Monday, April 30, 2018

"‘Forget the Facebook leak’: China is mining data directly from workers’ brains on an industrial scale"

From the South China Morning Post, April 29/30:

Government-backed surveillance projects are deploying brain-reading technology to detect changes in emotional states in employees on the production line, the military and at the helm of high-speed trains
On the surface, the production lines at Hangzhou Zhongheng Electric look like any other.

Workers outfitted in uniforms staff lines producing sophisticated equipment for telecommunication and other industrial sectors.

But there’s one big difference – the workers wear caps to monitor their brainwaves, data that management then uses to adjust the pace of production and redesign workflows, according to the company.

The company said it could increase the overall efficiency of the workers by manipulating the frequency and length of break times to reduce mental stress.

Hangzhou Zhongheng Electric is just one example of the large-scale application of brain surveillance devices to monitor people’s emotions and other mental activities in the workplace, according to scientists and companies involved in the government-backed projects.

Concealed in regular safety helmets or uniform hats, these lightweight, wireless sensors constantly monitor the wearer’s brainwaves and stream the data to computers that use artificial intelligence algorithms to detect emotional spikes such as depression, anxiety or rage.

The technology is in widespread use around the world but China has applied it on an unprecedented scale in factories, public transport, state-owned companies and the military to increase the competitiveness of its manufacturing industry and to maintain social stability.

It has also raised concerns about the need for regulation to prevent abuses in the workplace.
The technology is also in use at in Hangzhou at State Grid Zhejiang Electric Power, where it has boosted company profits by about 2 billion yuan (US$315 million) since it was rolled out in 2014, according to Cheng Jingzhou, an official overseeing the company’s emotional surveillance programme.

“There is no doubt about its effect,” Cheng said....MUCH MORE

JPMorgan’s Guide to the End of ‘Easy Money'

From Bloomberg, April 29:
  • Advice comes as Goldman sees upside risks to Fed rate forecast
  • JPM doesn’t share market ‘fixation’ on flattening, 3% 10-year
The moves in stocks lately are just strange -- but there’s still a logical approach to investing for the expected end of “easy money,” according to JPMorgan Chase & Co. 
While markets and the strategists who follow them are struggling to figure out the impact of rising U.S. interest rates, the sideways path of equities -- given above-consensus earnings -- is a notable outlier among asset-class movements, the firm wrote in a note Friday. 
“Equities’ tepid response to strong earnings is worrisome,” said the JPMorgan strategists, led by John Normand, head of cross-asset fundamental strategy. “As cash rate expectations rise to levels acknowledging  restrictive policy by late 2019/2020, should equities now price the end of easy money? Such an early peak would have no precedent, so requires a shock.” 
Here’s the sequence of late-cycle trades JPMorgan recommends:
  • Late 2017 through 2018: Short duration, long breakevens and long oil while Fed policy is still accommodative
  • 2018: Underweight credit versus equities to reduce beta to a very old business cycle
  • 2018: A pairwise approach to FX rather than a blanket USD view
  • 2019: Underweight equities, long duration, long gold and long the yen as Fed policy slows the economy and real rates collapse
The bank said that only one of the 10 largest bond sell-offs in the past 15 years has been associated with stock market weakness. And while they pin some of the reason for the February tumble in equities on higher Treasury yields, the strategists said that “this month, U.S. rates have risen only half as much as they did earlier this year, but stocks are still sidewinding despite bumper earnings.”...

Grain Futures: Where We're At, Where We're Going

"In the spring of 1315, unusually heavy rain began in much of Europe. Throughout the spring and summer, it continued to rain and the temperature remained cool. These conditions caused widespread crop failures. The straw and hay for the animals could not be cured and there was no fodder for the livestock. The price of food began to rise. Food prices in England doubled between spring and midsummer. Salt, the only way to cure and preserve meat, was difficult to obtain because it could not be evaporated in the wet weather; it went from 30 shillings to 40 shillings."The Great Famine of 1315-1317
Although we were on top of the forces that seem to be coming into play in the row crops and wheat markets.
We missed a trick by not pointing out one of the classic chart patterns then developing in wheat:

That's a real live cup-and-handle with the declining handle taking pretty much the entire month of March to play out, a stronger set-up than the similar action in corn:

where the handle only had a couple weeks to shake out longs.

Crops are late going into the ground across huge swaths of the corn belt with wheat a bit more timely
From AgWeb, April 30:

Heavy Rains Expected in the Midwest
HeadlinesDec 18 corn pushed to new highs at $4.17 in the overnight session. Nov 18 soybeans traded to $10.57 ¾, just 3 cents away from the April 2nd highs. Planting delays TW in Midwest and dry conditions in S. Brazil lift grains.

Midwest Weather 
Heavy rains are expected in the Midwest by the middle of the week which will stall planting progress. The Delta is expected to receive little additional rain which should allow for planting progress. Temperatures are expected to be above normal this week across the Midwest which will help with wheat growth and corn germination.

KC Wheat Weather
Rains should benefit northern and eastern plains. Dryness is expected to persist this week in W. Kansas, SE Colorado, W. Oklahoma and the Panhandle of Texas. The dryness will continue to stress the already struggling wheat crop. Wheat crop is at jointing stage in KS and at heading stage in OK and TX.

South America
Rains were limited in S. Brazil over the weekend. No significant rains are forecast in S. Brazil this week which will stress the crop during pollination.  Arg. rains slowed harvest in northern Buenos Aires and Entre Rios this weekend. More rains are expected to bring moisture to central growing region and slow harvest progress.  Arg. soybean harvest is 54% complete. Arg. corn harvest is 30.9% complete.... 
And what does all this mean?
The May WASDE Report looks to be the most important (and potentially market moving) report of the last few years. If growing degree days begin to catch up to average over the next 10 days, corn collapses as wheat stays relatively stronger.
Stay tuned.
Wheat up 11'2 (2.26%) at 509'6
Corn up 3'4 (0.88%) at 402'0

"Yes, median pay at Facebook really is about $240,000 a year"

From the San Francisco Chronicle, April 27:
A law that requires public companies to disclose the median pay of their employees and compare it with their CEO’s compensation is producing some eye-popping numbers that spotlight income inequality in America.

Among the 40 largest Bay Area companies that have reported, median employee pay last year ranged from $5,375 at Gap to $240,430 at Facebook.

The median is the midpoint at which half of workers make more and half make less. Gap said its median-paid employee, a real person, was a part-time sales associate in Alabama who worked a partial year and whose pay was not annualized. If you were instead to compare senior software engineers at Facebook and Gap, their pay disparity would be much less startling. But that’s not what the law requires.

The CEO-to-worker pay ratios at these two companies were also extreme.
Gap CEO Arthur Peck took home $15.6 million, or 2,900 times more than the median employee.
Facebook founder and CEO Mark Zuckerberg made 32 times what the median Facebook worker earned. Zuckerberg took a $1 salary last year and got no new stock grants (on top of the $70 billion in Facebook stock he already owns). His $8.8 million in compensation last year was mainly for his personal security detail and private aircraft use.

Google parent Alphabet said its median employee made $197,274 last year; its CEO and co-founder Larry Page took home his usual $1, producing a pay ratio near zero....MUCH MORE

"Are Private Equity Returns Too Good to Be True?"

