Sunday, August 2, 2015

"Understanding Apple's Car Strategy" (AAPL)

From recode:

Understanding Apple’s Car Strategy
 A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry. (Insider Exclusives registration required for this one.)
Not long after the original iPhone came out, I had a friend who was close to a major luxury-brand auto maker. He also knew Steve Jobs well. My friend asked Jobs if he was interested in talking to this company about finding a way to connect an iPhone to its entertainment system. From what I know of this meeting, I understand that, once Jobs talked to this company, a lot of lights went on in his head about how Apple could work with auto makers to integrate Apple’s technology into future cars.

Indeed, I suspect the roots of CarPlay can be traced to this meeting between Jobs and this auto company and, since then, Apple has courted and won support from just about every car maker to connect or integrate an iOS-based device and their services into their current and future models.

Over the last few months, there has been a lot of chatter in the tech world about the idea that Apple is building a smart or driverless car, and they have hired a series of top auto-industry execs and engineers that would seem to bolster that rumor. The basic word on the street is Apple has a secret lab, and has various car prototypes they are working on with the idea of creating an actual car that would have an Apple logo on it.
While this speculation is interesting, count me as one of the serious skeptics on Apple actually making a branded car and selling it as a standalone vehicle, regardless of how smart it could be. If they really wanted to get into the smart-car business, just buy Tesla and work with them to add Apple’s intelligence and services to this vehicle. Clearly, they have the money to do this if it was strategic to their future.

I believe Apple’s plans are much grander than doing its own car. I keep coming back to that meeting. I can imagine that, as Jobs thought through the original deal, he started formulating a big picture concept around a “what if” Apple could do more with car companies. Getting them to support the iPhone was a good first step, but over time, as iOS became an important OS in its own right and could handle music, entertainment, apps, sensors, cameras, etc., why not create the technology to make all cars smart and tie them to Apple apps and services?
I do believe Apple has car prototypes in its labs, as some have suggested. But I believe they are there to help the company create a radical smart/intelligent connected-car architectural design that could be licensed to all car companies or be part of an integrated solution.
I do believe Apple has car prototypes in its labs, as some have suggested. But I believe they are there to help the company create a radical smart/intelligent connected-car architectural design that could be licensed to all car companies or be part of an integrated solution. Apple would work with car companies to customize future models that would be smarter and perhaps safer than any car on the market today.

The operative word here is “safer.” In my talks with car companies, it has become clear that, while they want to create smarter and safer cars, one of the challenges is to have a rich operating system that would allow them to handle all types of cameras, sensors and, perhaps equally important, is an operating system that can be tied to apps and services. For each company to try and create its own OS and convince developers to support it would be a difficult proposition....MORE
And from Reuters:

Apple, BMW in courtship with an eye on car collaboration
BMW (BMWG.DE) and Apple (AAPL.O) may rekindle a courtship put on hold after an exploratory visit by executives of the world's top maker of electronic gadgets to the headquarters of the word's biggest seller of premium cars.
Apple Chief Executive Tim Cook went to BMW's headquarters last year and senior Apple executives toured the carmaker's Leipzig factory to learn how it manufactures the i3 electric car, two sources familiar with the talks told Reuters.

The dialogue ended without conclusion because Apple appears to want to explore developing a passenger car on its own, one of the sources said. 
Also, BMW is being cautious about sharing its manufacturing know-how because it wants to avoid becoming a mere supplier to a software or internet giant.

During the visit, Apple executives asked BMW board members detailed questions about tooling and production and BMW executives signaled readiness to license parts, one of the sources said. News of the Leipzig visit first emerged in Germany's Manager-Magazin last week.

"Apple executives were impressed with the fact that we abandoned traditional approaches to car making and started afresh. It chimed with the way they do things too," a senior BMW source said.

The carmaker says there are currently no talks with Apple about jointly developing a passenger car and Apple declined to comment. However, one of the sources said exploratory talks between senior managers may be revived at a later stage.

It is too early to say whether this will be a replay of Silicon Valley's Prometheus moment: The day in 1979 when Apple co-founder Steve Jobs visited Xerox's Palo Alto Research Center where the first mouse-driven graphical user interface and bit-mapped graphics were created, and walked out with crucial ideas to launch the Macintosh computer five years later....MORE
HT on the second article: The Big Picture

Previously:

"Project Titan, SixtyEight & SG5: Inside Apple's top-secret electric car project" (AAPL)
"Why You Won't Be Able To Buy An Apple Car"
Apple Is Not Going To Buy Tesla (AAPL; TSLA)
"Apple hiring automotive experts to work in secret research lab" (AAPL)
Watch Out Google/Uber Alles: "Mysterious Apple Car Spotted Roaming Bay Area Streets"
The End Of Mass Car Ownership Is Coming Mr. Ford
What Happens When Your Smart Phone Tells Your Auto Insurer Everything? (AAPL; GOOG)

McKinsey & Co.: "Pursuing the global opportunity in food and agribusiness"

Long time readers know most of this stuff but for newbies this is a decent primer.
And for their cognitively declining elders it's a handy aide-mémoire.

From McKinsey & Company, July 2015:

Pursuing the global opportunity in food and agribusiness
Satisfying the world’s food needs opens the door to investment throughout the value chain.
Satisfying the world’s food needs opens the door to investment throughout the value chain. July 2015 | byLutz Goedde, Maya Horii, and Sunil Sanghvi
 
Food and agribusiness have a massive economic, social, and environmental footprint—the $5 trillion industry represents 10 percent of global consumer spending, 40 percent of employment, and 30 percent of greenhouse-gas emissions. Although sizable productivity improvements over the past 50 years have enabled an abundant food supply in many parts of the world, feeding the global population has reemerged as a critical issue. If current trends continue, by 2050, caloric demand will increase by 70 percent, and crop demand for human consumption and animal feed will increase by at least 100 percent. At the same time, more resource constraints will emerge: for example, 40 percent of water demand in 2030 is unlikely to be met. Already, more than 20 percent of arable land is degraded.1 Moreover, food and energy production are competing, as corn and sugar are increasingly important for both. Such resource scarcity could lead to political unrest on a large scale if left unaddressed. Agricultural technologies that raise productivity even in difficult conditions and the addition of land for cultivation in Africa, Eastern Europe, and South America may ease the burden, but meeting the entire demand will require disruption of the current trend.

Sensing an opportunity, strategic and financial investors are racing to capture value from technological innovation and discontinuities in food and agriculture. Since 2004, global investments in the food-and-agribusiness sector have grown threefold, to more than $100 billion in 2013, according to McKinsey analysis. Food-and-agribusiness companies on average have demonstrated higher total returns to shareholders (TRS) than many other sectors: the TRS of more than 100 publicly traded food-and-agribusiness companies around the world increased an average of 17 percent annually between 2004 and 2013, compared with 13 percent for energy and 10 percent for information technology.

However, finding the right investment opportunity is not easy. Food-and-agribusiness investing requires a deep understanding of specific crops, geographies, and complex value chains that encompass seeds and other inputs, production, processing, and retailing. Many of the relevant investment opportunities are in geographies unfamiliar to some investors, and their profitability rests not only on crop yields but also on how different parts of the value chain perform (Exhibit 1). In this article, we examine the main trends that will likely influence the future of food and agribusiness, identify promising investment opportunities, and offer a view of how players might successfully pursue them.

