Monday, April 20, 2015

"Etsy’s Stock Is A Découpage of Market Schadenfreude" (ETSY)

What he said.

From DealBreaker:
Turns out that Etsy’s first day of trading might have been as cuckoo bananas as it actually looked.
After soaring to Icarian (if Icarus had made his wings out of hemp and spirit glue) values on Thursday, during which it peaked at $35.74 a share, Etsy stock is now unraveling like a spool of ethically-farmed yarn… in the hands of Wiccans… sharing a drafty farm house....MORE
It appears Bess is training a new team in the DealBreaker style.*

Signposts: "Etsy’s Surging IPO Shows Losing Your Indie Cred Pays Off"

The IPO priced at $16 on Thursday so despite today's whack the stock is still up over 55%.
Not that I'd pay that much but it is what it is.

*I wonder whatever happened to that Matt Levine fellow, I liked his footnotes.

China Bets Big On Pakistan

From The American Interest:
Chinese President Xi Jinping landed in Islamabad today for two days of consultations with his Pakistani counterparts. Massive infrastructure projects are on the agenda, including coal and renewable energy plants, as well as a large highway project that will include pipelines and fiber optic cables leading to the port of Gwadar in Baluchistan. Islamabad is also looking to secure the purchase of up to eight Chinese submarines during Xi’s visit. If the sub deal is finalized, observers are not counting on it to be publicized during Xi’s visit.

Indian policymakers are no doubt watching the visit closely. Beyond the submarines, the development of Gwadar could give the Chinese navy an important foothold in the region. Last week, China secured a 40-year lease to operate the Gwadar port itself, which has been in development for years and could be completed as early as this year.Pakistani officials have suggested the project could hit $46 billion, but at least one source has pegged the looming deal at $28 billion. In either case, the investment dwarfs the previous U.S. investment project in Pakistan, which totaled $7.5 billion in 2009 and is considered a “massive failure” by some analysts. The United States has contributed $31 billion in aid to Pakistan since 2002, but most of it has gone to bolstering security services....MORE
From the Pakistan Herald:
Pakistan and China sign agreements for 8030 MW 14 power projects

And from the Daily Times (PK):
Chinese delegation assures to invest $3.5bn in Thar coal project

Climateer Line Of the Day: Blackstone Comments On the Oil Patch Edition

From Wolf Street:

The Chilling Thing Blackstone Said about the Oil Bust 
Regardless of how troubled oil and gas companies are, “if the assets are good, someone will own them,” explained David Foley, senior managing director of Blackstone Energy Partners.

He expected companies to buckle under the load of junk debt and kick off a long series of bankruptcies and assets sales at rock-bottom prices. The question was when.
That was in February. Private equity firms – the “smart money” – have been out in force for months, raising tens of billions of dollars, with the promise to their investors that they would pick up assets of all kinds on the cheap. They’ve been circling like vultures, waiting to swoop down and pick the best morsels off the carcasses soon to be strewn about the oil patch.

“The timing of having that capital available now really couldn’t be better,” Blackstone CEO Steve Schwarzman said at the time. He expected that it would take one-and-a-half years before oil and gas companies would be completely drained of cash and would get into serious trouble. But some of the service companies could run out of money and topple “very, very quickly,” he said. Over the next couple of years, there would be “all kinds of shakeouts.”

PE firms expected valuations to plunge much further as assets would hit the auction block. And so Blackstone president Tony James said that his people were “scrambling” to invest over $10 billion. They were all singing from the same page.

And PE firms continued raising money for their energy funds. A week ago, EnCap Investments in Houston closed its Energy Capital Fund X after having raised $6.5 billion. It had been “significantly oversubscribed,” the firm said; investors are clamoring for this sort of bottom-picking action by the smart money.

Blackstone, Carlyle Group, Apollo, and KKR together have raised about $30 billion for energy investments, according to Bloomberg. Walburg Pincus, Riverstone, and many others – they all have been raising billions of dollars each. The piles in dry powder grow by the day.

This is the “smart money.” The oil bust had wiped tens of billions of dollars from their energy portfolios, including KKR’s disastrous investment in Samson Resources. Someday, they’re going to get this right.
That’s the idea.

Then something unexpected happened. Other investors were despairing with negative yields in Europe and ludicrously low yields in the US, and they saw stock markets at precarious heights, and nothing looked appetizing. And maybe they wondered, “What the Fed is going on?” as Ryan Litfin wrote in Money from Heaven, Path to Hell.

But these investors saw one sector where risk had – very painfully – reentered the price calculus: energy. So they held their nose and began scooping up beaten-down energy stocks and junk bonds, and prices perked up. Seeing this, companies began to issue new junk bonds and even new equity, thus funding their permanently cash-flow negative operations for a while longer. Investors gobbled it all up. The whole sector began to levitate.

“These stocks are pricing oil for $75 to $80 a barrel – something I believe the market won’t see at least until the 2nd quarter of next year at the earliest,” wrote Dan Dicker, an oil-trader veteran, on Friday in Oil & Energy Insider: And he added....MORE
And the pull quote?
Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch,”
-Tony James, President, CEO, Blackstone

"Should economists rule?"

Professor Wren-Lewis throws a turd in the punchbowl that was a beautiful morning.
From Mainly Macro:
Tim Harford in the FT talks to seven random mainstream economists about their radical ideas for economic policy. (Podcast, not pay walled, here.) Nick Stern wants green cities (with much greater economic autonomy), Jonathan Haskel wants more spent on research (because the returns are very high), Gemma Tetlow wants to merge income tax with national insurance, Diane Coyle wants to reduce boardroom pay, John van Reenen wants new institutions to promote infrastructure, Kate Barker wants changes to how housing is taxed, including capital gains on main residences, and Simon Wren-Lewis wants ‘democratic helicopter money’.

You can find more details about democratic helicopter money here. The democratic bit is that the central bank gives the created money to the government on condition that it is used for a stimulus package, but the form of the stimulus package would be the government’s choosing. I was impressed that Tim managed to turn a very pleasant chat over coffee (while taking few notes) into a coherent account of my argument. The only point I might have added is that my suggestion of turning helicopter money democratic is in part to avoid some of the political difficulties he alluded to.

The common strand in many of these suggestions, which Tim draws out, is a desire to replace direct political control by something more technocratic. Now you could say that this is simply a power grab by economists. However if you think about the examples here, they represent important and widely recognised policy mistakes which tend to be universal and persistent: failure to deal with climate change, failure to invest enough in R&D, unnecessary complications in the tax system, runaway boardroom pay, failure to invest in infrastructure even when borrowing is ultra cheap, a broken housing sector and procyclical fiscal policy. It is not as if the status quo is doing just fine.

I would add just two observations. First, the argument is often not about ‘losing democratic control’, but instead about advice being open and transparent. The alternative to some advisory body, whose deliberations should be publicly available and subject to scrutiny, is often secret advice from the civil service, or worse still from policy entrepreneurs....MORE

The European Commission Does Venture Capital: Emotion Tracking Startup Realeyes

DARPA they ain't.

From Venture Capital Dispatch:
If you’re happy then we’ll know it. Realeyes crunches data on people’s facial movements to analyze reactions.
A London company that says it can track people’s emotions by watching them through their webcams or smartphones has received a €3.6 million ($3.9 million) boost from the European Commission.

