Saturday, September 24, 2016

Hey Kids: Gut Check, The Microbiome Game Is Now Available for Purchase!

From microBE.net:
img_0684
So 18 months after we released the free, print-at-home version of Gut Check: The Microbiome game we finally have a commercial version!  The game is available from MOBIO Laboratories here, for the very reasonable price of $20 with free shipping.  For a really nice write-up about the game, check out this blog post from Anne Estes.
What is it?
Gut Check is a game for 2-4 players where each player attempts to develop a healthy microbiome while interfering with the microbiomes of their opponents.   Give your friends the plague, botulism and more!  Go to work sick to get rid of a pathogen....
...MORE

Drought In California: The Dry Years to Come

We have had dozens and dozens of posts on drought but if I had to pick only one concept to stress it would probably be our introduction to 2015's "The Economics of the California Water Shortage":
Where this gets really interesting is when you throw a historical perspective on the current California drought:
-San Jose Mercury-News "California drought: Past dry periods have lasted more than 200 years, scientists say"

That little red blip at the far right side of the timeline is the current drought.
You could make a reasonable argument that for the last 150 years Californians have been living in a fool's paradise....
And today's story, from LA Magazine, October 20, 2015:
With a growing population and warming climate, our water problems won’t be solved by one el Niño

It was the late summer of 1991, and California was deep into one of the worst droughts in its history. For five years with only scant interruption, the sky had burned hot and blue from November through March; bathtub rings on reservoirs rose high on their sun-parched walls. Water masters were panicking: The City of Santa Barbara built a plant to strip the salt from seawater; Los Angeles swiped images from Alfred Hitchcock’s Psycho for television ads to make people think twice about lingering in the shower.

Everybody I met talked as if the dry season would go on forever, and having only recently relocated from Minnesota, I believed them. “Remember when we used to have winter?” a woman in my office lamented to no one in particular. “We used to get so much beautiful rain.” Winter had gone the way of the downtown punk scene, Googie diners, and speedy trips along the 101. It was a symbol of what Los Angeles used to be, a figment whose memory causes a contraction in your heart, in the place where you feel longing and sadness for times gone by.

If only my new friends had paid closer attention to the distant forecast. Even as they spoke, a warm southern current was forming in the equatorial Pacific, where tropical storms gather strength to blast north toward the California coast. The sea-surface heat would build through the summer and fall, peaking around Christmastime, hence its name, El Niño, bestowed by 19th-century fishermen in honor of the baby Jesus. In October storms would uproot the big yellow umbrellas the artist Christo had installed that season in the Tehachapi Mountains; late December rainstorms would rage through January. In February of 1992, six inches of rain would fall in three hours, sending swift-water rescue teams scurrying to save flailing victims from the Los Angeles River.
secondimage
Inside the Orange Counter Water District’s water recycling facility Photography by Spencer Lowell
Naively I had assumed that, despite the calamity the storms caused, the city would welcome the relief from drought. But the floods did us little good. City reservoirs, already full of imported water, weren’t situated in the right places to capture runoff from the streets. Instead billions of gallons of freshwater would empty each rainy day down storm drains to the ocean.

“We need these kinds of storms up in Northern California, where our reservoirs are,” Robert J. Gomperz, then spokesperson for the Metropolitan Water District of Southern California, explained to The New York Times. “Down here we have no way of capturing the water.” It would be another wet winter before snow returned to the mountains and officials declared an end to one more California water crisis.

Twenty-two years later, we’ve been forgetting winter again. In 2014, El Niño simmered in the Pacific through May and June but shriveled in July, abandoning the state to a fourth year of record-low reservoirs. Central Valley towns have run out of water; city lawns and leaves have gone brown. Santa Barbara has dusted off its desalination plant, the one that was shuttered in 1993 without delivering a drop of freshwater.
Once again relief might be brewing around the equator: El Niño is back, and it looks like a doozy. “Right now it’s on track to be as big as the El Niño of 1997 to 1998, which was the strongest one of the 20th century,” says Michael Dettinger, a research hydrologist with the U.S. Geological Survey and Scripps Institution of Oceanography in San Diego. February 1998 remains California’s wettest on record.
Strong El Niño years herald what meteorologists call atmospheric rivers: low-elevation ribbons of tropical moisture that can drop more than a third of the state’s water supply in a few weeks. (In the winter of 1861 to 1862, when floods and blizzards spread from California to Utah, an epic atmospheric river hammered California for 43 days.) Were that much precipitation to hit the ground as rain, the state’s storage network, vast though it is, wouldn’t be able to handle it. So hydrologists hope the storms cross the high peaks of the southern Sierra Nevada, where rain turns to snow and stays frozen until spring. “We call the snowpack our biggest reservoir,” says Ted Thomas, spokesperson for the California Department of Water Resources. “It meters water as the snow melts over several months.”

If, that is, the mountain winter gets cold. The spring before last at Phillips Station, 6,800 feet up in the Eastern Sierra where officials from the Department of Water Resources gauge the snowpack, only a quarter of the average snow had accumulated. This April a grim-faced Governor Jerry Brown had his picture taken planting the measuring pole atop dry grass. Yet both years were far from the driest we’ll ever have. In 2015, the eight mountain outposts that matter most received an average of 75 percent of their normal precipitation. “The problem was that both years were record-breakingly warm,” Dettinger says. “That warmth completely wrecked the snowpack.”

Like many atmospheric scientists, Dettinger is reluctant to categorize what we’re experiencing as climate change. California weather, orchestrated by a weather pattern known as the Pacific Decadal Oscillation, has always gone through dramatic cycles in normal times; balmy winters, they happen. But with heat-trapping gases building up in the atmosphere, we might consider 2015 a rehearsal for 2055. “This is what climate change will look like,” he says. “This is what a normal year will look like. Eventually the snowpack will disappear.”

Clearly more has to be done with what falls from the sky, something beyond directing our laundry runoff to fruit trees in the backyard. Worthy as our #droughthacks might be, none of them are enough to replace the snowpack on which Los Angeles depends for at least 80 percent of its water. Eastern Sierra meltwater from the Owens Valley and Mono Lake pours into the Los Angeles Aqueduct, which Mayor Fred Eaton and city engineer William Mulholland built to irrigate the city more than 100 years ago. Pumps direct freshwater from the Sacramento-San Joaquin River Delta into the California Aqueduct before it can get to San Francisco Bay. The Colorado River, too, finds its way to the city’s taps via the Metropolitan Water District, founded in 1928 to stake Southern California’s claim to that waterway.

All those sources come from fragile ecologies that have been brought to the brink of collapse by decades of water diversions; all are contested—by local communities, environmentalists, fishermen, competing users. All of them reach us along aqueducts that intersect earthquake faults, where a cataclysmic shudder could cut off supply. When Mayor Eric Garcetti last October ordered the Los Angeles Department of Water and Power to halve the city’s water imports within the next decade, he echoed a goal the utility’s managers had already set forth—and one that’s been long overdue: to remake the city of 4 million on a semiarid coast into a civilization that can survive the next century, starting with water....MORE
Seriously, always remember: "California: The Last 200 Years Were The Happy Time For Weather, Get Ready For A Return to The West Without Water". 
and:
Straight Talk on Weather and Climate: "Will California's Drought Bring About $7 Broccoli?" 

Two quick points:
1) The Great American Desert was called that for a reason. The weather of the U.S. over the last 150 years is an anomaly in the longer history.
2) The subsidization of row crops, corn in particular, is a political decision that severely distorts investment and thus nutrition outcomes....
Finally, some good news:
Modeling: "In virtual mega-drought, California avoids defeat"
And:
El Niño: "The ARkStorm Scenario Could Flood California's Central Valley like a Bathtub and Cost $725 Billion" 

On second thought maybe that last post shouldn't be in the good news file.

