Wednesday, July 27, 2016

The Annotated Fed Statement

A handy format from The Aleph Blog:
June 2016July 2016Comments
Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate.FOMC shades GDP down and employment up, which is the opposite of last time.
Although the unemployment rate has declined, job gains have diminished.Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Sentence moved up in the statement.  Expresses less confidence in the labor market.
Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft.Household spending has been growing strongly but business fixed investment has been soft.Drops comments on the housing sector and net exports.
Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.No change.
Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.No change.  TIPS are showing higher inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 1.65%, up 0.18% from March.  Undid the significant move from earlier in 2016.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.No change. Any time they mention the “statutory mandate,” it is to excuse bad policy.
The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen.The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen.No change.
Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.No change. CPI is at +1.1% now, yoy.

...MORE

"Economists React to the Fed Statement: ‘Leans Less Dovish’"

From Real Time Economics:

Analysts split on whether a brighter view of the economy signals a potential September rate rise
The Federal Reserve held rates steady Wednesday but signaled a brighter outlook for the U.S. economy, suggesting another rate increase in the months ahead. Fed officials said near-term risks to the economy “have diminished” and pointed to better jobs numbers and “moderate” economic growth. Here are some early reactions to the news.

“The Fed was never going to provide a definitive steer on future rate decisions at this week’s [Fed] meeting, particularly not when Chair Janet Yellen is due to speak at the Jackson Hole symposium in late August. Nevertheless, the language added to today’s statement that ‘near-term risks to the economic outlook have diminished’ is a clear indication that a September rate hike might be coming.” —Paul Ashworth, Capital Economic

The policy statement embodied no new information about the timing of the next rate hike in the normalization process but leans less dovish than June by nature of the more optimistic assessment of the economy and a specific reference a diminution of near-term risks to the economy. The language in the first paragraph and the addition of one sentence on the risk to the outlook are more direct and less obtuse than has been typical of prior policy statements.  We suspect that this reflects an effort to improve communication.” —Ward McCarthy, Jefferies LLC

The July [Fed] statement went farther in the direction of hinting at the potential for future rate hikes than we anticipated. We had assumed that the capsule summary of economic conditions in the first paragraph would be updated to reflect the recent improvement in the economic data, which we thought would be a sufficient reminder that the Fed remained inclined to tighten further this year. However, the [Fed] also altered the second paragraph by inserting a line saying that ‘near-term risks to the economic outlook have diminished.’ While innocuous in itself, that is the kind of minor but deliberate wording change that the Fed has been using lately to signal a bias in its thinking one way or the other.” —Economists at Wrightson ICAP

“On balance, this was a less dovish statement than the June edition, and it points to diminished downside risks to the economy relative to June. However, the overall thrust of the message is that the Fed remains in a wait-and-see mode, though the ‘near term’ downside risks to growth are seen as diminished. As a result, we continue to expect the Fed to keep rates unchanged until mid-2017, though a further easing in risk factors and evidence of firming inflation could bring the timing of that move closer. However, there is nothing in this communiqué to suggest that the Fed is prepping the market for a September hike.” —Millan L. B. Mulraine, TD Securities USA
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"Oil Crashes To $41 Handle After Surprise Inventory Build, Production Rise"

There is just so much of the stuff, in its various states of refinement, around.
And once again the reported API figure for crude had the opposite sign from the EIA number. I mean it's one thing to be at variance but when the signs are not even pointing in the same direction (draw or build) you understand why we've stopped reporting the Tuesday evening API number.

As reprised in one of 2013's "Today in the Financial Crisis, Sept. 6, 2008--Yikes!" 5th anniversary of the Financial Crisis commemorations:

Saturday September 6, 2008 was the day the action really began and I dutifully made my way into the office very early.

The first post of the day was "Friday Fannie, Freddie Bail Out Round Up (FNM; FRE)" with an intro by Lao Tzu and Bill Goldman:

Those who know do not speak,
those who speak do not know.
-Lao Tzu
The Tao Te Ching

Nobody knows anything
-William Goldman
Adventures in the Screen Trade
We'll have more throughout the weekend. For now this is what some smart people are saying....
I'm sticking with Bill Goldman.