The company, Realeyes, is sharing the grant with researchers at Imperial College London, University of Passau in Germany and British gaming company PlayGen, in an attempt to dive deeper into measuring people’s emotions and figure out whether they like what they are seeing.

“This is absolutely a new frontier,” CEO Mihkel Jäätma said. “It’s really taking emotional measurement to another level.”

Realeyes is one of a number of startups around the globe that crunches data on people’s facial movements to analyze reactions. Supporters say the technology could be used to increase driver safety, improve classroom learning or as a type of lie-detector test by police, though the work raises privacy concerns.

Realeyes, founded in 2007, has built up a database of more than five million frames of people’s faces. The bulk of the company’s 40 employees in Budapest and the U.K. are software engineers and scientists with specializations in image processing, artificial intelligence and other computational sciences. The files have up to seven annotations per frame that can say, for example, whether an eyebrow movement indicates surprise or confusion..
“If you’re smiling, we can detect that,” said Jäätma, who grew up in Estonia. “If you’re frowning, that indicates confusion. If you raise your eyebrows, that’s surprise. But of course there are other signals from other parts of the face which give more solid readings.”...MORE

Pity the Poor Elite

From The Wilson Quarterly:
“Elite” is the laziest slur in the book. Yet, on both the left and right, “elites” — however we define them — are getting whupped.

Pat McCrory needed a breather.

Though he won the North Carolina governorship in November 2012 with a pledge of centrist moderation, in the less than two years he had been in office, a relentless stream of criticism had washed away the Republican’s bipartisan goodwill. His positions on teacher pay, unemployment benefits, voter ID laws, and abortion rights — to list but a handful of his trespasses — provoked tremors of outrage that radiated far beyond the Old North State’s borders. Six months into his term, no less than a New York Times editorial was mustered in protest, an unsigned op-ed with a declarative title: “The Decline of North Carolina.”

In July 2014, McCrory stumbled into a chance to strike back. The tenure of North Carolina’s poet laureate had expired the previous month. While the position is ceremonially appointed by the governor, the nitty-gritty of selection is traditionally left up to the North Carolina Arts Council, the state’s arts agency. A special committee organized by the Council does the heavy lifting, soliciting applicants, evaluating them, and making a recommendation — in effect, only bothering the governor for a rubber stamp. Presumably, the leader of the nation’s tenth most-populous state has more important things to do.

On a Friday afternoon, a time slot typically reserved for news dumps of information you don’t want the press to cover, McCrory’s office issued a press release introducing the state’s new poet laureate: Valerie Macon, a state employee with the Department of Health and Human Services and the author of two works of poetry, both self-published.

Established North Carolina poets were livid. A Durham-based literary magazine publisher told the Charlotte Observer that the selection “was an act of utter arrogance,” and a former laureate complained to the Raleigh News & Observer that the governor “just didn’t give a damn.” This may not be an unfair assessment. Emails released in October revealed that McCrory's staff had requested information about selection protocol two days before Macon's appointment, but declined to act on it.

The governor may not have predicted the strong reaction to his announcement — the selection process for a poet laureate isn’t exactly known as a political “third rail” — but he seemed to relish a newfound opportunity to answer his critics. The seven poets who had served since the position was created in 1948 may have been distinguished, Gov. McCrory conceded, but this time, the door would be open to “people that aren’t always a part of the standard or even elite groups that have been in place for a long time."
This pivot to populism wasn’t an accident. In doing so, McCrory deployed the oldest tactic in the book of political warfare: elite bashing.

Pity the poor, unloved elite. Everywhere you turn, they’re getting whupped. Nary a day goes by that you don’t hear about their evil plans to bring ruination to our once-great nation. It’s hard to think of any other group as routinely and unquestioningly pilloried by commentators across the political spectrum, with the possible exceptions of ISIS and the Kardashian family.
Talk radio tirades against culture-making Hollywood mandarins and the New York Times-reading Prius drivers who worship them are a cliché by now — ditto attacks against the “liberal media” — but elite-pummeling isn’t restricted to pundits on the right. In books and blogs and TV, elites are being disdained and disowned by talking heads on the left, too.

Count MSNBC host Chris Hayes’s 2012 book, Twilight of the Elites, among a bountiful supply of examples. Stories on reliably liberal online outlets like Salon and Alternet regularly boast titles like “How Inbred Elites Are Tearing America Apart,” “Elites’ Strange Plot to Take over the World,” and “Bush Is the King of All Elite, Effete Snobs.”

The elites, we are to believe, are everywhere, lurking in the shadows as they plot society’s ruination. “Powerful and greedy elites,” warns The Huffington Post, will “scapegoat the schools.” In Jacobin, the feisty socialist magazine upstart, one recent (and representative) essay lamented “the near-total capture of the political system by elites.” Another HuffPo title reminds us that no one is safe from their clutches, not even little league and AYSO teams: “Youth Sports: For Everyone, or Elites?”

Peak elite-hate may have actually been reached in July 2014, when The New Republic published William Deresiewicz’s cover-story essay blasting the Ivy League. In the article — one of the most-shared pieces in TNR’s history — the former Yale instructor bemoaned that the Ivies are “exacerbating inequality, retarding social mobility, perpetuating privilege, and creating an elite that is isolated from the society that it’s supposed to lead.” The following month, Deresiewicz released a book. Its title? Excellent Sheep: The Miseducation of the American Elite and The Way to a Meaningful Life.

 Illustration by Zack Stanton. (Images via Brooks Brothers and Turner Home Entertainment)
All of this handwringing raises an obvious question: what actually makes an “elite”?

One place to start, perhaps, is the reliable stereotype from American popular culture: a WASP, probably of old-line stock, probably from America’s northeast, resplendent in topsiders and blue blazers, with second homes on Martha's Vineyard or the Hamptons, perhaps speaking in a Boston Brahmin accent. Think of Thurston Howell III, or the characters in books like A Separate Peace.

This milieu is the setting of Columbia sociologist Shamus Khan’s 2012 book, Privilege: The Making of an Adolescent Elite at St. Paul’s School, an ethnography of the prestigious New Hampshire boarding school. The “elitist” tropes aren’t entirely true: Khan, himself an alumnus of Pakistani and Irish heritage, observes that St. Paul’s has been drifting toward meritocracy, resulting in “an intentional diversity that few communities share or can afford.” 

Still, while the school may be shedding some of its aristocratic traits, its role as proving ground for the future wealthy and high-achieving seems to remain in force. Within this context, "elite" seems to be objectively descriptive. It’s not a slur.

In foreign affairs, the traditional definition of “elite” has been more straightforward. With so many countries in the grip of dictatorship, oligarchy, or kleptocracy, elites have been easy to identify: they’re the ones with money to spend and, frequently, immunity from the law....MUCH MORE

"‘Melt’ gene could lead to new kinds of chocolate"

From Futurity:

strawberry in chocolate
Scientists have discovered a gene involved in determining the melting point of cocoa butter, a critical attribute of the substance widely used in foods and pharmaceuticals.

The finding could lead to new and improved products, say researchers.

The finding by plant geneticists could also lead to new varieties of the cocoa plant that could extend the climate and soil-nutrient range for growing the crop and increase the value of its yield, they say, providing a boost to farmers’ incomes in the cocoa-growing regions of the world.

Cacao, Theobroma cacao L., is an understory tropical tree domesticated in the Amazon basin and today widely cultivated in West Africa, Central and South America, and Southeast Asia.

