Tuesday, August 23, 2016

"FT Correspondent: UK Businessmen Dress Like Vulgar Slobs Compared To Parisian Counterparts"

From DealBreaker:
It’s the third week in August and nothing is happening so sure, let’s examine this issue. According to the Financial Times‘ Adam Thomson, financial services employees living across the pond show up to the office looking like garish bums, compared to financiers à Paris. The trouble, apparently, is two-fold:
  • First, no one ever told United Kingdom-based blokes that your options for shirt colors are white, white, or white, the result being that they walk out of their closets looking like they take sartorial cues from Władziu Valentino Liberace: “…you need to convey elegance, which a white shirt does in spades. ‘A blue shirt will never look as elegant as a white shirt,’ [a French colleague at the Paris bureau of the Financial Times] states bluntly. By and large, English people do not know any of this. What constitutes good dress sense is more flexible on the island and it leaves plenty of room for flamboyance: pink shirts are commonplace in London; so are striped shirts with solid-colour collars and cuffs. Such an approach in formal Paris could easily derail an otherwise promising career, my colleague says. ‘You don’t want to be remembered for what you wear.'”


Also at DealBreaker:
Maybe Bill Ackman Should Use Labor Day Weekend to Think About Whether This Hedge Fund Thing Is Right For Him

Sanford Bernstein: Passive Investing Is Worse for Society Than Marxism

From Bloomberg:
The rise of passive asset management threatens to fundamentally undermine the entire system of capitalism and market mechanisms that facilitate an increase in the general welfare, according to analysts at research and brokerage firm Sanford C. Bernstein & Co., LLC.

In a note titled "The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism," a team led by Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins, says that politicians and regulators need to be cognizant of the social case for active management in the investment industry.

"A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management," they write.

High fees and subpar returns, coupled with the creation of a plethora of relatively inexpensive exchange-traded funds that track major equity indexes have helped fuel a massive shift in asset flows away from active management in favor of passive. While policymakers are quick to praise the benefits of these low-cost options for retail investors, Bernstein argues that this is a short-sighted view that doesn't take into account the potential downsides involved with the increase in passively-managed assets.

Fraser-Jenkins notes that the rise of indexing should theoretically entail that stocks tend to move in the same direction more often (though such a simple relationship isn't necessarily borne out by the data), and cites research indicating that "if the correlation of stocks increases then that impedes the efficient allocation of capital. That is, there isn't as big of a difference in capital expenditures on a sector by sector basis than what would be expected based on relative profit growth.

The social function of active management, in a capitalist society, is that it seeks to direct capital to its most productive end, facilitating sustainable job creation and a rise in the aggregate standard of living. And rather than be guided by the Invisible Hand and profit motive, capital allocation under Marxism is conducted by an oh-so-visible hand aimed at producing use-values that satisfy each member of the society's needs. Seen through this lens, passive management is somewhat tantamount to a nihilistic approach to capital allocation....MORE

CME Fedwatch Tool Has Odds For A September Rate Hike Up To 24% (from 15% yesterday)

From Humble Traders:
Based on CME Group 30-Day Fed Fund futures prices, which have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy, the CME Group FedWatch tool allows market participants to view the probability of an upcoming Fed Rate hike.The data below is to visually show the market’s expecations of FED’S interest rate policy for the rest of the year.

As all talking heads tend to flood the internet with probabilities of rate hikes and theories behind them, nobody is putting it in the time perspective. I find it very frustrating....MORE, including charts.
He'll update his charts on Wednesday but what caught my eye was the bump up in implied probability over the last couple days. The Fed's current target rate is 25-50 bps and the odds of it remaining there is still 3-1 but the futures are now pricing in a greater chance we go to 50-75 bps.
From the CME:

Target Rate (bps)

ARM Wrestles Its Way Into Supercomputing (9984 Tokyo; INTC)

Lifted in toto from MIT's Technology Review:
The chipmaker best known for smartphone processors now has designs on one of Intel’s last areas of chip-making dominance.

The designer of the chips that run most of the world’s mobile devices has announced its first dedicated processor for use in supercomputers.

The British company ARM Holdings, which was recently acquired by Japanese telecom and Internet company SoftBank, has announced a new kind of chip architecture dedicated to high-performance computing. The new designs use what’s known as vector processing to work with large quantities of data simultaneously, making them well suited to applications such as financial and scientific computing.

This isn’t ARM’s first association with supercomputers. Earlier this year, Fujitsu announced that it plans to build a successor to the Project K supercomputer, which is housed at the Riken Advanced Institute for Computational Science, using ARM chips. In fact, it was announced today that the new Post-K machine will be the first to license the newly announced ARM architecture.

ARM has built a reputation for building processors known for their energy efficiency. That’s why they’ve proven so popular for mobile devices—they extend battery life in smartphones and tablets.

Among the companies that license ARM’s designs are Apple, Qualcomm, and Nvidia. But the company’s energy efficient chips also create less heat and use less power, which are both desirable attributes in large-scale processing applications such as supercomputers.

Intel will be worried by the purchase. The once-dominant chipmaker missed the boat on chips for mobile devices, allowing ARM to dominate the sector. But until recently it’s always been a leading player in the supercomputer arena. Now, the world’s fastest supercomputer is built using Chinese-made chips, and clearly ARM plans to give it a run for its money, too.

It remains to be seen how successful ARM-powered supercomputers will be, though. The first big test will come when Fujitsu’s Post-K machine is turned on, which is expected in 2020. Intel will be watching carefully the whole way.

(Read more: AnandTech, “Supercomputer Powered by Mobile Chips Suggests New Threat to Intel,” “$32 Billion Buyout of ARM Is a Giant Bet on the Internet of Things,” “Intel Outside”)

Hurricane Watch: Mid-Atlantic Structure Has Development Potential

For readers new to this stuff the order of development is: Invest; Tropical Depression; Tropical Storm; Hurricane, categories 1-5.
The SAL is the Saharan Air Layer, a usually dry part of the atmosphere that comes off North Africa and inhibits storm development.

