Thursday, July 27, 2017

"'Overly dry weather' to prompt hefty drop in world grains harvest" - International Grains Council

From Agrimoney:

"Overly dry weather" has left the world on track for its steepest drop in grains output in at least a decade, the International Grains Council said, flagging "particular concerns" over supplies of high-quality wheat.
The intergovernmental group cut by 11m tonnes to 2.04bn tonnes its forecast for world grains production in 2017-18, downgrading its harvest estimate for a third successive month.
The revision reflected setbacks from dryness in many major producing areas, concerns over which sent the IGC's grain and oilseed price index up 5% in July to a one-year high.
"Because of overly dry weather, including in North America, the European Union and Australia, the outlooks for global maize (corn), wheat and barley harvests are revised lower," the council said.
Lower area, yields
The downgrade took to 88m tonnes, or 4.1%, the drop in world grains production expected in 2017-18 - the largest decline in at least a decade, beating a 3.0% drop in 2012-13.
"Both harvested areas and average yields [are] expected to be lower year on year."
While the impact on the inventory estimate was less dramatic - with a higher figure for carry-in stocks and reduced demand forecast offsetting somewhat the impact of the weaker harvest estimate – the estimate for world inventories at the close of the season was still downgraded by 2m tonnes to 478m tonnes.
"Although record opening stocks will help to cushion the fall in output, overall availabilities are expected to shrink by about 2% year on year," the council said.
The estimate for inventory held in major exporting countries, which being readily available to the world market is particularly important for prices, was downgraded by 6m tonnes to a four-year low of 150m tonnes....
...MORE

Do Bots Have First Amendment Rights? We're About To Find Out

First Amendment, nah.
As the article points out that applies to government. This case is similar to a blogger blocking a commenter, you don't have a right to get on the platform, or as I've seen more than one person write:
Start your own damn website.

From Yahoo Finance:

LinkedIn's blocking of data-scraper's bots raises weighty 1st Amendment issues
In May, when lawyers for tech goliath LinkedIn warned a tiny data-scraping operation to stop gathering information from its members’ profiles, they probably didn’t realize they were teeing up a weighty legal conundrum over the “public square” characteristics of privately owned social media sites.
Yet because of the crucial role that data analytics now plays in society, a squabble of seemingly traffic-ticket dimensions has drawn world-class legal talent, with Harvard Law School professor Laurence Tribe enlisted in the data-miner’s defense, while former Solicitor General Donald Verrilli, Jr., has been retained by LinkedIn, which was acquired by Microsoft (MSFT) last year for $26 billion.   
On Thursday the people analytics” startup known as hiQ Labs, which has built its whole business on data scoured from LinkedIn’s member profiles, will ask a federal judge in San Francisco to order its unwilling host to stop blocking its bots, citing federal and state constitutional free speech guarantees.
“Data analytics on public information is a foundation stone of the modern internet,” wrote Tribe and two other hiQ lawyers in a brief filed last week. They depict hiQ as following in the footsteps of such seminal web pioneers as Alta Vista, Excite, and Google.  “Without such technologies internet users would be unable to make sense of the billions of web pages that exist in this modern marketplace of ideas,” the brief continues. “To allow LinkedIn to impose debilitating financial and criminal liability on a startup for accessing public pages would have a widespread chilling effect on innovation across the country, and thereby thwart valuable commercial and academic research.”
In response, LinkedIn portrays the case as far simpler. LinkedIn “is a private entity with a right to control access to its private property and to decide how and to whom it will make information available from its servers as part of its business,” argue its lawyers, Verrilli and Jonathan Blavin, both of Munger Tolles & Olson. “hiQ has identified no plausible legal justification for the unprecedented relief it seeks—a mandatory injunction granting hiQ access to LinkedIn’s computers so that hiQ can . . . threaten the privacy … of LinkedIn’s members and the integrity of LinkedIn’s relationship with those members.” (LinkedIn earned $975 million in revenue for the first quarter of 2017.) 

‘The modern public square’
Because hiQ’s information-gathering activity informs its communications with clients, hiQ maintains that it is entitled to free-speech protection. The First Amendment of the U.S. Constitution, however, ordinarily protects citizens only against government attempts to limit speech—not actions by private companies, like LinkedIn. For that reason, hiQ relies mainly on the free speech provision of the California state constitution, which has been found to afford protection even in certain quasi-public forums, like privately owned shopping malls....MORE

Latest memo from Howard Marks: There They Go Again...Again

From Oaktree:
Some of the memos I’m happiest about having written came at times when bullish trends went too far, risk aversion disappeared and bubbles inflated.  The first and best example is probably “bubble.com,” which raised questions about Internet and e-commerce stocks on the first business day of 2000.  As I tell it, after ten years without a single response, that one made my memo writing an overnight success. 

Another was “The Race to the Bottom” (February 2007), which talked about the mindless shouldering of risk that takes place when investors are eager to put money to work.  Both of those memos raised doubts about investment trends that soon turned out to have been big mistakes.

Those are only two of the many cautionary memos I’ve written over the years.  In the last cycle, they started coming two years before “The Race to the Bottom” and included “There They Go Again” (the inspiration for this memo’s title), “Hindsight First, Please,” “Everyone Knows” and “It’s All Good.”  When I wrote them, they appeared to be wrong for a while.  It took time before they were shown to have been right, and just too early. 

The memos that have raised yellow flags in the current up-cycle, starting with “How Quickly They Forget” in 2011 and including “On Uncertain Ground,” “Ditto,” and “The Race Is On,” also clearly were early, but so far they’re not right (and in fact, when you’re early by six or more years, it’s not clear you can ever be described as having been right).  Since I’ve written so many cautionary memos, you might conclude that I’m just a born worrier who eventually is made to be right by the operation of the cycle, as is inevitable given enough time.  I absolutely cannot disprove that interpretation.  But my response would be that it’s essential to take note when sentiment (and thus market behavior) crosses into too-bullish territory, even though we know rising trends may well roll on for some time, and thus that such warnings are often premature.  I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.

Since I’m convinced “they” are at it again – engaging in willing risk-taking, funding risky deals and creating risky market conditions – it’s time for yet another cautionary memo.  Too soon?  I hope so; we’d rather make money for our clients in the next year or two than see the kind of bust that gives rise to bargains.  (We all want there to be bargains, but no one’s eager to endure the price declines that create them.)  Since we never know when risky behavior will bring on a market correction, I’m going to issue a warning today rather than wait until one is upon us....MORE
HT: Alpha Ideas

Byron Wien On the Fed's Balance Sheet Unwind: "Is Very Dangerous For Markets":

Via ZeroHedge:

Wall Street Icon Warns The Fed's Balance Sheet Unwind "Is Very Dangerous For Markets"
Blackstone’s market maven Byron Wien warns that stocks are in danger of suffering a setback. But he also explains why investors should keep their calm and weather the impending storm.
To expect the unexpected is the key to success in investing. That’s exactly what Byron Wien has built himself a unique reputation on: For more than thirty years the living Wall Street legend publishes a yearly list with ten surprises that will have a meaningful impact on the global financial markets.