Around the world, more than five million cocoa farmers—and more than 40 million people total—depend on cocoa for their livelihood, according to the World Cocoa Foundation, which puts annual cocoa production worldwide at 3.8 million tons, valued at $11.8 billion.

Cacao pods, each containing around 40 seeds, are harvested approximately 20 weeks after pollination. The seeds contain about 50 percent total lipids (cocoa butter), which provide a main raw ingredient for chocolate manufacturing as well as ingredients for pharmaceutical and cosmetic products.

New kinds of chocolate?
Cocoa butter with altered melting points may find new uses in specialty chocolates, cosmetics, and pharmaceuticals, says lead researcher Mark Guiltinan, professor of plant molecular biology at Penn State.
For example, a chocolate with a higher or lower melting point would be useful for production of chocolate with specific textures and specialty applications.

“The ‘snap’ and ‘melt’ of chocolate are two very important textural features that determine the appeal of chocolate to consumers, and having new varieties of the cocoa plant that produce butter with different melting points would be a valuable resource to control those characteristics,” Guiltinan explains....MORE
We have so many posts on the dark goddess that it's easier to just do the search blog thing: chocolate

Sunday, April 19, 2015

ETFs May Be Moving Stocks in Unseen Ways

See also Izzy a year ago:
When ETFs make things more volatile
And a dozen others.

From Barron's ETF Focus:
A new study suggests that the funds may be herding equities together, especially in niche sectors like real estate and mining.

Are exchange-traded funds an unseen force, like gravity, that help determine stock-price moves? New research suggests that the rise of ETFs may be complicating stock pickers’ chances of selecting winners or losers. That could make it even harder for stock-fund managers to outperform their benchmarks as assets in ETFs grow.

The $1.2 trillion in U.S. stock ETFs is having a much larger impact on the market than the fund industry claims, according to a recent report from Goldman Sachs. At issue: Heavy trading of index-tracking ETFs appears to be herding individual stocks up or down together, particularly in niche industries such as real estate and mining.

Goldman’s equity research team contends that increases in ETF trading appear to be tightening correlations, or the tendency for individual stocks and sectors to move up or down in lock step, regardless of a company’s fundamentals.

ETF trading has grown to account for about one-quarter of overall share turnover, according to Goldman. That’s up from 10% to 15% in 2004. 

MOST ETF TRADES don’t affect the underlying stock market at all. The majority take place between buyers and sellers, just like stocks. But ETFs require a separate layer of traders—at the institutional level—whose function is to keep ETF prices in line with the value of their stock baskets. These specialized market makers, called authorized participants, regulate the number of outstanding ETF shares based on supply and demand.

In some cases, this act of creating or redeeming ETF shares can carry sway over price moves in certain stocks, say Goldman’s Katherine Fogertey and Robert D. Boroujerdi, the report’s authors. Put another way, ETFs can be the tail that wags the dog....MORE

Meet the Lawyer Taking on Uber and the Rest Of the On-demand Economy

---- ---- --- --- --------.
From Fusion:
Several years ago, Boston lawyer Shannon Liss-Riordan was visiting family and friends in San Francisco. While she was out at a restaurant in the West Portal, one of her friends pulled out his smartphone. “You have to see this, Shannon. It’s a new thing and it’s changed my life,” she recalls him saying. The friend fired up Uber, the car-hailing app. “You push a button and a car comes to pick you up.”

Then, Liss-Riordan says, her friend looked at her. “He saw what was going through my mind. Then he said, ‘Don’t you dare. You’re going to put them out of business.’”

Liss-Riordan, 45, has spent her entire legal career going after employers for allegedly short-changing their employees. She specializes in worker misclassification lawsuits—the illegal practice of companies who classify their workers as independent contractors, rather than normal employees, in order to avoid paying them benefits they’re owed under federal law. She’s filed class-action lawsuits on behalf of truck drivers, waiters, delivery men, cable installers, call center workers, and exotic dancers. FedEx and Starbucks are among companies that have paid out millions of dollars for misclassifying workers and misallocating workers’ tips, respectively, as a result of suits she’s filed.

Now, her sights are set on the so-called “on-demand economy”—the constellation of tech start-ups that provide transportation and delivery services at the tap of an app.

In recent months, Liss-Riordan has filed lawsuits against Uber, Lyft, Homejoy, Postmates, and Caviar—five of the largest on-demand start-ups in the world. These suits all boil down to a rather simple allegation: these companies pay the people who supply the equipment and manpower that power their businesses like independent contractors, while burdening them with the work expectations of employees. Representatives of Uber, Lyft, Homejoy and Caviar declined to comment on pending litigation, and Postmates did not respond to request for comment.
 U.S. District Judge Edward Chen noted that Uber sets drivers’ rates, screens them, can fire them, and needs them in order to make money. “The idea that Uber is simply a software platform, I don’t find that a very persuasive argument,” he said.
Harold Lichten, Liss-Riordan’s law firm partner, describes her as “a pit bull with a chihuahua in her mouth” when it comes to suing on-demand start-ups. “She will make life as difficult as possible for these companies,” he said. “Here’s Uber — this business model with $40 billion behind it, that is seen as the future — but if she’s correct about their needing to classify all of these drivers as employees, it destroys that model. And it means all these venture capital investors who have poured millions of dollars into the company have bought a pig in a poke.”...MUCH MORE
Also at Fusion:
Craigslist is the unsung hero of the on-demand economy
What’s inside Uber’s new magazine for drivers?
Leaked Lyft document confirms: competing with Uber is hell

"Happy Birthday to Moore’s Law" (plus party pooper Vaclav Smil)

First up, the Washington Post, Apr. 16:
Few revolutions can be said to have lasted for half a century, or to have wrought disruptive change at a predictable pace.

But that’s exactly the case with the digital revolution, which has seen computing get dramatically faster, cheaper and smaller every few years since the 1950’s.

The remarkable prophecy that anticipated that phenomenon is known as Moore’s Law, which turns 50 on April 19. In a four-page article for Electronics magazine, long-time Intel chief executive Gordon Moore (then head of R&D at Fairchild Semiconductor) made his famous prediction that, for the foreseeable future, the number of components on semiconductors or “chips” would continue to double every twelve to eighteen months even as the cost per chip would hold constant.

Moore originally thought his prediction would hold for a decade, but half a century later it’s still going strong. Computing power — and related components of the digital revolution including memory, displays, sensors, digital cameras, software and communications bandwidth — continue to get faster, cheaper, and smaller roughly at the pace Moore anticipated.

Moore’s Law is driven, as Moore explained, largely by economies of scale in producing chips, improvements in design, and the relentless miniaturization of component parts.  The smaller the chip, the cheaper the raw materials. Transistors, the building blocks for chips, have fallen in price from $30 each 50 years ago to a nanodollar today—roughly $0.000000000001.  That low price encourages more uses, which raises production and lowers costs in a virtuous cycle. Miniaturization also means a shorter distance that electricity has to travel to activate software instructions. Smaller, denser chips are consequently not only cheaper to make, they use less power and perform better. Much better. With each cycle of Moore’s Law, computing power doubles, even as price holds constant. It is the prime example of what Paul Nunes of Accenture and I call an “exponential technology.” It’s hard to get your head around the impact of a core commodity whose price and performance have improved by a factor of two every two years for half a century.  (Compare that to commodities such as oil or meat, which get worse and more expensive.) One example I use is to help make Moore’s Law concrete is to compare the performance, cost and size of the Univac I, sold in the mid-1950’s, with devices available now....MORE
From Medium, a deep dive:

How Gordon Moore Made “Moore’s Law”

The definitive story behind the rule that explained why our world changed — and is still changing — at a rate that’s still too awesome to grasp
On April 19, 1965, chemist Gordon Moore published an article in Electronics magazine that would codify a phenomenon that would shape our world. At its core was a non-intuitive, and incredibly ballsy, prediction that with the advent of microelectronics, computing power would grow dramatically, accompanied by an equally dramatic decrease in cost. Over a period of years and decades, the exponential effect of what would be known as “Moore’s Law” would be the reason why, for instance, all of us carry in our pockets a supercomputer that only years earlier would have cost billions of dollars and filled many rooms. We call them “phones.”

