Heads Up For The Swiss Guards: ISIS Says They're Coming to Rome

al-Baghdadi may find the real Swiss Guards a bit more challenging than the guys pictured in the Vatican's World Cup tweet.

From HuffPo UK:

ISIS Head Abu Bakr al-Baghdadi Warns 'We Will Conquer Rome' 

Terror group ISIS will march on Rome in its quest to establish an Islamic state from the Middle East across Europe, its self-proclaimed 'caliph' has announced.

In an audio recording Abu Bakr al-Baghdadi called on Muslims to rally to his pan-Islamic, which ISIS now simply calls 'Islamic State'.

"Those who can immigrate to the Islamic State should immigrate, as immigration to the house of Islam is a duty," he said....MORE

After talking to Muslims who advise not using the self-designation 'Islamic State', in future I'll probably be referring to IS as "The state formally known as ISIS".

Besides being fashionable, the court jester uniforms of the Swiss Guard are voluminous enough to hide a sandwich as well as the Guard's favorite close quarters equipment, the Heckler & Koch MP7A2 room broom.

Burger King Has a Gay Pride Burger

Who knew?

From USA Today:

Burger King has concocted yet another way to have it your way: a gay pride burger.

The Proud Whopper, as it's called, comes wrapped in a rainbow colored wrapper with this inscription: "We are all the same inside." It will be sold through Thursday at one Burger King restaurant on San Francisco's Market Street, that was at the heart of the route for last weekend's 44th annual San Francisco Pride Celebration & Parade.

Burger King on Wednesday morning at 8 a.m. EST plans to post a two-minute video about the Proud Whopper on its YouTube channel....MORE

Woman Doesn't Make Bed For 16 Years, Calls It Art, Christie's Auctions it For $4 Million

From the BBC:
Tracey Emin's My Bed artwork sold for £2.2m at auction

 

My Bed sparked debate about the nature of contemporary art when it was shortlisted for the Turner Prize

Tracey Emin's controversial My Bed modern artwork has sold for £2.2m at auction at Christie's in London.

The 1998 work features an unmade bed and a floor littered with empty vodka bottles, cigarette butts and condoms.

The work, which was shortlisted for the 1999 Turner Prize, had been put up for sale by millionaire art collector Charles Saatchi who bought it for £150,000 in 2000.

It went under the hammer with a guide price of between £800,000 and £1.2m.

The piece gives a snapshot of Emin's life after a traumatic relationship breakdown.

Applause

The artist, from Margate, was in the packed auction room as the work was sold, to applause from the crowd.

My Bed, one of the key works of the Young British Artist movement, was auctioned to support the work of the Saatchi Gallery Foundation.

Christie's said that, with buyer's premium, My Bed went for £2,546,500, which is a world record for Emin at auction....MORE

The Vatican's Argentina v. Switzerland World Cup Tweet

This is pretty funny, the Swiss Guards look so happy:

Argentina vs Switzerland :) #Brasil2014 #ArgentinaVsSwitzerland #ArgentinaVsSuiza #argentinasvizzera pic.twitter.com/xBFhANFxHo
— VaticanCommunication (@PCCS_VA) July 1, 2014

Sadly, no Happy Pope (felice Papa?) follow up from the Holy See when Argentina eventually won.

Peston Blog Post On Merrill Boss Removed By Google

From City AM:
Blog post criticising former Merrill Lynch boss is "forgotten" by Google 

This morning, BBC journalist Robert Peston received a “notice of removal” from Google, informing him that an article that he had published in 2007 about former Merrill Lynch boss Stan O'Neal would no longer be shown in European Google search results.

Titled “Merrill's Mess”, the piece describes how O'Neal was forced to leave the investment bank after it endured significant losses on the back of careless investments.

In May this year, the European Court of Justice ordered that anyone could apply to have search results relating to them deleted from Google under the new “right to be forgotten” rule. It said that Google must delete "inadequate, irrelevant or no longer relevant" data from its results when a member of the public requests it.

As Peston pointed out in a follow-up article earlier today, this effectively means that no one will see the blog post from now on. “To all intents and purposes the article has been removed from the public record, given that Google is the route to information and stories for most people,” he wrote....MORE

Mr. Peston is wrong. Searching google.com rather than www.google.co.uk will still get the story.
Today's word is Eurocentric.

Blackstone's Byron Wien on "New Industrial Revolution"

From Barron's Wall Street's Best Minds:

The Wall St. pro shares the latest views of a mentor who sees a new breed of innovators emerging. 
Editor's Note: Wien is a senior adviser to Blackstone, the asset management and private-equity firm.

People often ask me if I have a mentor, someone who has influenced my thinking over my career. I have had many, but over the past thirty years I have learned a great deal about investing from the person I have come to refer to as The Smartest Man in Europe. The most important lessons he taught me were (1) that the primary force behind good performance is recognizing important changes before or just as they are starting to happen, and (2) when something significant is happening, put a lot of money behind it. Concentrate on the big ideas; don't over-diversify. 

The Smartest Man earned his title over the years by recognizing important shifts early. He saw the rise and fall of Japan in the 1980s and he was early in recognizing the investment significance of the reforms Deng Xiaoping was putting in place in China. He saw opportunities and then risks in emerging markets and technology in the 1990s and he was among the first in my sphere to see the coming of the break-up of the former Soviet Union and its meaning for investors. He has a mercantile background and hundreds of years ago his ancestors sold food, supplies and weather protection to travelers along the Silk Road. He grew up hearing talk of investment opportunities around the dinner table. He received a European education and, after an apprenticeship in New York, returned home to take advantage of the post-war recovery taking place there. I have written annually about his views since 2001.