From Columbia Law School's Blue Sky blog:
Investments in private equity are typically structured as 10 year limited partnerships in which fund managers act as general partners (GPs) and investors act as limited partners (LPs). Since the fund life is broken down into an investment and a liquidation period, GPs can only make new investments after the investment period has expired by raising a new fund. At that time, existing investments are not necessarily liquidated, so that current fund returns rely heavily on subjective performance estimates of their investments. This fact, stemming from a market setting of information asymmetries, has led many investors, industry observers, and academics to speculate that private equity firms distort their performance measurement around fundraising events. While this has been widely alleged, data limitations have made it difficult to draw sharp conclusions about this concern.
Various prior studies have focused on agency problems around fundraising, centering on the question of whether agents inflate portfolio values prior to fundraising. The common finding of these studies is that fundraising for a new fund coincides with times of high current interim valuations, especially for low-reputation funds, where cost of manipulation appears low (e.g., Barber and Yasuda 2017, Chakraborty and Ewens 2017 and Brown et al. 2017). This finding is open to two different interpretations. While GPs may advertise strong current fund performance by manipulating true estimates of current asset values as suggested by prior work, alternatively, GPs may time fundraising around true estimates of high current net asset values (NAVs).

Motivated by prior research, I argue that the data underlying these studies are aggregated too coarsely to attribute performance peaks to inflation of underlying asset values. To overcome data limitations of prior work, I have built a novel database of quarterly deal valuations in U.S. buyout funds that allows me to address the two hypotheses above.

What do we learn from deal level valuations about interim fund returns?
For a better understanding of why it is important to have data on individual portfolio companies, consider a fund with heterogeneous investment times. A peak of net asset values on the fund level, for instance, could be explained by inflated interim valuations of individual portfolio holdings. Alternatively, if deals made shortly before fundraising perform poorly so that their valuations after fundraising fall below their initial valuations at cost, these deals could reduce portfolio valuations after fundraising. If, in addition, deals made long before fundraising perform well, so that their initial valuations at cost increase around fundraising, the result would be a peak in aggregated values on the fund level just before a new fund is raised.

Indeed, I find strong evidence that funds with an especially low reputation have more successful investments well ahead of fundraising compared with deals made shortly before fundraising. Realized (or last observed) value multiples (VMs) of investments made long before the fundraising event exceed multiples of investments made shortly before the event, on average, by 130 percentage points. The difference stems from VMs of investments by low-reputation funds that were unrealized at the time of raising a new fund. I find no signs of systematically higher interim deal valuations.
Thus, the conjecture about manipulation is inconsistent with the deal-level evidence on fundraising. The finding of strong early deals increasing in value well ahead of fundraising, and weak later investments declining in value primarily after fundraising, is, instead, consistent with a timing of fundraising story.

Is fundraising timed to true performance estimates?
To test whether GPs are more likely to attempt to raise a new fund following estimates of truly good performance, I extend the results of Barber and Yasuda (2017). Their results suggest that NAV inflation predicts fundraising, and this effect is concentrated among those who most need to rely on interim NAVs as substitutes for reputation. By using hazard rate models, I find that fundraising is endogenously timed to true estimates of high current valuations, while their performance, especially in low-reputation funds, cannot be sustained in later deals. Consistent with this evidence, GPs appear to verify strong private performance with investments in publicly traded stocks (PIPEs or investments on the public stock exchange that are not taken private). I find that, on average, 10 percent of a private equity fund’s portfolio is not private equity but rather represents investments in publicly traded stocks that are not intended to be taken private. High positive returns in these public deals have a significant impact on the probability of fundraising. Backing NAVs of private portfolio companies with the verifiable performance of investments in publicly traded stocks appears to create less agency frictions than quickening of exits and “grandstanding” (Gompers 1996)....MORE

"What If Product Quality Rather Than Price Had Been Economists’ Chief Object of Explanation?"

From Cafe Hayek, January 20:
What follows is a speculative discourse on the economic analysis of competition.  It’s a discourse that I believe I made in an earlier post – but, if I did make it, I cannot now find it.  So, for the record I make it again.  It’s wonky, it might be incorrect in its details, and it’s below the fold.

Imagining an Alternative Model of Perfect Competition
Economic competition, from the standpoint of each supplier, is an economic reality with which he or she must deal in order to achieve the ultimate goal of each supplier qua supplier – namely, to increase as much as possible his or her firm’s net present value.  Absent special privileges, each supplier in a competitive market attempts to achieve this goal by adjusting its operations on several margins.  Cutting prices to attract more buyers is only one such competitive move.  Improving product quality is another.  Lowering per-unit costs of production and distribution is yet another.

In neoclassical mainstream economics, however, price competition is treated as if it is the only, or, certainly, the paramount form of competition.  This obsession with price competition is unwarranted.  While I stand second to no one in my appreciation of the indisputably central and vital role that market-determined prices play in a market economy, it is an error to suppose that price competition is the only, the paramount, or exclusively the best form of competition.

Of course it’s true that consumers want to pay as low a price as possible for a unit of any given good or service.  For the very same reason, consumers want to get as much quality as possible in that good or service for any given price at which that good or service is available for sale.

When consumers act to “maximize their utility” or to “get good bargains” – call it what you will – prices are not all that matter to them.  If prices were all that matter, then even billionaires would eat only ramen-noodle dishes, wear only cheap second-hand clothing, and don only Timexes and never Rolexes.

So suppose that economists had formulated the theory of perfect competition differently.  Suppose that, instead of assuming exogenously given and fixed goods and services (of given qualities) in order to see how competition affects the prices of goods and services, economists had assumed that the prices of different types of goods and services are exogenously given and fixed in order to see how competition affects the types and quality of goods and services made available on market.

In this Alternative Model of Perfect Competition, economists would explain that, in a ‘perfectly competitive’ industry, each firm is a “product-quality taker.”  At each moment in time, each firm could sell as many units per period as it wished without improving its product’s quality, and would lose all sales if it lowered its product quality by even the tiniest amount.  As in the actual, familiar model of perfect competition, each firm’s only “choice” in the Alternative Model is the quantity to produce.  Each firm would produce that quantity of output at which marginal cost equals price.

Remember, in this Alternative Model of Perfect Competition, price never changes.  As with product quality in the actual, standard model of perfect competition, in this Alternative Model, price throughout remains exogenously given and fixed....MORE

A Socialist Review of Piketty's Latest

From the World Socialist Web Site:

Social inequality and oligarchy in the US and Europe
21 April 2018

A paper published in March by French economist Thomas Piketty cites data showing that the “democratic” political systems in the US, France and Britain are oligarchies in which all the major parties are tools of the super rich, serving to manipulate the population and crush social opposition from below.

The paper, titled “Brahmin Left vs. Merchant Right: Rising Inequality and the Changing Structure of Political Conflict,” shows that the traditional “left” parties of the political establishment—the Democratic Party in the US, the Labour Party in Britain and the Socialist Party in France—have become the preferred parties of significant sections of the ruling elite, abandoning any pretense of social reform. Though the study does not explicitly address parties such as the German Social Democratic Party, the Spanish Socialist Party and the Italian Democratic Party, the process Piketty describes is a universal one.

“The general conclusion is clear,” Piketty writes. “We have gradually moved from a class-based party system to what I propose to label a ‘multiple-elite’ party system. Back in the 1950s-1960s, the party system was defined along class lines: the vote for the left-wing parties was associated to both low-education and low-income voters, while the vote for right-wing parties was associated to both high-education and high-income voters.”

