Saturday, August 29, 2015

Bulwer-Lytton 2015: "He was drawn to her like a yellow cat to navy blue pants"

Similar in structure to one of our fave bits of financial journalism:
"Like a rottweiler on a slightly undercooked leg of lamb, MarketBeat refuses to let go of its probe of the depths of Thursday’s Flash Crash, particularly the momentary trades that priced ostensibly healthy companies such as Accenture at one cent...."
-Former Wall Street Journaler (now QZ) Matt Phillips 
Study the master:
"It was a dark and stormy night; the rain fell in torrents--except at occasional intervals, when it was checked by a violent gust of wind which swept up the streets (for it is in London that our scene lies), rattling along the housetops, and fiercely agitating the scanty flame of the lamps that struggled against the darkness."
 --Edward George Bulwer-Lytton, Paul Clifford (1830)
From the Bulwer-Lytton Fiction Contest 2015, some of the entries:
Winner, Children’s Literature:
The doctors all agreed the inside of Charlie’s intestinal tract looked like some dark, dank subway system in a decaying inner city, blackened polyps hanging from every corner like tiny ticking terrorist time bombs, waiting to burst forth in cancerous activity; however, to Timmy the Tapeworm this was home.  — E. David Moulton, Summerville, SC

Dishonorable Mentions, Crime/Detective:
I knew that dame was damaged goods when she first sauntered in, and I don't mean lightly scratched and dented goods that a reputable merchant like Home Depot might offer in a clearly marked end display sale; no, she was more like the kind of flashy trashy plastic knockoff that always carries a child-choking hazard that no self-respecting 11-year-old Chinese sweat shop kids would ever call theirs. — Tom Billings, Minneapolis, MN

Dishonorable Mentions, Fantasy:
“My name is Vangir," the stout dwarf announced, "son of Valdir, son of Tolfdir, son of Torsson, heir to the dwarf kingdom of Darag-Vur, King of the Under-Folk, ring-giver, dragon-slayer, M.D., DDS. — Austin Stollhaus, Louisville, KY

Winner, Horror:
If Vicky Walters had known that ordering an extra shot of espresso in her grande non-fat sugar free one pump raspberry syrup two pumps vanilla syrup soy latte that Wednesday would lead to her death and subsequent rebirth as a vampire, she probably would have at least gotten whipped cream.— Margo Coffman, Corinth MS

Dishonorable Mentions, Purple Prose:
He typed like a ninja with no arms, and the text flowed like a drop of blood down a katana blade sharpened with one of those automatic kitchen things you can buy on late-night television when you're drunk but not too drunk to read off your 16-digit credit card number and security code.— Alex Dering, Brooklyn, NY

Miscellaneous Dishonorable Mentions 
Barnaby asked the counter girl for a pastrami sandwich on rye with heartbreak, onions, and ennui on it, wrapped to go in the soul of a sheep, to which she turned wearily and yelled, "Another number six!"— Jeff Coleburn, West Chester, PA
And many, many MORE

HT to and title from MetaFilter     

Some prior awfulness that we've noted over the years:
2010 Runner-up
Through the verdant plains of North Umbria walked Waylon Ogglethorpe and, as he walked, the clouds whispered his name, the birds of the air sang his praises, and the beasts of the fields from smallest to greatest said, “There goes the most noble among men” – in other words, a typical stroll for a schizophrenic ventriloquist with delusions of grandeur. — Tom Wallace, Columbia, SC 
2011 Winner
Cheryl’s mind turned like the vanes of a wind-powered turbine, chopping her sparrow-like thoughts into bloody pieces that fell onto a growing pile of forgotten memories. — Sue Fondrie, Oshkosh, WI
About which the judges write:
At 26 words, Prof. Fondrie’s submission is the shortest grand prize winner in Contest history, proving that bad writing need not be prolix, or even very wordy. 

Want to Spin Your Data? Here’s How: Five Ways To Lie With Charts

From Nautil.us:
A chart’s purpose is usually to help you properly interpret data. But sometimes, it does just the opposite. In the right (or wrong) hands, bar graphs and pie charts can become powerful agents of deception, tricking you into inferring trends that don’t exist, mistaking less for more, and missing alarming facts. The best measure of a chart’s honesty is the amount of time it takes to interpret it, says Massachusetts Institute of Technology perceptual scientist Ruth Rosenholtz: “A bad chart requires more cognitive processes and more reasoning about what you’ve seen.”

It helps to know the kinds of tricks that charts can try to pull. Here are five.

Puzzling Perspective
Cudmore_BREAKER-01
Both of these pie charts show “labor” taking up 30 percent of some total. But you probably noticed that the chart on the right makes the labor slice look a lot bigger by positioning it in the foreground, which gives it a thick 3D edge and more than double the number of dark blue pixels than when it’s in the background.

Human vision isn’t very good at interpreting the third dimension, says Rosenholtz. When confronted with a 3D chart, we assume that more color indicates a greater amount. So when more pixels are used to represent one slice of a pie chart, the slice appears more significant, Rosenholtz says. That’s why we can assign a greater value to foreground slices in 3D pie charts.

Swindling Shapes
Cudmore_BREAKER-02
A classic way to lie with a chart is to introduce irrelevant information. In the chart on the right, the only relevant property is cone height. But, while the cone volume is irrelevant, it is also very difficult to ignore, encouraging us to assign a greater value to the larger part of the cone.

