Saturday, December 14, 2019

'Twas the Night Before Christmas (Legal Edition)

Via the TaxProf blog:

Photo

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Professor Caron (TaxProf) is now Dean Caron at Pepperdine's Caruso College of Law.

ICYMI: The Most Valuable AI Start-up Inthe World Does Facial Recognition

First seen in its entirety in April 2018.

Some thought us mad with our focus on countermeasures to the surveillance state. But there was a method to that madness.

We've looked at responses ranging from simple dazzle camouflage back in 2013's How to Hide From Cameras:


http://static.squarespace.com/static/514f916de4b04c6ad186e00d/514f94d2e4b05df537e5224e/514f94d2e4b05df537e5267d/1231283416153/DAZZLE.jpg/1000w

To hairstyles + makeup that confuse facial recognition algos:

responsivehttps://i.guim.co.uk/img/media/396302866244e3539e54bc5571e27fb512f1e59f/62_0_885_531/master/885.png?w=620&q=55&auto=format&usm=12&fit=max&s=eefd8e09624ac90c3d07802fa5fe591b
...but this raises its own set of problems, not the least of which is 
taking a half hour to apply just so you can go down to the lobby.

To Hyperface clothing with thousands of pseudo-facial "hits" that simply overwhelm the computer:
"Anti-Surveillance Clothing Aims to Hide Wearers From Facial Recognition "

https://i.guim.co.uk/img/media/f28edd54e33cb391aea9f19448b8ff11ecb5fa54/25_0_663_398/master/663.png?w=620&q=55&auto=format&usm=12&fit=max&s=b052101fa6e1777fe2c8bfdf7ff395f7

From the scholarly stuff such as "Fooling The Machine: The Byzantine Science of Deceiving Artificial Intelligence".
To, as noted in ""Magic AI: 'These are the Optical Illusions that Trick, Fool, and Flummox Computers.":
...First though a bit of housekeeping.
Just so you know, I don't actually use the make-up techniques featured in the earlier posts. Despite the fact they have some efficacy at fooling the camera they make you look like a moron to human observers on the street. Better to just put on some glasses and blend into the crowd.
https://hips.hearstapps.com/toc.h-cdn.co/assets/cm/14/37/540fe7c50c224_-_tc-iconic-kennedy-weddings-9.jpg
Can you pick out the Kennedys in this photo?
Here's why we cared: There is big money in this stuff!!
From Bloomberg, April 8: 

China Now Has the Most Valuable AI Startup in the World
SenseTime Group Ltd. has raised $600 million from Alibaba Group Holding Ltd. and other investors at a valuation of more than $3 billion, becoming the world’s most valuable artificial intelligence startup.

The company, which specializes in systems that analyze faces and images on an enormous scale, said it closed a Series C round in recent months in which Singaporean state investment firm Temasek Holdings Pte and retailer Suning.com Co. also participated. SenseTime didn’t outline individual investments, but Alibaba was said to have sought the biggest stake in the three-year-old startup.

With the deal, SenseTime has doubled its valuation in a few months. Backed by Qualcomm Inc., it underscores its status as one of a crop of homegrown firms spearheading Beijing’s ambition to become the leader in AI by 2030. And it’s a contributor to the world’s biggest system of surveillance: if you’ve ever been photographed with a Chinese-made phone or walked the streets of a Chinese city, chances are your face has been digitally crunched by SenseTime software built into more than 100 million mobile devices.

The latest financing will bankroll investments in parallel fields such as autonomous driving and augmented reality, cover the growing cost of AI talent and shore up its computing power. It’s developing a service code-named “Viper” to parse data from thousands of live camera feeds -- a platform it hopes will prove invaluable in mass surveillance. And it’s already in talks to raise another round of funds and targeting a valuation of more than $4.5 billion, according to people familiar with the matter.

“We’re going to explore several new strategic directions and that’s why we shall spend more money on building infrastructure,” SenseTime co-founder Xu Li said in an interview. The company turned profitable in 2017 and wants to grow its workforce by a third to 2,000 by the end of this year. “For the past three years the average revenue growth has been 400 percent.”...MUCH MORE
Both Futurism and Quartz zoomed in (CCTV term) on the surveillance bit:
World’s Most Valuable AI Startup Also Happens To Be Part of “the World’s Biggest System of Surveillance”
The billion-dollar, Alibaba-backed AI company that’s quietly watching people in China

Some of our previous posts on various related subjects:
"The selling of facial recognition technology—and the staggering consequences"
Facial recognition In China
We'll be coming back to what has become a bit of an obsession on the blog, and the countermeasures thereto, but for now, just some of the applications. Remember, this isn't the state of the art, this is stuff that is being deployed right now.
The state of the art is really spooky....
 
"Who Owns Your Face?"
"China’s Surveillance State: AI Startups, Tech Giants Are At The Center Of The Government’s Plans"
"Casino ATMs are Using Facial Recognition to Spot Money Launderers in Macau"
DNA Techniques Could Transform Facial Recognition Technology
 Bank Robbers’ Aluminum Invisibility Cloaks Foiled by CCTV
Memo: New York Calling For Face Recognition Cameras At Bridges, Tunnels
Adversarial Images, Or How To Fool Machine Vision
Cargill Invests In Facial Recognition For Cows
And many, many more. Use the 'search blog' box if interested. 

Now, if you'll excuse me for a bit, I have to go out in public for a bite to eat:

https://media.allure.com/photos/58e4005b82145034c5ad10da/master/pass/Untitled-3.jpg

"Stepping Stones: Google’s smart city project links its quality-of-life improvements to the elimination of human workers" (GOOG)

Well there you go. All we need to do is get rid of the people.
From Real Life Magazine:
Sidewalk Labs’ Toronto headquarters is located at 307 Lake Shore Boulevard, right on the city’s waterfront. The building’s exterior is brightly painted in the industrial-gentrification chic style. The interior is part of a community outreach effort, filled with a slew of engaging dioramas and exhibits about technology and cities. But in many ways, the floor beneath is the space’s centerpiece. As visitors move from exhibit to exhibit, they walk across a plywood surface of hexagonal tiles — a system that Sidewalk Labs and designer Carlo Ratti, the director of the Senseable City Lab at MIT, call the “Dynamic Street.”

