Thursday, May 28, 2015

Ford Follows Tesla By Opening Electric Vehicle Patents To Rivals (F; TSLA)

From Investors Business Daily:
Ford Motor (NYSE:F)is offering its electric vehicle patents to competing automakers amid slumping gas prices that have made EVs less attractive to many consumers.

Its move is similar to what Tesla Motors (NASDAQ:TSLA) did in June 2014 when it made its portfolio of EV patents, estimated in the hundreds, openly available to rivals. Tesla founder and CEO Elon Musk said in a blog post at the time that "all our patents belong to you."
Ford Motor (NYSE:F)is offering its electric vehicle patents to competing automakers amid slumping gas prices that have made EVs less attractive to many consumers.

Its move is similar to what Tesla Motors (NASDAQ:TSLA) did in June 2014 when it made its portfolio of EV patents, estimated in the hundreds, openly available to rivals. Tesla founder and CEO Elon Musk said in a blog post at the time that "all our patents belong to you."...MORE
Ford has some history with electrics going back to the reign of Henry I and his buddy Tom Edison and more recently the '67 Comuta.
"...Within a year, I hope, we shall begin the manufacture of an electric automobile. I don’t like to talk about things which are a year ahead, but I am willing to tell you something of my plans...."
-Henry Ford
The New York Times 
 January 11, 1914

Via "Ford, Edison and the Cheap EV That Almost Was"
See also:
Ford Says Electric Cars “Commercially Feasible” By 1977
"Ford warns electric cars may be only for the rich" (AONE; TSLA)
The End Of Mass Car Ownership Is Coming Mr. Ford
Unconfirmed Rumors that Ford Motor Co. will acquire Tesla Motors, Inc. at $55.00 a share (TSLA; F) 
Let's see, we've got the acquirer, the acquiree and the price. All we need is the date and time.
I'll go with The 12th.

Izabella Kaminska On Gold and Stuff

For folks who aren't familiar with her thinking, Ms. Kaminska puts gold in a category similar to that which Beanie Babies once occupied.

She doesn't include it in the stuff called "investments" which generate cash flow, hopefully at a profit.

She doesn't include shiny in the group of commodities that are consumable, such as corn or oil. Or even with platinum or palladium which as catalysts are not consumed but are nonetheless useful.

No, Izabella seems to think of gold as something you can buy with money, whose price goes up and down based on other people's perceptions, which in turn are colored by their fear and greed.

Like the Beanie Babies market, it's something to trade.

And I agree.

From Dizzynomics:

The perpetual gold debate
A quick note to share a few new thoughts on gold following a Bulls vs Bears debate I just participated in.

– The Bulls’ argument is now so illogical, one has to suspect they — being mostly vested interests — are just going through the motions on account of perpetuating the emperor has clothes illusion. They basically can’t afford to admit their is no logic to their arguments because they are too invested.

– I  keep hearing about how gold is a fantastic form of insurance, but isn’t one of the basic principles of insurance that risk has to be pooled and offset– i.e. spread around? Isn’t the basic thing about insurance that it doesn’t work if everyone claims it at the same time? Gold’s value, however, by definition depends on herding effects. Thus gold only insures you in the event your crisis isn’t the same as everyone else’s crisis. I thus suspect it’s a terrible form of insurance to guard against a system collapse. Furthermore I don’t remember failed states like Zimbabwe turning to gold in an inflationary crisis, but rather to the currencies of more stable countries which can guarantee imports for the holders. Gold’s value in a crisis is thus dependent on its broader international acceptability against imports.

Just think about it, if the dollar failed and lost total purchasing power all holders of gold would attempt to liquidate gold in exchange for valuable assets/goods (probably from abroad) at the same time depreciating the value of that gold just as much as the dollar. All the gold would flow to producer states. Okay, they may in the initial crisis point get something whilst others get nothing, but more than likely if and when the dollar collapsed the inflationary effects would stalk gold as much as the dollar. Gold emanating from a failed state would depreciate in terms of the currency of the exporter providing goods, because you’d first have to exchange it for that country’s currency. The only insurance role gold really serves is on a portfolio diversification basis. But even then chances are the dollar would do even better as a safe haven asset.

3) 2008 proves I think that in a crunch people want liquid assets that are guaranteed by powerful and organized authorities. Indeed, when Lehman went bust gold’s value fell because holding arbitrary bubble value became less of a priority than holding true value. People flocked to the dollar. I would therefore speculate that the only reason we got the gold bubble at all is because the central bank backstopped what would otherwise have been vaporized capital. It’s only once this capital value was guaranteed by government that it could be transferred on a marginal level from failing securities into perceived safe haven assets amongst them gold. Basically this capital had two choices, stay in the failed securities and run the risk of being written down/haircutted or flee and go somewhere else. Government, by providing a synthetically inflated cash-out value, allowed capital to be transferred at a synthetically inflated rate into alternative assets, amongst them gold, sparing the system overt capital destruction....MORE
Just so you know, after Barrick bought Homestake I was probably the last person to look at HM's records from the 1930's, I was there as the archivists were boxing the stuff up.
Here are a couple things that may help make gentle reader think about this area:

The Best Book on Gold
How the Beanie Baby craze was concocted — then crashed

Or ask Izabella about scarcity and abundance.

Grant’s Interest Rate Observer Takes On Risk Parity, Ray Dalio, And Cliff Asness

From ValueWalk:
The hedge fund industry has become increasingly concentrated in just a handful of funds, with Bridgewater Associates and AQR Capital Management leading the pack. But the latest issue of Grant’s Interest Rate Observer argues that while the risk parity portfolio championed by Ray Dalio and Cliff Asness has done well in recent years it is now past its prime and can’t continue to perform indefinitely.

“Dalio and Asness are, of course, formidable Wall Street thinkers and doers. Formidable, too, are the critics, who include Paul Singer maître d’hotel of Elliott Management and Ben Inker, co-head of GMO’s asset allocation department. We stand with the critics,” Grant writes.

Using leverage to achieve risk parity, then get aggressive
The basic idea is that equities provide the majority of returns for a typical 60/40 portfolio, but they also make up as much as 90% of the portfolio’s risk (in the sense of volatility). Risk parity, as the name implies, allocates risk equally between stocks and bonds (possibly adding other asset classes to the mix), using leverage to even things out. Once the base portfolio is put together, you can lever the entire thing to the level of risk you’re comfortable with and get a better Sharpe ratio than the 60/40 portfolio would have given you. As a practical matter, that means you’re going to end up buying a lot of bonds on leverage.