From Wunderblog:

99L a Potential Threat to Hispaniola, Bahamas, U.S. East Coast
The main Atlantic tropical weather threat to populated areas continues to be Invest 99L, a large tropical wave with an increasing amount of heavy thunderstorm activity that was located about 800 miles east of the northern Lesser Antilles Islands late Monday morning. This disturbance was moving west to west-northwest at 15 - 20 mph, and will bring heavy rains and gusty winds to these islands beginning on Tuesday evening. Conditions for development will steadily improve in the coming days, and the storm could be trouble for the Bahama Islands late this week--and is a threat to make landfall along the U.S. East Coast early next week. Satellite loops on Monday morning showed that 99L had finally managed to fire up a respectable amount of heavy thunderstorm activity near its core, in defiance of the dry air from the Saharan Air Layer (SAL) that had been interfering with development over the past few days. Water vapor satellite imagery showed that there continued to be a fair amount of dry air around the storm, though the amount of dry air had decreased since Sunday. Other conditions were generally favorable for development, with wind shear a light 5 - 10 knots and sea surface temperatures (SSTs) near 27.5°C (82°F), which was close to average.

Figure 1. Latest satellite image of 99L.
Track forecast: 99L a potential threat to Hispaniola, the Bahamas, and the U.S.
A strong ridge of high pressure will keep 99L headed north of due west over the next few days, and the storm should pass through the northern Lesser Antilles Tuesday night through Wednesday, track close to Puerto Rico on Wednesday night, and affect Hispaniola and the Southeastern Bahamas by Thursday. The uncertainty about the track increases greatly thereafter, due to a potential weakness in the ridge of high pressure steering the storm caused by a trough of low pressure passing to the north of 99L. The storm should slow its forward motion to 5 - 10 mph, in response to this trough, and may turn to the north near the central Bahamas. The track of 99L may also be affected by the remnants of Tropical Storm Fiona, which could be a few hundred miles to the north or northeast. At this time, it appears that 90L near the Cabo Verde Islands off the coast of Africa, which is expected to become Tropical Storm or Hurricane Gaston late this week, will be too far from 99L next week to exert a steering influence on it. The steering situation is too complex next week to say how great a threat the storm may pose to the U.S., but 99L is a legitimate threat to make landfall along the East Coast.

Figure 2. The dry air of the Saharan Air Layer (SAL) as analyzed by satellite at 8 am EDT Sunday, August 21, 2016 (top) and Monday, August 22, 2016 (bottom). The amount of dry air from the SAL interfering with 99L has decreased since Sunday. Image credit: University of Wisconsin CIMSS/NOAA Hurricane Research Division.
Intensity forecast for 99L: commentary by Jeff Masters
Heavy rains from 99L will be capable of causing flash flooding problems in the Lesser Antilles, Virgin Islands, and Puerto Rico, but wind damage should not be an issue, since 99L will likely be, at worst, a moderate-strength tropical storm with 55 mph winds once it leaves the islands. The 8 am EDT Monday run of the SHIPS model showed moderately favorable conditions for development through Thursday. Wind shear will be in the light to moderate range, 5 - 15 knots, and SSTs will increase from 27.5°C (82°F) to 29°C (84°F), accompanied by an increase in the total heat content of the ocean. Working against development of 99L will be the large size of the storm, dry air of the SAL, potential interaction with the land areas of Puerto Rico and Hispaniola, and large-scale sinking air over the tropical Atlantic imparted by an unfavorable phase of the Madden-Julian Oscillation (MJO). None of the Sunday morning (00Z) operational runs of our three reliable models for predicting tropical cyclone genesis--the European, GFS and UKMET models--showed development of 99L into a tropical depression or tropical storm over the next four days, though the UKMET model predicted it could be a tropical depression in the Bahamas in five days. In their 8 am EDT Monday Tropical Weather Outlook, NHC gave 99L 2-day and 5-day development odds of 20% and 50%, respectively. I think these odds are too low, and should be 30% and 60%, respectively. The Hurricane Hunters are scheduled to investigate 99L on Tuesday afternoon....MORE
Here is the ensemble of tracking models:

Invest 99L

Nvidia Unveils New Processor For Its Self-Driving Car 'Supercomputer' (NVDA; INTC)

Parker, take the wheel.
From Forbes:
Graphics chip maker Nvidia announced its latest processor to power its self-driving car ambitions: Parker.
The new mobile processor will serve as the brains behind the company’s autonomous car system, Drive PX 2, first announced at the 2016 Consumer Electronics Show in January.
Drive PX 2 system will feature two Parker processors as well as two of Nvidia latest graphical processing units (GPUs) called Pascal. Nvidia claimed Drive PX 2 will deliver 24 trillion deep learning operations per second. Deep learning, a branch of machine learning, will enable the car to figure out the world around it — like, for example, if that’s a dog or police car with its siren on.
Nvidia said the new Parker processor is 50% to 100% higher performance than competing mobile processors.

Nvidia said it has attracted plenty of interest for the hardware so far, with more than 80 car makers, auto suppliers and university research centers working with it. Volvo plans to test out Drive PX 2 in its SUVs next year.

Autonomous vehicles has become a sizable opportunity for Nvidia recently, along with artificial intelligence in general. GPUs have caught on in AI, in part, because of their ability to do “parallel computing,” a technique that involves multiple calculations happening simultaneously. That makes them much faster at running deep learning neural nets than a more generalized processors like those from Intel. Nvidia’s second quarter earnings boasted $119 million in revenue from its auto business, a 68% spike year-over-year....MORE
Here's NVIDIA's blog post on the processor, they seem rather proud.

Parker chips on Nvidia's Drive PX 2 platform.

"How to Enter a Room Like a Boss"

This is a repost from May 2014.

One simple trick is backup singers.
Entering a room with at least three backing vocalists garners one immediate attention and respect.
See below.

From The Art of Manliness:
Charlie Dresow knew when he entered the courtroom that every eyeball would be trained on him.
It was the first day of trial for his client, Max Wade. A child of a well-to-do family who was raised in affluent Marin County outside San Francisco, Wade was accused of a crime spree of epic proportions, including a daring heist of celebrity chef Guy Fieri’s yellow Lamborghini, as well as stealing police uniforms and badges, and attempted murder.

The car theft wasn’t just any car theft. This was the Mission Impossible of car thefts.

