Tuesday, October 6, 2015

"Is Russia Plotting To Bring Down OPEC?" Saudi Clerics Declare Jihad On Russia

First up, SafeHaven:
...In addition, Russia's deputy prime minister in charge of energy policy, Arkady Dvorkovich, in the beginning of September made comments that, in tone and substance, mocked Saudi policy, saying that "OPEC producers are suffering the ricochet effects of their attempt to flush out rivals by flooding the world with excess output," expressing doubt that OPEC members "really want to live with low oil prices for a long time," and implying that Saudi policy is irrational.

Indeed, Russia can be seen as maneuvering to split OPEC into two blocs, with Russia, although not a member, persuading the "Russian bloc" to isolate Saudi Arabia and the Gulf Arab OPEC members within OPEC. This might persuade the Saudis to seek a compromise with the have nots.

A strategic alliance with Iran and Iraq offers Putin two more potential avenues to pressure the Saudis. They can test Saudi determination to defend their market share at any price and its wherewithal financially to do so. Iran claims it can raise crude output by one million barrels within six or so months of the lifting of sanctions. The Saudis may be calculating that Iran must first rehabilitate its oil fields and that Iran, cash poor, cannot do so quickly. If this is the case, Russia could step in, offer Iran financing, and force the Saudis to contemplate prices staying lower longer than they anticipated and therefore continuing pressure on their economy.

Russia also could cooperate with Iran and Iraq to take market share from Saudi Arabia in the vital Chinese market. As a recent Bloomberg article pointed out, Saudi Arabia, Iran, Russia, Iraq and other countries are vying intensely for sales to China, the second largest import market and the major source of demand growth in coming years. Coordinating their pricing and consistently offering the Chinese prices below the Saudi price, they could seek to win market share. Such a price war would pressure the competitors' currencies....MORE
While al-Arabiya reports:

52 Saudi clerics, scholars call to battle Russian forces in Syria
Fifty two Saudi inciters, both academics and clerics, have called on the public to “hurry” to Syria where they should be fighting Russian forces. 
The clerics, some of which are members of the International Union of Muslim Scholars, called on “all those who are able, and outside of Saudi Arabia, to answer the calls of jihad” and to fight alongside one of the extremist groups facing Russian forces. 
According to experts, by issuing this statement, inciters seek to implicate Saudi, Gulf, and Muslim youths in the fight against Russian forces, mirroring Al-Qaeda’s and the Taliban’s recruitment of young fighters during the Afghan-Soviet war....

Meanwhile the propagandists at RT report:
Russian Air Force destroys 20 ISIS tanks near Palmyra – Defense Ministry (VIDEOS)
Which of course raises the question: WTF? If the U.S. has been bombing ISIS for a year how do the head-choppers still have any tanks? Weren't we targeting the tanks? Seriously, Whisky, Tango, Foxtrot?

President Obama Takes A Trans Pacific Partnership Victory Lap

From AFNS:

Obama Returns From Trade Summit With 5 Stout Ships Full Of Cardamom, Silk, And Indigo
WASHINGTON— Exhausted, berimed with salt, and haggard from his long sea journey, but nevertheless triumphant as he guided his fleet to port following the completion of the Trans-Pacific Partnership, President Barack Obama is said to have made harbor in Washington, D.C.’s anchorage Monday, his five sturdy galleons choked to the very gunwales with the finest silks, casks of redolent cardamom, and great cakes of vivid dye-of-indigo retrieved from the far Orient. “Come, ye gentles, ye merchants, ye noble tradesmen of America—witness the riches of the East and rejoice!” said the president from the quarterdeck of his flagship, theLaissez-Faire, as he cracked open a chest of cherrywood to display to his cheering welcomers dazzling jade and delicate urns of porcelain procured from the very rim of the world....MORE

Equities Have Hit A Rather Important Spot On the Charts

ZeroHedge had a rant yesterday that included an instructive chart:

Failure to trade higher, and early pre-market we're down 5.50 on the S&P futures, leaves an ugly approximation of a head-and-shoulders (you have to squint) that means if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new Dark Age made more sinister, and perhaps more protracted, by the lights of perverted science down, possibly under S&P at 1775-ish.

Yesterday1987.05 up 35.69.

Sorry about the strikethrough bit, it's from the Finest Hour speech and going into another post.

Monday, October 5, 2015

Questions America Wants Answered: What About Academics? (or, why to love Harvard)

From the Social Science Research Network:

Nathan J Robinson 

Harvard University

September 3, 2015

Abstract:      In this paper, I take the position that a large portion of contemporary academic work is an appalling waste of human intelligence that cannot be justified under any mainstream normative ethics. Part I builds a four-step argument for why this is the case, while Part II responds to arguments for the contrary position offered in Cass Sunstein’s “In Defense of Law Reviews.” First, in Part I(A), I make the case that there is a large crisis of suffering in the world today. (Part I does not take me very long.). In Part I(B), I assess various theories of “the role of the intellectual,” concluding that the only role for the intellectual is for the intellectual to cease to exist. In Part I(C), I assess the contemporary state of the academy, showing that, contrary to the theory advanced in Part I(B), many intellectuals insist on continuing to exist. In Part I(D), I propose a new path forward, whereby present-day intellectuals take on a useful social function by spreading truths that help to alleviate the crisis of suffering outlined in Part I(A).

Not yet available for download

Chapter III: In Which Izabella Considers Throwing Sand In The Gears Of Commerce

I first heard the 'sand in the gears' phrase used to describe James Tobin's proposed currency transaction tax, and then later in connection with the securities markets. Here's a 1994 Kansas City Fed paper on the latter subject.

Tobin's intent was to slow down the currency markets by imposing a penalty on short-termism whereas later proponents looked on it as a revenue generator.

I didn't agree with the first goal on the grounds the projected efficacy of the tax was probably overstated and I used to use the second idea as an opportunity to quote something Churchill said about governments, when he was on the outside looking in, after 1945. More on that in another post.

Meanwhile, the whole efficiency of the markets (and business, and the economy) question does intrigue.

It sometimes seems proponents are pitching efficiency for efficiency's sake which just seems: a) foolish, with its connotations of amiable silliness and: b) foolhardy with its connotations of, well... stupid.