These days are gone. Today, the political systems in these three countries have “little to do with the ‘left’ vs. ‘right’ party system of the 1950s-1960s” because the formerly “left” parties now mirror in social composition and program their Republican, Gaullist and Tory counterparts. “Each of the two governing coalitions alternating in power tends to reflect the views and interests of a different elite,” Piketty writes.

The absence of any major party with working class support helps “explain rising inequality”, because there are no mechanisms through which the working class can influence the direction of government policy. This has produced widespread disillusionment in the working class, which Piketty claims is responsible for both the rise of mass abstentionism and the strengthening of right-wing populism “as low education, low income voters might feel abandoned.”

The chart below tracks the difference between the Democratic Party share of voters in the top 10 percent of the income scale versus the Democratic Party share of voters in the bottom 90 percent over time.
The chart shows that in the 1940s through the early 1970s, working class voters were far more likely to support the Democratic presidential candidate. This began to shift in the mid-1970s, changing drastically over the course of the Obama presidency and culminating in the 2016 election, in which the Democratic vote share was 10 percent higher among the top 10 percent than it was among the bottom 90 percent....MUCH MORE
Here's "Brahmin Left vs Merchant Right: Rising Inequality & the Changing Structure of Political Conflict" (174 page PDF)

And here is Le Blog de Thomas Piketty

"Chinese Leasing Firms a New Force in Global Shipping"

The Ireland of the East?*
From Asia Times:

In hopes of fair winds, Chinese-funded institutions have provided one-fourth of the financing for the global shipping capital market
Since 2017, many European banks, the traditional biggest fund providers for ship financing, have reduced the scale of credit and sold off ship assets. Meanwhile, steering an opposite course in the hopes of fair winds, Chinese-funded institutions have boldly started to increase financing for the shipping industry, reported.

At present, Chinese-funded institutions have provided one-fourth of the financing for the global shipping industry, becoming a new major investor in the world, said Shen Lei, director of the Dongjiang Free Trade Port Zone in Tianjin city.

China’s financial leasing companies represented by ICBC Leasing, Bank of Communications Financial Leasing and Mingsheng Financial Leasing have emerged as new forces in the global shipping capital market...MORE

Sunday, April 29, 2018

"The Key to Everything" Freeman Dyson on Geoffrey West's "Scale..."

Until seeing this I wasn't aware Professor Dyson was still alive. The old boy hung out at Princeton's Institute for Advanced Studies at the same time Einstein was there. He knew all the physics brainiacs of the day, Feynman in particular and was sharp enough himself that Princeton grabbed him and made Dyson a Professor despite his lack of a PhD.

This review was recommended by one of the commenters on Izabella Kaminska's last posting at FT Alphaville which we linked in "UPDATED—A Map of Every City (plus Izabella Kaminska does a drive-by)".

And speaking of Ms Kaminska, why haven't the tech boffins at the Financial Times come up with a robo-Izzy until her return?

Finally, Professor Dyson takes a dimmer view of Complexity 'science' than many sci-guys but still writes well enough that I am not going to attribute the crotchety bits to the aches and pains of his being 94 years old. Something actually bugs him about the topic.

From the New York Review of Books, May 10, 2018 Issue:

Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies
by Geoffrey West
Penguin, 479 pp., $30.00
Geoffrey West spent most of his life as a research scientist and administrator at the Los Alamos National Laboratory, running programs concerned not with nuclear weapons but with peaceful physics. After retiring from Los Alamos, he became director of the nearby Santa Fe Institute, where he switched from physics to a broader interdisciplinary program known as complexity science. The Santa Fe Institute is leading the world in complexity science, with a mixed group of physicists, biologists, economists, political scientists, computer experts, and mathematicians working together. Their aim is to reach a deep understanding of the complexities of the natural environment and of human society, using the methods of science.

Scale is a progress report, summarizing the insights that West and his colleagues at Santa Fe have achieved. West does remarkably well as a writer, making a complicated world seem simple. He uses pictures and diagrams to explain the facts, with a leisurely text to put the facts into their proper setting, and no equations. There are many digressions, expressing personal opinions and telling stories that give a commonsense meaning to scientific conclusions. The text and the pictures could probably be understood and enjoyed by a bright ten-year-old or by a not-so-bright grandparent.
The title, Scale, needs some clarification. To explain what his book is about, West added the subtitle “The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies.” The title tells us that the universal laws the book lays down are scaling laws. The word “scale” is a verb meaning “vary together.” Each scaling law says that two measurable quantities vary together in a particular way.
We suppose that the variation of each quantity is expressed as a percentage rate of increase or decrease. The scaling law then says that the percentage rate for quantity A is a fixed number k times the percentage rate for quantity B. The number k is called the power of the scaling law. Since the percentage changes of A and B accumulate with compound interest, the scaling law says that A varies with the kth power of B, where now the word “power” has its usual mathematical meaning. For example, if a body is falling without air resistance, the scaling law between distance fallen and time has k=2. The distance varies with the square of time. You fall 16 feet in one second, 64 feet in two seconds, 144 feet in three seconds, and so on.

Another classic example of a scaling law is the third law of planetary motion, discovered by the astronomer Johannes Kepler in 1618. Kepler found by careful observation that the time it takes for a planet to orbit the sun scales with the three-halves power of the diameter of its orbit. That means that the square of the time is proportional to the cube of the distance. Kepler measured the periods and diameters of the orbits of the six planets known in his time, and found that they followed the scaling law precisely. Fifty-nine years later, Isaac Newton explained Kepler’s laws of planetary motion as consequences of a mathematical theory of universal gravitation. Kepler’s laws gave Newton the essential clues that led to the theoretical understanding of the physical universe.

There is a scaling law in biology as important as Kepler’s third law in astronomy. It ought to have the name of Motoo Kimura attached to it, since he was the first to understand its importance, but instead it is known as the law of genetic drift. Genetic drift is one of the two great driving forces of evolution, the other being natural selection. Darwin is rightly honored for his understanding of natural selection as a main cause of evolution, but he failed to include genetic drift in his picture because he knew nothing about genes.
Genetic drift is the change in the average composition of a population due to random mutations of individual genes. Genetic drift causes species to evolve even in the absence of selection. Genetic drift and natural selection work together to drive evolution, selection being dominant when populations are large, genetic drift being dominant when populations are small.

Genetic drift is particularly important for the formation of new species, when populations may remain small for a long time. The predominance of genetic drift for small populations is due to a simple scaling law. Genetic drift scales with the inverse square root of population. This means that genetic drift is ten times faster for a population of ten thousand than for a population of a million. The scaling is the same for any kind of random mutations. If we observe any measurable quantity such as height, running speed, age at puberty, or intelligence test score, the average drift will vary with the inverse square root of population. The square root results from the statistical averaging of random events.

West is now making a huge claim: that scaling laws similar to Kepler’s law and the genetic drift law will lead us to a theoretical understanding of biology, sociology, economics, and commerce. To justify this claim he has to state the scaling laws, display the evidence that they are true, and show how they lead to understanding. He does well with the first and second tasks, not so well with the third. The greater part of the book is occupied with stating the laws and showing the evidence. Little space is left over for explaining. The Santa Fe observers know how to play the part of a modern-day Kepler, but they do not come close to being a modern-day Newton.