The Food Network star’s Lambo was in for service at British Motor Cars, a luxury car dealership in San Francisco. Shortly past midnight, a man dressed in all black rappelled down from the roof of the dealership and into a window. Security camera footage showed the man stalking around the dealership, ninja-style, until he drove off in the Italian sports car.

The attempted murder was equally brazen. A man – also dressed in black – rode up on a motorcycle and opened fire on a girl and her boyfriend as they sat in a truck talking in broad daylight.
And perhaps the craziest part? Wade was under 18 at the time the crimes occurred.
The sensational nature of these crimes meant everything would be riding on Dresow, and that all eyes would be on him when he entered the courtroom that day.

Dresow knew he couldn’t look unsure of himself as he walked in. You need to “just walk in like you know what you’re doing even if you don’t,” he says. Most importantly, he needed to project an air of authority, conviction, and certainty. “You have to have a plan and be confident in what you want to do and do it the way you want to do it.”

He had to look, in other words, like a boss.

Only he had to look like the good kind of boss — more like Tom Hanks’ character in Saving Private Ryan, and less like Alec Baldwin’s character in Glengarry Glen Ross.
Dresow knew, intuitively, the importance of making a strong first impression. “If you don’t take how you appear seriously,” he says, “how can you expect anyone else to take you seriously?”

Why How You Enter a Room Matters

Even if you aren’t a high-profile trial attorney like Charlie Dresow, you are being judged every time you enter a room.

Imagine, for example, you’ve just entered a room full of people you want to impress. It could be a roomful of your peers, or potential clients, or even a bar filled with attractive women.

You’re feeling pretty good — you’re wearing a new shirt and you’ve got your best cologne on that smells like George Clooney in a bottle.

And then one of your buddies pulls you aside and whispers to you that your fly is open.
Ouch. You’ve just experienced the brutal reality of first impressions. They can be good, and they can be really, really bad.

But here’s the thing: leaving your zipper open is just one obvious example of ways we all can ruin a first impression. In reality, there are many things we all do, unintentionally, when we enter a room or gathering of new people that equates to walking into a room with our fly open.

In other words, we’re killing our best chances at success with our own bad habits, mistakes, or simply ignorance. The stakes here are high. First impressions set the tone for entire relationships, whether it’s interviewing for a job, meeting one’s future in-laws for the first time, introducing ourselves to someone we admire, landing a new client, or getting a girl.

But here’s the good news – it doesn’t have to be that way. There are things we can — and should — do to put our best foot forward anytime we enter a room.

Art of Manliness has previously covered how to command a room like a man. Today I’m going to back up a bit and share specific steps you can take to enter any room projecting an air of confidence, self-assurance, and authority, without coming off like Michael Scott walking into a Dunder Mifflin staff meeting.
Below I share 9 specific, easy-to-implement tips culled from experts in psychology, social dynamics, and networking that will show you how to enter any room like a boss.

9 Tips for Projecting Confidence and Authority When You Enter Any Room

Below, I have included 9 easy things you can do to make your entrances convey confidence and authority. I broke them down into two steps – first, what things you should do to prepare to enter a room, and second, what you should do as you are actually making your grand entrance.

How to Prepare to Enter a Room

Being able to enter a room with confidence begins long before you ever cross the threshold of the door. Getting in the right mindset before you get to an event will prepare you to put your best foot forward once you get there. Here’s how.

1. Create a Dressing Ritual
Dresow, the criminal defense attorney, suggests creating a “pregame ritual” to settle your mind and make sure your clothing and appearance are up to snuff. He jokes that he learned a lot from reading about NFL Hall of Famer Deion Sanders’ pregame clothing ritual. “On the morning of every game he would lay out his uniform on the locker room floor exactly how he intended to wear it, with the pads, jersey, armbands, et cetera, all laid out on the floor,” says Dresow. “On gameday, he would put the pads on in a specific order and that was part of how he’d get into his game mindset.”

The routine had two benefits. First, it ensured Sanders’ equipment was all there and ready to go. By laying out your clothes the night before an interview or an event, you can check to see if your clothes are clean and your dog hasn’t chewed up your only tie. Secondly, Sanders pregame habit gave him greater confidence going into the high-stakes world of a professional football game. The rituals of getting ready for an important meeting – shaving with a safety razor, ironing your clothes, shining your shoes, tying your tie — can similarly work wonders in settling your mind.

Just don’t do the high step as you’re leaving the room.

2. Do Power Poses Before Entering the Room
You probably understand already that positioning our bodies in certain ways can convey nonverbal messages of “power.”

Just picture Macho Man Randy Savage strutting around the ring with his chest puffed out, or a King sitting on a royal throne. (The King Charles kind of King, not the Elvis Presley kind.)

But here’s something you may not know: the act of positioning our bodies in powerful ways not only makes others perceive us as more powerful, it makes us feel more powerful ourselves.

Harvard psychologist Amy Cuddy has found that standing tall directly influences our biochemistry. “In all animal species, postures that are expansive, open, and take up more space are associated with high power and dominance,” she says. In a research study she conducted, when participants were asked to strike one of these “power poses,” the results were amazing: after just two minutes in a high power pose, testosterone rose and cortisol (a natural hormone that the body releases in response to stress) decreased. By simply standing in a more dominant way, their bodies’ physiology changed to that of a dominant person....MUCH MORE

Professor Damodaran's Handy Lifecycle of Free Cash Flow Chart

Via Alpha Ideas:
Previously in handy:
Prof.Damodaran's Handy Uber Valuation Template (or, How to Price a Narrative)
Reason Mag's Handy Drinking Guide for Those Who Want to Coordinate their Sips and Shots with the Candidates’ Non-answers
Handy Hints For Our Soon-to-be-Snowbound East Coast Friends

Questions America Wants Answered: Was Leo DiCaprio’s ‘Wolf of Wall Street’ Paid for With Stolen Money?