"There is a new industrial revolution taking place around the world based on innovation. It is centered in California but there are pockets of it elsewhere in the United States and in a few places abroad. There are creative new companies being formed every day. Investors underestimate the significance of this change. It is not only in Internet-based technology, but also in biotechnology. Over the next few years you will see blockbuster products being approved for cancer and heart disease. Alzheimer's and Parkinson's are proving harder to deal with. In information technology the primary beneficiaries will be Google, Facebook, Salesforce.com, Microsoft, Amazon, LinkedIn and a few others, but not Twitter, which I view as a company feeding off the primary companies driving the change. These new companies are making IBM a corporate leader of the past. The drivers are changing the way manufacturing is being done, inventories and transportation are being handled and all forms of communication are taking place. The earnings for these companies are open-ended. In biotechnology the new products will extend life and reduce invasive surgery, and who can say how much that is worth? This is all very exciting and should be the focus of every investor's attention. You can invest in an industrial or consumer company where the earnings are growing 5%–10% annually, but these companies based on technological breakthroughs should do much better than that, and their valuations are still reasonable, in my opinion. 

"Overall I see the United States growing at about 2% in real terms. To grow at 3% you would need another building boom and I don't see that happening anytime soon. The use of robotics will improve the productivity of industrial companies and profit margins will stay high, but it will be hard to bring down the unemployment rate. Technology is good news for the world because everything can be done more efficiently, but the bad news is that this means it takes fewer workers to perform the services or make the goods, and the only way to create jobs is through faster growth, which is hard to achieve in a mature economy. Take the banking industry, for example. Thousands of jobs have been lost there and the staff reductions aren't over. We have to learn to live with a higher level of unemployment and there are social and political issues associated with that. 

"There is a further problem in that the broader use of technology has made the skills necessary to get and hold a good job more demanding. You will need a fine education and even then it will be tough to find a satisfying job. Many young people are not working in the areas they were trained for. Those who are employed in their desired field will find their wages going up very slowly. As for the inequality problem, I am not hopeful. It has been a part of society since the beginning of time, and now that business is increasingly knowledge-based, it is likely that the problem will get worse and I don't think much can be done about it.

"The broad market will probably not have a major move over the intermediate term, but the innovators will do well. From time to time there will be surges in certain sectors. The homebuilders had their day, now energy and oil service stocks are doing better, but the secular move higher will be accomplished by the innovators. Everyone is worried about interest rates increasing, but that is not likely to happen. Rates may go up slightly in the developed countries from present low levels, but there is so much money looking for a safe place to wait until the outlook becomes clearer that I don't expect yields on quality sovereign or corporate debt to move substantially above present levels. 

"Germany is a curse. Europe needs more money to stimulate its growth. Europe is out of the deflationary recession that was caused by the austerity programs that Germany supported, but it is only growing at 1% now. It needs a dose of quantitative easing to grow faster, but Mario Draghi, the head of the European Central Bank (ECB), refuses to provide it. He has been encouraged by his German advisers to be wary of inflation, but more people in Europe are worried about deflation than inflation. The inflation rate in Europe is less than 2%. 

Monetary easing would be good for the economies across the continent. A few weeks ago the ECB announced some minor accommodative steps, but they were insufficient to have any profound impact. There is one circumstance that could cause the ECB to ease monetary policy in a major way and that would be if the economy of Germany starts to slow down. I think that is likely to happen in the next year, and then you could see Angela Merkel prevailing on Mario Draghi to liberalize monetary policy....MORE

 Byron Wien on "New Industrial Revolution"

If You Are Wealthy You Should be Able to Live to 120

From Aeon:

The longevity gap
Costly new longevity drugs could help the wealthy live 120 years or more – but will everyone else die young?

The disparity between top earners and everyone else is staggering in nations such as the United States, where 10 per cent of people accounted for 80 per cent of income growth since 1975. The life you can pay for as one of the anointed looks nothing like the lot tossed to everyone else: living in a home you own on some upscale cul-de-sac with your hybrid car and organic, grass-fed food sure beats renting (and driving) wrecks and subsisting on processed junk from supermarket shelves. But there’s a related, looming inequity so brutal it could provoke violent class war: the growing gap between the longevity haves and have-nots.

The life expectancy gap between the affluent and the poor and working class in the US, for instance, now clocks in at 12.2 years. College-educated white men can expect to live to age 80, while counterparts without a high-school diploma die by age 67. White women with a college degree have a life expectancy of nearly 84, compared with uneducated women, who live to 73.

And these disparities are widening. The lives of white, female high-school dropouts are now five years shorter than those of previous generations of women without a high-school degree, while white men without a high-school diploma live three years fewer than their counterparts did 18 years ago, according to a 2012 study from Health Affairs.

This is just a harbinger of things to come. What will happen when new scientific discoveries extend potential human lifespan and intensify these inequities on a more massive scale? It looks like the ultimate war between the haves and have-nots won’t be fought over the issue of money, per se, but over living to age 60 versus living to 120 or more. Will anyone just accept that the haves get two lives while the have-nots barely get one?

We should discuss the issue now, because we are close to delivering a true fountain of youth that could potentially extend our productive lifespan into our hundreds – it’s no longer the stuff of science fiction. ‘In just the last five years, there have been so many breakthroughs,’ says the Harvard geneticist David Sinclair. ‘There are now a number of compounds being tested in the lab that greatly slow down the ageing process and delay the onset of diabetes, cancer and heart disease.’

Sinclair, for instance, led a Harvard team that recently uncovered a chemical that reverses the ageing process in cells. The scientists fed mice NAD, a naturally occurring compound that enhances mitochondria – the cell’s energy factories – leading to a more efficient metabolism and less toxic waste. After just a week, tissue from older mice resembled that of six-month-old mice, an ‘amazingly rapid’ rate of reversal that astonished scientists. In human years, this would be like a 60-year-old converting to a 20-year-old practically before our eyes, delivering the tantalising dream of combining the maturity and wisdom of age with the robust vitality of youth. Researchers hope to launch human trials soon.

And earlier this year, two teams of scientists – one at the University of California in San Francisco, the other at Harvard – announced that blood from young mice rejuvenated the muscles and brains of their elderly brethren. They also identified proteins in the blood that catalysed this growth, suggesting the possibility of another longevity drug.

