"The Coffee Houses of Augustan London"

A Topic of abiding interest.
From History Today (Volume: 32 Issue: 10 1982):

John D. Pelzer explains how the casual gathering of like-minded coffee-drinkers would influence British political and intellectual life for decades.

Coffeehouse in London, 17th century

Around 1700, Ned Ward, in his journal the London Spy, lampooned an institution which had captured a city – the London coffee-house:

There was a rabble going hither and thither, reminding me of a swarm of rats in a ruinous cheese-store. Some came, others went; some were scribbling, others were talking; some were drinking (coffee), some smoking, and some arguing; the whole place stank of tobacco like the cabin of a barge. On the corner of a long table, close by the armchair, was lying a Bible... Beside it were earthenware pitchers, long clay pipes, a little fire on the hearth, and over it the huge coffee-pot. Beneath a small book-shelf, on which were bottles, cups, and an advertisement for a beutifier to improve the complexion, was hanging a parliamentary ordinance against drinking and the use of bad language. The walls were decorated with gilt frames, much as a smithy is decorated with horseshoes. In the frames were rarities; phials of a yellowish elixir, favourite pills and hair-tonics, packets of snuff, tooth-powder made of coffee-grounds, caramels and cough lozenges... Had not my friend told me that he had brought me to a coffee-house, I would have regarded the place as the big booth of a cheap-jack.

Much as Ward chided the city's population for the 'quality' of its entertainments, he ended by confessing, 'When I had sat there for a while, and taken in my surroundings, I myself felt inclined for a cup of coffee.' Thus, the man whose object was to expose the 'vanities and vices of the town' was captivated by the ambience of the coffee-house. While the coffee-house was not unique to the city, Ned Ward came close to describing the elements which made the London coffee-house different from all others, and it was just these differences which accounted for the place of this establishment in the social history of London.

In 1652, Pasqua Rosee opened a coffee-house in St. Michael's Alley, Cornhill, London. A native of Smyrna, a port in Western Turkey, where the young man had learned to prepare the beverage, Rosee had been brought to London by a merchant named Daniel Edwards, whose friends so liked the unique brew that he allowed his servant to open the city's first coffee-house. The venture was an immediate success, so much so that large numbers of coffeehouses were established throughout the city in imitation of the first. From its unpretentious beginnings in Cornhill, the coffee-house quickly became the centre of London social life as well as one of the city's most remarkable social institutions.

The coffee-house itself was not unique to London. As Francis Bacon noted in his Sylva Sylvarum in 1627, 'They have in Turkey a drink called Coffee... and they take it, and sit at it in their Coffee Houses, which are like our Taverns.' Yet in London the coffee-house was unique in the extent to which it entrenched itself as an institution in the social, cultural, commercial, and political life of the city. 'Foreigners remarked that the coffee-house was that which especially distinguished London from all other cities,' wrote Thomas Macauley in his History of England , 'that the coffee-house was the Londoner's home, and that those who wished to find a gentleman commonly asked, not whether he lived in Fleet Street or Chancery Lane, but whether he frequented the Grecian or the Rainbow.'

The London coffee-houses provided a gathering place where, for a penny admission charge, any man who was reasonably dressed could smoke his long, clay pipe, sip a dish of coffee, read the newsletters of the day, or enter into conversation with other patrons. At the period when journalism was in its infancy and the postal system was unorganised and irregular, the coffee-house provided a centre of communication for news and information. Runners were sent round to the coffee-house to report major events of the day, such as victory in battle or political upheaval, and the newsletters and gazettes of the day were distributed chiefly in the coffee-house. Most of the establishments functioned as reading rooms, for the cost of the newspapers and pamphlets was included in the admission charge. In addition, bulletins announcing sales, sailings, and auctions covered the walls of the establishments, providing valuable information to the businessman who conducted much of his business from a table at his favourite coffee-house.

Naturally, this dissemination of news led to the dissemination of ideas, and the coffee-house served as a forum for their discussion. As the eminent social historian G.M. Trevelyan observed: 'The "Universal liberty of speech of the English nation"... was the quintessence of Coffee House life.'

The patrons of the coffee-houses agreed to conform to the strict rules of the establishments. According to the posted 'Rules and Orders of the Coffee House,' all men were equal in these establishments, and none need give his place to a 'Finer' man. Anyone who swore was made to 'forfeit twelvepence', and the man who began a quarrel 'shall give each man a dish t'atone the sin'. 'Maudlin lovers' were forbidden 'here in Corners to mourn,' for all were expected to 'be brisk, and talk, but not too much', 'Sacred Things' must be excluded from conversation, and the patrons could neither 'profane Scriptures, nor saucily wrong Affairs of State with an irreverent tongue'. In many establishments, games of chance as well as cards were prohibited, and any wager was limited to five shillings, a sum which was to 'be spent In such Good Liquor as the House doth vent'.

Even during the plague and the great fire that followed it, Londoners continued to visit their favourite coffee-houses. Neither Samuel Pepys nor Daniel Defoe, for example, could be persuaded to forgo his daily visit to the coffee-house during this dreadful time, but like every citizen, each was prudent. Patrons of the coffee-houses were no longer prepared to talk freely with strangers, and would approach even close acquaintances only after inquiring after their health and that of the family at home. The plague and the fire did much to curtail the prosperity and popularity of the coffee-house, but only for a short time. Once these dangers were past, the coffee-house again assumed its place as the major social institution of its day.

Almost from their inception, the London coffee-houses each began to develop its own specialised clientele, and each soon became identified as the meeting place for a particular occupation, interest group, or type of specialised activity. By and large, the type of clientele was determined by the area of London in which the coffee-house was located.

Coffee-houses such as Lloyd's or Garraway's, located in the area around the Royal Exchange, were, for example, the gathering places for businessmen of the city, and those such as the St. James and Cocoa-Tree, located in Westminster, were frequented by politicians. Many of the coffee-houses near St. Paul's Cathedral were the haunts of clergymen and intellectuals who gathered to discuss theology and philosophy,. Some coffeehouses became so identified with specific groups or interests that an early London newspaper, The Tatler, printed its stories under coffee-house headings. As Sir Richard Steele wrote in the first number of the newspaper in 1709: 'All accounts of Gallantry, Pleasure, and Entertainment shall be under the Article of White's Chocolate-house; Poetry, under that of Will's Coffee-house; Learning, under the title of Graecian; Foreign and Domestick News, you will have from St. James' Coffee-house.'

The coffee-house established by William Urwin in Russell Street, Covent Garden, achieved a fame far beyond its founder's hopes when it became the haunt of London's literati . The presiding genius and chief arbiter of literary taste at Will's Coffee-house was the poet John Dryden. For thirty years, Dryden shaped the public taste and served as an inspiration to poets and writers of prose by passing judgment on the latest poem or play. So great was Dryden's reputation, and with it the reputation of Will's, that the most famous of England's men of letters, including Pepys and Pope, frequented the coffee-house. While its patrons sipped their coffee, they discussed the sonnet form or the literary merits of blank verse. One group debated whether Paradise Lost should have been written in rhyme. In addition to serious discussion of literature, the patrons of Will's turned their talents to lampoons and libels, so visitors to the establishment could be assured of entertainment of one sort or another, entertainment which owed much to the influence of Dryden.
Yet Will's was not without its critics. Jonathan Swift spoke disparagingly of the company at Will's:

The worst conversation I ever remember to have heard in my life was that at Will's Coffeehouse, where the wits (as they were called) used formerly to assemble; that is to say, five or six men who had writ plays, or at least prologues, or had share in a miscellany, came thither, and entertained one another with their trifling composures in so important an air, as if they had been the noblest efforts of human nature, or that the fate of kingdoms depended on them.

And after the death of Dryden, the reputation of Will's began to decline. In The Tatler of April 8th, 1709, Steele reported the changes which had altered the character of Will's....

...MUCH MORE 

Possibly also of interest:

"The Lost World of the London Coffeehouse" 
...Here are the main establishments frequented by the stockjobbers and other denizens:

...MUCH MORE

Emanuel Derman, Tyler Cowen et al On "Why is Thomas Piketty's 700-page book a bestseller?"