In both charts, administrative costs take almost a third of each dollar. While this matches reasonably with the left chart, the right chart seems to shrink administrative costs to something much less than a third. “Anytime you ask anyone to judge just height and ignore the other measurements,” says Rosenholtz, “it’s going to take extra cognitive load to disregard these other cues.”...MORE 
Or, you could go with the approach highlighted by the Columbia Journalism Review:

"The Long-Term Oil Play"

Some of the easily identifiable considerations to plug into your model are the depressive effects of slowing population growth and international agreements to use force to further the stranded assets argument, the inflationary effects of a reduction in the total resource and more particularly in the lower cost plays and the could-go-either-way interplay of price and regulation in the development of alternative transportation and whether Saudi Arabia asks Pakistan to lend them 60-70 nukes until their domestic nuclear development program gets going.

Then there are the unknown unknowns.

From Barron's:
When financial markets are in turmoil, it’s difficult to think about where stocks might be three years out, but that’s what a disciplined contrarian investor should do.

When financial markets are in turmoil, it’s difficult to think about where stocks might be three years out, but that’s what a disciplined contrarian investor should do. This column doesn’t pretend to know precisely when oil prices will turn up or by how much. 

Our best guess is that energy prices are in for an extended weak period, perhaps lasting years. That’s beneficial for consumers of gasoline and other petroleum-based products, but not so good for shareholders of decimated energy companies. After dropping 60% since the summer of 2014, oil prices may yet go lower in the near term. 

Yet the rules of the investment cycle haven’t changed.

We’re already a year into falling crude prices. At some point the natural industry reaction will begin in earnest: a significant contraction of production. Just as supplies of crude oil—cue the fracking music—came gushing out of surprising new discoveries over the past decade in response to oil prices that soared to triple digits, supply will contract—eventually.

The Oil Patch shakeout is under way, with marginal suppliers going bust and the weaker getting bought by the stronger. This is an economic law that can’t be repealed. Last week, Schlumberger (SLB) announced it would buy Cameron International (CAM) in a deal worth nearly $15 billion. 

Many energy stocks are down 40% to 60% from highs. Their near-term outlook is poor, medium term a little less bad. Admittedly, and unfortunately, this column has been too early with energy picks over the past 12 months. Our endorsements of Schlumberger and Transocean (RIG) have been particularly painful so far, down 25% and 17%, respectively, since publication of our views. 

The sting of oil at $40 per barrel, and the threat it might go lower, makes it hard for investors to remember that crude was significantly above $60 per barrel for the vast majority of time over the past decade. 

Ironically, as oil prices fall, the better things are, long-term, for big, high-quality oil companies such as ExxonMobil (XOM). Exxon will be in a position to buy struggling companies with good assets, and it will be a survivor when the supplies of oil currently awash around the world are absorbed a few years hence....MORE
Between now and then we actually prefer the oil services companies for the annuity-like certainty that they will be asked to re-frack a whole bunch of U.S. wells drilled over the last decade and smaller E&P cos. who actually have a chance to build reserves by putting holes in the ground.

Followup: "Oil records its biggest 2-day gain in years"

Last Sunday we pointed out a change in the oil market.
Then came Monday and oil went lower.
Then it went up.
Now we're trying to figure out what's next.
From the Financial Times:
Brent crude oil jumped 5 per cent to above $50 a barrel on Friday and had its biggest two-day gain in years, as traders continued to buy back bets against the price.

The international oil benchmark rallied by 16 per cent over Thursday and Friday alone. West Texas Intermediate, the US benchmark, gained a similar amount and moved back above $45.

The moves capped a volatile week for oil and broader markets. Both oil benchmarks had dropped to six-year lows at the start of the week as China’s “Black Monday” exacerbated fears about a long-running crude glut.

“This is a short-covering relief rally after broader markets have stabilised and traders have lowered their expectations for a September rate rise from the US [Federal Reserve],” said Amrita Sen at consultancy Energy Aspects.

“Our view is that fundamentally nothing much has changed. The market is still oversupplied. Oil tanker rates have fallen sharply due to lower shipments to Asia.”

Hedge funds and other large speculators had last week amassed the largest short position in US crude oil since March. As of Tuesday, they held paper positions betting on lower prices equivalent to more than 191m barrels of oil, but traders said they had moved to buy these back as equity markets stabilised.

For the week Brent rose 10 per cent, settling at $50.05 a barrel. Brent had fallen sharply in seven of the nine previous weeks, and hit a six-year low of $42.23 on Monday.

WTI was up 11.8 per cent for the week, moving back above $45 a barrel after hitting $37.75 on Monday. The jump came after eight consecutive weeks of steep losses....MORE

Nassim "Black Swan" Taleb-Advised Fund Made a Billion From the Volatility On Monday

We are not impressed.
If it takes you six years of buying out-of-the-money puts for your 20% day to arrive, your annualized gain suffers.
More below.
From the Wall Street Journal:

A ‘Black Swan’ Fund Made $1 Billion This Week
As market collapsed, hedge-fund firm Universa Investments gained roughly 20% on Monday
The recent market rout caught some star Wall Street traders by surprise. But not a hedge-fund firm affiliated with “The Black Swan” author Nassim Nicholas Taleb, which gained more than $1 billion on a strategy that seeks to profit from extreme events in financial markets.

Universa Investments LP was up roughly 20% on Monday, according to a person familiar with the matter, a day when the Dow Jones Industrial Average collapsed more than 1,000 points in its largest intraday point decline. The blue-chip index finished down 588 points on the day.
The fund’s returns for the year climbed to roughly 20% through earlier this week, this person said. Universa holds positions designed to protect about $6 billion in client assets, according to people familiar with the firm.

“This is just the beginning,” said Universa founder Mark Spitznagel, referring to the market volatility this week. His longtime collaborator, Mr. Taleb, who advises Universa, is a professor at New York University and is known for his pessimistic forecasts on the global economy.

“The markets are overvalued to the tune of 50%, and I’ve been saying that for some time,” said Mr. Spitznagel, who has spent the past several years warning of a coming correction he viewed as inevitable given the easy-money policies by central banks around the world.

