Note to Gen X: Kill the Boomers NOW--They Will Depress Stock Market Returns for the Next 25 Years

A repost from 2011:

The generally accepted period for the Baby Boom is 1946-1964 with the largest cohort in 1957.
Generation X is loosely defined as those born between 1965 and 1981 with the nadir falling in 1970.
Generation Y or Millennials will start turning 30 next year.

Boomers have gotten in the way of Gen X'ers career advancement both by their sheer numbers and now by hanging around the workplace longer than their parents did.

In addition, the boomers have left future generations so much debt that they will have permanently stunted the lifestyles of their progeny.

So here's the latest take on a question that has been argued since the first finance prof. to see the "pig in the python" chart and which made Harry Dent a lot of money.
From Real Time Economics: 

SF Fed Warns Baby Boomers May Wound Stock Market

The next quarter century or so could be a tough one for the stock market, researchers at the Federal Reserve Bank of San Francisco warn.

In a paper released by the institution Monday, two of its staffers said the retirement of the Baby Boom generation stands to strip away from equities a key source of support. The ongoing wave of retirees won’t crater the market, but they may well be “a factor holding down equity valuations over the next two decades,” writes Zheng Liu and Mark Spiegel write.

As they see it, what the Baby Boomers have given to the market is something like what they will be taking away. Allowing for the “theoretical ambiguities,” the economists noted “U.S. equity values have been closely related to demographic trends in the past half century” across several key metrics. “In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values,” Liu and Spiegel write.

As much as it is a problem for the market over the long haul, as retirees sell stocks to try to maintain their lifestyles, the “well known” nature of the troubles is also a problem for markets now. Indeed, if current investors now start pricing in the coming Baby Boomer headwind, they may “depress” stock prices.
“These demographic shifts may present headwinds today for the stock market’s recovery from the financial crisis,” the paper said....MORE

So the Gen X crowd gets screwed again but the millenials will get to accumulate shares at depressed prices for the bulk of their working lives.
Sort of the dream of retirement planning: accumulate at a buck until you retire and have it pop to $100 the day you start withdrawing.

Battle of the Berkshire Stock Holdings: Wells Fargo Downgrades Phillips 66 (BRK; WFC; PSX)

Wells Fargo is far and away Berkshire Hathaway's largest equity holding at around $25 billion while PSX is Berkshire's sixth biggest, $5.5 billion.
From Barron's Stocks to Watch:

Wells Fargo Cuts Phillips 66 To Hold: ‘Cruel Summer’ Ahead

Phillips 66 (PSX) is higher Friday, but Wells Fargo downgraded the stock to Hold after what the firm sees as a rocky second quarter.

Analysts Roger Read and Lauren Hendrix cut their rating on the stock from Outperform to Market Perform, writing that while it’s not quite true that Murphy’s Law—anything that can go wrong will—governed the second quarter, there were no shortage of headwinds for the group.

Given this, they lowered their expectations for the quarter, as well as the rest of the year and 2017 (with the exception of Western Refining (WNR)), as they see the bumpy start to the third quarter as “rapidly eroding” hopes for a strong summer. However, the believe that 2017 still holds hope for refiners’ earnings and cash flows to recover....MORE

Although not as mirth provoking as S&P putting Moody's on Credit Watch (negative) just before the financial crisis or Citigroup slashing Bank of America après le déluge, there is some humor in the WFC downgrade.

"23andMe is Monetizing Your DNA The Way Facebook Monetizes 'Likes'"

From Science 2.0:

If you paid 23andMe to take a look at your DNA, maybe you wanted to know more than why you like cilantro or are related to Genghis Khan, maybe you thought you were advancing science.

Well, you are, in the same old way marketers have long advanced science - by selling information about customers. In this case, the DNA information of 1.2 million people, sold to more than 13 drug companies. Genentech paid $10 million to look at the genes of people with Parkinson’s disease.

Now, that's good, it isn't like a Parkinson's treatment is going to come from the government, but 23andMe customers paid to have their DNA info sold to other companies. That is a sucker move.

It isn't the first time 23andMe has boldly gone into an ethical gray area. In 2010, a lot of alarms were being raised about their conduct regarding informed consent, in 2013 the FDA threatened them with "seizure, injunction, and civil money penalties" because of their marketing claims...MORE 

Last year Gizmodo published "Of Course 23andMe's Plan Has Been to Sell Your Genetic Data All Along" which seemed to fly under the radar:

Today, 23andMe announced what Forbes reports is only the first of ten deals with big biotech companies: Genentech will pay up to $60 million for access to 23andMe's data to study Parkinson's. You think 23andMe was about selling fun DNA spit tests for $99 a pop? Nope, it's been about selling your data all along. 

Since 23andMe started in 2006, it's convinced 800,000 customers to hand over their DNA, one vial of spit at a time. Personal DNA reports are the consumer-facing side of the business, and that's the one we're most familiar with. It all seems friendly and fun with a candy-colored logo and quirky reports that include the genetic variant for asparagus pee.

But 23andMe wasn't going to find a big business by selling spit kits at the cut rate of $99. Instead, it's always been about enticing customers to hand over their DNA sequences along with details of their lives in a questionnaire to build a giant database—one that academic researchers and biotech companies alike are, well, salivating over.

Big data has—excuse the metaphor—been in 23andMe's DNA from the beginning. The company was founded by Anne Wojcicki, who's married to (though now separated from) Google co-founder Sergey Brin. Last year, Wojcicki told the New York Times that the inspiration for 23andMe came from watching Google: "I remember in the early days of Google, Larry [Page] would say, 'I just want the world's data on my laptop.' I feel the same way about health care. I want the world's data accessible."

While Wojcicki has been open about her larger ambitions for 23andMe, none of that language is apparent in the marketing for its DNA test kits to customers—for sneaky but obvious reasons. Its privacy policy notes that it will share aggregated data to third parties (read: sell to pharma and biotech companies) for scientific research if customers sign a consent document. Wojcicki told the San Jose Mercury News that 85 to 90 percent of 23andMe's customers do....MORE

"Economists React to the June Jobs Report: ‘Christmas in July’"

From Real Time Economics:

'The June employment report could bring Christmas in July to U.S. equity markets'

The U.S. labor market rebounded in June, as employers stepped up hiring. The economy added 287,000 jobs last month, reversing a big slowdown in May. The jobless rate climbed to 4.9%, mostly because the pool of workers expanded. Here’s how economists and analysts reacted to Friday’s report.

