Saturday, August 24, 2019

"Epic Fail: How Blockbuster Could Have Owned Netflix" (NFLX; BBI)

From Variety, Nov. 12, 2013:

Blockbuster chiefs lacked the vision to see how the industry was shifting under the video rental chain's feet

It will go down as one of the biggest missed opportunities in the boardroom: Blockbuster deciding not to buy Netflix.

But that’s what could have happened multiple times throughout the early 2000s when Netflix CEO and co-founder Reed Hastings courted a deal with Blockbuster-chief John Antioco to purchase the then DVD-by-mail rental company for $50 million (the company now has a market cap of $19.7 billion).

In 2005, Variety first reported that while Antioco was respected as a tough negotiator and strong manager, he lacked the vision to see where the homevideo industry was going and the changing shifts in the business under his feet.

“But management and vision are two separate things,” said a former high-ranking Blockbuster exec at the time, recalling, “We had the option to buy Netflix for $50 million and we didn’t do it. They were losing money. They came around a few times.”

Barry McCarthy, Netflix’s former chief financial officer, said in an interview with the Unofficial Stanford blog in 2008, “I remembered getting on a plane, I think sometime in 2000, with Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco. Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office. At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”

Blockbuster would pursue other ventures. In 2000, it inked a 20-year-exclusive video-on-demand pact with Enron Broadband Services as the energy conglom launched into telecom. Blockbuster canned the pact after nine months after Enron was mired in scandal....

"Riding the Asian Tigers: How speculative attacks on currencies led to the East Asian Crisis of 1997"

From Winton's Longer View series:
During the 1980s and the early to mid -1990s, the East Asian Tigers leapt ahead, fed on a rich diet of foreign capital. But in the wake of Mexico’s default (1994) and Japan’s banking crisis (1996), international investors began to regard Asia more warily and savagely attacked regional currencies one by one.
Massive and rapid growth is a wonderful buffer. Like a river in flood, it hides the rocks on the river bed.
Easy Tiger The rise of the Tiger Economies in the early 1990s was intimately tied to the after-effects of the Japanese asset bubble. Diminishing opportunities at home encouraged Japanese banks to ramp up their lending to other Asian countries – in particular to highly speculative real estate concerns – and by 1995 they were providing nearly half the credit of the region.

At the same time, falling Japanese interest rates led to the emergence of a carry trade in yen, where international speculators would borrow cheaply in yen and then invest in higher yielding regional currencies, such as the Thai baht, and earn the spread. Such arbitrage trades resulted in massive flows of hot money into countries such as Thailand, Malaysia and Indonesia.

This deluge of easy money led to construction booms throughout the region, climaxing in mid-1997 with the completion of Kuala Lumpur’s Petronas towers.

During the early and mid-1990s, almost everywhere in East Asia had become a building site. Entire cities were transformed. For example, by the end of the decade Hanoi, which in 1992 had been a sleepy town of French colonial villas, swishing bicycles, with restaurants known by their street numbers, had metamorphosed into a sprawling, dynamic city.

As had been the case in Japan a decade earlier, real estate prices skyrocketed. Although the growth was based on a splurge of speculative credits, many Asians attributed the boom to strong fundamentals and their superior ‘Asian values’: diligence, respect for authority, the elevating of collective rights over individual rights.

They also believed that these same values would offer protection against the social and political pressures which have frequently accompanied periods of rapid growth in the West, allowing their boom to continue forever. In this way they were able to rationalise the prevailing euphoria.
Baht Out of Hell
The first clouds upon the horizon appeared in the wake of the 1994 Mexican Peso Crisis, which gave investors pause for thought about investing in emerging markets. The region’s troubles then intensified in mid-1996 when Japanese banks began repatriating capital from Asian countries, due to a domestic banking crisis.

These developments were particularly unwelcome for Thailand, which had been the primary beneficiary of the carry trade, and by early 1997, the Thai baht – pegged at B25 to the US dollar – was looking highly vulnerable.

Events gathered pace in early May, when Goldman Sachs released a research note predicting that the baht would soon undergo a competitive devaluation. A few days later, there was a speculative attack on the baht to which the Bank of Thailand (BoT) responded by calling for the intervention of regional central banks and creating a liquidity squeeze in the offshore market....

"Goldman at 150: How the ‘vampire squid’ became the world’s totemic bank"

From Spears' Magazine:

As the world’s most controversial bank marks its 150th anniversary, David Dawkins speaks to some of its leading British alumni and assesses its influence around the world today
On 25 April, a woman was peeled from the road outside Goldman Sachs’ unmarked office on Fleet Street. ‘BOOBY TRAP,’ roared The Sun. ‘Eco-warrior glues BREASTS to the road in most bizarre stunt yet.’ But it didn’t quite make sense. The protester, part of the Extinction Rebellion disruption, was not formally protesting against the financial crisis, 1MDB or the gulf between the haves and the have-nots. And Goldman Sachs is not directly a carbon polluter or climate change denier. 

Would gluing your breasts to the road outside Morgan Stanley, JP Morgan, RBS or Barclays have had the same effect? Probably not. But in 2019, the year of its 150th anniversary, Goldman is special like that.

Founded in 1869 in New York, Goldman wasn’t always such a totemic exemplar of the Financial World Order (and the hate that being so inspires). It was only in the Eighties and Nineties that it broke away from the pack. Today it has 30 offices around the world, more than 36,000 staff and $1.5 trillion in AuM and is quite the 21st-century behemoth. And, as at least one of the senior voices from the bank we spoke to makes clear, it’s tough at the top. With the success has come opprobrium.

Indeed, the idea of Goldman Sachs, the space it has come to occupy as the Bond villain business of the investment banking world, was created in the aftermath of the 2008 financial crisis. In 2015 it came bottom in the yearly Harris Poll ranking of the 100 most visible companies in the US. Even BP (post-Deepwater Horizon) was higher in the list, leading Bloomberg to claim: ‘People hate Goldman Sachs more than oil spills.’ But it’s more than that....

August 24, 79: An Hour-By-Hour Account Of Vesuvius' Eruption On Its 1,940th Anniversary

From Forbes:
Pliny the Younger reports that it was in the seventh hour after sunrise (right around noon) on August 24th of 79 CE that his mother pointed out to his uncle, Pliny the Elder, that "a cloud of unusual size and shape is appearing." Pliny the Elder was then stationed at Misenum, serving as the commander of the Roman fleet there. In the hours that would follow, thousands would die in the wake of Vesuvius' eruption, their bodies sealed beneath a mixture of ash, rocks and pumice. The popular fascination with Pompeii remains today and new digital efforts to map the continuing excavations within the city serve to reveal the daily life of the people and animals who lived and died in the shadow of Vesuvius. The letters of Pliny, the excavations in and around Pompeii, and volcanological evidence now allow us to reconstruct a timeline for the eruption.
Map of the area around Mount Vesuvius in 79 CE (Map created by the author using 
the Ancient World Mapping Center's Antiquity a la Carte function. UNC-Chapel Hill).
August 24, 79 CE:
12:02 p.m.: Pliny's mother tells his uncle about a cloud appearing overtop Mount Vesuvius. There had been tremors in the days leading up to this, though this was not out of character for the area of Campania. Winds carry much of the ash to the southeast. The "Plinian phase" of the eruption begins.

1:oo p.m.: East of the Volcano, ash begins to fall. Pompeii lies just six miles from Vesuvius.

2:00 p.m.: Pompeii begins to experience ash and then white pumice fall with accumulations continuing at 10-15 cm per hour. There will eventually be a layer 280 cm (3 yards) thick of pumice.