Extensive research on centenarians reaching age 100 and beyond show it’s not healthier habits or positive attitudes that contribute to longevity, but largely genes. Now scientists are busily sifting through millions of DNA markers to spot the constellation of longevity genes carried in every cell of these centenarians’ bodies. The hope here is to concoct an anti-ageing pill by synthesising what these genes make.

Within the next 50 years, advances in the science of longevity might make the dynamic elderly the rule rather than the exception – think Pablo Picasso, Pablo Casals or Dave Brubeck, all of whom remained dazzling artists or musicians into their ninth decade. People in their forties and fifties today could be the beneficiaries of this seismic shift. ‘It could happen in my lifetime,’ says the 44-year-old Sinclair....MORE

Being the little ray of sunshine that I am I decided to focus the headline on the upside. 

Bloomberg to Pay Writers $1 Million Per Year

No wonder Ira Glass is taking This American Life private.
From Capital New York:

The new Bloomberg Media

Last weekend, Bloomberg L.P. held its annual company picnic, a seven-figure soirée on Randall's Island with the types of attractions you'd expect from the company's billionaire benefactor: food tents cooking up everything from hamburgers to gourmet pizza to buffalo sausages and roast pig; rides including a ferris wheel, bumper cars, a zipline and a nausea-inducing contraption called The Orbiter; and a humongous video screen beaming in the latest World Cup matches live from Rio de Janeiro, Brazil.

Justin Smith was unable to attend. Otherwise, the event might have been something of a rite of passage during his first year as a key lieutenant in Michael Bloomberg's financial news and information empire.

Late last July, Smith was named chief executive of Bloomberg L.P.'s media group, hired away from Atlantic Media, where he was credited with leading that company's transformation from antique print object to 21st-century digital success story. Nearly 12 months and about as many ears-full of strategy jargon later, Bloomberg employees are eager to see some of Smith's behind-the-scenes initiatives come to life.

They'll have to wait a few months longer: Capital has learned that media group employees were informed last week that the first in a planned suite of "digital-led multi-platform brands," a politics site being developed by high-profile political journalists and "Game Change" authors John Heilemann and Mark Halperin, both poached by Bloomberg in May with annual salaries reported to be north of $1 million, will debut on October 6—30 days before the 2014 Midterms—in tandem with a daily half-hour television show hosted by the duo that will air in Bloomberg TV's 5 p.m. timeslot as well as streaming online.

In a town hall meeting that lasted about two hours, Bloomberg Businessweek editor-in-chief Josh Tyrangiel, who's been working closely with Smith on the media-group strategy, described the show as "much closer to 'Pardon the Interruption' on ESPN than 'Meet the Press,'" according to a partial transcript provided by a source. "One of our biggest advantages in politics is we are not ideological, we are not a sewer." (Presumably the show will share the name of the site: Bloomberg Politics.)

The next launch in the sequence is expected to be Bloomberg Business, which will align with the content of Businessweek and businessweek.com. There had been talk of launching the business site ahead of Bloomberg Politics in September, but the internal target is now looking more like December, according to sources with knowledge of the roll-out....MORE

Meanwhile, a trip to the Wayback Machine turns up:
Politico May 5 "Can Bloomberg buy 2016?":

Bloomberg Media has never had a claim on politics. But what Bloomberg wants, it buys -- and Bloomberg wants in on 2016.

On Sunday, the company announced that it had hired "Game Change" co-authors Mark Halperin and John Heilemann to head a new, stand-alone brand dedicated to politics. The price tag: $1 million-plus for each man, per year, through 2016, plus additional resources for new staff members (total number to-be-determined). That's a fortune for most media organizations, a drop in the bucket for Bloomberg.

By buying Halperin and Heilemann -- the best-known names in presidential campaign journalism -- Bloomberg is hoping to stake a claim on what is shaping up to be one of the most exciting election cycles in recent memory. The two magazine journalists -- formerly of Time and New York, respectively -- are extremely well-sourced, pick up major scoops and write deeply reported pieces from the trail. They will also host a daily television show on Bloomberg TV and serve as major draws for sponsored events, which is a signature part of Bloomberg Media CEO Justin B. Smith's business plan....MORE

Bill Gates On Energy

From Mr. Gates' blog, Gates Notes:

Powering the Fight Against Poverty

By Bill Gates 

on June 25, 2014

For years, I took energy for granted. There’s no telling how many times I walked into my office, flipped a light switch, and powered up a PC without thinking at all about the magic of getting electricity any time I wanted it. But then I started traveling to poor and middle-income countries, and I had a very different experience.

I remember going to Buenos Aires and seeing where the government had run big wires to distribute electricity. But people couldn’t afford it, so they tapped their own power cables into the government’s and stole the electricity. This is a very common experience—according to the United Nations, some 1.4 billion people have no access to electricity, and a billion more only have access to unreliable electricity networks. I’ve talked to women in rural Africa who spent hours every day hauling wood so they could cook food and light their homes. Others buy fuel to run a generator, which pumps out pollutants that cause asthma and lung cancer and, at 25 cents per kilowatt-hour, is more than twice as expensive as what the average American homeowner pays for electricity. Another example of the high cost of being poor.

Here is a picture of some students in Conakry, Guinea. They’re studying under street lamps, because they don’t have reliable lights at home. This is one of the most vivid examples of life without electricity at home that I’ve seen....MORE

Two Videos That Illuminate Energy Poverty

By Bill Gates 

on June 25, 2014

Many developing countries are turning to coal and other low-cost fossil fuels to generate the electricity they need for powering homes, industry, and agriculture. Some people in rich countries are telling them to cut back on fossil fuels. I understand the concern: After all, human beings are causing our climate to change, and our use of fossil fuels is a huge reason.

But even as we push to get serious about confronting climate change, we should not try to solve the problem on the backs of the poor. For one thing, poor countries represent a small part of the carbon-emissions problem. And they desperately need cheap sources of energy now to fuel the economic growth that lifts families out of poverty. They can’t afford today’s expensive clean energy solutions, and we can’t expect them wait for the technology to get cheaper.

