Tuesday, October 21, 2014

A Quick Overview of Today's Action

As noted on Friday,* the 1905 level which we and others (just about anyone with a keyboard) thought would be support two weeks ago, wasn't and turned out not to be resistance either. S&P 500 1941.28 at the close.
From Between the Hedges:

Stocks Surging into Final Hour on Central Bank Hopes, Diminishing Ebola Fears, Earnings Optimism, Healthcare/Energy Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 16.63 -10.45%
  • Euro/Yen Carry Return Index 141.97 -.71%
  • Emerging Markets Currency Volatility(VXY) 8.27 -4.50%
  • S&P 500 Implied Correlation 61.13 -7.45%
  • ISE Sentiment Index 94.0 -31.39%
  • Total Put/Call 1.01 +16.09%
  • NYSE Arms 1.08 +21.96% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 65.88 -4.96%
  • European Financial Sector CDS Index 70.17 -7.35%
  • Western Europe Sovereign Debt CDS Index 33.30 -4.30%
  • Asia Pacific Sovereign Debt CDS Index 68.36 -6.77%
  • Emerging Market CDS Index 262.02 -.20%
  • China Blended Corporate Spread Index 344.71 unch.
  • 2-Year Swap Spread 25.5 -.75 basis point
  • TED Spread 22.75 +2.25 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -8.25 +1.5 basis points
...MORE

*Friday's "Equities: Prior Support Is Now Resistance":
The 1905 line proved to be butter under the hot knife of sell orders and should not be much stronger on the way up. We are looking for new highs before the next major downturn. S&P 500 1885.91 up 23.15 on the day, DJIA 16,365.73 up 248.49. The 50% retracement of the entire downmove is 16,429.65.

Pimco: Bogle is Wrong

From LearnBonds:
Facing outflows amid the much publicised departure of longtime CEO Bill Gross and an increasing trend toward passive fund management. Pimco has come out fighting, saying some fixed income managers can meaningfully add to returns.
Pimco pensions strategist James Moore defended active bond management, in a piece posted on the firms website. In which he refutes comments made by the legendary advocate of index-based investing, Jack Bogle.
Moore was referring to a recent television appearance by Bogle in which he said the arguments for index investing hold just as much for bonds as stocks.
Bogle’s argument is based on some basic math: In sum, the performance of all investors aggregates to the performance of the markets. For every winner, there must be some loser who is subsidizing the winner’s gains. Throw in fees, and the average net return above the market for active investors is negative.
“The key question for investors is, ‘Do I have a strong reason to believe my active managers will add value in excess of their fees’,” asked Mr. Moore. “I would not argue that all do or even that a majority do, but those manager who understand and exploit the five reasons I list, plus a host of others, stand a good chance.”
Moore offered a series of reasons why “the common wisdom” about the superiority of so-called passive investing might not extend to bonds. Here are five important ones:
1. A significant fraction of investors in fixed income markets have primary objectives that differ from maximizing mark-to-market total returns.
2. Unlike equity indexes, where the market determines the weights, in bond indexes issuers principally determine the weights.
3. The new issuance market is much more important for bonds than equities.
4. Most bond trading is done via over-the-counter transactions and not on exchanges.
5. Individual bond returns are highly skewed versus stock returns, which are more symmetric.
You can read Moore’s full article here.
The rest of LearnBond's linkfest 

How 1 Doctor Saved Nigeria from Ebola Catastrophe

This doctor probably deserves a Nobel Peace Prize but the Norwegian committee that makes the call has become such a foul cesspit that it will probably go to another politician. The people on the committee are pigs.

It was bad when two old terrorists, Yasser Arafat and Yitzhak Rabin got it in '94 but then in 2007 when it went to Al Gore over Irene Sendler you knew the fix was in.

Suckers.
This gal saved 2500 children sometimes hauling one out of the Warsaw ghetto in a suitcase or a couple more under a caterers cart or a dozen in a truck. When the Nazi's caught and tortured her she came back to the saving-kids-biz despite two broken legs, broken ankles and broken arms.
Al Gore made a movie, got fat and rich and moves at the highest level of political finance:

Those Nobel Norwegians are a bunch of morons so don't expect anything sensible out of them.
From Yahoo News:
A day after the World Health Organization declared Nigeria free of Ebola, the doctor who treated the country's first case of the deadly virus and later died from the disease herself is being hailed as a hero for helping stop the outbreak.

Dr. Stella Ameyo Adadevoh, a doctor at First Consultant Hospital, oversaw treatment of Patrick Sawyer, Nigeria's Ebola patient zero, when he arrived sick in Lagos, Nigeria's former capital and Africa's largest city, on a flight from Liberia in July.

Adadevoh fought to isolate Sawyer, a top official in the Liberian Ministry of Finance who did not take kindly to isolation and lied about his symptoms, officials said.