5:00 p.m.: A roof collapses in Pompeii from the weight of the pumice stone and ash. Fist-sized lithics (rocks) are also falling at a speed of 50m per second on the area. The sun is blocked and thus no natural light was available to the people seeking shelter from the eruption. Many rush towards the harbor of Pompeii. Into the evening, a gray pumice begins to fall.

ca. 11:15: The first surge hits Herculaneum, Boscoreale and Oplontis
Midnight: The eruption column above Vesuvius has gone from 14 to 33 km in the air. Pumice and ash enter the stratosphere. In the next seven hours, six pyroclastic surges will hit the area. It is likely that it is in the heat of the surges that many will die. As leading volcanologist Giuseppe Mastrolorenzo noted to National Geographic"temperatures outdoors—and indoors—rose up to 300°C [570°F] and more, enough to kill hundreds of people in a fraction of a second...when the pyroclastic surge hit Pompeii, there was no time to suffocate...The contorted postures are not the effects of a long agony, but of the cadaveric spasm, a consequence of heat shock on corpses."....

Also at Forbes:
Mt. Vesuvius Eruption Exploded Skulls And Vaporized Bodies, Roman Archaeologists Find 

Friday, August 23, 2019

Greenland, Norway and the Time Denmark Sold Islands To the U.S.

From FT Alphaville:

Greenland not for sale (1930 edition)
From the FT, July 22, 1930 (apologies for the quality of the image but that’s how it was saved in our archive):
That followed a Reuters report in the Financial Times on July 21, 1930, datelined Washington July 19, which noted the following:
It is reported in the Press here that the British Government is considering the possibility of buying Greenland from Denmark or of extending its treaty rights there with a view to establishing a base for a northern air route to Canada....

"Inside the Twisted, Worldwide Hunt for a $7 Million Stolen Car" (1938 Talbot-Lago T150-C SS Stolen - Tracking Down the $7.6 Million Teardrop Talbot-Lago)

One of the most amazing designs of all time.

From Esquire:
Joe Ford, car detective, searches the world for stolen rare automobiles on the black market. The case he’s on now could set him up for life—if he’s not outsmarted by a skilled network of criminals and cheats.
Joe Ford is sitting at the Pelican Landing, an outdoor restaurant in a fancy marina on the Intracoastal Waterway. Across the way is a 180-foot yacht, the name abbracci painted across the stern.

Joe’s cell phone rings. Wah-wah-waaahhh.
The theme music from The Good, the Bad and the Ugly. Joe’s ringtone.

“Hold on,” he says. “It’s the FBI.”

It’s midday, and Joe has just finished his first Corona. He’s self-­employed. The Pelican Landing is off the main channel in Fort Lauderdale, part of the Pier Sixty-Six Hotel & Marina, a twenty-two-acre, four-star resort where deckhands refuel yachts before they sail out to sea. When you’re sitting at the bar, the boats look like shimmering skyscrapers. Crew members scrub down decks; owners sip cocktails and shout into smartphones.
It’s a place Joe goes.

He hangs up his call. “The FBI says this is the most fun case they’ve ever worked—and I’m going to help them solve it,” he says. 

He looks around, nods at the Abbracci, once owned by a Texas businessman who recently sold off seventy-eight rare automobiles for a total of $53 million. “If you can afford that, then you can afford a million-­dollar car,” he says, by way of explaining that lunching at this high-end grill is an essential part of his work. His order of ceviche and plantains arrives, and Joe orders another Corona.

Joe is a detective for hire who specializes in recovering stolen cars. But not your car. Joe doesn’t look for cars stolen from parking garages or shopping malls—everyday transportation whose value lies in the number of miles they carry us. Joe Ford specializes in recovering cars whose value lies in not being driven much at all: rare, collectible, fetishized cars that are worth hundreds of thousands of dollars, sometimes millions or tens of millions of dollars, prized not for their ability to get from here to there but rather for their beauty, the artistry of their design, the care with which they were built, and perhaps most of all, their provenance. 

“I’m in a niche of a niche of a niche,” he says. 

Joe, sixty-two, is more Magnum P.I. than Sam Spade—tall, trim, tan, usually wearing a fitted polo or a Hawaiian shirt. Drinks sweet tea by the gallon and speaks like the New Orleans native he is. (“I grew up in east New Orleans, near the Ninth Wah-ard.”) Likes to swim and dive for lobsters and drive boats. He recently cruised on a sixty-­five-footer down to Utila, “this coral-reef island off the coast of Honduras,” he says. “It was incredible—diving with whale sharks and drinking with outlaws. One guy didn’t come back.”

People end up doing all kinds of jobs in this life. You sometimes wonder if, given a few left turns and different choices, the guy playing center field at Yankee Stadium could have ended up a taxi driver instead. Or vice versa. But Joe . . . Joe Ford is what happens when a particular set of skills, personality traits, and turns of phrase lead a person into the only thing he should be doing. It’s rare. And when you see him at work—when you see him move easily among both the shady creatures of criminality and the millionaires on those yachts—you wonder whether you, like him, have found your place in the world.....

"Germany and the Euro"

Following up on "One Euro, One Europe (One Love)"
From Inference Review:

In response to “One Euro, One Europe” (Vol. 4, No. 2).
To the editors:
In his essay, Gilles Dryancour seeks to identify a sustainable solution so that the European Monetary Union might avoid the sad fate of the many previous currency unions. He begins his analysis with Joseph Stiglitz’s suggestion that, in order to lower the value of the euro, Germany should raise wages and accept a higher inflation rate. Dryancour contrasts this with Philipp Bagus’s unoriginal observation that the Latin countries seem to be trying to circumvent the anti-inflationary pressure exerted by the Bundesbank by simply creating a European Central Bank (ECB) that does the opposite.

Dryancour also examines the mercantilist effects of the monetary union. With the euro undervalued in Germany, it is unsurprising that the most powerful economy in the union regularly achieves huge trade surpluses that are likely to create considerable imbalances within the eurozone. Two well-known correlations are apparent. On the one hand, there is the relationship between Germany’s trade surpluses and a currency that is artificially undervalued in the absence of adjusted exchange rates within the eurozone. And on the other hand, the correlation between the failure to improve the productivity of the southern countries and their artificial purchasing power due to the euro. This root cause of imbalances within the monetary union was highlighted by Hans-Werner Sinn quite early on. He predicted that there would be recurring crises unless an exchange rate adjustment mechanism was instituted. By definition, there is no place for a mechanism of this type in a monetary union.1

Dryancour addresses one of the institutional reasons that the imbalances have, so far, failed to destroy the eurozone. The TARGET payment system, which the ECB instituted without prior consultation at a governmental level, has allowed southern European countries to benefit from unlimited and pledge-free supplier credit from Germany. The Bundesbank’s receivables under this system have increased to almost one trillion euros, despite the growth in the eurozone. This is a huge hidden imbalance. These loans from the Bundesbank are held against the ECB yet are unenforceable. In sum, the TARGET system makes it possible to transform a claim from one national central bank against another into a claim against the ECB, whose funds are insufficient to meet the demand.

In his analysis, Dryancour does not draw what seems to be the only logical conclusion: reform is impossible, death certain. Instead, he flirts with the idea that the German state can compensate financially for the economic imbalance. He neglects to mention that fiscal equalization is a source of agonizing and endless arguments in a federal state. The Bavarians will hesitate to pay for Schleswig-Holstein, just as the Dutch will refuse to pay for Cyprus. The notion that the monetary union could be reformed is an illusion. In the absence of reform, there will be no meaningful changes until the Germans find that the current system is no longer working in their interests....

Here is Herr Doktor Kerber's mini-bio at Chatham House.
Apparently he can't hold onto a job.

"In Unprecedented, Shocking Proposal, BOE's Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency"

Dear Governor Carney,
India would like their $45 trillion back and based on the responses to informal queries, would prefer it in dollars rather than a libra-like reserve currency.
Yr. pal,

From Zerohedge:
After Jerome Powell's neutral-to-slightly-dovish-but-mostly-boring speech on Friday morning, investors could be forgiven for suspecting that this year's Fed-sponsored gathering in Jackson Hole might be disappointingly dull (especially with all that's going on in Trump's twitter feed, the escalating trade war and escalating geopolitical unrest).

