Friday, February 24, 2017

Natural Gas: EIA Weekly Supply/Demand Report

As the March contract rolls off here's the soon to be front month April over the last two weeks:

https://finviz.com/fut_chart.ashx?t=NG&cot=023651&p=h1&rev=636235349081254245
$2.750 up 0.001

From the Energy Information Administration:
for week ending February 22, 2017   |  Release date:  February 23, 2017   |  Next release:  March 2, 2017   
In the News:
Drilling Productivity Report forecasts production rise in six out of seven shale regions
Natural gas gross withdrawals are forecast to increase from February to March in six of the seven most prolific shale regions in the Lower 48 states, according to EIA’s most recent Drilling Productivity Report (DPR). This is the first time since March 2015 that more than five of the seven shale regions have seen month-to-month increases. Through March, the DPR forecasts that only the Eagle Ford shale region has decreasing production; natural gas production in Eagle Ford has been declining since December 2015. The DPR expects total production from the seven shale regions to reach an all-time high of 48.6 billion cubic feet per day (Bcf/d) in February, followed by a new record of 49.1 Bcf/d in March (note these projections do not consider weather, capacity constraints, or changes in realized prices). The previous record production level from these regions was 48.3 Bcf/d in August 2016.

Currently, the seven shale regions covered in the DPR account for more than half of the total natural gas gross withdrawals in the Lower 48 states, compared to about a quarter of the total in 2009. Production from these regions has been increasing at an average annual rate of 14% since 2007. These production rises came as well laterals became longer and overall rig productivity steadily rose. However, the average annual growth rate was at its lowest in 2016 (January through November); gross withdrawals were only 5% higher compared to the same period in 2015....
... Prices/Supply/Demand:
Prices fall sharply everywhere on unseasonably warm weather. This report week (Wednesday, February 15 to Wednesday, February 22), the Henry Hub spot price fell 39¢ from $2.92/MMBtu last Wednesday to $2.53/MMBtu yesterday, a 13% decrease. This is the lowest Henry Hub price since mid-November 2016, when the price dipped nearly to $2.00/MMBtu on mild weather and high storage stocks. Weather was warmer virtually everywhere in the country by the end of the report period, with temperatures breaking records.

At the Chicago Citygate, prices decreased 25¢ to $2.59/MMBtu yesterday. The price at SoCal Citygate decreased 23¢ to $2.82/MMBtu yesterday. Prices at PG&E Citygate in Northern California fell 24¢ to $3.06/MMBtu yesterday.

Northeast prices down sharply. At the Algonquin Citygate, which serves Boston-area consumers, prices went down $1.83 from $4.02/MMBtu last Wednesday to $2.19/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York, prices fell $1.01 to $2.10/MMBtu yesterday.

Several Appalachian price points fell below the $2.00/MMBtu mark this week. Tennessee Zone 4 Marcellus spot prices decreased 53¢ to $1.93/MMBtu yesterday. Prices at Dominion South in northwest Pennsylvania fell 56¢ from $2.64/MMBtu last Wednesday to $2.08/MMBtu yesterday.

March Nymex contract down. At the Nymex, the price of the March 2017 contract decreased 33¢, from $2.925/MMBtu last Wednesday to $2.592/MMBtu yesterday. The price of the 12-month strip, averaging March 2017 through February 2018 futures contracts, declined 30¢ to $2.950/MMBtu.
Supply falls slightly. According to data from PointLogic, the average total supply of natural gas fell by 1% compared with the previous week. Dry natural gas production remained constant week over week. Average net imports from Canada decreased by 12% from last week.

Demand falls across all sectors. Total U.S. consumption of natural gas fell by 15% compared with the previous report week, according to data from PointLogic. Power burn declined by 3%; industrial sector consumption declined by 4%, and residential and commercial sector consumption declined by 29%. Natural gas exports to Mexico decreased 2%....
...MORE
http://www.eia.gov/naturalgas/weekly/img/20170216.7day.mean.F.gif

News You Can Use: "The Economics of Kidnap Insurance"

From the Conversable Economist:
There is reason to be dubious, at least in theory, about  how kidnap insurance can work. After all, buying kidnap insurance only makes sense if you believe that, in the case of being kidnapped, it will increase your chance of being released. After all, if kidnappers know (or can figure out) that certain people have kidnap insurance, won't they tend to target such people? Also, if a kidnap victim has insurance  has insurance, won't the kidnappers demand the monetary equivalent of the earth, moon, and stars as a ransom? In these ways, might the presence of kidnap insurance increase the amount of kidnapping? On the other side, insurance companies have a profit motive to take actions that would reduce the number of kidnappings and the size of ransom payments. But if kidnappers make extraordinarily high demands and the insurance company pushes back, then it seems likely that negotiations over ransom will tend to break down--in which case the rationale for buying kidnap insurance in the first place would disappear. And how can kidnap insurance companies figure out a way to deal with the situation of kidnap victims who don't have insurance: if the representatives of those victims (who may in some cases be national governments) pay high ransoms, then it will be harder for the companies that sell kidnap insurance to keep other ransom demands down.

 Anja Shortland explores "Governing kidnap for ransom: Lloyd's as a `private regime," in an article forthcoming in Governance magazine (the publisher, Wiley, has laudably made an "Early View" preprint version of the article available here). The short answer to the concerns over how kidnap insurance markets are likely to break down is that if all the companies providing that interact with each other, swap information, and follow common protocols, then kidnap insurance can function. For kidnap insurance, Lloyd's serves as a place where that interaction happens. Shortland writes (citations omitted):
Kidnapping is a major (if largely hidden) criminal market, with an estimated total turnover of up to US$1.5 billion a year. Transnational kidnaps, where the victims are foreign tourists, high-net-worth local residents insured by multinational insurers, and the employees of foreign enterprises, are scary one-off events for almost all families and most firms. Ransoming hostages is beset with trust and enforcement problems. Kidnappers seek to maximize ransoms and can employ extreme violence to pressurize stakeholders to reveal their assets. Law enforcement may prepare rescue operations while families (pretend to) negotiate a ransom. Any sequential payment process is potentially problematic, but ransom drops can fail even if both parties act in good faith. Kidnappers need not release (live) hostages after payment and may demand multiple ransoms. Yet, despite these considerable difficulties—and contrary to general perceptions based on newspaper headlines—the vast majority of transnational kidnap victims survive and most cases conclude relatively quickly.  ...
Commercially, kidnap insurance is only viable under three (related) conditions. First, kidnaps should be nonviolent and detentions short—otherwise, individuals and firms withdraw from high-risk areas. Second, insurance premia must be affordable. Although insurance is only demanded if people are concerned about kidnapping, actual kidnaps must be rare, and ransoms affordable. Insurers struggle in kidnapping hotspots: High premia deter potential customers. ... Third, ransoms and kidnap volumes must be predictable and premium income must cover (expected) losses. If kidnapping generates supernormal profits, more criminals enter the kidnap business. Premium ransoms quickly generate kidnapping booms. Insurers, therefore, have a common interest in ordering transactions and preventing ransom inflation. ...
...MORE

"China is funding Baidu to take on the US in deep-learning research"

From Quartz:
While US-based companies like Alphabet, IBM, Facebook, and Microsoft typically dominate US artificial-intelligence headlines, China’s government is now accelerating the country’s own contributions to the field.

