Sunday, April 30, 2017

As With Anything Involving Uber, Follow The Money (plus Karl Marx swings by)

Izabella Kaminska shows us an aspect of Uber's business model that will probably have some unintended consequences going forward.
(looking at you, trial attorneys)

From FT Alphaville:

The gig economy’s cash management issue
Over the last few years, labour practices in the gig economy have triggered a heated debate over where the boundaries of self-employed status should begin and end.

The feeling among many critics is that corporations are exploiting the classification simply to save money by not providing the rights and benefits that come with traditional employment. This is contributing to a major power shift in the social contract that was hammered out during decades of strife between labour and capital, they say.

But there is another thing possibly being missed in the debate as it stands. It relates to the role cash management plays in the gig economy.

Take the taxi market in the UK as an example.

Companies such as Uber like to claim they’re busting open an uncompetitive licensed taxi cartel, which operates against the interests of consumers.

But in the case of the UK market, this is a slightly disingenuous claim. Black cabs have always been forced to compete with private hire and mini-cab rivals.

So, one might ask, why is competition from Uber deemed intolerable from a labour and incumbent perspective but not from the private hire or mini-cab market?

Two factors arguably dominate.

The first, and most written about, relates to Uber’s scale and capital advantage. Unlike local mini cab firms or even relatively centralised players like Addison Lee, Uber’s well funded status alongside its immense scale means it can undercut incumbent players with below-cost pricing. Small local players simply wouldn’t be able to carry on loss-making operations for years in the same way, and hence can’t compete.

The second, and possibly less recognised factor, relates to the power shift associated with using a centralised dispatcher for self-employed operations. That dispatcher (Uber, in this case) also happens to be a cash manager, which is important.

Indeed, one of the reasons black cabs have historically been so reluctant to take debit or credit cards (aside from the entirely separate issue of tax evasion) links to the additional cost of processing digital transactions as a small business operator. Cash has no processing charge, thus cash offers a better margin in almost all cases.

In the mini cab world, meanwhile, the margins are even thinner meaning the incentive to take cash is even greater.

Private hire firms, of course — by linking services to repeat accounts — have historically been able to compete on this front by billing/invoicing customers directly or by running corporate accounts that can be settled on a bundled-payment basis.

Why money management matters
In that latter situation drivers are, in most cases, still deemed self-employed workers. What differentiates them from Uber contractors, however, is that these centralised cash-managing providers tend to use the cashflow advantage to reduce capital costs for their contractors. They do this by investing in car fleets on a bulk basis (taking the capital and depreciation risk accordingly) and renting the vehicles to drivers on preferable terms to those found in the open market. The drivers also need not pay for the insurance, MOT and PHV checks, repairs or maintenance.

When it comes to the self-employed sector that’s prepared to take on the full capital risk of owning a vehicle — namely the Uber and mini-cab sector — the real differentiator thus becomes cash management....MUCH MORE, including some pretty good comments:
Felix Dzerzinsky 1 day ago
Means of Payment > Means of Production

Uber Drivers have nothing to lose but their chains! They have a world of cash management to win.

Which, of course, reminded me of 2014's "UPDATED--'The Karl Marx Credit Card – When You’re Short of Kapital'":


Is it a tragedy? Is it a farce? In the land once called East Germany, in a town once called Karl-Marx-Stadta bank called Sparkasse Chemnitz ran an online poll letting customers vote for images to place on their credit cards. And the hands-down winner was Karl Marx, an ironic pick given that … well, you don’t need me to explain why.

In response to this selection, Planet Money has encouraged readers to post a tagline for the card on Twitter, using the hashtag #marxcard. Here are a few of our favorites so far:
  • There are Some Things Money Can’t Buy. Especially If You Abolish All Private Property.
  • From each according to their ability, to each according to his need. For everything else, there’s #Marxcard.

And again in "Okay, The Second Time Is Farce: Some Additional Taglines for the Karl Marx Credit Card" a few days later.

"Some Cautionary Notes on Smart Beta "

We've been sitting on some links about the war of words going on between Research Affiliates' Rob Arnott and one of the quantfathers, AQR Capital's Cliff Asness. This is as good a place to start as any and we'll have more next week.
From Barron's ETF Focus, April 29:

For several years, Research Affiliates’s Rob Arnott has warned about the dangers of many smart-beta strategies. He may be protesting too much.
When a pioneer of a popular investing trend amplifies his warnings about that very trend, it’s worth paying attention—even if it seems self-serving. Over the past year, Research Affiliates chief Rob Arnott has fired cautionary flares about smart-beta. He first warned investors to be mindful of valuations; now he’s focused on momentum and value strategies.

Smart-beta exchange-traded funds try to meld active and passive management, exploiting factors such as value, low volatility, or momentum to outpace long-term returns from market-weighted strategies. Investors have embraced smart beta. The industry has responded with sundry strategies, with one-fifth of all ETF assets falling under this motley category. Assets in the U.S. totaled $501 billion at the end of the first quarter, up 34% from two years ago, according to research and consulting firm ETFGI. Almost three-quarters use a fundamental approach Arnott has helped popularize that systematically weights portfolios based on metrics like book value, cash flow, dividends, or sales.

In its latest paper, Research Affiliates says funds using value factors generated only 60% of the average annual premium in returns implied by the theoretical research that often draws investors to smart-beta strategies. Momentum investors fared even worse, reaping almost no edge in returns over a 25-year period. Research Affiliates’ head of equity research Vitali Kalesnik says high turnover and trading costs associated with momentum investing may account for part of the discrepancy between results and research. Apples-to-oranges comparisons also play a role. Much of the research is based on long-short portfolios. Yet, most funds are long only, missing out on returns from shorting.

The research casts a benign light on Research Affiliates’ own approach, finding that low beta, growth, and contrarian strategies stacked up better versus the literature. “We are trying to show that some smart beta—or the way investors approach these strategies—is not that smart,” Kalesnik says.