In a new and definitive biography of Moore — called, naturally, Moore’s Law —  authors Arnold Thackray, David Brock and Rachel Jones provide a thorough look at the man and his times. But perhaps its key section, printed below, tells the story behind the eponymous breakthrough that epitomizes the digital age — that fateful publication that still resonates a half century later.

Moore first began to develop his insight in 1959 when he worked for Fairchild Semiconductor, but he did not discuss the idea publicly for several years. In 1962 and 1963 he contributed some of this thoughts to, respectively, a science yearbook and a microelectronics textbook. But it was not until 1965, in that historic Electronics piece, that the world would see what became known as Moore’s Law: a regular doubling of computer power and halving of its cost.

Here is how Gordon Moore shared his “law” with the world. — Steven Levy

In February 1965, Gordon found his opportunity to engage directly with the wider electronics community: a letter from Lewis Young, editor of the weekly trade journal Electronics, asking for an in-depth piece about the future of microcircuitry. Electronics was well established and widely read, with a mix of news reports, corporate announcements, and substantial articles in which industry researchers outlined their recent accomplishments. It covered developments both within the semiconductor industry and in electronics more broadly, giving technology and business perspectives.

Young was planning a thirty-fifth anniversary issue, including a series titled “The Experts Look at the Future.” As the sole microchip expert in the issue, Gordon’s words would reach sixty-five thousand subscribers. It was the moment that he had been waiting for. He made a giant asterisk mark with his pencil at the top of Young’s invitation and underlined an exhortation to himself: “GO-GO.” Answering Young, he admitted, “I find the opportunity to predict the future in this area irresistible and will, accordingly, be happy to prepare a contribution.” Within a month he had drafted his manuscript: “The Future of Integrated Electronics.”

The piece reiterated much of what Moore had already written, but sought to be more engaging. Gordon’s confidence and comfort in his expert position shone through in his subtle use of dry humor and a clear, low-key style. His conscious attempt at warmth was designed to persuade readers both to buy into the future he foresaw and to help create it. Included, for the first time, were several explicit numerical predictions. He telegraphed the gist of his argument in a brief summary for the Fairchild lawyer who would review his draft: “The promise of integrated electronics is extrapolated into the wild blue yonder, to show that integrated electronics will pervade all of electronics in the future. A curve is shown to suggest that the most economical way to make electronic systems in ten years will be of the order of 65,000 components per integrated circuit.”

The claim was nothing if not bold. Sixty-five thousand transistors per silicon microchip (up from sixty-four in 1965) would be a remarkable level of complexity. These microchips with sixty-five thousand transistors would represent the most economical way to make electronic products. Gordon’s message was simple and stunning. Silicon microchips made better and cheaper electronics. Applications would widen throughout industry, technology, and society, and possibilities would emerge for computers to develop unprecedented capabilities.

In his opening paragraph, Moore set the tone: “The future of integrated electronics is the future of electronics itself.” Since the actual future lay beyond his reach, he aimed not “to anticipate these extended applications, but rather to predict for the next ten years the development of the integrated electronics technology on which they will depend.” Silicon microchips were now “an established technique.” Nowhere was this truer than in military systems, where reliability, size, and weight requirements were “achievable only with integration,” making silicon microchips mandatory. Beyond this, the use of microchips in mainframes was already surpassing conventional electronics in both cost and performance. Complex microchips of high quality would “make electronic techniques more generally available throughout all of society,” enabling the smooth operation of “many functions that are done inadequately by other techniques or not at all.” Existing technologies would be refashioned or replaced by electronics-based approaches, providing fresh technical, social, and economic functions....MUCH MORE
Finally, Vaclav Smil  writing for the brainiacs at IEEE Spectrum:

Moore’s Curse

There is a dark side to the revolution in electronics: unjustified technological expectations
In 1965, the year in which the number of components on a microchip had doubled, Gordon Moore predicted [pdf] that “certainly over the short term this rate can be expected to continue.” In 1975 he revised [pdf] the doubling rate to two years; later, it settled down at about 18 months, or an exponential growth rate of 46 percent a year. This is Moore’s Law.

As components have gotten smaller, denser, faster, and cheaper, they have increased the power and cut the costs of many products and services, notably computers and digital cameras but also light-emitting diodes and photovoltaic cells. The result has been a revolution in electronics, lighting, and photovoltaics.

graphic link for Moore's Law special reportBut the revolution has been both a blessing and a curse, for it has had the unintended effect of raising expectations for technical progress. We are assured that rapid progress will soon bring self-driving electric cars, hypersonic airplanes, individually tailored cancer cures, and instant three-dimensional printing of hearts and kidneys. We are even told it will pave the world’s transition from fossil fuels to renewable energies.

But the doubling time for transistor density is no guide to technical progress generally. Modern life depends on many processes that improve rather slowly, not least the production of food and energy and the transportation of people and goods. There is no shortage of historical data to illustrate this reality, and I have calculated representative rates for the decades coinciding with the development of transistors (the first commercial application was in hearing aids in 1952) and microprocessors, as well as the rates for the entire 20th century, or even longer.

Corn, America’s leading crop, has seen its average yields rising by 2 percent a year since 1950. The efficiency with which steam turbogenerators convert thermal power to electricity generation rose annually by about 1.5 percent during the 20th century; if you instead compare the steam turbogenerators of 1900 with the combined-cycle power plants of 2000 (which mate gas turbines to steam boilers), that annual rate increases to 1.8 percent. Advances in lighting have been more impressive than in any other sector of electricity conversion, but between 1881 and 2014 light efficacy (lumens per watt) rose by just 2.6 percent a year, for indoor lights, and by 3.1 percent for outdoor lighting (topped by the best low-pressure sodium lamps).

The speed of intercontinental travel rose from about 35 kilometers per hour for large ocean liners in 1900 to 885 km/h for the Boeing 707 in 1958, an average rise of 5.6 percent a year. But that speed has remained essentially constant ever since—the Boeing 787 cruises just a few percent faster than the 707. Between 1973 and 2014, the fuel-conversion efficiency of new U.S. passenger cars (even after excluding monstrous SUVs and pickups) rose at an annual rate of just 2.5 percent, from 13.5 to 37 miles per gallon (that’s from 17.4 liters per 100 kilometers to 6.4 L/100 km). And finally, the energy cost of steel (coke, natural gas, electricity), our civilization’s most essential metal, was reduced from about 50 gigajoules to less than 20 per metric ton between 1950 and 2010—that is, an annual rate of about –1.7 percent....MORE
All of which, having been properly absorbed via cosmosis-- knowledge gained across a semi-permeable cosmic membrane, or something--led to last Wednesday's declaration by yours truly:
We've been tracking the progress of the science for a couple decades now and can report, from hard won experience, there ain't no Moore's Law for batteries....

