"US Dollar Has Worst Year since 2003, Defying the Fed"

The U.S. Dollar Index (see below) over the last year:

FinViz

91.87, down .43 on the day.
From Wolf Street: 

Where will it go from here?
Today is another down-day for the US dollar, the third in a row, capping a nasty year for the dollar, the worst since 2003. In 2017, the dollar dropped 7% against a broad basket of other currencies, as measured by the Trade Weighted Dollar Index (broad), which includes the Chinese yuan which is pegged to the US dollar. It was worse than the 5.7% drop in 2009, but not as bad the 8.5% plunge in 2003.

Here are the past four years of the dollar as depicted by the Broad Trade Weighted Dollar Index, which tracks 26 foreign currencies. The index is updated weekly, with the last update on December 26, and has not yet captured the declines of past three days:

This broad Trade Weighted Dollar Index is a weighted average of the dollar against the currencies of major US trading partners: the Eurozone, Canada, Japan, Mexico, China, UK, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile, and Colombia.

Among the largest currencies, the euro rose the most, soaring 14.5% against the dollar in 2017 and is currently trading at $1.20. The Canadian dollar is up 7% against the dollar, the Japanese yen nearly 4%.

As per the narrower Dollar Index [DXY], the dollar fell 10.2% for the year. The DXY measures the dollar only against the euro, Japanese yen, Canadian dollar, British pound, Swedish krona, and Swiss franc, but not against the currencies of other major US trading partners, such as China and Mexico.

Thus the dollar has accomplished a feat in 2017: During a year when the Fed continued with clockwork regularity its efforts to raise interest rates “gradually,” and when it kicked off the QE Unwind, thus taking dollar liquidity out of the market, the dollar, instead of rising in response, had its worst year since 2003.

Front-running the Fed?
In the second half of 2016, the Fed signaled fairly clearly that it would get serious about raising its target range for the federal funds rate. In the fall of 2016, Fed governors started suggesting that the QE unwind would need to start in 2017. So when the Fed raised rates in December 2016 for the first time in a year and for the second time in 10 years, there was absolutely no surprise. Markets had expected it....MORE

"Welcome @elonmusk to Chile, the Saudi Arabia of lithium, a potential 'solar country' and a leader of world economic freedom."

That's José Piñera Echenique, former Chilean Minister of Mining, former Minister of Labor and Social Security still pushing product:

Welcome @elonmusk to Chile, the Saudi Arabia of lithium, a potential “solar country” and a leader of world economic freedom. Looking forward to travel SCL-LAX in 30 minutes in SpaceX. https://t.co/revwjfwWVw

— José Piñera (@josepinera2) December 28, 2017

Referring to this:

Elon Musk, creador de Tesla, está de visita en Chile
Millonario emprendedor sudafricano arribó el miércoles al país, aunque se desconocen las razones de su viaje.

Imagen de archivo de Elon Musk, presentando un auto de su empresa Tesla Motors.

Comenzó como un rumor. Elon Musk, el empresario sudafricano, creador de empresas como PayPal, Tesla Motors y Space X, habría llegado el miércoles a Chile, proveniente de EE.UU. en un avión privado.

Pero el miércoles, fuentes de la Policía de Investigaciones (PDI) confirmaron su arribo al país, lo que más tarde fue ratificado por José Piñera, quien escribió en su cuenta de Twitter “Bienvenido @elonmusk a Chile, la Arabia Saudita del litio, un potencial ‘país solar’ y líder de la libertad económica mundial. Tengo ganas de viajar SCL-LAX en 30 minutos en SpaceX”, en alusión a lo que demoraría un hipotético viaje entre Santiago (SCL) y Los Angeles (LAX) en EE.UU. en alguna de las naves de su empresa espacial....

...MÁS

Robot Brickmasons, a Robotic Bricklaying Stock and Travel Tip Critiques

The construction biz went through its energy revolution when machines replaced animal and human muscle power but has been rather stagnant since. There is a lot of money to be made if one can raise productivity in the sector.

And as a side note, for what its worth I had the same "the Rolex could get you killed in certain locales" reaction to the Bloomberg piece.

From Nanalyze:

An article by Bloomberg a few days ago titled Want to Stay Safe While Traveling? Wear a Rolex was probably the worst piece of travel advice we’ve ever seen. Among all the vices that our closely knit team of writers, researchers, and MBAs like to dabble in, the one that we find the most rewarding is travelling the world to have adventures while trying not to get killed or thrown in jail for longer than 24 hours. In a fair number of places we’ve been, wearing a Rolex is a sure way to get shanked. One country that might fall into the category of “don’t wear a Rolex while traveling to” is Bangladesh. When traveling there, you will encounter the friendliest people on the entire planet and structures like these sprinkled all over the country:

Source: Al Jazeera

Those smoke stacks are brick kilns, and 8,000 of them across Bangladesh are responsible for a great deal of pollution, but also serve an important purpose. They provide the building blocks needed to assemble sweat factories for first world countries. As it turns out, bricks are big business everywhere.

