Saturday, April 30, 2016

"Quantum entanglement is thought to be one of the trickiest concepts in science, but the core issues are simple..."

From Quanta Magazine:

...And once understood, entanglement opens up a richer understanding of concepts such as the “many worlds” of quantum theory.
An aura of glamorous mystery attaches to the concept of quantum entanglement, and also to the (somehow) related claim that quantum theory requires “many worlds.” Yet in the end those are, or should be, scientific ideas, with down-to-earth meanings and concrete implications. Here I’d like to explain the concepts of entanglement and many worlds as simply and clearly as I know how.
Entanglement is often regarded as a uniquely quantum-mechanical phenomenon, but it is not. In fact, it is enlightening, though somewhat unconventional, to consider a simple non-quantum (or “classical”) version of entanglement first. This enables us to pry the subtlety of entanglement itself apart from the general oddity of quantum theory.
Entanglement arises in situations where we have partial knowledge of the state of two systems. For example, our systems can be two objects that we’ll call c-ons. The “c” is meant to suggest “classical,” but if you’d prefer to have something specific and pleasant in mind, you can think of our c-ons as cakes.
Our c-ons come in two shapes, square or circular, which we identify as their possible states. Then the four possible joint states, for two c-ons, are (square, square), (square, circle), (circle, square), (circle, circle). The following tables show two examples of what the probabilities could be for finding the system in each of those four states.
[No Caption]
Olena Shmahalo/Quanta Magazine
We say that the c-ons are “independent” if knowledge of the state of one of them does not give useful information about the state of the other. Our first table has this property. If the first c-on (or cake) is square, we’re still in the dark about the shape of the second. Similarly, the shape of the second does not reveal anything useful about the shape of the first.

On the other hand, we say our two c-ons are entangled when information about one improves our knowledge of the other. Our second table demonstrates extreme entanglement. In that case, whenever the first c-on is circular, we know the second is circular too. And when the first c-on is square, so is the second. Knowing the shape of one, we can infer the shape of the other with certainty.
[No Caption]
The quantum version of entanglement is essentially the same phenomenon — that is, lack of independence. In quantum theory, states are described by mathematical objects called wave functions. The rules connecting wave functions to physical probabilities introduce very interesting complications, as we will discuss, but the central concept of entangled knowledge, which we have seen already for classical probabilities, carries over....

China's Warren Buffet Arrested

From the South China Morning Post, April 29:
Xu Xiang, a billionaire hedge-fund manager, has been formally arrested on charges of manipulating the securities market and inside trading.

Xu was in the custody of Qingdao police, Xinhua reported on Friday, almost six months after he was dramatically detained on Hangzhou Bay Bridge.

Cheng Boming, the president of CITIC Securities, the brokerage house at the centre of security forces’ probe into the stock market rout, was also formally arrested on criminal charges. So were other CITIC Securities executives, including Liu Jun, the manager in charge of brokerage businesses, and Xu Jun, the division chief of equity investment, Xinhua reported. The police investigation was continuing.

The downfall of Xu, often called China’s Warren Buffett, and the CITIC executives shed light on the corridors of power and money in China’s infamously volatile stock market. The hedge funds under the management of Xu’s company, Zexi Investment, were discovered to have large holdings in several stocks that were chased by the stock market rescue fund, according to data in the listed firms’ quarterly reports....MORE

"Warren Buffett: A dream deferred" (BRK)

Ahead of the Annual Meeting Q&A, a quick hit from FT Alphaville and a couple resources:
Our colleague Stephen Foley wrote a compelling analysis last year noting how much Warren Buffett’s Berkshire Hathaway Inc had taken advantage of deferred taxes to build its empire:
“In the latest and largest example, Mr Buffett’s Berkshire Hathaway has been able to defer $61.9bn of corporate taxes, the company revealed in its annual report. This figure — about eight years worth of taxes at Berkshire’s current rate — is a reminder that Mr Buffett understands how putting off the moment when taxes are due gives him more money today to invest elsewhere.
It is also a reminder that a savvy approach to taxes has always been a feature of Mr Buffett’s career, even as Berkshire has grown to become one of the biggest corporate contributors to the US Treasury.
The total of deferred taxes reported by Berkshire for the end of 2014 is more than five times the level of a decade ago, following Mr Buffett’s move into more capital intensive businesses, with the acquisition of BNSF railways and a string of US power companies.
The US tax code encourages capital investment through the way it treats the depreciation of assets such as power plants and rail infrastructure, allowing companies to record profits that are not taxed until later in the life of these assets. Congress expanded these incentives for business investment in the wake of the financial crisis.
Digging into Berkshire’s financial statements can reveal just how much the company is benefiting from the tax code.

But first, a quick accounting review: Deferred taxes don’t constitute tax avoidance exactly (Stephen’s story separately alludes to the cash-rich split-off M&A deals that Mr. Buffett utilises to shed assets where Berkshire simply eludes any tax owed.

Deferred tax liability and assets are the result of temporary differences between accounting books and tax books. Those temporary differences will eventually reverse. The company benefits because it captures the present value of of the delay in paying the IRS (an interest-free loan).

Here’s the classic textbook example of a deferred tax liability that arises from accelerated depreciation of physical assets. For financial statements, say a $100,000 asset would be depreciated on a straight-line basis (we assume a four-year life).

For tax purposes, the asset is depreciated on an accelerated basis. MACRS is the guide for this schedule but we make up an accelerated schedule here for illustrative purposes. (Congress has recently renewed the “bonus” depreciation scheme that allows for super-charged accelerated depreciation)....MORE
MoneyBeat has started their annual liveblog/analysis of the event and Yahoo is doing the livestream.

Looking at "Phil Falcone’s Long Game" (HCHC)

From Barron's:

The controversial HC2 Holdings CEO is looking to repeat the success he enjoyed at HRG Group. Shares could be worth more than double.
Phil Falcone made billions for his hedge fund, Harbinger Capital, when he bet against the housing market in 2007. He is also known for his past legal troubles with the Securities and Exchange Commission, and as a large owner of troubled wireless network LightSquared, now called Ligado Networks. 

Lost in the shuffle, perhaps, is his successful deal-making record at HRG Group, a holding company that he founded, and where he took major stakes in Spectrum Brands Holdings and Fidelity & Guaranty Life. From 2011, when HRG made its first investment, through 2014, its stock returned 129%, versus the Standard & Poor’s 500 index’s 64%.

A new Falcone play is a venture called HC2 Holdings (ticker: HCHC), a company in the same cut as HRG. While small, with a market value of just $135 million, HC2’s potential could be great, if Falcone can recreate some of his past success.

Over the last two years, HC2 has bought cash-generating businesses at cheap prices, often from motivated sellers. Its holdings include Schuff Steel, a steel-fabrication company; Global Marine Systems, which installs and services undersea fiber-optic cable; a long-term care insurance business; and smaller stakes in about half a dozen or so other businesses. 

After a strong start, HC2 shares have dropped 60% since last June, along with other leveraged investment companies, which have fallen out of favor. Selling related to redemptions at some fund holders may also have played a part. At a recent $3.85, the stock looks attractive, but it isn’t without risks. 

HC2 is burning cash at the holding-company level, meaning it isn’t collecting enough dividends from its subsidiaries to cover interest and operating expenses. Still, Falcone is on the hunt for a new deal, which could push the company toward break-even. 

