Thursday, December 31, 2015

Huh. People Who Back Failure Tend to Back More Failure

From the Wall Street Journal's Speakeasy blog:

Have a Nose for Flops? You Might Be a ‘Harbinger of Failure’
Loved the new “Fantastic Four” but hated the latest “Star Wars” movie? Are you a fan of the short-lived Diet Crystal Pepsi but not Arizona Iced Tea?

Then you’re at odds with many people but perhaps part of a group that scholars have labeled “harbingers of failure.”

“The people who are buying failures keep buying failures,” said Duncan Simester, one of the researchers and a marketing professor at the MIT Sloan School of Management. While Simester and his colleagues studied shoppers’ decisions about packaged goods, the same tendencies could apply to choices in financial markets, with stock-picking, and among cultural offerings, such as books, music and movies.

That means that in addition to relying on focus groups and instinct to decide which creative endeavors to back, publishing houses, music labels and movie studios might want to gauge how harbingers of failure react to a new project. If it’s a unanimous thumbs-up, the house may well have a loser on its hands.

The study, published recently in the Journal of Marketing Research, refines the notion that when pushing a new product, any followers—and sales—are welcome. Instead, Simester said, the findings suggest that “you’ve got to think about who’s buying” the product—whether a new book or a bottle of shampoo. If shoppers with “mass-market” tastes are lining up for the new offerings, that’s “fantastic,” he said. “But if it’s these harbingers buying them….and if they keep buying them…then you’ve got a problem.”

The authors define failures, such as Frito Lay Lemonade, as products that didn’t click with shoppers within three years of their debut on store shelves. By contrast, successful items, such as the Swiffer mop, caught on after their launch....MORE
Oh he's got flop affinity:

Walk, with flop affinity
Talk, with flop afinity
Smile, with flop affinity
Charm, with flop affinity
Love, with flop affinity...
Who knew?

Beating a Dead (robotic) Horse

Following up on this morning's, now that I look at it again, rather extravagantly titled Heads Up: "Robert Gordon’s magnum opus, The Rise and Fall of American Growth: the US Standard of Living Since the Civil War (out in mid-January)".

From The Growth Economics Blog:
One of the recurring themes on this blog has been the consequences of robots, AI, or rapid technological change on labor demand. Will humans be put out of work by robots, and will this mean paradise or destitution? I’ve generally argued that we should be optimistic about robots and AI and the like, but others have made coherent arguments for pessimism. I spent a chunk of this week reading over posts, both new and old, and thinking more about these positions.

If there is one distinct difference between the robo-pessimist and robo-optimist view, it is almost exclusively down to timing. The pessimists are worried that the rapid decline of human labor is occurring now, and in many cases has been occurring for a while already. The optimists believe that we have time in front of us to sort things out before human labor is replaced en masse.

Brynjolfsson and McAfee‘s latest is a good example of this robo-optimist view. They concede that human labor is in danger of being replaced:
But will there be enough demand, especially over the long term, for those two types of human labor: that which must be done by people and that which can’t yet be done by machines? There is a real possibility that the answer is no—that human labor will, in aggregate, decline in relevance because of technological progress, just as horse labor did earlier. If that happens, it will raise the specter that the world may not be able to maintain the industrial era’s remarkable trajectory of steadily rising employment prospects and wages for a growing population.
But at the same time they do not think this is imminent:
But are our interpersonal abilities the only ones that will allow us to stave off economic irrelevance? Over at least the next decade, the answer is almost certainly no. That’s because recent technological progress, while moving surprisingly fast, is still not on track to allow robots and artificial intelligence to do everything better than humans can within the next few years. So another reason that humans won’t soon go the way of the horse is that humans can do many valuable things that will remain beyond the reach of technology.
On the robo-pessimism side, Richard Serlin has a mega-post about the declining prospects for human labor and the possible consequences. What is interesting about Richard’s post is that he essentially makes the case that the replacement of human labor by automation has been occurring for decades; we are already living with it....MORE
HT: Economists View

Speaking of robo-pessimism, what do you call a defeatist robot?

A woebot. :(

Natural Gas: Storage Withdrawls Broadly In Line With Estimates, Futures Hold Earlier Gains

New front futures (Feb.) are trading up 12.6 cents at 2.340 but we really don't care.*
First up, Investing.com, who I believe are referring to the Platts estimates:
Natural gas futures held on to sharp gains on Thursday, the last trading day of the year, after data showed U.S. natural gas supplies in storage fell more than expected last week.

Natural gas for delivery in February on the New York Mercantile Exchange rallied 11.1 cents, or 5.04%, to trade at $2.325 per million British thermal units during U.S. morning hours. Prices were at around $2.333 prior to the release of the supply data.