Exhibit 1

Major trends in food and agribusiness
The food-and-agribusiness value chain comprises a wide range of companies, from suppliers of agricultural machinery, seeds, chemicals, animal-health tests and vaccines, and packaged foods to data providers for precision agriculture.2 Filling the global gap between supply and demand requires more resources—technical, human, and financial—for the majority of these companies. Investors have a critical role to play in meeting this challenge—and opportunities to benefit.
To identify attractive opportunities across geography, crops, and parts of the value chain, we first analyzed seven trends that will likely influence food and agribusiness economics over the next decade.

Population growth, urbanization, and increased income in emerging markets
By 2020, more than half of global GDP growth is expected to come from countries outside of the Organisation for Economic Co-operation and Development; over half the world’s urban population also will be in emerging economies. Not only is demand for food in emerging markets expected to rise dramatically because of population and income growth, but also these regions are likely to adopt a rich-country diet—more calories, protein, and processed foods.

A projected surge in demand for protein in emerging markets, especially pork in China, would create opportunities for companies to grow in core production and supporting industries such as breeding, animal-health testing, feed, and vaccines. For example, beef and other livestock production in Argentina and Brazil is expected to grow strongly to meet global demand. Making feed conversion more efficient so that animals produce more meat while consuming the same amount of feed as they do now could be profitable for companies with unique intellectual property in additives such as probiotics, enzymes, and acidifiers.

With opportunity come risks. Rising protein prices in emerging markets, government intervention, and environmental concerns could slow demand. Moreover, not every part of the protein value chain is doing well; livestock producers are struggling because of a poor feed-to-meat/dairy price ratio, and primary processors are suffering from high feedstock costs and low capacity utilization. Also, consumer behavior and preferences can change faster than many companies and investors can handle. Successful investment strategies will address the risks by finding opportunities to capture value (for example, technology or processing that improves feed performance or reduces feed-production cost) or by mitigating the risks (for example, vertical integration within the protein value chain).

Demographic and behavioral change in mature markets
In addition to greater demand for protein, we anticipate a trend toward healthier diets. Consumers are increasingly health conscious and place greater importance on environmental sustainability, most visibly in developed countries but more and more in emerging markets. In response, governments are tightening standards for food production. As a result, demand is rising for healthier functional foods (those that offer benefits beyond basic nutrition, such as lowering cholesterol) and for traceable and certified foods that are guaranteed to meet a certain level of safety and environmental or corporate social responsibility....MORE

Probability Is A Fluid Beast

From Quanta:

The Slippery Eel of Probability
 
How do you solve probability problems that appear to have more than one correct answer?
n school, we are trained to think that math problems always have one correct answer. But this is not necessarily true for problems dealing with probability, if the method used to reach the described situation is not fully specified. Surprisingly, the same problem can then have many different answers, all apparently equally valid. Take, for example, our new puzzle:
An art collector who loves pictures of sea creatures, especially eels (there’s no accounting for taste!), commissions an art project. In his living room, he arranges a set of six blank canvases in an L-shaped configuration, with four in a vertical column and three in a horizontal row (the corner canvas is part of both). He hires an artist, with these instructions: “You can paint a single sea creature of your choice on each of these canvases, with one condition. I would like to see a picture of an eel when I move my gaze vertically or horizontally. So there must be at least one eel in the vertical column and at least one in the horizontal row.” The artist does this, following her own preferences when they do not conflict with the instructions.
What is the probability that the corner canvas has a picture of an eel?
To make this concrete, if your friend offered to pay you $2 if the corner canvas did not have a picture of an eel, and you had to pay her just $1 if it did, would you take the bet? Assume that your friend knows exactly what you do about the situation.
The first possible naïve answer that may come to mind is that the probability is one in four because there are four vertical pictures, or perhaps one in three because there are three horizontal ones. Is either answer correct? Are both?

The last question is not facetious. There is a famous problem in probability known as Bertrand’s paradox whose statement is simple: What is the probability that a random chord of a circle is larger than the side of the equilateral triangle inscribed in the circle? To do this you have to determine the density of such chords by “counting” how many are larger than the side of the triangle and dividing that by the total number of chords. The answer can be ¼, ⅓ or ½, depending on how the chords are counted. All of these answers are correct in different circumstances.

“Wait a minute,” you might say, “that’s because there are an infinite number of chords in a circle, and counting infinities is always problematic. It can’t happen when the numbers are finite.” But it can when, as above, the method of accomplishing a task is not clearly specified to a T (or L!). Probability is a fluid beast, slippery as an eel, one that can appear in many different places at the same time if all the avenues of ambiguity are not completely nailed down....MORE

Saturday, August 1, 2015

"Jimmy Page and the Pre-Raphaelites"

From FT Weekend Magazine:

Interview: Led Zeppelin’s Jimmy Page
The Led Zeppelin founder is one of rock’s guitar greats — but he’s also a serious fan of Victorian art
T
he summons arrives. I am to make my way to the splendid house in west London where the 19th-century artist Frederic Leighton lived. Jimmy Page will be there.

The Led Zeppelin guitarist had so enjoyed being asked about his fascination for Victorian art and design on a previous encounter that he’d suggested we might meet to discuss the subject further. I assumed that nothing would come of it. Oh ye of little faith! Leighton House, the venue for our meeting, is a red-brick palazzo in Kensington. Built for the immensely wealthy Leighton as a home and studio in the 1860s — he called it a “private palace of art” — it is now a museum.

A stuffed peacock greets visitors in the turquoise-tiled hallway, the avian equivalent of Page in his strutting, preening prime. Through a pair of Doric columns a passage leads to a spectacular gold-domed room with Syrian tiles, an Arabic inscription from the Koran and a Moorish fountain in the centre, inspired by Leighton’s travels in the Near East. “It’s absolutely glorious. Anyone who comes here can’t help being amazed by the whole scale of it, the beauty of it,” marvels Page as we inspect Leighton’s Arab Hall. “We can see his vision: he has been to Turkey, he’s been to Damascus, he has brought back all these tiles.”
Jimmy Page photographed at Leighton House, London
 
In contrast to the sumptuous decor, Page is dressed in black, with long white hair tied in a ponytail. But an aura of exoticism surrounds him too. At 71, he is among the most celebrated of all guitarists, a player who elevated the instrument to intoxicating heights of artistry in the 1970s. Under his leadership, Led Zeppelin became the definitive rock band, a perfect balance of musicianship and decadence. The band’s exploits — immense three-hour stadium concerts, lurid tales of groupies and black magic, Caligulan goings-on aboard private aircraft — have become the stuff of legend, as mythic as the statues of Pan or painted scenes from antiquity in Leighton House.

Page knows the museum well, having lived around the corner since 1972. His interest in 19th-century art goes back even further, to when he was a teenager in Epsom, a market town in Surrey, where he grew up in a solidly middle-class household, the son of a personnel manager.

As we stand in the Arab Hall, the fountain plashing in the background, I produce a photograph of Page with his first electric guitar in 1958. It shows a serious-looking 14-year-old practising in a suburban living room. “That wasn’t my house,” Page says, peering at the photo, “but everyone’s houses looked similar in those days. An electric fire, brass plaques on the wall.” His tone is not nostalgic....MUCH MORE

Tracking Inflation In Russia: The Value Of A Bribe Has Been Cut In Half

From NBC News:

Average Russian Bribe Doubles in Value Amid Country's Currency Crisis
MOSCOW — The average bribe paid to officials in Russia has more than doubled to the equivalent of $3,500, a pro-government newspaper reported Friday.

Citing government figures, the average cost of greasing the wheels of the state went from 208,000 rubles to 109,000 rubles since this time last year, according to the Izvestia newspaper.