«People all over the world are aware of it and identify me with it», says the Vice Chairman in the private wealth group of Blackstone. «What they seem to like about it is that I put myself at risk by going on record and hold myself accountable at the year end», he adds.

So how accurate are Wien’s predictions for 2017 so far? Which developments could surprise investors during the rest of the year? And first and foremost: Where does the experienced market maven see the biggest risks and opportunities right now?

Mr. Wien, everybody on Wall Street knows you for your yearly prediction of ten surprises. What is for you personally the most astonishing development so far this year?
I would say I’m having an average year where I get five or six surprises right. Everybody calls them forecasts or predictions but they really are surprises. To me, a surprise is an event that the average investor would only assign a one out of three chance of taking place but which I believe has a better than 50% likelihood of happening. I never get them all right but I don’t do it for score. I do it to get people thinking.

Which surprises did you get right so far?
I said that the S&P 500 would go to 2500 this year. It’s close to 2480 now and we are at the end of July. So I’m pretty optimistic about that one. I also said the price of oil would be lower than people thought and it is lower than people thought. So those are some of the highlights.

And what took you by surprise?
The drop in interest rates and the weakness of the dollar were the big surprises to me. I said interest rates would rise and they fell and I said the dollar would be strong and it’s been weak. So I definitely got those two wrong. The same is true for Donald Trump. I said correctly that he would soften his positions and he has reversed himself on a number of issues. But I didn’t think he would get so little done. So far he has gotten nothing done, nothing to show for. He spends way too much time on Twitter and he hasn’t even gotten the affordable care act revised. That’s a disappointment....

...What’s your explanation for this discrepancy between Wall Street and Main Street?
The earnings of US corporations are increasing and that’s driving the stock market. Companies are doing everything possible to increase profitability. Also, there’s a certain amount of financial engineering going on. Many companies are using the cash on their balance sheet to buy their own shares back and to pay higher dividends....
...And what’s the second thing you’re worried about?
Central bank liquidity has been an important factor driving the market. But now, the Federal Reserve is tightening. They have already tightened twice this year and they are talking about shrinking the balance sheet, starting in September. Also, the European Central Bank is talking about being less accommodative as well. So we’re going from a very accommodative monetary policy around the world to a more restrictive policy and that’s going to put a damper on the market.

But if  monetary policy is getting less easy isn’t that also an encouraging sign that central bankers are having more confidence in the resilience of the economy?
The Federal Reserve has two mandates: low inflation and full employment. Right now we have full employment and low inflation. So the Federal Reserve is doing its job. They are achieving their mandate and the economy is not overheating. They have no reason to raise rates. But the Fed has allowed its balance sheet to growth significantly. Since the creation of the Federal Reserve it took 95 years to growth the balance sheet to $1 trillion. But because the banking system was in danger of melting down in 2008 they went to $2.5 trillion basically overnight and now they’re at $4.5 trillion. So the Fed feels guilty that it has expanded money too fast and they feel they have to shrink the balance sheet back.

What does that mean for the markets?
The Fed will shrink the balance sheet by letting the treasury bonds and the mortgage backed securities that are on its balance sheet mature and redeeming them. But that will take money out of the system and that’s very dangerous for the markets.

Why?
There is a significant congruence between the expansion of the Fed’s Balance sheet and the performance of the S&P 500. They are roughly congruent except for now because the market is running ahead of the Fed’s balance sheet. That makes me worried of a kind of Wile E. Coyote-Phenomenon where the market is running off the edge of the cliff and it doesn’t know it doesn’t have any land below it to support it. In this case, the missing ground would be the withdrawal of money from the system because not only is the Fed thinking about doing it but the European Central Bank is thinking about doing it as well. So naturally, the market is vulnerable to a 10% correction at any time.

Could that mean the end of the bull market?
I emphasize a correction, not a bear market. I don’t think a bear market is in store. The only thing that really creates sharp downturns is a recession and I don’t see a recession before 2019.....MUCH MORE

Why SolarCity Has Become a Shell of Its Former Self Since Tesla Buyout (TSLA)

This is a $3,000,000,000 scandal and no one seems to care.
From The Motley Fool:

SolarCity was bought by Tesla only eight months ago, and most of the key players at the solar giant are now gone.
When Tesla (NASDAQ:TSLA) bought SolarCity last fall, some observers, including myself, called it a bailout of the residential solar installer. SolarCity's business was in trouble and Tesla bought it to save Elon Musk's reputation and millions of dollars for himself, his cousins, and SpaceX.

Less than eight months after the SolarCity deal closed, Tesla has lost most of its most important employees and laid off thousands of lower-level workers. SolarCity is a shell of itself -- and on Tuesday, it got a little weaker.


The last remnant of SolarCity is gone
SolarCity co-founder and Chief Technology Officer Peter Rive announced Tuesday that he's leaving Tesla. This comes shortly after former SolarCity CEO Lyndon Rive left the company, saying he wanted to be an entrepreneur again. Peter Rive put a positive spin on the move in a letter to employees, but it's extremely strange that months after SolarCity's buyout Musk has nudged or pushed both of his cousins out the door.

The solar company Tesla paid $2.6 billion for is now a shell of itself. The executive team is gone, Tesla is letting sales and installation staff go, and the solar manufacturing plant SolarCity thought would change its future has been handed over to Panasonic (coincidentally Tesla's Gigafactory partner). The justification for the acquisition has evaporated because there's not much left.
 

What happens to the solar roof? 
What's more puzzling is that Peter Rive was supposed to be the leader of the solar roof team. He was there from the beginning of the solar roof's development, but won't be there to see the product through to launch. And his exit has to call into question whether the product will ever make it to production.

There are still precious few details about the solar roof and it's unclear if Tesla can manufacture the product at all, much less profitably. And when you lose your engineering leader, it throws the product into even greater uncertainty....MORE
Some of the contemporaneous posts:
SolarCity/Tesla: Analysts React (SCTY; TSLA)
Not only is Tesla taking on almost $3 billion in SolarCity debt, it is also buying into the problem of even more negative cash flows, both Operating and FreeCashFlow.

Which of course, along with the corp. governance nastiness, explains why Tesla has lost almost 11% of its market cap, amounting to $3.14 billion on the 133 million shares out and more than the entire market cap for SCTY (98,296,422 shares at $22.30, up 5.2%).

The market is saying SCTY is worth less than zero to Tesla.