But leverage makes portfolios riskier in a way that isn’t well captured by volatility. When the market sours on some stock, or industry, or asset class (like nearly every credit instrument in 2008), an unlevered investor can choose to ride out the low and wait for his position to recover. It might not, and getting out is often the right decision, but a leveraged investor can be forced to sell and realize losses even when he expects the assets to rebound in a few years. Asness has said that investors should have a plan to shed leverage as losses pile up and then take leverage back on at the market bottom, but market timing is by no means easy to do and investors’ plans to protect themselves don’t always work out.
Screenshot_109 (1)
Negative skew to asset returns exacerbates the path dependence problem. If you lever up to buy corporate credit, for example, then your gains will come gradually in the form of interest payments, but your losses can come swiftly in the form of defaults. Even if the long-term average would put you ahead, the loss of principle caused by a levered position collapsing can prevent you from taking part in the long-term....MORE
Possibly also of interest:

Warren Buffet: The King of Leveraged Low Beta (BRK.B)
The article doesn't link to the papers, here's what a quick search turns up. Via the NYU Stern School:
 Betting Against Beta
And from Yale:
Buffett's Alpha  
The Last Word On Asness' Alpha, Buffet's Beta and The Failure of Commodity Quants (and how to turn hyperlinks into footnotes)
Buffett's Alpha Redux (BRK.b)

"The tanker market is sending a big warning to oil bulls"

July WTI $56.74 down 77 cents.
We are still looking for another drop into the $40's.
From Bloomberg via the Houston Chronicle's FuelFix:
Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat.

A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate.

The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is pumping about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc.

“Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp, Belgium-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19.

Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $65,784, they’re still the highest for this time of year since at least 2008.

Brent crude futures advanced 38 percent from this year’s low on Jan. 13, and traded at $62.30 a barrel on the London-based ICE Futures Europe exchange at 10:53 a.m. local time Thursday.

Increasing Exports
OPEC’s 12 members will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, a Halifax, England-based company monitoring the flows, said by e-mail Wednesday.

Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs....MORE
Here's the daily chart for the last year from FinViz:

An Extremely Important Change In A Major Climate Input

Following up on the post immediately below, "Active Atlantic Hurricane Period That Began in 1995 May be Over: NOAA".
The flip of the Atlantic Multidecadal Oscillation back to the cool phase after 20 years in the warm phase is a very, very big deal.

First up, the current Sea Surface Temperature anomaly map from Unisys:
Current Sea Surface Temperature Anomaly Plot
The area off the west coast bulge of Africa is the hurricane Main Development Region (MDR), home to the Cape Verde-type hurricanes, typically the largest and most intense because of their long run before encountering land. If the SST's are warm. Big 'if'.

The warm area off South America's bulge at the equator is the El Niño region, extending back to Papua New Guinea.

The area of warm water off the west coast of North America, technically known as 'the blob' (seriously) is part of the measurement area of the Pacific Decadal Oscillation.

What the blob and the El Niño regions are doing right now is giving up heat to the air above and warming the atmosphere.

Next up,  NOAA's 2015 Atlantic Hurricane Season Outlook  issued: 27 May 2015
...3. Multi-decadal fluctuations in Atlantic hurricane activity
Atlantic hurricane seasons exhibit extended periods lasting 25-40 years of generally above-normal or below-normal activity. For example, a high-activity era for Atlantic hurricanes began in 1995. Seasons during 1995-2014 averaged about 14.7 named storms, 7.6 hurricanes, and 3.5 major hurricanes, with an ACE index of 142% of the median. NOAA classifies 12 of the 20 seasons since 1995 as above normal, with eight being very active (i.e., hyperactive defined by ACE > 165% of median). Only three seasons since 1995 were below normal (1997, 2009, and 2013). 

In contrast, the preceding low-activity era of 1971-1994 (Goldenberg et al. 2001) averaged 8.5 named storms, 5 hurricanes, and 1.5 major hurricanes, with an ACE index of only 74% of the median. One-half of the seasons during this period were below normal, only two were above normal (1980, 1989), and none were hyperactive. 

These multi-decadal fluctuations in hurricane activity result almost entirely from differences in the number of hurricanes and major hurricanes forming from tropical storms that first develop in the MDR. The AMO, and its associated changes in the strength of the west African monsoon system, is the climate pattern responsible for this multi-decadal variability. 

The high-activity era for Atlantic hurricanes that began in 1995 reflected a transition to the warm phase of the AMO and to an enhanced west African monsoon system as shown (Bell and Chelliah 2006). This climate pattern produces stronger hurricane seasons by creating conducive atmospheric conditions in the MDR, including 1) reduced vertical wind shear, 2) weaker easterly trade winds, 3) a more conducive configuration of the African easterly jet (i.e. increased cyclonic shear), 4) warm, moist, unstable air, and 5) reduced sinking motion. 

However, the atmospheric conditions expected during ASO 2015 (i.e. stronger vertical wind shear, enhanced sinking motion, increased atmospheric stability) contrast with these active-era patterns. Following two relatively quiet hurricane seasons (2013 and 2014 (Bell et al. 2014, 2015), along with the current projection of Atlantic SST anomalies onto the cold phase of the AMO, debate has surfaced as to whether we are still in this high-activity era.
Finally, from our May 2014 post "A Very Good Drought Prediction":
...The AMO is currently showing negative readings. This is probably a precursor to a full scale flip of the warm phase that began in 1995 but may not take hold for a year or two.
The PDO is currently showing positive readings but in this case it doesn't mean much. A look at the values from the early 2000's also shows the sign flipping from positive to negative and back.
We'll take a deeper look at the anomalous anomalies when the coming El Nino becomes established.

Historic and current AMO readings
Historic and current PDO readings
AMO January-April  2015  0.012  0.016  -0.109  -0.051
PDO January April   2015  2.45    2.30     2.00      1.44

For what this all means, besides hurricanes, take drought in North America as just one area of study. It's going to get wetter:

North American drought frequency

Current conditions +PDO/-AMO.
Much more to come.

"Active Atlantic Hurricane Period That Began in 1995 May be Over: NOAA"

From Weather Underground's Wunderblog:
It should be another quiet Atlantic hurricane season in 2015, and the active hurricane pattern that began in 1995 may now be over, said NOAA in their May 27 seasonal hurricane forecast. They give a 70% chance of a below-normal season, a 20% chance of a near-normal season, and only a 10% chance of an above-normal season. They predict a 70% chance that there will be 6 - 11 named storms, 3 - 6 hurricanes, and 0 - 2 major hurricanes, with an Accumulated Cyclone Energy (ACE) 40% - 85% of the median. If we take the midpoint of these numbers, NOAA is calling for 8.5 named storms, 4.5 hurricanes, 1 major hurricane, and an ACE index 62.5% of normal. This is well below the 1981 - 2010 average of 12 named storms, 6 hurricanes, and 3 major hurricanes. Hurricane seasons during the active hurricane period 1995 - 2014 averaged 14.7 named storms, 7.6 hurricanes, and 3.5 major hurricanes, with an ACE index 142% of the median. Only three seasons since 1995 have been classified by NOAA as being below normal--including two El Niño years (1997 and 2009), and the neutral 2013 season.
The forecasters cited the following main factors that will influence the coming season:

1) The current borderline weak/moderate El Niño event is expected to persist or intensify during the 2015 hurricane season. El Niño events tend to suppress Atlantic hurricane activity in three ways:

- By creating high levels of wind shear over the tropical Atlantic, which tends to tear storms apart.
- By increasing sinking motion and high pressure over the tropical Atlantic.
- By making the air more stable over the tropical Atlantic.