The history of each branch of science can be divided into three phases. The first phase is exploration, to see what nature is doing. The second phase is precise observation and measurement, to describe nature accurately. The third phase is explanation, to build theories that enable us to understand nature. Physics reached the second phase with Kepler, the third phase with Newton. Complexity science as West defines it, including economics and sociology, remained in the first phase until about the year 2000, when the era of big data began. The era started abruptly when information became cheaper to store in electronic form than to discard. Storing information can be an automatic process, while discarding it usually requires human judgment. The cost of information storage has decreased rapidly while the cost of information discard has decreased slowly. Since 2000, the world has been inundated with big data. In every science as well as in business and government, databases have been storing immense quantities of information. Information now accumulates much faster than our ability to understand it.

Complexity science at the Santa Fe Institute is driven by big data, providing abundant information about ecological and human affairs. Humans can visualize big data most easily when it is presented in the form of scaling laws—hence the main theme of West’s book. But a collection of scaling laws is not a theory. A theory of complexity would give us answers to deeper questions. Why are there ten thousand species of birds on this planet but only five thousand species of mammals? Why are there warm-blooded animals but no warm-blooded plants? Why are human societies so often engaged in deadly quarrels? What is the destiny of our species? These are questions that big data may illuminate but cannot answer. If complexity science ever moves into the third phase, some of these old questions will be answered, and new questions will arise.

West’s first chapter, “The Big Picture,” sets the stage for the detailed discussions that follow, with a section called “Energy, Metabolism, and Entropy,” explaining how one of the basic laws of physics, the second law of thermodynamics, makes life precarious and survival difficult. Entropy is disorder. The second law states that entropy inexorably increases in any closed system. West comments, “Like death, taxes, and the Sword of Damocles, the Second Law of Thermodynamics hangs over all of us and everything around us…. Entropy kills.” His big picture is seriously one-sided. He does not mention the other side of the picture, the paradox of order and disorder—the fact that, in the real worlds of astronomy and biology, ordered structures emerge spontaneously from disorder. The solar system, in which planets move in an orderly fashion around the sun, emerged from a disordered cloud of gas and dust. The fearful symmetry of the tiger and the beauty of the peacock emerge from a dead and disordered planet.

The astronomer Fang Lizhi published with his wife, Li Shuxian, a popular book, Creation of the Universe (1989), which includes the best explanation that I have seen of the paradox of order and disorder.1 The explanation lies in the peculiar behavior of gravity in the physical world. On the balance sheet of energy accounting, gravitational energy is a deficit. When you are close to a massive object, your gravitational energy is minus the amount of energy it would take to get away from the mass all the way to infinity. When you walk up a hill on the earth, your gravitational energy is becoming less negative, but never gets up to zero. Any object whose motions are dominated by gravity will have energy decreasing as temperature increases and energy increasing as temperature decreases.
As a consequence of the second law of thermodynamics, when energy flows from one such object to another, the hot object will grow hotter and the cold object will grow colder. That is why the sun grew hotter and the planets grew cooler as the solar system evolved. In every situation where gravity is dominant, the second law causes local contrasts to increase together with entropy. This is true for astronomical objects like the sun, and also for large terrestrial objects such as thunderstorms and hurricanes. The diversity of astronomical and terrestrial objects, including living creatures, tends to increase with time, in spite of the second law. The evolution of natural ecologies and of human societies is a part of this pattern. West is evidently unaware of Fang and Li’s insight.

The factual substance of West’s book is contained in eighty-one numerical diagrams, displaying a large number of scaling laws obeyed by various observed quantities. The first diagram, concerning the metabolic rate of animals, shows twenty-eight dots, each labeled with the name of a warm-blooded animal species, beginning with mouse and ending with elephant. The dots are displayed on a square graph, the horizontal position of the dot showing the average body mass of the species and the vertical position showing its average rate of consumption of energy. The diagram shows the twenty-eight points lying with amazing accuracy on a single straight line. The slope of the line on the page demonstrates the scaling law relating energy consumption to mass. Energy consumption scales with the three-quarters power of mass. The fourth power of energy consumption scales with the cube of mass. This scaling law holds accurately for mammals and birds. Cold-blooded animals such as fish and reptiles are excluded because they have no fixed body temperature. Their consumption of energy varies with their temperature, and their temperature varies with the weather.

Similar diagrams display similar scaling laws obeyed by other quantities. These laws are generally most accurate for anatomy and physiology of animals, less accurate for social institutions such as cities and companies. Figure 10 shows heart rates of mammals scaling inversely with the one-quarter power of mass. Figure 35 shows the number of patents awarded in the United States scaling with the 1.15 power of the size of the population. Figure 36 shows the number of crimes reported in cities in Japan scaling with the 1.2 power of population. Figure 75 shows that commercial companies in the United States have a constant death rate independent of age—the life expectancy of a company at any age is about ten years. The short lifetime of companies is an essential feature of capitalist economics, with good and bad consequences. The good effect is to get rid of failed enterprises, which in socialist economies are difficult to kill and continue to eat up resources. The bad effect is to remove incentives for foresight and long-range planning.

The closest that West comes to a theory of complexity is his discussion of fractals. A fractal is a structure with big and small branches that look similar at all sizes, like a tree or the blood-vessels of a mammal. When you magnify a picture of a small piece of it, the result looks like the whole thing. The mathematician Benoit Mandelbrot began the study of fractals in the 1960s and called attention to the ubiquity of fractals in nature. Since fractal structure is independent of scale, it leads naturally to scaling laws. West discusses in detail the example of the mammalian blood-vessel system, whose fractal branching evolved to optimize the distribution of nutrients through one-dimensional vessels in three-dimensional tissues. Optimal branching results in the observed scaling law, the total blood flow scaling with the three-quarters power of the mass. Most of the scaling laws in biology can be understood in a similar way as resulting from the fractal structure of tissues....MUCH MORE

Questions Americans Want Answered: "Does my algorithm have a mental-health problem? "

From Aeon:
Is my car hallucinating? Is the algorithm that runs the police surveillance system in my city paranoid? Marvin the android in Douglas Adams’s Hitchhikers Guide to the Galaxy had a pain in all the diodes down his left-hand side. Is that how my toaster feels?

This all sounds ludicrous until we realise that our algorithms are increasingly being made in our own image. As we’ve learned more about our own brains, we’ve enlisted that knowledge to create algorithmic versions of ourselves. These algorithms control the speeds of driverless cars, identify targets for autonomous military drones, compute our susceptibility to commercial and political advertising, find our soulmates in online dating services, and evaluate our insurance and credit risks. Algorithms are becoming the near-sentient backdrop of our lives.

The most popular algorithms currently being put into the workforce are deep learning algorithms. These algorithms mirror the architecture of human brains by building complex representations of information. They learn to understand environments by experiencing them, identify what seems to matter, and figure out what predicts what. Being like our brains, these algorithms are increasingly at risk of mental-health problems.

Deep Blue, the algorithm that beat the world chess champion Garry Kasparov in 1997, did so through brute force, examining millions of positions a second, up to 20 moves in the future. Anyone could understand how it worked even if they couldn’t do it themselves. AlphaGo, the deep learning algorithm that beat Lee Sedol at the game of Go in 2016, is fundamentally different. Using deep neural networks, it created its own understanding of the game, considered to be the most complex of board games. AlphaGo learned by watching others and by playing itself. Computer scientists and Go players alike are befuddled by AlphaGo’s unorthodox play. Its strategy seems at first to be awkward. Only in retrospect do we understand what AlphaGo was thinking, and even then it’s not all that clear.
To give you a better understanding of what I mean by thinking, consider this. Programs such as Deep Blue can have a bug in their programming. They can crash from memory overload. They can enter a state of paralysis due to a neverending loop or simply spit out the wrong answer on a lookup table. But all of these problems are solvable by a programmer with access to the source code, the code in which the algorithm was written.