“Startling, but it does not fully reverse prior weakness…Excuse us while we sweep up the pieces of our payroll models from the floor. Nothing suggested a rebound on this scale was remotely likely, demonstrating yet again that there are no reliable month-to-month payroll indicators. Even stripping out the Verizon strike, the broad-based net 252,000 number is much stronger than advance indicators suggested. But three caveats: First, the margin of error is over 100,000, and this reading could be revised down substantially. Second the average for the second quarter is only 147,000, down from 196,000 in the first quarter and 229,000 in 2015. Finally, note these data pre-date the Brexit vote. We doubt that will make a big difference to aggregate payrolls, but it will hurt manufacturing exporters.”– Ian Shepherdson, Pantheon Macroeconomics

“While June’s data is much more positive than May’s, the massive swings only add to the level uncertainty going forward.  If the Fed policy hold is truly predicated on too-high variability of economic data points, today’s number, no matter how positive, actually makes that hold more powerful.  It’s statistical reality, if, of course, you take policymakers at their word.”–Guy Lebas, Janney Montgomery Scott

“A continuing encouragement in the report is wage gains rising 2.6% from a year ago. As the labor market tightens, employers are having to hike wages to attract skilled workers. This is especially true for small businesses. [An] NFIB survey shows that hiring is the most difficult issue facing small businesses. Wages are rising at a much faster rate at small businesses than at larger counterparts. According to the Atlanta Fed Wage Tracker, which keep employment composition constant, wages have gone up 3.4% from a year ago, much faster than the [Bureau of Labor Statistics] estimate.”– Sung Won Sohn, California State University Channel Islands

“The big June employment report has a lot of warts. May’s number was revised down, 203,000 more people lost jobs, African-American unemployment is still high and wages have barely moved. None of that will affect the housing market this year, but the job market’s stubborn refusal to heal makes it a lot harder for the economy to create future homebuyers.”–Nela Richardson, Redfin

“The 147,000 three-month average is a fair representation what an economy at full employment looks like late in the U.S. business cycle. We anticipate that as the business cycle enters the final innings of the cyclical expansion that monthly job growth will slow towards 100,000, which represents the number necessary to stabilize the unemployment rate, which climbed to 4.9% in June due to an increase of 417,000 individuals that entered the workforce. The June U.S. employment report will not result in any meaningful change to the Fed’s rate policy.”–Joseph Brusuelas, RSM US LLP

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"IRS Sues Facebook For Billions In Undervalued IP Assets In 2010 Irish Transfers" (FB)

From the TaxProf blog:

Fortune, Why the IRS Is Suing Facebook Over Asset Transfers in Ireland:

This is getting ugly fast.

Facebook appears to have a major tax headache on its hands after the Internal Revenue Service sued the social network on Wednesday to force it to comply with summonses related to a 2010 asset transfer.

According to documents the IRS filed in San Francisco federal court, the agency suspects Facebook and its accounting firm, Ernst & Young, understated the value of intangible assets transferred to Ireland by billions of dollars.

The IRS says it is seeking an order to enforce six summonses that asked Facebook to appear at the agency’s offices in San Jose, Calif., and to produce papers and others records. According to IRS agent Nina Stone, Facebook failed to show up at the appointed date of June 17, and nor did it provide the documents.

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"Theranos CEO Elizabeth Holmes Banned From Operating a Lab"

From Fortune, July 8:

The Centers for Medicare and Medicaid Services has revoked the blood testing company’s license.

Theranos, the embattled blood testing startup, has been dealt a major blow.

On Thursday evening, the company announced that it has received a notice from the Centers for Medicare and Medicaid Services (CMS), revoking its regulatory approval to operate and banning founder and CEO Elizabeth Holmes from running another lab for at least two years.

Among the sanctions are a monetary fine of an undisclosed amount and cancellation of the lab’s approval to receive Medicare and Medicaid payments for its services. The CMS’s decision is a result of its inspection of Theranos’s lab in Newark, Calif. last year, the company said in a press release....MORE

The Economist Boosts Profitability As Paid Subscriptions Offset Declining Print Ad Revenue

From The Guardian:

Economist profits up to £61m as paid subscriptions offset 18% print ad fall 
Strategy of pushing readers to premium packages of print and digital content pays off for magazine, which this year severed links with Pearson

The Economist grew profits to more than £60m last year overcoming an 18% fall in print ad revenues by focusing on pushing its premium print and digital subscription packages to readers.

The weekly business magazine managed a strong year despite navigating arguably the biggest upheaval in its 173-year history with Pearson, the former owner of the Financial Times, selling its 50% stake to existing shareholders led by an investment company headed by the heir to the Fiat business.

The Economist Group managed to boost operating profit from £59.3m to £60.6m in the year to the end of March, a creditable performance given the pressures facing publishers.

The company said that print advertising fell by 18% last year, at constant currencies, and at closer to 10% when the impact of the strong US dollar is included. Nevertheless it has now dropped to such a level - while areas such as digital advertising have grown significantly - that the overall ad revenue decline was just 8%.

“Taking a longer view, advertising revenue from print peaked in 2009 at £118m; last year it was down to £47m,” said Rupert Pennant-Rea, chairman of the Economist Group, in a letter to shareholders.

“This means we are now well over halfway through the decline in print advertising that has hammered all ‘traditional’ media companies, and we have made considerable progress in filling the gap.”

The company said that the “composition” of the Economist’s media businesses are “now clear” with non-advertising activities representing 41% of revenues last year. Traditional print ads account for just 37%....MORE

The Downfall of Israel's Top Tycoon

From al-Monitor, July 6:

This week, the Tel Aviv District Court witnessed one of the steepest downfalls in the history of Israel’s economy and capital market. Nochi Dankner, the “golden boy” of the Israeli economy who until about three years ago held sway over a tremendous business empire, was convicted of securities fraud July 4. Dankner was found guilty of carrying out millions of dollars' worth of fraudulent transactions on behalf of his company IDB Holdings Corp. in an attempt to raise share prices and save his empire from collapse.

Dankner was, until recently, the most powerful man in the Israeli business world. Prime ministers waited at his door, and the banks worshipped him. Journalists, mayors and politicians made pilgrimages to see him. Dankner was an impressive, well-spoken man with a magnetic personality. People used to say that if he wanted, he could easily transition from business into politics and secure Israeli premiership.

Instead, Dankner now awaits what is expected to be an actual prison sentence.

Dankner is paying for the sin of arrogance and greed, for not reading the writing on the wall and believing everything that people said about him. His fall from grace did not begin this week. Three years ago, Dankner had already lost the IDB Holdings business empire over debt arrangements and insolvency. Now, Dankner is likely to lose his personal freedom as well. He has almost no personal capital left. Recently, he vacated the luxurious villa where he lived for the past decade.

We are talking about much more than a mere business failure. The collapse of the Israeli strongman signals the victory of the summer 2011 social justice protests. The case also marks the official end of an era of pyramid schemes, in which sleights of hand turned a handful of businessmen and tricksters into tycoons. While investing very little of their own capital, these conjurers exploited funds from the public and the pensions of millions of Israelis to make easy profits.

Dankner is nearly the last of his kind. As of now, the only survivor among the tycoons who ruled Israel until recently is Yitzhak Tshuva, who made a fortune as a party to the discoveries of giant natural gas reserves off Israel's shores, together with American Noble Energy.

Over the past two years, other fallen Israeli tycoons have included Moti Ziser (who passed away this June), Eliezer Fishman, Lev Leviev, Ilan Ben-Dov and many others who found themselves in financial difficulties. Some of them lost all of their assets, while others are struggling to survive debt arrangements.

