Monday, October 20, 2014

MENSA and "How Is a Genius Different From a Really Smart Person?"

Answering a couple questions touched on in Sunday's "Richard Feynman on the Social Sciences".
From Nautil.us:
The most intelligent two percent of people in the world. These are the people who qualify for membership in Mensa, an exclusive international society open only to people who score at or above the 98th percentile on an IQ or other standardized intelligence test. Mensa’s mission remains the same as when it was founded in Oxford, England, in 1946: To identify and nurture human intelligence for humanity’s benefit, to foster research in the nature of intelligence, and to provide social and other opportunities for its members. 

Nautilus spoke with five present and former members of the society: Richard Hunter, a retired finance director at a drinks distributor; journalist Jack Williams; Bikram Rana, a director at a business consulting firm; LaRae Bakerink, a business consultant; and clinical hypnotist John Sheehan.

Together, they reflect on the meaning of genius, whether it can be measured, and what IQ has to do with it.
(RH = Richard Hunter, JW= Jack Williams, LB = LaRae Bakerink, BR = Bikram Rana, JS = John Sheehan)

Let’s start with the basics: Are you a genius?
RH: Ha! If you pass that test, all it proves is that you have a certain IQ. That is not the same as making you an intelligent person, never mind a genius. You can have a very high IQ and be a complete idiot.

BR: No! How different could I be from the 97th percentile? I think hard work is what really separates you from others. I don’t think you can be a genius without achievement. You know people at the very top work doubly as hard as 90 percent of people in the same profession. Take somebody like Cristiano Ronaldo. He probably works 20 hours more than someone who is outside the top-20 soccer players.

JW: I think being a Mensan means I’m good at logic, but that’s it. I don’t think I am worthy of the same term used to describe Einstein. Genius is moving something forward. Evolving.

JS: I don’t know. I’m not comfortable with saying I am a genius. I knew that the scores on my tests, very early in life, identified me as gifted. I finished high school at 14, and finished my undergraduate and graduate degree in college at 19.

LB: No. I think that’s kind of arrogant. I consider myself smarter than the average bear. I don’t look at myself as a genius. I think that’s because I see things other people have done, things they have created, discovered, or invented, and I look at those people in awe, because that’s not a capability I have. I have a really good memory and really excellent organizational ability, but I don’t consider those things genius. I see genius as creativity.

Is Mensa an organization for geniuses?
RH: I think it’s a very narrow definition of genius.
BR: I think it’s for people with high IQs. I think genius is more complex: You need to have intelligence, but you need to put that to the test. I think it is for people who are aware of how well they are doing at that point. And who also want to see whether they can join any other organizations where they will find more like them.

JS: I think people view it as a place where intelligence is valued, and understood, where they are valued and understood. Our society is an extroverted society. In Mensa the reverse is true. The more gifted you are the more likely to be an introvert. People who all of their lives have felt socially marginalized and uncomfortable because of their gifts are suddenly in a place where that won’t happen.

LB: I think what sets Mensans apart is that they are willing to join, rather than anything else. Some people take the test and never join. One in 50 people qualifies to be a member, so we could have millions of members. But we only have 56,000, I think. It is a social club.

Can you describe a typical member of Mensa to me?
JW: You see the same people in any place of social gathering, like a bar. It just so happens that all those people have high IQs. You’re more likely to find someone who is interested in black holes than you are reality TV. There are definitely people who have that social awkwardness you expect to come with this sort of thing, but once you get passed that, it’s just like chatting to different people in a bar—or at least, in 9 out of 10 cases.

JS: Can you describe a member of the general population to me? When I joined Mensa I really wondered if I would meet anyone like me, and the fact is that I came to realize, bar that one exception of giftedness, which we all have, that’s pretty much the only common denominator. We have judges, lawyers, artists, musicians, first-responders… That’s what is so great about Mensa.

LB: It is such a diverse organization though. You would have no idea what anyone’s occupation is unless you asked. A Mensa member wants to belong to a community like them.

Can you define “genius” for me, or describe what a genius is?
RH: An exceptional ability perhaps? That would satisfy if you were a member of Mensa—you know you have an exceptional ability in IQ if you get in to it. It is one type of genius, but genius takes many forms. An example would be Dave Johnson. He was a famous decathlete in the 80s and 90s. He was clearly a genius athlete: He ran, he could throw javelin, he could do all these things, and he won the Olympic gold decathlon. That must be genius in the sporting field. I am nothing like Dave Johnson—it is far more complicated than one thing or another....MORE

"Jim Chanos Says Petrobras is a ‘Scheme, Not a Stock’ [FULL TRANSCRIPT] " (PBR.a)

From ValueWalk:
Jim Chanos spoke with Bloomberg Television anchor Stephanie Ruhle from the Robin Hood Investor’s Conference in New York today. Chanos described Petrobras as a “scheme,” saying that optimism it will benefit if Dilma Rousseff is voted out of office is unfounded: “Every time Dilma’s poll numbers go up, Petrobras’s stock goes down…Even if Neves wins, it doesn’t change the economics” at Petrobras.

STEPHANIE RUHLE, BLOOMBERG: Jim, we will get to talk about China, but you just left the stage. You have been followed out here by attendees talking about your big idea, Petrobras. Talk to us.

JIM CHANOS, FOUNDER, KYNIKOS ASSOCIATES: Well, I guess we’re going to talk about one emerging market situation first. I gave a presentation inside to the Robin Hood folks on an idea we’ve been involved with on and off for the last couple years, but it was timely because of the upcoming election. This Sunday the presidential election in Brazil is occurring, and Brazilian stocks have basically been – been ping pong balls moving every which way based on where people think the presidential election will fall out.
Our point was Petrobras is such a unique animal globally and it’s an energy stock that it defies that kind of simple analysis. And we pointed that out —

RUHLE: Why? It is so tied to Dilma Rousseff.

JIM CHANOS: Well it is, and that’s the interesting thing. Every time Dilma’s poll numbers go up, Petrobras stock goes down. And every time Neves’s numbers go up, Petrobras stock goes up. The problem is it’s tied to Dilma. She was the chairwoman of this company. There’s been a number of investigations and – and scandals swirling the company – around the company. And we’re just not sure that even if Neves wins he’s going to really be feeling all warm and fuzzy toward this creature. Having said all that, the economics are just so poor at Petrobras that we really have called it a scheme, not a stock.

RUHLE: A scheme. Do you believe they misled investors back in 2010 when they did the IPO?

JIM CHANOS: Well we did – there was a slide in our presentation where we looked at the company’s projections. They keep – these five-year plans that they keep revising. And suffice it to say that if you look at it on the table, they have been a tad too optimistic down through the years by a lot....MUCH MORE

"U.S. Solar Consolidation Seen Before Tax Credit Expires"

WARNING: Our proprietary "What's on TV" buyout model (backtested to February) has proven skill in identifying one of the parties to an acquisition however THE COMPANY WE IDENTIFY ALMOST ALWAYS TURNS OUT TO BE THE ACQUIRER, NOT THE ACQUIREE.

From BusinessWeek:
Acquisitions in the solar industry will accelerate as manufacturers and developers prepare for the expiration of a tax credit that’s helping drive an installation boom in the U.S. 

With renewable-energy executives gathering in Las Vegas for the Solar Power International conference that begins today, some will be shopping their companies around and others will be evaluating potential purchases, said Michael Horwitz, who leads energy technology investment banking at Robert W. Baird & Co. in San Francisco.

