Friday, August 22, 2014

"Samsung’s Galaxy S5 Takes the Ice Bucket Plunge, Challenges Apple, HTC and Nokia Phones"

From recode:
screen-shot-2014-08-22-at-12-42-12-pm
Lots of tech CEOs have taken the ALS Ice Bucket Challenge, but Samsung’s Galaxy S5 might be the first tech product to do so.

And it is some smart marketing, given that the S5 is waterproof — unlike many other market-leading smartphones. To drive home the point, the Galaxy S5 challenged the iPhone 5s, the HTC One M8 and Nokia Lumia 930.

“Gosh, that’s freezing,” a computerized voice says after a Galaxy gets dumped with ice water. For any reader who has been living under a bucket, people across the globe are dumping ice water on their heads to raise money and awareness for ALS, also known as Lou Gehrig’s Disease....MORE

How the Financial Times Is Experimenting With Being A News Aggretor

From Journalism UK:

How FT is experimenting with aggregation service
 FT Antenna gathers content from Twitter to keep FT readers up to date with the latest top stories on social media
The FT Antenna launched last week as an experiment in social media content aggregation from the Financial Times. The site opened in beta to pull together information from Twitter which may be of interest to FT readers.

"The fire hose of stories that are published on the web every day is difficult to keep up with", Lisa Pollack, head of new projects at FT.com, told Journalism.co.uk.

"Even if you check a variety of sites as well as your Twitter feed, there still can be a lingering feeling of having missed out on something."
If we’re going to provide useful services to FT readers, we shouldn’t be too precious about exclusively pointing them to FT.comLisa Pollack, FT.com
She said Antenna is a point of reference on the most discussed topics on social platforms for FT readers who may be "shy about using social media or who don’t have the time for it".

"Antenna is, to some extent, just a logical repackaging of what we already do. One of our most popular emails is Alphaville’s 6am Cut. It contains links to both FT and non-FT stories."

The content featured on the website is picked by an algorithm with lists and fixed parameters determined by the FT's editorial team. Everything else is automatic, and Antenna's content selection is chosen from a "double whitelist".

For a tweet to be published on the site, the message has to come from an approved Twitter account, and the article it links to must originate from an approved website on a separate selected list.

Twitter users on the list include academics, bloggers, journalists, and people in the financial industry, and Pollack said they usually tweet a variety of news consistently.

Ft Antenna
Screenshot from FT Antenna

"Journalists are somewhat overrepresented because they are especially good at tweeting interesting stories promptly....MORE

Robots at Jackson Hole: Automation and the Labor Market

From Real Time Economics:

Autor Paper at Jackson Hole: Automation Is Polarizing the Labor Market
In an essay in The Wall Street Journal last month, Harvard University economist Lawrence
Summers envisioned a world in which computers and machines displace a vast new array of human work, creating an economy that produced few opportunities and sources of income for actual people.

Taxis wouldn’t need drivers, nor retailers cashiers or banks financial analysts. “The challenge for economic policy will increasingly be generating enough work for all who need work for income, purchasing power and dignity,” he argued.

David Autor, a Massachusetts Institute of Technology economics professor, argues in a paper to be presented Friday to central bankers at the Kansas City Fed’s Jackson Hole symposium that automation is creating a different kind of problem for the economy. Rather than destroying jobs broadly, it is polarizing the labor market. While thinning out the ranks of middle-class jobs easily replaced by machines, he argues automation is increasing the ranks of low-skilled workers who perform tasks that can’t easily be displaced by machines — like cooks or home health workers — and the ranks of high-end workers with abstract thinking skills that computers can’t match.

In 1979, middle-income jobs in sales, office work, manufacturing and administrative work accounted for 60% of U.S. employment. By 2012, these jobs had declined to 46% of employment, while the share of high-end and low-end work expanded, Mr. Autor shows. A similar pattern emerges in Europe, where middle-income jobs have declined as a share of total employment.

The biggest beneficiaries are people at the high end. “From 1979 through 2007, wages rose consistently across all three abstract task-intensive categories of professional, technical and managerial occupations,” Mr. Autor argued. Their work tends to be complemented by machines, he argued, making their services more valuable....MORE

Time Inc. Rates Writers on How "Beneficial" They Are to Advertisers

From Gawker:
Time Inc. has fallen on hard times. Would you believe that this once-proud magazine publishing empire is now explicitly rating its editorial employees based on how friendly their writing is to advertisers?

Last year—in the opposite of a vote of confidence—Time Warner announced that it would spin off Time Inc. into its own company, an act of jettisoning print publications once and for all. Earlier this year, the company laid off 500 employees (and more layoffs are coming soon). And, most dramatically of all, Time Inc. CEO Joe Ripp now requires his magazine's editors to report to the business side of the company, a move that signals the full-scale dismantling of the traditional wall between the advertising and editorial sides of the company's magazines.

Even with all of that, though, it is still possible to imagine that Time Inc.'s 90+ publications, which include some of the most storied magazines in American history, would continue to adhere to the normal ethical rules of journalism out of simple pride. Not so!... 
Time Inc. Rates Writers on How "Beneficial" They Are to Advertisers
...MORE, including a response from Sports Illustrated.

CME Group Lowers Margins For Gold, Silver, PGMs, Copper

Exchanges don't do this during bull markets. The most active December futures are trading at $1281.6 up $6.20. September silver $19.475 up 6 cents.
From Kitco:
CME Group is lowering margins for Comex gold, silver and platinum group metals futures, and the new rates will be effective as of the close of business on Friday, according to a notice from CME Group late Thursday.

They also lowered copper margins, but those will be effective as of the close of business Monday.


The exchange operator said the changes were the result of “the normal review of market volatility to ensure adequate collateral coverage.”


Margins act as collateral on futures trades. CME Group also changed margins for electricity, crude oil, natural gas futures and a number of other products.


In the case of the main 100-ounce gold-futures contract, CME Group trimmed the “initial” margin for new speculative trades to $5,060 from $5,940. The “maintenance” margin for existing speculative trades, plus all hedge positions, was cut to $4,600 from $5,400.


For the 5,000-ounce silver contract, CME Group lowered the initial speculative margin to $7,150 from $8,250. The margin requirement for maintenance speculative positions, plus all hedge trades, was lowered to $6,500 from $7,500....MORE

"The Market Reacts To (Then Reads) Janet Yellen's Speech"

That's the headline at ZeroHedge.
Here's the speech via FT Alphaville:

Janet Yellen’s speech at Jackson Hole
You can read it here.

And below is an excerpt:
As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve’s dual mandate. Indeed, in its 2012 statement on longer-run goals and monetary policy strategy, the FOMC explicitly recognized that factors determining maximum employment “may change over time and may not be directly measurable,” and that assessments of the level of maximum employment “are necessarily uncertain and subject to revision.”4 Accordingly, the reformulated forward guidance reaffirms the FOMC’s view that policy decisions will not be based on any single indicator, but will instead take into account a wide range of information on the labor market, as well as inflation and financial developments.