China’s National Development and Reform Commission, a government agency tasked with planning economic and social strategies, will fund search giant Baidu’s development of a national deep-learning research lab, according to a post on Baidu’s Chinese WeChat account. The amount of funding was not disclosed, but Beijing-based Baidu will work with Tsinghua and Beihang universities, as well as other research Chinese institutions.

One important caveat: The laboratory won’t be a physical structure, but instead a digital network of researchers working on problems from their respective locations, according to the South Morning China Post. The research will focus on computer vision, biometric identification, intellectual property rights, and human-computer interaction.

Baidu is dedicating the head of its own Deep Learning Institute, Lin Yuanqing, to the project, as well as computer scientist Xu Wei. The Chinese Academy of scientists will also have two representatives in the lab.

Although America is not mentioned in the company’s post, Baidu chief scientist Andrew Ng has been vocal about China’s accelerated AI growth compared to the US. Citing a statistic that more papers with Chinese than American authors were accepted into the Association for the Advancement of Artificial Intelligence’s 2017 conference, Ng tweeted that the rise of China’s AI research community was “astonishing.” That sentiment was echoed in the company’s WeChat post announcing the new lab....MORE
Related:
Feb. 2017
"How Chinese Internet Giant Baidu Uses AI And Machine Learning"
Aug. 2016
Machine Learning and the Importance of 'Cat Face'
July 2016 
Baidu Wants To Turn Your Search History Into a Credit Score
May 2015 
Baidu Artificial Intelligence Beats Google, Microsoft In Image Recognition
Dec. 2014 
"2014 in Computing: Breakthroughs in Artificial Intelligence"

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

Thursday, February 23, 2017

Waymo Comments On Why They're Suing Uber

I forgot a couple hat tips in the Waymo/Uber post immediately below, here they are:
On the New York Times story, Alphaville's Kadhim Shubber who retweeted the Times' Mike Issac, co-writer on the Times piece. On the Bloomberg story. ZeroHedge.

And on this piece from Medium, once again Mr. Issac: 

A note on our lawsuit against Otto and Uber
...Why we’re taking a stand
In 2016, Uber bought a six-month old startup called Otto and appointed its founder (a former employee on our self-driving car project) as its head of self-driving technology. At the time, it was reported that Otto’s LiDAR sensor was one of the key reasons Uber acquired the company.
Recently, we received an unexpected email. One of our suppliers specializing in LiDAR components sent us an attachment (apparently inadvertently) of machine drawings of what was purported to be Uber’s LiDAR circuit board — except its design bore a striking resemblance to Waymo’s unique LiDAR design.

We found that six weeks before his resignation this former employee, Anthony Levandowski, downloaded over 14,000 highly confidential and proprietary design files for Waymo’s various hardware systems, including designs of Waymo’s LiDAR and circuit board. To gain access to Waymo’s design server, Mr. Levandowski searched for and installed specialized software onto his company-issued laptop. Once inside, he downloaded 9.7 GB of Waymo’s highly confidential files and trade secrets, including blueprints, design files and testing documentation. Then he connected an external drive to the laptop. Mr. Levandowski then wiped and reformatted the laptop in an attempt to erase forensic fingerprints....MORE

Uber Is A Cesspit: Google's Waymo Sues Kalanick's Creation--UPDATED

Update below.
Original post:

Dude's got a problem.

From the New York Times:

Google Self-Driving Car Unit Accuses Uber of Using Stolen Technology
Waymo, the self-driving car business spun out of Google’s parent company, claimed in a federal lawsuit on Thursday that Uber was using intellectual property stolen by one of Google’s former project leaders.

In a federal court filing in San Francisco, Waymo said Anthony Levandowski, who runs Uber’s autonomous car division, downloaded 14,000 files from Google a month before leaving to start his own self-driving car company, Otto. Uber acquired Otto in August for $680 million, about seven months after Mr. Levandowski left Google.

“Otto and Uber have taken Waymo’s intellectual property so that they could avoid incurring the risk, time, and expense of independently developing their own technology,” the company said in the filing. “Ultimately, this calculated theft reportedly netted Otto employees over half a billion dollars and allowed Uber to revive a stalled program, all at Waymo’s expense.”
Uber did not respond to requests for comment.

In its filing, Waymo said it was inadvertently copied on an email from one of its suppliers with drawings of Uber’s circuit board design for its lidar technology, short for light detection and ranging, ” that are laser-based sensors used in self-driving cars. Waymo said Uber’s design bore “a striking resemblance” to its proprietary and highly secret design and infringed on Waymo’s patents.

Waymo also said that a number of Google employees, who subsequently left to join Mr. Levandowski at Google, downloaded additional trade secrets before departing. These included supplier lists, manufacturing details and technical information, Waymo said.

The suit accuses Uber of stealing trade secrets, infringing on patents and competing unfairly in an effort to catch up on autonomous vehicle technology.

Otto was the brainchild of a handful of former Google employees who pioneered autonomous vehicle research at the search giant. Mr. Levandowski, who had been at Google nine years, led that effort.
He is a prominent figure in the world of self-driving vehicles, having worked on the technology for more than a decade and achieving some degree of renown as a graduate student at the University of California, Berkeley, in 2004, when he designed a self-driving motorcycle that was entered in the Pentagon’s first contest for autonomous vehicles. Later, when Google began working on self-driving cars, it acquired Mr. Levandowski’s start-up, 510 Systems....MORE
And from Bloomberg: 

Alphabet's Waymo Alleges Uber Stole Self-Driving Secrets
  • Lawsuits multiplying amid talent war over nascent technology
  • Complaint cites ‘striking resemblance’ in competing designs
It took Alphabet Inc.’s Waymo seven years to design and build a laser-scanning system to guide its self-driving cars. Uber Technologies Inc. allegedly did it in nine months.

Waymo claims in a lawsuit filed Thursday that was possible because a former employee stole the designs and technology and started a new company.

The complaint intensifies Alphabet’s rivalry with Uber, one of the Internet giant’s largest investments, and reflects an escalating talent war in the burgeoning autonomous-driving arena as tech and auto companies alike compete for skilled engineers. Legal fights are multiplying after General Motors Co. and Uber valued upstarts -- each with just a few dozen employees -- as worth hundreds of millions of dollars in separate acquisitions last year.

Waymo accuses several employees of Otto, a self-driving startup Uber acquired in August for $680 million, of lifting technical information from Google’s autonomous car project. The “calculated theft” of Alphabet’s technology earned Otto’s employees more than $500 million, according to the complaint in San Francisco federal court.

“We take the allegations made against Otto and Uber employees seriously and we will review this matter carefully,”’ Uber spokeswoman Chelsea Kohler said in an e-mail.

The claims in Thursday’s case include unfair competition, patent infringement and trade secret misappropriation.

“Fair competition spurs new technical innovation, but what has happened here is not fair competition,” Waymo said in the complaint. “Instead, Otto and Uber have taken Waymo’s intellectual property so that they could avoid incurring the risk, time, and expense of independently developing their own technology.”

Waymo was inadvertently copied on an e-mail from one of its vendors, which had an attachment showing an Uber lidar circuit board that had a “striking resemblance” to Waymo’s design, according to the complaint.

14,000 Files
Anthony Levandowski, a former manager at Waymo, in December 2015 downloaded more than 14,000 proprietary and confidential files, including the lidar circuit board designs, according to the complaint. He also allegedly created a domain name for his new company and confided in some of his Waymo colleagues of plans to “replicate” its technology for a competitor.