The federal investment tax credit, which reimburses 30 percent of development costs for solar projects, underpins the industry’s financing models. When that drops to 10 percent at the end of 2016, some companies will struggle to remain competitive. Horwitz expects a wave of consolidation that will result in about six to 12 large solar conglomerates that will be able to beat utility prices for power.

“We’re going to see a lot of M&A activity going into next year,” Horwitz said in an interview. “The growth in front of that ITC loss is going to be dramatic.”

U.S. solar development will almost double by 2016 to 9.6 gigawatts, up from about 5.1 gigawatts this year, according to Bloomberg New Energy Finance. After the ITC is reduced, the London-based research company expects new construction to drop to about 4 gigawatts in 2017 and take six years to recover.

NRG Deals
Some consolidation has already begun. NRG Energy Inc. (NRG:US), the largest independent U.S. power producer, purchased three solar companies this year, most recently a deal this month for the online marketer Pure Energies Inc. and an August deal for Goal Zero, a supplier of portable batteries and solar panels that charge laptops and smartphones....MORE

"The Artists' Road To Serfdom: The Commoditization Of Creative Content"

From Of Two Minds via ZeroHedge:
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
This is the net result of commoditization: there's no premium for commoditized capital, labor, goods, services or content.
As I noted in Our New Robot Overlords & The Third Type of Capital, profits flow to whatever inputs are scarce. Unfortunately for musicians, writers, filmmakers and others producing creative content, creative content is no longer scarce: it's been commoditized and is now available in unlimited quantities for $10/month.
The model is simple: unlimited content for a few bucks per month.This is the model of music services such as Spotify and Pandora (which offer advert-supported services for free) and iTunes Radio, Amazon Prime for borrowing Kindle ebooks and various film/video distribution services.
 
The model effectively commoditizes all creative content. Commoditization makes all inputs interchangeable. Global labor has been commoditized because it no longer matters which workers assemble the goods, global capital has been commoditized because it no longer matters where the capital comes from, and globally produced goods, services and resources have been commoditized because it no longer matters where they come from or who produces them.
 
Services that offer unlimited streaming/borrowing commoditize all content: the content is interchangeable to the buyer, and the creator of the content earns next to nothing when the content is streamed.
 
A recent article in the S.F. Chronicle (ITunes is in need of a tune-up to keep up with streaming) explains:
Digital music sales recently fell for the first time ever, with the number of digital songs purchased plummeting 13 percent to 594 million in the first half of 2014, compared with the same period a year ago, according to research firm Nielsen, which has tracked music sales since 1991. Meanwhile, the amount of music streamed online rose 50 percent, the firm said.
 
While streaming sites have helped big online music spenders save money, they have also cut into the money that musical artists make per song.
 
ITunes sells songs for 69 cents to $1.29 each. For a song that costs $1.29, Apple takes 30 percent of the sale and the rest goes to the record label and artist, Stewart said. If the artist is on a record label, they would get a royalty of about 20 cents for that track, she said.
 
That might not seem like a lot, but the money could be even less in streaming music for free with ads. In general, a song must be streamed 75 to 80 times in order for a music label to make the same amount of money as from a single online song purchase, according to MIDiA Research.
The unlimited-streaming/borrowing model is great for consumers and the companies collecting the fees every month, but it's a rocky road to serfdom for content creators. 80 downloads are needed for the musicians to collect a lousy 20 cents for their creative efforts? Let's be generous and note that self-produced/distributed artists could collect as much as 50 cents of an iTunes purchase, and presumably the same from 80 downloads.
 
So it only takes 8 million downloads to earn a median middle-class income of $50,000 a year. Musicians (those signed to labels) who receive 20 cents from 80 downloads would need 20 million downloads annually to earn $50,000--roughly the median household income in the U.S.
 
How many musicians get 20 million downloads?
 
The distribution of creative-content rewards tends to follow a power law, i.e. the Pareto Distribution, where the "vital few" (the very apex of the pyramid) reap most of the rewards.
 
So a handful of artists, writers and independent filmmakers collect most of the shrinking pool of money paid for creative content, and the vast majority earn chump-change...
...MORE

Equities Have Retraced Almost 50% of the Entire Decline

S&P 500 up 11.36, last 1898.12.
From Slope of Hope:
Fifty Percent Retrace Within Sight
1020-spx

See also Friday's "Equities: Prior Support Is Now Resistance":
The 1905 line proved to be butter under the hot knife of sell orders and should not be much stronger on the way up. We are looking for new highs before the next major downturn. S&P 500 1885.91 up 23.15 on the day, DJIA 16,365.73 up 248.49. The 50% retracement of the entire downmove is 16,429.65.
From Afraid to Trade:
Surging Toward the 200 day SMA Target
As was generally expected, the market retraced higher after several down-days in a row took price to a key monthly support level (1,825).

Let’s look at the current S&P 500 and Dow Jones charts and highlight the surge back to the underside of the broken 200 day SMA:

...MORE

Corrected--Following Up On "What Happens to the Market When Both A Friday and the Following Monday Are Down 1%"

Correction: It was brought to my attention that I had the wrong base for the "multiply by 1.019" computation.
1177.70 rather than the correct 1877.70.
Apologies all around.

A long way to a 1.9% profit.
Sometimes playing the percentages works. Sometimes it doesn't. Try to bet bigger on your winning hands.

On Tues. Oct 14 we posted "Quant Talk: What Happens to the Market When Both A Friday and the Following Monday Are Down 1%" at 5:30 am PDT with Monday's close highlighted and pointed out we expected a few more ticks down:
DJIA 16,321.07, still 40 points off Sept. 22's "Equities: How's About a Thousand Dow Points (to the downside)?", S&P 500 1874.74....
No kidding. The market was flat on Tuesday and didn't bottom until 1820.66 on Wednesday, 3% lower but all's well that end's well because the Quant talk post concluded:
...21/23 times $SPY closed higher at some point of time over the next five trading days , with an average gain of 1.91%...
Which from last Tuesday's close of 1877.70 gives us 1913.56.
1,897.32 Up 10.56 last, close enough.

We'll just forget the vomitus ride to get here:
Remember, this is after having avoided 960 Dow points of downside. Holy crap!
Chart forS&P 500 (^GSPC)

New York Magazine's Million Word Interview With Mark Andreessen

It's not really a million words but man-o-mandingo the guy likes to talk.
From New York Magazine:

In Conversation Marc Andreessen
The Netscape creator turned Silicon Valley sage on why optimism is always the safest bet
It’s not hard to coax an opinion out of Marc Andreessen. The tall, bald, spring-loaded venture capitalist, who invented the first mainstream internet browser, co-founded Netscape, then made a fortune as an early investor in Twitter and Facebook, has since become Silicon Valley’s resident philosopher-king. He’s ubiquitous on Twitter, where his machine-gun fusillade of bold, wide-ranging proclamations has attracted an army of acolytes (and gotten him in some very big fights). At a controversial moment for the tech industry, Andreessen is the sector’s biggest cheerleader and a forceful advocate for his peculiar brand of futurism.

I love this moment where you’re meeting Mark Zuckerberg for the first time and he says to you something like, “What was Netscape?”1Mouse over or tap underlined text to read footnotes.
He didn’t know.

He was in middle school when you started Netscape. What’s it like to work in an industry where the turnover is so rapid that ten years can create a whole new collective memory?
I think it’s fantastic. For example, I think there’s sort of two Silicon Valleys right now. There’s the Silicon Valley of the people who were here during the 2000 crash, and there’s the Silicon Valley of the people who weren’t, and the psychology is actually totally different. Those of us who were here in 2000 have, like, scar tissue, because shit went wrong and it sucked.

