Wednesday, February 20, 2019

"Once hailed as unhackable, blockchains are now getting hacked"

And this is before we get quantum computers working on the challenge of the 'chain.
From MIT's Technology Review, Feb. 19:

More and more security holes are appearing in cryptocurrency and smart contract platforms, and some are fundamental to the way they were built.
Early last month, the security team at Coinbase noticed something strange going on in Ethereum Classic, one of the cryptocurrencies people can buy and sell using Coinbase’s popular exchange platform. Its blockchain, the history of all its transactions, was under attack.

An attacker had somehow gained control of more than half of the network’s computing power and was using it to rewrite the transaction history. That made it possible to spend the same cryptocurrency more than once—known as “double spends.” The attacker was spotted pulling this off to the tune of $1.1 million. Coinbase claims that no currency was actually stolen from any of its accounts. But a second popular exchange,, has admitted it wasn’t so lucky, losing around $200,000 to the attacker (who, strangely, returned half of it days later).

Just a year ago, this nightmare scenario was mostly theoretical. But the so-called 51% attack against Ethereum Classic was just the latest in a series of recent attacks on blockchains that have heightened the stakes for the nascent industry.

In total, hackers have stolen nearly $2 billion worth of cryptocurrency since the beginning of 2017, mostly from exchanges, and that’s just what has been revealed publicly. These are not just opportunistic lone attackers, either. Sophisticated cybercrime organizations are now doing it too: analytics firm Chainalysis recently said that just two groups, both of which are apparently still active, may have stolen a combined $1 billion from exchanges.

We shouldn’t be surprised. Blockchains are particularly attractive to thieves because fraudulent transactions can’t be reversed as they often can be in the traditional financial system. Besides that, we’ve long known that just as blockchains have unique security features, they have unique vulnerabilities. Marketing slogans and headlines that called the technology “unhackable” were dead wrong.

That’s been understood, at least in theory, since Bitcoin emerged a decade ago. But in the past year, amidst a Cambrian explosion of new cryptocurrency projects, we’ve started to see what this means in practice—and what these inherent weaknesses could mean for the future of blockchains and digital assets.

How do you hack a blockchain?
Before we go any further, let’s get a few terms straight.

A blockchain is a cryptographic database maintained by a network of computers, each of which stores a copy of the most up-to-date version. A blockchain protocol is a set of rules that dictate how the computers in the network, called nodes, should verify new transactions and add them to the database. The protocol employs cryptography, game theory, and economics to create incentives for the nodes to work toward securing the network instead of attacking it for personal gain. If set up correctly, this system can make it extremely difficult and expensive to add false transactions but relatively easy to verify valid ones.

That’s what’s made the technology so appealing to many industries, beginning with finance. Soon-to-launch services from big-name institutions like Fidelity Investments and Intercontinental Exchange, the owner of the New York Stock Exchange, will start to enmesh blockchains in the existing financial system. Even central banks are now looking into using them for new digital forms of national currency.

But the more complex a blockchain system is, the more ways there are to make mistakes while setting it up. Earlier this month, the company in charge of Zcash—a cryptocurrency that uses extremely complicated math to let users transact in private—revealed that it had secretly fixed a “subtle cryptographic flaw” accidentally baked into the protocol. An attacker could have exploited it to make unlimited counterfeit Zcash. Fortunately, no one seems to have actually done that.

The protocol isn’t the only thing that has to be secure. To trade cryptocurrency on your own, or run a node, you have to run a software client, which can also contain vulnerabilities. In September, developers of Bitcoin’s main client, called Bitcoin Core, had to scramble to fix a bug (also in secret) that could have let attackers mint more bitcoins than the system is supposed to allow.

Still, most of the recent headline-grabbing hacks weren’t attacks on the blockchains themselves, but on exchanges, the websites where people can buy, trade, and hold cryptocurrencies. And many of those heists could be blamed on poor basic security practices. That changed in January with the 51% attack against Ethereum Classic.

The 51% rule
Susceptibility to 51% attacks is inherent to most cryptocurrencies. That’s because most are based on blockchains that use proof of work as their protocol for verifying transactions....

Cue Aretha:

IRI/Columbia El Niño Forecast

From the International Research Institute for Climate and Society, February 19:

IRI ENSO Forecast
IRI/CPC ENSO Predictions Plume
Published: February 19, 2019
Note on interpreting model forecasts
The following graph and table show forecasts made by dynamical and statistical models for SST in the Nino 3.4 region for nine overlapping 3-month periods. Note that the expected skills of the models, based on historical performance, are not equal to one another. The skills also generally decrease as the lead time increases. Thirdly, forecasts made at some times of the year generally have higher skill than forecasts made at other times of the year--namely, they are better when made between June and December than when they are made between February and May. Differences among the forecasts of the models reflect both differences in model design, and actual uncertainty in the forecast of the possible future SST scenario.

Because of occasional data corrections and late model runs following the time of ENSO product issuance, the data shown in the ENSO forecast table and the ENSO plume graph may not always match....MORE
If interested see also IRI's:

2019 February Quick Look
Published: February 19, 2019

Trucking Freight Futures: Former JP Morgan Marketeer to Head Up FreightWaves Part of the Effort

Now where were we?
Encourage Poland to invade Germany.  posted
Remind Pope of his mortality. posted
Ahhh, freight futures.

The rollout of new financial products is tricky if not downright risky and for this reason derivatives  are usually introduced after a considerable run-up in the underlying has generated interest and buzz.
A recent success story was bitcoin futures.

On the other hand the CME's milk futures never really caught on despite (because of?) the opportunity for cow puns when describing them. The expiring February's have traded 184 contracts today while the March's have seen a total of 144 change hands. Not very liquid.

I am so sorry.

Following up on Monday's "Freight Futures For the Trucking Industry" here's FreightWaves, Feb. 12:

J.P. Morgan Executive Director to lead Trucking Freight Futures for FreightWaves
Addison Armstrong has joined the FreightWaves executive team as Executive Director, Freight Futures. In this role, Armstrong will oversee FreightWaves’ commercial efforts in the futures business, including go-to-market, marketing, sales, strategy, and execution.

Over the past two years, the FreightWaves team, in partnership with Nodal Exchange and DAT, has been building the platform to create a liquid futures contract for the U.S. spot price trucking freight market. This futures contract will be listed, exchanged and cleared on a CFTC-regulated exchange and clearinghouse, settled based on DAT’s Trucking index.

Trucking has experienced massive volatility over the past four years, caused first by the commodity recession in 2015/16, capacity shortages due to a strong labor market, ELDs, and run-up in imports due to trade policy uncertainty, and falling spot rates in 2019 due to overhang from larger inventory builds and slowing industrial activity.

Since trucking spot rates peaked on June 23, 2018 at $2.10/mile, rates have fallen by 33%. The latest DAT assessed published rate was on January 30, 2019, where the national rates were sitting at $1.40/mile. This significant drop is related to a slowing freight market (volumes off by 4.5%), increasing trucking capacity (up about 2%), and more efficient operations from shippers and carriers planning more in advance.

With futures coming online, trucking market participants will benefit from having the ability to manage price risk, while using market data to project where prices will likely end up going over time. Trucking freight futures are traded on a CFTC-registered exchange and settled by a CFTC regulated clearing house and are all financially settled (meaning a truck will never show up).

Addison’s addition to the FreightWaves team is an additional vote of confidence in the broader financial markets getting behind the idea of trucking becoming the next great financial market.

Prior to joining FreightWaves, Armstrong was an Executive Director of sales and marketing for J.P. Morgan, where he led efforts to develop and maintain key commodity-focused client relationships for the bank’s futures clearing broker. He has over 20 years experience in the commodity markets, involved in developing liquidity for a number of futures markets in various commodities and exchanges as both a trader and a broker. Prior to joining JP Morgan, he held senior positions in the futures community at ADM Investor Services and Tradition Financial Services. Previously he was involved in the business development activities of Sempra Energy Trading, including retail energy marketing, base metals trading and the development of an LNG import terminal. Armstrong began his commodity career at AIG Trading where he traded short-term power and marketed natural gas derivatives. Armstrong got his start covering energy markets for Reuter’s back in the 90s, serving in various reporting and management roles in New York, Seoul, Tokyo, and Saudi Arabia.....