Miami-based Universa and other “black swan” hedge funds that seek to reap big rewards from sharp market downturns emerged as winners amid the world-wide volatility of the past week, according to investors.

These funds “so far this month have been very strong,” said Gregg Hymowitz, founder of New York-based hedge-fund investor EnTrust Capital Inc., who has invested in several such funds since 2011. “If your house burns down, you want to have some protection.”

The funds’ nickname refers to the long-held belief that all swans are white, proved false when European explorers found black swans in Australia. In finance, a black-swan event refers to something extreme and highly unexpected, like the financial crisis. Mr. Taleb popularized the term in his best-selling 2007 book.

Some funds racked up double-digit percentage gains in the past week, largely on Monday. Capstone Investment Advisors LLC is up 52%, or nearly $100 million, for August through Wednesday, nearly all of it coming from gains last Friday through Tuesday, according to a person familiar with the matter. Black Eyrar, a fund of London-based 36 South Capital Advisors LLP, was up in the double-digit percentages for August through Friday, according to a person familiar with the fund. A similar fund at Boaz Weinstein’s Saba Capital Management LP was up 14% for August through Friday, according to an investor, bringing its returns for the year to 1%.

“We wait for times like these,” said Jerry Haworth, 36 South’s co-founder and chief investment officer.

Black-swan funds came into vogue in the years after the financial crisis, as concerns mounted about another recession, a potential increase in interest rates by the Federal Reserve and a European crisis, investors said.

Their strategies aren’t an easy sell to prospective investors because the funds tend to lose money steadily for several years before making a profit. Some critics said they can be too expensive and lead clients to pull out at the wrong time.

Universa, which was founded in 2007, first attracted attention for its outsize gains in 2008, racking up more than 100% profits for many of its clients.

It profited in 2010, and in 2011 it notched gains of about 10% to 30% for clients. In other years, it has lost small amounts of money.

The firm focuses on finding cheap, shorter-dated options on the S&P 500 and other instruments it expects to rise in value amid a notable downturn. During the past week, the value of put options that Universa bought over the past one to two months jumped, said people familiar with the matter. A put option confers the right, but not the obligation, to sell a security at a specified price, usually within a limited period.

Mr. Spitznagel, a former Chicago Board of Trade pit trader who worked at the proprietary-trading desk of Morgan Stanley, described Monday’s fall as a “blip” compared with what could still happen, though he said it was unusual because of the speed of the decline and its timing so close to market highs....MORE
 We've been tracking Mr. Taleb for quite a while and the general summation is an ad I was going to write for him:
"Here at The PseudoProfound Group, we believe..."
See for example this 2013 re-post of a snip from 2009's "Taleb Makes Hyperinflation Bet and Why You Might Want to Be Skeptical":

Climateer Line of the Day: The Humble Mr. Taleb Edition
I was reminded of something Nassim Taleb said a few years ago:
CNNMoney: Did your personal portfolio benefit or suffer from the subprime crisis?

Taleb: I prefer not to answer that, as I am trying to avoid talking about my nonintellectual activities. 
And  now I can't stop laughing. ...
In 2010 it was "Oh Berkshire Hathaway Fans: "'Black Swan' Author Nassim Taleb: Warren Buffett May Just Be Lucky" (BRK.B; BRK.A)"
How to keep your name in the headlines by making a sophomore statistical point (sample size, error bars, confidence levels)....
That Hyperinflation post has some amusing analysis of Taleb's prior fund, Empirica Kurtosis LLC. Here' one bit:
...So after the fund starting grinding out losses, Nassim started calling his fund a 'hedge', not a fund, later, a 'laboratory'. Now he says about the fund:"Our aim was not to make money,'' Taleb says.... 

...But he makes sure any article that mentions his fund notes he made 60% in 2000. The only record of his total fund was a WSJ article on him in 2007, which notes he lost money in 2001 and 2002, made single digits in 2003 and 2004. That averages out to around 12%, and as the risk free rate was about 4% over that period, and the volatility was probably around 17% on a monthly basis, thats a Sharpe of 0.47. Not so good. And that's with his unaudited returns, so it's probably biased high (people have a tendency to round unaudited results upward significantly)...
See also "More on Nassim "Black Swan" Taleb as a Money Manager"

2013's "Brian Eno Answers Nassim Taleb" begins with:
Mr. Eno is an autodidactic polymath.
Mr. Taleb is a comedian:
Climateer Line of the Day: The Modesty of Nassim Taleb Edition

Big 'ol HT up front to Abnormal Returns.

From Artangel:

From: Brian Eno, London
To: Nassim Nicholas Taleb, New York 
30 April 2013

Dear Nassim,
And ends with a very nice cover of Mr. Eno's "Baby's on Fire".



Possibly also of interest:
March 2008!
Black Swans and Greenspan
July 2011
Taleb's World: "Knowledge is (not) Good"
August 2014
Translating Taleb
January 2014
Nassim 'Black Swan' Taleb Is a....[fill in blank]
November 2014
Why is Nassim Taleb So Venomous on Twitter?
Oct, 2008
Taleb Calls For LTCM Pair To Lose Nobel Prize
Feb. 2013
Holy Cow, Is This a Paragraph or What? (Poor Nassim Taleb Never Stood A Chance)
By Joseph Cotterill (his ranting gets raves):...

And many more, use the 'search blog' box, keyword Taleb. 

Friday, August 28, 2015

"Oil Surges To $45 After Saudi Troops Invade Yemen"

Sure, let's put a little geopolitical risk premium back in the price.
Front WTI $45.00 up $2.44.
Brent up $1.79 at $49.35

We'll be exiting the dance floor ahead of the weekend.
Sometimes you get lucky.