2) Near-average sea surface temperatures (SSTs) are in place over the hurricane Main Development Region (MDR), from the Caribbean to the coast of Africa between between 10°N and 20°N. These SSTs are expected to be near or below average during the peak August - October portion of hurricane season, and are expected to be cooler than SSTs in the remainder of the global tropics (SSTs in the remainder of the global tropics were 0.31°C warmer than SSTs in the MDR in May.) This configuration of SSTs is often quite hostile to Atlantic tropical cyclone development.

3) The active period of hurricane activity that began in 1995 due to a natural decades-long cycle in hurricane activity called the Atlantic Multi-decadal Oscillation (AMO) may now be over. The SST pattern associated with that cycle is absent this year, and NOAA said: "There have been two seasons in a row, 2013 and 2014, with below-normal and near-normal activity respectively and neither had an El Niño event responsible for the reduced activity. The current configuration of SSTs in the Atlantic Ocean, both in the MDR and the entire North Atlantic, are suggestive that the AMO may no longer be in the warm phase."...MORE

Wednesday, May 27, 2015

Pressure Groups: "JPMorgan Chase & Co Launches Think Tank: The JPMorgan Chase Institute"

From the International Business Times:
JPMorgan Chase & Co. would like the world to know it’s not just in the business of making loans, taking deposits and navigating the waters of high finance. With the launch Thursday of the JPMorgan Chase Institute, the bank adds a new facet to its brand: think tank. 

The institute aims to use real-time big-data analytics for the benefit of policymakers, businesses and the wider public. JPMorgan CEO Jamie Dimon has said the think tank is out to “educate the world.”

As its inaugural report’s conclusions show, perhaps unsurprisingly, the greater good might just be served through Chase’s own banking products.

The institute isn't your typical corporate stab at social responsibility. It has access to a uniquely vast trove of customer data: Chase’s checking and savings accounts. Moored to the largest American bank by assets, the think tank says it can put "the broad spectrum of data within the firm to use for the public good.”
...the recommendations outlined at the end of the report might sound familiar to Chase employees, some of whom contributed to the research.
According to the authors, solutions could include “new savings, insurance and credit products,” as well as more technical banking tools -- many of which Chase already offers. 
The institute's opening comes as major financial institutions try to burnish public reputations still damaged from the fallout of the financial crisis and subsequent scandals. Just a day before the JPMorgan Chase Institute announced itself to the world, the bank pleaded guilty, with several other firms, to criminal antitrust violations related to foreign exchange rigging....MORE

It's Like Uber For Alphaville

From the unknown, electron-stained wretches posting anonymously as FT Alphaville:

" yes, there will be a specially-built Great Camp Alphaville Quiz app"

Vaclav Smil On Energy: "Revolution? More like a crawl"

But you probably already knew that.
From Politico's The Agenda:
The energy visionary Vaclav Smil — Bill Gates's favorite author — says that when our leaders promise quick energy transformations, they're getting it very wrong.

America in 2015 finds itself almost in a new energy reality. It recently became the world’s second-largest extractor of crude oil, and since 2010 has been the leading producer of natural gas, whose abundant and inexpensive supply has been accelerating the retreat from coal as a national source of electric power. 
Some see this as the beginning of an even bigger transition, one in which America’s dominant status as a producer of hydrocarbons ends its allies’ dependence on Russian gas and makes OPEC terminally irrelevant, while its entrepreneurial drive helps it quickly advance to harness renewables and reduce greenhouse gas emissions.

All of this sounds too good to be true — and it is. Indefensible claims of imminent transformative breakthroughs are an unfortunately chronic ingredient of American energy debates.

When American leaders talk about energy transitions, they tend to sell them as something that can be accomplished in a matter of years. Al Gore, perhaps the country’s most prominent climate activist,proposed to “re-power” America, making its electricity carbon-free, within 10 years, calling the goal “achievable, affordable and transformative.” That was in 2008, when fossil fuels produced 71 percent of American electricity; last year 67 percent still came from burning fossil fuels.

President Barack Obama, who has a strong rhetorical dislike of oil — although kerosene distilled from it fuels the 747 that carries him to play golf in Hawaii — promised in his 2011 State of the Union message that the country would have 1 million electric cars by 2015. That goal was abandoned by the Department of Energy just two years later.

For years, even decades, we have been on the verge of mass deployment of (take your pick) fast breeder reactors, of coal-fired electricity generating plants that capture and sequester all of their CO2, of fuel cell-powered cars running on hydrogen, if not a complete hydrogen economy. We’ve been promised electric cars that will not only cost nothing to run but will also power houses while sitting in garages; or microorganisms genetically engineered to ooze gasoline.

The reality of energy transitions is very different. Too many modern observers have become misled by the example of electronics, in which advances have followed Moore’s law — the now 50-year-old prediction that the number of components on a microchip will double every 18 months. This has allowed exceptionally rapid progress. But the fundamental physical realities that determine progress of energy systems do not behave that way: they are improving steadily, but far more slowly. Moore’s law implies an exponential growth rate of 46 percent a year. The analogues in energy are not even close: Since 1900, the efficiency of electricity generation in large power plants has been rising by less than 2 percent a year, advances in lighting have boosted its efficiency by less than 3 percent a year, and the energy cost of steel, our civilization’s most essential metal, has been falling by less than 2 percent a year.

Moore’s Law means performance doubles in a year and a half. Change at the rate of energy systems means doubling efficiencies, or halving the costs, in 35 years — a vastly longer timespan.

These things might sound technical. They are not. Accepting this reality is essential in order to chart a path for lasting progress: sensible policies cannot be built on mistaken beliefs or on wishful thinking. In the conversation about America’s — and the world’s — energy future, reality demands we keep a few important principles in mind....MUCH MORE  
If one is to have any hope of getting this stuff right over the long run I suggest David J.C. MacKay:
From our April 27, 2014 post "If It's April It Must Be Time to Visit Professor MacKay and His Map of the World":
...If you want to know more about what's going on with the map, do visit his map page.
MacKay used to hang his hat at Cambridge's Cavendish Laboratory.
I don't really know what they do at the lab, I think it's where the Nobel Prize in Physics is made.