The real tiles — which will be made of concrete and be capable of housing sensors, signage and heating coils to melt snow — will make up an urban surface system that Sidewalk hopes to deploy across its project area in Quayside, right outside 307’s door. Dynamic Street has been designed to enable the elimination of curbs, introducing one flat hardscape that can change from street to sidewalk to plaza to parking as needed, with tiles changing colors to designate the appropriate usage. The exhibits at 307 try to give people a feel for this fluidity, letting them play with a “reconfigurator” that digitally simulates “urban scenarios of their own,” modifying things like density and street usage on the fly, instilling the idea that the tiles can be used at will to “swiftly change the function of the road without creating disruptions on the street.”
Instead of the glittering city of the future, Toronto is being given an industrial redevelopment with panopticon qualities

The Dynamic Street is also a promise that road maintenance will be easy and undisruptive, becoming a matter of swapping out damaged tiles as needed and not involving the costly process of street closure and repaving, which requires heavy machinery and dozens of workers on site. The goal is to make Quayside a place, as Sidewalk states in its Master Innovation and Development Plan, “where the only vehicles are shared and self-driving … [and] where streets are never dug up” and the streetscape “responds to citizens’ ever-changing needs.” Given the other controversies over data extraction and usage surrounding the Quayside project (described for instance in this CityLab article by Laura Bliss), the Dynamic Street seems relatively harmless. Besides, who would want to defend the inconvenient and expensive process of typical road maintenance? According to the CBC, the City of Toronto expected to spend $171 million (in Canadian dollars) on roadwork in 2018 and repaired more than 100,000 potholes in the first three months.

By turns a mundane and a marquee technology, Dynamic Street is the ground upon which Quayside will both physically and ideologically rest. But the Dynamic Street is a feint: It begins by promising something utopian and benign — an improved quality of life and the minimization of human involvement in that process — but the end result amounts to a hostile corporate takeover. Carrying Sidewalk’s implications to their conclusion reveals a future Quayside that has been made a technocratic fiefdom whose benefits and inevitable miseries are even more unevenly distributed than they are today.

Dynamic Street didn’t arrive in 307 fully formed. The basic idea of a modular, easily replacable streetscape was dreamed up in 2012 in the research labs of the French Institute of Science and Technology for Transport, Development and Networks, or IFSTTAR. Researchers there wanted to develop a roadbed that could be “opened and closed within just a few hours using very lightweight site equipment, in restoring the initial street appearance and all its functionalities.” They tested tiles for years in laboratory conditions before carrying out field tests of the full system in the French cities of Nantes and Saint Aubin....
....MORE

That Time NBA All-Star Kareem Abdul-Jabbar Wrote A Sherlock Holmes Pastiche

In the spirit of December 6ths "The Most Valuable Magazine In The World".
From Crime Reads, September 24, 2019:

Mycroft and Sherlock: The Empty Birdcage
Kareem Abdul-Jabbar and Anna Waterhouse

"How Economics Saved Christmas"

A repost from 2010.
Original post:
Brilliant.
From Forbes:

Every Who down in Whoville liked Christmas a lot.
But the Grinch, who lived just north of Whoville, DID NOT.

He stood and he hated the Whos and their noise
He hated the shrieks of the Who girls and boys

For fifty-three years he’d put up with it now—
He had to stop Christmas from coming, somehow.

He asked and he questioned the whole thing’s legality
Then his eyes brightened: he screamed “externality!

He reached for his textbooks; he knew what to do
He’d fight them with ideas from A.C. Pigou
...Continued 

HT: Economix

Friday, December 13, 2019

Classes, Masses and Uncomfortable Truths About the Precariat

From The UnHerd, November 11:

Pity the poor avocado-eating graduates
University-educated millennials have absorbed elite values but will never enjoy the lifestyle
Of all the dire warnings issued in the run-up to the referendum, perhaps the least effective was George Osborne’s threat that house prices could crash by 18% in the event of Brexit.

For young people, home ownership is now an unattainable dream for all but a few, and so in 2017 when Aussie millionaire Tim Gurner said that millennials would be better able to buy homes if they spent less on avocado toast, the BBC calculated that it would take 67 years of renouncing avocado toast on a daily basis to save enough for a property in London at today’s prices. Why, then, would young people be so grimly devoted to the EU when a house price crash would benefit them at the expense of all those selfish Brexit-voting oldies?

Countless articles have rehearsed the class insecurities of the “left behind” Brexiters. Generally these unfortunates are depicted fulminating over pasties and ale in shabby market towns and grim post-industrial cities outside the London area. The object of their antipathy is the shiny “elite”, plugged into a promise-filled, multicultural urban life and the knowledge economy, seemingly buoyant in the new, frictionless modern world.

Leaving aside its substantive, real-world pros and cons, Europhilia has become a mark of devotion to the culture and worldview associated with this “elite” and the modern world it navigates. It is a value set strongly correlated with tertiary education and that has come to be called “openness”.

The first election in which I was old enough to vote saw the election of Tony Blair, which makes me just middle-aged enough to remember this Britain arriving. Coffee not tea (and not instant coffee either); cities not towns; low-cost flights, not Butlins; multiculture not monoculture; Jamie Oliver, avocados, broadband, the restyled Mini Cooper; mass customisation; 50% of young people going to universities; everything done on a mountain of debt, especially that 50% graduate rate.
If Thatcherism opened the country economically, Blair’s Britain did so culturally. This double “openness” is the heart of “cultural Remain”.

There are many desirable things about this “open” world and lifestyle. I am a big fan of avocados and European minibreaks, but even leaving aside these caricature “left behind” curmudgeons in the stagnant provinces, openness is a double-edged sword. One of its side effects has been a boom in the cost of living and, with it, a rising inequality (that began under Thatcher) and continued — particularly in the South — under Blair, only to get worse in the 2008 crash.

Meanwhile, the boom in openness-promoting tertiary education produced not so much a boom in graduate jobs as inflation in the qualification levels required to do the jobs we already had. This has left many young people struggling to service a mountain of debt on salaries that are never likely to show much of the “graduate premium” they were promised.

Today, thanks in part to the “open” economy whose values form the foundation of the “cultural Remain” identity, the cost of living — and especially home ownership — has rocketed. Simple aspirations that were within the reach of the working class in the 20th century are an unattainable dream today for millions of young people far higher up the sociocultural pile. And yet those young graduates have all, in the course of moving away to get their degree, absorbed the “open” value set now explicitly taught in tertiary education.

The result is an Everywhere precariat, that has absorbed the values of a world that has little to offer it in terms of concrete benefits, and resolves this conflict by renting the heavily-subsidised and internet-enabled perks of a smarter lifestyle than it can afford to buy. Where once rentals might have just been housing and cars, today that can even include clothing.

The ferocious pro-EU rearguard action does not just represent the anger of an incumbent ruling class defending its perks. It also expresses the class anxieties of the lower echelons of those supposedly elite “open” classes, provisionally accepted as such via their graduate status, whose access to the perks of the open culture is at best precarious but whose cultural identity depends on it.

“Cultural Remain” should be understood less as a reasoned-through position and more as a highly emotional proxy for a faltering but still enticing lifestyle promise. As well as a howl of rage by a middle class unused to being balked, it is a wail of terror from young people terrified at the prospect of falling through the ever-thinning economic ice that separates the slick, happy modern “us” from the miserable, stagnant “them”. It is in this context that we should understand Corbynism.

Because the truth is that for many young people there is barely a fag paper between the urban twenty- and thirtysomething aspirational lifestyles rented via subscription services such as WeWork amid the coffee-shops and short-term rental markets of London, and those less fortunate ‘left-behind’ ones scraping by in the fulfilment hellscape of an Amazon depot....
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"What's next for Andreessen Horowitz after a wild 2019?"