Trading volumes are expected to remain light, reducing liquidity in the market which could result in exaggerated moves.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended December 25 fell by 58 billion cubic feet, broadly in line with expectations for a decline of 57 billion.

That compared with a drawdown of 32 billion cubic feet in the prior week, 26 billion cubic feet in the same week last year, while the five-year average change for the week is a drawdown of 98 billion cubic feet.

Total U.S. natural gas storage stood at 3.756 trillion cubic feet, 14.2% higher than levels at this time a year ago and 12.0% above the five-year average for this time of year....MORE
And from Bloomberg, who do their own survey: 

Gas Extends Record Year-End Rally as New Yorkers Brace for Cold
New Yorkers who basked in Florida-like weather this month are going to have to dig out winter gear next week. That prospect is stoking a record year-end rally in U.S. natural gas.

Gas futures have surged 28 percent since mid-December, the biggest rebound for the period in New York Mercantile Exchange data going back to 1990. Prices had fallen to a 16-year low earlier this month because of unusually warm weather in the Midwest and Northeast, the biggest consumers of the heating fuel, and record stockpiles. Forecasts have since turned frigid, with Manhattan’s low temperature on Jan. 4 sliding to 21 degrees Fahrenheit (minus 6 Celsius), 6 below normal, said AccuWeather Inc.

“These are wild days,” said John Kilduff, partner at Again Capital LLC in New York. “We got prices so low like it was going to be Florida in the Northeast for the entire winter, and obviously that’s not going to be the case. Once that hit, prices rebounded.”

Futures Price
Gas for February delivery climbed 11.6 cents, or 5.2 percent, to $2.33 per million British thermal units at 9:50 a.m. on the Nymex. Prices have jumped 15 percent this week and are up 4.3 percent in December, heading for the first monthly gain since June. The market will be closed Friday in observance of New Year’s Day.

Overnight weather models now show up to two to three colder-leaning weeks “due to a slight hiatus in warm El Nino,” Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said in an e-mail. There will be a stronger cold push on the East Coast early next week than previously anticipated.

This blast of cold weather in the East may boost gas withdrawals from storage caverns into the triple digits as early as next week, especially because draws have been a bit stronger than mild weather would have suggested this month, Kilduff said.

A U.S. Energy Information Administration report scheduled for release at 10:30 a.m. in Washington will probably show that inventories fell by 56 billion cubic feet last week, based on the median of 18 analyst estimates compiled by Bloomberg. Estimates were for declines ranging from 18 billion to 78 billion. The five-year average drop for the period is 95 billion, while last year’s was 29 billion....MORE
Here's the EIA's storage report showing total drawdown at 58 Bcf. 
*On Tuesday we posted:
Farewell Natural Gas, It's Been Fun
I think it's time to bid adieu to natty for a while. $2.358 up another 10.2 cents.
Here's the recent action via FinViz:


 
January    $2.346 up 11.8 cents
February  $2.358 up 10.2 cents
We'll be back after the storage report on Thursday....
So we missed the drop yesterday and the recovery today. More next week.

ISIS Is Recruiting, Some Fade the Call

Just to be clear, Lyad El-Baghdadi is not al-Baghdadi, the Caliph/Poobah de Levant.
This is not the ISIS twitter feed:




Lyad's the guy who started the trolling.
Via Quartz:
“Mom said no,” “Only if there’s free pizza”: Muslims hilariously respond to ISIL leader’s call for recruits

When ISIL leader Abu Bakr al-Baghdadi called upon Muslims around the world to join his “caliphate,” Muslims around the world confidently replied that they’d rather do literally anything else.
“Sorry Guv. Colonoscopy booked,” one man wrote. “You should have told me before. I just renewed my pornhub subscription,” wrote another.

On Dec. 26, ISIL social media accounts shared an audio message from al-Baghdadi, believed to be his first public statement since May, when the terrorist group released an audio recording to prove its leader was still alive after he was believed to be injured in an airstrike. Iyad El-Baghdadi, a writer and human rights activist, tweeted a translation of the new message, which included a call to arms:...MORE
Alinsky's Rules for Radicals, RULE 5:
“Ridicule is man’s most potent weapon.” There is no defense. It’s irrational. It’s infuriating. It also works as a key pressure point to force the enemy into concessions.
It's also easy to do when one is safe in the tower waiting for the market to open.

Superior Mocking Going On Here: When Life Gives You Lemons, Make an Ad

From various places on the internet:

Burglars Just Want Tacos



And in other idiots with rocks video.

"Forecasting the world in 2016"

From the Financial Times, Dec. 30:

FT writers indulge in a feast of predictions — from the price of oil to Vladimir Putin’s next moves 
A New Year beckons and the Financial Times once more indulges in the ritual of forecasting the 12 months ahead. Our experts and commentators set caution to one side and predict what will happen in everything from the US presidential election to the Euro 2016 football tournament.