OTHERS HAVE QUESTIONED the efficacy of factors compared with 10 to 15 years ago. Momentum is one of the most challenged, says Morgan Stanley equity strategist Brian Hayes. One reason: greater use of momentum as more investors use quantitative models....MORE
Here's the Research Affiliates link page for both the original paper and the abridged version:

Alice in Factorland
Factor tilt strategies have generally produced less alpha in live portfolios compared to theoretical factor long–short paper portfolios and have largely been unsuccessful in replicating smart beta strategies. End-investors, consequently, often reap a much smaller return from factor exposure than they expect. The winning approach to factor investing is buying the losers: Past negative performance appears to be predictive of positive future returns. 

https://www.researchaffiliates.com/content/dam/ra/exhibit/RA-Visual_Insights-003-Market_Factor_Returns_Slippage.png

"The Last Remaining Cheap Asset"

Ah hell.
I hate seeing stuff like this in print.
It's true but I hate seeing it.
And it gets worse. He profanes an image of Julie Andrews along the way.
This Julie Andrews:
"It would surprise no one, perhaps, to learn that Julie Andrews travels with her own teakettle."
No. No it would not.

From The Macro Tourist:
There are two things that most men think they are experts at. Ask any man, and chances are, deep down, they believe they are the world’s greatest bbq’er and lover (probably in that order). Personally, I know not everyone can be the world’s greatest lover, so I hope I might be in the top quartile (I am giving myself a boost for all those too-good-looking guys who think they don’t even have to try), but god damn it! I know that I am in the top percentile when it comes to barbecuing!

My delusions about my mad bbq’ng skills are similar to everyone’s belief they are contrarians. Whether it is the NYSE specialist, the Chicago pit local, the Bay Street equity trader, the London credit specialist, or even the guy at home trading in his underwear, we are all consumed by these romantic narratives where we bravely battle the naive masses to nail the next great trade. But the reality is that we can’t all be contrarians. If we were, then it wouldn’t be contrarian…
Today we face expensive assets everywhere we look. Whether it is real estate, equities, fixed income - capital is chasing assets at a disturbing pace. Central Banks, with their massive quantitative easing programs and negative rates, have inflated anything with a CUSIP, and those private investors venturing out the risk curve have taken care of everything else.

So what’s an investor to do? Is there anything truly cheap anymore?

Well, rest assured, there is absolutely nothing easy left. Anything with a little bit of meat on the bone has been picked clean. You could try making some money taking the other side of this over valuation, but you need to realize who is on the other side of your trade. Although you might time the occasional squiggle lower, I would rather not fight Central Banks and their unlimited fire power.
No, I would rather go looking for something truly forgotten, hated, and cheap.

And nothing fits this bill better than grains.

I told you this wasn’t going to be easy, so when the idea of buying grains makes you throw up a little in your mouth, don’t immediately discount its investment merit. The grain charts look like death. No two ways about it. As the trader who sits beside me says, “going long grains is a hedge against profits.”
http://themacrotourist.com/images/2017/04/WheatApr2817.png

http://themacrotourist.com/images/2017/04/CornApr2817.png

http://themacrotourist.com/images/2017/04/SoybeansApr2817.png
I realize these charts do not represent grain’s actual returns due to the problems rolling contracts and the embedded carry (positive/negative depending on the shape of the curve), but it gives you a sense of the spot market over the past five years. The selling has been relentless, and discouraging.
I like to follow agriculture twitter. It’s a nice break from all the finance guys bragging about their latest wins or posting pictures of the meat they are bbq’ng that evening. The ag people seem a little more humble, but I must admit, I get a kick out of them showing off their latest tractors or combines.
The reason I bring this up is to give you a sense of the sentiment within the agriculture trader community.
http://themacrotourist.com/images/2017/04/SoundApr2817.jpg

What’s that line legendary strategist Don Coxe likes to use? “The most exciting returns are to be had from an asset class where those who know it best, love it least because they have been burnt the worst?”

Well, there can be no doubt that grain longs have been burnt the worse. If we back up the timeframe on our charts, and then adjust for inflation, you will notice that grain prices are now all ticking all time lows....MORE
HT: ZeroHedge

The only positives of seeing this talked about are 1) You are dealing with a complex-chaotic system (a financial market) overlaid on a complex-chaotic system (weather) that will crush (soybean pun) you should you start to exhibit any symptoms of hubris, thus weeding out quite a few of the wannabes and 2) although the intraday move can be violent the longer term stuff can lull you into serious misreadings of reality.
The best examples are in the presentation of the charts above; it's actually been a wonderful trading environment.
If you've been short.
Which is what two-sided markets are all about.

The Andrews quote is from "Nun with a Switchblade: Julie Andrews and The Fiftieth Anniversary Of The Sound Of Music".

If interested we embedded one of the better homages to Dame Julia Elizabeth in "Watch Out Mary Poppins: The World's First Tea Brewing System Utilizing Machine-Learning Algorithms Has Received Pre-Launch Seed Funding (plus a Princess Rap Battle)"  although purists will probably have the same reaction to it that I had to news Disney was planning a Mary Poppins sequel:

Blasphème!

Saturday, April 29, 2017

Treasure (£100 million) Island: "The World's Biggest Booty Haul"

That's '...biggest booty haul', not "world's biggest booty....", for which see Google, at your own risk or Kardashian, Kim or Tim "Booty" Wilson, below (again, at your own risk).

Re: the hood, if you are going to be wandering around looking for treasure this is as nice a place as any.

From the BBC:

The Island With £100 Million Hidden
According to legend, pirate treasure reportedly worth £100 million is buried on an Indian Ocean island. This is the true story of two men’s life-long search.
According to legend, pirate treasure reportedly worth £100 million is buried on an Indian Ocean island.

Although the region is thought to be littered with hidden treasure, this one is said to be the Holy Grail, the world’s biggest booty haul. The story, which reads like a Hollywood script, has been passed down through generations on the islands of the Seychelles and La Réunion.
http://ichef.bbci.co.uk/wwfeatures/wm/live/1600_900/images/live/p0/51/3d/p0513dzp.jpg
Although many have tried – and failed – to locate the bounty, two men have devoted their lives to the quest. Reginald Herbert Cruise-Wilkins, known locally on the Seychelles island of Mahé as the ‘Treasure Man’, hunted the fortune for 27 years until his death in 1977. His son John inherited both the nickname and the quest.

When I first met John, he immediately barked that I was half an hour late. I didn’t expect a warm welcome; John is constantly hounded by writers and locals who stop him wherever he is, asking if he is looking for buried treasure.