Interpreting Labor Market Surprises: Past and Future
The assessment of labor market slack is rarely simple and has been especially challenging recently....MORE

Top Performing Bank Weighing Down Berkshire Hathaway Returns (WFC; XLF; BRK.b)

From Dragonfly Capital:

Give it All to Warren Buffett
The Financial Select Sector SPDR ETF, $XLF, has had a pretty good year. It started out slow but is now up 13.8% from the low point on February 3rd. Thursday it broke out to new post crisis highs. With the S&P 500 up 15.60% since that date it has lagged but not by very much. There is always debate about whether the broad market can climb without the financials carrying a significant amount of the weight. So this is good news. But the performance chart below shows that both have lagged as investments when compared to the top two holdings in the XLF, Berkshire Hathaway, $BRK/B, and Wells Fargo, $WFC....MORE
xlf

“A lot of what passes for investment knowledge is history-dependent, and may not serve us well in the future.”

That's a pull quote from The Aleph Blog's post "The Victors Write the History Books, Even in Finance" as highlighted by The Reformed Broker.
s'truth.

Family Offices Showing Greater Appetite for Agriculture/Farmland Than Institutions

From farmlandgrab:

Poll: family offices show greatest agri appetite 
Family offices are showing the greatest appetite for agri exposure, according to a poll of 99 Agri Investor readers.

Some 33 percent of pollsters voted that family offices were showing the greatest appetite for the asset class, while 31 percent pointed to institutional investor demand. High net worth individuals and development finance institutions are showing less interest in the asset class according to 23 percent and 11 percent of respondents, respectively.

Luba Nikulina, global head of private markets at Towers Watson, the investment consultant, was not surprised by the results and pointed to nervousness from institutional investors in the past.

“[Agriculture] has matured quite a bit as an asset class and there has been an increased interest over the last two years,” she told Agri Investor. “Geographically, the country risks vary between developed and emerging markets. A priority for institutions is finding ways of mitigating risk, while taking advantage of the better returns that agriculture offers, and that comes down to investors wanting to have clear investment strategies when investing into agriculture. There are ways to mitigate operational risks but there are other risks involved in owning and operating agricultural projects, so these risks have to be balanced,” she told Agri Investor.

Family offices have provided an appealing starting point for several agri investment managers during their initial rounds of capital raising and many describe them as frontrunners in the growing asset class, such as Miro Forestry that has raised $20 million of a $50 million target purely from private capital.

First time fund, Ascent Africa, received all of its commitments from family offices based in Europe and Asia, aside from two, which were Kenyan pension funds. Cocoa producer Agro Nica Holdings, recently closed a fundraising round populated by family offices, and is now approaching institutions for the next round of financing. And some family offices have invested into agri proactively, hiring their own asset manager, or established a third party fund to invest alongside others such as the $2 billion Kattegat Trust and Sherpa Asset Management respectively....MORE 
Former hedgefunder turned family office manager George Soros

"In Rainy Jackson Hole, Yellen Ponders Labor Market Mojo"

There are signs that the current up move is not strong enough to take and hold the 2000 level on the S&P 500.
What may be required is a trip back to ~1900 or so to flush out any remaining weak hands/hot money. This could begin as soon as Monday, meaning lightening positions ahead of the weekend--something we are usually loathe to babble about on the blog--may be the better-safe-than-sorry tactic.

I'm writing about this on this particular post because Jackson Hole may be a catalyst, or at least be perceived to be by the explainers.
From the Wall Street Journal's Real Time Economics blog:
HILSENRATH’s TAKE
It has been 20 years since central bankers focused on labor market issues at the Federal Reserve’s annual economic symposium at Jackson Hole, Wyoming, a point Esther George, the host and President of the Federal Reserve Bank of Kansas City, noted Thursday as she kicked off the conference on a cold and rainy evening in the mountains.

The dilemma back then was structural unemployment, particularly in Europe. Then-Fed Chairman Alan Greenspan opened the two-day conference with a brief review of the academic papers being presented by the likes of Paul Krugman, then a professor at the Massachusetts Institute of Technology, and James Heckman of the University of Chicago, both future Nobel Prize winners.

It is worth remembering that Fed chairmen don’t always deliver big policy addresses at Jackson Hole. Investors have become accustomed to such addresses in the past few years of economic crisis, but it isn’t mandatory.

Mr. Greenspan was brief and academic. But he did include this warning: Central bankers should be wary about using low interest rates as medicine for structural labor market problems not responsive to monetary policy. “Any tendency to seek a bit of macro policy relief by pushing the outer limits of monetary policy risks longer term financial instability,” he warned, hauntingly.

This year’s Jackson Hole papers delve into whether labor markets have lost their dynamism. The challenge for central bankers in the room is deciding how much more they’re prepared to do about it.
-By Jon Hilsenrath
...MORE
Also at RTE:
5 Things To Watch When Mario Draghi Speaks in Jackson Hole

"Harvesting Volatility Generated by Naive Investors"

From the Social Science Research Network:

Betting on 'Dumb Volatility' with 'Smart Beta
Abstract:    
It is possible that some investors make the "dumb mistake" of "buying high and selling low". This may create "dumb volatility" which might allow some smart beta strategies to exploit the "behavior gap" by "buying low and selling high". "Live data" suggests 1) the value-added from exploiting dumb volatility has been about 2-4% per year, 2) dumb volatility strategy risk-adjusted-returns have been similar, 3) there could be a "dumb volatility return frontier" offering more "return from dumb volatility" in exchange for more "dumb volatility" and 4) some dumb volatility strategies have achieved Warren Buffett-like "value-added". A six factor model shows no evidence that traditional factors, such as "size" and "value", drove the dumb volatility return. Going forward, the ability of a strategy to absorb capital will be an important economic moat.
 
Headline from and hat tip to CXO Advisory.

"Venezuela plans to fingerprint shoppers to stop food shortages"

Just another day in the Bolivarian Workers Paradise.
From City AM:

Venezuela shortages
Venezuela has been running short of basic goods like toilet paper, 
soap and cooking oil for over a year (Source: Getty)
The President of Venezuela Nicolas Maduro has announced plans for a major mandatory fingerprinting system to combat the increasingly dire food shortages and rampant smuggling afflicting the Latin American state.

He said the fingerprinting system would be similar to the one the country uses for voting and was intended to stop Venezuelans buying too much of a single item.

The policy was immediately denounced by the opposition who said the measure treated citizens as thieves, breaching their privacy and likened the measure to rationing.

The opposition argues that mandatory fingerprinting is yet another demonstration of the government's failed socialist policies, which has seen essential goods driven from shop shelves, oil production plummet and growth slow to a snail's pace....MORE

Thursday, August 21, 2014

There Are Some Scary-smart People Out There: MIT's Angela Belcher

Following up on Wednesday's "Saudi Aramco Invests In Natural Gas-to-Gasoline MIT Spinout".
From The Economist, Mar 8th 2014:

Brain scan 
The DNA of materials 
Angela Belcher is a materials scientist who makes things with viruses. She is now using them to attack cancer

“IT’S getting a little challenging,” says Angela Belcher. “I feel I am having to make choices now, which I never really wanted to.” But there are only so many hours in the day and she already combines multiple academic disciplines into a repertoire of research that spans an ambition to drive an electric car powered by a virus battery to building better touch-screens for digital devices and lately to giving surgeons new tools to detect and potentially treat minute traces of cancer.

There is more, but as eclectic as her work seems, it is united by a single intriguing idea. Evolution is a great problem solver and over millions of years has produced creatures of incredible breadth and complexity that can survive in the changing world around them. So why not copy the way nature innovates, speed it up and use it to help solve some of the problems researchers are presently working on. And that, in essence, is what Dr Belcher and her colleagues at the Massachusetts Institute of Technology (MIT) do. They rapidly evolve genetically engineered organisms to manufacture new materials and devices.
From the ocean

It began in the 1990s with an abalone shell, the sturdy home of a mollusc with a beautifully decorated mother-of-pearl interior. Dr Belcher was researching her PhD at the University of California, Santa Barbara, and was studying how abalones build their shells. The molluscs produce proteins which combine with ions of calcium and carbonate in seawater. This provides the material for them to make two types of crystals, which they assemble into layers to create an immensely strong composite structure.