Pope Francis: "Don't Be Afraid of Looking Like ‘Communists’"

...The Pope also proposed essential and direct questions, in the style of the examination of conscience: "Where is your brother in your heart? Is there room for these people in our hearts? Or we talk, yes, of people, let's take a little conscience giving alms, but do not disturb too much, please, because with these social things from the Church it ends up looking like a communist party and this hurts us. All right, but the Lord said it: where is your brother? It is not the party, it is the Lord "....
l'Osservatore Romano, 18Feb2019

Also at

Saint Pope John-Paul II did not immediately comment.

This [of course] reminded me of something, yesterday's FT article by Ms Kaminska on titles which begins:
Companies need fewer mystics and more critical thinkers
Long-winded, self-aggrandising titles aimed at remunerating employees with status rather than pay are hardly a new thing.

We’ve all been exposed to the occasional “Global Head of Personal and Corporate Sales & Co-head and President of Execution Services, Emea, Asean & UK; Chair of the Steering Committee for Services, Sales and Executions, BSC, MSC, MBA, GSCE(s)” and thought to ourselves: what on earth is that? But something new is happening in the world of title inflation. Where preposterous titles in the past concentrated on over-defining job roles in excruciating detail, today’s vogue is for exactly the opposite. The more ambiguous, meaningless and mystical, the better.

Some might suggest the trend reflects an increasingly edgy and innovative corporate sector that welcomes young people and freethinkers, especially in the executive class. But I would argue it hints at something more worrying: a lack of corporate understanding about what a company’s purpose in society and the marketplace really is these days....
I had linked via her tweet with the emphasis on her very, very drily referring to the Romanov's enterprises as "a well known family office".
In the words of Larry the Cable Guy: I don't care who your are, that's funny right there.

There's also a second level of insight, more directly related to the topic of titles (but still off-topic from her "Mystics and Madmen in the Valley of Silicon" focus) which are the titles of the Tsar of Russia.

From a 2017 post:
.....Egg Decorating: There's Top 1% Rich and then There's Autocrat of All the Russias Rich*

*The number of titles is borderline ridiculous:
"By the Grace of God, We, NN, Emperor and Autocrat of All the Russias, Moscow, Kiev, Vladimir, Novgorod; Tsar of Kazan, Tsar of Astrakhan, Tsar of Poland, Tsar of Siberia, Tsar of Chersonese Taurian, Tsar of Georgia; Lord of Pskov and Grand Prince of Smolensk, Lithuania, Volhynia, Podolia, Finland; Prince of Estland,....."
It goes on and on listing the territories and actually ends with:
"...hereditary Sovereign and ruler of the Circassian and Mountainous Princes and of others; Lord of Turkestan; Heir of Norway; Duke of Schleswig-Holstein, Stormarn, Dithmarschen, and Oldenburg, and others, and others, and others."
That's a title.
And so is St. Pope J-P the deuce....

And John-Paul II didn't work to bring down the communist empire just so some Papal punk could airbrush why you really don't want to go there, or even give the appearance of going there.
Frankie boy would do well to keep in mind the ultimate opinion on John-Paul I's election to Pope.
The result was vetoed after 33 days.

And speaking of titles in Russia, there was the guy the Marc Rich metals trader was told he had to bribe to get $10 mil worth of copper cathodes sailing off to Shanghai from the port of Vladivostok.
The guy's business cards say he is the Chief Head.
I think in Italo-American that would be something like Capo dei capi.

What Happened To Germany's Military?

Dear Poland, this might be a good time to ask for reparations.
And if the answer is nein, maybe acquire some real estate the old fashioned way.
Brandenburg would be nice. Not Berlin though, still too many hipsters, ten years after the infestation.

Germany’s soldiers of misfortune
The once mighty Bundeswehr is looking increasingly threadbare.
BERLIN — Fighter jets and helicopters that don’t fly. Ships and submarines that can’t sail. Severe shortages of everything from ammunition to underwear.

If it sounds like an exaggeration to compare Germany’s Bundeswehr to “The Gang that Couldn’t Shoot Straight,” look no further than the army’s standard-issue assault rifle, Heckler & Koch’s G36. The government decided to scrap the weapon after discovering that the gun misses its target if it’s too hot.

“There is neither enough personnel nor materiel, and often one confronts shortage upon shortage,” Hans-Peter Bartels, a Social Democrat MP charged with monitoring the Bundeswehr for parliament, concluded in a report published at the end of January. “The troops are far from being fully-equipped.”
Once one of the fiercest (and most brutal) fighting forces on earth, today’s German army increasingly looks more like a volunteer fire department — last month, mountain troops were dispatched to shovel snow from roofs in Bavaria — than a modern military machine.

On a recent trip to Lithuania, where about 450 German soldiers are stationed as part of a NATO mission to deter Russian aggression, U.S. officials were dismayed to discover Bundeswehr personnel communicating on unsecure mobile phones due to a shortage of secure radio equipment.
“No matter where you look, there’s dysfunction" — High-ranking German officer at Bundeswehr HQ
Fewer than 20 percent of Germany’s 68 Tiger combat helicopters and fewer than 30 percent of its 136 Eurofighter jets could fly in late 2018. Pilots, frustrated that they can’t fly, are quitting....

Capital Markets: "US-China Trade and Brexit Dominate Ahead of FOMC Minutes"

From Marc to Market:
Overview: The US dollar is narrowly mixed against the major currencies, but the strongest currency today is the Chinese yuan, following reports that US wants China to keep the yuan stable and not offset US tariffs with currency depreciation. The second monthly decline in Japanese exports weighted on the yen. In the UK, another Labour MP left, while there is speculation that a few Conservatives may defect today. The focus in the US turns to the FOMC minutes from last month's meeting that saw a meaningful change in the central bank's rhetoric. The steep losses in the stock market and elevated volatility that spooked officials have been retraced by about 75% and the VIX is at four-month lows. The MSCI Asia Pacific Index has advanced for the third session and is at its highest level since October, still more than 1% below its 200-day moving average. The Dow Jones Stoxx 600 firm enough to reach a new high for the year and fractionally below its 200-day moving average. Benchmark bond yields are little changed. Gold is at new 10-month highs and oil is trading slightly lower.

Asia Pacific
The Chinese yuan has risen by about 0.6% today, which makes it the strongest currency today. It is the third day of gains. We had previously understood Chinese officials to indicate they did not want the dollar to trade below CNY6.70. However, this area may now be challenged. The ostensible trigger comes from reports that the US seeks a commitment by China to maintain a stable currency. In the reports, the meaning of stability (real, nominal, basket, bilateral) is not clear, but the idea is that the US is trying prevent China from offsetting tariffs with a weaker currency or seeking trade advantage from the exchange rate. Chinese officials have long said they desire a stable yuan and have pledged not to use the exchange rate as a trade weapon. Both sides are conflicted. The US has encouraged China to allow markets to determine exchange rates. If the market determined the yuan's value it would be more volatility and likely weaker. Chinese officials are engaged in various efforts to support the economy. A yuan that does not adjust creates other distortions.

With the March 1 trade deadline approaching, and both sides seemingly still far apart, we are on the lookout for some sign of a delay. The clearest indication of this came from President Trump yesterday, indicating that March 1 is not a "magical date." However, US negotiators were using the deadline to help maintain pressure on China. When playing the "bad cop" during NATFA talks and early talks with China, Trump may have helped his negotiators, but now, playing nicer, may weaken his negotiators. From another angle, Trade Representative Lighthizer is a true believer, but the President is more opportunistic.

Japanese exports tumbled 8.4% in January, the largest year-over-year decline in two years. In December, they were off 3.9% year-over-year. Exports to China were off 17.4%. While Chinese demand has weakened, this may have been exaggerated by the distortions around the Lunar New Year. Exports to the US rose 6.8%. On a seasonally adjusted basis, Japan has been running monthly trade deficits since mid-2018....