Heidi Moore writing at the Guardian:

Thomas Piketty is a French economist whose Capital in the Twenty-First Century has swept American discourse. Four experts – Brad DeLong, Tyler Cowen, Stephanie Kelton and Emanuel Derman – take on why that is

There’s been a bizarre phenomenon this year: a young, little-known French economist has written a 700-page tome about economic inequality – dense with data, historical examples from France, and a few literary references to Jane Austen.

That’s not the strange part. This is: it’s a bestseller.

Somehow, Capital in the Twenty-First Century by Thomas Piketty has become a conversation piece among well-read people. Its graphic red-and-ivory cover is inescapable. Early in its launch, it hit No 1 on Amazon’s bestseller list and the paper version – a doorstop in punishing, heavy hardcover – sold out in major bookstores.

Piketty’s main argument is this: that invested capital – in the stock market, in real estate – will grow faster than income.

The implications of that are deep: to have invested capital, you must have money already. If you rely on income, as most people do, you will likely never catch up to the wealth of people who are already rich. The 1% and the 99% enshrined by Occupy are not an anomaly of our time, Piketty’s research suggests. It’s a structural feature of capitalism. Piketty’s work – which has been in progress for over a decade – is a natural pairing with the Occupy movement, which also questions the premises of capitalism.

You can see the appeal of such an argument, which has driven the book to become a cultural touchpoint. Seattle quoted Piketty in its minimum-wage law. The book has had so many reviews and articles that it’s possible for someone to feel as if they have read it even without cracking the cover.

Which raises the question: why this book? The themes that Piketty brings up have been enshrined in discussion about progressive economists for decades. No fewer than three Nobel Prize winners – Joseph Stiglitz, Paul Krugman and Robert Solow – have all devoted much of their careers to studying inequality. On Friday, 19 September, I moderated a panel at the Washington Center for Equitable Growth that included Solow as well as economists Brad DeLong, Tyler Cowen and Russ Roberts. For 90 minutes, they hammered out the implications of Piketty’s work -- and the discussion ended with much more to say.
I decided to ask star economists and finance experts who have devoted their careers to issues of inequality and the American economy: why is Thomas Piketty a bestseller? Is he required reading? Their thoughtful responses are below, and they include some surprises – including one who has decided not to read Piketty at all.

Oh, and it’s pronounced like this: Tome-AH PEEK-a-tee. Now, over to the experts.

...Emanuel Derman
Emanuel Derman is a professor at Columbia University, where he directs the program in financial engineering. His latest book is Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disasters, On Wall Street and in Life – one of Business Week’s top ten books of 2011.
 
Economists are the new nuclear physicists, turned to by governments for advice as though they are heirs to the power of the scientists who created Hiroshima. Macroeconomists now advise central banks on monetary policy, and behavioral economists tell political parties and governments how to nudge citizens to do what politicians and economists deem to be right.

I make my living teaching finance, the branch of economics concerned with putting a value on assets such as stocks, bonds, mortgages and options.

Though I should, I can’t bring myself to read Thomas Piketty.

I wish I could. I have nothing against him or his work, which seems well-intentioned and directed at improving human welfare. I am just spiritually weary of the ubiquitous cockiness of economists, though Piketty sounds as though he’s less guilty of this than most of the pundits in the daily papers.
The best model in my field, finance, is the Black-Scholes model of options pricing, which, according to Steve Ross, an MIT economist himself, “ ... is the most successful theory not only in finance, but in all of economics.” I’ve spent most of my professional life working on options theory, and I understand it well. More importantly, I understand its limitations in describing the behavior of complex human beings and markets via simple assumptions and mathematics. But limited though it is, finance is much more reliable than economics.

Economics is the study of how to utilize limited resources to achieve good ends. And good, of course, is in the eye of the beholder, defined by humans. But economists don’t agree with each other about ends or means. They can’t agree on the efficacy of money printing or austerity. They keep changing their minds every few years about conventional wisdom while at every instant appearing to be certain that they are right. My gripe with economists is not that their models don’t work well – they don’t, look at the role of central banks in the financial crisis – but that they seem so reluctant to acknowledge the riskiness of their advice. And yet, beware their fearsome unelected power. Anyone visiting from Mars last year and asking to be taken to our leader would undoubtedly expect to meet Bernanke.

As a result their public arguments have an incestuous yet masturbatory quality that is exhausting to follow. The only field more self-confidently but just as regularly wrong as economics is nutrition, whose recommendations to shun butter/margarine or red meat/carbohydrates regularly reverse themselves.

Natural scientists (physicists, chemists, biologists) have had frightful power, and not always used it well. But at least they can more or less agree about truth and efficacy. Economists cannot, except by using statistical regressions which are often flawed and prove little.

So I cannot currently bring myself to read over 600 pages by an economist. One day I do hope to read Piketty’s book....MORE

Well then...
HT: The Big Picture

Back In the U.S.S.R: Russia Completes Ratification of Eurasian Economic Union

Following up on last May's "Getting the Band Back Together: Russia, Belarus, Kazakhstan to Formalize Trade Bloc (Kyrgyzstan, Armenia hope to join by year end)".
From RT:

Russian President Vladimir Putin has signed a law ratifying a historic treaty, committing Russia to an economic union with Belarus and Kazakhstan. The Eurasian Economic Union will come into effect in January 2015.

Putin’s signature in the document puts the final dot in Russia’s ratification of the union which will be in place on January 1, 2015, as the other union states are expected to complete ratification in the next few days.
The economic union is the next step of integration within the Customs Union between the three countries. The agreement had previously been ratified by the Russian State Duma and the Federal Council of Russia.

READ MORE: Russia, Kazakhstan, Belarus sign 'epoch'Eurasian Economic Union
 
It will help cut trade barriers and be the largest common market in the ex-Soviet sphere, comprising over 170 million people. The troika of countries will cooperate in energy, industry, agriculture, and transport. The ruble will become the de facto currency of the organization, although each country will still keep their local currency.

Financial integration is a major part of the agreement, while Russian, which is very widely spoken in both Belarus and Kazakhstan, will be the working language of the union. The headquarters of the union will be in Moscow, with the courts in Minsk, and Almaty will be the home of the financial regulatory body.

Citizens of Russia, Belarus, and Kazakhstan will have the right to work freely throughout the member states without the need for a work permit. Over the last three years trade within the Customs Union has increased by $23 billion, or by nearly 50 percent. At the end of 2013, it stood at $66.2 billion.

Belarus and Kazakhstan are in third place in foreign trade with the Russian Federation, after the EU and China. 

Possibly related:
Market Differentiation: "Kazakh leader may drop the 'stan' in Kazakhstan"

One of these is not like the others:

From Reuters...MORE

"The New New Great Game: Geography, Energy, The Dollar and Gold"
Just about the time 'the 'stans' start receding from the Western headlines it is probably most important to think about them....

"Lessons From The Last Time Civilization Collapsed"

From NPR August 19, 2014:

Consider this, if you would: a network of far-flung, powerful, high-tech civilizations closely tied by trade and diplomatic embassies; an accelerating threat of climate change and its pressure on food production; a rising wave of displaced populations ready to sweep across and overwhelm developed nations.

Sound familiar?

While that laundry list of impending doom could be aimed at our era, it's actually a description of the world 3,000 years ago. It is humanity's first "global" dark age as described by archaeologist and George Washington University professor Eric H. Cline in his recent book 1177 B.C.: The Year Civilization Collapsed.

1177 B.C. is, for Cline, a milepost. A thousand years before Rome or Christ or Buddha, there existed a powerful array of civilizations in the Near and Middle East that had risen to the height of their glory. Then, fairly suddenly, the great web of interconnected civilizations imploded and disappeared.

The question that haunts Eric Cline is why. What drove such a complex set of societies to all perish almost all at once? The answers and its lesson, Cline argues, are a story we moderns should not ignore. When I asked him about the parallels between 1177 B.C. and A.D. 2014, Cline responded:

"The world of the Late Bronze Age and ours today have more similarities than one might expect, particularly in terms of relationships, both at the personal level and at the state level. Thus, they had marriages and divorces, embassies and embargoes, and so on. They also had problems with climate change and security at the international level. These are not necessarily unique to just them and us, but the combination of similar problems (climate change and drought, earthquakes, war, economic problems) at the very same time just might be unique to both."