As she looked out of the window one day while wondering about this, her gaze drifted to a periodic table of elements stuck on the wall. If an abalone has within its DNA the ability to code for the proteins needed to gather the materials to construct a shell, would it be possible to tinker with the DNA sequences in other creatures to gather some of the elements on the periodic table? In particular, Dr Belcher asked herself, could creatures build semiconductors like those used in electronic circuits?

The idea might seem far fetched, but Dr Belcher thought that the reason it had not happened before could be that nature had never been given the opportunity to try. Sea creatures once had soft bodies but started to build shells and bones 500m years ago in a geological period known as the Cambrian. That could have been in response to increasing levels of minerals in the ocean. “It took them 50m years to get good at it,” says Dr Belcher. “Students in a research lab are not that patient.” So the process would need to be speeded up.
The leap from evolutionary biology to semiconductors came naturally to Dr Belcher. She did her bachelor’s degree in creative studies and was allowed to combine different sciences. This highly multidisciplinary approach continued with her three PhD supervisors being experts in molecular biology, chemistry and physics. But it caused a bit of a problem with her first grant proposal in 1999, on becoming a professor at the University of Texas, Austin. The project was to find bacteriophages (a type of virus that infects bacteria, not people) that could be genetically engineered to bind to inorganic materials that they would not normally have an affinity for—in particular, semiconductors. If that was possible, then the viruses might be used as a template to grow and assemble electronic circuits, much like an abalone constructs its shell. It was, said one reviewer of her proposal, an “insane” idea.

Nevertheless, Dr Belcher stuck with her research and eventually was funded by the US Army. (Though interested in promoting basic science, the army likes to keep a look-out for potential breakthroughs in electronics which might benefit the increasing amount of technological kit it now uses.) In a paper published in 2000 in Nature, Dr Belcher demonstrated that her idea did indeed work. In 2002 she joined MIT and further scientific papers followed in collaboration with a number of her colleagues. Some of those papers explored making the components of a battery using viruses.

The technique begins by genetically modifying the somewhat basic DNA of a bacteriophage. This can be done to produce small but multiple changes in a billion or so viruses. All these variants, huge in number but individually tiny enough to be contained in a droplet of liquid, are then exposed to the material which the researchers are interested in manufacturing. Any viruses that show an affinity towards the material by attaching to it are gathered up. There may be only one or two in a billion, but when these candidates are used to infect a bacteria, millions of copies with identical DNA are made. The process can then be repeated to refine the characteristics. It is akin to high-speed natural selection. With further genetic modification and by changing the growth conditions, the selected viruses are used to bind with specific materials and assemble battery components.

Having found viruses happy to attach to nanowires of cobalt oxide, the researchers were able to produce a negative anode, one of the two main functioning parts of a battery. Making a positively charged cathode, the other important bit, was more difficult because for a battery to work well the cathode needs to be highly conductive. Nevertheless, Dr Belcher and her colleagues succeeded in getting some viruses to attach to carbon nanotubes, which are very good at conducting electrons. This resulted in a suitable cathode. It was then possible to assemble virus-made components into a small cell battery capable of lighting up an LED.....MUCH MORE
Dr. Belcher co-founded Cambrios Technologies in 2008. Siluria was spun out of Cambrios and as Wednesday's story relays, just accepted an investment from the most valuable company on earth.
She is a director of Siluria.
She is also on two different MIT faculties:
The Department of Materials Science and Engineering
The Department of Biological Engineering

Her latest paper, published in late July, demonstrated a method for recycling old car batteries into solar cells.
I hate her.
Did I mention she does cancer research?
As I said, scary-smart.

"Soviet War Monument in Bulgaria Gets a Splash of Color"

I know the Russians suffered unspeakable horrors at the hands of the Nazis and that their military ca 1941-45 pretty much defined the word 'heroic' but those truths being acknowledged, this is still pretty funny.
And fair play considering the horrors the Soviets visited in their turn upon the people of eastern Europe.
From Reason's Hit & Run blog:
Soviet communism remains very uncool in countries that formerly lived under it, which might explain why some very creative and patient graffiti artists have been repeatedly defacing a Soviet Army monument in Bulgaria.

The latest unauthorized use of spray paint coincided with the anniversary of the founding of the Bulgarian Socialist Party. The Russian Foreign Ministry is not amused, lodging a note of protest with the Bulgarian Foreign Ministry and issuing a statement of indignation over "the desecration of the grave of Soviet liberator soldiers." According to The Moscow Times:
The Russian Embassy in Bulgaria has issued a note demanding that its former Soviet-era ally clean up the monument in Sofia's Lozenets district, identify and punish those responsible, and take "exhaustive measures" to prevent similar attacks in the future.
...MORE
http://upload.wikimedia.org/wikipedia/commons/9/91/%D0%9F%D0%B0%D0%BC%D0%B5%D1%82%D0%BD%D0%B8%D0%BA_%D0%BD%D0%B0_%D0%A1%D1%8A%D0%B2%D0%B5%D1%82%D1%81%D0%BA%D0%B0%D1%82%D0%B0_%D0%B0%D1%80%D0%BC%D0%B8%D1%8F_18.06.2011.jpg

Equities: New Closing High on the S&P--Analysts React

We attempt to vary the sources we link to and enforce the discipline with an arbitrary "One link per source per day" rule.
Which we break whenever we feel like doing so.
Great discipline, huh?
Here's our second link to Barron's this 21st day of August 2014:

Don’t Fear the Fed: S&P 500 Hits New High; Dow Industrials Back Above 17,000
Don’t look now but the S&P 500 has hit a new high–again.

The S&P 500 gained 0.3% to 1,992.37 today, its highest close ever. The Dow Jones Industrial Average, meanwhile, rose 0.4% to 17,039.56–putting itself back on the right side of 17,000. The Nasdaq Composite advanced 0.1% to 4,532.10 and the small-company Russell 2000 finished up 0.2% at 1,160.12.,,,

...RBC’s Robert Sluymer and Anna Drotman see another pullback in stocks coming by early September:
Short-term/daily momentum indicators, tracking 2-4+ week directional swings, were helpful to identify oversold market lows in early August. Those indicators are likely to move back to overbought territory heading into late-August/early September and set the stage for another correction into mid-late September. By that time, we expect a more durable intermediate-term entry point to be at hand, consistent with a seasonal rebound through Q4....
...MORE

The Advantages of Dyslexia

Scientific American has a history, along with Lord Kelvin*, of being wrong, sometimes spectacularly so:
"... too far-fetched to be considered."
Editor of Scientific American, in a letter to Robert Goddard about Goddard's idea of a rocket-accelerated airplane bomb, 1940 (German V2 missiles came down on London 3 years later).

"That the automobile has practically reached the limit of its development is suggested by the fact that during the past year no improvements of a radical nature have been introduced."
-Scientific American, Jan. 2 edition, 1909.
So we distinguish between the magazine and the invited writers and take everything you read by the former with a grain or two of sal.
From SciAm:
“There are three types of mathematicians, those who can count and those who can’t.”