Then along came former Goldman banker and current (outgoing) BOE governor, Mark Carney, who in his lunchtime address laid out a shocking, radical proposal - perhaps the most stunning thing to ever be unveiled at Jackson Hole - urging to replace the US Dollar with a "Libra-like" reserve currency in a dramatic revamp of the global monetary, financial and economic order.

While it was unclear if Carney was focusing on Libra as the new reserve currency, or simply was hoping to find something against which the dollar could be devalued, the proposal was clearly shocking as it suggests that the central bank quiet acceptance of cryptocurrencies (especially in Japan) has been what many have speculated all along: a "currency" against which fiat money can be devalued in hopes of sparking fiat hyperinflation that inflates away record amounts of fiat debt.

Of course, such a new system would bring about the end of US hegemony, and effectively end the dollar-based global financial system, dramatically scaling back the US's influence in the global economy, and making rising powers like China and Russia critical players an increasingly multipolar world.... especially if they propose a gold-backed dollar alternative to the world. That this would quickly emerge as the new reserve currency - together with whatever stablecoin/crypto central bankers deign to be the dollar's replacement - goes without saying.

Carney's proposal comes just a few months before he's due to step down from his position leading the Bank of England....MORE
And at Al Jazeera, December 19, 2018

How Britain stole $45 trillion from India
And lied about it.

Hi, I Was Called Away, What Did I Miss? (Nasdaq Closes 3% Lower As China Trade War Intensifies)

Actually I was called away for a fitting of a new, larger, risk manager's hat.
And suit of armor.
From Investor's Business Daily:
4:17 PM ET
Stocks today closed with heavy losses Friday, as the U.S.-China trade war intensified and investors rushed into safe havens. The sell-off quashed a market rebound this week.

The Nasdaq composite tumbled 3% for the week, dashing hopes that the composite would climb back above its 50-day moving average. Instead, the 50-day line has once again proved to be a level of resistance.
The S&P 500 shed 2.6% and the Dow Jones Industrial Average 2.4%. The Dow closed barely above its 200-day moving average. Indexes closed near session lows.

All three indexes made it four down weeks in a row, and the market is on pace for its worst month since May. Volume Friday was sharply higher from Thursday's totals.
The small-cap Russell 2000 lost 3% as well. Invesco QQQ Trust (QQQ), which was nearer to marking a close above the 50-day line, plunged 3.2%.

Trade headlines overshadowed Fed Chairman Jerome Powell's speech in Jackson Hole, Wyo., Friday.
Wall Street opened lower after China reimposed a 25% tariff on imports of American-built autos and announced tariffs of 5% to 10% on additional $75 billion in U.S.-made goods.

U.S. indexes pared early losses after reading Powell's comments. Powell sees rising risks for the global economy and said the Federal Reserve will be ready to respond to signs of weakness. But the market sold off sharply after President Donald Trump posted a series of tweets that criticized both Powell and China. Trump urged U.S. businesses not to do business with that country.

These Sectors Fall The Most Amid China Trade War...

If you should happen to get caught without your armor, say you are minding your own business, watching cat videos in the office and a market panic appears at the door here is one recommended course of action, last seen October 18, 2018 (you remember Oct. 3 - Dec. 24, 2018, right?):

The Week Ahead--"How to Gird Up Your Loins: An Illustrated Guide"
A repost from October 2014.
Although we don't plan a  Dress & Grooming column, this may come in handy should the markets descend into madness.

From The Art of Manliness:
If you’ve read the Bible, then you’ve probably come across the phrase “gird up your loins.” I’ve always thought it was a funny turn of phrase. Loins….heh.

Back in the days of the ancient Near East, both men and women wore flowing tunics. Around the tunic, they’d wear a belt or girdle. While tunics were comfortable and breezy, the hem of the tunic would often get in the way when a man was fighting or performing hard labor. So when ancient Hebrew men had to battle the Philistines, the men would lift the hem of their tunic up and tuck it into their girdle or tie it in a knot to keep it off the ground. The effect basically created a pair of shorts that provided more freedom of movement....MORE
Gird Up Your Loins 2

Also at the Art of Manliness:
How to Recover From a Bad First Impression

"Prices for All Fertilizers Move Lower for First Time in Almost Two Years"

With the exception of Yara we haven't looked at the fertilizer companies since before the 2018 Potash/Agrium merger.
From DTN's Progressive Farmer:
DTN Retail Fertilizer Trends
Prices for All Fertilizers Move Lower for First Time in Almost Two Years
Large decreases in average retail fertilizer prices were seen the second week of August 2019, according to retailers surveyed by DTN. This marks the first time in a couple of years that prices have declined in unison.
Prices for all eight of the major fertilizer were lower from the prior month with half down by a considerable amount.

Leading the way lower were anhydrous and UAN32, which both were down 7% from last month. Anhydrous had an average price of $543 per ton while UAN32 had a price of $295 per ton.
Prices for both MAP and UAN28 were also significantly lower, down 6% from the previous month. The phosphorus fertilizer (MAP) had an average price of $503 per ton and UAN28 was at $258 per ton.

Prices for the remaining four fertilizers were down from last month, but not by a significant amount. DAP had an average price of $493/ton, potash $387/ton, urea $413/ton and 10-34-0 $475/ton
On a price per pound of nitrogen basis, the average urea price was at $0.45/lb.N, anhydrous $0.33/lb.N, UAN28 $0.46/lb.N and UAN32 $0.46/lb.N.
Digging through the DTN/Progressive Farmer retail fertilizer price data shows it has been awhile since prices for all fertilizers have moved lower in the same week. You have to go all the way back to the second week of September 2017 -- almost two full years -- to find a week in which prices for all eight fertilizer were lower. 

Each week, I write down how many fertilizers are lower and higher in price, and it took me seven steno note pads to find this information....MUCH MORE
The two biggest North American based producers:
MOS The Mosaic Company daily Stock Chart
NTR Nutrien Ltd. daily Stock Chart

Watch Out Elon: China Is Doing The Vertical Landing Of Rockets Thing

Via the amazing dafeng cao Twitter feed:

Sexual Selection: Signaling Among Bipedal Mammals, The Culture That Is China Edition

HT up front: thanks to a friend who wishes to remain anonymous.
First up, from the Economist:

And from Dalrock:

The marriage marketplace connection to China’s ghost cities.
Way back in 2011 I wrote an off topic post on China’s ghost cities.  With the current trade war with China I’ve been watching some youtube videos to try to get a better understanding of what is going on with China’s economy.  One thing I learned is that the infamous ghost cities aren’t merely a product of central planning gone wrong.  There is a strong speculative component to the phenomenon, as the apartments in the empty buildings are being purchased for astronomical prices by highly leveraged chinese citizens, especially chinese men who are looking to signal their suitability to marry by owning “property”.  I put property in quotes because what they are typically buying is an unfinished (bare concrete) apartment in a building on land leased from the government for 70 years....

Capital Markets: Powell, The Fed and Jackson Hole

From Marc to Market:
Overview: Powell speech at Jackson Hole stands before the weekend. Equities in Asia and Europe are finishing the week on a firm tone. Most markets in the Asia Pacific region closed higher today, and the MSCI Asia Pacific Index snapped a four-week slide. European bourses are edging higher, and the Dow Jones Stoxx 600 is poised to end its three-week air pocket. US shares are higher in European trading and barring a reversal in the North American session, the S&P 500 will finish stronger for the first time in four weeks. Benchmark 10-year yields are higher, and some suspect the poor reception of Germany's 30-year zero-coupon bond earlier this week marked at least a temporary extreme. The US 10-year yield has risen nine basis points this week, which if sustained, would be the largest weekly gain since March. The US dollar is mostly firmer against the major currencies, though the Scandis and Antipodeans are resisting the pull. Sterling, which shot up yesterday on what we suspect is misplaced optimism regarding Brexit and reached its best level since late July (~$1.2275), is paring those gains today. It is finding support near the top of its previous range (~$1.22). Among emerging markets, Egypt and Sri Lanka joined the rate-cutting party with 125 bp cut (to 14.25%) and a 50 bp cut (to 8%) respectively.