...MORE 

Barron's: "Dow Industrials Jump 200 Points, Retake 17,000 as Jobs Data Drives Stocks Higher"

Handy rule-of-thumb: In bull markets the most dramatic moves are to the downside, in bear markets the shockingly fast moves are to the upside.
Not always true but often enough to be aware of.
DJIA: 17,010.23; S&P 500: 1968.81.

From Barron's Stocks to Watch:

For one day at least we can stop worrying about whether a slowing economy will derail the stock market, as U.S. payrolls jumped in September.

The Dow Jones Industrials have jumped 203.36 points, or 1.2%, to 17,004.41 at 12:44 p.m., while the S&P 500 has risen 1.2 % to 1,9629.18. The Nasdaq Composite has climbed 1.2% to 4,484.34 and the small-company Russell 2000 has gained 1.1% to 1,108.90.

The U.S. added 248,000 jobs in September, well above forecasts for 215,000, while the August number was revised higher to 180,000 from 142,000. The unemployment rate, meanwhile, fell to 5.9%, the lowest since 2008. Wages, however, was unchanged from the previous month. JPMorgan’s David Lebovitz can’t contain his excitement:

BOOM! Goes the jobs report…After a week full of market volatility and concerns over the state of the U.S. economy, today’s jobs report served as a reminder that the U.S. economic expansion continues…Overall, today’s report should be a positive for equities and somewhat of a mixed bag for bonds. As long as wage growth remains subdued, corporate profits should be able to continue their upward ascent, justifying slightly higher valuations in the equity market. However, if this trend of improvement in the labor market continues, it may push the Fed to raise interest rates sooner rather than later, even in the absence of higher wages....

...MORE

"Putin Makes Compelling Case at Investment Conference"

Be very, very leery about any Invest-in-Rus pitch.
And salivate over the valuations.
From Russia Insider:

Jon Hellevig is a Finnish legal and business expert with long experience in Russia. He writes frequently on Russian politics and economics. Link to bio.

Speaking yesterday at Russia's largest investment conference, Russian president Putin made a compelling case that Russia's economy has not only not been seriously affected by sanctions, but that in fact, it stands to benefit from them.

He dismissed the recent fall in the value of the ruble, stating, as he has several times over the past few days, that Russia would absolutely not institute capital controls, and he argued that the cheaper ruble is in many ways a plus for Russia.

In response to the doomsayers, Putin pointed out that the Russian federal budget showed a net surplus of over 900 billion rubles (about 25 billion USD) for the first eight months of the year. This surplus amounts to 2% of the GDP, which is in stark contrast to the deficits run by all major Western countries.

This flies in the face of the assorted domestic liberal analysts and their Western peers who have been telling us for the last few years that Russia needs an oil price of close to $120 to balance the budget. It was no use trying to point out to them the logical conclusion, which entails from the facts that the Russian budget is denominated in rubles and that the Russian currency is the ruble, which would devaluate in pace with the decrease of the oil price, thus bringing the budget to a new level of equilibrium with a lower oil price. Events have now proved me right on this.

Correspondingly, the devalued ruble rate will increase profits in all other export sectors and thus replenish the tax coffers. Less competition from Western imports will also cushion the domestic sector industries. The battered Eurozone countries can only envy Russia for having its proper currency to enable such adaptation.

Putin stressed that even under these extraordinary conditions Russia will not need to increase the tax burden on businesses. Neither does Russia experience any EU-style cuts in welfare and retirement benefits; on the contrary Russia will continue investing in the social sphere.

There would be a big problem with the ruble depreciation were it to fuel inflation, but so far there are few signs of this. Putin pointed out that as of today the inflation expectations by the end of the year range from 7.5- 8 percent. This is of course high in comparison with what is usual for the Western countries but it is in fact only slightly higher than last year’s 6.5 percent....MORE

HT: Mike Norman Economics

IMF: "The Growth of Shadow Banking"

From the International Monetary Fund's iMFdirect blog:

Shadow banking has grown by leaps and bounds around the world in the last decade.  It is now worth over $70 trillion. We take a closer look at what has driven this growth to help countries figure out what policies to use to minimize the risks involved.

In our analysis, we’ve found that shadow banks are both a boon and a bane for countries. Many people are worried about institutions that provide credit intermediation, borrow and lend money like banks, but are not regulated like them and lack a formal safety net. The largest shadow banking markets are in the United States and Europe, but in emerging markets, they have also expanded very rapidly, albeit from a low base.

In our latest Global Financial Stability Report we discuss three ways of measuring the size of shadow banking:

• The Financial Stability Board offers a broad definition of shadow banks as nonbank financial intermediaries engaged in credit intermediation (including investment funds), and a more narrow one which excludes entities which do not directly undertake credit intermediation or which are consolidated into banking groups.

• We compute another measure, derived from flow of funds accounts, for a smaller set of countries. It focuses on “other financial intermediaries” and excludes non-money market investment funds, since the latter mainly manage assets on behalf of clients and thus do not engage directly in credit intermediation.

• Lastly, we propose a new, alternative definition of shadow banking as financial activities using nontraditional funding, independently of the financial institution involved. The focus on activities is one advantage of this approach. For example, securitization is classified as shadow banking, whether it is conducted on-balance sheet by banks, or off-balance sheet through special purpose vehicles.

These measures show some notable differences. They all share a similar growth trend until 2007, after which their paths diverge markedly (Figure 1). After a mild drop around 2008, the Financial Stability Board’s measures now surpass their pre-crisis levels. Positive valuation effects are one of the reasons behind the pickup in the Financial Stability Board’s measures, given the growth in the investment fund industry.

In contrast, our measures remain broadly constant or have fallen, which reflects two opposing forces: the decline in the role of certain activities after the crisis, such as securitization and securities and repo lending, and a concomitant rise in other activities, includ­ing those of country-specific entities, such as special financial institutions in the Netherlands and U.S. holding corporations....MORE

(click to enlarge)

Will Your Favorite Charity Have to Register As a Commodity-Pool Operator?

Jason Zweig writing at the WSJ's Intelligent Investor:

Look Who’s ‘Trading’ Commodities

In the government’s bid to crack down on risky trading, charities and other nonprofit organizations may become collateral damage. That is causing alarm in the nonprofit world and should be a concern for donors.

Under new rules, your local charity could be obligated to register with federal regulators as a commodity-pool operator—even if it doesn’t invest directly in corn or pork bellies. CPOs, as they are sometimes called on Wall Street, invest in a range of derivatives contracts, including futures, swaps and options on foreign currencies, commodities and interest rates. That is light years away from the mission of most nonprofits.

Having to register as a CPO with the Commodity Futures Trading Commission would entail higher costs and more red tape. As a result, if you are a donor or board member, you need to ask a whole new set of questions about how the institution’s money is managed.

The registration requirements are imposed by an obscure provision of the Dodd-Frank Act, the 848-page law that was enacted in 2010 to constrain giant financial firms, not charities.

The Dodd-Frank provision doesn’t apply to individual investors. But it can subject a nonprofit to CFTC regulation if the organization oversees money for more than one entity—other nonprofits, certain affiliates or individuals—and invests, even indirectly through mutual funds, in certain financial contracts.

In principle, that could include a local charity in Ypsilanti, say, or a multibillion-dollar endowment.
“There’s a fair amount of consternation and confusion about this,” an investment manager at one of the largest university endowments in the country recently told me. (The nonprofit officials I spoke with declined to be named, citing internal policy or concerns about drawing the attention of regulators.)

“We’re accidental commodity-pool operators,” an executive at another major nonprofit said, explaining that the organization happens to own some stock funds that may occasionally use futures contracts to invest excess cash.

The CFTC feels these concerns are overblown. “We don’t think this will affect large numbers of charities across the country,” says an agency spokesman.

In 1995, the Philanthropy Protection Act exempted nonprofits from registration with the Securities and Exchange Commission. But no such sweeping exemption exists from the CFTC’s commodity regulations. And now Dodd-Frank has tossed many new instruments, like swaps and other derivatives, into the definition of “commodity.”...MORE

I am reminded of the Church of England's mis-adventures in alternative investing.

