Sunday, August 28, 2016

Overend, Gurney & Co.: An Inspiration to Karl Marx and Bear Stearns

From Global Financial Data:
One of the most dramatic events in the financial history of Victorian England was the collapse of Overend, Gurney and Co. Its failure had a more severe impact on the London financial market than the collapse of Bear Stearns had on U.S. markets over 140 years later. During the financial crisis of 1866, over 200 firms went bankrupt, including a number of banks. The failure of Overend, Gurney and Co. also led to one of the first trials for financial fraud in history when all six directors were brought before the courts of London to answer for their alleged crimes. 

Quaker Origins
                Overend, Gurney and Co. was formed in 1805 by the merger of Richardson, Overend and Co., originally founded by Thomas Richardson in 1802, and Gurney’s Bank located in Norwich and founded in 1770.  Thomas Richardson developed the bank’s business for discounting bills that became the foundation of the firm’s profits.

                Overend, Gurney and Co. soon became known as the banker’s bank since they discounted the bills issued by other banks and held them until maturity, and made loans against bills issued by other banks. Between 1825 and 1865, Overend, Gurney and Co. was the greatest discounting house in the world.  Only the Bank of England could match its resources.

                Discounting was a reliable business that made consistent profits, but not content with the steady income from discounting bills, the bank wanted to expand into presumably more profitable investments. The only certain thing about a bank moving into uncertain investments is the certainty that the bank will probably end up losing money, which it did.  

How to Ruin a Good Business
England was going through one of its periodic railroad booms in the 1860s with opportunities for profitable expansion also occurring in shipping, mail delivery, and other transportation activities. Between 1859 and 1862, the Quakers turned their back on the sound banking policies that had made their bank successful and managed to find speculative investments that won them the equivalent of a financial Darwin award.

It is amazing how a bank that could be so conservative in one area could be naïve enough to get involved with scammers who promoted projects that made themselves money, but were otherwise doomed to failure.  The bank advanced money to invest in plantations in Dominica that grew little food, financed a railway line across the wilds of Ulster where there were few passengers, invested in the Greek & Oriental Steam Navigation Company which was unable to develop its business, failed to get the mail service for the Galway Line and foolishly invested in the Millwall Iron Works on the Isle of Dogs which generated losses, not iron.  The last three investments cost the bank around £5.2 million.  As Walter Bagehot, then the editor of The Economist said, ”one would think a child, who had lent money in the City of London would have lent it better.” As a result of these investments, the bank had liabilities of around £4 million, and liquid assets of only £1 million.

                As the losses mounted, Overend needed capital to keep the bank solvent.  The company decided to go public and issue shares as a way of raising enough money to cover their losses and return to a profitable future.  The bank converted itself into a limited liability company, and offered 100,000 shares to the public at a par of £50, requiring £15 up front and reassurance that an additional call on capital would be unlikely.  Of course, the prospectus never mentioned the consequences of the bank’s bad investments, the excessive liabilities, and other problems, but focused on its strong reputation and the potential profits of the company. 

When Limited Liability Adds Insult to Injury
                Overend, Gurney & Co. stock started trading on August 21, 1865, and hit a high of 22.5 on November 16, 1865. As the price rose, investors who had missed out on the initial offering bought shares, keeping the price around 20; however, they were unaware of the rot that lay beneath the façade of the bank. By the end of February, 1866, shares still traded above 20, but began to drift down, falling below 15 by late April. 

In April, the investment in the Millwall Iron Works on the Isle of Dogs began unravelling, producing £500,000 in unexpected losses for the bank. The financial markets in London were reaching the heights of a small bubble, and the Bank of England responded by raising the lending rate from 6 per cent to 7 per cent on May 3, to 8 percent on May 5 and to 9 per cent on May 11 and 10 percent on May 12.  As money tightened, Overend tried to raise capital by collecting on debts owed to it by the Mid Wales Railway and others, but when the bank was unable to get this money, it became evident that the bank would soon become insolvent.

                Overend’s only alternative was to go to the Bank of England, which as lender of last resort, could have bailed out Overend, Gurney and Co. However, the Bank of England declined, not because allowing Overend to fail would reduce the amount of competition the Bank of England had, but because Overend was in such poor shape that no amount of money could have saved it.

                On May 10, 1865, the bank announced that it was suspending payment on deposits. The price of the stock had closed at 10 on May 10, fell to 3.5 on May 11 and to 0.5 on May 12. Until then, few had suspected that the greatest name in wholesale banking could have collapsed so suddenly.  If Overend, Gurney & Co. was unsafe, could any bank be safe? A financial panic ensued and during the next few months, over 200 companies, including many banks, failed as well.

China May Be Sending Air Force To Syria

Consider the source but, if true, this is a bizarre escalation.
I mean on top of NATO member Turkey invading and bombing the hell out of U.S. ally the Kurds who are fighting U.S.-and-Turkey-backed al-Nusra and ISIS who...
It's getting really complicated.

From Iran's FARS News Agency:

Chinese Air Force to Join Anti-Terrorism Operations in Syria
TEHRAN (FNA)- Media sources disclosed that a Chinese military delegation in a visit to Damascus explored avenues for the dispatch of a number of warplanes to Syria to intensify war on terrorism in the Middle-Eastern country.
"In a surprising visit, a Chinese military delegation conferred with Syrian Defense Minister Fahad Jassim al-Freij over engagement of Chinese fighter jets in bombardments of terrorist groups' positions in Syria, mainly in Aleppo," Debka file quoted a military analyst as saying.

"Chinese jets may launch bombing of positions of Jeish al-Islami al-Turkistani with over 3,000 Uighur fighter," the analyst quoted senior spy officers of the US intelligence as saying.

Earlier this month, Beijing and Damascus agreed that the Chinese military to provide humanitarian aid to Syria, a high-ranking People's Liberation Army officer said, adding that the training of Syrian personnel by Chinese instructors was also been discussed.

Director of the Office for International Military Cooperation of China's Central Military Commission, Guan Youfei, arrived in Damascus for talks with al-Freij.

During the negotiation, Guan noted China’s consistent diplomatic efforts to find a political solution to the Syrian crisis, adding that Beijing is now seeking closer military ties with Damascus.

"The Chinese and Syrian militaries traditionally have a friendly relationship, and the Chinese military is willing to keep strengthening exchanges and cooperation with the Syrian military," he said....MORE
Oh yeah, Iran has been in there for years which means Saudia is making noise, although the Kingdom seems to have its hands full with the ragtag Houthis who....
And then there's Russia who seem to be buddying up to both Turkey and Iran, not sure how they thread that needle.

Polish Olympian Sells Silver Medal He Won Less Than Two Weeks Ago

More precious than gold.
From ESPN:
A Polish discus thrower who put the silver medal he recently won at the Rio Games on auction to pay for the treatment of a 3-year-old boy with eye cancer ended the auction three days early, after the richest couple in Poland bought it.

Piotr Malachowski wrote on his Facebook page on Tuesday that he prematurely closed the auction because Dominika and Sebastian Kulczyk "declared their willingness to buy my silver medal for an amount which enables us to meet the goal set."

The auction for the medal was at roughly $19,000 on Tuesday when it was pulled down.