News You Can Use: "Completely effin serious"

From MetaFilter:
Swearing has been clinically proven to reduce pain. It also is known to be processed by a different part of the brain than other kinds of language.
posted by Michele in California 


In addition to pain management: if you're trying to move something that's stuck, profanity is an excellent lubricant.
posted by fantabulous timewaster 
...MORE

Today's word is coprolalia.

Strategies: Academia's Killing the Momentum Star

Or not.
Two from ETF.com. First up, September 19:

Why Momentum Is Struggling
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Mark Carhart, in his 1997 study “On Persistence in Mutual Fund Performance,” was the first to use momentum, together with the three Fama-French factors (market beta, size and value), to explain mutual fund returns. Initial research on momentum, however, was published by Narasimhan Jegadeesh and Sheridan Titman, authors of the 1993 study “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.”

The research on momentum has shown that its premium has been persistent across long periods of time, pervasive across geography and asset classes (stocks, bonds, commodities and currencies), robust to various definitions (formation periods) and implementable (as it survives transaction costs).
With this is mind, it has also been firmly established that the publication of academic research can impact the performance of investment factors shown to have premiums. The reasons are intuitive.

Research’s Impact
First, if anomalies are the result of behavioral mistakes, or even if they are the result of investor preferences, and publication draws the attention of sophisticated investors, it is possible that post-publication arbitrage would cause their premiums to disappear. Investors who seek to capture the identified premiums could move prices in a manner that reduces the return spread between assets with high and low factor exposure.

However, limits to arbitrage, such as aversion to shorting and its high cost, can prevent arbitrageurs from correcting pricing mistakes. And the research shows that this tends to be the case when mispricings exist in less liquid stocks where trading costs are high. More on this subject soon.
Second, even if the premium is fully explained by economic risks, as more cash flows into the funds acting to capture the premium, the size of the premium will be affected. At first, publication will trigger inflows of capital, which drives prices higher and thus generates higher returns. However, these higher returns are temporary, because subsequent future returns will be lower.

In fact, academic research has found that, on average, factor premiums shrink post-publication by about one-third. The research has also found factor-based portfolios containing stocks that are costlier to arbitrage decline less post-publication....MORE
And September 23:

Is Momentum Really Dead?
Earlier this week, we examined a study that sought to determine whether the publication of academics’ findings on the momentum factor have led to a disappearing premium. To review, Steven Dolvin and Bryan Foltice, authors of the 2016 study “Where Has the Trend Gone? An Update on Momentum Returns in the U.S. Stock Market,” found that in two overlapping subperiods from their sample (both ended in 2015 and each was less than 10 years long), the risk-adjusted returns to momentum no longer followed the clear, monotonic distribution typically exhibited in prior research.
The authors write: “Thus, while a traditional strategy of going long winner stocks and short loser stocks may continue to generate positive returns, it seems that this is no longer the optimal strategy.” Dolvin and Foltice concluded their findings should in fact send “an alarming signal to both individual and institutional investors who are seeking to profit from momentum trading. In fact, maybe the new adage should be: ‘The recent trend has not been your friend.’”

While it certainly is possible that the publication of research and the increase in assets engaged in momentum-based strategies has altered the premium’s nature, I explained why it’s far too early to draw any such conclusions, and then explored several reasons why I believe investors should remain skeptical.

Today we’ll cover another reason why factor premiums can persist after publication, even if they have behavioral explanations, and then discuss momentum’s post-publication returns.

Limits To Arbitrage
In the real world, anomalies can persist because there are limits to arbitrage, such as those that make investors less likely to short undesirable securities. First, many institutional investors (like pension plans, endowments and mutual funds) are prohibited by their charters from taking short positions....MORE

Hurricane Watch: "Karl Approaches Bermuda; Trouble in the Caribbean Next Week?"

The Hurricane watch is for Bermuda before Karl goes to visit the Faroe Islands and Norway as an extra-tropical storm.  And then for a new system that has the potential to become one of the long-haul Cape Verde storms.

Tropical Storm Karl

From Wunderblog, Sept. 23:

Karl Approaches Bermuda; Trouble in the Caribbean Next Week?
After nearly a week as a lackluster system, Tropical Storm Karl is finally gaining strength as it heads toward a close encounter with Bermuda. As of the 11 am EDT advisory, Karl was located about 250 miles south of Bermuda, moving north at 12 mph. Karl’s top sustained winds were holding at 60 mph, its peak intensity thus far. Karl is continuing its multi-day struggle with vertical wind shear that’s tended to push its showers and thunderstorms (convection) east of its center. On Thursday night, the storm managed to consolidate a healthy core of convection around its center, but Karl remains somewhat asymmetric, with a comma-shaped structure and a large band of convection well to its east.....

.... An African tropical wave that could be trouble
A  tropical wave located a few hundred miles west of the coast of Africa and about 350 miles southeast of the Cabo Verde Islands on Friday morning was poorly organized, with only a limited amount of heavy thunderstorm activity and spin. This wave is currently too close to the equator (near 8°N) to be able to leverage the Earth’s spin and acquire enough spin of its own to develop into a tropical depression, and is not likely to develop through this weekend as it heads rapidly west at 20 - 25 mph. However, the tropical wave may move far enough from the equator to be able to develop by early next week, when it reaches a point about halfway between the Lesser Antilles Islands and the coast of Africa. There was increased model support for development of this tropical wave in the Friday morning runs of the models compared to their Thursday morning runs. Our top three models for predicting hurricane genesis—the GFS, UKMET and European models—all predicted in their 00Z Friday runs that this tropical wave would develop into a tropical depression or tropical storm between Monday and Thursday next week. About 60% of the 20 forecasts from the members of the 00Z Friday GFS ensemble showed development, and about 30% of the 50 members of the European model ensemble did so. Troublingly, a considerable number of the ensemble model runs showed this storm becoming a hurricane in the Caribbean. Working against development, at least in the next five days, will be the fast forward speed of the system—tropical waves moving at 20 mph or faster usually have trouble getting organized. However, the storm does not have as much dry air to contend with compared to other storms we have seen this year, and it would not be a surprise to see this system be close to tropical depression or tropical storm status when it begins moving into the Lesser Antilles Islands on Tuesday night.  In their 8 am EDT Friday Tropical Weather Outlook, NHC gave this system 2-day and 5-day development odds of 0% and 20%, respectively....MORE

Friday, September 23, 2016

‘Pepper’ Robot Uses Trial-and-Error Learning to Master a Child’s Game

From The Next Web:

pepper-robot-learning-ball-in-a-cup-game
Robots, much like children, are now using simple games to learn important skills. Pepper, SoftBank’s adorable humanoid robot, recently learned to play ball-in-a-cup (also called ring and pin) in an effort to better understand optimal trajectory. In the beginning, SoftBank’s team demonstrated the game to the robot by guiding its arm. By the end of the video below, Pepper no longer required their assistance.

It took 100 tries, but each failed attempt left Pepper to analyze and try to improve upon past performance, much like a human. After each failed attempt, the robot attempted to alter the movement slightly in an effort to solve the problem. In this case, the problem was figuring out the correct movement that would lead the ball into the cup....MORE

SpaceNet: Join NVIDIA; DGI, Amazon and CIA-Backed CosmiQ Works In Exploiting Publicly Available Satellite Imagery and Data (AMZN; DGI; NVDA; CIA)

Back on August 25 we posted "Amazon and the CIA Want to Teach Artificial Intelligence to Watch Us From Space (AMZN; NVDA)" but didn't focus on the fact the data is hosted on Amazon's cloud and is available to you, which ties in to the monetizing freely available data idea we mentioned in Sept. 15's "Wall Street’s Insatiable Lust: Data, Data, Data".