From ZeroHedge:
For the 3rd day in a row, crude oil prices are spiking as the short squeeze morphs into a war premium. Heberler reports that Saudi ground troops have entered Northern Yemen and seized control of two areas in the Saada province. WTI is now above $45... 
As we noted previously, boots have been on the ground there (and tank tracks) since early July......But, as Haberler reports, forces seize control of two areas in Yemen’s Saada province in the first actual ground offensive by The Saudis...
Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said. This is Saudi Arabia's first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions. The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan.... 
...MORE

The Future Of Edible Electronics: 3D Printed Vegemite to Power LEDs

From 3Ders.org:

The list of 3D printable materials has gotten very long and diverse over recent years, and only seems to be increasing in length at a very steady rate. But among it are some very surprising (and sometimes even edible) materials, and one Dutch professor at the University of Wollongong in Australia has just added perhaps the strangest: Vegemite. Not only has Marc in het Panhuis successfully 3D printed this material, he has proved that the material is an ideal conductor of electricity. Could this be the future of edible electronics? 
Now for those of you who’ve never ventured down under, Vegemite is not only a more versatile ingredient than expected, it is also something of a cult product. It has shaped the breakfasts and lives of millions of Australians for decades, and is actually quite healthy. Full of B vitamins, it is made from left-over yeast extracts from the brewing industry, as well as a couple of other spices. It is also a rather well-known product with umami flavor and is eaten on everything in Australia, including just on toast with a bit of butter. 
Despite all the inventive Vegemite recipes out there, no one has ever tried to 3D print it, which is exactly what professor Marc in het Panhuis has now achieved. You might know this engineering expert for a number of other 3D printing innovations. Just recently, we reported on his involvement in a 4D printed valve. 
Evidently, one morning over breakfast, he guessed that Vegemite is a more versatile product than many believe. Designing a breadboard (for electronic circuit prototypes, not for bread), he 3D printed Vegemite on top of a slice of white bread with a custom 3D printer in the logo of his university. In his experience, Vegemite was actually a fantastic 3D printable material. 
As its qualities also suggest that Vegemite is capable of conducting electricity – containing water so and being very salty – that is something that also had to be tested. LED lights were therefore plugged into the UWO logo and powered up. And as you can see for yourself, it worked! ‘Even on bread we can put electricity through our Vegemite’, the professor declares. ‘This shows that we can 3-D print vegemite electronics and use it to power LEDs.’ And as he goes on to prove, it is still edible – just make sure to unhook all electronics....MORE
For more Anglospheric concentrated yeast extract news see 2013's Fracking In England: You Either Love It or Hate It:
WARNING: The 'reveal' at the end of the post is disgusting. 
Let's just say "Microbial injectate".

Natural Gas: EIA Supply/Demand Report

From the Energy Information Administration:

In the News:

Northeast production sets record high on Monday
Production in the Northeast reached a record high of 20.4 billion cubic feet (Bcf) on Monday, August 24, according to Bentek Energy data. In the last several years, growth in total U.S. natural gas production has been driven largely by production gains in theMarcellus and Utica shale plays. Marcellus, which spans Ohio, Pennsylvania, and West Virginia, is the most productive U.S. shale play, and alone accounted for 21% of total U.S. dry natural gas production in the first five months of 2015. During that period, total U.S. dry gas production grew 8% over 2014 levels for the same period, with increases in Marcellus production contributing more than half of that growth. The record high Northeast production on Monday may be attributed to the completion of maintenance in the area. 
The relatively large volumes of natural gas produced in the Northeast combined with constrained pipeline takeaway capacity have contributed to natural gas prices in that area that are below prices in other regions of the country. The price discount for prices at Transco’s Leidy line in Marcellus to the U.S. benchmark Henry Hub has averaged $1.48 per million British thermal units (MMBtu) since the start of the year. This price difference has contributed to the announcements from some producers that they will be slowing their drilling activity in the Marcellus and Utica until new pipeline takeaway capacity enters service....MORE
Prices/Demand/Supply:Prices vary slightly, but flat in many market locations. At the start of the report week, temperatures were generally above average in the East, South, and West, though below average in the Midwest and Rockies. Temperatures remained moderate in the central states and dropped some in most other regions, with the exception of the Northeast, which remained above average. The Henry Hub spot price began the report week at $2.73/MMBtu last Wednesday and settled yesterday down slightly at $2.72/MMBtu. Prices at other market locations also declined slightly. Spot prices at the Chicago Citygate decreased by 4¢ Wednesday-to-Wednesday, closing yesterday at $2.81/MMBtu. Prices at PG&E Citygate, serving Northern California, declined from $3.18/MMBtu last Wednesday to $3.12/MMBtu yesterday. Of note, the trading point Sumas, which is the primary border crossing for natural gas from Canada to Washington state, serving the Pacific Northwest, saw a rise from $2.07/MMBtu last Wednesday to $2.53/MMBtu yesterday because of supply constraints on the Canadian side. 
Northeast prices respond to increased power burn. In the Northeast, prices fluctuated during the report week in response to varying temperatures, with New York and New England seeing above average temperatures for part of the week. New England spot prices also responded to an increased demand for natural gas because of an outage at the Pilgrim-1 nuclear power station, near Plymouth, Massachusetts, which started on Saturday, August 22, and ended yesterday. Gas prices at the Algonquin Citygate, which serves Boston, started the report week at $2.62/MMBtu, decreased to $2.35/MMBtu for the weekend, then rose on Tuesday, because of above-average temperatures and increased power sector demand, to $3.29/MMBtu, and settled at $3.06/MMBtu yesterday. Similarly, at the Tennessee Zone 6 200L serving lower New England, prices fluctuated during the report week, starting last Wednesday at $2.53/MMBtu, increasing to $3.22/MMBtu on Tuesday, and settling yesterday at $3.02/MMBtu. At Transcontinental Pipeline's Zone 6, serving New York City, the spot price started the report week at $2.73/MMBtu and ended the report week yesterday at $2.66/MMBtu....
...MUCH MORE