Instead of putting constraints on poor countries that will hold back their ability to fight poverty, we should be investing dramatically more money in R&D to make fossil fuels cleaner and make clean energy cheaper than any fossil fuel....MORE

We Need Energy Miracles

By Bill Gates 

on June 25, 2014

I often talk about the miracle of vaccines: With just a few doses, they protect children from deadly diseases forever.

When it comes to clean energy, we need breakthroughs that are just as miraculous.
Just like vaccines, clean-energy miracles don’t just happen by chance. We have to make them happen, through long-term investments in research and development. Unfortunately, right now neither the private sector nor the U.S. government is making anywhere near the scale of investment it takes to produce these breakthroughs.

Why are clean-energy breakthroughs so important? As I mentioned here, the world is going to need a lot more energy in the coming decades—an increase of 50 percent or more between 2010 and 2040, according to U.S. government estimates. But today our biggest sources of energy are also big sources of carbon dioxide, which is causing climate change....MORE

151 Years Ago Today the Course Of History Was Changed

It is exceedingly rare when you can point to an action and correctly declare it to have been a turning point in world history. Here is one example.
As we noted last year:

150 years ago today the Union was saved. It's hard to decide if it was the 20th Maine at one end of the line or the New Yorkers at the other or the boys in the middle but 150 years ago today the entire course of world history was changed.
Here's a post from a few years ago on those "boys in the middle" who, by suffering the worst casualty rate of any U.S. forces, stopped the Confederate advance which led, on July 3rd to Pickett's charge and the doom of the secessionists.

There were 47 men and boys, of the 262 who had stepped up, able to help turn back Pickett on the third day of the battle.
That 82% casualty rate is the highest ever sustained by a surviving U.S. military unit.

By making the suicidal charge and trading their lives for minutes the "boys in the middle" turned the tide at Gettysburg, establishing the high-water mark of the confederacy and guaranteed that Lincoln's toothless Emancipation Proclamation would come into force.

They also guaranteed that "government of the people, by the people, for the people shall not perish from the earth" for at least another 15 decades.

A Bit of History: July 2, 1863

The 1st Minnesota Infantry Regiment fought, relatively unbloodied, at

Bull Run
Antietam
Fredericksburg
and Chancellorsville

One month after Chancellorsville they were pretty much destroyed as a cohesive unit and they may have saved the Union.

Bruce Catton stated in Glory Road:

“The whole war had suddenly come to a focus in this smoky hollow, with a few score westerners trading their lives for the time the army needed…They had not captured the flag that Hancock had asked them to capture, but they still had their own flag and a great name…”

Lt. Col. Joseph B. Mitchell in his Decisive Battles of the Civil War said:

“There is no other unit in the history of warfare that ever made such a charge and then stood its ground sustaining such losses.”

They were ordered to attack into 5:1 odds-against-them.
And they charged, with bayonets fixed.

"They had not taken the Alabama flag, but they had held on to their own,' Historian Shelby Foote wrote. "And they had given Hancock his five minutes plus five more for good measure."

General Hancock wrote of the First Minnesota's charge: "There is no more gallant deed recorded in history"

In 1928 President Coolidge said: "Colonel Colvill and those eight companies of the First Minnesota are entitled to rank as the saviors of their country."

By suffering casualties at the rate of one every two seconds they stopped the Confederate advance and forced Lee into the desperate gamble:

Gettysburg was the price the South paid for having Lee. The first day's fighting was so encouraging, and on the second day's fighting he came within an inch of doing it. And by that time Longstreet said Lee's blood was up, and Longstreet said when Lee's blood was up there was no stopping him... And that was that mistake he made, the mistake of all mistakes. Pickett's charge was an incredible mistake, and there was scarcely a trained soldier who didn't know it was a mistake at the time, except possibly Pickett himself, who was very happy he had a chance for glory.

...William Faulkner, in "Intruder in the Dust", said that for every southern boy, it's always within his reach to imagine it being one o'clock on an early July day in 1863, the guns are laid, the troops are lined up, the flags are out of their cases and ready to be unfurled, but it hasn't happened yet. And he can go back in his mind to the time before the war was going to be lost and he can always have that moment for himself.

-Shelby Foote in Ken Burns' "The Civil War"

Kinda makes this stock market stuff seem a bit sordid in comparison.

Average Performance by Weekday Since the Start of the Bull Market

Turnaround Tuesday is really a thing, who knew?*
From Bespoke Investment Group:

The current bull market for US stocks is now more than five years old.  Below is an updated chart of how the market has performed by weekday since the bull market began back on March 10th, 2009.

Looking at all days first, the average change for the S&P 500 on any given trading day during this bull market has been +0.09%.  The percentage of the time that the index has been up on the day stands at 56.4%.  Positive day odds of 56.4% may not seem strong, but add them up and it results in a gain of 192% for the S&P during the current bull market.  Think of it like casino odds.  As long as the casino has a slight edge of more than 50% to beat the player at any given game, they're going to make a lot of money off of all their players over the long term....

 

...MORE

*Actually quite a few people have commented but for some reason the old trader's lament comes to mind:

As soon a you think you've found the key they go and change the lock.

The S&P 500 May Never Pull Back

This is the sentiment we were hoping for in May's "Equities: 2014 as Analog to 2007" after all the "Sell in May" babble:

We are still in a bull market and markets being perverse we'll probably have a summer rally that drives the Sell in May folks insane. Their prayers for a correction to scale back in on go unanswered and in their madness to participate they put in the top.
Or something....

Just to make sure everyone understands, our linkee (and we) has been bullish in the face of some serious nervous nellyism on the part of the commentariat.

This is a dangerous little game I am playing, the markets will reverse one of these days, but being full to the brim with hubris, I'm on-board with every other egomaniac who thinks they will be able to identify the turn when it comes.

From Dragonfly Capital: 
The SPY Is NOT Extended and May NEVER Pull Back

The idea that the SPDR S&P 500 ($SPY) is overbought is absurd if you look at it from anything longer than a day traders perspective. Extended? Let’s get serious. It may be boring to sit and watch the index go up constantly, but that does not make it overbought or extended. And it also does not make it likely to correct, just because it has not for a long time. My Friend Ryan Detrick at Schaeffer’s Investment points out in the chart below that the market does not often wait a long time between 1% moves.