A quick judgment on how they did last year. Ed Crooks correctly forecast that the oil price had further to fall, a brave claim at the end of a year in which it had already halved. Martin Wolf said the ECB would adopt full quantitative easing, which it did. Clive Cookson rightly opined that Ebola would be eliminated in west Africa by the close of 2015. Gideon Rachman said Vladimir Putin would annexe no further territory in Ukraine and Europe. Not many at the end of 2014 were saying that.

We got one wrong. Jonathan Ford was among many who assumed the British general election would end in a hung parliament (he went so far as to predict a national government). Otherwise, the fault last year lay not with the answers we gave but the questions we failed to ask. We did not foresee a surge of Isis-sponsored terrorism in France; that Russia would take military action in Syria; and that the migrant crisis would become a grave threat to the EU. In 2016 too, events will happen that are as yet beyond our imagination.
James Blitz
Will Hillary Clinton win the US presidential election?
Yes. It will be a rollercoaster election — and the nastiest in memory. Mrs Clinton will be pilloried by her Republican opponent, Ted Cruz, for her character flaws and weaknesses in the face of America’s enemies. A large chunk of the electorate will hold up the Clinton name as an emblem of all that is wrong — and corrupt — about today’s America. But elections are still won in the centre, or what is left of it, and Mr Cruz will be too far to the right of the median voter to make it to the White House. Despite uncomfortably close polls, Mrs Clinton will win the electoral college by a landslide. Democrats will take back the Senate. But she will start her term in a very polarised Washington. There will be no honeymoon.
Edward Luce
 
Will Britain leave the EU in the referendum expected in 2016?
No. Britain will vote to stay in the European Union. Not with any sense of enthusiasm or excitement but because the innate common sense of British voters ultimately will prevail. Forget the technical arguments about whether David Cameron manages to secure a good deal in his renegotiation or whether the UK gets back its contribution to Brussels in increased investment and trade. Consider instead the protagonists on both sides. In the end voters will choose between the calm logic of former prime minister John Major and the populism of Ukip’s Nigel Farage. My money is on Mr Major. If I am wrong, Britain faces truly turbulent times.
Philip Stephens

 
Will Bashar al-Assad still be in power 12 months from now?
Yes. Assad will remain nominally president of Syria in 2016, even if in reality he has already been reduced to the status of the biggest warlord rather than the ruler of a state. Militarily, he has been bolstered by the Russian military intervention that has targeted his rebel enemies. Politically, a US-Russian plan agreed in recent weeks envisages an 18-month transition and is fraught with risks. Even in the event that a peace process gains traction, Mr Assad will do his best to stall and hold on to his seat of power in Damascus.
Roula Khalaf
...MUCH MORE

Wednesday, December 30, 2015

Heads Up: "Robert Gordon’s magnum opus, The Rise and Fall of American Growth: the US Standard of Living Since the Civil War (out in mid-January)"

Long time readers may remember Professor Gordon for his rather gloomy views on the current state of innovation. Here's his 2012 paper "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds", along with some of our links after the jump

From The Enlightened Economist:
Robert Gordon’s magnum opus, The Rise and Fall of American Growth: the US Standard of Living Since the Civil War (out in mid-January), is going to be an essential read for anyone interested not only in US economic history but also American economic prospects. The book is a comprehensive overview of growth from 1870 on, with a close focus on innovation and productivity. It does not consider at all macroeconomic policy, and is not much interested in events such as the Great Depression or the creation and later collapse of Bretton Woods. This is the supply-side story. This is not a criticism; as it is, the book weighs in at 650 pages – 730 with notes etc.
There are three sections: the first covers 1870 to 1940; the second 1940-2015; the third is about the sources of growth and why it was fastest from the 1920s to 1950s (this is just about the US so this is earlier than European readers would recognise as the peak growth era) – and is slowing now. The final chapters are a kind of crescendo, for the whole book is organised to support Gordon’s well known thesis that the days of miracle and wonder, the rapid growth era of the early to mid-20th century, is long gone, and slower growth lies ahead of us. As he writes in the introduction: “Our central thesis is that some inventions are more important than others, and that the revolutionary century after the Civil War was made possible by a unique clustering, in the late 19th century, of what we will call the ‘Great Inventions’.” [his italics] By Great Inventions, he means electricity, water supply and sewage systems, the internal combustion engine, radio then TV, and innovations that reduced household drudgery such as refrigerators and washing machines. The core of his argument is that these so transformed health, life expectancy and connectivity that no future invention could possibly have such a dramatic impact on people’s living standards.

