Saturday, July 30, 2016

Watching* The Dollar, Key to Commodities This Month

A stronger dollar lowers nominal prices of those commodities priced in dollars and is in fact a big part of our current positioning. So this piece by Brown Brothers Harriman & Co's Head of Global Markets Strategy is a bit troubling, at least in the short run. Longer term you should be able to buy a euro at the 99¢ store but as has been said, the long term is just a series of short terms.

From Marc to Market:

The US dollar advance was stopped in its tracks by the disappointingly weak Q2 GDP figures.  The 1.2% annualized growth rate was roughly half of the pace expected.  The FOMC statement earlier in the week did not leave the impression that a September hike was likely, and with the poor growth numbers, the odds were downgraded further.

Now given the reduced contingent risk of a September hike, the odds of a hike 50-75 bp end of the year target range for Fed funds has fallen to about a 1 in 3 chance.  However, if you think that there is no chance of a September hike (doubts about the economic strength) or a November hike (too close to the election), then the odds of a December hike is still close to 60%.

The Dollar Index had rallied from 93.00, the low from the day of the UK referendum to a high near 97.60 that it had tried several times over the past week or so to overcome.  The sell-off on the disappointing GDP news sent to near 95.30, which is a 50% retracement of the move and the lows after the June jobs data in early July.  The next immediate target is 94.75, which corresponds to the 61.8% retracement and also the 50% retracement of the larger move that began in early-May from near 92.00.    Below there is 94.00, which is the 61.8% retracement of the bigger move and is near where a trendline drawn off the May and June lows intersects end the end of next week.

The technical condition has deteriorated.  The five-day moving average will move below the 20-day average early next week for the first time in a month.  The MACDs have turned down.  A note of caution comes from the lower Bollinger Band, which the Dollar Index traded through after the GDP report, but managed to close inside it (~95.55).  

The euro had found bids near $1.0950 and with the downside momentum easing, the late shorts were vulnerable, and the short squeeze carried the euro to almost $1.12.  The five-day moving average is set to cross above the 20-day average at the start of August. The MACDs are crossing higher, and the RSI is trending lower.  Like the Dollar Index, the euro is near its upper Bollinger Band (~$1.1160). Unlike the Dollar Index, it closed above the Bollinger Band, which may inject some caution at the start of the new week....MORE
 *As I footnoted in a 2010 post and ref'd in 2011's "Climateer Line of the Day: Voyeur Edition":

...One of my mentors could not stand indecisive traders. He loathed them almost as much as he loathed losses. 
If one said about an instrument "I'm watching it" he'd bellow "You like to watch? What are you, a freaking voyeur?" Except he didn't say "freaking". 
If you were asked about implementing a certain strategy and said "I'm thinking about it"  the response was "What are you, a freaking philosopher?", again substituting a different word. 
Remember that the next time somebody tells you they have something they want you to watch.

General Electric and the Battle to Own the Internet of Things (GE)

We haven't looked in on FE or their IoT plans in a while, here's the latest from Forbes:

GE's IoT Plan For China
General Electric announced a partnership with China’s Huawei recently as it continues to build out its Internet of Things ecosystem.

The Internet of Things is a natural fit for GE. As the world’s largest maker of jet engines, diesel trains and other large industrial goods, finding ways to make things cheaper is in its DNA. Sensors and big data analytics software is just the logical next step. So in 2013 GE unveiled a productivity software platform called Predix in conjunction with Amazon Web Services, Accenture and EMC. The goal was to bring penny pinching predictive data analytics to the industrial sector at scale.
Luckily, it had a willing guinea pig: itself. Since 2013 Predix has had a profound impact on its own production lines. In 2015 GE was able to save $500 million. And the company’s Chief Digital Officer, Bill Ruh, is expecting savings of better than $1 billion by 2020.

Now it wants to get bigger in China. In a prepared statement Ruh said “the growth of the industrial Internet in China demands not only capital and development from companies like GE and our partners but also a commitment to align the private and public sector to build together”. Partnering with Huawei adds network hardware might and a powerful political ally.

GE has had some early success in China. The industrial city of Tianjin, with nascent smart city ambitions, uses Predix to control lampposts. China Airlines and China Telecom have also been using the software suite to reduce costs. Clearly GE wants more. Although production has slowed in China, it’s still the manufacturing center in the world even though its plants and businesses are among the least modern. As leaders push to climb the world ranks, GE expects the industrial Internet of Things will lead to spending of $166 billion by 2020.

Going forward Huawei will make Predix its preferred platform for industrial projects and GE will make a big investment in the developer community. This week the company announced an $11 million software incubator in Shanghai. As the second of four international centers planned, it will house 200 new GE employees working to bring makers to the Predix platform. If all goes well, Chinese developers will build software applications on top of the platform and entice Chinese businesses to invest.

What GE is doing is not terribly unique. IBM is a major competitor in many parts of the same space. It’s made good progress with its Watson cognitive computing platform. Cisco Systems was early to the Internet of Things. It is playing in every part of the stack with networking equipment, data collection and analytics. And its Jasper platform counts Ford and Boston Scientific among its portfolio of big companies now 500 strong....MORE
Previously on the IoT channel:

Internet of Things: "GE teams up with AT&T and Intel to conquer the industrial internet. Here’s its plan"
IBM Bets $3 Billion On Internet Of Things (IBM)
"General Electric Pitches an Industrial Internet" (GE)
McKinsey & Co. on the Internet of Things
The Google of the "Internet of Things" (and Morgan Stanley's 96 page IoT report) SPLK; GE
Nudge This: "The Internet of Things Will Be a Giant Persuasion Machine"
"Behind the 'Internet of Things' Is Android—and It's Everywhere" (GOOG)
The Internet of Things: Everything Is Hackable
The Creepiness of the Internet Of Things
Companies That Will Benefit From The Internet of Things
Questions From MIT's 'Internet of Things Festival'
Internet of Things: In Which Izabella Approaches Escape Velocity Edition
Too Funny: "Hello Dave" Shows Up On Hacked Google Nest Appliance Control System (GOOG)
The Internet of Things and Google's Home Invasion (GOOG)
Another Day, Another 3D Printing, Robotic Harvesting, Internet-of-Things FarmBot

And dozens more, use the 'search blog' box if interested. 

Mervyn King: "Which Europe Now?"

The former Bank of England governor has been in the news recently.
From the Financial Times, yesterday:

"King takes on Citigroup role despite past criticism of bankers"
Mervyn King, former governor of the Bank of England, has quietly taken up a role as a senior adviser to Citigroup, surprising friends and former colleagues who assumed his disdain for bankers would stop him following peers through the “revolving door” connecting policymaking and finance....MORE
And from the New York Review of Books, the headline story:

Which Europe Now?
Political drama on television is finished. No fictional version could match the vicious infighting in both main political parties in Britain that followed the vote on June 23 by the British people to leave the European Union.