Bad joke? You bet. But what makes this amusing is that the joke is triggered by our perception of a paradox, a breakdown in mathematical logic that activates regions of the brain located in the right prefrontal cortex. These regions are sensitive to the perception of causality and alert us to situations that are suspect or fishy — possible sources of danger where a situation just doesn’t seem to add up.

Many of the famous etchings by the artist M.C. Escher activate a similar response because they depict scenes that violate causality. His famous “Waterfall” shows a water wheel powered by water pouring down from a wooden flume. The water turns the wheel, and is redirected uphill back to the mouth of the flume, where it can once again pour over the wheel, in an endless cycle.  The drawing shows us a situation that violates pretty much every law of physics on the books, and our brain perceives this logical oddity as amusing — a visual joke.
http://upload.wikimedia.org/wikipedia/en/e/e8/Escher_Waterfall.jpg
The trick that makes Escher’s drawings intriguing is a geometric construction psychologists refer to as an “impossible figure,” a line-form suggesting a three-dimensional object that could never exist in our experience. Psychologists, including a team led by Catya von Károlyi of the University of Wisconsin-Eau Claire, have used such figures to study human cognition. When the team asked people to pick out impossible figures from similarly drawn illustrations that did not violate causality, they were surprised to discover that some people were faster at this than others. And most surprising of all, among those who were the fastest were those with dyslexia.

Dyslexia is often called a “learning disability.” And it can indeed present learning challenges. Although its effects vary widely, children with dyslexia read so slowly that it would typically take them a half a year to read the same number of words other children might read in a day. Therefore, the fact that people who read so slowly were so adept at picking out the impossible figures was a big surprise to the researchers. After all, why would people who are slow in reading be fast at responding to visual representations of causal reasoning?

Though the psychologists may have been surprised, many of the people with dyslexia I speak with are not. In our laboratory at the Harvard-Smithsonian Center for Astrophysics we have carried out studies funded by the National Science Foundation to investigate talents for science among those with dyslexia. The dyslexic scientist Christopher Tonkin described to me his sense of this as a sensitivity to “things out of place.”  He’s easily bothered by the weeds among the flowers in his garden, and he felt that this sensitivity for visual anomalies was something he built on in his career as a professional scientist.  Such differences in sensitivity for causal perception may explain why people like Carole Greider and Baruj Benacerraf have been able to perform Nobel prize-winning science despite lifelong challenges with dyslexia.

In one study, we tested professional astrophysicists with and without dyslexia for their abilities to spot the simulated graphical signature in a spectrum characteristic of a black hole. The scientists with dyslexia —perhaps sensitive to the weeds among the flowers— were better at picking out the black holes from the noise, an advantage useful in their careers. Another study in our laboratory compared the abilities of college students with and without dyslexia for memorizing blurry-looking images resembling x-rays. Again, those with dyslexia showed an advantage, an advantage in that can be useful in science or medicine.

Why are there advantages in dyslexia?  Is it something about the brains of people with dyslexia that predisposes them to causal thinking? Or, is it a form of compensation, differences in the brain that occur because people with dyslexia read less? Unfortunately, the answer to these questions is unknown.

One thing we do know for sure is that reading changes the structure of the brain. An avid reader might read for an hour or more a day, day in and day out for years on end. This highly specialized repetitive training, requiring an unnaturally precise, split-second control over eye movements, can quickly restructure the visual system so as to make some pathways more efficient than the others....MORE
Here are some of Kelvin's boo-boos:
"Radio has no future."
Lord Kelvin, Scottish mathematician and physicist, former president of the Royal Society, 1897.

"Heavier-than-air flying machines are impossible."
Lord Kelvin, 1895.

"X-rays will prove to be a hoax."
-Lord Kelvin, 1883.
Quotes from Mental Floss via "Climateer Investing: 87 Worst Predictions of All Time"

Another Day, Another 3D Printing, Robotic Harvesting, Internet-of-Things FarmBot

From MotherBoard:

FarmBot Will 3D Print Your Crops and Email You When It Harvests Them
Image: FarmBot
California's Silicon Valley gets all the ink, but given that California also produces way more agriculture than any other state, maybe the Salinas Valley deserves a nod every now and then. But then, maybe the distinction between the two won't last for very much longer—at least, that's what this “automated precision farming machine” has me believing. Meet the most Californian thing imaginable in the post-Governator era: the FarmBot.

Genetically engineered from 3D printers, open source tech, and world-saving rhetoric, FarmBot is the product of Rory Aronson, a mechanical engineer taking an organic agriculture class in college. FarmBot is the solution to the dilemma causing people to choose between huge industrialized farms, which produce large yields with less labor, and backyard gardening, which is more labor intensive but more biologically efficient than monoculture farming.

In his TedX talk, Aronson differentiates himself from Wendell Berry, back-to-the-fields types by pointing out that “people don't want to do manual labor.”...MORE
Related:
It's All Coming Together: The $210,000 Cow Miking Robot (can the dream of plowborgs be far behind?)
"Sea Robots Farm Algae for Fuel"
Answering the Question: "Do Androids Dream of Electric Sheep?"
"Agriculture VCs Seek $200M Fund II"
Possibly some tangential relationship:
Venture Capital Down on the Farm
Venture Capital: "Selling Agriculture 2.0 to Silicon Valley"
Silicon Valley to Focus on Ag in Central Valley and Beyond

http://www.expatree.com/uploadfile/2012/0716/6a678f68900ae22d4974d0828dc5f523.jpg "Yup, I used to raise corn for ethanol. But then the topsoil blew away and I couldn't even get enough juice to run my tractor or get drunk on Saturday. Then this stranger came to town. Ordered something called a 'la-tay' and called himself a 'vee-cee.' Said he'd give me $20 million to come to Californee and herd algae. So we packed up our furniture in his little toy car and came west. Now I've got a regular bonanza of the slimy critters and the kids got shoes. Hain't looked over my shoulder back east since."
-from our post "Algaen Gothic"

Gold, Silver Hammered On Strong Dollar, Hawkish Fed

NYMEX gold $1276.5, down $15.90 after trading as low as $1275.50. Silver $19.40 off 9.7 cents, low $19.285.
From Kitco:

A.M. Kitco Metals Roundup: Gold Solidly Lower, Hits 2-Month Low, on Hawkish FOMC, Strong U.S. Dollar
Gold prices are sharply lower and hit a two-month low in early U.S. dealings Thursday.

The metal is seeing selling pressure in the wake of hawkish minutes from the latest meeting of the Federal Reserve’s Open Market Committee (FOMC) and by a rallying U.S. dollar index that hit an 11-month high overnight. December Comex gold was last down $18.70 at $1,276.50 an ounce. Spot gold was last quoted down $16.00 at $1,276.00. December Comex silver last traded down $0.147 at $19.415 an ounce.

The market place is still digesting Wednesday afternoon’s FOMC report. The Fed officials’ wording that the U.S. labor situation continues to improve fell into the camp of monetary policy hawks, as it hinted the U.S. central bank could move to raise interest rates a bit sooner than many had expected. The FOMC minutes pressured U.S. Treasury and gold prices, but the U.S. stock indexes ignored the data as the Nasdaq index set a 14-year high Wednesday, while the S&P 500 futures hit a record high. The better investor/trader risk appetite in the market place this week is also a bearish factor for the safe-haven gold market.

