Saturday, August 19, 2017

"Facebook’s willingness to copy rivals’ apps seen as hurting innovation" (FB)

Yes, astute yet wary reader's impression is correct, we have a bit of a theme on the blog today.
It wasn't intended but sometimes that's how things work out.
Just consider me your little ray of sunshine zeitgeist reflector.

From the Washington Post, August 10:
Four years ago, Facebook spent over $150 million on a free app used by millions.
Today that app, called Onavo, has become a little-known weapon in Facebook’s massive expansion strategy — helping the ­social-networking giant determine what is gaining popularity among consumers. It can then bring similar features to its own products, according to five people familiar with the effort who spoke on the condition of anonymity because it involves internal corporate strategy.
The Onavo app, called Onavo Protect, is what is known as a virtual private network, which means it disguises the traffic of smartphone users as they browse the Internet and use apps. But while it advertises itself to users as a way to “keep you and your data safe,” Facebook is able to glean detailed insights about what consumers are doing when they are not using the social network’s family of apps, which includes Facebook, Messenger, WhatsApp and Instagram.

The technology shows how far Facebook is willing to go as part of its aggressive strategy to reach into new areas beyond social networking, often by rapidly acting to mimic the most successful features of rival companies’ apps. Facebook did this most recently by replicating a key element of the Snapchat app. It also has done so for many other businesses, including a recent online fundraising tool, food delivery, offline meetups and its “On This Day” feature, which shows Facebook users pictures of what they did on the same day a year earlier.

Nobody has claimed that what Facebook is doing is illegal. But interviews with two dozen top investors and entrepreneurs suggest it is having a profound impact on innovation in Silicon Valley, by creating a strong disincentive for investors and start-ups to put money and effort into creating products Facebook might copy.

“It’s what we did at Microsoft,” said Scott Sandell, managing partner of the prominent venture capital firm New Enterprise Associates, who was product manager for Microsoft’s Windows 95 until 1995. The Justice Department brought a landmark antitrust case against the company in 1998. “Whenever we saw a threat, boy, did we pounce on it.”

Facebook declined to comment but noted that roughly 100 million apps and businesses use Facebook’s developer tools or have a Facebook page that drives installations to apps.

Unease about Facebook’s influence comes when the balance of power in Silicon Valley has been shifting away from start-ups toward four dominant companies — Facebook, Apple, and Google.
With their app stores, Apple and Google — which recently was fined $2.7 billion by the European Union on antitrust concerns — are the gatekeepers for millions of new businesses. Forty-three percent of all online retail revenue now flows to Amazon, according to the market research firm Slice Intelligence. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.) And Facebook counts one-third of the world’s population in its monthly user base.

“The dominance of these companies is choking off the start-up world,” Roger McNamee, an early investor in Google and Facebook and founder of the investment firm Elevation Partners, said of the two companies. “I helped create a monster, and I regret it.”...

"Is our economy still dynamic? A long-read Q&A with economist Fredrik Erixon"

From Pethokoukis at AEI, August 4:
Looking at the Silicon Valley today, you might think the US is poised for a technological explosion. That expectation is certainly animating many of the fears of mass joblessness once artificial intelligence arrives in the workplace, and why many people are beginning to advocate a universal basic income. But my podcast guest believes these techno-optimists have far too rosy of an outlook.
Fredrik Erixon is an economist and the director of the European Centre for International Political Economy, a Brussels-based think tank. He’s also the coauthor of the recent book, “The Innovation Illusion: How So Little is Created by So Many Working So Hard.” He joined me to discuss why we’re no longer as innovative as we used to be, why we’re not close to recapturing that dynamism, and what policymakers can do about it. Listen to our full conversation at Ricochet, or read an abbreviated transcript here.

PETHOKOUKIS: I’ll give you a chance to lay out your thesis, which I will try to sum up briefly. As the title suggests: innovation is not what we think it is. In fact, it’s been getting worse and worse, decade after decade since the 1970s. I wonder if you could explain that. Now, keep in mind that I would rather live — and I think this may argue against your thesis — in 2017 than in 1967, 1977, or 1987. And frankly, I’d probably rather live in 2017 than last year. So that to me suggests that maybe things are getting better. How can you say innovation, change, and progress have been slowing down for decades?

ERIXON: Like you, I would pick 2017 over any other year that you could come up with. The argument of the book isn’t that I’d prefer to live in the 1970s or 1940s or even 2006 or 2007 before the big economic crisis in the West. The point is basically that the innovation acceleration, or the pace of change in Western economies, has slowed down and that this slowdown is connected to our increasing inability to actually change our economies. And to change our economies in a way where we increasingly incorporate much more technology, much more human capital, and get people to stop doing things that they did yesterday in order to do something better tomorrow. That’s the whole point of the book. The point is to say we need more innovation, we need faster innovation. The illusion that the book is trying to counter is this perception, which has been spreading like wildfire over the past year, that we’re living in the most innovative age ever.

What we’re trying to say in the book is no, that’s an illusion. If you actually look at the pace of innovative change throughout history, you’re going to find lots of periods when change happened faster, when people were prepared to change in a way most people today aren’t. And the other part of the illusion is this perception itself provokes a lot of political reactions. It provokes human reactions and fears about technologies that are about to demote us to permanent low economic expectations. That we’re going to get unemployed because intelligent machines, robots, are going to eat our lunch, and perhaps our dinner as well.

And if you listen to Elon Musk, they might eat us as well. Or at least kill us. Before we go forward or even look at where we are today, just take one step back. So when was the golden age of innovation? And, whenever that was, why was it? Why can’t we just do what they did and follow that same recipe today?
The concept of innovation has basically two elements. The first one is technology creation; that we have scientists and inventors that generate new and bold inventions that are going to help to solve problems in better ways. That’s the first component. And I would argue at least that I’m not capable of making a judgment whether the technology creation we’re seeing today is better, worse, or similar to what we’ve seen in previous parts of history. But the other component of innovation, following the concept of innovation from economists Joseph Schumpeter and many others, is about the economy, and it’s about the capacity of the economy to basically take the technologies that are being created and run with them and make them basically ripple through the economy in a way which forces everyone — labor, capital, investors, governments — to perform better. And it’s in that second part where I think we’ve seen, in many parts of our modern economic history, we’ve been much better and where our economy has been much better equipped in order to run with these technologies and actually make something out of them.

So the problem here isn’t that we need to reinvent our economy, or start to come up with different economic systems. My argument is basically that we’ve had a system called capitalism which has been extraordinarily good at generating this type of economic change that I’d like to see more of. The problem that we’ve seen gradually growing over the past 50 years is that core concepts of capitalism have been eroded. And we have less of them in our economy today than we’ve had in the past. And that is the main reason why the economy isn’t generating that much innovative change or productivity growth as it did in the past.

You’re dividing things up. Maybe you have invention, the ability to come up with new ideas, new technologies, new ways of doing things. And then there’s the diffusion of those ideas throughout the economy, so they’re broadly helpful and broadly productive for people. So are you saying there’s a time when we did that better? These technologies or inventions or innovations, as you said, we were able to run with them better? When was that time? And if there wasn’t a time then maybe that’s just the way things are. When did we do it better? The 50s, 60s, 20s?
I think we can point to specific periods in economic history going back to the early 1800s, and point to decades or perhaps longer periods where we’ve seen faster change in our economy and our society. I think the period — it depends whether you look to America or Europe — before the early 1900s was a period of immense change in the European economy. We had the period just after the Second World War, a period when America as well as Europe saw enormous innovative change in the economy. Partly because the economy got better at exactly the thing you pointed to — diffusing all the new technologies that already existed and making organizations use them. I can think about my pretty short life, I’m just 43 years old, but I can point to periods when I think I’ve been living in far more exciting times than I do today. I’d say 1990s and 1980s was such a period, where the propensity of people to actually change and do something different than what they were doing was much greater than it is today....

The “Quantum Internet” Is Just a Decade Away. Here’s What You Need to Know.