Dankner was the most prominent and influential of them all, the scion of the Israeli economic aristocracy. A local prince, impressive and charismatic, he was a very good friend of former Prime Minister Ehud Olmert, an associate of late Prime Minister Ariel Sharon and closely linked to Prime Minister Benjamin Netanyahu until just before the crash. Dankner contributed a lot of money to local municipalities, city councils and charities, acquiring a flock of enthusiastic admirers among the municipal authorities....MORE

IMF: Cost of Citizenship In Various Countries--Updated

UPDATE: A friend points out:

https://canadian-immigration.ca/immigration-investor-program-quebec/

Investor candidates who demonstrate, by means of a test recognized by the Quebec Government that they have an advanced intermediate knowledge of French, are not subject to this maximum limit of applications.
The investment requires a  one-time payment of  CAD $220,000.
If you would like more information, please feel free to Contact Us. As there will be a strict quota in place, we recommend that you proceed with your application without delay so that we can have your application included in the quota. 
The Quebec Immigrant Investor Program was created in 1986 by the Quebec Government to attract successful business immigrants to the Province of Quebec. To participate, you must meet specific Immigration Selection Criteria (see below), and be able to make a one-time payment of approximately CAD$220,000.
The following table summarizes the requirements for the Quebec Immigration Investor Program....

Original post:
 
From IMFdirect:

Citizenship for Sale

A suitcase filled with multiple passports?  That’s not just the stuff of spy movies anymore. Increasingly, a growing number of high-net worth individuals are looking to have a passport portfolio. This has led to a proliferation of so-called citizenship-by-investment or economic citizenship programs that allow individuals from all over the world to legitimately acquire passports.

The wealthy, especially in emerging market economies, see buying citizenship or residency rights as a means of greater global mobility (visa free travel in many countries), tax planning, and family security.  In exchange, countries administering such programs receive significant financial inflows into their economies.

Indeed, offering citizenship in return for investment has been a “win-win” for some small Caribbean states. The substantial inflows of funds from these programs have helped boost employment and growth. Inflows to the public sector alone in St. Kitts and Nevis had grown to nearly 25 percent of GDP as of 2013.

Now more and more countries have joined the game. While all well and good, these countries face the critical challenge of preserving the credibility of their citizenship programs and weeding out the risks to governance and sustainability. In addition, small countries may also confront sizeable macro-challenges in managing large inflows.

Read more in this article published in Finance & Development.

 

Farmland REITS Go Shopping In Florida (FPI; LAND; AFCO)

AFCO is American Farmland, another REIT we've mentioned from time to time.

From Agrimoney:

Farmland Partners, Gladstone Land snap up Florida farms

Farmland Partners followed peer Gladstone Land in buying land in Florida, in a deal which will see a timber plantation and quail preserve converted into a farm growing feed for dairy cows.

Farmland Partners revealed it had paid $9.4m for the 2,400-acre farm, in a deal which will take its total portfolio above 113,000 acres, in 14 US states from Colorado in the west to North Carolina on the east coast.

And the group is to spend a further $6.5m converting the land from forestry and reserve "into a row crop farm that will produce forage for a major dairy operation.

"The conversion process will consist primarily of timber removal and the installation of irrigation improvements."

Returns prospects

The development costs raise the effect purchase price of the deal - which represents Farmland Partners' first acquisition in three months, after string of purchases last year – to the equivalent of $6,625 per acre.

Nonetheless, Farmland Partners said that "using conservative assumptions" of commodity prices and crop yields, the acquisition would bring a return "on total investment" of 4.0-4.5%.

"Once the conversion is complete, the company expects the return on total investment to increase to approximately 5.75%," the group said, adding that the development of the farm to arable use "will substantially increase the value of the land".

Paul Pittman said that the acquisition "demonstrates our ability to source… deals that help grow our portfolio and achieve attractive rates of return.

"Moreover, having a successful dairy as a long-term tenant provides security and diversification to our portfolio."...

...MORE

"Crude Tumbles As Inventory Draw Disappoints Despite Production Plunge"

Astute readers may have noticed we haven't posted the last couple American Petroleum Institute reports when they came out a week ago Tuesday and yesterday's holiday delayed numbers.
As noted after the Tues. June 21 API release:

That's a big pull but I'm a little surprised the price action isn't even more dramatic.
For the last three weeks we've seen non-confirmation from the EIA so that may be part of the reticence....

Here's the last 24 hours action:

FinViz

Front month $46.32, down $1.11 after trading up to $48.25.
And here's ZeroHedge:

Following last night's larger-than-expected API-reported biggest drawdown in 13 months, DOE reported a mere 2.2mm draw (well below API's 6.7mm draw and expectations of a 2.5mm draw). Perhaps even bigger was the very small 122k draw in gasoline stocks compared to API's 3.6mm draw and WTI is tumbling in reaction. However, crude production plunged by 2.25% last week - the biggest drop since Sept 2013.
API

• Crude -6.736mm (-2.5mm exp)
• Cushing +80k
• Gasoline -3.603mm
• Distillates -2.305mm

DOE

• Crude -2.223mm (-2.5mm exp)
• Cushing -82k
• Gasoline -122k
• Distillates -1.57mm

The breakdown by region, in which it is notable that PADD 3 crude imports rose to 3.86m b/d last wk, highest since Dec. 11 as total U.S. imports of crude 8363k b/d vs 7555k.

• PADD 1 837k b/d vs 764k
• PADD 2 2037k b/d vs 2138k
• PADD 3 3858k b/d vs 3072k
• PADD 4 305k b/d vs 299k
• PADD 5 1324k b/d vs 1282k

Canad[ian] imports dropped as imports from most other regions jumped....

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Maybe the Italian Bank Problem Will Get Taken Care Of (and a note on a commodity indicator)

From FT Alphaville:

Italian banks, this is euro area politics. We think you already know each other?

Italian banks are a problem. Post-Brexit they’re a serious problem.

A full recap of said banking sector and its estimated €200bn of gross non-performing loans would, according to JPM, “require up to €40 billion (less than 2.5% of GDP)”.

Manageable, say JPM again, “given the current Italian fiscal position and sovereign cost of funding.”
Only problem is…

…the new banking regulation (the BRRD) in place in the region since 2015 rules out what circumstances would suggest as the most reasonable and painless approach, i.e. a government sponsored systemic solution (either a bad bank along the lines of NAMA and SAREB in Ireland and Spain or a fully fledged bank recap). According to the new rules, any government funding is conditional on pre-emptive burden sharing, which amounts to wiping out/haircutting private investors’ stakes in the banks’ capital (equity, subordinated and senior debt). In our view, such an approach would be extremely risky and ill advised, and the likely burden sharing of retail-held bonds would send shock waves across the domestic depositor base.

[Do note the retail bit here -- NYT have said that "families own about a third of Italian banks’ debt securities" and as we get to below "Dan Davies, senior research adviser at Frontline Analysts, says the Italian government could argue that forcing losses on retail investors would fall under that exception."]...