Focus now turns to the annual Kansas City Federal Reserve meeting in Jackson Hole, Wyoming, that begins on Thursday. The confab of world central bankers has in the past yielded important U.S. monetary policy speeches and clues to the direction of monetary policy. Fed Chair Janet Yellen and ECB President Mario Draghi are scheduled to speak on Friday in Jackson Hole.

In overnight news, the HSBC China preliminary manufacturing purchasing managers index (PMI) fell to 50.3 in August versus 51.7 in July. The August reading was a three-month low for the figure, and the market place deemed the report downbeat. The China data is an underlying bearish factor for the raw commodity sector. China is the world’s largest importer of raw commodities....MORE
...Technically, gold bears have regained the near-term technical advantage and have re-established a six-week-old downtrend on the daily bar chart. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,300.00. Bears' next near-term downside breakout price objective is closing prices below solid technical support at the June low of $1,241.70. First resistance is seen at $1,281.00 and then at today’s high of $1,292.00. First support is seen at today’s low of $1,274.40 and then at $1,270.00....  
Recently:
"...Gold Weakens in Wake of Hawkish FOMC Minutes"
Gold: Why Can’t It Break Out?
Sell Silver
Lines on Charts: Silver Is Poised To Break Lower

Also at Kitco:
Pressure Likely To Stay On Precious Metals As Jackson Hole Conference Begins – MKS 

Equities: Big Bear Turns Bullish (20% gain in 90 days?)

Alternate title: Slow Motion Capitulation.
From MoneyBeat:
Morning MoneyBeat: Another Bear Bites the Dust  
THE BREAKFAST BRIEFING
One of Wall Street’s biggest bears just reversed course on his views about the stock market.
Stifel Nicolaus stocks strategist Barry Bannister, who had been among the most pessimistic prognosticators on the Street, threw in the towel this week on his bearish forecast. He lifted his S&P 500 year-end price target to 2300—the highest among prominent strategists–from 1850, which had been tied for the lowest, according to research firm Birinyi Associates.

That means he expects the S&P 500 to rally another 16% from Tuesday’s close of 1981.60. It is already up 7.2% this year.

In a chat with MoneyBeat, Mr. Bannister said the five-year bull market has one final push higher left in it before the rally runs out of steam. As long as the Federal Reserve maintains its “lower for longer” monetary policies, there’s little reason why the market won’t continue rallying throughout the rest of the year and through 2015, he said.

After that, watch out.

“This is probably a finale for the market,” Mr. Bannister, a managing director at Stifel, told MoneyBeat. “This will be the big move that usually accompanies the end of bull markets…We’ll worry about 2016 when it comes.”...
...MORE 

And via MarketBeat's Dow Jones confrères at Barron's Stocks to Watch:

Can the S&P 500 Gain 20% in 90 Days?
Stifel’s Barry Bannister and Jesse Cantor just went from bearish to bullish on the S&P 500 in their most recent report. Where they once thought the S&P 500 would finish at 1,850–6.2% lower than yesterday’s close–they now think it will finish 2014 at 2,300, a whopping 17% higher.

Bannister and Cantor explain their about face:
The three Secular Bull markets over 6 years long, roughly the 1920s, 1950s and 1990s, all coalesced at this exact point before moving higher , and while this bull market hasn’t joined the 6-year “Secular” club (that occurs March 2015) stocks do appear to be consolidating as is normal at this point (Summer 2014) before potentially moving higher. We label the three stages of Secular Bull markets by the investor archetype whose enthusiasm we believe rises at each point, calling them the “Intrepid,” “Mainstream” and “Straggler” stages. As Stragglers arrive, much like 1987 and 1999, price history supports 90-day trading day upside of +20% for the S&P 500, in our view....MORE

TIAA-CREF Secures $1.4bn for Second Farmland Vehicle

From Farmlandgrab.org:

TIAA-CREF secures $1.4bn for second farmland vehicle 
Private equity firm TIAA-CREF has secured $1.4bn for its second agriculture fund.
TIAA-CREF Global Agriculture II has received commitments from three LPs, a document filed with the US Securities and Exchange Commission showed. 
The firm did not disclose the target for the fund, which registered its first commitment last month.

TIAA-CREF launched its Global Agriculture unit with commitments of $2bn in 2011. The firm’s agriculture division makes investments in farmlands in the US, Australia and Brazil....MORE
Here's the Form D dated Aug. 14.

Previously:
Feb. 2014 
"Half of U.S. Farmland Being Eyed by Private Equity"
Feb. 2013 
U.S. Private Equity Betting on World Agriculture (GMO; Soros; TIAA-CREF; the usual suspects)
Aug. 2012 
Three Big Timber Deals
Aug. 2012 
Too Greedy to Quit, Too Chicken to Steal: "Bypass Wall Street"
May 2012 
TIAA-CREF Raises $2 Billion for Global Farmland Investing Company
Oct. 2010 
"Is TIAA-CREF Investing In Farmland A Harbinger Of The Next Asset Bubble?" 

Report: Thompson Reuters to Use Drones to Gather Data on Retailers

And no, drone is not a new job title at TR.
Also, my sourcing is a bit sketchier than the first Lord Thompson of Fleet might have desired
From Crowdability:

Drones Are Set to Soar
Is now the time to bet big on “drones”?
Is this sector ready to take off?
The evidence points to yes – and stocks in this industry seem poised for flight.
But if you’re a believer in this space, stocks aren’t where the real money will be made...
The real money will be made elsewhere.
Today, I’ll walk you through why we think this sector is set to soar, and where the real returns will come from....
... Here are three sectors – and a handful of stocks – that could see a significant lift from the drone trend:

1.  Finance – A friend of mine works at Thomson Reuters. His job is to secure licensing deals for all of Thomson’s data products.

He was recently telling me about a new “drone data” service they’ve been selling.  In order to get more timely information on retail shopping trends, Thomson will deploy thousands of drones across the US to record shopping mall traffic.

Using a combination of heat sensor technology and advanced video processing algorithms, they’ll know — before the rest of Wall Street — how various retailers are performing, and what consumer spending might look for the coming quarter.

This is valuable stuff. Hedge funds pay big bucks – and earn even more – for access to such timely information.

Expect to see more investors leveraging this technology to get an edge.
You could take advantage of this trend by betting on firms like Thomson Reuters (NYSE: TRI)...MORE

British Intelligence Sets A Trap For Assange, Should He Emerge

Outside the Ecuadorean embassy:

Embedded image permalink

Repo Fails Still a Thing

From Alhambra Investment Partners:
Searching For Fail, And Still Finding It
While the credit markets were looking elsewhere these past few weeks, funding markets are again off their axis as repo fails spiked significantly one more time. The current level of fails is not quite that of June, but it is enough to engender some more pause about financial plumbing.
ABOOK Aug 2014 Repo Fails
For the most part, explanations have been offered on the supply side, as in the supply of (lack of) collateral. QE has certainly played a large role with a direct impact on the availability of collateral supply. That wasn’t supposed to be the case as the Fed’s reverse repo program was supposed to alleviate any of these problems. Yet, here we are again wondering about the deepest reaches of financial funding in the wholesale banking system.
ABOOK Aug 2014 Repo RRP
There is no short answer here, though I’m sure everyone wishes there was an easy indication. Looking at Primary Dealer holdings (inventory) of all manner of UST’s shows nothing much of a relatable phenomenon or movements. There is a very obvious decline in the inventory of t-bills, but that fits well within the recent paradigm of t-bill issuance and the Treasury’s variable deficit financing.
ABOOK Aug 2014 Repo PD Bill Inventory
T-bill rates have been low, but nothing approaching persistently at or below zero which would be an obvious signal of stress with t-bills as marginal collateral. Most have surmised, myself included, that repo participants have been forced down the curve in search of larger stores of securities (supply side again) which is why repo trouble seems to be engaged in the coupons rather than bills (which was where most of history prior to the QE’s was focused)....MUCH MORE

New Fed Exit Strategy Emerges and Foreign Banks Big Winners

From Real Time Economics:
Federal Reserve officials haven’t decided when to raise short-term interest rates, but as The Wall Street Journal reported earlier this week, they are closer to finishing a blueprint for how they’ll do it.