We'll have a lot more to say about this in the coming days....
Tesla-Solar City: Cousins Shouldn't Get Married (to each other) TSLA; SCTY--UPDATED
So, Who Will Write A Fairness Opinion On The Tesla/SolarCity Deal? (TSLA; SCTY)
More On SolarCity/Tesla and Fairness Opinions (SCTY; TSLA)
"Elon Musk Faces Cash Squeeze at Tesla, SolarCity" (TSLA; SCTY) 
"Short-Seller Chanos Calls Tesla-SolarCity Merger 'Crazy': CNBC Conference" (TSLA; SCTY)  
Today In Depreciation: Does Tesla Really Understand What It’s Buying in SolarCity? (TSLA; SCTY)
Tesla, SolarCity Tumble Ahead Of New Merger Financials (TSLA; SCTY)
Attentive reader may have noticed we didn't cover Mr. Musk's press conference on the roof tile solar panels last Friday. We've been at the market long enough to recognize a master magician's "hey, look at this" misdirection. The tiles aren't going to matter to anyone for at least a year, probably two, and by then I would expect the market to have changed to the  point that they will be recognized as a niche at best.

The oohing and ahing from the assembled journos was kinda funny though; in a naïve, never had to bet real money sort of way.... 
"Wait, Tesla Motors Might Need to Raise $12 Billion?!?!" (TSLA; SCTY)
We've been thinking $6 billion to cover the build-out of the factories in Fremont, CA and Nevada and the New York SolarCity plant along with funding the higher cash burn after the SCTY merger.

And we were at the high end....

Wednesday, July 26, 2017

Yeah, I Got Your Bitcoin Right Here: "‘Quantum Checks’ to Replace Cryptocurrencies in the Future?"

One of Mr. Keohane's Further Reading links is to a Bloomberg article that asks in its headline "Why Can’t Americans Ditch Checks?".

Why? I'll tell you why. If the rest of the world wants to go with Venmo or cryptocrap that's just fine.

We're roughly nine months from real—honest-to-goodness—quantum supremecy, the moment when quantum computers show they actually are superior to classical 'puters.

And with three of the top five quantum co's. in the U.S. it's a pretty good bet that it will be American thieves emptying those supposedly hack-proof wallets around the world and the American companies will be using the Indian guy's idea (below) to move beyond old-fashioned crypto.

And Deluxe Corp. (and maybe De La Rue too) will be going all Schrödinger on the fanboys and the kids will be saying "Ehereum? That's sooo 2017."

Or not.
Predicting is hard.

From Bitsonline, July 12:

With the help of researchers using IBM’s cloud-based quantum computer concept, cryptocurrencies may soon be replaced by a new and improved way of making payments — quantum checks.

Quantum Computing: Reimagining Old Money

The researchers have been hard at work testing out the concept of securing money transfers by leveraging quantum mechanics, with the emphasis of making traditional checks, of all things, the most secure way of sending money.

Quantum money is not a new idea, having been first proposed in the early 1970s. However, the idea hasn’t been possible to test until recently.

The significance comes from the fact that researchers have proven that quantum computers could, in theory, create and cash quantum checks that are nearly impossible to forge.
The study is only a proof-of-concept. But Prasanta Panigrahi, the scientist who led the study at Indian Institute of Science, Education and Research in Kolkata, thinks quantum tech is close enough to maturing for quantum money to become workable in the near future.

As it currently stands, the idea is still not scalable to a wide population, nor it is a particularly convenient way of transferring money.

Additionally, the qubits in the IBM system only last for microseconds at a time. Scott Aaronson of the University of Texas says that ideally “one would like checks that can last longer than that before being cashed or deposited.”

Going From Cryptocurrency to Quantum Checks

Quantum computing has often been invoked when talking about the long-term security of Bitcoin and other cryptocurrencies.

In short, this is because of quirky characteristics of the quantum world that, when leveraged by a computer, could basically decrypt many of the cryptographic systems of today — including Bitcoin.

Additionally, the ability to make current encryption obsolete means a fully-realized quantum computer could have significant ramifications not just for Bitcoin security, but for electronic security and privacy in general as well....MORE

That Time a Couple Irish Guys Burned Down the Houses of Parliament

From Parliament.UK:

The Great Fire of 1834 
In 1834, the Exchequer was faced with the problem of disposing two cart-loads of wooden tally sticks. These were remnants of an obsolete accounting system that had not been used since 1826. When asked to burn them, the Clerk of Works thought that the two underfloor stoves in the basement of the House of Lords would be a safe and proper place to do so.
https://assets3.parliament.uk/iv/main-large//ImageVault/Images/id_326/scope_0/ImageVaultHandler.aspx.jpg
Parliament on fire in 1834
On 16 October, a couple of workmen arrived in the morning to carry out his instructions. During the afternoon, a party of visitors to the House of Lords, conducted by the deputy housekeeper Mrs Wright, became puzzled by the heat of the floor, and by the smoke seeping through it. But the workmen insisted on finishing their job. The furnaces were put out by 5pm, and Mrs Wright, no longer worried, locked up the premises.

Fire!
At 6pm, Mrs Wright heard the terrified wife of a doorkeeper screaming that the House of Lords was on fire. In no time, the flames had spread to the rest of the Palace. It was a great sight for the crowds on the streets (who were kept back by soldiers) and a great opportunity for artists such as J.M.W. Turner who painted several canvases depicting it....MORE
If interested see also the Irish Times:


The Irishman who destroyed the Houses of Parliament (and lived to tell the tale)

https://www.irishtimes.com/polopoly_fs/1.1964840.1413391669!/image/image.jpg_gen/derivatives/box_620_330/image.jpg
A contemporary painting by an unknown artist of the Palace of Westminster on fire in 1834. Copyright: Parliamentary Art Collection

Fear and Loathing at the New York Times

These protest messages are better than the ones we suggested for the folks picketing the Wall Street Journal in 2007. Using the standard "Two. Four, Six Eight"....

2, 4. 6. 8, something, something fourth estate
2, 4, 6, 8 basal metabolic rate
And trying to verbify emolument into emolumate, that was just embarrassing.

http://media.vanityfair.com/photos/59766f43fe060e64db80eb59/master/w_1908,c_limit/new-york-times-drama.jpg

From Variety, July 24:

The Agony and the Anxiety of The New York Times
Despite a historic run, unease is now gripping the paper as a large-scale reorganization (physical, personnel, and psychic) looms. “The mood at the paper is poisonous in a way I’ve never seen it in the past 15 years,” as one editor put it.

he first six months of the Trump administration have been one of the most glorious eras in the history of The New York Times. The paper, in addition to its rival The Washington Post, has been at the absolute center of the culture, a bastion of sanity, a daily reminder of why journalism is necessary and why dead-tree media is best equipped to supply it. The Times is clearly doing something right when it can register 130,000 new digital subscribers in a month and political reporter Glenn Thrush is being portrayed on Saturday Night Live by Bobby Moynihan.

And yet, in many corners of the Times’s Renzo Piano-designed building at 620 8th Avenue, the glory is hollow. As one editor put it, “The mood at the paper is poisonous in a way I’ve never seen it in the past 15 years.” The ostensible reason is that the Times is undergoing yet another round of buyouts, set to be finalized on Thursday. “Every buyout is tense,” the editor continued, “but there’s something really demoralizing about this one that’s been worse than any before.”