From the Daily Beast:

The Oscar-winning actor’s charity and the production company behind Wolf of Wall Street have come under scrutiny for ties to a $3 billion embezzlement scandal.
When was the last time a celebrity scandal—not a body part—truly broke the internet? In the age of long lens paparazzi, 24/7 reality TV coverage and conscious uncoupling, we’ve been subsisting on cheap, disposable drama and scripted Bachelor breakups. Nobody thinks big anymore. Surprisingly, the man to finally bring some old school Hollywood glamour back to the celebrity scandal game may be none other than the founder of the pussy posse himself, Leonardo DiCaprio. Yes, it’s come to this.
In 2016, DiCaprio stuck it to malicious memers everywhere when he finally won an Academy Award. Having put himself through the physical and emotional ringer—i.e., growing an unflattering beard—for his critically acclaimed role in The Revenant, DiCaprio has found himself reduced to a bit part in an ongoing international saga. For anyone who’s unaware of the still-breaking Malaysian money laundering scandal (coming soon to a court near you), DiCaprio boasts a minor role as “Hollywood Actor 1.” According to filings from the Department of Justice’s Kleptocracy Asset Recovery Initiative’s “largest single action” ever, the Wolf of Wall Street star is inextricably linked to a set of alleged criminal masterminds.
It’s a story as old as time—Hollywood actor mistakenly bankrolls his movie about a financial criminal through stolen Malaysian money. 2013’s Wolf of Wall Street was a famously risky investment that almost didn’t make it to theaters. Luckily, financial aid arrived in the form of a mysterious production company called Red Granite Pictures, which contributed more than $100 million to DiCaprio and Martin Scorsese’s project. At the time, many joked that DiCaprio’s role as a Quaaludes-popping, philandering party boy was art imitating life, but nobody guessed that the entire crime film was vaguely criminal. Who knew that Wolf of Wall Street was so layered and nuanced?
As relayed by The Hollywood Reporter, investigators believe that much of Red Granite Pictures’ funding was diverted from production company 1MDB, which was set up seven years ago by the prime minister of Malaysia to spur local economic development. Allegedly, the company ciphered $155 million over 9,000 miles through a series of offshore shell companies. Red Granite Pictures was set up in 2010 by Riza Aziz, the Malaysian prime minister’s stepson, and Christopher McFarland, a Kentucky businessman. These two like-minded individuals were introduced through their mutual friend, a Malaysian party boy by the name of Jho Low. Low was a fixture on the celebrity club circuit, a position he cemented by sending 23 bottles of Cristal to Lindsay Lohan at 1OAK for her 23rd birthday. Naturally, this is where our blue-eyed “Hollywood Actor 1” enters the scene, summoned by the invocation of “Cristal,” “Lindsay Lohan,” and “1OAK.”...

Monday, August 22, 2016

Now The ECB Is Buying Corporate Debt Directly From Companies

I almost titled this post "Oh Good Grief, Bloomberg's Matt Levine mentioned 25% of the stories that I also found postworthy today" but had second thoughts when I realized that headline would mean nothing to long-suffering reader.

Here is Mr. Levine's A.M. linkfest, "Mirror Trades and Tax Tricks".

Anyhoo, I just read Mr. L's Monday "Money Stuff" post, checked timestamps, saw he was, unbeknownst to me, interested in many of the same things, but earlier, better, backwards and in heels.*

For the record he linked to the Bloomberg story I headlined Artificial Intelligence: "How This Hedge Fund Robot Outsmarted Its Human Master"  and the WSJ story "In Scramble for Yield, Pension Funds Will Try Almost Anything". Additionally, he linked to the Journal story that is this post's subject, which we had in the queue.

Inexplicably he didn't post on the annual walk through the cornfields to determine probable yields, about which one trader said:
"Social media will be buzzing with pictures and stories about what is really out there,"
Mr. Levine also missed the wonderful video in "Technology and Percussive Maintenance".
He did however have links to around a hundred other stories, although no footnotes today.

I had an intro all set to go, Cantillon effects from the location of central bank or treasury injections of money (MZM).
TL;DR: you want to be first in line for the loot, before general price levels rise (although some say that's a fallacy of composition), but I got so flustered seeing Matt stalking me from in front that I'm reduced to referring thou to the Wikipedia page on M. Cantillon who knew enough about economics to make and book a fortune off John Law and the Mississippi bubble.

Again, anyhoo...

From the Wall Street Journal, August 21:

Seller’s Paradise: Companies Build Bonds for European Central Bank to Buy 
Two European firms have sold debt directly to the ECB through private placements, a startling example of how the market is adapting to extremes of monetary policy

The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy.

In two instances, the ECB has bought bonds directly from European companies through so-called private placements, in which debt is sold to a tight circle of buyers without the formality of a wider auction.

It is a startling example of how banks and companies are quickly adapting to the extremes of monetary policy in what is an already unconventional age. In the past decade, wide-scale purchases of government bonds—a bid to lower the cost of borrowing in the economy and persuade investors to take more risk—have become commonplace. Central banks more recently have moved to negative interest rates, flipping on their head the ancient customs of money lending. Now, they are all but inviting private actors to concoct specific things for them to buy so they can continue pumping money into the financial system.

The ECB doesn’t directly instruct companies to create specific bonds. But it makes plain that it is an eager purchaser, and it lays out the specifics of its wish list. And the ECB isn’t alone: The Bank of Japan said late last year it would buy exchange-traded funds comprising shares of companies that spend a growing amount on “physical and human capital,” essentially steering fund managers to make such ETFs available to buy.

The furious central-bank buying has been a relief to companies and governments that can now borrow at rock-bottom interest rates. But it has also spurred criticism that the extreme policies are killing the returns available to other investors, such as pension funds, and loading up the economy and financial system with potentially overpriced debt.

The ECB was late to the central-bank party—it began quantitative easing only in 2015, years after the U.S., the U.K. and Japan—but it has embraced bond-buying with fervor. In March, it boosted its purchases to €80 billion ($90.6 billion) a month from €60 billion and surprised investors by saying it would soon add corporate bonds to its shopping list.

It had already bought so many government bonds that it was running out of things to purchase.
The ECB had bought more than €16 billion of corporate bonds as of Aug. 12, according to the latest available data from the central bank, after starting purchases in early June. The lion’s share has been already-issued bonds trading in secondary markets, but some has come in new debt sales, according to the ECB.

And Morgan Stanley has arranged two private placements that have been bought by the ECB, according to a Wall Street Journal analysis of data from Dealogic and national central banks.

The ECB cited its website when asked to comment on the corporate-bond-buying program. On Thursday, it updated information on the site to clarify that the bank can participate in private placements. The ECB isn’t involved in defining the characteristics of the bonds in these sales, a spokeswoman for the central bank said.