But boatloads of data can be viewed many ways. The common view will be that the vast majority of the time a 1% move occurs in less than 50 days. So this streak is bound to end soon. But looking at how the probabilities for extremes can play out in actuality, there are 2 instances where the streak has gone 3X further than the current one. It may never pullback....MORE

Reinsurance: Significant Rate Reductions Seen As Risk Margins Hit Lowest In a Generation

Simply put, there haven't been enough catastrophic payouts to scare the new money.
From Artemis:

According to the latest report from reinsurance broker Willis Re the June 1 and July 1 mid-year renewals have seen significant reinsurance rate reductions as excess capital continues to chase muted demand, with the competitive market dynamic continuing.

Reinsurance rates remain under considerable pressure, according to Willis Re, as the excess capital in the market, both traditional and non-traditional or alternative, continues to chase what business is available. Demand for reinsurance remains muted, with insufficient growth to soak up the capital which the industry is awash in.

The softening market environment has been compounded by the low levels of loss activity through the first-half of 2014. Further inflows of capital from alternative market sources and insurance-linked securities (ILS) keep the pressure on, although Willis Re notes that much of the competition is being driven by traditional reinsurance markets, not ILS investors.

Buyers continue to reap the rewards of the soft market, with increasingly better and more relaxed terms and lower reinsurance pricing, however they are not recycling the savings back into more demand, which again further compounds this softening cycle.

“The tentacles of the softening market are spreading far and wide, with no immediate signs of relief. We’ve seen muted demand throughout 2014 and market dynamics are unlikely to change for some time to come. The current market position is increasingly challenging for reinsurers. Below average loss ratios in the first half of 2014 and reasonably adequate reserving positions mean that, barring any major underwriting or investment losses in the coming months, we will see another year of reasonable returns. This places further pressure on rating levels for 2015,” commented John Cavanagh, CEO of Willis Re.

The tiering of reinsurance markets by buyers, into traditional, collateralized reinsurance and ILS markets, is also upping the competition. Both reinsurers and fund managers trading through the competitive market environment are being forced to carefully examine their strategies, Willis Re notes.

The upshot of this competitive market and tiered capacity provider paradigm is that reinsurers have to accelerate their plans, making mergers & acquisitions, capital restructuring and the formation of reinsurance sidecars with ILS investors become more likely, says the report....MORE

And:

Reinsurance market sees lowest risk margins in a generation: Aon Benfield

The global reinsurance market is seeing the lowest risk margins in a generation, as traditional and alternative reinsurance capacity providers discover just how low their cost-of-capital will go, according to Aon Benfield’s latest renewal report.

As both traditional and non-traditional providers of reinsurance capacity find their risk appetite limits, in terms of the cost of their underwriting capital, it is presenting opportunities to cedents and stimulating new growth opportunities for insurers, says Aon Benfield.

The low-cost of reinsurance protection is also presenting growth opportunities to reinsurers, according to the report which will provide some solace to reinsurers feeling beaten down on price, as governments may be able to reduce their participation in catastrophe exposed regions as the availability and affordability of insurance and reinsurance improves.

Record levels of reinsurer capital and continued building interest from alternative capital investors have pushed the margins on reinsurance risks lower at June and July renewals, said Aon Benfield. The margins that can be earned on some reinsurance programs are now at their lowest levels for a generation, which shows just how soft this market is compared to some others seen in the last decade or two....MORE

Planning for Future Rate Hikes: What Can History Tell Us that the Fed Won’t?

From Cyniconomics:

It stands to reason that when the Fed eventually lifts interest rates, we’ll see the usual effects. After a sustained rise in rates, you can safely bet on:

1. Fixed investment and business earnings dropping sharply
2. GDP growth following investment and earnings lower
3. Many people losing their jobs
4. Risky assets performing poorly

These consequences follow not only from the arithmetic of debt service and present value calculations, but also from the mood swinging psychology of entrepreneurs, lenders and investors.

Yet, policy economists claim that interest rates can be “normalized” at no cost.

For example, while speaking last week about the fed funds rate, St. Louis Fed President James Bullard said the economy was strong enough to “tolerate at least a little bit of the central bank getting back to a more normal stance.”

And how should we interpret “a little bit”?

According to FOMC projections, a little bit of normalization gets underway sometime next year and then leads to a steady pace of policy adjustments that doesn’t stop until the fed funds rate reaches almost 4%. These projections are accompanied by predictions for an improving economy as policy tightens.

Escape velocity or escape from reality?
The FOMC simply doesn’t acknowledge the time-tested effects of rising interest rates noted above. Instead, central bankers argue that today’s monetary stimulus will produce such economic vitality that there’s no sting in tomorrow’s tightening. In other words, they forecast an “escape velocity” where the economy is presumed immune to monetary restraint.

But is there any basis for their beliefs in the economy’s actual workings?

Or, is escape velocity merely a convenient story for central bankers predisposed towards easy money and short-term thinking?

We’ve argued that the Fed’s current policymakers have exactly this predisposition, and that there’s no such thing as escape velocity. We’ve also shared historical evidence supporting our views – in “M.C. Escher and the Impossibility of the Establishment Economic View,” for example – and take another look at history in this post.

Our analysis starts with a breakdown of interest rate changes over all 4 and 8 quarter periods since 1955:

We then review economic outcomes conditioned on the rate buckets above, recording the median outcome for each bucket. In most cases, we compare interest rate changes to outcomes for subsequent (lagged) 4 and 8 quarter periods.
(See this technical notes post for further detail. Also, look for a future follow-up post where we’ll contrast the history shown below to the Fed’s forecasts.)

...MUCH MORE

Wedding Interruption Insurance: Analysis by The Travelers

From Property Casualty 360:
Top 4 Wedding Insurance Claims of 2013 
Weather: 23%

(Photo: KSBW)

Weather events accounted for 23% of Travelers’ wedding insurance claims in 2013. Last month, a couple’s wedding in Oregon made headlines when an approaching wildfire disrupted their ceremony—and made for some incredible wedding photos.