From ZeroHedge:
Despite last night's API-reported surge in Cushing inventories, oil futures surged into this morning's DOE data on the heels of terrible durable goods data. However, a shocking build in overall crude levels (+1.67mm vs -2mm) breaking crude's record 9-week streak of draws, sent crude prices reeling. Cushing also saw a major build as did Gasoline and production rose for the 3rd week in a row.
API
  • Crude -827k (-2mm exp)
  • Cushing +1.4mm (+750k exp)
  • Gasoline -420k
  • Distillates +292k
DOE
  • Crude  +1.67mm (-2mm exp)
  • Cushing +1.11mm (+750k exp)
  • Gasoline +452k
  • Distillates -780k
This week's crude build ends the 9-week drop in overall crude inventories in a row... the longest streak of declines in US history (since 1982 Bloomberg EIA data - 8 week streaks in June 2015, Jan 2008, Sept 2004, Sept 1998)...

... Crude production rose for the 3rd week in a row...

... MORE, including some of Reuters' John Kemp's charts.

WTI $41.86 down $1.06 after trading as low as $41.73:

"EU Plans Database of Bitcoin Users with Identities and Wallet Addresses"

From Softpedia:

EU gets closer to ending Bitcoin anonymity
The European Commission is proposing the creation of a database that will hold information on those using virtual currencies and that will record data on the users' real-world identity, along with all associated wallet addresses.

This is the first proposal part of an action plan that the EU got rolling after the Paris November 2015 terror attacks and that it officially put forward in February 2016 and later approved at the start of July 2016.

As we wrote in our article from a few weeks back, the action plan, a reform of the Anti-Money Laundering Directive (AMLD) so it would also include the terms "virtual currency," was only approved by the (EU President) Juncker Commission.

New AMLD will end anonymous Bitcoin transactions in the EU
This action plan is now making its way through the rest of the EU regulatory body, with the European Commission now in charge of putting the reformed AMLD to paper. As expected, the first draft of the AMLD now includes mentions to virtual currencies.

Besides recognizing crypto-currencies as another form of money, the draft also includes a set of regulations that would provide FIUs (financial intelligence units) with the tools needed to keep track of digital currencies, in the same way they do with fiat currencies.

To combat money laundering via digital currencies, EU officials plan to create a database that links Bitcoin and other crypto-currency addresses with real-world individuals, essentially putting an end to the anonymity that accompanies such payments.

FIUs across member states will have the power to create and then manage such databases, but users will also be allowed to register on their own, as a sign of good faith. The current AMLD draft reads:
The report shall be accompanied, if necessary, by appropriate proposals, including, where appropriate, with respect to virtual currencies, empowerments to set-up and maintain a central database registering users' identities and wallet addresses accessible to FIUs, as well as self-declaration forms for the use of virtual currency users.  
EU: Database needed to fight terrorism
As mentioned when ministers from various countries met in Brussels last year, the EU is interested in regulating Bitcoin and similar currencies so that it would be harder for terrorists and cyber-criminal groups to use the currency to hide their operations and move large sums of money across borders....MORE

Agricultural Commodities: "Rabobank sees wheat and corn on 'race to the bottom'"

Rabo is historically better on this stuff than most of the other big banks.
For today however the headline crops are neck-and-neck to the upside.


Last Chg
Corn 343-0+3-4
Soybeans 989-0+15-2
Wheat 418-4+3-4

From Agrimoney:
Rabobank slashed its outlook for feed grain prices, citing a "global feed grain glut".

Chicago feet[?] wheat and corn are on a 'race-to-the-bottom, thanks to heavy supplies and big harvests.
Rabobank forecast corn and wheat price well below the current forward curve.

Exceptional US harvest
Rabobank lowered its forecast for Chicago wheat prices, "record projected global feed supplies, ensuring a particularly competitive export environment". 

"Wheat prices fell significantly through late June, as exceptional US harvest prospects and heightened confidence in the US corn crop sparked a price race-to-the-bottom across feed grain cash markets," Rabobank said. 

"Both record US yields and near-record ending stocks… plus an impending EU feed-quality crop will contribute to a 2016-17 global feed grain glut," said the bank.

"Following the Northern Hemisphere harvest, wheat is expected to follow the corn market more closely, as both grains compete for demand."

Undershooting the curve
And Rabobank warned that the USDA's latest forecast for Chinese 2016-17 wheat feeding, at 15m tonnes "is somewhat optimistic in our opinion". 

"Government intentions to auction domestic corn stocks, having also removed the price support mechanism, should result in high availability of competitively priced Chinese feed corn, which could force a further 2m to 3m tonnes of wheat onto the global balance sheet," the bank said. 