What the vote revealed—and the winning margin was larger than in three of the past four US presidential elections—is a growing and dangerous divide between the political class, often a metropolitan elite, and a large number of people who feel left out of the economic prosperity centered on London and disenfranchised by “political correctness.” Among the latter, insecurity has been growing for years, the result in part of the impact of globalization on real wages and of high levels of immigration.1 It is a problem afflicting many industrialized countries.

Yet the political class, still in a state of shock and disbelief, shows few signs of recognizing the cause of its undoing. The campaign was not a reasoned discussion of the case for the two options but a propaganda war, the likes of which I cannot recall before in Britain, with both sides calling each other, and with some justification, liars.2 And both sides continue to believe passionately that the other was the worse sinner.

Nor was the press any better. Even those newspapers that like to think of themselves as more authoritative and informed than their tabloid cousins allowed their editorial positions to infect their reporting of the campaign. No doubt their own commercial interests played a part.

It was and is simply false to claim that exit from the EU will result in Britain becoming either a land of milk and honey, on the one hand, or a land of plagues and locusts on the other. In truth, the economic arguments are much more evenly balanced. My own guess—and it can be little more than that—is that the effect of EU membership on the level and growth rate of national income in the long run will be much less than either camp would like to claim. But we cannot know today....MORE
...Our political class would do well to recall the words of Confucius:
Three things are necessary for government: weapons, food and trust. If a ruler cannot hold on to all three, he should give up weapons first and food next. Trust should be guarded to the end: without trust we cannot stand....
HT: Kim-Mai Cutler whose "Forgetting History: 'Nothing Like This Has Ever Happened Before'" got me reprising Henry George and the land value tax back in February.

Money, Murder and Sadomasochism: A Look At the L.A. Tech Scene

From Epic Magazine:
Silicon Is Just Sand
August 29, 2015, is a hot night on Venice Beach. Normally the superheated inland desert sucks the damp air off the ocean, blanketing the coast with a layer of moisture all the way to the 405. But tonight, something has gone wrong. There’s no fog, and the sky is boiling, even at 2 am.
A dark SUV pulls in front of the Cadillac Hotel, a two-star lodging better known for its cheap rooms and stained carpets than its views of the ocean. The car’s lights wash over a homeless man sitting on the sidewalk. The homeless live all over Venice Beach and have for as long as anyone can remember, particularly at the northern end of the boardwalk on the edge of Santa Monica. Their tents line the small grassy hills between the sidewalk and sand. Stuffed sleeping bags, shopping carts, signs and bedding made from cardboard. You almost wouldn’t know how much this place has changed recently.
The SUV’s lights stay on, illuminating the scene as Sris Sinnathamby, the owner of the Cadillac Hotel, steps out of the passenger side. He’s followed by the driver, identified by multiple witnesses as Francisco Cardenaz Guzman. Guzman is known to the police as a member of the Venice 13, a gang with ties to the Sureños, who control the local drug trade. He has been arrested many times, for gun possession, robberies, and car theft.

Sinnathamby and the man identified as Guzman have just returned from the James’ Beach bar, a five-minute drive down the street. Sinnathamby walks up to the homeless man and tells him to get away from the front of the hotel. A security camera at a nearby café records the scene.
Sinnathamby is not like Guzman. He was born in Sri Lanka and came to the US in his twenties. According to the LA Weekly, he happened to be passing through Venice 25 years ago when he ran out of money. He took a job cleaning hotel rooms at the Cadillac, then worked his way up to manager. When the owner retired, Sinnathamby bought the place from him. It’s not fancy, but it faces the ocean, and pretty or not, it has dramatically risen in value in the past decade.
The run-up in real estate prices has been driven in part by the explosion of tech companies along the beach on the west side of Los Angeles. Google, Snapchat, Hulu, BuzzFeed, YouTube, Netflix, and Facebook have overtaken an archipelago of properties, bringing an influx of programmers, sales executives, and the refined retail that follows such massive migrations of well-paid people. They call it Silicon Beach.

The homeless don’t necessarily mind the newcomers, but the newcomers mind the homeless. Sinnathamby is not one of the newcomers, but they have been very good for his business interests. In addition to the Cadillac, Sinnathamby owns the gourmet eatery Dudley Market, a parking lot on Ocean Front Walk, and other Venice properties. Sinnathamby again tells the homeless guy to get moving. The man rises and shuffles toward the boardwalk, 20 feet away.
The beach used to belong to the people. Now it’s illegal to be here from midnight to 5 am. In fact, a 2012 law designated the boardwalk part of the beach, making it illegal to sleep on the boardwalk as well. The justification was public safety. Homeless advocates have filed lawsuits challenging the ordinance. In the meantime the homeless feel harassed, people always kicking their feet, telling them to move. Venice is a place with a long history of art and activism and, now, a flood of wealth. Tempers run high on all sides.
Sinnathamby’s efforts to move the homeless man attract the attention of a group of nearby boardwalk denizens. “Leave him alone,” says Shakespeare, a 26-year-old rapper and poet who frequently sleeps on the boardwalk near the Cadillac. Sinnathamby walks over to him, passing a man pushing a cart, who exchanges greetings with Sinnathamby. Everyone knows each other.

The homeless have been drinking. They had a party earlier on Hippie Hill, a mound of grass nearby, to celebrate Shakespeare finishing a new recording. Maybe it’s the booze. Maybe it’s the heat. Or maybe it’s the money. Rising property values have unpredictable effects on community relations.
Shakespeare argues with Sinnathamby, insisting the man has a right to stay on the sidewalk. But then Guzman, who has so far hung back on the boardwalk by himself, suddenly pulls out a gun and fires four shots down the beach. Shakespeare gets even more agitated, gesturing toward Guzman as if to challenge him. Sinnathamby stands between the two men, keeping them apart. Guzman waves his gun in a threatening manner.

Two women, friends of Sinnathamby who were waiting in the SUV, now get out and walk over to him. He turns to the women, and as he does Shakespeare shifts to his right. Guzman notices Shakespeare making his way around the women, and Shakespeare uses the moment to lunge at Guzman. Guzman shoots him three times, stepping aside like a bullfighter as Shakespeare falls past him, exiting the frame of the surveillance video. Guzman waits for a moment, then gestures for the women and Sinnathamby to come with him. But they stay. Finally Guzman runs to the SUV and drives away. At least that’s how it all appears on the video.

The ocean is as calm as a sheet of paper.