Who could argue with the idea that this era saw such dramatic change in human lives? For that matter, it is also hard to argue with the headwinds he notes about growth now: demographic change with ageing populations, and inequality, limiting the mass market for future innovations. The final chapters particularly emphasise the damaging effects on the economy of greatly increased income and wealth inequality. Hear, hear. What I find odd about Gordon’s argument is his insistence that there is a kind of competition between the good old days of ‘great innovations’ and today’s innovations – which are necessarily different.

One issue is the extent to which he ignores all but a limited range of digital innovation; low carbon energy, automated vehicles, new materials such as graphene, gene-based medicine etc. don’t feature. The book claims more recent innovations are occurring mainly in entertainment, communication and information technologies, and presents these as simply less important (while making great play of the importance of radio, telephone and TV earlier). (A minor European carp – he also claims that it is only Americans who invent things now, when it would be more accurate to say it is only Americans who commercialise them to massive scale, especially in digital....MORE
Previously:
June 2014
Economists Debate: Has All the Important Stuff Already Been Invented?
September 2014
"Is Growth Destined to Slow?"
November 2015
"Byron Wien: How to Profit From Productivity Puzzle"

For those in search of the full experience, FT Alphaville has a lot of posts, and here's a conversation at the University of Chicago I was going to link to but decided against at the time. From the Booth School of Business' Capital Ideas magazine:
Transcript: Can innovation save the US economy?

Turkey Will Not Join The EU This Decade--EU Commissioner

This is from a couple sources that have an obvious axe to grind so buyer beware.

We first became aware of the commissioner, Günther Oettinger, when he was European Commissioner for Energy. Now his portfolio is Digital Economy and Society.

The first version of the story that we saw was at the Report News Agency (Azerbaijan):

European Commissioner: Turkey is unlikely to join the EU in next decade
Baku. 30 December. REPORT.AZ/ Turkey's EU membership will not happen in the next decade, while there is concern that the EU will fall apart.

Report informs citing the Russian media, this was stated by European Commissioner for the Digital Economy and Information Society Günther Oettinger, in his interview to Bild.

"Turkey's joining (to the EU) will not happen in this decade, maybe it will not happen in next decade also," said Oettinger.

He added that he "sees a serious threat to disintegration of the EU", which is to come to power in European "unstable and populist governments."

According to the European Commissioner, all countries in Europe must preserve the opportunity to join the EU, if "they fulfill the conditions." This, in particular, we are speaking of the Western Balkan countries, said Oettinger.

"However, there is a need for strict conditions for admission. It will not be harmful, if the European Union acquires more new members over next 10 years," - said the commissioner.
Looking around the interwebs, a longer version of the story is at Russia's Sputnik:
EU Politician Says Turkey Is Unlikely to Join EU in Next Decade

This may all be moot if the rumors that Erdoğan's top fatwa  giver has acknowledged Mr. E.'s claim to be the @RealCaliph* rather than that usurper al-Baghdadi, turn out to be true.

*That was only meant to be a play on @realDonaldTrump, don't bother sending the weird beards.

"Book Publisher Has No Idea How Google Works But Pretty Sure It Could End Piracy If It Tried"

Proof that literacy alone is not nearly enough to tackle the tragedy of stupidity.

From techdirt:

From the just-do-the-thing!-THE-THING!-how-much-more-clear-do-I-need-to-be?!?! dept

Here's the stupidest thing on piracy you're going to read today. Or this month. Maybe even this whole holiday season. Rudy Shur, of Square One Publishers, has a problem with piracy, which he thinks is actually a problem with Google.

After being contacted by Google Play with an offer to join the team, Shur took it upon himself to fire off an angry email in response. That would have been fine, but he somehow convinced Publisher's Weekly to print both the letter and some additional commentary. Presumably, his position at a publishing house outweighed Publisher Weekly's better judgment, because everything about his email/commentary is not just wrong, but breathtakingly so.

After turning down the offer to join Google Play (Shur's previous participation hadn't really shown it to be an advantageous relationship), Shur decided to play internet detective. Starting with this paragraph, Shur's arguments head downhill… then off a cliff… then burst into flames… then the flaming wreckage slides down another hill and off another cliff. (h/t The Digital Reader)
[W]e did discover, however, was that Google has no problem allowing other e-book websites to illegally offer a number of our e-book titles, either free or at reduced rates, to anyone on the Internet.
There's a huge difference between "allowing" and "things that happen concurrently with Google's existence." Shur cannot recognize this difference, which is why he's so shocked Google won't immediately fix it.
When we alerted Google, all we got back was an email telling us that Google has no responsibility and that it is up to us to contact these sites to tell them to stop giving away or selling our titles.
Yep, it's called the DMCA process. It's been in all the papers. DMCA notices are issued to websites hosting the pirated material. Google also delists search results in response to DMCA notices. What never happens is Google arbitrarily delisting sites just because someone notices piracy exists. Google is also not "The Internet" and lacks the power to shut down websites it doesn't own. It is not Google's job to police the web for infringement, no more than it's Yahoo's or Microsoft's.