And that long intro brings us to Ms. Kaminska's latest post at Dizzynomics:

Too much efficiency?
Testing some thoughts. Nothing concrete. Mostly inspired by a frequent question I ask myself: do I actually add value to the economy as a journalist/thinker/writer?

My growing concern — in a nod to David Graeber’s larger bureacracy thesis – is that probably no, we journalists don’t add all that much value at all. At least not compared to the much more useful people in society. And not compared to what we used to before the signal to noise ratio started to be drowned out by the abundance of information.

If the economy is to be efficient it has no room or time for journalists. We are information and idea arbiters. Presenters of concepts and information that penetrate through people’s thought silos for the sake of opening minds, informing viewpoints and in many cases inspiring changed perspectives.

Efficient systems however don’t like flux or changing viewpoints. They like predictability. Indeed, the only sort of flux tolerated by an efficient system is one that can be guided strategically and anticipated all the way thought. Too many unexpected independent ideas and the efficiency and predictability of the system might be disrupted. To an efficient system the most destabilising thing of all is a radical shift in groupthink.

Today, however, the system is structured to drown out alien ideas (apart from those sponsored for the sake of predictable guidance and agenda) and keep them trapped within like-minded filter bubbles where ideas self-corroborate each other rather than challenge themselves. In such a world a professional idea trader loses his purpose. The ideas presented only end up flowing to the sort of entities who would already be inclined to think that way.

But it’s not just free-thinking that a truly technical and efficient system can’t afford. Efficient systems can’t afford any type of creative entity. Journalists, artists, musicians, writers, sportsmen and so on are all a luxury in an efficient system.

And whilst true non-manufactured free-thinking creatives are the first to disappear in an efficient system, an efficient system demands more. Next in its sights will be the bureaucrats, the administrators, the rentiers, the bankers and last of all the purposefully damaging or non-cooperative. 
With that in mind, here are some thoughts about the digital economy’s obsession with efficiency and why it ultimately might clash with the interests of our human selves:
  • While information technology clearly has the potential to facilitate great abundance through efficiency, I’m not sure if there might not be a much graver cost to society as a result of it?
  • “You see the computer age everywhere but not in the productivity statistics” — perhaps for a reason?
  • Could the problem be that information tech redistributes wealth rather than grows it? Less is more is the mantra, but perhaps in some cases less is just less?
  • What really is the point of a frictionless life? And why are technologists so obsessed with getting rid of friction? Don’t billionaires who have everything purposefully seek out frictions to overcome? Building mountains et cetera? Perhaps some frictions should be protected? Life is to some degree one giant friction.
  • If you can’t depend on growth you have to depend on “efficient” redistribution. But redistribution means some people have to go with less so that other people can have more....

She has other bullet points including the tough to argue with (see AMZN pic* after post):
  • Profit is dependent on inefficiency. Too much efficiency annihilates profits and reduces all value-add output to break-even levels.
And the insightful:
  • Fintech is trying to transfer the banking class into the coding class, in an attempt to make it look more useful for society than it really is and protect its rent flows according.
Among  things that really jumped out at me was her reference to a Financial Times piece-contra Andy Haldane, "In cash we trust — abolish it and you invite tyranny":
  • The FT’s Chris Giles made a wonderful point last week:
The anonymity of cash helps to free people from their governments and some criminality is a price worth paying for liberty.
There were a couple reasons that caught my eye.

Firstly, I hadn't been sure where she came down on the whole question of how important vindicating the rights of a single person, lowborn or high, rich or poor, actually is, if we are to avoid the worst of humankind's proclivity toward the totalitarian impulse and secondly, the Giles piece was a contradiction of one of the funniest things I've seen on the pink pages in ages, namely August 23's

"The case for retiring another ‘barbarous relic’":
Could a world without cash make for a much-improved economy?
...The second feature of cash is that, unlike electronic money, it cannot be tracked. That means cash favours anonymous and often illicit activity; its abolition would make life easier for a government set on squeezing the informal economy out of existence. 
It is in this spirit that Kenneth Rogoff, the former chief economist of the International Monetary Fund, has argued in these pages for abolishing high-denomination banknotes such as the €100 and €500 notes....
And the reason this piece is so funny?

It's writer is anonymous.

If interested, do read the comments on it, they're feisty and erudite and ironic and spooky and funny and everything they should be in response to a garbage proposal.
Here's a letter the piece elicited:
Your case against cash simply does not stand up
Sir, I was appalled at your supposed “case” for eliminating cash, which you yourselves describe as the people’s “go-to safe asset” (“The case for retiring another ‘barbarous relic’”, editorial, August 24). And what is your case?...MORE
*Here's the current state of efficiency at the intersection of the physical and the ephemeral, Amazon's latest fulfillment center, version 8.0. This one opened two weeks ago in Baltimore, via the Baltimore Sun:

So Goldman Sachs Got Into the ETF Business

Who knew?
From Daily Speculations:

Goldman Sachs Enters ETF Business, from anonymous

GS just launched a smart-beta product which I believe is their first proprietary ETF.  
They are charging only 9 basis points for the GSLC etf!!!  
It's a large cap etf, rebalanced quarterly based on their scoring of value, momentum, quality, and volatility. A quick look has them underweight the largest 40 S&P names except for Gild, HD, CVS and WMT. Interestingly, they don't hold any GS — probably due to regulatory issues. 
If anyone knows of a backtest of their index, I'd be interested in examining it. Without historical data, it's difficult to understand the attraction versus competitors (except their fees are extremely low and so they've undercut Wisdomtree and other smart beta products). Perhaps their inhouse brokers will sell this as an alternative to the S&P?...MORE
Here's Goldman's page for their "Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF" launched September 17.