Algorithms such as AlphaGo are entirely different. Their problems are not apparent by looking at their source code. They are embedded in the way that they represent information. That representation is an ever-changing high-dimensional space, much like walking around in a dream. Solving problems there requires nothing less than a psychotherapist for algorithms.

Take the case of driverless cars. A driverless car that sees its first stop sign in the real world will have already seen millions of stop signs during training, when it built up its mental representation of what a stop sign is. Under various light conditions, in good weather and bad, with and without bullet holes, the stop signs it was exposed to contain a bewildering variety of information. Under most normal conditions, the driverless car will recognise a stop sign for what it is. But not all conditions are normal. Some recent demonstrations have shown that a few black stickers on a stop sign can fool the algorithm into thinking that the stop sign is a 60 mph sign. Subjected to something frighteningly similar to the high-contrast shade of a tree, the algorithm hallucinates.

How many different ways can the algorithm hallucinate? To find out, we would have to provide the algorithm with all possible combinations of input stimuli. This means that there are potentially infinite ways in which it can go wrong. Crackerjack programmers already know this, and take advantage of it by creating what are called adversarial examples. The AI research group LabSix at the Massachusetts Institute of Technology has shown that, by presenting images to Google’s image-classifying algorithm and using the data it sends back, they can identify the algorithm’s weak spots. They can then do things similar to fooling Google’s image-recognition software into believing that an X-rated image is just a couple of puppies playing in the grass....MUCH MORE

Population: "Future Hubs of Africa and Asia"

From Populyst, April 4:

Future Hubs of Africa and Asia
On UN projections between 2015 and 2050, the world population will grow by nearly 2.38 billion people, from 7.35 billion to 9.73 billion. Although this 32% growth is a big increase, it marks a slowdown from the 66% growth rate recorded in the preceding 35 years (1980-2015). Total Fertility Rates (TFRs) have come down all over the world and are expected to continue falling.
About half of the 2.38 billion increase will take place in sub-Saharan Africa and nearly 40% in Asia. India is the biggest contributor with a net addition of 394 million, followed by Nigeria (216m), Pakistan (120m), DR Congo (118m) and Ethiopia (89m). By 2050, all of these countries will feature in the top 10 populations by size, a list that will include the United States (expected to rank fourth) but not one European country. Outside of Africa and Asia ex-China, regional populations will be growing slowly (the Americas), stagnating (China, Europe), or receding (Japan, Eastern Europe).
This demographic boom could, under the right conditions, result in a regional or even a global economic boom. These conditions are first and foremost 1) an increase in literacy and 2) an improvement in governance, in the poorest countries where the population is growing rapidly. Higher literacy, in particular among young women, sets off a chain reaction that drives down infant mortality rates and total fertility rates. In time, this evolution leads to a falling dependency ratio and creates an opportunity for the economy to realize a demographic dividend. This was in large part the dynamic that created the China boom in the past three decades.

At the same time, the demographic center of gravity of the world will shift from North to South and from the richest to the poorest countries. This new center of gravity would lie in 2050 somewhere between Africa and South Asia, in theory somewhere in the Indian Ocean or in Eastern Africa or Western Asia.

Just as Singapore and Hong Kong were large beneficiaries of expanded trade between China and the rest of the world, there will likely be a number of cities that will benefit from being at the nexus of the coming population boom if it happens to also translate into an economic boom. Some will gain by dint of their large size and thanks to their expanded infrastructure in air and maritime transport. Others may gain by becoming specialized hubs for services such as finance, technology or other....MORE

France: "Crypto Is Now ‘Moveable Property’, Tax Down From 45 To 19 Percent"

Le jour de gloire est arrivé!  
Or something.
From CoinTelegraph:
France’s Conseil d’Etat (Council of State) has changed the tax rate on cryptocurrency sales to a flat rate of 19 percent, rather than up to 45 percent like before, local news outlet, Le Monde reported Thursday, April 26.

The Council of State said that the tax change comes from a new classification of Bitcoin (BTC) separate from commercial or non-commercial activity:
“The sale of ‘bitcoins’ [fell under] the principle from the category of capital gains of movable property.”
The exceptions to the flat rate are earnings from crypto mining, which will be taxed as non-commercial profits, and income as a result of professional activity, which will be taxed as industrial and commercial profits.

Le Monde noted that the decision to change the crypto tax rate came after citizens appealed to France’s highest regulatory body earlier this year to change the regulations for crypto transactions that had been in place since July 2014....MORE

Global Race To Develop Self-Navigating Ships Leaves U.S. Behind

From McClatchy, DC Bureau, April 23

The day in which unmanned “ghost ships” ply the seas laden with cargo is fast approaching. But don’t expect the drone vessels to be flying a U.S. flag.

The United States is not among the global hotspots where a revolution in autonomous commercial shipping is unfolding. One needs to look to places like Norway, Finland, Singapore and China to observe the competition for unmanned shipping.

A shipyard in Norway will soon begin building a 237-foot battery-powered electric container ship that will operate with nary a sailor aboard by 2020.

Announcement of that project and several others over the past year have rippled through maritime circles worldwide.

Finland is looking at prototypes for an autonomous ferry. China has set aside a 225-square-mile ocean area to test crewless ships. And Japanese shipping lines have formed a consortium with the goal of having 250 remote-control cargo ships by 2025.

“It’s kind of a space race,” said Sean T. Pribyl, a maritime attorney with the Washington firm Blank Rome. “It was a total surprise for everyone in the industry.”
U.S. shipping firms are not even in the game.

“We, the U.S., are behind,” said Deputy Administrator Richard Balzano of the U.S. Maritime Administration, the arm of the Transportation department that deals with shipping. American commercial shipping firms are “on life support.”

“Our fleets are aging out. We’re not globally competitive like, say, the Chinese. Our tax systems, our standards of living, our pay rates, our union labor costs, these things all drive us to be less than competitive,” Balzano said.

Battered by foreign competition, U.S. shipping lines run a total of 81 ocean-going vessels that conduct international trade, the lowest number in modern times, Balzano said.
Other factors that have hindered the commercial shipping industry’s move toward autonomy include a lack of designated open-water areas to conduct testing, sea lanes that are heavily transited, and regulatory obstacles.

The U.S. isn’t losing the race because a lack of technological know-how. In fact, U.S. technology in autonomous systems is world beating – but it’s largely confined to the military. Earlier this year, the Navy took control of a 132-foot sensor-rich unmanned vessel, dubbed Sea Hunter, that can remain away from port for months at a time. Other anti-submarine robot ships are on order.

Pribyl estimated that U.S. commercial shipping interests lag at least five years behind some of their foreign counterparts in moving toward crewless commercial vessels....MUCH MORE
A couple previous posts:
"World’s First Autonomous Shipping Company Established in Norway"
Autonomy: "Rolls-Royce’s cargo ship of the future requires no onboard crew"

And the Americans are not totally oblivious:

The U.S. Navy Just Took Delivery of the World’s Largest Roboship* 

Read more here:

Read more here:

Saturday, April 28, 2018

"Venting about the Helium Market"

We too have been enchanted by the light one, most recently in "News You Can Use: 'Learn How to Build a Nuclear Fusor'":
...Low-power fusors produce a beautiful purple ion plasma “glow discharge” similar to plasma globes and neon signs. In high-power fusors, the inertia of the ion collisions squeezes hydrogen atoms tight enough to fuse, hence the term inertial confinement.