Tuesday, February 19, 2019

"First Solar to Report Q4 Earnings: What's in Store?" (FSLR)

Before we get to the headline story here's our last post on FSLR, January 23:

"Party is over for dirt-cheap solar panels, says China exec"
This is good news for the American manufacturer First Solar, which although it doesn't make silicon-based panels like the Chinese, instead going with cadmium telluride chemistry, does have to compete on the basis of the lifecycle cost of the electricity produced.

FSLR has not been doing well during the glut:

FSLR First Solar, Inc. daily Stock Chart

From Reuters, January 24:
DAVOS, Switzerland (Reuters) - The global solar power industry is about to lose a major competitive windfall as prices of Chinese-made solar panels begin to recover after a collapse last year, the leader of one of the world’s top manufacturers said on Thursday.

“The party if definitely over,” said Eric Luo, president of China’s GCL System Integration Technology Co, a top-10 maker of solar panels, feeding the fastest-growing renewable power sector.
Solar panel prices tumbled around 30 percent last year after China, the world’s largest producer, cut subsidies to shrink its bloated solar industry, pushing smaller manufacturers to the brink of collapse.

To raise cash and stay afloat, manufacturers cleared inventory and diverted sales offshore, sending prices into a downward spiral - offering up a windfall for solar power generators and investors in solar farms.

Luo, speaking to Reuters at the World Economic Forum in the Swiss ski resort of Davos this week, said GCL’s vertically integrated business model cushioned it from the downturn in prices as its solar farms benefited from cheaper panels.

The pain will mostly be felt by smaller Chinese producers, which lack international supply chains, triggering industry consolidation or forcing them to close, he added....MORE
We have some history with this one, including pretty much the entire IPO-at-$20-to $317-top-tick glory days run. If interested use the 'search blog' box top left.
$51.94, up $2.76 (5.61%) last.
From Zacks, Feb. 19:
First Solar, Inc. (FSLR - Free Report) is scheduled to report fourth-quarter and full-year 2018 results on Feb 21, after market close. In the last reported quarter, the company delivered a positive earnings surprise of 20%.

Let's delve deep to unearth the factors likely to influence its fourth-quarter results.

Factors to Consider
On the third-quarter earnings call, First Solar announced the sale of its two projects in Japan during the fourth quarter of 2018. Also, in the fourth quarter, the company signed an agreement to sell its 100-Megawatt (MW) AC Willow Springs Solar Project in Kern County, CA to D. E. Shaw Renewable Investments.

These project sales must have boosted First Solar’s top line in the soon-to-be-reported quarter and can be expected to duly get reflected in the upcoming results. In line with this, the Zacks Consensus Estimate for First Solar’s fourth-quarter revenues is pegged at $803.5 million, reflecting 137% improvement year over year.

However, China and certain international markets have been witnessing a decline in average selling prices (ASPs) for solar modules due to oversupply across the value chain. This trend is expected to get reflected in the company’s fourth-quarter results.

Such higher sales expectations should get translated into improved bottom-line figures for First Solar in the quarter to be reported. Meanwhile, the company is witnessing production ramp up in its Ohio and Malaysia Series 6 factories, wherein throughput levels have reached 90% and 75% respectively.
This, in turn, might have boosted the company’s earnings in the soon-to-be-reported quarter.
Consequently, the Zacks Consensus Estimate for First Solar’s fourth-quarter earnings is pegged at 64 cents, mirroring a massive improvement of 356% year over year.

First Solar, Inc. Price and EPS Surprise...

Gold Hits A 10-Month High

Why did the current run begin the week of the U.S. mid-term election?
Here's the most active (April) contract, $1342.7 up $20.6 last:
The election was on November 6th, the low tick in that month on the 13th.

And is there a correlation with talk of Modern Monetary Theory?
Google Trends

The lowest points on the graph are over there on the left and it's onward and upward from there.
It's probably nothing, correlation ≠ causation, etc.

And the funny thing is, gold's not an especially good inflation hedge.
More on that, and what is a good hedge, somewhere down the road,

From Kitco:
The gold market’s fresh 10-month high could be the start of a renewed uptrend in the precious metal as the market has broken important resistance levels, according to some economists.

With new momentum in the precious metals market, some analysts have said that it could be only a matter of time before prices break above last year’s highs around $1,365 an ounce. Many analysts have noted that gold will continue to benefit as the U.S. dollar struggles to find momentum in an environment of growing economic uncertainty and low interest rates.

April gold futures last traded at $1,339.40 an ounce, up 1.30% on the day. So far this year gold prices are up more than 4%. Meanwhile, the U.S. Dollar Index is relatively unchanged on the day and year, last trading at 96.73 points....MORE

Creeped out by Facebook’s algorithms? Just wait until you see this new facial recognition tool released by anonymous Russian programmers.

From Meduza, Feb. 13:
On February 11, Russian Internet users discovered a website,, that allows anyone to search the massive social media network VKontakte using a single image. The site’s functionality was simple: after uploading a photograph that included someone’s face, users could see a list of links to VKontakte pages with photographs that may depict the same person. On February 13, after the social media network announced that it would sue SearchFace for “gross violations of [VKontakte’s] rules,” the algorithm’s creators removed profile links from the site’s search results but retained the rest of its functions.

Before that change, Meduza journalist Sultan Suleimanov tried out SearchFace’s technology by uploading a recent photo of himself to the website. He intentionally used a picture in which his face was contorted, but that did not seem to interfere with the website’s results. SearchFace was able to locate not only Suleimanov’s personal VKontakte page but also several fake accounts whose creators had uploaded photographs of him.

The results also included images Suleimanov had never seen before. They were taken at a friend’s wedding and posted on a locked VKontakte account.
SearchFace is reminiscent of another Russian project, FindFace, that was released in 2016 by the company N-Tech Lab. Meduza was unable to compare the accuracy of the two services because public access to FindFace closed in the fall of 2018. Its creators decided to shift their focus to corporate products.
After news of SearchFace’s release began to spread, an editor for the publication TJournal managed to get in touch with one of the product’s creators. The programmer, who asked to remain anonymous, said his goal was not to make money — SearchFace has no advertisements and does not require registration. Instead, he simply wanted to research the capacities of his algorithm. Specifically, the programmer said he hoped to test the facial recognition tool on a very large set of photographs, including low-quality images and images in which part of a person’s face is hidden.
Meduza made contact with the same developer, who was able to demonstrate his involvement in the SearchFace project. He explained that the algorithm runs on a base of half a billion photographs posted to VKontakte. That base was collected in the summer of 2018, before the social media network enabled users to lock their profiles such that they would not be publicly visible. When SearchFace was developed, users could only lock individual albums.

Nonetheless, the programmer assured Meduza that SearchFace does not save its photo base or any additional images users upload to VKontakte. He said the neural networks that allow the website’s search feature to operate have already been fully developed by his three-person team and do not require additional visual input. He also called SearchFace a demo version of the new facial recognition technology and said it became publicly accessible “almost accidentally.” In the day after the site was discovered, tens of thousands of users visited its homepage.

SearchFace appears to recognize photographs of individual people quite effectively. For example, a childhood photo depicting Nariman Namazov, who founded one of the sites on which SearchFace was first reported, alongside the blogger Ilya Varlamov easily led the service to the two men’s current photographs. A photograph of the journalist Oleg Kashin in which part of Kashin’s face is hidden behind a poster also provided SearchFace with enough information to find the journalist’s VKontakte page. The website’s algorithms also made do with a photograph in which former Meduza publisher Ilya Krasilshchik looked away from the camera while wearing a microphone and a bicycle helmet....MORE
Also at Meduza
Michael Calvey's detention, swole bunnies, and Tatarstan's porno priest is defrocked

"AQR Quants Gaze Into Crystal Ball, See ‘Soberingly Low’ Returns"

No worries, just frontload the next two decades in 2019 please.
We'll deal with 2025 when we get to it.