“Misappropriating this technology is akin to stealing a secret recipe from a beverage company,” Waymo wrote in a blog post explaining the suit.

Levandowski left Waymo in January 2016 and went on in May to form Otto LLC, which planned to develop hardware and software for autonomous vehicles.

"These are very serious allegations, if true," said Tyler Ochoa, a professor at Santa Clara University School of Law. "The trade secret case by itself is a blockbuster."...MORE
Update:
Waymo Comments On Why They'r Suing Uber
Includes belated hat tips:
I forgot a couple hat tips in the Waymo/Uber post immediately below, here they are;
On the New York Times story, Alphaville's Kadhim Shubber who retweeted the Times' Mike Issac, co-writer on the Times piece. On the Bloomberg story. ZeroHedge....

More on NVIDIA's Big (loser) Day (NVDA)

From MarketWatch:

Nvidia’s stock rocked after analysts say it’s time to sell 
Shares of Nvidia Corp. plunged on heavy volume on Thursday, after two Wall Street analysts swung to rare bearish ratings on the graphics chip maker, citing concerns over valuation and a tempered outlook for gaming.

Analyst Romit Shah at Instinet downgraded Nvidia to reduce from buy. Shah also slashed his stock price target to $90, which is 10% below current levels, after raising it to $100 from $80 just two weeks ago.

BMO Capital analyst Ambrish Srivastava dropped his rating to underperform, after being at market perform for at least the last 2 1/2 years. He cut his stock price target to $85, or 15% below current levels, after raising it to $100 from $75 less than three weeks ago.

Nvidia’s stock NVDA, -9.27%  tumbled $10.27, or 9.3%, to suffer the biggest price decline since it went public in January 1999. The one-day percentage selloff was the stock’s biggest since it dropped 9.5% on Aug. 4, 2011. Volume spiked to 39.5 million shares, which was about 2 1/2-times the full-day average.

The stock has still more than tripled over the past 12 months, as investors rewarded the company for shifting its focus toward technologies used in artificial intelligence and autonomous cars. That compares with a 61% surge in the PHLX Semiconductor Index SOX, -1.64%  and the S&P 500 index’s SPX, +0.04%  23% rally over the same time....MORE
And two from Investor's Business Daily:

Tech Stocks Sink; Why Nvidia, InterDigital, Jack Triggered Clear Sell Signals
More high-growth companies issued sell signals on their daily and weekly charts Thursday as the Nasdaq composite lagged the NYSE indexes and the Russell 2000 lost 0.7%.

Nvidia (NVDA), which initially showed signs of overheating back in the final week of December as it staged a climax run, dropped 9% and fell sharply below its key 50-day moving average for the first time since its huge run began with a cup-with-handle breakout at 33.16 in mid-March of 2016. A few analyst downgrades sparked the increased selling pressure.

The chip designer and leader in graphic processors still hasn't fallen that much from its all-time peak of 119.93. At 16% below that peak, the stock could end up forming a new base, but it would be good to see Nvidia undercut its recent low of 99.11. That would serve to reset the base count.
And:

Nvidia Breaks Support As Analysts Say Sell...
Graphics chipmaker Nvidia (NVDA) was hit with two stock downgrades on Thursday, while recent semiconductor IPO Impinj (PI) received a new buy rating.

BMO Capital Markets lowered its rating on Nvidia to underperform from market perform and cut its price target to 85 from 100. Nomura Instinet lowered its rating on Nvidia to reduce from buy and cut its price target to 90 from 100.

Nvidia shares crashed 9.3% to 100.49 on the stock market today, plunging below their 50-day moving average. Nvidia has tested its 50-day line several times in its huge run, including earlier this month, but hadn't closed below that key support level in a year....MORE

Earlier:
"Nvidia Drops 9%: Stock’s Valuation ‘Unsustainable,’ Says Instinet" (NVDA)

"The Hot Stock: First Solar Climbs 10.8%" (FSLR)

Following Yesterday's "'The Biggest Loser: First Solar Drops 8.4%' (FSLR)".

From Barron's Stocks to Watch:
First Solar (FSLR) was the biggest loser in the S&P 500 Wednesday, but it rebounded today.

First Solar rose $3.62, or 10.8%, to $37.19, while the S&P 500 gained  0.99 points, or 0.04%, on Thursday to 2363.81.

First Solar fell yesterday because investors weren’t happy with its fourth quarter, and it got at least one downgrade. However a number of solar stocks were up today; peers SunPower (SPWR), Real Goods Solar (RGSE), JA Solar Holdings (JASO), ReneSola (SOL), Vivnt Solar (VSLR), and JinkoSolar (JKS) were all higher this morning....MORE
The math savvy among our readers will immediately know that the 10.8% up-move more than compensates for the 8.4% drop despite starting from a lower base. I had to check a terminal, net-net up 57 cents (1.55%) over the two days.
Although wild, this behavior is nowhere near what SunEdison was doing during its early 2016 death spiral when 50% moves in either direction were happening.
Good times.

"Nvidia Drops 9%: Stock’s Valuation ‘Unsustainable,’ Says Instinet" (NVDA)

From Barron's Tech Trader Daily:
Shares of graphics chip pioneer Nvidia (NVDA) are down $10.09, or 9%, at $100.67, after Instinet’s Romit Shah cut his rating on the shares to “Reduce” from Buy, and cut his price target to $90 from $100, writing that the stock is as expensive as it’s been in the last ten years, and that investor enthusiasm for its newer offerings, in cloud computing and automotive, can be fickle.

He advises investors rotate into shares of Intel (INTC), whose stock he continues to rate a Buy.
“We believe adoption of Nvidia’s technology in the datacenter (artificial intelligence) and automotive (self-driving cars) primarily drove multiple expansion,” writes Shah.

“We believe datacenter and automotive will be solid long-term growth drivers,” he continues, “but the implied value that the market is ascribing to these emerging businesses is unsustainable.”
The stock has risen to a ten-year high in valuation relative to the broader chip field, he writes:

NVDA’s multiple averaged 2x enterprise value to sales or 0.7x our semiconductor coverage universe over the last 10 years; however, during the last twelve months, the multiple increased from 2x (0.9x coverage) to 7x (1.8x coverage). The current multiple represents a 10- year peak both on an absolute and relative basis to the group.

Moreover, the company’s $68 billion in market cap embeds an even higher multiple for the newer businesses, if one puts an appropriate multiple on the company’s chips for gaming PCs:

As such, we assigned a multiple of 5x EV/sales, in line with other leading franchises including ASML, TXN, ADI, INTC, and AVGO. Based on this multiple, we estimate the Core franchise is worth $30bn.  This implies that the market is valuing the Datacenter and Automotive businesses at $37bn or ~20x sales as shown in Figure 1. This is well in excess of comps in datacenter (AMZN, FB, GOOGL), automotive (TSLA, MBLY), and software (CHKP, PFPT, WDAY) that trade at less than 10x EV/sales with the exception of Mobileye....
...MORE

We'll be back after the close, $100.23 down $10.53 (-9.51%)

"Infrastructure Stocks Tumble On Report Trump May Delay Infrastructure Bill Until 2018"

Even without the funding uncertainty it is very, very difficult to make money as a portfolio investor rather than as a direct investor in this area because, as in the investment banks and the movie biz, if there are any profits, they go first to the "talent" and only secondarily to investors.