According to the Bureau of Labor and Statistics, there are 64,370 brickmasons and blockmasons working in the U.S. that are paid an average salary of $53,440. Back of the napkin math puts the total spend on bricklaying in the United States at around $3.4 billion. Given all the focus we’ve seen lately on the digitization of the construction industry, it’s not a surprise to see some companies looking at creating robotic bricklayers. The first company we’re going to look at is a private company called Construction Robotics.

Founded in 2008, New York startup Construction Robotics has taken in just $75,000 in funding to develop the “first commercially available bricklaying robot for onsite masonry construction”. The robot’s name is SAM100, SAM being short for Semi-Automated Mason, and with an expected labor savings of around 50%, it’s no surprise to see that SAM100 is already hard at work. SAM100 is a collaborative robot (also called COBOT) which increases your bricklayers productivity by 3-5X while reducing lifting by 80%. According to a customer testimonial, “SAM can lay over 2,000 bricks a day in comparison to the average 400 laid per mason“. While that may be the case, it’s also important to mention that SAM can only operate in a straight line. Consequently, it is most useful for long walls.

The idea of a robot laying bricks is easy to conceptualize, until you bring mortar into the picture. In the case of SAM100, it coats the brick with mortar first, then places it. Here’s a good video showing how this propane-powered bricklaying robot works.

While SAM100 sounds promising, our next company is more interesting to investors for several reasons. Firstly, it’s publicly traded so you can get a piece of this robotic bricklaying action. Secondly, it’s backed by a giant construction equipment company you may have heard of called Caterpillar. Since it’s an Australian company, and half of our readers hail from ‘Murica, we’ve converted everything to USD for you.

Founded in 2015, Australian company Fastbrick Robotics (ASX:FBR) took in $10 million in funding before a November 2015 IPO that took place through a “reverse takeover” of an existing company shell that was already being traded on the Australian Exchange. The offering was oversubscribed and raised $4.41 million at 1.53 cents a share. Fast forward to today and we see those shares are now worth 15.7 cents giving investors a return of about +926% in just two years. The question is, just what happened in the past several years that merited such an astronomical increase?...

...MUCH MORE

Previously on the brick beat:
September 2013
Dear Mr. President, Robots CAN Repair Roads (GOOG)

Yesterday we posted "Obama On Infrastructure: 'A Robot Can't Build A Road'" with links to this rather amazing machine:

FT Alphaville linked to us in this morning's "Further Reading" post - Robots building roads despite the doubters.
And this provoked a comment from an FT Alphaville fan:

Willem de Leeuw | September 16 9:07am | Permalink "Robots building roads despite the doubters."

That's not a robot. Brick road laying machines may be new but tarmac laying machines are not. 

He's right of course, the machine pictured is not a robot. It would more correctly be referred to as a "Semi-autonomous, put-ten-bricklayers-out-of-work automated road building device.

But jeez Louise, I know it's not a robot and Alphaville's David Keohane knows it's not a robot and our readers know it's not a robot and they also know I was using a shorthand way to point up the ahhh, labor saving, aspect.

However-
there is more to the story.

From Motherboard:

Hey President Obama, Robots Can Repair Roads

...MORE

A Real Risk: "Too Much Tech" - The Growing Peril Of Passive Investing

There are two steps in passive investing.

• First, buy an index. Usually accomplished via an exchange traded fund.
• Second, rebalance. 

It is easier to rebalance in an actively managed portfolio. For example in a 60/40 equity/debt account the rebalancing is done by selling off whichever component has grown past the allocation parameters and reinvesting in the component that hasn't kept up to bring the portfolio back to the chosen allocation.

There are levels of granularity the active manager can employ ranging from the time period between rebalancing to weightings of geographic or industry groups to enforce the discipline of buying whichever asset class is "cheaper".

In addition to forced "buy low, sell high" positioning there is the additional feature of avoiding gearing to the downside.
Let's say your 60/40 has grown so much on the equity side that stocks now comprise 80% of portfolio assets. Should a 50% decline strike. you are, to put it simply and without the math, losing that percentage from a greatly expanded base.
As my favorite Chinese translator (M.Sc.Eng, MBA) tells me when I blow something up: "No good."

A longer than usual intro for a shorter than usual piece at ZeroHedge, Dec. 28:

Too much of a good thing..." - That's the message that many passive investors are unknowingly dealing with as they approach the year-end.