One holder, Chris Mittleman of Mittleman Brothers, thinks HC2 is worth more than double its current quote. He puts the net asset value at $8.30 a share. A new acquisition could bump that up. As cash flow break-even gets closer, the stock, too, will probably attract a wider group of investors....MORE

Friday, April 29, 2016

Seymour Hersh On Killing Bin Laden, Syria, Saudis and Sarin

We've posted a couple pieces on/by Hersh, links below.
From AlterNet:

Exclusive Interview: Seymour Hersh Dishes on Saudi Oil Money Bribes and the Killing of Osama Bin Laden
A wide-ranging interview tied to his new book, "The Killing of Osama Bin Laden."
Seymour Hersh is an American investigative journalist who is the recipient of many awards, including the Pulitzer Prize for his article exposing the My Lai massacre by the U.S. military in Vietnam. More recently, he exposed the U.S. government’s abuse of detainees in the Abu Ghraib prison facility.

Hersh's new book, The Killing of Osama Bin Laden, is a corrective to the official account of the war on terror. Drawing from accounts of a number of high-level military officials, Hersh challenges a number of commonly accepted narratives: that Syrian president Bashar al-Assad was responsible for the Sarin gas attack in Ghouta; that the Pakistani government didn’t know Bin Laden was in the country; that the late ambassador J. Christopher Stevens was at the U.S. consulate in Benghazi in a solely diplomatic capacity; and that Assad did not want to give up his chemical weapons until the U.S. called on him to do so.

Ken Klippenstein: In the book you describe Saudi financial support for the compound in which Osama Bin Laden was being kept in Pakistan. Was that Saudi government officials, private individuals or both?
Seymour Hersh: The Saudis bribed the Pakistanis not to tell us [that the Pakistani government had Bin Laden] because they didn’t want us interrogating Bin Laden (that’s my best guess), because he would’ve talked to us, probably. My guess is, we don’t know anything really about 9/11. We just don’t know. We don’t know what role was played by whom.

KK: So you don’t know if the hush money was from the Saudi government or private individuals?
SH: The money was from the government … what the Saudis were doing, so I’ve been told, by reasonable people (I haven’t written this) is that they were also passing along tankers of oil for the Pakistanis to resell. That’s really a lot of money.

KK: For the Bin Laden compound?
SH: Yeah, in exchange for being quiet. The Paks traditionally have done security for both Saudi Arabia and UAE. 

KK: Do you have any idea how much Saudi Arabia gave Pakistan in hush money?
SH: I have been given numbers, but I haven’t done the work on it so I’m just relaying. I know it was certainly many—you know, we’re talking about four or five years—hundreds of millions [of dollars]. But I don’t have enough to tell you.

KK: You quote a retired U.S. official as saying the Bin Laden killing was “clearly and absolutely a premeditated murder” and a former SEAL commander as saying “by law we know what we’re doing inside Pakistan is homicide.”
Do you think Bin Laden was deprived of due process?
SH: [Laughs] He was a prisoner of war! The SEALs weren’t proud of that mission; they were so mad it was outed…I know a lot about what they think and what they thought and what they were debriefed, I will tell you that. They were very unhappy about the attention paid to that because they went in and it was just a hit.

Look, they’ve done it before. We do targeted assassinations. That’s what we do. They understood—the SEALs—that if they were captured by the Pakistani police authorities, they could be tried for murder. They understood that. 

KK: Why didn’t they apprehend Bin Laden? Can you imagine the intelligence we could have gotten from him?
SH: The Pakistani high command said go kill him, but for chrissake don’t leave a body, don’t arrest him, just tell them a week later that you killed him in Hindu Kush. That was the plan. 
Many sections, particularly in the Urdu-speaking sections, were really very positive about Bin Laden. Significant percentages in some areas supported Bin Laden. They [the Pakistani government] would’ve been under great duress if the average person knew that they’d helped us kill him. 

KK: How did it hurt U.S./Pakistan relations when, as you point out in your book, Obama violated his promise not to mention Pakistan’s cooperation with the assassination?
SH: We spend a lot of time with [Pakistani] generals Pasha and Kayani, the head of the army and ISI, the intelligence service. Why? Why are we so worried about Pakistan? Because they have [nuclear] bombs. ... at least 100, probably more. And we want to think that they’re going to share what they know with us and they’re not hiding it.

We don’t really know everything we think we know and they don’t tell us everything… so when he [Obama] is doing that, he’s really messing around with the devil in a sense. 
.... He [Bin Laden] had wives and children there. Did we ever get to them? No. We never got to them. Just think about all the things we didn’t do. We didn’t get to any of the wives, we didn’t do much interrogation, we let it go. 

There are people that know much more about this and I wish they would talk, but they don’t.

KK: You write that Obama authorized a ratline wherein CIA funneled arms from Libya into Syria and they ended up in jihadi hands. [According to Hersh, this operation was coordinated via the Benghazi consulate where U.S. ambassador Stevens was killed.] What was Secretary of State Hillary Clinton’s role in this given her significant role in Libya?
SH: The only thing we know is that she was very close to Petraeus who was the CIA director at the time ... she’s not out of the loop, she knows when there’s covert ops. ... That ambassador who was killed, he was known as a guy, from what I understand, as somebody who would not get in the way of the CIA. As I wrote, on the day of the mission he was meeting with the CIA base chief and the shipping company. He was certainly involved, aware and witting of everything that was going on. And there’s no way somebody in that sensitive of a position is not talking to the boss, by some channel.

KK: In the book you quote a former intelligence official as saying that the White House rejected 35 target sets provided by the Joint Chiefs as being insufficiently painful to the Assad regime. (You note that the original targets included military sites only—nothing by way of civilian infrastructure.) Later the White House proposed a target list that included civilian infrastructure.
What would the toll to civilians have been if the White House’s proposed strike had been carried out?
SH: Do you really think that at any time this is discussed? You know who’s sanest on this: Dan Ellsberg. When I first met Dan, it was way early—in ’70, ’71, during the Vietnam War. I think I met him before the Pentagon Papers were around. I remember him telling me that he asked that question at a meeting while planning the war [regarding B-52 targets] and nobody had even looked at it. 
You really don’t get a very good hard, objective look. You can see a movie in which they seem to do it, but that’s not really so. 

I don’t know if [regarding Syria] they looked at collateral damage and noncombatants, but I do know that in wars in the past, that’s never been a big issue. ... you’re talking about the country that dropped the second bomb on Nagasaki.

KK: In a recent interview with the Atlantic, Obama characterized his foreign policy as “Don’t do stupid shit.” 
SH: I read the Jeff Goldberg piece…and it of course drove me nuts, but that’s something else....

December 2013
What on earth does the West think it is doing in Syria?
Seymour Hersh writing at the London Review of Books:... 

December 2015 
 This is just a nasty, dirty story....

James Bianco Interview At Finanz und Wirtschaft,

From FuW:
James Bianco, president of Bianco Research, warns of unintended Consequences of negative interest rates and is concerned about a credit event triggered by defaults in the energy sector.
It’s getting suspiciously silent at the global financial markets. After a strong rebound the US stock market is losing steam and has been moving sideways for two weeks. Jim Bianco remains alert. The influential market strategist from Chicago who is highly regarded among institutional investors is especially concerned about the eagerness to experiment among central bankers. «The larger issue here is that nobody understands negative rates», says the outspoken president of Bianco Research. He is also skeptical with respect to the recent rally in the oil market. He draws worrisome parallels to the subprime crisis in the US housing market and spots the risk of a credit event if the price of oil tanks again.

Mr. Bianco, negative interest are causing a lot of stir at the financial markets. It looks like even the Bank of Japan is having some doubts now, since it didn’t launch more monetary stimulus this week. What’s your take on negative interest rates?
Even if you go back to the Egyptian pharaohs and the Fertile Crescent in Mesopotamia we have never consistently seen negative interest rates in the reported human history until two years ago. That’s why investors are worried that negative rates are going to create distortions and what you see out of Japan are some of those distortions. The Bank of Japan is not getting the market reaction that it expected. So if negative yields are not a mistake then central bankers have to do a better job in explaining to the world why this is going to work out just fine.