The Uncompleted Oil Wells of North Dakota As A Ready Reserve

It's not quite "flip a switch" simple but it is one reason the market will need to see some major OPEC cutbacks before trading permanently higher. WTI up $1.06 at $46.60.
From RBN Energy, Sept. 24:

Incomplete? North Dakota Has A Plan To Keep Oil Wells Unplugged
This month the North Dakota Industrial Commission (NDIC) indicated they are leaning towards leniency in their treatment of operators that have drilled but not completed wells within the one-year time frame permitted. Instead of assuming such wells are abandoned, which would otherwise mean an expired drilling permit and about $200,000 in plugging costs,  – the State plans to give operators more time. That possibility opens up a whole new underground storage option for producers struggling to make ends meet. Today we explain the NDIC plan.
There has been a significant increase in State tax revenues from the oil and gas sector over the past 4 years as drilling and production from the prolific Williston Basin boomed in North Dakota. Little wonder that the State’s NDIC has done its best to keep producers actively engaged in drilling even as crude prices have fallen during the past year. To that end as we detailed back in April (2015) the State legislature has provided tax incentives to producers drilling during periods of time when prices fall below certain thresholds (see I Cannot Compete With Your Tax Scheme). There were two such tax breaks on the table this year – with the so called “small trigger” incentive providing a 4.5% break on the State’s 6.5% Extraction Tax (applied to the gross value of oil produced at the well) between February and June 2015 for all new horizontal wells when average oil prices dropped below $57.50/Bbl in January 2015. The second, “large trigger” tax break would have waived the Extraction Tax altogether for 24 months for all producers provided prices stayed below a $55/Bbl threshold for 5 consecutive months. When we last wrote on those tax breaks producers were confidently expecting to enjoy a waiver of extraction taxes after June 2015 on the assumption that the 5 month low price criteria was met. Unfortunately for them - as shown in Figure #1 below - the trigger was never pulled because average prices for the West Texas Intermediate (WTI) benchmark crude target (red line) were higher than the threshold in May and then again in June (orange dashed circle). As a result the Large Trigger was not enacted and producers did not enjoy the tax break....MORE
...The evidence from North Dakota is that the number of wells drilled and waiting on completion has increased steadily over the past two years. The chart in Figure #2 shows the number of wells waiting on completion (red line) at the end of each month since January 2013. There were 925 wells waiting on completion in April and May of this year - falling to 848 in June and then bouncing back to 914 in July 2015 (latest data). The blue line is the number of wells that have been completed – which has remained pretty consistent (averaging 150/month since January 2013) but fell by 30 between June 2015 (149) and July (118 completions). According to the NDIC the current 914 well inventory represents about 2 year’s worth of production if completed and assuming the current (September 2015) 69 operating rigs in North Dakota keep drilling at the same time. So the uncompleted wells are a safety net that can help keep production volumes up even as drilling slows down.... 

Some Thoughts On Oil

Friday's rig count decline was the first that actually mattered in the same manner that a Central Bank blindly supporting a currency is just wasting money versus one that waits for an inflection point to beat back the speculators.
We were already at an inflection point when Baker Hughes came out and said oil directed rigs fell by 26 to 614.
From Econbrowser:

Supply, demand and the price of oil
Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year. 
Suppose for illustration that even at a price of $40, there would be enough producers with sunk costs on projects already begun who would be willing to bring sufficient oil to the market to fully meet current consumption. But suppose further that at a price of $40, few new investments are undertaken, so that next year supply is much lower than it is this year, such that next year’s production would equal next year’s demand at a price of $60. 
What’s wrong with this picture? Under the above scenario, if you were to buy oil today at $40, store it for a year, and sell it next year for $60, you’d make a huge profit. And if right-minded capitalists tried to do exactly that in huge volumes, the price of oil today would be bid up above $40, as the inventory demand is added to current consumption demand. As that oil is sold next year, it would bring the price next year below $60. In equilibrium, the difference between this year’s price and next year’s expected price should be close to the storage cost. 
That arbitrage is clearly an important aspect of what has been going on over the last year. In response to lower prices, capital expenditures in the oil patch are being slashed. The number of drilling rigs active in the U.S. areas associated with tight oil production is only 43% of its level a year ago.
Number of active oil rigs in counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to Aug 2015.  Data source: EIA Drilling Productivity Report.
U.S. oil production is falling, though so far the decline in production has been relatively modest. U.S. tight oil production is only down about 7% from a year ago.
Actual or expected average daily production (in million barrels per day) from counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to Oct 2015.  Data source: EIA Drilling Productivity Report.
If current lower investment results in lower future production, the arbitrage forces described above would mean the current excess supply would go into inventories, which would then be gradually drawn down as field production declines. And that seems to be what we have observed....MORE
However, the contango is not huge with November's at $46.46 up 92 cents and May's at $49.62 up $1.02.
With storage and insurance it is not an overly profitable trade unless the producers are using 'in situ' storage which we are actually seeing in North Dakota.
More on that later today.

"El Niño Might Rescue Global Growth"

Little Ray of Sunshine, that's me.
From Bloomberg:
Weather forecasters are fairly confident that the world is experiencing the strongest El Nino phenomenon since 1997-1998, a climate pattern that features increased ocean temperatures and disruptive rainfall and drought events around the world. You'd expect anything that wreaks meteorological havoc to drive up food prices. But surprisingly, it may also boost both inflation and gross domestic product -- which if true would be great news for central bankers struggling to combat the twin threats of faltering growth and stagnating consumer prices. 
Economists Paul Cashin, Kamiar Mohaddes and Mehdi Raissi published an International Monetary Fund paper earlier this year making just that case. They argue that weather patterns are important for the global economy and that El Nino events typically lead to higher growth and faster inflation in the following year: 
Our focus on El Nino weather events is motivated by growing concerns about their effects not only on the global climate system, but also on commodity prices and the macroeconomy of different countries. The economic consequences of El Nino shocks are large, statistically significant, and highly heterogeneous across different regions. 
El Nino has different consequences for different nations. In Australia, drier summers mean more bush fires and reduced wheat exports. Drought in Indonesia hurts coffee, cocoa and palm oil crops, as well as nickel production that's dependent upon hydropowered mining. Heavier rains in Chile make it harder to dig copper out of its mountainous regions. There are also unexpected positive effects. The effect on Peru is both positive and negative; the world's biggest exporter of the fishmeal that's used in animal feed suffers as coastal waters rise, but benefits as wetter weather boosts agricultural output. Argentina's soybean production gets a boost, while rising oil prices are good news for Canada. 
Jonathan Allum, a strategist at Nikko Securities in London, summarizes their findings: 
If El Nino is, surprisingly, positive for growth, it is also, less surprisingly, positive for inflation. Given that we are all worried about global deflation, this may not be a bad thing. 
On a worldwide basis, the report says El Nino is unambiguously good for those wanting higher commodity values, including both oil and non-fuel prices. Demand for coal and crude rises as hydroelectric and thermal power output declines, at the same time as farmers needing to pump more irrigation water boost fuel demand and reduced foodstuffs supplies lead to higher prices.
El nino commods chart
For most countries in the study, that in turn stokes faster inflation in the quarters following an El Nino event:
El nino inflation chart
The biggest surprise in the report is the finding that most of the world enjoys a bounce in growth in the year after El Niño. The U.S., the economists found, gets wetter weather in California which helps crops, fewer disruptive tornadoes in the midwest and fewer hurricanes slamming into the east coast. The 1997-1998 weather pattern added $15 billion to the U.S. economy, or 0.2 percent of GDP. That boost in turn benefits Canada, which depends upon the U.S. for 67 percent of its trade, and Mexico, at 68 percent. The El Nino winners outstrip the losers; and the net effect is a better global economy  -- albeit with the caveat that predicting the drivers of growth and their likely path is about as easy as foretelling next month's weather....MORE

