Kenneth braved the snow storm to meet with @MartinOMalley in Tama. #iawx #iacaucus pic.twitter.com/xvB9S8hDwh
— Sarah Beckman (@SarahBeckman3) December 29, 2015
It’s taken a bit of ice and snow, but U.S. natural gas traders finally are convinced that winter is here.
Gas futures are headed for the first monthly gain since June, wiping out mid-December losses of as much as 25 percent, after overnight computer models predicted colder weather would boost demand and may help ease a supply glut. Below-normal temperatures from the West Coast through Texas over the next 10 days will push across the Midwest Jan. 8 through Jan. 12, said MDA Weather Services. Unusually mild weather on the East Coast will retreat.
“The market is reacting to the shock that we are actually going to get this cold weather,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We had a record short position a few weeks ago and we had priced in absolutely no weather demand. The weather forecasts are continuing to get colder.”
Gas futures for January delivery climbed 13.7 cents, or 6.2 percent, to $2.365 per million British thermal units on the New York Mercantile Exchange at 10:22 a.m. after rising to $2.374, the highest intraday price since Nov. 19. The futures are up 5.8 percent this month. The January contracts expire Tuesday.
Winter Weather
As much as 11.5 inches (29 centimeters) of snow piled up in parts of the upper Midwest since early Saturday, with 24 to 41 inches reported in Texas and New Mexico, and snow and sleet spread Tuesday across New York, New Jersey, New England and eastern Canada. The projected high of 38 degrees Fahrenheit (3.3 Celsius) in Chicago would be 6 degrees lower than the same day last week.
The change in forecasts showing cold weather hitting the Midwest and Northeast, the biggest consumers of heating fuel, was so unexpected that gas is now at risk of being overbought, given the sharp rally over the past week. The relative strength index, a technical price momentum indicator, surged to 66.8 at 10:18 a.m. after plunging to 19.4 on Dec. 17. A reading of 30 is considered by some traders to be a buy signal, or an oversold condition, while 70 may trigger selling....MORE
For struggling mining companies, an important source of financing is growing scarce.
Contending with falling profits and hefty debt payments, mining companies such as Glencore PLC and Vale SA this year increasingly turned for cash to specialist lenders who pay large lump sums in exchange for metal deliveries.
But companies that provide the vast majority of this kind of financing through “streaming deals” are running low on capital after striking a record $4.07 billion of deals in 2015, nearly quintuple the level in 2014.
“We just don’t feel the pressure that we need to go out and duplicate our efforts that we did in 2015,” said Tony Jensen, chief executive of Denver-based Royal Gold Inc., one of the big streaming companies. He said the company has about $450 million available for new loans. That compares with about $1.3 billion for 2015, according to estimates by Canaccord Genuity, a financial-services firm.
Canadian streaming company Silver Wheaton Corp. in November paid Glencore $900 million in exchange for 33.5% of silver production from the Antamina copper mine in Peru. The cash infusion helped Glencore pay down its debt and stave off investor ire that had triggered big swings in the company’s share price.
Silver Wheaton, though, doesn’t currently have capacity for another blockbuster deal, said its chief executive, Randy Smallwood. The company has roughly $500 million left in its line of credit after doubling it to $2 billion earlier this year and is reluctant to sell stock or get deeper into debt, he said. Mr. Smallwood said he expects profits from operations to add an additional $500 million to Silver Wheaton’s arsenal by the end of 2016.
Silver Wheaton is studying sharing its deals with others in a process called syndication, but “we’re not quite convinced it’s the best thing for us yet,” Mr. Smallwood said.
Silver Wheaton, Royal Gold and Canada’s Franco-Nevada Corp. will start 2016 with an estimated $1.4 billion to deploy, according to an analysis of the companies’ financial statements by Canaccord Genuity analyst Peter Bures. That compares with an estimated $4.7 billion on hand in the first quarter of 2015. A representative of Franco-Nevada declined to comment. Mr. Bures said those three companies account for more than 80% of lending capacity.
“It’s not a bottomless pit, they’ve pretty much used up their capacity,” said John Bridges, mining analyst with J.P. Morgan Chase & Co.
The drop in lending capacity reduces mining companies’ lifelines as they contend with a protracted downturn. Tumbling metal prices and plentiful supply of everything from iron ore and copper to nickel and coal have reduced profits and mining companies’ ability to repay debts.
Meanwhile, traditional avenues for raising cash, like bond or stock sales, have essentially closed to all but the most well-capitalized mining firms.
Glencore’s troubles this year have been emblematic. Glencore’s shares have plunged 66% in 2015 on worries about its credit rating and ability to service its debt. Glencore declined to comment. Glencore’s management has previously assured investors of the company’s ability to pay its debts and has put mines and other assets up for sale to reduce debt. It also has said it might do more streaming deals in 2015.
Vale in March sold 25% of the gold produced by its Salobo copper mine in Brazil to Silver Wheaton for $900 million, doubling the streaming company’s share of the mine’s gold output. The deal buttressed Vale’s balance sheet when the price of iron ore, the company’s main product, tumbled to decade lows. The streaming deal helped put a value on the gold in the copper mine that the market hadn’t previously recognized, said Vale spokeswoman Patricia Malavez....MORE
SunEdison.