Rabobank forecast Chicago wheat prices averaging $4.00 a bushel in the July to September period, and $4.30 a bushel in the October to November period....MORE
Meanwhile Inside Futures is in awe of the yields:
Wheat Treading Water

CURRENT STATE:
WHEAT: The latest provided by the Kansas City Harvest Report is only confirming what I’ve been claiming for the past six weeks, that is, this year is the mother of all harvests. The crop is now nearly 70 percent (average across states; Wyoming around 25 percent, South Dakota around 70 percent) harvested and my estimates of yield-per-acre are right in line with the actual as suggested by the harvest reports that are surfacing. Some farms in the Midwest (and as I’ve stated in earlier reports) are seeing up to 80+ bushels an acre. This is of course an anomaly when considering historical yields.
...MORE

Richard Koo on Why Helicopter Money Just Won’t Work (as God is my witness I thought turkeys could fly)

From FT Alphaville:

Koo on why helicopter money just won’t work
Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.
Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.
Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom.
The first option really is throwing bags of money out of the sky. But here be unintended social consequences. For example :
No seller would exchange products for money that fell from the sky.
Another critical omission from the argument that helicopter money will resuscitate the economy is that it focuses exclusively on the logic of buyers while ignoring the logic of sellers.
Unethical buyers may try to go shopping with money that has fallen from the sky, but there is no reason for sellers to accept such money.
Sellers are willing to take money in exchange for goods and services only because the supply of that money is strictly controlled by the central bank. If money starts falling from the sky, sellers will refuse to accept it as payment for their products.
If the authorities actually began dropping money from helicopters, shops would either close their doors or demand payment in foreign currency or gold, and the economy would quickly collapse. There is no economy so wretched as one that no longer has a national currency the people trust.
Because it plainly ignores the psychology of sellers in the market, literal helicopter money is not, in Koo’s opinion, the ultimate form of monetary accommodation. Taking it to this extreme would only lead to an economy’s collapse, not its recovery. More so, there’s no case in recorded history where an economy without a credible national currency outperformed an economy with one.

There are three other distribution options/forms of helicopter money out there — but these probably won’t be any more effective, Koo says....MORE 
From WKRP (Cincinnati):

The Thanksgiving episode "Turkeys Away"



"It's a helicopter, and it's coming this way. It's flying something behind it, I can't quite make it out, it's a large banner and it says, uh - Happy... Thaaaaanksss... giving! ... From ... W ... K ... R... P!! No parachutes yet. Can't be skydivers... I can't tell just yet what they are, but - Oh my God, Johnny, they're turkeys!! Johnny, can you get this? Oh, they're plunging to the earth right in front of our eyes!

PIMCO: "Commodity Investing: A New Take on Equities Versus Futures"

Roll yield! Sharpe ratios!! Risk!!!

From Pacific Investment Management Co:

A combination of commodity futures and broad stocks seems to provide better return per unit of risk than natural resource equities.

Grantham Mayo Van Otterloo's Mean Reversion Strategy Is Tested In Today's Market

From Institutional Investor:

Jeremy Grantham and Ben Inker have a long track record of successfully calling market bubbles, but their investment strategy can take a long time to play out.
Finding a truly exceptional asset manager is challenging, even for the most sophisticated investor. A clear and differentiated strategy, strong track record, history of great calls and willingness to learn are just a few of the indicators that tell the story. Competitiveness, confidence and conviction are also important, but, in the end, investing with anyone is a bet on risk.

Most investment managers try to work around these concerns by leading with the opportunities they see in the market or pointing to lofty end goals for those that invest with them. It’s not often, then, that you go into a meeting with an asset manager and they open with risks: risks to the market, risks to your investments and, indeed, risks to your career if you follow their ideas all the way through. But that’s what you get with Grantham, Mayo, Van Otterloo & Co., the Boston-based shop co-founded by famed value investor Jeremy Grantham.

Using an approach created by the British-born Grantham, GMO’s managers look at asset valuation trends over the entire history of the market and use those as the basis for determining fair value. Within those historical trends GMO has identified a consistent pattern: Asset classes have average values that don’t really change much over time. Valuations may go up or down for certain periods, but they always come back to the mean. Because the firm sees markets through this mean-reversion lens, GMO tracks how bubbles are forming and the risks if they burst. The firm’s managers invest by looking for low-risk, cheap assets that are likely to perform well as bubbles form and easy to get out of just before the inevitable happens. The firm’s seven-year forecast, which it releases publicly, provides a live snapshot of how markets are changing over time.

Over its 39-year history, GMO has built a reputation for being the smartest guys in the room when it comes to long-term value, having successfully called all of the bubbles in recent memory — but that comes at the expense of almost everything else. When you walk through GMO’s front door, you’ll find an outlier not just among value shops but among investment firms. There are no fancy presentations touting a wealth of golden opportunities, no branded golf balls to take away. What you get instead feels a bit more like a visit to a think tank, with researchers who are on the brink of their next great discovery and only want investors willing to stay on until they find it.