Malachowski was looking for about $84,000 so that a boy named Olek Szymanski could get surgery for his retinoblastoma in New York to try to save the child's eyesight. The total cost of the surgery is $126,000, but one-third of it was already raised by the Polish foundation Siepomaga.

"We were able to show that together we can do wonders," Malachowski wrote. "My silver medal today is worth a lot more than a week ago...MORE
Poland's silver medal winner Piotr Malachowski.

Saturday, August 27, 2016

For Sale, Silicon Valley: Paul Masson's Mini-Chateau

Cupertino and Mountain View are close but maybe not an easy commute.
From the Mercury-News' SiliconBeat blog:

The latest in Silicon Valley real estate: Your own chateau

Long before anyone worried about drones crashing through the front window, winemaker Paul Masson built a chateau in the hills above Saratoga.

Now it’s for sale.

You can have it for $7 million — not bad in the Silicon Valley real estate market, where paying upwards of $5 million for a house somehow doesn’t register as a big deal anymore.

Born in 1858, Masson grew up in France and patterned his chateau — built in 1936 — after his childhood home in Burgundy. With its turret and pitched slate roof, it’s a grand place: 4,897 square feet with four bedrooms, three baths and a wine cellar, overlooking vineyards on 3-plus acres. Extensively renovated about a decade ago by its current owners, the kitchen counter is an antique, imported from a French butcher shop.

Have a look right here.

But whoever buys this spread will get something additional: history.

“As the story goes,” says Patricia Anderson, the Coldwell Banker agent who listed the house this month, “Paul Masson’s daughter would play the organ in the turret. She would sit there, I’m told, and look out the window and see who was coming up the path.”
And who might that be?

Why, Charlie Chaplin, who attended Masson’s parties. Or Orson Welles, who later (long after Masson’s death in 1940), helped popularize Paul Masson wines with those famous TV commercials: “We will sell no wine before its time.” Or James Duval Phelan, the San Francisco mayor, United States senator and builder of nearby Villa Montalvo....MORE

How Does the Language of Headlines Work? You Won't Believe The Answer

Consider the headline: a bunch of words carefully crafted to grab your attention when you least expect it… and then entice you to spread it far and wide, sometimes in spectacular viral fashion. And that’s just for starters. Before you even get to all the news that’s fit to print, the headline is already way ahead of you, with succinct and surprising spoilers—that can only really be understood if you click. By the time you read a headline, you may already have become incensed by provocative questions, been amused by puns and wordplay or have had your faith restored in humanity by viral clickbait.

In an online age where attention spans are worn thin by information overload, these are remarkable feats for a bunch of words, yet headlines get little respect around here. From titillating tabloid titles to clickbait chicanery, headlines these days have often been derided as the empty calories of information, sensationalist trickery, “the art of exaggerating without actually lying” as Otto Friedrich put it.

Why do we even pay so much attention to headlines, when millions are made up and forgotten every day? Some are more memorable than others (particularly when clever wordplay is involved), yet good or bad, there is a common language of headlines. Visual placement aside, there’s a long history to how humble copy editors have developed the weird linguistic tricks that intrigue, shock, and amuse an otherwise cynical audience. What you’ll learn may surprise you (or not).

From tabloids to broadsheets, there’s definitely a dubious art to composing effective headlines, whether the story is a jubilant (“VE-Day – It’s All Over,” “Men Walk on the Moon), rather grim (“Beatle John Lennon Slain,” “Hitler Dead) or unusual (Radio Fake Scares Nation). In “Headlines: The Unappreciated Art,” Lynn Ludlow shows how the headline, considered an American invention, has moved from relatively benign or literal news captions (“The CONTINUATION of our weekly Newes, from the 24 of February to the 2 of March“, from one of the first London newspapers in 1625) to large lettered, urgent, staccato headlines such as “IMPORTANT. Assassination of President Lincoln.” (New York Herald, 1865).

By the end of the 19th century, editors had started playing around with the language of headlines, switching over to using the present tense in headlines, even for events past, and promoting verbs, making action seem more immediate and palpable. A headline like “FIRES GEN. M’ARTHUR,” (Chicago Tribune, 1951) fires on both of these cylinders, making the verb more prominent by removing the guy doing the firing altogether (a no name, no doubt), and making the action happen right NOW, as you’re reading it. Hurry and read, before the action ends!

Art form or not, short and sweet titles are often hard to figure out. Take a confusing example like “Dead Baby Names Racket,” which could be read a few ways, one much odder than the other (though who are we to question what dead babies like to name in their spare time?). It holds your attention because you read… and then have to reread. Short form headlines assume a lot of reader knowledge (who is Beatle John Lennon for instance?) to be understood, placing readers even closer to the news. 
We can see that headlines certainly don’t use language the way we might expect but their weird telegraphic forms still seem to condense and convey all the necessary information to readers. Headlines are often better understood and appreciated once stories are read, yet their powers of attraction are very much hinged on readers being able to anticipate what the headlines are referring to and develop some kind of emotion with respect to a story they haven’t even read yet. Once readers are curious enough to be led down the garden path and click/read, the headlines have won. How do they do this?

Linguist Deborah Schaffer shows that in lieu of real news or a respectable reputation, tabloids often make liberal use of “headlinese” to sensationalize stories. This means using an expressive, “connotation-rich” vocabulary that is attention-grabbing and promotes curiosity and a strong emotional connection for the reader, unsurprisingly, similar to advertising language, since “the average newspaper is simply a business enterprise that sells news and uses that lure to sell advertising space” (Otto Friedrich). Words like “sex,” “scandal,” “sizzling,” and “weird” can be used to sell anything, even if they’re unlikely stories like “Surgeon, 70, Makes 11 Nurses Pregnant,” “Marie Osmond puts her 5-yr-old son to work—and church is outraged,” “Lonely UFO Aliens Are Stealing Our Pets,” and “Michael J. Fox Outrages Hotel Guests During His Bizarre Island Honeymoon.” Readers are brought closer to the news in tabloid journalism, given a personal interest, asked to feel sympathy for the “heartbroken” in “tragic” circumstances, who may often be people we know intimately, on a first name or nickname basis—such as celebrities, our dear friends: “Test-Tube Baby for Burt & Loni: Friends Say It’s in the Works.”...MORE
HT: The Browser

See also:
This Machine Writes Better Clickbait Than You: How it works will shock you
The New Trend In Apps: Content Blockers 
"Before You Say You've Never Discriminated Against Someone, Listen To This Battlecry From A Model"
Clicking On Clickbait WILL Lower Your IQ
Why Is FT Alphaville Obsessed With North Korea's Kim Jong-Un?
Bloomberg: Goldman Sachs, Sex, Viagra, Tiger Woods, and Barack Obama

Somehow tangentially related, Strange Bloomberg Headlines.
A lot of these are via the Strange Bloomberg Headlines Tumblr so here's the HT up front.