Grantham, Mayo: "The Case for Not Currency Hedging Foreign Equity Investments: A U.S. Investor’s Perspective"

As always, apologies to Heer van Otterloo.
From Bloomberg: 
Currency Hedges for Non-U.S. Stock Investments Seen Backfiring
U.S. investors who hedge against a rising dollar when buying shares overseas may end up with more risk rather than less, according to Catherine LeGraw, a member of Grantham, Mayo, Van Otterloo & Co.’s asset-allocation team.

“There is little notable risk reduction beyond a one-year holding period,” McGraw wrote two days ago in a report. “For longer investment horizons, hedging has resulted in marginally higher volatility.”
The attached chart shows this by comparing the performance of the MSCI World Ex-U.S. Index in local currencies and dollars since March 2005. The local index’s volatility for the 10 years ended in March was 14.6 percent, about four percentage points less than the dollar version, according to data compiled by Bloomberg. Both consist of stocks in 22 developed markets.

Futures, options and other types of currency hedges have become less effective over time because companies have become more global, McGraw wrote. The Boston-based analyst cited data showing companies in the MSCI EAFE Index, a gauge of developed markets in Europe and Asia, generate less than 35 percent of sales domestically. The figure fell from 60 percent in 1992.

Even if the hedging is effective, investors may find that their stock holdings are just as volatile as they were before, she wrote. That’s the case because international shares would track U.S. equities more closely and currency contracts might magnify risks stemming from unusual events, the report said....
Here's the white paper at GMO's website.

Friday, April 17, 2015

"The End of Asymmetric Information"

Cowen and Tabarrok at Cato Unbound:
Might the age of asymmetric information – for better or worse – be over?  Market institutions are rapidly evolving to a situation where very often the buyer and the seller have roughly equal knowledge. Technological developments are giving everyone who wants it access to the very best information when it comes to product quality, worker performance, matches to friends and partners, and the nature of financial transactions, among many other areas.

These developments will have implications for how markets work, how much consumers benefit, and also economic policy and the law. As we will see, there may be some problematic sides to these new arrangements, specifically when it comes to privacy. Still, a large amount of economic regulation seems directed at a set of problems which, in large part, no longer exist.

Used Cars
Let’s start with a simple and classic illustration from the economics literature, namely George Akerlof’s pioneering paper from 1970 about asymmetric information and the market for used cars. In the core version of this model, sellers have better information than buyers: sellers know the value of their car but buyers know only the value of used cars on average. Since buyers don’t know the quality of a seller’s car they will be willing to pay only the average value. But if buyers are only willing to pay for average quality, why would anyone want to sell a car that is of above average quality, a plum? When the plums exit the market, the average value of the used cars for sale falls even further and buyers are willing to pay even less. Following the logic, we end up with a situation where only a few lemons are bought and sold, thus the moniker “the market for lemons.”

The market for used cars, however, has been one of the earlier examples where market institutions largely (albeit not completely) solved the problem of asymmetric information. Even in 1970, the market for used cars was extensive, and some institutions existed to make information more symmetric. Perhaps the most important of these was the odometer. First used by Alexander the Great to measure distances between cities, modern odometers were standard on almost all cars by 1925. The odometer reading is the single most important piece of information about a specific car that determines its value, and that is why used car prices are adjusted for mileage. The law contributes to this solution by making odometer tampering illegal and successive state and federal laws have increased the penalties and enforcement over time. In 1972, for example, the Federal Odometer Act made tampering a federal felony. As with other crimes, punishment doesn’t eliminate tampering but it does reduce it quantity thus making odometer readings more trustworthy and quality information more symmetric. Even more importantly, the Truth in Mileage Act of 1986 requires that sellers disclose and record the odometer reading on the title at every transfer of title. The 1986 Act greatly reduced the benefits of tampering because the odometer could not be rolled back prior to the reading from a previously recorded sale.

Since the 1986 Act, odometer readings and recordings have become more frequent. Odometer readings, for example, are now made at emission inspections and safety inspections. In many states such readings are made once per year. Services such as CarFax collect and report odometer readings from title transfers and inspections, making the information easily available for a small fee. In the future, states or the private sector could provide this information online for free. In addition to odometer readings, services such as CarFax collect information from service stations and insurance companies about repairs and accidents. The information collected is incomplete but it can be very useful in the important cases, such as when a car has been flooded or totaled.[1]

Perhaps the most telling fact is that the market for used cars is already some three times larger than the market for new cars (as measured by unit sales, see Bureau of Transportation Statistics). In 2012, for example, there were 40.5 million used car sales compared to 14.5 million new car sales (NIDIA 2013). On average, used cars sell for about a third the price of new cars, so the total size of the two markets is similar with both around $330 billion in sales. There just aren’t that many lemons to sustain such a high transactions volume. In fact both high-quality and low-quality used cars are available in fairly liquid, fairly transparent markets.

Information symmetry about the quality of automobiles is very likely to increase. Almost all vehicles today have “event data recorders” aka “black boxes,” similar to those found in airplanes. Event data recorders record data on vehicle performance and diagnostic checks but also speed, braking, seatbelt use and other information relevant to safety and car crashes. Some car companies, most notably Tesla, can collect such information remotely or stream it in real time. Tesla, for example, collects information on a vehicle’s odometer, service history, speed, location, battery use, charging time, braking, starting and stopping times, air bag deployment—even radio and horn use.[2] When a vehicle is sold the data transfers with the vehicle. It is now possible to prove that a used car really was driven by a grandma just on Sundays.[3]
Asymmetric information is no longer a plausible description of the used car market and, as a result, we should not be surprised that these markets are thriving, whether in terms of volume, diversity of product, or their ability to deliver a reliable purchase at a reasonable price.

What about the adverse selection argument as it applies to health insurance?  There too it seems that we are seeing a rapidly increasing symmetry of information.

Black boxes for people are not yet standard, but wearable sensors can monitor movement, heart rate, and heart rhythm, blood pressure and blood-oxygen levels, and glucose levels and other health-related statistics. Such information can be recorded and reported through smartphone apps, watches, and other wearable devices. Life insurance firms already have enough information from actuarial tables to make a good guess about an individual’s health. In the data we see that life insurance rates decline with the purchase of larger policies, which is the opposite of the prediction of the adverse selection model, namely that rates should increase with purchases (Cawley and Philipson 1999).

The actual problems with health insurance markets have less to do with information asymmetry and adverse selection than with too much information. That can make some people’s insurance very expensive at actuarially sound rates. For instance if you have a cancer of a given kind, this is verifiable to the outside world, and if the treatment costs are $200,000, the cost of an insurance policy will in turn be about $200,000. Buying the policy won’t be cheaper than buying the treatments, and in that sense the market for insurance is not always present. That is a very real public policy problem, but it is not well understood by invoking standard theories of asymmetric information.

The cheap sequencing of the genome may accelerate and intensify these issues. Science still is not able to infer so much from a sequenced genome, but to the extent this changes medical information and indeed information about the person more generally will become more public. Even if privacy legislation is in place, the market equilibrium may induce a lot of disclosure, because employers and others (potential dating partners?) will infer negative information from a lack of disclosure (Tabarrok 1994). In the limiting case we can imagine that each person will carry indicators of genetic information and also of environmental upbringing, allowing other parties to evaluate that individual much more accurately than before.

