Wednesday, May 24, 2017

Hedge Funds: "Crispin Odey cites Hitler's Russia invasion to explain bearish outlook"

I believe Mr. Odey has either stopped or reversed the fund's losses but the last couple years have been brutal for the old boy.
From City AM:

Crispin Odey has used the logic of one of Adolf Hitler's ministers to explain his bearish outlook for UK stocks.
Odey's main hedge fund lost 50 per cent last year due to failed bets on falling asset prices.

But, he has told investors won't be changing his stance, and justified his position by comparing the UK to Germany near the end of World War Two.

In particular, he wrote about Fritz Todd, Hitler's armaments minister, who predicted Germany would fail in its effort to invade Russia in 1942.

In an investor letter seen by Bloomberg News, Odey said: "What he could see was that the lines of supply were at breaking point.

"Success was the necessary ingredient of failure."

And, in the UK, Odey predicts that people are starting to borrow money they won't be able to pay back....MORE
Also at City AM: "This billionaire hedge fund manager's wealth dwindled to millions last year"

I can't help thinking of a bit o' "Holy Grail" dialogue:
Black Knight:     I am invincible! 
King Arthur:       You're a loony! 
Previously:
Crispin Odey: "It Feels Lonely Being Bearish"
Crispen Odey’s Hedge Fund Announces Its Worst Ever Annual Loss

And last year:
Dec. 29
Crispin Odey Doesn't Sound Crazy But...
Dec. 9
In Which FT Alphaville's Bryce Elder Shreds Former Big Wheel Hedgefunder Crispen Odey
Nov. 3
Follow-Up: "Odey Hedge-Fund Assets Dip 60% as Clients Shun ‘Bitter Pill’"
Nov. 2  
The Stress May Be Getting To Hedgie Crispin Odey--UPDATED
Oct.4 ZeroHedge
For Crispin Odey This Is The Endgame: Hedge Fund Billionaire Goes All In Betting On "Violent Unwind" Of QE Bubble
Sept. 16 
Crispin Odey Is Getting Crushed
Aug. 13 Zerohedge
Billionaire Crispin Odey, Who's Had A Pretty Terrible Year, Is Betting Everything On Gold
May 23 
Hedge Funder Crispen Odey Has Become a Parody of.....Crispen Odey   

The Cloud Panopticon: Google, Cloud Computing and the Surveillance-Industrial-Complex

In answer to Ms Kaminska's question:
We've been sitting on this link for going on two weeks, this seems an appropriate time to post.

From CounterPunch, May 12:
In June 2007, Privacy International, a U.K.-based privacy rights watchdog, cited Google as the worst privacy offender among 23 online companies, ranking the “Don’t Be Evil” people below Microsoft, Apple, Amazon, eBay, LinkedIn, Facebook and AOL. According to the report, no other company was “coming close to achieving [Google’s] status as an endemic threat to privacy.” What most disturbed the authors was Google’s “increasing ability to deep-drill into the minutiae of a user’s life and lifestyle choices.” The result: “the most onerous privacy environment on the Internet.” Indeed, Google now controls an estimated 70 per cent of the online search engine market, but its deep-drilling of user information – where we surf, whom we e-mail, what blogs we post, what pictures we share, what maps we look at, what news we read – extends far beyond the search feature to encompass the kind of “total information awareness” that privacy activists feared at the hands of the Bush Jr. administration’s much-maligned Total Information Awareness program.

Kevin Bankston, a privacy expert and attorney at the Electronic Frontier Foundation, a nonprofit advocacy group engaged in questions of privacy, free speech, and intellectual property in the digital age, warns of the possibilities. “In all of human history,” he says, “few if any single entities, other than the National Security Agency, have ever possessed such a hoard of sensitive data about so many people.” This is the sort of thing that should make the intelligence agencies, says Bankston, “drool with anticipation.” And drooling they are. Stephen Arnold, an IT expert who formerly worked at the defense and intelligence contractor Booz Allen Hamilton Inc. and who once consulted for Google, addressed this in a speech before a conference of current and former intelligence officials in Washington, D.C., in January 2006. According to an audio recording in our possession, he reported Google was increasingly sought out by the U.S. intelligence services because click-stream data – and everything else Google archives – “is a tremendous opportunity for the intelligence community.” Google, he said, “has figured out everything there is to know about data-collection.” The relationship with the government had become intimate enough, Arnold said, that at least three officers from “an unnamed intelligence agency” had been posted at Google’s headquarters in Mountain View, Calif.

What they are doing there, Arnold did not reveal.

“We don’t comment on rumor or speculation,” said Google spokesperson Christine Chen. When asked separately how many former intelligence agency officials work at Google, she responded, “We don’t release personnel information.”

The conference, under the aegis of the Open Source Solutions Network, was hosted and organized by Robert David Steele, a former Central Intelligence Agency officer who left the agency 20 years ago and is now the founder and CEO of Open Source Solutions Network Inc., otherwise known as OSS.Net, an educational corporation that has worked with more than 50 governments to “advance the use of open source intelligence.” Steele considered Arnold’s item to be a bombshell. U.S. intel was now seated in the heart of the “Googleplex,” learning all it could from the masters in the private sector. Among Google’s critics, Steele who, since leaving the CIA, has spent 20 years promoting the digital commons, is about as fierce as they come. “Google would have been an absolutely precious gift to humanity,” he says. “But Google is positioning itself to take over the digital commons. I personally have resolved that unless Google comes clean with the public, the company is now evil.” The question today is whether Google, in fact, will be forced to change its ways – and whether Congress and the intelligence agencies want it to.

Google’s powers of data-collection depend on consumer choice – how much of your computing you put in Google’s hands. The more you choose Google applications, the more Google can know about you. At the extreme end of the spectrum, your every move can be tracked by some feature of Google. When you use the Google search box, as tens of millions of people do daily (with Google handling roughly 11,000 searches per second), the company can track all your search queries and the websites you visit as a result of those queries. If you use Google toolbar, the company can watch the amount of time you surf a website – the three minutes or three hours you spend on every page of that website. With Google’s acquisition of YouTube in 2006, viewing habits can be tracked. Google’s FriendConnect and Orkut archive your social networks. Google News, Books, Feedburner or Blogger log your reading habits. The writing you produce is stored on Google Docs, and your purchase habits and credit card numbers are captured by Google Checkout. Also gathered are voiceprint and call habits, through Google Voice; travel interests, patterns and place associations, through Google Maps, Google Earth and Google StreetView; medical conditions, medical history and prescription drug use, through Google Health; photos of friends and family, through Google’s Picassa images; and general activities, through Google Calendar. Then, there’s Google Desktop, which, at one point, offered what appeared to be an innocuous feature called “Search Across Computers.” This allowed Google to scan your computer to archive copies of text documents. In other words, just about everything on your PC – love letters, tax returns, business records, bad poetry – was duplicated on a remote Google server. (This function was discontinued on all platforms in January of this year.)

Taken alone, the Google search box is an exquisitely intimate repository of user information. “People treat the search box like their most trusted advisors,” says Kevin Bankston, the Electronic Frontier Foundation (EFF) attorney. “They tell the Google search box what they wouldn’t tell their own mother, spouse, shrink or priest.” Think about your most recent queries, say, about your “anal warts” or “inability to love in marriage,” or “self-hatred,” or your interest in the mechanics of “making a pipe bomb.” The search box is as good a place as any to understand how the Googleplex keeps tabs on its users. When you do a search, “cookies” installed on your computer record your IP address (a series of unique numbers that may be used to identify your computer), so Google can, in many contexts, identify a user. And it can do so with any of its applications.