From Bloomberg, Feb. 6:
  • 60/40 portfolio to earn 2.9% real return, according to report
  • Cheaper stock prices partially offset by lower growth forecast
If the wizards at AQR Capital Management LLC are right, on the current trajectory the next few years will be a struggle for investors seeking the kind of returns they enjoyed in the “rosier past.”
The $196 billion quantitative hedge fund this week updated its assumptions for major asset classes, and at first glance the outlook has brightened somewhat:...

...The trouble is, the improvements over last year are mainly due to cheaper prices after 2018’s annus horribilis. AQR expects a traditional 60/40 portfolio of U.S. assets to earn just 2.9 percent after inflation over the medium term, compared with a long-term average of 5 percent....MORE

"What do Disney, Skype, GlaxoSmithKline and Koch Industries all have in common? They received secret tax deals from Luxembourg that the EU has failed to investigate"

From the International Consortium of Investigative Journalists (ICIJ):

February 12, 2019
Why has the European Commission not investigated Lux Leaks tax deals?
Almost five years ago, the International Consortium of Investigative Journalists published its Lux Leaks investigation, exposing how some of the world’s largest corporations cycled billions of dollars through Luxembourg so as to avoid paying huge amounts of tax — taxes that otherwise could have ended up in the coffers of other European countries.

The revelations laid bare more than 300 secret tax deals that Luxembourg had struck with global businesses, including Disney, Skype, GlaxoSmithKline, Koch Industries and Black & Decker.
In several cases, the deals — known as “tax rulings” — allowed firms to pay less than 1 percent tax in Luxembourg.

The EU’s second smallest member state was secretly offering huge tax favors on an industrial scale. In some instances, leaked documents showed officials even granted lucrative tax deductions for “deemed interest” — that is, pretend payments of interest on loans that, in reality, were interest-free.
In 2014, there were immediate calls for the European Union’s then-new competition commissioner Margrethe Vestager to take action.

If Luxembourg’s tax rulings were found to offer benefits to preferred companies then Vestager could use EU competition law — which bars countries from giving state aid to favored businesses — to reverse these deals and force multinationals to make up years of tax underpayment.

But Vestager declined immediate action.
“We consider the Luxembourg-leaked documents as market information,” she told reporters in November 2014. “We will examine it and evaluate whether or not this will lead to the opening of new cases.”

Now time is running out. The current Commission is coming to the end of its five-year term, and Vestager remains silent. Why?

Certainly, the Lux Leaks scandal was an uncomfortable episode for her boss, Commission president Jean-Claude Juncker. He had previously served as Luxembourg prime minister for almost two decades, the time period in which his officials approved the Lux Leaks tax deals.

In the UK, Margaret Hodge, a member of the British parliament and a prominent tax campaigner, asked: “How can we know he’s working in the interest of Europe when, as prime minister in Luxembourg, he has exploited populations in every European country and elsewhere for decades?”...

This Is a First: I Have Never Before Seen The Romanov Clan's Business Interests...

...referred to as:
I was not expecting that and may have scared some folks down the hall when I started screaming/laughing and gesticulating at the screen.

China: "...Banks open floodgates in January to help slowing economy"

From the South China Morning Post, February 15:

China’s loans hit all-time high as banks open floodgates in January to help slowing economy
  • New yuan loans reached 3.23 trillion yuan (US$476.97 billion), almost triple the amount from December
  • Flood of money could offer a lifeline to many indebted Chinese firms with total debt in China now close to 300 per cent of its gross domestic product
New loans in China surged to an all-time high in January, highlighting Beijing’s scramble to bolster economic activities at home amid the trade war with the United States.
The People’s Bank of China (PBOC), China’s central bank, said on Friday that new yuan loans surged to 3.23 trillion yuan (US$476.97 billion) last month.

The figure almost tripled the 1.08 billion yuan (US$159.48 million) of loans in December, while also beating the 1.6 trillion yuan (US$236.27 billion) of loans issued in January 2009 when Beijing looking to put growth on track during the global financial crisis.

Total social financing, the more broadly defined measure of credit in the economy that includes loans, bonds and other non-traditional financing instruments, grew to 4.64 trillion yuan (US$685.18 billion) in January.

The data confirms that the world’s second largest economy is taking an ultra loose monetary position, even though Beijing has refrained from a benchmark interest rate cut or officially call for a shift in its monetary policy stance....MORE

Monday, February 18, 2019

Freight Futures For the Trucking Industry

From FreightWaves, February 6:

Trucking Freight Futures Road Show hits Wall Street, heads to Chicago
On Wednesday afternoon, at the Andaz Hotel on Wall Street in New York City, executives from FreightWaves, Nodal Exchange, DAT, and K-Ratio pitched Trucking Freight Futures to a diverse audience of investment bankers, equity analysts, hedge funders and techies. The event was completely booked. On Thursday, the Road Show heads to Chicago.

For a recording of the live stream and a copy of the slide deck, click here
Michael Vincent, Executive Vice President at FreightWaves, welcomed the attendees and began the freight futures presentation by recounting his transportation and logistics experience. Vincent joined FreightWaves after more than 32 years in the industry including less-than-truckload, truckload, asset-light logistics services, maritime, air cargo and warehousing and distribution.

“In my past lives I have managed $150 million-plus transportation budgets,” Vincent said, “and hitting those budgets throughout the year was a very difficult chore. I saw a lot of people lose their jobs over this exact problem.”

Vincent went on to explain that the U.S. trucking industry was very large (more than $725 billion annually) and very volatile (multiple moves up and down in price exceeding 25 percent in a single year), but his former colleagues in the industry had no way to de-risk their exposure to price shocks. Not only is trucking very large and very volatile, but freight markets are also very sensitive to external factors.

“Virtually everything that happens affects the transportation industry, from the mere suggestion of a new tariff to hurricanes,” Vincent said.

Recent advances in technology have connected assets on the road to cloud-based data streams, creating transparency into capacity flows and real-time market pricing. Meanwhile, recent price shocks both up (from the back half of 2017 through 2018) and down (the spot rate crash after the first week of January) underline the need for companies across the business community to hedge their natural exposure to freight market volatility. In The Wall Street Journal, articles about transportation costs were front page news.

Vincent pointed out that a successful futures contract needs a large and volatile underlying market (trucking), a benchmark index (DAT), an exchange and clearing house (Nodal), and market data, news and insights (FreightWaves).

Next, Nodal’s Senior Director of Energy Markets, Daniel Gomez, spoke about the mechanics of the exchange and the surety that traders of Trucking Freight Futures contracts would have.....MORE

Oh Lord, What's McCrum Done Now?

And here we were just about to hit 'publish' on:
Attn. Dan McCrum
From Tickets to Mars Will Eventually Cost Less Than $500,000, Elon Musk Says.*
From the Financial Times:

FT statement on Wirecard reporting

Any allegation against the FT or any of its reporters or staff of market manipulation or unethical reporting in relation to Wirecard is baseless and false. It is a smokescreen obscuring the serious allegations that were revealed by the FT. 

Our reporters have been investigating this company for four years, and in the last month published stories based on credible evidence of fraudulent accounting detailed in internal documents seen by the FT. Wirecard's response was also reported. These articles have a significant public interest and are free to read on

We have not been contacted by the German financial regulator or the Munich prosecutor. Any investigation would therefore appear to be at the very earliest stage, with investigators not yet having spoken to those they say they are investigating. 
-note open paywall if you haven't yet subscribed.

I could have told you that Murphy kid would get you in trouble.

*See—among Dan's many examples—"A brief history of Tesla and the number 500,000"

Emanual Derman Answers's Annual Question With: "No more time decay"

Yesterday we visited to see historian of science George Dyson in "Oligarchia: 'The digital revolution isn’t over but has turned into something else'".
Today we visit Emanual Derman whom I once described, back when he was blogging at Reuters, thusly:
Mr. Derman is a blogger based in New York City.
He also teaches at Columbia.
Before that he was head of the quantitative strategies group in the equities division, and then head of quantitative risk strategies at Goldman Sachs
And before that he was a theoretical physicist.

I hate him....
Here is his personal homepage.

