Gold Settles At Lowest Value Since June As Brexit Fears Boost Dollar (and a short primer on knowing your numéraire)

The link below quotes the soon-to-be-gone front futures while we use the more popular December's (318,897 contracts traded vs 1,805 for October and 1,438 for November) as our reference, currently at $1272.70 down $40.00 on Globex. Here's today's action via FinViz:

From Barron's Focus on Funds:

Gold slid again on Tuesday, as fears related to Brexit fueled a rally in the US dollar.

Gold for October delivery slumped $42.70 per troy ounce, or 3.26%, to $1266.30 today, its third straight day of losses and its largest one-day percentage decline since December 2013. That’s its lowest settle value since June 23.

Silver also lost ground, falling $1.0820 per troy ounce, or 5.76%, to $17.71, the largest one day dollar and percentage decline since January 2015.

The British pound hit a three-decade low today as the UK government said that it would start the process to extract itself from the European Union no later than March. That’s sent the dollar up against many world currencies, dampening demand for gold, which is priced in dollars: The metal is “falling off a cliff” as MarketWatch reported earlier today....MORE

The triple-leveraged funds are going nuts.

We've been babbling about understanding the numéraire for years, here's one from 2013:

"Bitcoin Is No Longer a Currency"

It never was a currency. It was always quoted as "dollars per Bitcoin" not Bitcoins per dollar".
Swiping a line from the Wikipedia entry for "Numéraire":

...If a store sells 1 can of soup for $1.20, the numéraire is dollars. If the store would buy $1 for 5/6 of a can of soup, the numéraire is cans of soup. Trading a can of soup is simpler than trading fractional cans of soup, so most stores use a numéraire of money, which has fractional units....

The numéraire was the whole point of my comment on the FT Alphaville article "Debunking goldbugs":

Are you quoting rocks per dollar or dollars per rock?

As long as gold is quoted as dollars-per-ounce it is the dollars that are money, not the gold.
Or the Bitcoins.

Here's a quick hit (and excellent link) from Kitco:

Dollar Strength, Weakness and the Price of Gold: A Primer

When the US Dollar gets stronger, it takes fewer dollars to buy any commodity that is priced in $USD. When the US Dollar gets weaker it takes more dollars to purchase the same commodity.

The price of all US Dollar denominated commodities, like gold, will change to reflect the fact that it will take fewer or more dollars to buy that commodity. So it’s quite possible, in fact it’s almost always the case that a portion of the change in the price of gold is really just a reflection of a change in the value of the US Dollar. Sometimes that portion is insignificant. But often the opposite is true where the entire change in the gold price is simply a mathematical recalculation of an ever-changing US Dollar value.

When the dollar gets strong, gold appears to go down, and vice versa. That accounts for part of the fluctuations that we see in the value of gold.

The other part is an actual increase in the supply or demand for gold. If the price is higher when being measured not only in US Dollars, but also in Euros, Pounds Sterling, Japanese Yen, and every other major currency, then we know the gold demand is higher and it has actually increased in value.

Consequently, if gold is higher in US Dollars while at the same time cheaper in every other currency, then we can conclude that the US Dollar has weakened, and that gold has actually lost value in all other currencies. But the price, because it is being quoted in $USD will be higher and give the illusion of gold becoming more valuable. In such a case the devaluation of gold, due to increased supply on the market, is camouflaged by a weakened US Dollar.

Our feature on kitco.com breaks the change of the price of gold into 2 components. One part shows you how much of that change can be attributed to US Dollar strength, or lack of it. The other portion is indicative of how much the price changed as a result of normal trading. Interestingly whatever changes happen to the price of gold as a result of US Dollar strength/weakness also occurs to every other US Dollar denominated commodity by the exact same proportion.

Earlier:
"Precious Metals Panic-Selling Continues"

"AT&T Ends Snooping Program, Stops Charging Internet Users Extra For Privacy"

From Consumerist, Sept 30:

AT&T offers GigaPower subscribers in several cities two options: pay $70 for your connection and get your data snooped on, or keep your privacy and pay $99. The company has regularly defended the program from critics, and claimed that it’s basically the wave of the future. And yet today, seemingly out of nowhere, A&T has suddenly announced that it will be dropping the option nationwide, and charging all consumers the same — lower — price.


Ars Technica reports today that AT&T has confirmed it is, indeed, scrapping the program.
We have to admit, we’re pretty surprised — in a good way, to be sure. As recently as yesterday we were writing stories about AT&T executives lamenting the uneven playing field if they are not allowed to do as they like with your data.

The company first launched Internet Preferences in 2013. When it brought GigaPower service to the area, it told customers they could get service for as little as $70 per month — if subscribers let AT&T snoop on their internet use history and sell that data for targeted advertising. Customers who opted to keep their private data private were charged $99, about 40% more....MORE

As techdirt noted, this is not done altruistically:

from the privacy-is-a-luxury-option dept
...Why the sudden AT&T about-face? While AT&T claims it's just concerned about "simplicity," the real reason is because the FCC is considering some basic privacy protections for broadband users, who often can't vote against bad behavior with their wallet thanks to the lack of competition in the broadband space. AT&T's decision to issue a surcharge for privacy was one of the primary reasons the FCC began the privacy rulemaking proceeding. AT&T's lobbyists and lawyers clearly hope that if they eliminate this controversial program, they'll be more easily able to argue that broadband privacy rules aren't necessary.... 

Previously:
Comcast Tells The FCC It Should Be Able To Charge Broadband Users A Premium For Privacy

Having stipulated that privacy has a value now we're just talking price.

She: What kind of woman do you think I am?
He: We’ve already established that. Now we’re just haggling over the price.

-attributed to: George Bernard Shaw, Winston Churchill, Groucho Marx, Mark Twain, W.C. Fields, Bertrand Russell, H.G. Wells, Woodrow Wilson...

News You Can Use: "In a Heated Negotiation? Try Eating Like Your Opponent"

I initially misread the headline as "Try eating your opponent" an error I ascribe to the current political climate and the memory of Alferd Packer, Colorado's most famous cannibal, about whom the sentencing judge said:

"Stand up yah voracious man-eatin' sonofabitch and receive yir sintince. When yah came to Hinsdale County, there was siven Dimmycrats. But you, yah et five of 'em, goddam yah. I sintince yah t' be hanged by th' neck ontil yer dead, dead, dead, as a warnin' ag'in reducin' th' Dimmycratic populayshun of this county. Packer, you Republican cannibal, I would sintince ya ta hell but the statutes forbid it."

This is not the first time Alferd has graced our pages. He was an endnote to 2015's "Trapped In the Snow With That Brother-In-Law Who Won't Stop Talking? Consider the Cannibal Lifestyle" where we pointed out the University of Colorado-Boulder student center was home to the Alferd Packer Restaurant & Grill.

Prior to that he showed up in a 2007 post on global warming:
UFO science key to halting climate change: former Canadian defense minister

Anyhoo, here's the headline story, our second of the day from ChicagoBoothReview:

When two strangers eat the same thing, their similar food choice can be a bond that increases trust and cooperation, research suggests. Advertisers and negotiators may be able to use this tendency strategically.