I'd tell you about adventures is water and electrical infrastructure but I'm still a bit concerned about the implications of yesterday's "Long-winded speech could be early sign of Alzheimer's disease, says study".

From ZeroHedge:
Construction, engineering and materials stocks are underperforming the market on sudden concerns that in addition to tax reform and Obamacare repeal, another core aspect of Trump's fiscal stimulus, Infrastructure spending, may be delayed by at least two years.

As Kalex Advisors wrote in a note "Time for Plan B?" this morning, while no decisions have been made, Axios reports that the Trump is considering pushing off its call for Congress to pass an infrastructure bill until 2018, given the full slate of other top-tier items on Congress’s plate this year including healthcare and tax reform, Supreme Court fight, and potential debt ceiling / government shutdown battles.

The idea would be to take up infrastructure in an election year and make it very difficult to oppose money for home-state roads, bridges and other projects that lawmakers can take credit for. It also would make sense procedurally given we expect the money to pay for infrastructure will largely come through tax reform and deemed repatriation of overseas earnings with a one-time tax.

Again the legislative strategy is still evolving and such a timeline would run counter to what GOP leaders laid out last month in their Philadelphia retreat, but the calendar is beginning to look crowded and infrastructure has always been less of a priority for Republican leaders on Capitol Hill than it has been for Trump...MORE
Okay, since you asked one quick infrastructure re-reference:

Water Focused Hedge Funds: Liquid Assets or H2OhNo?
I think this will become our standard intro to water as an asset, originally used to introduce "A Look at the World's First Water-focused Hedge Fund" in 2014: 
Since the first Earth Day in April 1970 and more importantly since the establishment of the EPA in December of that year, folks have been trying to make money out of water in the U.S. 
Put simply, the returns have not been market-beating.
Because so much of the opportunity was my-little-crony stuff, at the whim of politicians, there was no consistency of growth at a time when other portfolio investments offered very competitive comparisons. 
The alternative was to own the cash flow, private equity style, but unless one felt a passion for grit chambers and sludge pans it was pretty pedestrian, utility type ROI.
In fact the most reliable water investment in the U.S. has probably been York Water Company of York PA. 
They've been paying dividends for 199 consecutive years and just announced their 575th divi.
The announcement carries the boilerplate "This release contains forward-looking statements".... 
I won't use the 'Liquid Assets' schtick ever again, promise....

"Why Uber’s Dominance is No Sure Thing" (GOOG)

From Barron's Next, Feb. 22:

Google, with its deep pockets, is slowly turning its Waze app into a ride-sharing platform.
Uber isn’t a public company yet, but it’s already larger than most of them. Private investors have valued the company at $68 billion, and there’s no debating the transformational impact the company is having on transportation in the United States. 

But that doesn’t mean Uber can’t be knocked from its perch. Rival Lyft is trying, helped by a big investment from General Motors. But perhaps the greatest threat is an already established player like Google-parent Alphabet.
 
The company has been layering a ride-sharing service on top of its existing Waze navigation app. The service, which amounts to a carpool platform, began in Tel Aviv, Israel and was recently expanded to San Francisco. According to the Wall Street Journal, Google is now planning to expand the service to other U.S. cities and Latin America.

A Journal reporter just tested the service and interviewed Waze head Noam Bardin. The reporter got a ride from downtown Oakland to downtown San Francisco for $4.50. The same ride, the reporter notes, would have cost $10.57 via Uber and $12.40 via Lyft....MORE
Possibly also of interest:

Here's Google's Sidewalk Labs' Pitch To Insert Itself Into America’s Urban Transportation Infrastructure (GOOG)

"There Better Be Some Goddamn Aliens in This Solar System Loaded With Earth-Sized Planets"

That's the headline at Motherboard and I'm coming around to their way of thinking.
It's starting to feel like NASA's core competence has become media teases leading up to press conferences.

From Motherboard:

A newly discovered seven-planet system is our “best bet” for finding life.
A tiny star just 39 light years away, a mere stone's throw in cosmic terms, hosts seven Earth-sized planets, according to new research published in Nature. At least six of them appear to be rocky and temperate. Some could potentially have liquid water at the surface, and by extension, the right ingredients for life....MORE 
See also:

Moody's On Expected Returns: For Pensions, Its As Bad As You Thought It Was

One of the links at today's FT Alphaville Further Reading post (CalPERS’ Private Equity Portfolio Continues to Earn Way Too Little for the Risk) reminded me we had put this together last week.

From Moody's:

“State and Local Government — US: Softening Investment Expectations Signal Accelerating Budget Pressure from Pensions.”
Announcement: 
Moody's: Lower investment expectations are accelerating state and local government pension costs
Global Credit Research - 17 Feb 2017

New York, February 17, 2017 -- Budgetary pressure from pension costs is accelerating for US states and local governments as many large public pension systems lower their assumed discount rates to reflect lower investment return expectations, Moody's Investors Service says in a new report. 
Under public pension accounting and funding practices, pension costs have been held down by high assumed discount rates, tied to high investment return targets. The recent trend of lowering discount rate assumptions, as seen with California Public Employees' Retirement System (CalPERS, Aa2 stable) and the California State Teachers' Retirement System (CalSTRS, Aa2 stable), will require most participating municipalities to raise their pension contributions, which can pressure budgets. 
The gap between market interest rates and the discount rates of public pensions has been widening for two decades, and remains substantial even with the lower assumed returns. As interest rates have fallen, public pensions have responded by reaching for yield in order to maintain high assumed rates of return.

"Many large US public pension systems are dropping their return assumptions in response to lower investment outlooks ," Thomas Aaron, a Moody's Vice President -- Senior Analyst says. "In a market context, these discount rate declines by public pension funds are well overdue," says Aaron. 
Numerous market observers have reduced their investment return expectations for the next decade, and multiple large pension systems in states and major cities have dropped their discount rates. Nationally, remaining plans with discount rates above 7.9% are likely candidates for reduction. 
In some cases, falling discount rates are accelerating the pace of rising pension costs by requiring higher contributions from participating municipalities....MORE
If you want to see the difference between market and plan assumptions here's the U.S. Pension Tracker.

Berlin's Rocket Internet Is Not Doing Well After Major Investor Cuts Stake (RKET.DE)

"Our proven winners generated aggregated net losses of €442 million" ($568 million)

-Rocket Internet prospectus via "How Do You Say 'Dot-Com Crash' in German?"

The company priced its IPO at 42.50 euros on October 1, 2014.€17.78 -3.56 (-16.70%)

From Reuters:

Shares in Rocket Internet (RKET.DE) fell as much as 14 percent on Thursday after major investor Kinnevik (KINVb.ST) sold half its stake in the German e-commerce company as the two increasingly becoming competitors.

Sweden's Kinnevik, which clashed with Rocket last year over the valuations of some of their joint investments, sold a 6.6 percent stake in Rocket at 19.25 euros per share late on Wednesday, netting 209 million euros ($220 million).