If you haven't been following the SunEdison story, let me commend it to you, because it is bonkers. The basic setup is that you've got SunEdison, a public company that develops renewable power projects, and you've got its two yieldcos, TerraForm Power and TerraForm Global. The yieldcos are also public companies but are controlled by SunEdison, and they buy completed projects from SunEdison. The idea is that SunEdison investors get a growthy risky developer of projects, while yieldco investors get yieldy safe operators of projects with contracted cash flows. The concern is that the yieldcos are "captive buyers" of SunEdison projects, and so there are safeguards (separate managers and boards, conflicts committees) to protect yieldco investors against the risk that SunEdison will use the yieldcos as piggy banks by selling them bad projects at inflated prices.
Except that SunEdison ran into financial troubles this year, and this happened:
At a Nov. 20 board meeting, SunEdison Chief Financial Officer Brian Wuebbels asked TerraForm Power’s two-man conflicts committee to approve the new Vivint terms, some of the people said. He also sought their help raising cash, one person added, suggesting TerraForm prepay for future project purchases or repurchase shares held by SunEdison. Messrs. Lerdal and Dahya refused both requests, the person said.
Unfortunately, not a single footnote.The men were replaced on the conflicts committee, according to filings. SunEdison appointed new directors, while senior SunEdison officials took over management roles. Mr. Wuebbels became CEO of both TerraForm entities. Manavendra Sial, another SunEdison executive, became their interim finance chief."Among Mr. Sial’s first actions, according to filings and a person familiar with the matter, was authorizing a $150 million payment to SunEdison."...MUCH MORE
“Today’s tight natural gas markets have been a long time in coming, and futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon,”...
"...American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."The Score
The $ 3 Billon Payday In today’s Journal Gregory Zuckerman brings us news of the biggest one-year salary ever paid on Wall Street — that of hedge-funder John Paulson, who made somewhere between $3 billion and $4 billion last year. That’s right, between $3 billion and $4 billion. In one year.
...Mr. Paulson made his pile by betting against the housing market at just the right time. Lots of people bet their money on a housing crash, but they were too early — his bets happened to coincide with a crash in the debt markets.
Greenspan joins hedge fund Paulson
Alan Greenspan, the 81 year-old former chairman of the Federal Reserve, is set to join the US hedge fund Paulson & C. as an adviser.
Dr Greenspan will advise Paulson on the global financial markets, and under the terms of the agreement he will not advise any other hedge fund while he is working for Paulson.
Paulson manages $28bn of assets and last year earned billions of dollars when it called correctly the collapse in the sub-prime mortgage market, a collapse which was caused by Dr Greenspan who kept interest rates too low for long, according to some economic commentators....
Anna Schwartz blames Fed for sub-prime crisis
..."There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.
...She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.
What a difference two years can make. In September 2013 John Nelson, Chairman of the Lloyd’s of London insurance and reinsurance market, had warned that mismanagement of third-party capital in re/insurance could lead to “systemic” issues in the market.Also at Artemis, totally unrelated and uncorrelated:
Yesterday, Nelson was quoted in the Financial Times discussing the launch of the newly planned Lloyd’s market loss and performance Index, acknowledging that insurance risk is becoming an asset class and extolling the virtues of this new or alternative reinsurance capital.
In the past Nelson has been cautious on alternative capital, the growth of insurance-linked securities (ILS) and the potential for ILS having a role in the Lloyd’s market. His commentary clearly shows that he and Lloyd’s saw the opportunity to harness ILS and the capital markets, but that they wanted to approach it in a controlled manner, so as not to introduce undue risks to the market....MORE
The growth of alternative capital in the reinsurance industry has had a “substantial influence” on risk tolerances, particularly among P&C insurance and reinsurance players, according to Kroll Bond Rating Agency (KBRA).
In an outlook for property casualty insurers for 2016, KBRA examines some of the market developments that have impacted insurers, including the abundance of reinsurance capital, the reductions in the cost of reinsurance capacity and the way that influences insurer behaviour.
As 2015 nears its close P&C insurers are looking forward to another profitable year, the third in succession for U.S. P&C, as low levels of major catastrophe losses help insurers to negotiate other market forces, such as price softening that has spilled over from the reinsurance market and the challenging investment environment, to maintain earnings performance....MORE
Abstract:
Chief financial officers are responsible for managing the financial reporting process. We test whether the quality of a firm’s financial reports is a function of the effort expended by the CFO. Using golfing records to measure leisure consumption, we first show that CFOs consume more leisure when they have lower economic incentives to work. We show further that higher levels of CFO leisure are negatively associated with a number of indicators of financial reporting quality. The use of firm fixed effects and an instrumental variable analysis suggest that the observed relations are causal. Further tests indicate that higher leisure consumption is associated with shorter conference calls with a more uncertain tone. Finally, the effects of lower quality reporting are demonstrated by results linking CFO leisure with analysts’ forecast dispersion and weaker earnings response coefficients.Alpha Highlight:
Biggerstaff, Cicero and Puckett (2014) show that a CEOs’ golfing frequency is negatively correlated with firms’ operating performance and firm value. In this paper, the authors look at the relationship between a CFO’s golfing frequency and a firms’ financial reporting quality. The punchline: CFO behavior matters.The sample consists of 385 CFOs from 2008 to 2012, and the authors collect the golfing data from the United States Golf Association (USGA).The chart below shows the distribution of the 385 CFOs’ golf playing rounds from 2008 to 2012. The average rounds that CFOs play per year are 20. Assuming an average round takes 5 hours and the average working hours/week is 40, this is roughly equivalent to 2.5 weeks of work. The maximum rounds that a CFO played in this sample is 148 rounds (4.6 months of work, wow!)