Nine days later, I arrive in Venice. I move into a small two-bedroom with a roommate on Pacific and Breeze, one block from the beach, four blocks from the Cadillac. It’s ferociously hot, and like most places this close to the ocean, this one has no air-conditioning. I have a small carry-on bag with me, a pair of jeans, two T-shirts, a pair of shorts. No return ticket.

On the boardwalk near my apartment, some people and local community organizations have erected a memorial for Shakespeare at the base of one of the boardwalk’s pagodas—the usual candles and flowers, a pink bow, a poster signed by his friends, a framed picture of Shakespeare in a tan jacket, a stuffed panda bear. A group of homeless men and women lounge in the pagoda, one of only a handful of slivers of shade.

I’ve been sent here to figure out why Google has moved into so many buildings in the area, why there are so many accelerators and shiny new office-sharing facilities. Snapchat chose Venice over Silicon Valley and is now valued at $20 billion, with more than 800 employees. What is happening here?

That’s my assignment....MORE
HT: Longform 

NYC Bank Burglars Stole $5 Million in Cash, Diamonds Hollywood Style

From the Brooklyn Reporter:

Photo courtesy of the U.S. Attorney's Office.
The roof of one of the banks where the burglars used a blowtorch to enter a vault.  
Photo courtesy of the U.S. Attorney's Office.
Three Brooklyn men were arrested on Tuesday for their alleged roles in at least two bank burglaries – one in Brooklyn and one Queens – that took place earlier this year, according to the U.S. Attorney’s Office.

Roughly $5 million in cash and valuables were collectively taken from a Brooklyn HSBC branch and a Maspeth Federal Savings Bank branch in Queens, in April and May respectively, Preet Bharara, the United States Attorney for the Southern District of New York, announced alongside Diego Rodriquez, assistant director-in-charge of the New York Field Office of the FBI and New York City NYPD Police Commissioner William Bratton on Tuesday, July 26.

Michael Mazzara, 44, Charles Kerrigan, 40, and Anthony Mascuzzio, 36, are each being charged with one count of conspiracy to commit bank burglary and one count of bank burglary after surveillance footage captured the trio “preparing to execute the burglaries,” according to the U.S. Attorney’s Office. Additional financial records and video show Mazzara and Mascuzzio purchasing a few of the supplies that connect with the Maspeth burglary.

“These heists resembled scenes from the movie ‘Heat’ – the work of a crew that was well organized, meticulous and elusive to law enforcement,” said Bratton. “This investigation was conducted with painstaking persistence.  Left with few clues after the heists, our crime scene teams hunted for every shred of evidence.  From the plywood purchased at a nearby Home Depot, to the torches from a Brooklyn welder used to muscle into the vault, the picture slowly came into focus, resulting in today’s arrests and charges.”...MORE
Mascuzzio has some backstory:
Son of slain Gambino soldier suing city for $2 million after alleged fight with cops over father's Rolex

Here's the Department of Justice press release:

Department of Justice
U.S. Attorney’s Office
Southern District of New York

Tuesday, July 26, 2016
Three Brooklyn Men Charged in Manhattan Federal Court for Two Bank Burglaries
Thefts Yielded About $5 Million in Cash and Valuables
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriquez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced that MICHAEL MAZZARA, CHARLES KERRIGAN, and ANTHONY MASCUZZIO were arrested this morning for their roles in bank burglaries in Brooklyn and Queens, New York, earlier this year.  MAZZARA, KERRIGAN, and MASCUZZIO will be presented later today in Manhattan federal court before United States Magistrate Judge Ronald L. Ellis.

            Manhattan U.S. Attorney Preet Bharara said:  “In the dark of the night, these defendants allegedly blowtorched their way through the roofs and into the vaults of two different banks, stealing over $5 million in cash and customer valuables kept in safe deposit boxes.  Through their brazen bank heists, the defendants allegedly stole not just people’s money, but their memories too, leaving in their destructive wake gaping holes and looted vaults.  But these bank jobs also left enough of a trace for the FBI and NYPD, whose good old-fashioned police work led to the charges and arrests announced today.” 
            FBI Assistant Director-in-Charge Diego Rodriquez said:  “The Mazzara bank robbery crew did more than just allegedly steal money from banks, they took irreplaceable mementos from people who believed those items were far too valuable to be kept at home.  These men were allegedly after the money, but they also took heirlooms, jewelry, documents and family photos and tossed them aside.  Those items held little value to the men accused in this case, but we hope the community finds some solace in the fact that they will no longer be able to commit these thefts.”

            NYPD Commissioner William J. Bratton said:  “These heists resembled scenes from the movie Heat – the work of a crew that was well organized, meticulous, and elusive to law enforcement.  This investigation was conducted with painstaking persistence.  Left with few clues after the heists, our crime scene teams hunted for every shred of evidence.  From the plywood purchased at a nearby Home Depot, to the torches from a Brooklyn welder used to muscle into the vault, the picture slowly came into focus, resulting in today’s arrests and charges.”

            According to the Complaint[1]:
            Between April 2016 and the present, MAZZARA, KERRIGAN, and MASCUZZIO were part of a crew that burglarized banks in Brooklyn and Queens, New York, by cutting into the banks’ vaults, and stealing a total of approximately $5 million in cash, jewelry, diamonds, stock certificates, and other valuables.  Specifically, from about April 8 to April 10, 2016, MAZZARA, KERRIGAN, and others burglarized an HSBC Bank branch in Brooklyn, and from about May 19 to May 22, 2016, MAZZARA, KERRIGAN, MASCUZZIO, and others burglarized a Maspeth Federal Savings Bank branch in Queens.  On both occasions, the burglars used acetylene blowtorches to cut into the top of the banks’ vaults from the roof of the building.  At the Maspeth Federal Savings Bank branch, they shielded their activities from view by constructing a plywood shed on the roof of the bank.  The burglars then entered the vaults from above, broke open safe deposit boxes, and took both cash belonging to the bank and customers’ valuables from the safe deposit boxes.  The crew obtained approximately $330,000 in cash and an unknown amount in valuables from the HSBC branch, and approximately $296,000 in cash and $4.3 million in valuables from the Maspeth bank.  Surveillance footage captured some of MAZZARA, KERRIGAN, and MASCUZZIO’s activities as they prepared for and executed the burglaries.  Financial records and video surveillance also showed MAZZARA and MASCUZZIO purchasing some of the supplies that appear to have been used in the Maspeth burglary....MORE

Friday, July 29, 2016

White Dwarf Lashes Red Dwarf Every Two Minutes

From Ideas, Inventions and Innovations:
Astronomers using the NASA/ESA Hubble Space Telescope, along with other telescopes on the ground and in space, have discovered a new type of exotic binary star: in the system AR Scorpii a rapidly spinning white dwarf star is powering electrons up to almost the speed of light. These high energy particles release blasts of radiation that lash the companion red dwarf star, and cause the entire system to pulse dramatically every 1.97 minutes with radiation ranging from the ultraviolet to radio.