First the Archbishop of York said short-sellers were breaking a commandment or two:

Short-Sellers `Clearly Bank Robbers,' Says Archbishop

Then His Grace was informed the CofE had a fair chunk of loot entrusted to hedge funds:

Church of England accused of short-selling after its attack on 'bank robbing' traders 

Leading to cruel headlines:

What would Jesus short?

After which the Archbishop's A-bro changed targets:

Archbishop of Canterbury Tells Bankers to Repent 

While losing big money in another alt, top-tick real estate:

Church of England could lose [$35 Mil.] in StuyTown 

The Church decided the hedgies weren't so bad: 

Hedge funds win Church of England blessing (no new comments on 'Bank Robbing Traders') 

"Technical Trading: Charts Don't Lie, No Sign Of A Bottom In Silver" (SLV)

For the last couple months we've been thinking that silver was the easier and higher probability bet in the precious metal race to the bottom and son-of-a-gun, waddaya know, a trend is emerging!
December futures $16.865.
From Kitco:

Charts don't lie. And, for now the technical trend points down for silver. December Comex silver prices tumbled below the $17.00 level this week, which marked a new 2014 low for the silver market and the lowest level for December futures prices since February 2010.

For now, there is no sign of a bottom on the silver chart. The bears are in control.

Looking at action in recent months, since marking out a summer high at $21.67 in early July, Comex December silver futures have been in a steady slide lower. 

(click to enlarge)

Silver slammed to a fresh 2014 low on Friday in knee-jerk reaction following a better-than-expected U.S. employment report. Silver futures jabbed lower hitting a low at $16.64 before rebounding off their early lows.

For now, there are no signs of a major low forming on the daily chart for silver, there are no basing or bottom patterns developing. In this case, the old market adage: "the trend is your friend" will be true until proven otherwise.

Let's take a look at some of the technical indicators for further clues on the silver market outlook. Trend following indicators, such as moving averages are all solidly bearish for the silver market. Dec silver is trading below its 10-day, 20-day, 40-day, 100-day and 200-day moving averages. That position tends to keep trend following traders negative on a market....MORE

Here is the gold/silver race, proxied by their respective physical ETF's:

Recently:
Sept. 30
Gold, Silver Resume Decline
...We continue to believe the collapse in precious is the highest probability trade you'll find and that silver is the easier call of the two....
Sept. 19 
Gold Down, Silver Collapses
Sept. 11
Chartology: "The Downside Target in Silver is Below $15"
As we've noted over the last few months when posting on gold and silver "...The easier call has been silver".
Sept. 10
Silver Bounces at Support For the Fourth Time In 14 Months
Sept.5
An Argument For $13 Silver and $1100 Gold 
Sept. 2
Gold: "There's something wrong with our bloody ships today, Chatfield"
...The easier call has been silver:
Gold, Silver Continue Fearless Decline

"Albert Edwards Says Watch Japanese Yen and Be Very Afraid"

Bloomberg is using the "Slightly Deranged Albert in a Sweater" photo to illustrate the article.

Graphic stylings aside, Mr. Edwards is right to look at Japan.
The Nikkei was down a thousand points Friday-through-Thursday, dramatic enough that we thought about posting a "It's probably nothing" headline before something shiny (gold) caught our attention.

From Bloomberg:

The Japanese yen goes into freefall. China’s fragile economy tips over the edge. A wave of profit-crushing deflation comes washing over the U.S. and Europe. Investors panic.

That’s the view of perennial pessimist Albert Edwards. The London-based analyst and his team at investment bank Societe Generale SA have been ranked No. 1 for global strategy in surveys by Thomson Reuters Extel every year since 2007, even with a history of saying unpleasant things that few want to hear.

“My role is to step back from the excessive enthusiasm that builds up in the market, and to just say, ‘This is wrong. This is going to go horribly wrong,’” the 53-year-old said by phone last week.

The cliche is that when the U.S. sneezes, Japan catches a cold. Edwards says Japan is just as apt to lead the way. When the Internet bubble burst in 2000, Japan’s tech-heavy Jasdaq index started to slide weeks before the Nasdaq. Japan also pioneered the deflation that now threatens the West. In 1997, it was a plunging yen that helped trigger Asia’s currency crisis.

With the yen’s drop this week to a six-year low of 110 versus the dollar, Japan’s currency may once again be the first domino to fall in a chain of events that could be bad for everyone, according to Edwards.

Disconnect
The U.S. stock market rally has been going for 66 months since the financial crisis bottomed in March 2009, a streak that’s already a year longer than average. A disconnect between buoyant equity prices and corporate profit growth in the low single-digits makes the situation especially precarious.

“Almost 100 percent of investors think we’re at the start of a long recovery,” Edwards said. “It’s already a long recovery. Forget about starting from here.”...MORE

Gold Is Trading Less Than $30 From August 2010 Prices

Which is another way of saying that except for the June and December 2013 low prints, $1179 and $1181 it's been a while since we've seen this kind of action:

(click to enlarge)

This story says $1200 is support, that is incorrect, there is really no support until the price that found a bottom previously and because of the passage of time and a decline in speculative passions I wouldn't bet on that holding. 

$875 has been, and remains, our price target.

From Reuters:

*Further upside for dollar if jobs data firm to hurt gold
* Coming up: U.S. Nonfarm payrolls for Sept at 1230 GMT (Updates throughout, changes dateline from SINGAPORE)
By Clara Denina
LONDON, Oct 3 (Reuters) - Gold fell on Friday, poised for a fourth weekly loss in five, while platinum slumped to a five-year low as the dollar rebounded ahead of U.S. jobs data that will give more clues about the Federal Reserve's monetary tightening strategy.

The September non-farm payrolls data is due at 1230 GMT and a robust number could further fuel expectations of an early interest rate hike by the Fed. According to a Reuters poll of economists, non-farm payrolls are seen coming in at 215,000, a big jump from August.

Spot gold, which has benefited strongly from increased central banks' liquidity in the years after the financial crisis, touched a nine-month low of $1,204.40 an ounce on Tuesday. It was down 0.5 percent at $1,207.45 by 0949 GMT and looked likely to challenge the important $1,200 resistance level, traders said.

"That $1,200 seems to be the main support level for the time being but the view is that it could be breached with a good jobs number out of the U.S. later today," ABN Amro analyst Georgette Boele said....MORE

Here's Kitco's chart of that  whole different world:

Most active (Dec.) futures: $1207.10 down $8.00.
Recently:
"The collapse in “physical demand” for precious metals in the USA"
Gold, Silver Resume Decline

Forecasting: We Are All Charlatans

And now you can be one too!*
(offer below)
From Pragmatic Capitalism:

I love Larry Swedroe’s work.  If you haven’t read some of his books on investing then you’re probably less informed than you otherwise could be.  But Larry also believes in the “forecast free” view on indexing.  And while it’s a nice message and one that we can all relate to (forecasting is hard), I think it misrepresents what we all do when we allocate assets.

In a recent blog post Larry says that prognosticating the future is “the occupation of charlatans”.  That’s pretty harsh if you ask me.  But we see this all the time with indexers.  They say that they don’t predict the future, don’t engage in trying to outguess the market and that they leave that up to the “active” gamblers.  And then they whip out their handy dandy set of backtested results and datamined “evidence” and say “buy low fee index funds and don’t listen to anyone who makes a forecast”.  Or they look at past results and conclude that certain “factors” should be weighted in a certain way because they have shown evidence of good performance.  Or they choose to actively deviate from global cap weighting (as all indexers do) and then claim they’re still not predicting the future.

This is all fine except for one small problem – by using a rear view mirror approach the indexers are all making forecasts.  They’re just extrapolating the past into the future in what amounts to little more than “well, asset classes have averaged X% per year for XXX years so that’s a reliable assumption going forward”.  This could be true.  And it could also be completely wrong.  They’re making a fairly smart forecast based on a fairly long dataset, but it’s not like they’re not making a forecast about the future.