...Psst...I don't really hate him.
But do visit his homepage to see why one could. 
Each year for 20 years has asked an 'Annual Question' of some 120 - 190 brainiacs. In 2009 the question was: WHAT WILL CHANGE EVERYTHING?
Among the 152 responses is:

Professor, Financial Engineering, Columbia University; Author, Models.Behaving.Badly
The biggest game-changer looming in your future, if not mine, is Life Prolongation. It works for mice and worms, and surely one of these days it'll work for the rest of us.

The current price for Life Prolongation seems to be semi-starvation; the people who try it wear loose clothes to hide their ribs and intentions. There's something desperate and shameful about starving yourself in order to live longer. But right now biologists are tinkering with reservatrol and sirtuins, trying to get you the benefit of life prolongation without cutting back on calories.

Life and love gets their edge from the possibility of their ending. What will life be like when we live forever? Nothing will be the same.

The study of financial options shows that there is no free lunch. What you lose on the swings you gain on the roundabouts. If you want optionality, you have to pay a price, and part of that price is that the value of your option erodes every day. That's time decay. If you want a world where nothing fades away with time anymore, it will be because because there's nothing to fade away....MORE
We are fans.
Previous Dermanettes:
Emanuel Derman Reviews "The Age of Cryptocurrency"
Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"
"Derman, Rodrik and the nature of statistical models"
Emanuel Derman: "Money Changes Everything?" or Spinoza on Pain, Pleasure and Desire
Book Review: "Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life "
"Emanuel Derman on Twitter, on volatility products"
The Financial Modelers' Manifesto

More Presidential Humor: Reagan in West Berlin

For our younger readers: Ronald Reagan was shot and very seriously wounded during an assassination attempt 69 days into his first term as President. Here he is giving a speech five years later in what was then West Berlin when a balloon popped:

Working the Room Presidential humor from Lincoln to Kennedy to Reagan.

Shipping/Logistics: Softbank Is Reportedly Leading a $500 Million Round in Flexport

Flexport first came to our attention because they seemed to constantly be hiring.
Always an interesting characteristic for a company.
From Reuters

Flexport in talks to raise $500 million in SoftBank-led deal: Axios
Freight logistics provider Flexport Inc is in talks to raise around $500 million in a deal led by SoftBank Group Corp, news website Axios reported on Wednesday citing sources familiar with the matter.

Excluding the potential deal with SoftBank, Flexport could be valued around $3 billion, Axios said, citing one of the sources.

Flexport has raised nearly $305 million in funding over five rounds. Its latest financing round was in April 2018, according to data provider Crunchbase....MORE
No word from either company on a deal.
The Axios piece was just a blurb in a story on Saudi investments, Feb. 13:

Despite Khashoggi, Saudi Arabia unlikely to lose U.S. investments
...Driving the news: Axios has learned from multiple sources that San Francisco-based freight logistics startup Flexport is in talks to raise around $500 million in a SoftBank-led deal. One source puts the pre-money price talk at around $3 billion (another dissents), which could mean the final investment is smaller if either side becomes concerned about CFIUS approvals (which I'd think they would)....
Dec. 27, 2018 
Logistics: "The unsexiest trillion-dollar startup"
This is old news but the company has been on a hiring binge this year and we'll probably be referring back to this piece.
(yes, we still track who's hiring, old-school research)... 

December 18, 2017
Shipping: Freight Forwarder Flexport: "...Digitizing The Entire International Shipping Process"
Nov. 2, 2017 
"10 Startups Making Ocean Container Shipping Easier"
Dec. 2016 
"Truckers think automation won’t take their jobs for 40 years. Silicon Valley strongly disagrees."

Shipping: French Giant CMA CGM Looking to Expand Logistics Business with Investment in CEVA Logistics

Shipping: "CMA CGM Launches Offer to Buy the Rest of CEVA Logistics Shares" 
Back in October 2018 the FT's David Keohane was the first reporter we saw with the story on how French shipping major CMA CGM was positioning themselves to guarantee they would be relevant and a player in five years, with their desire for logistics and supply-chain mavens Ceva:...

ICYMI: "China ride-hailing giant Didi to lay off 15 percent staff this year: source"

It is starting to look like Mr. Son's Vision Fund investees got a memo to tighten up operations.
From Reuters:
Didi Chuxing will lay off 15 percent of its staff or about 2,000 people this year, a source said, marking the ride-hailing firm’s first major cut back as it grapples with regulatory scrutiny and public backlash over the murder of two of its users.

Didi CEO Cheng Wei said at a meeting with management that the firm would focus on core mobility services and cut business units considered not critical to its main ride-hailing business in 2019, according to the source familiar with the matter.

But the Chinese ride-hailing giant will aim to hire more than 2,000 employees to focus on safety technology, product engineering and international expansion with the goal of maintaining its overall employee count, the source added on condition of anonymity as the information is not public yet....MORE

Working the Room Presidential humor from Lincoln to Kennedy to Reagan.

From Lapham's Quarterly:
By all outward appearances, Abraham Lincoln was one of our least electable presidents. Tall and thin, with a long torso and big ears, his arms flailed when he spoke, and his voice was “not melodious,” but instead “shrill and piercing.” One friend said that “he provoked as much laughter by the grotesque expression of his homely face as by the abstract fun of his stories.” In the way he spoke, his carriage, his uncontrollable expressions, and his “shrill” voice, Lincoln was, according to modern TV-ready requirements, decidedly unpresidential. But what he lacked in physical appeal—it was an eleven-year-old girl who first suggested he grow a beard—he put right with words. Abraham Lincoln was funny.

Laced with a Southern accent, Lincoln’s stories and jokes reflected his rural, homespun education. According to Judge David Davis, Lincoln’s humor was:
In many respects unique, if not remarkable. His countenance and all his features seemed to take part in the performance. As he neared the pith or point of the joke or story, every vestige of seriousness disappeared from his face. His little gray eyes sparkled; a smile seemed to gather up, curtainlike, the corners of his mouth; his frame quivered with suppressed excitement; and when the point—or “nub” of the story, as he called it—came, no one’s laugh was heartier than his.
In 1848, as a young representative from Illinois, Lincoln took the House floor in support of the Whig presidential candidate, Zachary Taylor. He mocked his Democratic opponents for not gathering behind a single candidate by telling a curious anecdote:
I have heard some things from New York, and if they are true, we might well say of your party there, as a drunken fellow once said when he heard the reading of an indictment for hog stealing. The clerk read on till he got to, and through the words, “did steal, take, and carry away, ten boars, ten sows, ten shoats, and ten pigs” at which he exclaimed, “Well, by golly, that is the most equally divided gang of hogs I ever did hear of.” If there is any gang of hogs more equally divided than the Democrats of New York are about this time, I have not heard of it.
When Lincoln finished with a remark, wrote Ralph Waldo Emerson, “He looks up at you with a great satisfaction, and shows all his white teeth, and laughs.”

Lincoln had an ear for entertaining, collecting anecdotes like the drunken hog-stealing tale and keeping them at the ready to make a point. “I remember a good story when I hear it,” he said, “but I never invented anything original. I am only a retail dealer.” We should perhaps take the comment as something of a dissemblance. It is difficult to imagine who else could have originated this snide remark in a letter to Gen. George B. McClellan, his eventual opponent in the 1864 election, when the general failed to advance against the Confederacy with the speed Lincoln would have liked: “If you don’t want to use the army, I should like to borrow it for a while.”

Although many of the jokes attributed to Lincoln are of questionable authenticity—when accused of lying he reportedly said, “If I were two-faced, would I be wearing this one?”—his public humor was well-recorded in his 1858 debates with Stephen Douglas. Lincoln attacked Douglas’ position, which would have allowed each state to decide on the future of slavery, as an argument “as thin as the homeopathic soup that was made by boiling the shadow of a pigeon that had starved to death.” Douglas later admitted that while he felt he was a match for Lincoln’s arguments, “there is one thing, however, of which I stand constantly in dread. When Lincoln begins to tell a story, I begin to get apprehensive. Every one of his stories seems like a whack upon my back—that is exactly the effect that the allegories and anecdotes, of which he is a master, have upon me.” Lincoln’s humor allowed him to connect with the audience in a way Douglas never could. Lincoln was a man of the people, and his humor reflected a shared experience. Douglas had reason to be wary—he had lost to Lincoln sixteen years earlier when they both courted Mary Todd—but Lincoln’s performance at the debates was not sufficient to stop Douglas’ reelection to the Senate. The national exposure, however, helped him win the White House two years later.