Here's the overview from DigitalGlobe's press release: 
DigitalGlobe, CosmiQ Works, NVIDIA, and Amazon Web Services Team up to Launch SpaceNet Open Data Initiative

Public corpus of satellite imagery and training data will advance research in technology to automate mapping and image analysis

WESTMINSTER, Colo.--()--DigitalGlobe, Inc. (NYSE: DGI), the global leader in earth imagery and information about our changing planet, today announced the launch of SpaceNet, an online repository of satellite imagery and labeled training data that will advance the development of machine learning and deep learning algorithms that leverage remote sensing data. SpaceNet is a collaboration between DigitalGlobe, CosmiQ Works, and NVIDIA, and the imagery is now freely available as a public data set on Amazon Web Services, Inc. (AWS).

GPU-accelerated deep learning has led to huge breakthroughs in the field of computer vision. Most of this innovation has occurred through research enabled by ImageNet, a database of 14 million photographs labeled in over 20,000 categories. SpaceNet aims to facilitate similar advances in automating the detection and extraction of features in satellite imagery, fueled by the massive amount of information about our changing planet that DigitalGlobe collects every day, and that of emerging commercial satellite imagery providers.

Until now, high-resolution satellite imagery has not been readily accessible for data scientists and developers to build meaningful computer vision algorithms. SpaceNet will for the first time open access to a large corpus of curated, high-resolution satellite imagery to incubate algorithm development. SpaceNet will launch with an initial contribution of DigitalGlobe multi-spectral satellite imagery and 200,000 curated building footprints across the city of Rio de Janeiro, Brazil. This initial contribution will provide the necessary data to create new algorithms to automate the extraction of features like buildings in dense urban environments. Over time DigitalGlobe, CosmiQ Works, NVIDIA, and AWS anticipate making more than 60 million labeled satellite images accessible to the public via SpaceNet.

“Each minute something is happening in the world. While commercial constellations are poised to collect imagery at global scale, we must advance our ability to analyze data to realize its full potential,” said Tony Frazier, Senior Vice President at DigitalGlobe. “SpaceNet is key to unlocking a huge explosion of new AI-driven applications that ultimately will help us better respond to natural disasters, counter global security threats, improve population health outcomes, and much more. The industry is coming together to power smarter algorithms so we can see and learn things from imagery about our planet that we simply cannot know today through manual techniques.”

“Innovation of AI algorithms is fueled by large, high-quality, labeled datasets like SpaceNet and flexible, open-source machine learning tools,” said Dr. Jon Barker, Solutions Architect at NVIDIA. “Researchers will be able to create high-impact geospatial applications by applying our DIGITS deep learning tool to the SpaceNet data corpus." 
To access the data, visit SpaceNet on AWS....MORE
And at Amazon: New AWS Public Data Set - SpaceNet on AWS

"Oil Tumbles To $44 Handle After Saudis Confirm "No Decision" Next Week, Fed Crackdown On Bank Commodity Holdings"

Interesting 100 minutes since "Chartology: Crude Oil Price Resistance Levels".

Front futures $44.69, down $1.63.


From ZeroHedge:
We hinted earlier and now Saudi Arabia has confirmed that it "doesn't expect any decision" next week when oil producers meet in Algiers. Oil's reaction was swift with WTI tumbling to a $44 handle very quickly:
  • SAUDI ARABIA SAID TO SEE ALGIERS MEETING AS CONSULTATION
  • SAUDI ARABIA DOESN'T EXPECT DECISION AT ALGIERS: DELEGATE
This move was exaggerated by the report that The Fed is clamping down on bank holdings of commodities:
  • FED PROPOSES AGGRESSIVE RULE ON WALL STREET COMMODITY HOLDINGS
As we detailed previously...
1) the ban on 'investing in non-financial companies', which is highly ironic given that other central banks are directly buying massive stakes in the world's corporate entities; and
2) restrictions on physical ownership of commodities, which raises eyebrows on both oil manipulation and the hoarding of precious metals ahead of The Fed losing control.
But The Fed expanded it today:
The Federal Reserve Board on Friday invited public comment on a proposed rule that would strengthen existing requirements and limitations on the physical commodity activities of financial holding companies. The proposal would help reduce the catastrophic, legal, reputational, and financial risks that physical commodity activities pose to financial holding companies.

A limited number of firms supervised by the Board engage in physical commodity activities and investments. Some firms are permitted by law to engage in a broad range of physical commodity activities, including the extraction, storage, and transportation of commodities. Others may engage in more limited activities, such as commodities trading. The possibility of an environmental accident due to these activities presents significant risks to the firms.

Based on a broad review of firms' physical commodity activities as well as comments received on the Board's 2014 advance notice of proposed rulemaking on this matter, the proposed rule would:
  • Require firms to hold additional capital in connection with activities involving commodities for which existing laws would impose liability if the commodity were released into the environment;
  • Tighten the quantitative limit on the amount of physical commodity trading activity firms may conduct;
  • Rescind authorizations that allow firms to engage in physical commodity activities involving power plants;
  • Remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and
  • Establish new public reporting requirements on the nature and extent of firms' physical commodity holdings and activities
Bloomberg summarizes the new regulations:
  • Regulation would require banks to boost capital to support activities involving physical commodities, Fed says in statement Friday.
  • Proposal would impose a 1,250% risk weight on physical commodity assets investment banks such as Goldman Sachs and Morgan Stanley are allowed to own through “grandfather provision,” Fed says...
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Chartology: Crude Oil Price Resistance Levels

$46.20 down 12 cents after jumping to $46.55 when Saudi Arabia said they'd be willing to cut up to 1mm bbl/day.

From Nifty Charts:
https://3.bp.blogspot.com/-pI8XXi87p_o/V-UqwcRWioI/AAAAAAABObM/Y3l9_Po_YCwUopc2A0ihswNKZgVW1tDJQCEw/s1600/Crude%2Boil%2Bsupport%2Bresistance%2Bzone.png
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Why Was Weyerhaeuser Up 5.7% Yesterday? Because Goldman (WY)

$32.21 up another 12 cents.
As a REIT WY is paying out most of the cash flow, currently trading to yield around 4%.
From Barron's Stocks to Watch (yesterday):
Weyerhaeuser (WY) wouldn’t normally top your list of big movers, let alone the biggest mover in the S&P 500. But thanks to a note from Goldman Sachs today, Weyerhaeuser was the hottest stock in the S&P 500.

Shares of Weyerhaeuser, which has a market capitalization of $22.7 billion, gained 5.7% to $32.08—its largest move since February 2012—while the S&P 500 rose 0.7%.
The big gain was inspired by Goldman Sachs analysts Brian Maguire and Kia Pourkiani initiating coverage of Weyerhaeuser with a Buy rating and adding it to the firms Conviction List, citing its “leverage to the housing recovery.” They explain:
A rebound in housing combined with new duties on Canadian lumber imports and the lasting effect of the pine beetle epidemic could create a SuperCycle for housing-related Forest Products stocks (Boise Cascade (BCC), Weyerhaeuser), driving 70%+ upside to EBITDA…
...MORE

If interested see also last year's "Timber: "Weyerhaeuser is buying Plum Creek for $8.4B to form timber giant" (WY; PCL)":
We have quite a bit on timber but a big caveat up front: this stuff take more effort than your typical equity purchase. On the other hand the long term (200-yr.) record is pretty good and cash flow with a bit of an inflation hedge is a nice combination.
 