Mackay left the lab in 2013 to be the University's first Regius Professor of Engineering.
He has a bunch of letters after his name....MORE
Here's MacKay's webpage.
And his Sustainable Energy - Without the Hot Air is free online. 
When people want to talk energy with me I usually ask if they have read his book.

Previously on Smil:
"Happy Birthday to Moore’s Law" (plus party pooper Vaclav Smil)
Vaclav Smil Takes on Jeremy Grantham Over Peak Fertilizer
Bill Gates on The Most Astounding Statistic In Vaclav Smil's New Book

Bill Gates Summer Reading List (Vaclav Smil has two entries)
Energy--'Vaclav Smil is Correct: Never Forecast'
Energy: "The man who’s tutoring Bill Gates … "
Vaclav Smil: "In energy matters, what goes around, comes around—but perhaps should go away"
Vaclav Smil: "The Manufacturing of Decline"
Serious Thinking on Energy: An Interview With Dr. Vaclav Smil
A Major Piece: "Why the tech revolution isn’t a template for an energy revolution"
Bill Gates Reviews Vaclav Smil's "Prime Movers of Globalization: The History and Impact of Diesel Engines and Gas Turbines"

Three Queens In Liverpool: Cunard's Big Gals Dancing On The Mersey

I know the first part of the headline sounds like a RuPaul event but it's actually the Queen Mary 2, Queen Victoria and the Queen Elizabeth getting together in Cunard's former headquarters city over the Bank Holiday weekend.

From the "You don't see that every day" file:

The Liverpool Echo had wall-to-wall coverage with dozens of pics.

Three Queens Liverpool 2015 live: Mersey bids farewell to Cunard spectacular

Three Queens Liverpool 2015: Overheard at the Three Queens

Three Queens Liverpool 2015: Overheard at the Three Queens 04

Queen Victoria ends Three Queens celebration with spectacular spinning surprise


May 2014
Signposts: Royal Caribbean Orders Fourth Oasis-Class Cruise Ship, World’s Biggest
...They are very big boats.  Still, it's tough to compete with this:
...“This is the first time all three Queens of the Cunard fleet have been seen together anywhere outside Southampton or New York, and the first time these magnificent ships have been seen together at sea,” Cunard Director Angus Struthers said....

On the retirement cruise of the QE2
Feb. 2008
Queens Meet in Sydney 
Photos: The QE2 marked her last visit to Sydney with a spectacular passing with younger sister, the Queen Victoria.

Finally the bridge webcam of the Queen Mary 2, currently docked at Southampton

U.S. Farmland Sees 18th Monthly Price Decline As Rural Economy Shows Slight Uptick

From Creighton University:

Mainstreet Economy

Rural Mainstreet Economy Slows:
Some Bankers Reported Negative Impacts from Bird Flu

May Survey Results at a Glance:

• The Rural Mainstreet Index improved, but remained below growth neutral for May signaling slight pullbacks in economic activity.      
• Farmland prices declined for the 18th straight month, but with wide variations across the region
• Almost one in five bankers reported negative fallout from the avian flu outbreak.
• Agriculture equipment-sales index dropped to a record low level. 
• Bankers identified rising regulatory costs as the top economic challenge to bank profitability for the next five years.
For Immediate Release:  May 21, 2015
OMAHA, Neb. – The Creighton University Rural Mainstreet Index for May rose slightly from April’s weak reading, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.   
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, climbed to 49.0 from 46.0 in April. 

“The stronger U.S. dollar continues to be a drag on the Rural Mainstreet economy. The strong U.S. dollar has made U.S. goods, especially agriculture and energy products, less competitively priced abroad. This has dampened farm income and the Rural Mainstreet economy," said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Farming and ranching: The farmland and ranchland-price index for May climbed to 39.7 from April’s 33.4. “However, this is the 18th straight month the index has moved below growth neutral. But according to banker comments, there is great deal of variation across the region with many areas continuing to experience strong demand for farmland with little deterioration in farmland prices,” said Goss....MUCH MORE

Questions America Is Asking: What Is Donald Trump's Hair Worth?

From Hopes & Fears:

Mozart's locks are going up for auction at Sotheby's, which makes us wonder which factors make celebrity hair a worthy investment. As a barometer, we asked the experts to appraise Donald Trump's.
We had Donald Trump's hair appraised — Business на Hopes&Fears
Breaking news in famous hair! Today we learned that a lock of Mozart’s hair will be going up for auction for an estimated £12,000 ($18,500). Given the $115,000 precedent already set by Elvis, we wondered where this number comes from. What are the relevant factors when it comes to evaluating the price of follicles? Does hair notoriety alone increase value, or should hair represent a significant contribution to culture? What about authenticity, volume, and aesthetic? As a barometer, we asked auction experts and critics to appraise Donald Trump's infamous head ornament.

Tim Luke

BAS, MPPA, Master personal property appraiser for Treasure Quest Group, Inc.
Auction estimate:
One of the things that we do as auctioneers and appraisers is look for comparables in the marketplace. Elvis Presley holds the record for follicles at auction for $115,000. John Lennon, Justin Bieber… all of these entertainers have been seeing skyrocketing values. Even politicians. I'm sure you saw Lincoln, Washington, JFK, even Neil Armstrong's hair has sold at auction. It comes down to desirability, iconic recognition of the individual and being sure that you can verify that this is the person's hair because the provenance and the background are the most important thing.

Donald Trump is part of the popular culture, but his signatures only bring between $100-$250 at auction. His best-selling books at auction recently went unsold. I would think his hair would do a little better, but looking at those factors, I don't think those follicles are going to be in the running with Elvis or Mozart… I think people would like it, but it's more of a novelty.

I don't think it would bring more than $1000 at auction. It might be different if it were for a charity, though. He's very philanthropic. 
Paddy Johnson
Art critic, Founder and Editor of Art F City
Auction estimate:
To establish hair value you must first consider how much of it came from the same place. For example, if it comes from the shower or a brush it's disgusting and worthless, if it's a lock plucked from a full head of hair it's magical and priceless. Next you must determine whether the hair is virginesque. Has it been dyed, straightened or permed before? If so, that knocks down the price considerably.

Now, think about this valuation criteria together, and ask yourself how much of Donald Trump's hair can be collected as a lock and whether any of it is real in the first place. You're probably buying strands of used hair. I'd appraise the value of that at nothing....MUCH MORE
We prefer the 2012 TheDonald:

UPDATING, CORRECTING: "Trump intends to endorse Romney"
Correcting, amplifying and updating this morning's "Report: Trump to Endorse Gingrich, Self".