Food has long brought people together and been a popular topic for sociologists, who have argued, among other things, that people prefer to share a meal rather than eat alone.

Chicago Booth’s Ayelet Fishbach and Kaitlin Woolley, a Booth PhD candidate, combine this exploration of food with behavioral-science research about how mirroring another person’s behavior promotes socialization. They find that when people have limited information about each other, eating the same food can increase camaraderie. That, in turn, can lead to trust and cooperation.

In lab experiments, the researchers had two strangers play a game in which one person acted as an investor and the other a fund manager. The “investor” was more likely to invest in the fund manager when they had first eaten similar foods. Strangers who ate similar foods also were able to resolve a mock strike faster and with fewer costs....MORE 

One final note on Alferd:
In 1993 Trey Parker and Matt Stone, while studying at UC-Boulder, wrote and produced "Cannibal, The Musical".

They subsequently created South Park, a series about a little town in Colorado. 

"Precious Metals Panic-Selling Continues"

From ZeroHedge:

It appears pre-Brexit levels for gold ($1270) and Silver ($17.50) are being eyed as heavy volume is monkey-hammering precious metals lower...
Gold broke below the 100DMA at $1317 and is heading for $1270 (pre-Brexit) and $1262 200DMA....MORE

 

Front futures  1,287.30 -25.40 
And from Kitco:

Gold Extends Losses, Sharply Lower, Amid Stronger U.S. Dollar, Fed Speak, Chart-Based Selling

Gold futures prices have extended early solid losses to trade sharply lower and at a 3.5-month low in late-morning trading Tuesday. Better trader and investor risk appetite in the world marketplace this week has helped to weigh on safe-haven gold. Sell stop orders were triggered in gold futures markets when several technical support levels were breached after the New York day session opened.

The stronger U.S. dollar index on Tuesday has also worked against the precious metals market bulls. The British pound fell to a 31-year low against the U.S. dollar overnight and the Euro currency is also seeing keener selling interest, both of which are helping to boost the greenback....

...MORE

Earlier today Dragonfly Capital pointed out the support line but gets no prescience points, it was posted after the the decline had begun:

...The chart above shows a series of lower highs, against support at 1310. That has defined a descending triangle. A break below 1310 would give a target to the downside to about 1245. From there the June low at 1210 would not be far off. Will it break down?...

"How much is that risky asset worth?"

Tough question.

From ChicagoBoothReview, Sept. 27:

Valuing a future payoff requires understanding market perceptions, future economic conditions, and the nature of risk. The task for investors: assess the risks involved and the potential rewards.

Economists agree that financial markets tend to compensate investors for exposing themselves to market uncertainty. New York University’s Jaroslav Borovička and University of Chicago’s Lars Peter Hansen, who won a Nobel Memorial Prize in Economic Sciences in 2013, have devised a framework to understand better how much an investor should pay for a given risk over alternative investment horizons.

Economic models typically assume investors have rational expectations of the future based on historical financial data. The problem with such models, the researchers write, is that it is unclear precisely what information investors use to make forecasts, and how much confidence investors have in the information they do use. 

The return that financial assets produce ought to reflect “risk prices”—the compensation investors stand to gain from investing in a risky asset. The prices will depend on the investment horizon, the market opportunities, and the exposures to risk. Borovička and Hansen use these insights in developing a framework for characterizing the pricing dynamics pertinent for financial-market payoffs. 

Unexpected or unpredictable events that impinge on the macroeconomy—or economic shocks, as economists refer to them—cannot be managed with diversification. The researchers’ framework isolates factors that contribute to the market-based risk prices of exposure to this macroeconomic uncertainty....MORE

 Either link in the second paragraph will get you to a version of "Term Structure of Uncertainty in the Macroeconomy".

Also from CBR: News You Can Use: "In a Heated Negotiation? Try Eating Like Your Opponent".

World's First Securities Exchange for Commercial Property Contemplated In 2017

From City AM:

Tritax Group partners take a stake in the world's first property exchange planned for 2017

The City has come one step closer to becoming home to the world's first securities exchange for commercial property.

The International Property Securities Exchange (IPSX) will be the first exchange for trading stakes in companies that own single commercial properties. It is set to launch in 2017.

Four Tritax Group partners have now invested in the property exchange start-up, following the lead of British Land, which took a stake in IPSX at the beginning of July.

Anthony Gahan, co-founder and chairman of IPSX, said: "The personal commitments from such established and well-respected leaders in the industry further illustrate the need for IPSX to offer alternative capital markets options to owners and investors, both institutional and retail.

"We continue to receive strong demand from single-asset owners, as well as institutional REITs, actively seeking alternative methods of holding their assets."...MORE

BlackRock: Happy, Happy, Joy, Joy (with caveats)

From the BlackRock blog:

Repositioning portfolio risk
Key points

• The global economy appears to be nearing an inflection point, favoring credit and equity relative to long-term government bonds.
• Upbeat economic data last week indicated global growth is holding up, but European bank woes depressed stocks for much of the week.
• U.S. jobs data this week could confirm a December Federal Reserve interest rate increase is the most likely scenario.

The global economy may be nearing an inflection point as we enter the fourth quarter. We see developing inflationary pressures, especially in the U.S., and potential for upside global growth surprises. This backdrop supports exposure to selected credit and equities.

Chart of the week
Yields of selected assets: current vs. pre-crisis average

High valuations versus history point to more muted future returns across most asset classes. However, investors are still being rewarded for taking on risk in many areas of equities and credit, especially given the poor compensation for risk in government bonds. Higher-yielding risk assets such as local emerging market (EM) bonds look relatively attractive. These asset classes offer yields closer to pre-crisis levels. See the smaller gaps between the green dots and blue bars above.

The shifting macroeconomic environment

Numerous signs point to a new global growth regime. Our BlackRock Macro GPS economic indicator implies consensus gross domestic product forecasts for the G7 appear too low, even if the growth outlook remains sluggish. We see China avoiding a hard landing and making the gradual transition to a more consumer-driven growth model....

...MORE

HT: Barron's Income Investing

Hurricane Watch: "Matthew Slamming Hispaniola; Southeast U.S. Landfall a Growing Threat"

From Wunderblog:

Colossal amounts of rain are soaking Haiti and the Dominican Republic as Category 4 Hurricane Matthew heads for an encounter with the western end of Hispaniola. As of the National Hurricane Center’s update at 8:00 pm EDT Monday, Matthew was located about 200 miles south of Port-au-Prince, Haiti, moving just east of due north at 8 mph. Matthew’s top sustained winds were holding at 140 mph, solidly in the Category 4 range. Just before 8 PM EDT, a Hurricane Hunter flight found a minimum surface pressure of 934 millibars, down from the 940 mb reported in the 8 PM EDT advisory. However, surface winds measured by the SFMR instrument had not yet increased. Matthew may be completing an eyewall replacement cycle, with the original small eye decaying and a larger outer band taking over. Hurricane Hunters described the new eye as ragged, elliptical and kidney-shaped, about 17 by 30 miles across. Depending on how soon this cycle is completed, it’s possible that Matthew's winds could either increase or decrease by 5 - 10 mph prior to the storm making landfall in southwest Haiti around 8 am EDT Tuesday.