Private placements are private debt sales not open to the broader market, typically relying on a handful of investors that want to buy a company’s bonds.

For the company, such a sale allows it to raise cash quickly without having to draft a bond prospectus. Investors, for their part, are guaranteed to get a sizable chunk of the bonds they want to buy without having to compete with the wider investment community.

"Typically there won’t be a prospectus, there won’t be any transparency, there won’t be a press release. It’s all done discreetly,” said Apostolos Gkoutzinis, head of European capital markets at law firm Shearman & Sterling LLP.

The ECB executes bond purchases through the eurozone’s national central banks, which function like branches....MORE
*This is not the first time I've used the quote about Ginger Rogers to refer to ML. In "The Last Word On Asness' Alpha, Buffet's Beta and The Failure of Commodity Quants (and how to turn hyperlinks into footnotes)" it was:
I was informed that the theses that took me three five posts to present was wrapped up by Matt Levine in one little package two days prior to my attempts. And he does it better, backwards and in heels. Plus, to get the alliteration in the headline I had to mix up the alpha and the beta.
From Bloomberg...
If interested see also:
"Which corporate bonds has the ECB been buying?"
Climateer Line of the Day: In With The In Crowd Edition
Frontrunning the ECB: "Investors in corporate bond ‘land grab’ ahead of ECB buying"--UPDATED
"The ECB’s momentous step into corporate asset purchases"
Deutsche Bank On the European Central Bank: We Are Governed By Idiots
Pictet: "The Pricing And Valuation Of Bonds No Longer Reflects Fundamentals" - Why This Matters

PIMCO: The Role of Long‑Maturity TIPS in Retirement Portfolios

All things equal, we believe long-duration Treasury Inflation-Protected Securities (TIPS) should play an important role in the asset allocation of workers who are within 10 to 20 years of retirement. Long TIPS effectively help hedge retirees against fluctuations in the real wealth required to sustain a given level of consumption in their retirement years. As such, long-duration TIPS act as the “risk-free asset” in the context of retirement savings, and, for investors on a reasonable savings path, an allocation to this asset class may increase the likelihood of a successful retirement outcome.
While the secular tailwind of declining real and nominal yields, which have contributed to favorable returns of long-duration fixed income over the last 20 to 30 years, has most likely come to an end, the prospective returns of long-maturity TIPS are still sufficient to justify a meaningful allocation, in our view. Alternatives such as cash or shorter-duration bonds are expected to have worse performance over the next 10 years than long TIPS, under our base case view. Risk assets such as equities and higher-yielding fixed income, which have the potential to outperform long-duration TIPS, should also be considered for retirement savings portfolios. However, their inclusion increases the uncertainty of final outcomes, particularly as one approaches retirement.

Although changes in market-wide risk premia will inevitably cause both the relative and absolute valuations of asset classes to change in the future, the role of long-maturity TIPS as the “risk-free” asset will remain undiminished. For example, a rise in the equity earnings yield is likely to translate into higher future risk-adjusted returns. A DC investor may optimally allocate more to equities as a result. We believe long TIPS, however, will continue to be the most appropriate asset for hedging the liability, irrespective of valuations, and, as such, should always serve an important role in retirement investors’ portfolios.

The Relationship Between Real Wealth And Real Consumption In Retirement
To evaluate the current state of a retirement plan, we can invoke a basic principle of financial planning, which is that the present value of retirement consumption should be less than or equal to the present value of assets set aside to finance it. For a worker requiring a real income stream of CR, lasting T years, and assuming a constant real interest rate, r, this condition implies a minimum wealth level at retirement, WR, of
Long-Maturity TIPS In Retirement Portfolios
The same principle applies N years before retirement, which implies the following condition:
Long-Maturity TIPS In Retirement Portfolios
where SR-N is the worker’s future real savings. If we define Screenshot_1 as the “real price index” for K years, we can restate these conditions as follows:
Long-Maturity TIPS In Retirement Portfolios
We can consider the current retirement savings to be consistent with a worker’s retirement objective if Equation 4 holds. In other words, an investor is on track to his retirement goal if the current value of his wealth plus the present value of future savings is greater than or equal to the present value of his anticipated future consumption. If Equation 4 does not hold, then the deficit can only be closed by either lowering consumption expectations in retirement (CR) or increasing savings (SR-N). This concept is similar to how a corporate pension plan compares the value of its asset portfolio with its expected liabilities to determine the plan’s funded status.

Figure 1 shows the impact of real yields on the retirement price index, along with the liability duration, assuming 20 years of retirement income. Each line represents the number of years to retirement, ranging from zero (at retirement) to 20 years. The value of the liability is directly influenced by the level of real interest rates in the economy, with lower rates translating to greater liability values and vice versa. Additionally, the further one is from retirement, the greater the duration, or interest rate sensitivity, of the liability. For example, at retirement, the duration of an investor’s liability is about 10 years. 
Empirical Performance Of Asset Classes And The Real Liability
Figure 2 shows the retirement price indexes relevant for three different ages – 55, 60 and 65 – from March 1999 to June 2016, alongside the evolution of 10- and 20-year real yields.1 The index is computed assuming 20 years of retirement income. Over this period, the wealth required to finance a given retirement income increased substantially, driven by the steady decline in real interest rates. Real rates were 4% in 1999, then hovered around the 2% level from 2003–2007, before recently falling to an unprecedented range of nearly ?1% in 2012. Since 2012, real rates have rebounded somewhat, ranging between 0% and 1%, resulting in a reduction of the cost of retirement from its peak in 2012.

As a result of this secular decline in real yields, the wealth required to maintain the retirement incomes of a 55-, 60- and 65-year-old worker grew by a staggering 90%, 60% and 40%, respectively, between 1999 and 2016. One million dollars of retirement savings could have supported about $70,000 of real retirement spending in 1999. By 2012, that number had fallen below $50,000, and more recently the number is just over $50,000. Hence, focusing purely on one’s wealth would have given the false impression that the investor was equally as welloff in 1999 as in 2012. Looking at the problem through the retirement income lens, however, shows that real wealth has been a poor proxy for prospective retirement consumption....MUCH MORE (10 page PDF)
HT: ValueWalk

Central Bank Machinations: Citigroup Is Fed Up and Not Going To Take It Anymore

From FT Alphaville:

There’s no yield, and Citi isn’t going to take it anymore
Citi’s Matt King has some harsh words for central bankers ahead of this week’s gathering in Jackson Hole, Wyoming: he says they’ve broken the market.