"Immediately, he was very aggressive," Dr. Benjamin Ohiaeri, the hospital's director, told the BBC. "He was more intent on leaving the hospital than anything else. He was screaming. He pulled his intravenous [tubes] and spilled the blood everywhere."

Adadevoh, the Telegraph writes, "effectively saved the country from disaster by spotting that its first Ebola patient was lying about his condition, and then stopped him leaving her clinic."

Sawyer, who had been caring for his Ebola-stricken sister, was reportedly set on visiting one of Nigeria's Pentecostal churches "in search of a cure from one of the so-called miracle pastors," the BBC said.
"The Liberian ambassador started calling Dr. Adadevoh, putting pressure on her and the institution," Ohiaeri said. "He felt we were kidnapping the gentleman and said it was a denial of his fundamental rights and we could face further actions. ... The only way we could be sure and live up to our responsibility to our people, the state and nation — this is all about patriotism at the end of the day — was to keep him here."
Sawyer, 40, collapsed in Lagos on July 20 after getting off a plane from Liberia. He died just five days later. Adadevo and 11 colleagues were infected with Ebola.

"She was fine all along and then suddenly it became apparent," Adadevoh's son Bankole Cardoso told the news service.

She died on Aug. 19.

"We lost some of our best staff," Ohiaeri said. "Dr. Adadevoh had been working with us for 21 years and was perhaps one of the most brilliant physicians. I worked with her. I know that she was sheer genius."

Thanks to patient isolation and aggressive contact tracing (including 18,500 visits to 894 people), Nigeria had just 20 Ebola cases, including eight deaths — a far lower death rate than the 70 percent seen elsewhere....MORE
2014-08-26T225059Z_116471987_GM1EA8R0ISO01_RTRMADP_3_HEALTH-EBOLA-NIGERIA.

Oil Sell-off, the Goldman View (XLE; ERY)

We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:
It's Too Early
More to come.
From FT Alphaville, Oct. 17:
Oil sell-off, the Goldman view
Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general.

When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side:
The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out.
In other words: this is not the oil market price crash you’re looking for. Move along, move along. The curve should not be in backwardation. It should be in lovely yield-generating contango. Why is the market being such a fool?...MORE
Recently:
Oct. 15
Snapping Back At The Close: Energy, Biotech, Solar
Oct. 9 
"Energy Stocks Are Crashing As WTI Plunges Under $85"
Oct. 2 
Options: "Transocean LTD Trader Bets Big On Steeper Losses" (RIG) 
Sept. 30 
Chartology: "Energy- Worst performer over 90 days is on channel support" (XLE; ERY; XOP) 

Our Favorite Federal Reserve Bank Paper, "In Which the Downfall of a Prominent Speculator Rocks the Financial System, and a Prominent Millionaire Saves the Day"

Following up on the post immediately below, "This Week in History: The Panic of 1907".
First up "The Copper King's Precipitous Fall".
Here's the Smithsonian's Past Imperfect blog with another take on the story:

Frederick Augustus Heinze was young, brash, charismatic and rich. He’d made millions off the copper mines of Butte, Montana, by the time he was 30, beating back every attempt by competitors to run him out of business. After turning down Standard Oil’s $15 million offer for his copper holdings, Heinze arrived in New York in 1907 with $25 million in cash, determined to join the likes of J. P. Morgan and John D. Rockefeller as a major player in the world of finance. By the end of the year, however, the Copper King would be ruined, and his scheme to corner the stock of the United Copper Co. would lead to one of the worst financial crises in American history—the Panic of 1907.

He was born in Brooklyn, New York, in 1869. His father, Otto Heinze, was a wealthy German immigrant, and young Augustus was educated in Germany before he returned to the United States to study at Columbia University’s School of Mines. An engineer by training, Heinze arrived in Montana after his father died, and with a $50,000 inheritance he developed a smelting process that enabled him to produce copper from very low-grade ore in native rock more than 1,500 feet below ground. He leased mines and worked for other mining companies until he was able, in 1895, to purchase the Rarus Mine in Butte, which proved to be one of Montana’s richest copper properties.

In a rapid ascent, Heinze established the Montana Ore Purchasing Co. and became one of the three “Copper Kings” of Butte, along with Gilded Age icons William Andrews Clark and Marcus Daly. Whip smart and devious, Heinze took advantage of the so-called apex law, a provision that allowed owners of a surface outcrop to mine it wherever it led, even if it went beneath land owned by someone else. He hired dozens of lawyers to tie up his opponents—including William Rockefeller, Standard Oil and Daly’s Anaconda Copper Mining Co.—in court, charging them with conspiracy. “Heinze Wins Again” was the headline in the New York Tribune in May of 1900, and his string of victories against the most powerful companies in America made him feel invincible.