In May 2015, a group of amateur astronomers from Germany, Belgium and the UK came across a star system that was exhibiting behaviour unlike anything they had ever encountered before. Follow-up observations led by the University of Warwick and using a multitude of telescopes on the ground and in space, including the NASA/ESA Hubble Space Telescope [1], have now revealed the true nature of this previously misidentified system.

This artist's impression shows the strange object AR Scorpii. In this unique double star a rapidly spinning white dwarf star (right) powers electrons up to almost the speed of light. These high energy particles release blasts of radiation that lash the companion red dwarf star (left) and cause the entire system to pulse dramatically every 1.97 minutes with radiation ranging from the ultraviolet to radio.
 Credit: M. Garlick/University of Warwick, ESA/Hubble
The star system AR Scorpii, or AR Sco for short, lies in the constellation of Scorpius, 380 light-years from Earth. It comprises a rapidly spinning white dwarf [2], the same size as Earth but containing 200 000 times more mass, and a cool red dwarf companion one third the mass of the Sun [3]. They are orbiting one another every 3.6 hours in a cosmic dance as regular as clockwork.

In a unique twist, this binary star system is exhibiting some brutal behaviour. Highly magnetic and spinning rapidly, AR Sco's white dwarf accelerates electrons up to almost the speed of light. As these high energy particles whip through space, they release radiation in a lighthouse-like beam which lashes across the face of the cool red dwarf star, causing the entire system to brighten and fade dramatically every 1.97 minutes. These powerful pulses include radiation at radio frequencies, which has never been detected before from a white dwarf system.

Lead researcher Tom Marsh of the University of Warwick's Astrophysics Group commented: "AR Scorpii was discovered over 40 years ago, but its true nature was not suspected until we started observing it in June 2015. We realised we were seeing something extraordinary the more we progressed with our observations."...MORE

Venezuela has a new 'forced labor' law that can require people to work in fields

From VICE:
International human rights activists are complaining that new laws have introduced forced labour in Venezuela.

"A new decree establishing that any employee in Venezuela can be effectively made to work in the country's fields as a way to fight the current food crisis is unlawful and effectively amounts to forced labor," Amnesty International said in a statement released on Thursday.

President Nicolás Maduro signed a decree at the end of last week that gives powers to the labor ministry to order "all workers from the public and private sector with enough physical capabilities and technical know-how" to join a government drive aimed at increasing food production.

They can be required to work in the agricultural sector for a 60-day period that can be extended for another 60 days "if the circumstances require it."

Shortages of basic goods have become a normal part of life for most Venezuelans ever since the country was plunged into an economic crisis by the plummeting oil price. Food shortages have become particularly acute in recent months, accompanied by violent demonstrations and violent responses to these by the police.

Earlier this month, 120,000 desperate Venezuelans took advantage of a weekend's temporary relaxation of border controls to flood into the Colombian city of Cúcuta to shop for basics. Local stores reportedly ran out of supplies in a few hours.

Antonio Pestana, chief of Venezuela's farming association, told reporters last month that only 25 percent of agricultural land is actually being farmed....MORE

Natural Gas: EIA Weekly Supply/Demand Report

Yesterday was the largest upmove of the year (8%) with some follow-through today:

Although we were pointing out the coming heat wave back on July 13 with "Natural Gas: 'Massive heat dome forecast to bake much of U.S. by late next week'" it took the market an extra seven days to realize how much gas would go into powering the air conditioners.

Now the thing to focus on is the fact that gas in storage is very, very high.

$2.891 last , +0.018.
From the Energy Information Administration:


(For the Week Ending Wednesday, July 27, 2016)

  • Spot prices at most market locations rose this report week (Wednesday, July 20, to Wednesday, July 27). The Henry Hub spot price rose 8¢ from $2.72 per million British thermal units (MMBtu) last Wednesday to $2.80/MMBtu yesterday.
  • At the New York Mercantile Exchange (Nymex), the August 2016 contract expired yesterday at $2.672/MMBtu, up 1¢ from last Wednesday. The September 2016 contract rose to $2.660/MMBtu, up 4¢ Wednesday to Wednesday.
  • Net injections to working gas totaled 17 Bcf for the week ending July 22. Working gas stocks are 3,294 Bcf, which is 15% greater than the year-ago level and 19% greater than the five-year (2011-15) average for this week.
  • According to Baker Hughes, for the week ending Friday, July 22, the natural gas rig count fell by 1 to 88. Oil-directed rigs increased by 14 to 371. The number of miscellaneous rigs increased by 2 during the week. The total rig count increased by 15, and now stands at 462.
  • The natural gas plant liquids composite price at Mont Belvieu, Texas, fell by 10¢, closing at $4.87/MMBtu for the week ending July 22. The price of ethane, propane, and butane fell 6%, 2%, and 1%, respectively. The price of isobutane was flat, and the price of natural gasoline rose 1%.
Heat drives price increases. As temperatures rose this report week, the Henry Hub spot price increased 8¢ from $2.72/MMBtu last Wednesday to $2.80/MMBtu yesterday. At the Chicago Citygate, prices gained 3¢ from $2.72/MMBtu last Wednesday to $2.75/MMBtu yesterday.

California prices rise on extreme heat this week. Like most areas of the country, California experienced hot weather this week. Maximum temperatures reached into the upper 90s this week, and the California Independent System Operator (CAISO) urged consumers to conserve electricity in anticipation of high power demand. At the SoCal Citygate, prices gained 40¢ this week, from $3.02/MMBtu last Wednesday to $3.42/MMBtu yesterday. Prices at the PG&E Citygate, which serves areas farther north, where temperatures were more moderate, rose 15¢ from $3.00/MMBtu last Wednesday to $3.15/MMBtu yesterday.

Northeast prices increase. Temperatures in Boston reached into the 90s this week. At the Algonquin Citygate, which serves Boston-area consumers, prices rose 21¢ from $2.74/MMBtu last Wednesday to $2.95/MMBtu yesterday. Similarly, at the Transcontinental Pipeline's Zone 6 trading point for New York, prices rose 18¢ from $2.21/MMBtu last Wednesday to $2.39/MMBtu yesterday....
Mean Temperature Anomaly (F) 7-Day Mean ending Jul 21, 2016

Dear Teamsters: It Looks Like Uber Was Trying To Dig Up Dirt On The Seattle Local

From The Verge:

Uber hired CIA-linked research firm to investigate Seattle union politics
After a tense city council vote, the secretive firm was called in to investigate 'the dynamics of labor unions'
In an email obtained by The Verge, Ergo reached out to a labor historian named Trevor Griffey, seeking insight into "the recent developments in labor unionization in Seattle" and offering to pay for consultation work on the topic. The email was sent in mid-January, roughly a month after the collective bargaining ordinance was passed.