From Futurism:
In Brief
As China moves closer to building a working quantum communications network, the possibility of a quantum internet becomes more and more real. But what does having a quantum internet mean?
The Next Level
The word “quantum” sounds so advanced and complex that people tend to get hyped up about anything attached to it. While not every quantum breakthrough elicits a positive response, in the case of a so-called quantum internet, people have a reason to be excited.

In the simplest of terms, a quantum internet would be one that uses quantum signals instead of radio waves to send information. But let’s explain that a bit further.

The internet as we know it uses radio frequencies to connect various computers through a global web in which electronic signals are sent back and forth. In a quantum internet, signals would be sent through a quantum network using entangled quantum particles.

Following what Einstein called “spooky action at a distance,” entangled particles exist in a special state that allows information carried in one to be instantaneously reflected in another — a sort of quantum teleportation.

Researchers have recently made significant progress in building this quantum communication network. China launched the world’s first quantum communication satellite last year, and they’ve since been busy testing and extending the limitations of sending entangled photons from space to ground stations on Earth and then back again. They’ve also managed to store information using quantum memory. By the end of August, the nation plans to have a working quantum communication network to boost the Beijing-Shanghai internet.

Leading these efforts is Jian-Wei Pan of the University of Science and Technology of China, and he expects that a global quantum network could exist by 2030. That means a quantum internet is just 13 years away, if all goes well.

Quantum Web Surfing?
So, what does a quantum internet mean for regular internet users? As far as typical internet surfing goes, probably not much.

It’s highly unlikely that you’ll be using the quantum internet to update your social media feed, for one. “In many cases, it doesn’t make a lot of sense to communicate quantum mechanically,” University of Washington physicist Kai-Mei Fu told WIRED. For such things, regular internet communication is enough....MORE

"The Dangerous Rise Of Unproductive Entrepreneurship"

From Techdirt:
from the this-is-bad-news dept
For many years now, we've talked about Andy Kessler's concept of political entrepreneurs vs. market entrepreneurs. In Kessler's telling, market entrepreneurs are the kind of entrepreneurs that people usually think about -- the ones creating startups and high growth companies and the like. While not everyone appreciates it, those entrepreneurs tend to provide a lot more to the world than they take away. They may get filthy rich in the process, but they tend to make the world a better place by creating lots of value. The "political entrepreneurs," on the other hand, are those who basically look to abuse the system to create monopoly rents and to limit competition. Those entrepreneurs may also get filthy rich, but they tend to do it by limiting value and locking it up so that only they can get it.

Obviously, one of those is a lot better for society than the other.

Of course, this idea certainly didn't originate with Kessler, either. Just recently, we had James Allworth on our podcast where we talked about this issue in response to an excellent article he'd recently written about how prioritizing profit over democracy was actually damaging American entrepreneurship. In that article, he referred back to the work of William Baumol, who wrote a paper back in 1990, entitled: Entrepreneurship: Productive, Unproductive, and Destructive. As you can see, that one divides entrepreneurship into three categories. Productive loosely maps to "market entrepreneurs" in Kessler's world, while "Unproductive" loosely translates to "political entrepreneurs" as well. Baumol also includes destructive entrepreneurs, who are actively making the world worse -- and getting rich off of people's misery (think drug dealers, and such).

But part of the point of Allworth's article is that it feels like too many people are just focusing on "profit" as the end goal, and thus either unwilling or unconcerned with determining if the entrepreneurship that drives the profit is "productive" or "unproductive." And, now the Economist has weighed in on this issue as well, noting that we're seeing more and more unproductive entrepreneurship in America, and that's a problem. The article focuses on the work of two economists, Robert Litan and Ian Hathaway, who are building on Baumol's concepts and are concerned about where things are heading. One interesting thing: they find that the issue can't be neatly put into the category of "too much regulation" or "too little regulation," but rather find that both of those situations can create the same rise in unproductive entrepreneurship:...

"US lawmakers and advocates on both the left and right are increasingly calling for regulating Google, Facebook, and Amazon" (GOOG; FB; AMZN)

From Axios:

The walls are closing in on tech giants 
Tech behemoths Google, Facebook and Amazon are feeling the heat from the far-left and the far-right, and even the center is starting to fold.

Why it matters: Criticism over the companies' size, culture and overall influence in society is getting louder as they infiltrate every part of our lives. Though it's mostly rhetoric rather than action at the moment, that could change quickly in the current political environment.
Here's a breakdown of the three biggest fights they're facing.

Battle over content: Both sides are increasingly wary of the outsized role that Facebook and Google play as moderators of public discourse, as was seen following the violence in Charlottesville. In the White House, Steve Bannon has reportedly argued that Facebook and Google should be regulated like public utilities.
  • Right-wingers worry the progressive-leaning companies aren't going to give their views a fair shake. Recently they opposed Google's firing of an engineer whose internal memo questioned women's aptitude for engineering jobs. They've also criticized YouTube policies meant to combat offensive speech. They see a company with the ability — and, in their eyes, motive — to sideline their views.
  • A policy memo quietly circulated earlier this year by activist Phil Kerpen recommended rules to keep online platforms politically neutral, potentially subjecting platforms that violated that neutrality to government enforcement actions. In an email obtained by Axios, Kerpen said the general strategy would "get us on offense and scare the hell out of Google, Facebook, Twitter." (Kerpen told Axios that the "unpublished draft memo represents preliminary thoughts on complex issues.")
  • Sen. Ted Cruz told Axios that he's worried about "large tech companies putting their thumb on the scales and skewing political and public discourse." He asked during a June hearing whether "these global technology companies have a good record protecting free speech, and what can be done to protect the first amendment rights of American citizens."
  • On Monday, Fox News host Tucker Carlson said that since Google "has the power to censor the internet, Google should be regulated like the public utility it is to make sure it doesn't further distort the free flow of information."
  • The left's fixation on whether fake news impacted the election has ensnared Facebook and other platforms in investigations into Russia's influence during the campaign. Top Senate Intelligence Committee Democrat Sen. Mark Warner has spoken about fake news with Facebook staffers multiple times this year in both Silicon Valley and Washington, a source said.
  • There's also frustration that Facebook didn't remove the event page for the white supremacist rally in Charlottesville until right before it happened.
Battle over liability: Big tech firms are in a panic about a bi-partisan bill that would let sex trafficking victims sue web platforms that hosted content implicated in the crime....

"It’s now possible to map a person’s lifetime exposure to nutrition, bacteria, viruses, and environmental toxins—which profoundly influence human health"


Mapping the Human Exposome
Our genetic blueprint charts the course for our life, yet we rarely achieve our full genetic potential, because of external forces that continually steer us off course. Many environmental influences are beneficial—good nutrition, education, and socialization—while others, such as malnutrition, pollution, and poverty, contribute to ill-health and the woes of humankind. We can now measure and utilize over a billion features of the genome—the sequence of DNA, epigenetic changes that turn genes on and off, and how genes interact with the biochemical machinery of cells—and that knowledge is enabling powerful new insights and therapeutic approaches. But genetics can explain less than 25 percent of most major disorders. And at present our ability to measure the complex environment in which we live and its impact on our bodies is very limited.

One measure of the potential environmental impact on health is the registry of nearly 80,000 industrial chemicals that is maintained by the Environmental Protection Agency. The interaction of each of these chemicals with living organisms can generate multiple chemical markers, which could be used to assess exposure and potential harm, if we knew what they were. One example that has generated widespread concern is the class of phthalate chemicals used as plasticizers in a wide range of products, from infant lotions and powders to credit card purchase receipts, markers from which are found in virtually every United States resident, and which have been implicated as hormone-like endocrine disrupters that can affect sexuality. Those aren’t the only powerful chemicals in consumer products—think suntan lotions and beauty creams, preservative additives in food products to extend shelf life, pesticide residues on fresh produce. Food itself generates many different metabolic chemicals found in our bodies, both directly and as a result of processing of food by our microbiome—the colony of bacteria that inhabit our gut and our skin and are very much part of who we are. Add in air pollution, workplace hazards, the markers left by allergens and disease agents and immune system reactions to them, the medicines we use—they all leave a biochemical marker. The number of such markers in our bodies is estimated to be as many as 1 million, but what they are and which ones indicate conditions or exposures harmful to health is still for the most part unknown.