All this, one would think, ceases once your PC is shut down and you leave home. However, Google released a “geo-location” application in 2008, Gears Geolocation API, that can “obtain the user’s current position,” “watch the user’s position as it changes over time,” and “quickly and cheaply obtain the user’s last known position.” According to a Google tech blog, the Gears application “can determine your location using nearby cell-towers or GPS for your mobile device or your computer’s IP address for your laptop.” A 2006 Technology Review article reports that Google’s director of research, Peter Norvig, even proposed the use of built-in microphones on PCs to identify television shows playing in the room, in order to display related advertising. Such data, it seems, could be processed as an audio fingerprint, which might aid in geolocation and profiling of users. (“Google had no plans to develop this,” Google spokesperson Christine Chen responded by e-mail. “And we haven’t.”)

Google’s data-mining interests go even deeper, to the core of our physical and mental being. Google co-founder Sergey Brin and his biotech specialist wife, Anne Wojcicki, according to The Economist, have “brainstormed” with at least one prominent human genome researcher and approach genetics as a “database and computing problem.” This would tie in nicely with Google Health, launched in 2008 to take advantage of the growing trend of storing health records online, for easier access among diverse health care providers. Google has invested $3.9 million in Wojcicki’s biotech firm, 23andMe, whose “mission is to be the world’s trusted source of personal genetic information,” and which offers a basket of genetic tests to allow its customers to uncover ancestry, disease risks, and drug responses. Speaking before a Google “Zeitgeist” conference in 2008, Brin revealed that he carried a Parkinson’s gene and then advocated the recording of individual genetic codes to enhance health maintenance and medical research. Taken to its logical conclusion, this suggests the prospect of your body’s blueprint registered with an eventual “Google Genome,” perhaps with the help of the databases gathered at 23andMe. To drill further into the mind, Google has teamed up with marketing giant WPP to fund $4.6 million for research into online advertising, including one grant in the emerging field of “neuromarketing”: tracking everything from online navigation behavior to biofeedback metrics like heart rate, eye movement and brain wave activity in response to advertising stimuli. Google’s Chen points out that the results of this research will be available to industry as a whole and that “Google has no special right over, nor plans to use, any of the research funded by these grants.”...
...MUCH MORE

"Whole Foods Would Look a Lot Different If It Were Science-Based" (WFM)

After flatlining around $30 since late 2015 the stock seems to have been anticipating something the last six weeks:

http://finviz.com/chart.ashx?t=WFM&ty=c&ta=1&p=d&s=l
From New York Magazine's Science of Us:
Whole Foods used to be my idea of grocery heaven. Once upon a time, I shopped at the California Street location in San Francisco — it was light and airy with produce for miles. I knew the cheesemonger. I had philosophical conversations with the butcher. I stared longingly at the Le Creuset bakeware. The soap aisle smelled like lavender. Heaven.

But eventually, I fell out of love. Or, to be more specific, I changed my mind about organic food after reading the research: It turns out organic isn’t more nutritious or even necessarily better for the planet. So I pretty much stopped shopping at Whole Foods altogether.

I’m not the only one. Whole Foods may have once revolutionized the organic-food industry, but it’s no longer the only game in town. These days, many consumers are now buying their organic groceries at less expensive stores, including Costco and Walmart. Whole Foods’ sales are on the decline, driving many observers and even their own investors to suggest that in order to survive, the chain has to make a drastic change.

Well. I have a suggestion as to what that change might be. It’s pretty drastic, but, hear me out, Whole Foods. This could be good for both of us. Here it is: Why not revolutionize grocery shopping all over again? Only this time, the revolution should be powered by science and agronomy, and not misleading marketing.

Here’s my first problem. Labels like “organic” and “conventional” are too broad, and too black and white, to really be all that helpful. A more specific, more informative approach could fix this: If Whole Foods listed all of the pesticides used on every fruit and vegetable, whether natural or synthetic, consumers might begin to understand that both conventional and organic produce are grown with pesticides, and what matters more is the toxicity of the pesticide used. Copper sulfate, for example, a pesticide allowed in organic produce in the U.S., is more toxic than some conventional pesticides.
Chlorpyrifos, an insecticide used in conventional agriculture, is more toxic than glyphosate, the active ingredient in the herbicide Roundup. It’s worth noting that Whole Foods took a step in this direction once before with its Responsibly Grown program, which recognized that conventional produce can be more sustainable than organic, but organic farmers loudly objected and the company eventually undercut those standards. It’s time to bring them back.

This new science-based labeling system should also make it crystal clear that trace pesticide residues aren’t dangerous for consumers — as long as the residues measure below the tolerance levels set by the U.S. Environmental Protection Agency (and they do, year after year), then they aren’t a cause for concern. If there is a concern about a pesticide’s toxicity, it’s the health risk to farm workers and their families, and that’s something to consider before buying those perfect-looking strawberries.
We’ll also want to know the pesticide’s environmental impact, like how it affects the bees or the surrounding water supply. Many people believe pesticides alone are killing off the country’s bee population, but if you dig a little deeper, you discover that pesticides aren’t actually the biggest culprit. Iida Ruishalme, a biologist who writes the blog Thoughtscapism, has published several in-depth posts examining the different hazards to bee health. She says even though “neonicotinoid [pesticides] steal most of the thunder,” there are graver threats to be concerned with: “The Varroa mite, disease, habitat loss, and invasive species (such as the European honey bee itself) play a far greater role.”

But pesticides are only one piece of the broader sustainability puzzle. Consumers should also be able to know whether the farmer who grew their produce uses practices like cover-cropping and conservation tillage, two things that improve soil health and mitigate the impact of climate change by increasing the sequestration of carbon in the soil. Both organic and conventional farmers can and do incorporate these methods....MUCH MORE
It won't happen of course. Here's Bloomberg on one of the reasons why: 

The Future of Whole Foods Isn’t About Groceries
  • CEO Mackey tries to boost profits without losing brand cachet
  • Wall Street grows restless after almost two-year sales slump
Inside the Whole Foods Market in midtown Manhattan at lunchtime, it’s easy to forget that the organic supermarket chain is suffering its biggest crisis since going public in 1992.

A line 20-people deep waits at a juice and espresso bar near the bustling store entrance across from Bryant Park. In the food hall upstairs, the tables are packed with customers noshing on superfood salads and sushi. Too harried to stop for oysters, many shoppers order Nashville-style fried chicken sandwiches from digital kiosks and sample cold brew from Stumptown Coffee Roasters.

Whole Foods Market Inc., facing pressure from restless shareholders after nearly two years of sliding sales, still has cachet in New York and other pockets of the U.S. That unique foodie appeal is key to a turnaround if Chief Executive Officer John Mackey is able to improve operations, said Charles Kantor, a managing director at Neuberger Berman, one of the grocery chain’s 10 biggest investors. 
“He got all the hard things right over the years, but he didn’t get the easy stuff right,” Kantor said. “There hasn’t been laserlike focus in a long time.”