At 1155 GMT, Rocket shares were down 13.1 percent at 18.55 euros, off an earlier 2-1/2 month low of 18.275 euros....MORE
Previously:
When A Company Issues A Press Release At 11:40 P.M., It's Usually Not Good News (Rocket Internet: RKET)
Rocket Internet May Have A Proven Winner (RKET)
"Tracking HelloFresh’s Growth"
Rocket Internet Struggles to Prove Its Profits Can Take Off (RKET.GR)
Whoa!! Germany's Rocket Internet May Not Be Valued Correctly
Hey, One of Rocket Internet's 'Proven Winners' May be Coming Public (RKET.GR)
Climateer Line of the Day: Venture Capital Economy Edition

Elon Musk says he doesn’t think Tesla unionization is “likely to occur” (TSLA)

From TechCrunch:
Tesla CEO Elon Musk addressed on the company’s earnings call on Wednesday alleged efforts on behalf of employees at its Fremont factory to unionize. Musk said he’s going to publish in his own blog post the results of his own investigation into conditions at the factory and employee attitudes toward unionization, but he shared some initial thoughts about his findings.

Musk said he found Tesla’s factory actually half the accident risk when compared to the rest of the automotive industry. He also said that Tesla employees are the highest paid in the industry, when you factor in equity compensation on top of more direct earned revenue.

He added that he believes “there are really only disadvantages to saying that someone wants the UAW here”...MORE
We'll be back with more on the conference call and the market reaction to same but for now thought it worth pointing out this is something occupying space in Mr. Musk's brain.

Yesterday:
Live Blog of The Tesla Q4 and Year End 2016 Numbers (TSLA)
"Tesla Fourth Quarter & Full Year 2016 Update" (TSLA)--UPDATED

Commodities: Ireland's Kerrygold Butter BANNED In Wisconsin

This sounds like a declaration of war, a war which Wisconsin with all its curds and whey won't win.

Oh dear Lord I may have lost my mind with the "a little alliteration" thing. That's seven 'W' words after the comma.

From The Independent (IRE):

Shopkeepers in one US state face prison if they sell Kerrygold butter
A ban by the US state of Wisconsin on Kerrygold butter has raised the ire of consumers there and it seems it's centered around a 40-year-old state law. 

Kerrygold butter has become a staple for many Americans who follow the Low Carb High Fat (LCHF) and Paleo/Caveman diets, which promote the use of grass-fed butter as the best form of fat, many consumers use Kerrygold butter in coffee instead of milk.

Kerrygold is the number one imported butter and the number three overall butter brand in the US.
However, a law from 1970 in the State means that all butter which is intended for commercial use must be put before a panel to trade the product. And because Kerrygold is made in Ireland it's not subjected to the same regulatory controls and Wisconsin is laying down the law.

Ornua, which owns the Kerrygold brand - has strong links in Wisconsin since it bought the Wisconsin-based Thiel Cheese and Ingredients.

Meanwhile, Kerrygold Dubliner is the number one specialty cheddar in the US. Ornua exports 20,000 MT of Kerrygold butter and cheese to the US each year worth $200m....MORE 
One of the Milwaukee television stations supplies a mugshot to aid in identifying the miscreant:

http://s1.legalinsurrection.com/wp-content/uploads/2017/02/Wisconsin-Cracks-Down-on-Illegal-Butter-e1487806986161-620x435.png

Back in October Kerrygold came out on top in a worldwide tour of the butter biz that we posted:

Commodities: A Look At Butter 
There are very few pure-play butter equities (none) and the futures trade by appointment.
The cash market is where it's at if you want exposure....

Wednesday, February 22, 2017

"The Biggest Loser: First Solar Drops 8.4%" (FSLR)

From Barron's:
First Solar (FSLR) was at the bottom of the S&P 500 Wednesday,  on the heels of its fourth quarter was better than expected, but not good enough for many investors

First Solar dropped $3.06, or 8.4%, to $33.56. The S&P 500 closed down just 2.56 points, or 0.11%, to 2362.82.
First Solar said it earned $1.24 per share, above the 98 cents analysts forecast. Revenues fell 49% to $480.43 million, also beating the $394.65 million consensus.  

However even bulls warned that the shares could be rangebound this year. Credit Suisse’s Andrew Hughes was one of the skeptics, cutting his rating on the stock to Underweight and lowering his price target by $1, to $29....MORE

Live Blog of The Tesla Q4 and Year End 2016 Numbers (TSLA)

Following the release: "'Tesla Fourth Quarter & Full Year 2016 Update' (TSLA)" the stock is up $5.79 (2.12%) at $279.30 after having given up $3.88 during regular action.

MarketWatch is doing the heavy lifting:
Tesla Inc. TSLA  reports fourth-quarter results Wednesday after the bell and Wall Street is eager to hear details about the Model 3 and the mass-market sedan’s production timeline. Tesla’s results come as the stock has been on a tear, up 50% since early December as fears the company would be under pressure from the Trump administration faded. Tesla hopes to begin producing the the $35,000 all-electric Model 3 by June and delivering them by the end of the year. Wednesday’s report will also be the first for Tesla since it closed the acquisition of SolarCity. MarketWatch reporter Claudia Assis (@claudiaassisMW) and tech editor Jeremy C. Owens (@jowens510) will live-blog the release of the report and subsequent conference call, which is scheduled for 5:30 p.m. Eastern time.

3:34 pm by Jeremy C. Owens/
Tesla once again did not update on how many reservations it has for Model 3. There is a total number for deposits customers have put down – $663,859,000 – but that likely includes deposits for Model S and Model X as well.

Tesla has not updated since saying that it received about 373K deposits of $1,000 apiece in a flurry right after it opened up the system for reservations. We don’t know if that number has increased with more reservations since, or if a substantial number of owners have canceled reservations and requested that money back. We’ll see if Elon discloses on the call.

3:30 pm by Claudia Assis
Wall Street is definitely happy with the results, wider loss notwithstanding — shares are up more than 2% now. Being on track with Model 3 seems to be doing wonders.

3:30 pm by Jeremy C. Owens
It does have an estimate on the increased spending I mentioned earlier: “We expect to invest between $2 billion and $2.5 billion in capital expenditures ahead of the start of Model 3 production.”

Nothing about a potential capital raise, but Tesla only has about $3.4 billion in cash on hand, so things could get dicey if Elon doesn’t go back to Wall Street for some more money.

3:29 pm by Claudia Assis
Tesla says it is on track with generating the half a billion dollars in cash and achieve the ‘cost synergies’ post SolarCity deal. The plan is to reduce customer acquisition costs by cutting advertising spending, selling solar products in Tesla stores, and shifting away from leasing solar-power systems.

Leasing was the backbone of the old SolarCity but in the past couple of years or so the company had already began shifting towards loans and other forms of ownership.

3:28 pm by Jeremy C. Owens
Tesla’s forecast for 2017 is cagey – nothing on full-year deliveries or revenue. Explanation:

Since even a couple-week shift in timing could have a meaningful impact on total deliveries and installs, we are focusing our guidance on the first half of the year....
...MUCH MORE and more to come.