Draghi Takes ECB to Land of Gomorrah as Naples Prays
Sex in Geriatrics Sets Hebrew Home Apart in Elderly Care
France Ranks Companies in Carrot-Baguette Gender-Equality Push
Met’s Hot Dog Cart Infestation Calls for Assyrians 
Public Vasectomy With Band-Aid Promotes Family Planning
Special K for Depression Renews Hope in Hallucinogens
Kill Your Wife While Sleepwalking or Get Goldman Touch
Hollande Heeds Napoleon Hiring Bank of America Critic
What is it with Bloomberg and Napoleon these days? It’s almost as if the place were run by shortish guy with an empire-building complex who can’t stand losing power - oh, wait. 
Canadian Economy Suffers From Dollar Parity's One-Eyed King in Land of Blind
UBS Sees Banker Grounds Riff Like Keith Richards Winning Asia Equity Deals 
Silent Scream of Swiss Franc Shows Great Distortion Amid Great Moderation
S&P 500 at 2,000 a Reminder That Humans Are Mere Mortals
We're not the only ones who have noticed:
Alphaville Looks at Strange Bloomberg Headlines

A Google Private Bank?

From Penta, July 22:
What do the wealthy really want from their private bankers? A backdoor question in a newly-released report by FactSet and Scorpio Partnership, well-respected industry data trackers, might provide a clue. “Which company would you be most excited to see start a wealth management service?” FactSet asked its audience of high-net-worth individuals (HNWIs)—defined as those with more than $1 million.

The majority responded they wanted to see Google (GOOG) get into private banking.
More than brand recognition is at work here. HNWIs want a wealth manager who not only delivers information in a technologically-savvy way, but, more importantly, does so while providing “quality insight.” It ranks as the top criteria clients use to judge a wealth management firm’s credibility.

Whether it’s information on art, impact investing, or their retirement plans, clients are hungry for dynamic data that is reliable; 38% of the wealthiest surveyors said it’s evidence of a secure institution. It also needs to be uniquely tailored to the client. One 69-year-old responder stated, “advisors [should be] focused on providing clients with all the market information required to arrive at the investment decisions based on client profile.” He claims it’s a sign of a firm with a “good corporate culture.”

The survey further showed that clients want their wealth managers to deliver general or sensitive insights multiple times a month. The need is greater for clients under age 35, 30% of whom expect a firm to evaluate their risk profiles on a weekly basis; 16% said that is not enough and expect daily reviews. Email is the most popular method of communication.

While many wealth management firms are keeping up fairly well with their clients’ demands, investing in new tech products and integrating new platforms is tough for firms operating on legacy systems. “Tearing down a technology system is extremely expensive. When technology enhancements are made, they tend to be on prior systems that create interface and reliability issues,” says Doug Black, founder of Aronson SpringReef, a firm advising wealthy clients on their private banking services and fees.

But Black believes such clients’ demands will force a change within the industry. “People vote with their money. It’s not an overnight change, but those firms that provide clear, accurate information will be viewed as more credible—and also capable.” If his theory is right, we will see an accelerated growth of assets in firms that focus on implementing technologies that make the client smarter.
Clients are in fact so frustrated by the lack of real information and transparency, they are also demanding that an industry watchdog implement minimum standards of quality on investment technologies. Black believes the problem will take care of itself, viewing it as an industry issue rather than a regulatory one. The aforementioned competition to hold on to clients, or grab new ones, will organically prompt the tech upgrades needed....MORE
Possibly also of interest:
Family Office/Outside Managers Not Quite Cutting It? Maybe What You Need Is A Family Bank

The Inside Story of the Quick Rise and Quicker Fall of DraftKings and FanDuel

From Outside The Lines and ESPN Magazine:

Welcome to the Big Time
The implosion of the daily fantasy industry is a bro-classic tale of hubris, recklessness, political naïveté and a kill-or-be-killed culture.
There's a game within the game that requires a different set of skills," actor Edward Norton says in the voice-over as quick-cut video images show young men and women bathing a dog, jogging on the street, sweating in a sauna -- all while staring, hyperfocused, into their smartphones.

"There's no offseason. This is a play-as-much-as-you-want, whenever-you-want fantasy league. And we don't just play -- we are players. We train. And we win ..."

Now those men and women are jumping, cheering, fist-pumping -- each celebrating mammoth, seven-figure jackpots.

"This isn't fantasy as usual. This is DraftKings. Welcome to the big time."
At its peak last summer, a daily fantasy get-rich-now commercial aired every 90 seconds on television. Combined, industry leaders FanDuel and DraftKings plunged more than $750 million into TV commercials, radio spots, digital ads and other promotions. In the weeks leading up to the 2015 NFL season, the two startup companies spent more on advertising than the entire American beer industry.

Daily fantasy's meteoric rise -- breathtaking for its breakneck speed, avalanche of investors' cash and ever-spiraling valuations -- spurred the two companies' endlessly annoying, record-shattering arms race for new customers and industry dominance. In only three years, DraftKings zoomed from an idea hatched by three buddies in a Boston barroom into a nearly $2 billion company, replete with comparisons to overnight Silicon Valley unicorns like Uber and Snapchat. FanDuel was right there too. The two companies processed a combined $3 billion in player-entry fees in 2015.

he companies were everywhere: logos emblazoned in ballparks, on NBA floors, on NHL boards and in ESPN studios. They became the darlings of the major American sports leagues, media companies, dozens of professional teams and a deep bench of investors -- from Comcast and Google to private equity firms and a pair of the NFL's most influential owners, Jerry Jones and Robert Kraft.

But as quickly as it boomed, the industry bottomed. One year after their headiest moments, FanDuel and DraftKings are still not profitable. Both privately held companies' valuations have been sliced -- by more than half, according to some estimates. The companies have hemorrhaged tens of millions of dollars in legal and lobbying expenses. (DraftKings' attorneys fees once ran as high as $1 million per week.) And the fog bank of the industry's uncertain future has made it nearly impossible for either company to raise new money. (FanDuel's auditors have raised "significant doubts" about the company's future if more states do not declare daily fantasy sports legal.) Three federal grand juries -- in Boston, New York and Tampa, Florida -- have alerted one or both companies that they are under criminal investigation. A merger -- once unthinkable to many -- is on the table.
It has been, by any measure, a spectacular fall.

The industry's implosion began with a series of tactical mistakes made by a pair of bitterly hostile startup companies that all but dared federal and state authorities to shut down the sites over concerns the games constituted illegal gambling. Outside the Lines interviewed more than 50 company executives, current and former players, legislators, lobbyists, lawyers, investigators and industry consultants and found that the companies' troubles were triggered, in part, by a toxic combination of young executives' hubris and ignorance, reckless risk-taking and raw political naïveté. Infused with a false sense of security from FanDuel's and DraftKings' surging valuations and soaring revenues, the companies' co-founders and CEOs -- Nigel Eccles, 41, of FanDuel and Jason Robins, 35, of DraftKings -- waged a self-destructive, kill-or-be-killed race toward industry supremacy and a life-changing payday that they now acknowledge was crazy for all of the cash it torched, the wrong messages it sent and the legal and media tsunami it unleashed.

For years, the two companies' leaders had been warned by investors, lobbyists, consultants and even some players about a coming day of reckoning. Yet they relentlessly promoted their games as a means to get rich quick when they knew only a tiny percentage of their customers were winning more often than losing. They failed to aggressively move against big-bankrolled players who dominated newer players, sometimes with predatory behavior or technological advantages. And they allowed their own employees to play -- and win millions -- on their rivals' sites, despite their having access to odds-improving proprietary data.