Firefighters arrived at Michael Wolber and April Hartley’s wedding ceremony at Rock Spring Ranch requesting they and their guests evacuate the area immediately as a precaution. Luckily, the wedding didn’t have to be canceled as the minister performed an abbreviated ceremony and the photographer snapped a few quick photos with the wildfire raging in the background.

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Hurricane Watch--Questions America Wants Answered: "Which Intensity Model Should You Trust for Tropical Storm Arthur?"

From Wunderblog:

The Atlantic's first storm of 2014 is here, as Tropical Storm Arthur was named at 11 am EDT Tuesday by NHC. Arthur's formation date of July 1 comes a week before the typical July 8 appearance of the Atlantic's first named storm, but is the latest the first named storm of the season has appeared since 2009, when Tropical Storm Ana formed on August 12.

Figure 1. Melbourne, Florida radar image of Tropical Storm Arthur at 2:20 pm EDT July 1, 2014.

Arthur was drifting northwest at 5 mph towards the east coast of Central Florida early Tuesday afternoon. Long-range radar out of Melbourne, Florida on Tuesday afternoon showed that bands of heavy rain from Arthur were affecting the Northwest Bahamas, and the top sustained winds observed in the Bahamas as of 2 pm EDT Tuesday were 36 mph, gusting to 41 mph at Settlement Point in the Northwest Bahama Islands at 8 am EDT. Top winds Tuesday morning and early afternoon at the buoy 23 miles east of Cape Canaveral, Florida were 22 mph, gusting to 26 mph, with a significant wave height of 4.3'....MUCH MORE

Here's the Cone of Uncertainty:

"Dow, S&P end at records, starting July with a bang"

From our June 2 post "I'm Tellin' Ya, It's a Bull Market":

I'm tellin' ya...

We don't really care so much about the individual names as the fact that you now have bunches of them setting up for the next up-move.

From Investors Business Daily: 

Some Big Cap 20 Names Start To Shape Bases...

Today's headline story from Reuters:

U.S. stocks rallied on Tuesday, with both the Dow and S&P 500 setting record closing highs on the first trading day in July as manufacturing activity picked up in the United States and Asia, increasing optimism about the global economy's health.

The Dow Jones industrial average .DJI rose 129.25 points or 0.77 percent, to end unofficially at 16,956.85. The S&P 500 .SPX gained 13.07 points or 0.67 percent, to finish unofficially at 1,973.30. The Nasdaq Composite .IXIC jumped 50.47 points or 1.14 percent, to close unofficially at 4,458.65....

Previously:
Apr. 8
I'm Tellin' Ya, It's a Bull Market: First Solar Is Up 4.82%
Apr. 9
How's About a Thousand Dow Points (to the upside)?

Yes we are bullish.
(and yes, it's still a bull market)

May 28
Equities: 2014 as Analog to 2007

We are still in a bull market and markets being perverse we'll probably have a summer rally that drives the Sell in May folks insane. Their prayers for a correction to scale back in on go unanswered and in their madness to participate they put in the top.
Or something....

 "How High Can the S&P Fly"

And many more, use the search blog box if interested.

Deutsche: "500 Years Of Dutch Bond Yields"

I can't vouch for the chart, for example the apparent rate in 1637 seems high but that may because I mentally associate bubbles such as the peak of the tulip mania (Feb. 3, '37) with lower interest rates.
I shall make inquiries amongst my elders, directly.
From ZeroHedge:

Day after day we are told that stocks are the place to be and that bonds are a disastrous bet as "rates must rise" but it appears that, increasingly, the world's developed (and debt-laden) economies are turning Japanese (with German 2Y rates at 2bps for example). But, for some context as to how low rates really are, Deutsche's Jim Reid unveils 500 years of Dutch (European) interest rates... and we have never been lower. 

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The 50 Best Performing Stocks in 2014

From Bespoke Investment Group:

The average stock in the Russell 3,000 gained just under 6% in the first half of 2014, and below is a list of the 50 best performing stocks in the index over the first two quarters.  As shown, Idenix Pharma (IDIX) posted the best returns of any Russell 3,000 stock with a gain of just over 300%.  Three more Pharma/Biotech stocks round out the top four (RDNT, PTX, ICPT), all with gains of 240%+.  The first non-Health Care stock on the list is Plug Power (PLUG) in fifth place with a first-half gain of 201.94%, then Pacific Ethanol (PEIX) ranks sixth at +200.39%.  The most well-known stock on the list of 50 is probably Zillow (Z), which was the 48th best performing stock in the R3K in the first half.  Zillow is up just under 75% as we enter the third quarter.

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"Warren Buffett’s Early Investments" (BRK.b)

Much closer to gunslinger than the current iteration.

From ValueWalk:

“The highest rates of return I’ve ever achieved were in the 1950?s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” – Warren Buffett, 1999

Most Warren Buffett fans have seen that quote. I recently had a few questions and comments that I’ve been meaning to address regarding Buffett’s early strategy. In fact, my own thoughts on how Buffett really generated those 50-60% annual returns in the 50?s have changed as I’ve really researched his past holdings. In my opinion, there are two things regarding Buffett’s early investment style that most people don’t fully weight:

• Warren Buffett understood the power of compounding at an early age, and cared about the quality of a business and its long term earning power, even in the early days
• Buffett’s portfolio management strategy, and specifically the level of concentration he put on the compounders

There is a perception out there that Warren Buffett made his huge returns in the early years by buying a bunch of cheap Graham style cigar butts and flipping them for profits. At the annual meeting a few years ago, he mentioned that the majority of his returns—even in the early years—were due to just a select few decisions. The rest were largely average results. I think he mentioned he owned over 400 securities during the time of his partnership (not at once—400 over the entire time period of 13 years).