As grocers fight for traffic amid an intense price war and the threat of e-commerce, Whole Foods stands out among its peers with its prepared foods and in-house restaurants that make its stores destinations. The challenge for Mackey, who co-founded the company in 1980, is how to assuage Wall Street by boosting profits without ruining what made Whole Foods wildly popular in the first place.

“They have to do two things at the same time that are diametrically opposed,” said Roger Davidson, a former Wal-Mart grocery executive who works as a consultant. “They have to make sure they don’t dumb it down.”

Brand Loyalty
The hubbub at newer Whole Foods locations like the one in midtown Manhattan illustrates a brand loyalty that most retailers would envy, especially when brick-and-mortar stores are closing at a record pace. Neuberger Berman increased its stake in the company in 2015 because of its rare ability to “connect in an emotional way” with shoppers, said Kantor. The firm owns about 2.7 percent of Whole Foods shares, according to data compiled by Bloomberg....MUCH MORE

Agriculture: Agrimoney LIVE Conference--Diary

This is Monday's blog, Tuesday after the jump. Pics here.

Agrimoney LIVE as it happens - day one conference diary
8.45am The conference has not kicked off proper, and already Agrimoney LIVE has a (minor) scoop – that one of the major speakers used to be a motorbiking fiend, and indeed rode a Honda around the UK in 1981, reaching Land's End.
He (it is a he, and not a UK national) still has a moped.
Which speaker? Guesses (and other comments) to 
11.06am India, Africa trump China
Is China really such a big, and positive, theme for commodities and agriculture?
Many observers seem to think so. But Erik Norland, senior economist at CME Group, takes a more jaundiced view.
"A further slowdown in the Chinese economist will likely negatively impact commodity prices, including iron ore, of which China consumers two thirds of the world supply," he says.
"This in turn could put downward pressure on the economics of commodity-producing nations like Australia."
In ags, the zeitgeist is "no longer going to be about China.
"India looks very interesting. And Africa is going to huge population growth."
11: 37am 'Scary sugar short'
Agricultural commodities are a boon for momentum traders, says Fiona Boal, director, commodities at Fulcrum Asset Management.
This is because of the lag between markets signalling a supply imbalance, and producers' being able to respond by raising or lowering output.
"It needs time for higher prices to work back to production," or for lower prices to turn the supply taps down, Ms Boal says.
"This makes agricultural markets are particularly well suited to momentum strategies."
The "scary" shorting for instance, in sugar, prices of which have tumbled on expectations of a potential return to a production surplus ahead, has produced "positive" results, she says.
12:18 Weather outlook
Lots of interesting snippets from Kyle Tapley, of MDA Weather Services.
On El Nino, it looks like if one does develop this year, it will be a weak one, and will "probably come too late to have a big impact on northern hemisphere growing conditions", he says.
That is not necessarily a positive for northern hemisphere farmers, given that El Nino gives a 4.2% boost to US corn yields, compared with trend, and a 3.3% lift to soybean yields, on MDA estimates. (It is La Nina which is the danger to the Corn Belt.)
Indeed, the US looks set this summer for "widespread above-normal temperatures that could lead to heat stress", with dryness looking an issue for the southern Plains and southern Midwest.
…but not that much of an issue. MDA sees the US corn yield coming in at a very respectable 170.8 bushels per acres this year, and the soybean yield at 49.0 bushels per acre.
Where Mr Tapley sees a bigger threat is to the Black Sea, where dry conditions in the summer may "stress corn and sunflowers", but likely come too late to affect wheat potential.
In Europe too, "dry weather this summer in Spain, Romania, and Bulgaria may stress corn and sunflowers", with – importantly – France, the bloc's most important corn grower, being mentioned in dispatches too.
13.55 'Fake' beef strides ahead
Synthetic proteins are a bigger threat to the meat industry than the growing popularity of vegan diets.
According to Marc Sadler from the World Bank, the main issue with synthetic proteins has been their texture.
"This has always been the issue with meat substitutes, as 60-70% of the experience of eating is to do with texture.
"Some companies are breaking through - in their blind tastings it has been impossible to tell the difference between real and synthetic meat."
14.30 'Spend more on tech'
More money needs to be spend on developing artificial intelligence in agriculture, said Arnaud Petit, director commodities and trade at farmer co-operative body Copa-Cogeca.
Speaking at a session at Agrimoney LIVE he said farmers already had technology which could tell them how much fertiliser to apply or where to apply pesticides, but that they needed something which connected all of these and provided interlinked advice.
He also talked of big losses in winter grains in northern Europe (Scandinavia) – maybe 20%. Copa Cogeca will produce quarterly estimates in a few weeks' time....MORE
Agrimoney LIVE as it happens - day two conference diary

09:00 What to make of Glencore approach to Bunge?
For some reason, big news in ag always breaks when Agrimoney is having a conference.
This time, it is Glencore's revelation that its part-owned ag division has made an "informal approach" to trading giant Bunge. (What made it informal? Were the Glencore suitors not wearing ties?)
To one senior delegate at Agrimoney LIVE, this looks like the latest episode in the consolidation wave that started in seeds and chemicals, with the rash of tie-ups with DuPont-Dow, ChemChina-Syngenta, Bayer-Monsanto and BASF, um…
And could it be a sign that the ag sector is on the up again?
"It looks a sign that sector valuations are attractive, if there is all this consolidation going on," the delegate says, flagging the dent to profits in sector from the decline in crop prices.
There is more on sector M&A scheduled in the Agrimoney LIVE programme. Stay tuned....

The Wild West of Deep-Sea Mining

From Hakai Magazine:
The International Seabed Authority is racing to draft regulations for the nascent deep-sea mining industry.

In the coming years, a new gold rush will begin. Deep beneath the ocean’s waves, from scalding hydrothermal vents to the frigid stretches of the abyssal plain, ocean processes have deposited vast quantities of valuable minerals on the seafloor. Now, the convergence of technological development and political will has placed this ore within reach. But like the gold rushes of old, the deep-sea-mining industry is emerging on the frontiers of society, far from legislatures and law enforcement.

Officially, the nascent deep-sea-mining industry is governed by the International Seabed Authority (ISA), an intergovernmental organization established in 1996 by the United Nations Convention on the Law of the Sea (UNCLOS)*. The authority’s critical task is to coordinate its 168 member nations in establishing and enforcing regulations for the developing deep-sea-mining industry.

But the ISA’s teeth are just coming in, says Duncan Currie, a legal advisor to the Deep Sea Conservation Coalition, an advocacy organization. At the moment, the authority still hasn’t created an enforcement agency. In addition, “they won’t and they can’t force countries to comply with ISA regulations when drafting their own laws,” says Currie.**

Back in 1982, when UNCLOS was still under development, US president Ronald Reagan and British prime minister Margaret Thatcher introduced an agreement guiding how the treaty would operate—a provision that also applies to the ISA. According to that agreement, once the ISA receives an application for a mining permit, it has two years to develop regulations. If the ISA does not finalize its rules after two years, it has to give the country provisional approval with whatever rules it has in place.

So far, the ISA has yet to finalize its regulations for deep-sea-mineral extraction. It has, however, already granted 26 permits for deep-sea-mineral exploration in international waters, though none yet for mineral extraction.