You came to Silicon Valley in 1994. What was it like?
It was dead. Dead in the water. There had been this PC boom in the ’80s, and it was gigantic—that was Apple and Intel and Microsoft up in Seattle. And then the American economic recession hit—in ’88, ’89—and that was on the heels of the rapid ten-year rise of Japan. Silicon Valley had had this sort of brief shining moment, but Japan was going to take over everything. And that’s when the American economy went straight into a ditch. You’d pick up the newspaper, and it was just endless misery and woe. Technology in the U.S. is dead; economic growth in the U.S. is dead. All of the American kids were Gen-X slackers2—no ambition, never going to do anything.

What did you do?
I just went to college. I did my thing. I came out here in ’94, and Silicon Valley was in hibernation. In high school, I actually thought I was going to have to learn Japanese to work in technology. My big feeling was I just missed it, I missed the whole thing. It had happened in the ’80s, and I got here too late. But then, I’m maybe the most optimistic person I know. I mean, I’m incredibly optimistic. I’m optimistic arguably to a fault, especially in terms of new ideas. My presumptive tendency, when I’m presented with a new idea, is not to ask, “Is it going to work?” It’s, “Well, what if it does work?”

That stance is something I work very hard to maintain, because it’s very easy to slip into the other mode. I remember when eBay came along,3 and I thought, No fucking way. A fucking flea market? How much crap is there in people’s garages? And who would want all that crap? But that was not the relevant question. The eBay guys and the people who invested early, they said, “Let’s forget whether it’ll work or not. What if it does work?” If it does work, then you’ve got a global trading platform for the first time in the world, you’ve got liquidity for products of all kinds, you’re going to have true price discovery.

But clearly you don’t think everything’s going to work.
No. But there are people who are wired to be skeptics and there are people who are wired to be optimists. And I can tell you, at least from the last 20 years, if you bet on the side of the optimists, generally you’re right.

On the other hand, if there’d been a few more skeptics in 1999, people might have kept their retirement money. Isn’t there a role for skepticism in the tech industry?
I don’t know what it buys you. Let me put it this way. If you could point to periods of time in the last hundred years when everything just stabilized and didn’t change, then maybe yes. But that never seems to actually happen. The skeptics are wrong all the time.

These days, Silicon Valley is this cultural institution in a way that Wall Street might have been in the ’80s.
That has its pros and cons. But one of the things you’ll hear from entrepreneurs is it’s better—not necessarily easier—to build companies when there’s a recession because there’s less froth,4 it’s easier to hire people, there are fewer competitors. Entrepreneurs say in an economic boom it’s actually hard to build a company because everybody’s too excited and there is too much money funding too many marginal companies.

There are a few big companies in the tech industry today: Facebook, Google, Amazon, Apple. Which of today’s start-ups do you think is going to join them?
All of ours.

You’ve got your hands in so many pies as an investor.
And you have to love all your children equally.

One of the things that you seem to really enjoy, at least on Twitter, is digging up old pessimistic predictions of people like Paul Krugman, saying that the internet’s going to be the next fax machine or something.
This is part of what you experience in the tech industry. And it’s so weird, but it actually goes to the heart of American culture. You’ve read de Tocqueville,5 right? There’s a paradox at the heart of American culture: In theory, we like change, and then when change actually materializes and presents itself, it gets vast amounts of blowback. We like change in the general case, but we don’t like it in the specific case. With every single thing that anybody here has ever done, there’s always been people saying, “That sucks. That’ll never work. That’s stupid.”...MUCH MORE
HT: Business Insider's "ANDREESSEN: The American Middle Class Is A Historical Accident"

Earth's Magnetic Field May Be About to Flip

"About to" is relative. In geologic terms it is imminent. In biological, maybe within a lifetime.

I plan to be around to see what effect the uptick in solar and cosmic radiation will have on CERN's CLOUD experiment results.

From the University of California-Berkeley:

Earth’s magnetic field could flip within a human lifetime
BERKELEY —Imagine the world waking up one morning to discover that all compasses pointed south instead of north.

It’s not as bizarre as it sounds. Earth’s magnetic field has flipped – though not overnight – many times throughout the planet’s history. Its dipole magnetic field, like that of a bar magnet, remains about the same intensity for thousands to millions of years, but for incompletely known reasons it occasionally weakens and, presumably over a few thousand years, reverses direction.

Now, a new study by a team of scientists from Italy, France, Columbia University and the University of California, Berkeley, demonstrates that the last magnetic reversal 786,000 years ago actually happened very quickly, in less than 100 years – roughly a human lifetime.

“It’s amazing how rapidly we see that reversal,” said UC Berkeley graduate student Courtney Sprain. “The paleomagnetic data are very well done. This is one of the best records we have so far of what happens during a reversal and how quickly these reversals can happen.”

Sprain and Paul Renne, director of the Berkeley Geochronology Center and a UC Berkeley professor-in- residence of earth and planetary science, are coauthors of the study, which will be published in the November issue of Geophysical Journal International and is now available online.

Flip could affect electrical grid, cancer rates
The discovery comes as new evidence indicates that the intensity of Earth’s magnetic field is decreasing 10 times faster than normal, leading some geophysicists to predict a reversal within a few thousand years.

Though a magnetic reversal is a major planet-wide event driven by convection in Earth’s iron core, there are no documented catastrophes associated with past reversals, despite much searching in the geologic and biologic record. Today, however, such a reversal could potentially wreak havoc with our electrical grid, generating currents that might take it down.

And since Earth’s magnetic field protects life from energetic particles from the sun and cosmic rays, both of which can cause genetic mutations, a weakening or temporary loss of the field before a permanent reversal could increase cancer rates. The danger to life would be even greater if flips were preceded by long periods of unstable magnetic behavior.

“We should be thinking more about what the biologic effects would be,” Renne said....MORE
 Here's Geophysical Journal International

The Week Ahead: Into the Heart Of Earnings Season (IBM; AAPL; HAL; BTU)

IBM has already reported and is trading down 7.66%. As the second highest priced stock in the Dow Jones Industrials it is having an outsized effect on the index in pre-market trade.

Let's see, the divisor, at 0.15571590501117 is actually a multiplier so loss of  $13.95 times reciprocal of 6.42195156576 equals 89.59 points so with futures indicating down 82.00 we're actually up 7.59 on the other 29 stocks in the index and I can go back home.

From Risk Reversal:
This week is the busiest of earnings season, with the technology sector at the forefront.  Outside of earnings, it’s a light economic calendar.  There is existing home sales data on Tuesday, CPI on Wednesday, and new home sales on Friday in the U.S.  In Europe, the Bank of England minutes are released on Wednesday, and the Markit Services and Manufacturing PMIs in Europe are released on Thursday.  In China, retail sales, industrial production and GDP data will be released on Monday night.