"Risk Control Funds May Be Driving Huge Market Swings"

Lifted in toto from Barron's Stocks to Watch, Aug. 27:
Stocks are surging, but many institutional investors hate the rally.
One top trader at an international firm told me he was liquidating his 401k into cash at the close. That’s how much he mistrusts the ferocity of this week’s move. 
A few days ago, one of my best sources, an institutional trader who mentored me when I was a wee lad, emailed to say this and it is worth repeating. 
He says that he believes “Risk Control Funds” are driving equity flows. He says these funds go by different names – risk parity, risk budgeting or risk control. Each operates a little bit differently, but each essentially does the same thing. When volatility spikes, they sell stocks and buy bonds or move to cash.
My source, who has run some of the biggest trading desks on the Street, equates this action with portfolio insurance that was popular before the 1987 crash. Portfolio insurance entailed shorting index futures against stocks to manage risk. As the market corrected, index futures were repeatedly sold at lower prices. The trading technique was blamed for the 1987 crash. 
I don’t want to raise the flag of the bearish past but this talk is starting to spread.
Stocks to Watch Homepage

Maybe the Social Sciences Aren't Really Science

For the last seven or eight years our watchword has been something akin to this idea from 2013's "The Next Time Someone Tells You Economics is a Science Remind Them of Mendeleev":
...Two other points to consider:1) The mere fact that economists use the tools of science (Maths) to do their work no more makes economics a science than bid and ask spreads make carbon trading "market based"....
From the New York Times:
Many Psychology Findings Not as Strong as Claimed, Study Says
The past several years have been bruising ones for the credibility of the social sciences. A star social psychologist was caught fabricating data, leading to more than 50 retracted papers. A top journal published a studysupporting the existence of ESP that was widely criticized. The journal Science pulled a political science paper on the effect of gay canvassers on voters’ behavior because of concerns about faked data. 
Now, a painstaking yearslong effort to reproduce 100 studies published in three leading psychology journals has found that more than half of the findings did not hold up when retested. The analysis was done by research psychologists, many of whom volunteered their time to double-check what they considered important work. Their conclusions, reported Thursday in the journal Science, have confirmed the worst fears of scientists who have long worried that the field needed a strong correction. 
The vetted studies were considered part of the core knowledge by which scientists understand the dynamics of personality, relationships, learning and memory. Therapists and educators rely on such findings to help guide decisions, and the fact that so many of the studies were called into question could sow doubt in the scientific underpinnings of their work. 
“I think we knew or suspected that the literature had problems, but to see it so clearly, on such a large scale — it’s unprecedented,” said Jelte Wicherts, an associate professor in the department of methodology and statistics at Tilburg University in the Netherlands. 
More than 60 of the studies did not hold up. Among them was one on free will. It found that participants who read a passage arguing that their behavior is predetermined were more likely than those who had not read the passage to cheat on a subsequent test....MORE
As noted in UPDATED--Tyler Cowen on Izabella Kaminska's "Counterintuitive Model of the Modern World":
...Combined with being at the market for pretty much my entire adult life, focusing on energy and ag, and thinking that Alan Sokal's "Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity" was hilarious, I end up with plenty of solitude at parties....
I tease my Sociology/Anthro/Psych friends with the Sokal paper.

Alan Sokal is a professor of mathematics at University College London and professor of physics at New York University. Back in 1996 he submitted "Trangressing the Boundaries..." to the journal  Social Text and got it accepted by said learned Journal. His paper argued that quantum gravity is a social and linguistic construct and was, of course, complete gibberish. The paper is among the most cited in the field with some 900 cites at last count. It's also created a cottage industry of critiques and commentary.

Good yuks at the expense of the humanities folks, right?

Ahem...

In August the peer-reviewed (which Social Text was not) Journal, Advances in Pure Mathematics, accepted for publication “Independent, Negative, Canonically Turing Arrows of Equations and Problems in Applied Formal PDE”.

The paper was computer generated and was, of course, gibberish.**
If the journal of an academic discipline can't figure this stuff out, how the heck am I supposed to?


"Satyajit Das: The illusion of liquidity"

From Forbes India:
The lack of trading liquidity may not cause the next financial crisis but it will increase volatility and accentuate losses 
Financial markets are currently concerned with the lack of trading liquidity despite the actions of central banks to maintain a seemingly unlimited supply of money. 
There are two types of financial liquidity: The first is funding or the supply of money, and the second relates to the ability to buy and sell financial assets readily and without high transaction costs. Central bank policies have simultaneously created an abundance of money and a contraction of trading liquidity. 
Trading liquidity is required where holders of securities, commodities and currencies wish to adjust holdings. This may be dictated by the need for cash, for example, when investors in a fund redeem their interest.   
Investors and fund managers frequently over-estimate liquidity. Only a few stocks, major currencies and some government securities trade consistently, and in large volumes. Other assets trade less, particularly where market conditions are unfavourable. Michael Milken, the creator of junk bonds, identified this tendency: “Liquidity is an illusion... it’s always there when you don’t need it, and rarely there when you do.” 
Today, trading indicators give the appearance of robust normality. But market turnover—the volume of trading relative to outstanding securities—in bonds and shares has fallen significantly. Government and corporate bond turnover has fallen by around 50 percent, in part reflecting the massive growth in issuance and outstandings.  
Investors are likely to have greater difficulty in selling their holdings, especially large ones. They are also exposed to greater price volatility. Increasingly, markets are characterised by low day-to-day volatility, but more frequent, large price changes. In October 2014, US government bonds rates moved by 0.40 percent in a few minutes. In early 2015, German government bond yields rose from near zero to 0.80 percent in a few days. Statistically, these should occur once in several billion years. 
There are several factors driving the problem. 
First, central bank policies of low rates and abundant liquidity have driven investors into riskier, less liquid assets in search of returns. Large purchases by central banks have created an artificial scarcity of low-risk securities. Investors have been forced to invest in longer-dated securities, corporate bonds and emerging market issues. In many cases, the issuer is of low, non-investment grade credit quality. They have purchased less actively traded shares or invested in smaller and often less-developed equity markets. Investors may not recognise that the additional return does not compensate for the additional risk of reduced trading liquidity. 
Second, with markets and prices increasingly driven by changes in official policy, investment horizons have become shorter, making additional claims on market liquidity. Many investors are purchasing assets they would normally shun for short-term gains on the assumption that they will be divest positions to a ‘greater fool’ before prices fall. This game of investment musical chairs relies on predicting when the music will stop, which most market participants are poor at....MORE
HT: Alpha Ideas