Why are many investors so skeptical about negative interest rates?
People are still staring at negative interest rates and still not comprehending them. When the ECB introduced negative interest rates two years ago the world viewed it just as a temporary gimmick. But then, on January 29th, the Bank of Japan comes in and they go negative as well. After the Bank of Japan decided to go negative, the number of outstanding bonds with a negative yield suddenly doubled in about two days. If you exclude the US market, around 45% of sovereign bonds in the world are now yielding negative.

Why is it so hard to understand negative interest rates?
The problem with negative rates is two-fold. Firstly, it’s a procedure problem. Even though we at the financial markets look at our screens and see negative numbers, negative interest rates don’t exist at the consumer level. The banks in Europe are not offering negative mortgages, they’re not offering negative deposits and they’re not issuing bonds with negative coupons yet. If a country like Switzerland was to issue a negative coupon sovereign bond that means that every owner of that bond has to pay the issuer. But how do you collect that money? Nobody’s got a system in place that can reach out to bondholders and get all those checks. Or how does a negative mortgage work? With a negative mortgage, instead of you paying the bank, the bank pays you. But how does the bank pay you? They don’t have a system in place to mail out all those checks.

And secondly?
Negative interest rates turn the whole credit process upside down. Let’s say we have a system in place and a company has thousand and thousands of bondholders that own its bond with a negative coupon. What’s the credit rating of that security? It’s not the credit rating of the company. It has to be some kind of total of the people that own this bond and that’s probably a junk rating. So how does the company get the money from everybody? What happens if some bond holders don’t pay? And what are the collection procedures for people that are in arrears? That’s the problem with such kind of securities and that’s why people thought it was just a gimmick.

So what are the consequences of negative interest rates?
In a negative interest rate world currencies yield zero and that’s actually a high yield. As a matter of fact, according to former Fed-chief Ben Bernanke the Federal Reserve did a very interesting study that looked at the volume of all of the vault space at the major banks in the US and they calculated a break-even. They calculated that if the Fed Funds Rate ever got below -35 basis points, the banks would be better off by stacking in the volume of their vault space with $100 bills yielding zero as opposed to taking a Funds Rate at -35. There is no such study for European banks. But Bernanke believes that their break-even would be even closer to zero, something like -20 or -15 basis points because they have a 500 Euro note which is six times the monetary value of a $100 bill and roughly the same size. Yet, we’re seeing no movement out of the European banks to stack 500 Euro notes in their vaults. That means they’re acting irrationally. They’re not acting that way because they don’t believe it or they don’t understand it. So we’re still all trying to feel around in the dark as to what this means. And that means that the chance of an accident is very high.

Also, when you look at the poor performance of European bank stocks, negative interest rates seem to cause severe concerns among investors in the financial sector.
Deutsche Bank’s share price is under its 2009 low. That was the level at which we thought the world was ending. So what does it mean that Deutsche Bank’s share price is lower than that? Does it mean the world is ending for the largest European bank by assets? And by the way, Credit Suisse (CSGN 14.57 -4.08%) is not far behind. Of course, Deutsche Bank’s on the hook for a lot of other things, too. They’ve missed on regulation, they’ve missed on capital, they’re in the wrong line of business and they have significant risk. Deutsche Bank (DBK 16.47 -5.13%) is the largest holder of Euro denominated derivatives. So what happens if it comes to a Brexit or if it comes to a Grexit? The problems in Greece never went away. We’ve just decided that we got bored to talk about it.

And what about the big banks in the United States. The performance of US bank stocks is pretty disappointing as well.
Coming out of the financial crisis, the five largest financial institutions in the United States now have a higher concentration of financial assets. Not only do they have a higher concentration of assets than they did before the financial crisis but it’s the largest concentration ever. So we’ve made the too-big-to-fail-problem worse because we have bigger, more systemically important financial institutions now than we did in 2007 – and nobody seems to know what to do about it....MORE
HT: ZeroHedge 

"Bloomberg Outs Zero Hedge Today; Zero Hedge Strikes Back"

From Wall Street On Parade:

Bloomberg L.P., majority owned by billionaire Michael Bloomberg, with a net worth of $45.3 billion according to Forbes, has today outed the anonymous writers responsible for the popular financial blog, Zero Hedge, a competitor to Bloomberg L.P.’s financial web site. Raising eyebrows in journalism circles, Bloomberg’s reporters obtained the text of internal chat sessions at Zero Hedge which contained strategies for building traffic at the site. To some, that raises alarms of obtaining trade secrets – an issue over which Wall Street firms have sought, and received, criminal prosecutions.

Tim Backshall, a Derivatives Expert and Frequent Guest on CNBC, Was Outed Today as an Anonymous Writer at Zero HedgeAlso noteworthy, the article’s authors, Tracy Alloway and Luke Kawa, seem to take aim at the financial comfort of the people behind the blog, while failing to mention that their boss is the 8th richest person in the world, whose wealth intricately derives from the industry they cover. During Michael Bloomberg’s 12 year stint in public office as Mayor of New York City, his wealth mushroomed more than ten-fold, growing from $3 billion to $31 billion according to Forbes. The sine qua non of the former Mayor’s wealth stems from those iconic Bloomberg Terminals which cost approximately $24,000 a year each and populate, to the tune of hundreds of thousands of terminals, the expansive trading floors of Wall Street and global banks.

According to the Bloomberg article, three men have been churning out all of the content at Zero Hedge, using the joint pseudonym “Tyler Durden” from the Brad Pitt film “Fight Club.” The 1999 cult film, according to Rolling Stone, is “about being young, male and powerless against the pacifying drug of consumerism. It’s about solitude, despair and bottled-up rage.” That ethos is frequently on display at Zero Hedge.

The three “Tyler Durdens” outed by Bloomberg reporters are Colin Lokey, who has now left Zero Hedge in a fit of pique and is responsible for handing over the internal chat sessions from Zero Hedge on traffic-building strategies and other matters. Bloomberg says “the other two men are Daniel Ivandjiiski, 37, the Bulgarian-born former analyst long reputed to be behind the site, and Tim Backshall, 45, a well-known credit derivatives strategist.”

The article notes that “Ivandjiiski has a multimillion-dollar mansion in Mahwah, N.J., and Backshall lives in a plush San Francisco suburb,” suggesting these are “not exactly reflections” of the anti-capitalism reflected in the moniker “Tyler Durden.”...MORE
ZeroHedge commented that Lokey is:
"an emotionally unstable, psychologically troubled alcoholic with a drug dealer past, as per his own disclosures."

EIA Weekly Supply/Demand Report: "Natural gas production declines"

June futures 2.103 up 2.5 cents despite yesterday's big build (on reduced demand). The market seems to be looking at the supply side.