"This industry blew up so quickly -- no one adequately planned or prepared for it," says Gabriel Harber, 29, a former high-volume player at DraftKings and FanDuel. "[The executives] didn't make the substantial investment on self-regulation and the regulatory side that was obviously needed. ... Every PR person and lawyer should be fired. How could you let your client engage in this kind of crazy advertising if every legal loophole wasn't closed? How stupid can you be?"

THE DAILY FANTASY industry has an unwitting -- and unlikely -- founding father: George W. Bush.

On Oct. 13, 2006, President Bush signed the Unlawful Internet Gambling Enforcement Act. UIGEA was intended to reverse the momentum of America's internet gambling boom by prohibiting banks from processing bettors' credit card deposits with illegal betting operations. With the blessing of the major sports leagues, a carve-out in the law was made for the wildly popular season-long fantasy leagues that an estimated 57 million Americans now play. But the drafters of UIGEA were silent about daily fantasy contests because no such thing existed. By 2007, however, a handful of lightly played daily fantasy websites had opened in the United States, but overseas, things were moving much faster.

A group of sharp entrepreneurs from the United Kingdom, some of whom had worked as online poker executives, started considering the possibilities. An entrepreneur named Nigel Eccles had concluded, correctly, that season-long fantasy leagues were far too slow for action-junkie millennials, who thrived on instant gratification and who'd soon routinely watch sports on TV while glued to a second screen, usually their smartphones.

So in July 2009, Eccles and his colleagues launched FanDuel in Edinburgh, Scotland. It was a spin-off of Hubdub, their failed prediction site on which users bet virtual money. Unlike Hubdub, FanDuel would accept real-money wagers.

A soft-spoken, lanky Brit, Eccles had printed out a copy of UIGEA and studied its fine print. From day one, he concluded that the law would provide "safe harbor" for daily fantasy games. In early meetings with potential investors, Eccles was a passionate evangelist for daily fantasy sports as a game of skill, similar, he liked to say, to a golf tournament, a 5K race, a chess championship or a spelling bee. His initial pitches steered clear of gambling parlance: "Bets" were not wagers but "entry fees," and competitors were not vying for "jackpots" but preset "cash prizes." "We can show with FanDuel that the high-skill players will win predominantly," Eccles would tell investors, the media, anyone who'd listen.

The chase for financing was slow going at first; the initial investors were Ian Ritchie, a Scottish software millionaire, and Kevin Dorren, a Brit who founded a meals-on-wheels diet service. Eccles nearly gave up when investors' cash dried up. But he and his co-founders pressed on, and by the end of 2011, FanDuel had combined smart product design and savvy marketing to establish itself as the industry leader. The company's later financial backers, like Mike LaSalle of Shamrock Capital Investors in Los Angeles, were hooked by Eccles' vision for explosive growth, with a target of 20 million to 30 million active users within several years.

During their first meeting in Manhattan in April 2014, LaSalle says, he was particularly impressed that Eccles wasn't a daily fantasy player but a disciplined businessman committed to developing new products. Five months later, LaSalle's firm made a major investment in FanDuel as part of the company's financing round that raised $70 million.

"We thought the regulatory issues were going to have to be flushed out at some point," he says. "But no one anticipated the fervor of what happened and the way [the authorities] directed their energies" against the industry....MUCH MORE

"The Neuroscience Behind Bad Decisions"

From the Simons Foundation's Quanta Magazine:

Irrationality may be a consequence of the brain’s ravenous energy needs.

Humans often make bad decisions. If you like Snickers more than Milky Way, it seems obvious which candy bar you’d pick, given a choice of the two. Traditional economic models follow this logical intuition, suggesting that people assign a value to each choice — say, Snickers: 10, Milky Way: 5 — and select the top scorer. But our decision-making system is subject to glitches.

In one recent experiment, Paul Glimcher, a neuroscientist at New York University, and collaborators asked people to choose among a variety of candy bars, including their favorite — say, a Snickers. If offered a Snickers, a Milky Way and an Almond Joy, participants would always choose the Snickers. But if they were offered 20 candy bars, including a Snickers, the choice became less clear. They would sometimes pick something other than the Snickers, even though it was still their favorite. When Glimcher would remove all the choices except the Snickers and the selected candy, participants would wonder why they hadn’t chosen their favorite.

Economists have spent more than 50 years cataloging irrational choices like these. Nobel Prizes have been earned; millions of copies of Freakonomics have been sold. But economists still aren’t sure why they happen. “There had been a real cottage industry in how to explain them and lots of attempts to make them go away,” said Eric Johnson, a psychologist and co-director of the Center for Decision Sciences at Columbia University. But none of the half-dozen or so explanations are clear winners, he said.

In the last 15 to 20 years, neuroscientists have begun to peer directly into the brain in search of answers. “Knowing something about how information is represented in the brain and the computational principles of the brain helps you understand why people make decisions how they do,” said Angela Yu, a theoretical neuroscientist at the University of California, San Diego.

Glimcher is using both the brain and behavior to try to explain our irrationality. He has combined results from studies like the candy bar experiment with neuroscience data — measurements of electrical activity in the brains of animals as they make decisions — to develop a theory of how we make decisions and why that can lead to mistakes.

Glimcher has been one of the driving forces in the still young field of neuroeconomics. His theory merges far-reaching research in brain activity, neuronal networks, fMRI and human behavior. “He’s famous for arguing that neuroscience and economics should be brought together,” said Nathaniel Daw, a neuroscientist at Princeton University. One of Glimcher’s most important contributions, Daw said, has been figuring out how to quantify abstract notions such as value and study them in the lab.
In a new working paper, Glimcher and his co-authors — Kenway Louie, also of NYU, and Ryan Webb of the University of Toronto — argue that their neuroscience-based model outperforms standard economic theory at explaining how people behave when faced with lots of choices. “The neural model, described in biology and tested in neurons, works well to describe something economists couldn’t explain,” Glimcher said.

At the core of the model lies the brain’s insatiable appetite. The brain is the most metabolically expensive tissue in the body. It consumes 20 percent of our energy despite taking up only 2 to 3 percent of our mass. Because neurons are so energy-hungry, the brain is a battleground where precision and efficiency are opponents. Glimcher argues that the costs of boosting our decision-making precision outweigh the benefits. Thus we’re left to be confounded by the choices of the modern American cereal aisle.

Glimcher’s proposal has attracted interest from both economists and neuroscientists, but not everyone is sold. “I think it’s exciting but at this point remains a hypothesis,” said Camillo Padoa-Schioppa, a neuroscientist at Washington University in St. Louis. Neuroeconomics is still a young field; scientists don’t even agree on what part of the brain makes decisions, let alone how.

So far, Glimcher has shown that his theory works under specific conditions, like those of the candy bar experiment. He aims to expand that range, searching for other Freakonomics-esque mistakes and using them to test his model. “We are aiming for a grand unified theory of choice,” he said.

Divide and Conquer
The brain is a power-hungry organ; neurons are constantly sending each other information in the form of electrical pulses, known as spikes or action potentials. Just as with an electrical burst, prepping and firing these signals take a lot of energy.