Worse, as I’ve noted recently, indexers all deviate from the global market cap weighting because no indexer can buy the total world’s financial assets nor would they want to.  And when you deviate from global cap weighting you are, by definition, an active investor.  And you are, by definition, making a forecast about how your allocation will perform in the future.  I don’t care if you look at some historical dataset and extrapolate it forward or if you focus on trying to understand the world for what it is and make probabilistic forecasts (as I do).  We all make forecasts about the future.  Some do it in rather silly ways while I’d argue that some are more realistic and calculated.  But all of our portfolios are constructed by making forecasts and implicit assumptions about how certain asset class weightings will help us achieve our financial goals.....MORE

See, for example: 
UPDATED--Are You a Recent Graduate Who Hasn't Found a Job? Consider Becoming a Charlatan
or: 
Follow-up: Choosing the Charlatan Career Path
And; 
"Pseudo-Mathematics and Financial Charlatanism...."

Possibly related:

Re-post: Peak Oil Stalwart to Shutter Forum/News Site, Pursue Career as Astrologer 

Is The Financial Crisis Making You Psychic? 

"Fortune tellers, astrologers and economists"

"Fake Astrology-Based Hedge Fund Threatens To Ruin Things For All The Legit Astrology-Based Hedge Funds Out There "

"S.E.C. Charges Psychic With Securities Fraud"
Should have seen it coming.

Inference

From Dilbert.com:

The Inference Group was one of the things David J.C. MacKay did.
From our April 27, 2014 post "If It's April It Must Be Time to Visit Professor MacKay and His Map of the World":

...If you want to know more about what's going on with the map, do visit his map page.
MacKay used to hang his hat at Cambridge's Cavendish Laboratory.
I don't really know what they do at the lab, I think it's where the Nobel Prize in Physics is made.

Mackay left the lab in 2013 to be the University's first Regius Professor of Engineering.
He has a bunch of letters after his name....MORE

Polish banking innovations: the best in the world? [#SIBOS]

So say:

Michal Panowicz, Director of Marketing and Business Department, mBank SA

Piotr Wiesiolek, First Deputy President, Narodowy Bank Polski

Iwona Sroka, President & CEO, Central Securities Depository of Poland (KDPW)

Adam Tochmanski, Director of Payment System Department, Narodowy Bank Polski

Michal Szymanski, Vice President, Krajowa Izba Rozliczeniowa S.A.

Mieczyslaw Groszek, Vice President, Polish Bank Association

Polish banking innovations: the best in the world? [#SIBOS]

From The Finanser

Somebody Still Likes Energy: Quantum Has a $3.25 Billion Hard Cap On Latest Fund

It'll be a while before a turn but they're private equity so they own the cash flow which makes the waiting easier.
From peHUB:
Quantum eyes $3.25 bln hard cap for energy-focused Fund VI

Quantum Energy Partners is holding a second close on its sixth fund at about $2.5 billion, which is the fund’s target, according to a person with knowledge of the process.

Quantum Energy Partners VI LP is now eying its $3.25 billion hard cap. A final close on Fund VI could come by January, the person said.

The firm, led by S. Wil VanLoh Jr., held a first close earlier this summer on $1.17 billion after a May fundraising launch, according to the person with knowledge of the process, as well as an LP source who heard the fundraising pitch.

Michael Dalton, a managing director at Quantum Energy Partners, did not return a call for comment. Park Hill Group is working as placement agent on the fundraising.

The firm’s fifth fund, which closed on $2.5 billion in 2009, was generating a 19.75 percent internal rate of return and a 1.35x multiple as of Dec. 31, 2013, according to information from the Texas County & District Retirement System....MORE

Everything You Might Want to Know About Tony Hsieh and the Future of the Downtown Las Vegas Project

They were burning too much money on frivolous stuff.
From re/code:

Tony Hsieh Answers Some of Our Questions about the Future of Las Vegas’ Downtown Project

After layoffs hit Las Vegas’ Downtown Project this week and in the wake of our special series on the high-profile tech and real estate development in Nevada, we asked him some follow-up questions about what things look like going forward.

He responded this morning via a document in Evernote, which we are publishing in the entirety below.

We’d like to note that in it he seems to take issue with some of our reporting over this past week, such our contention that he has stepped down as leader of the Project and even the basic premise that he is the project’s founder.

“My level of involvement at Downtown Project today is the same as it was 6 months ago,” he wrote. “My role continues to be as an investor, advisor, and equivalent of a board member that sets high-level general direction and strategy but is not involved in day-to-day management of people or projects.”

We respectfully disagree with part of this characterization, based on reporting, and also underscore that we believe he is the Downtown Project’s face, funder and main driving force.

But, in the document, Hsieh said a lot more about a lot of things and even quotes Apple’s Steve Jobs about taking the long view of such an entrepreneurial effort.

He also added: “Like any startup, the path to getting there hasn’t been and won’t be all unicorns and butterflies.”
This week, that has become abundantly clear.

I would also note that I asked Hsieh other questions in later emails and by phone, and, should he choose to answer those too, we will update his responses.

For now, you be the judge of Hsieh’s answers, which are presented as he sent them to Re/code:

re/code Q&A — 10/2/14
10/2/14 Q&A by Tony Hsieh about Downtown Project
We issued a statement on 9/30/14 due to a huge number of misleading or inaccurate headlines that were making their rounds online with little or no fact checking: http://downtownproject.com/statement/
I’ll expand on some of the thoughts in the Q&A below (all the questions below were asked by re/code).

Is there outside money coming in?
Downtown Project is actually not a single company. It is a collection of over 300 businesses and legal entities, and so there are other investors that occasionally co-invest in different projects or companies. We don’t foresee that approach changing anytime soon.

Why did these layoffs happen?
The layoffs were due to an elimination of roles as we move forward with streamlining our operations and are focused on the next stage of growth (described below about the future of Downtown Project).

With regards specifically to the layoffs that occurred on 9/30/14, we eliminated 30 positions from our corporate support staff. We directly employ more than 300 people, and through our investments there are over 800 people working in our porfolio of companies in downtown Vegas. Lost in the news headlines was that this week, we also added over 30 positions as we plan to open up The Market next week. We plan to continue to grow our total job count moving forward....

...MUCH MORE 

Previously:
That was quick: "Tony Hsieh Steps Down From Vegas Downtown Project"
Big Money Moron Plans to Make Downtown Las Vegas Into Techtopia

"D.C. mystery: Jeff Bezos’ plan for The Washington Post"

Henry Blodget Editor-in-chief!?
Every story a Kindle slideshow with free shipping on the Kindle?
From Politico:

Jeff Bezos rarely visits The Washington Post.

His most recent trip to the nation’s capital, on Sept. 17, was for a press conference about Blue Origin, his spaceflight startup. He doesn’t keep an office at the Post’s headquarters, on 15th Street, and he doesn’t much care for hobnobbing with the D.C. media establishment. Every few months he meets face-to-face with the Post leadership, but these gatherings usually take place 3,000 miles outside the Beltway, in his hometown of Seattle.

Meanwhile, the Post, far from embarking on the radical reinvention that many thought Bezos would bring, remains more old school than cutting edge. Its executive editor, Martin Baron, is the epitome of the 20th-century newspaperman. Its new publisher, former POLITICO CEO Fred Ryan, is a fixture of the old Washington scene. The paper has hired a whopping 100 staffers this year, but few among them are marquee names. It has launched several new blogs, but few have drawn much notice. The homepage could use a redesign. 

One year after his acquisition — Bezos purchased the Post from the Graham family, for $250 million, a year ago today, on Oct. 1, 2013 — media analysts remain puzzled by his decision to buy the paper. There has been no major digital innovation, no radical new product launch, no change to delivery or presentation, and no promise of any specific plans for the future....MORE

HT: Ritholtz@Bloomberg

The Most Instructive Chart of the Last Month

Was of the Nasdaq 100 (NDX) posted on September 12 under the headline:

Equities: This Is What the Phrase "Feeling Heavy" Looks Like (NDX) 
We are still looking for ~1900 on the S&P 500 but this chart says we should maybe widen our focus to the Nasdaq 100:

S&P 500     1990.23  -7.22
DJIA       17,008.53  -40.47
NDX          4077.50  -15.14 

We're going lower despite the NDX being up a point today

Asness' AQR to Launch First Catastrophe Bond Fund Strategy

The hang-up is always: "How do you allow redemptions in a fund invested in illiquid assets?"*
From Artemis:

Investment management firm AQR Capital Management LLC has registered its first catastrophe bond fund with the SEC, which would position the fund for launch to investors in 2015.