As for earnings season, the full list of notable releases is below.  AAPL’s report tonight will be the most closely watched of the week.  For more detailed thoughts on AAPL, see our Name That Trade post from Friday.
Monday, October 20th
  • HAL earnings before the open
  • VRX earnings before the open
  • VFC earnings before the open
  • BTU earnings before the open
  • GCI earnings before the open
  • AAPL earnings after the close
  • IBM earnings after the close
  • TXN earnings after the close
  • CMG earnings after the close
  • ILMN earnings after the close
  • CDNS earnings after the close
  • CE earnings after the close
  • STLD earnings after the close
  • PKG earnings after the close
Tuesday, October 21st
  • MCD earnings before the open
  • KO earnings before the open
  • KMB earnings before the open
  • HOG earnings before the open
  • MAN earnings before the open
  • OMC earnings before the open
  • UTX earnings before the open
  • RF earnings before the open
  • RAI earnings before the open
  • GPK earnings before the open
  • ABG earnings before the open
  • VZ earnings before the open
  • ITW earnings before the open
  • ATI earnings before the open
  • YHOO earnings after the close
  • BRCM earnings after the close
  • ISRG earnings after the close
  • CREE earnings after the close
  • SIX earnings after the close
  • ETFC earnings after the close
  • DFS earnings after the close
  • VMW earnings after the close
  • FTI earnings after the close
...MORE

Stocks Plunge 508 Amid Panicky Selling

Headlines 27 years today.
Following up on yesterday's "Art Cashin On the 27th Anniversary of THE Stock Market Crash".
Via EconoMonitor (Oct. 2012)
http://www.ritholtz.com/blog/wp-content/uploads/2012/10/wsj_cr_20121004125156_MG.jpg

Oil: What Is Saudi Arabia Up To?

I'm leaning toward some sort of geopolitical quid pro quo with the U.S. but because they don't invite me to the meetings I can't tell you the quid or the quo of it. Back on Oct. 2 we had the simple observation "The folks most hurt by this drop in price are Putin, ISIS and the companies producing from shale." At that instant Brent was trading at $92.34. This morning we see $85.89.

Below you will see a vehement, almost violent reaction to the political guess.
That is what you'd expect from someone who vehemently disagrees.

It's also what you'd expect from someone in the pocket of the CIA.
Just kidding, the CIA are kindergarteners compared to some of the oil intelligence guys.

From the Financial Times:
Saudi Arabia keeps the oil market guessing
As oil prices have tumbled, one question has reverberated around the market: what is Saudi Arabia up to?
Little restraint has been shown by some energy market watchers in their commentary on the recent sell-off and the role played by Opec’s biggest producer.

The 25 per cent fall in the price of Brent crude since mid-June, to almost four-year lows, they say, is the result of a deliberate strategy by the Gulf nation to test the mettle of rival producers from Russia, to fellow Opec member Iran and US shale producers.

By refusing to lower production significantly and by cutting export prices, Saudi Arabia has started a price war that it expects to win because of its cheaper cost of production and huge foreign exchange reserves.
But cooler heads say Saudi Arabia’s recent actions are more nuanced and a reflection of market realities.
“Whenever there are questions over what the Saudis are thinking, people tend to revert to their default setting, which is that ‘this is clearly a political gesture’ and what they are doing is part of some grand design,” says Bill Farren-Price, chief executive of consultancy Petroleum Policy Intelligence and a long-time Opec-watcher. “It’s an absolute myth.”

Prices have extended their rout into a fourth month, as high levels of production from North American shale formations has coincided with sustained output from Libya and Iraq, despite the bloodshed that has ravaged both countries. At the same time demand has slowed amid sluggish economic growth in Europe and Asia, creating a surplus.

With the current market scenario having crept up on Saudi Arabia, it has had two options: accept a period of lower prices in order to retain market share. Or, cut production and sacrifice market share in defence of higher oil prices. It seems to have taken the former.

“For the Saudis, cutting production significantly right now is suicidal. They are not going to fight such market movements,” says Nat Kern, president of Foreign Reports, a Washington-based consulting firm. “They could cut to stabilise the price at $100, but demand is weak, so they could then be in a position where they would have to cut again and again.”...MORE

Sunday, October 19, 2014

"When Uber and Airbnb Meet the Real World"

The problems with Uber are much more serious than this piece explores. I'd go so far as to say management at Uber are a bunch of con artists.

From the New York Times' The Upshot:
THE regulatory woes seem to be never ending for the newest wave of tech start-ups — the on-demand apps that connect people who need something (a driver, a house cleaner, a grocery shopper) with people who want to do the job.

On Thursday, the New York State attorney general said most Airbnb listings in the city violated zoning and other laws. Officials in California and Pennsylvania recently warned car services like Uber and Lyft that they might be unlawful. And workers’ rights advocates have questioned whether the people who provide these services should receive benefits, spurred by recent reports that some Homejoy house cleaners are homeless.
Why have these companies run into so many problems? Part of the reason is that they think of themselves as online companies — yet they mostly operate in the offline world.

They subscribe to three core business principles that have become a religion in Silicon Valley: Serve as a middleman, employ as few people as possible and automate everything. Those tenets have worked wonders on the web at companies like Google and Twitter. But as the new, on-demand companies are learning, they are not necessarily compatible with the real world.

The first principle is to be a middleman — or in tech lingo, a platform — connecting the people who post on YouTube with those who watch their videos, or the people who need a ride with people who will drive them. As platforms, the thinking goes, they are just connectors, with no responsibility for what happens there.
For websites, this is codified in law — they are not legally responsible for what their users publish, according to the Communications Decency Act, perhaps the most influential law in the development of the web. That is why Yelp avoids liability when people post inaccurate or abusive restaurant reviews, and why YouTube does not have to remove videos that some find offensive.

The law protects online speech, not actions people take in the offline world. Yet its ethos has permeated Silicon Valley so deeply that people invoke it even for things that happen offline.

“These folks grew up in a world where platforms are not responsible, and then when they go do stuff in the real world, they expect that to be the case,” said Ryan Calo, an assistant professor at the University of Washington law school who studies cyber law.

Take Airbnb’s terms of service. “Airbnb provides an online platform that connects hosts who have accommodations to rent with guests seeking to rent such accommodations,” it says. “Airbnb has no control over the conduct” of hosts or guests, the terms continue, and “disclaims all liability in this regard.”

Yet it is one thing to say a company has no control over the conduct of online commenters, and another when its users are in people’s homes or cars. Airbnb, like others, has been forced to learn the limits of its status as a platform. In response to reports of renters’ damaging and ransacking homes, it added a round-the-clock hotline for people in unsafe situations and a policy covering $1 million in loss or damages.

The second web business principle is to minimize the number of paid on-staff employees. Tech companies have long shunned the idea of hiring lots of sales staffers or call-center workers. Instead they automate ad sales with auction algorithms or offer help forums where other customers offer advice on their sites. When Instagram was acquired by Facebook, it employed 13 people; Kodak, in its heyday, employed more than 140,000....MORE

Foodstuffs: The Great Lesson Of Sanctions (and commodities) Is Substitution

First thing that happens is someone loses a croc down the Moscow sewers where they breed without light, lose all pigmentation, become albino and.... oh wait. The 'Cow is colder than NYC.
Never mind.
From Barents Observer:

Philippine Crocodile approved for Russian dinner plates
 
Crocodile to be sold in Russia as a possible replacement for banned Western beef and pork
Russia set to snap up reptilian delicacy from the Philippines as a way to mitigate food strain from Western produce bans.

There may be a move away from traditional comfort food in Russia this winter to more exotic delicacies.
As a response to a barrage of Western sanctions the Russian government implemented a one-year ban on commercial imports of fresh produce from the U.S., Canada, EU, Norway and Australia. The result of which has caused something of a food conundrum in Russian shopping markets.

To make up for the bite in staples like pork and beef, Russia’s veterinary and phytosanitary service, Rosselkhoznadzor, has approved the import of crocodile meat from the Philippines. Iran is also rumoured to have offered to sell fish to Russia.