In the 1960s, scientists proposed that the brain dealt with this challenge by encoding information as efficiently as possible, a model called the efficient coding hypothesis. It predicts that neurons will encode data using the fewest possible spikes, just as communication networks strive to transmit information in the fewest bits.

In the late 1990s and early 2000s, scientists showed that this principle is indeed at work in the visual system. The brain efficiently encodes the visual world by ignoring predictable information and focusing on the surprising stuff. If one part of a wall is yellow, chances are the rest is also yellow, and neurons can gloss over the details of that section. But a giant red splotch on the wall is unexpected, and neurons will pay special attention to it.

Glimcher proposes that the brain’s decision-making machinery works the same way. Imagine a simple decision-making scenario: a monkey choosing between two cups of juice. For simplicity’s sake, assume the monkey’s brain represents each choice with a single neuron. The more attractive the choice is, the faster the neuron fires. The monkey then compares neuron-firing rates to make his selection....MUCH MORE

"Israeli Scientist’s Home Made Black Hole Could Lead To A Nobel For Stephen Hawking"

From GE Reports 'Five Coolest Things On Earth This Week:
 Few topics have ignited more bitter squabbling among eminent physicists than black holes. Image credit: Getty Images
Jeff Steinhauer, an experimental physicist at the Technion-Israel Institute of Technology in Haifa in Israel, built an artificial black hole in his laboratory. The experiment might confirm one of Stephen Hawking’s boldest theories: that these most mysterious objects in the universe evaporate over eons. Black holes are so massive that they collapse time and the space around them into a singularity, a point so warped no matter or light can escape. But Hawking proposed that some radiation would get out. Nature reported that the hole in Steinhauer’s lab “seems to emit such ‘Hawking radiation’ on its own, from quantum fluctuations that emerge from its experimental set-up.” Steinhauer told the magazine that such “black-hole analogues might help to solve some of the dilemmas that the phenomenon poses for other theories, including one called the black-hole information paradox, and perhaps point the way to uniting quantum mechanics with a theory of gravity.”

The idea of a star collapsing on itself and forming a black hole was conceived by German physicist Karl Schwarzschild while solving Albert Einstein’s general relativity equations on the Russian front in World War I. Schwarzschild didn’t survive the war, but his idea lived on. In fact, few topics have ignited more bitter squabbling among eminent physicists since. Einstein didn’t believe in black holes. Fellow Nobel Prize winner Subrahmanyan Chandrasekhar did, but he never recovered his balance after he clashed over them with Sir Arthur Eddington, who didn’t. Robert Oppenheimer proved their existence, only to have his claims publicly doubted by John Wheeler, who paradoxically coined the term black hole. Now Hawking, thanks to Steinhauer, may have the last laugh, if not a Nobel.
The piece in Nature is titled "Artificial black hole creates its own version of Hawking radiation" and includes this handy graphic for the do-it-yourself crowd:

Friday, August 26, 2016

"Hampton Creek Faces U.S. Criminal Probe Over Mayo Buybacks"

This thing has always had a whiff of Frat-boys-do-create-a-corp. about it.

From Bloomberg:
The U.S. Justice Department has opened a criminal investigation into whether Hampton Creek Inc. committed fraud when it bought its own vegan mayonnaise from stores, according to people familiar with the matter. The food technology startup has already drawn a regulatory inquiry over allegedly improper purchases.

Federal investigators reached out to former Hampton Creek contractors this week to discuss the undercover buyback campaign allegedly conducted by Josh Tetricks’s San Francisco startup, one of the people familiar with the situation said. The criminal investigation is in its early stages, and it’s unclear whether the matter will lead to charges or penalties, another person said.

Tetrick, the co-founder and chief executive officer of Hampton Creek, wrote in an e-mailed response to a question about the probe: “We have no reason to believe this is true.” The company declined to elaborate. Peter Carr, a spokesman for the Justice Department, declined to comment.

Bloomberg first reported early this month that Hampton Creek bought jars of its own vegan mayonnaise products from supermarkets across the U.S. The Securities and Exchange Commission is scrutinizing whether Hampton Creek improperly recognized revenue from the campaign to buy jars of Just Mayo, Bloomberg reported last week. The company confirmed the SEC inquiry.

The U.S. officials are examining whether the buyback program violated fraud and securities statutes by making the startup look more successful to prospective investors than it actually was, the people said. Tetrick has said the self-purchases accounted for less than 0.12 percent of sales and were primarily for quality assurance. The scrutiny comes as Hampton Creek engages in fundraising efforts aimed at boosting the value of the company to more than $1 billion, people familiar with the matter have said....MORE 
Previously on Phi Scamma Jamma:
August 4, 2016 
"Just Mayo" Guys, Hampton Creek, Used Investor Money To Buy Its Own Product Off Store Shelves
Stay classy bro....
August 2015
Silicon Valley's Favorite Futuristic Food Company, Hampton Creek, May Be A Bit Fraudy
August 2015
FDA Says "No Eggs, Not Mayo": VC-backed Hampton Creek's CEO Is Defiant
September 2014
Forget GMOs. The Future of Food Is Data—Mountains of It
September 2013
Which Came First: The Artificial Plant-based Egg That Bill Gates and Peter Thiel Are Backing

"Yellen: Fed Should Explore Purchasing ‘Broader Range of Assets’"

Fine wines, single family detached housing, Pre-Raphaelite paintings (esp. Millais) junk silver coins etc.

From Barron's Income Investing:
While most investors have focused on figuring out whether Federal Reserve Chair Janet Yellen is signaling a September rate hike in her speech at Jackson Hole Friday, John Bellows, portfolio manager at Western Asset, is more interested in what she had to say about the Fed’s “toolkit” of potential policy responses to a later economic slowdown.

In that section of her speech, pretty far along, she revealed something of a doozy: She suggested future policymakers explore “purchasing a broader range of assets.”

“We’ve seen the European Central Bank is buying corporate bonds recently and the Bank of Japan is buying equities,” he says. Bellows thinks Yellen is suggesting U.S. central bankers consider such possibilities. “We haven’t heard that before,” he says. “It is interesting.”
Here’s that key passage:
On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets. Beyond that, some observers have suggested raising the FOMC’s 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting. I should stress, however, that the FOMC is not actively considering these additional tools and policy frameworks, although they are important subjects for research.
Bellows notes that Yellen’s speech makes it clear this is a subject for Fed research, not something it’s considering currently. Still it is “on the list of things she is open to.”...

Natural Gas: EIA Weekly Supply/Demand Report

October futures 2.937 up 0.052 after top ticking at 2.94. Here are the last ten days via FinViz:

From the Energy Information Administration:

Spot prices generally rise. This report week the Henry Hub spot price rose 6¢ from $2.71/MMBtu last Wednesday to $2.77/MMBtu yesterday. Price increases near the end of the report week may have been the result of forecasts for warmer weather in the coming days. At the Chicago Citygate, prices increased 10¢ from $2.66/MMBtu last Wednesday to $2.76/MMBtu yesterday. Similarly, prices at PG&E Citygate in California gained 10¢, going from $3.15/MMBtu last Wednesday to $3.25/MMBtu yesterday.