King echoes a group of fund managers who say central banks’ stimulus efforts are distorting the way global markets function. The problem is this: with negative yields on $13 trillion of safe assets, investment managers are crowding into the shrinking group of investments with yield — or into securities they may be able to sell to central banks.

This has been frustrating for those fund managers, to say the least. (This journalist remembers getting laughed at when she asked an expert how to determine the value of a Treasury security, because the Federal Reserve still owns more than $2 trillion of them.)

Instead of gauging market fundamentals in their decisions, investors are primarily concerned with the outlook for central bank policy. So they crowd into trades that could profit off of the actions of central bankers in Europe, Japan or the UK. That’s why Bill Gross and Paul Singer have both bemoaned the effect central banks have had on the global markets and the economy recently. Gross says it’s causing growth to stagnate, and Singer is warning of a sharp reversal.

King agrees. Here are some of the reasons he thinks markets are broken:
A greater share of global equity-market variance is explained by macro factors, according to the bank’s quant team. From his note: “When there’s only one factor dominating markets, it inevitably forces investors the same way round.”
Credit spreads aren’t responding to climbing leverage and defaults. If defaults and leverage are higher, you’d expect investors to demand more yield to own a security — unless, of course, they think they’ll be able to sell it to a central bank soon:
Normal market relationships are breaking down. King says the traditional relationship between government debt and credit has broken down. Normally, if yields fall it’s a sign investors are seeking out safety, which should coincide with wider spreads. But he finds that the 10-year bund yield and European investment-grade credit spreads have tended to move in the same direction since 2014: “Either it all rallies, in a gigantic reach for yield – or it all sells off. The benefits of diversification just went completely out of the window. No wonder investors are hiding in alternatives: at least they don’t have to mark to market.” ...

Artificial Intelligence: "How This Hedge Fund Robot Outsmarted Its Human Master"

From Bloomberg, Aug. 21:
  • Simplex uses artificial intelligence to trade Japan futures
  • AI investors are outperforming as global hedge funds struggle
Yoshinori Nomura felt like weeping. It was the morning of June 24, Brexit day, and markets were moving against him.

Well, not against him, exactly. It was the hedge fund manager’s self-learning computer program that had placed the bet, selling Japanese stock-index futures before a sizable market advance. Nomura had anticipated a rally, but decided not to interfere, and his fund was paying the price.

Then, in an instant, everything changed. When new vote counts signaled Britain was going to leave the European Union, a burst of selling sent Japanese shares to their biggest drop in five years. By luck or design, Nomura’s Simplex Equity Futures Strategy Fund ended the day with a 3.4 percent gain, one of its best results in three months of trading.

“The machine was right after all,’’ said Nomura, who spent more than three years refining his trading program and now oversees about 3.5 billion yen ($35 million) in the fund, one of the first in Japan to utilize artificial intelligence technology.

Nomura doesn’t have the assets or name recognition of computer-savvy giants like Renaissance Technologies or Two Sigma Investments. But in his own way, the Tokyo-based physics buff has become a compelling test case for what some say is the future of money management. If Nomura can succeed in Japan -- where central bank stimulus has upended markets, hedge funds are trailing global peers and institutional investors are notoriously risk averse -- it would offer hope for fledgling AI traders around the world.

The 43-year-old money manager is setting his software loose in one of the planet’s most turbulent markets. Share-price swings in Japan rank No. 1 among the world’s 15 largest stock venues, with volatility readings almost four times higher than in the U.S. The benchmark Topix index has tumbled 16 percent this year, following an almost 10 percent rally in 2015. It climbed 0.6 percent on Monday....MORE

Technology and Percussive Maintainence

Oddly satisfying.

From Duncan Robson:

Percussive Maintenance from Duncan Robson on Vimeo.

DFJ's Steve Jurvetson Talks About Investing, Innovation & Robots As Agents Of Change

From Forbes:
Since 1985, DFJ’s core funds have raised $5 billion to fuel entrepreneurial companies around the world. As a principal of the venture capital firm, Steve Jurvetson is recognized for an uncanny knack for seeing “around the corner” to discover the next truly disruptive technology. His investments in atypical sectors for venture capitalists such as automotive, satellite technology and industrial automation reflect his optimism about the power of technical innovation to transform industries and lives in many ways.

I recently talked with Steve about the philosophy behind his investment strategy and his vision for collaborative robotics.

Q: You’re well-known as an early investor in some of the most innovative companies of our time, most recently in Tesla and SpaceX. Why do you choose the companies you do?
A: It comes down to the question of how I can live a purposeful life. I believe that technology has the potential to change the fate of nations, industries and companies, as well as the context of our lives. I want to help build the companies that take the risks needed to make those kinds of real changes in the world.

The entrepreneurs at the helms of the kinds of companies I look for are pursuing a greater mission than profit arbitrage. Elon Musk has said that as long as he is CEO of Tesla, profits are not the priority; it’s sustainable energy. That kind of leadership attracts the best and brightest employees, cultivates customers who are extremely loyal and partners who want to help – all critical to achieving the core mission. Profits are a byproduct of the mission, not the mission itself. Financial success follows. The companies we invest in are doing things that extend beyond the moment and will have long-term implications for how we live, work and play.

Q: You talk about disruptive technology – how do you define it?
A: I’m glad you asked that question. There’s a lot of hype around the label, and it’s important to be clear. Here’s an example of non-disruptive innovation: in the oil industry if someone increases the efficiency of extraction by 10%, they will generate billions of dollars. But ask yourself: will history books ever tell that story? No. That’s an incremental improvement on the status quo – it doesn’t really change anything about the industry, how oil is consumed, or what the process does to the environment.