The crocodile announcement comes after several expensive months that have seen food prices soar to the 7.5 per cent inflation mark.

There is concern that what is now a culinary inconvenience could turn into a full-blown crisis during a long Russian winter when it’s too cold to farm and Russia becomes nearly wholly reliant on imported food....MORE

Square Dancing Scots Invented Sex

Following up on "Scotland Will Apparently Deflect Hurricane Gonzalo To Svalbard".
From the Edinburgh Herald:

Ancient Scottish creature was first to 'have sex'...385 million years ago
Birds do it, bees do it ... and so did an early ancestor of humans that lived in Scotland 385 million years ago.
Scientists have traced the history of vertebrate sexual intercourse to an ancient armoured fish named Microbrachius dicki.

Microbrachius means "little arms" and refers to the genital limbs that locked male and female fish together when mating. And dicki, well...

The three inch long placoderm - a primitive armoured fish - frolicked in Scottish lakes millions of years before fins evolved into legs.

A study of Microbachius fossils revealed the first evidence of their primitive sexual organs.
To transfer sperm, males had grooved L-shaped claspers which were held in place by small paired bones on the female.

Lead scientist Professor John Long, from Flinders University in Adelaide, Australia, said: "Microbrachius means little arms but scientists have been baffled for centuries by what these bony paired arms were actually there for....MORE
I'm no expert but they look more Irish:
A drawing of mating Microbrachius, showing interlocked limbs.

Scotland Will Apparently Deflect Hurricane Gonzalo To Svalbard

It seems that despite the referendum weakening their sovereignty, the Scots deflector shields are still working:

Wunderblog
Svalbard Islands JW8HGA Polar Bear

Art Cashin On the 27th Anniversary of THE Stock Market Crash

These old guys are starting to die off so it is probably time to jot down their memories.
From Here Is The City:
Cashin: The worst Monday of all, nearly 30 years on
On the 27th anniversary of Black Tuesday [sic] on Oct. 19, 1987, UBS floor director Art Cashin recalls how the historic event transpired:

On this day in 1987 (that's 27 years ago, if you are burdened with a graduate degree), the New York Stock Exchange had one of the most dramatic trading days of its 220-year history.

The Big Board suffered its largest single day percentage loss (22 percent) and its largest one-day point loss up until that day (508 points). No one who was on the floor that day will ever forget it. While it was an unforgettable single day, there were months of events that went into its making.

The first two-thirds of 1987 on Wall Street was nothing short of spectacular. From New Year's Day to shortly before Labor Day, the Dow rallied a rather stunning 43 percent. Fear seemed to disappear, and junior traders laughed at their cautious elders. The brash youngsters told each other to "buy strength" rather than sell it, as each buying wave was soon followed by another.

One thing that helped banish fear was a new process called "portfolio insurance." It involved use of the newly expanded S&P futures. Somewhat counterintuitively, it involved selling when prices turned down.

The rally topped out about Aug. 25, with the Dow Jones Industrial Average hitting 2,722 (less than a tenth of its current numerical value ). Interest rates had begun creeping up amid concerns of early signs of inflation. Treasury Secretary James Baker began a rather open debate with the Germans on the relationship of the dollar and the Deutsche mark (which has now been swallowed up by Europe's single currency).

Soon the weakness in the market was turning into a visible correction. By the middle of October, the Dow fell to break an uptrend line that had protected it for over 1,000 points. The flurry of takeovers and leveraged buyouts that had flourished all year began to dry up.

On Wednesday, Oct. 14, there were widely discussed rumors of a new punitive tax on takeover profits. Selling turned a bit ugly and the Dow fell 96 points by the close (a record point drop at the time). The next day, there was no bounce and the Dow fell another 58 points.

Friday the 16th was an option expiration day. There was a very bad storm in London and that market closed, which forced more people to seek liquidity in New York. Stocks faced a steady wave of selling. As the close neared, rumors spread that First Lady Nancy Reagan, the president's right hand, might be admitted to the hospital with cancer. The selling intensified and the Dow closed down 108 points, on the low and a new record point drop.

The weekend was a rumormonger's delight. Mrs. Reagan was in fact admitted to the hospital. Japan was considering a confiscatory 96 percent tax on speculative real estate transactions. Germany proposed a change in taxes on some interest rates, which would make U.S. Treasurys unattractive to Germans. Congressman Richard Gephardt was talking about a trade bill that would freeze imports. Secretary Baker went on a Sunday talk show and openly challenged the Germans on their currency policy. There were even rumors of U.S. planes engaging Iran.

At the time, I was running the floor for PaineWebber. Monday morning I got up well before dawn and saw that Hong Kong was down about 10 percent and other markets were looking equally weak before their openings. I headed for the NYSE to check on our systems and staffing. I reached out, asking the team to get in early....MORE

Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 4

We jumped ahead to include PeterThiel, back in order next week.
Via Y Combinator's Sam Altman:

Lecture 4: Building Product, Talking to Users, and Growing


Annotated transcript

Previously:
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture One
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture Two 
Paul Graham at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 3
Peter Thiel at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 5

"At the Far Ends of a New Universal Law"

From Quanta Magazine:

A potent theory has emerged explaining a mysterious statistical law that arises throughout physics and mathematics.
Tracy Widom
Olena Shmahalo/Quanta Magazine

Imagine an archipelago where each island hosts a single tortoise species and all the islands are connected — say by rafts of flotsam. As the tortoises interact by dipping into one another’s food supplies, their populations fluctuate.

In 1972, the biologist Robert May devised a simple mathematical model that worked much like the archipelago. He wanted to figure out whether a complex ecosystem can ever be stable or whether interactions between species inevitably lead some to wipe out others. By indexing chance interactions between species as random numbers in a matrix, he calculated the critical “interaction strength” — a measure of the number of flotsam rafts, for example — needed to destabilize the ecosystem. Below this critical point, all species maintained steady populations. Above it, the populations shot toward zero or infinity.

Little did May know, the tipping point he discovered was one of the first glimpses of a curiously pervasive statistical law.

The law appeared in full form two decades later, when the mathematicians Craig Tracy and Harold Widom proved that the critical point in the kind of model May used was the peak of a statistical distribution. Then, in 1999, Jinho Baik, Percy Deift and Kurt Johansson discovered that the same statistical distribution also describes variations in sequences of shuffled integers — a completely unrelated mathematical abstraction. Soon the distribution appeared in models of the wriggling perimeter of a bacterial colony and other kinds of random growth. Before long, it was showing up all over physics and mathematics.

“The big question was why,” said Satya Majumdar, a statistical physicist at the University of Paris-Sud. “Why does it pop up everywhere?”

Systems of many interacting components — be they species, integers or subatomic particles — kept producing the same statistical curve, which had become known as the Tracy-Widom distribution. This puzzling curve seemed to be the complex cousin of the familiar bell curve, or Gaussian distribution, which represents the natural variation of independent random variables like the heights of students in a classroom or their test scores. Like the Gaussian, the Tracy-Widom distribution exhibits “universality,” a mysterious phenomenon in which diverse microscopic effects give rise to the same collective behavior. “The surprise is it’s as universal as it is,” said Tracy, a professor at the University of California, Davis.

When uncovered, universal laws like the Tracy-Widom distribution enable researchers to accurately model complex systems whose inner workings they know little about, like financial markets, exotic phases of matter or the Internet....MORE

"Richard Feynman on the Social Sciences"

Long time readers know we are fans of Feynman, the high-average IQ genius.*
From ZeroHedge:
What do real scientists have to say about sciences that are not so real?