Moral Hazard
Moral hazard is another kind of asymmetric information problem which very often can be tolerably overcome with cheap, ubiquitous information. By moral hazard we mean the tendency of a better informed party to exploit its information advantage in an undesirable or dishonest way; for instance it is moral hazard when a worker shirks on the job or when a business enterprise takes too much risk at the possible expense of its bondholders....MORE
HT: Abnormal Returns 

And a couple responses.

Chartology: Euro

1.0794 up 0.0031 (.29%)
From Nifty Charts:

IRS Says Texas Billionaire & Late Brother Owe $3 Billion

Mr. Wyly may have a case against his advisers should the Federales prevail.

From CBS-Dallas:
The IRS wants $3.2 billion to cover back taxes that it says are owed by a prominent Texas businessman and his late brother who the IRS says hid income by setting up overseas trust funds.

The Internal Revenue Service detailed its claim in documents filed Wednesday in U.S. Bankruptcy Court in Dallas. It seeks to recover more than $2 billion in unpaid income taxes, interest and penalties from Sam Wyly and more than $1.2 billion from the estate of his brother, Charles Wyly.

The late Charles Wyly, who died in a 2011 car wreck in Aspen, Colorado, was the billionaire who donated $20 million to build the landmark theater bearing his and his wife’s namesake in the AT&T Performing Arts Center in Dallas.

Stewart Thomas, a lawyer for the Wylys, called the IRS claims “unfair and absurd.”

“The IRS has known about these transactions for over 20 years, but they never informed the Wylys that they owe a penny of additional tax,” Thomas said.

Sam Wyly filed for bankruptcy in October, five months after a civil jury in New York found the brothers had engaged in a 13-year fraud that involved creating a web of offshore trusts and subsidiaries to hide stock sales.

A federal judge in February approved Securities and Exchange Commission fines of $198 million against Sam Wyly and $101 million against the estate of his brother, who died in a car crash in 2011.

At the time of the bankruptcy Sam Wyly listed assets of $100 million to $500 million, but his lawyers said he needed to file for bankruptcy protection “due to the massive costs of investigations and then litigation” by the SEC and the collection of the court judgment.

The Wylys built, grew and sold several companies including Sterling Software, which they sold for $4 billion just before the dot-com bubble burst in 2000, and Michaels Stores, which was sold in 2006 for $6 billion....MORE

Los Angeles Schools Eliminate Pearson Curriculum, Pearson Says You'll Miss Us (PSO; AAPL)

The story thus far, via AppleInsider:

Pearson, not Apple, to blame for failed L.A. schools technology program
Though the Los Angeles Unified School District's demand for a multi-million dollar refund from Apple has grabbed headlines, the failure of the $1.3 billion program to create a new digital curriculum for Los Angles students appears to lie primarily with educational publishing company Pearson.
In addition to threatening litigation against Apple and Pearson — the two primary contractors on the project —  the district has also asked for refunds from Chinese PC manufacturer Lenovo and California computer distributor Arey Jones, according to the Los Angeles Times. Pearson's unusable software was cited in those requests as well.

In March, project director Bernadette Lucas told LAUSD staff in an internal memorandum that just 2 of 69 schools use Pearson's materials regularly, thanks to technical or other issues. The balance "have given up on attempting regular use of the app," she wrote.

Under the terms of Apple's contract with the district, the company was responsible for provisioning one iPad per student with a number of apps, including Pearson's digital curriculum, on board. Pearson acted as a subcontractor for Apple, and was slated to deliver the new curriculum in three phases.

According to a Pearson scope-of-work document attached to the project, the curriculum was to be a "unique digital design created expressly to make use of the Apple iPad."

Critically — and despite being listed in workflow documents as a prerequisite — Pearson's software was not ready prior to the start of the project. District administrators were only provided with samples.

This means that in effect, the district bought iPads to run software that did not yet exist.

"I believe that it is time for Pearson to either deliver on its promises immediately or provide us with a refund so that we can purchase curriculum that actually works for our students," board member Monica Ratliff said....MORE
Pearson disagrees:
“First of all, I think it’s a brilliant product,” said Sir Michael Barber, the chief education advisor at Pearson. Barber called the Pearson system innovative and explicitly tied to new learning standards adopted by California and 42 other states.

“It’s got that emphasis on depth of learning as well as coverage,” he said. “You have to learn the ideas and then apply the ideas.”

We've been interested in Pearson because of what they're doing in virtual reality, as noted in "Facebook, Oculus, And Businesses' Thirst For Virtual Reality":
One of the least talked about aspects is the use of VR in education. Because the mind has trouble distinguishing between virtual reality and the outside world you should be able to get people to believe almost anything you want them to accept, given enough repetition and an engaging story line. Whether the learner has deep understanding is pretty much immaterial.

Pearson, the edu/testing co. with the Financial Times and Economist attached will be moving in this direction.
Think deeply immersive multiplayer gaming as an example, then put on some virtual reality goggles.
Quite amazing.  
“Immersive Journalism” Using Virtual Reality to Put the Viewer In the Story
We've noted that Pearson PLC, owner of the Financial Times was interested in VR for the classroom.
Here's another angle they may be looking at. 

The Most Expensive Pineapples Are Grown In England

From Lucky Peach:

Food & Consequences: Pineapple Expre$$
Some of the most expensive fruits in the world are the £10,000 pineapples grown at the Lost Gardens of Heligan, in Cornwall, England. They aren’t actually for sale; £10,000 is what gardeners estimate each one might fetch at a charity auction. The high price is a function of high latitude. Cornwall has mild winters, but it’s a lot closer to the Arctic Circle than it is to the Tropic of Cancer. The Lost Gardens sit at fifty degrees north—the same latitude as Kiev and northern Newfoundland, farther north than any point in the contiguous United States—and yet the pineapples are grown without space heaters or humidifiers, or any electricity at all.

The English have led the world in pineapple appreciation ever since they first encountered the fruit in the Caribbean. In his mid-seventeenth-century travel narrative, A True and Exact History of the Island of Barbados, Richard Ligon devotes a long, rapturous passage to the “Pine,” which contains “all that is excellent in a superlative degree, for beauty and taste.” But pineapples are tropical fruits, and before the age of steam there was no way to get them across the ocean before they rotted. Since the plants take about eighteen months to bear fruit, they can’t be grown as annuals in cold climates. And so, in order to grow the fruit at home, the English adapted an exceptionally clever Dutch method called the “pineapple pit” (or pineapple stove, or pinery-vinery). One of these structures was unearthed at the Lost Gardens of Heligan in 1991, and today it is the only active pineapple pit in the world....MORE

Illustration by Kaye Blegvad

EIA: Weekly Natural Gas Supply/Demand Report

Front futures $2.663 down 2.1 cents. We've been betting lower since last December and with the market solidly in the shoulder season don't expect much change for at least the next 4 minutes.
From the Energy Information Administration:
Mild temperatures lead to modest price declines. Prices remained relatively low at most market locations during an uneventful week with mild temperatures and relatively low demand from both the heating and cooling sectors in most regions. Henry Hub spot prices fell from $2.67/MMBtu last Wednesday to $2.58/MMBtu yesterday, and price movements across much of the country were similar. At the Chicago Citygate, prices fell from $2.60/MMBtu last Wednesday to $2.54/MMBtu yesterday, hitting a weekly low of $2.48/MMBtu on Friday. At the PG&E Citygate in San Francisco, prices fell from $2.91/MMBtu last Wednesday to $2.86/MMBtu yesterday.