Though there appears to be little likelihood of a country bypassing the ISA’s permitting process, “there’s very little to stop them,” Currie says. At the moment, deep-sea mining in international waters is sufficiently far in the future that the regulatory situation has not yet made any country itchy enough to jump the gun, he says....MORE

Tuesday, May 23, 2017

Can it Be? "A Bearish Positive Carry Trade" (Bund/US T-Note)

Forget Betteridge and his law of headlines on this one. The answer to the headline query would be "Yes" (for now).
From the Macro Tourist:
http://themacrotourist.com/images/2017/05/StudentsMay2317.png
The Eurostoxx outperformance of the past month has garnered a lot of attention, but there is another similar trade many investors are missing. Not only that, but it has a positive carry, something that is sorely lacking in this day and age of NIRP.

Since early April, the German Bund / US T-note 10 year yield spread has rallied 35 basis points, rising from negative 220 bps to 185 bps.
http://themacrotourist.com/images/2017/05/SpreadMay2317.png
For all those who think quantitative easing is long end fixed income friendly, this move makes no sense. After all, the ECB is busy buying bunds by the bucketful while the Federal Reserve is preparing the market for the eventual winding down of their balance sheet, reducing the rate of reinvestment (and therefore bond buying). Yet, for me, this move makes complete sense. What is a bond investor’s worst nightmare (after default)? Inflation. What is quantitative easing suppose to create? Inflation. Why then does the market expect QE to cause bond prices to rise? If Central Banks are successful, it should actually create the exact opposite reaction....MORE

Think You Can Guess/Forecast Notional GDP? Here's The new Hypermind NGDP Futures Market

Was it just a couple years ago NGDP targeting was on every commentator's  lips?
(I can never see that word without thinking of the old potato pun-must try to get out more)

From the Library of Economic Liberty:

The new Hypermind NGDP futures market
I am pleased to announce that a new Hypermind NGDP market is up and running. Back in 2015, we ran an annual NGDP prediction market and 4 quarterly markets. Because only the annual forecast has much macroeconomic significance, this time around we are only running that one market. Traders will forecast the NGDP growth rate from 2017 Q1 to 2018 Q1.

Last time we had about $5000 in prize money for the annual market, and that is what we are starting off with this time. However I expect the prize money to rise dramatically before the contract expires, as we are involved in a major fundraising operation. If you want to contribute, there is information over at my post at TheMoneyIllusion:
http://www.themoneyillusion.com/?p=32484

Emile Servan-Schreiber at Hypermind has provided me with some useful information for those who want to participate in the Hypermind NGDP market, or just watch the action:
To follow the market's prediction in real time, go here: https://hypermind.com/dash/ngdp/dash.html
(Note that the initial price in the history chart is all wrong, but that will matter less and less as time goes on.)
To participate, one just needs to register to Hypermind at http://www.hypermind.com

And finally, a quick review of my current views on NGDP futures: 
1. This is not a policy market. For policy, I propose 3% and 5% "guardrails", where the central bank promises to buy unlimited NGDP futures at 3% growth and sell unlimited futures at 5% growth. That policy does not even require the creation of an NGDP prediction market; the central bank can create the contracts....MORE
HT: Marginal Revolution

"Whisky Dividends Anyone?" Constellation Brands Made An Offer to Buy the Jack Daniel's Distiller Brown-Forman (BFA; BFB)

The stock is down $0.60 (-1.05%) at $56.32. UPDATE: Make that $54.69 down $2.23 (-3.92%) That dividend idea is looking better by the minute.
From CNBC:
Constellation Brands made offer to buy Jack Daniel's owner Brown-Forman
  • Constellation Brands has made an approach to acquire Jack Daniels' owner Brown-Forman
  • The Brown family owns a majority of the voting power and has indicated historically that they do not want to sell their company
Constellation Brands, the owner of Corona and Svedka Vodka, has made an approach to acquire Jack Daniel's owner Brown-Forman, people with knowledge of the matter said.

Brown-Forman said it was not interested in selling, but informed the board of Constellation Brands' interest, said the people, who asked not to be named discussing private information.

Terms of any potential offer could not be learned, but Brown-Forman's market cap is hovering around $22 billion. There are no ongoing talks, one of the people said. But Constellation remains interested in a potential merger.

The Brown family, who are fifth-generation owners of Brown-Forman, own a majority of the voting power and have indicated historically that they do not want to sell their company....MORE
Yesterday the stock was the #1 gainer in the S&P 500 and Barron's Ben Levisohn was as puzzled as I:
The Hot Stock: Brown-Forman Flies 7.5%
...I wish I could tell you what's going on, but I have no clue. All I can offer is this chart, which shows you strong Brown-Forman has been this month:... 
I checked Modern Drunkard for comment but saw nothing. However we can guess what their reaction will be, they want nothing to change. When Brown-Forman lowered the alcohol content of their flagship booze Modern Drunkard accused them of watering the whisky.

Jack Daniel’s: A Legacy Betrayed 
"Jack Daniel’s Old No. 7 is a simple reminder that some things just never change. And shouldn’t. This is the old-time whiskey made as our fathers made it. Remaining true to Jack Daniel’s original recipe and charcoal-mellowed character means folks today enjoy the same sipping whiskey awarded seven international gold medals."
So says Jack’s Daniel’s web site. Rather inspiring, isn’t it? Such noble sentiments should warm the cockles of the most cynical drunkard’s heart.

Unfortunately, not a word of it is true. For the second time since the Brown-Forman Corporation acquired the distillery in 1956, they have lowered the proof of Jack Daniel’s Black Label Tennessee Whiskey. Fifteen years ago they dropped its original 90 proof to 86, and very recently, and might I say with zero fanfare, they degraded it to 80 proof.

Alert drunkard Chris Sharp brought this unfathomable blasphemy to my attention and I feel it my sworn duty to bring it to yours.

“I was outraged,” says Sharp, a once avid Jack drinker. “They continue to claim in their ads that they stick to tradition. Tradition, my ass. If they think that people will take this sitting down they are sadly mistaken.”...MORE
Oh, and the whisky divi idea?
A repost from 2013:

"Whisky Dividends Anyone?" 
From Global Financial Data (we are fans):
In 1933, a precedent was set for paying whisky as a dividend on common stock.  As I have discussed in an earlier blog, entitled The Famous Whiskey Dividend, companies can invent creative ways to pay out dividends.  In fact, when the going gets tough, the tough go drinking.

After Prohibition was repealed in 1933, National Distillers Products Corporation distributed a dividend of one case of whiskey for each five shares that were owned. This pulled out the stops with paying dividends.  Twenty years later, Park & Tilford provided a more sobering saga.

PUMP AND DUMP
Originally founded in 1840, Park & Tilford had a long history of being a family-owned operation run by the Schulte’s.  For decades, the company produced a broad line of whiskey and related products until it formally incorporated in 1923 in order to list on the NYSE.

In 1943, in the middle of World War II, whiskey was scarce.  Most companies that produced whiskey had their factories diverted to manufacturing more important goods – in the opinion of some folks – making whisky a hot product to the public.  Since Park & Tilford owned a drug store in New York and went public during prohibition; the company diversified into cosmetics, perfumes and other drug sundries.  Though Prohibition had been repealed in 1933, the diversion of resources to the production of war materiel had some people worried that Prohibition was being reintroduced de facto if not de jure.