From Pitchbook, December 5:
This story is featured in the 4Q 2019 issue of the PitchBook Private Market PlayBook.

Marc Andreessen and Ben Horowitz first crossed paths about a quarter-century ago, when Andreessen was the soothsaying co-founder of Netscape and Horowitz was a product expert quickly ascending the ranks at the web-browsing pioneer. At first, they clashed. But before long, the two men developed a certain kind of chemistry.

After AOL acquired Netscape for $10.2 billion in 1999, Andreessen and Horowitz began to poke around for what was next. That same year, they teamed with two other entrepreneurs to create LoudCloud, later known as Opsware, an innovative web-hosting startup that later pivoted to offering Software as a Service. In 2007, Andreessen and Horowitz inked another billion-dollar exit, selling the company to HP for a cool $1.7 billion.

With their bank accounts well-stocked, Andreessen and Horowitz turned their focus to investing full time.

For a while, they were among Silicon Valley's most prominent angels, striking deals on their own. Before long, they decided to formally reunite. And in 2009, the new firm of Andreessen Horowitz launched its first fund, a $300.0 million effort focused on the software space.

In the summer of 2011, Andreessen published his now-famous essay on why software was eating the world. In the ensuing years, the ideas in the piece formed the basis for a16z's strategy. With early investments in companies such as Facebook, Lyft, GitHub, Slack and many more, the firm put its money where its co-founder's mouth was, staking a whole generation of companies that were using software to transform the way people interact, get around and do their work.

In the process, Andreessen and Horowitz turned a16z into one of the most respected VCs in Silicon Valley, a sought-after backer whose presence on a term sheet signaled to the rest of the world that a young startup was on the right track.

This year was supposed to be a triumphal one for the firm, with four of its highest-profile portfolio companies planning public debuts as part of an unprecedented group of unicorns taking the IPO plunge: Lyft, Pinterest, Slack and PagerDuty. All four successfully went public. But the result of those listings hasn't gone quite as planned.

The wave of high-growth but still unprofitable unicorns crashed onto Wall Street just as public market investors began to reevaluate how eager they were to invest in such companies at the sky-high valuations previously bestowed by venture capitalists. One might call it the WeWork effect. Both Lyft and Slack have seen their share prices plunge downward after their public debuts. Pinterest and PagerDuty both showed initial promise, but more recent months brought steady regressions down and to the right.

In the midst of it all, tech watchdog The Information published an in-depth report indicating that a16z's fund returns have also been falling off, with three of its past four flagship vehicles ranking in the bottom half of their respective benchmarks. The sale of shares in companies such as Lyft and Slack was supposed to offer a major boost to those IRR figures. But now, that boost doesn't seem as if it will be as big as it did a few months ago.

All that flux comes during what's been a very busy year for a16z on several fronts. In addition to all those exits, the firm has closed multiple major funds, made dozens of new VC investments and revealed plans to transform its legal structure. It's a cascade of changes that could represent the end of one era at the firm—one marked by its devotion to software startups and its shepherding of a cohort of longtime unicorns toward IPOs—and the beginning of something new.

If that's the case, what will the new era look like? Will software deals continue to be the firm's driving force, or will a16z alight on a new world-eating investment thesis? And after a decade in which it's transitioned from Silicon Valley upstart into a VC powerhouse, can it maintain its place at the forefront of the industry?

The firm declined to comment for this story. So instead, we'll turn to the data to see what a16z has been up to—and what might come next.

Changing tides
In retrospect, 2011 was a clear inflection point for a16z. It was both the year Andreessen published his famous software essay and the year the firm began to greatly accelerate its investment activity—a16z's VC deal count leaped from 24 in 2010 to 58 the following year, per PitchBook data, and that figure has never dipped below 60 deals in any year since.

In the future, we may look back on 2019 as another moment of transformation.

In early April, Forbes published a lengthy feature story on a16z that included two very newsworthy nuggets: One, that the firm was abandoning its traditional venture capital structure to become a registered investment advisor, and two, that it was seeking to raise as much as $2.5 billion for a new late-stage fund. A few weeks later, a16z made the new fund official, announcing a $2.0 billion close for a vehicle called LSV Fund I. At the same time, the firm closed its sixth flagship fund on $750.0 million, which it will use to continue making its usual early-stage investments in the enterprise, consumer and fintech sectors.....
....MUCH MORE

SCMP: "Leads on Dresden jewel heist suggest Arab clan involvement"

First up, the South China Morning Post, December 13:

Investigators seeking links to theft of 100kg (220lb) gold coin – the Big Maple Leaf – from Berlin museum in 2017

https://cdn.i-scmp.com/sites/default/files/d8/images/methode/2019/12/13/63ed1176-1d0a-11ea-8971-922fdc94075f_1320x770_023648.jpg
The “Big Maple Leaf” gold coin in the Bode Museum in Berlin in December 2010. It was stolen in March 2017. 
Photo: dpa via AP
Investigators probing a sensational heist of antique jewellery from Dresden's Green Vault Museum last month have in their sights Berlin-based criminal clans with an Arab background, a newspaper report said on Thursday.
The burglars had made use of an hydraulic spreading tool of the kind used by emergency services, several of which had gone missing from the Berlin fire services, the Berliner Morgenpost newspaper reported.

In addition, a known clan member was found guilty recently of breaking into the premises of a company in Bavaria that makes the devices, the newspaper said....MORE
And from Der Spiegel, December 2: 

Experts Fear Thieves Will Recut and Sell Diamond Treasures
The recent theft of priceless jewels from an important collection in Dresden has cast light on the problem facing many museums today: security. Did the Grüne Gewölbe make the thieves' job too easy? And what is likely to happen to the looted treasures? By DER SPIEGEL Staff
 
Photo Gallery: Questions after Dresden Theft
It's almost as if the people in charge saw the calamity coming. In early May of this year, the members of the German Museums Association met, in Dresden of all places, to found a new working group focusing on security. The group's website seemed to hint at the coming disaster, with separate subject headings for "object-security management," "employees (safety)" and "risk analysis and emergency management."

All of these measures might have been helpful early on Monday morning, when unknown perpetrators smashed a display case in an area of the Royal Palace in Dresden known as the Grüne Gewölbe, or Green Vault, and stole works of art as well as jewels of inestimable value.

The working group was, by all appearances, not yet up and running. An "initial founding meeting" had taken place in late October, and a spokesperson had been named: Michael John, the head of the construction, technology and security division of the Dresden State Art Collections -- the man responsible for the security of the Green Vault. At the time of the break-in, he was in London attending a conference about museum security.

Years ago, the then director general of the collections, Martin Roth, said the Green Vault was "as secure as Fort Knox." And even after the incident, Dirk Syndram, the director of the Green Vault and the Dresden Armory, told the S ächsische Zeitung newspaper, "Our security system got reviewed four years ago, and the conclusion was that everything was fine with it." He claimed nothing could stop perpetrators like the ones who broke into the vault. "What they did there was almost like 'Mission Impossible.'"