Northeast prices mixed. At the Algonquin Citygate, which serves Boston-area consumers, prices went up 5¢ from $2.84/MMBtu last Wednesday to $2.89/MMBtu yesterday. At the Transcontinental Pipeline’s Zone 6 trading point for New York, prices decreased 63¢ from $2.44/MMBtu last Wednesday to $1.81/MMBtu yesterday. New York prices dropped to a weekly low of $1.48/MMBtu Tuesday before rebounding yesterday.

Marcellus prices increase. Tennessee Zone 4 Marcellus spot prices advanced 14¢ from $1.20/MMBtu last Wednesday to $1.34/MMBtu yesterday. Prices at Dominion South in northwest Pennsylvania rose 8¢ from $1.28/MMBtu last Wednesday to $1.36/MMBtu yesterday.

Nymex prices rise. At the Nymex, the price of the September 2016 contract increased 18¢, from $2.619/MMBtu last Wednesday to $2.796/MMBtu yesterday. The price of the 12-month strip averaging September 2016 through August 2017 futures contracts climbed 9¢ to $3.050/MMBtu.

Supply flat. According to data from PointLogic, total supply of natural gas remained the same as last week, averaging 79.9 Bcf/d. Dry production grew by 1% over the report week, which PointLogic noted was driven by increases in the Appalachian production states of West Virginia, Pennsylvania, and Ohio. Average net imports from Canada decreased by 8% from last week.

Declines in power burn drive overall consumption declines. During the report week, total U.S. consumption of natural gas fell by 5%, according to data from PointLogic. Power burn declined by 12% week over week as temperatures remained warm but moderated from extreme heat. Industrial sector consumption stayed constant, averaging 19.4 Bcf/d. Natural gas exports to Mexico went up 4%....
Injections to storage continue at slower-than-normal rate. Net injections into storage totaled 11 Bcf, compared with the five-year (2011-15) average net injections of 66 Bcf and last year’s net injections of 63 Bcf during the same week. Working gas stocks total 3,350 Bcf, 350 Bcf above the five-year average and 275 Bcf above last year at this time.

This week marks the 16th consecutive week that the gap of working gas stocks compared with the five-year average declined. When the refill season began on April 1, working gas stocks were 874 Bcf above the five-year average....
Mean Temperature (F) 7-Day Mean ending Aug 18, 2016

Man Attempts To Cash A Billion-Dollar U.S. Bearer Bond In Florida

From the South Florida Sun-Sentinel:
There were plenty of clues that a billion-dollar U.S. bearer bond that a man tried to cash in Fort Lauderdale was just too good to be true, federal authorities say.

The bond, supposedly issued in 1934, appears to have been printed on an inkjet printer and seemed to contain a security thread – both technologies that did not exist until many years later, investigators said. The counterfeit bond also featured a photograph of Grover Cleveland, who was president in the 1880s and 1890s.

But perhaps the biggest clue was the eye-popping billion-dollar figure on the face of the bond. U.S. Secret Service Agent Charles Callahan told a judge Wednesday in federal court in Fort Lauderdale that the highest-valued bearer bond in that era was $10,000 and the highest-valued bond ever was a $1 million one issued in 1978.

Hugo Barrios Briceno, the 50-year-old Venezuelan man accused of trying to cash the counterfeit bond at a Fort Lauderdale financial business earlier this month, will remain locked up because he is a potential flight risk, U.S. Magistrate Judge Patrick Hunt ruled Wednesday. Barrios Briceno was arrested Aug. 16.

The judge asked to see the document during the court hearing, joking: "Believe it or not, I've never seen a billion-dollar bond before."

"That's because they don't exist — not legally anyway," prosecutor Daniel Cervantes quipped.

Defense lawyer Alberto Quirantes said his client committed no crime and was tricked into repeatedly trying to cash the bond. He said Barrios Briceno believed the bond was genuine, based on advice from at least two people he thought were experts....MORE
HT: the Sun-Sentinel's Flori-DUH blog.

Also via Flori-DUH:  Love's labour's sauced: See drunken actors perform Shakespeare in Boca Raton

As I related in 2009's "So a Sicilian mafioso walks into HSBC…" I had a somewhat similar experience:
...In a less sophisticated move, I once had a slightly deranged money guy insist that his $1 Billion of Japanese government bonds were good collateral. Here's one of the issues he proffered, image via,f_auto,fl_lossy/v2/img/496/22224/7706612_1_l.jpg
Here's a close-up of the engraving: is a name you can TRUST!
Certificate Vignette

Hurricane Watch: Invest 99L Could Either Explode In Intensity Or Fall Apart

You're welcome.
From Wunderblog:
The watching and waiting continues for Invest 99L as it rolls toward The Bahamas. 99L remained a very large but very disorganized tropical wave on Thursday afternoon. Visible satellite imagery shows one circulation near the extreme southeastern portion of the Bahamas and Turks and Caicos Islands. This circulation is largely naked, with little cloudiness around it, although some filling-in was evident late Thursday afternoon. Air Force Hurricane Hunters found winds of tropical-storm force in 99L early Thursday, but since the circulation was not fully closed, it could not yet be classified as a tropical depression or tropical storm. On their second mission of the day, Air Force Hurricane Hunters found that winds to the east of this not-quite-closed circulation had decreased by early afternoon Thursday to just below tropical storm force.

Well south of the storm-free circulation center of 99L, very intense thunderstorms were developing late Thursday afternoon along the north coast of Haiti and the Dominican Republic, while decreasing on the south side of the island. Most provinces of the Dominican Republic were on flood alert Thursday evening, and rivers were already surging according to an Associated Press report.

Based on the Thursday afternoon flight data, NHC’s Tropical Weather Outlook issued at 2:00 pm EDT Thursday reduced the odds that 99L will develop into at least a tropical depression to 40% by Saturday and 70% by Tuesday. The slow pace of development thus far isn’t a total shock, as a number of computer models suggested as far back as Monday night that 99L would be no more a mid-strength tropical storm at best by this point. However, the lack of development at this point will keep 99L from growing as intense as it otherwise might have been by this weekend.

Figure 1. Visible image of Invest 99L as of 2045Z (4:45 pm EDT) Thursday, August 25, 2016. Image credit: NOAA/NESDIS.  
99L remains a potential threat for Florida and other Gulf Coast states
It’s too soon to completely write off 99L as a threat to Florida, as it still has at least 48 hours to organize before reaching the area. The wave remains a potentially significant threat to the Gulf of Mexico coast next week. Up to now, a substantial amount of vertical wind shear has helped to displace the upper- and lower-level portions of 99L, while also driving large amounts of dry air into the wave. The University of Wisconsin-CIMSS wind shear analysis from Thursday afternoon was still showing a high 25 knots of wind shear over the core of 99L, which likely accounts for the inability of the storm to develop any heavy thunderstorm activity at its center of circulation. This state of affairs may change in the near future, though. Wind shear as analyzed by the SHIPS model is forecast to fall below 15 knots by Friday afternoon and then to remain in the low to moderate range, 5 - 15 knots, through Tuesday.