In 2012, FANG Stocks (Facebook, Amazon, Netflix, and Google) accounted for less than 3% of the market cap of the S&P 500.

And, as WSJ reports, this is not limited to a small handful of stocks, it is worldwide - investors who loaded up on U.S. and Asian stock-index funds might be surprised to learn just what they own now: technology stocks - a lot of them.

Led by Apple Inc., Facebook Inc. and their peers, the weighing of technology stocks in the S&P 500 index has climbed to 23.8% as of Dec. 26, from 20.8% at the end of last year, according to S&P Dow Jones Indices.

Three years ago, tech stocks had a 19.7% weighting in the widely used U.S. stock market benchmark, which is currently tracked by funds with more than $2 trillion in assets.
Over the past 10 years, the weighting of the tech sector in the S&P 500 at year-end has averaged 19.6%.

The same is true in Asia, where surging tech stocks have powered sharp gains in Hong Kong, South Korea and other markets. The weighting of technology stocks in the MSCI Emerging Markets Index, whose components include Chinese e-commerce giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd. , was 28% as of Dec. 21, from 23.3% a year ago.

“It’s sort of an inherent flaw of index funds,” said Kyle Moore, founder of Quarry Hill Advisors in St. Paul, Minn., referring to the way surging stocks have a bigger share of indexes that are market-value weighted, like the S&P 500.

Noting that some tech stocks have gained nearly 50% this year, Mr. Moore said a  typical investor response would be to trim exposure to those stocks and take profits. When that happens in an index fund, nothing happens automatically, he said....MORE

Possibly The Funniest (Profitable) Stock Recommendation of All Time (PSON)

Paul Murphy now heads up the Financial Times' FT Investigations but can still be seen at FT Alphaville from time to time.

Originally posted Dec. 30, 2015 as:

Possibly the Funniest (profitable) Thing We Saw In 2015: FT Alphaville's Founder/Editor Channels Mr. Subliminal 

Then updated on January 18, 2017 with this:

 -from Bloomberg's Tracy Alloway (formerly FT Alphavillein)

Original post:   

For our younger readers, here is Mr. Subliminal on Donald Trump cheating on his wife Ivana in 1990:

                                                                                         Comedian

And here's FT Alphaville's editor, Paul Murphy,

 

Hard-bitten journalist

on former FT Alphaville owner Pearson and its stock, Dec. 1, the day the Financial Times was handed over to Nikkei, while appearing to be having a normal conversation with Alphavillein Bryce Elder:

...PM

(So here’s our advice on the stock at 832p….)

PM

( Run )

BE

...Today, though, the message is dovish. So we’re all choosing to forget about 2016.

PM

( Scarper )

PM

( Get out )

PM

( Bin it )

--------
PM

( You don’t think another profit warning is coming? Oh course another profit warning is coming! )

--------
PM

( And I can tell you it’s a screaming sell. )

--------

PM

( I can tell you what happens next…)

PM

( Having focused the business down and down and down so that it’s pure corporatised education…)

-------
PM

( And with corporatised education, er, falling slightly out of fashion…)

-------
PM

( The next effort will be to slash costs — slashing with a blunt knife. A panic. )

-------
PM

( My guess is 15 per cent of the workforce will go. )

-------

PM

( Across the board. )

PM

(except not in the boardroom, of course )

PM

(It’s a lucky escape for us, cos the 15 per cent cut would have hit us as well. 100 journo jobs would have gone. )

BE

Is that enough on banks? Actually, Goldman too. Just because.

--------
--------

PM

(If you look back to the late 90s, the FT had all the bits to construct Bloomgerg. )

PM

( Had a world class consumer offering in the form of the paper )

PM

(But it also had a newswire, and an online markets business — Market Watch.)

BE

Should we move on to other matters?

11:22AM

PM

(It had data, in the form of IDC)

PM

(Had Extel. Had what became factiva.)

PM

(Had a huge EM news business.)

BE

Okay …………. I think I have to do a quick bit of de-RAW here.

--------

BE

Coincidentally, we were chasing the same story from a slightly different angle.

BE

The rumour that reached us was that National Grid was working on a bid of around $45 a share for ITC …

PM

(People here complained of a lack of investment from Pearson. Investment??? They were sucking the life-blood out of the thing. )

BE

… However, that would all appear to be very, very premature..

---------

BE

… However, that would all appear to be very, very premature..

BE

What we can say with some confidence is that National Grid’s in the ITC auction process, which kicked off a week ago …

BE

But NG only appointed a new CEO at the start of the month, and is in transition between the old guy and the new guy for the rest of the year.

BE

And NG’s balance sheet doesn’t make ~$7bn-ish deals look very easy.

BE

So. If National Grid’s involved …

BE

… It’s much more likely to be in there to look at the numbers of a rival, rather than to launch an offer.