On December 15, 1943, D.A. Schulte, the President of Park & Tilford announced that the company was contemplating a distribution of whiskey to its shareholders.    The announcement by Schulte had its effect.  Based on these rumors, the stock advanced roughly 40 points over the next five months, as new shareholders tried to get access to scarce whisky to sell on the black market.  This advance was an aggressive move in any market....MORE 
Another oddball dividend story last seen in Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY):

...*Copied out of the 1988 Annual Report for our November 2007 post "How Buffett Made a Killing in Chocolate, And Warren's Letters to Shareholders":

Warren on arbitrage:

Some offbeat opportunities occasionally arise in the
arbitrage field. I participated in one of these when I was
24 and working in New York for Graham-Newman Corp.
Rockwood & Co., a Brooklyn based chocolate products
company
of limited profitability, had adopted LIFO
inventory
valuation in 1941 when cocoa was selling for
50 cents per
pound. 

In 1954 a temporary shortage of cocoa caused the price to
soar to over 60 cents. Consequently Rockwood wished to
unload its valuable inventory - quickly, before the price
dropped. But if the cocoa had simply been sold off, the
company would have owed close to a 50% tax on the proceeds.

The 1954 Tax Code came to the rescue....MORE

El Niño: Where We're At and What's Forecast

A quick note on terminology for normal people who don't obsess about this stuff:
  • ENSO = the El Niño/Southern Oscillation
  • ENSO Neutral = the ocean surface temperature anomaly in the ENSO 3.4 region is between +0.5°C and -0.5°C.
  • El Niño/La Niña conditions exist when the anomaly is greater than (Niño) or less than (Niña) the half-degree cut-off for neutral.
  • A full blown El Niño/La Niña is declared when the conditions persist for three overlapping three-month periods i.e. five consecutive months.
From IRI/Columbia University:
IRI ENSO Forecast
2017 May Quick Look
Published: May 18, 2017

A monthly summary of the status of El Niño, La Niña, and the Southern Oscillation, or ENSO, based on the NINO3.4 index (120-170W, 5S-5N)

Use the navigation menu on the right to navigate to the different forecast sections
By mid-May 2017, the tropical Pacific remained in an ENSO-neutral state, with above-average SSTs present in the eastern Pacific Ocean, and near-average SSTs across the central and east-central part of the basin. The collection of ENSO prediction models indicates increasing chances of El Niño into the summer and fall of 2017....MORE
http://iri.columbia.edu/wp-content/uploads/2017/05/figure4-2.gif

Historically Speaking

    El Niño and La Niña events tend to develop during the period Apr-Jun and they
  • Tend to reach their maximum strength during October - February
  • Typically persist for 9-12 months, though occasionally persisting for up to 2 years
  • Typically recur every 2 to 7 years
http://iri.columbia.edu/wp-content/uploads/2017/05/figure3-2.gif

"Farming the World: China’s Epic Race to Avoid a Food Crisis"

From Bloomberg, May 22:
But China’s efforts to buy or lease agricultural land in developing nations show that building farms and ranches abroad won’t be enough. Ballooning populations in Asia, Africa and South America will add another 2 billion people within a generation and they too will need more food.

That leaves China with a stark ultimatum: If it is to have enough affordable food for its population in the second half of this century, it will need to make sure the world grows food for 9 billion people.
Its answer is technology.

China’s agriculture industry, from the tiny rice plots tended by 70-year-old grandfathers to the giant companies that are beginning to challenge global players like Nestle SA and Danone SA, is undergoing a revolution that may be every bit as influential as the industrial transformation that rewrote global trade.

The change started four decades ago when the country began to recast its systems of production and private enterprise. Those reforms precipitated an economic boom, driven by factories, investment and exports, but the changes down on the farm were just as dramatic.

Land reforms lifted production of grains like rice and wheat, and millions joined a newly wealthy middle class that ate more vegetables and pork and wanted rare luxuries like beef and milk.

When Du Chunmei was a little girl, pork was a precious gift only for the elders of her village in Sichuan during the Lunar New Year holiday. The family pig would be slaughtered, and relatives and neighbors would pack their house for a feast.

“Meat used to be such a rarity,” said Du, now 47 and an employee of state oil company PetroChina Co. whose family celebrated the holiday this year at a restaurant. “Now it’s so common we try to cut back to stay healthy.”

But the breakneck pace of the country’s development brought some nasty side effects. Tracts of prime land were swallowed by factories. Fields were polluted by waste, or by farmers soaking the soil in chemicals. The country became a byword for tainted food, from mercury-laced rice to melamine-infused milk powder.

So how can China produce enough safe food for its growing population if they all start eating like Americans?

The simple answer is it can’t.

It takes about 1 acre (half a hectare) to feed the average U.S. consumer. China only has about 0.2 acres of arable land per citizen, including fields degraded by pollution.

So China’s Communist government has increasingly shifted its focus to reforming agriculture, and its approach divides into four parts: market controls; improving farm efficiency; curbing land loss; and imports.

In each case, technology is the key to balancing the food equation. The nation is spending billions on water systems, seeds, robots and data science to roll back some of the ravages of industry and develop sustainable, high-yield farms.

It needs to succeed quickly, because China’s chief tool during the past decade for boosting domestic production is backfiring.

China has a goal of being self-sufficient in staple foods like rice, corn and wheat. To ensure farmers grew those crops, it paid a minimum price for the grains and then stored the excess in government silos.

Farmers responded, saturating their small plots with fertilizers and pesticides to reap bumper crops that filled government reserves to bursting....MUCH MORE

"Vegetable oil markets hold secret to crude oil values, says CME expert"

From Agrimoney:
Want to know what is going to happen to crude oil prices?
Just look at values of the likes of palm oil and soyoil, according to Erik Norland, senior economist at CME Group.
While crude has a reputation for being a leader of raw materials, the commodities queen, it is actually a follower in prices terms of what goes on in markets for edible oils, from which biodiesel is made.
'People have it backwards'
Comparison of price charts shows that soyoil "peaked before crude oil in 2008, it bottomed out before crude in 2009," Mr Norland said.
"It peaked again before crude oil in 2011, and preceded the collapse more recently."
"I think people have it backwards," Mr Norland told Agrimoney LIVE.
"I think crude oil traders should be looking at biofuel markets, rather than the other way round."
Reason behind the dynamic
And there is a fundamental reason why edible oil markets, via biodiesel, might be price leaders, Mr Norland added.
"It is fairly simple. When markets perceive there is too much fuel around, the first thing they push back on is biofuel.
"When crude is scarce, they become very enthusiastic for biofuels....
...MORE

Monday, May 22, 2017

Italy is giving away over 100 castles for free – there’s only one catch

Over the years we've gathered a few tips for castle buyers, some of those links after the jump.
From CNBC:
Italy is giving away more than 100 historic castles, farmhouses and monasteries for free in an effort to breathe new life into its disused public buildings.

Under a new scheme unveiled by the country's government run State Property Agency, 103 ancient buildings will be up for grabs to entrepreneurs who promise to transform the locations into tourist destinations.

The disused properties are situated along eight historic routes running the breadth of the country and the nearby islands of Sicily and Sardinia. It is hoped that the initiative will create a series of new facilities for the hundreds of hikers, cyclists and pilgrims who use the routes each year.