On the other hand, take Planet Labs, one of our portfolio companies. They are launching hundreds of satellites built with cell-phone components to achieve a 100x cost advantage. These satellites image the entire Earth every day – not just a predefined region – making it possible to discover, observe and take action in real-time....MORE
Among DFJ's many, many investments is Nervana, recently purchased by Intel to take on NVIDIA:
Deep Learning is VC Worthy
Competition For NVIDIA: The Nervana Systems Chip That Will Let Intel Advance Its Deep Learning (INTC; NVDA)

Tim Draper is Mr. Jurvetson's slightly demented partner:
Theranos Is Flopping Like A Dying Fish
Guy Who Wanted To Split California In Six Pieces Launches Contest To Keep It Together

"Nvidia Welcomes Intel Into AI Era: Fancy a Benchmark Deathmatch?" (NVDA; INTC)

From The Register:
We love your deep learning benchmark 'mistakes'

HPC blog Nvidia just fired the first salvo in what promises to be a classic and long-lived benchmark death match vs Intel. In a webpage titled "Correcting Intel's Deep Learning Benchmark Mistakes," Nvidia claimed that Intel was using outdated GPU benchmark results and non-current hardware comparisons to show off its new Knights Landing Xeon Phi processors.

Nvidia called out three Intel claims in particular:

"Xeon Phi is 2.3 times faster in training than GPUs." This claim was made in a press presentation delivered at ISC'16 and on an Intel-produced "fact sheet" (PDFs available here and here). It specifically refers to a stat at the left side of slide 12 (and the second page of the fact sheet) where Intel claims Phi is 2.3 times faster on the AlexNet image training on a DNN (deep neural network).
Nvidia alleges that Intel is using 18-month-old AlexNet numbers for Nvidia (based on a Maxwell system), while using farm-fresh numbers for the Intel Phi.

According to Nvidia, its Pascal processors in the same four-accelerator configuration outperform Intel's Phi by 1.9 times. It also claims its new NVIDIA 8-GPU DGX-1 dedicated DNN training machine can complete AlexNet in two hours, outshining the 4 Phi system by 5.3 times. Ouch.

"Xeon Phi offers 38 per cent better scaling than GPUs across nodes." This claim also occurs in both of the Intel documents referenced above. In this case, Intel is saying that their Phi systems scale better than GPU-equipped boxes, namely when it comes to 32-way/accelerator configurations.

According to Nvidia, Intel is using four-year-old numbers from Oak Ridge's Titan machine, which was using the old Jaguar interconnect and old K20 GPUs, as a comparison to Intel's brand-new Omni Path Architecture connected Phi processors running deep learning workloads.

It points out Baidu-published specs from its speech training workload that show near linear GPU scaling not just to 32 nodes, but to 128 nodes. Ouch again....MORE
"Competition For NVIDIA: The Nervana Systems Chip That Will Let Intel Advance Its Deep Learning (INTC; NVDA)"

See also:
Baidu Artificial Intelligence Beats Google, Microsoft In Image Recognition

Ag Commodities: Hedge Funds Resume Selling As ProFarmer Crop Yield Tour Begins

Last Chg
Corn 342-0-1-6
Soybeans 1005-2+0-6
Wheat 440-4-4-2

A twofer from Agrimoney:

Hedge funds resume selling in ags, led by corn, cotton, hogs

Hedge funds returned to a bearish bias on ags – although not by much, as improved sentiment towards cocoa and wheat prices offset some of the impact of data-fuelled sales in corn and cotton.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by 8,255 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
It was the eighth time in nine weeks that hedge funds have cut their net long - the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall.
However, it was a relatively small decline, in terms of the bearish swing in positions over the nine weeks, during which the net long has fallen by 590,000 contracts, to a little over 367,000 lots.
'Precariously perched'
The CFTC data for the latest week did show a marked drop in the net long in cotton, of nearly 12,000 contracts, the biggest sell-off in seven months.
The shift was encouraged by the boost to supplies from an extension to China's state auction programme, and to a surprise US Department of Agriculture upgrade to its forecast for this year's domestic crop.
"Improved West Texas and Indian rainfall - highly favourable for production - were coupled with a confirmed extension to the Chinese reserve auction," said Rabobank.
And the sell-down, which came amid a marked drop in futures prices, may not be over yet, given that speculators retain, at 66,977 lots, a relatively large net long position, Tobin Gorey at Commonwealth Bank of Australia said....

AM markets: corn recoils awaiting US crop tour 'buzz'

How grain markets move this week will likely depend on the outcome of a Midwest dance which goes like this.
Walk 35 paces into the field, measure off 30 feet, record row width and count ears, and sample the fifth, eighth and 11th ears.
The outcome of this ritual - repeated over some 1,400 fields during the annual ProFarmer crop tour of Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota – will give a US corn yield estimate viewed as one of the more accurate insights into what the harvest will actually produce.
(The same goes for soybeans too.)
And it is this which looks like grabbing the headlines this week in the Chicago grain market, and thereby having a big impact on world prices too.
'Social media will be buzzing'
"Social media will be buzzing with pictures and stories about what is really out there," said Joe Lardy at CHS Hedging.
And the tour comes at a particularly apposite time, amid some scepticism over the US Department of Agriculture estimate 10 days ago of a huge 175.1-bushels-per-acre domestic crop – an upgrade of 7.1 bushels per acre from its previous estimate, and a result which would be the biggest on record.
(There has been some, but a lot less, scepticism over an upgrade of 2.2 bushels per acre to a record 48.9 bushels per acre in the USDA's soybean yield estimate.)
Mr Lardy said: "The big question to answer is, 'are the ear weights really that high?'
"The tour should have more influence than normal as the market tries to see if record yields in corn and soybeans are justified."
'Increasingly important issue'

Indeed, some crop worries have surfaced, one being that dryness may have had a bigger impact on the crop than the market has factored in (or, at least, had until the recovery in prices last week)...
Here's ProFarmer's Tour kickoff page

And from AgWeb, their interactive map page:
Crop Tour

The Pro Farmer Midwest Crop Tour’s primary goal is to provide the industry with accurate growing season information about likely corn and soybean yields at the state and regional levels during the upcoming harvest season.

Crop Tour’s data-gathering methods are disciplined and produce consistent results. The Tour’s crop scouts — especially the new ones — receive formal instruction before the Tour and training from Tour veterans along the way.

Results from the Tour have a big impact on Pro FarmerNewsletter’s annual crop production estimate released at week’s end. But observations gathered during the Tour can be just as important as the data itself.