However, because failing oil prices and Western sanctions have halved the value of the ruble against the dollar, the average bribe in the equivalent dollar amount has not changed since 2014.

The newspaper said that the bribe-takers generally prefer dollars and euros over their home currency.
Izvestia said the data was provided by the Russian Interior Ministry's in-house data center. The department was not immediately available when contacted by NBC News...MORE

"Silicon Valley is Going to Retrench in 2016"

Lifted in toto from Conor Sen:
There’s just not enough “stuff” to go around.
Yelp stock got hammered in part because it said it can’t find enough salespeople to meet its revenue projections.
Airbnb’s calling the talent war insane.
Twitter can’t seem to figure out how to grow usage.
Everybody knows about how scarce and expensive Bay Area housing and office space has gotten.
Good companies like LinkedIn and Tableau are trading down heavily on good earnings reports. Same to a lesser extent for Facebook – multiples are coming down as valuations shift from revenue multiples to EBITDA and earnings multiples.
If 80 unicorns all wanted to go public now, it’s not clear if there are enough I-bankers and underwriters to work the roadshows and make the deals all happen in a short period of time (the whole liquidity problem), to say nothing about prospective investor demand in the public markets.
The Bay Area is basically experiencing a mini-1970′s runaway inflation cycle – excess demand for talent and real estate and constrained supply is making costs grow faster than revenues, at a time when revenue growth is slowing and investors seem like they’re starting to get concerned about cash flows (or lack thereof), runaway spending/stock-based compensation, and so forth. For those of us too young to remember, the 1970′s was a great time for nominal wage and real estate growth, less so for equities and “capital” more generally.
Some companies may welcome the reprieve (easier for the winners to hire/retain people). But the gravy train is coming to an end
Permalink

HT: Abnormal Returns' "The tech IPO conundrum"

Also at Conor Sen's tumblr:
Calling Bullshit on Silicon Valley Culture

Actually, You Can Prove A Negative

As much as you can prove anything.
An oldie but goodie.
From Professor Steven Hales, Bloomsburg University:
A principle of folk logic is that one can’t prove a negative. Dr. Nelson L. Price, a Georgia minister, writes on his website that ‘one of the laws of logic is that you can’t prove a negative.’ Julian Noble, a physicist at the University of Virginia, agrees, writing in his ‘Electric Blanket of Doom’ talk that ‘we can’t prove a negative proposition.’ University of California at Berkeley Professor of Epidemiology Patricia Buffler asserts that ‘The reality is that we can never prove the negative, we can never prove the lack of effect, we can never prove that something is safe.’ A quick search on Google or Lexis-Nexis will give a mountain of similar examples.
But there is one big, fat problem with all this. Among professional logicians, guess how many think that you can’t prove a negative? That’s right: zero. Yes, Virginia, you can prove a negative, and it’s easy, too. For one thing, a real, actual law of logic is a negative, namely the law of non-contradiction. This law states that that a proposition cannot be both true and not true. Nothing is both true and false. Furthermore, you can prove this law. It can be formally derived from the empty set using provably valid rules of inference. (I’ll spare you the boring details). One of the laws of logic is a provable negative. Wait… this means we’ve just proven that it is not the case that one of the laws of logic is that you can’t prove a negative. So we’ve proven yet another negative! In fact, ‘you can’t prove a negative’ is a negative - so if you could prove it true, it wouldn’t be true! Uh-oh.

Not only that, but any claim can be expressed as a negative, thanks to the rule of double negation. This rule states that any proposition P is logically equivalent to not-not-P. So pick anything you think you can prove. Think you can prove your own existence? At least to your own satisfaction? Then, using the exact same reasoning, plus the little step of double negation, you can prove that you aren’t nonexistent. Congratulations, you’ve just proven a negative. The beautiful part is that you can do this trick with absolutely any proposition whatsoever. Prove P is true and you can prove that P is not false.

Some people seem to think that you can’t prove a specific sort of negative claim, namely that a thing does not exist. So it is impossible to prove that Santa Claus, unicorns, the Loch Ness Monster, God, pink elephants, WMD in Iraq, and Bigfoot don’t exist. Of course, this rather depends on what one has in mind by ‘prove.’ Can you construct a valid deductive argument with all true premises that yields the conclusion that there are no unicorns? Sure. Here’s one, using the valid inference procedure of modus tollens:
1. If unicorns had existed, then there is evidence in the fossil record.
2. There is no evidence of unicorns in the fossil record.
3. Therefore, unicorns never existed.
Someone might object that that was a bit too fast - after all, I didn’t prove that the two premises were true. I just asserted that they were true. Well, that’s right. However, it would be a grievous mistake to insist that someone prove all the premises of any argument they might give. Here’s why. The only way to prove, say, that there is no evidence of unicorns in the fossil record, is by giving an argument to that conclusion. Of course one would then have to prove the premises of that argument by giving further arguments, and then prove the premises of those further arguments, ad infinitum. Which premises we should take on credit and which need payment up front is a matter of long and involved debate among epistemologists. But one thing is certain: if proving things requires that an infinite number of premises get proved first, we’re not going to prove much of anything at all, positive or negative.

Maybe people mean that no inductive argument will conclusively, indubitably prove a negative proposition beyond all shadow of a doubt....MORE (4 page PDF)

"Scientists Think They Know the Exact Year Computers Will Render the Human Brain Obsolete"

From Mic:
This week, the greatest minds in science and technology pleaded with the world to prevent an artificial intelligence "arms race" — an apocalyptic scenario in which terrorists would have access to highly advanced weapons like killer robots.

The issue arose back in April when representatives from Human Rights Watch and Harvard Law School wrote a paper calling for the United Nations to ban "killer robot" production until regulation and legal stipulations — for instance, who's at fault when a robot shoots an unassigned target — could be put in place.

We should be listening when some of the most trusted minds in tech, including Elon Musk, Steve Wozniak and Stephen Hawking, are warning the world about letting AI weapons go off the rails. But history and science demonstrate that their predictions for hyperintelligent computers aren't as far-fetched as they sound. Computers could soon "think" faster than human beings too.

Computers of the future: A principle called Moore's law predicts that computing will increase in power while simultaneously grow exponentially cheaper and smaller. A perfect example: In 1956, IBM needed a forklift to put a 5-megabyte hard drive, then the size of two refrigerators, on an airplane. Today, for $20, you can buy a 16-gigabyte flash drive that fits on your keychain. That's 3,200 times more data capacity than the aforementioned behemoth.
Source: Ray Kurzweil: 'The Singularity is Near: When Humans Transcend Biology'
Ray Kurzweil's 2005 book The Singularity Is Near: When Humans Transcend Biology (available as a Google PDF) charts our modern era's computational power and compares it to a mouse brain. But in order to reach human-brain levels of processing, the way we approach the technology may need to be approached differently. Kurzweil anticipates optical computing, which operates extremely fast but needs much less power.
Thanks to a Duke University research team, which developed an "ultrafast spontaneous emission source" to set a new speed record, that technology could be closer than expected.