As it turns out, there is no reason for knowledge of the environmental mediators of disease and health to lag so far behind that of the genome. When the concept of the exposome—the totality of our exposures from conception onward—was first put forward in 2005, it seemed an impossible challenge: How could we detect and measure a million different chemicals? But just as a single sample of blood contains the core of our genetic data (in the DNA within white blood cells), so that same blood sample contains hundreds of thousands of biochemical markers. And because of advances in high resolution mass spectrometry and high throughput screening, it is now possible to identify, catalog, and understand each marker, each constituent of the exposome, and link it to the process or environmental factor that produced it. Mapping and annotating these biochemical markers, creating reference databases that define the human exposome and to which individual profiles can be compared, using big data techniques to correlate genetic and environmental factors—all of this portends a revolution in how we understand the complex chemistry of life. That knowledge in turn is likely to lead to more specific insights into how environmental factors affect human health and how we might intervene to protect and enhance it. Within a decade, potentially, a truly precision approach to personalized medicine could be possible....MORE
The biochemical markers of the Exposome
The Exposome includes hundreds of thousands of biochemical markers from many different sources, including those shown here. 
Currently, only about 20,000 of those have been mapped and categorized.

Friday, August 18, 2017

US oil output set to reach record high

From Petroleum Economist, August 18:

The country's production has surged this year and is showing no signs of a slowdown
US oil output has flourished in 2017 and is set to reach a record high next year.

Total US crude production will rise by 0.6m barrels per day next year, according to the Energy Information Administration (EIA), reaching 9.9m b/d. This would exceed the 1970 record of 9.6m b/d. This year output is expected to average 9.3m b/d, up from 8.9m b/d in 2016.

US natural gas production is also expected to rise by 3.1bn cubic feet per day in 2018, up from the 2017 average of 73.3bn cf/d. Next year's increase will be triple the 1bn cf/d growth rate in natural gas production of last year, according to EIA data.

By December 2018, US oil output is expected to surge to 10.1 m b/d—a 0.9m b/d rise from June 2017's level, according to EIA data, and a 1.4 m b/d jump since the end of last year.

Tight oil output growth, from prolific plays such as the Permian and Eagle Ford regions, is expected to make up most of the increase.

The Permian region will comprise the bulk of oil-output gains between now and 2018, with production set to reach 2.9 m b/d by the end of next year—a roughly 0.5m b/d boost from June 2017 levels.

The rise in Permian output would result in the play comprising 30% of total US output next year.
According to data from Baker Hughes, by mid-August, 377 of the country's 928 onshore rigs were located in the Permian—a doubling from a year earlier.

After a sharp run up in drilling activity over the first half of this year, every onshore US shale basin has seen the number of drilled but uncompleted wells (DUCs) rise. In July—the latest month with available data-—total DUCs across the seven most prolific plays in the US had reached 7,059.
In the Permian, the number of DUCs has nearly doubled from this time last year to around 2,330 according to EIA data. If oil prices remains at sub-$50/b, companies could start pulling back the number of rigs they have running in the field.

But the Permian isn't the only shale play expected to boost US oil output growth through 2018.
Production from the Eagle Ford shale play is expected to average around 1.3m b/d through both 2017 and 2018—a rise of 100,000 b/d from levels in Q4 2016. But with higher breakeven prices than the Permian, the Eagle Ford region will be more susceptible to output and revenue losses if crude prices drop below $50 per barrel, the EIA says....MORE

Siemens Is Building Germany's First Electrictrified Highway

From Traffic Technology Today:

Siemens building Germany’s first eHighway
Following the launch of demonstration projects in the USA and Sweden, Siemens has been commissioned to build the first infrastructure for electric trucks on a German autobahn, which aims to provide sustainable freight transport by cutting energy consumption in half.
Siemens has been contracted by the German state of Hesse to build an overhead contact line for electrified freight transport on a 6.2-miles long (10km) stretch of the A5 federal autobahn between the Zeppelinheim/Cargo City Süd interchange at Frankfurt Airport and the Darmstadt/Weiterstadt interchange. Siemens originally presented its innovative eHighway concept in 2012, and now the system will be tested on a public highway in Germany for the first time.

The system is being built as part of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety’s (BMUB) ‘Electrified, innovative heavy freight transport on autobahns’ (ELISA) joint project.

The field trial is being organized by Hessen Mobil, which is responsible for road and transport management in the state, and Siemens will be responsible for the planning, construction, and maintenance of the system.

Transferring freight transport to rail has its limitations, so future cargo movements will need to be carried by trucks that combine reliable service with minimum environmental impact. The eHighway is particularly effective from an environmental and economic perspective on heavily used truck routes, such as between ports or industrial estates and cargo hubs....MORE

"Top fund investors pumped brakes on fast-rising Tesla: filings" (TSLA)

From Reuters:
Top Tesla Inc (TSLA.O) investors Fidelity Investments and T. Rowe Price cut their holdings in the second quarter and indicated they were taking profits from the electric car maker stock, which is up 65 percent this year.

Sellers included Fidelity funds like Fidelity OTC Portfolio, which sold 1.62 million shares, or 43 percent of its position during the quarter, as well as funds managed by T. Rowe Price Group (TROW.O), including T. Rowe Price Growth Stock Fund (PRGFX.O), which sold 1.33 million shares during the quarter or 48 percent of its position, recent securities filings show. 

Both funds remain among the ten largest fund investors in Tesla, according to Thomson Reuters data.
Other big sellers of Tesla during the quarter were Morgan Stanley funds including Morgan Stanley Institutional Growth Portfolio (MSHLX.O). 

In total, institutional investors held 95.2 million shares of Tesla at the end of June, 10.7 million fewer shares than at the end of March, according to an analysis of filings by
Tesla did not immediately respond to a request for comment....MORE
 The stock is off a buck and change at $350.76.

Weapon of Mass Disruption: Quantum Computers Are “Tools of Destruction, Not Creation"

From Futurism:

World’s Leading Physicist Says Quantum Computers Are “Tools of Destruction, Not Creation”
Weapon of Mass Disruption
Quantum Computers are heralded as the next step in the evolution of data processing. The future of this technology promises us a tool that can outperform any conventional system, handling more data and at faster speeds than even the most powerful of today’s supercomputers.

However, at the present juncture, much of the science dedicated to this field is still focused on the technology’s ultimate utilization. We know that quantum computers could manage data at a rate that is remarkable, but exactly what kind of data processing will they be good for?
This uncertainty raises some interesting questions about the potential impact of such a theoretically powerful tool.
No encryption existing today would be able to hide from the processing power of a functioning quantum computer.
Last month, some of the leading names in quantum technologies gathered at the semi-annual International Conference on Quantum Technologies in Moscow. Futurism was in attendance and was able to sit and talk with some of these scientists about how their work is moving us closer to practical quantum computers, and what impact such developments will have on society.

One of the most interesting topics of discussion was initiated by Alexander Lvovsky, Quantum Optics group leader at the Russian Quantum Center and Professor of Physics at the University of Calgary in Canada. Speaking at a dinner engagement, Lvovsky stated that quantum computers are a tool of destruction, not creation.

What is it about quantum computers that would incite such a claim? In the end, it comes down to one thing, which happens to be one of the most talked about potential applications for the technology: Breaking modern cryptography.

With Great Power…
Today, all sensitive digital information sent over the internet is encrypted in order to protect the privacy of the parties involved. Already, we have seen instances where hackers were able to seize this information by breaking the encryption. According to Lvovsky, the advent of the quantum computer will only make that process easier and faster.

In fact, he asserts that no encryption existing today would be able to hide from the processing power of a functioning quantum computer. Medical records, financial information, even the secrets of governments and military organizations would be free for the taking—meaning that the entire world order could be threatened by this technology.

The consensus between other experts is, essentially, that Lvovsky isn’t wrong. “In a sense, he’s right,” Wenjamin Rosenfeld, a physics professor at the Ludwig Maximilian University of Munich, stated in an interview. He continued, “taking a quantum computer as a computer, there’s basically not much you can do with this at the moment;” however, he went on to explain that this may soon be changing.