Sunday, October 4, 2015

To Mark The 65th Anniversary Of 'Peanuts' The Lancet Looks At Psychology

On Oct. 2, 1950, the Peanuts comic debuted in nine newspapers nationwide. 
From The Lancet: 
The madness of Charlie Brown
Sigmund Freud has his promoters; but the best-known psychiatrist of the 20th century was probably Lucy van Pelt. From her first clinical session in 1959 (Charlie Brown: “I have deep feelings of depression…What can I do about this?” Lucy: “Snap out of it! Five cents, please.”), this little girl ministered to the children of her neighbourhood from a lemonade stand emblazoned with “PSYCHIATRIC HELP 5¢. THE DOCTOR IS IN.” (Asked by a bewildered visitor, “Are you a real doctor?” Lucy replied, “Was the lemonade ever any good?”) Her adventures were documented by the artist Charles Schulz in Peanuts, a comic strip that was syndicated in more than 2600 newspapers, in 75 countries, and is still reprinted today. The first Peanuts cartoon was published on Oct 2, 1950, and the last on Feb 13, 2000—the morning after Schulz died.

Lucy is very much the modern doctor. Early on, she worked in general medicine, persuading the neighbourhood children to lie down on the sidewalk and cough, in an attempt to literally “stamp out” the common cold: “No germ has ever been able to build up a defence against being stepped on!” She will “treat any patient who has a problem and a nickel”, and once charged Charlie Brown US$143 for an unsolicited slide-show of his faults. She did research on her own younger brother, Linus, by withdrawing his security blanket from him and documenting the consequences: she won first prize in a science fair, leaving Linus, as the exhibit, on the laboratory bench overnight; asked by Charlie Brown about her medical ethics, she replied, “I won, didn't I?”

Like most psychiatrists—indeed, most people—Lucy is a broken person. Early childhood promise as an athlete disintegrates, as she becomes possibly the worst baseball player ever. She pines for Schroeder, a musician who would not marry her “for all the beagles in Beagleland”, and will kiss her only if “the kiss will be supplied by my representative”. She is ferociously aggressive to Linus, and to anyone who stands in her way; every year, trusted by Charlie Brown to hold a football for him to kick, she pulls it away at the last moment. But she lacks self-doubt: Lucy, in her blinkered determination, is (almost) always right.

In her years of practice, Lucy treats several neighbourhood children, a dog, and the occasional bird, but her most frequent patient is Charlie Brown. Charlie comes from a loving home, and is decent, considerate, and reflective: but his life is a mess. Despite obvious intelligence, he is a mediocre student. He invests much emotional energy in managing and playing for his baseball team, which habitually loses by ridiculous scores. He yearns for the Little Red-Haired Girl, but never has the courage to approach her; when her family moves away, he stands in the street, paralysed and silent, as his life collapses around him; days later, woken by a scream, his sister Sally muses, “Before she moved away, he never cried out during the night.” The neighbourhood girls casually despise him.
Asked, at around 7 years of age, how long “this period of depression has lasted”, Charlie Brown replies, “Six years!” One summer, he develops a psychosomatic rash and has to spend weeks with his head in a sack. Another time, haunted by the meaninglessness of his losses, he decides to spend the rest of his life lying in a dark room, only to emerge, stooped and shattered, when he realises he has to feed the dog.

Charlie Brown's dog, Snoopy, is ostensibly a success. He is appointed Head Beagle; excels at baseball and figure skating; and is often so happy he can't help but dance. He is an art lover who, on losing his van Gogh in a house fire, replaces it with an Andrew Wyeth; despite being unable to talk, he studies a college course in anthropology, and reads widely, favouring Leo Tolstoy, Hermann Hesse, and Miss Helen Sweetstory, author of the Bunny-Wunny books. Yet his life also features tragedy. He is removed from his post as Head Beagle after taking a stress-related break; cannot skate in competition because of stage fright; and, through nerves and Charlie Brown's ineptitude, misses his opportunity to break Babe Ruth's all-time record for home runs before Hank Aaron gets there. He spends some nights paralysed with fear at his own vulnerability. He retreats into fantasy, pretending to be, for instance, a World War 1 flying ace, or Joe Cool, a student who rarely attends classes because they “can ruin your grade average”. His personal life is a disaster: his first girlfriend is forbidden to marry him because he is an obedience school dropout, prompting him to try to forget her by eating: “You try for a little happiness, and what do you get? A few memories and a fat stomach.” A subsequent girlfriend elopes on the morning of their wedding with his brother, before running off with a coyote....

How bad are the neuroconsequences of sleep deprivation?

From the Public Library of Science's PLOS Neuro blog:

That All-Nighter is not without Neuroconsequences
As you put the finishing touches on your paper, you notice the sun rising and fantasize about crawling in bed. Your vision and hearing are beginning to distort and the words staring back at you from the monitor have lost their meaning. Your brain … well, feels like mush. We’ve all been there. That debilitating brain fog that inevitably sets in after an all-nighter prompts the obvious question: what does sleep deprivation actually do to the brain?
Neuroscientists from Norway set out to answer this question in their recent PLOS ONE study, examining how a night forgoing sleep affects brain microstructure. Among their findings, sleep deprivation induced widespread structural alterations throughout the brain. The lead author shares his thoughts on the possible biological causes of these changes, and whether they may be long-lasting.
Inducing sleep deprivation
The researchers assessed a group of 21 healthy young men over the course of a day. The participants underwent diffusion tensor imaging (DTI; a form of MRI that measures water diffusion and can be used to evaluate white matter integrity) when they first awoke, at 7:30 am. They were free to go about their day as normal before returning for a second DTI scan at 9:30 pm. They remained in the lab for monitoring until a final scan at 6:30 am the following morning, for a total period of 23 hours of continued waking. Since we’re now learning that anything and everything can influence brain structure on surprisingly short time-scales, the researchers finely controlled as many confounding factors as possible. The participants were not allowed to exercise or consume alcohol, caffeine or nicotine during the study, or to eat right before the scans. Since DTI measures water diffusion, hydration was evaluated at all sessions and accounted for in their analysis.