Asia Pacific
The PBOC continues to set the dollar reference rate lower than the models suggest.
It has slowed by not reversed the yuan's weakness. The onshore yuan (CNY) fell for six consecutive sessions coming into today. The dollar made a new high just shy of CNY7.10 before reversing lower. Many, including ourselves, suggest CNY7.10 was around the magnitude of the adjustment anticipated. There is a medium-term lending operation that matures Saturday, and this would give the PBOC an opportunity to cut rates. However, officials do not seem to be in much of a hurry. Elsewhere, a cut in subsidies for the alternative energy vehicles is seen cutting into lithium demand and another disruption to the auto sector. The knock-on effect of new emission standards is one of the factors that have weighed on the German auto industry.

Japan reported July CPI figures. Price pressures are stable, but well below the 2% target the BOJ has dramatically expanded its balance sheet in trying to achieve. The headline rate eased to 0.5% from 0.7%, but the core rate, for which only fresh food prices are excluded, and is the measure the BOJ targets, was stable at 0.6%. Excluding both fresh food and energy, Japan's CPI was steady at 0.6%. Under the yield curve control policy, the 10-year yield should not fall beyond minus 20 bp, but the yield has been less than that for the second consecutive week.

The dollar has been trapped in a about a 15 tick range on either side of JPY106.55.
It has not traded above JPY106.70 this week or below about JPY106.15. There is a $765 mln option at JPY106.25 (yesterday's low) that will be cut today. If the greenback finishes today above JPY106.40 (roughly last week's close), it will be the first back-to-back weekly gain since April. Thin markets seemed to have allowed the Australian dollar to briefly slip to a marginal new low for the week (~$0.6745) before recovering to little changed but higher on the day levels. Still, the Aussie closed near $0.6770 last week, and unless this area is re-taken, it will record its sixth consecutive weekly decline. The New Zealand dollar fell to new three-year lows yesterday (~$0.6360) but is coming back a little firmer following comments by the Reserve Bank of New Zealand Governor Orr who suggested that after the surprise 50 bp rate cut, the central bank can be patient. The market continues to lean toward another cut not at the September 25 meeting but the one after than November 13, which is also the last one until February 2020.

Market participants heard what they wanted to yesterday regarding Brexit.
UK Prime Minister Johnson visited Germany and France in recent days. He came bearing no new ideas besides rejecting the backstop for the Irish border. Merkel and Macron were good hosts. In essence, they said fine, you don't like the backstop. Give us a realistic alternative. Meanwhile, some of the Tory's who support the idea that no deal is better than the Withdrawal Agreement that had been negotiated for 18 months, warned that Johnson has to do more than simply jettison or modify the backstop to secure their support. At the end of the day, the risks of a no-deal Brexit remain elevated, and apparently the base case for many. Separately Trump and Johnson will reportedly breakfast together at the G7 meeting this weekend....

Thursday, August 22, 2019

Where Are They Now: "The founders of one of the most successful tech companies to come out of Europe"

No, not ARM Holdings but that's a good guess. By-the-bye, speaking of guesses we might consider offering prop bets on whether SoftBank takes the chipmeisters public again to refill Mr. Son's coffers.

From Forbes:
The Skype Mafia: Who Are They And Where Are They Now?
Skype is widely regarded as one of the most successful tech companies to come out of Europe, but who are the people that built the company and where are they now? 
They’ve got their fingers in lots of pies, including a venture capital fund with over $1 billion at its disposal and an autonomous robot startup that’s delivering takeaways to people in the U.K. and California.

The so-called Skype Mafia is a sprawling beast involving dozens of people, but there are a few names that really stand out.

Founded in the early 2000s, Skype was bought by eBay in 2005 for $2.6 billion. The deal saw founders Niklas Zennström and Janus Friis pocket approximately $390 million each. At the time, it was not only the biggest exit in European tech, but also the largest tech exit globally since the dot-com crash.

The history around the deal makes for interesting reading. Zennström and Friis retained ownership of some of Skype’s technology, which proved vital when relations between eBay and Skype soured. The European entrepreneurs sued eBay for misusing their IP, leading Google and Microsoft to think twice about buying the company off eBay. They alleged that some of their code, which they retained the copyright for, was being used in Skype without their permission.

In 2009, eBay sold 70% of Skype for $2.75 billion to an investor group called Silver Lake that included some of Skype’s cofounders. EBay and Silver Lake then sold it onto Microsoft for $8.5 billion in 2011, with Silver Lake being the clear winner in the deal.
After speaking with multiple ex-Skype employees and people with close links to company, Forbes has identified ten of the most influential and successful people within the Skype mafia. 

1. Niklas Zennström, Skype Cofounder and CEO
The series of acquisitions made a lot of Skype’s early employees millionaires, but ex-Skype CEO and cofounder Niklas Zennström netted the lion’s share.
Forbes estimated in 2015 that Zennström—who also cofounded peer-to-peer file-sharing service and Napster rival Kazaa—had a net worth of around $900 million.
A keen yachtsman, the 53-year-old Swedish entrepreneur used some of his Skype profits to build racing yachts that have won major races such as the Sydney to Hobart Yacht Race. He also reportedly sails for around 90 days a year.

Some of his Skype proceeds went into setting up his own venture capital fund, Atomico, in London’s Mayfair district. Just outside the Atomico office, Rolls Royces and Bentleys drop off wealthy shoppers on the doorsteps of swanky stores like Louis Vuitton and Belstaff. 
Set up in 2006, Atomico is investing over $1.5 billion into early-stage technology startups across a range of industries. Zennström set it up because he wanted to build the VC he couldn’t find when he was raising for Skype in Europe. The fund has backed dozens of businesses, and big wins to date include Supercell (stake sold to SoftBank), Xobni (acquired by Yahoo) and Klarna, which is now valued at over $5 billion.

Tall and composed, Zennström is particularly keen to back sustainable businesses that have the potential to mitigate the impact of climate change. Atomico has backed a German startup called Lilium, for example, which is developing a small electric flying vehicle that could help to cut emissions and reduce congestion. And more recently the fund backed a digital agriculture firm that examines weather, soil and field data to help farmers determine potential yield-limiting factors.  

2. Janus Friis, Skype Cofounder....

The inspiration, from 2014:
"The PayPal Mafia: Who are they and where are Silicon Valley's richest group of men now?" (EBAY; TSLA; LNKD; FB)

And the knock-off, from 2018:
The Stanford Bitcoin Mafia

"The Quest to Find a Lost Arctic Explorer’s Buried Soup"

From Gastro Obscura:
An “Arctic mystery” may lead to a future of food under the permafrost.
In 1886, the renowned geologist, zoologist, and explorer Baron Eduard von Toll stood on the coast of the largest of the New Siberian Islands, gazing north into the Russian Arctic Ocean. He was sure he saw it in the distance: Sannikov Land, a mythic island that had bewitched and eluded explorers for a century. To his guide, he wondered aloud if he’d ever make it there. His guide’s response matched Toll’s own determination: “Once I set foot there, I can die.”

In 1900, after years of persuasion, the Russian Academy of Sciences finally agreed to sponsor Toll’s expedition to find Sannikov. Aboard the ship Zarya, Toll set sail into the Arctic. But from the start, the expedition was buffeted by trouble: navigational confusion, coal shortages, scurvy, a power struggle between Toll and the captain, the death of the doctor, erratic winds, flooded decks, brutal snowstorms, starving sled dogs, and a raging polar bear. Worst of all was the constant threat of encroaching ice, which could entrap the ship and constrict around its wooden hull like a vise.