As of late Monday, Hurricane Warnings were in effect for Haiti, Cuba’s eastern provinces, and the southeastern and central Bahamas. Matthew’s center is likely to pass over or very near the western tip of Haiti. This will likely spare Jamaica from widespread winds above hurricane force, although very heavy rains can still be expected (see video embedded at bottom of this post). On the other hand, Matthew’s track is close to a worst-case scenario for the beleagured nation of Haiti, as it will bring the hurricane’s more dangerous right-hand side across Hispaniola. Far southwest Haiti may experience Matthew’s small core of intense hurricane-force winds, and a much larger area of powerful south winds slamming against tall mountainsides will lead to phenomenal rains over Haiti as well as much of the Dominican Republic (DR). The rains will likely be enhanced by moisture associated with a persistent band of showers and thunderstorms that has flanked Matthew’s east side for days (see this discussion of the mysterious “blob” from Marshall Shepherd). This feature’s rapid movement toward Hispaniola has actually led to heavier rains thus far in the Dominican Republic than in Haiti. A personal weather station in Cabo Rojo, on the southern coast of the Dominican Republic near the border with Haiti, recorded 22.91” of rain in thirteen hours between 3 am and 4 pm on Monday, including a remarkable 5.33" in the hour from 6 am to 7 am. While PWS data is often suspect, these are believable rainfall amounts based on the satellite presentation of Matthew. 

NHC warns that localized rainfall amounts could total 40” over southern Haiti and the southwestern DR, with widespread 15” - 25” amounts. Massive flooding and landslides are a virtual certainty, with the impacts especially severe on Haiti’s deforested landscape. As discussed in Jeff Masters’ post this morning on the hurricane history of Matthew’s targets, one of the few analogs for this northward-moving major hurricane is Hazel (1954), which killed more than 1000 people in Haiti....MUCH MORE

Details Emerge On The Big Internet-of-Things Hack: This Is Just Sick

From MotherBoard:

Over the last few weeks, unknown hackers have launched some of the largest cyberattacks the internet has ever seen. These attacks weren’t notable just by their unprecedented size and power, but also because they were powered by a large zombie army of hacked cameras and other devices that fit into the category of Internet of Things, or IoT.

On Friday, the hacker who claims to have created the malware that was powering this massive “Botnet Of Things” published its source code, which appears to be legitimate.

“It looks like this release is the real deal,” according to Marshal Webb, the chief technology officer of BackConnect, an anti-DDoS firm, who has been collecting samples of the malware in the last few weeks.

However legitimate, the malicious code isn’t actually that sophisticated, according to security researchers who have been studying it.

“Whoever originally wrote it clearly put some thought into it. Like, it’s better than most of the shit out there hitting IoT,” Darren Martyn, a security researcher who has been analyzing the malware told Motherboard in an online chat. “[But] it’s still fairly amateurish.”

The malware, known as Mirai, was dumped on Hackforums by its alleged author and later published by others on GitHub. Mirai is designed to scan the internet for vulnerable internet-connected devices that use the telnet protocol and have weak default logins and passwords such as “admin” and “123456”, “root” and “password”, and even “mother” and “fucker,” likely just a joke by the malware authors....MORE

The cussing isn't the nasty part. Look at this bit...

...The code is full of inside jokes and funny tidbits, such as several mentions of the world “memes,” and even a YouTube link that turns out to point to Rick Astley video “Never Gonna Give You Up”...

They Rickrolled the internet. 

See also MIT Technology Review in "The Internet of Things Goes Rogue".

Insider Trading The Financial Crisis: Who Knew What, When?

Just to be clear, there is an enormous difference between trading on material non-public information and insider trading. That was the travesty at the heart of Raymond L. Dirks v. Securities and Exchange Commission, mentioned in the post immediately below.

From NewsWeek:


Big Data Shows How Wall Street Profited From the Financial Crash

This article originally appeared on the International Business Times.
Big Data—those sprawling algorithms that can track and predict patterns in human behavior—often conjures up fears of a big-brother police state. But those same data-sets could be harnessed to uncover and expose Wall Street excesses.

That’s the implication of two new new academic studies about the financial crisis. One study suggests politically connected executives traded on non-public information about the government’s subsequent bailout after the crisis hit. The other suggests that despite their claims to the contrary, many bank executives understood the risks they were taking in the lead-up to the crash, and sold their personal holdings in their firms before the crisis hit.

The findings emerged as U.S. Sen. Elizabeth Warren, a Democrat, is demanding a formal investigation of why the Obama administration did not more forcefully prosecute financial firms after the crisis.

The first paper used publicly available information to chart the possibility that individuals with close ties to regulators and politicians engaged in insider trades in the aftermath of the 2007-08 financial crisis.

“Politically connected insiders had an information advantage during the crisis and traded to exploit this advantage,” concluded the study by researchers at the University of Colorado, Stanford University, the University of Navarra and the University of Pennsylvania. The study zeroed in on those who made trades after the announcement of the government's $700 billion Troubled Asset Relief Program (TARP), which bought up so-called “toxic” assets—mortgages and securities that had plummeted in value. 

Crunching data from 7,300 corporate officers at 497 financial firms eligible to get cash from TARP,  the researchers found political connections paid off—big time.

“We looked at bank boards who had a director or officer who had work experience, current or past, at a bank regulatory agency, the Senate or the House, and we found that the boards of those banks that had those political connections traded more heavily during the financial crisis,”  explained Daniel J. Taylor an accounting professor at the University of Pennsylvania’s Wharton School, in an interview with the school's business journal.

In other words: while the government was supposedly deciding in private who would get TARP funding, politically-connected individuals traded as if they already knew the outcomes of those decisions—before the decisions were made public. That information translated into cash: The politically connected saw between 4 to 5 percent return in just three days. Those with political connections also traded more than three times the average volume in the 30 days leading up to the announcement of who would get how much in bailout funds....MORE

Supreme Court To Weigh In On What Constitutes Insider Trading

From The Hill:

Supreme Court prepares to answer question for DOJ: What is insider trading?

If the provider of insider information doesn’t benefit, did an insider trading violation occur? 

The question has split federal appeals courts and is now headed to the U.S. Supreme Court, which will hear oral arguments in Salman v. United States on Oct. 5.

At issue is how to use the “personal benefit” test, which has been key to establishing liability in insider trading cases. The test has been hotly debated in lower courts since the Supreme Court established the rule in Dirks v. SEC over 30 years ago.

In the last two years, the U.S. Circuit Court of Appeals for the Second Circuit and the Circuit Court of Appeals for the Ninth Circuit handed down differing opinions on the nature of “personal benefit” in separate, though similar, insider trading cases.

Clarification Needed. 
Steven Crimmins, a securities regulation lawyer for Murphy & McGonigle, said the Supreme Court recognized the need to clarify the murky language embedded within the “personal benefit” test, which aims to determine liability between those providing insider tips and those receiving them. 

“They see confusion amongst the lower courts,” he said. “They see confusion breaking out over the meaning of federal law and that hurts the orderly administration of justice.”