...MOREKey findings from the paper:
- The paper finds positive correlations between CFOs’ golfing frequency and accrual errors, discretionary accruals, and unexplained audit fees....
Ahh, Syria circa 2015: an idyllic land of peace, prosperity, and security... said no one ever. Well, except for the U.S. State Department, which counts "bringing peace [and] security to Syria" among its top 2015 accomplishments. In a year-in-review post on the department's official blog, it also takes credit for "step[ping] up to to aid the Syrian people during their time of need" and developing a plan for "political transition" that "is responsive to the needs of the Syrian people."...MORE
Syria—as you might recall if you haven't lived in an isolated underground lair for the past few years—is currently overrun by the brutal Islamic State and losing citizens by millions, triggering something of a global geopolitical crisis as refugees flood neighboring countries and Europe. Meanwhile, U.S. "aid" has consisted of bombing the crap out of potential ISIS targets and any innocent Syrian adults and children who happen to be nearby.
Let's look at a few recent headlines and news items about this oh-so-safe and peaceful country:
- "On Monday, at least 14 people were killed and 90 wounded in two suicide bombings in the central city of Homs."
- Drone footage shows 'apocalyptic scenes' of Syria
- Most Syrian rebels sympathise with ISIS, says thinktank
- Islamic State truck bombs kill up to 60 people in Syrian town
- A Stolen Antiquities Department and a Slave Ministry: Government, Islamic State Style
- "One in five persons currently in Lebanon is a Syrian refugee."
- Syria: An endless 'Calvary'
- "U.S. and coalition military forces have continued to attack Islamic State of Iraq and the Levant terrorists in Syria and Iraq, Combined Joint Task Force Operation Inherent Resolve officials reported today."
- Inside Kremlin's creeping military campain in Syra
- Dozens die in strikes on Syrian school district, other areas
- A 'flesh eating' disease is currently spreading across Syria
If this is what peace and security looks like to the U.S. State Department, then we're all in deeper shit than we thought....
The State Department is defending naming "bringing peace" to Syria as one of its 2015 accomplishments.
The claim was made in a Dec. 24 blog post written by John Kirby, the assistant secretary of State for the bureau of public affairs.
Deputy spokesman Mark Toner on Monday called it a "truthful claim."
"Now look, the operative word there is bringing, not brought, so we're bringing peace and security to Syria," he told reporters, adding that it's a "mistaken impression" to think that Kirby is implying that the country's multi-pronged conflict has been resolved.
On Saturday I happened to mention (Admiral) John Kirby:Kirby, in the blog post, noted that while the Syrian conflict "has continued to unfold in tragic ways," the United States has given humanitarian aid and pushed for a political transition....MORE
The spokeswoman for the Russian Foreign Ministry, Maria Zakharova, has become a bit of a favorite among the connoisseurs of foreign ministry spokespersons.*
Current U.S. spokesman, Admiral Kirby, is a very dim bulb in comparison.**
She can kick ass on Secretary Kerry's minion in Russian, English or Chinese....Now if I verb the noun 'bullshit', can I demand the spokesman rotate on the pluperfect as he spins and spins?
The creator of the biggest grassroots ETF success-story in recent memory, the PureFunds ISE Cyber Security exchange-traded fund (HACK), has unveiled plans for a new fund for companies in the business of drones and done-related tech.Based on all the spontaneous combustion stories the hoverboard ETF would just be a flash in the pan.
The PureFunds DroneTech exchange-traded fund will track an index, global in scope,made up of companies that are “actively involved in developing, researching, or utilizing drone-related technologies and services as part of their business model.”
That’s an amazingly wide birth that, presumably, would allow for giants such as Amazon.com (AMZN), which is experimenting in drones, as well as AeroVironment (AVAV), a microcap pure-play on “unmanned aerial systems.” GoPro (GPRO) is working on drones; Ambarella (AMBA) provides chips for GoPro and sees big growth in the “quadcopter“ marketplace. Qualcomm (QCOM) has announced products for the “consumer drone” market. Alphabet (GOOGL) acquired Titan Aerospace last year a start-up is developing jet-sized drones that can fly for years. French drone maker Parrot SA (PARRO) is no slouch, with $244 million in revenue last year. Intel (INTC) CEO Brian Krzanich demonstrated how its chips can help power drones at last year’s Consumer Electronics Show in Las Vegas....MORE
Natural gas prices surged to a three-week high, adding to a recent string of big gains as colder weather and other signs point to a more balanced market in the weeks to come.
Futures for January delivery recently traded up 15.2 cents, or 7.5%, at $2.181 million British thermal units on the New York Mercantile Exchange. It would be the third session of five in which gas gains more than 5%. The market is now up 24% in just six sessions since it settled at a 16-year-low on Dec. 17.
Exceptionally warm forecasts are starting to give way to the first signs of winter cold, keenly important in a market driven by the demand for winter heating. Above-normal temperatures are still going to linger in large parts of the East Coast--and many of the biggest markets for gas heat--but cold from the west is starting to spill into big Midwestern heating markets, too.