Born in 1918, Richard Feynman was an American theoretical physicist known for his work in a variety of fields where he made an immeasurable contribution, including quantum mechanics, quantum electrodynamics and particle physics. He was also credited with introducing the concept of nanotechnology, a breakthrough that holds so much promise today.

A professor at the California Institute of Technology, Feynman helped popularize physics through lectures and books which he made more accessible to the general public. He received many honors for his work throughout his life. He was elected to the American Physical Society, the American Association for the Advancement of Science, the National Academy of Science and the Royal Society of London. He was recently ranked as one of the ten greatest physicists of all time.

Many insights he left us with go beyond the world of physics. And we would be wise to pay close attention to them.

A Critique of the Social Sciences
Looking back at his own experience, Feynman was keenly aware of how easy our experiments can deceive us and thus of the need to employ a rigorous scientific approach in order to find the truth. Because of this, he was highly critical of other sciences which did not adhere to the same principles.

The social sciences are a broad group of academic disciplines concerned with the study of the social life of human groups and individuals, including anthropology, geography, political science, psychology and several others. Here is what he had to say about them in a BBC interview in 1981:

“Because of the success of science, there is a kind of a pseudo-science. Social science is an example of a science which is not a science. They follow the forms. You gather data, you do so and so and so forth, but they don’t get any laws, they haven’t found out anything. They haven’t got anywhere – yet. Maybe someday they will, but it’s not very well developed.

“But what happens is, at an even more mundane level, we get experts on everything that sound like they are sort of scientific, expert. They are not scientists. They sit at a typewriter and they make up something like ‘a food grown with a fertilizer that’s organic is better for you than food grown with a fertilizer that is inorganic’. Maybe true, may not be true. But it hasn’t been demonstrated one way or the other. But they’ll sit there on the typewriter and make up all this stuff as if it’s science and then become experts on foods, organic foods and so on. There’s all kinds of myths and pseudo-science all over the place.

“Now, I might be quite wrong. Maybe they do know all these things. But I don’t think I’m wrong. See, I have the advantage of having found out how hard it is to get to really know something, how careful you have about checking your experiments, how easy it is to make mistakes and fool yourself. I know what it means to know something.

“And therefore, I see how they get their information. And I can’t believe that they know when they haven’t done the work necessary, they haven’t done the checks necessary, they haven’t done the care necessary. I have a great suspicion that they don’t know and that they are intimidating people by it. I think so. I don’t know the world very well but that’s what I think.”

To be fair, such disciplines seek to uncover and understand very complex relationships involving a volatile and even unpredictable human element. But the point that Feynman was making is that, rather than acknowledging this limitation, experts in these fields present their findings as truths, without employing the same rigor as in the physical sciences.

In the interview, Feynman singled out nutrition as an example, which has actually made progress in recent years as far as the scientific method is concerned (although everyone is still getting fat). There is, however, another social science whose “experts” have come to influence, directly or indirectly, generations of millions of people around the world. And this one fits perfectly with what he was describing....MORE
*There is no way his IQ was the self-reported 125. Besides the insatiable curiosity of the journalist he had a 'magic' mind.

Some previous posts on Feynman:
Thinking About Science
For guidance I often seek out a bongo drummer-slash-raconteur.
We post this once a year, usually around Nobel Prize time.
Here's the musician riffing on science...
Gates Puts Feynman Lectures Online
To Celebrate Today's Award of the Nobel Prize in Physics Here are Twenty Physics Jokes
Economists and Econophysics
3-D Printing and Nano and Robots, Oh My
"Some Heuristics for Evaluating the Soundness of the Academic Mainstream in Unfamiliar Fields"
How to Tell Crazy From Brainpower Intensive
Richard Feynman: "THE RELATION OF SCIENCE AND RELIGION"

The Genius of Buttcoin

From Dizzynomics:

Decentralised vs centralised [Updated]
Here’s a shocking proposition: sometimes centralisation isn’t always a bad thing.

Wait, wait. There’s more. Sometimes decentralised stuff ain’t all that great either.

The point being, just because something is decentralised doesn’t automatically make it better.

On that basis, I’d be truly grateful if people stopped using “centralisation” as if was some sort of dirty word? All of this stuff, after all, is contextual.

What’s more, it’s fairly clear that the tendency to centralise is a key human attribute. Humans like forming hubs, and always have. So why are you making us feel bad about that?
Let’s look at some examples.

Decentralised dining = dining at home. Nothing wrong with that, of course, but centralised dining opens the door to restaurants, and all that fun and convenient stuff.

Decentralised rail = Privatised British Rail that never works efficiently.
But centralised rail = the swiss rail network SBB, which we all know is as dependable as an atomic clock.

Decentralised entertainment = sitting at home on a nintendo, the internet and/or watching TV by yourself. Nothing wrong with that either, but does it really eliminate the desire for centralised entertainment such as bars, clubs, concerts and carnivals?

Decentralised education = the “internet” or a parent teaching you at home without it being clear that you’ve grasped the concepts at all.
Centralised education = learning from mimicking peers and professional educators as much as from books....MORE, including the reason for the headline.

"Why We Need to Break Up Amazon – and How to Do It" (AMZN)

Following up on Oct. 10's The New Republic: "Amazon Must Be Stopped" (AMZN).
From naked capitalism:
Yves here. The main way that those of the left-leaning persuasion see Amazon as a bad guy is for its treatment of warehouse workers, who work in physically-taxing conditions and are paid what is barely a living wage for a single person.

As Matt Stoller describes in this piece, Amazon’s ambitions are monopolistic, and they’ve already gone a long way towards achieving that ambition in a large number of markets. They regularly engage in predatory pricing to crush competitors and gain market share. Their dominant position then allows them to chose how to extract more profit, which is usually a combination of squeezing suppliers and raising prices.
Antitrust has become close to a dead letter in the US. Amazon makes for a worthy object for reviving it.

By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Originally published at Medium

“Before we speak ill of Amazon, let us kneel down before it.” says Franklin Foer at The New Republic. This creature, he goes on to argue, set the goal of building a bookstore as dramatic in scope as the Library of Alexandria; such a goal seems ‘puny’ compared to what Amazon today actually is, a technological and logistical marvel that can deliver books to your phone in the time it takes to yawn. There’s a bit of a rebellion against this behemoth among the chattering classes, with George Packer of the New Yorker in February of this year warning that the company is destroying our ability to write books, enclosing our cultural commons into its own private fiefdom.

I decided to read Amazon’s 10k, the company’s 2014 annual report to the Securities and Exchange Commission, to see what I could understand from how that company describes itself. What I found is as Foer commands: bow down to this marvel. “We seek to be Earth’s most customer-centric company,” it says, under the general description of its business. “In each of our two geographic segments, we serve our primary customer sets, consisting of consumers, sellers, enterprises, and content creators. In addition, we provide services, such as advertising services and co-branded credit card agreements.” That’s it. That’s the company’s business. No mention of books, which is what the company first started selling. Or DVDs, electronics, or even shopping. They aren’t a bookstore, or a even a store at all. Because Jeff Bezos isn’t building a store. He is building a global spanning trading empire.