"Tesla Fourth Quarter & Full Year 2016 Update" (TSLA)--UPDATED

Update below.
Original post:

From the Company:
• Q4 Model S and X orders reach record highs
• Model 3 on track for initial production in July, volume production by September
• Battery cell production started at Gigafactory 1
• All Tesla vehicles in production have the hardware necessary for full self-driving
• SolarCity and Grohmann integrations underway
• Q3 to Q4 cash increased by over $300 million to $3.4 billion
• 2016 revenue of $7 billion, up 73% from 2015 
We start 2017 well positioned to scale our business significantly. Model S and X net order growth remains strong, as we are continually evolving our products by elevating performance, convenience, and safety. Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018. To support accelerating vehicle deliveries and maintain our industry-leading customer satisfaction, we are expanding our retail, Supercharger, and service functions. Our acquisitions of SolarCity and Grohmann Engineering were completed in November and in January, respectively. With the acquisition of SolarCity, we have created the world’s only integrated sustainable energy company, from generation to storage to transportation. Grohmann Engineering is a world leader in highly-automated methods of manufacturing, and this acquisition launches Tesla Advanced Automation Germany, which will help us innovate manufacturing processes to be used initially in Model 3 production.  
ADVANCING SUSTAINABLE TRANSPORT
In Q4, we received 49% more global net orders for Model S and X combined, compared to the same period in 2015, as both vehicles continue to win over new customers. Automotive experts share this enthusiasm. In November, Model X won the Golden Steering Wheel (Das Goldene Lenkrad), one of the most prestigious automotive awards in the world. In December, a Consumer Reports survey ranked Tesla as having the best owner satisfaction, with 91% of customers saying they would purchase from Tesla again. Our result was seven percentage points ahead of our next closest competitor. Then, in January, the Model S won a “Best Cars 2017” imported car award from Automotor and Sport in Germany. These accolades have not stopped us from continuing to evolve Model S and Model X. Motor Trend just tested a Model S P100D and reported faster vehicle acceleration than any car they have ever tested, including million dollar, two-seat, gasoline-powered supercars with almost no cargo space. Model S posted a recordsetting 0 to 60 mph in only 2.275 seconds and covered a quarter mile in 10.5 seconds. We also introduced 100D versions of the Model S and Model X, each of which established new world records as the longest range all-electric production sedan and SUV, with estimated EPA ranges of 335 miles and 295 miles, respectively. Our new Autopilot hardware platform, deployed in Q4 2016, establishes a vehicle technology threshold that is unmatched by any other production car. This new hardware platform, combined with our growing vehicle fleet, means Tesla is collecting more data for autonomous driving than any other company, helping to further accelerate the evolution of Autopilot. Despite the complexities of implementing Autopilot hardware on both Model S and Model X, we still produced 77% more vehicles in Q4 2016 than in Q4 2015. In Q1 2017, we began pushing over-the-air software updates to all Autopilot-equipped cars to further increase performance and safety. Autopilot’s positive safety impact was confirmed in a January report by the National Highway Traffic Safety Administration, which stated, “The data show that the Tesla vehicles crash rate dropped by almost 40 percent after Autosteer installation....MUCH MORE (10 page PDF)

Tesla Q4 and full year 2016 Financial Results and Q&A Webcast

Feb 22, 2017
2:30 PM PT

 Listen to webcast
Q4'16 Update Letter 407.9 KB

UPDATE--Live Blog of The Tesla Q4 and Year End 2016 Numbers (TSLA)

"Long-winded speech could be early sign of Alzheimer's disease, says study"

Uh oh.

From the Guardian:
Research finds distinctive language deficits in people with mild cognitive impairment, a precursor to dementia

Rambling and long-winded anecdotes could be an early sign of Alzheimer’s disease, according to research that suggests subtle changes in speech style occur years before the more serious mental decline takes hold.

The scientists behind the work said it may be possible to detect these changes and predict if someone is at risk more than a decade before meeting the threshold for an Alzheimer’s diagnosis.

Janet Cohen Sherman, clinical director of the Psychology Assessment Center at Massachusetts General Hospital, said: “One of the greatest challenges right now in terms of Alzheimer’s disease is to detect changes very early on when they are still very subtle and to distinguish them from changes we know occur with normal ageing.”

Speaking at the American Association for the Advancement of Science in Boston, Sherman outlined new findings that revealed distinctive language deficits in people with mild cognitive impairment (MCI), a precursor to dementia.

“Many of the studies to date have looked at changes in memory, but we also know changes occur in language,” she said. “I’d hope in the next five years we’d have a new linguistic test.”

Sherman cites studies of the vocabulary in Iris Murdoch’s later works, which showed signs of Alzheimer’s years before her diagnosis, and the increasingly repetitive and vague phrasing in Agatha Christie’s final novels – although the crime writer was never diagnosed with dementia. Another study, based on White House press conference transcripts, found striking changes in Ronald Reagan’s speech over the course of his presidency, while George HW Bush, who was a similar age when president, showed no such decline....MORE
The Agatha Christie paper, along with "The Nun Study of Aging and Alzheimer's Disease" actually showed something slightly different. As mentioned in the intro to a 2015 natural gas story:

Natural Gas: "Chesapeake remains in a downtrend: Technician" (CHK) 
Where would we be without technicians?
The stock is down 7.42% today, $7.05 last.
The company is a potential bankruptcy.
The story is at Yahoo Finance.
Short, staccato sentences may be a sign of dementia.*

*Agatha Christie And Nuns Tell A Tale Of Alzheimer's

"Manifestos and Monopolies" (FB)

From Stratechery:
It is certainly possible that, as per recent speculation, Facebook CEO Mark Zuckerberg is preparing to run for President. It is also possible that Facebook is on the verge of failing “just like MySpace”. And while I’m here, it’s possible that UFOs exist. I doubt it, though.

The reality is that Facebook is one of the most powerful companies the tech industry — and arguably, the world — has ever seen. True, everything posted on Facebook is put there for free, either by individuals or professional content creators;

and true, Facebook isn’t really irreplaceable when it comes to the generation of economic value; and it is also true that there are all kinds of alternatives when it comes to communication. However, to take these truths as evidence that Facebook is fragile requires a view of the world that is increasingly archaic.
Start with production: there certainly was a point in human history when economic power was derived through the control of resources and the production of scarce goods:
https://stratechery.com/wp-content/uploads/2017/02/FullSizeRender.jpg
However, for most products this has not been the case for well over a century; first the industrial revolution and then the advent of the assembly-line method of manufacturing resulted in an abundance of products. The new source of economic power became distribution: the ability to get those mass-produced products in front of customers who were inclined to buy them:
https://stratechery.com/wp-content/uploads/2017/02/FullSizeRender-2.jpg
Today the fundamental impact of the Internet is to make distribution itself a cheap commodity — or in the case of digital content, completely free. And that, by extension, is why I have long argued that the Internet Revolution is as momentous as the Industrial Revolution: it is transforming how and where economic value is generated, and thus where power resides:
https://stratechery.com/wp-content/uploads/2017/02/IMG_0138.png
In this brave new world, power comes not from production, not from distribution, but from controlling consumption: all markets will be demand-driven; the extent to which they already are is a function of how digitized they have become.

This is why most Facebook-fail-fundamentalists so badly miss the point: that the company pays nothing for its content is not a weakness, it is a reflection of the fundamental reality that the supply of content (and increasingly goods) is infinite, and thus worthless; that the company is not essential to the distribution of products is not a measure of its economic importance, or lack thereof, but a reflection that distribution is no longer a differentiator. And last of all, the fact that communication is possible on other platforms is to ignore the fact that communication will always be easiest on Facebook, because they own the social graph. Combine that with the fact that controlling consumption is about controlling billions of individual consumers, all of whom will, all things being equal, choose the easy option, and you start to appreciate just how dominant Facebook is....MUCH MORE
Last Thursday:
Ein Volk, Eine Welt, Ein Zuck: "Mark Zuckerberg’s full 6,000-word letter on Facebook’s global ambitions" (FB)

SocGen: "The Average Stock Is Still 26% Down From Their All-Time Highs"

And, as the statistics professor pointed out, "The average person has one boob and one ball".
He called it his law of averages.