PM

(Sure, there was one short period, during the dot comedy, that the FT was allowed to expand. It was a disaster, timing wise. But Pearson made up all the associated losses with one disposal — Market Watch. That covered everything.)

BE

Also, note, there’s no shortage of potential bidders. It’s a crowded process.

PM

(Anyway, ive said enough. We’re under new ownership now. )

PM

( Sell Pearson )

BE

Also likely to be in there are Berkshire Energy, Iberdrola’s Avangrid, Hydro One, NextEra Energy, American Electric Power ….

...MUCH MORE

The stock is currently trading at 739p, down 11.17% so far this month, after trading under 700 a couple weeks ago.... 

Updated stock price, January 18, 2017:

583.50 GBX down 224.50 (27.78%) on the day.

And FT Alphaville's latest commentary on Pearson.

Asteroid YZ4, Which Was NOT Spotted by NASA until Christmas Day, Just Flew Past Earth

WTH?
It flew by closer than the orbit of the moon, and though only the size of a bus it would wreck your day should it land on your head.

From The Express:

Asteroid 2017 YZ4: What time will the 'unseen' asteroid pass Earth TODAY?

A NEWLY discovered asteroid known as Asteroid 2017 YZ4 will skim past the Earth today in what astronomers consider a “near miss”. But what time will the asteroid fly past?

Asteroid YZ4, which was not spotted by NASA until Christmas Day, will hurtle past Earth at a distance of just 139,433 miles - a stone’s throw in astronomical terms - with the Moon orbiting about 238,000 miles away from Earth.  

A NASA spokesman said this is the first known asteroid to flyby Earth within one lunar distance since two asteroids flew past us 35 minutes apart on November 21.
He said: “As of December 24, there are 17,495 known Near-Earth Objects (NEOs) around our planet. 17,389 are asteroids.

“This year, we discovered 1,985 new near Earth asteroids. There were 1,888 such objects discovered in 2016 and 1,571 in 2015."

The asteroid is due to pass Earth at a relative speed of 9.55 kilometres per second at 3.56pm GMT on Thursday December 28, according to NASA’s Solar System Dynamics website....MORE

"Are we heading towards a singularity of crime?"

From Philosophical Disquisitions:

On the 8th August 1963, a gang of fifteen men boarded the Royal Mail train heading from London to Glasgow. They were there to carry out a robbery. In the end, they made off with £2.6 million (approximately £46 million in today’s money). The robbery had been meticulously planned. Using information from a postal worker (known as “the Ulsterman”), the gang waylaid the train at a signal crossing in Ledburn, Buckinghamshire. They put a covering over the green light at the signal crossing and used a six-volt battery to switch on the red light. When one of the train’s crew went to investigate, they overpowered him and boarded the train. They used no firearms in the process, though they did brutally beat the train driver, Jack Mills. Most of the gang were arrested and sent to jail, but the majority of the money was never recovered. It was known as the ‘Great Train Robbery’.

In November and December 2013, the US-retailer Target suffered a major data breach. Using malware made by a 17 year-old Russian hacker, a criminal gang managed to steal data (including credit card numbers) from over 110 million Target customers. The total cost of the breach is difficult to estimate. Figures suggest that the criminals made up to $54 million selling the credit card data on the black market; the breach is likely to have cost financial institutions around $200 million in cancelling and reissuing cards (Target have themselves entered into settlements with credit card companies costing at least $67 million); it had a significant impact on Target’s year end profits in 2013; and they promised to spend over $100 million upgrading their security systems.

So in fifty years we went from a gang of 15 meticulously planning and executing a train robbery in order to steal £2.6 million, to a group of hackers using malware manufactured by a single Russian teen, stealing customer data without having to leave their own homes, with an estimated cost of over $350 million.

These two stories are taken from Marc Goodman’s eye-opening book Future Crimes. In the book, Goodman uses the dramatic leap in the scale of criminal activity — illustrated by these two stories — to make an interesting observation. He argues that the exponential growth in networking technology may be leading us toward a ‘crime singularity’. The phrase is something of a throwaway in the book, and Goodman never fully explains what he means. But it intrigued me when I read it. And so, in this post, I want to delve into the concept of a crime singularity in a little more depth. I’ll do so in three phases. First, I’ll look to other uses of the term ‘singularity’ in debates about technology and see if they provide any pointers for understanding what a crime singularity might be. Second, I’ll outline what I take to be Goodman’s case for the crime singularity. And third, I’ll offer some evaluations of that case.