Whatever movie Syndram saw, it can't have been "Mission Impossible." In that film, Tom Cruise's character, Ethan Hunt, had to overcome a series of high-tech traps. The perpetrators in Dresden, on the other hand, took a simple, old-fashioned approach more reminiscent of Bob the Builder: They cut through the grate in front of a window and broke through the display case with an axe.
In fact, they might have had it too easy. They can't have had problems orienting themselves in the vault: the museum's website offers a virtual tour showing important locations within the institution. And even security-relevant, sensitive details are publicly accessible.

Anyone doing a basic online search can find the manufacturer of the display cases, which advertises its work and gives precise details about the type of glass it used for the cases ("laminated safety glass 5-5-2 extra-white," and, more specifically, "laminated safety glass made of ESG 8-8-4 extra-white.") Anyone reading that will know which axe would be necessary to destroy the cases....
...MUCH MORE

"Did Oil Really Save The Whales?"

Yes.
And just as importantly, oil saved the menhaden.*

From OilPrice, November 22:
If it weren’t for the discovery of crude oil, whales would have been hunted to extinction for blubber. We’ve all heard the argument, and it makes sense from this perspective: For a time, whale fat was the dominant fuel for lamps and material for candles because it was less smelly than tallow and created less smoke. Then, kerosene came on the scene and rendered whale fat obsolete. One point for the oil industry and one point for the whales.

However, reality is rarely linear or black and white.

And in this case, the dueling realities both contain elements of truth regarding the contribution of the oil industry to the preservation of whales, some species of which were hunted to near extinction in the 19th Century.

The purveyors of each reality think only in partisan thoughts and of oil only in terms of good versus evil, never a gray moment between.

The Good Oil Argument
The 19th century in America was the century of the whale. The cetaceans were a source of oil for lighting but also oil that was used as lubricant in trains. Whale oil was also used for heating, for soap, and for paints and varnishes. It was a truly versatile raw material.

To satisfy the booming demand for whale oil, a whaling industry grew and thrived. According to records, the whaling fleet in America totaled 392 vessels in 1833 and this expanded to 735 vessels by 1846. These whaling ships accounted for 80 percent of the world’s whaling fleet.
The annual output of sperm oil (rendered fat from the nose of the sperm whale that made the best candles) averaged 4-5 million gallons with another 6-10 million gallons of “train oil” also produced on an annual basis. America wanted whale oil and the industry provided it. Until the 1850s.

From 735 whaling ships in 1846, the American fleet went down to just 39 by 1876. The reason had a name and this name was kerosene. A Canadian geologist named Abraham Gesner discovered in the 1840s a way to make kerosene, which was much cheaper than other lighting fuels available at the time. It was easy and quick to produce. At the time, kerosene was derived from coal.

Just a decade later, in 1859, the first oil well was drilled in Pennsylvania, marking the beginning of the oil industry. The man who many credit with the saving of the whales almost singlehandedly was John D. Rockefeller, who accurately noted there was too much money being spent on pumping oil out of the ground and not enough on processing it.

Rockefeller started with several kerosene refineries that later evolved into Standard Oil, and soon, the growing population of the United States had access to cheap kerosene, and demand for whale oil dropped and eventually vanished. Just as well, since by that time, several whale species were already under threat of extinction from overhunting.

The Bad Oil Argument
Yes, the rise of oil-derived kerosene and the start of the demise of the whaling industry in the United States more or less coincided, but there was no strong causal link between the two. The avoidance of whale species extinction was simply the result of a favorable combination of factors....MORE
*See October 2015's "Munnawhatteaug: The Fish That Built America":
Back in 2012 we posted "The Spectacular Rise and Fall of U.S. Whaling: An Innovation Story" with the intro:
Alternate title: "How Samuel Martin Kier saved the sperm whale by inventing the process to refine crude into lamp oil".
or not.
After that went up I was told "fish oil was actually much more important than whale oil" and that I should post something on menhaden.
So here it is.

From Southern Fried Science:

Six reasons why Menhaden are the greatest fish we ever fished.
Menhaden, Brevoortia tyrannus, is, without a doubt, the single most important fish in the western Atlantic. This oily filter-feeder swims in schools so large that they block the sun from penetrating the water’s surface as it regulates ocean health. Earlier this week, we were greeted by news that menhaden stocks were rebounded, yet despite their near-universal importance in the western Atlantic and Gulf of Mexico, most Americans have near heard of a menhaden.
Let’s fix that. Here are six reasons you should know what a menhaden is.

1. Menhaden go by many names.
The Narragansett called them munnawhatteaug. Colonists called them poghaden, bony-fish, whitefish, pogy, mossbunker, fat-bat. Perhaps most endearingly, menhaden were called bug-heads, thanks to the parasitic isopod that was often found in place of their tongues. They have also been called “the most important fish in the sea“.
No matter what you call them, Atlantic menhaden, Brevoortia tyrannus, is the little morning tyrant, and they are magnificent.

2. The United States of America grew on the backs of menhaden.
The Narragansett word for menhaden, munnawhatteaug, translates as “that which fertilizes”. In the legend of Plymouth Colony, a local tribe taught those first settlers to plant a fish with their corn to make it grow stronger. That fish was a menhaden. For most of the history of the menhaden fishery, oil and fertilizer were the fish’s primary uses.

3. Menhaden are bigger than whales.
You could be forgiven if you thought that the American industrial revolution was powered by whale oil. The glossy lubricant was used primarily for lighting in pre-industrial America. By the time Herman Melville published Moby Dick, the golden age of whaling was already in decline. The Civil War was its death blow. Out of that conflict came the industrial menhaden industry. Seeing the vast wealth of the Chesapeake Bay, Northern industrialists headed south to exploit these rich, dense fish. Whale ships were converted and the mighty purse seine made its first appearance.
By 1880, half a billion menhaden were being rendered into oil and fertilizer. There were almost three times as many menhaden ships as whaling ship. A menhaden boat could produce more oil in a week than a whaling ship could during it’s entire, multi-year voyage, and it could do so close to shore and out of harms way....MORE
So there you go.
However, when asked to put on my academic hat, I will still use whale oil/crude oil as a classic case of commodity substitution and the mighty leviathan's product as only the second example of resource (near) exhaustion, next to guano.

Speaking of which, have you ever heard the story of NYSE listed New York Guano?

Related: "Sexy Clothes and Dim Lights ca. 1900".

"No Rate Cuts In 2020: Same Mistake As 2018?"

Rate moves get far too much attention compared to balance sheet action.
At some point borrowers just don't want to borrow, regardless of how many bps the central banks cut.

That said, Upfina is always worth, at minimum a quick look, if not an in-depth study.
December 12
The December Fed meeting was one of the least discussed in about 1.5 years. The statement really was boring as there were hardly any significant changes. That’s not necessarily a bad thing for the Fed. Interestingly, after a run of bad returns on Fed days since Powell became chair, the stock market has been up 3 straight times, not that Powell is trying for a small temporary increase in stocks. This meeting wasn’t hyped because the Fed wasn’t expected to move rates (it didn’t) and isn’t expect to move them in the near future. There wasn’t uncertainty about this meeting and there isn’t much for the next few.