High-power fusors typically fuse deuterium (D or 2H) into helium and tritium. Deuterium is a hydrogen isotope whose nucleus contains a neutron in addition to the usual single proton. It occurs naturally in very low concentrations, primarily as hydrogen deuteride (HD) but also as “heavy water” (D2O), “semiheavy water” (HDO), and deuterium gas (D2). Only 1 in 6,000 hydrogen atoms is deuterium. Tritium (a hydrogen atom with two neutrons and one proton) is even rarer.

When two deuterium atoms fuse they create a high-energy helium-4 atom, which stabilizes itself by releasing a proton, a neutron, or a gamma ray. This release leaves behind a tritium atom, helium-3 atom, or helium-4 atom, respectively....
From the Conversable Economist:
The US Department of the Interior has identified a list of 35 "critical minerals," which is "a mineral identified to be a non-fuel mineral or mineral material essential to the economic and national security of the United States, the supply chain of which is vulnerable to disruption, and that serves an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economy or national security."

I'm constitutionally skeptical of such lists. It often seems that when supplies of a "critical" mineral decline and price rises, there is a short-term spike in articles talking about a "crisis." But then the  market responds to the higher price with a mixture of finding new sources, increased recycling, or finding ways to substitute for that mineral in a substantial number of uses. Life goes on. As one example, here's my write-up of "The Rare Earths Shortage: A Crisis with a Supply and Demand Answer" (March 10, 2015). Yes, rare earths remain on this "critical minerals" list. Another entry on the critical minerals list is aluminum, and I have previously discussed "The National Security Argument for Steel and Aluminum Tariffs" (March 7, 2018).
I can't claim to have looked at all 35 items on the critical minerals list, but one that does perplex me is the quite peculiar market for helium. Stephen T. Anderson lays out the background in "Economics, Helium, and the U.S. Federal Helium Reserve:Summary and Outlook," which appears in Natural Resources Research (December 5, 2017). Here is his quick summary of the peculiarities of the helium market from the abstract:
"In 2017, disruptions in the global supply of helium reminded consumers, distributors, and policy makers that the global helium supply chain lacks flexibility, and that attempts to increase production from the U.S. Federal Helium Reserve (the FHR) may not be able to compensate for the loss of one of the few major producers in the world. Issues with U.S. and global markets for helium include inelastic demand, economic availability of helium only as a byproduct, only 4–5 major producers, helium's propensity to escape earth's crust, an ongoing absence of storage facilities comparable to the FHR, and a lack of consequences for the venting of helium. The complex combination of these economic, physical, and regulatory issues is unique to helium, and determining helium's practical availability goes far beyond estimating the technically accessible volume of underground resources."
These issues are not new. Back in 2008, for example, Science Daily was reporting "Helium Supplies Endangered, Threatening Science And Technology" (January 5, 2008). In 2010, Nobel prize-winner in physics Robert Richardson, who shared the prize "for their discovery of superfluidity in helium-3," was giving speeches which ran under headlines like "The world is running out of helium: Nobel prize winner," (, August 24, 2010)... 

July 2017
Google's Nuclear Fusion Project Is Paying Off
June 2017
Qatar: Helium shortage looms
The helium shortage is always coming, to date we don't have many substitutes for the element, but the arrival of the crisis keeps getting delayed...

We've been tracking the helium biz for a while.
Helium prices balloon as supplies run out
Every couple years we run a story similar to this. Because of the physics and chemistry helium is one of the few irreplaceable elements. But...and that's a big but...if you want to make the big money go for the isotope, Helium 3 rather than straight up He, you'll make a fortune in the electricity biz.

"... America’s Helium Crisis"
“Chances are you’ve heard little or nothing from your constituents about helium over the past 15 years,” 
-Walter Nelson, director of helium sourcing at Air Products and Chemicals


"GE, Siemens Plead with Lawmakers to Preserve Federal Helium Reserve"

April 2013
Chemistry: Periodically, We Tell Element Jokes
Funnier than three helium atoms: HeHeHe.

Helium Problem Solved
The article says helium is derived from natural gas. This is incorrect. As one of the noble gases He doesn't react with much of anything so more correctly helium can be found in proximity to methane.

Pedantic much? Yeah, that was me.

Felix Salmon: "The Media Narrative Around Amazon Is Out of Control" (AMZN)

From Slate, April 26:
By any normal standards, a quarterly profit of $1.6 billion is an astonishing feat. But a company with a market capitalization of $814 billion should not be judged by normal standards. Amazon is flying high on Thursday, after a blowout earnings report. Its valuation has gone up by some $78 billion just since the close of trade on Wednesday, which will fuel any number of stories about how world-beating and unstoppable it is. Those stories, in turn, will reinforce the tale being told by the stock market, in a virtuous cycle that is music to CEO Jeff Bezos’ ears.
The best gift you can give to any CEO is an overvalued stock. An ever-rising share price effectively obscures any number of sins: It cheapens the cost of debt, makes it easy to keep your employees happy by giving them options, and reassures the market that everything is fine. It also sets the tone for media coverage, which can then provide a tailwind, helping the company do even better on the stock market. The combination of a great story with a high-and-rising share price is the perfect recipe to ensure that the default tone for journalism surrounding the company ends up being some form of “why is this company so successful, and what does that mean for the rest of us?” 

Nowhere is this syndrome clearer than in the FANG stocks—Facebook, Amazon, Netflix, Google. (Yes, I know the corporate name is technically Alphabet; the acronym wasn’t my idea.) It’s a constant drumbeat: These companies, with their soaring valuations, are transformative, disruptive, revolutionary. And, to a large degree, that’s true. But when that assumption becomes unexamined, sometimes both the stock price and the narrative can start looking a bit unsupported.
Amazon is a perfect case in point. For one thing, its market capitalization of $814 billion compares to net income, over the past 12 months, of $3.9 billion. That means it’s trading at a price-earnings ratio somewhere north of 200. Compare that to a ratio of about 24 for the stock market as a whole. If Amazon traded on the same multiple of earnings as everybody else, its stock would fall by roughly 90 percent.
The stock is supporting a narrative, which in turn is supporting the stock. And the narrative is, frankly, looking a bit shaky these days.
And its stock can fall by 90 percent! In the summer of 2000, Amazon was similarly valued at stratospheric levels, until a 29-year-old Lehman Brothers convertible bond analyst named Ravi Suria put out a report that said Amazon was facing a “creditor squeeze” that would endanger its ability to pay its debts. Suria’s analysis sent the company’s stock plunging by 20 percent in a single day. Suria soon was dubbed “the giant killer”: Suria’s analysis, which had a profound effect on the way that the markets viewed many technology companies, helped to precipitate the dot-com crash, and a year later, Amazon stock was trading at just 10 percent of its former level.*
Amazon is very, very unlikely to fall that much ever again. But there’s no doubt that the stock is supporting a narrative, which in turn is supporting the stock. And the narrative is, frankly, looking a bit overstretched.
For instance: Look at the the size of the Amazon Prime membership base in the U.S. alone. Last year, a company called Consumer Intelligence Research Partners put out a series of widely cited estimates, often reported as fact by media outlets. They pegged Prime membership at 80 million people in April 2017, 85 million in July, and 90 million in October. At that rate, it should be 100 million by now.
But in his annual letter to shareholders, Bezos revealed that Prime membership worldwide has now passed the 100 million mark. Given that Amazon is estimated to be closing in on 20 million Prime members in Germany and is also huge in the U.K. and Japan, that number was lower than expected. And yet the general reaction to the news was “Oh, wow, that’s amazing, what a big number.”...