Oil: The Saudi's 'Take-the-Money-and-Run' Strategy

We've seen this argument made in relation to either a fear on the part of the royals of ISIS or of a global warming 'keep it in the ground' dikat from some supranational body. Regardless of the motivation, Professor Hanke gives a very clear overview of this Occam's Razor explanation of what the Saudi's are up to..

From ZeroHedge, July 26:

The Economics of the Saudi's "take-the-money-and-run" Strategy
As the Financial Times reported on 12 July, Saudi Arabia’s oil-output reached record highs in June 2016. Increasing production 280,000 barrels/day to 10.6m b/d, Saudi Arabia has once again waved off OPEC’s request not to glut the market with oil.

As it turns out, economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.

Let’s take a look at the simple analytics of production. The economic production rate for oil is determined by the following equation: P – V = MC, where P is the current market price of a barrel of oil, V is the present value of a barrel of reserves, and MC is the marginal recovery cost of a barrel of oil.

To understand the economics that drive the Saudis to increase their production, we must understand the forces that tend to raise the Saudis’ discount rates. To determine the present value of a barrel of reserves (V in our production equation), we must forecast the price that would be received from liquidating a barrel of reserves at some future date and then discount this price to present value. In consequence, when the discount rate is raised, the value of reserves (V) falls, the gross value of current production (P – V) rises, and increased rates of current production are justified.

When it comes to the political instability in the Middle East, the popular view is that increased tensions in the region will reduce oil production. However, economic analysis suggests that political instability and tensions (read: less certain property rights) will work to increase oil production.
Let’s suppose that the real risk-adjusted rate of discount, without any prospect of property expropriation, is 20% for the Saudis. Now, consider what happens to the discount rate if there is a 50-50 chance that a belligerent will overthrow the House of Saud within the next 10 years. In this case, in any given year, there would be a 6.7% chance of an overthrow. This risk to the Saudis would cause them to compute a new real risk-adjusted rate of discount, with the prospect of having their oil reserves expropriated. In this example, the relevant discount rate would increase to 28.6% from 20% (see the accompanying table for alternative scenarios). This increase in the discount rate will cause the present value of reserves to decrease dramatically. For example, the present value of $1 in 10 years at 20% is $0.16, while it is worth only $0.08 at 28.6%. The reduction in the present value of reserves will make increased current production more attractive because the gross value of current production (P – V) will be higher.
So, the Saudi princes are panicked and pumping oil today – a take the money and run strategy – because they know the oil reserves might not be theirs tomorrow. As they say, the neighborhood is unstable. In consequence, property rights are problematic. This state of affairs results in the rapid exploitation of oil reserves.
In other news, "Author apologizes after controversial post about oil, lesbians, and Saudi Arabia".

Tuesday, July 26, 2016

Nest Thermostats Go Offline During Heat Wave

From The Next Web:

Nest error is breaking remote control on some thermostats and smoke detectors
Nest's app has run into some sort of problem today that's causing it to lose control of some thermostats and smoke detectors. The error is causing Nest Thermostats and Nest Protects to appear offline within the app, leaving them out of owners' remote control.

While the app is unable to remotely control those devices right now, Nest tells The Verge that they should otherwise continue to function, sticking to existing schedules and adjusting to changes made manually inside the home. Nest says that only a "small percentage" of owners are affected....MORE
Not to worry though, you can still adjust them manually.

See also: Butz Thermo-Electric Regulator Company, 1885, now known as Honeywell.

Knowledge@Wharton: "Are Italy’s Banks a ‘Doom-Loop’ Risk that Could Bury the Eurozone?"

From K@W:
Eight years after the global financial crisis, Italy’s economy remains weak and the country’s banks have a very high rate of shaky – or non-performing — loans at about 18%. That compares with rates of 5% in France and 1.5% in the United Kingdom. Since Italy is the third-largest economy in the European Union, a breakout of loan defaults or a run on bank deposits could quickly spread eurozone-wide, where many banks have been struggling, in part because of record-low interest rates cutting profit margins. What’s more, companies in Europe depend on bank loans far more than in the U.S., so struggling banks can mean that even successful companies face a credit squeeze.

This has led to fears of a “doom loop,” where the potential failure of Italy’s banking system might require a state rescue at a time when the country is already heavily indebted at around 135% of GDP. And that is complicated by the fact that, as of January, new regulations require European banks to bail-in shareholders and bondholders – use their holdings to recapitalize a troubled bank — before any taxpayer-funded bailout can occur. 