The $1,000 brain: Engineer Peter Diamandis used the now 50-year-old Moore's law to make eight predictions about where technology will go in the next decade. His very first prediction is that we'll have a $1,000 "human brain" — that is, a computer that can perform 10,000 trillion calculations every second, or the same as a human....MORE

Friday, July 31, 2015

Ummm, Remember When I Said "Milestones: 'Natural Gas Overtakes Coal for Electricity Production'"? Here's the Rest Of the Story

July 13, 2015: "Milestones: 'Natural Gas Overtakes Coal for Electricity Production'"
July 31, 2015: "Electricity from natural gas surpasses coal for first time, but just for one month"

From the Energy Information Administration's Today in Energy:

graph of U.S. net electricity generation, selected fuels, as explained in the article text
Source: U.S. Energy Information Administration, Electric Power Monthly and Short-Term Energy Outlook, July 2015

In April, traditionally the month when total electricity demand is lowest, U.S. generation of electricity fueled by natural gas exceeded coal-fired generation for the first time since the start of EIA's monthly generation data in 1973. However, EIA's latest Electric Power Monthly shows that coal's generation share once again exceeded that of natural gas during May. Total generation from coal and natural gas in May increased 14% from its April level, with increased coal generation accounting for 65% of the combined increase.

Total generation from coal- and natural gas-fired generators is seasonal: higher during summer and winter months when electricity demand is highest, and lower in the spring and fall when electricity demand is lower. Many units take advantage of these months of low demand to schedule maintenance. As demand increases towards its summer peak level, the utilization rates for both coal- and natural gas-fired units tend to rise.
In April 2012, the last time monthly natural gas generation came close to surpassing coal-fired generation, spot prices for natural gas were near $2 per million Btu ($/MMBtu) on a monthly average, before returning to about $3.50/MMBtu in the last months of 2012. Low natural gas prices make gas-fired generation economically attractive during periods of low demand when operators in many parts of the country have more flexibility to choose between coal- and natural gas-fired units based on their dispatch cost.

On an annual average basis, coal has lost generation share to natural gas and, to a lesser extent, renewables. The current downward trend in coal-fired generation began in 2007, when increased U.S. production of natural gas (particularly from shale) led to a sustained downward shift in natural gas spot prices and increased generation from natural gas-fired generators.
graph of U.S. net electricity generation, selected fuels, as explained in the article text
Source: U.S. Energy Information Administration, Electric Power Monthly and Short-Term Energy Outlook, July 2015

Monthly coal-fired generation is expected to continue exceeding natural gas-fired generation for the remainder of 2015, as natural gas prices slowly rise from their April average price of $2.61/MMBtu to about $3.30/MMBtu by December....MORE
September's $2.715 down 5.3 cents.
I don't know if that price call is going to pan out, what with El Niño and all. It appears we are about to break the trendline of higher lows from the late April lows. If that happens the market may be telling us something about expected demand this winter.

Google Just Defied France Big Time (GOOG)

Time to find out if the Nation-state or the Trans-national Corp. is more powerful.
My money's on the trannies, the can buy governments.
From Fortune:

Google defies France over "right to be forgotten"
Google finally said enough is enough when it comes to Europe censoring its search results. It issued a bold challenge to France.

Google made a dramatic gesture to oppose censorship of its search results on Wednesday, telling French regulators in a blog post that it will not heed demands to implement so-called “right to be forgotten” requests on a worldwide basis. The move, which sets the stage for further confrontations between Google and France, also highlights a growing legal crisis for the internet.

The issue at stake relates to a controversial European Court of Justice decision from 2014 that forces Google to strip certain links from its search results. The decision provided a way for people to ask Google GOOG -0.57% to remove “irrelevant” or “inadequate” search results, and has already led to more than a quarter million requests flooding into Google. But the rules for processing the requests are far from clear.
The biggest concern for Google right now is not just determining if a request meets the court’s “irrelevant” criteria, but deciding how far it must go to delete the requests. According to France’s data regulator, it is not sufficient for Google to remove a result from its European search pages (Google.fr, Google.de and so on). The regulator also insists the company must scrub the links worldwide by deleting them from its “Google.com” website too.

In its statement, published on the Google Europe Blog, the company said it will refuse to do that:
This is a troubling development that risks serious chilling effects on the web. Because while the right to be forgotten may now be the law in Europe, it is not the law globally … As a matter of principle, therefore, we respectfully disagree with the CNIL’s assertion of global authority on this issue and we have asked the CNIL to withdraw its Formal Notice.
The blog post also points out that 97% of Google searches in France take place on the European versions of the site (rather than Google.com), meaning the “right to be forgotten” is almost entirely in effect for practical purposes....MORE

"Exxon Mobil Earnings Cut in Half" (XOM)

There's a pithy little headline.
From the Wall Street Journal:

Energy giant’s revenue falls 33%, hurt by weak exploration and production results
Exxon Mobil Corp. , the biggest and richest U.S. oil company, reported its lowest earnings in six years on Friday as bigger profits from refining couldn’t offset plunging earnings in its exploration and production business.

Shares of Exxon Mobil tumbled as much as 5% on Friday to their lowest level since mid-2012. Recently, shares were down 4.7% to $79.11.

Exxon also said it would again scale back its share buybacks during the current quarter to a level of $500 million. Exxon bought back $1 billion in shares in the second quarter, which was down from its previous level of about $3 billion in buybacks each quarter. Stock repurchases are popular with investors because they shrink the number of shares available to the public and tend to make them more valuable.

 n a news release, Chief Executive Rex Tillerson said results in the latest quarter “reflect the disparate impacts of the current commodity price environment.”

Profit in the exploration and production, or upstream, business plunged 74% to $2.03 billion in the latest quarter, as its U.S. division swung to a loss....MORE
The stock is down 4.6% ($3.80) at 79.20. That decline is weighing on both the DJIA and the XLE in which it is an outsized component.
Earlier:
Buying Oil Stocks: It's Still Too Early (XLE; XOP)

Nikkei and the Financial Times: A Love Story

I have to note up front, the hat -forgotten-tip on the post immediately below, "Commodity Investors And the Kübler-Ross Model of Grief (or why gold could go lower than our $875 target)" and this link:
...The New York Times, as usual, dug deeper and highlighted how the management of Nikkei always adored the Financial Times and how much more successful Nikkei has been in terms of popularity and finances compared to its acquisition.
are from the CFA Institute's Enterprising Investor's Weekend Reads post.

From the New York Times:

Nikkei Vies for Global Clout With Splurge on The Financial Times
TOKYO — Not long after he took over as president of Japan’s dominant business newspaper in April, Naotoshi Okada delivered a message to his 1,300 reporters and editors. It was time, he said, for Nikkei, the muscular but domestically focused broadsheet, to attain the global influence it had long craved.
The model he envisioned: the British newspaper The Financial Times.

“I want us to stand side by side with newspapers in Europe and America,” Mr. Okada, a career Nikkei journalist, said in a private address to the staff, according to two employees. Adding that he wanted columnists “whose advice is sought by the world’s central bankers,” he named The Financial Times’s respected economics editor, Martin Wolf, as an example....MUCH MORE
Of course adoration can be unrequited.
When Springer said  "Je t'adore" with their German accent, Pearson heard the order "Zhut de door", so they zhut it and locked it.

Thanks, I'll be here all week.

Commodity Investors And the Kübler-Ross Model of Grief (or why gold could go lower than our $875 target)

We've been targeting the 1980 Hong Kong high (it only hit $850 in the U.S.) since FT Alphaville's Izabella Kaminska published a December 2012 post, "Capping the gold price" which begins modestly:
The following chart, we propose, has the potential to inspire a whole new way of looking at the gold and Treasury market...
That was posted five days before gold hit an intermediate term high of $1715, which it hasn't seen since, and probably won't see for some while.