From our intro to 2012's A Fine Time for Timber" (WY):

There are a half-dozen ways to invest in timberland, the REIT's being one of them. Unfortunately for non-institutional investors there are no pure play portfolio investments and neither the ETF's (CUT; WOOD) nor the REIT's are perfect proxies for timber. POPE Resources is set up as a Master Limited Partnership with a higher correlation to timberland. A couple of London traded vehicles, Phaunos Timber and Cambium Global Timberland Limited also have higher correlation to timberland.

If you can do direct investments the Timberland Management Organizations (TIMO's) will get you even more correlation with Forestland Group (3.5 MM acres) Campbell Resources (3.1 MM acres)  and Hancock Timber Resources Group ( 6.5MM under management) being the largest....
...
"Investing in Timber and Farmland"
Largest Public Employee Pension Plan Seems Lost (plus a primer on timber investing) CalPERS
Alt Assets: "US timberland prices gain, despite lumber slowdown" (PCL; WY; RYN; CTT; PCH)
Soros Buying Into Real Estate/Real Asset Investment Management Biz
Too Greedy to Quit, Too Chicken to Steal: "Bypass Wall Street" 
And quite a few more, use the search blog box for more.

Natural Gas: EIA Weekly Supply/Demand Report

October futures $ 2.988  -0.002, soon to be front month Novembers $3.057  -0.004.

From the Energy Information Administration:
...Prices/Supply/Demand:
Prices increase outside Marcellus. This report week (Wednesday, September 14 to Wednesday, September 21), the Henry Hub spot price rose 10¢ from $3.04/MMBtu last Wednesday to $3.14/MMBtu yesterday. At the Chicago Citygate, prices increased 17¢ from $2.92/MMBtu last Wednesday to $3.09/MMBtu yesterday. Prices at PG&E Citygate in Northern California gained 14¢, rising from $3.42/MMBtu last Wednesday to $3.56/MMBtu yesterday. The price at SoCal Citygate rose 14¢ from $2.95/MMBtu last Wednesday to $3.09/MMBtu yesterday.

Boston sees continued price swings. At the Algonquin Citygate, which serves Boston-area consumers, prices went up 18¢ from $3.06/MMBtu last Wednesday to $3.24/MMBtu yesterday. However, prices averaged a low of $2.37/MMBtu on Friday, heading into the weekend. Similar price volatility has been occurring for the past few weeks, and tends to coincide with swings in regional power burn. At the Transcontinental Pipeline Zone 6 trading point for New York, prices increased 15¢ from $1.35/MMBtu last Wednesday to $1.50/MMBtu yesterday after dipping to 96¢ on Friday.
Tennessee Zone 4 Marcellus spot prices decreased 5¢ from $1.21/MMBtu last Wednesday to $1.16/MMBtu yesterday. Prices at Dominion South in northwest Pennsylvania remained steady at $1.20/MMBtu.

October contract closes above $3. At the Nymex, the price of the October 2016 contract increased 17¢, from $2.889/MMBtu last Wednesday to $3.057/MMBtu yesterday, the highest front-month contract price since January 2015. The price of the 12-month strip averaging October 2016 through September 2017 futures contracts climbed 11¢ to $3.207/MMBtu.

Supply falls. According to data from PointLogic, the average total supply of natural gas fell by 1% compared with the previous report week. Dry natural gas production decreased by 1% from the last report week. Average net imports from Canada decreased by 2%.

U.S. consumption remains steady. Total U.S. consumption of natural gas was unchanged from last week, averaging 59.4 Bcf/d, according to data from PointLogic. Power burn declined by 3% week over week, and industrial sector consumption stayed constant, averaging 19.4 Bcf/d. Natural gas exports to Mexico decreased 5%.

U.S. liquefied natural gas (LNG) exports. The natural gas pipeline flows to the Sabine Pass liquefaction terminal averaged 0.2 Bcf/d this report week, 82% lower than last week. The pipeline deliveries declined last week as the terminal prepared for planned maintenance. The maintenance was scheduled to improve performance of the wet/dry flare systems shared by Trains 1 and 2, and to carry out maintenance of other facilities. During maintenance, which is expected to last approximately four weeks, both liquefaction trains will be completely shut down. However, the terminal may still receive nominal natural gas deliveries—10 million cubic feet per day (MMcf/d) to 100 MMcf/d—as part of the commissioning of Train 3. The terminal had no LNG exports last week since the last LNG-carrying vessel departed the facility on September 11.
more price data

Storage: Injections to storage continue at slower-than-normal rate. Net injections into storage totaled 52 Bcf, compared with the five-year (2011–15) average net injection of 83 Bcf and last year's net injections of 96 Bcf during the same week. Working gas stocks total 3,551 Bcf, 268 Bcf above the five-year average and 140 Bcf above last year at this time. When the refill season began on April 1, working gas stocks were 874 Bcf above the five-year average....
...MUCH MORE

A First: FEMA Buys Reinsurance for National Flood Insurance Program, Will Buy More in 2017

From Artemis:
Flooding image from the BBCA historic development has occurred in the United States which could see more flood insurance risk making its way into the reinsurance and capital markets, as FEMA has bought its first ever reinsurance cover for the National Flood Insurance Program.

FEMA has launched the National Flood Insurance Program 2016 Reinsurance Initiative to help it to more actively manage its financial risk.
In recent years due to the high costs of flooding disasters in the U.S., the cost of flood claims has far exceeded the amount of premiums coming into the NFIP leaving the system $23 billion in debt to the U.S. Treasury.

So, with approval from Congress under the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA 2014), FEMA has now received approval to seek out reinsurance protection from both the traditional and capital markets.

The aim is to diversify the range of financial tools available to the Federal Insurance and Mitigation Administration (FIMA) through the NFIP Reinsurance Initiative, to help it better manage catastrophic flood events.

In the first instance, to help the NFIP share its flood risk with private reinsurance companies, FEMA has purchased $1 million of reinsurance protection from three reinsurance carriers.

It’s seen as a test of sorts, proving the concept and helping FEMA and the NFIP to put the processes in place to access the reinsurance and capital markets more meaningfully in 2017.

The first reinsurance purchase was from Transatlantic Reinsurance Company, Swiss Re America Corporation, and Munich Reinsurance America, Inc., with Guy Carpenter providing brokerage services.

Reinsurance won’t climate the NFIP’s debt, FEMA notes, but it will help it to better manage future catastrophes and with a long term reinsurance strategy in place the dept should come down over time.
FEMA now aims to expand the NFIP’s reinsurance program in January 2017, with the capital markets one potential source of capacity available to it.

Could we see the NFIP tapping collateralised reinsurance markets or even sponsoring a catastrophe bond? That would be ground-breaking indeed, bringing a new peril of U.S. flood more meaningfully into the insurance-linked securities (ILS) market, which would be welcomed by investors and ILS fund managers alike....MORE

Shipping: AP Moller-Maersk Break-up, Hanjin Breakdown

The Financial Times has the shipping news:

AP Moller-Maersk break-up will hang on family ties
When Danish businessman Maersk McKinney Moller was 94, he ordered a new yacht for delivery in two years’ time.

It was typical of the long-term view that Moller, who died aged 98 in 2012, took in both his personal and business life. He spent more than 50 years helping to build AP Moller-Maersk into a conglomerate — spanning the world’s biggest container shipping line, oil exploration, drilling rigs and port terminals. 