Yet in Italy, many bondholders are actually small investors who were duped into buying bank bonds under the impression that they were as safe as insured deposits, explains Franklin Allen, an emeritus finance professor at Wharton and a finance professor at Imperial College in London. If small investors start to take a hit, it could spark a run on bank deposits and kick off a major crisis. In this Knowledge@Wharton interview, he looks at the big picture regarding risky Italian banks, assesses the odds of significant problems breaking out, and considers how officials might avoid a major new financial crisis.

An edited transcript of the conversation appears below:

Knowledge@Wharton: A new rule passed by the European Central Bank that takes effect next year calls for bank authorities to tap stockholders and bondholders for recapitalization before they would tap taxpayers for any bailout. This so-called “bail-in” is in contrast to what happened after the financial crisis when the U.S. bailed out its banks using taxpayer money. But many of the bondholders in Italy are small investors. They are similar to small depositors in the U.S. [and the small bondholders in Italy] thought that buying bonds would be a safe investment. These smaller holders may not be aware of the precarious financial position they are in because of these underperforming loans held by the Italian banks. Do you agree with this context? And what are the risks of these bondholders suddenly panicking, if they were to realize that the banks are in a fragile condition, and starting a run on deposits?

Franklin Allen: I agree completely that this is a very important issue and I think it’s off the radar screen of most people who aren’t involved in the financial sector. People in the financial sector realize that this is a potentially existential problem for the European Union. The reason is that Italian banks are very big and if they need to be bailed out by taxpayers, large amounts would be required. But the problem is that the Italian government is already heavily indebted, so there’s what people sometimes call “the doom loop” between banks and the sovereign. That’s the general background.
“These systemic problems can arise out of nowhere — or out of small beginnings — and take over very quickly…. This problem with the Italian banks has that potential….”
You laid out very well that under the new rules — the [European Union] Bank Recovery and Resolution Directive — the banks need to bail in shareholders and bondholders before they can get state funds. This is problematic because it seems as though many small investors were missold. In other words, they were not really told the truth about what they were buying. In many cases, they thought they were buying something that was equivalent to insured deposits. But these subordinated and other kinds of debt are not like that. They have the potential to be bailed in.

I think everybody agrees that it’s fine to bail in the shareholders, but it’s problematic to bail in these small bondholders. Politically, this represents a big problem for Italian Prime Minister Matteo Renzi’s government. There was a case at the end of last year where four small banks were bailed in and the same problem occurred there in that many didn’t realize what they had. There was a tragic case of a retired pensioner who lost his life savings and was so distraught that they committed suicide. This obtained quite a lot of publicity, as you would expect.

But I think you’re right, there are still many people who don’t fully understand what they’re holding. It seems that if there are bail-ins, the Italian government is going to recompense the small savers who have this kind of debt. But we get back to this problem of, can they afford to do that? And who exactly will get compensated? Will they go back and compensate the people in the banks that had the bail-ins last year? How far will it go?

Knowledge@Wharton: If that were to escalate up, if they weren’t able to contain it on a local level, then you start to open up all of the things that people have worried about for the last several years since the last financial crisis, which is this whole idea of systemic risk. This could spread to other banks in Europe that are facing some lean times and would have difficulties dealing with big challenges. One in particular is Deutsche Bank. Could you talk about the risk of systemic contagion and Deutsche Bank, in particular?

Allen: In Italy itself, there are a number of banks that have problems. Banca Monte dei Paschi di Siena, which is the oldest bank in the world dating back to the 15th century, has been bailed out twice already but is still on the ropes. The first question is, what will happen to them? They are the No. 3 bank in Italy, so they’re significant. They’re not huge in a global sense. The bank that is globally important in Italy is UniCredit, and it has operations in many other parts of Europe and the rest of the world. They have had a big drop in their equity price since the beginning of the year. This represents the fact that people are worried about these issues that you’ve talked about, the nonperforming loans and how the government will deal with them if they get into trouble.

I think if there is a meltdown, particularly if it spreads to UniCredit, then other banks in Europe will also face problems. I think Deutsche Bank has potential to have problems. The nature of their business is such that the very low interest rates and the fact that there isn’t much different between long-term rates and short-term rates is problematic for them because of their business model. So, there is likely to be some contagion....MORE
Today's fun fact:

Creditanstalt's failure in 1931 precipitated the worst stage of the Great Depression.
After the rescue of the bankrupt corpus and a couple mergers, Creditanstalt became part of Italy's Unicredit in 2006.
Another part of the operation, Creditanstalt-Bankverein, was taken over by Deutsche Bank just prior to the 1939 unpleasantness. 