To break this down, there are only two quantum algorithms at the moment, one to allow a quantum computer to search a database, and the other, Shor’s algorithm, which can be used by a quantum computer to break encryption.

Notably, during the conference, Mikhail Lukin, a co-founder of the Russian Quantum Center and head of the Lukin Group of the Quantum Optics Laboratory at Harvard University, announced that he had successfully built and tested a 51-qubit quantum computer…and he’s going to use that computer to launch Shor’s algorithm.

Vladimir Shalaev, who sits on the International Advisory Board of the Russian Quantum Center and is a professor of Electrical and Computer Engineering at Purdue University, takes a more nuanced approach to this question, saying it is neither a tool of destruction nor creation—it is both: “I would disagree with him. I think I would say that any new breakthrough breeds both evil and good things.”
Quantum computers may not be capable of the physical destruction of a nuclear bomb, but their potential application is the digital equivalent.

American-built (Jones Act) Tankers Are Changing the Gasoline Trade

From Bloomberg via gCaptain:

Shipping: New Jones Act Tankers Are Great for Traders, Lousy for Owners
 Delivered in December 2016, American Endurance was the first of four Jones Act-qualifying product tankers for American Petroleum Tankers, part of Kinder Morgan. Credit: Philly Shipyard
Once rare American-built oil tankers are now plentiful, changing U.S. gasoline flows and giving shipowners headaches.

These brand-new tankers have names like American Endurance, American Freedom, American Liberty and American Pride painted on their sterns. They’re part of a growing fleet of so-called Jones Act ships, named for a law almost a century old that mandates any commodities moved from one U.S. port to another are hauled by vessels manufactured in an American shipyard.

Government data show that in May, U.S.-made tankers had their best month ever transporting gasoline components from the Gulf Coast’s refinery row to Florida and other East Coast ports. The flood of new tankers means that even as the ships are at their busiest, hauling about 16 million gallons a day of products that do things like boost octane in gasoline, the owners of the tankers aren’t collecting bigger profits.

There are now about 94 active Jones Act vessels sailing around the U.S., up almost 10 percent since December, according to Overseas Shipholding Group, Inc., a company that owns a quarter of the total fleet. With more vessels to go around the marketplace, shippers aren’t willing to pay for long-term commitments.

OSG is seeing once committed charterers walking away from extended contracts to cheaper short-term rates. Its chargeable time on spot voyages versus time charters doubled this year as spot rates slumped 31 percent to $18,288 a day in the second quarter versus a year earlier, OSG said in a filing.
“If you see more stuff on spot, that favors the charterers,” said Barry Parker, a maritime consultant with Bdp1 Consulting Ltd. “In a perfect world for them, they wouldn’t commit to anything.”

As the cost to charter the Jones Act ships falls, supply flows are changing for both refined products and crude oil. In the past nine years, Gulf Coast-to-East Coast shipments of U.S.-manufactured gasoline blending components have soared from no deliveries at all to a record 388,000 barrels a day, outpacing imports from abroad by 10 percent.

The glut of product tankers is being exacerbated by a lack of economical routes for crude shipments. Two-thirds of the 29 spot fixtures done for ocean-going Jones Act tankers in the second quarter were for products service, said Samuel H. Norton, OSG chief executive, on the company’s second-quarter earnings call....MORE

Thursday, August 17, 2017

"Bitcoin Prices Fall Below $4,500 but Could Still Reach $1 Million"

Following up on June 13's "Tesla to $1000; "Bitcoin May Hit $1,000,000"; Act Now Before It's Too Late! (and potcoin)".
From Money Morning:

Bitcoin Prices Fall Below $4,500 but Could Still Reach $1 Million
On Thursday, Bitcoin prices burst through the $4,500 level for the first time before retreating slightly in the afternoon. However, any retreat in Bitcoin prices is a good opportunity for long-term investors to add more of the cryptocurrency to their portfolios, as Bitcoin prices could reach $1 million.

The market capitalization hit a staggering $73.6 billion, as crypto investors grew optimistic that more countries around the globe will begin to embrace digital payment networks. In addition, developers behind SegWit2x said that they will implement the second phase of the digital fork in November 2017.

Below is a recap of cryptocurrency prices at 3:30 p.m. EDT
Bitcoin Prices 
Bitcoin: $4,321.54, -2.34%
Ethereum: $301.23, -0.08%
Ripple: $0.156, -1.14%
Bitcoin Cash: $388.77, +30.14%
NEO:  $40.99, -13.27%

Now that we know all of today's price movements, here's what has been moving these cryptocurrencies…

Bitcoin Briefly Climbs to $4,500 but Quickly Falls
Bitcoin prices have increased by roughly $1,000 over the last nine days, as traders grow increasingly hopeful that it will become more accepted in mainstream finance. Still, there have been concerns expressed about the rise of the currency over the last few months. Goldman Sachs analyst Sheba Jafari predicted that Bitcoin was on the way to topping out at $4,827.

The analyst said that prices could then quickly be cut in half, falling as low as $2,221.
That bearish sentiment wasn't the only voice making noise on Thursday. Peter Schiff said that Bitcoin was in a "bubble."

Bitcoin Cash Prices Surge on SegWit2X Date
The Bitcoin Cash price rallied more than 30% on news that a mining pool called BitClub Network mined an 8MB block on the BCH blockchain.
This was the largest block found so far on the BCH chain.

Ethereum Prices Slightly Down on the DayThe price of Ethereum was mostly flat, trading at roughly $301.
Today, the firm Blockchain announced it had developed a wallet for users to hold Ethereum....MORE
The earlier calls for a million dollar price tag—
At Money Morning:

Why a Bitcoin Price Prediction of $1 Million Isn't Crazy
...That brings us to Wences Casares, the CEO of the Bitcoin wallet startup Xapo and a member of PayPal Holdings Inc.'s board of directors. In a May 22 speech to Coin Center, Casares repeated his Bitcoin price prediction of $1 million per Bitcoin in 10 years....
...But Bitcoin, which was worth just $0.003 shortly after its launch in January 2009, has consistently defied skeptics. Bitcoin has gained 88,999,900% since then. (That would have turned $100 into $89 million.)

To get to $1 million from the current price of about $2,300 would be a relatively easy 43,378% jump....
Roger that, relatively easy.

And at Climateer from ZeroHedge from CNBC so you know it's good, both Cramer and Blodget said something:

Jim Cramer Goes Batty: "Bitcoin May Hit $1,000,000"; Act Now Before It's Too Late!
It’s hard to know when bubbles will end but when analysis goes ape-sh*t batty, it’s easy to know the bubble exists.
Jim Cramer’s analysis of Bitcoin provides a perfect example.
CNBC reports Cramer says it’s possible bitcoin could reach $1 million one day.
The price of digital currency stockpiled by companies to pay off potential cyberthreats could reach $1 million one day, CNBC’s Jim Cramer said Wednesday.
Cramer was responding to a recent comment by Business Insider CEO Henry Blodget, who said bitcoin could go to $1 million.
“I think it could because the European banks are frantically trying to buy them so they can pay off ransomware. It’s a short-term way to be able to deal with cybersecurity. It is the way to pay off the bad guys,” Cramer said on “Squawk on the Street.”
“When you get hit and you’re not sure how to do bitcoin, these cyberattackers have customer service desks,” Cramer said.
What Blodget Really Said
Blodget also mentioned the downside: “Bitcoin could go to $1 million (or fall to $0),” said Blodget maintains the view that “ultimately, Bitcoin has no intrinsic value.”...
Hmmm.... it appears that Cramer-"quote"-of--Blodget thing may be "fāke news.
Time to check in with the GS guys.

Goldman bitcoin technical analysts conferring

"From Healthcare To Payments: Supposedly ‘Amazon-Proof’ Industries Are Turning Out To Be Vulnerable" (AMZN)

From CB Insights:
As Amazon continues eating up industries as varied as grocery, logistics, and apparel, startups and investors are looking for a place to hide. Where won’t Amazon go? What sectors are Amazon-proof?
Analysts, business leaders, and journalists are hunting for the safe spaces. But are the “safety zones” they’re spotting really as safe as analysts make them sound? When it comes to most industries, the question isn’t whether Amazon will enter or not; it’s how the internet giant will enter, and how big the impact will be.