Northeast prices fluctuate. Prices in the Northeast fell week over week, dropped more than other areas, and traded in a broader range. Prices at the Algonquin Citygate, which serves Boston, began the week at $3.58/MMBtu last Wednesday, rose to $3.82/MMBtu the next day, then ended the week at $2.60/MMBtu. At Transcontinental Pipeline's Zone 6 trading point for New York City, prices began the week at $2.73/MMBtu, fell to $1.83/MMBtu on Friday, then ended the week at $2.26/MMBtu....
Deviation between average and normal (°F)
7-Day Mean ending Apr 09, 2015
Mean Temperature Anomaly (F) 7-Day Mean ending Apr 09, 2015

Climateer Line of the Day: Words As A String Of Pearls Edition

I guarantee you my brain does not run fast enough to have ever had the sequence of thoughts represented by these pixels:
...Can Etsy grow that fast? 
Maybe it has unleased the hobbyist instincts of a new generation of interconnected micro-entrepreneurs wagging the long tail of demand for individualised consumption....
-Dan McCrum at FT Alphaville's The artisanal of valuation

So I Asked the Twitter For #weatherdongs

The blogger is a Professor at Duke who sometimes posts on matters economic.
From Kids Prefer Cheese:

The Culture that is Oklahoma: #Weatherdong edition 
Tornado season has kicked off right on queue, with Moore taking a glancing blow, but for savvy Okies everywhere, the fun is watching the local news folks go absolutely crazy and in looking for #weatherdongs on the TV radar.

Here's some examples (apologies in advance to the LMM):


The Global Risks Landscape 2015

I missed this when the Davos gang released it.
Via What's Next Top Trends (Mar. 18, 2015)
Darn, no robot uprising….
Source: World Economic Forum
Screen shot 2015-03-18 at 09.50.32

Thursday, April 16, 2015

For Sale: Big House In Alpine New Jersey

From Homes of the Rich:

The Stone Mansion In Alpine, NJ Re-listed For $49 Million
Location: 1 Frick Drive, Alpine, NJ
Square Footage: 30,000
Bedrooms & Bathrooms: 12 bedrooms & 19 bathrooms
Price: $49,000,000
The incomparable “Stone Mansion” estate, located at 1 Frick Drive in Alpine, NJ, has been re-listed yet again. Situated on 6 acres in the “Estates At Alpine” section of Alpine, the mega mansion first hit the market in 2010 for a whopping $68 million. It then went down to $52 million, shot back up to $56 million and then lowered to $49 million…where is has been on and off the market for that price for awhile now.

The breathtaking stone home was designed by architect James Paragano and features approximately 30,000 square feet of living space on 4 floors with 12 bedrooms....MORE
Your booze would be very happy here:

Signposts: "Etsy’s Surging IPO Shows Losing Your Indie Cred Pays Off"

The artisanal schtick had gotten so mockable that "Ye Olde Artisanal Stock Pickery & Son" (or 'Equity investing as a luxury good')" was damn near non-fiction.
And then there's Etsy.
From Wired:
Etsy began its life as a publicly traded company today, entering a new and apparently lucrative era for the online marketplace that once crafted an identity as an artisanal alternative to mainstream marketplaces.
Shares opened at $31, a huge 94 percent surge from its initial public offering price. With stock now trading at over $34 a share, that values the company at close to $4 billion. The company raised $267 million in total.

For many of Etsy’s 1.4 million sellers and 19.8 million buyers, today’s IPO success is likely bittersweet. It represents the culmination of a protracted period of hand-wringing and sometimes bitterness among Etsy’s community of crafters and artists as the company made moves into the mainstream. In the fall of 2013, in a bid to increase revenues, Etsy changed its terms of service to let sellers offer goods outsourced to massive manufacturing partners rather than made by their own hands. This offended some of the site’s early users, who saw the deed as Etsy selling its soul. Some even moved their operations off the site.

But the decision paid off, boosting revenue from $125 million in 2013 to $195 million in 2014. And judging from today’s successful IPO, investors like that trajectory. Yes, $4 billion is still a far cry compared to the valuations of its bigger competitors: eBay ($69 billion), Amazon ($178 billion), and Alibaba ($210 billion). By those comparison, you might even still call Etsy “niche.”

Still, going corporate could still create strain as Etsy tries to negotiate the expectations tied to its original brand identity while satisfying its obligation to all its new shareholders. Signs of that tension appeared even before the IPO. In an unconventional move, the company allotted five percent of its shares to its sellers and other smaller investors, giving them the opportunity to buy as much as $2,500 in stock before the company’s public debut. That reportedly frustrated some institutional investors because it shrunk the pool of shares available to them....MORE
Artisanal Pencil Sharpener Considers Career Change  
"The Economics of Artisanal Chocolate" (Here at Zero-bound Chocolates, We Believe...)
"Why Does This Bar of Chocolate Cost $260?"
Talking to New York’s First, and Only, Mustard Sommelier
 The Future Will be Artisanal Everything (HAIN; AHFP)
I'm in the Wrong Business Part 625: "$20 for a bottle of water? Your water sommelier will bring the menu right away" 
The World is Going Artisanal-- Caffeine: The Magazine
Testing Small-batch Artisanal Portfolio Construction With Cliff Asness and Grantham, Mayo's James Montier

"About that US Dollar strength…."

Following up on "Dollar Dump Sends Oil, Bonds & Stocks Surging".
The cash dollar index is down a bit more, 97.40 versus 97.52 when the above was posted.

From Dragonfly Capital:
The US Dollar strength has been a major focal point in the financial markets. Since it took off in July the Dollar Index has risen 25%. That will get some attention. No matter if it is caused by weak global currencies or strength at home. With the consolidation since it peaked over 100 in March, many are wondering if the strength is over. Only time will tell. But there are some interesting clues playing out in the chart of the price action.

The chart below shows that rise. A very orderly stair step fashion. That is until it hit 100.71 in early March. Since then it has been a broad messy consolidation with a bizarre intraday sell off two days after the peak. But on close inspection that mess reveals itself as a harmonic pattern. And that spike down is significant. The 2 triangles outline the ‘W’ shape of a bearish harmonic Bat. That pattern completed Monday with a touch at the 88.6% retracement of the initial downward leg on the spike.
usd d
The reversal has now met its first target at 98.44, a 38.2% retracement of the entire pattern. It can easily reverse higher here or continue to the next target at 97.03, a 61.8% retracement. Either one would show continued strength and have no impact on the uptrend from July....MORE

"The Rockefeller Family Offloads Its Oil Holdings" (and we should start taxing foundations)

Personally I think it's time to tax foundations (and carried interest) and just do away with these multigenerational wealth (and power) transfer entities. More after the jump.

From Penta:
The Rockefeller Brothers Fund—the $866 million-asset foundation started in 1940 by John D. Rockefeller Jr.’s five sons—announced in September that the family would divest itself of all their coal, tar-sands, and fossil-fuel investments held in the fund’s endowment. The eight Rockefeller family trustees and nine outside board members decided the fund needed “to better align its endowed assets with its mission” of combating climate change.