But as he showed me around what he believes is the treasure site, and talked about the clues and what he had left to do, the gruff man melted into one you couldn’t help but root for. His eyes twinkled and his smile was infectious. Even after all these years of searching, he was still the storybook boy hero armed with his backpack and treasure map, trying to piece together the puzzle. His is a story of hope and of never giving up, despite the odds.

John explained that the fascinating tale of the treasure started in 1716 when Frenchman Olivier Levasseur, otherwise known as ‘La Buse’ (The Buzzard) because of the speed with which he would attack his enemies, was given a letter of marque to operate as a privateer. But within a few months, Levasseur turned to the more lucrative career of pirating.

In 1721, Levasseur and his associates – then with 750 pirates over three ships – came across a Portuguese galleon flying British colours, Nossa Senhora do Cabo, in the port of La Réunion, then called Bourbon Island. They landed 250 men on board and killed the crew. Levasseur, who had no idea what was on the ship, was astonished with the haul. According to John, a historian described it as ‘a floating treasure house, believed to consist of gold and silver bars, precious stones, uncut diamonds, guineas, church plate and goblets.’...MUCH MORE

Apparently Balenciaga Made A $2100 Knockoff of the IKEA Tote Bag, IKEA Is Amused

And IKEA decided to mock the fashion house for doing so.
From domino, April 26:

IKEA Hilariously Responds to Balenciaga's Copycat Tote
Balenciaga offers a $2150 tote that looks nearly identical to IKEA's signature shopper.

https://img.domino.com/serve/ikea-hilariously-responds-to-balenciaga-s-copycat-tote-5900a1bc95f10c2057dc1993-w1000_h1000.jpg
Anyone who's shopped at IKEA is familiar with the retailer's signature tote - the Frakta. Generously oversized and sensibly priced, the iconic blue bags are known for their versatility and (for better or for worse) their capability to hold even the most impressive hauls. Needless to say, the shopping bag has essentially become synonymous with the brand, boasting the classic bright blue hue with pops of yellow. 
Last week, luxe fashion brand Balenciaga rolled out a new tote that bore an uncanny resemblance to the Swedish retailer's own. The difference? It would come to set you back an extra $2,149.01, thanks to its "blue wrinkled, glazed leather" composition and Balenciaga label. IKEA's response to the replica came in the form of a cheeky ad, from Swedish agency ACNE, helping shoppers correctly identify an original Frakta tote:
https://img.domino.com/serve/ikea-hilariously-responds-to-balenciaga-s-copycat-tote-59009f46014a5e20454de197-w1000_h1000.jpg

New York Fed: The Information Value of Commodity Prices

From the Federal Reserve Bank of New York's Liberty Street Economics blog, March 21, 2016:

What Tracks Commodity Prices?
LSE_2016_growth-commodities_klikgaard_460_art
Various news reports have asserted that the slowdown in China was a key factor driving down commodity prices in 2015. It is true that China’s growth eased last year and, owing to its manufacturing-intensive economy, that slackening could reasonably have had repercussions for commodity prices. Still, growth in Japan and Europe accelerated in 2015, with the net result that global growth was fairly steady last year, casting doubt on the China slowdown explanation. An alternative story relies on the strong correlation between the dollar and commodity prices over time. A simple regression shows that both global growth and the dollar track commodity prices, and in this framework, it is the rise of the dollar that captures last year’s drop in commodity prices. Thus a forecast of stable global growth and a relatively unchanged dollar suggests little change in commodity prices in 2016. 

Prices Are Correlated with Global Growth
Commodity prices tend to fall when the global economy falters and rise when it is booming. The chart below compares global growth, as measured by the International Monetary Fund, with the annual percentage change in the Commodity Research Bureau price index for raw industrial goods (various metals, cotton, rubber, wool, and other goods). The two lines move together, with a regression using global growth having an R-squared of .52. That is, global growth explains around 50 percent of change in this commodity price index over this period. Looking at the chart, the closest co-movements are from 2004 to 2007—when the world economy was growing at an annual pace of more than 5 percent and the commodity price index was rising 15 percent per year—the collapse in growth in 2008-09, and the rebound in 2010-11. However, this relationship struggles to explain the 1995-96 and 2012-15 periods, with the latter being one of stable global growth and steep commodity price declines in both 2012 and 2015. 
http://libertystreeteconomics.typepad.com/.a/6a01348793456c970c01bb08c9bef1970d-pi
The stability of global growth does not necessarily preclude China’s flagging growth from having a significant role in the decline of commodity prices last year. In particular, China is more commodity-intensive than Japan and Europe and this shift in composition of growth last year is hidden in the global growth variable. Breaking down global growth into emerging and advanced countries reveals that the volatility of commodity prices is better captured by the growth of emerging economies than the growth of advanced economies. Some of this may be due to commodity prices affecting the economies of commodity-producing countries. Still, growth in emerging economies only slowed by half of a percentage point in 2015, so this variable is not enough to explain last year’s steep decline. Also, note that a regression using global growth does a better job tracking commodity prices than one that relies only on the growth of emerging economies.

Prices Are Also Correlated with the Dollar
Analysts looking for another explanation of last year’s price decline point to the strong correlation of commodity prices with the dollar—commodity prices tend to fall (rise) when the dollar appreciates (depreciates). One theory is that prices fall when the dollar strengthens because commodities priced in dollars become more expensive to the rest of the world, thereby restraining demand. It is a plausible explanation, but it is also quite possible that the dollar is not a causal factor and is instead correlated with other underlying factors affecting commodity prices.

The next chart shows these two data series with the dollar index of major currencies inverted so that the relationship is easier to see....MUCH MORE

CoreLogic Sees Signs of Credit Cracks

From Mortgage News Daily:
Apr 28 2017, 9:24AM
Here we go again?

Sam Khater, CoreLogic's deputy chief economist, says loan performance is beginning to show some cracks in what has been a near perfect veneer.  This might be an early signal of a downturn in the credit cycle.  Khater is not issuing a warning, merely alerting those who should be watching such things to pay attention.