From the Energy Information Administration:
Natural gas production declines
Dry natural gas production in the Lower 48 states has declined from a February high. Average daily production was 1.5% lower in March than in February, according to Bentek Energy. Recent data show this decline continued in April, with average daily production from April 1 through April 23 1.0% lower than average production in March, and a full 2.5% lower than the average production in February. Compared to last year, average February production this year was 2.3% higher. However, March production was only 0.4% higher, and April production so far has been 1.0% lower.
Factors affecting current production trends include:
  • Average weekly natural gas spot prices at Henry Hub have remained below $2.50 per million British thermal unit (MMBtu) since last October. The Marcellus and Utica shale plays, where much of the production growth has occurred, showed even lower prices.
  • Delays on and cancellation of other pipeline projects designed to distribute Marcellus and Utica natural gas–including the recent cancellation of the proposed Northeast Direct Pipeline, and the proposed Constitution Pipeline's failure to obtain a key water quality permit–will constrain gas movement in the key Northeast market.
  • According to Baker Hughes, the number of oil and gas rigs in the Lower 48 states is the lowest it has been since Baker Hughes began tracking rig counts in 1949.
  • Capital expenditures by many natural gas companies have decreased. Data from Evaluate Energy show a group of U.S. energy companies, which in 2015 together produced more than 15 billion cubic feet per day (Bcf/d) (17% of the U.S. total), reduced their combined capital expenditures by 40% from 2014 to 2015 (see graph).
  • Warmer-than-normal weather persisted through the winter, which along with higher production levels resulted in record-high gas stocks for the end of the heating season–2,478 billion cubic feet on March 31, or 54% higher than the five-year (2011–15 ) end-of-March average.
In the short term, production is forecast to continue its decline. EIA's April Drilling Productivity Report projects March-to-May decreases in gas production in six of the seven key shale regions in the Lower 48 states....MUCH MORE
...Consumption falls. Overall consumption this week fell by 1.7% as temperatures in the West continue to moderate, offsetting cold weather in the Northeast and Midwest. Residential and commercial consumption fell by 4.7%, along with industrial consumption, which fell by 1.2%, and exports to Mexico, which fell by 1.0%. Consumption of natural gas for electric power generation rose by 0.9%, as daily temperatures in the some parts of the Gulf Coast and Southeast neared 80°, driving up cooling demand in those regions.... 
Mean Temperature Anomaly (F) 7-Day Mean ending Apr 21, 2016

Personal Income Risies Above Forecast, Core PCE Inflation In-Line

From FXstreet:
The Bureau of Economic Analysis informed that during March personal income increased 0.4%, above the 0.3% gain expected by market consensus; personal spending rose 0.1%, below expectations of a 0.2% increase.

The Personal Consumption Expenditure price index rose 0.8% year-over-year affected by the decline in crude oil prices while the core index increased 1.6%, both numbers were in line with expectations. The PCE price index is used by the Federal Reserve to measure inflation.

Key numbers:
“Personal income increased $57.4 billion, or 0.4 percent, and disposable personal income (DPI) increased $50.4 billion, or 0.4 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $12.8 billion, or 0.1 percent. In February, personal income increased $12.0 billion, or 0.1 percent, DPI increased $11.4 billion, or 0.1 percent, and PCE increased $21.4 billion, or 0.2 percent, based on revised estimates.

“Real DPI increased 0.3 percent in March, compared with an increase of 0.2 percent in February. Real PCE increased less than 0.1 percent, compared with an increase of 0.3 percent.”...MORE
The price index for PCE increased 0.1 percent in March, in contrast to a decrease of 0.1 percent in February. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent.

“The March PCE price index increased 0.8 percent from March a year ago. The March PCE price index, excluding food and energy, increased 1.6 percent from March a year ago.”

Thursday, April 28, 2016

"First Solar Crushes Q1 Earnings, Shares Slide on Revenue Miss" (FSLR)

In late pre-market trade the stock is off 3 1/2% at $59.85.
From Zacks:
First Solar, Inc. announced financial results for the first quarter of fiscal 2016, posting earnings of $1.66 per share and net sales of $848 million.
Currently, First Solar has a Zacks Rank #3 (Hold), but it is subject to change following the release of the company’s latest earnings report. Here are 5 key statistics from this just announced report below.
First Solar:

1. Beat earnings estimates: The company posted $1.66 per share, surpassing our Zacks Consensus Estimate of $0.91.

2. Missed revenue estimates: The company saw revenue figures of $848 million, completely missing our estimate of $962 million.

3. First Solar raised the low end of its 2016 earnings per share guidance from $4.00 to $4.10...

"Financier John Gutfreund’s Sprawling Fifth Avenue Co-Op Asks $120 Million"

From the Wall Street Journal's Private Properties:

The duplex of the former Salomon Brothers CEO includes a roughly 1,600-square-foot master suite, three staff rooms and a walk-in safe for storing silver
The sprawling 834 Fifth Avenue co-op that for decades was home to former Salomon Brothers chief John Gutfreund is listing for $120 million.
The sprawling Fifth Avenue co-op that for decades was home to former Salomon Brothers chief John Gutfreund is listing for $120 million.
A 38-year veteran at Salomon, Mr. Gutfreund was CEO of the firm during the 1991 Treasury-note auction scandal, and was pressured to resign. He died in March at age 86.

Measuring around 12,000 square feet, the 20-room duplex is one of the largest apartments on Fifth Avenue, according to John Burger of Brown Harris Stevens, one of the listing agents. The apartment has been owned since the 1980s by Mr. Gutfreund and his wife Susan, Mr. Burger said.

Located on the seventh and eighth floors of the co-op 834 Fifth Avenue, the apartment has three bedrooms in addition to a roughly 1,600-square-foot master suite with a dressing room and sitting room, Mr. Burger said. An entrance gallery has ceilings about 24-feet high and a grand marble staircase. The gallery opens into a roughly 50-foot-long living room with two fireplaces and numerous windows overlooking Central Park. Off the dining room, which also has park views, there is a large butler’s pantry with a felt-lined, walk-in steel safe for storing silver, Mr. Burger said.

The lower level of the apartment has three staff rooms and a servants’ hall, but the asking price also includes another staff room—originally for the chauffeur—on the second floor, Mr. Burger said. The apartment also comes with a wine cellar and storage space in the basement....MORE

"Bloomberg turning to robots to deliver the news"

From the New York Post:
Bloomberg Editor-in-Chief John Micklethwait told his 2,400 journalists in a memo on Tuesday that he was forming a 10-person team to lead a study on how to use more automation in writing and reporting.

Micklethwait called the robot-generated copy “smart automated content (SAC).”

A company spokesman insisted no journalists will be sacked as a result of the SAC.

“Why do we need you, if the basic idea is to get computers to do more of the work?” Micklethwait asked in the memo, obviously addressing an unspoken concern among his staff.

“One irony of automation is that it is only as good as humans make it. That applies to both the main types of automated journalism. In the first, the computer will generate the story or headline by itself. But it needs humans to tell it what to look for, where to look for it and to guarantee its independence and transparency to our readers. In the second sort, the computer spots a trend, delivers a portion of a story to you and in essence asks the question: Do you want to add or subtract something to this and then publish it? And it will only count as Bloomberg journalism if you sign off on it.”...MORE
And from MIT's Technology Review, computers captioning pictures:
When social-media users upload photographs and caption them, they don’t just label their contents. They tell a story, which gives the photos context and additional emotional meaning. 
A paper published by Microsoft Research describes an image captioning system that mimics humans’ unique style of visual storytelling. Companies like Microsoft, Google, and Facebook have spent years teaching computers to label the contents of images, but this new research takes it a step further by teaching a neural-network-based system to infer a story from several images. Someday it could be used to automatically generate descriptions for sets of images, or to bring humanlike language to other applications for artificial intelligence.

“Rather than giving bland or vanilla descriptions of what’s happening in the images, we put those into a larger narrative context,” says Frank Ferraro, a Johns Hopkins University PhD student who coauthored the paper. “You can start making likely inferences of what might be happening.”

Consider an album of pictures depicting a group of friends celebrating a birthday at a bar. Some of the early pictures show people ordering beer and drinking it, while a later photo shows someone asleep on a couch.