The irony of Standard Oil’s heirs shedding fossil fuels wasn’t lost on the media. “Rockefeller Brothers Fund forsakes its legacy,” screeched the tabloid headline of normally polite NPR. The fund holds less than 5% of its portfolio in fossil fuels, down from 7% when it began divesting in 2014, and it has reduced its coal and tar-sands assets to just 0.8% of the overall endowment. RBF hopes its endowment will be fossil-fuel free in the next three years.

Seven months after the announcement, Penta circled back with a pointed question: Where are the Rockefeller heirs reinvesting their former “dirty” money? The answer: clean technologies like solar and wind energy. Some readers might roll their eyes, but we’re giving them a pass. The Rockefeller family foundation is shrewdly leveraging its asset base, not just its grants, to have more impact in the family’s chosen field of battling climate change. “If we’re only using the 5% we’re required to pay out each year in grants,” reasons Stephen Heintz, president of RBF, “we’re underutilizing our assets.”

Clean-energy investments will eventually make up as much as 10% of the fund’s overall endowment. But earning healthy returns from a portfolio is rather important, too. Will their squeaky-clean investments fare better than fossil fuels? It’s too soon to tell, concedes 35 year-old Justin Rockefeller, RBF trustee and son of John D. the fourth. “But it’s obviously helped us that the price of oil dropped,” he says, before dryly adding that there are “some conspiracy theories out there.”...MORE

Over the last few years I've come to believe that all income, earned and unearned, should be taxed at the same rate, that preferential taxation of capital no longer leads to the intended policy effects of job creation and increasing capital investment in plant. property and equipment but rather is a bought-and-paid-for scam perpetrated by the financier class.

On a related point, it's time to get rid of the carried interest loophole which taxes income at cap gains rates for private equity and hedge funds.
That carried interest should not be treated as a capital gain can be proven quite easily.
Show me one tax return where a carried interest capital loss was allowed.
[you won't be invited to any of the meetings ever again -ed]

At the lower end of the income scale there should be some minimum tax. Everyone should have some skin in the game.

I'll be coming back to all these topics throughout 2012, in the meantime here's the granddaddy of Econ papers for folks interested in this stuff, sincere thanks to the reader who turned my vague recollection of the thesis into an actual PDF copy. It is as pertinent and fresh today as the day it was written, 34 years ago.

By Mason Gaffney
A paper delivered to the National Tax Association, Chicago, August, 1978.
Adapted for use in a course in Macro-economics, Winter, 1996.

We hear a lot these days about the need for more capital to make jobs. Some of what we hear and read we may discount as self-serving, lobbying for more preferential tax treatment of profits. Yet there is a case argued by sincere and public-minded people on objective grounds which we must take seriously.

It had better be a good case, because it goes far toward destroying the progressivity case, the one on which the American public has bought the income tax concept. Preferential income tax treatment of property income cuts off the top brackets of income receivers from tax liability, especially when we exempt capital gains. Preferential treatment exempts or favors the unearned increment to land values, especially again when we favor capital gains. The thrust of proposals being seriously advanced today is to convert the income tax into simply another payroll tax, socializing a large share of personal effort while eliminating the public equity in the land and capital resources of the nation.

Preferential tax treatment for property also destroys the neutrality or uniformity argument for income taxation. It encourages substituting capital and land for labor. It forces higher rates on personal effort, thus weakening the incentive to work while maximizing the incentive to lobby in legislatures and the Congress for public works and other federal outlays which create unearned increments to land values....MUCH MORE

"Dollar Dump Sends Oil, Bonds & Stocks Surging"

Concerned reader may have wondered why no oil posts today.
Well..., oil is trading captive to the dollar and despite opening lower the futures seem bound and determined to trade higher.
$56.82 last off of a low of $55.07. The Dollar Index is now down about .80% at 97.52.

From ZeroHedge:
The sudden decision to buy EUR and dump USDs (after a slew of Fed speakers spewed their usual spew) has sparked a buy everything trade across markets as bonds, stocks, and crude are surging...

As EURUSD nears 1.08...

Charts: Bloomberg

Very Large Landowner Puts Empire Up For Sale

From Reuters:
Australia's largest private land owner will sell its cattle operations, including the world's largest ranch and an area equivalent in size to South Korea, to raise cash for other businesses and investments.

S. Kidman & Co said it will sell its privately owned 11 cattle stations and a feedlot, complete with more than 200,000 head of cattle and more than 100,000 sq km (25 million acres) of land spread across Western Australia, the Northern Territory, Queensland and South Australia.

The announcement of the sale - which is expected to attract significant foreign interest - comes a month after the government said it would clamp down on foreign ownership of agricultural land.

The cattle stations on offer include Anna Creek, the world's largest cattle farm at more than 23,000 sq km.
S. Kidman & Co managing director, Greg Campbell, said the sales decision by the Kidman family was driven by a desire to capitalise on demand for Australian agricultural assets....MORE
Meanwhile, Canada's National Post highlights one of the ranches:

ScreengrabThis page from the S. Kidman & Co. website shows the Anna Farm property, which is larger than New Jersey.

"A Grand Theory of Wrinkles"

From the Simons Foundation's Quanta Magazine:

A collaboration between mechanical engineers and mathematicians has revealed universal rules for how wrinkles form.

Under pressure, curved surfaces transition from a regular, dimpled pattern to one with irregular wrinkles.
Norbert Stoop
Under pressure, curved surfaces transition from a regular, dimpled pattern to one with irregular wrinkles.
Pedro Reis, an engineer at the Massachusetts Institute of Technology, had long been interested in how things wrinkle. For example, a dimpled surface like that of a golf ball offers less air resistance than a smooth sphere. If a flying object could dimple or wrinkle on command, Reis thought, it could alter its own aerodynamics midflight.

Reis constructed silicone test spheres and sucked air out of them. He noticed that under pressure, some of the spheres formed the dimples he wanted, but some formed squiggly, labyrinthine patterns instead. Some had both dimples and labyrinths. When a member of his group shared the puzzle with mathematicians at MIT, they were intrigued: The wrinkling patterns resembled the stripes and swirls that appear when you heat a thin layer of oil, a phenomenon called Rayleigh–Bénard convection. Those phenomena had simplified, calculable equations — so why shouldn’t wrinkles have a simplified equation too?

Earlier researchers had worked backwards from specific wrinkling effects to create simulations that worked in single cases, but nobody had simplified the full elastic equations from the ground up to describe all wrinkling behavior — there was not yet a universal theory of wrinkles. It had been unclear which of the many variables were important.

Reis and the mathematicians started to go over the detailed body of experiments that Reis’s group had assembled. When they examined the data from the rubbery spheres, the researchers found that just two factors controlled the formation of patterns: the curvature of a lower layer as compared to the thickness of the wrinkling layer on top, and the stress applied to that wrinkling layer. Films over less-curved surfaces would quickly transition to hybrid or labyrinth forms when put under stress. Setups that were more curved with a thicker layer on top would form a hexagonal layout of dimples and then, if stressed enough (as when Reis pulled air from inside the spheres), would eventually go labyrinthine as well. Releasing the stress would transition the surface back. “What’s interesting is not just that these two parameters are important, but that all the other parameters are not important,” said Norbert Stoop, one of the MIT mathematicians. The researchers found that the stiffness of the wrinkling layer, for instance, has no effect on the outcome. “Our theory you could basically apply to the surface of the moon or Mars, or the surface of a grape.” ...MORE
Also at Quanta:
A mathematician who has analyzed card shuffling for decades is tackling one final nemesis: “smooshing.”