And who does Amazon compete with? Telecommunications, banking, retail, web infrastructure, media, advertising, publishing, computing services, consumer electronics… It might be easier to list which markets Amazon is not trying to take over. According to Amazon, it competes with “physical-world retailers, publishers, vendors, distributors, manufacturers, and producers of our products, other online e-commerce and mobile e-commerce sites, including sites that sell or distribute digital content, media companies, web portals, comparison shopping websites, and web search engines, either directly or in collaboration with other retailers, companies that provide e-commerce services, including website development, fulfillment, customer service, and payment processing, companies that provide information storage or computing services or products, including infrastructure and other web services, companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.” Well it doesn’t drill oil. Yet.
In addition, while net income is low, and while it is not even seeking to generate profits at this point, Amazon is still a very profitable enterprise. But this is hidden because Bezos, according to this 10K, is focused on free cash flow, and that isn’t counted as earnings. So you can technically say ‘Amazon doesn’t make money,’ but there’s a reason it has a $100B+ market capitalization. Bezos also seeks to increase the value of the company itself through aggressive expansion. Every year, Amazon’s net assets increase, because it is building more warehouses, software, data centers, and so on and so forth. Its cash hoard went up by $3 billion last year because it generates a lot of cash (roughly two to two and a half billion dollars a year). The best part of focusing on free cash flow is that Amazon doesn’t have to pay income taxes on it.

One particular nugget in this investment report shows just how powerful Bezos really is. This report says, “On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.”

Amazon is so powerful that it collects money on the stuff you buy before it has to pay its suppliers for the stuff. In its retail business, it requires negative working capital. To put it another way, if you are a supplier to Amazon, you not only sell the company goods at cut-rate prices, but you are also effectively required to make Amazon a 0% loan that turns over as long as you have a relationship with the company. Amazon is a cannibal, running itself on the working capital of other, small companies.

To take just one more example, Amazon offers great shipping prices. You might think this is due to its efficiency, and its ability to invest in robotic warehousing facilities. That’s probably part of it. But Amazon also says that “we seek to mitigate costs of shipping over time in part through…negotiating better terms with our suppliers.” Its low prices are a result of its power over its suppliers, not just its logistical prowess.
It doesn’t just cannibalize small producers. As with all empires, Bezos preys on everyone he can....MORE

Saturday, October 18, 2014

"A divergence worth noting: the economy is getting stronger while financial markets are becoming more fragile"

The point we were getting at in Thursday morning's "Citigroup Sees $1.1 Trillion Stimulus From Oil Plunge":
Brent $82.75 down $1.03, Nov. WTI $80.37 down $1.41 after trading as low as $79.78.
Equity index futures indicating down 152 on the DJIA and down 21.25 on the S&P 500.
With every downtick starting to feel the old "Long ain't wrong" vibe.... 
From Conor Sen:

The Great Divergence: The Economy is Getting More Stable, Financial Markets Are Getting More Fragile
Still processing the bond market moves of yesterday…

Yesterday was really stupid. As have been the past few weeks, which increasingly feel like a “baby August 2011,” when markets were even more stupid.

The challenge for portfolio managers in 2014 is that you’d be hard-pressed to find a 5-year period in US history where the economic trajectory was more stable. Real GDP has generally grown between 2-3%/year. Inflation has been in the mid 1%’s. Job growth has been remarkably stable, averaging 150-225k/month. Profit margins have been stable for the past few years, and overall earnings growth has been, I don’t know, 5-8%/year. Monetary policy has been ultra accommodative. Fiscal policy has been…consistent in its level of frustration....MORE
HT to, and headline from: Abnormal Returns

Let's Get Ready To Rumble II: Paul Krugman Responds to Cliff Asness

Following up on "Cliff Asness vs. Paul Krugman: Let's Get Ready To Rumble":



From the New York Times:

Cliff Asness, one of the signers of the infamous open letter warning Ben Bernanke that his policies risked debasing the dollar, weighs in with a complaint that I am being a big meanie. As Brad DeLong immediately notes, what Asness mainly ends up doing is showing that he doesn’t at all get the whole notion of the liquidity trap, and the resulting irrelevance of monetary expansion to both prices and output.

Clearly, Asness has never read anything at all on the subject — not what I’ve written, not what Mike Woodford has written, not what Ben Bernanke has written. And he seems to view the failure of inflation to follow from quantitative easing as some sort of weird coincidence, not what anyone who applied basic macroeconomics to the situation predicted.

Now, I understand that busy people can’t keep track of everything, and even that you can sometimes be a successful money manager without reading up on monetary economics. But if you’re one of those people who don’t have time to understand the monetary debate, I have a simple piece of advice: Don’t lecture the chairman of the Fed on monetary policy.
See also at the NYT:
The Civility Whine
At this point in the great inflation-deflation debate, a lot of what the inflationistas have to say takes the form of whining about the rudeness of their critics — of course, me in particular. I would say that this is a de facto confession that they’ve run out of substantive defenses for their position — although I guess I would say that, wouldn’t I?

But there’s something else you should know: the inflation derpers aren’t just ignorant about monetary policy, they also don’t understand the rules of argument. In particular, the constant complaint about “ad hominem” attacks shows that they don’t know what that means....MORE

UPDATED--Cliff Asness vs. Paul Krugman: Let's Get Ready To Rumble

Update after the jump.


Y'all ready for this?
From Real Clear Markets:

The Inflation Imputation
In 2010, I co-signed an open letter warning that the Fed's experiment with an unprecedented level of loose monetary policy - in amount, and in unorthodox method - created a risk of serious inflation. Sporadically journalists and others have noted that this risk has not come to pass, particularly in consumer prices.

Recently there has been an article surveying each of us as to why; seeming to relish in, when provided, our various rationales, presumably as they sounded like excuses. It seems none of the responses provided what the authors clearly wanted, a blanket admission of error. I did not comment for that article, continuing my life long attempt not to help reporters who've already made up their mind to make fun of me -- I help them enough through my everyday actions, they don't need more!

More articles of similar bent keep showing up. The authors seem to find it amusing that four years of CPI data wouldn't get people to change their economic views, while ignoring that 80 years of overwhelming evidence has not dissuaded Keynesians from the belief that this time, if they could only run everything, not just most things, they'd really get it right.

Focusing my attention, as was predestined, Paul Krugman lived up to his lifelong motto of "stay classy" with a piece on the subject entitled Knaves, Fools, and Quantitative Easing. Some lesser lights of the Keynesian firmament have also jumped in (collectivists, of course, excel at sharing a meme). Responding to Krugman is as productive as smacking a skunk with a tennis racket. But, sometimes, like many unpleasant tasks, it's necessary. I will, at least partially, make that error here, while mostly trying to deal with the original issue separate from Paul's screeds (though one wonders if CPI inflation had risen in the last four years if Paul would be admitting his entire economic framework was wrong - ok, one doesn't really wonder - and those things never happen to Paul anyway, just ask him).

Let me say up front that this essay will satisfy nobody. Those looking for a blanket admission of error will get part of what they want; a small part. Those hoping I hold the line denying any misstep will also be disappointed. I believe truth, as is often the case in similar situations, lies in the middle of these and I prefer truth, as I see it, to any reader walking away sated.

We indeed warned about the risks of inflation in 2010 and the CPI has been, to put it mildly, benign since then. First, to give the baying crowd just a bit of what it wants (I will take some of it back soon), our bad (I say "our" but obviously I speak only for myself). When you warn of a risk and it doesn't come to pass I do think you owe the world this admission, even if you later explain what it means to warn of a risk not a certainty, and offer good reasons why despite reasonable worry this particular risk didn't come to pass. I, and many other signatories, live in the world of economic or political prognostication, in my case money management, where if you get a bit more than half your calls right you are doing quite well, more than a bit more than half, you're doing fabulously. I'll put our collective record up against Krugman's (and the Krug-Tone back-up dancers) any day of the week and twice on days he publishes.