During his presidency, Lincoln suffered from depression, deepened by the deaths of his mother and older sister and by the Civil War. He tried to keep his darker moods out of public view, leading even his most dedicated supporters such as Richard Henry Dana to wonder, “Can this man Lincoln ever be serious?” When asked how he liked being president, Lincoln replied jokingly, and honestly, “You have heard the story, haven’t you, about the man who was tarred and feathered and carried out of town on a rail? A man in the crowd asked him how he liked it. His reply was that if it was not for the honor of the thing, he would much rather walk.”...

The Orkney Energy Miracle

I had assumed that after upending Sark's quiet society with her reporting on the electricity monopoly that the Financial Times' Jemima Kelly would continue her tour of the isles and go north to Orkney to investigate their power situation.

But that wasn't to be. Apparently she prefers Athens to visiting the Orcadians off the tippy-tip of Scotland, 59°0′ North latitude, in the middle of winter.
Go figure.

Well, as promised in one of our posts linking to Ms Kelly's travels, "It's Incredible that an institution as well respected as the FT would stoop to this level":
Speaking of little rocks in the ocean. we've been sitting on a blockbuster link regarding the Orkney energy situation. Maybe next week....

From The Observer, January 20:
How Orkney leads the way for sustainable energy
It seems the stuff of fantasy. Giant ships sail the seas burning fuel that has been extracted from water using energy provided by the winds, waves and tides. A dramatic but implausible notion, surely. Yet this grand green vision could soon be realised thanks to a remarkable technological transformation that is now under way in Orkney.

Perched 10 miles beyond the northern edge of the British mainland, this archipelago of around 20 populated islands – as well as a smattering of uninhabited reefs and islets – has become the centre of a revolution in the way electricity is generated. Orkney was once utterly dependent on power that was produced by burning coal and gas on the Scottish mainland and then transmitted through an undersea cable. Today the islands are so festooned with wind turbines, they cannot find enough uses for the emission-free power they create on their own.

Community-owned wind turbines generate power for local villages; islanders drive nonpolluting cars that run on electricity; devices that can turn the energy of the waves and the tides into electricity are being tested in the islands’ waters and seabed; and – in the near future – car and passenger ferries here will be fuelled not by diesel but by hydrogen, created from water that has been electrolysed using power from Orkney’s wind, wave and tide generators.

“A low-carbon renewable future, which is much talked about elsewhere, is coming early to Orkney,” says ethnographer Laura Watts in her book Energy at the End of the World: An Orkney Islands Saga. The book, published by MIT Press next month, tells the intriguing tale of how Orcadians have begun to create their own low-carbon future against incredible odds and with only a little help from the mainland.

And that may come as a surprise, says Watts, a senior lecturer at the School of GeoSciences, Edinburgh University. “When people think of future technologies or innovation, they assume it has all got to be happening in cities,” Watts told me when we met earlier this month. “But this revolution – in renewable energy – is being done in a place that lies at the very edge of the nation.”

The idea that such an intellectual revolution could occur in a place closer to the Arctic Circle than it is to London may seem unexpected. But Orkney turns out to have a long history of generating ideas that are exported to the south. At the Ness of Brodgar, excavations at a recently discovered neolithic ceremonial complex show there was flourishing culture on the islands long before the construction of Stonehenge, Avebury and other giant edifices in the south. Neolithic grooved pottery and the first henges were conceived in Orkney before they were exported to the rest of ancient Britain. “We need to turn the map of Britain upside down when we consider the neolithic and shrug off our south-centric attitudes,” says Nick Card, Brodgar’s director of excavations....MORE
And the reason we are posting today?
An invitation to a book launch.

From Blackwell's Bookshop, Edinburgh:

Energy at the End of the World with Laura Watts
Blackwell's are delighted to host writer and academic Laura Watts for the launch of her new book, Energy at the End of the World. Please join us in the bookshop to hear Laura discuss new energy technologies in the remote islands of Orkney, and what we can learn from them.

About the Book
The islands of Orkney, off the northern coast of Scotland, are closer to the Arctic Circle than to London. Surrounded by fierce seas and shrouded by clouds and mist, the islands seem to mark the edge of the known world. And yet they are a center for energy technology innovation, from marine energy to hydrogen fuel networks, attracting the interest of venture capitalists and local communities. In this book, Laura Watts tells a story of making energy futures at the edge of the world.
Orkney, Watts tells us, has been making technology for six thousand years, from arrowheads and stone circles to wave and tide energy prototypes. Artifacts and traces of all the ages—Stone, Bronze, Iron, Viking, Silicon—are visible everywhere. The islanders turned to energy innovation when forced to contend with an energy infrastructure they had outgrown. Today, Orkney is home to the European Marine Energy Centre, established in 2003....MORE
Date and Time
Thu, 28 February 2019
18:30 – 20:00 GMT

British family detained in Syria claim they joined ISIS by accident while on holiday and beg to come home

Who among us hasn't taken a wrong turning while on holiday?

From The Sun:

Brit family detained in Syria claim they joined ISIS by accident while on holiday and beg to come home
Shabina Aslam claims they never knew they were travelling to Syria and thought it was a family holiday
A BRITISH family detained in Syria have begged to be allowed to come home, saying they joined ISIS by accident.
Mum Safiya Zaynab, 51, and daughters Shabina Aslam, 29, and Alireza Sabar, 17, say they miss their independence.
The family from Didsbury, Manchester left the UK in 2014 and thought they were on a family holiday.
According to the family, a relative told them they were going on holiday to Turkey but from there they "ended up in Syria".
Both daughters had children while they were living within the caliphate.
Aslam told Channel 4: “I don’t regret anything because we came on holiday, which then turned into this.
“I don’t know how, it’s never been explained to me.”...MORE

Capital Markets: "Dollar Drifts Lower"

From Marc to Market:
Overview: In quiet turnover, the US dollar slipped lower against most of the major currencies to start the new week. The news stream is light and the US markets are closed today. The MSCI Asia Pacific Index was up five of the past six weeks and extended its gains today. Nearly all the equity markets in the region rose but India. European markets are narrowly mixed in the morning trade. Bond yields firmed in the Asia Pacific region, while benchmark yields in Europe were mostly softer.

Asia Pacific
Shares in Shanghai rose 2.7% while the Shenzhen Composite rose 3.7% on heavy volume. Both indices are now up more than 10% for the year. Optimism on trade talk with the US and stimulative domestic measures were cited as factors behind the advance. At the same time, the wholesale auto sales slumped 17.7% in January, accelerating the losses seen since the middle of last year, while retail sales fell for the eighth consecutive month. Note that Europe reported declining auto sales for five months through January. US auto sales matched a five-month low in January.

As an entrepot, Singapore economic performance, especially trade, is seen as a reflection of regional trends. News that its non-oil exports fell 10.1% in January (year-over-year), the most in a couple of years and three times more than expected is an ominous sign. Volatility around the Lunar New Year is not unusual, but it was the third monthly decline.

The dollar has been confined to around 10 ticks on either side of JPY110.50 thus far today. Several expiring options are in play, including $465 mln at JPY110.60 and $360 mln at JPY110.25. There are $2.4 bln struck at JPY110.00 that will be cut today. The intraday technicals favor a range extension to the upside. The Australian dollar extended its gains from the end of last week and it testing the 20-day moving average (~$0.7150) for the first time in a couple of weeks. Resistance is pegged in the $0.7175-$0.7200 range. Meanwhile, the dollar is trapped in a CNY6.75-CNY6.80 trading-range.

