generating plants are low. As demand increases during the summer, output from both coal- and natural gas-fired generators increases. 
Total electricity demand, excluding demand met by distributed (largely renewable) sources, increased from 384 billion kilowatthours (kWh) in July 2014 to 398 billion kWh in July 2015. Coal-fired generation fell from 150 billion kWh to 139 billion kWh, while natural gas-fired generation rose from 114 billion kWh to 140 billion kWh. This decrease in coal and increase in natural gas occurred in every region of the country: the Mid-Atlantic region had the largest decline in coal-fired generation, followed by Texas, while the Southeast and Central regions had the largest increases in natural gas-fired generation. 
Natural gas prices continue to be relatively low. The monthly average price at Henry Hub, a natural gas benchmark, declined from $4.14 per million Btu (MMBtu) in July 2014 to $2.91/MMBtu in July 2015, and it has since fallen to $2.72/MMBtu in September. The average price of wholesale natural gas in New York City during July ($2.06/MMBtu) was below the average wholesale price of Central Appalachian coal ($2.31/MMBtu), even before accounting for differences in fuel conversion efficiencies between coal- and natural gas-fired generators. Prior to this year, the last time electricity generation from natural gas came close to surpassing coal-fired generation was April 2012, when monthly average spot prices for natural gas were near $2.00/MMBtu. Power generation shares for coal and natural gas diverged as natural gas spot prices rose to about $3.50/MMBtu by the end of 2012....MORE

"U.S. Treasury inquires about ISIS use of Toyota vehicles"

They probably got the fleet discount.
From CNN:
The U.S. Treasury is seeking information from Toyota about how ISIS has gotten hold of the automaker's trucks, which have been shown in the terror group's propaganda videos. 
In a statement, Toyota said it is part of a broader U.S. Treasury inquiry looking more closely at how international supply chains and capital flow into the Middle East. The request of Toyota regarding its trucks was first reported by ABC News....MORE

Apparently U.S. satellites aren't as good as advertised and somehow missed this. Or the drones were occupied or something.

Wednesday, October 7, 2015

Signposts: As Charter rates Top $100,000/day Tanker Operator Euronav Breaks Out (EURN; FRO)

First up, Bloomberg, Oct. 2:

Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps
The world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.

Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday....MORE
And, although we usually keep tabs on Frontline to determine the health of the haulers, Investor's Business Daily looks at Euronav (and Indian bank HDFC but that's not going to help make our point now, is it?):

Two Top International Stocks Rise From New Breakouts
The outlook for international oil demand and production is anything but certain. But Wells Fargo Securities, in an August note initiating coverage on crude-oil tanker fleet operator Euronav (NYSE:EURN), said that despite significant turmoil in global capital markets, 2015 was shaping up to be the best (oil) tanker market in a decade.

Euronav is a Belgium-based shipping-fleet operator, reportedly the largest listed operator of crude-oil tankers. The company has expanded its fleet by 50% in the past 18 months to 57 tankers (four of which are on order), giving it a 3% share of total tanker tonnage.

Wells Fargo initiated coverage with an outperform rating, citing global production increases and gradually mending demand for oil. Euronav holds its exposure primarily to the spot market, with 80% of its business there, according to research from UBS. That means Euronav shares could be volatile if tanker rates suddenly start to decline....MORE
EURN Euronav NV daily Stock Chart

"The deception that lurks in our data-driven world"

From Fusion:
I start each day with a lie.

I get up, walk into the bathroom, and weigh myself. The data streams from the Chinese scale to an app on my phone and into an Apple dataserver, my permanent record in the cloud.

I started this ritual because I thought it would keep me honest. It would keep me from deluding myself into thinking my clothes didn’t fit because of an overzealous dryer rather than beer and cheese. The data would be real and fixed in a way that my subjective evaluations are not. The scale could not lie.

And of course, the number that shows on the scale isn’t, technically, a lie. It is my exact weight at that exact moment. If I were an ingredient in a cake recipe or cargo for a rocketship, this is the number you’d want to believe.