The SocGen story is at ZeroHedge.

Agricultural Commodities: Farmers To Plant Soybeans Rather Than Corn

From Bloomberg: 

Planting Decision No Brainer as U.S. Farms Swap Corn for Soy
  • Acreage used for soy may exceed corn for first time since 1983
  • Soy price premium signals record crop for world’s top grower
Planting decisions for U.S. corn and soybean farmers are a bit of a no-brainer this year. After confronting the prospects of losses on both crops in 2016, soybeans are now more profitable, which means the world’s largest grower may harvest a record crop for a second straight year.

While corn is still king -- it’s the largest U.S. crop by value and volume -- farmers from North Dakota to Texas are preparing to use more of their land on soybeans instead. That’s because cash prices have jumped 9.2 percent since the 2016 harvest, creating the widest premium over corn in 29 years, and the oilseed is cheaper to grow.
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iYufF06tJ.ag/v1/800x-1.png
“It’s the difference between choosing to operate in the black or in the red,” said Jon Mutschler, 48, who farms 2,500 acres (1,012 hectares) in Minnesota with his wife and son. “The market is telling us to plant soybeans,” he said. Mutschler will sow 55 percent of his land with corn, down from 67 percent last season, and boost soybeans to 45 percent from 33 percent.

Seed technology that combats drought, bugs and disease is helping U.S. farmers produce record amounts of corn and soybeans on every acre, but demand prospects are better for soybeans used to make animal feed, cooking oil and biofuel. Rising global consumption of meat, poultry, eggs and dairy has doubled the amount of soy-based meal in animal feed since 2000. Most of that growth occurred in China, the biggest pork producer, where soybean imports have doubled in the past eight years.
Soybean prices in 2016 posted the first annual increase in four years, and they are up in 2017. To maximize revenue and take advantage of the rally, American farmers probably will expand soybean planting 5.8 percent to a record 88.27 million acres, the third increase in four years, according to a Bloomberg survey of 25 trading firms and analysts. Corn sowing may fall 3.6 percent to 90.77 million acres, the biggest drop in three seasons....MUCH MORE 
Here's the last 14 months of each, via FinViz

https://finviz.com/fut_chart.ashx?t=ZC&cot=002602&p=d1&rev=636233552161441523https://finviz.com/fut_chart.ashx?t=ZS&cot=005602&p=d1&rev=636233552206754034

Robots and Taxes and the Future of the World

Izabella's back.

From FT Alphaville:

The misguided logic of a robot income tax
Bill Gates thinks robots should pay income tax to reduce the negative impact they could have on human workplaces and jobs.

As he told Quartz earlier this week:
“It is really bad if people overall have more fear about what innovation is going to do than they have enthusiasm,” he said. “That means they won’t shape it for the positive things it can do. And, you know, taxation is certainly a better way to handle it than just banning some elements of it.”
Except, does this assertion really make sense?

One of the reasons business owners look to make capital investments is to increase productivity and with that profitability. As machinery and equipment take on more of the work humans would otherwise be forced to do, output increases, and we all become wealthier. Or so the logic goes.
Either way, it’s profitability that business owners are after.

But operating costs matter a lot when figuring out if a capital investment is going to make economic sense.

If the cost of employing more capital is higher than the cost of employing more humans (with the former requiring fuel, maintenance and machinery supervision costs and the latter wages that are high enough to cover food, healthcare plus supervisor costs) then it doesn’t necessarily pay to invest in said capital. It might do, of course, but only if the associated output hike more than compensates for the additional operating cost.

Even then, more output is no guarantee of profitability. The value of machine-produced output must also be equal to the value of human-produced output and/or be so much greater in volume than human-produced output so as to compensate for any related discount. Only then can a return on investment be guaranteed.

If after all these factors are accounted for a capital investment does prove profitable it is and always has been customary for related profits to be taxed by governments. This is nothing new.
And herein lies the fallacy of Gates’ argument. A call for robot income tax is really just a call for more corporation tax and/or a wealth tax. 

But, as we all know, corporations don’t like paying corporation tax. To the contrary, they like to claim high corporate tax rates damage economies because they reduce industry competitiveness, undermine fiduciary duties to maximise profits and overlook corporations’ roles in creating jobs in the first place. Some also like to argue they discourage new investment and thus the chance for further value creation. Corporations, they note, should be entitled to retain or return profits to investors and/or reinvest them in even more capital (in a way which creates even more jobs).

It seems strange then for Gates to forget this argument just because the nature of the capital investment is now anthropomorphised. If investment in machinery is to be deemed productive and prosperity boosting, why should investment in robotic machinery or AI be any different? Either both are good for prosperity or none of them are? Either the investment increases productivity or it does not? And what constitutes a robot anyway?

Perhaps the distinction lies in the fact that old-school mechanical systems — which still require dexterous human supervisors (especially on the maintenance front) — don’t threaten salaried workers to the same degree robots do and thus don’t expose the inequity of the current mechanised capitalist system quite as glaringly....MUCH MORE 
The back and forth in the comments is interesting as well.
Plus the Amish do a buggy driveby.
clip, clop, clip, clop

"Take sex breaks on work time, suggests Swedish councillor"

Takes 'flex time' up a notch.
From Agence France-Presse via The Jamaica Observer:
STOCKHOLM, Sweden (AFP) — Swedes should take a one-hour paid break from work to go home and have sex with their partners, a local councillor suggested in a proposal Tuesday aimed at improving people's personal relationships.

"There are studies that show sex is healthy," Per-Erik Muskos, a 42-year-old city councillor for the northern town of Overtornea, told AFP after presenting the motion.

He said couples were not spending enough time with each other in today's society.
"It's about having better relationships," he said.

He noted there was no way to verify that employees do not use their hour for other purposes than spending time with their partners or spouses.

"You can't guarantee that a worker doesn't go out for a walk instead," Muskos said, adding that employers needed to trust their employees....MORE

Tuesday, February 21, 2017

"Dollar Index: The Chart Everyone is Talking About"

I'm thinking that, in its long and storied history, this headline from their head of global currency strategy at his personal blog, is the closest (proximity) Brown Brothers Harriman & Co. has ever gotten to clickbait.
DXY 101.37. up 0.420.

From Marc to Market:



https://1.bp.blogspot.com/-ULSa9HX0-tg/WKw5Lmc7B-I/AAAAAAAAXOE/_v8xN6X-qAcAa_vVLIRWPF5n1ZZ5L8Y6ACLcB/s1600/dxy.gif
Here is the chart nearly everyone is discussing. The Dollar Index appears to be carving out a potential head and shoulders pattern. The left shoulder was shaped by the rally to 102 after the US election.

It fell a little below 99.50 in early December before launching the year-end rally that took it toward 103.80. That area was retested in this year before the downtrend in January and forms the head of the pattern. The Dollar Index bottomed on February 2 near 99.25. It has rallied this month and reached 101.75 last week to frame the right shoulder.

The neckline is drawn by connecting the early December and early February lows, as we have done on this Great Graphic, created on Bloomberg. The importance of such chart patterns lies in the measuring objective. The pattern is a little more than a 400 point pattern, which when flipped over, suggests an objective of around 95.50, which is the around where the Dollar Index consolidated last August and September.