He writes, in an article in the CoreLogic Insights blog, that a typical economic expansion and recession are strongly driven by loan performance.  When times are good, lenders take on more marginal borrowers then tend to become more conservative when loan performance begins to deteriorate.  That often exacerbates an economic downturn.
 http://f.mortgagenewsdaily.com/CommunityServer.Blogs.Components.WeblogFiles/jann/0000201704/2017-4-28+cl1.png?AWSAccessKeyId=AKIAITGSRAFQQZDCPGHQ&Expires=1493491585&Signature=7xho0v%2f8NEAVTh70spUksl6dSFg%3d
Loan performance across the four major types of loans (agricultural, business, personal consumption, and real estate) all improved throughout the first five years of the expansion.  Then, over the last year, performance of the first three loan types began to slip.  Real estate loans bucked the trend, continuing to improve.  Now, Khater says, there are small signs that their pristine levels of performance could be deteriorating.

Mortgage performance is typical measured by levels of delinquency and foreclosure but those, Khater says, are both backward looking and lag as indicators.  One way to address that is through transition rate analysis.  This method controls for time by looking, in the case of his analysis, at loan vintage, i.e. production within a given year, which he says, allows for a much more nuanced view of performance.

By focusing on only those loans produced in the first 10 months of each year in question allowed Khater to include 2016 data in his analysis.  His justification for the short and early time frame is that historically the first six to nine months of a loan's performance have a very strong persistence, and loans tend to remain on a similar track years later.  He starts his analysis with 2010 as the first full year of the expansion vintages and says underwriting has remained roughly similar since then....MORE

Ida M. Tarbell: "John D. Rockefeller: A Character Study"

A repost from six years ago. The language is evergreen.

Ida M. Tarbell: "John D. Rockefeller: A Character Study"

She was one of the original Muckrakers in McClure's Magazine's January 1901 issue.
This piece is a bit later, McClure's July 1905 via the Tarbell Collection at Allegheny College.

Author of "The History of the Standard Oil Company," "Life of Lincoln," ETC.
Illustrated with Portraits
Part One.
"A prince should earnestly endeavor to gain the reputation of kindness, clemency, piety, justice, and fidelity to his engagements. He ought to possess all these good qualities BUT STILL RETAIN SUCH POWER OVER HIMSELF AS TO DISPLAY THEIR OPPOSITES WHENEVER IT MAY BE EXPEDIENT. . . He should make it a rule, above all things, never to utter anything which does not breathe of kindness, justice, good faith, and piety; this last quality it is most important for him to appear to possess as men in general judge more from appearances than from reality. All men have eyes but few have the gift of penetration. Every one sees your exterior, but few can discern what you have in your heart." — Machiavelli — The Prince. Chap. xviii. "
John D. Rockefeller is without question the most conspicuous type of our present dominating commercial man. "The most important man in the world" a great and serious newspaper passionately devoted to democracy calls him, and unquestionably this is the popular measure of him. His importance lies not so much in the fact that he is the richest individual in the world, with the control of property which that entails; it lies in the fact that his wealth, and the power springing from it, appeal to the most universal and powerful passion in this country — the passion for money. John D. Rockefeller, measured by our national ambition, is the most successful man in the world — the man who has got the most of what men most want. How did he get it, the eager youth asks, and asking, strives to imitate him as nearly as ability and patience permit. Thus he has become an inspirer of American ideals, and his methods have been crystallized into a great national commercial code.

Nor is this all. Mr. Rockefeller distributes money in charity and in endowments. If not our first, he is certainly our second philanthropist; the amount of the money given being the standard. All over the land those who direct great educational, charitable and religious institutions are asking, "Can we not get something from him?" Receiving his bequests they become at least the tacit supporters of the thing for which he stands — that is, John D. Rockefeller exercises a powerful control over the very sources of American intellectual and religious inspiration.

Now a man who possesses this kind of influence cannot be allowed to live in the dark. The public not only has the right to know what sort of a man he is; it is the duty of the public to know. How else can the public discharge the most solemn obligation it owes to itself and to the future, to keep the springs of its higher life clean? Who then is this John D. Rockefeller? Whence did he come? By what qualities did he grow to such power? Has he proved his right to the power? Does he give to the public whence he has drawn his wealth a just return in ideas, in patriotism, in devotion to social betterment, in generous living, in inspiring personal character? Has John D. Rockefeller made good? From time immemorial men who have risen to power have had to face this question. Kings, tyrants, chieftains, since the world began have stood or have fallen as they have convinced the public that they were giving or not giving a just return for the power allowed them. The time is here when Mr. Rockefeller must face the verdict of the public by which he lives.

As to Mr. Rockefeller's origin it is typically American. He sprang from one of those migrating families which, coming to this country in the seventeenth century, has moved westward with each generation seeking a betterment of condition. He and his brothers were the first great product of a restless family searching a firm footing on new soil. The first word heard of the Rockefeller family in Richford, Tioga County, New York, where John D. Rockefeller was born, was in the early 1830's when his grandfather, Godfrey Rockefeller, moved to that community from Mud Creek, Massachusetts. There are still alive in Tioga County many men and women who remember Godfrey Rockefeller. It is not a pleasant description they give of him — a shiftless tippler, stunted in stature and mean in spirit, but held to a certain decency by a wife of such strong intellect and determined character that she impressed herself unforgettably on the community.

Godfrey Rockefeller had not been long in Richford when he was followed by his eldest son — William A. Rockefeller — a man of twenty-three or twenty-four years of age. There seem to have been other Rockefellers, for the family was sufficiently numerous and conspicuous to cause the farm in West Hill near Richford, where they settled, to be dubbed "Rockefeller settlement" — a name it still bears.

It is with William A. Rockefeller, father of John, that we have to do here. There is enough which is authentic to be gleaned about him to form a picture of a striking character. William A. Rockefeller was a tall and powerful man with keen straightforward eyes, a man in whom strength, and fearlessness, and joy in life, unfettered by education or love of decency, ran riot. The type is familiar enough in every farming settlement, the type of the country sport, who hunts, fishes, gambles, races horses and carouses in the low and mean ways which the country alone affords. He owned a costly rifle, and was famous as a shot. He was a dare-devil with horses. He had no trade — spurned the farm. Indeed he had all the vices save one — he never drank. He was a famous trickster, too; thus, when he first reached Richford he is said to have called himself a peddler — a deaf and dumb peddler, and for some time he actually succeeded in making his acquaintances in Richford write out their remarks to him on a slate. Why he wished to deceive them no one knows. Perhaps sheer mischief, perhaps a desire to hear things which would hardly be talked before a stranger with good ears.

