Monday, August 31, 2015

"The Most Adorable Film Ever Made About the Perils of Space Capitalism"

Adorable, because that's just the way we roll.

From Motherboard:
Wire Cutters,” is an adorable, award-winning, Pixar-styled short about a robot miner sent to another planet and the shenanigans that unfold when he bumps into another bot. It is also about the perils of exporting neoliberal extraction-based capitalism to outer space and the soul-crushing twinge of regret we all will inevitably feel when we realize that we are unable to change our ways, dooming us to greed-encrusted loneliness and, even, potentially, oblivion....MORE

Venture Capital: Who Will Buy My Sweet Young Unicorn?

The last time we did the "song from 'Oliver'" schtick was December 1, 2014's "Commodities: 'Who will buy my sweet red copper?'", ending with:
...Here's the deflationary spiral engendered by a lack of purchasers from the movie Oliver, everything just grinds down: 
Who will buy my sweet red roses?
Two blooms for a penny.
Who will buy my sweet red roses?
Two blooms for a penny. 
Will you buy any milk today, mistress?
Any milk today, mistress? 
Who will buy my sweet red roses?.....
And from Wolf Street, August 28, 2015:

“We’re Seeing the Beginning of a Liquidity Crisis” in the Startup Boom, Suddenly
Stock markets have been volatile recently, plunging and soaring alternately on vertiginous slopes, sometimes the same day, and now folks that supply the juice to the startup ecosystem – VCs, pension funds, mutual funds, hedge funds even – are getting nervous. 
They need to know where this market is going. They need to know if they can exit at a big profit, or if their investment and hopes will get dragged down with these startups when it all falls apart. 
“Periods like this are pretty much your worst nightmares,” Sam Hamadeh, CEO of private-company financial intelligence provider PrivCo, told the LA Times. “There are literally meetings across Wall Street, where road show schedules were being planned, that are now about thinking, ‘Can we get late-stage funding to raise capital?'” 
Big bucks are at stake. In the US, 76 venture-funded startups have “valuations” of over $1 billion. Uber sits at $50 billion, Airbnb at $25.5 billion. Palantir, intelligence and law-enforcement darling funded in part by the CIA, reached $20 billion; revenue-challenged Snapchat $16 billion. And so on. 
“Valuations” in quotes because they’re negotiated by a handful of people behind closed doors. Tidbits are then leaked to the Wall Street Journal for the sole purpose of hyping the startup to investors. The WSJ tracks these leaked tidbits. No one put that much money into the companies. Actual investments are a small fractions of these valuations. But nevertheless, it’s been crazy out there. 
Or was – until the stock market went haywire. 
“If broadly speaking, public investors are resetting valuations, then the private market has to follow,” Eric Liaw told the LA Times. He’s a partner at Institutional Venture Partners, which invested in Snapchat, among others. 
The stock market, after going nowhere for a year and then jumping up and down like mad, might actually, after all these years, give up its bullish ghost and head south. That would imperil the entire startup scene. It happens after every boom. 
Funding would become scarce. The next round, if there is one, might be a down round, with lower valuations than prior rounds. Some investors and employees might have to watch their gains go up in smoke – without being able to sell. If there is an IPO or a buyout, it too might be a disappointment. And employees who broke their backs for these startups would realize just a how demoralizing the process can be. 
But those are the lucky ones....MORE
Aarrgh, them with the broken backs be the lucky ones and the living will envy the dead.

August 31, 2015 "Stocks Suffer Biggest Monthly Drop In Five Years As Oil Spikes Most Since 1990"

From the archives, a Climateer Line of the Day winner from August 31, 2011:

Climateer Line of the Day: Meta-metaphor Edition
Mark Gongloff at MarketBeat takes the prestigious CLoD with a walk off home run (4:25 P.M. EDT timestamp): 
Well, folks, that was August. Good riddance. From a US credit-rating downgrade to an horrific hurricane, there wasn’t much good about August. 
The last day of the month ended in appropriately irritating fashion, with a big early stock-market rally losing air and sputtering around the room like an untied balloon at the world’s saddest children’s party....-August Ends, Appropriately, With a Giant Raspberry Sound
From ZeroHedge:
Forget stocks, today was all about crude oil again...WTI pushed into the green for August!!!

3 Bear markets and 3 Bull markets now in 2015 so far... perfectly tagging the 50-day moving-average today...

This is the biggest 3-day rise in WTI since 1990!!