The tie, there's something odd about the tie.

Possibly also of interest:
"Donald Trump Says Trump Casinos Tarnish the Trump Name"
Trump on Trump: Testimony Offers Glimpse of How He Values His Empire
Worth Rises, Falls 'With Markets and Attitudes And With Feelings, Even My Own Feeling'  
Let's Hope the Drapes Match: "Persian rug from 1600s fetches record $33.7M at auction"
"Donald Trump: Gloria Allred Would Be Impressed By My Penis"
Tipping Point: Now Donald Trump Is an Environmentalist
"Reactions Vary to Bin Laden's Death": Trump, Chomsky et Cie.
Republican presidential hopeful Donald Trump: “I'm very happy to hear these reports of Mr. Laden's supposed 'death.' But I don't think the American people are going to be satisfied with rumors, second-hand reports, and some hasty, secret burial at sea. This so-called 'deather' issue won't be put to bed until President Obama does the right thing...

Institutional Investor Interviews Blythe Masters On Her Digital Asset Holdings

Ms. Masters can spin the II guys in circles.
From Institutional Investor April 21, 2015:

Derivatives Pioneer Blythe Masters Tackles Digital Currency
"The JPMorgan Chase veteran heads start-up Digital Asset Holdings, which aims to make trade settlement faster, cheaper and safer."
Blythe Masters has seen the future before, and Wall Street followed. Will it happen again?
If the development of virtual currencies is the story of a long cultural struggle between the idealistic hackers who founded them and the incumbent powers of the financial industry, this year has already seen established money strike two major blows. In March, San Francisco Bitcoin firm 21 emerged from stealth mode to announce a $116 million round of venture funding, the largest ever by a company in the digital currency sector. But it was the announcement of Wall Street pioneer Masters, 46, as CEO of Digital Asset Holdings — a New York start-up with fewer than 20 employees that has yet to launch a single product — around the same time that really caught the attention of the investment world.

Digital currency businesses are now a serious destination for venture capital: $350 million was poured into the sector in 2014, and $230 million has already been invested this year, according to London-based data firm CoinDesk.

But while VCs have been busy pumping cash into Bitcoin, the big beasts of Wall Street have mostly stayed on the sidelines. The appointment of Masters, who spent 27 highly successful years at JPMorgan Chase & Co. before leaving the firm last year after overseeing the sale of its commodities unit, changes that.
Digital Asset was launched late last year by finance veterans Sunil Hirani and Don Wilson; funding for the venture has come from the founders’ own pockets as well as friends and family, says Masters. It’s perhaps no accident that in the weeks since her new job was made public, several big banks have announced digital currency initiatives. In early April, for instance, UBS said it was starting a new innovation lab to explore financial applications of the blockchain, the infrastructure on which Bitcoin is built.

Bitcoin, launched in 2009, is the oldest and best known piece of a thriving global network of digital currencies. Digital Asset — which, unlike other new entrants in the sector, has no designs on being a trading business or an exchange — will focus not on these currencies as currencies. Instead, Masters says the company will exploit the distributed databases that are their structural core to build a software service that will effect “quicker, cheaper, more secure” settlement of trading in mainstream and digital assets.

The youngest woman to achieve the title of managing director in JPMorgan’s history, Masters helped create the derivatives market, which came to dominate institutional trading through the 1990s and 2000s. Her status as the “inventor” of credit default swaps, the trigger instrument for the collapse of American International Group, has made her a sometimes controversial figure. But Masters, who was born and raised in the U.K. and studied economics at Cambridge University, says her experience of the financial crisis and the ensuing debate over reform has convinced her of the need for something to replace the “old-fashioned infrastructure” that Wall Street uses to settle trades.

The wave of change that the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III rules have brought to global banking may have helped reduce counterparty and systemic risk in the clearing and execution of trading activity, but settling a trade in the U.S. still takes anywhere from two days (for Treasuries) to 27 (for syndicated corporate loans).

Masters is betting that the cost and risk to financial institutions that comes from having to keep traded assets on their balance sheets as they wait for settlement will entice them to consider a cheaper, faster, more secure alternative — especially when it comes to the slowest-settling assets such as private stocks, emerging-markets currencies and syndicated loans. The blockchain, a distributed public ledger that allows for the transfer of title to digital assets in a decentralized, real-time fashion, could be the answer, though Masters concedes that it will take a lot to convince conservative, risk-averse financial firms to abandon familiar practices for untested new technology.

“There’s been this aura that Bitcoin is bad,” she says. “It’s the cowboys. It’s not ‘real.’ It’s not ‘responsible.’” Masters spoke to Senior Writer Aaron Timms about her plans to change that, and how the shifting political and cultural landscape for the alternative currency sector is opening up opportunities for businesses such as Digital Asset.

Institutional Investor: You’ve had a long and enormously successful career at one of the world’s biggest banks. What’s the appeal of joining a place like Digital Asset?
Blythe Masters: It might be a small company, but it’s a really big opportunity. And because of my extensive background in financial services, I think I’m in a position to understand the opportunity for what it is. I’m not a technologist — fortunately this company’s got plenty of those. But what I bring to the table is essentially the ability to bridge the gap between the digital and programming world and the world of existing financial infrastructure and all its players. I think the technology itself is transformational, and the scale of the markets to which it can and should be applied is enormous. But the number of people who populate that middle ground, who are able to translate or bridge the gap, is relatively small.

Everyone talks about the enormous potential of alternative currencies and their underlying technology. But the whole world of Bitcoin and other currencies was set up to resist centralization and intermediation. It didn’t want to be part of the organized financial industry; it was openly scornful of it, and there’s still a strong libertarian, antibank strain to much of the sector today. Do you think these worlds want to be bridged?
I would say that your general characterization of some in the space is correct. But if you had a really good idea about how to build a better tire for an automobile, you would probably be really interested in talking to the auto companies because they are the people that ultimately are going to make use of your technology. You could think that maybe, because of the power of your tire, there might emerge a whole new brand of auto companies that supplant the General Motors of this world because the incumbents never really got the whole concept of what a good tire should be all about. But I’m not sure that would be a good move.

What are you hoping to achieve with Digital Asset?
We’re a wholesale-oriented technology company that is seeking to develop software and services for the application of distributed digital databases, including but not limited to the blockchain, for effecting quicker, more secure settlement of mainstream financial assets as well as digital assets. The actual front end of transactions happens at almost warp speed, and yet the process of completing transactions, according to their contractual terms and transferring title to the underlying, is slow. Slow means a higher cost associated with capital requirements, higher risk because of the possibility of something breaking in the period between transaction and completion of the transaction, which, obviously, became front of mind during the financial crisis of 2008.