When I got around to reading her piece a month later I reasoned, with the mental acuity of a bright six-year-old, "Saaay, if it can't go up any more..."
Of course in subsequent posts I'd write something to the effect: "Now if you cut out the upside (...Capped) you are left with the semi-variance which means you can design extremely high reward bets...."

Anyhoo, this article is based on the work of Claude Erb who has graced these pages a few times, links below.
Front futures $1097.60, up $9.20.
From Hulbert@MarketWatch:

Opinion: Study predicts gold could plunge to $350 an ounce
Gold bugs, who have just begun to digest bullion’s more than $100 drop over the past month, need to prepare for the possibility of an even bigger decline.

That, at least, is the forecast of Claude Erb, a former commodities manager at fund manager TCW Group, and co-author (with Campbell Harvey, a Duke University finance professor) of a mid-2012 study that forecast a plunging gold price. They deserve to be listened to, therefore, since — unlike many latter-day converts to the bearish thesis — they forecast a long-term gold bear market when it was only just beginning.
You might think that, with gold now trading more than $500 lower than when the study was released, Erb would declare victory and leave well enough alone. But Erb is doing nothing of the sort. Earlier this week, he told me that the gold community now needs to consider the distinct possibility that gold will trade for as low as $350 an ounce.

Erb bases this particularly chilling prospect on two premises. The first is gold’s fair value, which is currently $825 according to the formula proposed in Erb and Harvey’s study. The second is the likelihood that, whenever gold does eventually drop to fair value, it will overshoot and drop to a much lower value. He calculates that, if gold drops below fair value to the same extent it did in the mid-1970s and the late 1990s, bullion would trade around $350 an ounce.

Erb acknowledges that gold’s true believers will find such a prospect outrageous, if not simply incomprehensible. But, he asks, why should gold behave differently than any other asset, each of which fluctuates markedly from the extremes of over and under value?

Erb uses the five well-know stages of grief to characterize where the gold market currently stands. Those stages are denial, anger, bargaining, depression and acceptance, and he argues that the gold-bug community currently is in the “bargaining” stage.

He argues that, in mid-2012, the gold bugs were in the denial phase. His and Harvey’s forecast of gold around $800 an ounce was met with almost total incredulity. Today, in contrast, with gold more than $500 an ounce lower and forecasts of sub-thousand-dollar gold now relatively common, the gold bugs have progressed through the anger phase and are now “bargaining with God.”

Erb imagines them saying the functional equivalent of: “So long as gold stays above $1,000 an ounce, I’ll go to church every Sunday.”...MORE
Previous posts Mr. Erb shows up in:
April 2008 
Classic Paper: Returns from Commodity Futures
November 2010
"The financialisation of commodities"
June 2013
Barron's on Gold and Real Interest Rates
May 2014
AQR's Cliff Asness: "Fact, Fiction and Momentum Investing"

Here's Erb and Harvey: "The Golden Dilemma" and Erb "Betting on 'Dumb Volatility' with 'Smart Beta'", both at SSRN.

Buying Oil Stocks: It's Still Too Early (XLE; XOP)

We use the ETF's as our snapshot proxies and there is still more downside in the ETF's.

Here are the energy components of the S&P 500:
XLE Energy Select Sector SPDR ETF daily Stock Chart

Here are the smaller Exploration and Production companies:
XOP SPDR S&P Oil & Gas Explor & Prodtn ETF daily Stock Chart
And Here Is MarketWatch:
Buying oil stocks at these prices is just spilling money 
6 reasons why the energy sector is no bargain
About a month ago, some traders were trumpeting that the worst was over for oil. Prices normalized around $60 after a snap-back in spring, with energy seemingly on solid footing once more as we neared the end of the second quarter.

In July, though, all bets were off as crude tumbled sharply to near six-month lows, shedding about 20% in a matter of weeks. That once again puts oil prices within spitting distance of their 2009 lows.

It may be tempting to think you can find a bargain in oil stocks on this pullback, or even that you can play the supposed rebound in crude via commodity futures or related exchange-traded products.

But the pain in oil is far from over, and energy stocks are no bargain.
Here’s why:

1. The U.S. is a major oil producer: Supply gluts persist despite the recent cutbacks in domestic oil production. Consider that, according to the U.S. Energy Information Administration, U.S. crude oil production will average 9.5 million barrels a day in 2015 — up significantly from 8.7 million in 2014. And while cutbacks will drop that output to 9.3 million barrels daily in 2016, according to EIA projections, that’s still well above 2014 levels.

2. Oil is abundant worldwide: OPEC has refused to curtail production despite low prices and increased supplies from the U.S. That’s partially because of nations including Saudi Arabia that want to punish U.S. shale oil companies, which are now competitors in a big way on the global stage, but also because OPEC really has no other options but to keep pumping.

Member states of the cartel need revenue to fund their governments, so cheap oil paradoxically requires nations to sell more in such an environment to make budgets work. Furthermore, a serious change in production would validate fears that the global energy markets are no longer in their control — an idea that Middle East plutocrats cannot allow their citizenry to entertain. That all adds up to record global crude inventories in May (the latest data) that covered roughly 31 days of forward demand — even if another drop of oil isn’t taken out of the ground....MORE

Citi (and Izabella Kaminska) On Disruptive Innovation

I think you can safely say Izzy does not drink the 'tech' marketeers Kool-Aid.
On the other hand, show her something genuinely useful and she might write about that.
From FT Alphaville:
Citi’s back with the upcoming third edition of its Disruptive Innovations report, with ten new big opportunities to stop and think about.
These include:
  • Autonomous driving
  • Drones
  • Machine learning/artificial intelligence
  • Biosimilars
  • Floating LNG
  • Public API
  • Sharing economy
  • Virtual reality
  • Marketplace banking
  • Robo-advisors
But first, the report strives to reconcile the conflicting things we’re hearing about the rate of innovation. On the one hand the work of Robert Gordon (supported by productivity data) implies the low hanging fruits of innovation have all been picked. On the other hand, we all intuitively feel that the pace of technological change has been speeding up, with charts like this reflecting the quickening pace of new technological adoption:
Albeit “new technology” increasingly seems to consist of software upgrades and new ways of organising data and information, or alternatively anything that encourages hyper-connectivity and herding/predictable behaviour.
Regarding this growing connectivity amoeba effect, Citi says:
Increasing connectivity opens up new markets, aids collaboration and unlocks brainpower to help solve the world’s problems — all driving the pace of innovation. The next stage for connectivity is a move from connecting people to connecting things through machine-to-machine communication, i.e. the ‘Internet of Things’. In 2013, Cisco estimated that 99.4% of physical objects were unconnected, equating to 10 billion connected devices. They forecast the number of connected devices will increase to 50 billion by 2020 and 500 billion by 2030 meaning machine-to-machine communication will surpass human communication.
Then there’s the fact that the costs of innovation are falling. No note, however, on whether we’re moving to an innovation cycle where just having an original “creative thought” which is distinct from the wider amoeba qualifies for a mass capital market award.
Here’s Citi:
The rise of the Internet has allowed new open source models to develop, offering universal access via the free license of a product’s design and its subsequent enhancements. These models allow thousands of developers to take part in opensource projects driving better, cheaper, easier and faster products when compared to proprietary alternatives. Without open source many cloud computing, big data and mobile applications would not exist. Google’s Android platform, Tesla (electric vehicles and energy storage), Toyota (hydrogen cars), Khan Academy (already the world’s largest education organization) and some 3D printing blueprints are all examples of open source ecosystems that help foster further innovation. So too does the App Economy, where the cost of innovation appears low (a recent survey by OMS’s Carl Frey estimated the average cost to develop an app was just $6,453) and the gains for some can be substantial (both Apple and Google share 70% of the gross bookings with app developers).
So why the disconnect between our perception of innovation and actual productivity figures? Citi points to the ‘in vogue’ argument among Silicon Valley billionaires which is that the productivity gains are being incorrectly measured....
...MUCH MORE
Penn State became a Cult, and too many drank the Kool-Aid

Thursday, July 30, 2015

Société Générale's Albert Edwards Descends Into A Nightmare World of Dream Demons and Market Depravity

Oops, sorry.
That was a headline from eighteen months ago.
Here's Albert's latest, via ZeroHedge:

"The Virtuous Emerging Market Cycle Is Turning Vicious" Albert Edwards Remembers The 1997 Asian Crisis
Given that some two-thirds of Wall Street traders have never experienced a Fed tightening cycle, SocGen's Albert Edwards is not surprised he gets blank looks when he tries to explain how recent events in commodity and EM markets are in many key ways similar to the 1997 Asian crisis.