There are also signs that gas producers are also making a stark pullback from record-high production. The latest count of working natural-gas rigs, released late Wednesday, showed another decline, putting the number of working rigs at the lowest point ever in 28 years of data gathered by Baker Hughes Inc. It has fallen 16% in three weeks, even from numbers that were already near a record low.
These changing trends have pushed many bears to cash out and lock in profits from the steep drop in prices this fall. Since August, money managers have had nearly two bearish positions on gas for every one bullish position. A market leaning that heavily in one direction is often vulnerable to these types of sharp rallies as those traders have to buy back contracts to close out positions....MOREWhen we posted the AO story we did something we try not to do, we hedged as to the timing and posted both the January and February prices where usually we only use the front month, make a declarative statement and figure our readers are smart enough to go further out on the calendar or put together some fancy spreads or use the options on the futures as may be their wont.
Not there yet* but you can see the change coming.So here are the soon-to-roll-off January's and the soon to be front-month February's:
*which is why we also quoted the Feb. futures in that post.
New front futures (Feb.) $37.62 up $1.48 (4.10%).
Yesterday's move on the API report, combined with today's on the EIA numbers is noteworthy because it wasn't just short covering, there are quite a few folks who want to own oil.Oil went on to settle at $38.10 on Thursday before the long weekend.
We don't but we also don't fight the crowd. Instead we'll be looking for a reversal next week....
The post-holiday trading session is not being kind to crude, with oil prices giving back a big chunk of last week’s gains early on Monday.And from Barron's Wall Street's Best Minds column:
West Texas Intermediate crude oil prices slipped 3.5% to $36.74 a barrel in recent trading, while the U.S. Oil Fund (USO) dropped 3.3%.
Oil prices surged from recent lows last week, but can’t seem to muster a continuation of the rally. Supply and demand imbalances mean a fundamentally uncertain environment. OPEC is showing no signs of backing down from its production targets, and, increasingly, the markets are mulling how to deal with more supply from a new player — Iran.
The Wall Street Journal reports that supplies from Iran could add around 500,000 barrels after sanctions stemming from the nuclear deal, reached in July, come to an end. Bloomberg is citing local reports that Iran’s oil minister says the “priority is to boost shipments to pre-sanction levels.”...MORE
Normally we would not try to frame oil-market risk in any two week period, but this stretch through the beginning of January is special because technical analysts explain that West Texas Intermediate and Brent futures are trading perilously close to critically important support levels.Critically important, because if Brent were to fall through $34.55 or West Texas Intermediate (WTI), to below $32.40, there would be little in the way of crude-oil benchmark prices falling into the $20s per barrel.
That is not great, the more so since in this year-end low-volume trading stretch crude-oil markets can be pushed around with less effort.Another string of bearish datapoints, even backward looking ones, could further embolden already pervasive bearish sentiment (or persuade bearish inclined algorithms to keep on selling crude-oil futures).
And it may be a little less easy to prompt a few new waves of buying -- simply judging from the way the market has been trading in the last few weeks.In our view, significant new bearish news would have to emerge for oil to trade down through these key technical support levels and into the $20s....MORE
A capital drought may stimulate an orgy among unicorns. Plentiful money has detached valuations on many hot private tech firms from reality. There are 144 of these private companies worth $1 billion or more according to CB Insights. Curiously, about a third are valued at $1 billion on the dot. As capital becomes more expensive in 2016, selling to rivals or mating with other unicorns will become appealing.
Few of these young companies are cash-flow positive, so most will need capital infusions to survive. That money may be drying up. Fidelity Investments recently marked down the value of its Snapchat and Zenefits holdings, and BlackRock slashed the value of its Dropbox stake. If massive asset managers pull back, private firms will be dependent on tinier venture capital outfits, which may be more demanding in their terms. Even hardened angel investors are becoming skeptical. Marc Benioff, Salesforce.com’s founder, says he will no longer invest in unicorns because they have “manipulated private markets to obtain these values.”
Going public is an option. American tech firms’ proceeds from initial stock sales so far this year are $6.1 billion – a fifth the amount they raised last year, according to Thomson Reuters data. Global trends are similar.
Claims that remaining private allow founders to retain a long-term focus look suspect. Super-powered voting stock allows insiders to treat public companies as their fiefdoms. But the stretched private valuations make it harder for unicorns to go public. Insiders do not want the ignominy of a so-called down round. Floating at a reduced price also creates the impression something has gone wrong. That can make it difficult to lure customers and talented engineers....MORE
We’re now coming up to 9 years since the launch of the iPhone kicked off the smartphone revolution, and some of the first phases are over - Apple and Google both won the platform war, mostly, Facebook made the transition, mostly, and it’s now perfectly clear that mobile is the future of technology and of the internet. But within that, there's a huge range of different themes and issues, many of which are still pretty unsettled.
In this post, I outline what I think are the 16 topics to think about within the current generation, and then link to the things I’ve written about them. In January, I’ll dig into some of the themes for the future - VR, AR, drones and AI, but this is where we are today.
See here to listen to the podcast we did around this.
1: Mobile is the new central ecosystem of tech
Each new generation of technology - each new ecosystem - is a step change in scale, and that new scale makes it the centre of innovation and investment in hardware, software and company creation. The mobile ecosystem, now, is heading towards perhaps 10x the scale of the PC industry, and mobile is not just a new thing or a big thing, but that new generation, whose scale makes it the new centre of gravity of the tech industry. Almost everything else will orbit around it.