Minutes of the Fed’s July 29-30 policy meeting laid out fresh details and elaborated on others. Among the big winners in the new approach–as we’ll explain lower in this post–are foreign banks.
But first the details:
  • Rather than target a specific federal-funds rate, as it did before 2008, the Fed in the future will try to keep its target interest rate within a band. Right now it is between 0% and 0.25% and when it decides to raise rates the Fed will move that quarter-percentage point band higher. “Almost all participants agreed that it would be appropriate to retain the federal funds rate as the key policy rate, and they supported continuing to target a range of 25 basis points for this rate at the time of liftoff and for some time thereafter,” the minutes said.
  • The Fed’s primary tool is an interest rate it pays banks for the money they have on deposit with the central bank, known as interest on excess reserves, or IOER. This will be the upper end of the band. This rate is now 0.25% and seems likely to go to 0.5% with the Fed’s first rate increase. The lower end of the band will be interest the Fed pays money market funds and other nonbanks for cash not on deposit at banks (known as the overnight reverse-repo rate, or ON RRP in Fed lingo). This is now 0.05% and seems likely to go to 0.25% with the Fed’s first rate increase. “Most participants anticipated that, at least initially, the IOER rate would be set at the top of the target range for the federal funds rate, and the ON RRP rate would be set at the bottom of the federal funds target range,” the minutes said.
  • The Fed wants to gradually shrink its securities holdings and eventually get its portfolio of mortgage-backed securities to a minimum.
  • After the Fed starts raising short-term interest rates using these tools, officials will allow their holdings of all securities to shrink as the securities mature. Right now, the Fed is reinvesting proceeds from maturing securities to keep the size of its portfolio stable. “Most participants supported reducing or ending reinvestment sometime after the first increase in the target range for the federal funds rate,” the minutes said.
  • The Fed is going to avoid disrupting financial markets by selling its securities, unless absolutely necessary or for fine-tuning its portfolio. “Most participants continued to anticipate that the Committee would not sell (mortgage-backed securities), except perhaps to eliminate residual holdings.
  • Fed officials are on track to formalize the plan in September, but want to give themselves wiggle room because they’ve had to revise their vision of this process before and they’re still learning how to use some of these new levers. “Participants agreed that the [Fed] should provide additional information to the public regarding the details of normalization well before most participants anticipate the first steps in reducing policy accommodation to become appropriate. They stressed the importance of communicating a clear plan while at the same time noting the importance of maintaining flexibility so that adjustments to the normalization approach could be made as the situation changed and in light of experience.”
The most striking feature of the Fed’s strategy is that it keeps in place an effective subsidy that the U.S. central bank is currently paying to foreign banks.

Here’s how:

In recent years foreign banks have been tapping U.S. money market funds for very cheap short-term loans. Unlike domestic banks, foreign banks don’t have domestic depositors to tap for funds, so they turn elsewhere for dollars. Money market funds make the funds available for a few hundredths of a percentage point. The foreign banks in turn park those loans at the Fed for 0.25% interest. They earn profits on the spread between the cheap cost of funds available from money market funds and the higher rate they get at the Fed....MORE

Deep Learning is VC Worthy

From recode:

Nervana Raises Second Round This Year, as Silicon Valley Bets Big on Deep Learning
Nervana Systems, another player in the suddenly hot “deep learning” space, has closed its second round of capital in the last four months.

The San Diego startup said it raised $3.3 million in Series A funding led by DFJ, which comes on top of a $600,000 seed round in April.

DFJ’s Steve Jurvetson will take a seat on the company’s board as part of the latest investment. Allen & Co., AME Cloud Ventures and Fuel Capital also participated.

Deep learning is a form of artificial intelligence that researchers have credited with recent leaps in areas like speech recognition and image search. That has sparked growing interest in Silicon Valley, with Google, Facebook and Twitter making notable acquisitions or hires in recent months and various prominent players betting their own money on the space.
As Re/code explained in an earlier piece:
Deep learning is a form of machine learning in which researchers attempt to train computer algorithms to spot meaningful patterns by showing them lots of data, rather than trying to program in every rule about the world. Taking inspiration from the way neurons work in the human brain, deep learning uses layers of algorithms that successively recognize increasingly complex features — going from, say, edges to circles to an eye in an image.
Notably, these techniques have allowed researchers to train algorithms using unstructured data, where features haven’t been laboriously labeled by human beings ahead of time. It’s not a new concept, but recent refinements have resulted in significant advances over traditional AI approaches.
Nervana is aiming to distinguish itself in the nascent field by focusing on building hardware optimized for deep learning software — and vice versa....MORE

Wednesday, August 20, 2014

Saudi Aramco Invests In Natural Gas-to-Gasoline MIT Spinout

Saudi Aramco is the world's most valuable company, worth maybe $10 Trillion according to the FT.
A bit under a billion dollars a day revenues.
Pretty good margins.
From xConomy San Francisco:
Siluria Bags $30M from Saudi Aramco for Natural-Gas-to-Gasoline Tech 
Many startups are seeking to take advantage of cheap and abundant natural gas to make chemicals and fuels, but Siluria Technologies is one of the few moving to large-scale production.

The San Francisco-based company today said that Saudi Aramco Energy Ventures has invested $30 million of a planned $50 million Series D round expected to close this year. It’s the first time that Siluria has taken on a strategic investor, rather than financial investors, a move that could lead to Saudi Aramco using Siluria’s natural gas-to-chemicals process.

The money will be used to complete construction of a demonstration plant in La Porte, TX and continue research into using Siluria’s technology in other areas. Siluria expects to be operating two commercial-scale plants in 2017: one for producing the chemical ethylene and one for making gasoline from natural gas, says Rahul Iyer, the company’s vice president of corporate development.

Siluria’s technology uses catalysts to synthesize methane into more complex—and valuable—molecules, a fundamentally different approach to making the chemicals and fuels used in the petrochemical industry....MORE
We'll be back with more tomorrow .
For our journalist friends here are some of the MIT connections:
MIT's 2014 50 Smartest Companies
More on the Tech Review 50
Co-founder, Director Angela Belcher--look her up.

Previously:
Kleiner, Paul Allen’s Fund Back Natural Gas to Chemicals Tech
The 50 Smartest Companies of 2014 (Apple's not one of them)

The RE-fracking Boom and the Second-best Correction Of the Day (HAL; SLB; BHI; WFT)

A subject near and dear, links below.
From Reuters:

CORRECTED OFFICIAL-INSIGHT-Refracking brings 'vintage' oil and gas wells to life
(Encana official corrects quote in fifth paragraph to read "understimulated" instead of "unstimulated.")

By Anna Driver and Ernest Scheyder
NORTH DAKOTA Aug 20 (Reuters) - A fracking boom isn't enough for U.S. oil and gas producers - they're now starting the re-fracking boom.