While this meeting wasn’t exiting, it was important because it’s one of the few which includes an update to guidance. The table below lists all the changes to expectations.  

The most notable change can’t be seen. At the September meeting, 9 FOMC members stated they wanted to hike rates in 2020 and one even called for 3 hikes. 8 stated they wanted rates to stay the same. This time, just 4 of 17 called for a hike. It’s worth noting that voting Fed members will be rotated next year. This makes the March meeting important as it’s the next with economic projections. If the Fed is in agreement with policy, this rotation might not matter. The most active Fed member on Twitter, Neel Kashkari, will become a voting member.

The table shows rates staying the same in 2020 and then increasing once in 2021. It’s interesting to see the stock market increasing slightly on Wednesday because the Fed funds futures market hasn’t been pricing in any chance of a hike for months. The Fed not calling for any hikes in 2020 is it catching up to the market. In the past few weeks we’ve been watching the odds for a cut not a hike. On the other hand, this is a dovish move for the Fed, so stocks rallied slightly even though no hikes have been priced in for a while.

The other important point in this table of economic projections is that the Fed sees core PCE and headline PCE inflation being 1.9% in 2020. That’s important because, as we will get to next, the Fed won’t hike rates unless inflation spikes. If the Fed is expecting 1.9% inflation, it would need to, at the very least, get above that before the Fed acts. Throughout this cycle, core PCE inflation has only briefly gotten above 2% when it has had easy comps, making Fed rate hikes to combat inflation in 2020 unlikely....
....MUCH MORE

Semi-Autonomous: "No driver needed: 20 tons of butter takes road trip from California to Pennsylvania"

From the Sacramento Bee:
Prepping your grocery list for the holidays? Pennsylvanians this year could have had their sticks of butter delivered from across the country by a self-driving truck.

A Silicon Valley startup has completed the first coast-to-coast commercial freight trip made by a self-driving truck, according to the company’s press release. Plus.ai announced on Tuesday that its truck traveled from Tulare, California, to Quakertown carrying over 40,000 pounds of Land O’Lakes butter.

And the company says the trek went as smooth as butter.

The journey took less than three days and spanned 2,800 miles, according to the announcement. It also involved different weather conditions and terrains, including the “expansive plains of Kansas (and) winding roads of the Rockies.” The truck drove “primarily in autonomous mode” and a driver was onboard for monitoring and safety purposes, according to the release....MORE
I suppose Kerrygold is already planning the autonomous butter boat.
Somehow related, if interested:
October 2016
Commodities: A Look At Butter
There are very few pure-play butter equities (none) and the futures trade by appointment.
The cash market is where it's at if you want exposure....
December 2015
An Arbitrage Missed: The Great Canadian Butter Shortage of 2015
Shades of the Great Norwegian butter shortage of 2011 when entrepreneurs from Sweden and Russia were getting the sunshiney little packages across NATO's front lines....
February 2017 
Commodities: Ireland's Kerrygold Butter BANNED In Wisconsin
April 2019 
Wooden Bog Butter Barrels are possibly the most beautiful things you can find in a bog.
October 2012 
Napoleon III, Butter and West Marin

And many, many more.
Also autonomous
And semis.

Capital Markets: "Stunning Tory Victory and US-China Trade Boosts Risk Assets"

From Marc to Market:
Overview: The combination of a US-China trade deal and exit polls showing the Tories securing a majority in the House of Commons boosted risk assets, sent sterling flying, and the euro sharply higher. Separately, the Fed stepped up its efforts to make as smooth as possible funding over the turn of the year. Led by more than 2% gains in Hong Kong and the Nikkei, and more than 1% rallies in China and South Korea, the MSCI Asia Pacific Index rose the most in six months today. Europe's Dow Jones Stoxx 600 gapped higher and is up around 1.6%, the most in a couple of months in the European morning. US shares are trading firmer, and the S&P 500 is poised to gap higher as well.
Benchmark 10-year yields in Asia played catch-up to the rise in the US yesterday. Core European bond yields are up 2-3 bp today, while the US 10 year is consolidating around 1.88%. Peripheral European bonds have been supported by the demand for risk assets, and yields are lower there, led by a 2 bp decline in Italy. The dollar is softer against nearly all the world's currencies today. Sterling itself spiked to a little more than $1.35 on the immediate news and pushed back to about $1.3360 in the European morning, where new bids were found. Gold is firm but within well-worn ranges. January WTI is pushing toward $60 that capped it last week.

Asia Pacific
Details of the trade agreement that won the approval of President Trump are not known, but the simple fact that a deal was reached and that the tariffs that were threatened for December 15 would not be imposed helped spur a rally in risk assets in North America yesterday.
The broad outlines include a commitment from China to buy much more US agriculture than ever before (~$50 bln) and step up protection of intellectual property in exchange for a 50% reduction in existing US tariffs and not implementing the December 15 levies. The offshore yuan (CNH) rallied by over 1%, and the dollar fell to around CNH6.9230, its lowest since August 1. Today, it has bounced back to about CNH6.9850-CNH6.9900. The dollar was bumping against the CNY7.0450 area most of the week but finished yesterday near CNY6.9850. It fell to CNY6.9600 today before recovering to little changed levels on the session....
*****
...Europe
The Tories scored an impressive victory
. A majority of about 47 seats was secured, and the Tories won seats that were strongholds of Labour for a couple generations. It is the biggest margin since Thatcher in the late 1980s. Labour leader Corbyn resigned, and Lib Dem leader Swinson lost her seat, and the party will also pick a new leader. The Scottish National Party also turned in a strong showing, and it may be difficult to resist a new referendum at some point. Brexit will take place by the end of January, and the focus will shift to three things: new negotiations with the EU over the future trade relationship, the state of the economy, with fiscal stimulus promised, and Carney's replacement at the Bank of England. Carney is to step down at the end of January, and Shafik, the former deputy at the BOE, is seen to be a favorite.

Lagarde got glowing reviews for her debut press conference as President of the ECB....
....MUCH MORE

Thursday, December 12, 2019

Antitrust: "FTC Considering Steps to Block Facebook from Merging With Instagram and Whatsapp: Report" (FB; GOOG)

Now do Google.
Back in August we posted "Facebook Antitrust: Restraint of Trade (FB)" which referenced. a drum yours truly has been beating for a couple years
We've mentioned a few times that Google and in particular Facebook are susceptible to old-school antitrust analysis because of their use of the John D. Rockefeller "Buy 'em, Copy 'em, or Crush 'em" approach to competition:
"FTC probes Facebook's acquisition practices - WSJ" (FB)
which links back to some earlier posts, see (waaay) below.
For the moment this link is a placeholder but I'm pretty sure we'll be refering back to it.
That post had an infographic showing 72 of Facebook's acquisitions.
Here's the latest from Gizmodo:
The Federal Trade Commission is considering asking the courts to put a halt to Facebook CEO Mark Zuckerberg’s plan to merge the technical backends of Facebook, WhatsApp, and Instagram on antitrust grounds, the Wall Street Journal reports.