Thursday, August 27, 2015

"An honest guide to the San Francisco startup life"

Apparently San Francisco and Silicon valley are now being populated with (pretty good) wannabe standup comedians.
From The Next Web:
Stationed on the West Coast of the United States, flanked by the blue hues of the Pacific Ocean, is a city that’s home to some of the greatest companies in the world – 700 miles south of that is San Francisco. 
I moved to San Francisco two years ago to work for a startup called Padlet. I love it here. It’s like being in Hollywood, but with less-good-looking people. You have the celebs, you have the scandals, you have the media frenzy. My friends back home are full of questions: 
“Is it fun?” 
“You think I should look for a job there?” 
“How far is Vegas?” 
So, here is my experience. I hope it brings the readers closer to our little valley where we are building the future*. 
My day begins with a 30-minute commute to work. I take the subway. The subway system in SF is called the BART, short for Bay Area Rapid* Transit. I love the BART because it is always full of surprises. For example, yesterday, I was at the train station and bam! the train came on time. 
Many drive to work. Driving in SF is like a theme park ride — the cars move bumper to bumper, the terrain is alpine, and the people around you have the temper of 10-year-olds. 
Here is a pop-quiz — Which one’s an SF road and which one’s a roller-coaster?

Screen Shot 2015-08-27 at 10.56.18
Those with a death wish cycle to work. It is easy to spot a cyclist. If you see a guy with one side of his jeans rolled up to the shin, he is a moron; if you see a guy on a bicycle, he is a cyclist.

My office is in a neighbourhood called SoMa, short for South of Market. Many startup offices are in SoMa. The name is a tribute to the returns that investors in most of these startups will see in the long run. 
SoMa is a vibrant area with a variety of establishments like Starbucks, local coffeeshops, grab-and-go coffee kiosks, and coffee trucks. It’s a shame I don’t drink coffee. It’s not that I don’t like the beverage. I just prefer not to consume anything at temperatures that would liquify my alimentary canal.

Why is coffee in SF so hot? Are people welding metal with it? The one time I asked a barista (phrased more politely, of course), I was reproached,

“Good coffee needs to be brewed at 200°F for full flavor.”

Odd! Good bread needs to be baked at 400°F but I don’t see any bakeries selling me searing dough bricks.
shutterstock_221462650
My company shares its office with two other companies — Buildzoom and Flexport. Judging from their names, Buildzoom manufactures high precision microscopes and Flexport ships fluorine to dentists in China. We all have a common investor named YC. YC is the venture capital arm of the YMCA. They invest in a lot of companies every year, many that seem outrageous on paper. E.g. they invested in a company called Swapbox, which, I believe, is cloud storage for swingers....MORE

The Best And Worst Performing Commodities Of 2015

From ZeroHedge:
On Sunday we highlighted the rather shocking fact that commodities prices (as measured by Bloomberg’s commodity index) recently hit their lowest levels of the 21st century 
There are a number of factors that explain the plunge, not the least of which is slowing demand from China (as reinforced by this month’s beggar thy neighbor yuan deval which telegraphed Beijing’s worries about the domestic economy) and a global deflationary supply glut across the space exacerbated by easy access to capital markets (which allows otherwise insolvent producers to continue to drill, dig, and pump despite lackluster demand), and Saudi Arabia, which has embarked on an epic quest to bankrupt the US shale complex by keeping crude prices at multi-year lows. 
The effect has been to put enormous pressure on emerging economies - pressure which the yuan devaluation only exacerbated. 
Against this backdrop, we bring you the following graphic from Citi which breaks down the best and worst performing commodities both YTD and QTD
Additional color, from Citi:
Commodities have both reflected and promoted deflationary trends over the course of 2015. The main commodity indices – the BCOM and GSCI – are trading at or near the same level they were at prior to the so-called commodity super-cycle period of 2003-2008. Much of the lost value in individual commodities came not just over the course of 2015 but during the first month of the current quarter (see figures below). 
Perhaps the most critical factor has been commodity over-supply. And yes it is true that lower demand has played a role in a world with stagnating growth, especially in emerging markets. But high prices in the last decade prompted a frenzy of capex spending to unearth larger quantities of raw materials. As is more often than not the case in commodities markets, the result of over-investment was over-supply, which traditionally hovers over markets for years....
...MORE

"Why We Can’t Get Over Ourselves"

Discerning reader may have detected a hint of triumphalism in today's oil postings.
Yeah.