Vaclav Smil—"May 1888: Tesla Files His Patents for the Electric Motor"

From IEEE Spectrum:

Electric motors came into their own only after the Serbian-born inventor came up with a marketable design based on alternating current
Electrical devices advanced by leaps and bounds in the 1880s, which saw the first commercial generation in centralized power plants, the first durable lightbulbs, the first transformers, and the first (limited) urban grids. But for most of the decade, advances in electric motors lagged behind.
Rudimentary DC motors date back to the 1830s, when Thomas Davenport of Vermont used his direct-current motors to drill iron and steel and to machine hardwood, and Moritz von Jacobi of St. Petersburg used his motors to power small paddle wheels on the Neva. But those battery-powered devices couldn’t compete with steam power. More than a quarter century passed before Thomas Edison finally commercialized a stencil-making electric pen, to duplicate office documents; it, too, was powered by a DC motor. As commercial electricity generation began to spread after 1882, electric motors became common, and by 1887 U.S. manufacturers were selling about 10,000 units a year, some of them operating the first electric elevators. All of them, however, ran on DC.

It fell to Edison’s former employee, the Serbian-born Nikola Tesla, to set up a company of his own to develop a motor that could run on alternating current. The goals were economy, durability, ease of operation, and safety. But Tesla was not the first to go public: In March 1888, the Italian engineer Galileo Ferraris gave a lecture on AC motors to the Royal Academy of Science, in Turin, and published his findings a month later. This was a month before Tesla’s corresponding lecture at the American Institute of Electrical Engineers, one of IEEE’s predecessor societies. However, it was Tesla, helped with generous financing from U.S. investors, who designed not only the AC induction motors but also the requisite AC transformers and distribution system. The two basic patents for his polyphase motor were granted 130 years ago. He filed some three dozen more by 1891....

Previous Smil at Spectrum:
Vaclav Smil: "Advanced Economies Must Still Make Things"

Vaclav Smil: "Cellphones as a fifth-order elaboration of Maxwell’s theory"

Calories In, Kilowatts Out: Apparently Sweating Is Important

"Happy Birthday to Moore’s Law" (plus party pooper Vaclav Smil)

Vaclav Smil: Planet of the Cows
Our readers may know Mr. Smil as a big deal in the Thinking-about-Energy biz. Here he is thinking about bovines....

The WeWork Chronicles (you won't believe #3)

I've mentioned I only have two three clickbait moves, the "Number ______ will shock you" type (above) and the "If you think you know ______, listen to the battle-cry of this super-model" style.*

Be that as it may, now that we are here I'd like to point out that last week FT Alphaville did something very interesting: They presented some long-form journalism serial style.
The serial was a favorite of magazines from the late 1600's and really took off with Dickens' The Pickwick Papers in 1836. And for the next hundred+ years it kept bringing people back for more.
And then it fell out of favor

In today's attention-constrained (versus money-constrained) world the serial serves two purposes:
First off serial form is a natural brake on 'blogorrhea" (which this introduction is skirting dangerously close to) and secondly it is a more aesthetically pleasing presentation versus say, last week's (quite popular) "The Spectrum of Control: A Social Theory of The Smart City" where I just couldn't figure out what the natural jump to the original source would be.

With that meander behind us, here's some background information that may set up a very profitable trade over the next two or three years.

First up was the somewhat confusingly titled overview "More on WeWork and its bond offering -- updated" (which assumed facts not in evidence, that I had even heard WeWork was raising some money but that's a petty quibble), April 24:
Office-space manager WeWork is planning to sell $500m of high-yield notes maturing in 2025, in a deal expected to price this week.

One reason this matters is that it is the first time the company has sold debt to investors (it has a $650m revolving credit facility and a $500m letter-of-credit facility). After Monday's pricing of a bond offering from Netflix, the sale of notes could test the extent of the market's appetite for high-yield bonds.

Yet even more interesting is the opportunity to get a sense of how exactly WeWork's business works. The company has an “asset-light” model and leases most of its workspace locations -- beyond that it has been promoting its lifestyle and fitness offerings and planning an expansion into education.
The prospectus and presentation for the note sale, which was reviewed by Alphaville and the FT, gave us a look at the company and its financials....MORE
That was followed on the 25th by "Get in line, SoftBank" (which got me thinking of Pride and Prejudice):
It is not out of the ordinary for a private company to access the debt markets. Particularly one, like WeWork, with a $20bn market valuation, a figure which was recently endowed on them by $4.4bn of investments from SoftBank and its titanic $93bn Vision Fund.

But notably, the financial results tasked with supporting that $20bn valuation are a little... shaky, as Eric Platt and Alexandra Scaggs reported Tuesday.

Losses increased by 117 per cent in 2017, outpacing its 98-per-cent rise in revenues, according to the bond prospectus. WeWork's gross margin, which we have calculated by subtracting community operating expenses (the cost to run a WeWork office space) from total revenue, is a diminutive 8 per cent. But it is still an improvement from 2016's 0.7-per-cent margins.

On its balance sheet, WeWork holds $2bn in cash reserves, and with free cash flow, another bond-investor metric of choice, running at negative $780m, WeWork has just over three years of liquidity left, including the projected proceeds from the bond....MORE
"It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife." —Jane Austen(1813)
Also on the 25th (no Georgian spinster genius evocations this time), "WeWork debt and summer camp":
Yesterday we took a look at WeWork's operating losses metrics, and some of the rather creative adjustments the company made to capture the facets of its performance that do not include the part where it spends lots of money on growth.

Ahead of its planned sale of seven-year senior unsecured notes -- expected to price today at 1pm, last we heard -- we wanted to get a general idea of the rights its bondholders might have if the bonds were sold under the terms laid out in the preliminary prospectus and then Millennials everywhere suddenly decided they would prefer to work from home.

When a company comes under stress, investors like to look for physical assets, since they know those assets would be recoverable in a bankruptcy. So it is fortunate that WeWork is not considered distressed, because as we covered, it might not offer much in the way of physical assets to sell.
What WeWork does offer in this early prospectus is a guarantee on the debt from some (but not all) of its subsidiaries -- namely, its US building and service businesses. The guarantees don't give a 100-per-cent ironclad place at the front of the line, according to the documents:...MUCH MORE (the good stuff)
Back to Austen, her gig was social commentary on the landed gentry, an umbrella the WeWork tale could also fit under, though with more numeric on the alpha-numeric storytelling spectrum.

Finally the saga wrapped up with "The magic of adjustments: ebitla-dee-da":
Yesterday, after a gleeful few hours running through the prospectus for WeWork's $500m bond offering, we posted a summary of newly disclosed financials for the free-beer toting office rental businesses. Spoiler: they aren't the healthiest.

One financial metric that caught our eye was what WeWork called “Community Adjusted Ebitda”, a rather quixotic take on the famous Ebitda metric.

One of the most popular financial acronyms, standing for earnings before interest, tax, depreciation and amortisation, it's often used as an easy indication of a company's cash flow.

By adding back non-cash charges, such as a depreciation, to operating profit, curious investors can get a handle on how cash generative a businesses core operations are. The approach is particularly useful when figuring out the level of interest payments a business can handle, for instance.

WeWork's metric of choice got us thinking -- what are our favourite adjusted metrics from over the turbulent course of financial history? Here are four which sprung to mind, starting with WeWork.