SocGen's Albert Edwards explains...
Investors are right to feel that the recent rout in commodity prices differs from that seen in the second half of last year. Back then there was more of a feeling that the decline in the oil price was just partly a catch-up with the weakness seen in other commodities earlier in the year and partly due to a very sharp rise in the dollar ? most notably against the euro.

Indeed the excellent Gerard Minack in his Downunder Daily points out that ?US$ strength and expanding supply have been headwinds over the past four years. But the recent sharp decline in prices has been noteworthy for its breadth: prices have fallen in all major currencies, and across all major commodity groups (see charts below). This suggests that global growth has slowed.” But why?
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/07-overflow/20150730_ed1.jpg
One theme that has played out as we expected over the last year has been the rapidly deteriorating balance of payments (BoP) situation of emerging market (EM) countries, as reflected in sharply declining foreign exchange (FX) reserves (the BoP is the sum of the current account balance and private sector capital flows). We like to stress the causal relationship between swings in EM FX reserves and their boom and bust cycle.

The 1997 Asian crisis demonstrated that there is no free lunch for EM in fixing a currency at an undervalued exchange rate.

After a few years of export-led boom, market forces are set in train to destroy that artificial prosperity. Boom turns into bust as the BoP swings from surplus to deficit. Why? When an exchange rate is initially set at an undervalued level, surpluses typically result in both the current account (as exports boom) and capital account (as foreign investors pour into the country attracted by fast growth). The resultant BoP surplus means that EM authorities intervene heavily in the FX markets to hold their currency down. We saw that both in the mid-1990s and before and after the 2008 financial crisis (see charts below)....MORE

Blackstone's Byron Wein On The Current Investment Climate: Dark Clouds Clearing

Despite this morning's feeble GDP report there are some underlying strengths, one of the reasons I figured I wouldn't look like a total idiot calling for market grey skies to clear up by August 10th or so:
July 8th
Chartology: "S&P 500 Suffers Technical Breakdown; Cash Is King"
Not a huge deal if you've been paying attention. We are allowing for another three to four weeks of downside before panicking, still sticking with the offhand comment that intro'd a June 25 Grantham post for the time frame, as to extent, who knows?:
S&P 500 2108.58; all time high 2134.72.
We would not be at all surprised by a decline into early August but, contra Carl Icahn, don't think we've seen the top yet....
You didn't come here to see me do my répétez, répétez schtick so here's Mr. Wein's Market Commentary blog:
07/28/2015
At the beginning of the year I had a rosy view of how 2015 would play out:

1.  The United States economy would grow close to 3% and the unemployment rate would drop below 5%.
2.  The Standard & Poor’s 500 would rise more than 10% by Christmas.
3.  With some monetary and fiscal help, Europe and Japan would grow more than 1%.
4.  After turbulent negotiations, Greece would stay in the European Union and maintain the euro as its currency.
5.  There would be a deal with Iran on its nuclear development program that would be both credible and enforceable but nobody would like it.
6.  The Chinese economy would slow and the stock market there would be dangerously overvalued, but while China would not be the engine of growth it had been for the past decade, its reduced pace would not destabilize the world economies.

Then, as we entered the second half of the year, each aspect of this outlook began to run into trouble.
We are at a point when various macroeconomic events could have a significant impact on the financial markets.  Here are my thoughts on recent events in Greece, the Iran negotiations, China and the United States.

I have a somewhat different view of the Greek situation from the consensus.  Most observers believe Alexis Tsipras was forced to give in on all of the demands of the International Monetary Fund, the European Central Bank and the European Commission and that he is in serious political trouble as a result.  My assessment of the situation is that, in the eleventh hour, Tsipras correctly concluded that Europe would, for a number of reasons, do almost anything to keep Greece in the European Union.  The first is the fear that there would be contagion in the southern-tier countries like Spain and Portugal, who might believe their economies would improve if they had control of their own currencies, and the European “project” would die.  The second is that a Greek default would destabilize the financial health of Europe generally, and the fragile economic recovery taking place there would be aborted.  In that circumstance, Tsipras would be forced to face the domestic consequences of default and withdrawal from the European Union and the euro.  Greece itself would be in revolutionary turmoil.  The banks would remain closed; pension beneficiaries, the military and public employees would be paid in scrip or IOUs.  The country would not have the funds to pay for gasoline and other imported goods.  Greece’s borders would become porous and Middle East immigrants would flood in through Turkey and elsewhere.  In the event of a default, it could potentially be persuaded to look toward Russia for support, despite currently being a member of NATO.

While Tsipras would appear to have capitulated on his anti-austerity program, he did keep Greece in the European Union, kept the euro as its currency and secured a third bailout of over $96 billion (a huge amount; more than 50% more than what was being discussed a few weeks ago) to reopen the banks and keep the country operating.  About half of this money will be used to meet external financial obligations.  Greece will also sell $55 billion in assets to repay loans.  The “No” vote on the referendum, which Tsipras encouraged, solidified his political position, so he should be able to withstand some of the criticism he will get by agreeing to the reforms.  His political party may be forced into a coalition and cabinet ministers may resign in protest, but he has guided his country through a terrifying economic storm and some collateral damage was to be expected.  There are many Tsipras critics who believe he could have achieved a better deal earlier, but I question whether the Greek people were desperate enough until now to agree to the harsh terms of creditors.  He has obtained what the Greek people wanted: money to move forward and continuing membership in the European Union with the euro as Greece’s currency.  The story is not over.  The Greek economy is in shambles and the prospect of running a budget surplus is dim.  While the current deal buys some time, we may be wringing our hands about Greece six months from now.

I believe there will be a “best efforts” attempt to implement the reforms, but progress will be slow and the European review board will be tolerant because a crisis has been averted.  I doubt that Greece currently has the institutional structure to carry out all the required reforms, like tax collection and work rule changes.  Greece is not likely to be able to revise its pension program without provoking more public protests, and other austerity measures may hold back any recovery in the economy.  From an investment viewpoint, the temporary solution probably means that Europe will continue its modest recovery this year and that the dollar will strengthen.

In spite of the complexity of the issues, a deal with Greece resulted from two simple objectives: Europe’s intent to avoid a destabilizing default by a member of the Union and a desire by Greece to get a third bailout and keep the euro.  The Iran talks reached an agreement because of two similar controlling factors:...MUCH MORE
Markets and fundamentals don't always run together but for right now I expect they will.
Until they don't, of course.