In Dirks v. SEC, the Supreme Court ruled that for fraudulent insider trading to have occurred, an insider had to have received some sort of personal benefit in exchange for disseminating material, private information.

As part of the test, the court deemed providing non-public information to a close friend or family member as a gift constituting a personal benefit.

Successful Convictions. 
Following Dirks, the Securities and Exchange Commission and the U.S. Department of Justice successfully convicted numerous tippers and tippees by establishing that defendants in a given case were friends, regardless of the closeness of their relationship, Crimmins said....MORE

Secret Alpine Gold Vaults Are the New Swiss Bank Accounts

Staying with the security-seems-a-concern theme.
From BloombergBusinessweek, Sept. 30: 

“There has been a real interest in alternatives to bank deposits.”

Deep in the Swiss Alps, next to an old airstrip suitable for landing Gulfstream and Falcon jets, is a vast bunker that holds what may be one of the world’s largest stashes of gold. The entrance, protected by a guard in a bulletproof vest, is a small metal door set into a granite mountain face at the end of a narrow country lane. Behind two farther doors sits a 3.5-ton metal portal that opens only after a code is entered and an iris scan and a facial-recognition screen are performed. A maze of tunnels once used by Swiss armed forces lies within.

The owner of this gold vault wants to remain anonymous for fear of compromising security, and he worries that even disclosing the name of his company might lead thieves his way. He’s quick to dismiss questions about how carefully he vets clients but says many who come to him looking for a safe haven for their assets don’t pass his sniff test. “For every client we take, we turn one or two away,” he says. “We don’t want problems.”

Demand for gold storage has risen since the 2008 financial crisis. Many of the wealthy see owning gold as a hedge against the insecurity of banks and a reasonable investment at a time when markets are volatile and bank accounts and low-risk bonds pay almost no yield. It may also be a way to avoid the increasing scrutiny of tax authorities. In high-profile cases, U.S., French, and German prosecutors have gone after citizens of those countries with undeclared Swiss bank accounts.

Swiss storage operations such as these don’t have the same obligation that Swiss banks do to report suspicious transactions to federal regulators. Americans aren’t required under the U.S. Foreign Account Tax Compliance Act to declare gold stored outside financial institutions.

Of the roughly 1,000 former military bunkers still in existence across Switzerland, a few hundred have been sold in recent years, and about 10 are now storage sites holding gold as well as computer data, according to the Swiss defense department.

Few match the opulence of the airstrip setup, whose owner claims to run the largest store of gold for private clients—and the seventh-largest gold vault in the world. Near the runway sits the VIP lounge and a pair of luxurious apartments for clients. The walls of the apartments are lined with aged wood from Polish barns. South African quartzite was chosen for the floors to match the faded gray timber, and the amenities—bathroom mirror, TV screens—can retract into the ceiling, counter, or wall. The owner offers a place for clients to sleep and eat, because “many do not want to leave a paper trail of credit card receipts and passports” at hotels and restaurants.

Some miles away, Dolf Wipfli, the founder and chief executive officer of a different company, Swiss Data Safe, is one of the few operators willing to be interviewed about his business. The gold Swiss Data Safe stores for clients is kept in a mountainside bunker outside the hamlet of Amsteg. On a recent tour, Wipfli wouldn’t disclose the gold’s exact location, choosing instead to take visitors into a room containing computer servers for the other half of his business, providing data backup storage. Wipfli declines to say how much he charges to store gold. The company’s website has versions in Chinese and Russian....MORE

HT: FT Alphaville's Further Reading post.

Earlier today:
"Panic, Anxiety Spark Rush to Build Luxury Bunkers for L.A.'s Superrich"
See also:
9 of the World's Most Ridiculously Secure Safes and Vaults

"Panic, Anxiety Spark Rush to Build Luxury Bunkers for L.A.'s Superrich"

From the Hollywood Reporter, Sept. 28:

Oscar winners, sports stars and Bill Gates are building lavish bunkers — with amenities ranging from a swimming pool to a bowling alley — as global anxiety fuels sales and owners "could be the next Adam and Eve."
 

Given the increased frequency of terrorist bombings and mass shootings and an under-lying sense of havoc fed by divisive election politics, it's no surprise that home security is going over the top and hitting luxurious new heights. Or, rather, new lows, as the average depth of a new breed of safe haven that occupies thousands of square feet is 10 feet under or more. Those who can afford to pull out all the stops for so-called self-preservation are doing so — in a fashion that goes way beyond the submerged corrugated metal units adopted by reality show "preppers" — to prepare for anything from nuclear bombings to drastic climate-change events. Gary Lynch, GM at Rising S Bunkers, a Texas-based company that specializes in underground bunkers and services scores of Los Angeles residences, says that sales at the most upscale end of the market — mainly to actors, pro athletes and politicians (who require signed NDAs) — have increased 700 percent this year compared with 2015, and overall sales have risen 150 percent. "Any time there is a turbulent political landscape, we see a spike in our sales. Given this election is as turbulent as it is, we are gearing up for an even bigger spike," says marketing director Brad Roberson of sales of bunkers that start at $39,000 and can run $8.35 million or more (FYI, a 12-stall horse shelter is $98,500).

Adds Mike Peters, owner of Utah-based Ultimate Bunker, which builds high-end versions in California, Texas and Minnesota: "People are going for luxury [to] live underground because they see the future is going to be rough. Everyone I've talked to thinks we are doomed, no matter who is elected." Robert Vicino, founder of Del Mar, Calif.-based Vivos, which constructs upscale community bunkers in Indiana (he believes coastal flooding scenarios preclude bunkers being safely built west of the Rockies), says, "Bill Gates has huge shelters under every one of his homes, in Rancho Santa Fe and Washington. His head of security visited with us a couple years ago, and for these multibillionaires, a few million is nothing. It's really just the newest form of insurance."

 

A hidden door by Creative Home Engineering leads to a secret passageway 

that connects to an underground bunker.

Rising S Bunkers installed a 37-room, 9,000-square-foot complex in Napa Valley for an Academy Award-winning client that rang in at $10.28 million, with a bowling alley, sauna, jacuzzi, shooting range and an ultra-large home theater. Swimming pools, greenhouses, game rooms and gyms are other amenities offered. This year, on another Napa Valley property, the company constructed a $9 million, 7,600-square-foot compound with horse stables and accommodations for 12, along with four escape tunnels leading to outlets on the estate, multiple hidden rooms — in case "you let someone in whom you do not fully trust," says Lynch — and an aboveground safe house "disguised as a horse barn." The company also is designing a $3 million bunker for "a major sports figure from Southern California."