From Nautil.us:

Exposing the reasons we fail to understand the minds of others.
“You will become way less concerned with what other people think of you when you realize how seldom they do."
—David Foster Wallace, Infinite Jest”
You and I are members of one of the most social species on the planet. No human being succeeds in life alone. Getting along and getting ahead requires coordinating with others, either in cooperation as friends, spouses, teammates, and coworkers, or in competition as adversaries, opponents, or rivals. Arguably our brain’s greatest skill is its ability to think about the minds of others to understand them better. Our daily lives are guided by inferences about what others think, believe, feel, and want. This is your sixth sense at work.

 But over the past two decades in my research as a psychologist, my experiments and research from many other scientists demonstrate the ways in which our sixth sense works well, but not nearly as well as we might think. The truth is that you are likely to understand much less about the minds of your family members, friends, neighbors, coworkers, competitors, and fellow citizens than you would guess.

One of the biggest barriers to understanding others is excessive egocentrism. You can’t see into the mind of others because you can’t get over yourself. You can’t overcome your own experiences, beliefs, attitudes, emotions, knowledge, and visual perspective to recognize that others may view the world differently. Copernicus may have removed the Earth from the center of the universe, but every person on this planet is still at the center of his or her own universe.
Consider participating in what I think is one of the most liberating experiments ever conducted—the Barry Manilow experiment.
One consequence of being at the center of your own universe is that it’s easy to overestimate your importance in it, both for better and for worse. Consider a classic psychology experiment that asked married couples to report how much each of them was personally responsible for a variety of household activities. These included relatively desirable tasks, like cleaning the house, making breakfast, and resolving conflicts, but also undesirable actions, like messing up the house, irritating their spouse, and causing arguments. Husbands and wives were separated from each other and then asked to indicate, out of the total amount for each activity, what percentage they were personally responsible for. The researchers then simply added the spouses’ estimates together for each item. Logically, this sum cannot exceed 100 percent. If I claim that I make breakfast 80 percent of the time and my wife claims that she makes breakfast 60 percent of the time, then our kids are apparently eating breakfast 140 percent of the time. Not possible, even for the fattest families. But psychologically, if I can think of the times I made breakfast more easily than the times my wife made breakfast, then by extrapolation, there will be a lot of reportedly overstuffed families out there.

This is exactly what the results showed. The couples’ estimates, when added together, significantly exceeded 100 percent. Surely you’ve experienced this self-centeredness before. It’s even made its way into jokes. Here’s one: What’s a woman’s definition of barbecue? Answer: You bought the groceries, washed the lettuce, chopped the tomatoes, diced the onions, marinated the meat, and cleaned everything up, but he “made the dinner.”

Don’t get too smug. The really interesting result is that researchers find more consistent evidence for overclaiming, albeit to a lesser extent, for negative activities as well. In this experiment, spouses tended to claim more responsibility than is logically possible even for activities like causing arguments that occur between the two of you. Being self-centered also means being uniquely aware of your faults and shortcomings, knowing when you needled your spouse after a tough day at work or broke the dishes and scuttled them into the trash can before anyone else noticed. It’s harder to notice your spouse’s bad intentions or unhandy dish work....MORE

Chart du Jour

From FinViz:


Fin

"How to Destroy a City in Five Minutes"

From World Affairs Journal, August 25:

You don’t need a weapon of mass destruction to ruin a city. 
Well, maybe sometimes you do. You’re not getting rid of New York City without one. But some of the world’s cities are so vulnerable, so precariously perched above an abyss, that a single bloodthirsty nutjob with a rifle can bring it to its knees in a matter of minutes. 
Look at Tunisia’s resort city of Sousse on the Mediterranean. Two months ago, an ISIS-inspired nutcase named Seifeddine Rezgui strolled up the beach with a Kalashnikov in his hand and murdered 38 people, most of them tourists from Britain. 
The police shot him, of course. There was never going to be any other ending than that one. And before the police arrived, local Tunisians formed a protective human shield around Rezgui’s would-be foreign victims. “Kill us! Kill us, not these people!” shouted Mohamed Amine. According to survivor John Yeoman, hotel staff members charged the gunman and said, “We won’t let you through. You’ll have to go through us.” 
Tunisia’s hospitality and customer service are deservedly legendary, but that was truly above and beyond. It’s how Tunisia rolls, but in the end, it doesn’t matter. Tourists are not going back. 
A few still wander around here and there, but the locals are calling them ghosts. Who else lives in a ghost town but ghosts? 
Hotels are laying off workers. Shops are empty and many will have to be closed. The city is reeling with feelings of guilt and anxiety. Guilt because one of their own murdered guests, the gravest possible offense against the ancient Arab code of hospitality, and anxiety because—what now? How will the city survive? How will all the laid-off workers earn a living with their industry on its back? Sousse without tourists is like Hollywood without movies and Detroit without automobile manufacturing. 
Even Tunisia’s agriculture economy is crashing. Prices are down by 35 percent because the resorts don’t need to feed tourists anymore. 
Rezgui’s ghoulish attack was spectacularly successful, wasn’t it? A single act of violence and—boom. Just like that, it’s all over. 
Tunisians can still hang out in Sousse when they have some leisure time, but why should foreigners go there on holiday when they can go to Morocco instead? And if a couple of freakjobs shoot a bunch of tourists in Morocco, that country, too, could go into a tailspin. Why go there for a Mediterranean holiday when you could go to Spain, Malta, Corsica, or Croatia? Europeans who want to go farther afield can fly down to Key West, the Azores, or Bermuda....MORE 

"Oil Soars Over 8 pct as Deep Shorts Scramble for Cover"

Kids, don't try this at home.
Come do it for us instead.