Nonetheless, Toll and his team of scientists kept busy. They mapped uncharted rivers and islands, analyzed glaciers, gathered fossils and fauna, and studied their findings in the ship’s onboard labs. During overland forays, they relied on stores of canned and dried foods, buried and preserved in the permafrost of the Taimyr Peninsula. All the while, Sannikov Land remained a phantom out of reach, beckoning Toll to the northern horizon.

19 months into the trip, the RAS ordered Toll by telegram to wrap it up. He had one final summer to find his island. In May 1902, with the Zarya’s path frozen in every direction, Toll, his navigator, and two Yakut crewmen set out by dogsled and kayak to the far-north Bennett Island. Here, they hoped to establish a base from which to venture even further north, to Sannikov.

Over three months on Bennett, the team ate their way through three bears, countless seabirds, and the island’s small herd of reindeer. Out of optimism that the Zarya would soon retrieve them, they failed to keep anything for the winter. But the Zarya remained stymied by ice for months, and by October, the window for rescue was closed. Toll realized that if they stayed on the island, they wouldn’t survive. And so, he and his team ventured south, back towards the New Siberian Islands, paddling thin-hulled kayaks into a deadly mass of rapidly freezing, razor-sharp ice. They were never seen again.

Toll’s death cemented his legendary status in Russia, which continued to sponsor searches for Sannikov into the 1930s. Toll’s widow published his diaries, and in 1959, a Russian translation meant they were devoured by a new generation of Arctic adventure-lovers.

One page detailed a food store that Toll had buried on the Taimyr Peninsula in September 1900, early in his voyage. First, he described its location: a spot five meters above sea level, marked with a wooden cross. Then he described the hole itself, dug deep through thawed clay, peat, and ice. And finally, the contents: “a box with 48 cans of cabbage soup, a sealed tin box with 15 pounds of rye rusks [dry biscuits], a sealed tin box with 15 pounds of oatmeal, a soldered box containing about four pounds of sugar, 10 pounds of chocolate, seven plates and one brick of tea.”.... 

"China's Homegrown Type 001A Aircraft Carrier to Join Service by End of Year - Report"

While the official plan is four Chinese carriers by 2025, The Diplomat in an article last year said the actual number may be seven. Which seems quite a few for a country that brags about their one-shot "carrier killer" weapons.
Anyhoo, from Sputnik:
China’s first domestically built aircraft carrier, the Type 001A, will most likely be in service by the end of this year, according to reports
The 65,000-tonne aircraft was launched in April 2017 and has since undergone at least seven rounds of sea trials in the Yellow Sea off northeastern China.
The Asia Times reports that the vessel’s multiple sea trial “are an indication” that its official enrollment into the service is near. Lie Jie, a naval expert who spoke to the Global Times last week, also said that the “latest lengthy” sea trial could be in preparation for the ship’s final delivery to the People’s Liberation Army-Navy (PLAN).
According to state broadcaster China Central Television, the new aircraft carrier can house a dozen more fighter jets than the Liaoning carrier commissioned by the PLAN in 2012.....

Sept. 2018
China Launches Its First Domestically Built Icebreaker
"China to Use First Atomic Icebreaker as Test for Future Nuclear Aircraft Carriers"
April 2019
China Is Building a Cruise Ship To Add to The Homebuilt Aircraft Carrier and Icebreaker
China is very good at buying a prototype, reverse engineering and building that, and then using the knowledge gained to build their next generation craft. ...
Things You Don't See Every Day: 15 Chinese PLA Navy Destroyers In One Picture

Russia May Scrap Its Only Aircraft Carrier and Buy Chinese

EIA: "Natural Gas Weekly Update"

From the U.S. Energy Information Administration:
for week ending August 21, 2019   |  Release date:  August 22, 2019 
(For the week ending Wednesday, August 21, 2019)
  • Natural gas spot prices rose at most locations this report week (Wednesday, August 14 to Wednesday, August 21). Henry Hub spot prices rose from $2.15 per million British thermal units (MMBtu) last Wednesday to $2.25/MMBtu yesterday.
  • At the New York Mercantile Exchange (Nymex), the price of the September 2019 contract increased 3¢, from $2.143/MMBtu last Wednesday to $2.170/MMBtu yesterday. The price of the 12-month strip averaging September 2019 through August 2020 futures contracts climbed 1¢/MMBtu to $2.329/MMBtu.
  • Net injections to working gas totaled 59 billion cubic feet (Bcf) for the week ending August 16. Working natural gas stocks are 2,797 Bcf, which is 15% more than the year-ago level and 4% lower than the five-year (2014–18) average for this week.
  • The natural gas plant liquids composite price at Mont Belvieu, Texas, fell by 23¢/MMBtu, averaging $4.10/MMBtu for the week ending August 21. The price of ethane, propane, butane, and isobutane fell by 2%, 5%, 11%, and 19%, respectively. The price of natural gasoline rose by 2%.
  • According to Baker Hughes, for the week ending Tuesday, August 13, the natural gas rig count decreased by 4 to 165. The number of oil-directed rigs rose by 6 to 770. The total rig count increased by 1, and it now stands at 935.


Prices rise with warmer weather. This report week (Wednesday, August 14 to Wednesday, August 21), Henry Hub spot prices rose 10¢ from $2.15/MMBtu last Wednesday to $2.25/MMBtu yesterday. Temperatures across the Lower 48 states were generally warmer than normal; they were much warmer than normal across most of Texas and a bit cooler than normal across the Great Plains.

Midwest prices rise slightly. At the Chicago Citygate, prices increased 8¢ from $2.00/MMBtu last Wednesday to $2.08/MMBtu yesterday. Kinder Morgan’s Natural Gas Pipeline Company of America (NGPL) declared a force majeure on Tuesday between Compressor Stations 104 and 105, stretching across most of Kansas, north of Wichita. Several other outages are in effect across the system, constraining downstream flows. According to Genscape, the restrictions will reduce flows by half (e.g., current operational capacity of 439 MMcf/d at Compressor Station 103 flowed an average of 906 MMcf/d in the 30 days before the incident).....

 Mean Temperature Anomaly (F) 7-Day Mean ending Aug 15, 2019
Front futures (Sept):  2.149 -0.021
EIA Weekly Natural Gas Storage Report

EIA Weekly Natural Gas Storage Report

Front Futures: 2.169   -0.001
This is more-or-less a placeholder for the less referenced but more informative Weekly Update which comes out in a few hours.

From the U.S. Energy Information Administration
Weekly Natural Gas Storage Report
for week ending August 16, 2019   |   Released: August 22, 2019 at 10:30 a.m.
Working gas in storage was 2,797 Bcf as of Friday, August 16, 2019, according to EIA estimates. This represents a net increase of 59 Bcf from the previous week. Stocks were 369 Bcf higher than last year at this time and 103 Bcf below the five-year average of 2,900 Bcf. At 2,797 Bcf, total working gas is within the five-year historical range.

For information on sampling error in this report, see Estimated Measures of Sampling Variability table below.
Working Gas in Underground Storage Compared with Five-Year Range Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2014 through 2018. The dashed vertical lines indicate current and year-ago weekly periods.


And why we said yesterday that initiating new positions ahead of the storage report requires two specific skills.
Today's price action via FinViz:

"Gillette says it is “shifting the spotlight from social issues”" (PG)

Having to write down the value of your brand by eight billion bucks should be a firing offense, if for nothing else, for seriously flawed judgement.
I'm a little bit surprised that Proctor&Gamble hasn't done so.
From, Australia, August 22:

‘We will continue to represent men at their best’: Gillette’s backflip after ‘toxic masculinity’ backlash
Gillette says it is “shifting the spotlight from social issues” after an ad about “toxic masculinity” caused a customer backlash.
Razor brand Gillette says it is “shifting the spotlight from social issues to local heroes” after an ad delving into “toxic masculinity” caused a customer backlash.