The company's best-selling bunkers for L.A. are 10 by 50 feet, start at $112,000 and have their own power sources, water supplies and air-filtration systems: "These complexes accommodate families of four or five and are self-sustaining," says Roberson, adding: "You can pretty much put a palace underground anywhere there is physically enough room." Regardless, Ellia Thompson, chair of land use practice at Ervin Cohen & Jessup in Beverly Hills, notes that zoning guidelines vary throughout L.A., so one should check with the city department of building and safety about permits: "A special permit may be required if you are digging out more dirt than certain basement quantities."...MORE

HT: naked capitalism

Previously:
What to Get the Survivalist Who Has Everything?
You probably have to deal with this question every year.
[who on earth do you think your readership is? -ed]
Zeitgeist: Survivalist Reality Show Winner to Get Own Bunker (as survival condos sell out)
Surviving in Your Doomsday Bunker with Portable Nuclear Power to Spare
Carbon: "Piaget Emperador Temple Diamonds Watch - $3.5 Million"
If you have a more ominous bent, trade three of your new watches for:
$10 Million Doomsday Bunker to Survive the Apocalypse
"The Latest High-End Real Estate Amenity? The Luxury Safe Room"
The Economist: "When civilisation collapses, will you be ready?"
"The Paranoid World of London's Super-rich: DNA-laced Security Mist and Superyacht Getaway Submarines"
"Mace and Vomit: The Latest in Anti-Pirate Tech"
"A New Investment Strategy: Preparing for End Times"
This is not new.
Here at Climateer world headquarters

Associated Press

HT on the pic: an old MarketBeat post.

we have been  on the doom-beat for years although we don't link to Rosenberg or Roubini very much.*
In fact, seeing their names together (R,R) always reminds me of The Simpsons, episode 7GO2, Bart the Genius:

Teacher:  So y = r cubed over 3. And if you determine the rate of change in this curve correctly, I think you'll be pleasantly surprised.
[The class laughs except for Bart who appears confused.]
Teacher:  Don't you get it, Bart? Derivative dy = 3 r squared dr over 3, or r squared dr, or r dr r.

Har-dee-har-har.
[you have lost your mind -ed]

I'm also reminded of "Portfolio Insurance" ca. 1987.
From DealBook:
Investment professionals have a new pitch: The sky could soon be falling....

Shipping: "Maersk Should Lay Off the Swashbuckling"

From Bloomberg Gadfly, Sept. 27:

So, Maersk might step in and buy some Hanjin assets after the South Korean shipping company's bankruptcy filing, according to a Bloomberg News report (citing analysts).

While it's understandable that the Danish giant's new boss Soren Skou feels pressure to deliver growth and head off competition, he must remain disciplined and avoid throwing good money after bad. In principle, Hanjin's bankruptcy is positive for the rest of the container shipping industry, which is beset by oversupply and chronically low freight rates.

But it won't be enough to put shipping back on an even keel: Hanjin accounts for less than 3 percent of global capacity and everybody else has plenty of new ships on order. When announcing a split of its transportation and energy activities last week, Maersk promised to refrain from ordering more new vessels, which is a big relief. But Skou says he will pursue acquisitions to try to expand market share as shipping consolidates.

With an $11.5 billion liquidity reserve, Maersk is better placed to pursue opportunistic purchases than some over-leveraged rivals. Maersk's cash probably isn't earning much of a return right now, so the bar for returns on investment is presumably pretty low. Boosting its position in Trans-Pacific trade may make sense too, as it's underrepresented there and scale's important in shipping.

Yet despite all this, it's hard to see how buying more shipping assets will solve Maersk's growth and profitability problems. Customers are a fickle bunch and after Hanjin's demise, most will already have made other arrangements to transport their goods (indeed, Maersk says it's a beneficiary).

And history offers a sobering lesson here. After Maersk's last big shipping acquisition -- the $2.6 billion purchase of P&O Nedloyd in 2005 -- about half the acquired market share later vanished, according to Drewry Martime Advisors' estimate....MORE

Old Model of Russian Economic Growth Exhausted Itself - Central Bank Head

It is a very tricky path ahead for both the bank and the banker.
From Russia Beyond the Headlines:

Russia's new model of economic growth should be based on investment, said Elvira Nabiullina.

The old model of the Russian economic growth, based on oil prices, is exhausted, and a new model should be based on investment, governor of the Central Bank Elvira Nabiullina said on Oct. 2.

"The old model of economic growth has exhausted itself. The new model should be based on investment," said Nabiullina.

According to the Central Bank’s forecasts, positive quarterly growth of GDP is expected already in the second half of 2016. However, GDP growth rates will not be high in 2017 - less than one percent.

The Central Bank’s risky scenario is based on the oil price of $25 per barrel. In this event, Russia’s GDP may go down by 1-1.5 percent in 2017.
Source: TASS

Previously:
August 2016
"Russia facing deflation for first time in 5 years"
"Bank of Russia: 25 years of Regulating Currency and Bank Crises"
June 2016 
How Russia Tamed Inflation
Bank of Russia Cuts Rate First Time Since July as Risks Fade

Considering what she has had to work with, sanctions, oil prices etc., the central bank's performance has been as good as one could hope for.

Possibly also of interest:

What Changed In Russian Central Banking? "Turning the Russian petro-monetary transmission mechanism upside-down"
"The Russian Central Bank Has Just Published its Assessment of the State of the Russian Economy "
Russia Central Bank Prepares For Three Years of $35 Oil
"The Russian Central Bank Has Just Published its Assessment of the State of the Russian Economy"
Sentiment Towards Russian Investments Could Be Thawing, Despite International Sanctions
Stratfor: "Russia Has Few Options for Turning Its Economy Around"

A Look At Next Week's Market Drivers: Deutsche Bank and the Jobs Report

From Marc to Market:

Next Week's Two Bookends

The start of next week will likely be driven by Deutsche Bank's travails and dollar funding pressures, which may or may not be related.  The end of the week features the US monthly jobs report. Despite being a noisy, high frequency time series subject to significant revisions, this report like none other can drive expectations of Fed policy. 

Deutsche Bank is faced with two challenges: its business and several outstanding legal cases.  It is well appreciated that European bank business model has broken down and the low, and now, negative interest rate environment is exacerbating the problems.  An important distinction, however, is that while European banking problems, as in Greece, Italy, Portugal and Spain, are often made acute by their nonperforming loans, this is not Deutsche Bank's issue.  Only a quarter of its assets are tied to loans, according to reports.   

The bank had what accounts euphemistically call negative revenue last year, which means it lost money (~7.7 bln euros or ~$8.6 bln).  There is a 35 bln euro (~$39.4 bln) gap between the market value of the bank and the bank's value of its tangible assets.  The bank failed to pass two consecutive stress tests conducted by the Federal Reserve.  Earlier this year, the IMF identified the bank as the single largest source of global financial systemic risk. 

It is the bank's legal problems that are the source of the immediate pressure, and roiling the market. There are three numbers that have caught investors' attention: 6, 14, and 16.   The bank's litigation reserves are reportedly near 6 bln euros (~$6.75 bln) The Department of Justice has proposed $14 bln fine for fraudulent practices relating to the issuance packaging, securitization, and sales of residential mortgage-backed securities. The market capitalization of the bank is roughly 16 bln euros (~$18 bln). 

For the wrongdoing in the residential mortgage space, some banks have been fined more and some less than the Deutsche Bank's $14 bln fine.  Reports suggest that the level of the fine is not simply a function of the damage inflicted, but also the bank's cooperation.   In addition, Deutsche Bank has been involved in several other cases, and according to Bloomberg, has paid more fines than any other bank since 2008. 