Undeterred by this illogical conundrum, Shur heads into the "inadvertently comic analogy" territory previously reserved for Thomas Friedman.
Let me ask you something. If a store sells knockoff designer handbags, why is it okay for police to come in, confiscate the illegal merchandise, and arrest and fine the store owners? It’s because the store is profiting from the sales of these illegal goods, in the same way Google can increase its advertising rates because these illegal sites increase the number of users it attracts.
No, it's because the store is selling infringing goods. The store has infringing goods on the premises. It's not because the store is "profiting." It's because of what it's doing and what the store contains. A better analogy would be to point out that cops can't raid a business directory company just because it prints out pages that might contain names and addresses of stores selling illicit goods.

The fact that Google advertises on its own search results pages is beside the point. Ads will be served whether or not "pirate sites" show up in the search results. The ads are not tied to illegal activity. Whether or not some ads are "more profitable" (even if Shur's postulation is true) doesn't matter.

And that's not even the worst part of that paragraph....
...MORE

Energy Company Stocks: It's Still Too Early (XLE; XOP)

The ETF for the S&P Energy Sector, the XLE is at $60.25, down 1% on the day, the ETF for the smaller Exploration & Production companies, the XOP, is at $29.66, down 2.40%.

From ZeroHedge, Dec. 29:
Yesterday, when Saudi Arabia revealed its "draconian" 2016 budget, boosting gasoline prices by 40%, while trimming welfare programs after forecasting a collapse in oil revenue (even while allocating the biggest part of government spending in next year’s budget to defense and security) Bloomberg reported that "the kingdom’s 2016 budget is probably based on crude prices of about $29 a barrel, according Riyadh-based Jadwa Investment Co."

Shortly thereafter Iran's Petroleum Minister Bijan Zangeneh said that the Iran 2016-2017 budget assumes an average oil price of $40 dollars per barrel. "There have been efforts to suggest in the budget the closest and most possible price for oil, though the market is usually in fluctuations," Zangeneh was quoted as saying by the local IRNA news agency.

The reality is that nobody knows where oil prices will be in the coming year, especially if the supply glut persists, something which prompted BMO to warn that unless there are dramatic changes in the supply picture, oil prices could collapse as low as $20 in the short-term. "Fundamentally there is simply too much oil" the Canadian bank summarized simply.

But now that price expectations have been significantly reset lower to account for an OPEC which will likely continue to exceed its 30 million barrel per day target, one group's implied oil price estimate stands out: that of energy investors.

Here is what BMO says is the oil price discount into current equity valuation.
At current prices we estimate that valuations for the oil and gas group reflect an implied Brent crude oil price in the range of $65-70/bbl while natural gas leveraged companies reflect a Henry Hub natural gas price in the range of $3.00/Mcf.
We have shown before that this is a problem for energy stock valuations which, while not as extreme as they have been in recent months, still discount energy earnings doubling over the near term with a 26x forward P/E, nearly double the recent historical average.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/12/20151229_ENRGPE.jpg
As the company-level chart further shows, not a single company's valuation is "fair" at current oil prices. In fact, should oil persists below $40, every single company in BMO's universe is overvalued.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/12/implied%20oil%20prices.jpg
In discussing the future of energy company valuations, BMO adds that "while these generally represent attractive levels compared to our longer-term commodity price expectations we see a higher likelihood of weaker crude oil prices over the next six months which would take valuations lower."

So why are energy multiples so persistently high? The answer is simple: equity investors are basing their investment thesis on the oil price corrections of 1998-1999 and 2008-2009, when likewise, multiples spiked only to retrace, following a rise in oil prices. BMO next explains how current equity valuations compare to prior downturns:...MORE

Top Performing Asset Classes: Little Plastic Things That Hurt Like Hell When You Step On Them Edition

From MarketPlace:

Why buying Legos is a good investment
Turns out those Lego sets you got your kids for the holidays this year may be a pretty solid investment.

According to an analysis by the Telegraph, Lego sets have grown more in value over the last 15 years than the FTSE 100 stock market or the gold market.

The Telegraph estimates the average Lego set has gained 12 percent in value each year since 2000.

But you're only going to get that kind of return if the sets are un-opened and un-played with.
And what's the fun in that?