Since the death of Moller — who was at various times chief executive, chairman and head of the main shareholder at Maersk — the influence of his family has seemed to wane.
But, as the group takes its biggest strategic decision in decades — to break itself up — there are growing signs of the founding family reasserting control over Denmark’s biggest company by revenue. 

“The family were pretty quiet for a few years,” says one senior Maersk manager. “But now we feel their influence much more.”

That influence has played out in Thursday’s move to split Maersk in two: a new transport and logistics business that will form the core of the company, and an energy unit that could be spun off, sold, or used for joint ventures.

...MUCH MORE
 
And from the FT's flagship Alphaville blog (see what I did there?):

Hanjin could be “the 100­year flood in the container industry”
Admiralty law is old, fun and messy.
From CreditSights:
The order of claim seniority is cargo, crew, supplier, mortgage holder. What is unique is a claim against a company or vessel can be enforced against a different asset or bank account. This allows creditors greater scope but also can generate a blizzard of litigation.
In a typical but very simplified case: 1) a mortgage holder receives a judgment in local court for non payment; 2) checks to see where any debtor vessels are steaming; 3) goes to that port with a lawyer and replacement crew; 4) court accepts the judgment; 5) port sheriff, lawyer, and replacement crew “physically” arrest the vessel, pay off the existing crew, cover supplier claims, and deliver the cargo if the vessel is not empty. Problem is the mortgage holder now owns a ship, and that costs cash money every day. If the vessel is not marketable, there usually is an “as is” auction under port sheriff supervision.

And South Korea’s Hanjin Shipping — which filed for bankruptcy last month after assumed government support didn’t materialise — is rather more complicated than that simplified case.
As the FT said, “Hanjin’s move to seek bankruptcy protection last month was the first time a big container shipping line had done so for 30 years, and it caught out many in the industry....MORE

Thursday, September 22, 2016

Just May Owe: "How Hampton Creek Sold Silicon Valley On A Fake-Mayo Miracle"

Just Pay-O?

Either way, Elizabeth Holmes breathes a sigh of relief as she drops off the front page.

From Bloomberg BusinessWeek:
In April employees at Hampton Creek, in San Francisco, received a stunning e-mail. With Earth Day coming up, Sofia Elizondo, vice president for business operations, wanted colleagues to know about some changes in the vegan-food company’s sustainability profile. For years, Hampton Creek had trumpeted its environmental credentials, crafting a story that had produced a cultlike following among green-minded foodies and a wave of excitement among Silicon Valley investors. The company’s Facebook page said a 30-ounce jar of Just Mayo, its signature product, saved 80 gallons of water, a full bathtub’s worth. It also makes vegan cookie dough and cookies: A Cookie Calculator on the company website showed that a single egg-free, dairy-free Hampton Creek chocolate chip cookie saved 35 grams of carbon emissions and almost 7 gallons of water, compared with a nonvegan cookie.

Except, the e-mail said, that was wrong. Hampton Creek had hired a consulting firm, Lux Research in Boston, to do a full audit of the environmental impact of its products. Lux found that, as a colleague of Elizondo’s said in a later e-mail, “the numbers look pretty different to the ones we’ve previously been using.” Lux had examined the footprint of all of Hampton Creek’s ingredients, not only the egg and dairy replacements. Employees were told to trash the old numbers and start limiting claims to individual ingredients. “You can say something like: ‘Pea protein saves 1.3 gallons of water for every jar of 30 oz Just Mayo,’ ”  Elizondo wrote.

Hampton Creek never publicly admitted its numbers were wrong. It scrubbed its site of sustainability claims, and the Cookie Calculator vanished. Such quiet backpedaling might be forgivable at many young companies—overeager math isn’t unheard of in Silicon Valley. But at Hampton Creek, it fits a pattern of mistaken or exaggerated claims that may prove to be deliberately deceptive.

In August the U.S. Securities and Exchange Commission and the Justice Department launched probes of Hampton Creek for possible securities violations and criminal fraud. The investigation follows an Aug. 4 Bloomberg article that revealed the company deployed a national network of contractors to secretly buy back Just Mayo from grocery store shelves. Hampton Creek denies any wrongdoing. When news of the SEC inquiry became public, the company’s founder and chief executive officer, Josh Tetrick, wrote in an e-mail, “We’re aware of the informal inquiry and we’ll be sharing the facts, as opposed to the inaccuracies reported by Bloomberg.” The company declined to comment on the DOJ investigation.

Tetrick used supermarket sales figures much as he used the environmental claims—to raise venture capital from a cast of billionaires including Salesforce.com founder Marc Benioff, tech investor Vinod Khosla, Hong Kong developer Li Ka-shing, and entrepreneur and venture capitalist Peter Thiel. Investments in the company have reached almost $220 million, he told his employees in an all-hands meeting a few days after the Bloomberg article appeared.

Every entrepreneur has a story. Tetrick’s was eggs. In 2011 his company—essentially just him and a vegan chef, operating out of Los Angeles—landed $500,000 in seed funding from Khosla Ventures to develop a plant-based substitute for chicken eggs. His pitch: He would liberate billions of hens from the fetid misery of overstuffed cages—and in the process save water and grain and cut carbon pollution. Profane, charismatic, and built like the linebacker he once was, Tetrick became a tenacious evangelist for eliminating animal protein from the world’s diet. (It’s “Just” Mayo as in “righteous,” not “simply.”) At the same time, he billed Hampton Creek as more than a food company. What it was learning in the lab and through computational analysis about plant-based proteins would make it a sustainable-food power, not just a company with a handful of niche products. It’s the kind of big thinking that pays. Tetrick told his employees he was negotiating a new round of financing that would soon make Hampton Creek one of Silicon Valley’s vaunted unicorns—private companies valued by investors at $1 billion or more.

First, though, he’ll have to fend off the feds. Tetrick contends that the mayo buyback program was primarily for quality-control purposes and cost just $77,000. Two of his famous investors, insisting on anonymity because the company hasn’t authorized them to speak publicly, say PwC confirmed Tetrick’s explanation in a recent audit. But Bloomberg has reviewed contractors’ receipts for hundreds of Just Mayo purchases not represented in a Hampton Creek spreadsheet that Tetrick says covered the entire buyback program. A former accounting employee who worked with the company’s profit and loss statements says costs for the buybacks were included in several expense categories on the P&L, including one line item called “Inventory Consumed for Samples and Internal Testing.” As buybacks surged in 2014, Hampton Creek expensed about $1.4 million under this unusual category over five months, compared with $1.9 million of net sales in the period. A company spokesman says all buybacks were expensed elsewhere as “sales and marketing costs.” He wouldn’t comment on why Hampton Creek spent so much money consuming its own inventory in samples and testing.

While the company’s contractors raced from store to store, surreptitiously buying Just Mayo off the shelves, Tetrick kept promoting the product’s success and raising more money. “We’re the #1 selling mayo in Whole Foods,” he wrote in an e-mail to investors that August. The previous month, according to the P&L statement reviewed by Bloomberg, Hampton Creek spent $510,000 for Inventory Consumed for Samples and Internal Testing. The company had total sales that month of $472,000.

“Everyone knew about the buybacks,” says the former employee, who agreed to speak only on the condition of anonymity because of a severance agreement he signed with Hampton Creek. Along with other employees at headquarters, he did buybacks himself. “I drove all over one night buying the entire shelf of every store I passed,” he says. “I felt ridiculous, but it was so culty I couldn’t push back.” The buybacks, he says, were separate from the quality-control program Tetrick cited in response to the initial revelations.