The other problem with settlement today is that it’s not particularly secure: There’s a lot of electronic information about assets out there, but not all of it is encrypted. And lots of it is stored in centralized places that are very vulnerable to cyberattack or some other operational failure, which is the kind of thing that can happen when you have a centralized, single point of entry to a system. We’re seeking to provide a service that minimizes the amount of risk our users take on. Not surprisingly, the lower the risk you create to the entity in question, the lower the need for regulation in that context.

So you’re against regulation?
No! This is completely different to the notion that regulation is inherently a bad thing, which you’ve correctly identified as a theme in this community, or that the world would be better off without financial intermediaries, without central banks, without governing powers. That’s not a world that we promote or believe is realistic.
We’re actually in favor of a lot of the aspects of the existing world, including trusted parties, government oversight, the transparency needed to facilitate that. Audit trails, limits and command-and-control infrastructure, KYC [know-your-customer protocols], AML [anti-money-laundering rules], legal foundations to detect and deter illegal financial activity — all of those things are positive aspects of today’s world that should be preserved. But they’re slowed down because the existing infrastructure doesn’t have all the benefits of the best of digital technology such as the blockchain. Our idea is to blend the best bits of both....MUCH MORE
What in The World Is Blythe Masters Doing with A Bitcoin Startup?
More On Blythe Masters and Her Bitcoin Startup

Tuesday, May 26, 2015

Belfast Is the European City Most At Risk Of Terror Attack

For what it's worth, three cities, Luhansk (46) and Donetsk (56) in Ukraine, and Grozy (54) in Russia, rank higher than Belfast but RT doesn't entertain the idea that they are European.
From RT:

Terror threat: Belfast most dangerous city in Europe – risk analysts
Belfast faces the highest risk of terrorism of all European cities, while London is “low risk” despite being an “attractive target,” a new study claims.

The research, published this week, examines cities across the globe most likely to suffer terror attacks. It was carried out by risk analytics firm Verisk Maplecroft, which compiles data for use by insurers and financial corporations.
The focus of the report is guiding investment and protecting global economies from the risks of terrorism.
An estimated 80 percent of global GDP is generated from cities,” Verisk Maplecroft’s leading analyst, Charlotte Ingham, told the Independent.

Visibility of the sub-national differences in terrorism levels should be an imperative for multinational organizations looking to understand and price the risks to assets, employees and supply chains,” he said.

London is ranked 400th, despite the current heightened terror alert. Verisk Maplecroft says this low ranking comes from the fact that Britain’s capital has not suffered a terror attack since the 7/7 bombing in 2005.
Paris has soared in the rankings to 97th, however, due to the attack on the offices of French satirical magazine Charlie Hebdo in January.

The risk level in Paris is representative of a wider trend for Western countries, including Belgium, Canada and Australia, where key urban centers face substantially higher threat levels than elsewhere in the country,” Verisk Maplecroft said.

A number of African cities are considered high risk, including Nairobi in Kenya and Lagos in Nigeria.
Belfast’s position as most-at-risk city in Europe may also reflect recent British defense policy.

In March, it was announced that British Special Forces soldiers are once again operating in Northern Ireland to counter violent dissident groups including the Real IRA, intelligence sources say....MORE
Here's Verisk's product page.

According to the map at the Daily Mail Las Vegas Nevada is also dangerous:
Hotbeds of terror: The map produced by Verisk Maplecroft gives an at-a-glace breakdown of the world's most dangerous cities, with the worst places marked out in red

Meet Zoox, the Robo-Taxi Start-up Taking on Google and Uber" (GOOG)

From IEEE Spectrum:

Exclusive details and images of the stealthy startup’s experimental vehicle

 img of the original Zoox concept
The original Zoox concept.
You wait for years for a self-driving taxi, then four come along at once.

Google and Uber’s efforts have been well publicized, and IEEE Spectrum broke the news in February that Nissan was also developing a robotic cab. Now we can reveal exclusive details about a startup that hopes to put fully autonomous taxis on the road by 2020.

The company is called Zoox, and it’s the brainchild of the Australian designer Tim Kentley-Klay and Jesse Levinson, an engineer who worked at Stanford University with Sebastian Thrun, the first director of Google’s self-driving car program. Their vision is for a sleek, modernistic, deluxe electric taxi with gullwing doors, in which four passengers face one another. The car is code-named L4, a play on the National Highway Traffic Safety Administration’s classification of full automation as Level 4. Unlike rival designs, it has no front or rear end but can drive equally well in either direction. It has no windshields facing either way, nor does it have a steering wheel or brake pedal.

Speaking at a conference in Berlin last year, Kentley-Klay said, “At the moment, mobility is crushing the soul: Don’t speed, don’t drink, don’t text. But what if we [ask], How can this stuff be awesome? What inspires me…is giving back people their lifestyles, so they can do what they want to do: texting, vegging out, drinking.” The Zoox test mule, which is currently being built in a garage in Menlo Park, Calif., is based on an innovative Swedish research vehicle with wheels that can be steered, driven, braked, and cambered independently.
img Zoox544
Zoox’s experimental robo-taxi in the garage at SLAC appears to have multiple lidar modules. 
The vehicle is conceived to have modules that drive, camber, and steer each wheel independently. So it will be able to drive in either direction.
Late last year, Zoox secured seed funding from a major venture capital firm and entered stealth mode to avoid tipping off rivals. It declined to comment for this story. Nevertheless, Spectrum has pieced together the tale of how a designer from Australia with no auto industry experience intends to revolutionize 21st-century transportation, including a first look at the technology Zoox is using to develop its vehicle, the venture-capital firm funding it, and exclusive photos of the car and workshop.

Kentley-Klay’s first career was in commercial media. He founded a successful animation studio, a digital media company, and a video production house, and he spent most of the past decade directing television commercials and building his businesses. Then, in 2013, he suddenly switched gears. Struck by the potential of emerging self-driving technologies, he sketched out concept designs and realized he was thinking about building the world’s first autonomous taxi.

“I know that sounds crazy,” he writes on his website. “But when you think through the mobility problems we face against the imagination of what autonomous technology allows, you would be crazy not to do it!”
Kentley-Klay formed a company called Zoox Pty. in his hometown of Melbourne and began talking with technology and car companies around the world. He visited the University of Sydney, Stanford, the MIT collaborative project in Singapore, and Singularity University, in California, to share his vision: “Zoox is not an automobile company. This is what comes after the car,” he wrote on his site. “I have in my head a concept design…so extreme it will have philistine giraffes gone wrong like [former Top Gear host] Jeremy Clarkson throwing back shots of Prozac to calm down.”...MORE

Signposts: Movie Producer/Developer Expects Spec Home to Fetch $500 Million

From Bloomberg: 

California Dreaming: Record $500 Million Tag on L.A. Home

Bel Air Mansion
Rendering of Niami's under-construction mansion in L.A.’s Bel Air neighborhood. Source: McClean Design via Bloomberg
One of the biggest homes in U.S. history is rising on a Los Angeles hilltop, and the developer hopes to sell it for a record $500 million.