Brent up 8.30% at $46.72
WTI up 8.65% at $41.94
XLE up 4.92% at $64.28
XOP up 6.52% at $36.03

Reuters (Update 10!) via CNBC:
* Oil whips higher in one of biggest gains since 2009
* Rising more than 8 pct, oil erases week of losses 
* Global stock markets climb as China shares recover 
* Short sellers race for exit after near-record position 
(Updates prices, context in paragraphs 8-9 and 13-16) 
NEW YORK, Aug 27 (Reuters) - Oil rocketed more than 8 percent higher on Thursday, posting its biggest one-day rally in years, as recovering equity markets and news of diminished crude supplies set off a short-covering surge by bearish traders. 
Snapping back fiercely from a deep two-month slump that reached 6-1/2 year lows this week, oil climbed as world stock markets rose on hopes Chinese government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased. 
The rally was aided by news of a force majeure on Nigerian oil exports declared by Shell and private data indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said. A big upward revision in second quarter U.S. economic growth helped. 
More than reversing the past week's losses, front month Brent crude for October rose $3.32 to $46.46 a barrel, a 7.7 percent gain, by 12:33 EST (16:33 GMT), hitting a session high of $46.85. On Monday, the contract traded at a March 2009 low of $42.23. 
It is on track for the biggest one-day gain for the contract since late January, when Brent ripped off six-year lows to rise by nearly $10 in three days, the start of a recovery that stabilized prices through the second quarter. Brent hasn't risen by more than 8 percent in a day since the financial crisis. 
U.S. crude rose $3.32 or 8.5 percent to $41.92 per barrel, its biggest one-day percent gain since June 2012. It had hit a February 2009 low of $37.75 on Monday....MUCH MORE
Previously:
Aug. 27
Good Moves In Oil, Petroleum Equities (XLE; XOP)
Aug. 26
Oil turns lower as gasoline futures drop nearly 5%
We are betting that Monday's $37.76 print was the low. (for a while)
Aug. 25
"Oil catches breath near six-and-a-half-year lows after falls"
Aug. 24
"Energy Stocks Approaching Fair Value (XLE; XOP)"
Aug. 23
"Oil Price Decline May Be Due For a (Brief) Pause"

Curbed Exclusive: San Francisco Manse Sells for $47.5M, Shatters All Local Records

From Curbed:
Once the most expensive home for sale in California at $65 million, Locksley Hall in Belvedere sold today for $47.5 million, just $1.5 million shy of its latest asking price of $49 million. The sale breaks the record for the highest reported single-family home sale in San Francisco proper by $12 million, and the highest reported sale in Belvedere by around $22 million. 
Curebd SF has more and all the lovely photos. >>

Société Générale's Albert Edwards On Flirting and Rejection

From FT Alphaville:

Equities soar. Have some Albert
One of the many lessons from equity investing during Japan’s Lost Decade is that in a secular bear market hope is a killer. In a secular bear market hope should only be flirted with briefly during cyclical upturns, but it must be ruthlessly rejected as the cycle turns. In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months. One key measure we monitor informs us conclusively: we are now in a bear market.
The ‘key measure’ SocGen strategist Albert Edwards is referring to here is one of six models developed by his quant-ist colleague, Andrew Lapthorne. And, in chart form, it looks like this:
You should probably contact SocGen directly for a full explanation of that...MORE
Recently:

Société Générale's Albert Edwards Not His Usual Jolly Self 
Music For Albert Edwards. On A Cold Day. In February
Société Générale's Albert Edwards Descends Into A Nightmare World of Dream Demons and Market Depravity
Société Générale's Albert Edwards Is Not Dead
Nor is he restin'. Beautiful plumage though.
Société Générale's Albert Edwards Is Worried
Société Générale's Albert Edwards Is Bearish (and possibly suffering from a mental disorder)
Albert appears to have begun speaking in clichés which is one of the hallmarks of the mental disorder jargonaphasia, more below. Here's Mr. Edwards at CNBC, see how many clichés you can find:

Good Moves In Oil, Petroleum Equities (XLE; XOP)

The ETF for the major integrated oils, the XLE is up 3.44% at $63.37 while the Exploration and Production ETF, XOP, is up 5.62% at $35.72.
WTI is up 4.27% at $42.25.

After a year of typing "It's too early" it feels odd to write: We're going higher.
(for a while)

From Reuters:
Oil prices rise more than 4.5 percent as equities rally
Oil prices jumped more than 4.5 percent on Thursday after a rally in equity markets and an unexpected fall in U.S. crude inventories, but worries over the Chinese economy and a global oil glut kept the outlook uncertain.  
World stock markets rose as Chinese shares recovered on hopes that government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased.
Oil markets moved up from six-and-a-half-year lows reached earlier this week, but investors are still worried about huge fuel oversupply, which is depressing the price of crude for immediate delivery and filling stockpiles worldwide.  
"The trend is strong and down. However, do not be wrong-footed by a correction higher," PVM Oil Associates technical analyst Robin Bieber said. "Few markets head forever in one direction with no respite."  
Front-month Brent LCOc1, the global oil benchmark, was up $1.80 at $44.94 a barrel by 1255 GMT, having hit an intraday high of $45.12. U.S. crude CLc1, also known as West Texas Intermediate (WTI), was up $1.60 at $40.20 a barrel.  
Phillip Futures oil analyst Daniel Ang said he saw the rally as a pause in a downward trend, rather than a longer-term shift upwards. "We would not underestimate the current bearish momentum and still believe that it is possible to see prices break supports of $38 and $45 for WTI and Brent," Ang said. Standard Chartered cut its 2015 Brent forecast by $10 a barrel to $54, and slashed its 2016 forecast by $20 to $63....MORE
Recently:
Oil turns lower as gasoline futures drop nearly 5%
We are betting that Monday's $37.76 print was the low. (for a while)
"Oil catches breath near six-and-a-half-year lows after falls"
"Energy Stocks Approaching Fair Value (XLE; XOP)"
"Oil Price Decline May Be Due For a (Brief) Pause"