“A captioning system might just say, ‘A person lying on a couch,’” Ferraro says. “But a storytelling system might be able to say, ‘Well, given that I think these people were out partying or out eating and drinking, then this person may be drunk.’”...MORE

"Central Banks Roil Markets"

From Marc to Market:
The Bank of Japan defied expectations and its economic assessment to  leave policy unchanged.  The inaction spurred a 3% rally in the yen and an even larger slump in stocks.  The financial sector took its the hardest and dropped almost 6%.  The yen's surge helped underpin other Asian currencies, especially the South Korean won, which gained nearly 1%.
At the end of January, the BOJ surprised by adopting negative interest rates for a small part of Japanese banks' excess reserves.  The yen strengthened markedly.  Now the BOJ disappoints in not easing policy.    Prior to the BOJ's announcement, and in response to poor data that showed the most deflation in three years (-0,3% year-over-year on a core measure of CPI that excludes fresh food), a larger than expected slide in overall household consumption (-5.3% year-over-year), the dollar had approached JPY112.00.  The dollar dipped briefly below JPY108 in early European activity.  The greenback sits near its lows ahead of the start of the North American session. 
The BOJ did do something.  It cut its inflation and growth forecasts and delayed for the fourth time in around a year when it would achieve its inflation target.  It now stands at some time in the next fiscal year.  We have long argued that it is unhelpful for the BOJ cast its inflation target as a near-term objective.  Other major central banks are talking about their inflation target as a medium-term objective, and this provides more degrees of freedom. 
BOJ Governor Kuroda sounded dovish, and the pressure to ease policy in the coming months, perhaps in July, remains possible.  The ostensible argument for standing pat is to monitor the impact of the recent easing.  However, the BOJ's economic forecasts are consistent with the aggressive easing having little positive impact.  Some speculate the Kuroda was sending a message to the Abe government, consistent with the G7/G20 concerns about the over-reliance on monetary policy.  The lack of new monetary action may add pressure on the government for a bolder fiscal policy initiative. 
The Nikkei sold off hard.  We had warned yesterday that should the BOJ disappoint, the Nikkei could fall toward 16773.  In fact, it fell to 16652 and closed on its lows.  Depending, of course, on what happens over the next 12 hours, the Nikkei could gap lower tomorrow.  The downside risk extends toward 16000 now. 
Most Asian markets fell, and the MSCI Asia-Pacific Index slipped 0.2%, extending its declining streak to the fifth consecutive session.  Recall losses at the start of last week snapped an eight-day advance.   European bourses are lower, and the Dow Jones Stoxx 600 is off 1.25%, led by health care and financials.    The S&P 500 is trading nearly 0.8% lower. 
The push higher in global bond yields ended with a bang today.  Core 10-year benchmarks in Europe are off six bp.  Of note so is the 10-year Portuguese bond.  Tomorrow DBRS will review Portugal's credit rating.  It is the only rating agency that the ECB uses that give Portugal an investment grade.  If it takes it away, Portuguese bonds will not qualify for purchases under the ECB's bond-buying program.  It would join Greece and Cyprus. 
The US 10-year yield, which had been approaching 2.0% earlier this week, fell yesterday after the FOMC failed to alter investors skepticism about a June hike.  Perhaps in anticipation of easier BOJ policy would spur Japanese demand for US Treasuries also weighed on yields.  Today the yield is close to 1.80%....MORE

Wednesday, April 27, 2016

" is the 13th company to be granted a license to test autonomous vehicles on public roads in California..."

From IEEE Spectrum: Brings Deep Learning to Self-Driving Cars is the 13th company to be granted a license to test autonomous vehicles on public roads in California. This is exciting news, especially because we had no idea that even existed until just last week. The company has been in stealth mode for the past year, working on applying deep learning techniques to self-driving cars. We spoke with two of's co-founders, Sameep Tandon and Carol Reiley, about why their approach to self-driving cars is going to bring us vehicle autonomy that's more efficient, more adaptable, more reliable, and safer than ever. came straight out of Stanford's AI Lab about a year ago. Its core team is made up of experts with a wealth of experience developing deep learning systems in all kinds of different domains, including natural language processing, computer vision, and (most recently) autonomous driving. “This team helped pioneer how to scale deep learning, which is one of the reasons why deep learning has been successful as of late,” says Tandon, the company’s CEO.

After working for several years on the problem at Stanford, these researchers felt that a startup would be the best way to commercialize their ideas and technology and turn them into a product. So they decided to put their PhDs on hold and started

“ is a deep learning company,” Reiley says. “We're solving the problem of a self driving car by using deep learning for the full autonomous integrated driving stack—from perception, to motion planning, to controls—as opposed to just bits and pieces like other companies have been using for autonomy. We’re using an integrated architecture to create a more seamless approach.”

What is deep learning? And why should we care that it's being applied to autonomous driving? Says Tandon:
When you're developing a self-driving car, the hard part is handling the edge cases. These include weather conditions like rain or snow, for example. Right now, people program in specific rules to get this to work. The deep learning approach instead learns what to do by fundamentally understanding the data. 
“Generally, before deep learning, doing machine learning was all about feature selection,” Reiley adds. “It was a very crude way of doing it, and it was difficult and time consuming to get these algorithms to recognize anything.” Deep learning, she says, is much more analogous to the way humans learn. “You show an algorithm good and bad examples, and it learns to generalize. For a dynamic environment that is extremely complex, we believe this is best way to solve the problem.”...MORE

"Forex Traders Brace for Wild Yen Ride as BOJ Announcement Looms"

From MoneyBeat:
Currency investors are bracing for whipsaw trading in the yen heading into the Bank of Japan’s policy announcement Thursday.

The cost of insuring against overnight swings in the dollar/yen currency pair, called the implied volatility rate, has surged to its highest level since at least 2011, according to Thomson Reuters data.
The implied volatility rate rose to 35.05% Wednesday from 7.875% on Tuesday.

The rate is so elevated in part because the options contract covers volatility stemming from both the U.S. Federal Reserve and the BoJ’s policy decisions. The dollar/yen was little changed after the Fed on Wednesday afternoon released a policy statement acknowledging that the economy remains mixed.

The Bank of Japan, combating the perception that it has run out of policy tools, carries greater risk for investors.

“A lot of expectations have built up going into this meeting,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. Mr. Esiner expects the BoJ to ramp up its asset buying program and expand its negative rate policy to some bank loans.

But it’s unclear how the market will react to the BoJ’s decision. Consider the yen’s recent rally. The currency has been one of the year’s best-performing currencies despite the BoJ’s move into negative rates in January, which should have made the currency less attractive to investors....MORE
Also at MoneyBeat:
The Bank of Japan’s Monetary Policy Pickle

The Annotated Fed Statement

This may be the best format for comparison available on the interweb.
From the Aleph Blog:

March 2016April 2016Comments
Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. FOMC shades GDP down and employment up.
Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft.Shades down household spending.
A range of recent indicators, including strong job gains, points to additional strengthening of the labor market.A range of recent indicators, including strong job gains, points to additional strengthening of the labor market.No change.
Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports.Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.Shades energy prices up, and prices of non-energy imports down.