Following a few recent reports on industries that could evade Amazon’s capture, we used intelligence from our database and our Amazon Strategy Teardown to take a critical look at whether so-called “Amazon-proof” sectors are good hiding places (or not).

According to a recent Goldman Sachs report, Amazon is not “an imminent threat to PayPal or the card networks.” But imminent isn’t the issue; in this area, Amazon is a looming threat extending into all aspects of the online payments and financial-services ecosystems.

Goldman’s analysis pits Amazon Payments against PayPal, looking at the threat entirely in terms of merchant volume (where PayPal has the upper hand). Since Amazon Payments has seen middling success to date (with just $6B processed in 2016 compared to PayPal’s $336B, according to Goldman reports), and since PayPal remains available at a reported 90% of the same places Amazon Payments is, PayPal been deemed by some as “Amazon-proof,” for now.

But that limited view discounts Amazon’s customer-first focus and larger financial services vision. Data shows that Amazon has been interested in financial services — either to reduce friction in the purchasing experience, or to own more of the payments value chain — since at least 2003, when the company applied to patent a network-based transaction processing system.

As they absorb more and more of that value chain, Amazon Payments may evolve into an integrated payments platform underneath the “Bank of Amazon.” Consider the recent launch of Amazon Cash, which allows individuals to deposit cash into their Amazon accounts by presenting a smartphone-scannable barcode at the cash register of a physical store.

That initiative, designed to welcome underbanked individuals into the Amazon ecosystem, is just one operational area in which Amazon already behaves like a bank: the company partnered with Wells Fargo in 2016 with a mind for offering student loans to Prime customers, and the Amazon Lending service has surpassed $3B in loans to small businesses since it was launched in 2011.
The company is also now offering thousands of loans to e-sellers in India, the world’s largest e-commerce market, and has also been quietly expanding its relationship with Stripe, using the unicorn online payments startup to handle a growing share of its e-commerce transactions.

Those underpinnings have “primed” the company’s payments foundation to serve individuals, not just merchants. As Amazon keeps making it easier for customers to both store and spend their money in the Amazon ecosystem, more of them will — extending the company’s infamous network-effect cycle, pictured below, further into financial services.
As sellers follow customers over to Amazon, it will put PayPal in a more precarious place than Goldman’s projections play it. (As for Amazon’s ambitions in banking and card networks generally, note the rumors that Amazon was interested in buying Capital One in Q1’17.) 

Several analysts have also recently cited pharmaceuticals as an Amazon-proof industry. On Investors Alley, for example, Tim Plaehn remarked that he doesn’t “expect Amazon to get into the drug making business anytime soon.” This seems sound: while Amazon made a few moves in Q1’17 toward serving customers’ health in diagnostic ways (for example, investing in AI-powered cancer detection start-up GRAIL and integrating WebMD with Alexa), we have yet to see them invest resources into drug discovery- or development-related efforts to date....

Still Haven't Made Eclipse Plans? Buy This Michigan Home With Attached Observatory!

From ABC7—Chicago:
Looking to watch the upcoming eclipse from the comfort of your own home?
A mansion for sale in Michigan offers an unmatched perspective from its state-of-the-art observatory and rotating telescope.

The two-story domed observatory rotates a full 360 degrees of the sky. While the home isn't located in the prime 68-mile-long stretch from Oregon to South Carolina that will get the total solar eclipse, southeastern Michigan will see the moon block over 80 percent of the sun.

The 9,025-square-foot mansion located 15 minutes outside of Ann Arbor boasts four bedrooms, seven baths and a two-story screened porch....MORE

A glimpse of life under President Zuckerberg? Facebook CEO's boffins censor awkward Q&A

From The Register:
Human cell study AMA on Reddit all cleaned up
Money can't buy you love, but it can remove criticism, at least in the hallowed world of Facebook CEO Mark Zuckerberg.

With the Zuck continuing his Definitely Not Getting Into A Presidential Race tour of the United States, carrying out a bizarre series of secret photo-ops and precision-engineered PR-friendly drop-ins on normal American folks across the nation, his strict no-criticism policy has extended to the scientific brain tank he set up with his wife.

This week, staff at the Chan-Zuckerberg Initiative did an online ask-me-anything Q&A about their plans to help with the Human Cell Atlas – a global effort to map all the cells in the human body.
Despite the suggested inherent nature of the Q&A, however, it turns out that people were not allowed to ask them anything. In fact, if they asked anything to do with the Zuck, and criticized, or even mentioned him, or censured the initiative, or said something the team didn't like, their comments were deleted from the Reddit thread.

Not that you would know now because not only have the comments been removed but most of the "comment removed" placeholders have also gone so what were, in some cases, literally dozens of deleted comments now look like just one or two.

The result is that the usually lengthy stream of Reddit comments and responses in an ask-me-anything is amazingly stunted. The sheer number of comments removed prompted people to start taking screenshots of the session as it went on....MORE

"The Next Quant Meltdown"

The quant quake was so scary Goldman's CFO started babbling stupid stuff. More after the jump.
From Institutional Investor:

Fund managers who survived the quant bloodbath of August 2007 say the strategy is safer ten years later. But with its popularity soaring to new heights, some wonder whether crowded trades — and rising leverage — will lead to another downfall.
Ten years ago, during the second week of a sultry New York August, Michael Mendelson was getting a sandwich at the Subway shop near the Greenwich, Connecticut, office of AQR Capital Management when all hell broke loose. As Mendelson glanced at his BlackBerry, out of nowhere, it seemed, AQR’s funds were in the red.

Very quickly, losses started snowballing, with AQR’s flagship fund down 13 percent during the first ten days of August before recovering all of it by month’s end. “You didn’t know how far it was going to go,” recalls Mendelson, a principal at AQR.

AQR was not alone. Some of the biggest and smartest hedge funds in the world suddenly tumbled in tandem, as their algorithmic trading systems went haywire.

As the events unfolded, other hedge fund managers scurried from their idyllic Hamptons retreats to contain the damage and lashed out at the quants, who turned out to be massively overleveraged and highly correlated — triggering an unwinding that was a preview of a collapse that would befall the financial world a year later. “‘These damn quants. They couldn’t get a date in high school, and now they f——ked my month,’” was the joke Peter Muller, who was running a secretive internal quant fund at Morgan Stanley at the time, liked to tell afterward, paraphrasing the frustrated fundamental managers.

But to everyone making high-stakes computerized investment bets, it wasn’t funny — it was shocking. “We had never seen anything like this before. . . . We were trained in statistics. For all intents and purposes this shouldn’t have happened,” says a manager of a major quant hedge fund who lived through the event, sleeping in his Wall Street office to try to contain the damage.

After a four-day quant rout, the Dow fell almost 400 points, then began to recover, with little overall effect on the market. But several funds ultimately did not survive the chaos that started that summer. Goldman Sachs Asset Management, which in 2006 ran the largest hedge fund empire in the U.S., eventually ended up shuttering two of its most prestigious funds, Global Alpha and Global Equity Opportunities, after losing billions of dollars. Tykhe Capital, whose funds had lost between 17 percent and 31 percent by August 9, also eventually shut down....MORE

For more on the quantpocalypse here's MIT's uberquant Andrew Lo via the New York Fed:
"What happened to the quants in August 2007? Evidence from factors and transactions data∗"
(77 page PDF)

From 2012's "David Viniar retiring as Goldman CFO (GS)":

.....*In August 2007 the market and in particular the funds suffered what came to be called the "Quant Quake".
As the Financial Times reported on Aug. 13, Mr. Viniar said one of the dumbest things of his life:

“We were seeing things that were 25-standard deviation moves, several days in a row” 
In March 2009 we posted "David Viniar, CFO of Goldman Sachs Blows Smoke at Journalists on AIG" which had this bit regarding the 25 Sigma comment:
Several folks, when they finally quit laughing, pointed out how blatently Mr. V was spinning.
Most however underestimated how infrequent 25SD events are, the most common guess being once in 100,000 years. Tee hee.