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Also from Mr. K., a tweet I was going use as a stand-alone post and give some solemn law-book sounding title, maybe "Keohane On Positioning", a comment on foreign exchange that also explains one of the reasons we don't talk much about the Commitment of Traders reports when discussing commodities. The COT's don't help all that much on direction:

GBP positioning (before Leadsom weighed in, obvs) is at extreme levels but that's less directional, more vol -- HSBC pic.twitter.com/ivMn3o6MYl

— David Keohane (@DavidKeo) July 7, 2016

McKinsey: Peak Oil (demand) by 2030

From Oil & Gas Journal, July 6:

McKinsey: Cars, petrochemicals in oil-market ‘tug of war’

Demand for liquid hydrocarbons will become a “tug of war between growth the petrochemical sector and declining demand from passenger cars,” predict analysts at McKinsey & Co. in a report suggesting oil demand might peak in 2030.

Overall, the consultancy has lowered its long-term outlook for oil demand to an extent that “warrants a fresh, critical look at energy investments.”

Here are highlights of the report by McKinsey analysts Occo Roelofsen, Namit Sharma, Rembrandt Sutorius, and Christer Tryggestad:

• The energy demand growth rate worldwide will slow to 0.7%/year through 2050—30% slower than the firm originally forecast.

• Energy demand will grow in emerging and developing countries and decline in Europe and North America.

• Chemicals will grow twice as fast as energy demand while demand for light vehicles peaks around 2023.

• Demand for electricity will grow at twice the rate of nonelectric energy. Solar and wind will account for almost 80% of net added capacity and 34% of generation by 2050.

• The fossil-fuel share of total energy will decline to 74% in 2050 from 82% at present. Gas will grow at almost twice the rate of total energy demand, while coal peaks by 2025. Oil demand growth will slow to 0.4%/year.

• Carbon dioxide emissions related to energy will flatten and start to subside about 2035 as efficiency of combustion engines improves, electric vehicles increase in number, and power generation shifts to wind and solar.

Petrochemicals and vehicles
Through 2035, the analysts say, 70% of growth in demand for liquid hydrocarbons will be for petrochemical feedstock.

But global demand growth for petrochemicals soon will fall to 1.2 times the increase in gross domestic product from the traditional 1.3-1.4 times GDP as mature plastics markets become saturated.

Increased plastics recycling and improved plastic-packaging efficiency can slow the rate further.

By 2030, meanwhile, electric vehicles might represent nearly half the new cars sold in China, the European Union, and the US and almost 30% globally, according to a business-as-usual case that for the first time includes adoption of autonomous vehicles and car-sharing.

“If the market penetration of electric, autonomous, and shared vehicles accelerates oil demand driven by light vehicles could be approximately 3 million b/d lower in 2035 than assumed in the business-as-usual case,” the analysts say....MORE

Here's McKinsey's "Is peak oil demand in sight?", June 2016.

Physical Commodities: Fed Governor Tarullo Talks Capital Hike for Morgan Stanley, Goldman (GS; MS)

From The Street, July 6:

The central bank chief said an advantage the two institutions receive from a 1999 law is 'anomalous' and it would be better to 'phase that out.

Federal Reserve Board Governor Daniel Tarullo on Wednesday targeted Morgan Stanley (MS) and Goldman Sachs (GS) with comments suggesting that big banks that own physical commodity businesses will be hit with more capital restrictions once a rule governing their business is completed.

"We do have capacity to change capital requirements with respect to certain activities related to commodities and that is the direction which we will be headed," Tarullo said at a Wall Street Journal event at the Newseum in Washington.

Tarullo (pictured) specifically suggested that Goldman Sachs and Morgan Stanley could be hit with particularly tougher restrictions over their physical commodity businesses.

Those measures could force the two big banks to divest commodity businesses. Lawmakers on Capitol Hill have put pressure on the central bank to hike capital and install other restrictions on big bank commodity units, arguing that the institutions don't have anywhere near the capital they need to offset potential catastrophic risk associated with those businesses. In addition, Democratic senators have raised concern that the operations at some of the largest institutions give them an unfair trading advantage that isn't fully disclosed.

Tarullo suggested that an advantage that Morgan Stanley and Goldman Sachs receive because of a controversial provision in the 1999 Gramm-Leach-Bliley Act could be phased out. The provision permits Goldman Sachs and Morgan Stanley to continue to own a physical commodity business if they owned it before September 1997. A move by the Fed to keep the two big banks out of that business would require that they divest physical commodity assets.

The status of those two institutions changed in September 2008, when the Fed, as part of an effort to limit the fallout from the expanding liquidity crisis, allowed them to register as bank holding companies in order to take advantage of the low-cost funding available at the Fed's discount window operations.

"The Gramm-Leach-Bliley Act in 1999 had an interestingly drawn provision which prospectively exempted institutions that were currently engaging in all forms of commodity activities that might at some point in the future become bank holding companies and thereby has given a grandfathered right to a couple of firms to engage in far broader range of commodities-related activities than other bank holding companies," Tarullo said. "I do think that is something which is anomalous in a regulatory system and I think it would be better to phase that out....MORE

As An Alumnus of Dalio's Bridgewater, FBI Director Comey May Be More Than The Congress Bargained For At Today's Hearing

Sort of like arguing Hegelian dialectics with a Jesuit.
Which Comey could have been.

From Politico:

The Weird Hedge Fund That Prepared James Comey for His Capitol Hill Hot Seat

FBI Director James Comey is about to discover whether Rep. Jason Chaffetz, the 49-year-old Republican chairman of the House Oversight Committee, can be scarier than a 25-year-old employee of the world’s largest hedge fund. Comey, who hasn’t spoken publicly since his political bombshell on Tuesday that the FBI wouldn’t recommend an indictment of Hillary Clinton, would probably argue no.

Comey is set to appear Thursday before the House committee to answer questions about the FBI’s yearlong investigation into Clinton’s private email system as secretary of state—a hearing that already appears to have the FBI director firmly in its cross hairs. Chaffetz has said that he found Comey’s decision “surprising and confusing,” and added in a statement, “Congress and the American people have a right to understand the depth and breadth of the FBI’s investigation.”

Even after weeks of statements from Republican leaders and conservative media figures that they trusted Comey to conduct an impartial and independent investigation into Clinton’s emails and would respect whatever his decision ended up being, it took just hours after his 11 a.m. news conference before critical questions began flying. Former—and likely future—GOP presidential candidate Sen. Ted Cruz called Comey’s conclusion a “dubious decision.” House Speaker Paul Ryan (R-Wis.) said it “defies explanation” and instantly promised further hearings. Sen. Rand Paul (R-Ky.) declared it an “outrage,” saying, “The FBI should be better than this.”

Yet Chaffetz and his colleagues might get more than they bargain for in attempting to set up the FBI director for an oversight hearing bloodbath—just as last summer’s marathon hearing on Clinton’s role in Benghazi ended up backfiring on the select committee empaneled to investigate the 2012 Libya attacks, as the former secretary of state parried questions with confidence and ended up making Republican lawmakers look small by comparison.