Nile Niami, a film producer and speculative residential developer, is pouring concrete in L.A.’s Bel Air neighborhood for a compound with a 74,000-square-foot (6,900-square-meter) main residence and three smaller homes, according to city records. The project, which will take at least 20 more months to complete, will exceed 100,000 square feet, including a 5,000-square-foot master bedroom, a 30-car garage and a “Monaco-style casino,” Niami said.

“The house will have almost every amenity available in the world,” he wrote in an e-mail. “The asking price will be $500 million.”

Estates with views of the Los Angeles basin are the California counterpart to Manhattan’s penthouses or London’s Mayfair manors, drawing a global cast of financiers, technology tycoons and celebrities who collect trophy homes like works of art. Around the world, five properties sold for $100 million or more last year, and at least 20 others have nine-figure asking prices, Christie’s International Real Estate reported last month.

The priciest home ever sold was a $221 million London penthouse purchased in 2011, according to Christie’s. The most expensive properties on the market include a $425 million estate in France’s Cote d’Azur, a $400 million penthouse in Monaco and a $365 million London manor.

Whether Niami can get more than double the previous record for his mansion remains to be seen.
“I’m skeptical,” said Jonathan Miller, president of appraiser Miller Samuel Inc. and a Bloomberg View contributor. “My first reaction is laughter. But we’re in this perpetual state of surprise as new thresholds are broken.”

U.S. Records
The current highest U.S. asking price is $195 million for Palazzo di Amore, a Beverly Hills, California, estate being offered by billionaire real estate entrepreneur Jeff Greene. The record for a sale was the $147 million that Barry Rosenstein, managing partner at hedge fund Jana Partners, paid last year for an estate in East Hampton, New York.

Niami’s project, on a 4-acre (1.6-hectare) hilltop lot, will have 360-degree views of the Pacific Ocean, Beverly Hills, downtown Los Angeles and the San Fernando Valley.....MORE
HT: Economic Policy Journal

"First Solar shares down 6% after downgrade"

We've been asked "Why the lack of solar posts".
Right now it's a tough space for portfolio investments, maybe a turn at the bottom of the gap, maybe not, see chart below.
Please to remember, FSLR was pretty much our raison d'être from the $20.00 Nov. '06 IPO to the $317.00 May '08 top tick. $50.92 last.
From MarketWatch:
Shares of First Solar Inc. FSLR, -7.41% fell 6.2% on Tuesday as the stock got a downgrade from analysts at RBC Capital Market. "We believe First Solar earnings power is significantly lower than consensus and previous guidance," the analysts said in downgrading the shares to underperform. The RBC analysts also lowered their price target on the stock to $34 a share from $54 a share. RBC expects the solar-power company to earn $1.37 a share in 2016, compared with consensus of $3.48 a share and company guidance of $3.50 a share to $5 a share. Revenue growth for this year and the next will be "flattish," compared with the company's previous guidance of 19% growth in 2015 and 2.5% growth in 2016, RBC said. "Given the company's high exposure to utility-scale projects and the long lead-time and development cycle of those projects, we do not see upside surprise to our project revenue estimate."...
More at The

And from FinViz:

Oil: WTI Crude Prices Are Plunging (Again)

It's all about the buck. The spot dollar index is up 1.33% at 97.29, the euro is down to 1.0885.
NYMEX front month (Jul.) $58.46 down $1.26.
From ZeroHedge:
It appears the oil-spoofing machines are unhappy with the 'good' news this morning on orders and US housing - or perhaps they read this - but for now, WTI Crude front-month futures are back below $58.50, down over 2% on heavy volume...

As We Approach the Start Of Hurricane Season: Wunderblog's Summer Weather Watch

My M.D. great-aunts were bemused by meteorologists who introduced themselves as Doctor.
On the other hand, when arriving at some function together, they'd announced they were "a pair-o-docs", so not real sticklers for form.
From Bob Henson at  Dr. Masters' Wunderblog:

Summer Weather Watch: Keep an Eye on These Five Possibilities
It’s Memorial Day weekend, the traditional start of the U.S. summer season, and millions are wondering what kind of weather the next three months will bring. Seasonal predictions have their limits any time of year, and that’s especially true in summer, when upper-level winds are weaker and local influences play a larger role. Moreover, the largest single influence on year-to-year climate variability--the El Niño/Southern Oscillation (ENSO)--is often at low ebb in the northern summer. Not so this year. An unseasonable El Niño event is now approaching moderate strength and is projected to continue intensifying through the summer, perhaps reaching record or near-record strength for the time of year by August. Instead of the typical lack of a summertime push from El Niño or La Niña, we’re thus left with a much different kind of prediction challenge: a summer setup so unusual that we have few analogs to go by. With that caveat, I’ll stick my neck out and offer a Top Five List (with apologies to David Letterman) of things I’ll be watching for as the lazy, crazy, and occasionally hazy days of summer unfold.

Figure 1. Departures from average temperature across the U.S. for the summers of 1982 and 1997, both of which led into strong El Niño events. Image credit: NOAA/ESRL/PSD.

Figure 2. The weather prediction firm WSI is calling for relatively mild conditions this summer across the bulk of the United States, with unusual heat confined mainly to the western U.S. and Florida. Image credit: WSI.

Cool, man, cool
The summers of 1982 and 1997, which preceded the two strongest El Niño events on record, were cooler than average across most of the United States (see Figure 1 above). No analog is perfect, but based in part on the patterns observed in those two years, “we expect the weakest nationwide cooling demand since at least 2009,” says WSI in its summer energy outlook for 2015 (Figure 2). Other years with at least a moderate Oceanic Niño Index value (at least +1.0) in Jun-Jul-Aug include 1972, 1965, and 1957; all but 1957 had widespread below-average summer temperatures. Precipitation signals for the summer are less straightforward, although during winter El Niño tends to bring wetter-than-average conditions across the southern half of the United States. The strong subtropical jet stream that’s fed much of the low-latitude U.S. rainfall over the last month may weaken as we get into summer, then restrengthen in the fall, but signals remain positive for widespread summer moisture. The average of a variety of climate models assembled through the North American Multi-Model Ensemble (NMME) suggests relatively wet conditions across much of the nation, with a cooler-than-average pocket in the nation’s heartland and relatively warm temperatures close to the coasts. These tendencies are reflected in the National Weather Service summer outlook (see Figure 3 below). The central U.S. already has a head start toward a fairly mild summer due to the extremely wet conditions across most of the Plains over the last month. Even when the rains abate and the summer sun kicks in, some of that energy will go toward evaporating surface-based moisture, rather than heating up the ground and the surface air.