WeWork - Community Adjusted Ebitda...

And that's a wrap on Jane Austen meets the Alphaville team and WeWork.

*One quick explanatory note. I just re-read "Before Buying into the Idea that Fractional Reserve Banking has Some Sort of Fraudulent Roots, Listen To This Battlecry From A Supermodel" and see that not only have we also used the "One weird trick" clickbait formulation:
Warren Buffet Uses This One Weird Trick to Be Persuasive
We've also used some other tips, tricks and manipulations of gentle reader. From the aforementioned:

To the whole Upworthy 'clickbait generator' phase.

Oh, and the "Buzzfeed Story Generator" chapter in the blog's life.
And the search engine optimization fiasco:

And the....where was I?
Think We're Not In A Housing Bubble? 
Maybe You Should Listen To This Angry Child Star.

Here's the Upworthy (style) clickbait generator.

"Urbanisation might be the most profound change to human society in a century, more telling than colour, class or continent "

From Aeon:

A metropolitan world 
At some unknown moment between 2010 and 2015, for the first time in human history, more than half the world’s population lived in cities. Urbanisation is unlikely to reverse. Every week since, another 3 million country dwellers have become urbanites. Rarely in history has a small number of metropolises bundled as much economic, political and cultural power over such vast swathes of hinterlands. In some respects, these global metropolises and their residents resemble one another more than they do their fellow nationals in small towns and rural area. Whatever is new in our global age is likely to be found in cities.

For more than two decades, geographers and sociologists have debated the character and role of cities in globalisation. Historians have been a step behind, producing less and more cautious work on cities and globalisation, and struggling to find readers. The relative silence is notable. As early as 1996, the sociologist Charles Tilly wrote that historians have ‘the opportunity to be our most important interpreters of the ways that global social processes articulate with small-scale social life’. Generally, historians did not answer the call. We still don’t have the powerful insights of historical perspective on many aspects of the historic urbanisation through which we are living.

For centuries, philosophers and sociologists, from Jean-Jacques Rousseau to Georg Simmel, have alerted us to how profoundly cities have formed our societies, minds and sensibilities. The widening political polarisation between big cities and rural areas, in the United States as well as Europe, has driven home the point of quite how much the relationship between cities and the provinces, the metropolis and the country, shapes the political lives of societies. The history of cities is an extraordinary guide to understanding today’s world. Yet, compared with historians at large, as well as more present-minded scholars of urban studies, urban historians have not featured prominently in public conversation as of late.

Current politics can be a good place to start. In the US presidential elections of 2016, urban and rural people voted so differently that county-population density was a better electoral predictor than race, income, education or gender. Spatial political clustering could grow more pronounced. What the journalist Bill Bishop in 2004 called ‘the big sort’ has helped to shape the rancorous tone, and terms, of political debates, as an antagonism between the ways of authentic small-town and country people versus the contaminating forces of ‘cosmopolitanism’ and ‘globalism’ in the big city.

Although city-loathing has lately acquired an unusual salience in the US, the importance of the rural-urban divide in politics is not of recent vintage. Some claim that Jeffersonian agrarianism indelibly engraved ruralist biases into US political culture. But anti-urban political ideologies thrive around the world. Russia’s narodniki, a group of middle-class intellectuals in the 1860s and ’70s, preached peasant romanticism. Mao’s Cultural Revolution in China pursued a back-to-the-land agenda no less than the Khmer Rouge’s genocidal vision of razing city life altogether in Cambodia. Both Germany’s turn-of-the-century Lebensreform movement and Gandhi’s asceticism appealed to the apparent moral superiority of country life. Early 20th-century Argentine intellectuals converted the stalwart, rural figure of the gaucho into the prime symbol of national identity. At the same time, they saw the tango of Buenos Aires as a ‘mongrel product’, the degenerate musical genre of an immigrant port city.

Political differences between the city and the countryside do not spring merely from populist fantasies: urban and rural people have indeed often supported different politics. As long as they competed in democratic elections, the parties of Mussolini and Hitler collected a significantly greater share of the vote in rural areas of Italy and Germany than in larger cities, even as rural traditionalism and parts of the Catholic Church hampered the inroads that fascists could make in some regions. In the German Reichstag elections of 1932, for example, the rural-urban gap in the Nazi vote was roughly 20 points in regions such as Schleswig-Holstein or Franconia. Today, European Right-wing populist parties, such as France’s National Front, Austria’s Freedom Party or Hungary’s Civic Alliance (Fidesz), don’t usually perform well in cities. In fact, they do particularly badly in these countries’ capitals. Likewise, French, Austrian and Hungarian populist parties express resentment against the Parisian, Viennese or Budapest elite.

Some scholars look all the way back to the new systems of political organisation and the peculiar social life generated by the first cities. The political anthropologist James Scott has recently speculated that human beings devised the first states as a response to the ‘ecological effects of urbanism’. Democracy was deeply, perhaps inextricably linked to the Greek polis, as observers from Aristotle to John Stuart Mill have discussed. The medieval German adage ‘City air makes you free’ expressed a customary law stipulating that one year of life in the city liberated rural serfs. The saying is still in use today. In Romance languages, all the variations of the word ‘citizen’ betray the deep ties between the city and ideas about political community. Conversely, the English term ‘denizen’, which lacks the etymological association with the city, casts doubt on full belonging.

Modern anti-urbans in turn figuratively expel city dwellers from the political community; and sometimes literally, as in the infamous case of the Khmer Rouge regime. The idea that urbanites lack national character is at least as old as modern nationalism. Want to know a nation? ‘Study a people outside of its cities; it is only in this way that you will know it,’ advised Rousseau in Émile, or Treatise on Education (1762). The government’s spirit, he wrote, ‘is never the same in the city and the country’ and it is ‘the country which constitutes the land, and it is the people of the country who constitute the nation’....MORE

Friday, April 27, 2018

"Deripaska Agrees To Resign From Rusal, Will Sell Controlling Stake"

From ZeroHedge:
Just 24 hours ago, Bloomberg reported that "Oleg Deripaska Plans on Keeping Control of Rusal", a move which suggested that the Russian oligarch would remain defiant in face of US demands that he sell his stake and/or step down as head of United Co. Rusal - the world's biggest aluminum producer outside of China - even as the Russian aluminum giant battles for survival having lost capital markets access following the snactions.  
Or maybe not: overnight we got a first indication that Bloomberg's report was incorrect when Rusal published a Facebook post denying the Bloomberg claim that Deripaska was intent on keeping control over Rusal, and threatened to take "legal action"...

...And then, moments ago, we got definitive confirmation when EN+, which holds a controlling stake in Rusia, announced that Deripaska had in fact agreed "in principle" to cut his stake in EN+ to below 50%, and that the sanctioned Russian billionaire had agreed with the proposal that he will resign from board.

As EN+ also adds, the company is seeking an urgent response to the formal request submitted to OFAC, and notes that without an extension of "authorization period for General License No. 13", the ability of the company to maintain GDR listing on LSE will be materially impacted.

"Mr Oleg Deripaska has agreed in principle to the chairman’s request that Mr Deripaska reduce his shareholding in the Company to below 50%" EN+ said in a statement.

The proposal has yet to be accepted by the US Treasury’s Office of Foreign Assets Control (OFAC), which slapped Mr Deripaska and his companies with the sanctions on April 6, saying they were part of a broad response to Russia’s “malign activity”....MORE
We'll have more tomorrow.