It’s hard to say exactly how he made these 50% returns in his pre-partnership years, but we do know about a few of the investments he made. From studying his early letters and the two main biographies, I believe that he made his returns largely through the higher quality businesses that could compound value (in some cases good businesses with profitable histories that were also ridiculously cheap), and not the cigar butts that everyone talks about. In fact, you can piece together a few of his early investments from reading Snowball and a few other biographies.

Some Early Buffett Investments

Buffett made 75% in 1951, mostly because of a large position in GEICO, that proceeded to double in the first 18 months he owned it. He sold it too soon (it would rise 100x over the coming decades), but he replaced it with another insurer in 1953 that was a profitable business trading at around 1 time earnings and a fraction of book value. Most are familiar with a column Warren Buffett wrote called “The Security I Like Best”, which was an excellent writeup on GEICO. Fewer people know about the next insurance stock he invested in called Western Insurance. Buffett referenced Western Insurance at a talk at Columbia in 1993, using it as an example of stocks he found by flipping through Moody’s manuals:

“I found Western Insurance in Fort Scott, Kansas. The price range in Moody’s financial manual was $12 to $20. Earnings were $16 per share.”

Warren Buffett also wrote up a column on this stock, demonstrating how remarkably cheap the stock was. The interesting thing about looking at the old Moody’s manuals is that the company was profitable, and had a stable operating history with rising premium volume and consistent earnings. As a side note, this stock actually traded as a low as $1 in 1949, and appreciated up to $95 in 1955, a 95-bagger for those fortunate souls who bought the stock six years earlier!

Buffett was buying Western in 1952 and 1953, and although I’m not sure where he sold, it’s likely he at least doubled his money on this stock as well. He said he was buying between $12 and $20, and wrote his analysis write-up in early 1953 when the stock was at $40–later that year it traded to $65 and then to as high as $95 two years later.

We know how good of a company GEICO was, but Western Insurance–despite being incredibly cheap–was also a quality business. Of course, the attraction was not just that it was a good business, but it was cheap: When Warren Buffett wrote the column, it was trading at $40, and had made $24 per share of earnings the previous year in 1952, a year Buffett called a poor year for auto insurers. Buffett felt the company had “normal earning power” of $30 per share, which gave this stock a P/E of around 1.3 at that price....MUCH MORE

First World Problems: How To Structure Your Gift of Artwork

One of the great lines of the asset boom:

 ...the markets are at a stage where a single, second-rate Warhol or de Kooning could easily put you over that gift-tax exclusion threshold.

From Barron's Penta:
Gifting the De Kooning

As the prices for contemporary art continue to soar, the valuable heirlooms hanging on the wall at home are posing a new set of issues for collectors and estate planners alike. Too often these precious artworks aren’t accounted for in the estate planning process, says Fiduciary Trust vice chairman Gail Cohen. “And that is the absolute worst scenario, because sometimes the works have appreciated so significantly they overwhelm the value of the [rest of the] estate,” she says. With no proper plan in place, the death of a savvy collector could expose heirs to a staggering tax bill.

Artnet’s C50 index, tracking the performance of works by leading contemporary artists from Warhol to Hirst, has nearly quadrupled this last decade. That means art collectors could be sitting on a massive windfall. Take out the party horns. But the flipside is that the combined federal and state estate tax exposure for a New York resident could come close to 60%. Not so good. Furthermore, that rate applies to estates exceeding the $5.3 million, and $10.7 million for a couple, when the markets are at a stage where a single, second-rate Warhol or de Kooning could easily put you over that gift-tax exclusion threshold. Heirs only have nine months to pay up. If they don’t have the cash, they’ll probably have to break up the collection, quickly selling off bits to pay the IRS tab.

To avoid this emotionally and literally taxing loss, a collector must, earlier on, choose to leave the artworks to his or her family, gift the collection to charity or sell the works outright. Assuming your children want your collection, you must decide whether to gift the collection during your lifetime or leave it to the family in your will. The answer to that is a numbers game that differs from state-to-state.

Imagine a piece of art is purchased for $1,000 twenty years ago and it is worth $14,000 today. If a collector is passing the artwork on in his or her will, upon his death, estate taxes would be paid on its fair market value, or $14,000. If the beneficiary were to sell the artwork, after squaring that tax bill with the government, they would then owe taxes only on any appreciation above $14,000.

In contrast, if the collector were to gift that piece in his lifetime, there would be no gift taxes levied. But when the heir sells the piece, capital gains taxes will be charged on the $13,000, plus any additional appreciation in value above $14,000....MORE

Willem de Kooning’s “Woman III” sold for $137.5 million in 2006.

"US National Archives To Upload All Holdings To Wikimedia Commons"

From TechCrunch:

Ever since the National Archives and Record Administration launched the Open Government Plan in 2010, it has increasingly been uploading content to Wikipedia to digitize and gain a wider reach for its holdings. But all this time, uploading its digitized holdings to the Wikimedia Commons was a side project. Now, as mentioned in the 2014 Open Government Plan published earlier this month, the project is a core part of the NARA, according to The Signpost.

Dominic McDevitt-Parks, digital content specialist at the NARA who was also the Wikipedian-in-residence, said the purpose of uploading files from the “record-keeper” of the federal government to Wikimedia is to provide a broader reach to the public.

In 2012, the NARA experimented and uploaded 100,000 digital images to Wikimedia Commons. This then allowed Wikipedia editors to use these files to be incorporated into projects and articles.

“The 4,000 Wikipedia articles featuring our records received more than one billion page views in Fiscal Year 2013. Over the next two years we will work to increase the number of National Archives records available on Wikimedia Commons, which furthers our strategic goal to ‘Make Access Happen’ and expands re-use of our records by the public,” according to the Open Government Plan 2014.

By providing access to their holdings, the NARA is also better represented through Wikipedia, as its content is reaching more viewers. And any item from the NARA catalog that gets digitized will now be uploaded to Wikimedia.