Figure 3. Seasonal predictions from the National Weather Service (June-August) showing where the odds are leaning for temperature (left) and precipitation (right). “EC” denotes equal chances of above- or below-average conditions. Image credit: NWS/Weather Prediction Center.
For fire and heat, head northwest
Landscapes are parched from most of California up to the interior of Alaska, as well as adjacent northwest Canada. A major high-latitude heat wave sent temperatures on Thursday in Barrow, AK, up to 47°F, the warmest ever observed so early in the season and only the second time that temperature has been reached before June (more here from the Weather Channel’s Jon Erdman). The warm temperatures have triggered unprecedented flooding that’s closed more than 50 miles of the Dalton Highway, a key route through northern Alaska. It may be a particular rough season for wildfires across those higher-elevation forests where snow was extremely scant this past winter, from the Sierras north through the Cascades and into British Columbia.......MORE  

Which of These Historic Castles Has a Better Modern Staircase?

The general rule, if you expect swordplay, is to have all turns, spirals etc. go to the left as seen from below.
Because ~90% of the population is right-handed you want to keep the usurper's sword hand up against the wall as you retreat into your keep, while allowing yourself a fuller range of movement.

From Curbed:
[Left: Castle of Emporeios, Greece; Right: Medieval Italian Fortress]
The Interior Design Gods conspired today to bring us two different projects on design blogs Dezeen and Contemporist that attempt roughly the same thing: adding a modern staircase into a historic stone castle. In the rural Italian village of Villa d'Adda, architect Gianluca Gelmini added his staircase as part of his renovation of a dilapidated 12th-century fortress. And on the Greek Island of Nisyros, Giorgos Tsironis and Greg Haji Joannides added their staircase to a 17th century building perched at the top of a hill. So, we put it to you, the reader. Which do you think is the more successful staircase?
 [Medieval Italian Fortress]
[Castle of Emporeios, Nisyros, Greece]


Also at Curbed:
Starter Castles, Staircase Houses, and Dogs Named Tesla

Notes From the 2015 London Value Investor's Conference

From Market Folly:

London Value Investor Conference Notes 2015: Woodford, Ruffer, Brandes & More
Neil Woodford – Woodford Investment Management
Q&A Session.  Neil Woodford is one of the UK’s most respected and successful fund managers. After 26 years at Invesco Perpetual where he managed £30bn in 2013, he left to set up his own fund management business. Woodford has a background in economics and finds it natural to combine bottom up stock picking with top down analysis. He focuses on the medium and long term. Trying to value a business without taking into account the macro and competitive environment is like music without instruments; it doesn’t work. He places emphasis on portfolio construction – not just the cheapest stocks. Trying to be scientific about the future is an inherently odd thing to do. Portfolio construction is not a science, more an art and involves lots of judgement. Valuation should always involve a range of intrinsic values and not an absolute number. He uses revenues, earnings and cash flows to value a business and spends a lot of time getting close to businesses including meetings with management.  Considering history and the past is important when making a valuation but they are only part of the judgement because companies, management and technology can change. He does not spend time worrying about what other managers are doing. 
On how to value early stage companies – he uses the same tools and valuation methods and flexes them. It is possible to value pre-revenue businesses. They project cash flows just as they would for established companies. 
On fund management - smaller scale boutique style fund managers have advantages as smaller teams are often more effective than large. Fund management lends itself to being a cottage industry. The industry generally charges too much in fees. The thing that offends him most is charging high fees for closet indexing. The industry needs to become more open and transparent. 
On the £18m fine that Invesco received after Woodford had left - he said the FCA report is pretty comprehensive and makes good reading. The fine related to disclosure rather than the use of excess leverage. He has learnt from the incident to keep his new fund’s model very simple. They will only use derivatives for currency hedging and nothing else.
On how to deal with underperformance - all investors go through difficult periods.  He underperformed in the tech bubble of the late 90s. It was a draining and emotional experience. Woodford said you must trust your discipline in good times and bad. You need investment anchors to stay consistent. 
On what he saw that made him sell out of Tesco at the same time that Warren Buffett was buying - he did not like the way Tesco were deploying capital and he became less convinced about future returns. “They were planting flags.” He thought that competition would increase in the sector but he did not foresee the rise of the discounters, Aldi and Lidl. After a 30-minute conference call with the new CEO, Philip Clarke, he thought the problems facing Tesco were structural and not cyclical and sold all of the stock within a few weeks.
Jonathan Ruffer – Ruffer LLP
“Value investor,” like “democrat,” is one of those words that it is hard to say you are not. Ruffer thinks of himself as value investor but in the negative sense that he is not a momentum investor.  Unlike some value investors, Ruffer believes we must grapple with and try to predict the future. The Romans distinguished between futurum and adventus. Futurum refers to events that roll away from us. For example, a turnip farmer was reasonably sure that he was going to eat boiled turnip for dinner but the further ahead one looks the harder it becomes to predict the future. Adventus refers to those events or shocks that come at us and hit us, things that we could not possibly have seen coming. The momentum investor concentrates on the futurum.  Unlike the Roman view of adventus (which sees the challenges that come at us as acts of god) it is the task of the value investor to spot the next crisis coming. This can be done by studying history, starting from the beginning of limited liability in 1840. Stock market crashes do not come out of a blue sky. The big question for investors now is how the huge amount of debt in the world will be resolved? Collateral is a crucial part of the lending process but today central banks have made too many gifts through QE and taken collateral out of circulation. Since 2009, the money supply in the US, Europe and Japan has been expanded. By keeping interest rates below the rate of inflation a new asset bubble has been created. There is a crisis on the way in which all asset classes will fall in value but it is hard to say exactly when. When the crisis does arrive “safe” investments will be the most dangerous. As in Britain in the 1970s, inflation of 10-20% is likely.
Tim Hartch – Brown Brothers Harriman
Looks for companies with: a loyal customer base, a sustainable competitive advantage, essential products and services, leaders in attractive markets, strong balance sheets, high returns on capital, disciplined capital allocation. Looks to own 25-35 stocks and invests with a 3-5 year horizon. He sells investments when they approach intrinsic value. How is intrinsic value calculated? Hartch takes into account revenue growth, margins, business mix, capital intensity, ROIC, acquisitions, discount rate and terminal value. He is looking for a 15% return per annum over five years....MORE