Along with the reduced wind shear on Friday and Saturday, 99L will be traveling over very warm waters (around 30°C or 86°F). Since tropical waves often develop convection overnight, we’ll have to see if 99L can form a core of showers and thunderstorms around its low-level center during this usual noctural peak. If it does, the chances of a substantial tropical storm reaching Florida will rise significantly....

By not tracking over the Florida peninsula the storm has a better chance of sucking up energy from that warm Gulf water.

"What makes Italy so frighteningly vulnerable to earthquakes"

From Quartz:
On the night of Aug. 24, a 6.0 earthquake destroyed the towns of Amatrice, Accumoli, and Pescara del Tronto in central Italy. It killed at least 268 people, injured hundreds, and severely damaged the homes of 2,500 people. Over 200 smaller quakes—a so-called earthquake swarm—have followed the main tremor, and are continuing to shake the area, adding further damage to the already tragic situation. Some of these are as strong as 4.2 on the Richter scale.

It was the largest seismic event to hit Italy since 2008, when a 6.3 quake struck L’Aquila—also in central Italy, along the Apennine mountain range—killing 308. Neither of these were isolated events: since 2000, well over 100 earthquakes of magnitude 4 or higher have occurred in Italy. And last century, earthquakes killed about 160,000 Italian civilians—more than both World Wars combined.

Every few years, a large earthquake strikes Italy, unleashing what’s now a sad routine: death, emergency rescues, thousands of people left without homes for years, rebuilding efforts, cities emptied of their souls. Politicians talk about implementing new policies that would prevent it from happening next time, but then the emergency is forgotten and nothing much changes—till the next quake hits.

Italy, compared to its European neighbors, is particular vulnerable to the devastation of earthquakes, due to a combination of three major risk factors: the country’s geodynamics, its architecture, and its culture.

A crash of plates
Seismic risk in Italy. (Photo courtesy of Protezione Civile Italiana)
Italy is at the point of contact of two large tectonic plates. It’s a geological situation that’s clearly visible: volcanoes dot the fault line in Sicily and the islands around it. The Eurasian plate, in the north, covers all of Europe and most of Asia (with the exception of the Arabian and Indian peninsulas). The African plate to the south covers Africa all the way to Antarctica.
About 30 million years ago, the African plate bumped into the European one, and birthed the Alps. At the same time, the Indian and Arabian plates pushed up against Europe; the interactions between these plates is the origin of the mountain ranges from the Pyrenees all the way to the Himalayas.
This movement hasn’t stopped since. It’s why the Alps—and the Himalayas—keep growing every year: the plates keep pushing against one another and forcing the mountain peaks higher and higher. It’s also the a main reason why large earthquakes are so common in Italy.
There’s also a a smaller fault line coinciding with the Apennine range, which starts northwest in Liguria where the Alps end and runs like a vertebral column down the center of the country for 1,200 km (745 miles) all the way to Calabria, in the very south.
Combined, these two fault lines put most of Italy at high or very high risk of large seismic events.
There are other European countries—Greece or Iceland, for instance—that share a relatively high likelihood of being hit by earthquakes,. But Italy’s development and population density makes it particularly vulnerable to high death tolls, especially since many of the highest-risk areas in the country are mountainous, which means ruinous landslides are common.

Earthquakes don’t kill people, buildings do
Geodynamics alone can’t justify the hundreds who’ve died in Italian quakes. Earthquakes of much higher intensity in populated areas of Japan, for instance, typically don’t cause the same death toll....MORE

The Guy Who Called The 35-Year Bond Bull Market Says He Likes 'Em Right Here, Right Now

I vaguely recall a very successful investor saying, around that time, "I want the longest duration I can find" and me responding something like "But 'puters". Then he tousled my hair.
At least that's the way I remember it.

From Forbes, Aug 15:

Bond Guru Gary Shilling Thinks This Bond Rally Is Alive And Well
In 1981, as inflation and Treasury yields were screaming to new heights, my good friend Gary Shilling announced, “We’re entering the bond rally of a lifetime.” He was right. That bond rally is already 35 years old, and I think it will continue.

Gary also thinks the rally is still underway. He backs up that claim with a compelling case for Treasurys and for the “long bond” (the 30 year).

Gary recalls his famous public debate on stocks versus bonds with Professor Jeremy Siegel of Wharton, in 2006. This was just before the Great Recession kicked in and sent Treasury prices sky-high. Siegel remarked to the audience, “I don’t know why anyone in their right mind would tie up their money for 30 years for a 4.75% yield” (the then-yield on the 30-year Treasury).
Then Gary asked the audience, “What’s the maturity on stocks?”

He got no answer. Gary pointed out that unless a company merges or goes bankrupt, the maturity on its stock is infinity. It has no maturity

His follow-up question was, “What is the yield on stocks?” To which someone correctly replied, “It’s 2% on the S&P 500.”

Gary continued, “I don’t know why anyone would tie up money for infinity for a 2% yield. I’ve never, never, never bought Treasury bonds for yield, but for appreciation, the same reason that most people buy stocks. I couldn’t care less what the yield is, as long as it’s going down since, then, Treasury prices are rising.”

Here is a whole list of excellent reasons to give Treasurys the respect they so richly deserve.

“The Bond Rally of a Lifetime”
By A. Gary Shilling
(excerpted from the August 2016 edition of A. Gary Shilling’s INSIGHT)
We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation
We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy. That happens during wars, and so inflation and wars always go together—going back to the French and Indian War, the Revolutionary War, the War of 1812, the Mexican War of 1846, the Civil War, the Spanish American War of 1898, World Wars I and II, and the Korean War. In the late 1960s and 1970s, huge government spending—and the associated double-digit inflation (Chart 1)—from the Vietnam War topped LBJ’s War on Poverty.
Bond Guru Gary Shilling Thinks This Bond Rally Is Alive and Well1
By the late 1970s, however, the frustrations over military stalemate and loss of American lives in Vietnam as well as the failures of the War on Poverty and Great Society programs to propel lower-income folks led to a rejection of voters’ belief that government could aid Americans and solve major problems. The first clear manifestation of this switch in conviction was Proposition 13 in California, which limited residential real estate taxes. That was followed by the 1980 election of Ronald Reagan, who declared that government was the basic problem, not the solution to the nation’s woes.
This belief convinced us that Washington’s involvement in the economy would atrophy and so would inflation. Given the close correlation between inflation and Treasury bond yields (Chart 1), we then forecast the unwinding of inflation—disinflation—and a related breathtaking decline in Treasury bond yields to 3%, as noted earlier. At that time, virtually no one believed our forecast since most thought that double-digit inflation would last indefinitely.

Lock Up for Infinity?
Despite the high initial yields on “the long bond” (as the most recently issued 30-year Treasury is called), our focus has always been on price appreciation as yields drop, not on yields, per se. A vivid example of this strategy occurred in March 2006—before the 2007–2009 Great Recession promoted the nosedive in stocks and leap in Treasury bond prices. I was invited by Professor Jeremy Siegel of Wharton for a public debate on stocks versus bonds. He, of course, favored stocks and I advocated Treasury bonds.