The smartphone is the new sun
Resetting the score
2: Mobile is the internet
We should stop talking about ‘mobile’ internet and ‘desktop’ internet - it’s like talking about ‘colour’ TV, as opposed to black and white TV. We have a mental model, left over from feature phones, that ‘mobile’ means limited devices that are only used walking around. But actually, smartphones are mostly used when you’re sitting down next to a laptop, not ‘mobile’, and their capabilities make them much more sophisticated as internet platforms than PC. Really, it’s the PC that has the limited, cut-down version of the internet.
Forget about the mobile internet
Mobile first
What would you miss?
3: Mobile isn’t about small screens and PCs aren’t about keyboards - mobile means an ecosystem and that ecosystem will swallow ‘PCs’
When we say 'mobile' we don't mean mobile, just as when we said 'PCs' we didn't mean ‘personal’. ‘Mobile’ isn't about the screen size or keyboard or location or use. Rather, the ecosystem of ARM, iOS and Android, with 10x the scale of ‘Wintel’, will become the new centre of gravity throughout computing. This means that ‘mobile’ devices will take over more and more of what we use ‘PCs’ for, gaining larger screens and keyboards, sometimes, and more and more powerful software, all driven by the irresistible force of a much larger ecosystem, which will suck in all of the investment and innovation.
Mobile, ecosystems and the death of PCs
4: The future of productivity
Will you always need a mouse and keyboard and Excel or Powerpoint for ‘real work’? Probably not - those will linger on for a long time for tens of millions of core users, but not the other billions - computing and productivity has changed radically before and will change again. Big screens will last, for some, and maybe keyboards, for some, but all the software will change. It will move to the cloud, and onto 'mobile' devices (with large or small screens), and be reshaped by them. The core question - is typing, or making presentations, actually your job, or just a tool you use to get your actual job done? What matters is the connective tissue of a company - the verbs that move things along. Those can be done in new ways.
Office, messaging and verbs
Podcast: Slack
Tablets, PCs and Office
5: Microsoft's capitulation
Microsoft missed the shift to the new platform. Xbox is non-core, Windows Mobile is on life support, Windows 10 is a good prop for the legacy business that can slow but not prevent this change, and Satya Nadella has explicitly stated that the decades-old strategy of ‘Windows Everywhere’ - of trying to be the universal platform - is over. That doesn’t remotely mean that Microsoft is dead, but it has to work out how to use the cash and market position of the legacy monopolies to help it build new businesses. That’s a big change from the past, where everything was about building Windows and Office. But it’s not quite clear what those new businesses will look like - Microsoft has to try to reinvent the connective tissue of the enterprise.
Microsoft, capitulation and the end of Windows Everywhere
6: Apple & Google both won, but it’s complicated...MORE
The mobile generation is unusual in that we seem to have two winners - both Apple and Google won, in different ways. Conventionally, the bigger ecosystem wins and sucks all activity into its orbit, but Apple’s ecosystem has perhaps 800m active users, far larger than in previous generations, and has perhaps half of global mobile browsing and two thirds or more of app store revenue (a good proxy for overall economic activity). Android has more users but Apple has more of the ‘best’ users (from a developers’ perspective).
Indeed, one can also ask whether Google rather than Apple has a problem - Google’s existential need is reach, and both iOS and Android give it reach, but the reach it has on iOS is limited by what Apple will allow. And less than a quarter of iPhone users have bothered to install Google Maps. Conversely, Apple’s weakness in cloud services and AI may end up becoming an equivalent strategic problem over time....
Elizabeth Holmes’s blood-testing ambition has long collided with technological problems
The night before a big meeting with a Swiss drug company in 2008, Theranos Inc. founder Elizabeth Holmes and a colleague sat in a Zurich hotel, sticking their fingers with a lancet.
They drew drops of their own blood to try the company’s testing machine, but the devices wouldn’t work, says someone familiar with the incident. Sometimes the results were obviously too high. Sometimes they were too low. Sometimes the machines spit out only an error message.
After two hours, the colleague called it quits, leaving Ms. Holmes still squeezing blood from her fingers to test it again.
Ever since she launched Theranos in 2003 when she was 19 years old and dropped out of Stanford University, Ms. Holmes has been driven by ambition that is big even by Silicon Valley standards. Instead of a smartphone app to hail a car or order food, she wants to revolutionize health care with a vast range of diagnostic tests run with a few drops of finger-pricked blood.
Now 31, Ms. Holmes has emphasized a variety of strategies—a hand-held device, tests for drugmakers, drugstore clinics—while trying to turn her dream into a business. She often has collided with technological problems, according to interviews with more than 20 former Theranos employees, company emails and complaints filed with federal regulators.
In Switzerland, she went ahead and pricked her finger in front of a group of Novartis AG executives at the meeting the next day, testing for a protein that measures inflammation, says the person familiar with the incident.
All three of her Theranos devices flickered with error messages, the person says. Ms. Holmes was unfazed, blamed a minor technical glitch and continued to pitch the vast potential of her technology.
Ms. Holmes and several current or former Theranos directors declined interview requests. A spokeswoman for Theranos, Brooke Buchanan, says Ms. Holmes recalls only one machine with an error message, because someone tripped over the cord. A second machine ran perfectly, and the third wasn’t used, the spokeswoman says. A Novartis spokeswoman wouldn’t comment.