Rapid microstructural changes to waking
The researchers were interested in two main questions: How does the brain change after a normal day of wakefulness and after sleep deprivation? They focused on three DTI metrics to probe how different features of neuronal tissue may change with waking. Radial diffusivity (RD) measures how water diffuses across fibers, whereas axial diffusivity (AD) measures diffusion along the length of a tract. Fractional anisotropy (FA) is the ratio of axial to radial diffusivity and therefore measures how strongly water diffuses along a single direction.

From morning to evening, FA increased and this was driven mostly by reduced RD (Figure, left). From the evening to the next morning – after the all-nighter – FA values decreased to levels comparable to the prior morning, and this drop was coupled with a decrease in AD (Figure, right). Thus, over the course of a full day of wakefulness FA fluctuated, temporarily rising but eventually rebounding. In contrast, both RD and AD declined but at different rates, RD dropping by the end of a normal day, and AD dropping later, only after considerable sleep deprivation. These changes were non-specific, occurring throughout the brain, including in the corpus callosum, brainstem, thalamus and frontotemporal and parieto-occipital tracts.
Throughout the brain, FA values increase from morning to evening (left) and decrease from the evening to the next morning after a night without sleep (right). Elvsåshagen et al., 2015.
Throughout the brain, FA values increase from morning to evening (left) and decrease from the evening to the next morning after a night without sleep (right). Elvsåshagen et al., 2015.

How bad are the neuroconsequences of sleep deprivation?
Other studies have corroborated these reports that wakefulness alters the brain, including reduced diffusion with increasing time awake, and altered functional connectivity after sleep deprivation. How this plasticity reflects the consequences of waking on the brain, however, isn’t clear. Sleep is known to be essential to tissue repair and is particularly important for promoting lipid integrity to maintain healthy cell membranes and myelination. The question remains, therefore, how detrimental the structural reorganization from sleep deprivation really is. Does the plasticity reported here and elsewhere persist for days, weeks or longer, or can a long night of deep catch-up sleep reverse any detriment that all-nighter caused?
“My hypothesis,” says first author Dr. Torbjørn Elvsåshagen, “would be that the putative effects of one night of sleep deprivation on white matter microstructure are short term and reverse after one to a few nights of normal sleep. However, it could be hypothesized that chronic sleep insufficiency might lead to longer-lasting alterations in brain structure. Consistent with this idea, evidence for an association between impaired sleep and localized cortical thinning was found in obstructive sleep apnea syndrome, idiopathic rapid eye movement sleep behavior disorder, mild cognitive impairment and community-dwelling adults. Whether chronic sleep insufficiency can lead to longer-lasting alterations in white matter structure remains to be clarified.”


Chasing Yield: September Was the Worst Month In History For Master Limited Partnerships

We have not been fans of 'yield' investments for quite a while. As an example, former king of the MLP's (before the roll-up) Kinder Morgan, which was up over 5% on Friday, is still down 27.7% since the Financial Times' Izabella Kaminska posted "Kinder Morgan, MLPs and the sell case", linked in our "The "Kinder Morgan Is a House of Cards" Theory and the Pros and Cons of Going Short (KMI)".

First up, 24/7 Wall Street:

September Worst Month in History for Energy MLPs: 3 to Buy Right Now
Needless to say, the past six weeks have been gut-wrenching for investors. What could possibly be worse? The month of September for energy master limited partnership (MLP) investors. According to a new research report from the MLP analysts at Merrill Lynch, depending on the final tally, September was possibly the worst month in history for the MLP sector. They also pose the question, “Could sentiment possibly get more negative?”...MORE
Barron's Current Yield column looked at the carnage on Friday:
Wild Swings Buffet MLP Investors
Many factors contributed to the 26% drop in these energy infrastructure companies over the past year. Unfortunately those factors aren’t going away any time soon.
Master limited partnerships (MLPs) have long been prized by income investors for their attractive yields, favorable tax treatment, and relative stability. But not only have these energy-infrastructure companies fallen 26% so far this year; in the past week they’ve traded with volatility akin to money-losing Internet stocks.
The benchmark Alerian MLP Index fell by 6% on each of two consecutive days early last week, reminding some portfolio managers of the worst days of the 2008 financial crisis. At Tuesday’s close, the index was down nearly 50% from its 2014 highs. It rebounded in the remaining three days of the week as value buyers stepped in, but September was still off a punishing 15%. 

Volatility is here to stay for MLPs. That doesn’t mean there aren’t opportunities in the sector, which is much cheaper than usual and currently yielding near 8%. But investors should beware that as energy prices stay low, and maybe go lower, the risk profile for the sector has gone up.

“We don’t think the coast is clear from here,” says Matt Sallee, a portfolio manager at Tortoise Capital Advisors. “We expect it to remain pretty choppy for the rest of the year.”

A major catalyst for last week’s selloff was the announced merger of two midstream giants, Williams Companies (ticker: WMB) and Energy Transfer Equity (ETE). The terms of the deal weren’t as favorable as investors expected. Williams fetched a lower price, and Energy Transfer will have to take on $6 billion in new debt, which worried investors. More MLP consolidation is expected, thanks to lower crude-oil prices, and investors may not love the terms.

September’s decline was exacerbated as retail investors exited mutual funds, forcing managers to sell to meet redemptions. Plus, because prices fell so much so fast, some closed-end MLP funds ran up against leverage limits and had to sell assets to pay down debt. “We had funds selling into a very thin market,” says Charles Earle, head of closed-end fund research at Gates Capital.
Lower oil (even if it doesn’t directly affect an MLP’s revenue stream), trouble in the high-yield market (MLPs are heavy borrowers), and a weak stock market also added to the selling pressure. Those factors may be here for a while, too. Crude has to settle down for MLPs to return to more normal prices, says Marcus McGregor, who runs the MLP equity strategy for Conning. 