In the email, the sender identifies himself as an Ergo representative, but says his work is on behalf of a private, anonymous client and that the resulting study will not be released to the public. According to the message, the study would deal with "Seattle's political stakeholders and the dynamics of labor unions in the city." The final report was due to be submitted "relatively soon." Ergo did not respond to requests for comment.

Uber has undertaken a number of initiatives to convince Seattle drivers not to support the newly empowered App Based Drivers Association. In January, Uber customer service representatives began contacting Seattle-based drivers with a new script, which began as a driver satisfaction survey but concluded with a strong anti-union message. "This is simply a case where collective bargaining and unionization do not fit the characteristics of the work," the script read, a turn one former employee characterized as "union-busting."...MORE
There are quite a few dimensions to what is going on here so lets start with the latest....
This is not at all what Silicon Valley wants.
* Teamsters Local 117 was instrumental in mobilizing the political clout and "assisted" in drafting the ordinance.
Uber had brought in former Obama campaign genius David Plouffe to do a little arm-twisting, apparently to no avail.
What Uber Hath Wrought: The Coming Digital Labor Movement
As Chicago Prepares an App For Taxis to Compete With Uber, Giant Union AFSCME is Organizing Cab Drivers
 Watch Out Uber: National Labor Relations Board Interpretation Could Allow Many Taxi Drivers to Unionize
 Dear Teamsters, United Auto Workers: Google Is Trying To Crush Your Unions and Your Members (GOOG)
Here's how the Teamsters reacted to stress in 1934, the management guy heading for terra firma  died almost instantly of a crushed occipital lobe:

Russia To Lend 2.2 Billion Euros To Iran

Wait what?
From Tass:

Russia prepares deal on 2.2 billion euro loan to Iran — minister
MOSCOW, July 29. /TASS/. Russia and Iran have prepared a package of agreements on allocating a 2.2 billion euro loan to Tehran, Russian Energy Minister Alexander Novak told journalists on Friday.

"These two draft agreements were coordinated in the Russian government - 2.2 billion euros in total in the framework of agreements will be provided as an inter-state loan," Novak said after talks with Iranian Minister of Communication Mahmoud Vaezi. Banks' cooperatio.

According to the minister, Russia and Iran agree to continue cooperation in the banking sphere.
"We agree there is a need to continue working in the field of developing relations in the banking sphere," Novak said.

According to him, this is the main current topic on the agenda. "Development of the interbank lending opportunities, mutual credit, provides additional opportunities and momentum for our companies in cooperation," Novak said.

The minister added that representatives of Iranian, Russian Central Banks will meet in August....MORE

Risk: Skydiving Without A 'Chute


From The Guardian:

Skydiver to jump from plane without a parachute on live TV 
He’s made 18,000 parachute jumps, helped train some of the world’s most elite skydivers, done some of the stunts for Ironman 3. But the plunge Luke Aikins knows he’ll be remembered for is the one he’s making without a parachute. Or a wingsuit.

Or anything, really, other than the clothes he’ll be wearing when he jumps out of an airplane at 25,000 feet this weekend, attempting to become the first person to land safely on the ground in a net.
The Fox network will broadcast the two-minute jump live at 8pm ET (5pm PT) Saturday as part of an hour-long TV special called Heaven Sent.

And, no, you don’t have to tell Aikins it sounds crazy. He knows that.

“If I wasn’t nervous I would be stupid,” the compact, muscular athlete says with a grin as he sits under a canopy near Saturday’s drop zone.

“We’re talking about jumping without a parachute, and I take that very seriously. It’s not a joke,” he adds.

Nearby, a pair of huge cranes define the boundaries where the net in which Aikins expects to land is being erected. It will be about one-third the size of a football field and 20 stories high, providing enough space to cushion his fall, he says, without allowing him to bounce out of it. The landing target, which has been described as similar to a fishing trawler net, has been tested repeatedly using dummies.

One of those 200-pound (91-kilogram) dummies didn’t bounce out. It crashed right through.
“That was not a good thing to see”...MORE

Evans-Pritchard: "IMF admits disastrous love affair with the euro and apologises for the immolation of Greece"

From the Telegraph:
The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.

This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions.

It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way European Union insiders used the fund to rescue their own rich currency union and banking system.

The three main bailouts for Greece, Portugal and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000pc of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the fund between 2011 and 2014.

In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive "ad-hoc task forces". Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff," it said.

The report said the whole approach to the eurozone was characterised by “groupthink” and intellectual capture. They had no fall-back plans on how to tackle a systemic crisis in the eurozone – or how to deal with the politics of a multinational currency union – because they had ruled out any possibility that it could happen.

“Before the launch of the euro, the IMF’s public statements tended to emphasise the advantages of the common currency," it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.
“After a heated internal debate, the view supportive of what was perceived to be Europe’s political project ultimately prevailed,” it said.

This pro-EMU bias continued to corrupt their thinking for years. “The IMF remained upbeat about the soundness of the European banking system and the quality of banking supervision in euro-area countries until after the start of the global financial crisis in mid-2007. This lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value,” it said....MUCH MORE

Thursday, July 28, 2016

Handy Hints: Use Your Competitor's Genetic Information To Get Ahead

Do you compete in the blood sport of office politics?
Time to step up your game.

From Motherboard:

What Can A Hacker Do With Your Genetic Information?
Learning about the genetic markers stored in your DNA can be an illuminating experience, even a life-altering one. Now that direct-to-consumer genetic testing companies such as 23andMe have made these tests more accessible and affordable, it’s no wonder that more than 1 million people have shipped their spit off to be genotyped, and have all their genetic information catalogued (and sold) in the process.

When a massive cache of private information is all stored in one place, it will naturally be a target for hackers. Though there hasn’t been a hack of any consumer genetic testing company yet, it may just a matter of time before someone breaches one of these sites and gains access to not just your credit card, but also your genetic markers.

So how concerned should we be, and what might happen if a hacker ever did get his or her hands on your DNA?

“You can imagine scenarios where unsavory people could try to use this stuff in personal ways,” said Dr. Robert Green, the director of the Genomes to People research program at Brigham and Women's Hospital, Broad Institute and Harvard Medical School.