The new ad, which launched last week, stars Australian firefighter and personal trainer Ben Ziekenheiner. “I’ve been a firefighter for 19 years,” Mr Ziekenheiner says in the ad.
“People sometimes ask if it’s scary. It can be, but like anyone who has a job to do, you prepare — not just in terms of your equipment but also mentally and physically.”

The ad spruiks the brand’s SkinGuard range, highlighting the issue of sensitive skin for men who shave every day — including firefighters, who are required to be clean-shaven as it enables a proper seal for their breathing mask.

“We have a very clear strategy when it comes to how we authentically connect with our consumers,” said Manu Airan, associate brand director for Gillette Australia and New Zealand.
“We will continue to talk about what is important to Gillette and that is representing men at their best and helping men do their best. That is not changing. We will continue to do that and demonstrate it in different ways.”

Parent company P&G last month took a nearly $12 billion ($US8 billion) writedown in the value of the 118-year-old shaving business it purchased in 2005 for $84 billion ($US57 billion)....MORE
Get Woke, Go Broke: "P&G's Gillette razor business is not for sale even after $8 billion write-down" (PG)
Remember the Woke Gillette Ad? It Wasn't the First Time Gillette Wanted to Change Society
As pundits pointed out, woke Gillette wasn't woker than woke Harry's which was way woker.......MUCH MORE wokeness

Batteries etc: How much must energy storage costs fall to reach renewable energy’s full potential?

Longtime readers know most of the highlights of the intermittency problem and the storage/renewables paradigm and the need for backup dispatchable baseload, sometimes on a gigawatt-for-gigawatt basis so we'll just jump right in.

Press release from Cell Press, publisher of the journal Joule, via EurekAlert:
The cost of energy storage will be critical in determining how much renewable energy can contribute to the decarbonization of electricity. But how far must energy storage costs fall? In a study published August 7 in the journal Joule, MIT researchers answer this question. They quantify cost targets for storage technologies to enable solar and wind energy with storage to reach competitiveness with other on-demand energy sources. They also examine what kinds of batteries and other technologies might reach these targets.

“One of the core sources of uncertainty in the debate about how much renewable energy can contribute to the deep decarbonization of electricity is the question of how much energy storage can be improved” says senior author Jessika Trancik, an associate professor of energy studies at the Massachusetts Institute of Technology. “Different assumptions about the cost of energy storage underlie significant disagreements between a number of assessments, but little was known about what costs would actually be competitive and how these costs compare to the storage technologies currently being developed. So, we decided to address this issue head on.”

“Quantifying cost targets for energy storage required a new piece of insight,” Trancik says, ‘about how patterns of the renewable energy supply, and fluctuations in this supply, compare to electricity demand profiles. Large but infrequent solar and wind shortage events are critical in determining how much storage is needed for renewables to reliably meet demand, and it’s important to understand the characteristics of these events.”

In the paper, Trancik and her colleagues estimated the costs of using storage together with wind and solar energy to supply various output profiles reliably over twenty years. They then estimated cost targets for energy storage that would enable plants to reach cost-competitiveness with traditional electricity sources. They also evaluated current and future energy storage technologies against the estimated cost target.

The researchers’ model optimizes storage costs by using whatever combination of storage and solar and wind gives the lowest electricity cost. This often means oversizing solar and wind capacity relative to an intended output, to decrease the amount of storage needed.

The analysis also explored the characteristics that distinguish various storage options. Some technologies are more suited to inexpensively storing large quantities of energies but outputting it slowly, at lower power, while others can cost-effectively store smaller amounts that can be quickly discharged at high power. So the model needed to capture these differences, Trancik says.
The research found that technologies with energy storage capacity costs below $20/kWh could enable cost-competitive baseload power that is available all of the time over a twenty-year period, though this target varies with the target output profile and location. They found that electricity costs respond more to costs of storage energy capacity than power capacity.

The research showed that “it’s critical to reduce the costs of the materials and manufacturing that contribute to the cost of the storage energy capacity,” Trancik says. “The numerical target we estimate, which varies with location, could mean a 90 percent drop in storage costs relative to today’s technologies. It’s a large drop but some technologies do tend to improve a lot, as we’ve seen in the case of solar panels, for example.”

“However, and importantly, there is another factor that could raise this target considerably and allow more expensive technologies to cost-competitively store renewable energy, which is to use supplemental technologies for a small percent of the time,” Trancik says. Allowing the renewable energy system to fail to meet demand for just five percent of the hours over a twenty year period can halve the cost of renewable electricity, the researchers report....MORE
And at Joule, August 7:
Storage Requirements and Costs of Shaping Renewable Energy Toward Grid Decarbonization

The Strange Business of Subsidized Yak Insurance

Originally posted in October 2017, an odd corner of the insurance business.

If there was a euro/renminbi to be made, the Dutch re/insurers would already be on it:
...the herverzekering crowd in Amsterdam, they're tough bastards.*
But they aren't, so this reads a bit like Death of a Salesman, Tibet-style.

From Pacific Standard:
On the northeast corner of the Tibetan Plateau, in central China's Gansu Province, nomads can buy insurance policies for their sheep and yaks. The Chinese government subsidizes the plans, and on highways cutting across Gannan, a Tibetan prefecture in Gansu, billboards advertising the insurance programs share the roadside with signs promoting family planning. Behind the billboards lie vast expanses of grassland—rolling canvases of deep green that stretch into oblivion—where sheep and yaks graze, as if Chinese Communist Party officials have placed them there for a photo shoot.
In Langmusi, a small monastery town, I found a local insurance administrator in a café, slumped over a table and mumbling to himself. He stared vacantly at four empty beer cans and then spotted me across the room.

"Meiguo pengyou! Lai!" "American friend! Come!" The day was young—1 p.m. on a Thursday—and I asked why he'd already begun drinking.

"I took a day off today. There's nothing to do."

"My job has no meaning."

"Business isn't good?"

"It's bad," he said. "This insurance thing, it doesn't have any meaning." He looked into his beer glass, sniffled, and shook his head.

I offered, optimistically, that insurance could help a lot of people. There were lots of nomadic shepherds in Tibet—wasn't there demand? He shook his head again.

"Nobody buys the insurance. Nomads don't understand insurance."

This statement perfectly encapsulated the Chinese government's struggle in Tibet. Since the 1950s, when the CCP first occupied Tibet, assimilation by force had brought little beyond resentment. After decades of failure, the Party had begun to try a new strategy; instead of coercing Tibetans for their loyalty, it would try to buy it. The Chinese government invested in infrastructure, provided generous subsidies and tax incentives across various industries, and attempted to bring modern finance—like insurance—to the Plateau. The economic strategy has, so far, been far more successful than the military one, but it is an ongoing project, and one with limits.

"They just don't understand this stuff," he said again, referring to the nomads.
He explained the pricing. The payoffs, he said, were far too low.

"It doesn't matter anyway. No one buys the insurance. The job doesn't mean anything."

As the afternoon wore on, his depression grew more personal. Middle-aged and far from his home village, he worried about his aging parents. At one point, he began to sob, imagining them dying alone while he failed to sell yak and sheep insurance.

Later, at dinner, he ate slowly, the way a sick person does when he's not hungry, and then sauntered out of the café. I expected his exit would mark the last time I ever discussed yak insurance with anyone....MORE
*Last seen in "For Our Dutch Insurance/Reinsurance Readers: Live-blog of the 2011 Berkshire-Hathaway Annual Meeting (BRK.B; BRK.A)". 