"Peak Food-Delivery Bubble? Groupon Gets Into the Act"

Hey, Groupon has to do something.
GRPN Groupon, Inc. monthly Stock Chart 
From recode:
We are a hungry people. And damn it, we just cannot for the life of us have enough options for getting food from a restaurant into our salivating mouths.
sandwich
Luckily, the heavens produced GrubHub and Seamless and Delivery.com. And then DoorDash and Postmates and Caviar. Oh, and Uber with its new UberEats service. There’s Eat24, which Yelp gobbled up, and Tapingo to feed the college masses. And there’s also that test Amazon is running in Seattle, which is a little weird but we’ll take it, because we are so, so hungry. But sometimes you kinda feel like ordering a meal from a restaurant that doesn’t actually have seating — a place that’s all delivery all the time. Munchery and Sprig can help you out with that.

Still, maybe, just maybe, we the hungry people of the United States need one more delivery option. It turns out Groupon has our backs.

The company still best known for its daily deals said on Thursday that it was launching its own restaurant delivery and pick-up service, starting in Chicago and then expanding to other cities this year. Some of the better known partners participating in the program are the sandwich shops Quiznos and Subway, along with Popeye’s and Papa John’s. Hundreds of local Chicago restaurants are taking part, too. The announcement comes shortly after Groupon acquired OrderUp, a food delivery startup that’s live in dozens of smaller cities.
Groupon’s pitch to us, the hungry people: A 10 percent discount on all orders. Groupon is taking the hit on this, not the restaurant, and essentially looks at it as a marketing expense....MORE
At about the same time the above was showing up in one feedreader, this was dropping from another:
Handpick’s Smart Groceries marries meal and grocery delivery

"Economists React to Second-Quarter GDP: ‘By No Means Satisfying’"

From Real Time Economics:
U.S. gross domestic product,  the broadest sum of goods and services produced across the economy, grew by a seasonally adjusted annual rate of 2.3 percent in the second quarter of 2015, the Commerce Department said on Thursday. Here’s what economists had to say:

The mixing and matching of what drives GDP growth has shifted to consumption and housing, what the Fed was indicating yesterday. Overall growth is certainly strong enough and steady enough, despite the lack of any upside dynamics, to suggest the real cost of short-term money should be more than zero. The [Federal Open Market Committee] increasingly agrees from our read and, after all, they only want to raise the funds rate to 25 basis points from 12.5 basis points and then think about it the next move.” –Steven Blitz, ITG

“Second-quarter growth was powered by strong vehicle demand. But households bought nondurable goods and spent a fair amount on services. In contrast, business investment declined. Much of that came from a drop in equipment spending, which is probably the oil-patch retrenchment….The federal government continues to do whatever it can to kill the economy but at least state and local governments are spending again. There was a new measure created that reflects private domestic demand as it excludes trade, inventories and government spending. It rose solidly. This will be watched closely as it relates to what is happening in the domestic economy.” –Joel Naroff, Naroff Economic Advisors

Spending on intellectual property products grew at an annual rate of 5.5% in the second quarter, continuing a nice string of advances which offers some hope for improved productivity growth in future quarters.…The bottom line is slow productivity growth remains an issue which must be dealt with but first has to be more fully understood than it now is. All in all, today’s report doesn’t alter the broader view of the U.S. economy, with growth still in the steady though by no means satisfying range that has persisted since the end of the 2007-09 recession.” –Richard Moody, Regions Financial Corp.

“Final sales to private domestic purchasers, which is one of our favorite measures of underlying demand, increased 2.5% in the second quarter compared to 2.0% in the prior quarter. However, this is below the 3.2% annual average for 2014, and inventories were much larger than expected ($110 billion vs. $113 billion and a trailing three-year average of around $60 billion). However, we are not changing our estimate of 3.0% current-quarter real GDP in part because the residual seasonality that has been seen in a weak first quarter has tended to result in a stronger third quarter. Moreover, we expect robust consumer spending this quarter.” –Joseph LaVorgna, Deutsche Bank
...MORE

Quants and Black Box Trading: Why They All “Blow-Up”

Even RenTec has an off year now and then.
From Acting Man, June 26:

“We Are All Doing The Same Thing”

I recently listened to a podcast with some all-star [there are awards for everything now] “Black Box” equity trader. It was quite a “telling” interview & I thank him for his insights but I’d heard it all before. His confidence was staggering considering the general unpredictability of the future and, of course, the equity markets. He explained how he had completely converted from a generally unsuccessful, discretionary technical trading style to a purely quantitative and scientific trading mode. He seemed to be so excited that his models, according to him, were pretty much “bullet proof”. Having had more than just some tangential experience with black box modeling and trading myself I thought … you know … some people will just never learn.
maxresdefault
Image via iwatchapple.it

You see some years ago I was particularly focused on quantitative investing. Basically, “screw” the fundamentals and exclusively concentrate on price trends/charts and cross security/asset correlations [aka “Black Box” trading]. I was fascinated with the process and my results were initially stellar [high absolute returns with Sharpe Ratios > 2.0]. And, after looking at the regression data many others agreed. I was in high demand. So I “made the rounds” in Manhattan and Greenwich to a group of high profile hedge funds. It was a very exciting time for me as the interest level was significant.

As it turned out I had the good fortune of working with one of the world’s largest and best performing hedge funds. Their black box modeling team had been at it for years … back-testing every conceivable variable from every perceived angle … twisted/contorted in every conceivable/measurable manner … truly dedicated to the idea that regression tested, quantitative trading models were the incremental/necessary “edge” to consistently generate alpha while maximizing risk-adjusted, absolutely positive returns. We worked together for some time and I became intimately involved with their quantitative modeling/trading team … truly populated with some of the best minds in the business.

While in Greenwich Ct. one afternoon I will never forget a conversation I had with a leading quantitative portfolio manager. He said to me that despite its obvious attributes “Black Box” trading was very tricky. The algorithms may work for a while [even a very long while] and then, inexplicably, they’ll just completely “BLOW-UP”. To him the most important component to quantitative trading was not the creation of a good model. To him, amazingly, that was a challenge but not especially difficult. The real challenge, for him, was to “sniff out” the degrading model prior to its inevitable “BLOW-UP”.
And I quote his humble, resolute observation:
because, you know, eventually they ALL blow-up
… as most did in August 2007.
It was a “who’s who” of legendary hedge fund firms that had assembled “crack” teams of “Black Box” modelers: Citadel, Renaissance, DE Shaw, Tudor, Atticus, Harbinger and so many Tiger “cubs” including Tontine [not all strictly quantitative but, at least, dedicated to the intellectual dogma] … all preceded by Amaranth in 2006 and the legendary Long Term Capital Management’s [picking up pennies in front of a steam-roller] demise one decade earlier.

Years of monthly returns with exceedingly low volatility were turned “inside out” in just 4-6 weeks as many funds suffered monthly losses > 20% which was previously considered highly improbable and almost technically impossible … and, voilà … effectively, a sword was violently thrust through the heart of EVERY “Black Box” model. VaR and every other risk management tool fell victim to legitimate liquidity issues, margin calls and sheer human panic.

Many of these firms somehow survived but only by heavily gating their, previously lightly-gated, quarterly liquidity provisions. Basically, as an investor, you could not “get out” if you wanted to. These funds changed the liquidity rules to suit their own needs … to survive … though many did fail.

Anyway … to follow up on my dialogue with the esteemed portfolio manager … I asked why do they all “BLOW-UP”? What are those common traits that seem to effect just about every quantitative model despite the intellectual and capital fire-power behind them? And if they all eventually “BLOW-UP” then why are we even doing this?”