At one point, he addressed the audience of about 500 and said, “I don’t know why anyone in their right mind would tie up their money for 30 years for a 4.75% yield [the then-yield on the 30-year Treasury].” When it came my turn to reply, I asked the audience, “What’s the maturity on stocks?” I got no answer, but pointed out that unless a company merges or goes bankrupt, the maturity on its stock is infinity—it has no maturity. My follow-up question was, “What is the yield on stocks?” to which someone correctly replied, “It’s 2% on the S&P 500 Index.”

So I continued, “I don’t know why anyone would tie up money for infinity for a 2% yield.” I was putting the query, apples to apples, in the same framework as Professor Siegel’s rhetorical question. “I’ve never, never, never bought Treasury bonds for yield, but for appreciation, the same reason that most people buy stocks. I couldn’t care less what the yield is, as long as it’s going down since, then, Treasury prices are rising.”

Of course, Siegel isn’t the only one who hates bonds in general and Treasurys in particular. And because of that, Treasurys, unlike stocks, are seldom the subject of irrational exuberance. Their leap in price in the dark days in late 2008 (Chart 2) is a rare exception to a market that seldom gets giddy, despite the declining trend in yields and related decline in prices for almost three decades.
Bond Guru Gary Shilling Thinks This Bond Rally Is Alive and Well2
Treasury Haters
Stockholders inherently hate Treasurys. They say they don’t understand them. But their quality is unquestioned, and Treasurys and the forces that move yields are well-defined—Fed policy and inflation or deflation (Chart 1) are among the few important factors. Stock prices, by contrast, depend on the business cycle, conditions in that particular industry, Congressional legislation, the quality of company management, merger and acquisition possibilities, corporate accounting, company pricing power, new and old product potentials, and myriad other variables.

Also, many others may see bonds—except for junk, which really are equities in disguise—as uniform and gray. It’s a lot more interesting at a cocktail party to talk about the unlimited potential of a new online retailer that sells dog food to Alaskan dogsledders than to discuss the different trading characteristics of a Treasury of 20- compared to 30-year maturity. In addition, many brokers have traditionally refrained from recommending or even discussing bonds with clients. Commissions are much lower and turnover tends to be much slower than with stocks....

FT Alphaville's Paul Murphy Talks Autonomous Vehicles

From FT Alphaville, Aug. 25:
PM Morning
PM Welcome to Markets Live
PM So Neil Campling’s gone off on one this morning
PM Neil Campling of Northern Trust
PM He reckons it’s an historic day in the world of Autonomous Vehicles
PM And he’s sharing photos like these….
PM This is to accompany this, of course….

Morning Beans and Grains: Hey, You Awake?

Last Chg
Corn 331-6-0-2
Soybeans 976-2+0-6
Wheat 423-2-0-4

From Agrimoney:

AM markets: soy eases, despite soyoil resolve. Cotton gains
Just how far can soybean futures fall, if bears put their mind to it?
Corn and, in particular, wheat have already felt a heavy hand from ideas of strong supplies, driving December contracts in both grains to contract lows, or thereabouts.
But soybeans had been holding up reasonably well, until a 3% slump in the last session in the November lot, which notably ended back below $10 a bushel at a three-week closing low.
And this despite a huge week for US soybean export sales which, at 115,100 tonnes for old crop and 1.94m tonnes for 2016-17, "were outstanding and blew away expectations", according to Joe Lardy at CHS Hedging.
Benson Quinn Commodities said that "big demand still lurks under the market", the US Department of Agriculture likely in its next monthly Wasde report on world crop supply and demand to cut its estimate for US soybean stocks at the close of 2015-16 by "another 25m bushels due to the big export programme".
Tour findings
But supply ideas are getting stronger too.
A big hang-up for the soybean market this week has been the strong yields implied by data coming out of the Pro Farmer crop tour of the Midwest (and for which final results will be released after the close of markets on Friday).
Sure, the tour's findings on corn have been somewhat mixed.
Indeed, overnight the tour released an estimate for a western Iowa yield at 187.11 bushels per acre, up from a finding of 181.58 bushels per acre for last year, but for Minnesota, the 2016 figure of 182.32 bushels per acre was down on the 190.87 bushels per acre for last year.
Pod counts
However, for soybeans, the data, given in the form of pod counts per 3-by-3 foot square, have been pretty universally strong....

"And now for Yellen..."

From Marc to Market:
Yellen's presentation at Jackson Hole today is the highlight of the week.  It also marks the end of the summer for many North American and European investors.  It may be a bit of a rolling start for US participants, until after Labor Day. However, with US employment data next Friday, many will return in spirit if not in body.
While the FOMC has shifted from signaling four hikes this year to two formally, and next month's FOMC meeting may shift to only one.  It has become something of a sport to show how poorly the Fed has forecast the economy and its policy.  The market expectations have also fluctuated, though it never accepted the likelihood of four hikes this year. The odds of a September hike implied by the Fed funds futures now stands at about 32% compared with 18% on August 1 and 10% on July 26.    As we have since midweek, we suspect there is greater scope for Yellen to disappoint than to overshoot expectations.    The market hopes for a clear signal from Yellen, and although she is among the plainest speaking Fed chairs, we suspect she will give little away.    
Japanese prices are moving in the wrong direction.  For the fifth consecutive month, the BOJ's self-selected core measure of CPI, which excludes fresh food, has fallen.  The -0.5% reading in July exceeded expectations that prices fell 0.4% from a year ago. It represents a three-year low.   
Even if Japan were to exclude food and energy, the Federal Reserve and ECB's definition of core, CPI has rose a lowly 0.3% from a year ago. The median expectation was for a 0.4% increase.   An argument can be made to exclude rents in Japan, which may be falling due structural factors, like demographics, but that would be only sufficient to lift a core measure to around 0.6%.  
Japan's monetary policy is unprecedented.  The lack of historical experience implies risks.  The BOJ's balance sheet is 80% of GDP (compared to the Fed's 25%), and no end is in sight.  It has also adopted negative interest rates.  BOJ Governor Kuroda has started a comprehensive review of monetary policy, but the results will be asymmetrical.  He is looking to do more not less.    A risk-adjusted return on Japan's course seems like a poor investment.   It is important to recognize that the Fed's asset purchases were not justified or explained by top Fed officials to boost CPI.
The UK reported details of Q2 GDP.   The highlights include a 0.9% rise in household spending, which is the most in two years and a contraction in government spending (-0.2% vs. +0.5% in Q1). The external sector was a bigger drag as exports rose 0.1% (not the 0.7% increase of the median expectation), while imports were stronger than expected (rising 1.0% vs. expectations for a 0.8% increase).  Economic momentum did seem to stall though as the quarter progressed and as the referendum approached.  In June manufacturing and construction contracted.  The key, of course, is the how the economy is doing in Q3.  Next week's PMIs will help clarify the picture.   
The eurozone reported M3 slowed to 4.8% in July from 5.0% in June.  It is the slowest growth since April.  Lending to nonfinancial businesses edged up to 1.9% from 1.7%, while lending to households was steady at 1.8%.   Even in the most of times, money supply, and lending figures are not market movers.  The euro has been trapped in about a one cent range this week (~$1.1245-$1.1355). The North American session will start with the euro near mid-range.  The intraday technicals suggest scope for initial though limited gains....MORE