1. What would a singularity of crime look like?
I’m going to start with the basics. The term ‘singularity’ is bandied about quite a bit in conversations about technology and the human future. It originates in mathematics and physics and is used in those disciplines to describe a point at which a mathematical object is not well-defined or well-behaved. The typical example from physics is the gravitational singularity. This is something that occurs in black holes and represents a point in space time at which gravitational forces approach infinity. The normal laws of spacetime breakdown at this point. Hence, objects that are represented in the central equations of physics are no longer well-behaved.

The physicist and science fiction author Vernor Vinge co-opted the term in a 1993 essay to describe something he called the ‘technological singularity’. He explained this as a hypothetical point in the not-too-distant human future when we would be able to create superhuman artificial intelligence. In this he was hearkening back to IJ Good’s famous argument about an intelligence explosion. The idea is that if we manage to create greater-than-human AI, then that AI will be able to create even greater AI, and pretty soon after you would get an ‘explosion’: ever more intelligent AI being created by previous generations of AI. Vinge suggested that at this point the ‘human era’ would be over: all the concepts, values and ideas we hold dear may cease to be important. Hence, the point in time at which we create the first superintelligence is a point at which everything becomes highly unpredictable. We cannot really ‘see’ beyond this point and guess what the world will be like. In this sense, Vinge’s singularity is akin to the gravitational singularity in a black hole: you cannot see beyond the event horizon of the black hole, and into the gravitational singularity, either.

Ray Kurzweil took Vinge’s idea and expanded upon it greatly in his 2006 book The Singularity is Near. He linked it to exponential improvements in information technology (originally identified by Gordon Moore and immortalised in the eponymous Moore’s Law). Using graphs that depicted these exponential improvements, he tried to predict the point in history when we would reach the prediction horizon, settling on the year 2045. Kurzweil’s imagined singularity involved the fusion of man with machine as well as the creation of superhuman artificial intelligence. One of his infamous graphs is depicted below.

Culling from the work of Vinge and Kurzweil, I think it is fair to say that the term ‘singularity’, when used in debates about technology, appeals to one or both of the following:...

...MUCH MORE

"Can a Single Volcano Cool the Earth?"

Yes.
And if it should be in the tropics rather than one of the Russian or Alaskan 'cano's, the effect is magnified. Had the Icelandic eruption mentioned below (and in our 2015 post: Laki: How A Volcano Swallowed Europe) been located at the equator the impact would have been doubled or tripled.

From JSTOR Daily:

Mt Agung, in Bali, Indonesia, has spent the past month or so rumbling and spewing tons of ash into the atmosphere. Thousands of people living nearby have been evacuated, and experts fear a much larger eruption, although the local press claims Bali is now safe from any real threat. The last eruption, in 1963, killed more than 1000 people and displaced thousands of others. It is a dangerous event, but scientists intend to use the eruption to investigate ways to mitigate climate change through geoengineering. It seems far-fetched, but even one volcano can have impacts that affect the planet.

For example, in June of 1783, Iceland’s Laki volcano erupted, spewing tons of dust and aerosols into the air, followed by lava flows. The eruption continued for eight months, and when all was said and done the entire Northern Hemisphere experienced a noted temperature decrease. Some local areas, such as the Eastern United States and Northern Europe, experienced particularly dramatic decreases. There were dire consequences, especially in Iceland.

Over the next few centuries, there were at least five eruptions large enough to affect the temperature over the entire hemisphere. One standout was the Coseguina, Nicaragua eruption in the mid-nineteenth century. The 1963 Mount Agung eruption made a significant impact, as well. More recently, the 1992 eruption of Mt. Pinatubo in the Philippines actually caused global temperatures to drop, bucking the warming trend that was already evident by then. At the same time, local temperature increases were also recorded, demonstrating that while there might be an overall trend the climate impacts might not be geographically universal.

So what happened? All these volcanoes threw an immense amount of dust high into the atmosphere, enough to actually block a measurable percentage of sunlight from reaching Earth....MORE

The (globally) most dangerous eruptions are those rated at 6 - 8 on the Volcanic Explosivity Index (VEI):

VEI

Ejecta volume

Eruption Classification

Description

Plume Height

Frequency of Eruption

Examples

Occurrences in last 10,000 years*

*****

5	> 1 km³	Plinian	Paroxysmal	20–35 km	≥ 10 yrs	Mount Vesuvius, Mount St. Helens (1980)	166
6	> 10 km³	Plinian/Ultra-Plinian	Colossal	> 30 km	≥ 100 yrs	Krakatoa, Indonesia (1883), Mount Pinatubo, Philippines (1991)	51
7	> 100 km³	Ultra-Plinian	Super-colossal	> 40 km	≥ 1,000 yrs	Tambora (1815)	5 (+2 suspected)
8	> 1,000 km³	Supervolcanic	Mega-colossal	> 50 km	≥ 10,000 yrs	Yellowstone (Pleistocene)	0

"Beware the Cresting Wave of Emerging Market Debt"

"Emerging market speculation tends to appear at a juncture in the economic cycle when 

declining yields on domestic bonds combine with an excess of capital to make 

foreign investments particularly attractive."