Since a Wall Street Journal article in October, Ms. Holmes has defended the Palo Alto, Calif., company’s laboratory work and promised to publish data proving the accuracy of its more than 240 tests, ranging from pregnancy to diabetes.
She said earlier this month that customer volume was higher than ever. The company has said it performed millions of tests, with highly positive feedback.
For now, though, Theranos has stopped collecting tiny samples of blood from patients’ fingers for all but one of its tests while it waits for the Food and Drug Administration to review the company’s applications for wider use of the small proprietary vials called “nanotainers.” As a result, Theranos is using traditional lab machines for most of its tests.
Many technology startups struggle to overcome problems while developing their products. Theranos has always faced an extra burden because blood tests sometimes provide life-or-death answers.
David Philippides, an engineer who worked on Theranos devices from January 2013 to November 2014, says the company didn’t show enough regard, based on his involvement in research while he was there, for the scientific rigor of medical research.
“The time was not taken to develop anything properly,” Mr. Philippides says. “This is science. You need time.” He says he was fired after refusing to go to Arizona to retrieve a broken machine.
The Theranos spokeswoman says he held only a “junior role” that gave him “no visibility into the extent of” the company’s research and development. She says the company employs more than 80 scientists with doctorates....MORE
The last trading week of 2015 begins on a historic precipice for stocks: as reported over the weekend, the U.S. stock market has not been lower for any year ending in a “5? since 1875.
That streak however is now in jeopardy, because following Thursday's shortened holiday session which abruptly ended with a mini selloff in the last minutes of trading, the overnight session has seen continued weakness across global assets in everything from Chinese stocks which tumbled the most since November 27 (SHCOMP wipes out down 2.6% as China B Shares plunge 7.9% while USD/CNY climbs 0.16% to 6.4868 after earlier touching 6.4880, matching four year highs) to commodities - after its tremendous surge over the past week, WTI is back down 2.5% and sliding on Gartman's ringing endorsement - including copper and precious metals, to European stocks (Stoxx 600 -0.4%), to US equity futures down 0.3% on what appears to be an overdue dose of Santa Rally buyers' remorse.
Here is where we stand currently:
A closer look at Asian markets shows that shares fall with Chinese stocks declining most with the Shanghai Composite Index’s worst day in a month as fresh signs of slowing growth in China added to concern looming changes to the country’s listing regime and the expiration of a share-sale ban will hurt demand for its stocks. Investors are fretting that the end of a six-month ban on sales by shareholders with stakes of 5 percent or more in Chinese companies will unleash another wave of selling just as reforms to the initial public offering system see a raft of new listings dilute demand for existing equities.
- S&P 500 futures down 0.4% to 2044
- Stoxx 600 down 0.4% to 365
- FTSE 100 closed
- DAX down 0.2% to 10711
- German 10Yr yield down 3bps to 0.61%
- Italian 10Yr yield down 5bps to 1.63%
- MSCI Asia Pacific down less than 0.1% to 131
- Nikkei 225 up 0.6% to 18873
- Hang Seng down 1% to 21920
- Shanghai Composite down 2.6% to 3534
- S&P/ASX 200 closed
- US 10-yr yield up less than 1bp to 2.24%
- Dollar Index up 0.05% to 97.9
- WTI Crude futures down 2.5% to $37.11
- Brent Futures down 2% to $37.13
- Gold spot down 0.4% to $1,072
- Silver spot down 2.2% to $14.06
Compounding those concerns, the head of the nation’s third-largest mobile carrier was swept up in anti-graft crackdown. China Telecom Corp., the nation’s third-largest wireless carrier, dropped 1.3 percent in Hong Kong. China’s Central Commission for Discipline Inspection said in a statement on Sunday that Chang Xiaobing, who headed China Unicom (Hong Kong) Ltd. for more than a decade before becoming chairman and chief executive officer of China Telecom in September, is being probed for severe disciplinary violations.
Japanese stocks outperform; Australian mkt closed for Boxing Day holiday. "Investors don’t like declining industrial profits and they don’t like ongoing corruption investigations in China," said Andrew Clarke, director of trading at Mirabaud Asia. "There are plenty of reasons to lighten their load ahead of the new year and there’s no reason to open any new positions. That’s going to exaggerate the down swing in the market." 7 out of 10 sectors fall with health care, materials outperforming; energy, utilities underperform. Of note, China Nov. Industrial Companies’ Profit Falls 1.4% Y/y while China's November Railway Cargo Shipments plunged 15.6% Y/y to 270m Tons, confirming the severity of China's slowdown....MORE
This week, Google’s Verily (formerly Google Life Sciences) and Ethicon, a Johnson & Johnson medical device company, announced the formation of a startup called Verb. What is Verb? Something about medical robotics, I guess:
“In the coming years, Verb aims to develop a comprehensive surgical solutions platform that will incorporate leading-edge robotic capabilities and best-in-class medical device technology for operating room professionals.”Sounds good to me! But seriously, that’s not much to go on, so let’s see what we can piece together from the press releases put out from the various companies involved.
The picture at the top of this article almost definitely isn’t Verb’s new surgical robot. It’s Taurus, from SRI Robotics, which (according to a press release) “is licensing next-generation robotics technology to Verb Surgical that we believe will impact both the open and minimally invasive surgery markets and ultimately make the benefits of robotic surgery accessible to more patients around the world.”