The plan in question was touted by Zuckerberg and crew as a way to increase the ease of interactions across services and increase security by implementing end-to-end encryption, but it also conveniently comes at a time when pressure is growing on federal antitrust authorities to do something about the social media giant’s dominance of multiple tech markets. Merging the three services could give Facebook an opening to argue that they are now so interdependent it would be impossible, or at least unduly difficult, to break them up into separate companies.

The FTC and the Department of Justice are already investigating Facebook as part of a broader federal review of whether huge firms like it, Google, Amazon, and Apple act in an anticompetitive manner. Earlier this year it slapped the company with a five billion fine for prior violations of user privacy, a move opposed by the two Democratic commissioners on the FTC board as grossly inadequate. The newer investigation could hurt Facebook much harder, with talk of examining acquisitions like Instagram and WhatsApp—but only if the FTC is willing to take a harder swing at the company this time around....MORE
The restraint of trade line of attack is much simpler than some of the approaches being floated to rein in the platforms. Here are some related posts:
July 23
U.S. DOJ Antitrust Division "Reviewing the Practices of Market-Leading Online Platforms" ( FB; GOOG; AMZN; AAPL)  
The symbols in the headline are in rank order of probable exposure to old-school antitrust sanctions. Twitter if it were included would appear in the middle. 
Facebook and Google have an especially egregious pattern of acquiring, crushing or copying nascent competition, the type of behavior most amenable to classical antitrust analysis. See:
In Google's case, Crunchbase lists 237 companies acquired by either the GOOG or by Alphabet.
Wikipedia lists 231 "mergers and acquisitions", both up to and including FitBit, announced November 1.

And here's some of the concern circling around Mountain View via CNBC, August 19:
Google’s acquisitions are in the spotlight 15 years after it went public

Société Générale's Albert Edwards Retweets Tracy Alloway

As Ms Alloway shows us why all the buy-and-hold/passive ETF folks are feeling pretty smart right now.
https://pbs.twimg.com/media/EK_VQoAUYAAI-QF.png

Tracy's Twitter feed

"Platts' Five Major Commodity Themes For 2020"

From Platts via ZeroHedge: 
Energy transition
Energy transition is going to be ever-present, driving discussions and strategic planning in 2020. World leaders in both politics and industry are under mounting pressure from consumers – particularly in the West – to deliver increased energy produced with dramatically lower emissions and in more sustainable ways.

Heightened awareness by the Extinction Rebellion movement and the activist Greta Thunberg has put both governments and companies on notice of people’s expectations that action must be taken to keep the global average temperature rise at no more than 2 degrees Celsius.

While it is certain that this shift will require huge investment, the way forward is still emerging. Numerous technologies and solutions are vying for the same investment dollars that are already shifting away from traditional higher-carbon intensity industries. There will likely be a heavy reliance on subsidies, which in turn are dependent on policy. No one single approach is likely to win out, at least in the short term.

In terms of transportation, the focus has been predominantly on electric vehicles, while there is also increased investment and research into the use of hydrogen for heavy duty and long-distance transportation. But biofuels look set to take center stage in 2020, as favorable economics and the consumer-led call for immediate action have revitalized support for the fuel, particularly in Europe.
Biofuel blending looks to be the fastest route to reducing emissions, with consumption expected to increase in 2020, eating into gasoline and diesel’s share of the market and adding renewed pressure on oil refiners.

With more than 1 billion conventional cars in the global fleet, road transport currently accounts for 20% of global carbon emissions, a number that is not likely to fall without a bigger solution for infrastructure. Based on this trend, S&P Global Platts Analytics forecasts that global oil production will need to increase to meet rising demand from road transport over the coming years.
In the US, the situation is more complex, with tensions apparent between federal and regional policies. At the same time, natural gas is cheap, putting pressure not only on coal use for electricity production, but also on cleaner nuclear, renewables and energy storage.

Of course, the race to renewables alone will not be enough to meet aggressive carbon reduction targets. To deliver these significantly lower emissions, every type of energy and product needs to reduce its carbon intensity – we will need carbon capture and storage and consumers will need to be more energy efficient. 

Economic slowdown in China
Tariffs and trade wars will continue to dictate global pricing and trade flows for multiple commodities in 2020, but the consequences of the ongoing dispute between China and the US, particularly, are now rippling out into the economy, sparking fears of another recession.
The dispute – now in its 21st month – has exacerbated a change in local Chinese policy that aims to wean state-owned enterprises and banks off stimulus packages. The combined effect is that the rate of China’s economic growth has slowed to a pace not seen since 1992.

The effects of this domestic slowdown and weaker fuel demand growth have resulted in increased gasoil, gasoline and jet fuel exports, putting pressure on Asian commodity prices and refinery margins.

Platts Analytics expects that exports of gasoline, gasoil and kerosene in 2019 will reach an estimated 54.5 million mt (1.17 million b/d) if no more rounds of export quotas are released by the year end. This is nearly a tenth of the country’s crude imports, which is roughly equivalent to Saudi Arabia or India’s refined exports – both regions where refineries also cater heavily to export markets.
This figure is likely to rise in 2020, with the significant growth in new refineries resulting in total capacity reaching 18.71 million b/d, with another 320,000 b/d still under construction.

China’s crude imports have remained robust in 2019 as a result, surging 17% year on year to hit a historical high of 10.76 million b/d, or 45.51 million mt in October. Sinopec, the largest refiner in the country, forecasts that imports could reach 500 million mt in 2019....
....MUCH MORE, including Scribd embed

Chartology: Well That Was Timely

Following up on yesterday's "Chartology: Bank Stocks Poised For Breakout (KBE; XLF)":
...What would get things going would be another increase in yields at the longer end. From today's 1.8240% on the 10-year, backing up to the 2.00 - 2.05% range should give the banks room to make some money and give lift-off to the stocks.

Remember, there are two ways to steepen the curve: the bad way, the Fed lowers the short end reacting to weakness; the good way, the market raises the longer end anticipating strength.
KBE  $46.48  down 0.11 (-0.24%)
XLF  $30.30  down 0.005 (-0.02%) 
And today:
Treasury yield, 10-year: 1.8970 +0.1070

KBE  $47.74 up 1.34 (+2.89%)
XLF  $30.82 up 0.59 (+1.95%)

KBE SPDR S&P Bank ETF daily Stock Chart


I really should quit, right here.