-Edward Chancellor

Devil take the Hindmost: A History of Financial Speculation

Chapter 4, Fool's Gold: The Emerging Markets of the 1820's

We're talking credit here, not equity.

From Institutional Investor, December 8:

Investors buying a record volume of risky bonds from borrowers in developing economies may become filled with regret.

Governments and companies in emerging markets issued $252.7 billion of speculative-grade bonds this year through November 14, smashing the record $172.1 billion sold in all of 2016, according to Dealogic. The 47 percent jump from last year’s level may be a boon to borrowers, but it raises concern that investors will be harmed by their reach for yield.

“With the high-yield markets facing headwinds after a very impressive run, an onslaught of new issuance runs a notably higher risk of being the straw that breaks the back of elevated valuations,” says Mohamed El-Erian, chief economic adviser at Allianz. “This is a possibility that investors in the asset class would regret.”

Tajikistan — not exactly a bastion of wealth — raised $500 million in September from its first international bond sale, a sum more than 7 percent of its gross domestic product. The Central Asian country will pay an annual interest rate of 7.125 percent for the below-investment-grade debt, according to the Financial Times. In June, Argentina, which has defaulted on its debt eight times since gaining independence from Spain in 1816, sold $2.75 billion of 100-year bonds, also with a 7.125 percent coupon.

It’s difficult to blame borrowers for extracting favorable deals when markets are wide open. Eager to put their money in emerging-markets bonds on the belief that U.S. interest rates will remain very low, investors may be underestimating how much the Federal Reserve will tighten its monetary policy and the impact that will have on emerging-markets debt, according to analysts.

“This is the tail end of the credit cycle,” says Win Thin, global head of emerging-markets strategy at Brown Brothers Harriman & Co. “Borrowers are trying to push through the door as fast as possible, given that the Fed is raising interest rates.”...

...MORE

Testing Universal Basic Income In Scotland

From Futurism:

A New Trial in Scotland May Bring Universal Basic Income to Life 
Universal Basic Income Lands in Scotland

People living in the Scottish cities of Glasgow, Edinburgh, Fife, and North Ayrshire may soon receive an unconditional monthly sum as part of a series of universal basic income pilots currently being explored with support from the local government.

Although still in its infancy and rife with controversy, the idea has already attracted £250,000 (nearly $334,500) of public funding in the form of a grant to develop feasibility studies. The cities involved have until late March 2018 to submit their bids.

In a world where jobs are being increasingly taken over by machines, leaders have started to recognize that the welfare safety net will need to change. Advocates of universal basic income believe that the unconditional offer of a regular, though tiny, sum of money could help many get back on their feet, and even encourage them to invest in new business ideas.

In Scotland, some have criticized the government’s involvement of the government [sic?], which doesn’t have the powers over tax and benefits necessary to pilot a full basic income. However people from both sides of the political aisle have engaged with the proposal, which would cost money upfront but could deliver important savings by replacing unemployment benefits.

Speaking at a conference of economists, Scotland’s First Minister Nicola Sturgeon said: “It might turn out not to be the answer, it might turn out not to be feasible. But as work changes as rapidly as it is doing, I think its really important that we are prepared to be open-minded about the different ways that we can support individuals to participate fully in the new economy.”...MORE

Recently:
Dec. 5 
"We could fund a universal basic income with the data we give away to Facebook and Google"
Dec 5
A Quick Look at Universal Basic Income Experiments
Dec. 7
"A Radical Critique Of Universal Basic Income"

Following Trump's Executive Order on Critical Minerals the Interior Department Begins First Ever National Survey of Same

First up, from Platts, December 21:

Trump signs executive order to ensure US's critical minerals supply

US President Donald Trump signed Wednesday an executive order for developing a federal strategy that ensures "secure and reliable supplies" of critical minerals.

Inked amid growing concern about reliance on imports, the order aims to reduce "this dependency of the United States on foreign sources," for minerals such as cobalt, graphite, lithium and others.

The executive order, in fact, was signed a day after the US Department of the Interior and the US Geological Survey issued a comprehensive report showing that the US is "100% foreign-reliant on 20 minerals," and that "rare earth minerals are produced almost exclusively in China." The report identified 23 of the minerals that the Interior Department says are most-needed to sustain the national defense and economy "and are used in manufacturing everything from batteries and computer chips to equipment used by our military."

According to the recently released USGS Mineral Commodity Summaries 2017, the US was 100% net import reliant on 20 mineral commodities in 2016, including manganese, niobium, tantalum and others.