While Taurus, originally designed as a bomb-disposal robot, is very much not a surgical robot in its current implementation, it represents several technologies that are very valuable in a surgical context: highly dexterous small manipulators and an advanced teleoperation system with haptic feedback.
The SRI press release also says that “Verb Surgical is developing a new robotic surgery platform that will integrate technologies such as advanced imaging, data analysis, and machine learning to enable greater efficiency and improved outcomes across a wide range of surgical procedures,” which is interesting because of the reference to machine learning. Machine learning can be applied to all sorts of things, of course, but existing commercial surgical robots have mostly steered far away from any kind of learning behaviors or anything that is in the least bit autonomous. If the technology can be made reliable enough, it would be an enormous advance if surgical robots could collaboratively lend their intelligence to human-controlled surgery.
This is true for the same reason that autonomous cars are better drivers than humans are: they have the potential to digest enormous amounts of data (including types that humans can’t directly access) and rapidly make highly informed decisions. We’re not suggesting that purely robotic surgeons are the way to go anytime soon, but as intelligent tools, they could be invaluable....MORE
With the potential to streamline and deliver greater time and cost savings to a broad spectrum of enterprise tasks, opportunities for Internet of Things (IoT) adoption are proliferating. It’s encouraging to see so many industry-leading manufacturers, service providers, software and systems developers getting down to the hard work of making the vision IoT investments pay off. Forecasting methodologies shifted in 2015 from the purely theoretical to being more anchored in early adoption performance gains. Gil Press wrote an excellent post on this topic Internet of Things By The Numbers: Market Estimates And Forecasts which continues to be a useful reference for market data and insights, as does his recent post, Internet Of Things (IoT) News Roundup: Onwards And Upwards To 30 Billion Connected Things.
Key takeaways from the collection of IoT forecasts and market estimates include the following:
- IoT-related value-added services are forecast to grow from $50B in 2012 to $120B in 2018, attaining a 15.71% CAGR in the forecast period. ABI Research’s forecast of the Machine-to-Machine (M2M)/Internet of Things value chain includes projected revenues and is part of an excellent analysis of the market by Woodside Capital Partners. Source: The Internet Of Things: “Smart” Products Demand a Smart Strategy Using M&A for a Competitive Edge (PDF, no opt-in, 101 pp.).
- Cisco predicts the global IoT market will be $14.4T by 2022. Industry-specific use cases will generate $9.5T (66%) including smart grid, connected personal vehicles. Cross-industry use cases will generate $4.9T (34%) including future of work initiatives (telecommuting and collaboration technologies), and travel avoidance. Source: Embracing the Internet of Everything To Capture Your Share of $14.4 Trillion, white paper published by Cisco.
- Software and services will be a $600B market by 2019, attaining a 44% CAGR from 2015 to 2019. BI Intelligence also predicts the number of devices connected via IoT technology will grow at a 35% CAGR from 2014 to 2019. Source: Business Insider, The Internet of Everything, 2015 Slide Presentation.
Big news out of Moscow today – not about the renewed escalation of military fighting in Eastern Ukraine, but rather about Russian monetary policy. Hence, today the Russian central bank (CBR) under the leadership of Elvira Nabiullina effectively let the ruble float freely.
The CBR has increasing allowed the ruble to float more and more freely since 2008-9 within a bigger and bigger trading range. The Ukrainian crisis, negative Emerging Markets sentiments and falling oil prices have put the ruble under significant weakening pressures most of the year and even though the CBR generally has allowed for a significant weakening of the Russian currency it has also tried to slow the ruble’s slide by hiking interest rates and by intervening in the FX market. However, it has increasingly become clear that cost of the “defense” of the ruble was not worth the fight. So today the CBR finally announced that it would effectively float the ruble.
It should be no surprise to anybody who is reading my blog that I generally think that freely floating exchange rates is preferable to fixed exchange rate regimes and I therefore certainly also welcome CBR’s decision to finally float the ruble and I think CBR governor Elvira Nabiullina deserves a lot of praise for having push this decision through (whether or not her hand was forced by market pressures or not). Anybody familiar with Russian economic-policy decision making will know that this decision has not been a straightforward decision to make.
Elvira has turned the petro-monetary transmission mechanism upside-down
The purpose of this blog post is not necessarily to specifically discuss the change in the monetary policy set-up, but rather to use these changes to discuss how such changes impact the monetary transmission mechanism and how it changes the causality between money, markets and the economy in general.
Lets first start out with how the transmission mechanism looks like in a commodity exporting economy like Russia with a fixed (or quasi fixed) exchange rate like in Russia prior to 2008-9.
When the Russian ruble was fixed against the US dollar changes in the oil price was completely central to the monetary transmission – and that is why I have earlier called it the petro-monetary transmission mechanism. I have earlier explained how this works:
If we are in a pegged exchange rate regime and the price of oil increases by lets say 10% then the ruble will tend to strengthen as currency inflows increase. However, with a fully pegged exchange rate the CBR will intervene to keep the ruble pegged. In other words the central bank will sell ruble and buy foreign currency and thereby increase the currency reserve and the money supply (to be totally correct the money base). Remembering that MV=PY so an increase in the money supply (M) will increase nominal GDP (PY) and this likely will also increase real GDP at least in the short run as prices and wages are sticky.So in a pegged exchange rate set-up causality runs from higher oil prices to higher money supply growth and then on to nominal GDP and real GDP and then likely also higher inflation. Furthermore, if the economic agents are forward-looking they will realize this and as they know higher oil prices will mean higher inflation they will reduce money demand pushing up money velocity (V) which in itself will push up NGDP and RGDP (and prices).This effectively means that in such a set-up the CBR will have given up monetary sovereignty and instead will “import” monetary policy via the oil price and the exchange rate. In reality this also means that the global monetary superpower (the Fed and PBoC) – which to a large extent determines the global demand for oil indirectly will determine Russian monetary conditions.