In 2014, Tetrick was called out by one of his high-profile investors, Ali Partovi, who went to work for the company as a liaison to potential investors. He lasted nine days before objecting to Tetrick’s sales projections and telling the board the CEO was deceiving investors. “It’s only a question of time before the consequences catch up with us,” Partovi warned Tetrick in an e-mail. “If an investor discovers it during due diligence, we could lose financing and run out of cash. If they don’t, they’ll realize they were duped within months, and they might have a case for fraud.”...MUCH MORE
Previously on Phi Scamma Jamma::
August 26, 2016
"Hampton Creek Faces U.S. Criminal Probe Over Mayo Buybacks"
This thing has always had a whiff of Frat-boys-do-create-a-corp. about it. 
August 4, 2016 
"Just Mayo" Guys, Hampton Creek, Used Investor Money To Buy Its Own Product Off Store Shelves
Stay classy bro....
August 2015
Silicon Valley's Favorite Futuristic Food Company, Hampton Creek, May Be A Bit Fraudy
August 2015
FDA Says "No Eggs, Not Mayo": VC-backed Hampton Creek's CEO Is Defiant
September 2014
Forget GMOs. The Future of Food Is Data—Mountains of It
September 2013
Which Came First: The Artificial Plant-based Egg That Bill Gates and Peter Thiel Are Backing

Paul Romer Has A Follow Up To Last Week's "The Trouble With Macroeconomics" (and some digressive commentary)

In his latest piece Professor Romer sounds a tad crabby.
Here's the link and the digression from Bond Economics:

What (Some) Mathematicians Do With Incorrect Proofs In Journals
Paul Romer has a followup article about "post-Real" economics. I just wanted to launch a digression around his comments about mathematicians and incorrect proofs. Although there might be some useful conclusions for academic economics, the problems faced by the field are more difficult than the issue of incorrect proofs.

Romer writes:
This is just post-real Calvinball used as a shield from criticism. Imagine someone saying to a mathematician who finds an error in a theorem that is false,  “you can’t criticize the proof until you come up with valid proof.” 
(As an aside, I should note that agree that DSGE macro stinks, and I have used the Calvinball metaphor myself.)

My academic experience was in Control Systems Theory, a branch of applied mathematics. I ran into a case where I was an anonymous referee for a submitted paper. The new paper contained Theorem B, and Theorem B cited Theorem A within its proof. Meanwhile, Theorem A was contained in another paper that was published in the #2 journal in the field.

The result looked dubious, and I managed to disprove Theorem A within 10 seconds of picking up the volume that held it. (Luckily, the volume opened close to the page with the alleged "proof.") That was a personal speed record, and it was the most entertaining moment of my academic career.

I was able to write a short response rejecting the paper, explaining that the cited theorem was in fact incorrect; hence there was no need to pursue the new paper without a total re-write. Since it was someone else who made the original error, I was able to be quite gracious to the authors. (Although I doubt that made them any happier.)...
...MORE

Fortune Exclusive: "Airbnb Raises $555 Million in New Funding" At $30 Billion Valuation

From Fortune:
The private company already has lots of cash—and it’s not done yet.

Airbnb has held a first close on its massive new funding round, Fortune has learned from multiple sources.

The San Francisco-based company so far has brought in at least $555 million in new primary equity at a $30 billion valuation, for an infusion that could eventually total $850 million.

This does not include an affiliated secondary transaction, through which early shareholders―mostly employees―can garner at least partial liquidity. Fortune had originally reported that the secondary offering remained open, but a source close to the company has since said that it has closed.
An SEC “Form D” document detailing the $555 million raise is expected to be filed later today.

The new investment follows a $1 billion credit facility Airbnb secured this past summer, meaning that it has raised approximately $4 billion in total outside funding to date....MORE

"The priciest office space in the U.S. is in a quiet town in California"

Speaking of partying on Sand Hill Road (immediately below, 2865)...
From Bloomberg via Mashable:
Aydin Senkut started his venture capital firm Felicis Ventures in San Francisco a decade ago. Five funds and more than $430 million later, Senkut is ready to open an office on Sand Hill Road, alongside such Silicon Valley institutions as Kleiner Perkins Caufield & Byers and Sequoia Capital. But he’s going to have to pay up.

Located in Facebook Inc.’s hometown of Menlo Park, California, Sand Hill Road has the most expensive office space in the U.S., even as the startup market moderates, according to data from commercial real estate firm Cushman & Wakefield. At an average of $129.91 per square foot annually, it’s up about $6 from last year and exceeds the cost of renting high-end offices in Greenwich, Connecticut, and on New York’s Park Avenue. It is also far more than the $75.39 for comparable space in San Francisco’s south Financial District, which saw a price increase over the last year similar to its neighbor in the Valley, said Robert Sammons, a regional director at Cushman & Wakefield.

While many VC firms are opening offices in San Francisco, Senkut’s move underscores that tech investors are willing to pay a premium for close proximity to other big firms, the companies that might buy or do business with their startups, and the suburban homes of investing partners. What Sand Hill Road lacks is vibrant street life, restaurants, shops or access to major public transportation routes. On either side of the roughly two-mile strip between Interstate 280 and Junipero Serra Boulevard, where many of the world’s top VCs hang their shingles, sit low-slung “woody walk-ups,” nestled among trees, rosemary plants and parking lots.
Felicis Ventures, a backer of clothing startup Bonobos Inc. and satellite maker Planet Labs Inc., is in the process of relocating from its office in downtown Palo Alto, California, the second-most-expensive market in the U.S., according to Cushman & Wakefield. The high prices stem, in part, from the growth of Palantir Technologies Inc., a venture-backed company that has become a major tenant in the area, along with the increasing number of venture firms and startups there, including Wealthfront Inc. and Houzz Inc. The San Francisco Business Times reported this month that Cloudera, a data analytics startup,leased 225,000 square feet in the area.

Rent on Sand Hill Road is generally costlier, but it can be easier to find larger spaces. Felicis Ventures recently signed the lease on a 10,000-square-foot office at 2460 Sand Hill Road, where Senkut plans to host big events for his startups and investment prospects. He declined to discuss how much he’s paying for the space. “Let’s be honest: It’s still a high rent,” he said....MORE

Insurance: The FT's Izabella Kaminska Will Probably Not Be Going to This Year's Andreessen-Horowitz Christmas Party.

Last year, when Ms. Kaminska was pointing out* that Andreessen-Horowitz investee 21inc. ($116 mil from A-H, Khosla et al) seemed to be another solution-in-search-of-a-problem company, I was reasonably sure she wouldn't be invited to the 2015 party.

Now this latest pretty much rules out her attending the 2016 get-together as well.

First some background. From our January 2015 post "Andreessen Horowitz On Insurance: "Software rewrites insurance" (nudge, nudge)":
From Andreessen Horowitz:
Insurance is all about distributing risk. With dramatic advances in software and data, shouldn’t the way we buy and experience our insurance products change dramatically? Software will rewrite the entire way we buy and experience our insurance products — medical, home, auto, and life. Here’s how:
By changing the way insurance companies price risk
So many more signals are available for insurance companies to better price the premiums we should pay. Drivers that drive carefully in safe neighborhoods vs. recklessly through accident-prone intersections ought to pay different amounts to insure the same car — but all that data isn’t reflected in an annual odometer reading. Water damage is one of the top sources of claims for home insurance customers: Why don’t we charge customers with water sensors less, since if they know water is leaking, they can stop it before the damage gets expensive to repair.