AN ARTICLE QUESTIONING the viability of some MLPs that was widely circulated on the Internet didn’t help, say fund managers. It highlighted dynamics facing mainly exploration and production companies, known as upstream MLPs, several of which have had to cut distributions to investors. But midstream MLPs (pipeline, storage, and transportation companies), where most investor interest lies, mostly promise stable distributions that they can cover with current cash flows. “Midstream companies have different economics,” says Greg Reid, president of the MLP Complex at asset management firm Salient Partners. “People are lumping them all together.”...MORE
KMI Kinder Morgan, Inc. daily Stock Chart
The week the 2014 roll-up was announced the stock jumped and then settled around $41.
No hurries, no worries.

"Google's 'Don't be evil' creed disappears as company morphs into Alphabet" (GOOG)

From The Verge:

Alphabet employees should still 'do the right thing'
For Google, with a new parent company comes a new code of conduct, and there's a pretty noticeable change. The search company's famous creed — "don't be evil" — is absent from Alphabet's new code of conduct.

The new code of conduct was published on Friday after Google officially completed its transformation into one of several organizations within a parent company, which is called Alphabet.
"Don't be evil" has been part of Google for over a decade, and it's the very first line of the search company's code of conduct. While Alphabet isn't using the well-known phrase in its new code of conduct, the intention is arguably still there. The first line instead now reads: "Employees of Alphabet and its subsidiaries ... should do the right thing — follow the law, act honorably, and treat each other with respect."

Also missing is some of the stronger language around how the company should operate, including the line: "everything we do in connection with our work at Google will be, and should be, measured against the highest possible standards of ethical business conduct."...MORE

Saturday, October 3, 2015

Paying For Solar: SolarCity's GigaFactory (SCTY)

This trip down memory lane was prompted by yesterday's SCTY announcement (link below) of new panels that hit 22.04% conversion efficiencies.

The company is in a race against its cash burn rate and in this race the lawyers and lobbyists are as important as the engineers and salespeople. And finance guys.

From MIT's Technology Review, August 2015:

Paying for Solar Power
SolarCity’s massive new manufacturing plant in Buffalo, New York, reflects a booming demand for solar power. Is it sustainable?
The rail cars that once carried iron ore around Republic Steel’s sprawling plant at the edge of downtown Buffalo, New York, were plowed under when the steel company abandoned the location in 1984. They were recently discovered when excavation began for the so-called gigafactory to be operated by SolarCity, the country’s leading supplier of solar panels. Now the rusted cars and a scattering of other relics from the days of Republic Steel greet visitors to the construction site, a reminder of the city’s past manufacturing might and a testament to the dream that North America’s largest solar-panel manufacturing facility can help revive it.

Buffalo is attempting an economic comeback fueled by the state’s Buffalo Billion initiative, a multi-year redevelopment plan spearheaded by Governor Andrew Cuomo. Included in the funding is support for a new genomic research center and an information technology center, but at the heart of the city’s ambitions is the solar factory, which New York is spending $750 million to build and equip. SolarCity, based in Silicon Valley, will lease it, essentially for free, and has committed to spending $5 billion on its Buffalo operations over the next decade. For Buffalo, it’s an attempt to reimagine its future around solar manufacturing. For SolarCity, it will solidify its position as one of the country’s most aggressive and fastest-growing solar companies.

The plan to build the massive manufacturing facility comes at a time when demand for solar power is booming in the United States. In 2008, the nation had about 1.1 gigawatts of photovoltaic power, the dominant type of solar energy; by the end of 2014 it had 18.3 gigawatts. Last year, homeowners, businesses, and energy companies added about 6.2 gigawatts, and they are expected to install another eight gigawatts this year. Much of that is in California, but solar power is taking hold in other states, boosted by a mix of federal tax credits and state and local incentives. Roughly a third of the electricity generation capacity added last year in the United States was solar, second only to natural-gas plants. (Even so, solar power still provides less than 1 percent of the country’s electricity.)

SolarCity has played a large part in the rapid expansion. By offering innovative financing schemes, it has spurred strong demand for rooftop panels on homes, the fastest-growing sector of the solar market. Instead of buying the expensive solar panels and paying for their installation, homeowners participating in one of SolarCity’s offerings can lease the system for 20 years, paying a monthly fee. Because it owns the panels, SolarCity benefits from the generous 30 percent federal investment tax credit for solar power; the homeowner is credited at retail electricity rates for any surplus power fed back to the grid. SolarCity is still unprofitable, but its revenue doubled from 2012 to 2014 as its leasing program proved attractive for homeowners—especially in locations with high electricity rates and lots of sunshine, such as California. The company expects to install enough panels this year to produce a gigawatt of power.

Not coincidentally, a gigawatt will be the capacity of the Buffalo factory when it is fully up and running, which is scheduled for the beginning of 2017. Until now, the company’s business has been built around marketing, financing, and installing solar systems. Instead of producing solar panels, it buys them, mostly from Chinese manufacturers. The Buffalo factory changes all that. “Our aspiration is to build many more of these factories over time,” says Peter Rive, the chief technology officer, who founded SolarCity with his brother nine years ago (their cousin Elon Musk is the company’s chairman). And though Rive says the company doesn’t want to “take its eye off the ball” in getting the Buffalo plant built and operating, he adds that shortly after that’s accomplished, “we want to create the largest solar facility in the world, never mind the Western Hemisphere.” Indeed, SolarCity stated earlier that its plan is to add “one or more significantly larger plants” with annual production capacity an order of magnitude greater than that of the Buffalo facility.

The company will make a new type of photovoltaic technology in Buffalo. The solar cells use crystalline silicon—the material used in conventional cells—with a thin film of another form of silicon and a layer of a semiconductor oxide. The hybrid solar-cell design, which SolarCity got when it bought a small company called Silevo in 2014, is designed to be more efficient than standard silicon cells in converting sunlight to electricity, as well as relatively cheap to make. But while SolarCity operates a 32-megawatt plant in Hangzhou, China, that Silevo built to make the solar cells, quickly scaling up those operations to the far larger plant in Buffalo will be an engineering feat.
Even if all goes well, the gigafactory could be facing a dramatically different solar-power market. At the end of 2016, the federal tax credit for solar power is due to drop from 30 percent to 10 percent for businesses and to disappear altogether for consumers who buy their own solar panels. By making residential solar power less affordable, the change could be devastating to the industry. And it will come just as the Buffalo factory is ramping up its manufacturing capacity.