Unlike past buyouts, though, the human toll is now only part of the sinking mood. A major newsroom reorganization is upending a time-honored method of producing the Times’s signature journalism while simultaneously making an entire class of employees feel obsolete. Additionally, the Times’s midtown Manhattan headquarters is itself being upended, shrinking by eight floors and leaving all but the highest of editors without private offices. Open floor plans have long been increasingly popular among publishers, particularly given how important cross-desk collaboration has become in the social-media age, but this, too, amounts to a decisive and, for some, painful break with the news organization’s past.

At its core, the Times’s internal transformation focuses on upending the paper’s copy desk. And while this might seem like a rather small innovation, it is poignant and fraught in a distinctively Timesian manner. For decades, the copy desk has been an all-seeing, all-powerful enforcer of Times standards and verbal peculiarities. As much as the reporters, writers, and editors, it’s what makes the Times the Times. The traditional desk structure allowed for multiple eyes to be placed on every story—checking, tweaking, standardizing, changing “dads” to “fathers” and discouraging the use of “launch” unless it involved a rocket, or perhaps a boat. For reporters, the process could be agonizing. The system, after all, was conceived during a bygone pre-Internet age when so much copy hit the desk at a single time and certain standards and shortcuts needed to be applied. As executive editor Dean Baquet recently noted at Recode’s Code Conference, referencing the late David Halberstam, the system may have occasionally formalized the copy of more elegant stylists, but it undoubtedly elevated the prose of less lyrical reporters. And most reporters, aware of this trade-off, knew that it ensured the preternatural assiduousness, in matters factual and grammatical, that readers counted on. The copy desk was a deeply conservative, church-like institution at the core of the Times....MORE

"How to Make a Fortune Drinking, Gambling and Napping"

I am reminded of the bio of one of the young journos at City A.M., Alys Key: "I report on vice, leisure, the creative industries, luxury and white collar crime."

From Bloomberg:
  • Testimony describes meetings at pubs, drinking contests
  • Ashley accused of failing to pay promised bonus to ex-banker
In a corporate world where executive suites are filled with trim, marathon-running, salad-eating, MBA-educated leaders, Mike Ashley stands out—by stature, by behavior, and by the self-deprecating way he describes the crasser episodes of his lavish life atop Sports Direct Plc, the U.K. retailer he founded and made a fixture of shopping streets.

That’s the takeaway from days of court hearings that transfixed the U.K. public, with newspapers eagerly writing up every twist of the outlandish anecdotes that spilled forth from Ashley and his former employee, Jeffrey Blue. The ex-banker alleges that Ashley promised him 15 million pounds ($19.5 million) to double the company’s share price during a drinking session at a pub. A judge rejected the claim on Wednesday, saying “no reasonable person would have thought the offer to pay Mr. Blue was serious.”

The courtroom scenes, which read in parts more like a script to the next “Hangover” movie sequel than a day in the life of the chairman of one of the U.K.’s biggest companies, present an executive who parties hard, likes his drink, and knows where to take a break: under the conference-room table.
Here are nine quotes illustrating Ashley’s role in the drama:...MORE

 

Bain Capital/Thomas H Lee-Controlled iHeartMedia Continues Stately Descent Into Bankruptcy (IHRT)

As was said back in May:

"This wouldn't really be noteworthy except for the fact IHRT is the largest operator of radio stations in the U.S. and the debt involved is a bit over $20 Billion.".

The stock closed at $2.00 that day. It's trading at $1.25 today, off another nickle and the only thing the company has going on is a desperate attempt to convince some of the debt holders to renegotiate the terms of their paper.

And no one, with the notable exception of the San Antonio Express-News is covering the story.
As an old time commodities trader once said, "Don't trade on what you see on the front pages, trade on what's on page 16 that's going to be on the front pages."

Via BusinessWire (a Berkshire Hathaway company): 

iHeartCommunications, Inc. Announces Extension of Private Term Loan Offers
July 20, 2017 06:45 AM Eastern Daylight Time
SAN ANTONIO--()--iHeartCommunications, Inc. (“iHeartCommunications”) today announced that it is extending the deadline for participation in the private offers (the “Term Loan Offers”) to lenders under its Term Loan D and Term Loan E facilities (“Existing Term Loans”) to amend the Existing Term Loans. The Term Loan Offers have been extended to 5:00 p.m., New York City time, on August 4, 2017. iHeartCommunications is extending the Term Loan Offers to continue discussions with lenders regarding the terms of the Term Loan Offers.

The terms of the Term Loan Offers have not been amended and remain the same as set forth in the Confidential Information Memorandum, dated March 15, 2017, as supplemented by Supplements No. 1 through No. 5 (as so supplemented, the “Confidential Information Memorandum”).

The Term Loan Offers, which are only available to holders of Existing Term Loans, are being made pursuant to the Confidential Information Memorandum, and are exempt from registration under the Securities Act of 1933 (the “Securities Act”). The new securities (the “New Securities”) of iHeartMedia, Inc., CC Outdoor Holdings, Inc., Broader Media, LLC and/or iHeartCommunications being offered in the Term Loan Offers are offered only in reliance on exemptions from registration under the Securities Act. The New Securities have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws...MORE
A few days before the extension of the offer the hometown newspaper, the Express-News reported:

iHeartMedia investors want more collateral, equity
Investors in iHeartMedia Inc. have countered a company proposal to exchange some of its debt for longer maturities by asking for more collateral and equity than originally offered by iHeart, according to details of the negotiations revealed in a securities filing Monday.

The company, which has been trying to restructure $14.6 billion in debt since mid-March, said it still hasn’t reached an agreement with its lenders and bondholders, according to a filing with the Securities and Exchange Commission Monday. But the company is considering the counterproposal....MORE
Previously:
Bain Capital/Thomas H Lee-Controlled iHeartMedia Probably Facing Bankruptcy (IHRT)

"U.S. Dollar; Triple support test after rare 30-week decline"

From Kimble Charting Solutions:
From 2011 to the start of this year, the US$ has been pretty strong, as it rallied nearly 30% in 6-years. Over the past 30-weeks, King Dollar has been rather weak.

Below looks at the US$ over the past 18-years, with 30-week performance applied-
https://www.kimblechartingsolutions.com/wp-content/uploads/2017/07/us-dollar-9-decline-in-30-weeks-testing-dual-support-july-26.jpg
King Dollar has declined over 9% in the last 30-weeks at (1). As one can see, this sharp of a decline in 30-weeks hasn’t taken place a ton of times since the late 1990’s....MORE 
DXY 94.04

Time For A Color Revolution: Bolivia's President Declares "Total Independence" From World Bank And IMF

There goes all that lithium.
Over the years we've grown fond of this bit o'movie history:

Butch Cassidy: Kid, the next time I say, "Let's go someplace like Bolivia,"
let's go someplace like Bolivia.

- Butch Cassidy & the Sundance Kid (1969)

From ZeroHedge:
Bolivia's President Evo Morales has been highlighting his government's independence from international money lending organizations and their detrimental impact the nation, the Telesur TV reported.
"A day like today in 1944 ended Bretton Woods Economic Conference (USA), in which the IMF and WB were established," Morales tweeted.