Wells sunk as little as three years ago are being fracked again, the latest innovation in the technology-driven shale oil revolution. Hydraulic fracturing, which has upended global energy markets by lifting U.S. crude oil output to a 25-year high, has been troubled by quick declines in oil and gas output.

The development highlights how producers must constantly invest and tinker, both to raise overall oil recovery rates that can be as low as 5 percent and to limit steep drops in production suffered by wells drilled into tight oil deposits.

Canada's Encana Corp invested $2 million to refrack two wells in Louisiana's Haynesville shale formation earlier this year, after seeing its production in the area dip 27 percent from 2012 levels.

"There were a significant number of wells that we considered understimulated," said David Martinez, Encana's senior manager for Haynesville development.

Using minuscule plastic balls, known as diverting agents, pumped at high speeds with water into the old wells, most of which are three to five years old, Encana blocked some the older fractures, or cracks. 
"The thought is that the diverting agent will go to the cracks with the least amount of pressure," bypassing cracks with higher pressure and boosting the pressure of the entire well so output climbs, Martinez said....
...MUCH MORE

That's a good solid entry in the correction sweepstakes but it just doesn't compare with this effort:
http://jimromenesko.com/wp-content/uploads/2014/08/poop.jpg
HT: Romenesko

Back in 2012 we glanced at the coming refracking boom:
Frackers: Sterne, Agee & Leach on the Oilfield Service Stocks (SLB; CAM; OIS; HAL)
Something to remember: All of the natural gas wells that were fracked over the last couple years will have to be re-fracked as the production rates decline, some wells will get fracked three or four times over their expected lives. It's like an annuity for the service companies, something I've not heard any analysts talk about.... 
And:
Natural Gas: The Astounding Production Decline Rates of Shale Wells 
I've mentioned we heard from landowners that their monthly royalty checks dropped 75% between month 1 and month 12 after completion. This is good news for gas bulls and good news for the well service companies who will be called in to re-frack the wells 4-5 times over their producing lives.
Not such good news for folks who want to see gas back under $2.00....
Over the ensuing two years the group has done well (so to speak), both absolutely and relative to the broader market:
Chart forSchlumberger Limited (SLB)
Yahoo Finance

"...Gold Weakens in Wake of Hawkish FOMC Minutes"

Higher real rates really mess with the opportunity cost losses computation for holding gold.
From Kitco:
Gold prices sold off moderately in the aftermath of FOMC minutes that revealed Fed officials believe the U.S. labor situation is moving closer to normal, and with other clues hinting the Fed could raise interest rates sooner than many expected. December Comex gold was last down $6.50 at $1,290.20 an ounce. Spot gold was last quoted down $5.90 at $1,289.75. December Comex silver last traded up $0.009 at $19.485 an ounce.

The FOMC minutes report was the economic highlight of the day for the market place. The Fed officials’ wording that the U.S. labor situation continues to improve fell into the camp of monetary policy hawks, as it hinted the U.S. central bank could move to raise interest rates sooner than many expected.

Now, focus turns to later this week and the annual Kansas City Federal Reserve meeting in Jackson Hole, Wyoming, that begins on Thursday. The confab of world central bankers has in the past yielded important U.S. monetary policy speeches and clues to the direction of monetary policy. Fed Chair Janet Yellen and ECB President Mario Draghi are scheduled to speak on Friday in Jackson Hole....MORE
Here's Kitco spot, $1291.10:
24 hr gold chart
 

Warren Buffett on Intelligence

From Farnam Street:

What makes Warren Buffett a great investor? Is it the intelligence or the discipline?

Warren: The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ.
If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing....

...MORE

HT: The Big Picture's Wednesday AM Reads

Now, what if one is approaching from the other direction and is at the market as a buyer?

Grantham Mayo Van Otterloo's 7-Year Return-vs-Volatility Investing Soufflé

Mr. Grantham did not use the term "Investing Soufflé", that was me, looking for an alternative to 'matrix'.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/08/Today%27s%20Beta%20Desert.jpg
From ZeroHedge:

GMO: "There Is No Safe Place To Hide"
We have been writing quite a bit about why asset allocation today is in one of the toughest investing environments we’ve ever encountered. And it’s not just because we think equity markets are overvalued.
No, we’ve seen that plenty of times before over the past decade or so. Remember the technology bubble of the late ’90s? That was challenging, sure, but what got lost in the shuffle was that while U.S. large-cap stocks were outrageously overpriced, it turned out that real estate investment trusts, emerging equities, and international small caps were deliciously priced.
And it was perfectly clear to us what we had to do: avoid technology and own the cheap stuff, even though it might have looked a bit unconventional. Then we entered the 2007–2008 credit bubble, and while, yes, virtually all equity markets were overpriced, it was perfectly clear to us what we had to do: hide and wait. And that was not a bad proposition because there were plenty of safe places to hide—Treasury Inflation-Protected Securities, U.S. Treasuries, and a strategy we had developed called Alpha Only—and earn a decent, if not spectacular, return....MORE

Private Equity: Carlyle raises $1.86bn for international energy fund

From altAssets:
Private equity giant The Carlyle Group has registered $1.86bn commitments for its International Energy Partners fund.
The capital has been raised via investments from 146 LPs, according to the firm’s filing with the US securities regulator.

Carlyle has also listed $2.5bn worth of sales commission which the firm says will be borne by the GP and the not the fund’s investors.

The Energy Partners vehicle was launched in August last year and has so far its investment portfolio includes oil and gas platform Varo Energy and energy company Discover Exploration based in London....MORE

AllianceBernstein: "Is a Big Equity Correction Imminent? Not Yet"

The S&P 500  is seven points from its all-time high, 1984.29 last, the DJIA is trading at 16956.14.
From Context, the AllianceBernstein blog:
Many investors think US stocks are due for a correction: They feel that the market has run too far, that the Fed has been slow to act, that complacency has created pockets of excess. Do these gut feelings mean a major equity correction looms? Not yet, in our view.

The S&P 500 Index has seen 16 one-year corrections of at least 15% since 1927. These corrections were preceded by sharp equity run-ups, and we’ve seen a comparable return streak recently. This is consistent with the intuition that equity corrections follow on the heels of excessive optimism.

Common wisdom—colored by 2007—says corrections are preceded by complacency, but this doesn’t bear out historically. Trailing volatility and asset correlations in precrisis periods—the “price” of risk—are roughly in line with historical averages. Of course, even if complacency doesn’t seem to precede corrections, that doesn’t mean it should be ignored. The take-away is that cheap capital can boost asset prices much longer than appears rational. The key in today’s market is to monitor and hedge exposure to areas of excess that are forming in the markets because of abundant liquidity and cheap risk.

A Historical Perspective
Almost every economic recession since 1950 followed a flat or inverted yield curve, and most equity corrections have followed a flattening yield-curve slope. The current yield curve is still very steep in historical terms, but the recent flattening is consistent with fears that the Fed is slow to respond—and that the eventual withdrawal of liquidity will hurt economic growth. The big issue is timing: equity markets generally rally early in rate-hike cycles and decline only after interest-rate policy is viewed as hurting future growth. When rates rise from very low levels, equity returns are actually strongest (Display).
What about the most obvious indicators of an equity correction: earnings and valuations?