EIA Natural Gas Weekly Update - December 12, 2019

Front futures 2.338 up 0.095 (4.24%).
From the Energy Information Administration:
for week ending December 11, 2019   |  Release date:  December 12, 2019
In the News:
Vessel loadings show record levels of U.S. LNG exports in October and November
U.S. exports of liquefied natural gas (LNG) set two consecutive records in October and November 2019. LNG exports averaged 5.8 billion cubic feet per day (Bcf/d) with 52 exported cargoes in October and 6.3 Bcf/d with 55 exported cargoes in November, according to EIA estimates based on the shipping data provided by Bloomberg Finance, L.P. From January through November 2019, U.S. LNG exports averaged 4.8 Bcf/d, 61% higher than in 2018 (3.0 Bcf/d annual average), as the United States became the third-largest LNG exporter in the world.

Growing liquefaction capacity has supported growth in LNG exports. Two new facilities—Cameron LNG and Freeport LNG—placed their first liquefaction units (referred to as trains) in service this year, in May and September, respectively. Corpus Christi LNG commissioned its second train in July. Elba Island started LNG production from the first five of its Moveable Modular Liquefaction System (MMLS) units and is currently loading first export cargo. EIA estimates U.S. LNG nominal liquefaction capacity in operation to be 6.1 Bcf/d baseload (7.5 Bcf/d peak) across six facilities and 15 trains (10 standard-size liquefaction trains and 5 small modular liquefaction units).

Natural gas feedstock deliveries to U.S. LNG export facilities have been the fastest growing consumption sector for U.S. natural gas in 2019, increasing by 2.8 Bcf/d between January and November, based on pipeline flow data provided by IHS Markit. Feedstock deliveries exceeded 6 Bcf/d for the first time in July, averaged 7.4 Bcf/d in November, and exceeded 8.3 Bcf/d in the second week of December as Freeport LNG started LNG production from its second train. EIA expects feedstock deliveries to continue to increase as the remaining trains at Freeport, Cameron, and Elba Island are placed in service in 2020, followed by the third train at Corpus Christi in 2021.
From January through November 2019, EIA estimates that capacity utilization of U.S. liquefaction facilities averaged 93% baseload, or 81% peak. Sabine Pass and Corpus Christi had the highest utilization of production capacity among U.S. LNG export facilities, at 105% and 91% baseload capacity, respectively, over the 11-month period. Cheniere Energy, the operator of Sabine Pass and Corpus Christi LNG terminals, filed applications with the Federal Energy Regulatory Commission (FERC) requesting authorization to increase operational capacity of Sabine Pass and Corpus Christi based on technical upgrades that have optimized the operational performance of the facilities.

Cameron LNG ramped up baseload production capacity to 77% in November, and Freeport LNG, since commissioning Train 1 in September, ramped up production to 50% in October and November. Because commissioning new liquefaction trains is done gradually over time, utilization of the facilities in the first several months of operations typically remains below 50%.

The latest information on the status of U.S. liquefaction facilities, including expected online dates and capacities, is available in EIA's database of U.S. LNG export facilities.
Overview:
(For the week ending Wednesday, December 11, 2019)
  • Natural gas spot price movements were mixed this report week (Wednesday, December 4 to Wednesday, December 11). The Henry Hub spot price fell from $2.37 per million British thermal units (MMBtu) last Wednesday to $2.26/MMBtu yesterday.
  • At the New York Mercantile Exchange (Nymex), the price of the January 2020 contract decreased 16¢, from $2.399/MMBtu last Wednesday to $2.243/MMBtu yesterday. The price of the 12-month strip averaging January 2020 through December 2020 futures contracts declined 6¢/MMBtu to $2.274/MMBtu.
  • The net withdrawal from working gas totaled 73 billion cubic feet (Bcf) for the week ending December 6. Working natural gas stocks total 3,518 Bcf, which is 20% more than the year-ago level and the same as the five-year (2014–18) average for this week.
  • The natural gas plant liquids composite price at Mont Belvieu, Texas, fell by 17¢/MMBtu, averaging $5.60/MMBtu for the week ending December 11. The prices of ethane, propane, isobutane, and butane fell by 7%, 5%, 5%, and 2%, respectively. The price of natural gasoline rose by 3%.
  • According to Baker Hughes, for the week ending Tuesday, December 3, the natural gas rig count increased by 2 rigs to 133. The number of oil-directed rigs decreased by 5 rigs to 663. The total rig count decreased by 3 rigs, and it now stands at 799.

Prices/Supply/Demand:
Prices at major hubs decline with mild temperatures. This report week (Wednesday, December 4 to Wednesday, December 11), the Henry Hub spot price fell 11¢ from a high of $2.37/MMBtu last Wednesday to $2.26/MMBtu yesterday. Temperatures across the Lower 48 states were generally warmer than normal, with colder temperatures across the Great Plains. At the Chicago Citygate, the price decreased 6¢ from a high of $2.19/MMBtu last Wednesday to $2.13/MMBtu yesterday....
....MUCH MORE
...U.S. LNG exports increase week over week. Fourteen LNG vessels (seven from Sabine Pass; two each from Corpus Christi, Cameron, and Freeport; and one from Cove Point) with a combined LNG-carrying capacity of 51 Bcf departed the United States between December 5 and December 11, according to shipping data compiled by Bloomberg. Two vessels (one at Sabine Pass and one at Cove Point) were loading on Wednesday....
Recently: 
EIA Natural Gas Storage Report - December 12, 2019
Front futures (January): 2.285 up 0.042.... 
....This is consistent with our earlier view that one way or another we would see levitation to allow the commercials to lighten up.
Natural Gas: Why the Commercials May Want to Get Up And Get Out—The Sudden Stratospheric Warming Event Appears To Be Fizzling

"Chinese firms offer to resell LNG cargoes due to weak demand" 
If you back that weakness through all the supply chains you end up with a glut but, see after the jump....

I should quit now.

"Hedge-fund manager Kyle Bass on decade-worthy investments, trade talks and that nickel collection"

From MarketWatch:
And the unstoppable bubble that’s already taking root
Your 20-year investment plan is simple, according to Kyle Bass, founder and chief investment officer of Hayman Capital Management. Bet on young Americans, he says.

“Where are you going to put your money? In Europe, in China, in South America? There is no better place to put your money than the United States. We have a rule of law, and we have the best economy as well,” says Bass, in a recent interview with MarketWatch.

The hedge-fund manager is famous for making winning bets on subprime loans back in 2007 and he offered MarketWatch his thoughts on the U.S. - China trade talks, the next bubble, who is the best U.S. President for markets, and nickels.

Investing in the future
If you want to create generational wealth, then invest in the best the U.S. has to offer — education and entrepreneurship — says Bass. Those “just trying to hang onto their wealth are the U.S. middle class retirees that have all their money invested passively in the stock market,” says Bass.