In a snappy little eight page paper "How Unlucky is 25 Sigma" we see that at 7 Sigma the odds are:
...The reader will note that as k gets bigger the probabilities of a k-sigma event fall
extremely rapidly:
• a 3-sigma event is to be expected about every 741 days or about 1 trading day
in every three years;

• a 4-sigma event is to be expected about every 31,560 days or about 1 trading
day in 126 years (!);

• a 5-sigma event is to be expected every 3,483,046 days or about 1 day every
13,932 years(!!)

• a 6-sigma event is to be expected every 1,009,976,678 days or about 1 day
every 4,039,906 years;

• a 7-sigma event is to be expected every 7.76e+11 days – the number of zero
digits is so large that Excel now reports the number of days using scientific
notation, and this number is to be interpreted as 7.76 days with decimal point
pushed back 11 places. This frequency corresponds to 1 day in 3,105,395,365
The authors go on to describe the problems involved in computing numbers on the cosmological scales required for 25 standard deviations. A good read, both for the statistically challenged and for pros like Viniar, a very highly paid PR guy, in addition to his CFO duties.
I was so tickled by that little paper that we posted on it a second time, the day MIT added it to their Physics arXive:
When Goldman Sachs was Really, Really Unlucky (GS)

And a third time in 2011:
"How Unlucky is 25-Sigma?" (and a huge apology) GS; C; BST; UBS; MER
We have more on Mr. V. but I'll always think of him as frozen in 2007.

Uber: Do NOT Piss Off The Federal Judge Hearing Your Case

From Bloomberg, Aug. 16: 

Waymo Jury May Be Warned Uber Lawyers Didn't `Come Clean'
  • Alphabet unit seeks punishment for missed disclosure deadline
  • ‘You misled the judge time and time again,’ judge tells lawyer
Uber Technologies Inc. may pay a price for withholding key evidence from Waymo when their trade secrets dispute goes to trial -- the judge proposed letting the jury know the ride-hailing company’s lawyers didn’t “come clean.”

“I’m inclined to let the jury know what happened here,” U.S. District Judge William Alsup said Wednesday at a hearing in San Francisco, speaking to one of Uber’s lead lawyers. “You misled the judge time and time again.”

Alsup said he agreed with Waymo that Uber didn’t turn over the evidence by court-ordered deadlines, adding that he hasn’t made up his mind about what to tell jurors about the role Uber’s lawyers played. Since the case was filed in February Alsup has repeatedly expressed frustration with lawyers at Morrison and Foerster, or MoFo, for making sweeping arguments that information sought by Waymo is protected by confidentiality provisions and out of its adversary’s reach.

Waymo continues to hunt for hard evidence that the driverless car technology it claims was downloaded by its former engineer, Anthony Levandowski, was used by Uber. Levandowski, who went on to become the head of Uber’s robocar project, has refused to testify in the case, asserting his constitutional protections against self-incrimination. Uber fired him in May.

MoFo lawyer Arturo Gonzalez told Alsup that complying with court orders to turn over information to Waymo, protecting Uber’s confidentiality, and not stepping on Levandowski’s rights is akin to navigating a “minefield.” Gonzalez noted that Levandowski -- but not Uber -- appealed Alsup’s ruling requiring Uber to turn over a report containing key evidence in the case....MORE
MoFo lawyer?

This is the third time the mofo's have dissed Judge Alsup:

May 12
Uber Suffers Legal Setbacks In Europe, U.S.
In the Waymo case Uber's bid to make their arguments in private was turned down by the judge overseeing the action but even worse for Levandowski, hizzoner is using his Federal Judgeship powers.*
April 1
Uber: Judge Says He May Grant Waymo's Request For An Injunction Against Uber's Self Driving Efforts

I was going to put something together on Anthony Levandowski's use of the 5th amendment in a civil matter and some of the implications of doing so but didn't get to it. In the meantime here is a look at some high-buck lawyering and tactics of litigators...
I was thinking more along the lines of inferring guilt--in a criminal proceeding an inference from the assertion of the 5th amendment right is strictly verboten and judges so instruct the jury, whereas in most state courts (California being a notable exception) and U.S. federal court,  a civil pleading of the 5th may be assumed to be an admission of guilt.

But yeah, another implication is: if you piss off a tech savvy* federal judge you've got a problem....

"US Farmland Prices Show Signs of Stabilising, After Three-year Retreat"

From Agrimoney, August 11:
The retreat in US farmland values is showing signs of petering out, in the Corn Belt at least, amid a slowdown in the pace of agricultural finances – although crop price weakness as raised fears of fresh "pressures".

Farmland prices in key Corn Belt corn and soybean growing states such as Illinois, Indiana and Iowa rose by 1% year on year in the April-to-June quarter, the US Federal Reserve's Chicago bank said.

"This was the first year-over-year gain in three years," the Fed said, with growth particularly strong in Iowa, the top corn-growing state, where values rose 3% year on year, their fastest since the July-to-September period of 2013.

Farmland values in the region, which dropped by roughly 7% over 2014-16, "seemed to stabilise in the first half of 2017, despite lower prices for corn and soybeans relative to a year ago", Fed senior business economist David Oppedahl said.

'Easing in the pace of deterioration'
The recovery came amid signs of an easing in the pace of deterioration in farm financial indicators, with the Fed saying that agricultural credit conditions "slowed their downward trend.

"Repayment rates for non-real-estate farm loans relative to a year ago were still down during the second quarter of 2017, but less so than in the first quarter," Mr Oppedahl said.

And ideas of some market stabilisation were supported by data from the Fed's St Louis bank, which covers more southerly Corn Belt areas, down to the Delta state of Mississippi, which showed "quality" farmland values recording "small decreases", of 0.8% year on year, in the April-to-June period.

"Ranchland and pastureland exhibited [price] increases compared with a year earlier," of 4.5%, the St Louis Fed said.

Plains decline
However, further west, in the Plains, better known for wheat growing, farmland values continued to decline, by 5% year on year, in a region including Kansas, Nebraska and Oklahoma states, covered by the Kansas City Fed....

I believe I shall purloin that "Easing in the pace of deterioration" line, it sounds so much better than "we're losing money slower now".

If interested see also:

August 11's "Foreign investors are snapping up US farms" and "Grantham Mayo Van Otterloo Is Selling Their Forestry/Agriculture Joint Venture"

And July 26 "Real Assets: Institutional Money Pulling Back From Timber, Farmland":
There ya go. These things don't turn on a dime but, to quote some guy, "This is not the end, it is not even the beginning of the end, but it is perhaps the end of the beginning."
No hurries, no worries....

Shipping: Despite $300 Million Revenue Hit From Cyber Attack Maersk Is Upbeat

First up, ZDNet;

Petya ransomware: Cyberattack costs could hit $300m for shipping giant Maersk
June's cyberattack will cost the international shipping firm hundreds of millions of dollars in lost revenue.
Falling victim to the global Petya cyberattack is set to cost Maersk, the world's largest container ship and supply vessel operator, up to $300m in lost revenues.

The Danish transport and logistics conglomerate -- which has offices in 130 countries and almost 90,000 employees -- revealed predicted losses due to the ransomware infection in its second quarter financial report.
"In the last week of the quarter we were hit by a cyber attack, which mainly impacted Maersk Line, APM Terminals and Damco. Business volumes were negatively affected for a couple of weeks in July and as a consequence, our Q3 results will be impacted. We expect that the cyber-attack will impact results negatively by USD 200-300m," said AP Moller-Maersk Group CEO Søren Skou.

Maersk was one of the first high-profile victims of the Petya malware epidemic, which originated in Ukraine but spread to bring down IT systems around the world.

The company's interim report details how it reacted to the attack by immediately shutting down infected networks to contain the malware and prevent its spread. While Maersk's three container-related businesses were taken offline, its energy and other businesses were able to continue operating as normal....MORE
And from Reuters via CNBC, Aug. 16:
Fog lifting for Maersk as CEO gives upbeat shipping forecast
  • Denmark's A.P. Moller Maersk gave an upbeat outlook for container shipping on Wednesday.
  • Maersk has been hit by low oil prices at its energy arm and sliding prices in its shipping business in recent years.
  • Maersk reported a net loss stood of $264 million, compared with expectations for a $507 million net profit.
Denmark's A.P. Moller Maersk gave an upbeat outlook for container shipping on Wednesday, lifting its shares as investors looked beyond one-off second-quarter charges.