We are not convinced it is a head and shoulders top. Often volume numbers are helpful in validating a pattern, but in the foreign exchange market, daily volume is not accessible. At a minimum, the pattern requires a break of the 99.25-99.50 area, which also houses the 38.2% retracement objective of the rally since last year's lows in May below 92.00. Other technical indicators, like the RSI and MACDs, are trending up.

In fact, the Dollar Index gapped higher today. Yesterday's high was 100.98 and today's low is 101.08. While it seems true that prices abhor a vacuum as much as nature and the gap below the market may suck prices into it. However, it is not clear the type of gap it is, and the longer it goes without being filled, the more bullish it appears.

Nevertheless, until the Dollar Index rises above where the shoulders of the pattern are ostensibly found (101.75-102.05), some participants may be wary. The first indication of the validity of the bearish read would be a break of last week's low (~100.40-100.45). But, confirmation of the pattern requires a break of the neckline....MORE

Time Inc.Will Sell Pet Insurance To Offset Declining Circulation, Ads (TIME)

This is just sad.
But as mentioned back in 2009:
...Speaking of zeitgeist, last year when Time Magazine used Joe Rosenthal's iconic photo of the flag raising on Mount Suribachi on their cover of the 'Special Environment Issue', I had a few thoughts: 
1) These guys are really out of touch. 
2) These guys are really uncreative. 
For a media company, either of those facts would be a good reason to short the stock. Combining both in the same business made it a lock. I didn't say so though (I didn't put the picture on the blog either). Instead my comment was:...
Spinning the magazine out from the rest of the conglomerate was the smartest thing management could have done.

From the Financial Times:

Time Inc looks to sell services to 30m subscribers
Pet insurance and online videos among ideas to replace erosion in ads and circulation
Pets are people too, at least to the readers of People magazine. The celebrity weekly dedicates a section of its website and a Twitter feed to videos, photos and stories about animals, including regular segments with a vet who was once featured in its Sexiest Man Alive issue. 
For those truly devoted to their furry companions, People’s owner Time Inc could one day offer not just magazines, but health insurance for their pets — one of a number of services the publisher is looking at as it searches for a growth strategy that investors will find more compelling than the interest from bidders circling the 94-year-old publisher. 
“When you think about our 30m subscribers, we only sell them magazines today. If you think about the opportunity to sell other things to those customers, it’s substantial,” said Jen Wong, Time Inc’s chief operating officer....MUCH MORE
My distaste had gotten to the point that when I first saw this story last November:
How much are People, Time, Sports Illustrated and their corporate siblings worth?
Perhaps $1.8 billion, if you believe the recent report of a takeover offer by a group of billionaire investors....
My first though was a Simpsons episode:

– Rich Texan–  “Son, I represent a group of oil tycoons who make foolish purchases.  We already bought us a stained glass bathrobe and the world’s fattest racehorse.  Now we need your ice man.”
 
– Apu Nahasapeemapetilon –  “Oh, no, I could never sell him.  He’s like a frozen father to me.”
– Rich Texan– “How much for just the head?” 
Episode 195, Lisa, the Simpson

Not a lot of respect there.

Oblivious Headline of the Day: Natural Gas Edition

We like Investing.com, they're even one of the few sites we have on our limited blogroll (on right).

However...
This is so blissfully unaware as to be Black Knight "'tis but a scratch" funny (Feb. 20):
"Natural Gas: Uptrend Still Stands Strong"
Here's the last couple week's action via FinViz:

https://finviz.com/fut_chart.ashx?t=NG&cot=023651&p=h1&rev=636229155893119062

roughly since we did some AI-enhanced data crunching and began posting the "Weekly Supply/Demand Report" on Feb. 3, after a months-long hiatus.*

*That is "fāke " news, a big fat whopper.
What actually happened is I went out to get a sandwich and thought, "Seems rather balmy, I wonder what natural gas is up to"

The front futures are down another 0.1450 (5.12%) today, at 2.6890.
So, continuing the "...Holy Grail" dialogue:
Black Knight:     I am invincible! 
King Arthur:       You're a loony! 
Feb. 3
Natural Gas: EIA Weekly Supply/Demand Report
Coming into the Spring shoulder injection season the hope of a widowmaker* trade helps to build anticipation for Eliot's cruelest month. Until then the two week national temperature forecast is above average putting downward pressure on prices while the prospect of a trade war with Mexico raises the risk to southbound U.S. gas exports.
Ah spring.
Feb. 13 
Natural Gas: EIA Weekly Supply/Demand Report
The front futures have broken $3.00 to the downside for the first time since November 18th....
Feb. 17
Natural Gas: EIA Weekly Supply/Demand Report
After breaking through $2.90 to the downside on yesterday's storage report (the pull was 114 Bcf versus the Platts consensus estimate of 126 Bcf) the front futures are up 0.0170 at $2.8710....
Those three intros have a beat reminiscent of the greatest three-picture travelogue of all time.
From the New York Times' Frugal Traveler:


"Hedge Funds’ Next Big Short: US Malls"

Following on Jan. 25's "Real Estate: 'Mall Owners Rush to Get Out of the Mall Business'".
From ValueWalk:
Hedge funds are always on the lookout for the next big short a phrase coined by Michael Lewis in his book, The Big Short, which details the exploits of a group of funds that made billions betting against the US sub-prime housing market in 2008/2009.
Last year, the favorite big short among funds was the Chinese yuan, a trade that has produced results but not the career making profits many managers were hoping for.
Now the industry has moved on to a different target, which once again focuses on overpriced debt.

According to some the next big short trade among major hedge funds is shorting the debt of B and C class malls.
  
Hedge Funds’ Next Big Short: US Malls
The thesis behind this trade is based on retailers store closures and consumers’ shift from traditional brick and mortar retailing, towards online sales. Enclosed malls are the most exposed to these challenges as their largest tenants are retailers where e-commerce competition is most acute, and store closures are already well underway. Also, retail properties – mainly malls – often have limited alternative uses, and thus face steep drops in value if the assets “go dark.” However, Class A+ malls, which have multiple anchor stores, entertainment options and dominate the retail industry in their area are more protected than the B and C class malls that lack entertainment options and a sufficient number of anchor stores.

According to Deutsche Bank, retail property has missed the post-crisis commercial property rebound in the bleak outlook for malls is only adding to the pain for property/debt holders. Traditionally, commercial mortgage-backed securities have been a critical source of financing for retail properties. $142 billion of such securities are outstanding in conduit.

Deutsche Bank’s equity retail analysts believe up to 15% of the retail stores they cover (more than 6000 properties) are at risk of closure and based on this analysis, as retailers improve their online penetration, more store closures are likely. Fewer retail stores, particularly anchor stores such as Sears, Macy’s and JC Penney should translate into an overall decline in mall foot traffic as well as other tenants thanks to “co-tenancy” clauses in lease agreements that can allow other tenants to break or renegotiate their leases after a loss of an anchor tenant. These developments could push malls into a death spiral:
http://www.valuewalk.com/wp-content/uploads/2017/02/next-big-short.png

...MUCH MORE

HT: FT Alphaville's Further Reading post.

Possibly also of interest:
Dec. 25
"Malls Are Dead. Long Live Online Shopping"
Nov. 14
"Amazon’s Next Big Move: Take Over the Mall" (AMZN)