It was not long after he came to Richford that he began to go off on long trips — peddling trips some said. Later he became known as a quack doctor, and his absences were supposed to be spent selling a medicine he concocted himself. Irregular and wild as his life undoubtedly was, his strength and skill and daring, his frankness, his careful dress, for he paid great attention to his clothes, as well as the mystery surrounding the occupation which kept him looking so prosperous, made him a favorite with the young and reckless and, unhappily, with women. On one of his trips he met in Moravia, New York, the daughter of a prosperous farmer, Eliza Davison. It is said that the girl married him in the face of strong opposition of her family. However that may be, it is certain that about 1837, William A. Rockefeller brought Eliza Davison to the Rockefeller settlement as his wife, and here three children were born, the second of whom — the record of his birth is dated July 8, 1839 — was named John Davison.

In 1843 William A Rockefeller moved his family to a farm near Moravia, Cayuga County. The reputation he had built up in Richford as a "sporting man" was duplicated in Moravia. He soon became the leader in all that was reckless and wild in the community, and was classed by the respectable and steady-going as a dangerous character on whom no doubt much was fastened that did not belong. It may be for this reason, as well as because of his frequent long and unaccounted for absences, that he is still classed popularly in Moravia as one of the gang who operated the "underground horse railroad" — and ran off horses from various parts of the country. There is absolutely no proof of this, but the conviction and sentence to the State prison, in 1850, of three of his closest pals for horse-stealing coupled with his bad reputation made many of his disapproving neighbors fix the crime equally on him, and to-day old men in Moravia nod their heads sagely and say, "He was too smart to be caught."

There is an indictment against William A. Rockefeller for a more serious crime (rape) than horse-stealing in the records of the County, for 1849, and it is quite probable that he left Moravia under compulsion. At all events, about 1850 he again moved his family, which now consisted of his wife and five children, to Owego, New York. The family remained in Owego but three years, and then moved to Strongsville, Ohio, twelve or fifteen miles southwest of Cleveland. A year later they left Strongsville for a country settlement, about seven miles south of Cleveland, called Parma; and from there they went, in 1857, to Cleveland, moving into a comfortable brick house, which William A. Rockefeller had built for them....MORE
Hat Tip that the piece was out there (from a different source): Longform.org:

As I mentioned in 2016's "Izabella Kaminska on Muckrakers, Monopolists and Miscreants": 

Over the years, simply because the blog is composed of things that caught my eye rather than some grand plan, we've from time to time mentioned some of the early 20th century journalists who got appended the term muck-rakers but when I did a quick search of the blog I was surprised how many we'd named, although usually just in passing.
Some links below.

Here, Ms. Kaminska writing for the paper rather than the flagship blog tips her cap to one of the most influential...

.... In 2011 we visited Ida Tarbell in "Ida M. Tarbell: 'John D. Rockefeller: A Character Study'" in part because I wanted a searchable link to the Tarbell collection at Allegheny college and partly because she described John D.'s grandfather, Godfrey as "a shiftless tippler, stunted in stature and mean in spirit".

In February 2016's "Oil Tankers and Interest Rates and Scallywags and Time" one of the Rockefeller minions, Thomas Lawson, got a mention, not for his exposé of his copper dealings with Standard Oil honcho Henry Huttleston Rogers, Frenzied Finance, but because of the ship for which Lawson was namesake.

Staying in 2016, it was Ida's buddy Lincoln Steffens in "Goldman Sachs: Death Of Capitalism Averted, Time For Working Schlubs to Partaay!", again not for the work he was most famous for, in Steffens' case his Shame of the Cities (St. Louis, Minneapolis, Pittsburgh et al) but because of his famously wrong statement about Soviet Russia in a letter dated April 3, 1919: “I have seen the future and it works.”.
It didn't.

In 2015 there was Jacob Riis because I was reminded of one of the photographs from "How the Other Half Lives: Studies among the Tenements of New York":
Jacob Riis Lives! "San Francisco Housing Bubble Goes Subterranean: $500/Month To Live In A Crawlspace"
 
And along the way Theodore Dreiser got a major link (possibly one of the best business novels ever) in "Switzerland Begins Two-Year Trial of Driverless Buses (plus money, art, glory and sex)"

So yes, more than wary reader might have anticipated and I've probably forgotten a couple.
Circling back to Ida, here's an online version of History of the Standard Oil Company.

Although there are quite a few critiques you can raise about her book it was pretty important and was one of the factors that led to the breakup of Standard Oil in the Supreme Court decision "Standard Oil Co. of New Jersey v. United States" seven years later. So Mr Rockefeller probably considered the book important.

It ranks #5 on NYU's Journalism school's list of the 100 best works of 20th-century American journalism. (via the NYT)

Friday, April 28, 2017

"Economists React to First Quarter GDP Report: ‘Stronger Than It Appears’"

Not that much stronger.

From the WSJ's Real Time Economics blog:
The U.S. economy grew at the slowest pace in three years during the first quarter, rising at a 0.7% rate, down from the prior quarter’s 2.1% rate. Here are early reactions from economists and analysts:

“Perhaps most encouraging, business investment in equipment, which had languished for two years, posted a 9.1% annualized advance (I had looked for a 6% rise). If the government can pull off corporate tax reform, I look for a torrent of investment projects to be unleashed. Until then, gains will be limited.” —Stephen Stanley, Amherst Pierpont Securities

Economy stronger than it appears in [first-quarter] report, already showing signs of accelerating again. Tailwind for wages encouraging.” —Diane Swonk, DS Economics

“While consumers may have stood still in the first quarter, sluggishness in consumer spending did not translate to the housing market…Housing is on track to cement its place as the bright spot on the economy.” —Nela Richardson, Redfin

“Growth of less than 1% means the wheels are up but the economy’s engines cannot gain any altitude. We will see how long the mile-high confidence readings of consumers and businesses hold up. The best temperature gauge of their relative optimism is always the stock market we always thought and Dow industrials closed up 6.2% year-to-date last night before the GDP data.” —Chris Rupkey, MUFG Union Bank

“Here’s why I’m not freaking out about the low preliminary estimate to U.S. GDP (spoiler: it’ll get revised)” —Tara Sinclair, Indeed

“The trivial 0.7% annualized gain in first-quarter GDP, below the consensus forecast at 1.2%, won’t necessarily stop the Fed from hiking interest rates again in June. In recent years there is a well-established pattern of GDP growth disappointing in the first quarter and then rallying over the remaining three quarters.” —Paul Ashworth, Capital Economics
...MORE

"As If Millions Of Unicorns Suddenly Cried Out In Terror": Cloudera IPOes At Less Than Half Its Last Private Valuation Round

From ZeroHedge:
It was a little over a year ago when the market first started noticing that the private startup market had gotten just a little ahead of itself, with various dotcom 2.0 darlings such as Dropbox, Square and others slashing their private valuations by substantial amounts. Well, overnight investors at peak private valuations got another harsh reminder of just how much they may have overpaid when  Cloudera, once one of the most highly valued private tech companies, priced its IPO at less than half the company's valuation from its last private financing round back in 2014.