Green told me while a massive hack might be able to execute a data dump of genetic information, unless the hacker was also able to connect that information to individuals (personal information is encrypted, according to 23andMe’s privacy policy) it wouldn’t be particularly useful. Even if the genetic information was linked to customers’ identities, on a mass scale it wouldn’t mean much.
What would be more detrimental would be a targeted attack to collect your genetic information specifically, orchestrated by somebody you know.

“If there were variants that put someone at risk for Alzheimer’s disease and you were vying with that person in a corporation for a job, you could somehow try to use that information to suggest that they might be unfit,” Green told me over the phone. “You could be in a custody battle where DNA could suggest there’s a predisposition to psychiatric illness, for example.”

Green has previously studied how genetic information like this could be used in politics, citing the obsession and concern over Senator John McCain’s age and vitality in the 2008 election. But if someone were targeting you specifically, there are way less complicated and risky ways of getting your genetic information than breaching the entire 23andMe database....MORE

BlackRock Now Expects NEGATIVE Annualized Returns From 10-Year Treasuries, Lowers Expectations On Most Other Asset Classes

10-year yield 1.5110%
From BlackRock, Jul 25, 2016:
Key points
  • We have lowered our five-year return assumptions for most asset classes, on a fall in yields and global growth expectations.
  • The S&P 500 reached a new high last week, as many large-cap U.S. companies reported revenues above analysts’ expectations.
  • We see the Federal Reserve (Fed) on hold this week, while the Bank of Japan (BoJ) may delay actions until September.
We have lowered many of our capital market assumptions in our latest quarterly update. We now assume lower U.S.-dollar returns from most asset classes over the next five years, following a fall in both yields and global growth expectations.
BlackRock's five-year asset class return assumptions, July 2016
Our five-year return assumptions have steadily moved lower since the financial crisis, amid weak global growth prospects, easy monetary policy and rising valuations. Most are now well below long-run averages.
Uncovering relatively higher returns We have lowered our assumed returns for most fixed income assets, following a drop in yields (and rise in valuations) in the second quarter. We see holders of long-duration U.S. Treasuries losing more than 1% annually over the next five years as yields rise. Our analysis also shows less than 10% of the global fixed income universe offering annual returns of 3% or more over the next five years, with the higher returns concentrated in riskier assets such as hard-currency emerging market (EM) debt and high yield. We view EM debt as especially attractive versus Treasuries over the next five years.

Our return assumptions for U.S. stocks are unchanged — but are low from a historical perspective due to high valuations (the U.S. market is currently trading near 19 times earnings). We see non-U.S. equities offering higher potential returns, along with higher risk. We have, however, downgraded our return assumptions for pan-European stocks due to the likely impact of a Brexit on UK and eurozone economic growth. To generate higher returns, investors must be ready to accept more market risk or more illiquidity risk (e.g. alternatives). Within riskier assets, EM debt and dividend growth are worth considering. Government bonds can still play an important diversification role in portfolios — but at a greater cost. We see investment grade credit offering attractive risk-adjusted returns for investors looking for safety....MORE
HT: Barron's Income Investing 

Related: Tuesday's FT Alphaville "A friendly reminder that return is 'not really a function of yield'".

Population, Income and Growth: "Is the Semi-Permanent "Gunpowder Empire" Historical Scenario Plausible? Perhaps Not..."

From Brad DeLong:
Riffing off of yesterday's: : "'Gunpowder Empire': Should We Generalize Mark Elvin's High-Level Equilibrium Trap?"...

A generation ago Michael Kremer wrote a superb paper: Michael Kremer (1993): "Population Growth and Technological Change: One Million B.C. to 1990", Quarterly Journal of Economics 108:3 (August), pp. 681-716

Kremer saw human populations as growing at an increasing rate over time. Population reached approximately 4 million by 10000 BC, 50 million by 1000 BC, and 170 million by the year 1. Population then reached 265 million by the year 1000, 425 million by 1500, and 720 million by 1750 before the subsequent explosion of the British Industrial Revolution and the subsequent spread of Modern Economic Growth.

Michael Kremer then developed this association between higher global population levels and faster population (and global real GDP, and global total factor productivity) growth into a "two heads are better than one" theory of long-run economic growth:
No matter where the economy starts, it winds up in region B.... Once the trajectory is in region B, it remains there, with population and income both increasing indefinitely.
Income must eventually reach y*, the [demographic transition] level above which population growth slows.... As income rises above y*, population growth rates decline. If Φ = 1, so that the level of technology enters the research production function linearly, growth rates of technology continue to increase because population continues to increase.
If 1 > Φ... growth rates of technology are likely to continue to increase for some period.... In summary, if population adjusts to income at finite speed... income will gradually rise over time... there will eventually be a demographic transition... [followed by] steady state growth rates of population, technology, and income...
In Kremer's model, population will grow and eventually population will be high enough that research and development will proceed fast enough to push income per capita high enough to trigger the demographic transition and thus break the Malthusian proportional link between resources and technology on the one hand and population on the other. After that link is broken, economic growth will predominantly take the form not of Malthusian increases in population but rather Industrial Revolution and Modern Economic Growth increases in living standards and labor productivity.
The breakthrough to an Industrial Revolution, Modern Economic Growth, and our present prosperous global post-industrial economy is therefore baked into the cake. It is an all-but-inevitable event in human history produced by the simple fact that when it comes to generating useful ideas two heads are better than one: "the fundamental nonrivalry of technology as described by Paul Romer (1986)..."

The alternative view to the inevitability of the breakthrough is that the breakthrough to the Industrial Revolution and the subsequent knock-on transition to Modern Economic Growth was a lucky throw of the historical dice--that while Kremer's model has something like our economic world today as our inevitable destiny, the world might well be substantially otherwise and remain substantially otherwise for millennia if not longer. The current poster child for British-Industrial-Revolution-a-lucky accident is Robert Allen, and his excellent "The British Industrial Revolution in Global Perspective":
It was not Newtonian science that inclined British inventors and entrepreneurs to seek machines that raised labour productivity but the rising cost of labour... due to... Britain’s success in the global economy... in part the result of state policy... [and] Britain['s] vast and readily worked coal deposits.... The necessary R&D was profitable in Britain (under British conditions) but unprofitable elsewhere....
The theory advanced here explains the technological breakthroughs of the industrial revolution in terms of the economic base of society–natural resources, international trade, profit opportunities. Through their impact on wages and prices, these prime movers affected both the demand for technology and its supply...
Why did the industrial revolution lead to modern economic growth?... Wouldn’t the French, or the Germans, or the Italians, have produced an industrial revolution by another route? Weren’t there alternative paths to the twentieth century?... The nineteenth century engineering industry was a spin-off of the coal industry.... The British inventions of the eighteenth century–cheap iron and the steam engine, in particular–were so transformative... because of the possibilities they created for the further development of technology. Technologies invented in France–in paper production, glass, knitting–did not lead to general mechanization or globalization....
There is no reason to believe that French technology would have led to the engineering industry, the general mechanization of industrial processes, the railway, the steam ship, or the global economy. In other words, there was only one route to the twentieth century–and it went through northern Britain...
Allen may be right and he may be wrong. But let's explore what the consequences are of assuming that he is right--that the British Industrial Revolution was a lucky, discontinuous break. Suppose that without the British Industrial Revolution global economic history would have continued along a business-as-usual track, suppose that the British Industrial Revolution required British commitment to its fiscal-military state followed by the victories at sea that wound up funneling the globe's mercantile profits into the island, and so raising wages. What would the world have looked like had the Protestant Winds of 1588 and 1689 not blown, and Britain been ruled by a Catholic Stuart Dynasty French- or Spanish-subsidized client dynasty unwilling to fight the Second Hundred Years War?