There are two main issues demanding investors' attention in Europe: The first is the state of the slowdown in both depth and duration, which seems to be the key to the policy response. This week's flash PMI will offer fresh insight. The second is Brexit. Cameron's idea that a referendum would allow the Tory Party to close ranks has proved wide of the mark. The fissures with the Tory Party are as acute as ever. Indeed, May's strategy appears to be shaped by the desire to minimize the risk of a formal break. News today has focused on the possibility that as many as seven members of the Labour Party resign over the handling of Brexit and anti-semitism.

US and Europe are coming to loggerheads on a number of issues. There are tensions over the US unilateral withdrawal from the treaty with Iran. The US exemptions for several of Iranian's largest oil customers is set to expire in April. Europe, including the UK, may not follow the US in banning Huawei. Reports suggest other controls may be implemented. The US Commerce Dept submitted its report into the security implications of imports. No details have been provided yet, but European brands are seen as particularly vulnerable....MORE

Sunday, February 17, 2019

"...Russian Hostile Meddling Backfires in Northern Europe"

From Strategy Page:
On Feb. 11, Norway's intelligence agency severely criticized Russian jamming of GPS signals. The Norwegians said the Russian GPS signal disruption exploits that occurred last fall during NATO's Trident Juncture military exercise were not only a military concern but "also a threat to civil aviation in peacetime."

When Trident Juncture concluded in November, both the Finnish and Norwegian governments protested the GPS disruption. Norway blamed Russian transmitters at a military base located on the Kola Peninsula -- in the Arctic, east of Finland.

The Kremlin denied the accusation and said it had nothing to do with the jamming.
Despite the denial, given NATO's surveillance and detection capabilities, I think Norway and Finland have solid proof Russian electronic warfare units are culpable.

Trident Juncture's scenario is useful for understanding the current political context in the Baltic region.

The exercise was defensive. An aggressive power attacked Finland and Norway. NATO responded to defend Norway. NATO sea and air forces operated in the Baltic Sea and the Atlantic Ocean. The land maneuvers in Norway included U.S. and German armor. NATO aircraft supported Finnish forces in Finland....MUCH MORE

"Sicily’s mafia sprang from the growing global market for lemons – a tale with sour parallels for consumers today"

From Aeon:

The big squeeze 
The Sicilian mafia is probably the most famous criminal organisation in the world. It’s been known to exist at least since the 1870s, when a Sicilian landlord documented how a local group of mafia members threatened and harassed his business to the point that he had to escape from the island. Over the years, the Cosa Nostra and its North American offshoots have been depicted in numerous books, movies and works of popular culture. Yet the origins of the mafia have been regarded as something of a mystery. What factors explained its sudden appearance in Sicily after Italy’s unification in 1860-61? Were the mafiosi truly ‘men of honour’, as they called themselves, protecting poor, ordinary citizens from an oppressive state – or did their activity arise as a bulwark against communism?

Recently, the economists Arcangelo Dimico, Alessia Isopi and I showed that a major catalyst for the rise of the mafia in Sicily was, somewhat surprisingly, the surge in demand for lemons and oranges that began in the first half of the 19th century. But to understand how fruit cultivation could lead to organised crime, we need to go back even further, to the conditions prevailing in the British Royal Navy in the 18th century.

Before 1800, sailors on long-distance voyages throughout the world were plagued by scurvy, a disease caused by vitamin C deficiency. Early symptoms included malaise and fatigue, while the more advanced stages of the illness might involve loosening or losing teeth, emotional turbulence, fever and convulsions. The death rate on long-distance voyages was typically high.

At the time, nobody had systematic knowledge of what causes scurvy, although they had derived sporadic insights. Then, in the mid-1700s, James Lind, a Scottish physician in the Royal Navy, conducted the first ever clinical trials on sick sailors. A control group was given the usual food served on ships, while a small group was fed portions of fresh fruit as treatment. Unsurprisingly (to us), this second group got better, and Lind published his findings in A Treatise of the Scurvy (1753). However, the research was largely ignored until the 1790s, when the Sick and Hurt Commissioners of the Royal Navy began recommending that lemon juice be regularly served to the whole fleet.

As knowledge of the beneficial effects of citrus spread through Europe, lemons became an increasingly precious commodity. The island of Sicily off the ‘toe’ of Italy was one of the few regions in the world that could meet the fresh demand. Lemons and other citrus fruits had been introduced to Sicily by the Arabs in the 10th century, who saw the opportunity afforded by the island’s hot coastal plains and exceptionally fertile soil. However, due to their sensitivity to frosts, lemons could be grown only in certain locations, slightly above the coastline. Prior to the early 19th century, lemons were mainly used for decoration and perfumes; Sicily’s main export goods at the time were wine, olives and wheat.

The recommendations of the Sick and Hurt Commissioners in Britain changed all this. In the coming decades, a great share of Sicilian agricultural production was redirected towards producing citrus fruits for the international market. However, the shift to large-scale lemon cultivation was not quick or easy. Only certain areas of the island were suitable, and even those required a lot of money to get going.

Once the seeds were sown, the young trees had to be pruned, fertilised and watered. The lemon farmers typically used horse-powered mills to water the plants at least once a week. In order to protect the trees from thieves and harmful winds, the groves were often shielded by high walls and fences. Unprotected groves with ripe lemons were otherwise an easy target for burglars or brigands. Several years of investment could easily be destroyed by marauders, or stolen during a single dark night. So in the mid-1800s, when export revenues started to soar, the groves were typically protected by armed guards.

Between 1837-50, the number of lemon barrels exported from the Sicilian harbour of Messina increased from 740 to 20,707. By the late 1800s, exports had grown dramatically. According to the British historian John Dickie’s book Cosa Nostra (2005), 2.5 million cases (each containing more than 300 pieces of Italian citrus fruit) arrived every year in New York during in the 1880s, most of them shipped from the Sicilian port city of Palermo....MUCH MORE
May 2012
The Sicilian Mafia and the International Lemon Cartel

Oligarchia: "The digital revolution isn’t over but has turned into something else"

Historian of science George Dyson at, January 1, 2019:
Nations, alliances of nations, and national institutions are in decline, while a state perhaps best described as Oligarchia is on the ascent. George Dyson explains in this, the first Edge New Year's Essay.
GEORGE DYSON is the author of Turing’s Cathedral and Darwin Among the Machines. George Dyson's Edge Bio Page
"To ring in the New Year in the most depressing and hope-crushing way possible, Dyson sat down with” — Brett Tingley, Mysterious Universe
Childhood's End
All revolutions come to an end, whether they succeed or fail.

The digital revolution began when stored-program computers broke the distinction between numbers that mean things and numbers that do things. Numbers that do things now rule the world. But who rules over the machines?Once it was simple: programmers wrote the instructions that were supplied to the machines. Since the machines were controlled by these instructions, those who wrote the instructions controlled the machines.

Two things then happened. As computers proliferated, the humans providing instructions could no longer keep up with the insatiable appetite of the machines. Codes became self-replicating, and machines began supplying instructions to other machines. Vast fortunes were made by those who had a hand in this. A small number of people and companies who helped spawn self-replicating codes became some of the richest and most powerful individuals and organizations in the world.

Then something changed. There is now more code than ever, but it is increasingly difficult to find anyone who has their hands on the wheel. Individual agency is on the wane. Most of us, most of the time, are following instructions delivered to us by computers rather than the other way around. The digital revolution has come full circle and the next revolution, an analog revolution, has begun. None dare speak its name.

Childhood’s End was Arthur C. Clarke’s masterpiece, published in 1953, chronicling the arrival of benevolent Overlords who bring many of the same conveniences now delivered by the Keepers of the Internet to Earth. It does not end well.
To those seeking true intelligence, autonomy, and control among machines, the domain of analog computing, not digital computing, is the place to look.

The digital revolution progressed through five stages: the repurposing of war-surplus analog vacuum tube components into the first generation of fully-electronic stored-program computers; the era of large central mainframes; the era of the microprocessor and personal computer; the advent of the Internet; and finally the era of fully-metazoan codes that populate the mobile landscape of today. The next revolution is the assembly of digital components into analog computers, similar to the way analog components were assembled into digital computers in the aftermath of World War II.
Nature uses digital coding for the storage, replication, recombination, and error correction of sequences of nucleotides, but relies on analog coding and analog computing for intelligence and control. No programming, no code. To those seeking true intelligence, autonomy, and control among machines, the domain of analog computing, not digital computing, is the place to look.