Comey, as it turns out, is in his element when he’s under fire: He’s an experienced courtroom prosecutor and savvy Washington political in-fighter, and he burst onto the national stage in 2007 with some of the most riveting—and unexpected—congressional testimony in memory. But more than that, Comey comes armed Thursday with a secret weapon that he didn’t have even during that 2007 hearing, when he shocked the committee room by blowing the lid off a secret high-level showdown over the NSA’s domestic spying program that nearly caused mass resignations within George W. Bush’s Justice Department.

After he left government, Comey spent three years being grilled, or “probed,” as an executive at Bridgewater Associates, the $150 billion hedge fund founded by Ray Dalio that the New Yorker has labeled “the world’s richest and strangest hedge fund.” Dalio, who regularly ranks among the 50 or 60 wealthiest people on the Forbes 400 list, has built the highly successful fund since the 1970s on a platform of “radical transparency,” a principle that encourages—actually forces—deep questioning from the ranks of all leadership decisions.

It was just weeks after he joined Bridgewater—whose corporate culture of high-achieving intellectuals resembles a moneyed management cult that shares more in common with the 1970s personal-improvement fad est than it does with a typical Wall Street firm—that Comey was cornered by a similarly new 25-year-old employee. The junior associate interrogated the former Justice Department official on a seemingly illogical stance that Comey had taken in an earlier meeting. “My initial reaction was ‘What? You, kid, are asking me that question?’ ... I was deputy attorney general of the United States; I was general counsel of a huge, huge company. No 25-year-old is going to ask me about my logic,” he recalled. “Then I realized ‘I’m at Bridgewater.’”

Comey said that, even though he was excited to embrace the new way of thinking, it took him at least three months to settle in with Bridgewater’s culture. “I finally relaxed and untied the knot in my stomach that would instantly appear when someone questioned me,” he recalled. “Bridgewater’s a hard place. … It’s a place filled with really smart people who are always going to tell you the truth, and that’s hard.”

Inside Bridgewater, the culture of questioning is known as “probing,” a chance to understand the deeper “whys” inherent in an individual’s thinking or a corporate process. It’s a chance for everyone, from junior associates right up to Dalio himself, to force people past easy answers or glib statements into tight, rigorous thinking. “At Bridgewater, every day is a kind of after-action review, although the process goes much deeper than a typical postmortem,” business writers Robert Kegan and Lisa Laskow Lahey concluded in their book. Inside Bridgewater, where the “Culture of the Probe” reigns, meetings are even recorded, to force accountability for people’s statements and commitments.

According to Comey, who prosecuted targets ranging from Mafia boss John James Gambino to Martha Stewart to the bombers of the Khobar Towers, the decision-making environment for the firm’s 1,300 employees is tougher than anything he ever endured during decades rising through the ranks of the Justice Department, from a junior prosecutor to U.S. attorney for the Southern District of New York—the department’s highest-profile posting—to the No. 2 job under Attorney General John Ashcroft.

In a corporate video still on Bridgewater’s website, a cashmere sweater-clad Comey discusses the hedge fund’s emphasis on transparency and accountability: “I’ve been ‘probed’ in this strange field trip through life that I’ve had a lot of different places. I’ve testified in court, I have briefed the president of the United States repeatedly, I’ve argued in front of the United States Supreme Court, and I’ve been probed at Bridgewater. And Bridgewater is by far the hardest,” Comey says. “You combine that intelligence, the depth and the almost 360 [degree] vector of the questioning, there is no more demanding, probing, questioning environment in the world than Bridgewater.”

“Sometimes I felt my head spinning when people were questioning me, but it’s uniquely demanding,” he said in the video. “If you say something stupid to the president of the United States, he may backhand you and say that’s a dumb answer, but he doesn’t want to know why you said that and what does that tell me about the way that you’re approaching your work, and what does it tell me about you. He’s never going to ask that.”...MORE

Commodities: Grains Continue Collapse

From Agrimoney:

Corn futures tumbled to fresh contract lows, and soybean prices extended nearly to 10% their losses this week already, as improved US weather prospects eased La Nina fears and prompted a further scramble to sell.

Corn futures for December, the best-traded lot, touched $3.46 a bushel at one point – taking to 23% their plunge from a June 17 high.

"As the old saying goes, prices take the staircase up, but the elevator down," said Don Roose, president at Iowa-based broker US Commodities.

Benchmark soybean futures for November dropped more than 3% to $10.42 a bushel, putting them on course for their first close beneath their 50-day moving average in three months.

'Overestimated the heat'Indeed, technical factors were seen as fuelling the rally, encouraging liquidation among speculators who hold large net long positions in both Chicago corn and soybean futures and options, regulatory data late on Friday showed.

However, the primary cause of the selldown was the continued improvement in US Corn Belt weather, boding well for the key corn pollination process this month, and soybeans' pod-setting period in August – and indeed undermining fears of a damage La Nina.

"While the weather threat during June was very real, it would seem most weather forecasters overestimated the heat for July which has in turn caused people to question how hot August is really going to be," said Tregg Cronin at Halo Commodity Company.

"Everyone from [official US meteorologists] to subscription weather services were touting a La Nina showing up as early as late July and now it looks as though it could be September at the earliest." ...MORE

Here's the latest Columbia Uni./IRI Plume of the various model forecasts:

Remember, La Niña conditions are reached when the temperature anomaly hits -0.5°C while a full-blown La Niña requires three rolling three-month periods i.e. five consecutive months below the -0.5°C threshold.

The Myth of the Millennial Entrepreneur

From The Atlantic:

The generation cheered for its start-up mentality is actually starting companies at the lowest rate in 25 years. Why?

"Millennials are on track to be the least entrepreneurial generation in recent history,” John Lettieri, the co­-founder of the Economic Innovation Group,testified last week before the U.S. Senate. The share of people under 30 who own a business has fallen by 65 percent since the 1980s and is now at a quarter-century low, according to a Wall Street Journal analysis of Federal Reserve data. 

These statistics go against the typical media portrayal of an American start-up: a phone app built in an open-plan office with dedicated lanes for 22-year-old executives on hover boards. Businesses like American Express have declaredthat "Millennials Could Be the Most Entrepreneurial Generation Ever" and Britt Hysen, the editor-in-chief of MiLLENNiAL magazine, claims that "60 percent of Millennials consider themselves entrepreneurs, and 90 percent recognize entrepreneurship as a mentality." 

Young people very well may lead the country in entrepreneurship, as a mentality. But when it comes to the more falsifiable measure of entrepreneurship as anactivity, older generations are doing most of the work. 

The average age for a successful startup-founder is about 40 years old, according to the Kauffman Foundation, a think tank focused on education and entrepreneurship. (In their words, one’s 40s are the “peak age for business formation.”)  The reality is that the typical American entrepreneur isn’t that hover-boarding kid in a hoodie; it’s his mom or dad. In fact, the only age group with rising entrepreneurial activity in the last two decades is people between 55 and 65....MORE

Uh Oh: Registered Investment Advisors Look To Catastrophe Bonds

The last major -defined as category 3 (111 mph winds) or above- hurricane to make landfall in the U.S. was Wilma on October 24, 2005. Sandy, with all the flood damage was not at hurricane strength when it landed. As we noted in 2013:

...The major risks that cat bond owners are betting against are landfalling hurricanes in the U.S. and wind storms in Europe.