An unconfirmed report before the weekend, claiming that Deutsche Bank's fine would be negotiated down to $5.4 bln, saw a dramatic collective sigh of relief.  Risk assets, including Deutsche Bank stock, financials and equity markets, were propelled higher.  The dollar reversed earlier gains that had sent the euro to new lows for the week.  Investors will be sensitive to whether this report is confirmed. 

Investors are particularly concerned about the systemic risks posed by Deutsche Bank.  Reports suggest that the gross notional value of its derivatives book is 46 trillion euros.  Many have warned of a potential Lehman-like event.  Contributing to this sense was a sudden jump in the demand for dollar funding.  Since the financial crisis, several central banks have been auctioning dollars, and there is quasi-permanent swap line between the Federal Reserve and five central banks (ECB, BOJ, BOE, BOC, and SNB).  

These swap lines remain largely dormant.  Last week, the ECB tapped the line for a $29 mln (paying 0.95%).  The BOJ took one million dollars.    Earlier this year the BOJ had doubled the size of its dollar auctions.   Last week, a dozen European banks borrowed $6.35 bln at the ECB's dollar auction.  This is the most in four years.  Unconfirmed reports indicated that none of the banks were German.   

The implications seem exaggerated by the investors' sensitivity and the some media accounts.  First, the average of dollar borrowing per bank at the ECB has been higher.  Even the cumulative amount is not indicative of a crisis.  Second, the borrowings cover quarter-end.  There was an increase in borrowings and participation in June as well, just on a smaller magnitude.    

Third, part of the demand for dollar funding may be a function of the dislocation being caused by the new rules regarding US money markets.  The preference for funds that invest solely in government securities appears to have driven up LIBOR yields.  In turn, this is exacerbating extreme pricing in the commonly used cross-currency swap market, where the cost of transferring liquidity or hedging euro and yen exposure into dollar has risen dramatically....MORE

Earlier:
So, What's the Worst Case Scenario With Deutsche Bank?

Aswath Damodaran Weighs In On Andreessen Horowitz's Valuations: "Venture Capital: It is a Pricing, Not a Value, Game!"

After having gentle fun poked at him last month by, among others Bloomberg's Matt Levine, for a post on the Tesla/SolarCity merger:

...Here is valuation expert Aswath Damodaran getting really mad at Lazard and Evercore for their fairness opinions of the Tesla/SolarCity deal: "My first reaction as I read through the descriptions of how the bankers in this deal (Evercore for Tesla and Lazard for Solar City) valued the two companies was 'You must be kidding me!'" There seems to be just a simple category error going on here. Damodaran wants to see valuations of the two companies. But that wasn't Evercore or Lazard's job. Nobody asked them for valuations. They were asked for fairness opinions.... 

the good professor approaches his current target subject more judiciously.

From Musings on Market, Oct. 2:

Venture capitalists (VCs) don’t value companies, they price them! Before you explode, implode or respond with righteous indignation, this is not a critique of what venture capitalists do, but a recognition of reality. In fact, not only is pricing exactly what you should expect from VCs but it lies at the heart of what separates the elite from the average venture capitalist. I was reminded of this when I read a response from Scott Kupor of Andreessen Horowitz, to a Wall Street Journal article about Andreessen, that suggested that the returns earned by the firm on its funds were not as good as those earned at other elite funds. While Scott’s intent was to show that the Wall Street Journal reporter erred in trusting total returns as a measure of VC performance, I think that he, perhaps unintentionally, opened a Pandora’s box when he talked about how VCs attach numbers to companies and how these numbers get updated, and how we (investors, founders and VCs) should read them, as a consequence.

The WSJ versus the VC: A Recap

Let’s start with the Wall Street Journal article that triggered the Kupor response. With the provocative title of “Andreessen Horowitz’s returns trail venture capital elite”, it had all the ingredients for click bait, since a big name (Andreessen Horowitz) failing (“trail venture capital elite”) is always going to attract attention. I must confess that I fell for the bait and read the article and walked away unimpressed. In effect, Rolfe Winkler, the Journal reporter, took the three VC funds run by Andreessen and computed an IRR based upon the realized and unrealized gains at these funds. I have reproduced his graph below:

While the title of the story is technically correct, I am not sure that there is much of a story here. Even if you take the Journal’s estimates of returns at face value, if I were an investor in any of the three Andreessen funds, I would not be complaining about annual returns of 25%-42%, depending on the fund that I invested in. Arguing that I could have done better by investing in a fund in the top 5% of the VC universe would be the equivalent of claiming that Kevin Durant did not having a good NBA season last year, because Lebron James and Stephan Curry had better seasons.

In the hyper-competitive business of venture capital, though, the article must have drawn blood, since it drew Scott Kupor's attention and a response. Scott focused attention specifically on what he believed was the weakest link in the Journal article, the combining of realized and unrealized gains to estimate an internal rate of return. Unlike investments in public equities, where the unrealized returns are based upon observed market prices for traded stocks and can be converted to realized returns relatively painlessly, Scott noted that unrealized returns at venture capital funds are based upon estimates and that these estimates are themselves based upon opaque VC investments in other companies in the space and not easily monetized. Implicitly, he seemed to be saying that not only are unrealized returns at VC funds subject to estimation error, but also to bias, and should thus be viewed as softer than realized returns. I agree, though I think it is disingenuous to go on to argue that unrealized returns should not be considered when evaluating venture capital performance, since VCs seem to have qualms about using them in sales pitches when they serve their purpose.

The VC Game

The Kupor response has been picked in the VC space, with some commenters augmenting legitimate points about return measurement but many more using the WSJ article to restate their view that non-VC people should stop opining about the VC business, because they don’t understand how it works. Having been on the receiving end of this critique at times in the past, you would think I would know better than to butt in, but I just can’t help myself. I may not be qualified to talk about the inner workings of the venture capital business, but I do believe that I am on firmer ground on the specific topic of how VCs attach numbers to the companies that they invest in.

VCs price businesses, not value them!

I have made the distinction between value and price so many times before that I sound like a broken record, but I will make it again. You can value an asset, based upon its fundamentals (cash flows, growth and risk) or price it, based upon what others are paying for similar assets, and the two can yield different numbers.

...MUCH MORE

Profiting From Random Strategies

From Price Action Lab:

The bulk of trading strategies are random because they are either overfitted to noise or are the result of selection bias. However, there are ways of even profiting from random strategies. In this article I outline the general idea and offer an example.

Traders are aware that the bulk of trading strategies do not offer profit potential due to data-mining bias and, as a result, most of them generate losses.

As it was shown in another article, identifying a consistently losing strategy to invert and profit from is as difficult as identifying a consistently winning strategy.

However, if one can identify random strategies that are at the end of a drawdown phase, there may be profit potential for limited time due to mean-reversion. This is because the longer-term expectation of a random strategy is 0.