True costs
Fears about what will happen when the tax breaks decrease are fueled by an unfortunate reality: in most locations and under most conditions, unsubsidized solar power is still far too expensive to compete with other sources of electricity. And rooftop solar is especially expensive. Subsidies and other government incentives are the reason the solar market is booming. If technologies were chosen purely on the basis of what it costs to produce power, “there isn’t a market for residential solar,” says Severin Borenstein, a professor at the Haas School of Business at the University of California, Berkeley, and an expert on electricity economics. Without government incentives for clean energy like solar, he says, “natural gas wipes everything else away.”...MUCH MORE
Also at Technology Review:
SolarCity Shows Off Its New Modules; Now It Has to Manufacture Them

Here's the stock action over the last couple years:
SCTY SolarCity Corporation weekly Stock Chart

We've been following this one for a while:
More Elon Musk: "5 things to know about SolarCity’s IPO (and it’s not all good)"
"SolarCity postpones initial public offering, according to report" (SCTY)
After Price Cut Elon Musk's SolarCity Trades, Soars (SCTY)
The stock was priced at $8.00, down from the $13-15 range the underwriters were throwing out earlier this week.
It is currently trading at $11.60, up 45%.
And many, many more.

Like most of the old pros we pine for a return of the speculative glory days.
The  2005-2008 mania was probably best exemplified by First Solar:

Nov. '06 IPO at $20, $317.00 top tick in May 2008, $11.43 by June 2012. 
Yeah baby!

$30m Google Lunar X-Prize To Land A Privately Funded Robot On the Moon Now in Play

From The Register:

Moon miners book Kiwi rockets for 2017 lunar landing
 Moon Express MX-1
Moon Express, one of the teams competing for the $30m Google Lunar X-Prize, has booked five rockets that will be ready for a 2017 attempt to get to the Moon.

The deal with New Zealand firm Rocket Labs will see Moon Express' MX-1 lander make an attempt at the first commercial lunar landing for the Google Lunar X-Prize. To win the cash, the lander will have to travel at least 500 meters across the Moon's surface and send back high-definition video of the feat.

"The holy grail of our company is to provide, to prove, a full-services capability – not just landing, but coming back from the moon," Moon Express CEO Bob Richards, told Space.com.
"We're going to be inspired to try a sample-return. I don't know if we'll do that on the second mission, but I sure hope we're trying it by the third mission, if all is going that well."

Although there are 16 teams currently in the running for the X-Prize, Moon Ventures is one of the front runners, and the company has big plans for the Moon. The company wants to become the first extraterrestrial mining company and harvest platinum group metals, rare earth elements, and Helium 3 from what it calls the "eighth continent."

That's not going to be possible with the MX-1; it's a lightweight test platform. The coffee table-sized spaceship will be boosted into orbit by the Rocket Labs delivery vehicle. It will then use hydrogen peroxide fuel to make it to the Moon and land safely.

Moon Express calls the probe the "iPhone of space,"...MORE

"The Trouble with Theories of Everything" (with a Feynmann cameo)

From Nautil.us' Scaling issue:
There is no known physics theory that is true at every scale—there may never be
henever you say anything about your daily life, a scale is implied. Try it out. “I’m too busy” only works for an assumed time scale: today, for example, or this week. Not this century or this nanosecond. “Taxes are onerous” only makes sense for a certain income range. And so on.
Surely the same restriction doesn’t hold true in science, you might say. After all, for centuries after the introduction of the scientific method, conventional wisdom held that there were theories that were absolutely true for all scales, even if we could never be empirically certain of this in advance. Newton’s universal law of gravity, for example, was, after all, universal! It applied to falling apples and falling planets alike, and accounted for every significant observation made under the sun, and over it as well.

With the advent of relativity, and general relativity in particular, it became clear that Newton’s law of gravity was merely an approximation of a more fundamental theory. But the more fundamental theory, general relativity, was so mathematically beautiful that it seemed reasonable to assume that it codified perfectly and completely the behavior of space and time in the presence of mass and energy.
The advent of quantum mechanics changed everything. When quantum mechanics is combined with relativity, it turns out, rather unexpectedly in fact, that the detailed nature of the physical laws that govern matter and energy actually depend on the physical scale at which you measure them. This led to perhaps the biggest unsung scientific revolution in the 20th century: We know of no theory that both makes contact with the empirical world, and is absolutely and always true. (I don’t envisage this changing anytime soon, string theorists’ hopes notwithstanding.) Despite this, theoretical physicists have devoted considerable energy to chasing exactly this kind of theory. So, what is going on? Is a universal theory a legitimate goal, or will scientific truth always be scale-dependent?

The combination of quantum mechanics and relativity implies an immediate scaling problem. Heisenberg’s famous uncertainty principle, which lies at the heart of quantum mechanics, implies that on small scales, for short times, it is impossible to completely constrain the behavior of elementary particles. There is an inherent uncertainty in energy and momenta that can never be reduced. When this fact is combined with special relativity, the conclusion is that you cannot actually even constrain the number of particles present in a small volume for short times. So called “virtual particles” can pop in and out of the vacuum on timescales so short you cannot measure their presence directly.

One striking effect of this is that when we measure the force between electrons, say, the actual measured charge on the electron—the thing that determines how strong the electric force is—depends on what scale you measure it at. The closer you get to the electron, the more deeply you are penetrating inside of the “cloud” of virtual particles that are surrounding the electron. Since positive virtual particles are attracted to the electron, the deeper you penetrate into the cloud, the less of the positive cloud and more of the negative charge on the electron you see.

Then, when you set out to calculate the force between two particles, you need to include the effects of all possible virtual particles that could pop out of empty space during the period of measuring the force. This includes particles with arbitrarily large amounts of mass and energy, appearing for arbitrarily small amounts of time. When you include such effects, the calculated force is infinite.
We know of no theory that both makes contact with the empirical world, and is absolutely and always true.
Richard Feynman shared the Nobel Prize for arriving at a method to consistently calculate a finite residual force after extracting a variety of otherwise ambiguous infinities. As a result, we can now compute, from fundamental principles, quantities such as the magnetic moment of the electron to 10 significant figures, comparing it with experiments at a level unachievable in any other area of science.