The only major payout on a hurricane for the last seven years was Sandy which itself was a bit of a frankenstorm--an extratropical storm running into a nor'easter and arriving in the New York/New Jersey area at high tide, and not just any high tide but the full moon high tide. Fortunately for the bond buyers they hadn't been offered the opportunity before Sandy hit....

So now, after an 11-year run, the RIA's decide hey, ho, let's go.
As the odds of a hurricane-favoring  La Niña setting in just hit 75%.
And yields on cat bonds hit record lows.

See also our thinking in January, after the jump.

From Institutional Investor:

Registered investment advisers are the latest converts to the asset class, which aims to profit by betting against natural disasters 

The low-Yield Investment climate has left registered investment advisers searching for new opportunities to make it rain for their clients. Some believe they’ve found a way — as long as that rain doesn’t come with flooding and gale-force winds. Catastrophe bonds, insurance-linked securities tied to natural disasters, have long been a source of yield for alternative investment firms. Now they’ve made it onto the radar of U.S. wealth managers looking to deliver returns with relatively little risk.

“When clients’ life savings are at stake, cat bonds offer opportunities on several levels,” says Sam Sudame, director of research at SingerXenos Wealth Management, an RIA based in Coral Gables, Florida, that has allocated 5 percent of its $1.2 billion portfolio to the asset class. “By its very nature, a quality cat bond portfolio is diversified and offers powerful return compared to the risk — both crucial for private wealth management.”

Family offices in Europe and in East Asia, especially Japan, have been investing in catastrophe bonds for more than a decade, says John Seo, co-founder of $5 billion Fermat Capital Management, a Westport, Connecticut–based specialist in the paper. Pioneered 20 years ago by Warren Buffett and Allstate Insurance Co. in the wake of Hurricane Andrew, which devastated Florida, catastrophe bonds were the domain of alternative managers at first.

particularly after the 2008–’09 financial crisis, lured by the promise of returns uncorrelated to a weak market. As they seek to shore up lackluster 60-40 portfolios, RIAs are the latest to embrace what Seo jokingly describes as an “unrisky for a risky” asset class.

A catastrophe bond passes on the risk of what insurers call peak perils from reinsurance companies to investors. Actuaries calculate the likelihood of, say, an 8.5 magnitude earthquake hitting Southern California or a Category 5 hurricane battering the Gulf Coast and price the security accordingly.

If the event covered doesn’t occur before the bond matures — the term of the bond is typically three years — the investor can receive a sizable coupon payout, often LIBOR plus a spread of 3 to 20 percentage points. (Given catastrophe bonds’ popularity, yields have dipped in the past couple of years.) If a natural disaster of the magnitude outlined in the prospectus does strike, though, the bond triggers and the premium goes to the sponsoring reinsurer to help cover policyholder claims.

Here’s why catastrophe bonds are risky yet unrisky: Looking beyond their ratings, which are typically in the double-B range, the triggering calamity tends to be unlikely. “With events such as Hurricane Irene and the tsunami in Japan, 2011 was one of the worst years for the reinsurance industry,” notes Canon Hickman, a wealth manager at Henrico, Virginia–based Equity Concepts, whose $700 million in assets include catastrophe bonds. “Yet only four out of some 120 cat bonds were impacted.” In fact, the market edged up that year because those disasters reminded investors of catastrophe bonds’ existence.

Since Zurich-based Swiss Reinsurance Co. began tracking catastrophe bonds in 2002, there hasn’t been a down year: Through 2015 the Swiss Re Cat Bond Index gained an annual average of almost 7.7 percent. Compare that to the jitters sparked by recent geopolitical events such as Brexit, and it’s easy to see why RIAs like an asset class uncorrelated to the equity and fixed-income markets......MORE

January 28, 2016
"Is the re/insurance industry really prepared for a large tail event?"

No.
The plan is to lay any claims over about $50 billion on taxpayers.
That's insured losses not total losses.
Short the re/insurers this year. The probabilities are shifting against them and although it's not a lock it is still the way to bet....

"Alpha's Measurement Problem"

From Newfound Research:

Alpha's measurement problem 

Summary

• Alpha is the holy grail of asset management: risk-free excess returns generated by investment skill.
   
• Alpha is one of the most commonly quoted summary statistics – yet measuring alpha is surprisingly difficult.
   
• Without an understanding of measurement uncertainty, fit of our model, or even the risk factors utilized to calculate alpha, the statistic loses its applicability.

Sweat, tears – and likely even blood – have been spilled over what is really just the intercept value in a linear regression.

We’re talking about alpha, of course.

 

For a mathematician, alpha is nothing special.  We can only presume that one day, someone from a marketing department walked by a bunch of quants huddled around a white board and asked a question that would forever change history: “what’s that Greek letter?”

At the intersection of mathematics and finance, alpha is defined as the excess return generated by an investment process beyond what would be predicted by an equilibrium model like the capital asset pricing model (“CAPM”). 

The CAPM tells us that the equilibrium (or expected) return of a security is proportional to its systematic, or non-diversifiable, risk. 

Theory Side Note: You might be asking why the CAPM - and many similar models - assume that investors are compensated for systematic risk, but not idiosyncratic risk.  Idiosyncratic risk is by definition diversifiable.  If idiosyncratic risk was compensated, then investors could earn positive returns with zero risk. How?  They could simultaneously hold a large number of securities, diversifying away any idiosyncratic risk, and hedge away any exposure to systematic risk.  This creates an arbitrage that would quickly be exploited and eliminated. Therefore, investors cannot be compensated for idiosyncratic risk.

In equation form, CAPM gives us the following:

 

Translating into English: the expected return of the strategy or security is equal to the risk-free rate plus a premium that is proportional to broad market exposure.  The proportionality constant is the other familiar Greek letter – beta.  Again, we expect to earn return based on exposure to broad market risk and nothing else.

Now, what returns the portfolio actually realizes over any given period may be very different than what the equilibrium model would predict.  We can compute the difference as:  

 

If that difference is consistently above zero, we’ve discovered positive alpha! 

Positive alpha is attractive because, in theory, we could hedge our exposure to systematic risks and be left only with pure, risk-free returns.  While most investors do not actually do this, they do use alpha as a measure of a manager’s ability.  If the manager has skill in selection or allocation, we would expect that skill to emerge as positive excess risk-adjusted returns.  In other words, alpha. 

The problem is that while this may be theoretically true, the mechanics of trying to measure alpha leave much to be desired.  At worst, relying on traditional reports of alpha may be downright misleading for investors making allocation decisions.