This type of trading is of course highly risky because a losing strategy can continue to generate losses for an extended period of time before the expectation reverts toward 0.  The probability of identifying strategies that are about to mean revert can be maximized if there if a sufficient trade sample is available and payoff is symmetric. Therefore, this idea of trying to profit from losing strategies does not apply to small samples generated by momentum and trend-following algos, especially on weekly and monthly data; it is more suitable for intraday and daily timeframes....MUCH MORE

See also 2013's "Computer Simulations Reveal Benefits of Random Investment Strategies Over Traditional Ones".

Somehow related:
...We've looked at the phenomena  in a couple other contexts:

Random Stock Selection Again Beats Index; 99.9% of High Priced Managers 

There may be a problem or two with the sample size, replication, error bars, pretty much the whole statistical schmear, but if I put that in the headline would you have read this far?
From Joe Meth (Stock Chartist)...

And:
Okay, Enough With Politics: Attention Managers, You Can Improve Corporate Efficiency by Randomly Promoting Employees

That last piece of research was awarded Harvard's own Ig Nobel prize in 2010.
Ya see, ya got your complex systems and ya got your chaotic systems and then ya got your complex-chaotic systems like weather or the economy or the stock market and when you endeavor at those levels of sophistication you realize:

"Nobody knows anything"

-William Goldman

Completely off-topic sidebar:
If you're interested, Mr. Goldman will show you how to write a movie script.

Should You Just Give Up And Trade Stocks Randomly?
Joys of Noise: Technologies that Rely on Randomness
Think a coin toss has a 50-50 chance? Think again.
Randomness: "A Drunkard’s Walk in Manhattan"

"The great global avocado trade flow chart"

This is from a few days ago. At first something didn't seem right about the graphic so we set it aside.
From Quartz:

Avocado prices are on the rise. An increase in US demand and weak production in Mexico and California has left the Americas in short supply of the fruit, with chefs seeking alternatives like sweet potato.

On the other side of the world, Australia and New Zealand recently had the same problem. Avocado theft rose in New Zealand along with prices earlier this year. There were nearly 40 large-scale avocado thefts from growers on the north island of New Zealand in the first half of the year, according to The Guardian.

The avocado trade is intensely concentrated in Mexico. Half of the world’s exports originate there....

...MORE

Correction: An earlier version of this item incorrectly described all the avocados exported by the Netherlands as having been grown there.

So, What's the Worst Case Scenario With Deutsche Bank?

"...If any risks get out of control, Gambles warns that it could easily spiral and the total exposure could conceivably be beyond Germany's resources. In which case Deutsche Bank goes, it would take the German economy, the euro zone banking system, the euro zone economy, the Chinese banking system and the global economy with it, he added.

Additionally, if the finance ministry act too late then it could quickly become such an impossible task, that either Germany exits the euro or the euro exits Germany, Gambles warned.

"(In this situation) Germany prints like crazy and before you know it, the German fears of hyperinflation are revisited – Germany is the major global economy that faces the risk of a currency and debt event big enough to cause hyperinflation which may be the most ironic aspect of the whole affair," he added...."

Oh.

That's from CNBC's "The man who called Deutsche’s decline has some gloomy predictions on what’ll happen next".

"The Internet of Things Goes Rogue"

We noted this story in Thursday's "Uh Oh: Internet Security Pro Hit By Botnet Made Of Internet-of-Things Connected Cameras" and led off with a five syllable intro: This is very bad.
Here's a deeper, less cryptic look, from MIT's Technology Review:

A huge online attack enabled by Internet-connected devices illuminates a problem keeping security experts awake at night.

When the website of security expert Brian Krebs recently went down, it wasn’t bad luck—it was the result of a huge surge of data: 620 gigabits per second. And now we know where it came from. It was an army of Internet-connected devices, being used as slaves to take down servers.

According to the Wall Street Journal, as many as one million security cameras, digital video recorders, and other connected devices have been employed by hackers to carry out a series of such attacks. When corralled together, these pieces of hardware can be used as a so-called botnet, collectively sending data and Web page requests to servers with such ferocity that they’re overwhelmed and ultimately crash.

It’s a powerful new way of putting an old idea into practice. Attackers have long installed malware on PCs to have them act as bots that they control, and more recently home routers and printers have been used to the same ends. But as Internet-connected devices proliferate in our homes and offices, the potential number of devices to draw upon is increasing dramatically.

The scale of the new set of attacks is unprecedented. According to the BBC, this recent spate has been able to barrage servers with data at rates of over a terabit per second. In addition to Krebs’s site, the targets have included the servers of French Web hosting provider OVH. The attacks may have been carried out by the same botnet.

The news raises fresh concerns about the security of Internet of things devices. Purpose-built to be controlled over the Internet, such devices have been billed as the future of sensing and control to businesses and domestic users alike—from connected video cameras and speakers to smart thermostats and lightbulbs. While initially slow to gain popularity, they are proliferating as they’ve become increasingly user-friendly.

But there’s a problem. Many such devices are purchased, installed, and then used without much further attention being paid to their configuration. That means that they may never be updated, leaving huge scope for their exploitation by hackers if they contain a security flaw. (They invariably do.) Who, after all, bothers to update a lightbulb?...MORE

"Silicon Valley’s Secret Involves Proximity, Stolen Parts, and the Kindness of Strangers, Say Atari Alumni"

A bit of history in two parts from IEEE Spectrum:

Former Atari engineer Owen Rubin (left), vice president of engineering Al Alcorn (center), and founder 

Nolan Bushnell (right) say Silicon Valley's secret has always meant supporting startups—and "borrowing" parts

Every time I talk to a Silicon Valley newbie, particularly someone trying to start a company, I find them enthralled by the “magic” of the place. They are amazed to discover that just about everyone you meet is involved in tech, and, as a result, neighbors, parents on the soccer sidelines, and people in line for coffee at Coupa can all potentially help you make your dream happen. And the most surprising thing to outsiders is that all these random connections actually want to help you, the earnest entrepreneur.

That’s the Silicon Valley secret. And it’s nothing new. Stories about this kind of help—advice, encouragement—and spare parts—came up again and again at a gathering last week of 100 Atari alumni and others connected to the birth of video games and home computers, hosted by the IEEE Silicon Valley History Committee:

On how Atari Founder Nolan Bushnell came to Silicon Valley:
“It was very scientific. My wife’s sister lived in Sunnyvale. I graduated 256 out of a class of 256 (at the University of Utah). That is, I had the most efficient degree possible. I got a degree, but I didn’t do one bit more than I needed to. I went to placement center, they said with your grades you can’t expect a very good job. I thought, ‘Horseshit.’ I knew the highest starting salaries of all those guys graduating, so on Thanksgiving I came to California and papered my resume around asking for $25 a month more than that highest salary. And I got the job at Ampex.”

On “liberating” parts for a startup:
Bushnell, while working at Ampex, was developing an arcade version of “Spacewar!,” a game written for the DEC PDP-1.

Recalled Atari’s head of engineering, Al Alcorn: “You were doing this as a g-job in the evening, borrowing parts.”

“Liberating parts,” corrected Bushnell.

“A fine tradition,” said Alcorn, “that Atari adopted. That’s how the Apple II was made, with Atari’s parts.”