"These organizations dictated the economic fate of Bolivia and the world. Today we can say that we have total independence of them."
Morales has said Bolivia's past dependence on the agencies was so great that the International Monetary Fund had an office in government headquarters and even participated in their meetings.

Bolivia is now in the process of becoming a member of the Southern Common Market, Mercosur and Morales attended the group's summit in Argentina last week.

Bolivia’s popular uprising known as the The Cochabamba Water War in 2000 against United States-based Bechtel Corporation over water privatization and the associated World Bank policies shed light on some of the debt issues facing the region.

Some of Bolivia’s largest resistance struggles in the last 60 years have targeted the economic policies carried out by the International Monetary Fund and the World Bank....MORE 
As noted in 2015's "'Quest to Mine Seawater for Lithium Advances' (TSLA)":
If somebody doesn't figure something out, Tesla will be buying 100% of the world's land-based production within five years.
Yeah, we've been following this stuff for a while....

Electric Vehicles-Lithium Supplies and Crucifixion in Bolivia
Bolivia Rejects Bill Gates' Donation As 'Offensive'
Lithium-Ion Batteries and Bolivian Politics
France's Bollore opens talks over Bolivia's lithium (BOLL: Paris) 
Lithium: In Bolivia, Untapped Bounty Meets Nationalism
Lithium for 4.8 Billion Electric Cars Lets Bolivia Upset Market (SQM; BOLL: Paris)
 "With Aid to Bolivia, Japan Locks in Lithium" ooops "Bolivia slams Japan mining firm for 'plundering' resources" (PKX)
Bolivia: Dec. 21 "Marks the End of Coca-Cola and Capitalism" (KO)
We keep an eye on Bolivia for many reasons, not the least of which is lithium.
The government is just a bonus.... 

Lithium for 4.8 Billion Electric Cars Lets Bolivia Upset Market (SQM; BOLL: Paris)

And many more, use the 'search blog' box if interested.  

"Quiet Fed Day without Yellen"

I see Brown Brothers Harriman & Co. has loosened up their dress code although, truth be told, that's about an inch more heel than I can handle for any length of time.

From Marc to Market:
By definition, the Federal Reserve Open Market Committee meeting is the highlight of the day. Without a press conference, and following last month's rate hike, there is practically no chance of a new policy initiative either on the balance sheet or the Fed funds target.

Market participants will be most sensitive to how the FOMC statement discusses inflation. In June, the FOMC recognized that inflation had declined and the core was below target. It expected inflation to remain below 2% in the near-term, but stabilize around 2% in the medium term. Lastly, as the Chair noted in her testimony before Congress, the FOMC statement also indicated that it would monitor inflation closely.
https://1.bp.blogspot.com/-0nb3e0PiIlw/WXfYRBeFPUI/AAAAAAAAYuU/ulvOs4tIfScJFoxZ4f70HBcQILVbjZawwCLcBGAs/s1600/patriotic%2Bshoes.jpg
There has not been sufficient data to require a significant change in the Fed's statement. The Fed can show patience. There is no rush. After declining from February through May, core inflation needs to not only stabilize, as core CPI did last month but needs to rise for perhaps a few months before a cautious central banker may feel confident that the spot patch has passed.

The scenario we painted after the last FOMC meeting, which sees the Fed announcing the beginning of its balance sheet operations at the September meeting to start in October, and to pause in its rate hikes, after hiking quarterly for three-quarters is gaining adherents. By December, the trajectory of prices, and the economy will be clearer. In this way, the Federal Reserve can achieve a number of its objectives, including beginning the slow reduction of its balance sheet and distancing it from the conduct of monetary policy. The Fed funds target range, with the yield on reserves (not just excess reserves, a point that is not fully appreciated) and reverse repo operations.

The US dollar is sporting a slightly firmer bias. The biggest loser today is the Australian dollar, which is off nearly 0.5% following a soft headline inflation figure and comments from the central bank governor indicating a lack of urgency to change interest rates.

Consumer prices rose 0.2% in Q2, half the pace the economists expected in the Bloomberg survey. The year-over-year pace slipped to 1.9% from 2.1%. The median expectation was for a small uptick. Nevertheless, the trimmed mean and weighted median measures were spot on with a 0.5% increase. Shortly afterward, RBA Governor Lowe underscored the official argument that because the central bank did not ease as much as many other central banks, it needn't follow them so closely in removing the accommodation. He argued that keeping rates low is helping the economy adjust and underpinning the labor market. Lowe also noted that it would be better if the currency were lower.

The Australian dollar approached $0.8000 on July 20 and backed off to $0.7875 before last weekend. It rose in the past two sessions but stalled near $0.7970. Today's set back help above the $0.7875 low, keeping the consolidative tone intact. The technical indicators are beginning to deteriorate for the Australian dollar, which warns that the consolidation may morph into an outright correction unless the $0.7920 level can be overcome. On the downside, the near-term potential exists toward $0.7780-$0.7800.

The UK is the first G7 country to report its first estimate of Q2 GDP. It was in line with expectations, rising 0.3% for a 1.7% year-over-year rate. In Q1 the UK economy expanded by 0.2% for a 2.0% year-over-year pace. Services rose 0.5%, while construction fell 0.9% and production fell 0.4% (manufacturing was off 0.5%). If the estimate holds, it points to the weakest six month period since Q4 12-Q1 13. Economists do not expect the UK economy to accelerate, but grow to expand by 0.3% a quarter in H2. Sterling is also consolidating. Like the other major currencies, it has pulled back from yesterday's high (~$1.3080) but is finding a bid near $1.30 and ahead of Monday's low near $1.2985. Each of those levels has about GBP300 mln options that expire today.

Meanwhile, oil is building on yesterday's rally. The 3.35% rally in the September light sweet crude oil futures appears to be the largest of the year. Reports suggest that Saudi Arabia will cut its oil exports by 100k barrels in August and UAE will cut its exports in September. There are also some signs of a potential slowing of production in the US as the rig count build is losing momentum...MORE

Real Assets: Institutional Money Pulling Back From Timber, Farmland

There ya go. These things don't turn on a dime but, to quote some guy, "This is not the end, it is not even the beginning of the end, but it is perhaps the end of the beginning."
No hurries, no worries.

From Pensions & Investments, July 24:

Timber, agriculture cycles forcing firms to examine new avenues
Managers in a number of real asset sectors — with the possible exception of infrastructure — are having a tough time raising capital. And that is only the leading edge of the storm buffeting them.
Some timber funds are nearing the end of their lives with managers expected to bifurcate into the haves and have-nots when they go out to raise new funds;

Farmland is in a state of flux, with managers now making value-added investments;

Real estate managers have more money than they can spend, with a record amount of dry powder but fewer deals.

Fundraising is slowing. Many institutional investors' allocations to real assets have little room for expansion, said Peter Martenson, partner in the San Diego office of placement agent Eaton Partners LLC.