As the FT notes, the share sale marked a new low for so-called unicorns, or private tech companies once valued at more than $1bn. Companies such as Cloudera have turned to Wall Street as the once red-hot private investment market has cooled, forcing some to take big discounts on their former valuations to raise more money.

Among the biggest losers in the Cloudera IPO, if only on paper, will be Intel, which sank $742m into the big data company in 2014. At the time, that investment set a record $4.1 billion valuation for Cloudera, pushing it into the top 30 ranking of most valuable global "unicorns" according to the WSJ. Fast forward to late on Thursday, when the company announced a price of $15 for shares in its IPO. While above the indicated range of $12-$14, it was less than half the $30.95 it sold its shares for in 2014.

Cloudera will raise $225 million in cash proceeds from its NYSE IPO on Friday, giving it an initial market cap of $1.9 billion.

While there have been various other tech companies that have suffered the "private valuation" hammer, forced to accept much lower valuations to maintain their access to capital in the public market, none has taken as big a cut.

“Nothing has happened quite like Cloudera — yet,” said Kashif Sheikh, an analyst at PrivCo, which tracks the financing of private companies. “People are coming to realise that these companies are not worth those last private rounds.”...MORE

Dear Mr. Kalanick, "China's Didi Raises Over $5.5 Billion in Record Tech Funding"

Didi's relentless approach is getting a bit scary but I do laugh when thinking of the company's President's thoughts on the biz:
I still can't get the picture of Didi Chuxing's President, Liu Qing (anglicized to Jean Liu), commenting on Travis Kalanick and Uber's efforts in China as cute. Then when Uber proclaimed the $3.5 billion investment from the Saudis she laughed and said she had more than that on the way. 
Didi then announced the completion of a $7.3 billion fundraising.
Uber better be on top of their game in Southeast Asia because they weren't in China and got run out of the country....
That's from last month's "Does Uber Go Bankrupt If Didi Chuxing Decides To Compete In the United States?".
From Bloomberg:
Ride-hailing giant Didi Chuxing raised more than $5.5 billion from investors, scoring the largest round of funding ever for a technology company to bankroll an expansion beyond China and into driver-less technology.

Didi, which drove Uber Technologies Inc. out of China last year, is already one of the country’s best-funded private companies: its backers range from powerful state agencies to global venture firms and WeChat-operator Tencent Holdings Ltd. The latest financing, which Didi disclosed in an emailed statement Friday, may propel forays into everything from artificial intelligence to auto-financing -- and potentially markets beyond its home territory.

Didi, led by the 33-year-old Cheng Wei, didn’t reveal the backers who joined this round. People familiar with the matter said this week that the investors would include SoftBank Group Corp., Silver Lake Kraftwerk, China Merchants Bank Co. and an arm of Bank of Communications Co. The round was said to have raised the four-year-old startup’s valuation to about $50 billion, up from a previous $34 billion after its acquisition of Uber’s China business.

That price tag would surpass smartphone maker Xiaomi Corp.’s and make Didi the world’s most valuable startup after Uber. Didi amassed $10 billion in cash and equivalents last year, but the deal yields more ammunition as it prepares to challenge Uber and Alphabet Inc. in automated driving, and buys the company time to carve out new revenue streams.

Cheng founded Didi less than five years ago after leaving e-commerce giant Alibaba Group Holding Ltd. He and former colleagues started the business with financing from one of Alibaba’s ex-executives and initially launched the service in the southern metropolis of Shenzhen.

As the business took off, he won out over rivals through competition or acquisition. That culminated with last year’s acquisition of Uber’s China business, resulting in the U.S. ride-hailing company getting a 17.5 percent stake in Didi....MORE
...Having cornered the market for on-demand cars and taxis, Cheng is branching out into bus services and bikes, throwing his weight for instance behind one of the country’s largest bicycle-renting services, Ofo. On the global front, the company has formed an alliance with Grab in Southeast Asia and Ola in India, to thwart Uber in those regions.... 

Previously:
Ridezilla: Chinese Rideshare Co, Didi Chuxing Is Looking to Raise Another $6 Billion
Uber Competitor Didi Chuxing Raises $7 Billion In Latest Round
Apple Investee Didi Chuxing Says It Is About To Raise More Cash Than Uber's $3.5 Billion Saudi Deal
"Uber is being mocked by its biggest competitor in China" 
Apple Investee Didi Chuxing Receives Another $600 Million, This Time From An Uber Backer
Uber fares in China soar after Didi deal
"Uber's Chinese Rival is Raising Another $1 Billion"
"Apple invests $1 billion in Chinese ride-hailing service Didi Chuxing" (AAPL)
When you have a couple hundred billion liquid, you have to do something with it.


Might as well buy your way into China.

And many more. Use the search blog box if interested. 

Natural Gas: EIA Weekly Supply/Demand Report

$3.2330 last off 0.0060.
From the Energy Information Administration:
...Prices/Supply/Demand:
...June Nymex contract flat. At the Nymex, the May 2017 contract expired yesterday at $3.142/MMBtu, down 4¢ from last Wednesday. The June 2017 contract remained unchanged Wednesday to Wednesday at $3.271/MMBtu. The price of the 12-month strip, which averages the June 2017 through May 2018 futures contracts, increased 1¢ to $3.370/MMBtu.

Supply flat. According to data from PointLogic, the average total supply of natural gas remained the same as the previous report week, averaging 74.8 billion cubic feet per day (Bcf/d). Dry natural gas production remained constant week over week. Average net imports from Canada decreased by 2% from last week.