Also among the 23 minerals cited in Interior's report are antimony, beryllium, cobalt, graphite, lithium, platinum group elements, tin, titanium and vanadium.

In addition to China, many of these minerals are sourced from Russia, South Africa, Brazil and Canada....

...MORE

And from the Department of the Interior that day:

Secretary Zinke Signs Order to Begin Process of Creating First Ever National Survey of Critical Minerals

Date: December 21, 2017
Contact: Interior_Press@ios.doi.gov

WASHINGTON, D.C. – Today, following President Donald J. Trump's executive order to break America's dependence on foreign minerals, U.S. Secretary of the Interior Ryan Zinke signed a secretarial order directing the initial steps to producing the first nationwide geological and topographical survey of the United States in modern history. The order also directs Interior bureaus to begin work on identifying immediate domestic sources for critical minerals.

"Right now the United States is almost completely reliant on foreign adversaries and competitors for many of the minerals that are deemed critical for our national and economic security. As both a former military commander and geologist, I know the risk this presents to our nation," said Secretary Ryan Zinke. "The problem is we can't fix the problem if we don't know where the minerals are within our own boarders. Other nations are far ahead of us with mapping of their mineral resources, leading to private sector investment overseas rather than right here at home. Drafting a complete topographical and geographic survey of the United States is exactly the kind of task the USGS was created to do."

"Our nation’s growing dependence on foreign minerals is a distinct threat to our economy, our national defense, and our international competitiveness," Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-AK) said. "We need to improve all aspects of the supply chain – from geologic surveying to permitting reform – so that our nation produces more of the minerals that are fundamental to energy, health care, manufacturing, and other technologies. I welcome Secretary Zinke’s determination to strengthen our nation’s mineral security, and will continue to work with my colleagues in Congress to ensure we complement these efforts with legislative action."

"A country blessed with abundant mineral resources shouldn’t be mineral-dependent and vulnerable," said House Natural Resources Committee Chairman Rob Bishop (R-UT). "This is an economic and security threat that’s festered across administrations for too long. I look forward to continuing our work with the Trump administration to unlock our domestic mineral potential and reverse this disturbing trend."

The United States is heavily reliant on imports of certain mineral commodities that are vital to our national security and economic prosperity. This dependency on foreign sources creates a strategic vulnerability to U.S. industry and the military if supplies of these key minerals were disrupted by foreign government action, natural disasters, or other events....MORE

Transferring Wealth to the Rich Makes the Whole Pie Bigger

A repost from December 2012.
Original post:

But not as fast as transfers to the poor.

From Asymptosis:

In a recent post I built a model with one rich person and ten poorer people to ask: does redistribution from rich to poor make us all more wealthy? The conclusion was Yes. Jump back there to see a quick rundown of the model’s assumptions.

Michael Sankowski at Monetary Realism put the model through its paces, and provide feedback by email. He pointed out one very interesting thing: total wealth accumulation in the model increases (faster) with redistribution in both directions — from rich to poor and poor to rich.

(Note that redistribution could take infinite forms — traditional welfare, education and health-care spending, tax preferences for rich people’s investment income, corporate subsidies, etc. This is systemic redistribution we’re talking about here. Like this model, the system just does it.) 

Here’s what that looks like, with starting wealth of $2 million, divided 50/50 between the rich person and the ten poorer people. (click for larger):

(Since income in this model is based on spending from wealth, the income curves look similar to these wealth curves.)

It sure looks like giving more money to rich people does make the pie bigger — just not as fast or as much as giving more money to poorer people.

Since the model is based on the idea that poorer people spend more of their wealth each year, so giving them more money increases money velocity hence GDP and eventually wealth, this seems weird. But here’s the explanation: there’s a zero lower bound on poor people’s spending. It can only decrease so far, and so fast. Rich people’s spending can keep increasing with no constraints.....MORE

That sounds like the "Hawthorne Effect", the productivity studies at Western Electric's Hawthorne plant in the 1920's. In the Illumination Experiment the researchers reported that any change, including making the workspace dimmer, resulted in increased productivity.

The effect may not have been as robust as the researchers thought but there is something to it. Here's a 2011 re-examination by Steven Levitt. (16 page PDF)

Atlanta Fed GDPNow: Latest Forecast: 2.8 Percent (New York Fed 3.9%)

From the Federal Reserve Bank of Atlanta:

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release.

Recent forecasts for the GDPNow model are available here. More extensive numerical details—including underlying source data, forecasts, and model parameters—are available as a separate spreadsheet.