Possibly the Funniest (profitable) Thing We Saw In 2015: FT Alphaville's Founder/Editor Channels Mr. Subliminal

For our younger readers, here's Mr. Subliminal on Donald Trump cheating on his wife Ivana in 1990:

                                                                                  Comedian

And here's FT Alphaville's editor, Paul Murphy,

 
Hard-bitten journalist

on former FT Alphaville owner Pearson and its stock, Dec. 1, the day the Financial Times was handed over to Nikkei, while appearing to be having a normal conversation with Alphavillein Bryce Elder:

...PM
(So here’s our advice on the stock at 832p….)
PM
Run )
BE
...Today, though, the message is dovish. So we’re all choosing to forget about 2016.
PM
Scarper )
PM
Get out )
PM
Bin it )
--------
PM
( You don’t think another profit warning is coming? Oh course another profit warning is coming! )
--------
PM
( And I can tell you it’s a screaming sell. )
--------
PM
( I can tell you what happens next…)
PM
( Having focused the business down and down and down so that it’s pure corporatised education…)
-------
PM
( And with corporatised education, er, falling slightly out of fashion…)
-------
PM
( The next effort will be to slash costs — slashing with a blunt knife. A panic. )
-------
PM
( My guess is 15 per cent of the workforce will go. )
-------
PM
( Across the board. )
PM
(except not in the boardroom, of course )
PM
(It’s a lucky escape for us, cos the 15 per cent cut would have hit us as well. 100 journo jobs would have gone. )
BE
Is that enough on banks? Actually, Goldman too. Just because.
--------
--------
PM
(If you look back to the late 90s, the FT had all the bits to construct Bloomgerg. )
PM
( Had a world class consumer offering in the form of the paper )
PM
(But it also had a newswire, and an online markets business — Market Watch.)
BE
Should we move on to other matters?
11:22AM
PM
(It had data, in the form of IDC)
PM
(Had Extel. Had what became factiva.)
PM
(Had a huge EM news business.)
BE
Okay …………. I think I have to do a quick bit of de-RAW here.
--------
BE
Coincidentally, we were chasing the same story from a slightly different angle.
BE
The rumour that reached us was that National Grid was working on a bid of around $45 a share for ITC …
PM
(People here complained of a lack of investment from Pearson. Investment??? They were sucking the life-blood out of the thing. )
BE
… However, that would all appear to be very, very premature..
---------
BE
… However, that would all appear to be very, very premature..
BE
What we can say with some confidence is that National Grid’s in the ITC auction process, which kicked off a week ago …
BE
But NG only appointed a new CEO at the start of the month, and is in transition between the old guy and the new guy for the rest of the year.
BE
And NG’s balance sheet doesn’t make ~$7bn-ish deals look very easy.
BE
So. If National Grid’s involved …
BE
… It’s much more likely to be in there to look at the numbers of a rival, rather than to launch an offer.
PM
(Sure, there was one short period, during the dot comedy, that the FT was allowed to expand. It was a disaster, timing wise. But Pearson made up all the associated losses with one disposal — Market Watch. That covered everything.)
BE
Also, note, there’s no shortage of potential bidders. It’s a crowded process.
PM
(Anyway, ive said enough. We’re under new ownership now. )
PM
Sell Pearson )
BE
Also likely to be in there are Berkshire Energy, Iberdrola’s Avangrid, Hydro One, NextEra Energy, American Electric Power ….

...MUCH MORE

The stock is currently trading at 739p, down 11.17% so far this month, after trading under 700 a couple weeks ago.

Starting to Wonder If Maybe ZeroHedge Is Right? No One Needs to Know Your Secret With These Fashion Forward Tinfoil Hats

The following is presented as satire and in no way implies any knowledge of, or belief in, New World Order plans for total domination of  an enslaved world population.
cough, Soros, cough. buy gold, cough
 
From Mic:

These Actual Tin-Foil Hats Are for Hip Millennials Who Hate Government Mind Control
Tin-foil hats — DIY headwear that supposedly protects wearers from mind reading — are the classic apparel of conspiracy-obsessed paranoids who believe the government is out to trap them. Now a company is aiming at hip millennials with fashion-forward beanies and snapbacks in a sporty shade of gray.

Shield Headwear, which seems like a pitch-perfect parody of earnest fashion-tech startups, is launching its inaugural line of fresh headwear, and these lids are fast on their way to being fully funded on Kickstarter. It's racing toward its odd goal of $19,628, with almost $17,000 raised at time of writing.
 
According to its Kickstarter page, the Shield uses special fabric to protect you from "electromagnetic smog." The project claims that the hats will use cotton with 100% "pure silver" coating to reflect and bounce off any kind of offensive electromagnetic or radio waves — a dubious claim, even if the project is entirely real. (With Kickstarters, sometimes it's hard to tell.)