The new fund, which was registered with the SEC under the name AQR Catastrophe Bond Fund LP, will be capitalised with AQR’s own funding to begin with.

The fund will target institutional clients once up and running. In the meantime the AQR cat bond fund will be capitalised with AQR’s own funds, which will help it to build a track-record.

If or when the AQR Catastrophe Bond Fund is opened up to institutional investors the minimum commitment will be $5m, according to the SEC filing....MORE

*See, for example, also at Artemis:
Stone Ridge hits $2Bn of ILS & reinsurance-linked assets for first time
30/09/2014

Real or Fake Elon Musk Tweet: You Decide (TSLA)

Following up on "Tesla Jumps 3% on Cryptic Musk Tweet (TSLA)":

About time to unveil the D and something else pic.twitter.com/qp23yi59i6
— Elon Musk (@elonmusk) October 2, 2014

Compare/contrast:

I love the Internet. Comments had me literally ROFL. No, it wasn't intentional. Glad I didn't mention the other letter!
— Elon Musk (@elonmusk) October 2, 2014

Space launch: $54 Million. Gigafactory construction: $5 Billion. Accidental dick jokes…priceless.
— Bored Elon Musk (@BoredElonMusk) October 2, 2014

UPDATED--Tesla Jumps 3% on Cryptic Musk Tweet (TSLA)

Update: "Real or Fake Elon Musk Tweet: You Decide (TSLA)".
Original post:
Hey, why not. If a biotech can pop 18% on news some guy in Dallas has Ebola surely TSLA can move on:

About time to unveil the D and something else pic.twitter.com/qp23yi59i6
— Elon Musk (@elonmusk) October 2, 2014

TSLA $248.18 up $7.94 (3.30%)

Options: "Transocean LTD Trader Bets Big On Steeper Losses" (RIG)

RIG is trading down just under 1% at $30.76. As the headline said on Tuesday: "Chartology: "Energy- Worst performer over 90 days is on channel support" (XLE; ERY; XOP)".

The triple leveraged inverse energy ETF I mentioned in that post, the Direxion ERY is up 10.62% in under 48 hours. As the retail guys like to point out, "Now Mr. Bigg, if you annualize that"...
Energy is weak, triple-levered ETF's are dangerous.

From Schaeffer's Research:

Transocean LTD (NYSE:RIG) closed Wednesday 2.9% lower at $31.05, but not before hitting a fresh 10-year low of $30.87 in intraday action. This is just more of the same, though, for a stock that's shed 37.2% year-to-date. This sharp move south had put players continuing to pile on, with volume running at three times what's typically seen. Against this accelerated demand, the equity's 30-day at-the-money implied volatility surged 17.3% to 35.7% -- a 52-week peak.

Most active were RIG's November 27 and 35 puts, which may have been used to initiate a spread in the back-month series -- and are tied to stock. Elsewhere, the equity's January 2015 28-strike put saw notable activity due to a massive block of 10,000 contracts that was bought to open for $0.99 apiece, resulting in an initial net debit of $990,000 (number of contracts * premium paid * 100 shares per contract)....MORE

Hurricane Watch: "Quietest Atlantic Hurricane Season Since 1986"

Chalk up a win for the insurance companies.
From Wunderblog:

 The traditional busiest month of the Atlantic hurricane season, September, is now over, and we are on the home stretch. Just three weeks remain of the peak danger portion of the season. September 2014 ended up with just two named storms forming--Dolly and Edouard. Since the active hurricane period we are in began in 1995, only one season has seen fewer named storms form in September--1997, with Category 3 Hurricane Erika being the only September storm. Between 1995 - 2014, an average of 4.3 named storms formed in September. With only five named storms so far in 2014, this is the quietest Atlantic hurricane season since 1986, when we also had just five named storms by the beginning of October. In terms of Accumulated Cyclone Energy (ACE), activity in the Atlantic up until October 1 has been only about 43% of the 1981 - 2010 average.

Figure 1. Tracks of Atlantic named storms in 2014. Note how all of this year's hurricanes (tracks in red) have occurred well north of the tropics, north of 24°N latitude--a testament to how hostile for development conditions have been in the tropics, due to dry, sinking air. Image credit: National Hurricane Center

Forecast for the remainder of hurricane season
Looking at climatology, since 1995, we have seen an average of 3.6 named storms form in the Atlantic after October 1. Two of those years--2006 and 2002--saw no storms form after October 1. The most post-October 1 storms was eleven, which occurred in 2005--no surprise there! The latest 2-week forecast from the GFS and European models show a continuation of the basic atmospheric pattern we've seen over the tropical Atlantic this season, with plenty of dry, sinking air. These conditions should lead to lower than average activity into mid-October, which is when historically, Atlantic hurricane activity begins to drop sharply. I expect we'll see at least one more named storm in the Atlantic this year, with two a more likely number. It's unlikely we'll get three or more post-October 1 named storms....

...MORE

Oil: Brent Trades At A 28-Month Low

The folks most hurt by this drop in price are Putin, ISIS and the companies producing from shale.
WTI November and December both down $1.45 at $89.28 and $88.29 respectively after trading as low as $88.18 and $87.22.
Brent $92.34 down $1.82 last.
From the Financial Times:

Brent oil retreats to 28-month low

Brent crude oil hit a 28-month low while benchmark US crude dropped below the $90 mark for the first time since April 2013, pointing to significant stocks on both sides of the Atlantic. 

ICE November Brent, the international oil benchmark, fell $2.23 to $92.04 a barrel – the lowest since June 2012. Nymex November West Texas Intermediate eased $2.07 to $88.57.

The latest sell-off came after Saudi Arabia noticeably lowered its official selling prices for its customers across all regions in November.

In some cases, prices were at levels similar to those during the 2008-09 financial crisis.

“Such measures give rise to doubts about Opec’s long-standing strategy of striving above all for price stability,” said Carsten Fritsch, analyst at Commerzbank. 

Brent has fallen from $115 a barrel in mid-June amid an oversupply from the North Sea and Atlantic Basin, which has coincided with greater North American production....MORE

"Swedish Scientists Sneak Bob Dylan Lyrics Into Their Academic Publications For Last 17 Years"

From The Local.se:

Five Swedish scientists have confessed that they have been quoting Bob Dylan lyrics in research articles and are running a wager on who can squeeze the most in before retirement.

The game started seventeen years ago when two Professors from the Karolinska Institute in Stockholm, John Jundberg and Eddie Weitzberg, wrote a piece about gas passing through intestines, with the title "Nitric Oxide and inflammation: The answer is blowing in the wind".

 

The latter part of the title is from one of Dylan's most famous tracks.

 

"We both really liked Bob Dylan and we thought the quotes really fitted nicely with what we were trying to achieve with the title," Professor Weitzberg told The Local.

 

The pair decided to stick to the theme and went on to splice other lyrics into their work, including one entitled "The times they are a-changing".

 

"We're not talking about scientific papers - we could have got in trouble for that - but rather articles we have written about research by others, book introductions, editorials and things like that," said Weitzberg.

 

A few years later a librarian spotted an article written by two other medical professors working at the same university and connected the foursome.

 

The title was "Blood on the tracks: a simple twist of fate". It incorporated the name of both a Bob Dylan album and one of his tracks....MORE

HT: the magnificent Open Culture

"The collapse in “physical demand” for precious metals in the USA"

One of the biggest problems with valuing precious metals is the paucity of information on volume in the physical realm. The analyst bounces between Confucius (attr.): "The hardest thing of all is to find a black cat in a dark room, especially if there is no cat" and Robert Service:

There are strange things done in the midnight sun       
By the men who moil for gold;
The Arctic trails have their secret tales. 
That would make your blood run cold...