See also the Financial Times a couple hours ago: "UniCredit shakes up senior management".
History in the making.

Australia's Biggest Grain Exporter Plans 'Emergency' Storage For Bumper Harvest

Today it seems to be wheat's turn to get sold off.
These figures are approaching all-in cost of production meaning they aren't the floor that cash-cost provides, the current situation can go on for a while if yields stay up or farmers don't do maintenance or scrimp on other variable costs.


Last Chg
Corn 339-4-1-6
Soybeans 975-6+9-4
Wheat 415-2-13-6

From Agrimoney

CBH Group, Australia's biggest grain exporter, revealed it was building "emergency" storage capacity to deal with a 2016 harvest which could prove the strongest ever, helped by a timely moisture for spring sowings.
The co-operative - which handles the vast majority of the grains harvest in Western Australia, Australia's top wheat growing state – said it was to construct 400,000 tonnes in short-term storage capacity, on top of site enhancements being enacted during a scheduled Aus$750m maintenance and upgrade programmes.
The decision comes amid expectations of a "bumper year" for the state's gain growers, "with the current crop estimates sitting at 14m-16m tonnes", potentially eclipsing the current all-time high of 15.9m tonnes set three years ago.
Abares, the official Australian commodities bureau, has forecast the state achieving a harvest of some 15.5m tonnes this year, a rise of more than 800,000 tonnes year on year, including 513,000 tonnes of lupins, besides major crops such as barley, canola and wheat.
'High yields'
The upbeat prospects reflect unusually strong rainfall in Western Australia, which has a history of patchy moisture, getting crops off to strong start....

...MORE

"What to Expect From Apple's Third Quarter Earnings Results Today" (AAPL)

From MacRumors:
Apple today will release its fiscal third quarter earnings results, reflecting a three-month period that ended in late June, and the consensus among analysts is that the company will report a second consecutive decline in iPhone sales and overall revenue. That same scenario played out last quarter for the first time since 2003.
Apple-down
In fact, some analysts have forecasted that iPhone sales may be as low as 38 million to 40 million units, a decline of up to 20 percent compared to the year-ago quarter. If the estimates prove to be accurate, it would mark Apple's worst quarter of iPhone growth ever in the smartphone's nine-year history.

Apple itself provided guidance of between $41 billion and $43 billion in revenue, which would be up to 18 percent lower than the $49.6 billion in revenue it posted in the year-ago quarter. Wall Street expects revenue to be around the $42.1 billion mark, with earnings of $1.39 a share -- one analyst has EPS as low as $1.35.
Above-Avalon-Q3-2016
iPhone accounts for around two-thirds of Apple's revenue, and an even greater portion of its profits, so the device's recent slide is concerning for investors -- reflected in the price of Apple shares, down around 21 percent from a 52-week high of $123.91. The good news for Apple is that many analysts believe it will "bottom out" in the June quarter and return to iPhone and revenue growth by the 2017 fiscal year.

But, until then, the bleeding is expected to continue. iPad sales are forecasted to decline for a tenth consecutive quarter, while market research firm IDC's estimated Apple Watch sales of 1.6 million in the June quarter would be 55 percent lower than the year-ago launch quarter. Mac sales are also projected to decline by up to 10 percent as buyers await a 2016 MacBook Pro and other new models....MORE
 As Forbes put it:

Could We Be Looking At A Guide Up From Apple When It Reports Tonight?
...The fact that Apple sales are in decline is not going to be news to anyone. Wall Street analysts have been slashing their estimates and price targets almost on a daily basis for what seems like eons.Almost everyday, investors have to face up to a plethora of negative news flow on Apple.

Current Street consensus is for Apple to earn $1.39 per share on revenues of $42.1 billion for the June quarter, which is the company’s fiscal third quarter. A year ago, Apple earned $1.85 per share on revenues of $49.6 billion in the comparable quarter. As far as unit sales of the iPhone, analysts are expecting the company to have sold 40 million iPhones in the June quarter, down 16% YoY....
 The stock is confused at $97.27, down 7 cents.

"Wood Mackenzie: More oil firms on track to live with $40 crude"

Not helpful for folks hoping that 'low prices are the cure for low prices'.
WTI $42.89 -0.24 after trading as low as $42.36; Brent $45.07 after trading at $44.17.