“He has youth and magnetism upon his side,” one Montana mining engineer said at the time, “and is quite the hero of the state today. He has had laws passed that benefit every smelter and independent mine owner.… The more he is threatened, the more he laughs, and the brighter his songs and his raillery, as he entertains at the   club the lawyers or the experts upon either side equally well.”

The miners in Montana adored him because he cut their working day from 10 hours to 8, and he navigated the political world with the same ease that he pulled copper from the earth. In 1902, with authorized capital of $80 million, he incorporated the United Copper Co. and continued to chip away at the position of Anaconda’s corporate successor, the Amalgamated Copper Mining Co., atop the copper market. Stock in his company was literally traded outside the New York Stock Exchange in “on the curb” trading that would later become the American Stock Exchange.

Heinze was a hard-drinking ladies man who liked to gamble, and he spent lavishly in Butte’s saloons. He was friendly with legislators and judges. (A “pretty girl” alleged to have connections to the Copper King once offered a judge a bribe of $100,000....MORE
And from the Federal Reserve Bank of Boston:

Panic of 1907
Federal Reserve Bank of Boston
Crash, Crash, Crash
Boston Post-October 19, 1907

Although the headline referred to events in New York, Boston Post readers knew exactly what it meant. Effects of the financial crisis were certain to reach beyond Wall Street....MORE

"This Week in History: The Panic of 1907"

We'll be back with our favorite Fed paper on aught-seven, for now Crossing Wall Street:
Today marks the 107th anniversary of the start of the Panic of 1907. Gary Alexander of Navellier Marketmail describes the tumultuous week:
This Week in History: The Panic of 1907
Here’s a day-by-day rundown of the week that made Mark Twain’s “October” prediction come true:
On Monday, October 21, 1907, depositors staged a run on Knickerbocker Trust Company, the third-largest mega-bank in New York City. John Steele Gordon wrote (in “The Great Game: The Emergence of Wall Street”), “Bedlam reigned as depositors fought to get to a teller and withdraw their assets from the bank’s imposing new headquarters on Fifth Avenue.” No luck. “The bank closed the next day after an auditor found that its funds were depleted beyond hope. The bank’s president, Charles Barney, shot himself several weeks later, prompting some of the bank’s outstanding depositors to commit suicide.”

On Tuesday, October 22, the president of Knickerbocker Trust Company bravely opened the doors of his troubled bank, but that was not a wise move. Within hours, depositors had withdrawn $8 million. By afternoon, Knickerbocker Trust Company announced its insolvency and closed its doors for good.
On October 23, lower Manhattan streets were choked with anxious bank depositors lined up in front of even the soundest of banks. On this day, the Trust Company of America looked suspect. By 1:00 p.m., they had only $1.2 million in cash on hand. By 1:20, it was down to $800,000. By 1:45, they had $500,000 and at 2:15 they were down to $180,000. About then, bank president Oakleigh Thorne (what a great name!) rushed over to J.P. Morgan’s office for help. When Morgan was convinced that the Trust Company was otherwise sound, he said, “Then this is the place to stop the trouble,” and he transferred enough cash to tide the bank over for the rest of the day. Morgan deposited roughly $30 million in major New York banks and told those banks to lend the money out to instill confidence among depositors....MORE

The Factors That Explain Market Returns: Probably Bogus

Except for dividends.
And momentum.
And equity risk premium. But that's argument by definition.
And...

From Matt Levine at Bloomberg:

...Moneyball, but for money.
Did you know that you can use statistics to pick stocks? Hmm, you did? Well, did you know that you can sort of squint at those statistics and pretend that they're baseball statistics? Why would you want to do that, you ask? I don't know. Baseball! Sports metaphor! Just buy some stocks. That seems to be the thesis of a Goldman Sachs equity research note, and good lord. Elsewhere, Gawker's giving stock tips.
Here, on the other hand (via Tyler Cowen), is a new NBER paper (ungated PDF here) about research into the cross-section of expected stock market returns, finding that "most claimed research findings are likely false." The intuitive idea is that hundreds of academics (and hedge funds) write hundreds of papers trying to find factors that explain stock market returns and that can be used to outperform the broad market:
We observe a dramatic increase in factor discoveries during the last decade. In the early period from 1980 to 1991, only about one factor is discovered per year. This number has grown to around five in the 1991-2003 period, during which a number of papers, such as Fama and French (1992), Carhart (1997) and Pastor and Stambaugh (2003), spurred interest in studying cross-sectional return patterns. In the last nine years, the annual factor discovery rate has increased sharply to around 18. In total, 162 factors were discovered in the past 9 years, roughly doubling the 90 factors discovered in all previous years.
But since they keep mining the same data for the same sorts of factors, their statistical thresholds for significance are probably too low. If you use a t-ratio of 3, as the authors advocate, rather than the more popular 2, you find that most of the factors that have been identified don't actually work, for some value of "actually."...MORE
Sorry, no footnotes.