There are some strange things done at the COMEX too, so it is difficult to follow the relationships between futures/options and physical. Here's a bit of light on the subject from FT Alphaville:

The collapse in “physical demand” for precious metals in the USA

Some precious metal bulls like to dismiss price declines in gold and silver by pointing to the strength of “physical demand.” (Savers who put their wealth into precious metals never seem to get paid for this “physical demand”, but whatever…)...MORE

(click to enlarge)

That was quick: "Tony Hsieh Steps Down From Vegas Downtown Project"

All I said was Big Money Moron Plans to Make Downtown Las Vegas Into Techtopia.
From TechCrunch:
Tony Hsieh Steps Down From Vegas Downtown Project 

Tony Hsieh, the CEO and founder of Zappos has stepped down from his leadership role at the Las Vegas Downtown Project, according to Re/code. Hsieh created the massive $350 million project to revitalize several city acres east of Las Vegas Boulevard and convert the area into a tech hub.

Hsieh’s announcement comes right on the heels of a massive 30 person layoff at the project. Hsieh had called a surprise all-hands meeting at the Inspire Theater to announce the layoffs, witnesses to the meeting first told KNPR. Several different sources have said the layoffs mainly affected non-revenue generating entities including the Learning Village, tours and music programs.

A source close to the project reportedly said the layoffs were the result of the project “bleeding money.” The project had invested in real estate, a private school, restaurants, an ambitious transportation project and the purchase of what some may think of as frivolous and expensive items such as several Burning Man sculptures intended to decorate the area.

Most telling of the troubles to come may have been the closing of Factorli, a $10 million manufacturing plant that opened just this year. “Tony is not always altogether the most wise judge of character.” a source told Re/code. “There’s a lot of family. There’s a lot of drinking buddies. And some poor choices were made.”...MORE

See also Pacific Standard's "The Creative Class Boondoggle in Downtown Las Vegas" for a whiff of the self-absorbtion we've been seeing in techland.

"Stocks & Treasury Yields Are Collapsing"

We have been looking for ~1900 on the S&P 500 since late August and on Sept. 22 posted "Equities: How's About a Thousand Dow Points (to the downside)?" at DJIA 17,243.. The thinking is that this should be a slightly larger decline than that which ended on Aug. 7 (5% vs. 4.3%) eliciting a "Wow, that wasn't so bad" emotion, followed by a return to the 2019/17,350 all time highs before a real downturn.
Caveat:
We have some fast computers and a lot of experience but it's all still guesswork.
DJIA: 16,855.34, down 187.56, S&P 500: 1,955.57, down 16.72.
A close below 1955 would be quite serious.

From ZeroHedge:

Yesterday's late-day weakness in stocks is continuing as US equities open this morning led by a collapse in Dow Transports and further weakness in Russell 2000. Treasury yields are also plunging with 10Y at 2.435% (back below the oh-so-important Tepper "end of the bond bull" levels). High-yield credit markets are extremely volatile this morning. USD weakness is helping commodities rally with gold and silver outperforming. VIX just hit 17.5

Stocks are tanking on the week...

and bond yields plunging...

Short-term, it appears stocks are playing catch down to credit once again...

USD weakness is sparking buying in commodities....MORE

Related:
Sept. 8
Watching the S&P 500 at 2000 (SPX; SPY)
Sept. 12
Equities: This Is What the Phrase "Feeling Heavy" Looks Like (NDX)
Sept. 24
Equities: We Bounced Off Support
Sept. 25
"3pm update - a day for the bears"

Also at ZeroHedge:

Stocks are about to take THE line that has supported the rally ?going back to 2012.

 ...MORE

And an Ebola story:
How Bad Could It Get? US Government Order Of 160,000 HazMat Suits Gives A Clue

Competition For Mr. Musk: "Vivint Solar: Residential Solar Panel Installer Rises 8% on Debut" (VSLR; SCTY)

The headline is true as far as it goes but in addition to being an installer Musk's SolarCity is also a financier and soon to be a manufacturer.
From Barron's:

Shares of solar panel installer Vivint Solar (VSLR) are up $1.21, or almost 8%, at $17.21, on their first day of trading, after pricing the IPO at $16 last night, the low end of an expected range of $16 to $18.

The company, based in Lehi, Utah, promises to save residents 15% to 30% on their electricity bills “immediately following system interconnection” after installing panels on a home. The company was founded in 2011, and notes in its S1 filing with the Securities & Exchange Commission its evolution from other home services:

We were founded in May 2011 when Vivint, Inc., a residential security solutions and home automation services provider with approximately 850,000 subscribers as of June 30, 2014, recognized an opportunity to replicate its strong direct-to-home sales model in the solar energy market, and in July 2011 we installed our first solar energy system....MORE

Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture One

Following up on "UPDATED--Startups: 'Y Combinator Releases Its Curriculum as a Stanford Class — And Online'".

We'll be posting the first four courses over the next week or so, catching up to course 5 with Thiel on October 7th.

From Stanford University:


See also:
Annotated transcript

How to Start a Startup: Course Schedule

"Kim Jong-Un's Sister Takes Control in North Korea"

The little psycho reportedly broke his ankles, see below.
From The Diplomat:

According to a new report by a Seoul think tank, Kim Jong-un’s younger sister is in charge during his absence. 

Kim Yo-jong, the younger sister of North Korean leader Kim Jong-un, might be leading the hermit kingdom instead of her brother, a recent report from Seoul-based think tank, North Korea Intellectuals Solidarity (NKIS) revealed.

According to NKIS on October 1, Kim Jong-un — who has failed to appear at official events since early September — is getting medical treatment at Bonghwa Clinic from both domestic and foreign medical teams. Meanwhile, in his absence,  Kim Yo-jong is charged with handling important government decisions.

An unnamed source told NKIS that a decision to give Kim Jong-un extended medical treatment was made at a meeting of the Political Bureau of the Central Committee of the Workers’ Party of Korea on September 6. The meeting was reportedly held at Kim Yo-jong’s suggestion.

As a result of the meeting, Pyongyang decided four things. First, to give special and extended medical treatment to Kim Jong-un in order to quickly restore his health. Second, all North Korean high level officials and party members should be responsible in following Kim’s previous orders. Third, the party and army should be on wartime-like alert while Kim Jong-un is out of commission. Lastly, all the important matters related to government administration should be reported to Kim Yo-jong, so that Kim Jong-un can concentrate on getting better....MORE

Both the Telegraph and the Daily News were reporting "Kim Jong Un hospitalized with two broken ankles, reportedly from wearing heels and being overweight"

"Charlie Munger on how he invested when younger compared to today, and how he reads books"

From Value Investing World:

I’ve posted iterations of these quotes from the Daily Journal Annual Meeting, but they are worth repeating yet again because I really think they show the shift Munger made not just in his investment focus, but also how he adjusted his activities to fit how he wanted to spend his time, which I think is especially evident in the comment “I was thinking about things I didn’t want to think about.” The excerpts below were taken from Shane Parrish's Notes.

Munger on his investing shift over time:

Kind of like Warren, when I was young I scrambled around doing anything that would work. I could get tiny little obscure companies who were too cheap because they were on the pink sheets and all kinds of things. As I got more money, I decided I didn't like all that scratching around. I was thinking about things I didn't want to think about....MORE

"Ebola arrives in U.S., investors bid up biotechs"

From Yahoo Finance:

Ebola made its official debut in the U.S. yesterday. Government officials announced that a man identified only as a "traveler" had been hospitalized in Dallas. This "Typhoid Larry" arrived in the U.S. from Liberia on September 20th. He reportedly started showing symptoms four or five days later and was hospitalized Sunday. So far three Dallas Fire and Rescue workers and several ER employees are off work and "under observation." The rest of America remains free to panic.

The news of course sent speculative bio-tech stocks soaring. The biggest gainer was Tekmira (TKMR) , a Canadian biotech company that saw shares spread 25% higher after the bell. Tekmira shares have doubled since August when it announced that it was working with the U.S. Department of Defense on an Ebola counter-measure drug called TKM-ebola.