Anyone can upload files through Wikimedia Commons, but McDevitt-Parks said there was no easy drag-and-drop feature to upload bulk files, which was the first hurdle the NARA had to contend with....MORE

San Francisco Fed: Inflation Will Be Rising Through 2015

From Real Time Economics' Grand Central post:

...San Francisco Fed: U.S. Inflation Will Likely Remain Low Through 2015. U.S. inflation should remain well below the Federal Reserve’s 2% target through the end of 2015, two economists at the San Francisco Fed said Monday in a new research paper. But if public expectations for inflation remain well-anchored at the Fed’s goal and if the inflation effects of the long-term unemployed are excluded, core prices will rise “at a relatively fast pace, surpassing 2% by the end of 2015,” they said....

KKR Midyear Outlook: Four Big Macro Trends at Work

From KKR & Co. L.P.:

Midyear Outlook: Four Big Macro Trends at Work

Our updated asset allocation framework reflects the four big macro trends we currently see driving returns across the global capital markets. First, in the developed equity markets we continue to see a lot of reasonably valued mid- and large-cap stocks with excess cash balances and low leverage. This backdrop remains a constructive one for certain private and public equity investments, and it too suggests that corporate M&A activity is likely to remain robust. Second, in a low rate environment we think the sizeable illiquidity premium that has been created by heightened regulation throughout the banking system remains compelling. On the margin, Europe appeals more to us than the United States, which represents a change in our thinking. Third, many emerging market companies now need to restructure or recapitalize their balance sheets at the exact time that the cost of capital in their countries is going up. This backdrop should reward both credit and equity investors, particularly in countries where there is now new government and/or central bank leadership. Fourth, while tapering is on track, many central banks around the world still remain committed to keeping nominal interest rates below nominal GDP. In such an environment, we believe owning real assets that can deliver yield, growth and inflation hedging makes sense.
Download this report in print friendly PDF format (2.3mb).

6. We continue to significantly underweight government bonds and high-grade debt in favor of “spicier” credit. Our basic premise remains that non-traditional credit, including high yield, private credit, mezzanine, and special situations, will outperform low-yielding government bonds and high grade credit as long as we are right on the duration and pace of the current economic cycle. Since the recovery began in 2009, this strategy has unfolded favorably, though we fully acknowledge the strong performance of Treasury bonds in 1H14 tested our thesis. We remain undeterred; our base case for 10-year Treasury yields by December 31, 2014 remains 3.3% versus the current level of 2.7%. Further details below.

...MUCH MORE

Exhibit 3

Profit Margins Are High, But Earnings Relative to Trend Appear Reasonable

Trend, average and standard deviation for January 1984 to current. Earnings deviation versus trend = percentage difference between trailing twelve months earnings and trend earnings. Data as at April 30, 2014. Source: S&P, First Call, Factset.

HT: Business Insider's "KKR: The US Economic Recovery WIll Last Through 2017":

Sure, MoneyBeat Says Their Posts Are Not Written by Robots But How Can We Know?

I smell a Turing test!
From MoneyBeat:

Train Reading: This Post Was Not Produced by a Robot 

Crikey! AP will start using, gulp, robots to write news stories – Poynter

Asimov's three laws do not explicitly ban lying on the part of the robot writer.

In fact there is a body of literature arguing that by the time"The Bicentennial Man" was publish in 1984 Asimov was close to rejecting the three laws although stopping short of saying robots could do any damn thing they want.

Further, the issue may be framed as akin to the concept of Taqiyya where the robot can practice dissimulation if it feels it is under duress.

The only way to be sure is to perform the test.

Related: Gran Turismo or Why You Shouldn't Worry If Someone Runs Down the Hall Shouting "I'm a Real Boy"

See also: "The Hardest Logic Puzzle Ever":

The Hardest Logic Puzzle Ever is a logic puzzle invented by American philosopher and logician George Boolos and published in The Harvard Review of Philosophy in 1996. A translation in Italian was published earlier in the newspaper La Repubblica, under the title L'indovinello più difficile del mondo. The puzzle is inspired by Raymond Smullyan.
It is stated as follows:

Three gods A, B, and C are called, in no particular order, True, False, and Random. True always speaks truly, False always speaks falsely, but whether Random speaks truly or falsely is a completely random matter. Your task is to determine the identities of A, B, and C by asking three yes-no questions; each question must be put to exactly one god. The gods understand English, but will answer all questions in their own language, in which the words for yes and no are da and ja, in some order. You do not know which word means which....

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Major Asset Classes | June 2014 | Performance Review

From The Capital Spectator:

June was another strong month for returns across the board. Red ink was banished among the major asset classes for the third time this year on a monthly calendar basis....MORE.

"Heavy rains cause more good than harm to US corn"

And this is exactly the point I got tripped up on yesterday. We had been seeing reports that farmers in the Midwest were getting such late starts planting that some were just going to give up and take the insurance money.
September corn 416'6 down another 2 cents after touching 414'2
From Agrimoney:

Ideas that heavy rains may be proving more beneficial than harmful to US crops received a boost when data showed the condition of corn showing a surprise improvement.

The proportion of US corn rated "good" or "excellent" rose by 1 point to 75% in the week to Sunday, cementing its place as the second-best-rated crop in the past 20 years, and beating market expectations for an unchanged figure.

The data showed that heavy rains in some northern areas, some of which received more than six inches over the week, indeed damaged crops.

In Minnesota, where the proportion of corn rated "good" or "excellent" dropped 5 points to 65%, "precipitation and wet field conditions continued to stress crops and delay alfalfa hay cuttings", USDA scouts said.

"Conditions declined for all crops during the week as a result of excess moisture and standing water."

'Difficult time applying herbicides'

In North Dakota, where the proportion of corn rated "good" or "excellent" dropped 4 points to 81%, crops faced "cool temperatures and excessive rainfall" l in the western half of the state.

Besides impairing crops directly, the conditions have "slowed fieldwork", scouts said, noting that farmers were "having a difficult time applying herbicides and cutting hay due to excessive moisture in the fields"....MORE

Yesterday:
Amount of Corn in Storage Sharply Bearish
Corn Gets Rocked on USDA Report: Acreage Planted Down 4%, Market Had Expected Lower
Possibly Market Moving News In This Morning's USDA Grain Report