Oil Volatility and credit markets were not squeezed into euphoria at all....MORE

Oil: Stephen Schork on the Change in the Market

Sorry about the paucity of posts, reality keeps intruding.
All things being equal, and of course they never are, $50 would be a bit pricey for the immediate supply/demand picture and a dandy spot to get short again. Maybe even a lower entry but see second piece below.
October WTI $48.86 up $3.64.

From CNBC:
Famed oil bear loses his growl
Oil expert Stephen Schork has nailed the call on crude all year. He forecast further losses during many developments and labeled a February surge a "dead cat bounce" that would soon fade and allow for oil to eventually fall below $40.

But now, the editor of the widely read "Schork Report" newsletter is changing his tune.
"I did move to neutral from a bearish position in my short term daily buys because of the amount of volatility in the market place that we've seen this past week," Schork said Friday on CNBC's "Trading Nation."

"Look, oil does not belong below $40 a barrel," Schork said. U.S. crude recovered a bit and was trading at $44 on Monday. On one hand, since prices are already "disconnected from reality," there's no reason to believe that they can't possible fall yet lower, perhaps down as far as the $32.40 per barrel seen in the financial crisis, Schork said.

But on the other, the supply and demand picture really ought to bring oil prices higher over the slightly longer-term.

"Twelve months out, we will start to see the pullback in production. Assuming China is not in recession and hasn't pulled the rest of the globe down into recession and we do have economic growth, we could certainly make a case for oil in that $55 to $65 range. I don't think oil is sustainable above that level, but I think the producer can make a living at that $55/$60/$65 area and I think economies can continue to grow at that level. I think that is a fair value," Schork said....MORE
From Fast FT:
US oil boom production estimates clipped
A spot of good news for oil bulls: US oil production grew at a slower pace this year than previously forecast. 
The Energy Information Administration estimates that output fell by between 40,000 to 130,000 barrels per day in the first five months of the year. 
The US pumped 9.3m barrels of oil per day in June, down about 100,000 bpd from a revised May figure, the EIA said using new methodology that expanded its survey programme. This compared with its previous estimates of 9.5m bpd, Mamta Badkar reports in New York....MORE

"Big Markets, Over Confidence and the Macro Delusion!"

From Musings on Markets:
In early October of 2013, I was sitting in CNBC, waiting to talk about Twitter, which had just filed its prospectus (for its initial public offering). I was sharing the room with an analyst who was very bullish on the company, and he asked me what I thought Twitter was worth. When I replied that I had not had a chance to value the company yet, he suggested that I should save myself the trouble, and that the stock was worth at least $60 a share. Curious, I asked him why, and he said that Twitter would use its large user base to make money in the "huge" online advertising market. When I questioned him on how huge the market was, his answer was that he did not have a number, but he just knew that it was "really big". I am thankful to him, since he framed how I started my valuation of Twitter, which is with an assessment of the size of the online advertising market globally. Since I talked to that analyst, I have also become more more aware of the big market argument, and I have seen it used over and over in other markets, often as the primary and sometimes the only reason for assigning high values to companies in these markets. These analysts may very well be right about these markets being very big, but I think that suggesting that a company will be assured growth and profits, just because it targets these markets, not only misses several intermediate steps, but also exposes investors and business-owners to the macro delusion. 
Big Markets! Really, Really Big Markets!Would I rather that my company operate in a big market than a small one? Of course. Increasing market potential, holding all else constant, is good for value, but for that value to be generated, a whole host of other pieces have to fall into place. First, the company has to be able to capture a reasonable market share of that big market, a task that can be made difficult if the market is splintered, localized or intensely competitive. Second, the company has to be able to generate profits in that big market and create value from growth, also a function of the firm's competitive advantages and market pricing constraints. Third, once profitable, the company has to be able to keep new entrants out, easier in some sectors than in others. 
It is therefore dangerous to base your argument for investing in a company and assigning it high value entirely on the size of the market that it serves, but that danger does not seem stop analysts and investors from doing so. Here are four examples: 
China: A billion-plus people makes any market large, and if you add rapid economic growth and aburgeoning middle class to the mix, you have the makings of a marketing wet dream. Visions of millions of cell phones, refrigerators and cars being sold were enough to justify attaching large premiums to companies that had even a peripheral connection to China. The events of the last few weeks have made the China story a little shakier, but it will undoubtedly return, once things settle down.Online Advertising: It is undeniable that more and more of business advertising is moving online, and this shift has not only pushed Google, Facebook and Alibaba to the front lines of large market cap companies but has been the impetus behind Twitter, Yelp, Linkedin and a host of other social media companies capturing market capitalizations that seem outsized, relative to their operating metrics.