From City AM:
Cost cuts mean a growing number of oil firms will stop bleeding cash this year with crude at $40 per barrel, according to energy consultancy Wood Mackenzie.

Oil firms have been trimming the fat to adapt to the new price environment. While oil markets are on the road to recovery, signs this will be a long process have pushed crude below $45.

It said all 56 companies will be able to maintain or even expand their operations this year with oil prices above $50.

"This is some achievement given the majority needed over $90 a barrel in 2014," Tom Ellacott, senior vice president of corporate research at Wood Mackenzie, said....MORE

Climateer Line of the Day: Yes Virginia There Is a FinTech Edition

From FinExtra:

"FinTech does not live at any specific location it lives at every mind and heart 
who is willing to make difference and has potential to take dream forward...."

Compare/contrast:

"Yes, Virginia, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist..."

"This Tech CEO Says He's Ready to Take on Google, Facebook, Amazon, and Apple"

No one can accuse him of not being ambitious.
From Fortune:

He’s ready to join the major leagues.
It wasn’t quite John Lennon’s comment that the Beatles were “more popular than Jesus,” but SoftBank CEO Masayoshi Son seems pretty confident that his company will soon have the same size and importance as several religion-sized tech firms.

In an interview published Tuesday in The Times (London), the 58-year-old Son said that the huge investments SoftBank will make in the British chip design giant ARM Holdings ARMHF 0.69% —which he agreed to purchase for $32 billion last week—would allow it to compete with the likes of Facebook, Google, Apple, and Amazon.

According to Son, ARM’s chip designs, which already power more than 95% of the smartphones out there, will allow it to become one of the planet’s biggest tech companies as the “Internet of Things” (IoT) explodes over the next several years. SoftBank has said that it plans to at least double ARM’s U.K. headcount over the next five years.

While Son did not give a timeline as to when ARM would be fighting with tech’s biggest-of-the-big, he showed no doubt that it could.

“I’ve helped Alibaba [get] to that kind of scale,” he told The Times. “I have a feeling that ARM has a right to be that kind of scale.”...MORE

"Bernie Ecclestone's mother-in-law Aparecida Schunck 'kidnapped in Brazil with £28m ransom'"

From the Evening Standard:

The mother-in-law of Formula One mogul Bernie Ecclestone has been kidnapped in Brazil with criminals demanding £28 million for her return, according to reports.
Aparecida Schunck, the mother of Ecclestone’s third wife, Fabiana Flosi, was seized on Friday night near her home in Sao Paulo, according to reports.

Her kidnappers are demanding the ransom - the biggest in Brazilian history - be paid in pounds sterling.

The kidnapping is another blow to the 2016 Rio Olympics which are already beset with fears over the Zika virus, law and order concerns and terrorism.

The games are due to open in less than two weeks time with the country experiencing its worst economic crisis for decades.

Ecclestone, 85, one of the most powerful men in sport, married 38-year-old Fabiana in 2012, three years after meeting her at the Brazilian Grand Prix.

Reports in the Brazilian press say Ms Schunk, 67, was snatched on Friday night near her home in the middle class Interlagos district of Brazil’s biggest city.

The kidnappers are reportedly demanding a ransom of £28 million for her release and have stipulated that the money be split into four plastic bags, a source close to the police investigation told Brazilian magazine Veja....MORE

"Yen Soars Amid Stimulus Confusion and Doubts"

From Marc to Market:
The strength of the Japanese yen is the main development in the foreign exchange market today. It has gained nearly 1.5% as short-term participants grow skeptical of the kind of stimulus that had driven the yen around7.5% lower between July 8 and July 21's six-week high.  The pendulum of market sentiment has swung wildly. 

 One set of estimates had risen from JPY10 trillion to JPY30 trillion over that period.  There was also the fascination with a version of helicopter money by which the Japanese government would issue non-marketable, perpetual, zero coupon bonds that the BOJ would buy through newly created credits.  Despite the illegality of such a policy, some observers seemed too hasty to shrug off Kuroda's assessment because it was made in the middle of June.  

In our discussions of the fiscal stimulus, we have emphasized the distinction between the inflated headline figure, puffed up by rolling up other programs and commitments, and the fresh water figure, which the is the stripped down new news.  We read yesterday's report that the stimulus was going to be JPY6 trillion instead of JPY3 trillion to be referring to the fresh water.  Today's comment by Finance Minister Aso that the size of the package, expected as early as next week, as not been decided yet only adds to the uncertainty and confusion.   