Let's start with the big one. We did not make a prediction, something we certainly know how to do and have collectively done many times. We warned of a risk. That's a very specific choice people like the open letter writers, and Paul, have to make all the time, and he knows this, but that doesn't deter him. Rather, Paul engages in the old debating trick of mentioning this argument himself and dismissing it. This technique worked for Eminem at the end of Eight Mile. But let's not be fooled by chicanery (silly Paul, you are no Rabbit). If I had wanted to make a prediction, I would have made one. I didn't, nor did my fellow signatories....MORE
Update: 
Let's Get Ready To Rumble II: Paul Krugman Responds to Cliff Asness

Work and Technology

From The Baffler:

World Processor
Consider the plight of the office drone: more gadgeted-out than ever, but still facing the same struggle for essential benefits, wages, and dignity that workers have for generations.

Illustration by Linda Wiens from Processed World No. 1Utopian reveries spill forth almost daily from the oracles of progress, forecasting a transformation of Information Age labor into irrepressible acts of impassioned fun. But we know all too well the painful truth about today’s ordinary work routines: they have become more, not less, routinized, soul-killing, and laden with drudgery. The contrast between the glum reality of cubicle labor and the captivating rhetoric of Internet liberation, which once seemed daft and risible, doesn’t anymore; now it’s only galling. In recent years, for instance, the term “creative” has been captured by advertising agencies, who’ve bestowed on it a capital C and made it into a noun, a coveted job title meant to signify Mad Men–style braggadocio. But all this business-card-ready term usually denotes is someone who writes copy for Google AdWords or applies Photoshop filters to an image of an anatomically impossible woman in carnal embrace with a bottle of vodka.
Even software programmers, once the Brahmins of the new economy, must contend with diminished status. The costs of launching a company have declined, so everyone is doing it. Direct your thanks to the glut of cheap engineering talent in Russia and India and the boom market in cloud computing, where a half-dozen companies control the digital infrastructure of hundreds of others, including Snapchat, Netflix, and the CIA. Please donate to your neighbor’s Kickstarter on your way out, and don’t mind the venture capitalists lazing nearby—they’ll still manage to get theirs, as bankers usually do.

Every city hungry to attract high-spending digital workers, from Austin to New York to Chattanooga, now lays claim to its own Silicon district, and lavishes potential corporate recruits with tax breaks and face time with the mayor. But the cyber touts in city government suffer their own version of the digital workplace’s bait and switch. In place of, say, a stream of tax revenues to revive decrepit public transport, they’ll end up with a smartphone app that links commuters with gray-market taxi drivers. At the same time, disconsolate holders of humanities degrees, who once may have caught on in a human resources, customer service, or speechwriting department, have found their jobs outsourced or automated. 

A glut of digital labor markets—oDesk, Amazon’s Mechanical Turk, TaskRabbit—lets companies summon pliable workforces on demand (a postindustrial reserve army, you might say) and deploy them at the stroke of a cursor to perform tasks that in better days would have gone to full-time employees: checking on store displays, organizing documents, performing transcription, writing newsletters. Even translation has become digitized and highly distributed; users of the Duolingo language-learning app are unwittingly translating articles—gratis—for BuzzFeed, CNN, and other media giants....MORE

Hurricane Gonzalo Continues On Track To Scotland

Following up on yesterday's "Hurricane Gonzalo Pounds Bermuda, Sets Sights On Scotland".

From Weather Underground:

High End Real Estate: Pope Francis Rents Out Sistine Chapel

From Car and Driver:

Porsche rents out the Sistine Chapel
Of two things we’d least expect to appear together in a single news tidbit, it would be difficult to find a pairing more bizarre than “Porsche” and “the Sistine Chapel.” Lo and behold, it happened. Or at least, it’s happening soon—Automotive News Europe reports that Porsche has rented out the Sistine Chapel—you know, the one in Vatican City with Michelangelo’s famous painting The Creation of Adam on the ceiling?—for a private concert this month.

As easy as it would be to toss the Holy Hand Grenade of Antioch into this whole thing and whine about corporate incursion on, well, holy sites, some background is in order. Porsche is renting the highly trafficked space for a concert of around 40 or so people as part of a roughly $6300 Tour of Rome event, and the rental fee Porsche is paying the Vatican for use of the Sistine Chapel will go to charity. You see, the Pope recently opened the Sistine Chapel to rental for private events to raise additional funds to help the less fortunate. (In case you’re wondering, the rental does not include an in-person appearance by His Holiness.)

 Porsche just so happens to be the first company to take advantage—and we’re pretty sure it has nothing to do with paying penance for stuff like the Cayenne and Panamera....MORE

Barron's Cover: "Big Money Poll: The Bull Will Be Right Back"

Just a reminder, in the words of market strategist Jennifer Anniston,
"That's a risky little game"
-Friends, Season 8 episode 3
airdate 27 September 2001,
dedicated to The People of New York City
We are looking for a run back to new highs before we break the recent lows which were 1820.66 on the S&P 500, 15,855.12 on the DJIA.

A risky little game.
From Barron's:
It’s going to take a lot more than the past month’s 5%-plus selloff in stocks for America’s money managers to change their upbeat tune. That’s what they’ve been telling Barron’s in the past two weeks, ever since 59% of participants in our latest Big Money poll said they were bullish or very bullish about the outlook for U.S. stocks through the middle of 2015. That’s up from 56% in our spring survey, but below last fall’s bullish reading of 68%.

The nation’s professional investors aren’t blind to the alarming developments that have tripped up the market in recent weeks, including evidence of slowing economic growth in key parts of the world, spreading violence in the Middle East, and even a possible Ebola pandemic. They are also worried about a coming change in Federal Reserve policy after years of falling interest rates, which provided a huge tail wind for stocks and other risk assets.
Equities will outperform other assets in the next 12 months, and U.S. shares will do best. The Big Money managers expect financials, health care, and tech stocks to lead the market higher. Scott Pollack for Barron's
Indeed, two-thirds of Big Money managers noted in our survey that they expect a correction, defined as a 10% drop in share prices, within the next 12 months. Whether smart or simply lucky, they’re suddenly looking prescient.

Still, the pros expect decent growth in corporate earnings and moderate equity valuations to put a floor under the market. They believe the bull market that began in 2009 will resume after an unpleasant but arguably healthy time-out.

BASED ON THEIR mean forecasts in the Big Money poll, the bulls see the Dow Jones industrials topping 18,360 by the middle of 2015, and the Standard & Poor’s 500 index hitting 2173. While their targets, which imply a gain of about 12% for the Dow and 15% for the S&P 500, might seem aggressive after last week’s rout, their commitment to U.S. equities remains intact.

Andrew Slimmon, a senior portfolio manager at Morgan Stanley Global Investment, whose Chicago-based group manages $4.1 billion of equities, notes that Europe’s economic troubles sparked a selloff in U.S. stocks in 2010 and in 2011, just as concerns about another European recession are sending tremors through the market today. “The fear then was that contagion from Europe would cause a recession in the U.S.,” Slimmon says. “It came at a time when the U.S. economy was more fragile. Afterward, the market came back strongly. This time, the U.S. economy is on stronger footing. The magnitude of the decline likely won’t be as large, and the rebound could be greater.”...MORE