“We pull enough samples to provide us with accurate data for a large geographic area. Crop Tour does not attempt to predict actual yields for individual fields or even a county, but we do want to have a good handle on likely yields for each of the seven states we survey,” says Pro Farmer Editorial Director Chip Flory.

Each day's samples and observations are shared to the public at evening meetings.

For the schedule and more information, check out ProFarmer's Crop Tour page.

"Fischer Joins Dudley; Waiting for Yellen"

From Marc to Market:
Last week, some market participants were giving more credence to what seemed like dovish FOMC minutes than to NY Fed President Dudley's remarks that accused investors of complacency over the outlook for rates.  Yesterday, Vice-Chairman of the Federal Reserve Fischer seemed to echo Dudley's sentiment, and this has underpinned the dollar and is the major spur of today's price action.
Although Fischer's speech was focused on the slowdown in productivity, he reaffirmed that the Federal Reserve was close to meeting its objectives.  He expected growth to strengthen in the coming quarters.  He pointed to the "remarkable" resilience of the labor market and anticipates stronger investment going forward.  
Our approach to the Federal Reserve has been to consistently put more weight in the signals from the Fed's leadership than the regional presidents.  We quickly recognized Dudley's comments to reflect the Fed's leadership, and anticipated that Fed Chair Yellen would offer a broadly similar assessment at Jackson Hole later this week.  Although some observers do not accept our heuristic approach, Fischer's comments are harder to shrug off.
Dudley and Fischer's comments underscore one side of the divergence, while developments in Europe and Japan play up the other side of the divergence.  Reports suggest that the ECB's negative interest rates are finally being passed on the some (mostly large) depositors.   There are press reports that Irish and German banks may have begun to charge large depositors, while a UK-based bank will also reported pass through negative rates.
Separately, BOJ's Kuroda acknowledged that there was technically room to lower rates further. The coverage of his remarks seemed to emphasize what was translated a "sufficient chance" to ease next month.   It is not clear that Kuroda is tipping his hand, but that is the way the market responded.  The yen was sold.  Government bonds and stocks were bought. 

"In Scramble for Yield, Pension Funds Will Try Almost Anything"

From the Wall Street Journal:

Options strategy used by pension funds aims to work like a volatility dampener
Some pension funds are seeking to profit from others’ fear.

Pension funds in Hawaii and South Carolina are plying an arcane options strategy called cash-secured put writing. In a typical trade, the investor sells a contract, known as a put, to someone who owns stocks and is willing to pay up for protection in case they decline. If, within a certain time, the shares fall below a given price, the investor buys the stocks at that price, or covers their lost value.

The upside for the pension funds, which are writing options on the S&P 500 index, is that they earn regular income. The strategy aims to work like a volatility dampener. If stocks fall, the income the funds have collected on the options contracts should help cushion any hit they take on the puts and their own separate stockholdings. The pension funds set aside some cash-like instruments such as Treasurys for the payouts, so they aren’t caught without money if the market goes against them.
The cost of options tends to rise when investors expect big market swings, so the strategy does best when investors are fearful and paying up for protection against a downturn—and a downturn doesn’t materialize.

But if protection is cheap and the market takes a big fall, the pension fund can end up with losses.
“There comes a point where you might be picking up pennies in front of a steamroller,” said Nathan Faber, vice president of investment strategies at Newfound Research, an investment manager that uses put writing, but not tied directly to the S&P 500.

For some, the approach offers a way to generate income, which can be especially attractive with government-bond yields at record lows.

Matt Moran, vice president of business development at the Chicago Board Options Exchange, described the put-writing approach in terms of baseball: Over long periods of time, the strategy hits a lot of singles and doubles, but can also hit fewer home runs and hits into fewer double plays than the S&P 500.

The CBOE S&P 500 PutWrite Index, a benchmark for the strategy, has returned 4.4% this year through Friday, versus an 8.4% total return for the S&P 500, which includes dividends. The PutWrite index didn’t fall as sharply as the market during the selloff of early 2016, but has lagged behind the rallies. In 2008, during the financial crisis, the put-write strategy returned minus-27% compared with the S&P 500’s return of minus-37%.

CBOE’s calculations of how the index would have performed before its 2007 creation estimate that annualized returns over the 30 years through this June were 10%, narrowly topping the S&P 500.
Risk mitigation was behind a decision by the Hawaii Employees’ Retirement System to invest $1.6 billion of its $15 billion portfolio in a put-writing strategy, which it expects to be fully invested by October. Based on how the options would have been priced last week, Hawaii could generate about $19 million a month in income if it wrote puts on the full amount and the options weren’t exercised, according to Neil Rue, a managing director at Pension Consulting Alliance, an independent firm that works with the pension fund....MORE

Champagne Crop Looking Dismal

From Decanter:

Champagne shortage looms after frost, rot and mildew
Bad weather, rot and mildew in Champagne all mean that 2016 has been one of the lowest yielding Champagne seasons since the 1980s. 
Champagne shortage
The growing season is the most complicated Champagne has known since the very difficult season of 1956, said Eric Rodez, winemaker at the family-owned Champagne Rodez in Ambonnay.

In spring, late frosts hit the Côte des Bar region, where a quarter of the Champagne vineyards are.
Jean Pierre Fleury, winemaker at Champagne Fleury in Courteron told Decanter.com the frost at bud break caused him to lose 70% of his potential harvest.

Champagne alternative: Top UK sparkling wines
The Aube was once again hit by hailstorms later in the season, and then by the mildew epidemic sweeping through Champagne.

Olivier Horiot, a grower and vigneron at Les Riceys, estimates the sub-region’s yield will be averaging around 2,500 to 3,000 kg/ hectare, well below the 10,700 kg/ hectares the CIVC decided on in July.

Grower Champagne: 10 estates to know
Yields are set in function of sales forecast, as well as the actual crop potential in the vines, and in difficult years they are supplemented by the Individual Reserves held by growers and houses.
Charles Philipponnat, General Manager at Champagne Philipponnat, said that to meet the 2016 yields, growers and houses will have to dig heavily in their reserves.

‘We estimate that our average yield in the Marne is closer to 8,000 to 8,500 kg per hectare, which is in-line with the official estimates of 7,200 kg/hectare for the whole Champagne region.’
Rot damage Mildew and grey rot have also been causing more damage....MORE