"Economists React to the Fed Decision: ‘More Optimistic…Than in March’"

From Real Time Economics:
Federal Reserve officials voted to hold rates steady at the conclusion of their two-day policy meeting Wednesday. They appear to be in no rush to move them higher in the weeks ahead amid signs of slower economic activity and lingering concerns about inflation and global developments. Here’s what economists had to say about the latest policy statement:
The statement was more optimistic-sounding than in March…consistent with tightening again soon—potentially in June—if the data and markets are supportive. And while the formal risks assessment was not reinserted, the reference to ‘global economic and financial developments’ posing risks was dropped. Instead, officials will ‘monitor’ ‘global economic and financial developments,’ along with inflation indicators.”—Jim O’Sullivan, High Frequency Economics

“On the domestic economy, the statement draws attention to the split between the ‘further’ improvement in the labor market ‘even as growth in economic activity appears to have slowed.’ They don’t say explicitly that the labor data are more reliable than the GDP numbers but it’s easy to conclude that that’s what they think.…Overall, the shifts in the language suggest the Fed wants to keep its options open, and to make sure markets know it. June is therefore in play, but we still think the Brexit referundum just eight days after the meeting is a serious barrier to action.”—Ian Shepherdson, Pantheon Macroeconomics

Facebook is Offering $250,000 for 20 Video Posts Per Month Over a Three-month Period

From BuzzFeed:

As Social Shifts To Video, Content Creators Win Power And Dollars
The social platforms are all competing for quality video, but only a select few can deliver it. Which means if platforms want the programming, they’ll have to pay up.

In December, a pack of widely followed Vine stars made their way to Twitter’s San Francisco headquarters for an unprecedented meeting. These stars, who helped propel Vine to popularity by creating a unique brand of entertainment to fit its short, looping format, wanted to finally get paid for their work. Other social networks had plans in the works to pay content creators, and these Viners wanted in too. It was a bit of a watershed moment: After years of the platform acting as supreme ruler, the leverage was beginning to shift. 
In the meeting, the stars sent a message to Twitter: Facebook, Instagram, and Snapchat all want our videos too; cut us a check if you want to keep us. “We made Vine a cultural phenomena,” one of the Vine stars in attendance told BuzzFeed News. “We would like finally make a living off of the platform.”

The meeting displayed something new that major social companies are now starting to reckon with: Very few people, relatively speaking, are capable of regularly creating compelling videos that others want to watch. And as social platforms look to saturate their feeds with video — live or otherwise — rather than just pictures and text, they’re essentially competing for the same limited set of good videos. So those who create the ​quality​ stuff can demand payment.

In recent weeks, those payments have begun flowing. Twitter and Facebook both started handing out multimillion-dollar wads of cash to bring quality video content to their platforms. Twitter announced earlier this month that it would spend millions to stream 10 NFL games during the 2016 NFL season. And Facebook is offering six-figure checks to celebrities who agree to use its live-streaming product. Periscope’s CEO, in an interview, wouldn’t rule out paying content creators down the road either. When those Vine stars marched into Twitter’s Market Street headquarters in San Francisco demanding financial compensation for their work, it wasn’t an outlier. It was the new normal.

“In video we are seeing just how hard it is to make great content people watch on a recurring basis,” Josh Elman, a partner at venture capital firm Greylock Partners who has invested in the live-streaming app Meerkat, told BuzzFeed News. “Given that, the platforms are starting to compete for those hundreds or thousands of creators who can do that, rather than hoping just anyone can become a star.”

The Vine stars’ demand in their meeting with Twitter was similar to the demands TV content companies make during negotiations. Viacom, for example, last week threatened to remove its content (including Comedy Central and MTV) from Dish Network if the satellite provider didn’t fork up more cash for the rights to air it. If Dish didn’t pay, Viacom’s “blackout” would make Dish’s competitors more attractive to the market. Dish agreed to fee increases, and Viacom remains on the network.

Multichannel video programming distributors — Comcast, Verizon, Dish Network, DirecTV, and more — transmit programming into people’s living rooms. But they pay content producers and programmers to fill the airwaves so they don’t have 1,000 channels of public access town hall meetings. Sound familiar? Just substitute Twitter for Dish and Vine stars for Viacom. The social platforms don’t want to fill their feeds with hours of boring video either.

In the digital world, social platforms are the content conduits to the masses, and the power relationship between them and content creators is similar. Ultimately, people care about good content, not who distributes it....MORE

Oil: Prices Still Positive Despite Inventory Build (quick, hire a kid)

And it's this behavior, boys and girls, that led me to write, on another EIA report day back in March:

EIA Reports Giant Inventory Build, Oil Trades UP
...It's action like this that makes the agricultural futures attractive at the moment.
That was at $34.83 up 43 cents.
Today, despite the continuing inventory overhang, the front futures are at $44.21 up 17 cents.
The current market leaves the geriatric set only two options for survival.
1) Withdrawal from activity until one has a countertrend opportunity or
2) Adaptation to the current, apparently irrational, go-go mentality.
On the latter point, if you'll indulge a brief diversion before we come back to today's EIA numbers, here's our March 2012 post, "Transports, Small Caps Hit New Highs" (Quick! Hire a kid!):

...There's an interesting dichotomy developing in the markets, one that we've seen before.
The old pros are cautious, befuddled and a bit scared. Folks with less than a decade at the market are making money.

Adam Smith noted it in the 'sixties bull market (The Money Game):

There is one wonderful chapter where the consummate pragmatic speculator, the Great Winfield, is lamenting his performance problems in a wildly speculative bull market.
“My boy,” said the Great Winfield over the phone. “Our trouble is that we are too old for this market. The best players in this kind of a market have not passed their twenty-ninth birthdays. Come on over and I will show you my solution.”
 So Adam Smith goes over and finds three new faces in the Great Winfield’s office. 
My solution to the current market,” the Great Winfield said. “Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” The three Kids stood up without taking their eyes from the moving tape, shook hands, and called me “sir” respectfully.
“Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.”
Winfield then describes how much money Billy the Kid is making in computer leasing stocks like Leasco Data Processing and Randolph Computer that he has heavily leveraged with bank borrowing....

And the really spooky bit, for me anyway, SHALE: 
...Sheldon the Kid waved his hand for recognition.

“This one will really take you back,” said the Great Winfield. “Sheldon’s Western Oil Shale has gone from three to thirty.”

“Sir!” said Sheldon. “The Western United States is sitting on a pool of oil five times as big as all the known reserves in the world – shale oil. Technology is coming along fast. When it comes, Equity Oil can earn seven hundred and fifty dollars a share.

It’s selling at twenty-four dollars. The first commercial underground nuclear test is coming up. The possibilities are so big no one can comprehend them.”

“Shale oil! Shale oil!” said the Great Winfield. “Takes you way back, doesn’t it. I bet you can barely remember it.”

“The shale oil play,” I said dreaming. “My old MG TC. A blond girl, tan from the summer sun, in the Hamptons, beer on the beach, ‘Unchained Melody,’ the little bar in the Village.”

“See? See?” said the Great Winfield. “The flow of the seasons. Life begins again. It’s marvelous. It’s like having a son! My boys! My Kids!”

The Great Winfield had made his point. Memory can get in the way of such a jolly market, that malaise that comes with the instantly gone, flickering feeling of déjà vu. We have all been here before.

“The strength of my kids is that they are too young to remember anything bad, and they are making so much money they feel invincible,” said the Great Winfield.

“Now you know and I know that one day the orchestra will stop playing and the wind will rattle through the broken window panes, and the anticipation of this freezes us. All of these kids but one will be broke, and that one will be the multi-millionaire, the Arthur Rock of the new generation. There is always one, and maybe we will find him.”
And today's EIA report via ZeroHedge:

Following last night's surprise inventory draw (1.1m via API), WTI soared above the week's high holding $45 into this morning's DOE data which was dramatically different. Instead of a draw,DOE reported a bigger-than-expected 2.00m build along with a major build at Cushing and Gasoline stocks also rose. Despite a small drop in production, WTI prices are plunging, erasing the hope-driven API ramp.API
  • Crude -1.1m (+1.75m exp)
  • Cushing +1.9m
  • Gasoline -400k
  • Distillates -1.02m
  • Crude  +2.00m (+1.75m exp)
  • Cushing +1.746m
  • Gasoline +1.61m
  • Distillates -1.70m
The biggest build at Cushing since Dec (after the pipeline delay ends) and surprisingly large build overall...
Production fell modestly on the week...down 13 of 14 weeks

...MORE, including a couple nice gasoline charts that should give the kids pause.