Steven Mayer, who was chief Atari architect for home games and computer systems, chimed in: 

“There was a long tradition at Ampex of supporting people [to go out and do other things]. A guy working on a database at Ampex was Larry Ellison. A guy working in audio was Ray Dolby. Ampex was incredibly generous about letting these people start their own companies....MORE

And:
Atari Alumni Talk About the Tall Tales They Told to Launch an Industry

I thought I’d heard them all. Atari stories, that is. I started covering the company in 1981, followed company founder Nolan Bushnell and first engineer Al Alcorn through their other adventures, became personal friends with more than a few Atari alumni, and even had a memorable lunch with Warner COO Manny Gerard after that company bought Atari (and, many say, then destroyed it).

But last Thursday evening, at a sold-out 100-person event hosted by the IEEE Silicon Valley History Committee, a few behind the scenes stories came out that were new to me—and even new to some of the people who were key players at Atari at the time. It’s hard to get startups off the ground, particularly those trying to do something as revolutionary as start a videogame—or personal computer—industry. So let’s just say the truth, at times, was stretched—or simply ignored—in order to make things happen. A few examples:

Motivating an engineer with a fictitious client:
Pong has gone down in history as the first consumer video game. In 1972, shortly after Atari’s inception, Atari founder Nolan Bushnell saw a demo of what became the Magnavox Odyssey; it included a ping pong game. “I thought the game was crap,” Bushnell recalls. “It was fuzzy, analog. Our tech was better.”

Bushnell said he’d contracted with pinball manufacturer Bally to build a driving game. But he recalls that as he drove home from the demo, he thought his one engineer, Al Alcorn “doesn’t know jack shit about video. I felt that [the driving game] was too hard as a learning project, so I told Al to do this ping pong game.”

Alcorn jumped in to continue the story. “And you told me you had a contract with General Electric, [to build] a home game, so I thought wow, this is going to be hard to do, the fact that nobody from GE came by, or wrote us a letter, well, I was 24, I didn’t know better.”

“I just wanted you to be motivated,” Bushnell said.

Faking out the market:
“I wanted world domination,” says Bushnell. “And it turns out that there are two coin-op [game] distributors in every city. One would have Gottlieb pinballs, one Williams. We had chosen the best distributors, but the [distributors] who didn’t have the Atari brand were doing everything they could to spawn a competitor. So I thought, let’s make that happen.”

So Atari secretly started a second company, Kee Games, with Bushnell’s next door neighbor, Joe Keenan, at the helm. “We took our number two engineer, our number two manufacturing guy, and every other game in our lineup, and gave it to Kee. We started Kee Games in August, and they were up and spinning by the November AMOA show (the big trade show in the games industry). Their goal was to pick up the rest of the distributors.”...MORE

"How Do We Create Value When Knowledge Is Almost Free?"

From Of Two Minds:

Credentials are increasingly in over-supply; problem-solving skills are scarce.

How do we create value in an economy that is increasingly dependent on knowledge? The answer is complicated by the reality that knowledge is increasingly digital and "unownable" and therefore almost free.

Financialization as a substitute for creating value has run its course. 

 

The crony-capitalist answer is always the same, of course: bribe the government to create and enforce private monopolies. This process has many variations, but a favored one is to deepen the regulatory moat around an industry to the point that competition is virtually eliminated and innovation is shackled.

Businesses protected by the regulatory moat can charge whatever they wish, becoming monopolistic rentiers that are parasites on the consumer and economy.

State-crony-capitalism destroys democracy and the economic vitality of the nation. I've covered this many times, and there is no solution to this oppressive marriage of state and monopoly other than innovations that open wormholes in the monopoly.

This is where knowledge comes in, as new forms of knowledge (not just technical innovations, but new business models), once digitized, can be distributed at near-zero cost.

This almost-free knowledge creates another problem: how do we create value in a knowledge economy when knowledge is increasingly free?

Correspondent Dave P. offered one answer: static knowledge is indeed increasingly free, but dynamic information (such as market conditions) generates value to those who need actionable, timely information.

One example of this might be a Bloomberg terminal, which delivers a flood of information for a monthly fee.

Another source of value is generated by firms offering a warehouse of free knowledge--for example, YouTube. The instructional videos are free to the user, but YouTube skims an advertising income from every view....

 ....MORE

Street Art: There Are Murals and then There Are MURALS!

This will be the last of the artsy stuff for today.
From The Creators Project:

What is "French" sits at an endless juncture between art, cinema, and food, all filled with celebrated motifs and faces that are instantly recognizable, even by tourists. From movie stars dining and puffing on cigarettes al fresco, to Renaissance thinkers peeking out from multi-level building windows, street muralist Patrick Commecy pollinates French cities with cultural creations.

 Porte d'Aurec

Every mural begins with his artistic vision, which is then carried out with the help of a team of detail-minded artists. The muralist helms the company A.Fresco, which has emblazoned its classically graceful public works across schools, indoor pools, and many other community spaces.

Done in the artist's style, A.Fresco’s most recent work features a set visuals ripped from a history book: Renaissance icons populate a building in Salon-de-Provence, their lushly-garbed forms straining out from windows. Commecy and his team treat the building's expansive side to the prophetic faces of the French Renaissance, one of which is author, physician, and future-teller, Nostradamus.

Check out more of the murals below:...MORE

 Café Reynaud

Italy's Anti-Mafia Police Find Stolen Van Goghs

From The History Blog:

Stolen Van Gogh paintings found after 14 years

Two oil paintings stolen from the Van Gogh Museum in 2002 were found by Italian police in a town outside of Naples. The anti-mafia squad raided the apartment of Raffaele Imperiale, a major drug dealer who is currently on the lam probably in the United Arab Emirates, in the village of Castellammare di Stabia as part of a large-scale investigation into drug smuggling by the Amato Pagano clan affiliated with the Camorra, the mafia-like criminal organization centered in Naples. It was in the basement that they found the two paintings wrapped in cloth.

The police called in experts to confirm the identity of the paintings, but they already knew what they had. The theft from Amsterdam’s Van Gogh Museum is notorious, one of the FBI’s top 10 art crimes thanks to the paintings’ (very conservative) estimated value of $30 million. The two thieves climbed a ladder to the roof and broke into the museum in December of 2002. They stole Seascape at Scheveningen (1882) and Congregation Leaving the Reformed Church in Nuenen (1884/85), two of the artist’s important early works. Two men were convicted of the theft a year later, but the paintings were never recovered and how they wound up a thousand miles south of Amsterdam in the hands of Camorristi 14 years later remains a mystery.

(click to enlarge)

Van Gogh Museum officials are ecstatic. Museum director Axel Rüger said at the press conference in Naples: “The paintings have been found! That I would be able to ever pronounce these words is something I had no longer dared to hope for.” The paintings are priceless to the museum, of course; their less left the collection with yawning lacunae.

The art historical value of the paintings for the collection is huge. Seascape at Scheveningen is the only painting in our museum collection dating from Van Gogh’s period in The Hague (1881-1883). It is one of the only two seascapes that he painted during his years in the Netherlands and it is a striking example of Van Gogh’s early style of painting, already showing his highly individual character. The hoped-for forthcoming return of the Seascape will fill an important gap in the museum presentation....MORE