The science is bad. The project hedges its claims with the kind of language that just raises questions about the safety of radio waves and Wi-Fi signals without actually backing them up, or even claiming that these hats will work very well....MORE

The Year In Tech: What Didn't Happen

From A VC:

What Didn’t Happen
Last year, I ended 2014 with What Just Happened and started 2015 with What Is Going To Happen.
I’ll do the same tomorrow and friday, but today I’d like to talk about What Didn’t Happen, specifically which of my predictions in What Is Going To Happen did not come to be.
I said that the big companies that were started in the second half of the last decade (Uber, Airbnb, Dropbox, etc) would start going public in 2015. That did not happen. Not one of them has even filed confidentially (to my knowledge). This is personally disappointing to me. I realize that every company should decide how and when and if they want to go public. But I believe the entire startup sector would benefit a lot from seeing where these big companies will trade as public companies. The VC backed companies that were started in the latter half of that last decade that did go public in 2015, like Square, Box, and Etsy (where I am on the board) trade at 2.5x to 5x revenues, a far cry from what companies get financed at in the late stage private markets. As long as the biggest venture backed companies stay private, this dichotomy in valuations may well persist and that’s unfortunate in my view.
I said that we would see the big Chinese consumer electronics company Xiaomi come to the US. That also did not happen, although Xiaomi has expanded its business outside of China and I think they will enter the US at some point. I have a Xiaomi TV in my home office and it is a really good product.
I predicted that asian messengers like WeChat and Line would make strong gains in the US messenger market. That most certainly did not happen. The only third party messengers (not texting apps) that seem to have taken off in the US are Facebook Messenger, WhatsApp and our portfolio company Kik.
 top social apps year end 2015
 Here’s a shot of the app store a couple days after the kids got new phones for Christmas.
I said that the Republicans and Democrats would find common ground on challenging issues that impact the tech/startup sector like immigration and net neutrality. That most certainly did not happen and the two parties are as far apart as ever and now we are in an election year where nothing will get done.
So I got four out of eleven dead wrong.
Here’s what I got right
VR has hit headwinds. Oculus still has not shipped the Rift (which I predicted) and I think we will see less consumer adoption than many think when it does ship. I’m not long term bearish on VR but I think the early implementations will disappoint. 
The Apple Watch was a flop. This is the one I took the most heat on. So I feel a bit vindicated on this point. Interestingly another device you wear on your wrist, the Fitbit, was the real story in wearables in 2015. In full disclosure own a lot of Fitbit stock via my friends at Foundry.....
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Interview: The Big Short's Dr. Michael Burry

From New York Magazine:

Michael Burry, Real-Life Market Genius From The Big Short, Thinks Another Financial Crisis Is Looming
 If The Big Short, Adam McKay’s adaptation of Michael Lewis’s book about the 2008 financial crisis and the subject of last month’s Vulture cover story, got you all worked up over the holidays, you’re probably wondering what Michael Burry, the economic soothsayer portrayed by Christian Bale who’s always just a few steps ahead of everyone else, is up to these days. In an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of our panicked questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about.
The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case?
I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, "I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this." As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.

Were you surprised no one went to jail?

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.

When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they thought that financial reform was pretty effective and that the system was much safer. Michael Lewis disagreed. In your opinion, did the crash result in any positive changes? 

Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity....MORE
HT: Barron's Read This, Spike That

Also at NY Mag: "The Hustlers at Scores: The Ex-Strippers Who Stole From (Mostly) Rich Men and Gave to, Well, Themselves

Tuesday, December 29, 2015

The Russian Economy Is Showing Signs of Cracking

From ZeroHedge:
As you might have noticed over the past several days, the Russian ruble is in a veritable tailspin. The inexorable decline in crude has pressured the currency as have expectations of an uptick in year-end budget spending.

The ruble fell to a record low against the dollar on Monday and depending on crude’s trajectory, could well fall further in the new year. 2015 will likely mark the third annual decline for the currency which is under pressure not only from low oil prices, but from biting economic sanctions tied to Moscow’s alleged role in Ukraine. 
http://www.zerohedge.com/sites/default/files/images/user92183/imageroot/2015/12/20151229_RUB.jpg
“The wish to hedge potential risks from geopolitics and commodities may well push the ruble to 75,” Evgeny Koshelev, an analyst at Rosbank PJSC in Moscow, told Bloomberg by e-mail this week. “It will be interesting to see if there’s a reaction from the central bank, government and households to this weakening.”