But Feynman was ultimately disappointed with what he had accomplished—something that is clear from his 1965 Nobel lecture, where he said, “I think that the renormalization theory is simply a way to sweep the difficulties of the divergences of electrodynamics under the rug.” He thought that no sensible complete theory should produce infinities in the first place, and that the mathematical tricks he and others had developed were ultimately a kind of kludge.

Now, though, we understand things differently. Feynman’s concerns 
were, in a sense, misplaced. The problem was not with the theory, but with trying to push the theory beyond the scales where it provides the correct description of nature....MORE
Here are Feynmann's Nobel Lecture and banquet speech.

More interesting, I think, is his 1974 Caltech commencement address.

If interested, Bill Gates bought the rights to a bunch of Fenymann's lectures and other ephemera and put them online.

See also:
How to Tell Crazy From Brainpower Intensive

Equities Through The Looking Glass

As I was posting yesterday's "Headlines You Don't Want If Long: "Bank stocks rocked by weak jobs data"n (XLF; BKK)" I was thinking "But aren't weak jobs reports what we all want?"

Corey at Afraid to Trade captured the new reality with his first line in "Oct 2 Bad Jobs Report Bull Market Update and Stock Scan":
The Jobs Report was worse than expected so let’s buy stocks because the Fed won’t raise rates!!!
All I had was "I'm guessing there won't be a rate hike this year."
The Dow Joneses had a 459 point reversal from the bottom, closing 4/10 point off the daily high.

"Superforecasting: The Art and Science of Prediction"

From Inverse:
The Ability to Predict the Future Is Just Another Skill 
Psychologist Phil Tetlock on learning to deduce what's going to happen next.
Phil Tetlock believes we can predict the future — we, us, anyone. In his new book, Superforecasting: The Art and Science of Prediction, the Wharton management professor and psychologist makes the case that futurists are skilled, not special. Normal people can make boggling accurate predictions if they just know how to go about it right and how to practice.

Tetlock backs up his crystal ball populism with data: He’s spent the better part of the last decade testing the forecasting abilities of 20,000 ordinary Americans in The Good Judgment Project on topics ranging from melting glaciers to the stability of the Eurozone, only to find that the amateur predictions were more accurate — if not more so — than those of the pundits and so-called forecasting ‘experts’ the media so often defers to.

When it comes to superforecasting, it isn’t what you think, it’s how you think. Tetlock talked to Inverse about how intelligence is overrated, the failures of media pundits, and why the best superforecasters need a healthy dose of doubt....MUCH MORE
Edge Magazine's Master Class In Forecasting With Phillip Tetlock
Dec. 2012
"How To Win At Forecasting" (Philip Tetlock and the Intelligence Advanced Research Projects Agency)
We've linked to Edge a few times. The Observer called it "The World's Smartest Website" but sometimes they're a bit too precious for my taste. This isn't one of those times.
"IARPA: It's like DARPA but for spies!" 
"IARPA's mission [is] to invest in high-risk/high-payoff research programs that have the potential to provide the United States with an overwhelming intelligence advantage over future adversaries."
FBI National Press Release, 2009
Sept. 2013
Daniel Kahnman's Favorite Paper: "On the Psychology of Prediction"

June 2014
Elite Forecasters and The Best Way to Predict the Future 

Sept. 2014 
"U.S. Intelligence Community Explores More Rigorous Ways to Forecast Events"

"Pseudo-Mathematics and Financial Charlatanism...."
“What should one do: predict specifics, or forecast broad trends that necessarily miss specifics?”
"Thinking Clearly About Forecasting"
How to Predict a Nation's GDP per Capita at r=.97 Using "Economic Freedom and average citizenry IQ -- plus slight tweaks from trading block membership and oil"

And many more.               

Friday, October 2, 2015

"Elon Musk elaborates on his proposal to nuke Mars"

From The Verge:
"He wants to create two tiny pulsing suns over the Martian poles"
Well there you go.

"The Internet of Trust"

As noted in the intro to last month's "Marketing--'Trust me for God’s sake'":
That's Turkey's Minister of Economic Affairs reassuring citizens that things are fine and makes a nice jumping off point for this piece.
With a nod towards FT Alphaville's Izabella Kaminska, who's dug deeper into this stuff than I have...
From Motherboard:
Last night was Motherboard's publisher's birthday, and standing in a bar surrounding by a bunch of people whom I very much care for and many other people I've never seen in my life and probably will never know, I, a person who's dealt with as much social anxiety as any of us, felt more at ease than I have in awhile. Why? Well, regardless of whether or not we'd ever actually shoot the shit, I could at least rely on the fact that—barring some sort of They Live situation—everyone in the room was real.

The internet is very real, an existent space where we work and love and no longer have to preface any of those things with "cyber" to denote that they're only half-real. The internet is a real enough space for us to colonize, real enough to lay siege to. But as we further accept the internet as an actual venue in which we visit and live (for better or worse), a little problem that's licking at the edges of our metaverse is only getting bigger: The internet as a whole may be very real, but it's virtually impossible to know just how real its constituent parts actually are.

It's not some grand metaphysical problem, it's just little stuff. Some people spend a little more time honing their tweets to be funnier than they are in real life, others have figured out the perfect angle to contort their faces for more attractive selfies. Lots of people fudge their LinkedIn just a little bit; many many more say things they'd never say face-to-face.

Humans are incredibly subjective creatures who happen to be piss-poor at perceiving reality in any sort of uniform fashion, and data sets (even enormous ones) based on human experiences are extremely messy. This will change.

There's an off chance you heard about Peeple this week, a so-called "Yelp for People" that aims to answer the question of how shitty we all are. Laying aside the issues of spamming and vote rigging and reputation hacking inherent to a network where you can review anyone, regardless of whether or not they have a profile, I think our own Jordan Pearson hit the nail on the head: Peeple is for employers more than anything else.

This, of course, assumes that Peeple will actually take off. Jason Koebler argues that it won't, which is fair. It's certainly not the first attempt. But it's equally fair to guess that Peeple is just hoping its reputation-verification system gets acquired by LinkedIn, or perhaps Facebook, which very much is interested in ensuring all of its users are just as real as they are in real life....MUCH MORE