Financial Crisis Observatory: Global Bubble Status Report--Oct. 1, 2014

From Didier Sornette and ETH Zurich*:
 The Financial Crisis Observatory (FCO) is a scientific platform aimed at testing and quantifying rigorously, in a systematic way and on a large scale the hypothesis that financial markets exhibit a degree of inefficiency and a potential for predictability, especially during regimes when bubbles develop. 
*Swiss Federal Institute, Z├╝rich

FCO homepage
Status report 21 page PDF


The Top 100 Landowners In the United states

It's time for our quasi-periodic visit to The Land Report for the lowdown on who owns what.
From PR Newswire:
The 2014 Land Report 100: America's Largest Landowners Making Even Bigger Investments
The Land Report releases 2014 Land Report 100 presented by Fay Ranches; Malone and Turner still largest, but Reed Family jumps to No. 5 with purchase of 600,000-acre JELD-WEN Oregon estate.
DALLAS, Oct. 15, 2014 /PRNewswire/ -- Continuing the trend of investing in some of America's most iconic viewsheds and working landscapes, The Land Report released the 2014 Land Report 100 presented by Fay Ranches highlighting the major investments and even bigger personalities of America's largest landowners. In all, private holdings increased by nearly 500,000 acres over the last year. 

Among the major movers is nationally known homebuilder D.R. Horton, founder and chairman of DR Horton Inc. (DHI), which acquired New Mexico's 457-square-mile Great Western Ranch. This transaction landed Horton at No. 32 on this year's list. Horton purchased the 292,779-acre Great Western from Denver investor Patrick Broe. But don't worry about Broe. Thanks to holdings in Colorado and Wyoming, he stayed on the list and is at No. 76.  

And that wasn't even the biggest sale. The Reed family, owners of Green Diamond Resource Company, acquired 600,000 acres of Oregon timberland from the estate of Richard Wendt, founder of JELD-WEN Windows & Doors. The purchase upped the Reeds from No. 10 in 2013 to No. 5 in 2014. This swath of rural Oregon is almost the same size as Rhode Island and is the largest land transaction in the U.S. since Liberty Media Chairman John Malone acquired more than 1 million acres of timberland in Maine and New Hampshire in 2011. That buy put Malone atop The Land Report 100, where he remains in 2014 with 2.2 million acres. His good friend and fellow cable entrepreneur Ted Turner is No. 2 with more than 2 million acres. Rounding out the top five are California's Emmerson family with 1.86 million acres, Kentucky billionaire Brad Kelley with 1.5 million acres, and the Seattle-based Reeds with 1.37 million acres.
The cover story dives into the intricacies of one of the largest ranches in the U.S., the 535,000-acre Waggoner Ranch that spreads across six North Texas counties. For over 150 years, the Waggoner family has stewarded this historic property, which was recently listed for sale for $725 million. The ranch runs thousands of cattle, breeds champion Quarter Horses, has oil and gas production and more – all attributes of this "super asset class."...MORE
For our European readers: 1000 acres equals 404.6 hectares.
Here's The Land Report's home page and the 2014 Land Report 100 via Fay Ranches, 37 page PDF

Previously:
September 2014 
Largest Landowner In the U.S. Is Buying Hotels In Ireland
February 2014 
"Half of U.S. Farmland Being Eyed by Private Equity"
September 2013
Who Owns America's Farmland?
November 2012 
The Quietest Billionaire: "The Man With a Million Acres"
July 2012 
The 100 Largest Landowners in America
March 2012 
The King of California and the Largest Farm in the United States (BWEL pink sheets)

Monday, October 20, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Equities Have Retraced Almost 50% of the Entire Decline

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

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

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

...MORE

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

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

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

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

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

New York Magazine's Million Word Interview With Mark Andreessen

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

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

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

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

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

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

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

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

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

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

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

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

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

Earth's Magnetic Field May Be About to Flip

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

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

From the University of California-Berkeley:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks Plunge 508 Amid Panicky Selling

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

Oil: What Is Saudi Arabia Up To?

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

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

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

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

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

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

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

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

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

Sunday, October 19, 2014

"When Uber and Airbnb Meet the Real World"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Square Dancing Scots Invented Sex

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

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

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

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

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

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

Scotland Will Apparently Deflect Hurricane Gonzalo To Svalbard

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

Wunderblog
Svalbard Islands JW8HGA Polar Bear

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Annotated transcript

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

"At the Far Ends of a New Universal Law"

From Quanta Magazine:

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

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

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

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

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

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

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

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