Kremer's (1993) model then allows us to ask the question: How long would it have taken--in the absence of eighteenth century Britain--to get the ball rolling....MUCH MORE

Big Money: "An Auction House Learns the Art of Shadow Banking"

From Bloomberg, July 27:
  • Lending by Sotheby’s tripled to $682 million in four years
  • Malaysian financier in money-laundering probe got a loan
A year before he got caught up in a U.S. money-laundering investigation, Malaysian financier Jho Low was looking to borrow more than $100 million without having to answer all the nosy know-your-customer questions required by U.S. banks such as JPMorgan Chase & Co.

“Prefer the boutique banks that can move fast vs the large ones like JPM,” Low wrote on March 13, 2014, to an employee of a private art dealership that had sold him a painting by Claude Monet for $35 million a few months earlier. The lender “can take all the art no problems,” he wrote the next day. “All in Geneva free port. Speed is the most important and one with a fairly quick and relaxed kyc process.”

Low got his money a month later, not from a bank but from Sotheby’s, an auction house that isn’t subject to the same money-laundering scrutiny by regulators. He pledged 17 works of art, valued between $191.6 million and $258.3 million, to secure a $107 million loan, according to a U.S. Justice Department complaint filed July 20 in an effort to seize more than $1 billion of assets allegedly siphoned from a Malaysian state fund.

As prices for art skyrocketed, Sotheby’s and other firms have become shadow banks, making millions of dollars of legal loans outside the regulated financial system and raising concerns that such financing could facilitate money laundering. Sotheby’s tripled lending to $682 million over the four years ended in 2015. Last year it almost doubled, to $1 billion, a revolving credit facility provided by banks including JPMorgan and HSBC Holdings Plc that it can use to make loans.

Art Crime
“One way to launder is to use art as a security for a loan,” said David Hall, who spent 10 years as a special prosecutor for the Federal Bureau of Investigation’s Art Crime Team and is now a partner at law firm Wiggin & Dana LLP. Hall, who wouldn’t comment about Sotheby’s or the Low case, said the aim is to use ill-gotten funds to purchase assets that can be used as collateral for a loan. “The level of scrutiny you’ll receive from a bank is much higher than you will receive from an auction house.”
Sotheby’s says it has a rigorous compliance program, and the firm hasn’t been accused of wrongdoing in connection with the government investigation. While the company underwrites loans on the basis of the value and title of the artwork, it has a parallel process that looks into a client’s source of wealth and evaluates risk in a manner analogous to banks, according to Lauren Gioia, a spokeswoman. The compliance program is headed by Jane Levine, a former federal prosecutor who worked with the FBI’s art-crime unit.

“This process was in place at the time the loan to Mr. Low was extended,” Gioia said. “As outlined in the complaint, Sotheby’s, like many other entities, including prominent law firms, major banks, real estate companies and corporations in other industries, fell victim to a complex web of transactions designed to hide and disguise the alleged illegal source of funds.”

Indeed, some of the money used to buy Low’s art flowed through a U.S. account at JPMorgan, according to the complaint.

Financing Lifestyles
Art financing has expanded not just at Sotheby’s but at banks including Bank of America Corp. and JPMorgan as well as boutique firms. Art-secured lending has increased by 15 percent to 20 percent annually over the past five years to become a $15 billion to $19 billion market in the U.S., according to Deloitte’s Art & Finance Report 2016....MORE
HT: Art News who also refer us to:

Taikang Life, one of China’s biggest insurers, now holds a 13.5 percent stake in Sotheby’s worth around $233 million. [CNN]
Here's our May post "Deloitte Luxembourg's Art & Finance Report 2016".

And some others that may be of interest:
Carlyle and Banque Pictet Hook Up For Art Financing Action
Art: War Between the 'Freeport King' and the Oligarch and How Dmitry Rybolovlev Made a Quick $300 Million
"Oligarchs and Orchestras: Inside Luxembourg’s Secretive Low-Tax ‘Fortress of Art’ Warehouse"
"(Sm)art Investing: Rich Move Assets from Banks to Warehouses" ($4 trillion in 'treasure' assets)
What's the Scam? Why Did Deloitte Set Up Their Art & Finance Practice In Luxembourg?
"Private Banks Boost Art Advisory Units"
Super Wealth: Barron's Penta Calls For Avoidance Of Geneva-style Freeports
If it were a museum, some say that it would probably be the best museum in the world
Art (and money laundering): Swiss Government's Tough New Controls On Freeports Effective January 1 
In "Liechtenstein Is Using One of the World's Finest Art Collections to Market Its Private Bank to the Chinese" I took the not-too-controversial position that "'Prince of Liechtenstein' is a very good gig."
I'm thinking that Grand Duke of Luxembourg ain't too shabby either.

The Dollar and Oil Contango: Expect the Return of Storage Builds

Both WTI and Brent are down over a half-percent, $41.63 and $43.16 respectively.
This while the dollar index is down 0.29% and the buck is weaker against the euro at 1.1099.

From Alhambra Partners:
It isn’t just that oil prices are falling, that is only one dimension of the full oil spectrum concentrating in the spot market. The more interesting and important information is contained within the whole WTI futures curve. As “dollar” funding pressure has built up since the front month peak on June 8, it has steepened the curve into deeper contango; raising expectations for even more crude heading toward storage in the near future.