Maersk has been hit by low oil prices at its energy arm and sliding prices in its shipping business in recent years due to lackluster global trade and a glut of available ships for hire.

But its chief executive Soren Skou, who has staked his future on Maersk as a transport business, said the container shipping industry is showing signs of recovery this year as freight rates have picked up, while overcapacity is easing as orders for new vessels fall and existing ones are scrapped.

"Container shipping fundamentals are at their best since 2010," Skou told Reuters following Maersk's results....MORE
Another example of the turnaround, Last week Chinese shipbuilder Yangzijiang said their order book had hit $4 billion (Reuters via Nasdaq):

China's Yangzijiang Q2 profit jumps, shares hit 6-yr high
* Q2 net profit 719.9 mln yuan vs yr ago 415.4 mln
* Gross profit margin drops on lower contract prices
* Shares rise as much 8 pct to 6-yr high
(Adds chairman comments from briefing, updates share movement) 
SINGAPORE, Aug 8 (Reuters) - China'sYangzijiang Shipbuilding Holdings Ltd reported a 73 percent increase in second-quarter net profit, helped by higher revenue from the construction of larger-size vessels, sending its shares to their highest in more than six years.

Yangzijiang posted a net profit 719.9 million yuan ($107.12 million) for the quarter ended June, boosted by one-off gains, compared with 415.4 million yuan in the year-ago period.

Revenue rose 27 percent, it said in a statement late on Monday. Shares of the shipbuilder, which has a market value of about $4.5 billion, pared some gains to trade 4 percent higher after touching S$1.605 - their highest since June 2011. The stock has gained about 82 percent so far this year as of Monday's close. 
Yangzijiang, which builds a range of vessels including large container ships, bulk carriers and liquefied natural gas carriers, said its order book stood at $4 billion as of June 30....

"Getting all hot and bothered about the juiciness of European junk"

From the Macro Tourist:

Yesterday, a few different readers emailed to ask my opinion about the European Junk Bond versus US Treasury yield chart that Tiho Brkan from The Atlas Investor Blog recently published.
Well, I have to give Tiho credit, his chart certainly stirred up a lot of primal urgings from investors eager to short European junk bonds. Although I am a huge Kodiak Grizzly of a bond bear, I think there are better ways to express this view than shorting European junk. Let me tell you why.

I couldn’t replicate Tiho’s chart exactly as I don’t pay for the Bank of America / Merrill Lynch bond indexes, but I found a Barclays/Bloomberg index that is close enough. So here is my version.
I also couldn’t determine Tiho’s term for the US Treasury yield in his chart, but it sure looks like the 10 year yield, so I am going with that.

So when comparing these two series, let’s start with the obvious. The current on-the-run US 10 year treasury note has a modified duration of a little less than 9 years. This compares to the European Junk bond index that comes in at under 4 years.

The sensitivity to changes in interest rates will therefore be much higher in the US treasury notes. Comparing these two assets with such different term lengths is a little misleading.
But you might say, “I don’t care - look at past yield levels for European junk! I can afford to have less duration because the credit part will skate me onside.”

And yes, if credit spreads blow out, then shorting junk is much better than sovereigns.
What do I mean by that? When an investor buys junk bonds, they are typically rewarded with an extra yield to compensate for the increased risk. The amount of this extra yield is called the option-adjust-spread, and we can chart it....

...Currently, European junk bonds only offer 2.67% over the equivalent sovereign yield. Wait! How can that be? The US year yield is 2.22% and the two series have recently converged, so that doesn’t seem to make any sense. But you have to remember that 4 year German bunds are yielding negative 42 basis points, so that means European junk bonds are trading at roughly 2.25% (267 bps more than sovereigns).

As you can see from the OAS chart, these junk bonds have often yielded considerably more than sovereigns. During the Great Financial Crisis they spiked to 20% more, and even during the 2011 European credit crisis, they got as high as 10% over.

So yeah, I understand the attraction to shorting European junk. It’s easy to look dreamily at this chart and imagine spreads doubling to 5% without batting an eye.

But there are a couple of problems with this trade....MORE

Wednesday, August 16, 2017

Ford's Billion-Dollar Artificial Intelligence Bet

From the Verge:

An inside look at Ford’s $1 billion bet on Argo AI
In the race to launch autonomous vehicles, artificial intelligence expertise is the prize
Somewhere between the 14th and 15th floors in a concrete stairwell, Bryan Salesky pauses, searching for the right words to explain his mission for the foreseeable future. He wants to give cars the eyes, ears, and brains they need to operate without humans. And he wants to do it for Ford Motor Company by 2021.

The CEO of Argo AI — a startup that appeared seemingly out of nowhere six months ago, with $1 billion in backing from Ford — is hardly alone in the pursuit to transform the automobile into a vehicle controlled by artificial intelligence. Though a fire alarm interrupted an interview in a San Francisco conference room, Salesky stays focused and collected. And if he is feeling the pressure to develop and deliver this system so Ford — its sole customer, backer, and majority shareholder — can deploy fully autonomous vehicles in just four years’ time, it doesn’t show.

Instead, he comes off as optimistic about the company he founded with Peter Rander, who, as former engineering lead at the Uber Advanced Technologies Group, helped bring the ride-hail company’s first-generation self-driving prototypes to public roads.

Yet, Argo stands out from the hundreds of companies pursuing self-driving technology due to its unique deal with Ford that has invested big in this little-known startup that is now primed to compete with Google’s Waymo, Uber, GM’s Cruise Automation, Tesla, and Aurora — a short list of heavyweights all working on a so-called “full stack solution” of self-driving cars.

Argo was literally yanked out of obscurity by the Ford deal, but there are dozens (if not more) AI / auto startups still wallowing in obscurity. “Artificial intelligence will be an essential player in autonomous vehicles of the future,” said Michelle Krebs, executive analyst with Cox Automotive’s Autotrader. “That’s why automakers like General Motors, Toyota, and Ford are snapping up companies with AI expertise.”

Argo won the lottery, essentially. (Its website is still laughably sparse.) What remains to be seen is if Ford made a wise roll of the dice. Much of exactly what Argo is doing remains unknown. 
In broad terms, Argo is developing self-driving technology that Ford can use to deploy fully autonomous Level 4-capable vehicles for commercial on-demand service. In other words: something like a self-driving taxi service. Level 4 is a designation by SAE International that means the car takes over all of the driving in certain conditions....MUCH MORE

News You Can Use: How To Storm A Castle

From Popular Mechanics:
William Gurstelle is the author of Defending Your Castle: Build Catapults, Crossbows, Moats, Bulletproof Shields, and More Defensive Devices to Fend Off the Invading Hordes.
There is a lot more to besieging a walled fortress than simply running around with ladders. 
It's castle-storming season on Game of Thrones. Daenerys Targaryen's elite Unsullied troops managed to sneak in and conquer Casterly Rock without having to climb its walls on horrible ladders. The Lannister army they'd intended to attack actually marched south and laid siege to Highgarden, though the battle happens off-screen. And while Daenerys of the very long name managed to catch the Lannister loot train out in an open field and slaughter them, she would need to mount a much-discussed attack on King's Landing and its Red Keep to remove Queen Cersei from power.

There's perhaps no military action older than castle storming. Whether you're talking about paleolithic Scotland, medieval France, or the fictional kingdoms of Westeros, the pattern appears to be the same: As soon as people had any possessions at all, other people have coveted the lands and possessions of their neighbors. And so, the people with lands and possessions built castles for protection. Siege warfare against those castles is brutal and blunt. It's a style of fighting characterized by a combination of ungodly long, boring waits punctuated by short spurts of terrifying action.
There is a lot more to besieging a walled fortress than simply running around with ladders. A lot more.