But won't

Here's the EIA's Weekly Petroleum Status Report.

China: Hard, Harder, Hardest Landing

Q-carbon* hard, baby.
From FT Alphaville:

What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing? 
The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come. 
You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example: 
The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP. 
The evidence for this can also be found in the money supply growth figures and the growth in the assets and liabilities on the balance sheets of Chinese banks. M2 money supply growth has recovered from trough levels witnessed in mid-2015. However, it is M1 money supply growth – the measure of the more liquid component of the money supply – that has really taken off. Meanwhile, we have seen a surge in the growth of Chinese domestic banks’ assets and liabilities since the start of 2015.

Again, that seems pretty bad. 
Which leaves us to ask, where hard landings are concerned: how would you describe what we’ve already experienced? 
Speaking of, you may remember this:

And, even if you don’t, here’s SocGen’s opening few pars: 
Our core scenario is that China will grow by 7.4% in 2013. There is still a chance however that China could land hard, with growth of less than 6%. 
A survey of global investors suggests that most underestimate how much asset prices would fall if China does land hard. 
We believe base metals could drop 50%, while the USD rallies and treasuries outperform other debt markets and global equity markets. 
We thought some compare and contrast might be in order. 
To be clear, this isn’t meant as a shot at SocGen. Frankly, they did a pretty good job mapping this stuff out and were admirably sceptical about China’s growth path. And they got the primary issue right, that it’s “the top leaders’ choices during the difficult times ahead that will determine the fate of the Chinese economy.”...

*Every few years it seems there is a new entrant in the "Harder than diamond" stakes.
The perennial contender was rhenium diboride but that was only on one dimension of hardness.
The most recent discovery is a new phase of carbon titled Q-carbon because it is superheated and then quenched.
It goes to 11 on Mohs hardness scale.

(technically >10, the 11 bit was just a cheap Spın̈al Tap ref)

Frontrun: UBS Buying Asian, Indian Art For The Bank's Collection

From Barron's Penta:

UBS’ Global Art Buyer Eyes More Asian Works
Mary Rozell heads the bank’s art collection and is looking at pieces from India, Taiwan and the Philippines. 
You wouldn’t often associate the works of ground-breaking contemporary artists like Andy Warhol and Tracey Emin with the buttoned-down world of investment banking. In today’s art market though, corporate collections are in vogue. With more than 30,000 pieces, Swiss bank UBS’s contemporary is one of the biggest.
The pieces aren’t on display in public galleries, but they’re not sat in warehouses gathering dust either - thankfully. “Most of it’s hanging on walls in our 800 offices around the world,” says Mary Rozell, UBS’s recently-appointed global head of the collection. Rozell, a former art historian and lawyer, is out to dispel the idea that corporate collections are drab and anti-septic.

Penta Asia sat down with Rozell at Hong Kong’s recent Art Basel event.

Penta Asia: How do you source the collection’s artworks?

Mary Rozell: We have a team in Switzerland, one in London, one in New York and one in Hong Kong. You need to cast a wide net to know what’s going on. You need people going to galleries every week and building relationships – not just showing up at an art fair once a year. As the chief curator I approve all the purchases up to a certain amount. For higher end purchases we’ve got an art board which consists of people from the bank and a few outside advisors. They’ve got to ratify any big purchases.

Most of the artworks are so vetted that we know they’re going to hold their value to a certain extent. That latter point’s not really our purpose, though. It’s just by chance when you’re buying out of passion, knowledge and interest that you’re most likely to have your values go up over time. Some of our works were actually acquired from other collections. UBS acquired Paine Webber in 2000, which had a fantastic collection and those works are now very valuable.

Q: So what’s the current value of the entire collection?

A: I’m not telling you that....MUCH MORE
HT: eFinancial News

Barclays Plans Its Own Brexit

In a way. In France.
From FundStrategy:

Barclays in sale talks on French banking and wealth arm
Barclays is in exclusive talks with private equity firm AnaCap Financial Partners over a deal to sell its French retail banking operations.

The French arm includes a network of 74 branches, a life insurance business, and wealth and investment management operations.

AnaCap holds stakes in challenger bank Aldermore, as well as banks in Belgium, Malta, the Czech Republic and Poland.

It also bought French digital insurance broker AssurOne in 2014.

Barclays group chief executive Jes Staley says: “Barclays’ French retail and wealth and investment management business is attractive, but no longer fits with our strategic ambitions.... MORE

Ahead Of Today's Fed (non)Action, Korean Central Bank Says Negative Rates Don't Work

From Reuters:

Negative interest rates to have limited impact on economic growth - BOK paper
Negative interest rates adopted by a number of central banks in Europe and in Japan are expected to have only a limited impact in shoring up economic growth, a research paper from South Korea's central bank said on Wednesday.
Several factors could lead to negative policy rates failing to achieve their goals, the Bank of Korea (BOK) report said, including half-hearted declines in bank deposit rates as commercial banks try to keep their customer base intact.

Negative rates cannot fully influence the economies implementing them if they are still trapped in structural low growth and low inflation, it said.

Although the research paper did not mention the implications negative rates would have on South Korea, it was released just a day after the country's president said she favours moving in the direction of quantitative easing.

The mere fact that below-zero rates are adopted could also hurt sentiment by kindling fears that a country is in economic trouble, the report said.

"If economic agents accept the institution of negative interest rates as a bad signal, that the economy is shrinking or deflation is worse than expected, it may hold back economic activity," said the paper, jointly authored by BOK officials Kim Bo Sung, Park Ki-dok and Joo Hyun Do.

Bank customers may hoard cash instead to avoid negative interest rates, leading to instability in cash flows, the paper added....MORE
HT: The Capital Spectator

Tuesday, April 26, 2016

There's A Transcript For The "Jim Chanos: The Art Of Short Selling" Podcast

Having planned to listen to the podcast this weekend I put the link in the mental file cabinet until it was pointed out to me that there's a searchable transcript.
Here's the intro to the podcast but be forewarned, Chanos has a legendarily dry sense of humor. Over the years I've found it best to assume that when I don't understand something he says that he is either making a joke or actually skipping ahead a couple spaces.

A recent example occurred in August.
Chanos was shorting SolarCity and when apprised of this fact, Lyndon Rive, CEO and cousin of Elon Musk said he'd never heard of Chanos.

On CNBC the next day Chanos was being interviewed and Musk's name came up.
Without missing a beat or cracking a smile Chanos asked "Elon who?"

A couple months later SCTY dropped 21% in one day.

From FT Alphaville:
Alphachatterbox is available on Acast, iTunes, and Stitcher.

Many people like it when stocks go up, and feel bad when prices go down.

Pension plans look healthier in bull markets. Dealmakers have more work to do when rich valuations encourage executives to go on buying sprees. Brokerage houses get more fees when amateur punters decide they need to own more shares. Corporate bosses get paid extra for hitting shareholder return targets. Politicians enjoy the boost to tax revenues and the (implied) vindication of their terms in office. Central bankers are glad to see traders betting on stable growth.