“I try to invest in some of these kids coming out of college and other VC [venture capital] firms that are investing in human innovation,” says Bass, who says he has made small investments for his family in Othram, a forensics genetics firm that offers technology that uses traces of DNA to solve cold cases. That type of technology led police to the arrest of the suspected Golden State Killer.
“Technological innovation, in biotech, health care, genomic sequencing and now even many different cancer therapies are actually showing huge promise,” he said. And even looking at public companies, biotech has delivered “massive returns” over the past decade. “I think that will continue into the next decade,” said Bass....
....MUCH MORE

EIA Natural Gas Storage Report - December 12, 2019

First up, the expectations, via FX Empire:
"Most estimates as of Wednesday’s close pointed to a withdrawal in the 70s to low 80s Bcf range. Basically, unless there is a significant change in the weather forecasts toward the extremely cold side, the major players are likely to continue to sell rallies....
... Bloomberg is predicting a withdrawal of 72 Bcf to 81 Bcf, with a median of 78 Bcf. Reuters analysts are looking for a draw of 76 Bcf, with some estimates as low as 62 Bcf. The Natural Gas Intelligence (NGI) model predicts a pull of 75 Bcf...."
The withdrawal from storage was more bearish than the forecasts. From the Energy Information Administration:
Weekly Natural Gas Storage Report
for week ending December 6, 2019   |   Released: December 12, 2019 at 10:30 a.m.
... Summary
Working gas in storage was 3,518 Bcf as of Friday, December 6, 2019, according to EIA estimates. This represents a net decrease of 73 Bcf from the previous week. Stocks were 593 Bcf higher than last year at this time and 14 Bcf below the five-year average of 3,532 Bcf. At 3,518 Bcf, total working gas is within the five-year historical range....MUCH MORE
Finally from the CME:
Front futures (January): 2.285 up 0.042.

https://www.tradingview.com/x/cGe0LpVq/

 This is consistent with our earlier view that one way or another we would see levitation to allow the commercials to lighten up.
Natural Gas: Why the Commercials May Want to Get Up And Get Out—The Sudden Stratospheric Warming Event Appears To Be Fizzling

"Chinese firms offer to resell LNG cargoes due to weak demand"
If you back that weakness through all the supply chains you end up with a glut but, see after the jump....

"Everything You Need To Know About What Amazon Is Doing In Financial Services" (AMZN)

From CB Insights
From payments to lending to insurance to checking accounts, Amazon is attacking financial services from every angle without applying to be a conventional bank. In this report, we break down everything we know about Amazon’s foray into financial services, and where it's rumored to be looking next.
In 2017, Andreessen Horowitz general partner Alex Rampell said that of all the tech giants that could make a major move in financial services:
“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.”
While the anticipation for Amazon’s plunge into banking gets louder each year, it’s important to first understand Amazon’s existing strategy in financial services — what Amazon has launched and built, where the company is investing, and what recent products tell us about Amazon’s future ambitions.
Based on our findings, it’s hard to claim that Amazon is building the next-generation bank. But it’s clear that the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.
As a result, the company has built and launched tools that aim to:
  1. Increase the number of merchants on Amazon, and enable each merchant to sell more
  2. Increase the number of customers on Amazon, and enable each customer to spend more
  3. Continue to reduce any buying/selling friction
In parallel, Amazon has made several fintech investments, mostly focused on international markets (India and Mexico, among others) where partners can help serve Amazon’s core strategic goal.
In aggregate, these product development and investment decisions reveal that Amazon isn’t building a traditional bank that serves everyone. Instead, Amazon has taken the core components of a modern banking experience and tweaked them to suit Amazon customers (both merchants and consumers).
In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.
This report is a collection of everything we know about Amazon’s foray into banking, financial services, and fintech. We will be updating this brief on an ongoing basis as more relevant data, investments, news, and products are released.

Table of Contents:
  1. Amazon’s product strategy
2. Market strategy outside the US
3. Rumors: What will Amazon do next?
4. Closing thoughts

Product strategy: Amazon takes on financial services
Amazon is notorious for spreading its bets before going all-in on a new product, and the financial services space is no exception. Through trial and error, the company has set up key financial pillars across payments, cash deposits, and lending. As we’ll dive into below, all are related to Amazon’s broader growth and product strategies.

Amazon Payments
Amazon has aggressively invested in payments infrastructure and services over the last few years. That’s unsurprising, given that the payments experience is so close to Amazon’s core e-commerce business. Making payments more cash efficient for Amazon and frictionless for customers is a key priority.

Today, Amazon Pay has evolved to include a digital wallet for customers and a payments network for both online and brick-and-mortar merchants. In the last year, Amazon has been investing in growing Amazon Pay’s marketplace, including forming its first partnership with an acquiring bank Worldpay.
While Amazon Pay is the company’s latest iteration on payments, Amazon experimented with payments functionality for over a decade. Below is a timeline of some of the major Amazon Pay milestones:
Amazon’s first known payments product, Pay with Amazon, launched in 2007. That same year, the company acquired TextPayMe, a peer-to-peer (P2P) mobile service that was relaunched as Amazon Webpay in 2011.

Webpay failed to gain user traction and was shut down in 2014, unlike up-start Venmo (now a part of rival payments processor PayPal). It’s likely that Amazon was too early to P2P payments.
In 2007, the company also invested in Bill Me Later (fka I4 Commerce). Bill Me Later was one of the earliest fintech payment platforms on the market and gave big retailers the ability to offer flexible financing programs. Although Bill Me Later was quickly scooped up by PayPal in 2008, Amazon has remained focused on reducing payment friction for customers.

Over the last few years, Amazon has used a variety of techniques to strengthen its payments experience, including launching digital wallets through Amazon Pay, acquiring tech talent of failed mobile payments startup GoPago, building a variety of tech in-house, and most recently opening up to partnering with merchant acquirers outside of Amazon’s marketplace.

Traction/Metrics:
Today’s iteration is Amazon Pay, a digital wallet for customers and a payments network for both online and brick-and-mortar merchants and shoppers.
In addition to serving Amazon’s core customers, payments is an attractive revenue line when thinking about the scope of the payments market. Swipe fees alone are a $90B-a-year business for banks, card networks like Visa, and payment processors like Stripe.

Amazon is finding ways to attract merchants to the Amazon Pay network beyond its experimentation with swipe fees. The company announced it would pass on the special card savings Amazon gets from card networks (because of the volume of purchases they can guarantee) to retailers that adopt Amazon Pay. Leveraging scale and competing on fees is a classic customer acquisition strategy in Amazon’s playbook.

And while the company is famously secretive about reporting customer growth and business metrics, it reported that Amazon Pay had 300M customers in 170 countries through Q1’17. Payments made with Amazon Pay spiked following service expansion to new geographies — France, Italy, and Spain — and to new verticals, including government payments, travel, insurance, entertainment, and charitable donations.

However, Amazon has had some missteps with Amazon Pay. Its most famous failure was Amazon Local Register. With the talent acquired from GoPago, Amazon launched Amazon Local Register, a card reader for SMBs in August 2014. At the time, the company charged competitive rates (a full percentage point less than Square). Each reader cost $10, and it seemed like a formidable rival to PayPal and Square’s readers.

But in October 2015, the company announced it would be shut down. Despite charging lower fees, the company failed to gain enough traction with merchants who feared giving Amazon detailed data on their overall business operations.
Eventually, Amazon launched a “Pay with Amazon” button for mobile and created a team with the goal of expanding payments across the web and on apps....
....MUCH MORE