Monday, May 4, 2015

Uber Says U.S. Accounts Have Not Been Hacked

From Motherboard, May 2:

More Uber Accounts Have Been Hacked, This Time in the United States
UPDATE: An Uber spokesperson responds, "We do not have any additional information to share beyond the statement we provided before: We investigated and found no evidence of a breach. Attempting to fraudulently access or sell accounts is illegal and we notified the authorities about this report. This is a good opportunity to remind people to use strong and unique usernames and passwords and to avoid reusing the same credentials across multiple sites and services."

Back in March, Motherboard revealed that fully functioning Uber accounts were for sale on the dark web for as cheap as $1 each. At the time, it appeared that the victims of those hacks were based in the United Kingdom. Now, Uber customers from all over the United States have taken to Twitter to complain that their account has been charged for trips they never took, sometimes half way across the world.
“It was crazy,” one apparent victim, Stephanie Crisco from North Carolina, told me over Twitter direct message. “I used Uber for the first time Thursday night. On Friday morning I received a notification on my phone that my driver was en route. I didn’t request a driver. I clicked on the notification and it said that the ride was cancelled but the pickup was in London.” 

Crisco also tweeted a picture of the trips she claims she didn’t make. While many of the trips in the screenshot were cancelled, one of them in London was indeed successful, and Crisco told me that three charges were made against her account in total. Crisco has since cancelled her bank card, and Uber have refunded her for the three charges, which range between $40 and $120 each...MORE 
HT: BGR who headline:

"The Rise of the Digital Capital Economy"

I'm  few weeks late getting to this piece from Irving Wladawsky-Berger and, although much of this ground is familiar to our readers, it benefits from Irving's viewpoint (not to mention the highest density of hyperlinks in the known universe in the first paragraph):
I just read an interesting article that was published last summer in Foreign Affairs, - New World Order: Labor, Capital, and Ideas in the Power Law Economy.  The article was written by MIT professor Erik Brynjolfsson and MIT Principal Research Scientist Andy McAfee, who are also Director and Co-Director respectively of the Initiative on the Digital Economy; and by Michael Spence, professor in NYU’s Stern School of Business, professor and dean emeritus of the Stanford Graduate School of Business, and recipient of the 2001 Nobel Prize in economics. 

A major transition is now taking place in our digital economy.  Over the past few decades, advances in technology, and the Internet in particular, have helped create an increasingly global marketplace for labor and capital.  A highly connected, global economy has been rising all around us, whose magnitude and implications were brought to light by NY Times columnist Tom Friedman in his 2005 bestseller The World is Flat: A Brief History of the Globalized World in the Twenty-first Century. 

Another bestseller, The Second Machine Age, published last year by Brynjolfsson and McAfee, is now helping to explain our new era of data science, AI and advanced automation.  These second age machines are being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans, while enabling us to process vast amounts of information and tackle ever more complex problems. 

These advanced machines are ushering a new kind of digital capital economy, quite different from the flat-world economy of only a decade ago.  The winners are no longer those able to compete solely based on cheap labor or ordinary capital, both of which are being squeezed by automation.  “Fortune will instead favor a third group: those who can innovate and create new products, services, and business models,” says the article.  “So in the future, ideas will be the real scarce inputs in the world - scarcer than both labor and capital - and the few who provide good ideas will reap huge rewards.  Assuring an acceptable standard of living for the rest and building inclusive economies and societies will become increasingly important challenges in the years to come.”

Internet-based Globalization
The industrial economy that prevailed through much of the 20th century saw the rise of major corporations like IBM, GM, GE, P&G and Kodak.  Their capital assets, - including plants and equipment, sales and distribution, and finance, - enabled them to achieve the necessary scale to compete across the country and around the world.  Their management skills enabled them to effectively organize and deploy the necessary large labor force. 

Late in the 20th century, the digital technology revolution began to radically change the business environment.  Capital assets and a large labor force were no longer the keys to success, and in fact were often viewed as a noose around legacy companies, making it harder to compete against lean startups in the fast changing digital economy.  Given dramatically lower communications and transaction costs, companies disaggregated their various processes, kept some in-house and outsourced others to supply chain partners around the world in order to optimize the overall costs of their products and services.  As the Foreign Affairs article notes, this globalization era is succinctly characterized by these 8 words that you’ll find in the back of iPhones, iPads, and other Apple products: “Designed by Apple in California. Assembled in China.”
“All of this creates opportunities for not only greater efficiencies and profits but also enormous dislocations,” it adds.  “If a worker in China or India can do the same work as one in the United States, then the laws of economics dictate that they will end up earning similar wages (adjusted for some other differences in national productivity).  That’s good news for overall economic efficiency, for consumers, and for workers in developing countries - but not for workers in developed countries who now face low-cost competition.” 