Demand rises slightly. Total U.S. consumption of natural gas rose by 2% compared with the previous report week, according to data from PointLogic. Week over week, power burn declined by 2%, industrial sector consumption increased by 1%, and residential/commercial sector consumption increased by 12%. Natural gas exports to Mexico increased 24% as maintenance on the NET Mexico Pipeline concluded over the weekend, and export flows were restored on the line.

Because of maintenance on the NET Mexico pipeline, the United States made its first two shipments of liquefied natural gas (LNG) to Mexico's Altamira import terminal in the Gulf of Mexico. Mexico has been the largest recipient of U.S. LNG exports, with 20 cargoes shipped since the start of LNG exports in February 2016, but all shipments prior to these two went to the Manzanillo terminal on Mexico's west coast.

U.S. LNG exports. Natural gas pipeline deliveries to the Sabine Pass liquefaction terminal averaged 1.1 Bcf/d for the report week, 43% lower than in the previous week. Three vessels (combined LNG-carrying capacity of 11.4 Bcf) departed Sabine Pass last week (Thursday to Wednesday).
Last week, the proposed Golden Pass LNG liquefaction terminal received an approval from the U.S. Department of Energy (DOE) to export up to 2.21 Bcf/d of LNG to non-Free Trade Agreement (FTA) countries for 20 years. To date, DOE has authorized 19.2 Bcf/d of LNG exports to non-FTA countries.
more price data

Storage:
Mild temperatures result in higher-than-average net injections into working gas storage. Net injections into storage totaled 74 Bcf, compared with the five-year (2012–16) average net injection of 57 Bcf and last year's net injections of 64 Bcf during the same week. Net injections into working gas during the storage week were the largest reported so far in the 2017 injection season and the largest reported this early in the refill season since April 17, 2015.

Working gas levels are 14% lower than last year's record levels, but well ahead of the five-year average. Working gas levels are 358 Bcf lower than last year's levels at this time. This year-over-year deficit prevails in each of the regions of the Lower 48 states. The South Central region has the largest year-over-year deficit of 131 Bcf. The Midwest and Pacific regions are both 48 Bcf lower than last year's levels. In contrast, working gas levels are 299 Bcf higher than the five-year average in the Lower 48 states and are higher than the five-year average in all regions except the East and the Pacific regions, which are 53 Bcf and 15 Bcf lower than the five-year average, respectively. The South Central region accounts for 222 Bcf of the surplus compared with the five-year average, and the Midwest region is 117 Bcf higher than the five-year average.

The January futures price is trading at a premium over the current spot price, but well behind last year's level at this time. During the most recent storage week, the average natural gas spot price at the Henry Hub was $3.09/MMBtu, while the Nymex futures price of natural gas for delivery in January 2018 averaged $3.62/MMBtu, a difference of 54¢. The premium was $1.10 a year ago. The price premium provides incentives for continued injections of natural gas into storage....MUCH MORE

U.S. natural gas consumption - Gas Week: (4/20/17 - 4/26/17)

Average daily values (Bcf/d):

this week
last week
last year
U.S. consumption
55.9
54.7
58.9
    Power
22.6
23.1
25.7
    Industrial
20.5
20.2
20.3
    Residential/commercial
12.8
11.4
12.9
Mexico exports
3.6
2.9
3.5
Pipeline fuel use/losses
5.8
5.6
6.1
LNG pipeline receipts
1.9
2.1
0.5
Total demand
67.2
65.4
69.0

Thursday, April 27, 2017

How Maritime Insurance Built Ancient Rome

Yes, insurance, that's wot done it.

Pre-coffeehouse insurance mart

From Priceonomics, Mar. 18, 2016:
In Ancient Rome, shipping was a very big deal.
Sea voyages were a major economic activity—and a risky one. Ships sank, ran afoul of piracy, suffered delays due to weather, or arrived to find that prices were unexpectedly low. This made insuring and financing voyages the high finance of the time. Before there were private equity firms and hedge funds, there was cargo insurance. It was a speculative way for wealthy families and private banks to earn high returns—as long as ships arrived safely in harbor.
Today, however, the shipping industry no longer dominates the way it did in Ancient Greece and Rome or 18th century London. Most people never consider the skyscraper-sized container ships that carry clothes, grain, and other cargo from one port to another. 
Nor do most people consider the $30 billion maritime insurance industry that insures that cargo for a few cents on the dollar against the possibility of, say, a giant container of cargo falling overboard in stormy seas—a calamity that befalls an estimated 2,000 to 10,000containers (much less than 1% of all containers) each year. 
But 2,000 years ago, cargo insurance was also essential to the survival of some of the world’s first great cities. Rome’s population was the largest in the Western world until 18th century London. Athens and other Greek cities grew large on the strength of their ports rather than landholdings. Without the Ancient Romans insuring trading ships, those cities would never have received enough food each year to become large urban centers whose accomplishments we still study and admire today. 
An Alternative to the Oracle
Maritime insurance is the oldest form of insurance by centuries. But it looked very different when it was sought by sailors crossing the seas that Odysseus had found so perilous. It was much more speculative.
Instead of paying a fee to insure their cargo, merchants funded their voyages with loans that also served as insurance. The loans had very high interest rates, because under the terms of the loan, if the ship sank or the voyage did not succeed, the merchant did not have to repay the loan. This practice, which dates back to at least 1800 BCE and Ancient Babylon, is known as “bottomry”—a reference to the fact that lenders could claim the ship itself if they were not paid back on time. 
In Chances Are… Adventures in Probability, Ellen and Michael Kaplan describe bottomry as an amalgam of modern financial concepts:
It is an arrangement that is easy to describe but difficult to characterize: not a pure loan, because the lender accepts part of the risk; not a partnership, because the money to be repaid is specified; not pure insurance, because it does not specifically secure the risk to the merchant's goods. It is perhaps best considered as a futures contract: the insurer has bought an option on the venture's final value.
Still, it’s clear that merchants and lenders used bottomry and maritime loans to minimize risk and maximize profit. In Ancient Greece, lenders demanded higher interest rates during stormy seasons. They also charged higher rates to unreliable borrowers like Aischines, a merchant whose reputation led Athens’ maritime lenders to say it was “less risky to 'sail to the Adriatic' than to deal with this fellow.”
Greek lenders did not jealously guard access to the best deals. Instead it seems that Athenian lenders spread the risk by investing and insuring small amounts in many voyages. Surviving records of maritime loans all show more than one lender per vessel. 
Historians believe that Greek merchants and lenders thought of the high interest rates as compensation for taking on the risk of the voyage failing. They also note that Rome copied the practice of bottomry from the Greeks, and a legal text from 500 AD, when the Empire’s capital had moved  to Constantinople, explicitly confirms that Romans equated high interest rates with paying for risk. At the time, Roman law capped interest rates at 12%. Yet as James Franklin notes in The Science of Conjecture, the law sanctioned higher interest rates in the case of maritime loans because “the price is for the peril.”
This is why historians consider bottomry and maritime loans to be the earliest form of cargo insurance....MUCH MORE
Possibly related:
"The Lost World of the London Coffeehouse"