"The project will promote and support the development of the slow tourism sector," Roberto Reggi from the State Property Agency told The Local Italy. "The goal is for private and public buildings which are no longer used to be transformed into facilities for pilgrims, hikers, tourists, and cyclists."
The scheme, which is backed by Italy's Ministry of Tourism, calls on applicants to submit a proposal outlining how they intend to transform their preferred building into a tourist attraction. Specific preference will be given to those aged under 40.

Successful applications will then be awarded rights to the property for nine years, with the option to extend for an additional nine years.

The deadline for applications is June 26 and work will be expected to commence next summer....MORE, including application information
The first thing to look for in your new castle are crenels.

This building in County Wicklow from March 2017's "You Can Either Buy A Round of Guinness For Four Million Of Your Pals Or You Can Buy A Guinness 'Castle' and 5000 Acres", despite obviously not being a real castle (note garden level windows allowing too-easy access to wannabe pillagers, has its value enhanced by crenelated battlements:

https://tribkiah.files.wordpress.com/2017/03/promo314074932.jpg?quality=85&strip=all&w=1200

The 5000 acres probably bump the price a bit as well.

We made the same points regarding another Irish place, Lismore Castle:

http://www.lismorecastle.com/uploads/images/headerimages/LismoreCastlefromtheair.jpeg
Despite the crenelated battlements, and although the central keep looks real enough, the windows set into what should be curtainwall give away the fact that this is less castle and more comfy house.
This is what happens when upstarts like the Cavendish clan get their hands on stuff.  
(just kidding Your Grace)
The next thing to pay attention to is verticality.

This is from last June's "For Sale: English Tower That Rich Guy Built to Imprison Wife":


Again. not a true castle but as noted at the time:
And a fine tower it is.
Very vertical. 
The linked pictures lead to our third consideration, your spiral stairs. From the (maybe) adulterous wife tower above:

http://www.llnyc.com/wp-content/uploads/2016/06/March-site07HDR.jpg

The first thing you notice is the spiral is correct.
Your men-at-arms retreating from the attackers will have their right hand free to thrust, parry and chop while the swing of the interlopers is impeded by the outer wall.

However:
On newel-post spiral stairs the tactics are different:
http://yorkwalls.org.uk/wp-content/uploads/2013/03/Mystery17.jpg
And then there's the whole issue of the left-handers who can ruin your day:

http://www.thejanuarist.com/wp-content/uploads/clan_kerr_staircase_export.png

Anyhoo, here's a snappy little (62 page) monograph from the Castle Studies Group Journal, no. 25 that says this may all be moot:
The Rise of the Anti-clockwise Newel Stair
Abstract: 
The traditional castle story dictates that all winding, newel, turnpike or spiral staircases in medieval great towers, keep-gatehouses, tower houses and mural wall towers ascended clockwise. This orthodoxy has it that it offered a real functional military advantage to the defender; a persistent theory that those defending the stair from above had the greatest space in which to use their right-handed sword arm. Conversely, attackers mounting an upward assault in a clockwise or right-handed stair rotation would not have unfettered use of their weaponry or have good visibility of their intended victim, as their right sword hand would be too close to the central newel.

Whilst there may be other good reasons for clockwise (CW) stairs, the oft-repeated thesis sup-porting a military determinism for clockwise stairs is here challenged. The paper presents a corpus of more than 85 examples of anticlockwise (ACW) spiral stairs found in medieval castles in England and Wales dating from the 1070s through to the 1500s...MUCH MORE
Moving on to a couple of the Italian offerings.

Castello di Montefiore has pretty much everything you are looking for in a castle including machicolations under the battlements at the top of the towers for dropping your flaming pitch or whatever on the besiegers:

http://fototanoni.webdream.it/gallerie/eventi/47/max/castello%2010%20Web.jpg

Castello di Blera on the other hand is what is known in the trade as a "fixer-upper":

https://shawglobalnews.files.wordpress.com/2017/05/castle.jpg?quality=70&strip=all&w=720&h=480&crop=1

Either way try to remember the lessons from March 2013's "Heartache: Owning a Castle Can Be Such a Hassle":

http://img.gawkerassets.com/img/18iai7wa5dnscjpg/xlarge.jpg

Andreessen-Horowitz-backed 21 Inc Introduced 21.Co Lists

It's not just the financing ($116 mil from A-H, Khosla et al), one of the A16Z partners, Balaji Srinivasan is actually the CEO of this one.
A bit late getting to this (May 1) but here goes. First up, EconoTimes:

Bitcoin startup 21 introduces ’21.co lists’ to earn money online
21, a San Francisco-based bitcoin startup, has come up with a new feature ‘21.co Lists’, where individuals can join lists of people with similar skills in order to start receiving targeted, paid microtasks.

Users have to apply to one of the lists and if selected, they will receive a stream of list-specific tasks sent by businesses that can be completed to earn money or fund charities, the blog post stated. In addition to the basic concepts of joining or creating 21.co lists to make money online, the company has developed several useful features to make the process of making money from lists even easier.

“As for the “Join lists” feature, it is self-explanatory: 21.co will maximize your income by adding you to the lists that fit your skills most directly. Each new list you join or are added to is, then displayed on your profile page,” it added.

21 also announced bitcoin email platform that enables users to send surveys, tasks and requests to specific categories of people or professionals, incentivizing those actions with small bitcoin payments....MORE
Nigeria Today also has the story, putting the "microconsulting" in quotation marks:
21 Inc Launches Lists Allowing Anyone to Earn Bitcoin for ‘Microconsulting’
Possibly because one of the tasks 21.Co promotes as doable on the platform is "mass e-mailing".

For the life of me, the microconsulting sounds less like consulting and more like Amazon's 'Mechanical Turk' operation. From last December:

How Half a Million People are Being Paid Pennies to Train Amazon's Artificial Intelligence (AMZN)
This sounds like a good business to be CEO of.
Training your replacement, AI, for pennies?
Not so much.

From TechRepublic:
Inside Amazon's clickworker platform: How half a million people are being paid pennies to train AI 

Internet platforms like Amazon Mechanical Turk let companies break jobs into smaller tasks and offer them to people across the globe. But, do they democratize work or exploit the disempowered?
Each morning when she wakes up, Kristy Milland powers up her home computer in Toronto, logs into Amazon Mechanical Turk, and waits for her computer to ding.

Amazon Mechanical Turk (AMT), which has been around for over a decade, is an online platform where people can perform small tasks for pay....MORE

America’s Cities Are Running Out of Room

Following up on Saturday's "Transportation: Affordable Proximity and the Dilemma for Planners":
...The core urban challenge of our time is ‘affordable proximity’: how can ever larger numbers of people live and interact economically with each other while keeping the cost of living – especially housing – affordable? In decentralized, post-WW2 Sunbelt cities built around the car, commuter rail solutions don’t work and an alternative is needed, especially as we see autonomous vehicles on the horizon.... 
From Bloomberg, May 22:

Everyone wants to live downtown, but only the rich can afford it. And it’s getting worse.
A shortage of homes for sale has bedeviled U.S. house hunters in recent years, so why don’t builders build more? One problem is that they’re running out of lots to build on—at least in the places that people want to live.

Cities that were sprawling before the Great Recession have begun to sprawl again. Space-constrained cities, meanwhile, have run out of room to build. That reality has spurred developers to focus on center-city neighborhoods where high-density building is allowed—and new units command exceedingly high prices.