Digital computers deal with integers, binary sequences, deterministic logic, algorithms, and time that is idealized into discrete increments. Analog computers deal with real numbers, non-deterministic logic, and continuous functions, including time as it exists as a continuum in the real world. In analog computing, complexity resides in topology, not code. Information is processed as continuous functions of values such as voltage and relative pulse frequency rather than by logical operations on discrete strings of bits.
Digital computing, intolerant of error or ambiguity, depends upon precise definitions and error correction at every step. Analog computing not only tolerates errors and ambiguities, but thrives on them. Digital computers, in a technical sense, are analog computers, so hardened against noise that they have lost their immunity to it. Analog computers embrace noise; a real-world neural network needing a certain level of noise to work.

Electronics underwent two fundamental transitions over the past 100 years: from analog to digital and from vacuum tubes to solid state. That these transitions occurred together does not imply a necessary link. Just as digital computation was first implemented using vacuum tube components, analog computation can be implemented in solid state. Analog computation is alive and well despite vacuum tubes being commercially extinct.

The spectacular success of digital computers in modeling real-world phenomena, encoded as algorithms with the results used as output to control something in the real world, has outshadowed very different ways that digital computers, and networks of digital computers, can be used. Algorithms and digital simulations have become so embedded in our culture and world view that we find it almost impossible to recognize that other forms of computation, without algorithms or digital models, effectively control much of the world.

We assume that a search engine company builds a model of human knowledge and allows us to query that model, or that some other company (or maybe it’s the same company) builds a model of road traffic and allows us to access that model, or that yet another company builds a model of the social graph and allows us to join that model — for a price we are not quite told. This fits our preconceptions that an army of programmers is still in control somewhere but it is no longer the way the world now works.

The genius — sometimes deliberate, sometimes accidental — of the enterprises now on such a steep ascent is that they have found their way through the looking-glass and emerged as something else. Their models are no longer models. The search engine is no longer a model of human knowledge, it is human knowledge....MORE

"How to Leave the Euro"

From The Milken Institute Review:
The leaders of Italy’s new populist government say they do not want to leave the euro, though no one believes them. After all, they campaigned on the issue. And, until they were stopped by the president of the Italian Republic, they tried to appoint Paolo Savona, a well-known euroskeptic, as finance minister. Instead, they appointed him European Affairs Minister.

In a recent book, Savona called the euro a “German cage” and wrote that “we need to prepare a plan B to get out of the euro if necessary ... the other alternative is to end up like Greece.” In short, it is not surprising that the new government’s commitment to the euro is in doubt.

Whenever the possibility that some country might ditch the euro arises, voices of the establishment are quick to offer a reality check. Abandoning one currency and introducing a new one is just too difficult, they say. They point to the years of planning that went into launching the euro in the first place. And they warn that escaping from its embrace would generate problems ranging from the serious (bank runs) to the mundane (retrofitting vending machines).

Ultimately, though, purely technical difficulties are surmountable. If Italy does decide to leave, the key to success will be to learn from the experience of the many countries that have changed currencies in the past. Here is a practical roadmap, drawing on the imaginative and pragmatic devices that others have used to ease the introduction of a new currency.

Lesson 1: Use a Temporary Currency
Those who worry about technical barriers to changing currencies often point to the time it would take to print notes, mint coins and put them into circulation. That time could be greatly shortened by using a temporary currency during a transition.

Latvia’s exit from the ruble area in the early 1990s is a case in point. First, in May 1992, authorities introduced a Latvian ruble as a temporary replacement for the old Soviet ruble. Only months later, after due preparation, did they put the new permanent currency, the lats, into circulation. Distinguished by some of the most handsome coins in Europe, the lats served for 22 years until Latvia switched again, joining the euro.

A temporary currency solves several problems. For one thing, it can be run off quickly and cheaply without all the elaborate counterfeiting safeguards of a modern currency – it won’t be around long enough to be worth counterfeiting.

The speed record for introducing a temporary currency seems to have been set by the Soviet occupiers of eastern Germany after World War II. When the Americans, British and French replaced the old reichsmark with the deutschmark in 1948, the Soviets were caught flat-footed. As Nazi-era currency that was now worthless in western Germany flooded into the Soviet zone, occupation authorities hastily printed paper stickers, which they stuck on a limited number of reichsmark notes to serve as a temporary currency. Those were then replaced with a permanent currency, which became known as the ostmark and lasted until reunification.

To make things easier, there is no real need to issue coins in the temporary currency. For example, when Kazakhstan switched from the ruble to the tenge in the early 1990s, there was a period in which there were no coins in circulation. Their place was taken by grimy little fractional banknotes, which were a nuisance, but got the job done. Nicely minted tenge coins came later.

A temporary currency can also serve the useful purpose of deflecting public disrespect. If the new currency is expected to depreciate (which seems a no-brainer if Italy exits the euro) people are bound to think up some derisive name for it and treat it with contempt. For example, a temporary Belarus ruble issued in 1992 was popularly called the zaichik, or “bunny,” after a whimsical picture on the one-ruble note. Later, after a degree of stability was restored, a somewhat more respectable Belarus currency (absent bunny) was issued.

Giving the temporary currency the same name and denomination as the old one, as was done in Latvia and Belarus, simplifies accounting, signage and other technical matters. Following that example, Italy might begin with a temporary Italian euro. A permanent new lira could come later, after the government established credible monetary management.

Lesson 2: Do Not Fear Parallel Currencies
Introducing a new currency would be harder if it had to replace the old one all at once, but there is no reason it would have to do so. Many countries have eased the transition from one currency to another by sanctioning parallel circulation during a transition period.

Sometimes the old currency can be left in circulation for a while at a fixed exchange rate with the new one. That is how the euro was first introduced, and the same practice has been followed by the countries that joined the Eurozone later on. Temporary parallel circulation makes sure that everyone doesn’t have to spend January 1 standing in line at their bank, and it gives technicians time to update automated parking lot gates so that no one is trapped in a garage by the wrong coins.

Parallel currencies with a floating exchange rate are also possible. These currencies often develop spontaneously in countries experiencing hyperinflation. While the ruble or peso or whatever remains the official legal tender, people use a hard currency such as the dollar or euro alongside it. Typically, the rapidly depreciating local currency continues to be used as a means of exchange for small transactions while the more stable foreign currency serves as a means of account and a store of value.
In the hyperinflation case, parallel circulation often ends with the introduction of a new national currency that’s fixed in value relative to the unofficial parallel currency. For example, in the early 1980s the value of Argentina’s peso was wrecked by hyperinflation. As the peso became ever less dependable, people began to use U.S. dollars as a unit of account and store of value. In 1985, the Argentine government temporarily stopped hyperinflation by replacing the peso with a new currency, the austral, which it declared to have a fixed value of one dollar. 
Then, when the austral began to circle the drain in response to accelerating inflation in the early 1990s, it was ditched in favor of a new peso – again declared to be worth one dollar. Estonia in 1992 and Bulgaria in 1997 are other examples in which parallel currency circulation preceded the introduction of a new, hopefully stable national currency.
If Italy decided to exit the euro now, the situation would be very different. Instead of moving from a less to a more stable currency, it would, in effect, be abandoning the euro in order to achieve the currency depreciation needed to make its exports more competitive without going through German-compelled fiscal austerity. That would make it a little like running the Argentine movie in reverse. Instead of the euro gradually coming into broader circulation as the national currency became less stable, a temporary floating currency could be introduced gradually alongside the euro, to be replaced only when the economy began to stabilize.
What would motivate people to use the new currency? One way to bring it into circulation would be to introduce it first where people had no choice. For example, Italy could begin by printing a temporary Italian euro, which at first would be used only to pay government salaries, pensions and interest on the national debt, and also be accepted for payment of taxes. Gradually, its use could be extended as expectations of its exchange rate with the real euro stabilized, pushed along by administrative means as needed.
Lesson 3: Default Early, But Not Often...