Lets take the case of the People’s Bank of China (PBoC). If the PBoC ease monetary policy – increase monetary supply growth – then it will increase Chinese demand for oil and push up oil prices. Higher oil prices will push up currency inflows into Russia and will cause appreciation pressure on the ruble. If the ruble is pegged then the CBR will have to intervene to keep the ruble from strengthening. Currency intervention of course is the same as sell ruble and buying foreign currency, which equals an increase in the Russian money base/supply. This will push up Russian nominal GDP growth....MORE
...People are worried about unicorns.
I have to say that I don't understand the public relations strategy of Theranos, the Blood Unicorn. There was a Bloomberg Businessweek cover story this month, and this weekend there was another big article in the New York Times, and Theranos seems to have cooperated with both of them, and its chief executive officer Elizabeth Holmes was interviewed for both of them. Obviously if you are Elizabeth Holmes you have to know that the only questions anyone wants to ask you are to the effect of: Is your company legit? Can you actually do the blood tests that you've claimed you can do? And obviously you need to have answers for those questions. But she never does. It's a lot of this:
Ms. Holmes insists, however, that the company can still rely on some of its technology, which she won’t specify.And this:
Ms. Holmes argues that the company’s focus over time simply shifted away from the pharmaceutical industry, but it was able to successfully use its technology. “We can show you the programs we’ve done,” she said in the interview. But when pressed for examples, the company did not provide details.No no no no no, that is bad PR, obviously the details are what people want. The time for "trying to take back control of the Theranos story" is after your tests work. Then these interviews are easy: People ask you if your tests work, and you say yes, and you point to the FDA approval or peer review or whatever, and everyone is convinced, and the story is about how Theranos has been unfairly maligned. Without that, the story is still about how Theranos still won't answer direct questions about its tests. Also:
She claims her mother dressed her and her brother in black turtlenecks when they were young and now she finds them comfortable. Moreover, she wanted to deflect attention from what she might be wearing. But now she admits she is frustrated about how to handle the media fascination they seem to have created.When times were good, every story was about the black turtlenecks; now every story is about how she doesn't like all the stories about the black turtlenecks. It is turtlenecks all the way down. The way to change the story is to have better facts: The media is actually fascinated with Theranos's product, right now, but Theranos doesn't have much to say about it. So, turtlenecks.
Meanwhile in the Wall Street Journal, "U.S. Probes Theranos Complaints." And elsewhere in unicorns, high private valuations mean that private tech company employee stock options aren't as exciting as they used to be....
Our June piece "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?" was one of the earliest to link to credible sources who thought there was no there, there.We have agreeance* on the waving with the hands.
Theranos still has not responded to the substantive criticisms, instead going with smoke, mirrors, hand waving and changing the subject.
You can exchange them for legal tender in euros, but Germans still hold deutschmarks. The Bundesbank says the combined stash of notes and coins is worth 6.6 billion euros, 14 years after Europe adopted the euro as cash.
Germany's deutschmark currency (DM), yearned for by some adults but almost unknown amongst children, can still be swapped for euros at the rate fixed back in 2001. Germany's central bank, the Bundesbank, reminded hoarders and the forgetful on Friday that they would trade the old currency for genuine cash.
It cited a survey conducted by YouGov in late November, which found that 54 percent of residents in Germany still had banknotes and particularly old coins at home.
The Bundesbank's official rate remains at one euro for 1.95583 DM - the rate of nearly two for one set in 2001 - if notes or coins are brought to the Frankfurt institute or its regional branches. It advises against mailing them.
The deutschmark launched in 1948 under Allied rule in post-war western Germany went on to replace former East Germany's "Ostmark" in 1990, during the year of German reunification.
Its sidelining as a cash and non-cash currency 11 years later is still lamented by euroskeptics. The euro is now used in 19 countries, including Germany as founding member of the euro zone.
Coins galore!
Roughly 24 billion individual DM-coins, as small as one pfennig, remain in circulation. That represents about half of all DM coins ever issued, said the Frankfurt-based Bundesbank on Friday.
Those unrecovered included five and ten mark coins minted for commemorative occasions and often held by traders because of their potential to be smelted to extract their silver content. Also, some more rare coins could amass considerably greater values than their exchange rates as collector's items.
Only four percent of DM-banknotes were still in circulation, the Bundesbank added.
The notes had been particularly popular outside Germany: for example, in former Yugoslavia's successor states, five and ten-DM notes had been used in recent years as a "second currency."
In all, the combined value of deutschmarks still in circulation as cash amounted to 6.6 billion euros ($7.2 billion), the bank said.
After Germany's initial late 2001 rush to convert into euros, the figure has declined steadily. In late 2002, Deutschmark cash remnants had a combined value of around 9.4 billion euros....MORE