Other biotech stocks also popped on the news. The implications of the defense department working with Canadian biotech companies on what amounts to a weaponized virus have create a still small but real and growing surge in related commerce. Other biotech stocks gaining, of course but that's not all. Companies like DuPont (DD) with its Tyvek material for hazmat suits also benefit. Tyvek suit sales are up over 9,000% in the last 24 hours on Amazon....MORE

"Finally There's A Boat To Park Your Boat In"

There's a "Customers' yachts" joke in here somewhere.
From My Modern Met:

 

Yachts offer incredible luxury on the sea, and the Italian company CRN has produced one that’s unlike any of its kind. The 196-foot vessel is named the J’Ade and is the first to feature a floating garage. This innovative addition enables the owner to store and access a 26-foot speedboat without the use of a tender lift. Its hydraulic-operated bay can dry out in three minutes and then be transformed into a terrace-accessible ocean pool.

The J’Ade is designed to feel at one with the sea, and it boasts special full-height windows that offer breath-taking, panoramic views of the ocean. Recently featured at 2014 Monaco Yacht Show, it was also a finalist in the interior design award category. Zuccon International Project crafted the space with a classical focus but modern touches; leather, marble, metals, and wood all adorn the space.

There’s enough room for 13 crew members and 10 guests, and the J’Ade includes four decks and an outdoor dining table that can cater up to 14 people. For entertainment, an audio/video system is set up throughout. With the views, innovative garage, and gorgeous interior, we’d love to be passengers on this ship!...MORE

6900 Words On Elon Musk, the Universe and Why We Must Put A Million People On Mars (TSLA; SCTY)

From Aeon Magazine:

Exodus

Elon Musk argues that we must put a million people on Mars if we are to ensure that humanity has a future

Fuck Earth!’ Elon Musk said to me, laughing. ‘Who cares about Earth?’ We were sitting in his cubicle, in the front corner of a large open-plan office at SpaceX headquarters in Los Angeles. It was a sunny afternoon, a Thursday, one of three designated weekdays Musk spends at SpaceX. Musk was laughing because he was joking: he cares a great deal about Earth. When he is not here at SpaceX, he is running an electric car company. But this is his manner. On television Musk can seem solemn, but in person he tells jokes. He giggles. He says things that surprise you. 

When I arrived, Musk was at his computer, powering through a stream of single-line email replies. I took a seat and glanced around at his workspace. There was a black leather couch and a large desk, empty but for a few wine bottles and awards. The windows looked out to a sunbaked parking lot. The vibe was ordinary, utilitarian, even boring. After a few minutes passed, I began to worry that Musk had forgotten about me, but then suddenly, and somewhat theatrically, he wheeled around, scooted his chair over, and extended his hand. ‘I’m Elon,’ he said.

It was a nice gesture, but in the year 2014 Elon Musk doesn’t need much of an introduction. Not since Steve Jobs has an American technologist captured the cultural imagination like Musk. There are tumblrs and subreddits devoted to him. He is the inspiration for Robert Downey Jr’s Iron Man. His life story has already become a legend. There is the alienated childhood in South Africa, the video game he invented at 12, his migration to the US in the mid-1990s. Then the quick rise, beginning when Musk sold his software company Zip2 for $300 million at the age of 28, and continuing three years later, when he dealt PayPal to eBay for $1.5 billion. And finally, the double down, when Musk decided idle hedonism wasn’t for him, and instead sank his fortune into a pair of unusually ambitious startups. With Tesla he would replace the world’s cars with electric vehicles, and with SpaceX he would colonise Mars. Automobile manufacturing and aerospace are mature industries, dominated by corporate behemoths with plush lobbying budgets and factories in all the right congressional districts. No matter. Musk would transform both, simultaneously, and he would do it within the space of a single generation.

Musk announced these plans shortly after the bursting of the first internet bubble, when many tech millionaires were regarded as mere lottery winners. People snickered. They called him a dilettante. But in 2010, he took Tesla public and became a billionaire many times over. SpaceX is still privately held, but it too is now worth billions, and Musk owns two-thirds of it outright. SpaceX makes its rockets from scratch at its Los Angeles factory, and it sells rides on them cheap, which is why its launch manifest is booked out for years. The company specialises in small satellite launches, and cargo runs to the space station, but it is now moving into the more mythic business of human spaceflight. In September, NASA selected SpaceX, along with Boeing, to become the first private company to launch astronauts to the International Space Station (ISS). Musk is on an epic run. But he keeps pushing his luck. In every interview, there is an outlandish new claim, a seeming impossibility, to which he attaches a tangible date. He is always giving you new reasons to doubt him.

I had come to SpaceX to talk to Musk about his vision for the future of space exploration, and I opened our conversation by asking him an old question: why do we spend so much money in space, when Earth is rife with misery, human and otherwise? It might seem like an unfair question. Musk is a private businessman, not a publicly funded space agency. But he is also a special case. His biggest customer is NASA and, more importantly, Musk is someone who says he wants to influence the future of humanity. He will tell you so at the slightest prompting, without so much as flinching at the grandiosity of it, or the track record of people who have used this language in the past. Musk enjoys making money, of course, and he seems to relish the billionaire lifestyle, but he is more than just a capitalist. Whatever else might be said about him, Musk has staked his fortune on businesses that address fundamental human concerns. And so I wondered, why space?

Musk did not give me the usual reasons. He did not claim that we need space to inspire people. He did not sell space as an R & D lab, a font for spin-off technologies like astronaut food and wilderness blankets. He did not say that space is the ultimate testing ground for the human intellect. Instead, he said that going to Mars is as urgent and crucial as lifting billions out of poverty, or eradicating deadly disease.

‘I think there is a strong humanitarian argument for making life multi-planetary,’ he told me, ‘in order to safeguard the existence of humanity in the event that something catastrophic were to happen, in which case being poor or having a disease would be irrelevant, because humanity would be extinct. It would be like, “Good news, the problems of poverty and disease have been solved, but the bad news is there aren’t any humans left.”’

Musk has been pushing this line – Mars colonisation as extinction insurance – for more than a decade now, but not without pushback. ‘It’s funny,’ he told me. ‘Not everyone loves humanity. Either explicitly or implicitly, some people seem to think that humans are a blight on the Earth’s surface. They say things like, “Nature is so wonderful; things are always better in the countryside where there are no people around.” They imply that humanity and civilisation are less good than their absence. But I’m not in that school,’ he said. ‘I think we have a duty to maintain the light of consciousness, to make sure it continues into the future.’...MUCH MORE

EIA Drilling Productivity Report (e.g. higher initial, faster decline in the Eagle Ford)

The thing to watch for with these decline curves is the refracking schedule.
At some point the U.S. will have 10x as many wells producing at 10% of initial and Halliburton, Schlumberger and Baker Hughes et al will become real yieldcos with annuity-like cash flows from the multiple fracks these wells will require if they are to produce for 30 years.
From the Energy Information Administration, 29Sept2014:

New Eagle Ford wells continue to show higher production

Source: U.S. Energy Information Administration, based on Drillinginfo

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Increased drilling and improved drilling efficiency have led to significant crude oil production increases in the Eagle Ford region in southern Texas. These increases have occurred despite the region's relatively high well decline rates. However, by offsetting the natural declines through the use of new recovery techniques, further production increases are possible.

Horizontal drilling combined with an increasing number of hydraulic fracturing stages in tight formations like the Eagle Ford typically enhance initial production rates when compared to past results. These higher initial production rates are often accompanied by initially larger decline rates, before gradually leveling off to a consistent level of decline for the remaining years of the well life.

While initial production rates have steadily increased since 2009, first-year decline rates in the Eagle Ford have fluctuated between 60% and 70%. Most notably, decline rates over the second year of production have steadily increased from 30% for wells drilled in 2009 to nearly 50% for wells drilled in 2011 and 2012. Since 2013, many producers have been using significantly more proppant (sand or other material designed to keep a hydraulic fracture open) when hydraulically fracturing new wells, which appears to have increased initial production rates, but which was followed by a steeper drop in production.

Source: U.S. Energy Information Administration, based on Drillinginfo

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Principal contributors: Richard Yan, Jozef Lieskovsky, Sam Gorgen

Recently:
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Higher Permian production, constrained infrastructure increase spread between WTI oil hubs

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August 12, 2014
Ohio's Utica Region now included in EIA's monthly Drilling Productivity Report

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August 5, 2014
Marcellus Region production continues growth