"(Limited partners) have full allocations and commitments are going a little bit slower because, I think, real assets has not had a reason to shine," Mr. Martenson said. "Commodity prices have stayed low. Oil and gas is a classic example. People thought the recovery would have happened sooner. It's the same thing with metals and mining, in general."

Investors might fill in around the edges, like adding a tactical strategy that feels compelling, he said.
Also hurting fundraising is that, at least in the U.S., few investors are expecting either inflation or deflation, which is one of the reasons many investors invest in real assets.
Having second thoughts
At the same time, some investors are reconsidering their real asset portfolios, rebalancing out of strategies that have not worked and boosting investment in sectors that have. 

Harvard Management Co., which manages Harvard University's $37.6 billion endowment, is reviewing the investment strategy for its $2 billion natural resources portfolio, sources said. Currently, Harvard Management Co. is in discussions to sell dairy farms and cows in New Zealand to KKR & Co. LP, sources said. Any transaction would be pending regulatory approval, these people said.

Emily Guadagnoli, an HMC spokeswoman declined comment.

KKR spokeswoman Kristi Huller, said a possible sale by Harvard has not been announced.
Officials at the $323.6 billion California Public Employees' Retirement System, Sacramento, are in the process of re-examining the role of forestland in its portfolio and restructuring its domestic forestland portfolio.

CalPERS officials are taking a look at its forestland portfolio as part of an asset-liability study that also will examine whether to combine real estate, infrastructure and forestland into a single roughly $35.7 billion real asset program or retain them as separate asset classes . An asset allocation decision could be made as early as December, according to a CalPERS timeline.

CalPERS officials are considering the sale of its Crown Pine Timber portfolio, sources said....MUCH MORE
HT: Farmlandgrab

Tuesday, July 25, 2017

Forgotten Warhol Silkscreen Found in Alice Cooper’s Storage Locker

Either way it's worth quite a bit but I just heard someone scoff and say Cooper's is unsigned which even with the provenance:

Andy Warhol, Alice Cooper.
PHOTO BY BOB GRUEN

does matter.

From The Guardian:

'We found it rolled up in a tube': Alice Cooper discovers Warhol classic after 40 years


image of 'Little Electric Chair'
The rock star Alice Cooper has found an Andy Warhol masterpiece that could be worth millions “rolled up in a tube” in a storage locker, where it lay forgotten for more than 40 years. 
The work in question is a red Little Electric Chair silkscreen, from Warhol’s Death and Disaster series. Never stretched on a frame, it sat in storage alongside touring artefacts including an electric chair that Cooper used in the early 70s as part of his ghoulish stage show. 
According to Shep Gordon, the singer’s longtime manager, Cooper and Warhol became friends at the famous Max’s Kansas City venue in New York City. 
“It was back in 72 and Alice had moved to New York with his girlfriend Cindy Lang,” Gordon told the Guardian. “Andy was kind of a groupie, and so was Alice. They loved famous people. So they started a relationship, and they loved to hang out.” 
Warhol went to see a concert in which Cooper feigned electrocution in a chair identical to the one in Warhol’s print. The image is based on a press photographfrom 13 January 1953 of the death chamber at Sing Sing prison, where Julius and Ethel Rosenberg were executed that year for conspiring to pass atomic secrets to the Russians. 
Lang, a model and Interview magazine cover star who died in January at the age of 67, had the idea to approach the artist’s studio and purchase one of the 1964 canvases. 
“As I recall,” Gordon said, “Cindy came to me for $2,500 for the painting. At the time Alice is making two albums a year and touring the rest of the time. It was a rock’n’roll time, none of us thought about anything. He ends up going into an insane asylum for his drinking and then leaves New York for LA. 
“Alice says he remembers having a conversation with Warhol about the picture. He thinks the conversation was real, but he couldn’t put his hand on a Bible and say that it was.”...MORE
HT: ArtNews who also note: "People are now buying art with Bitcoin, as well as other digital tender, including Ethereum, Ethereum Classic, Dash, Litecoin. [BBC]"

Warren Buffet Uses This One Weird Trick to Be Persuasive

I only have two clickbait moves. There's the "Listen to this battle cry from a supermodel" (and variants) move:
"Before You Say You've Never Discriminated Against Someone, Listen To This Battlecry From A Model"
And the "one weird trick" move.
The former didn't seem applicable in this context.

Robert Cialdini at CNBC, July 12:

Warren Buffett uses this simple psychological trick to be persuasive and so can you, says influence expert
Warren Buffett is perhaps the most famous and most successful investor alive today. Dubbed the "Oracle of Omaha," the 86-year-old CEO of Berkshire Hathaway has a net worth of more than $75 billion
Most people excitedly await Buffett's annual letter to Berkshire shareholders for the sage advice he gives. But psychology professor Bob Cialdini, who has spent his entire career studying the science of influence and persuasion, is drawn to something more subtle. 
"I've been getting his annual shareholder reports for more than 15 years now. And I've noticed something that he does as a CEO of the company Berkshire Hathaway that I've never seen in any other report," says Cialdini of Buffett. 
"On the first or second page of the report he describes an error, a mistake, that he and his company made the previous year. 
"It is so disarming," Cialdini tells CNBC. 
"I say to myself every time, 'Oh! This guy is being straight with us. What is he going to say next? I need to pay attention to everything he says next!' 
"And that's where he describes the strengths," says Caldini, author of New York Times bestselling books "Influence: Science & Practice" and "Pre-Suasion: A Revolutionary Way to Influence and Persuade." 
"He's established himself as a trustworthy credible source of information before he describes the things that are most favorable, that he wants me to process and recall. Brilliant."...
...MORE, including video.

I may have made a mistake with the 'only two moves' intro. Thinking about it we've also used the "blank, blank will shock you" template (and variations):


And then there was the whole Upworthy 'clickbait generator' phase.
Oh, and the "Buzzfeed Story Generator" chapter in the blog's life.
And the whole search engine optimization fiasco:

And the....where was I?
Think We're Not In A Housing Bubble? 
Maybe You Should Listen To This Angry Child Star.

A Chinese Museum Is Offering Big Money to Whomever Can Decode This Ancient Script (The going rate is $15,000 per character).

With provisos.

From Atlas Obscura:
It’s not bounty hunting, but it’s close: The National Museum of Chinese Writing in Anyang, Henan Province is offering a large monetary reward to anyone who can decode a 3,000-year-old script. The writing, which dates to the ancient Shang dynasty, is one of the “earliest written records of Chin­ese civilization,” according to the South China Morning Post.

So far, experts have decoded around 2,000 of the approximately 5,000 characters found on these oracle bones, which were carved into turtle shells and ox bones and report on everything from taxes to the climate. But the process has proved both costly and time-consuming, so the National Museum of Chinese Writing is crowdsourcing it.