Artificial Intelligence: The World's Largest Chip Is As Big As Your Head and Contains 1.2 Trillion Transistors

From the company:

The WSE is the largest chip ever built
  • 56x the size of the largest GPU
  • The Cerebras Wafer Scale Engine 46,225 mm2 with 1.2 Trillion transistors and 400,000 AI-optimized cores.
  • By comparison, the largest Graphics Processing Unit is 815 mm2 and has 21.1 Billion transistors.
From VentureBeat:

Cerebras Systems unveils a record 1.2 trillion transistor chip for AI
New artificial intelligence company Cerebras Systems is unveiling the largest semiconductor chip ever built.
The Cerebras Wafer Scale Engine has 1.2 trillion transistors, the basic on-off electronic switches that are the building blocks of silicon chips. Intel’s first 4004 processor in 1971 had 2,300 transistors, and a recent Advanced Micro Devices processor has 32 billion transistors.

Most chips are actually a collection of chips created on top of a 12-inch silicon wafer and are processed in a chip factory in a batch. But the Cerebras Systems chip is a single chip interconnected on a single wafer. The interconnections are designed to keep it all functioning at high speeds so the trillion transistors all work together as one.

In this way, the Cerebras Wafer Scale Engine is the largest processor ever built, and it has been specifically designed to process artificial intelligence applications. The company is talking about the design this week at the Hot Chips conference at Stanford University in Palo Alto, California.

Samsung has actually built a flash memory chip, the eUFS, with 2 trillion transistors. But the Cerebras chip is built for processing, and it boasts 400,000 cores on 42,225 square millimeters. It is 56.7 times larger than the largest Nvidia graphics processing unit, which measures 815 square millimeters and 21.1 billion transistors....

And at TechCrunch: 

See also:
May 2018 
"Artificial intelligence chips are a hot market." (NVDA; GOOG)
In March 2017 our thinking on NVIDIA was:
"We focus on the stock, not the company. The company should be fine for at least the next couple years until the artificial intelligence biz catches up to NVIDIA and either takes a different approach or a really different approach and goes quantum computer."
Here's one of the competitors.
From Barron's Tech Trader Daily, May 14
Cerebras: The AI of Cheetahs and Hyenas...MORE
August 2018
Ahead of NVIDIA Earnings: The Last of the "Easy" Comparisons (NVDA)

Beating that Q3 2017 EPS, 90 cents, by double i.e. $1.80 or more, is doable but AI and data centers will have to pick up the slack from the Q1 and Q2 cryptocurrency bump that started declining with Bitmain and other miners use of ASICs rather than GPU's.

Going forward the trend toward specialist proprietary chips, see Tesla's development of their own chips etc, etc will leave NVIDIA with a couple holes in the potential addressable markets they will want to fill.

Additionally, the smaller pups, some still in stealth, are nipping at the big dog's heels, making it more expensive for NVIDIA to maintain their edge in architecture....
August 2018
Artificial Intelligence Chips: Past, Present and Future

September 2018 

June 2019 
"New Artificial Intelligence Chips Lean Toward the Edge" (NVDA) 
Just confirming some priors here (with a small victory dance)

June 2019
Chips: NVIDIA Begins To Embrace the Move Toward More Specialized Chips (NVDA; INTC; AMD; GOOG; XLNX)
See I told you I wasn't crazy. Something we've been babbling about for a couple years.
Some links below.
From MIT's Technology Review:....

That Much Ballyhooed* Business Roundtable 'Higher Purpose for the Corporation'? The Rest of the Story

From Crain's Chicago Business:
There's more to the story of Business Roundtable's push to serve a higher purpose than mere shareholder returns.
What’s in it for them?
Call me jaded, but that was my first question when news broke that a group of CEOs at some of the country’s largest companies had decided to redefine the purpose of a corporation. The Business Roundtable on Monday decreed that corporations no longer exist only to produce profits for shareholders, but also to serve customers, employees, suppliers, communities and the environment.

“Each of our stakeholders is essential,” the statement reads. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Phew. That’s quite a to-do list. Seems to me it would be easier to keep concentrating solely on shareholder returns. Why would 181 busy corporate leaders—including local luminaries such as Abbott Labs’ Miles White, Boeing’s Dennis Muilenburg and Caterpillar’s Jim Umpleby—add so many new obligations to their already-full plates?

One obvious answer is political cover. CEOs face a rising tide of public discontent over a world economic system that many consider skewed to favor multinational corporations over ordinary citizens and communities. They’ve seen that tide of resentment put Donald Trump in the White House, where he’s pursued policies that threaten international trade flows essential to global companies. And they’re hearing Democratic presidential contenders call for more government intervention in markets.
Income inequality and the widening pay disparities between CEOs and average workers fan the flames, while episodes like the Boeing 737 Max tragedies and Facebook’s manipulations of private information reinforce impressions that companies care only about profits.
“I saw this, and I thought ‘These guys are worried,’” says Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

Business leaders know corporations are vulnerable to populist anger—Larry Fink, CEO of investment giant Blackrock, last year warned his compatriots that their “license to operate” hinges on public support. So it makes sense that they would try to convince people that companies care about more than the bottom line. Former Baxter International CEO Harry Kraemer, now a professor at Northwestern’s Kellogg School of Management, thinks the Roundtable is merely calling attention to longstanding corporate practices essential to generating a profit, such as delivering value to customers, investing in a skilled workforce or maintaining good relations with their communities....MUCH MORE
HT: Crains's Chicago Business' Editor Ann Dwyer

noun, plural bal·ly·hoos.
  • a clamorous and vigorous attempt to win customers or advance any cause; blatant advertising or publicity.
  • clamor or outcry.
  • a halfbeak, Hemiramphus brasiliensis, inhabiting both sides of the Atlantic Ocean.
verb (used with or without object), bal·ly·hooed, bal·ly·hoo·ing.
  • to advertise or push by ballyhoo.

"Huawei faces a 'life or death crisis,' CEO says as he lays out 'battle' strategy amid US pressure"

From CNBC:
  • Huawei is facing a "life or death crisis" amid continued pressure from the U.S. government, Ren Zhengfei, its founder and CEO told employees.
  • The Huawei boss laid out plans to bring more efficiencies to the organization, including simplifying the reporting structure and moving managers to other positions where required.
  • The Chinese tech giant is on a U.S. blacklist which restricts American businesses from selling products to Huawei. Those restrictions have been eased for another 90 days.
Huawei is facing a "life or death crisis" amid continued pressure from the U.S. government, its founder and CEO told employees, as he laid out a strategy for the Chinese telecommunications giant going forward.

In a memo to employees of Huawei's networking division seen by CNBC, Ren Zhengfei described the company's current situation as a "battle." Ren is well-known for using military language in his communications with employees.

In May, the company was put on a U.S. blacklist — or the so-called Entity List — which restricts American businesses from selling to the Chinese firm. Huawei relies on a lot of American technology from software to hardware....MORE

Wednesday, August 21, 2019

"What paying Berlin to borrow for 30 years tells us about Europe"

The response to the German 30-year zero-coupon offering was 'tepid'.

From FT Alphaville:
When the European Central Bank was building its new headquarters on the banks of Frankfurt’s Main river, stenciled on one of the hoardings around the construction site was an image of a suave Mario Draghi at the roulette table, chips stacked, with Angela Merkel the glamourpuss, at his side.

The graffito, dubbed Casino Royale, symbolised an era when markets viewed the ECB’s urbane central bank chief as a James Bond-style figure who would bet the house and win the battle to save Europe from disaster. Fittingly, it was bought by a New York fund manager.
Ah, the halcyon days of 2013.

Cut to 2019, and the spectre of an ever-worsening global trade war is scaring the living daylights out of European investors to the extent that even Mr Draghi’s cunning is not enough. A flight to safety has sent debt prices rocketing, with north of $16tn of bonds now trading at negative yields (a big chunk of them euro-denominated) — meaning that, if investors end up holding them to maturity, they’re paying for the privilege of holding the (relatively) secure assets.