It takes more than a forbidding appearance for a castle to keep attackers at bay. The first castles were merely earthen heaps surrounded by a wooden palisade wall. But they quickly got much better. Over time, a body of castle-building knowledge arose and all good castles more or less followed the same rules.

For example, a well-designed castle is never square. The corners on a square castle are vulnerable to attack because the ninety degree angle makes it difficult to mass defenders at those points, so any good field general would concentrate his attacking forces there. To counter this, castle designers erected protruding towers at intervals, giving defenders a redoubt where they could shoot downward with a wide field of view.

In addition, those towers were built as tall as possible. When hurling machines like catapults and trebuchets are forced to shoot in high arcing trajectories, they lose much of their effectiveness. Plus, when defenders drop rocks from high elevations, they have a lot more smashing power.

Typically there was an elevated walkway just behind the top of the castle walls called a rampart. There were openings in the upper walls, accessible to the men on the ramparts, called embrasures, through which archers could shoot.

The main way into a castle, of course, was through the gate. Gates were always exceedingly well protected. Typically, large strong towers flanked both sides of the gates, and the towers were always manned with defenders. The entrance to a castle was often a steel grate called a portcullis, a walkway, and then another portcullis. Above the walkway were the "murder holes," openings through which rocks and spears could be thrust down on attackers trapped between the portcullis grates....MUCH MORE

Creepy comestibles—Insect burgers and balls: Swiss supermarket to sell bug-based food

Ah those wacky Swiss.

From Deutsche Welle:
Coop has set a date to introduce food items made from creepy crawlies to Switzerland. From bug burgers to "insect balls," food security authorities have voiced support for such food as a means for sustainable living.

Coop, Switzerland's second-largest supermarket chain, announced on Monday it will start selling insect-based food for humans later this month, making it the first grocer to do so in the Alpine nation.
The offered products are made of protein-rich meal worm produced by Swiss start-up Essento. The items will be sold in select Coop branches across Switzerland, including Geneva, Bern and Zurich.
The decision comes after Switzerland revised its food safety laws in May, paving the way for the production and distribution of insect-based food, including "insect balls" and insect burgers (pictured above).
In order to meet Swiss safety laws, the insects must be bred under strict supervision for four generations before they're ready for human consumption.

The insect balls represent a healthy culinary specialty that mixes meal worms with rice, carrots, celery, leeks and a pinch of chili, said Essento co-founder Christian Bärtsch....MORE
Insect balls in packaging (picture-alliance/KEYSTONE/W. Bieri)
The insect balls are one of two products to be offered to those doing their groceries in the Alpine nation of Switzerland
HT: Going Concern's Accounting News Roundup

What is Wrong With Former Fed Head Alan Greenspan?

It is almost as if this stuff has been deliberate.

From Lars Syll:

That’s how it goes when you prefer to read Ayn Rand 
A couple of years ago the former chairman of the Fed, Alan Greenspan, wrote in an article in the Financial Times, speaking of the continually increasing demands for stronger regulation of banks and finance:
Alan Greenspan and Ayn Rand at the White House after Greenspan was sworn in as chairman of Gerald Ford’s Council of Economic Advisers, September 1974
Since the devastating Japanese earthquake and, earlier, the global financial tsunami, governments have been pressed to guarantee their populations against virtually all the risks exposed by those extremely low probability events. But should they? Guarantees require the building up of a buffer of idle resources that are not otherwise engaged in the production of goods and services. They are employed only if, and when, the crisis emerges.
The buffer may encompass expensive building materials whose earthquake flexibility is needed for only a minute or two every century, or an extensive stock of vaccines for a feared epidemic that may never occur. Any excess bank equity capital also would constitute a buffer that is not otherwise available to finance productivity-enhancing capital investment.
That is — to say the least — astonishing. Not wanting to take genuine uncertainty or ‘fat tails’ seriously is ominous enough. Is there anything the year 2008 taught us, it is that the ‘tail risks’ are genuinely real and must be included in all financial calculations. But even worse is how someone – who surely ought to have read at least an introductory course in economics – can get the idea that demand for higher capital requirements of banks would be equivalent to building buffers of ‘idle resources.’ The claim is from an economist’s point of view absolute nonsense.

Capital requirements are about how the mix between debt and equity of banks’ balance sheets should look like. It is not a question of something having to be set aside. It is not about liquidity or reserve requirements. Capital requirements are not about pea soup in a jar that we should put on stock to have in a crisis. It’s about how much leverage we should allow banks to have.

Higher capital requirements simply mean that we demand that banks finance a larger portion of their portfolios out of equity and less out of money deposited or loans. There is nothing here about resource use, but about how banks should manage risks. And how they are distributed in an economically efficient manner.

Of course, higher capital requirements mean that banks’ risk taking decrease....MORE
I wonder if  Professor Syll isn't actually being kind with the Randian explanation rather than implying something more nefarious.
So I will.

We first mentioned Greenspan's Feb. 23, 2004 speech at the National Credit Union Association back in April 2007—note the date, something economic was approaching—where, as Chairman of the Fed., Greenspan said:
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. "
"Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages..."
Those 5/1 and other flavors of ARMs turned out to be landmines should the economy ever tank or interest rates rise near the time of the resets.

We reiterated the oddity in January 2008—and that something economic was much closer—with "Alan Greenspan: Competent Criminal or Criminally Incompetant?".

Finally in December 2015 we trotted out the speech story once again but this time with a new intro and set to music (all it takes is a little confidence**):

Climateer Line of the Day: Perils of Prognostication Edition (or was Greenspan just a straight up con man?)

Canada's Financial Post has a column, "Why oil forecasting is a crap shoot, and free oil for the world ain’t going to happen" that includes this tidbit:
“Today’s tight natural gas markets have been a long time in coming, and futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon,”...
-Alan Greenspan, testimony to Congress, June 2003

At the time natural gas was at $6.31.
On December 18, 2015 it traded as low as $1.684 before starting this really fun run to $2.36 this morning.

I am reminded of another Greenspan pitch that we first wrote about back in April 2007 and expanded upon in January 2008.

Cue the soundtrack:

And now, a tale of how a lot of folks with adjustable rate mortgages got stung:

The Set-up
"...American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
-Alan Greenspan
Speech to the National Credit Union Association
February 23, 2004
The Score
The $3 Billon Payday In today’s Journal Gregory Zuckerman brings us news of the biggest one-year salary ever paid on Wall Street — that of hedge-funder John Paulson, who made somewhere between $3 billion and $4 billion last year. That’s right, between $3 billion and $4 billion. In one year. 
...Mr. Paulson made his pile by betting against the housing market at just the right time. Lots of people bet their money on a housing crash, but they were too early — his bets happened to coincide with a crash in the debt markets.
The Wall Street Journal's Wealth Report blog.
January 15, 2008
The Payoff
Greenspan joins hedge fund Paulson
Alan Greenspan, the 81 year-old former chairman of the Federal Reserve, is set to join the US hedge fund Paulson & C. as an adviser. 
Dr Greenspan will advise Paulson on the global financial markets, and under the terms of the agreement he will not advise any other hedge fund while he is working for Paulson.
Paulson manages $28bn of assets and last year earned billions of dollars when it called correctly the collapse in the sub-prime mortgage market, a collapse which was caused by Dr Greenspan who kept interest rates too low for long, according to some economic commentators....
The Telegraph
January 16, 2008
The Stinger
Anna Schwartz blames Fed for sub-prime crisis
..."There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.

...She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.
Professor Anna Schwartz, co-author with Milton Friedman of
"A Monetary History of the United States"
The Telegraph
January 14, 2008

The End

*The Sting was based on a great sketch of human nature, The Big Con: The Story of the Confidence Man by David W. Maurer.
**tag-line from the movie poster.

There's a saying in the con world: "You can't con an honest man" but I'm thinking, if you do a little cui bono analysis of the last ten years of rates and QE, it sure looks like a case of not just a Rahmian
"You never want a serious crisis to go to waste. And what I mean by that it's an opportunity to do things you think you could not do before." 
but something a bit deeper.

I'm starting to 'entertain' the idea that creating a crisis is an even more efficient way to guarantee that "opportunity" to do things...