Latest forecast: 2.8 percent — December 22, 2017

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 2.8 percent on December 22, down from 3.3 percent on December 19. The forecast of fourth-quarter real consumer spending growth fell from 3.1 percent to 2.9 percent after this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis (BEA). The forecast of the contribution of inventory investment fell from -0.14 percentage points to -0.40 percentage points after this morning’s advance durable manufacturing release from the U.S. Census Bureau and the release of the revised underlying detail tables for the National Income and Product Accounts by the BEA this morning.

The next GDPNow update is Wednesday, January 3. Please see the "Release Dates" tab below for a full list of upcoming releases.

...MORE

If interested see also:  "https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf" (5 page PDF)

And the New York Fed's Nowcast (which uses a different methodology):

Dec 22, 2017: New York Fed Staff Nowcast

• The New York Fed Staff Nowcast stands at 3.9% for 2017:Q4 and 3.2% for 2018:Q1.

...MORE

For Sale: Big House, Rome

From HOTR:
€30 Million Mansion In Rome, Italy

 Rear Exterior

LOCATION: Rome, Italy
SQUARE FOOTAGE: 20,989
BEDROOMS & BATHROOMS: 8 bedrooms & 14 bathrooms
PRICE:v
This 5-story mansion is located in Rome, Italy.

It features approximately 20,989 square feet of living space with 8 bedrooms, 14 bathrooms, foyer with double staircase, formal living & dining rooms, gourmet kitchen, library and more....

...MORE

How Markets in Europe Opened Up as Guild Monopolies Declined in the Sixteenth Century

From the University of Chicago's Booth School of Business' ProMarket:

Markets don’t function well if they are ridden with frictions like lack of information or lack of trust. A new working paper finds that cities in the sixteenth century where monopolies of densely networked merchant guilds declined had significantly higher levels of printing, as they were early adopters of printing technology. Additionally, these cities were found on the Atlantic coast, where traders had the greatest incentives to form new connections with unfamiliar traders.

״Portrait of a Merchant,” painted c. 1530 by Jan Gossaert, depicts a Dutch merchant writing in a ledger surrounded with tools of the trade.

In the sixteenth century, the Northwest European region of England and the Low Countries underwent transformational change. In this region, a bourgeois culture emerged and cities like Antwerp, Amsterdam, and London became centers of institutional and business innovation, whose accomplishments have influenced the modern world.

For example, one of the first permanent commodity bourses was established in Antwerp in 1531, the first stock exchange emerged in Amsterdam in 1602, and joint stock companies became a promising form of organizing business in London in the late sixteenth century. The sixteenth century transformation was followed by the seventeenth century Dutch Golden Age, and the eighteenth century English Industrial Revolution. What made the Northwest region of Europe so different? The question remains a central concern in social sciences, with scholars from diverse fields (Weber, 1905; North, 1990; Padgett and Powell, 2012; McCloskey, 2016; Rubin, 2017) researching the subject.

The medieval power of merchant guilds  Markets don’t function well if they are ridden with frictions like lack of information, lack of trust, or high transaction costs. In the presence of frictions, business is often conducted via relationships. 

Until the end of the fifteenth century, impartial institutions like courts and police that serve all parties generally—so ubiquitous today in the developed world—weren’t well developed in Europe. In such a world without impartial institutions, trade often was (is) heavily dependent on relationships and conducted through networks like merchant guilds. Such relationship-based trade through dense networks of merchant guilds reduced concerns of information access and reliability. Not surprisingly, because the merchant guild system was an effective system in the absence of strong formal institutions, it sustained in Europe for several centuries. In developing countries like India, lacking in developed formal institutions, networked institutions like castes still play an important role in business.

Before the fourteenth century, merchant guild networks were probably less hierarchical, more voluntary, and more inclusive. But, with time, merchant guilds started to become exclusive monopolies, placing high barriers to entry for outsiders, and they began to resemble cartels with close involvement in local politics. There were two reasons why these guilds erected such tough barriers to entry: 

• Repeated committed interaction was the key to effectiveness of merchant guilds. Uncommitted outsiders could behave opportunistically and undermine the reliability of the system. Therefore, outsiders faced restrictions.

• Outsiders threatened the position of existing businessmen by increasing competition. So, even genuinely committed outsiders could be restricted to enter as they threatened the domination of existing members.

But, in the sixteenth century, the merchant guild system began to lose its significance as more impersonal markets, where traders could directly trade without the need of an affiliation, began to emerge (see Region 1 of map in Figure I) and rulers stopped granting privileges to merchant guilds. The traders began to rely less on networked and collective institutions like merchant guilds, and directly initiated partnerships with traders who they may not have known well. For example, in Antwerp the domination of intermediaries (called hostellers) who would connect foreign traders declined. Instead, the foreign traders began to conduct such trades directly with each other in facilities like bourses.

Emergence of markets in the 16^th century....

...MUCH MORE