Alpha has Uncertainty

To estimate alpha, investors typically run a linear regression of excess strategy returns against excess market returns.  The setup usually looks something like this:

To interpret the equation: monthly excess strategy returns are modeled as being equal to a constant value (alpha) plus exposure to systematic return (beta) plus some noise (epsilon). 

With enough monthly return data, the values for alpha and beta can be estimated in a manner where noise is minimized, in effect allowing alpha and beta to explain as much of the monthly excess returns as possible....MUCH MORE

Meet the (former) Wall Street Short Seller Betting Against Canadian Real Estate

We visited Mr. Cohodes a few years ago, link after the jump.
From VICE:

Marc Cohodes wants to make money off Canada's real estate market, but not by flipping houses or renting out micro-condos like other rich pricks.

Cohodes has spent three decades of his career as a Wall Street short seller, which means he's pretty good at spotting bubbles and betting against them just before they burst. The dude walked away from trading after he made a controversial but accurate bet against Lehman Brothers in 2008, which put his $1.5 billion hedge fund at odds with their prime broker Goldman Sachs. Now he runs a chicken farm in California.

Seeing Canadian housing values skyrocket over the last couple years, Cohodes couldn't stay out of the game. Like the guys in The Big Short, he's got a hunch that something is out of whack, and he's hoping to make some cash off at least one company's downfall.

VICE reached out to Cohodes to learn why he's pissed off about Canadian real estate regulation, and what he thinks young and broke renters should be doing about it.

VICE: Can you tell me a bit about your short-selling career?

Marc Cohodes: I've been at this since 1982, professionally I've done it since 1985. In Canada I would short Clearly Canadian, Cott Beverages, I would short the various resource flame-outs over time. In the United States I'd short Krispy Kreme donuts, I would short the mortgage fraud players when we had our housing debacle. I've been around some real winners. A lot of battles, scars, victories, defeats—the whole thing.

So from your experience, what makes you think Canadian real estate is worth betting against?

Let's focus on Vancouver, which is a lovely town—I love going there, I have friends there. I think what's going on is sort of tragic. In Vancouver, housing is being traded like penny stocks on the old Vancouver Stock Exchange. There are no economics whatsoever behind housing in Vancouver. Statistics show the average family makes $80,000 a year, and for argument's sake I always say double that, even make it $200K. The multiplier on what you can afford is between four and six—and yet these properties are trading at huge multipliers to that.

So who on the Canadian market have you decided to short?

The only Canadian stock that I'm short [selling] that affects housing is something called Home Capital Group, which trades in Toronto under the symbol HCG. In Vancouver there's nothing to short. People ask me about it all the time. I don't stand to profit by Vancouver collapsing, I will make zero money. What I'm doing, is speaking out through the experiences I've had in life, that this is a disaster waiting to happen. I'm trying to flash a red light, so politicians and regulators act to avert or control a disaster.

Is this an imminent disaster? When do you see the bubble bursting?

It can last. It can blow. There's no real way to predict when it will happen. But here's what you know for sure: you know China has capital controls on—they restrict their citizens from pulling more than $50,000 out of the country. So when a college girl buys a $31 million place in Vancouver—who has no income, who can't answer questions about what her father does for a living, who can't answer questions about where she gets the money—you know the Chinese don't want this going on. They're pissed about capital flight into YVR. Toronto as well. At any point in time, the Chinese can crack down on people, on Canada—they can do whatever behind the scenes to make it end abruptly. Without warning or notice... At some point a cool mind should say, "Hey, why don't we just have open disclosure of who owns all these properties?" That's a real solution. Like in Sonoma county, if you want to go to Santa Rosa, and pull the deed for a farm which I own, it'll say: here's who owns it, here's what was paid, here's when it was bought, here are the bank loans involved. So why can't Canada or BC have this open disclosure?

But what would disclosure really do in terms of bringing down prices?

What it will do for journalists, for regulators, for people who are interested, is they'll see where the money is coming from, if laws are being broken, if crimes are being committed... Because when you buy something and don't occupy it, when you launder money through housing, it will absolutely destroy the community. Instead of going to restaurants and buying movies and sending kids to school, they don't do any of this. The money gets tied up in places to live, but the economy suffers and suffers big. It makes the costs for people who want to live in Vancouver go up, and then if you're running a bakery you can't afford to hire people to work there. The business goes down the drain because you don't have any customers. And it becomes a vicious, negative loop. Which is bad....MORE

From June 2013
Lest We Forget: The Hedgefunder That Goldman (may or may not have) Crushed and Forced to Become a Chicken Farmer

Jason Zweig Interviews Wharton’s Philip Tetlock on How Forecasters Can Do Better

From the Wall Street Journal, June 17, 2016:

The Perilous Task of Forecasting

To get business right, finance chiefs need to be good forecasters. Yet research has shown that amateurs can actually be better than experts at predicting the future.

Jason Zweig, The Wall Street Journal’s investing columnist, sat down with Philip Tetlock, a professor at the University of Pennsylvania’s Wharton School and the co-author of “Superforecasting: The Art and Science of Prediction,” to explore why that is and what companies can learn from it.
Edited excerpts follow.
 
Vague verbiage MR. ZWEIG: Why is it so hard for experts to make forecasts about things in their own domain of expertise?

MR. TETLOCK: One reason is that experts sometimes know too much. I was talking once to John McLaughlin, former director of the CIA, about the end of the Cold War period, and he was remarking that the analysts who were slowest to recognize that East Germany was disintegrating were the people who had been on the case for 20 years.
It was the newbies coming in who got it pretty quickly. And there’s a lot of psychological evidence that attests to the power of preconceptions to grip us and make it hard for us to be timely belief updaters. So sometimes knowledge is actually an impediment. Another big factor is that there is a large amount of uncertainty in the world. So no matter how smart you are, it isn’t going to give you a lot of traction.

MR. ZWEIG: Because luck and randomness are such powerful forces?

MR. TETLOCK: Yeah. They aren’t totally dominant, but they’re powerful forces. And forecasters who don’t take them into account do so at their peril.

MR. ZWEIG: After the invasion of Iraq, the U.S. intelligence community did a lot of soul searching. And part of that was the project that you got involved in and that you write about in your book. Tell us what you were asked to do.

MR. TETLOCK: The U.S. intelligence community ran a competition. Five academic teams from major universities around the country competed to generate realistic probability estimates on events that the U.S. intelligence community cares about. And we were being compared or benchmarked against the predictions of professional intelligence analysts with access to classified information.

That’s a remarkable thing to do.

If I’m an intelligence analyst, I’m much safer saying, “Look, I think there’s a distinct possibility the Iranians may cheat on the nuclear deal.” Let’s say I think the true probability is 5% in the next year. If they do cheat and I’m on record with the 5% probability estimate, I’m in trouble. If I say “distinct possibility,” I’m covered no matter what. Vague verbiage gives you political safety.

The downside is that vague verbiage makes it impossible to learn to make more granular and well-calibrated probability estimates. So there’s this deep tension inside organizations between the desire for political safety and doing what needs to be done to extract as much predictive juice as you can out of your experts.