They’re offering 100,000 yuan (~$15,000) for each unknown character a person can translate (with evidence). A sum of 50,000 yuan (~$7,500) goes to anyone who is able to provide an explanation for a character whose meaning is in dispute....MORE

Stephen Roach: "Deciphering China’s Economic Resilience"

One of the old pro China watchers.
From Project Syndicate:
NEW HAVEN – Once again, the Chinese economy has defied the hand wringing of the nattering nabobs of negativism. After decelerating for six consecutive years, real GDP growth appears to be inching up in 2017. The 6.9% annualized increase just reported for the second quarter exceeds the 6.7% rise in 2016 and is well above the consensus of international forecasters who, just a few months ago, expected growth to be closer to 6.5% this year, and to slow further, to 6%, in 2018. 

I have long argued that the fixation on headline GDP overlooks deeper issues shaping the China growth debate. That is because the Chinese economy is in the midst of an extraordinary structural transformation – with a manufacturing-led producer model giving way to an increasingly powerful services-led consumer model. 

To the extent that this implies a shift in the mix of GDP away from exceptionally rapid gains in investment and exports, toward relatively slower-growing internal private consumption, a slowdown in overall GDP growth is both inevitable and desirable. Perceptions of China’s vulnerability need to be considered in this context. 

This debate has a long history. I first caught a whiff of it back in the late 1990s, during the Asian financial crisis. From Thailand and Indonesia to South Korea and Taiwan, China was widely thought to be next. An October 1998 cover story in The Economist, vividly illustrated by a Chinese junk getting sucked into a powerful whirlpool, said it all. 

Yet nothing could have been further from the truth. When the dust settled on the virulent pan-regional contagion, the Chinese economy had barely skipped a beat. Real GDP growth slowed temporarily, to 7.7% in 1998-1999, before reaccelerating to 10.3% in the subsequent decade. 

China’s resilience during the Great Financial Crisis was equally telling. In the midst of the worst global contraction since the 1930s, the Chinese economy still expanded at a 9.4% average annual rate in 2008-2009. While down from the blistering, unsustainable 12.7% pace recorded during the three years prior to the crisis, this represented only a modest shortfall from the 30-year post-1980 trend of 10%. Indeed, were it not for China’s resilience in the depths of the recent crisis, world GDP would not have contracted by 0.1% in 2009, but would have plunged by 1.3% – the sharpest decline in global activity of the post-World War II era. 

The latest bout of pessimism over the Chinese economy has focused on the twin headwinds of deleveraging and a related tightening of the property market – in essence, a Japanese-like stagnation. Once more, the Western lens is out of focus. Like Japan, China is a high-saving economy that owes its mounting debt largely to itself. Yet, if anything, China has more of a cushion than Japan to avoid sustainability problems. 

According to the International Monetary Fund, China’s national savings is likely to hit 45% of GDP in 2017, well above Japan’s 28% saving rate. Just as Japan, with its gross government debt at 239% of GDP, has been able to sidestep a sovereign debt crisis, China, with its far larger saving cushion and much smaller sovereign debt burden (49% of GDP), is in much better shape to avoid such an implosion....MORE

James Chanos On Short Selling and Life

From Medium:

This Is Why It’s so Hard to Be a Contrarian Investor
Everyday you’re going to be told you’re wrong.
Jim Chanos is a grizzled short-seller with a long history of making bold calls. He was short Enron before it became one of the biggest bankruptcies ever. He’s also recently tried to short Tesla. The stock market, in general, has a bias. The majority of investors, funds, and people participate to make money on the long side. They want to buy undervalued companies and watch them become more valuable, or they want to buy growing companies and watch them grow even more. When you try to short the market, you are essentially betting against everyone.

Chanos is one of the few who has consistently made money betting against everyone. That’s a hard life to live. The odds are against you and so are the people. I imagine it’s something like going to a Warriors championship parade dressed as Lebron James yelling “ya’ll still blew a 3–1 lead!”

I recently watched an interview with Chanos and out of nowhere he dropped a knowledge bomb about the intersection of life as a short seller and the positive reinforcement cycle this little thing called society revolves around. I’ve taken the time to transcribe what he said below. Being contrarian is hardEven if you’re a long-term investor with no interest in being short or contrarian, this hits like a trap beat:
“What I like to point out is that almost everybody that will view this video is the beneficiary of a positive reinforcement cycle in their life. That is they were told to study hard by their parents, go to good schools, get good grades, go to better schools, get a good job, work hard, get promoted, be paid well… The so-called virtuous cycle....
...MORE

HT: FT Alphaville's Further Reading post 

HBR Cover—Brynjolfsson & McAfee: The Business of Artificial Intelligence

A generalist overview but very, very extensive.
From the Harvard Business Review:

What it can — and cannot — do for your organization
For more than 250 years the fundamental drivers of economic growth have been technological innovations. The most important of these are what economists call general-purpose technologies — a category that includes the steam engine, electricity, and the internal combustion engine. Each one catalyzed waves of complementary innovations and opportunities. The internal combustion engine, for example, gave rise to cars, trucks, airplanes, chain saws, and lawnmowers, along with big-box retailers, shopping centers, cross-docking warehouses, new supply chains, and, when you think about it, suburbs. Companies as diverse as Walmart, UPS, and Uber found ways to leverage the technology to create profitable new business models.

The most important general-purpose technology of our era is artificial intelligence, particularly machine learning (ML) — that is, the machine’s ability to keep improving its performance without humans having to explain exactly how to accomplish all the tasks it’s given. Within just the past few years machine learning has become far more effective and widely available. We can now build systems that learn how to perform tasks on their own.

Why is this such a big deal? Two reasons. First, we humans know more than we can tell: We can’t explain exactly how we’re able to do a lot of things — from recognizing a face to making a smart move in the ancient Asian strategy game of Go. Prior to ML, this inability to articulate our own knowledge meant that we couldn’t automate many tasks. Now we can.

Second, ML systems are often excellent learners. They can achieve superhuman performance in a wide range of activities, including detecting fraud and diagnosing disease. Excellent digital learners are being deployed across the economy, and their impact will be profound.

In the sphere of business, AI is poised have a transformational impact, on the scale of earlier general-purpose technologies. Although it is already in use in thousands of companies around the world, most big opportunities have not yet been tapped. The effects of AI will be magnified in the coming decade, as manufacturing, retailing, transportation, finance, health care, law, advertising, insurance, entertainment, education, and virtually every other industry transform their core processes and business models to take advantage of machine learning. The bottleneck now is in management, implementation, and business imagination.

Like so many other new technologies, however, AI has generated lots of unrealistic expectations. We see business plans liberally sprinkled with references to machine learning, neural nets, and other forms of the technology, with little connection to its real capabilities. Simply calling a dating site “AI-powered,” for example, doesn’t make it any more effective, but it might help with fundraising. This article will cut through the noise to describe the real potential of AI, its practical implications, and the barriers to its adoption.

What Can AI Do Today?
The term artificial intelligence was coined in 1955 by John McCarthy, a math professor at Dartmouth who organized the seminal conference on the topic the following year. Ever since, perhaps in part because of its evocative name, the field has given rise to more than its share of fantastic claims and promises. In 1957 the economist Herbert Simon predicted that computers would beat humans at chess within 10 years. (It took 40.) In 1967 the cognitive scientist Marvin Minsky said, “Within a generation the problem of creating ‘artificial intelligence’ will be substantially solved.” Simon and Minsky were both intellectual giants, but they erred badly. Thus it’s understandable that dramatic claims about future breakthroughs meet with a certain amount of skepticism.