Surprisingly, earnings per share fell in just over half of the market corrections since 1950. This is at odds with many investors’ views, which are anchored in the last two corrections, 2000–2001 and 2008. Those corrections happened during recessions, and were extreme in the context of earnings declines at the time...MORE

Loss of Skills In the Workforce

Been there, done something
From The Growth Economics Blog:
There’s a recent working paper by Alexandra de Pleijt and Jacob Weisdorf that looks at skill composition of the English workforce from 1550 through 1850. They do this by looking at the occupational titles recorded in English parish records over that period, and code each observed worker by the skill associated with their occupation. They use the standardized Dictionary of Occupational Titles to infer the skill level for any given occupation. For example, a wright is a high-skilled manual laborer, a tailor is medium-skilled, while a weaver is a low-skilled manual laborer.de Pleijt and Weisdorf 2014
The big upshot to their paper is that there was substantial de-skilling over this period, driven mainly by a shift in the composition of manual laborers. In 1550, only about 25% of all manual laborers are unskilled (think ditch-diggers), while 75% are either low- or medium-skilled (weavers or tailors). However, over time there is a distinct growth in the the unskilled as a fraction of manual laborers, reaching 45% by 1850, while the low- and medium-skilled fall to 55% in the same period. You can see in their figure 10 that this shift really starts to take place by 1650, while before the traditional start of the Industrial Revolution.

Looking at more refined measures, de Pleijt and Weisdorf find that the fraction of workers classified as “high-quality workmen” – carpenters, joiners, wrights, turners – rose only from 3.9% to 4.9% of the workforce between 1550 and 1850. These are precisely the kinds of workers that Joel Mokyr claims are the crux of the Industrial Revolution in England. They built, improved, adapted, and micro-innovated all the classic inventions of the IR. While they were only between 4-5% of the workers, and this proportion didn’t expand rapidly, given population growth the absolute numbers of these high-quality workmen went up by a factor of 4 between 1700 and 1850 (from about 200K to 850K)....MORE

Score! Swiss dairy exports profit from Russian embargo

There is an entire subculture (!) of cheese puns that I won't inflict on gentle reader, save for the granddaddy:



From Swissinfo:

Dutch Gouda, Italian Parmesan and other cheeses have been banned from Russian supermarkets. Swiss cheeses are filling some of the gaps.
On the shelves of Moscow’s supermarkets, European cheeses have begun to thin out. Swiss production however isn’t enough to fill the gap, and a mountain of paperwork is in the way. It’s not easy to get a foothold in Russia.

The Margot cheese warehouse in Yverdon is one company impacted. It isn't as well as known as other Swiss brands, but the company is the number one Swiss exporter to Russia. Since the European embargo, orders have tripled.

While Europeans accuse Switzerland of exploiting the embargo, Swiss companies are asking for more clarity from the Swiss authorities.

A good share of the market is there for the taking, although it is still a niche market catering to the wealthiest Russians. European products, sold at €2 a kilogram, are much cheaper than Swiss ones....MORE
Now I will retreat, Caerphilly avoiding the temptation to wordplay...

"Patent troll drops suit against Adam Carolla after discovering podcasts don't make any money"

That's the headline at the Verge about the guy who says he has the patent for podcasting.
Here's their link to the ars technica write-up on the lawsuit settlement:
Patent trolls have a simple business model: they collect broad patents that appear to cover some part of an industry, and then they sue everyone, hoping that most companies will choose to pay a settlement over the hassle and cost of a lawsuit.

That's what Personal Audio did with podcasters: the company has a patent that appears to cover distributing podcasts over the internet, and it began filing lawsuits against several popular podcasters, including Adam Carolla and How Stuff Works. There was only one problem: there's no money in podcasts, so Personal Audio decided it wasn't worth the cost to collect whatever percentage of revenue it was demanding from the companies it sued. Here's a press release the company issued in July (emphasis added):
"When Personal Audio first began its litigation, it was under the impression that Carolla, the self-proclaimed largest podcaster in the world, as well as certain other podcasters, were making significant money from infringing Personal Audio's patents. After the parties completed discovery, however, it became clear this was not the case. As a result, Personal Audio began to offer dismissals from the case to the podcasting companies involved, rather than to litigate over the smaller amounts of money at issue."
While other companies took the dismissals in July, Carolla apparently pushed back until now. We don't know the exact terms of the settlement, but a motion to dismiss was filed yesterday and both parties agreed to a quiet period that will last through September 30. As the EFF pointed out yesterday, if suing a podcaster with the reach of Adam Carolla isn't a profitable enterprise, it's probably not worth it to sue any podcasting group. Score one for the little guys with no money....MORE
The memory jog to link this piece was this morning's FT Alphaville post "Patent trolls as the new rentier class":
According to the Merriam-Webster dictionary, a rentier is a person who lives on income from property or securities.

From the point of view of Marxist rentier capitalist theory, a rentier is also a parasite who adds no value to society, but instead survives solely due to his ability to extract rents (tribute) from productive people. A rentier achieves this through muscle or social norms which defend his exclusive rights over property in such a way that he must be compensated for their use by others.

Today, patent trolls are emerging as the world’s most nefarious rentier types.

The reason they’re so particularly nefarious, we’d argue, is directly linked to the type of property that they’re trying to monopolise. Intellectual property.

Organised productive society has always had to deal with parasites, of course....MORE

Russian sanctions means extra focus on Raiffeisen Bank tomorrow

The first sentence of this heads up says Friday but the company writes the semi-annual release date is the 21st.
From Saxo Bank's Trading Floor blog:
Raifeissen Bank, Austria's largest banking group, reports its Q2 results on Friday at approximately 05:30 GMT. The release will undoubtedly attract many investors as the shares are down 27% since their peak in June. The reason behind this dramatic fall is the ongoing crisis in Ukraine and the subsequent sanctions against Russia, a market that accounts for 21% of the group's total revenue.
RBI share price
Source: Bloomberg, Saxo Bank
  • All eyes on bad loan provisions tied to Russia and eastern Europe... but also a previously announced provision charge in Hungary tied to a new law which obliges banks to refund FX spread margins. The bank's exposure to Russia and Ukraine will be a particular focus for investors tomorrow as they have pushed the share price down to reflect increased uncertainty over profitability. Raiffeisen Bank is the third biggest foreign bank in Russia and generated 74% of the group's pretax profit last year....MORE

New York Fed: The Declining U.S. Reliance on Foreign Investors (that's not necessarily good)

From the Federal Reserve Bank of New York's Liberty Street Economics blog:
The United States has been borrowing from the rest of the world since the mid-1980s. From 2000 to 2008, this borrowing averaged over $600 billion per year, which translates into U.S. spending exceeding income by almost 5.0 percent of GDP. Borrowing fell during the recent recession, as would be expected, and then rebounded with the recovery. Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997. A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.

    The amount borrowed from the rest of the world is measured by the current account balance, which is the broadest measure of cross-border transactions. As seen in the chart below, the United States was spending substantially above its income before the recession, to the tune of 5.8 percent of GDP in 2006. The amount of borrowing fell during the recession and started to rebound in 2010, but borrowing has since trended down.

U.S. Borrowing from Abroad

    A nation’s foreign borrowing is the difference between domestic saving and investment spending. Consider simplified national accounting identities with income allocated to consumption or saving and spending allocated to consumption or investment. Dropping out consumption from both identities shows that the difference between spending and income is the same as the difference between saving and investment spending, with the gap determining whether a country is lending to or borrowing from the rest of the world. That is, a country borrows from the rest of the world when it does not save enough to finance its own investment spending. From this perspective, the United States is borrowing less because the difference between saving and investment spending is shrinking. ...MORE