MR. ZWEIG: We know from your work that expert forecasts are nowhere near as reliable as they should be or as the experts think they are. Are the forecasts of CFOs or corporate forecasts in general more accurate?

MR. TETLOCK: You should expect forecasters to do better to the degree they’re working in a world where they get quick, clear feedback on their forecasts. “Distinct possibility” doesn’t count. You have to be making numerical probability estimates repeatedly over time on a wide range of outcomes. If you do that, you can learn to become one of the better-calibrated professionals....MORE

HT: Value Investing World

Previously on Shoulda seen it coming:

Credit Suisse's Mauboussin: "Sharpening Your Forecasting Skills"
How Automation and Big Data Affect Forecasting
Forecasting: The Intelligence Advanced Research Projects Activity (IARPA) Has An "Office for Anticipating Surprise"
"How To Win At Forecasting" (Philip Tetlock and the Intelligence Advanced Research Projects Agency)
"U.S. Intelligence Community Explores More Rigorous Ways to Forecast Events"
Forecasting: "So You Think You're Smarter Than A CIA Agent"
"Superforecasting: The Art and Science of Prediction"
Edge Magazine's Master Class In Forecasting With Phillip Tetlock 
Daniel Kahnman's Favorite Paper: "On the Psychology of Prediction"

Book Review: "Future Babble: Why Expert Predictions Are Next to Worthless, And You Can Do Better." 

Dan Gardner: I predict your prediction is wrong 

Forecasting: "So You Think You're Smarter Than A CIA Agent"

"Pseudo-Mathematics and Financial Charlatanism...."
“What should one do: predict specifics, or forecast broad trends that necessarily miss specifics?”
"Thinking Clearly About Forecasting"
How to Predict a Nation's GDP per Capita at r=.97 Using "Economic Freedom and average citizenry IQ -- plus slight tweaks from trading block membership and oil"

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

Russia To Exhaust One Of Its Sovereign Funds By Next Year

From Reuters:

Exclusive: Russia to empty one of its sovereign funds next year - ministry proposal

Russia will exhaust one of its two sovereign funds next year, according to a finance ministry proposal seen by Reuters, having by that point run through $87 billion since the beginning of 2014 to fill holes in the budget left by a slump in oil prices.
Russia will also spend over the next three years about a third of another of its funds on covering the budget shortfall, the proposal showed, even though that fund was originally intended to cover long-term deficits in the pension system.

The finance ministry proposal, which contains recommendations on spending, has been submitted to the government for its consideration but not yet approved.

Russia's budget deficit has swollen as oil prices fell sharply from 2014 and the West imposed sanctions over the Ukraine crisis. The deficit stood at 4.3 pct of national output in the first half of 2016, up from 2.6 pct last year and against 0.5 pct in 2014.

At current rates of spending, it has been clear for some time that the Reserve Fund - which at the start of 2014 stood at $87 billion - would run out around 2017.

The fact that assumption is now included in the finance ministry proposal shows officials have not been able to find savings or sources of additional revenue elsewhere to stop that happening.

SPENDING CUTS
Finance ministry officials have been pressing for some time for spending cuts to reduce the budget shortfall, but implementing cuts could be politically damaging because Russia votes in a parliamentary election in September and a presidential election in 2018.

The finance ministry proposal states that there will be 980 billion rubles ($15.27 billion) in the Reserve Fund by the end of this year, dwindling to zero at an unspecified point in 2017.

The proposal also assumes an average Urals oil price of $40 per barrel in 2017-19, and a freeze in budget expenditures at 15.8 trillion rubles per year....MORE

North Korea's Kim Jong-un 'Binge Eating and Drinking' to Cope with Assassination Fears

From International Business Times:

The youngest son of Kim Jong-il has alarmed his aides by gaining 30kg (66lb, 4st 10lb) in weight in the four years of his rule as North Korean leader. He has piled on the pounds and lives in fear of assassination, according to a report by South Korea's spy agency.

Kim's gorging on food and drink is said to help him cope with the strain of being at the helm of North Korea. His weight has increased from 90kg to 120kg in 2014, the South Korean National Intelligence Service (NIS) report revealed to a parliamentary committee.

"He keeps a close tab on any potential threats to his power, including the military, and he is obsessed with ensuring his personal safety," Lee Cheol-woo, a member of South Korea's ruling party said, citing intelligence reports. "Because of his habitual binge eating and drinking, he is likely to develop adult [lifestyle] diseases."

Details submitted to International Trade Centre reveal that the dictator spent £150,000 ($200,000) on whisky from Denmark, Germany and Georgia. He also spent £134,000 on scallops from China and £65,000 on imported cheeses from countries including Russia and Italy.

Concerns over Kim's health were raised in 2014, with speculation that he was suffering from gout or diabetes when he was seen limping. This was denied by his close aides....MORE

"Corn, soybean markets plunge after wet weekend"

We don't do much with soybeans, here's an example why:

FinViz

Two trading days, how the heck do you deal with that?

	Last	Chg
Corn	358-0s	-9-0
Soybeans	1077-2s	-60-2
Wheat	433-4s	+3-2

From Agrimoney:

Corn and soybean markets dropped sharply, after reopening after the long weekend which saw soaking rains across the US Midwest. 

"Heavy rains favoured the southern Midwest and east central plans this past weekend," said Don Keeney, at MDA weather services. 

"The rains helped to significantly improve moisture and crop conditions for corn and soybeans," he said. 

Mr Keeney said further rains in the Midwest this week will "continue to build moisture," with more weather out over the 6-10 day period. 

Fund selling

The wet weather eased dryness fears, which have been supporting corn and soybean markets in recent weeks.

"It rained, the funds are too long, there's risk off in world markets," a US broker told Agrimoney.

Due to the national holiday on Monday, markets are only now reacting to the weekly commitment of trader data out on Friday evening.

Although hedge funds sold corn and soybeans in the week to last Tuesday, they are still sitting on hefty long positions. 

"Clearly our markets are still toting some rather large managed fund length, and the weather forecasts on or after the fourth of July always help to set the tone for the balance of the month," said Tregg Cronin, at Halo Commodities....MORE

"Brexit Might Have Cost Banks $165 Billion"

From BloombergView:

For those wondering about the repercussions of Britain's vote to leave the European Union, here's a data point: By one measure, the largest U.S. and European banks are about $165 billion worse off.

A model set up by economists at New York University regularly performs a sort of simplified stress test on the world's largest financial institutions. It does so by asking the stock market what it thinks about the value and riskiness of the banks' assets, then using that information to estimate what would happen to the banks in a severe crisis -- and how much added equity capital they would need to avoid distress.

Even before Brexit, the model suggested that banks were much more fragile than official stress tests indicated: As of May 31, it estimated that the largest banks in the U.S., U.K., Germany, France and Italy (those with more than $500 billion in assets) would have a combined capital shortfall of $998 billion.

After the Brexit vote, the shortfall rose significantly. As of June 28, it stood at $1.163 trillion, an increase of $165 billion. Here's a breakdown by country, in billions of dollars:

...MORE