Yes, it will be “interesting”, especially if crude slides even further. Here are Goldman’s projections based on three different prices for oil:
  • At an oil price of US$35/bbl, we think the Ruble will be around Rub72 or close to current levels. Under that scenario we think inflation could be around 6% at end 2016.
  • At an oil price of US$30/bbl, we think the Ruble will depreciate to about Rub77 or 10% below current levels and end-year inflation in 2016 could be up to 6.7%.
  • At an oil price of US$25/bbl, the Ruble is likely to depreciate to the mid-80s and inflation is more likely to be up to 8% in December 2016.
While Goldman is fairly optimistic about what the future holds for the Russian economy - which, you're reminded, is in the midst of its deepest recession since 2009 - the Central Bank of Russia isn't so sure. In fact, according to the bank's "risk scenario," oil prices could hover around US$35/bbl in 2016 while GDP could contract by 5% or more and inflation might be stuck at 7-9%.
Russia's 2016 budget assumes oil prices at $50/bbl. If that proves correct, Moscow will run a deficit of about 3%. However, as Citi noted earlier this month, "a $10bbl decline in oil prices worsens the fiscal position by about 0.7% of GDP."
 http://www.zerohedge.com/sites/default/files/images/user92183/imageroot/2015/12/CitiRussia.png
As Citi goes on to point out, the deterioration in the fiscal position "already incorporates the secondary positive effect of the weaker currency." In other words, the widening budget deficit associated with falling crude prices takes into account the effect a concomitantly weaker ruble has on RUB-denominated oil revenues.
http://www.zerohedge.com/sites/default/files/images/user92183/imageroot/2015/12/CitiRussia2.png
So, combining this with the CRB's risk scenario as outlined above, we're to understand that with oil at $35/bbl, Russia's projected deficit jumps 23% to 3.7% of GDP which will itself decline 5% from a year earlier while inflation runs at between 7-9%. 
If, however, oil were to fall to $30/bbl, the situation worsens materially. Here's Citi again:
A fall of the oil prices to $30bbl will thus widen the fiscal deficit to 4.4% of GDP. Given that the 2016 budget is based on an oil price of $50bbl, this implies that the fiscal position may deteriorate to -4.4% (-3.0% -2 times 0.7%) of GDP at oil of $30bbl.This is a significant fiscal gap that would be the second largest over the last 20 years (largest deficit of 6.0% of GDP was recorded in 2009).
The fiscal outlook is further darkened by the trials and travails of Vnesheconombank (VEB), the troubled state bank that's been crippled by economic sanctions and is laboring under more than $15 billion in foreign currency debt (which is of course a disaster given the ruble's slide). As Bloomberg reports, VEB may need a massive state bailout that could end up costing upwards of $18 billion. Here's more:
VEB got its start under Soviet founder Vladimir Lenin as a bank to finance foreign trade. Putin overhauled it in 2007. Flush with cash from high oil prices, he pumped 180 billion rubles (worth about $7.3 billion at the time) in to boost capital and took over at chairman of the board a year later.

When the global financial crisis struck in 2008, VEB became Putin’s main tool for managing the shock. It got 1.25 trillion rubles (worth about $50 billion at the time) from the government and central bank to shore up the plunging stock market, help failing banks and bail out tycoons who were facing the loss of their companies to foreign creditors....
....MORE 

See also:

What Changed In Russian Central Banking? "Turning the Russian petro-monetary transmission mechanism upside-down"

Russia Central Bank Prepares For Three Years of $35 Oil

The Cascadia Megaquake Will Just Be The Beginning Of The Troubles: Seattle Natural Hazard Explorer

Following up on July's "When The Megaquake Hits, The Living Will Envy The Dead" we have the Explorer:
Part I: Welcome and Introduction
 
Seattle is a beautiful place to live, work and play but it's not immune to major disasters. On the contrary, our region ranks number one in the country in terms of the number of hazards we face, which includes winter storms, landslides, flooding and earthquakes. 

The Seattle Hazard Identification and Vulnerability Analysis (SHIVA) identifies 18 hazards that pose the greatest risk to the city. The SHIVA is intended for anyone wishing to better understand how hazards impact the Seattle community, and provides a great basis for learning about local hazards, how they impact Seattle communities, and how the city plans to respond. 

You can view the full SHIVA here
 
The Seattle Hazard Explorer is designed to provide you some key content from the SHIVA in an interactive format. The subsequent tabs at the top of this screen will give you some insight into several of the hazards that Seattle faces. Each tab provides some information on how that hazard might impact Seattle, as well as some interactive content that provides more detail on important concepts. The map on the right also displays data relevant to the hazard. A search function allows you to find a particular address and examine how each hazard may impact a particular location, whether it be your home, work place, school, or another location. 

No warranties of any sort, including accuracy, fitness, or merchantability accompany this product.
City of Seattle, 2015. 

Part IV: Liquefaction 
...MORE, including volcanoes, landslides etc.