Let’s start by exploring what AI is already doing and how quickly it is improving. The biggest advances have been in two broad areas: perception and cognition. In the former category some of the most practical advances have been made in relation to speech. Voice recognition is still far from perfect, but millions of people are now using it — think Siri, Alexa, and Google Assistant. The text you are now reading was originally dictated to a computer and transcribed with sufficient accuracy to make it faster than typing. A study by the Stanford computer scientist James Landay and colleagues found that speech recognition is now about three times as fast, on average, as typing on a cell phone. The error rate, once 8.5%, has dropped to 4.9%. What’s striking is that this substantial improvement has come not over the past 10 years but just since the summer of 2016.

Although AI is already in use in thousands of companies around the world, most big opportunities have not yet been tapped.

Image recognition, too, has improved dramatically. You may have noticed that Facebook and other apps now recognize many of your friends’ faces in posted photos and prompt you to tag them with their names. An app running on your smartphone will recognize virtually any bird in the wild. Image recognition is even replacing ID cards at corporate headquarters. Vision systems, such as those used in self-driving cars, formerly made a mistake when identifying a pedestrian as often as once in 30 frames (the cameras in these systems record about 30 frames a second); now they err less often than once in 30 million frames. The error rate for recognizing images from a large database called ImageNet, with several million photographs of common, obscure, or downright weird images, fell from higher than 30% in 2010 to about 4% in 2016 for the best systems. (See the exhibit “Puppy or Muffin?”)
Puppy or Muffin? Progress in Image Recognition
Machines have made real strides in distinguishing 
among similar-looking categories of images.
AI_Bryn_McA_PuppyMuffin

Karen Zack/@teenybiscuit

The speed of improvement has accelerated rapidly in recent years as a new approach, based on very large or “deep” neural nets, was adopted. The ML approach for vision systems is still far from flawless — but even people have trouble quickly recognizing puppies’ faces or, more embarrassingly, see their cute faces where none exist.

The second type of major improvement has been in cognition and problem solving. Machines have already beaten the finest (human) players of poker and Go — achievements that experts had predicted would take at least another decade. Google’s DeepMind team has used ML systems to improve the cooling efficiency at data centers by more than 15%, even after they were optimized by human experts. Intelligent agents are being used by the cybersecurity company Deep Instinct to detect malware, and by PayPal to prevent money laundering. A system using IBM technology automates the claims process at an insurance company in Singapore, and a system from Lumidatum, a data science platform firm, offers timely advice to improve customer support. Dozens of companies are using ML to decide which trades to execute on Wall Street, and more and more credit decisions are made with its help. Amazon employs ML to optimize inventory and improve product recommendations to customers. Infinite Analytics developed one ML system to predict whether a user would click on a particular ad, improving online ad placement for a global consumer packaged goods company, and another to improve customers’ search and discovery process at a Brazilian online retailer. The first system increased advertising ROI threefold, and the second resulted in a $125 million increase in annual revenue.

Machine learning systems are not only replacing older algorithms in many applications, but are now superior at many tasks that were once done best by humans. Although the systems are far from perfect, their error rate — about 5% — on the ImageNet database is at or better than human-level performance. Voice recognition, too, even in noisy environments, is now nearly equal to human performance. Reaching this threshold opens up vast new possibilities for transforming the workplace and the economy. Once AI-based systems surpass human performance at a given task, they are much likelier to spread quickly. For instance, Aptonomy and Sanbot, makers respectively of drones and robots, are using improved vision systems to automate much of the work of security guards. The software company Affectiva, among others, is using them to recognize emotions such as joy, surprise, and anger in focus groups. And Enlitic is one of several deep-learning startups that use them to scan medical images to help diagnose cancer.
...MUCH MORE

Barclays' Report On Machine Learning In Investment Management

From Barclays, June 15:

Rise of the machines
When Dr. Tuomas Sandholm’s “Libratus” software defeated four champion poker players in Pittsburgh this February, it suggested that machine intelligence may have finally evolved to the level where it can excel in imperfect information scenarios.

The implications of this win and similar advancements are widespread, and when coupled with the steadily increasing prevalence of ‘big data’ and alternative data sets in investing, suggest that the active management investment universe is undergoing a dramatic evolution.

To better understand the resurgence of interest in the systematic hedge fund (HF) space, from the perspective of both managers and investors, our Strategic Consulting team analyzed data from 64 hedge funds across systematic, discretionary, and hybrid strategies; and 25 investors representing ~$240bn in total HF assets. The objective was to present an overview of the growth trajectory and business/product mix of systematic hedge fund strategies; measures of systemic risk; fund performance across market conditions; and the use of big data throughout the investment process.

Systematic Strategies within the Hedge Fund Industry

The study estimates the “systematic strategies” segment of the hedge fund industry at roughly 17% of the total industry size, comprising approximately $500 billion in assets under management, the bulk of which (~$450bn) is found in stand-alone systemic products and the remainder of which (~$55bn) are allocations within larger discretionary multi-strategy funds.

Size of Systematic Strategies within the HF Industry

Source: 2017 HFI, HFR, review of manager marketing materials and publicly available documents, Strategic Consulting analysis.
* CTA – Commodity Trading Advisor; ** We estimate that 70-80% of these strategies are managed futures, with the remainder in EMN.

The Strategic Consulting team also found a meaningful increase in investors’ levels of comfort with systematic strategies in recent years. Traditionally, systematic strategies have been more difficult to understand and less conducive to transparency as a result of their secrecy and/or complexity. However, this greater acceptance of systematic strategies has been a driver of inflows to systematic managers.

Comfort with Allocations to Systematic Strategies
Source: 2017 Strategic Consulting analysis; 2015 data from Strategic Consulting Report “Bracing for Impact” and 2016 / expected 2017 data from Strategic Consulting report “Turning the Tide” .

At the same time, this growth has led to concerns around crowding in equity quant strategies in particular and the potential for another 2007-style ‘quant crash’. That said, the team’s measures of risk suggest that these concerns may be overblown.

Big Data and Machine Learning

Recent advancements in ‘big data’ and ‘machine learning’ have also driven change in how systematic managers incorporate data, technology and analytics in their investment process. The Strategic Consulting team found that 54% of the systematic managers in their sample are now employing alternative and ‘big data’ sources such as web scraping (i.e., a technique to extract large amounts of data from websites, social media data, satellite data and credit card data). Additionally, 62% of the systematic managers are using machine learning techniques within the investment process.

'Big Data' - Current Usage
Source: 2017, 1. Strategic Consulting survey results and analysis (3Q16-1Q17) – refers to % of interviewed managers incorporating each data source in their research process. 2. IDC
...MORE

HT: the CFA Institute's Market Integrity Insights blog, July 24:
Behind the Hype: Barclays Report on Machine Learning in Investment Management