But one thing you learn weighing yourself a lot—or wrestling in high school—is that one’s weight, this number that determines whether you’re normal or obese, skinny or fat, is susceptible to manipulation. (This is the warning embedded in the pithy title of NYU professor Lisa Gitelman’s 2013 book: “Raw Data Is An Oxymoron.”)

If I want to weigh in light, I go running and sweat out some water before getting on the scale. If I’m worried that my fitness resolve is slipping and I need to scare myself back into healthy eating, I’ll weigh myself a little later—after some food and plenty of water— and watch my weight spike upwards.

Sure, the difference in all of these measurements is only plus or minus five pounds, but for someone with my own psychology—and maybe some of you—those differences are enough to make me this guy....

You might like to think that this is just one man’s data deception. That the data out in the rest of the world, like the stuff that gets published in science journals, is less susceptible to human manipulation.

But then you see studies like the one that recently came out in Science, America’s leading scientific journal, that subjected 100 supposed high-quality psychology papers to a large-scale replication study. When new research groups replicated the experiments in the papers to see if they’d get the same results, they were only able to do so 36% of the time. Almost two-thirds of the papers’ effects couldn’t be replicated by other careful, professional researchers.

“This project provides accumulating evidence for many findings in psychological research and suggests that there is still more work to do to verify whether we know what we think we know,” concluded the authors of the Science paper.

In many fields of research right now, scientists collect data until they see a pattern that appears statistically significant, and then they use that tightly selected data to publish a paper. Critics have come to call this p-hacking, and the practice uses a quiver of little methodological tricks that can inflate the statistical significance of a finding. As enumerated by one research group, the tricks can include:
  • “conducting analyses midway through experiments to decide whether to continue collecting data,”
  • “recording many response variables and deciding which to report postanalysis,”
  • “deciding whether to include or drop outliers postanalyses,”
  • “excluding, combining, or splitting treatment groups postanalysis,”
  • “including or excluding covariates postanalysis,”
  • “and stopping data exploration if an analysis yields a significant p-value.”
Add it all up, and you have a significant problem in the way our society produces knowledge....MUCH MORE

Société Générale's Albert Edwards: Emerging Market Currencies Will Fall As US, Euro Economies Collapse

The Japanese should be able to beat the Germans in this race to the bottom.
From ValueWalk:
In the most recent installment of looming trial and tribulation from Societe Generale's Albert Edwards, the Prince of Doom and Gloom argues that the Bank of Japan is likely to boost its QE program again soon, leading to a collapse in the yen and a rout in emerging market currencies. Edwards also suggests that continuing anemic U.S. inflation means the economy remains stuck in neutral.
Albert Edwards
Even though the sky is not falling yet, according to Albert Edwards' October 7th Global Strategy Weekly, there are good reasons to expect it might fall tomorrow or the next day: "The first was more soggy Japanese economic data which suggests that the BoJ may soon hit the QE button even harder. That would trigger a renewed slide in the yen and another round of Asian currency turmoil – plus ça change! But, secondly and perhaps more important is increasing evidence of a loss of confidence that the Fed is actually in control. Ignore for a moment the stock market’s celebration of weaker than expected payrolls. Instead investors should focus on the rapid decline in US inflation expectations since the Fed meeting – even now converging to dire eurozone levels!"
Albert Edwards says Japan-style deflation is on the horizon for U.S. and Europe
Albert Edwards
Edwards argues that Japan is at a crucial crossroads. Given nearly all of the recent economic data on the Japanese economy have been disturbingly weak, most analysts are now expect the BoJ to notably boost its QE program (QQE as it is known in Japan, having thrown in qualitative with their quantitative easing).