New data sources, better data, ongoing data reporting — all are possible now with mobile phones and inexpensive Internet of Things devices....
And today at FT Alphaville:
Breaking insurance models with big data
In the brave new world of machine learning, big data and artificial intelligence, no good deed will go unnoticed and no bad deed will go unpunished. Or so at least the dream goes.

The proposition here is simple. Soon enough, telematics companies will gather data from all our connected devices, fitbits and cars, scrutinise it intricately, then determine whether we are “good” or “bad” agents. Good behaviours will be rewarded with cheaper insurance policies, bad ones will be penalised. The relative cost of being a bad agent, meanwhile, will incentivise good behaviours, eliminating evil from our world forever. Amen.

If you thought that was a far fetched vision, however, you’d be mistaken. The burgeoning telematics sector is well on its way to partnering up with insurance companies, automakers and more. And in almost all cases the companies believe actuarial or insurance services are the best path towards the monetisation of their data intensive business models.

There’s only one problem. Personalising insurance contracts to this degree undermines the whole concept of insurance.

Insurance doesn’t really work unless risk is pooled in such a way that good agents pay over the odds to the benefit of the bad ones.

A world where insurance is personally tailored to reflect every individual’s behavioural history is consequently a world wherein unfettered discrimination becomes the celebrated norm, where only the super rich, the super gifted, the super lucky or the genetically well-endowed will ever be allowed to drive fast, eat bad food or to take any risk at all. As a consequence, it’s also a world where the poor or physically under-privileged become uninsurable (unless, of course, they’re prepared to be permanently tracked, controlled and monitored by their data overlords).

It’s hard communicating this point to techies though, who like to say things like: “If you’re a good citizen with nothing to hide, what’s the problem with sharing your data?”

Luckily (phew) the FCA is nudging towards recognising the brutally Darwinian social side-effects. On Wednesday, they published this. If you’re a big investor in a telematics or big data analytics firm betting that insurance holds the key to your monetisation dreams, it’s worth paying attention to, not least because they note things like:...MORE
I don't want to imply there is absolutely no there, there. I mean Warren Buffet isn't invested in IBM solely for the stock buybacks, but the way this plays out may not be what the software guys want.

*Anyhoo, here's Izabella on 21 Inc. last year:
Sept. 23
21 (grams of digital coke)
56 comments
May 19 
21 Inc and the plan to kill the free internet
27 comments

I couldn't find any recent mentions of 21 Inc. other than this Wall Street Journal story, September 5:

Blockchain Art Exhibitions Explore the Bitcoin Technology’s Future
Simon Denny uses cultural references like computer cases to explore blockchain.
Simon Denny uses cultural references like computer cases to explore blockchain. Photo: Joerg Von Bruchhausen
Pokémon, postage stamps and the strategy board game Risk. Simon Denny uses everyday objects like these to illuminate how technology shapes the way we live and work. In his latest exhibition, the Berlin-based New Zealand artist explores blockchain, the little-understood technology underpinning the digital currency bitcoin.

Opening Thursday at New York’s Petzel Gallery, “Blockchain Future States” looks at competing views about how the technology should evolve. Large cutout images of the leaders of three leading blockchain companies—Digital Asset Holdings LLC, 21 Inc. and Ethereum—stand near globe-like structures meant to highlight how new currency systems could challenge traditional forms of statehood. A Risk board for each firm lays out the company’s strategy to create a new world order. A similar installation, “Blockchain Visionaries,” is at the Berlin Biennale until Sept. 18....
...“Blockchain Future States” sets out his observations. His Risk board for Digital Asset replaces countries with financial capitals—reflecting the fact that the firm, led by former J.P. Morgan Chase & Co. executive Blythe Masters, is creating a platform geared toward financial markets. The board for 21 Inc., which focuses more on bitcoin, eschews traditional geography for nationalist lands and technologist clouds, while Ethereum, an open software platform, is set in outer space....

"Natural Gas Prices Decline despite Lower EIA Weekly Inventory Build"

Front futures 3.0160 down 4.1 cents.
From Economic Calendar:
The latest weekly natural gas storage report from the US Energy Information Administration (EIA) recorded an increase of 52bn cubic feet (Bcf), lower than both the expected increase of 59 Bcf and the 62 Bcf gain the previous week.

Inventories rose 102 Bcf in the same week in 2015 and there was, therefore, further progress in reducing excess inventory with the stocks now 4.1% above year-ago levels and 8.2% above the five-year average.

Prices have remained buoyant over the past week at the highest level since early 2015. Demand conditions have remained favourable with the current spell of hot weather continuing. Latest forecasts suggest that very warm conditions will extend into next month, extending the normal seasonal demand for power to run air conditioning. Strong demand at this time of the year would be very important in curbing storage levels....MORE
The Platts survey averaged a 51-billion cubic feet build.
We'll be back with more tomorrow, this is starting to get interesting.
Happy first day of autumn.

FinViz 

"P2P insurance firm Lemonade launches out of stealth, powered by chatbots, morals, and big bucks"

That's VentureBeat's headline. I was thinking something a bit less gushy, more along the lines of "A Peer-to-Peer Insurer? You Don't Say."
From VentureBeat:
Lemonade, a peer-to-peer (P2P) insurance firm that’s been in stealth for a year, has finally launched to the public in its first market.

The New York-based startup raised a chunky $13 million seed round last year, in one of lead investor Sequoia Capital’s largest ever seed investments. Lemonade has some notable people at the helm, too, including president and cofounder Shai Wininger, who also cofounded jobs marketplace Fiverr back in 2010.

Lemonade announced today that it is now a fully licensed insurance carrier in New York, which means homeowners and tenants across the state can get insured and settle claims on the spot, across multiple devices.

The company’s platform is built around a number of core founding principles. At the root is a desire to remove friction from the insurance process, cutting bureaucracy, time needed, and costs. But Lemonade is also setting out to combat existing models through an annual “giveback,” where it donates unclaimed money to good causes. Through the app, users select a cause that they care about, and this cause-creation process generates virtual groups of like-minded people — or “peers.”

Premiums from each group cover any claims made by individuals, with leftover money going to their common cause. And Lemonade makes money by taking a 20 percent flat fee from monthly policy payments.

There are many good reasons for working in this way. Traditional insurance companies are de-incentivized to pay out claims, because not paying out claims is how they make more money. Lemonade circumvents this by giving away all unclaimed money.

Moreover, most people don’t like insurance companies — “disdain” may be an apt descriptor for most customers’ sentiment toward insurers. As such, people may be more inclined to file false claims. The peer-based system in which local causes stand to benefit is designed to de-incentivize dishonest behavior. Nobody wants to cheat a good cause out of money… right?

“Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free,” said Dan Ariely, the company’s “chief behavioral officer.” “As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.”

Good behavior
Lemonade hired Ariely back in February, and he has solid credentials — he’s a professor of psychology and behavioral economics at Duke University and author of a number of bestselling books on the subject.

“Dan’s extensive research on dishonesty showcases the leaps science has made in understanding what brings out the best and worst in each of us and how people’s behavior can be changed for the better,” said Wininger. “We believe that behavioral economics, together with our unique technology, will help us decrease fraud, get rid of bureaucracy, and lower costs for our customers.”...MORE
See also "Insurance: The FT's Izabella Kaminska Will Probably Not Be Going to This Year's Andreessen-Horowitz Christmas Party.".