A more accurate artistic representation of the current mood in Europe, then, is ‘The K Foundation Burn A Million Quid’. A case-in-point came from Ms Merkel’s government today when it issued a 30-year bond with no coupon at all. Investors who stumped up the cash for the €2bn-worth of debt did so at a price that means they will in effect pay 11 basis points per year to Berlin to borrow the sum.

Of course, the actions of the central banks themselves have contributed to this cash burning exercise. Mr Draghi could, in the coming weeks, throw in his few remaining chips and promise to buy more government bonds under the ECB’s €2.6tn QE programme, which may make German sovereign debt even more expensive. And with the interest rate on deposits held at the eurozone’s central bank now minus 40 basis points — and set to sink lower still — 11 basis points doesn’t look all that bad a return....MUCH MORE
The comments are interesting as well

French Researcher Cracks Moscow's Blockchain Voting System a Month Before Election

From ZD Net, August 20:

French researcher nets $15,000 prize for finding bugs in Moscow's Ethereum-based voting system.
A French security researcher has found a critical vulnerability in the blockchain-based voting system Russian officials plan to use next month for the 2019 Moscow City Duma election.

Pierrick Gaudry, an academic at Lorraine University and a researcher for INRIA, the French research institute for digital sciences, found that he could compute the voting system's private keys based on its public keys. This private keys are used together with the public keys to encrypt user votes cast in the election.

Moscow blockchain voting system encryption broken in 20 minutes
Gaudry blamed the issue on Russian officials using a variant of the ElGamal encryption scheme that used encryption key sizes that were too small to be secure. This meant that modern computers could break the encryption scheme within minutes.

"It can be broken in about 20 minutes using a standard personal computer, and using only free software that is publicly available," Gaudry said in a report published earlier this month.
"Once these [private keys] are known, any encrypted data can be decrypted as quickly as they are created," he added....MORE

Shipping/Trucking: "Diesel prices will spike due to IMO 2020: Fitch"

The best short discussion of the refining end of the opportunity in the low-sulphur rules that you are likely to find.
From FreightWaves:
In anticipating the price impact on diesel prices from the launch of IMO 2020 on January 1 – with any impacts expected to start before that – most forecasters have been fairly moderate in their outlook, with some exceptions. 

But Fitch Solutions, a unit of Fitch Group, recently came out with its forecast. Prominent in the title is the ‘S’ word – spike.

“Diesel: Tighter Shipping Rules to Lead Large Price Spike in 2020” is the title of the report.
The report as a whole sees the oil market in the next few years as having adequate diesel capacity in general. But it’s the short-term that is of concern to the trucking and transport sector and Fitch’s outlook is stark.

“Fuel switching due to IMO 2020 will drive a large and sudden shift in demand for diesel in shipping, and a significant mismatch between supply and demand, and in turn price volatility appears inevitable during its early stages,” the report said.

There are two paths for diesel to migrate from the current demand pool into meeting demand from the marine sector, which is facing a mandate from the International Maritime Organization to reduce the sulfur content of marine fuel to 0.5 percent sulfur from the current 3.5 percent sulfur cap.

One way is to use an existing product called marine gasoil (MGO), which is a diesel product. The other is to consume a new type of product known as very low sulfur fuel oil (VLSFO). But despite its name, VLSFO will contain a significant amount of diesel molecules, produced using  an intermediate product called vacuum gasoil (VGO). VGO is now used to make either finished diesel or gasoline. There are other solutions, such as scrubbers (which allow ships to continue using high sulfur fuel oil) or liquified natural gas (LNG). But it is the MGO vs.VLSFO vs. existing diesel give-and-take that will be key going forward.

IMO 2020 has been described as the most significant environmental regulation ever implemented in the oil industry. It is very different from other new regulations in one key respect – the solution to meeting the new rule will to some degree come from taking products from one stream of products coming from a refinery – the middle distillates – and using them to displace another stream, the fuel oil that is known sometimes as “the bottom of the barrel.” That shift is forecast to be anywhere from 2 million to 2.5 million barrels/day (b/d), a significant amount on a base of about 35 million to 36 million b/d of distillate consumption, including diesel...

Out of our dozens of links on IMO 2020 a few that may be of interest:
August 6
Shipping/Refining: "Is A Diesel Crunch Coming?"
July 12
Shipping: First Signs of 2020 Low-Sulpher Rules Starting to Rock the Oil Market
Have I mentioned the IMO 2020.... oh who am I kidding, fascination became idée fixe some time ago.
July 8 
Shipping: 2020 Low Sulphur Rules Less Than 6-Months Away - There's A Trade For That

And previously on this aspect of the big change:
Rich Rewards Await Top Oil Refiners as Ships Make Low Sulphur Switch Fuel
Top Norwegian Oil Analyst Quitting DNB to Pursue 2020 Low Sulphur Fuel Rule Riches 
Shipping: The New Low Sulpher Rules Will Have A Huge Impact On the Oil Business (shipping and world economy too)
Oil/Shipping: "Where will all the residual fuel go after ships barred from using it?"
Shipping’s 2020 Low Sulphur Fuel Regulation to Hit Airlines
"Shipping: 2020 Low Sulfur Fuel Requirements Will Disrupt Oil/Refined Markets Up to Five Years".  Shipping: First Signs of 2020 Low-Sulpher Rules Starting to Rock the Oil Market

Ya Know What Seems Cheap? Natural Gas Seems Cheap.

From futures 2.1660 down 0.0520.

We do not recommend initiating positions within 24 hours of the Thursday storage reports unless you a) are a good guesser as to what the number will be and b) (and possibly more importantly) you can guess how the crowd will react to said number.
It's the old Keynesian beauty contest paradigm.

Back in the day it used to be easier, when you just needed to know the temperature outside the NYMEX and whether the traders felt chilly running in the door.

From Inside Futures:
Below is a daily December natural gas chart showing planetary angle lines. I used a price per degree of .0082. Saturn is support at 2.366. Neptune crosses at 2.855 and is resistance. Uranus crosses at3.233 and is resistance. The lower Jupiter crosses at 2.193 and is target.

Ooops, wrong chart, that's from the Age of Aquarius slide deck.* Let's try again.

From Inside Futures:
Natural Gas (NG) Nearing Daily Chart Descending Wedge Resistance
Natural Gas (NG) edged higher yesterday, but can be expected to hesitate going into Thursday's highly anticipated weekly storage data at 1030am EST. Significantly, longer term bullish momentum is gaining as seen by the compelling follow through this week following last week's completion of the Bullish Island Reversal...MORE
As noted in a late July post commercial users of natural gas are as long futures as Iwe've seen in years:

...Coming up next, "How many noodles make a spaghetti graph unreadable?"
Just kidding, the one above is clear enough to follow the lines, more like this El Niño Southern Oscillation forecast from IRI/Columbia:
Although even here if you use enough distinct colors you can get the message.
And fortunately enough, the message one wants to be aware of is one of the outlier projections, NOAA's CFSv2, the green line under the zero degree anomaly.
If that model run comes to pass we are looking at a full blown La Niña.
Which would explain why the commercials are getting long natural gas futures.
*Lest we scoff too much at the astrotechnicians, let us recall that, according to Hulbert, the most accurate market forecaster in 2008 was Arch Crawfiord:
Investing: "Throwing Out the Rule Book" (The best Performing Investment Letter is by an Astrologer)
"Fake Astrology-Based Hedge Fund Threatens To Ruin Things For All The Legit Astrology-Based Hedge Funds Out There "
"S.E.C. Charges Psychic With Securities Fraud"
(no, it wasn't Arch)
What the #1 Investment Newsletter is Saying Now
Of Bulls, Bears and Rallies
Is The Financial Crisis Making You Psychic?

J.P. Morgan's astrologer was  Evangeline Adams.