Advisers Are Pitching Direct Lending As An Asset Class

It's all about the default rates.
Milken had the work of W. Braddock Hickman (NBER staff, Cleveland Fed head) to lead him* but right now I don't know of any academic works on the peer-to-peer or 'direct' lending stuff during periods of economic stress.
From Barron's Penta:

How to Smartly Invest in Shadow Banking
Dodd-Frank and Basel III financial regulations have inadvertently created a massive investment opportunity. With U.S. banks facing ever stringent capital requirements, financing for small and medium size businesses across the country has dried up. Enter shadow banking. Direct-lending fund managers are stepping into the breach and offering floating rate loans to small and medium-sized U.S. businesses. A portfolio of such direct-lending vehicles can produce juicy returns, net of fees, of between 6% and 14%, according to Tampa, Florida-based financial advisory Bayshore Capital Advisors. That’s hard to beat in a low-yield environment.

“This is easy for most clients to understand because they see this [search for alternative financing] in their own business,” says Jonathan Bergman, managing director of New York-based TAG Associates, a multi-family office with $8 billion in assets under management. Bergman says a client with $10 million in assets, TAG’s minimum, who has a balanced risk tolerance, could consider allocating 5% of their portfolio to this direct lending strategy.

According to a Goldman Sachs estimate, the traditional banking sector will, due to regulatory changes, cede roughly $1.3 trillion of commercial, consumer and real asset loans to alternative lenders over the coming years. “With more red tape, higher capital requirements, and less leverage, banks have abandoned some lending activities which are no longer profitable,” write the folks at Bayshore Capital Advisors.

Spotting the opportunity in that void, large fund managers like Apollo, TCW and Cerberus have already launched billion dollar direct-lending funds. But there is still plenty of demand and room for profit. There are roughly 200,000 middle-market businesses with revenues between $10 million and $1 billion starved for funding, and, since 2008, alternative asset managers have raised $450 billion to satisfy their financing requirements and take advantage of this massive private-debt opportunity. The market should expand with continued economic growth, claims alternatives industry tracker Preqin, with the heart of America’s small to medium sized family businesses fueled “via private financing options.”

Private bankers have taken note and are shifting their focus back to the U.S. Citi Private Bank, for example, previously raised over $300 million from high-net worth clients for a European direct lending fund, but is now turning its attention to North America, says Daniel O’Donnell, Citi Private Bank’s head of private equity and real estate. As a general rule, there is a 1.5% to 2% return premium for direct lending in Europe over the U.S., O’Donnell says, largely because the market in Europe is tighter. Alternative lending in Europe is 20% of all leveraged loan activity, versus 85% in the U.S., but the greater market size here offers more cover, liquidity and openings. O’Donnell won’t show his cards but says he “sees opportunity in the U.S. shadow banking markets” and is “focused on niche direct-lending opportunities and businesses.”...MORE
*And then there was Edward Altman to mislead.
After Altman left academia he went to Morgan Stanley and found an historical 1% default rate.
Of course is was totally in error but MS marketing guys liked it.
And he's back at NYU and no one ever mentions the 1% thing.

Ex-Goldman Trader Keeps Loans Flowing To Oil & Gas Producers

From the Financial Times:
A former senior trader at Goldman Sachs has linked with AllianceBernstein to lend billions of dollars to US oil and gas producers, offsetting a trend towards scarcer financing for the energy sector.

The availability of credit is a crucial variable for forecasting oil output after the recent price collapse. If drillers cannot borrow, it will hasten the decline in production and help bring a glutted market into balance.

While there are signs money is tighter, the partnership announced on Wednesday by AllianceBernstein, the asset manager, and HudsonField, a recently formed energy merchant, shows investors are willing to finance some oil and gas companies.

“We genuinely believe there are many proficient operators who can produce economically, even in this price environment,” said Ben Freeman, HudsonField’s founder and chief executive who was Goldman’s global head of oil derivatives trading.

AllianceBernstein has raised $2bn to lend mainly to middle-market oil and gas companies. HudsonField will identify operators in shale basins such as the Eagle Ford and Permian of Texas and the Utica and Marcellus of the north-east, Mr Freeman said.

HudsonField’s other businesses will consist of trading physical oil and gas and offering hedges such as fixed price contracts to producers. Its senior management includes former executives from Goldman, Trafigura, the trading house, and Buckeye Partners, an energy transport group. Its name comes from its two office locations: in New York on the Hudson river and in Houston near Texas oilfields....MORE