The market seems less sure of what the BOJ will do at the end of this week.  And even if one knew what the BOJ was going to do, there is not much confidence in anticipating the yen's direction.  We had thought there was room for disappointment with the BOJ.  Of the three dimensions of its current policy, the quantity of assets being purchases, the quality of those assets, and interest rates, we had thought that increasing ETF purchases, and perhaps some other risk assets, maybe the likely course.  

The dollar fell JPY104 in late-Asia before stabilizing.  The 20-day moving average is found just below there, and the JPY103.75 corresponds to a 50% retracement of the bounce from JPY100 to JPY107.50.  The 61.8% retracement is found near JPY102.85.  Initial resistance is seen near JPY!05 now.  

Another feature of today's foreign exchange market is the strength of the Antipodean currencies.  The New Zealand dollar is up almost as much as the yen (~1.2%) and the Australian dollar (0.8%).  The strength of the move is surprising given the fundamental outlook (both central banks likely to cut interest rates next month) and positioning (speculators in the futures long, especially the Australian dollar).  First thing tomorrow in Sydney, Australia's Q2 CPI will be reported.  Barring a surprise, the report is seen as the last hurdle to a rate cut next week.   And the market is even more convinced of an RBNZ cut later in the month.   

The Australian dollar has been finding support near $0.7450 for the last several sessions, which is also at the intersection of a three-month uptrend.   Its recent peak was about $0.7675 on July 15.  The $0.7530 area that is probing in the European morning corresponds to a 38.2% retracement of that decline.  The 50% mark is $0.7560....MORE

Here's How You Should be Charging Your Phone, According to Science"

Since the beginning of the blog we've tried to explain the need for, and challenges of, batteries.
Also some physics.
And materials science.

From ScienceAlert:
Yes, we know. Our smartphone batteries are bad because they barely last a day.

But it's partially our fault because we've been charging them wrong this whole time.
Many of us have an ingrained notion that charging our smartphones in small bursts will cause long-term damage to their batteries and that it's better to charge them when they're close to dead.
But we couldn't be more wrong.

In fact, a site from battery company Cadex called Battery University details how the lithium-ion batteries in our smartphones are sensitive to their own versions of 'stress'. And, like for humans, extended stress could be damaging your smartphone battery's long-term lifespan.

If you want to keep your smartphone battery in top condition and go about your day without worrying about battery life, you need to change a few things.

Don't keep it plugged in when it's fully charged
According to Battery University, leaving your phone plugged in when it's fully charged, like you might overnight, is bad for the battery in the long run.

Once your smartphone has reached 100 percent charge, it gets 'trickle charges' to keep it at 100 percent while plugged in. It keeps the battery in a high-stress, high-tension state, which wears down the chemistry within.

Battery University goes into a bunch of scientific detail explaining why, but it also sums it up nicely: "When fully charged, remove the battery" from its charging device. "This is like relaxing the muscles after strenuous exercise." You too would be pretty miserable if you worked out nonstop for hours and hours.

In fact, try not to charge it to 100 percent
At least when you don't have to.

According to Battery University, "Li-ion does not need to be fully charged, nor is it desirable to do so. In fact, it is better not to fully charge, because a high voltage stresses the battery" and wears it away in the long run....MORE

Monday, July 25, 2016

The Impenetrable Austrian Ski-Instructor Cartel (and the attempt to break it)

From Quartz:
Austria: great for skiers, tough for ski instructors.

The European Commission has ruled that some of the country’s requirements for instructing on its slopes “discriminate against non-Austrian ski instructors without justification.”

Western Austria’s skiing hotspot of Tyrol was singled out for breaking EU laws that protect freedom to provide services. According to the EU Commission ruling, the state’s legislation “prevents foreign ski instructors from accepting clients already present in Austria, thus limiting their right to provide services to clients they accompany from the country where the respective ski school or ski instructor is established.”

Local Tyrolean ski instructors, meanwhile, are “entitled to accept clients without any restrictions.”
“Other Alpine regions do not seem to provide for such restrictions. The Tyrolean requirements are neither proportional nor necessary,” the Commission said.

The southeastern Austrian state of Styria also does not recognize some teaching qualifications for non-Austrian instructors, which may violate EU laws on the free movement of workers.

The Commission has raised these concerns with Austria in the past, but said in a statement that the country had “not adequately addressed” them or taken sufficient measures “to remedy the situation.”

According to Reuters, Austria will analyze the charges before taking further action. “We will not accept that foreign ski schools will lower the security and quality standards which we in Tyrol have built up over decades,” the governor of Tyrol, Guenther Platter, said....MORE