There is so much business that has the coffeehouses back in the mists of their early history, Lloyd's and The Jerusalem for the maritime crowd, Jonathan's and Garraway's [#14 on map] for the stockjobbers. Unfortunately the instant piece doesn't go into much detail, I may have to put a post together. For now here's Jonathan Swift on the exchange crowd:

...Meantime, secure on Garraway cliffs,
A savage race, by shipwrecks fed,
Lie waiting for the foundered skiffs,
And strips the bodies of the dead."
Harsh.
(He lost money in the South Sea bubble)


From The Public Domain Review:...

...Here are the main establishments frequented by the stockjobbers and other denizens:

“The Vertue of the COFFEE Drink”: An Ad for London’s First Cafe Printed Circa 1652
The Men Who Brew Too Much: "Old Time Farm Crime: The Coffee Spies of the 1700s"
"The Coffee Houses of Augustan London"

These Are Not Good Days For ISIS

I'm pretty sure getting killed by a pig means no 72 virgins for these guys, no white raisins either.*
From IraqiNews:

Wild boars rampage in Kirkuk, leave 3 Islamic State members dead
Wild boar (representational photo)
Kirkuk (IraqiNews.com) Three Islamic State militants died late Sunday when wild boars attacked them in southern Kirkuk, a local source was quoted saying. 
The animals went on a rampage near a farmland in al-Rashad region, an Islamic State pocket 53 kilometers south of Kirkuk. They attacked the militants and left three killed, according to the source. 
Alsumaria News quoted the source saying that “Daesh (Islamic State) militants took revenge at the pigs that attacked the farmland,” but did not clarify the method....MORE
*Virgins? What virgins?
It is widely believed that Muslim 'martyrs' enjoy rich sensual rewards on reaching paradise. A new study suggests they may be disappointed. Ibn Warraq reports...
The Times also had the story, with a more alpha looking boar:
Isis fighters killed by wild boar as they hid waiting in ambush

And From the Telegraph:
Hackers flood Isis social media accounts with gay porn

"Synchronoss Technologies stock plummets 28% on departures from CEO and CFO; revenue warning"

My first thought was "Well that doesn't sound good"
My second was "Only 28%?"

Ha! That was in late pre-market with a half-hour to the open.

Here's MarketWatch:
Synchronoss Technologies Inc. SNCR, -47.24% stock plummeted 28.1% in premarket trade Thursday on news that the company's chief executive officer and chief financial officer are leaving the company to "pursue other interests" and a first-quarter revenue warning...MORE
CEO'a are a dime a dozen but when the CFO says adios it gets your attention.

"Time to Explore Alternative Ownership Structures for Network Effects Businesses including Twitter" (TWTR)

Following on the post immediately below on the hyper-Pareto accretion of revs to FB and the GOOG, an idea for the so-far loser in the platform wars.

From Continuations:
At Union Square Ventures, network effects have been central to our investment thesis for a decade. From an investor perspective network effects are one of the few, possibly the only, source of sustainable competitive advantage in a world where almost everything else can be copied quickly.

But we also early on recognized that this has the potential for setting up a deep conflict between companies that operate networks and the participants in those networks: the value to shareholders can be increased through rent extraction from the network. And with many network effects companies reaching near monopoly status the potential for harmful rent extraction has grown. Harm can come in many forms, such as directing too much attention towards commercial use or suppressing innovation.

One response to this problem of how to be a good steward of a network has been my advocacy for the Public Benefit Corporation. I participated in a session with Delaware legislators and spoke when the governor signed the PBC status bill into law. Since then our portfolio companies Kickstarter and Human Dx have both converted to PBC status. Effectively in each case they are making a commitment in their charter to be good steward of their respective networks not just for the benefit of shareholders but for the benefit of all.

But our exploration of alternative ownership structures for network effects businesses should not stop there. Much more experimentation is needed as well as an understanding of historic forms, which showed much more diversity than one would be led to believe from the current dominance of the singularly shareholder focused C Corporation.

I therefore strongly support the shareholder proposal to study alternative forms of ownership for Twitter.
Here are four examples of ownership structures that could and should be examined:

Co-operatives. These have played an important role in the creation of utilities of various kinds from grocery distribution to telephone networks. Generally the members contribute capital to build some piece of shared infrastructure.

Mutuals. Insurance is inherently a network effects business and many insurance companies started out as mutuals. These are similar to co-operatives and may have membership fees but tend not to require an initial contribution of capital....MORE
As for Zuck, Sergey and the gang, regulate them as public utilities.
Tomorrow I shall take on world peace.

Media: Problems With Revenue Flows and the Reason Ms Kaminska Wrote That FT Story

I thought she was just bored and we didn't link but now it appears the article was part of a business-side decision.

From King Lord Murph of Moz (I so hope that catches on) writing under his subsidiary title as founder/editor of FT Alphaville:

It seems Google and Facebook really are taking ALL the growth in ad revenue
It’s a big day in American digital ad land, with the publication of the Interactive Advertising Bureau’s year-end report for 2016.
You’ll find it here.

But before you delve into that, consider this tweet from Jason Kint.
Kint runs a thing called Digital Content Next, which is the key trade body for what is generally regarded as grown-up, mainstream media. They’ve even let the FT in as a member....MORE
"...But the fact is that we are going to have to revisit our content policy here on FTAV.
You’ll be glad to know we’ve made a start."