But markets aren’t supposed to make us feel good — they’re supposed to help us allocate finite resources towards their best uses. In a dynamic society, most companies should fail and be replaced by newer, better ones. Entire industries should get wiped out on a regular basis because they’re no longer necessary, even as new fields of endeavour, previously unimaginable, are born. Capitalism needs creators, but it also needs destroyers.

Alphachatterbox recently had the chance to talk to one of finance’s foremost destroyers, Jim Chanos, the founder and boss of Kynikos Associates. Chanos has been betting against companies for more than 30 years, with successes ranging from Enron to Eastman-Kodak.
We covered a lot of ground in our conversation, including, but not limited to:
  • His firm’s research process
  • The mechanics of short-selling
  • How Kynikos manages risks
  • The role of a short-seller in a diversified portfolio
  • How Chanos and his partners invest their own money
  • How he bet in anticipation of the global financial crisis
  • How Kynikos decided to start betting against China’s economic model in 2009
  • The importance of accounting standards and enforcement in making markets work
  • The big opportunities Kynikos has missed over the years
Our first excerpt is part of Chanos’s description of how he and his colleagues realised the short-selling opportunities presented by China’s overinvestment:...
...MORE, including podcast. 

Here's the transcript (27 page PDF)

Ford, Google and Uber Hook Up In Self-Driving Car Coalition (GOOG; F)

From Bloomberg via the Houston Chronicle's FuelFix blog:

Coalition forms to bring self-driving cars to American roads
A group of companies including Alphabet Inc.’s Google, Ford Motor Co. and Uber Technologies Inc., are forming a coalition to advocate for safety regulations for self-driving cars and help bring them to American roads.

The group, which also includes Volvo Cars and Lyft Inc., aims to work with lawmakers, regulators and the public to “realize the safety and societal benefits of self-driving vehicles,” according to a statement Tuesday.

Some 1.3 million people die every year in traffic accidents — many of them young people, according to a statement from Uber. “Self-driving cars can help save millions of lives,” it said.

Autonomous cars will make roads in the U.S. safer and less congested, according to the group, but “one clear set of federal standards” is needed to help facilitate bringing the vehicles to market. One of the group’s first tasks will be to work with civic organizations, municipalities and businesses to accomplish that goal, according to the statement.

“Fully autonomous vehicles will help people travel more safely and efficiently, as well as facilitate mobility for those currently unable to drive,” Ford said in a separate statement....MORE

Global Macro: Paul Tudor Jones Interview at Institutional Investor

I had intended to include this oldie-but-goodie in last Friday's "Global Macro: There Are Many Ways To Approach It, Here's A Good One" but reality intruded before I could pull it up.
Here's a repost from May 22, 2009:

Paul Tudor Jones Interview at Institutional Investor
...Last July we visited Mr. Jones in "Paul Tudor Jones on Oil"Here's the Alpha Magazine introduction:
Paul Tudor Jones II founded Tudor Investment Corp. in 1980 at the age of 25. Since then this extraordinary investor has never suffered a losing year. His old-school macro approach is built on what he calls tape-reading, which involves analyzing price trends and riding momentum — with an uncanny knack for balancing risk and return — rather than obsessing over the fundamentals, as less intuitive or less self-confident traders might. Jones’s core belief is that often prices move and trends unfold only because of investor behavior (in this he and George Soros are similar). Business schools, Jones laments, are sometimes too steeped in teaching economic postulates and market theory. Through his Robin Hood Foundation, he pours millions of dollars into antipoverty and education programs in New York City. The Memphis-born manager, who began his career as a cotton trader, first made a name for himself in 1987, when he called the market crash and rode a heavy short position in stock index futures to a 201 percent gain. Today he oversees more than $18 billion in assets. Tudor’s flagship BVI Global Fund has returned roughly 23 percent annually since its 1986 inception.
Although I haven't researched it, I believe he did end up breaking that "Never a losing year" string last year. He's still one of the best in the business. Here's the interview:

What’s so special about macro hedge fund managers?

I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

Is it possible to teach someone to be a tape reader — what some might call a trend follower or technical analyst?
Certain people have a greater proclivity for it because they don’t have the need to feel intellectually superior to the crowd. It’s a personality thing. But a lot of it is environmental. Many of the successful macro guys today, they’re all kind of in my age range. They came from that period of crazy volatility of the late ’70s and early ’80s, when the amount of fundamental information available on assets was so limited and the volatility so extreme that one had to be a technician. It’s very hard to find a pure fundamentalist who’s also a very successful macro trader because it is so hard to have a hit rate north of 50 percent. The exceptions are in trading the very front end of interest rate curves or in specializing in just a few commodities or assets....MUCH MORE Oops, that link has died. Fortunately the II story was backed up on one of our servers and the interview will continue after my 2009 verbiage.

HT: The Pragmatic Capitalist who highlighted that first question as his teaser. PC also has a link to one of his global macro posts that is worth checking out.

The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.

Continuation of Paul Tudor Jones interview at Institutional Investor:
What's your take on the next generation of managers?
I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear!
You're not necessarily a fan of hiring people straight out of business school.
Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I'm a staunch advocate of higher education, there is no training - classroom or otherwise - that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market. There's typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it - a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.
How will macro investing fare over the next five years?
The macro space will be great. I think we're going into one of those slow or zero-growth periods in the U.S., which will give us a lot of volatility.
Will hedge funds do as well as they have done in the past?
Average returns will drop. The amount of money that was made by hedge funds in the past two decades was so outsize relative to anything in civilization in the past couple of centuries that it naturally attracted the best intellectual capital in the world. As a result, the inefficiencies that existed in the '70s and '80s and even the '90s are not as readily seen. But in this business there will also always be that upper tier - that top 10 or 20 percent of managers who will outperform everyone else.
What experience had the biggest impact on your career?
Trading commodity markets back in the late '70s - when they were still extraordinarily volatile - allowed me to experience repeated bull and bear markets across a variety of different instruments. Remember, in agricultural markets the cycle can be just 12 months. I lost my stakes a couple of times, which taught me risk control and risk management. Losing those stakes in my early 20s gave me a healthy dose of fear and respect for Mr. Market and hardwired me for some great money management tools. Oh, incidentally and by necessity, I became a pretty good fundraiser, which has helped me in the not-for-profit world.
Who's had the biggest influence on your career?
My first boss and mentor, Eli Tullis, of New Orleans. He was the largest cotton speculator in the world when I went to work for him, and he was a magnificent trader. In my early 20s, I got to watch his financial ups and downs and how he dealt with them. His fortitude and temperament in the face of great adversity were great examples of how to remain cool under fire. I'll never forget the day the New Orleans Junior League board came to visit him during lunch. He was getting absolutely massacred in the cotton market that day, but he charmed those little old ladies like he was a movie star. It put everything in perspective for me.
What was your single best trade or investment?
Probably buying March put options on the Japanese stock market in early February of 1990. The volatility was an absurd 5 percent, owing to the newness of the options market, with which many Japanese had little experience. Much like the U.S. stock market just before the 1929 crash, the Japanese stock market in early 1990 was following the same price pattern with remarkably similar fundamentals and valuations that provided enormous profit opportunities in a truncated period of time. I actually felt sorry for the people who were on the other side of that trade when I was buying those puts.
Your biggest missed chance?
I missed the subprime opportunity of 2007, and it rankles me every time I hear the term. We have studiously avoided mortgages at Tudor specifically because it is a big-carry game that does not adequately compensate for the inherent tail risk. That unfamiliarity, though, came with a huge opportunity cost.
Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?
It's a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments - principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn't highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it's going to end badly. We've seen it play out hundreds of times over the centuries, and this is no different. It's just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.
Should hedge funds be more closely regulated?

I selfishly do not want to be regulated, but I understand the necessity of it.