At some point, said Issi Romem, chief economist at BuildZoom, vacant lots in desirable urban neighborhoods will run out. “If you have three days of rations left, you’ll be fine on day one, two, three,” said Romem, author of new research demonstrating home construction patterns. “On day 4, you have a problem.”

Historically, cities grew outward, as builders developed tracts on the periphery—then filled in the land between various developments over time. When these so-called expansive cities of the South and Southwest run out of infill land on which to build, developers simply pushed out further.

Some of these cities, like Austin and Nashville, have seen downtown boomlets. But more broadly, the building trends in those metros looks more like Dallas: Inside a 30-mile radius from the center of the city, new home sales decreased from 2000 to 2015. Outside the radius, though, sales are up by more than 50 percent. The same trend has played out to varying degrees in Phoenix, Atlanta, and San Antonio, among other cities.

In America’s most expensive cities, however, that dynamic has been turned inside out (or perhaps outside in). New construction trends in places like New York City have been tightly focused on downtown clusters where zoning rules permit high-density construction. These cities stopped expanding their geographic footprint decades ago, leaving builders to concentrate on finding buildable lots inside existing boundaries. As those lots became harder to find, land prices increase, reducing options for builders hoping to turn a profit....MORE, including a couple interesting charts

Is Environmental/Social/Governance (ESG) Investing Integration a Fad, or Does It Have Alpha Potential?

Following up on this morning's "AQR Capital's Cliff Asness on Environmental/Social/Governance (ESG) Investing".

From the CFA Institute's Market Integrity Insights, May 22:
In Asia, the subject of environmental, social and governance (ESG) investing has been a very trendy topic. For many years, many investors have tried to incorporate elements of values and social responsibility into their investment strategies.  However, the return on these strategies has in the past left a lot to be desired. It is natural to wonder why a rational investor would be willing to compromise the chances of superior performance in return for moral gratification.

Well, past performance is not always a guide to future performance, and change is in the air. More and more investors and asset owners are now placing increasing focus on ESG. As an example, California State Teachers Retirement System, one of the largest asset owners in the world, has asked their fund managers to evaluate and assess 21 risk factors in each of their holdings, including, among others regulation, human rights, environmental and governance.

What is Bringing this On?
On 27 April 2017, CFA Institute hosted a Green Finance Forum in Hong Kong to explore this issue. The event was organised in conjunction with HKU SPACE and the Financial Services Development Council (“FSDC”), an advisory body that conducts policy research for the formulation of proposals to the Hong Kong government. This is the second event in the series and we were fortunate to have several industry veterans join us as speakers.

Martina Macpherson, Global Head of Sustainability Indices, S&P Dow Jones Indices, kicked off the evening’s proceedings with a keynote speech, during which she presented the milestones of sustainable investment over the last decade as well as the growing demand of “green” instruments by investors.

As an indicator, global labelled green bond issuance in 2016 was US$93 billion — more than double the amount of US$41 billion in 2015 — and approximately US$36 billion were issued by China alone. Furthermore, there have been concrete actions from the corporate sector in their commitment to create long term shareholder value in terms of reporting, tracking and measurement of sustainable development goals.

In time, the value chain will move from “green” instruments to sustainable finance, and with improved data and metrics, investors should be able to make better investment decisions on the elements that are most relevant and investable.

The Growth of the ESG “Phenomenon”
Ms. Macpherson’s presentation was followed by a panel discussion in which she was joined by industry veterans in professional advisory, investment banking, and asset management, whose work give them different perspectives of the ESG “phenomenon.” During the panel discussion, we explored some of the reasons behind the growth in sustainability investments, the importance of aligning definitions and standards, the evidence of a positive correlation between ESG and investment performance, and how integrating ESG issues into investment decisions may be more natural and instinctive than most people assume....MORE

"U.S. Public Pensions System: Insolvent to the Core"

We usually focus on CalPERS, simply because it is the largest U.S. public employee pension plan but here's a look at the rest of the frauds.
From True Economics:
 A truly worrying view of the U.S. public sector pensions deficits has been revealed in a new study by Joshua D. Raugh for Hoover Institution. Titled “Hidden Debt, Hidden Deficits” (see http://www.hoover.org/sites/default/files/research/docs/rauh_debtdeficits_36pp_final_digital_v2revised4-11.pdf) the study opens up with a dire warning we all have been aware of for some years now (emphasis is mine):  “Most state and local governments in the United States offer retirement benefits to their employees in the form of guaranteed pensions. To fund these promises, the governments contribute taxpayer money to public systems. Even under states’ own disclosures and optimistic assumptions about future investment returns, assets in the pension systems will be insufficient to pay for the pensions of current public employees and retirees. Taxpayer resources will eventually have to make up the difference.”

Some details: “most public pension systems across the United States still calculate both their pension costs and liabilities under the assumption that their contributed assets will achieve returns of 7.5–8 percent per year. This practice obscures the true extent of public sector liabilities.” In other words, public pension funds produce outright lies when it comes to the investment returns they promise to generate. This, in turn, generates delayed liabilities that are carried into the future, when realised returns come in at some 3-4 percent per annum, instead of promised 7.5-8 percent.

How big is the hole? “In aggregate, the 564 state and local systems in the United States covered in this study reported $1.191 trillion in unfunded pension liabilities (net pension liabilities) under GASB 67 in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion.” This accounts for roughly 97% of all public pension funds in the U.S. Taking into the account the pension funds’ penchant for manipulating (in their favor) the discount rates, the unfunded public sector pensions liabilities rise to $4.738 trillion.

“What is in fact going on is that the governments are borrowing from workers and promising to repay that debt when they retire. The accounting standards allow the bulk of this debt to go unreported due to the assumption of high rates of return.”

Actually, what is really going on is that the governments create a binding contract with their employees to loot - at some point in the future - the general taxation funds to cover the shortfalls on these contracts. How much looting is on the pensions liabilities? Take the unfunded liability estimate of $4.738 trillion. And consider that in 2014, total revenues collected by state and local governments stood at $1.487 trillion. Pensions deficits alone amount to 3.2 times the underwriters’ income. In household comparative terms, this is like having a full 100% mortgage on a second home, while still running a full 100% mortgage on primary residence (day-to-day expenses).

Or, put more cogently, the entire system is insolvent. And is getting more insolvent, the longer the local and state governments refuse to use more honest accounting models.

Couple of charts to illustrate...

... CHART 2: State Contributions: Actual vs Required to Prevent Rise in Unfunded Liability
https://2.bp.blogspot.com/-BLXY-889IPk/WSLvnSgQGqI/AAAAAAAAdbo/b7yz7tSiGxArNx2oNtmh5xUR_b3s8S55QCLcB/s1600/Screen%2BShot%2B2017-05-22%2Bat%2B06.47.42.png
...MORE

What happened when VC Fred Wilson met Uber's Travis Kalanick: 'We just didn't like each other'

From CNBC, May 17:
  • Union Square Ventures investor Fred Wilson had harsh words for Uber on stage at the Techonomy NYC conference.
  • He criticized CEO Travis Kalanick's "win at all costs" strategy and says it "didn't actually work."
  • But he acknowledged that one big insight at Uber, that the economy is shifting toward more gig-based freelance work, is right.

Venture capitalist Fred Wilson said he met with Uber boss Travis Kalanick about investing in the ride-hailing company — but it didn't go well.