"Dollar Remains Under Pressure Post-Fed, though the Yen Stabilizes"

From Marc to Market:
The US dollar has lost another 0.5% against most of the major currencies today, as Asia and Europe respond to the Fed's decision.  There are few exceptions to this generalization.  The Norwegian krone has gained nearly three times as much, with the help of its central bank, which has played down for lower rates at today's meeting.  The euro is at its lowest level against Nokkie since the end of last year.  
Another notable exception is the Japanese yen.  It appears to be stabilizing at lower levels.  The dollar had seen a high yesterday near JPY102.80 and a low in Asia today just above JPY100.  It is recovering in the European morning and is approaching JPY101.
The New Zealand dollar is a third exception.  The currency has seen some profit-taking after the RBNZ also left rates on hold, but signaled its easing cycle is not complete.   
The Federal Reserve's decision to stand pat was the most complicated in years.  The case for a hike had strengthened, Yellen said, but still the consensus to hike was not there.  Three regional Fed presidents dissented, the most in a couple of years.  In the dot plots, three (of 17) did not see a hike this year.  Many suspect that at two of those came from Governors Brainard and Tarullo.  The idea is that they may have dissented to a rate hike, and at the end of the day, Yellen chose to keep the Board of Governors united.   
The FOMC statement reintroduced a risk assessment that it had removed in January.  This is also seen by many as a necessary precursor to a hike.   Yellen herself indicated the Fed was prepared to raise rates this year provided the labor market continued to improve, and no new risks emerged.   Some apparently think this guidance could translate into a November hike.  We are skeptical.  There is simply no precedent for a hike so close (one week before) to a national election.   Bloomberg's calculation puts the odds of a November hike as high as 21.4%.  The CME assessment, who's methodology we tend to share, puts the odds at 12.4%.  
There were two other important housekeeping duties the Fed appears to have completed at yesterday's meeting.  First, it has taken another step in the process begun earlier this year of lowering the long-term Fed funds equilibrium rate.  It now stands at 2.9%, down from 3% in June and 4% a year ago.  Second, it reduced what it sees as the long-term growth potential to 1.8% from 2%.   There is some risk that the long-term potential growth is revised lower again, as the weakness in productivity growth acts as a drag....MORE  

The 'Apple Buys Tesla' Story Is Making the Rounds Again (AAPL; TSLA)

The writer of this piece, Rob Cox, helped establish Breakingviews many years ago.

From Reuters Breakingviews:

Apple and Tesla really need each other now
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 
Great partnerships are often forged when each party enjoys a surplus of something the other needs and there’s little conflict in their ambitions. By that logic, two of Silicon Valley’s best known firms, Apple and Tesla Motors, really need each other right now. An investment in Tesla by Apple in return for some of the carmaker’s innovation dust might be just the ticket.

Apple Chief Executive Tim Cook is revamping the company’s approach to self-driving cars and the gadget maker’s broader role in the future of transportation. He just fired some of the company’s autonomous car team, according to the New York Times.

Along the highway at Tesla, founder Elon Musk needs billions of dollars of capital as he ramps the company up toward making a targeted 500,000 vehicles a year by 2018. He could also use an injection of corporate credibility as his proposed deal to buy his solar-panel venture SolarCity, also publicly traded, appears to be running into unanticipated headwinds.

The idea of Apple acquiring Tesla in its entirety isn’t new. It surfaced even before Cook poached some of Musk’s engineers a year ago. That move prompted Musk to tell a German newspaper: “If you don’t make it at Tesla, you go work at Apple.” But it might not require a full purchase to address the two companies’ strategic challenges – which, arguably, are each becoming most prominent in areas where the other could fairly easily help.

Musk’s hurdles are the most obvious. The entrepreneur who runs the $30 billion-odd Tesla is struggling to persuade investors of the merits of his plan for Tesla to acquire SolarCity. The deal, worth $2.6 billion when announced in early August, is supposed to create a “vertically integrated sustainable energy company.” Last week the deal was publicly panned by Jim Chanos, a prominent hedge-fund manager. By the math of the all-share deal, its market-implied chances of success have been falling, too. Shares of the solar-panel installer closed on Monday nearly 25 percent below Tesla’s offer price.

The acquisition and the potential ownership and family conflicts it throws up are a distraction for Musk from Tesla’s carmaking ambitions, not to mention the task of proving the safety of the company’s Autopilot feature after a fatal crash in May. Even if investors decide to back him in buying SolarCity, any slippage in either company’s plan could hurt their ability to hit up investors for additional funding. Both need regular cash injections – over $2 billion each last year – to fund operating and capital investment outflows.

Apple could easily address Tesla’s capital problem by buying, say, a 20 percent stake. While dilutive to existing owners – including Musk, who owns around 21 percent – that would bring in nearly $8 billion at $215 a share, just under a 5 percent premium to Monday’s market closing price....MORE
Previously:

February 2015  
Apple Is Not Going To Buy Tesla (AAPL; TSLA)
At a minimum the instigator of the latest AAPL/TSLA rumor, Mr. Calacanis, should have lead his blog post with something like: "I was dreamin' when I wrote this, forgive me if it goes astray..."

This is at least the fourth fifth time this oddity has made the rounds and if it weren't for the fact the linked piece does such a nice overview of Tesla we'd ignore it as we did the previous iterations.

And seriously, is it too much to ask for trigger warnings? Please, please Mr. C., include trigger warnings if you are writing something moronic....
...We've been posting on Tesla since before the 2010 IPO and as far as I can remember there were rumors that Apple would buy Tesla in Feb and Nov. 2014 and May and Nov. 2013.
I may have missed some if they were going around earlier. 

Wednesday, September 21, 2016

"Economists React to the Fed’s Decision: ‘One of the Most Divisive FOMC Meetings in Recent Memory’"

From Real Time economics:
Federal Reserve officials following a two-day meeting Wednesday said they would leave interest rates unchanged amid low inflation and uninspiring economic growth. Here are initial reactions from economists following the decision.

This seems to have been one of the most divisive FOMC meetings in recent memory. As many as three of the current 10 voting members dissented, preferring an immediate rate hike, with Loretta Mester and Eric Rosengren joining previous hawk Esther George. At the same time, however, looking at the new projections, three of the 17 Fed officials at the meeting now expect no rate hike whatsoever this year. Nevertheless, that means 14 of those 17 officials still expect at least one rate hike this year, presumably in December, which is the next meeting with a press conference.” — Paul Ashworth, Capital Economics

“The fact that three voters dissented is interesting, and it is pretty clear from the dots that the Fed plan on hiking in December this year as things stand. A December hike is by no means inevitable, though. We’ve been in the situation before where the Fed has aligned their guns only to balk at the last minute. Between now and then there is the U.S. election, of course. That could cause significant market volatility and deter the Fed. The simple expectation of a December hike could even be enough to cause a market selloff which leads to the Fed putting its plans on ice in a self-defeating cycle.” — Luke Bartholomew, Aberdeen Asset Management

This is about as close as you can get to raising interest rates, without actually raising them. Circle Dec. 14 on your calendar because the Fed has sent a clear signal that we’re on track for a rate hike if conditions hold. There were three dissenting votes at this meeting, up from one previously. Even the cautious Fed is getting antsy to raise rates.” —  Greg McBride, Bankrate.com
“In a nutshell, the recent economic news has been okay, but not quite good enough. Global concerns such as China’s wobbling economy and the continued uncertainty from Brexit no doubt played a role in the Fed’s thinking, as well. We still believe that U.S. interest rates are likely to go up in December. Looking ahead, we believe two more hikes in 2017 are likely, which could put rates to around 1.25% by the end of next year.” — Paul Eitelman, Russell Investments
...MORE