That process continues, but in the past few weeks the entire WTI curve has again been influenced by the front. As we have seen in prior episodes, the “dollar” “wins” by pulling down the shorter maturities first so that those expectations for storage become paramount at the back end (so much oil inventory reduces the willingness of anyone who might be willing to buy and store crude to sell at a future date, therefore a lower price further into the future).
ABOOK OilDollar WTI Curve 2016
This is all familiar stuff, of course, as the same thing occurred June to July last year. While the scale was a bit larger and more condensed in terms of time (primarily, I think, due to the fact that second surge in oil inventory to start 2016 may have kept a lid on how far oil prices could retrace after February 11, China or no China), the effect on the whole WTI curve is immediately recognizable heading toward the events of last August.
 ABOOK OilDollar WTI Curve 2015
So what seems like clear “dollar” influence should be corroborated by other “dollar” proxies, particularly those that have been especially helpful in sorting out the eurodollar condition during the “rising dollar” period: CNY and JPY. Nothing, however, is ever that simple. Though seasonality and pattern repetition are undoubtedly underlying influences, history only rhymes.

If we take the action in crude oil prices to be a measure of the “dollar”, then we would expect to find CNY falling, too. It isn’t. In fact, CNY has been rather tame and sideways since around July 11. That Monday, the exchange rate to the dollar was just under 6.70. It was also the day that Japanese rumors rekindled 2013-style love of central banking (if only in rump format). Since Japanese banks have been, I believe, a (perhaps “the”) significant source of “dollar” liquidity in China, a hard reversal like that might explain CNY’s much calmer demeanor since then....MORE

International Grain Council Expects Near Record Production (on top of huge carryover)

There is just so much of the stuff.

Last Chg
Corn 340-4-2-4
Soybeans 984-2-1-6
Wheat 412-0-2-6

From Agrimoney:

World grains harvest upgraded to 1m tonnes from record high
World grains production will come just 1m tonnes from its record high, the International Grains Council said, lifting in particular its forecast for output of corn, in which it ditched an estimate of a drop in stocks.
The intergovernmental group hiked by 20m tonnes to 2.046bn tonnes its forecast for global output of coarse grains and wheat in 2016-17, taking the figure within an ace of the record high set two seasons ago.
The upgrade reflected in part an increase of 6m tonnes, to 735m tonnes, in the estimate for world wheat output, as improved estimates for former Soviet Union and US crops offset a downgrade to expectations for the European Union harvest.
"Wheat harvests are significantly exceeding expectations in the US and [former Soviet Union], but results have been poorer than predicted in parts of the EU, particularly in France," the council said.
Indeed, in the EU, "there is increasing evidence of yield and quality damage following untimely rains".
'Solid rebound'
However, the bulk of the grains upgrade was down to an increase of 14m tonnes to 1.017bn tonnes in the forecast for world corn output, taking the estimate 1m tonnes from the 2014-15 record high.
"After last year's decline, a solid rebound in global corn output is anticipated, with most of the gain in the major exporters," the IGC said.
"Better crop prospects in the US account for most of the change for corn."
'Historically elevated stocks'
Estimates for grain demand were raised too, with the IGC saying that "global grains consumption is seen surpassing 2bn tonnes for only the second time, with food, feed and industrial demand all potentially at new all-time peaks"....

Color Revolution: "Does China Think America Is Using a 'Wedge Strategy'?"

Watching some of the Kagan-Nuland diplo-bros it's more of a wedgie strategy. Bunch of clowns.

From The National Interest:

“The Qianlong Emperor in Ceremonial Armour on Horseback” by Giuseppe Castiglione. Wikimedia Commons/Public domain
The permanent court of arbitration (PCA) ruling from The Hague earlier in July once again has directed the world’s attention to a set of rocks and reefs in the South China Sea. One of the valuable roles of this ruling is to reinforce the notion that these features are indeed “rocks” and not “islands” that would have been entitled to an exclusive economic zone (EEZ). In theory, the resulting negotiations should now be considerably simpler.

However, in practice many see the future scope for a negotiated settlement as actually having become more complicated. That conclusion derives from the basic fact, well known to readers on this forum for realists that power remains the key arbiter of outcomes in world affairs and not international law. Such a world may be far from ideal, but that is the one we live in. In fact, China’s humiliation or “loss of face” (丢面子), when combined with heated nationalism at home and the gradually shifting military balance in the western Pacific, suggests that Beijing may lean ever more heavily on coercive tools in this dispute.

If an escalating situation in the South China Sea inaugurates a more alarming Cold War-type rivalry between Beijing and Washington, it is more than just academically interesting to wonder what form such a strategic competition might actually adopt. A spring 2016 article from the Chinese-language journal China’s Foreign Affairs (中国外交) may offer some hints regarding Beijing’s possible embrace of “dark arts” within such an escalating rivalry. The article, “Research on Wedge Strategies:  Review and Evaluation” discussed in this edition of Dragon Eye is by author Ling Shengli, a scholar at the Foreign Affairs College (外交学院) in Beijing. There is reason to view the article as significant, since it was published earlier in the prestigious journal World Economics and Politics (世界经济与政治) and was supported by government research grants.

The article’s very first, crisp sentence illustrates the author’s analytical inclinations: “The struggle for power is the normal state of international relations.” (权利竞争是国际政治的常态). In a similarly straightforward tone, Ling states that a “wedge strategy” (楔子战略) is one that a state (or group of states) employs to block the formation of a potentially hostile alliance or to “separate, destroy, or collapse a hostile alliance that has already been formed. . . ” (分化, 破坏, 瓦解已经形成的敌对联盟). Above all, the author seems focused on “decreasing the possibility for containment.”

Like most Chinese international relations scholars, Ling demonstrates an impressive acquaintance with Western theorizing in this area. He, for instance, takes a special interest in the scholarship of Timothy Crawford among others. He also notes that “divide and rule” (分而治之) is one of many strategies discussed in Chinese classics of strategy, including by Sun Zi (or Sun Tzu as it is often spelled in Western translations). He explains that the Qing Dynasty emperor Kangxi successfully employed a wedge strategy to prevent a countervailing coalition, but dwells more on modern examples. Bismarck’s diplomacy at the time of German unification in the mid-nineteenth century receives especially high marks for the “continuous employment of the wedge strategy to forestall [Prussia’s] foremost opponents from uniting with other powers.”

In a fascinating section that must hit close to home, the author describes the Sino-Soviet split during the Cold War as “the most exemplary [case]” of a successful wedge strategy. Ling suggests that most scholarship on the Sino-Soviet dispute has focused on the divide between the two parties (CPSU and CCP), and has not paid adequate attention to the U.S. role in fostering the split—a role he claims is clearly revealed in now declassified U.S. documents.

Looking at the current environment, Ling contends that Washington continues to press wedge strategies against both Russia and China. In particular, he sees the United States promoting “colored revolutions” in regions bordering Russia and China....MORE