"We didn't like each other," Wilson said Wednesday at the Techonomy NYC conference.
Wilson is a partner at Union Square Ventures, an early investor in internet companies like Stripe, Twilio, LendingClub, Etsy, Tumblr, Twitter and Indeed.

Uber has been under pressure amid an internal investigation into sexism claims, a trade secret dispute with Alphabet and allegations that the company evaded regulators. Wilson said Uber's "win-at-all-costs" strategy assumed that drivers and consumers would be loyal — rather than adopting multiple platforms to compare prices.
"I think Uber had a strategy that didn't actually work, which was that they were going to run the table on the ride-sharing industry, and they were going to put everybody out of business by raising more money than anybody else," Wilson said. "They thought that they were going to do in ride-sharing what Google has done in search ... and it just didn't work."
Uber's valuation, though, has exploded — it was valued at over $68 billion in its last funding round, according to reports. Union Square Ventures invested in Sidecar Technologies, acquired by General Motors, which collaborates with Uber's rival, Lyft.

But Wilson said because the Kalanick tightly controlled the way the company was financed, most of the money from Uber's business is "only on paper."

"No one has made any money in reality," Wilson said. "Everything that's gone wrong is a function of their strategy to control everything and go very aggressively."...
...MORE

AQR Capital's Cliff Asness on Environmental/Social/Governance (ESG) Investing

The footnotes are pretty interesting and a possible threat to Matt Levine's hitherto unchallenged fn dominance.

From AQR's Cliff's Notes Perspective, May 18:

Virtue is its Own Reward: Or, One Man’s Ceiling is Another Man’s Floor
Negative screening is a common application of Environmental/Social/Governance (ESG) investing. It avoids “sin stocks” and divests from industries or firms deemed immoral or having poor or undesirable standards along one of the three E, S or G dimensions.1 It’s promoted largely on the fact that it’s virtuous. While we may all define virtue differently, advocating for it in this way is fair and appropriate. However, employing these constraints is also often promoted as enhancing expected returns. That is, if you avoid certain companies, industries, and even countries, that are deemed non-virtuous, you should expect to make more money over time.2 Do good and make the same return or more! This is mostly wrong and, more the point here, actually at odds with the very point of ESG investing. Pursuing virtue should hurt expected returns. Some have discussed this fact.3 But, it’s still not widely understood or broadly accepted. This seems to arise from investment managers selling virtue as a free lunch, and from investors who very much want to believe in that story. In particular, and my focus here, accepting a lower expected return is not just an unfortunate ancillary consequence to ESG investing, it’s precisely the point (though its necessity may indeed be unfortunate). As an ESG investor this lower expected return is exactly what you want to happen and really the only way you can affect the change you seek.4,5

First there’s the very basic thing. Constraints can never help you ex ante and only sometimes ex post through luck. Why? Because if they help they aren’t constraints, they are what you want to do anyway. So, if you say your portfolio is better with a negative screen, you are saying that the old evil you who didn’t care about ESG issues also didn’t like more money.6 Many commentators do indeed seem to (implicitly and sometimes explicitly) say that constrained portfolios are ex ante better. The opposite, that judged purely on return and risk constrained is always ex ante less than or equal to unconstrained, is really an important concept and still surprisingly often misunderstood. Constraints are needed to push you to do things you otherwise would not do, not to do things you’d do anyway out of self-interest.7,8

Put simply, if two investors approach an asset manager, one who says “just maximize my return for the risk taken” and the other who says “do that but subject to the following constraints,” it is simply false and irresponsible for the asset manager to assert that the second investor should expect to do as well as the first, except in the case where those constraints are non-binding (and therefore not relevant). Even in that case, it’s still irresponsible to say that the second investor should expect to do better (again, if this is just a trade it’s a consistent view but the ESG negative screening program has zero to do with it as you’re doing what you’d do otherwise out of greed!).

But, while important and sometimes misunderstood, the argument that ex ante constrained is less than or equal to unconstrained is actually rather trivial. The more interesting thing is precisely how ESG investing really makes an impact. It turns out that the ESG investor making less and the slimy sin investor making more, than they all would in the absence of the ESG investor’s self-imposed constraints, is precisely what the ESG investor wants to happen. That’s kind of cool in a math-econ-geek sense (as we’ll soon see as a human it’s kind of annoying).

What happens when one group of investors, call them the virtuous, simply won’t own a segment of the market (the sin stocks)? Well, in economist terms the market still has to “clear.” In English, everything still gets owned by someone. So, clearly the group without such qualms, call them the sinners, have to own more than they otherwise would of the sin stocks. How does a market get anyone, perhaps particularly a sinner, to own more of something? Well it pays them! In this case through a higher expected return on the segment in question. This may be unpleasant but it is just math (like math could ever be unpleasant). In the absence of extra expected return the sinners would own X of the market segment in question. The only way to get them to own X+Y is to pay them something more. Now, assuming nothing else changed, how does the market assign this sinful segment a higher expected return? Well by according it a lower price. That is, if the virtuous decide they won’t own something, the sinners then have to, and they have to be induced to through getting a higher expected return than otherwise. This in turn is achieved through a lower than otherwise price.9,10

Now for the fun part. How do the virtuous actually make the world a better place? Well to make the world a better place you want the sinning companies to sin less not just to suffer in the stock market. Does the above deliver this desired effect? Yep. Imagine a sinful company is considering a new investment project. How does it analyze this project? Well, as many of us were forced to learn in business school, it forecasts out cash flows, both positive and negative, and discounts those cash flows back to the present. If the final number is positive (a positive “NPV” in the parlance), and simplifying a bit for other complications like mutually exclusive projects, it undertakes the venture. Now I snuck in the assumption that the company knew the forecasted cash flows and the discount rate. I’m going to stick with the first assumption, that the actions of our virtuous and sinful investors don’t affect the forecasted cash flows of this potential project.11,12,13 But we can’t make this assumption for the discount rate as we know it is false and we know in which direction it’s false. Discount rates are in fact expected returns (and this is where we get our essay’s sub-title cut from Rhymin' Simon as one man’s discount rate is another expected return). Earlier we showed that investors will demand a higher expected return from the sinful companies, due to shunning by the virtuous and the necessity to bribe the sinners to hold more of them.

It also directly follows that the sinful companies will have to use a higher discount rate (or, perhaps more clearly in this case, “cost of capital”) in their “should we undertake this project?” calculations. This is truly Finance 101.14 That means quite simply that fewer sinful projects will show positive NPVs and fewer will be undertaken.

Put simply, if the virtuous are not raising the cost of capital to sinful projects, what are they doing? How are they actually affecting the world as they wish to? If the cost of capital isn’t also an expected return, what is it?...
...MORE

From April 2007 (hey, we're nothing if not patient):

Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors

That's the headline of a press release from the University of British Columbia's Sauder School of Business announcing the release of a draft paper by the school's Prof. Marcin Kacperczyk and Princeton Economics Prof. Harrison Hong.

Prof. Hong lists his research interests as:
 "Asset pricing with less-than-fully-rational investors; differences of opinion, short-sales constraints and asset prices; social interaction and financial markets; career concerns, biased forecasts and security analysts; organization, performance and mutual funds; asset pricing with asymmetric information and other market imperfections."
Hey! Mine too!