He answered the second part of the question first … and I paraphrase …
“We are all doing this because we can all make a lot of money BEFORE they “BLOW-UP”. And after they do “BLOW-UP” nobody can take the money back from us.” He then informed me why all these models actually “BLOW-UP”. “Because despite what we all want to believe about our own intellectual unique-ness, at its core, we are all doing the same thing. And when that occurs a lot of trades get too crowded … and when we all want to liquidate [these similar trades] at the same time … that’s when it gets very ugly.“.
I was so naive. He was so right.

Exactly What Were We All Doing?

We all knew what the leaders wanted and, of course, we wanted to please them. Essentially they wanted to see a model able to generate 4-6% annual returns [seems low, I know, but I’ll address that later] … with exceptionally low volatility, slim draw-down profiles and winning months outweighing the losing months by about 2:1. They also wanted to see a model trading exceptionally liquid securities [usually equities]....MORE
HT: ValueWalk's "Why Most Quantitative Investing And Trading Systems Fail".

"British land prices ease as farmer buyers step back"

Farmland is "worth" some multiple of the cash flow it can generate. What someone will pay for it is another story.
From Agrimoney:
UK farm prices have eased for the first time since the global financial crisis, led by a retreat in the market for prime arable land, as weaker agricultural commodity prices have prompted farmer buyers to step back.

Farmland prices in Great Britain, comprising the vast majority of the UK, eased by some 0.3% in the April-to-June quarter from the record highs set in the first quarter of 2015, data from Savills show.
The decline, the first in more than six years, was led by the market which has proved consistently most buoyant - prime arable land, and in East Anglia, the core UK wheat belt, and a region which has shown particular growth to become, for the past five years, the most expensive.
Prices of top-quality cropping land in the East of England fell by 4.8% in the first half of 2015 overall, with values in the neighbouring East Midlands dropping by 3.9%, although values further west and north did maintain growth....MORE
Previously:
Jan. 2015  
U.S. Farmland Has Been the Top Performing Asset Over the Last 20 Years: Goodbye to all that
Oct. 2013 
Real Estate: It's Not Just London, Big Money Lining Up to Buy British Farmland
June 4, 2012 
Factoid: Price of English Farmland Has Risen 10,745% During the Reign of Elizabeth II Regina
June 2012  
"French Farmland Offers Better Value than UK Land"
We've been posting on British Farmland for years but, outside of the odd Chateau listing and the effects of climate on wine growing I think this is the first French farmland post.
Two things to be very, very wary of: The Common Agricultural Policy and the French tax code.
March 2012
Absolute Return Partners on Investing in Farmland
 Gerald Grosvenor might beg to differ with the answer to the question in the first sentence below.
Although his 300 acres got hit hard in the downturn it has come back strongly.

Half the Mayfair District, most of Belgravia, and Grosvenor Square where the U.S. Embassy is one of his many lessees make a nice hedge for the 4500 acre farm.

Throw  in the 17 acres in Silicon Valley and the 1200 acre Annacis Island off of Vancouver, B.C. and you've got a bit of diversification....
Oct. 14, 2009 
Green Acres is the Place to Be: "The UK farmland grab"
 
 

And many more. Use the 'Search Blog' box if interested.

Wednesday, July 29, 2015

"Market Odds For September Rate Hike Drop To 0%"

Something to think about amongst all the "It's coming in 6 weeks" pontificating
From Short Takes:
Market Leans Dovish After Fed Statement
The implied probability of a September rate increase from the Fed, based on 30-day Fed funds futures prices, dropped to 0% following Wednesday’s dovish policy statement from the FOMC. In recent weeks, the implied probability for a September rate increase was hovering between 17% and 21%.

"Oil scores July’s 2nd biggest percentage gain "

We're going lower.
Last I saw the front futures were at $48.82 up 84 cents.
There's a very good chance WTI will undercut the $41.39 low print from earlier this year.

For right now though, upticks. From MarketWatch:

EIA data show U.S. weekly crude supplies, production down
Oil futures settled higher on Wednesday, with U.S. prices scoring their second-biggest one-day percentage gain of July after U.S. government data showed sizable weekly declines in crude supplies and production. 

West Texas Intermediate crude for September delivery CLU5, +1.79%  added 81 cents, or 1.7%, to settle at $48.79 a barrel on the New York Mercantile Exchange. It was trading down at around $47.70 before the supply data. The biggest percentage gain for the month was seen on July 9, when prices rose about 2.2%.
ICE September Brent crude LCOU5, +0.62%  tacked on 8 cents, or 0.2%, to $53.38 a barrel.

Early Wednesday, the U.S. Energy Information Administration reported a drop of 4.2 million barrels in crude supplies for the week ended July 24. Analysts polled by Platts forecast a crude-stock fall of 700,000 barrels, while the American Petroleum Institute Tuesday said supplies declined 1.9 million barrels.

“The reports seems to suggest that, at least in the short term, the bearish news has been over played,” said Phil Flynn, senior market analyst at Price Futures Group. “Despite a recent uptick in [drilling] rigs, it looks like production still may be peaking.”...MORE

Marketing: While You're Looking At The TV, The TV Is Looking At You

The headline is reminiscent of but not as clever as Spın̈al Tap's David St. Hubbins on umlauts:

"It's like a pair of eyes. You're looking at the umlaut, and it's looking at you."
From TechDirt:

Vizio Latest Manufacturer To Offer More Ways For TVs To Watch Purchasers

from the buy-our-things-so-we-can-sell-your-data! dept

Vizio is the latest consumer electronics manufacturer to announce -- publicly, but not, like, PR-onslaught publicly -- that its TVs will be watching purchasers as much as purchasers are watching them. The details of its strategy to generate the most ROI from each and every purchaser willing to blow past the fine print during setup are contained in the company's SEC filing for its debut as a public company. Engadget's Richard Lawler has the details. (h/t to Techdirt reader MarcAnthony)
According to the filing, Vizio has sold more than 15 million smart TVs, with about 61 percent of them connected as of the end of June. While viewers are benefiting from those connections, streaming over 3 billion hours of content, Vizio says it's watching them too, with Inscape software embedded in the screens that can track anything you're playing on it -- even if it's from cable TV, videogame systems and streaming devices.
Here's the potential shareholder-friendly description included in the S-1 filing:
Our Inscape data services capture, in real time, up to 100 billion anonymized viewing data points each day from our over 8 million VCUs. Inscape collects, aggregates and stores data regarding most content displayed on VCU television screens, including content from cable and satellite providers, streaming devices and gaming consoles. Inscape provides highly specific viewing behavior data on a massive scale with great accuracy, which can be used to generate intelligent insights for advertisers and media content providers and to drive their delivery of more relevant, personalized content through our VCUs.
And here's the grand plan, which is a slice of a multi-billion dollar data sales market:
We believe our business focus enables a self-reinforcing consumer use and engagement model that we expect to fuel our growth while driving revenue. Our connected entertainment products and discovery and engagement software increase usage of our platform, enabling Inscape to gather more anonymized data on viewing behaviors, which we can deliver to advertisers and media content providers. These companies in turn can deliver more relevant and personalized content for viewers, further enhancing the entertainment experience. We believe this self-reinforcing cycle will increase our brand awareness and enhance demand for our connected entertainment products.
What's curious about the wording isn't the gung ho appropriation of viewer data to sell to advertisers. What's curious is Vizio's claim that "anonymized data" will result in "more relevant and personalized content" for purchasers....MORE