The Sharing Economy: Even as private businesses, Uber and Airbnb have not only captured the attention of investors, with multi-billion dollar valuations, but have also disrupted conventional approaches to doing business. In the process, they have opened up the sharing paradigm, where private property (car, house) owners can put excess capacity in what they own to profitable use.... 

We have linked to some of Professor Damodaran's Greatest Hits including:

And many more, use the Greatest Hits link if interested

Hot Tip: Time To Pay Attention (Again)

From The Evil Speculator:
Most market participants suffer from chronic recency bias in that they weigh recent data or experience more than earlier data or experience. In particular retail traders more often than not expect more of the same, which actually is correct most of the time. Except for when it matters the most. Come again?
If you have come here for a while then you have seen me use the word ‘inflection point’ on various occasions. I use that term rather deliberately as it succinctly expresses a moment in time in which an equilibrium between potential outcomes can be shifted rapidly by comparatively small movements in price. Say again? 
Back in my wave wanking days this is a typical situation I would refer to as the 1-2 conundrum. Meaning – do we push higher and then fall into our graves, or do we drop from here and then ramp higher and continue the long term bullish trend of the past few years. The implication of that would be that down actually would be short term bearish but long term bullish – whilst a move up would set up the bulls for an even bigger correction. 
Since then I have come to accept that these are all valid scenarios but that there is quite a bit of a gray zone in between. And without boring you to tears let’s just jump to the conclusion which is that there is a myriad of ways this one could play out. But that is exactly the part we need to focus on. What matters the most right now is what happens in the coming days, starting today! 
If we push higher on quite a bit of participation (you are a Zero sub, right?) then the bulls have a good thing going and may be able to defend continued attempts to draw the tape down.Interest hike be damned – whether or not it comes in September or next year or in 2020 – I suggest you watch the tape as it will give you all the information you need....MORE 
See also Edwin Lefevre's Reminiscences of a Stock Operator, pp 254:

...At the same time I realise that the best of all tipsters, the most persuasive of all salesmen, is the tape....

Or Paul Tudor Jones:
I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader...-Paul Tudor Jones interview at Institutional Investor 
So there you go:

Jesse Livermore
Paul Tudor Jones
Evil Speculator

"China Pins Market Plunge on Financial Journalist, airs ‘confession’"

Gotta watch them scribblers.
From the Washington Post:
What's roiling China's stock market? A journalist, apparently. 
Wang Xiaolu, a reporter for a respected Chinese business magazine, "confessed" to causing chaos and panic in the markets, state media reported Sunday. 
In footage broadcast Monday morning on CCTV, China's state broadcaster, a weary-looking Wang said he obtained information about China's securities regulator "through private channels" and then added his "own subjective judgment" to the report. "During a sensitive period, I should not have published a report which had such a huge negative impact," he said. 
The high-profile — and deeply problematic — forced apology came amid abroader crackdown as Chinese authorities struggle to cope with the fallout from the Tianjin blasts and the ongoing stock crisis. Wang is one of 197 people recently punished for spreading rumors, Xinhua reported. 
Since an epic stock boom went bust this summer, China's government has struggled to contain the crisis, ordering the press to downplay the story, and periodically singling out scapegoats, from hostile foreign forces, to "malicious" short-sellers, to the U.S. Federal Reserve and now, the press.  
If "privately gathering information" and then adding a "subjective judgement" sounds a lot like good journalism, it is.  Wang's crime appears to be publishing accurate information on a matter of public interest — but without a go-ahead from the government. 
In July 20 story in Caijing, Wang wrote  that the China Securities and Regulatory Commission (CSRC) was weighing whether to stop stabilizing share prices.  The CSRC denied the report the day it was published, calling it "irresponsible."...MORE

Saturday, August 29, 2015

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

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

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

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

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

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

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

HT to and title from MetaFilter     

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

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

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

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

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

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

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

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

"The Long-Term Oil Play"

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

Then there are the unknown unknowns.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Big 'ol HT up front to Abnormal Returns.

From Artangel:

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

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

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

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

Friday, August 28, 2015

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

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

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

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

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


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

Natural Gas: EIA Supply/Demand Report

From the Energy Information Administration:

In the News:

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

"Risk Control Funds May Be Driving Huge Market Swings"

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

Maybe the Social Sciences Aren't Really Science

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

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

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


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

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

"Satyajit Das: The illusion of liquidity"

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