Automation-based Globalization  
But the economy has since evolved.  “Even as the globalization story continues, however, an even bigger one is starting to unfold: the story of automation, including artificial intelligence, robotics, 3-D printing, and so on.  And this second story is surpassing the first, with some of its greatest effects destined to hit relatively unskilled workers in developing nations…  As intelligent machines become cheaper and more capable, they will increasingly replace human labor, especially in relatively structured environments such as factories and especially for the most routine and repetitive tasks.  To put it another way, offshoring is often only a way station on the road to automation…  In more and more domains, the most cost-effective source of labor is becoming intelligent and flexible machines as opposed to low-wage humans in other countries.”

The article points out that the share of labor in the US economy averaged 64.3% between 1947 to 2000, and has been declining ever since, falling to 57.8% in 2010.  Similar declines in the labor share have been documented in many ofter countries, including China, India and Mexico.  Capital is now a larger share of overall production, and capital-based technologies are rising in importance, including physical assets like computers, robots, and IoT-based smart products of all kinds, as well as intangible assets like software, patents, copyrights and brand value.  

But, despite the higher share and importance of capital in the economy, higher earnings are not necessarily accruing to the general investors in those companies.  In a free market, the biggest returns are earned by the scarcest and hence most valuable resources in the economy.  A major portion of capital is now digital capital, including software and hardware technologies, both of which are increasingly ubiquitous and inexpensive.  Software can be replicated and distributed at marginal costs.  And the digital technologies that go into computers, robots and smart equipments keep getting cheaper and more powerful over time....MORE

Chartology: Thompson Reuters Commodity Index

I don't know which way this goes, there are a lot of cross-currents:
1) Is there any more downside in iron ore?
2) Will we see another huge corn crop?
3) Is more speculative money going to flow into oil?
4) Is the grease/tallow/lard complex finally ready to break out?*
From Kimble Charting Solutions:

joefridaycommoditysupporttestmay1CLICK ON CHART TO ENLARGE
Commodities have had a rough go of it the past 4-years, declining almost 40%. The above charts look at the Thompson Reuters Commodity Index since the 1980’s.

The left chart is based upon “monthly closing prices,” reflecting that a neckline support test is at hand at (1).
The right chart is the same chart, based upon Hi/Lo/Closing prices. A dual test of support is in play at (1) in this chart.

Both charts reflect that  long-term tests of support are in play and support is support until broken. Often support like this is a place where at least a counter trend rally takes place....MORE
*A repost of 2012's "They're Young... They're in love... They eat Lard":
As one of the few analyst blogs that covers* the grease/tallow/lard complex we attempt to stay au courant with the latest developments.

Sometimes though it is a good idea to pull back for a look at the longer view. Here's lard, ca 1950**:

Here's the Lard Marketing Board website.

*See for example the seminal "A Look at the Tallow/Grease/Lard Complex: Tallow--It's What's for Dinner".
Some Economists Are Worth More Than Their Rendered Fat Will Bring
 Most of them should trade pari passu with the grease/tallow/lard complex.
(Prof. Gintis excepted) 
August 2009 
John Maynard Keynes: Money Manager (Couldn't Trade Lard to Save His Life)
...In a 1983 paper "J.M. Keynes' Investment Performance: A Note" the authors are dubious of his performance, without casting the aspersion that I do in my comment. They on the other hand have a great tidbit:
...Investments in commodities were more substantial. The highest annual gain was for ₤17,000 from September 1936 to August 1937 and the highest annual loss, mainly in lard, for ₤12,600 in the following twelve months...
And many more. Keywords: Keynes or tallow or...

**This version is from a truly disturbing post at Imighthavestolethat:
Retro ads of highly dubious origins

The U.S. Is Over-Retailed: 6000 Store Closings Set For 2015

From The Economic Collapse (like ZeroHedge but less pessimistic):

Major U.S. Retailers Are Closing More Than 6,000 Stores
 If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores?  The “retail apocalypse” that I have written about so frequently appears to be accelerating.  As you will see below, major U.S. retailers have announced that they are closing more than 6,000 locations, but economic conditions in this country are still fairly stable.  So if this is happening already, what are things going to look like once the next recession strikes?  For a long time, I have been pointing to 2015 as a major “turning point” for the U.S. economy, and I still feel that way.  And since I started The Economic Collapse Blog at the end of 2009, I have never seen as many indications that we are headed into another major economic downturn as I do right now.  If retailers are closing this many stores already, what are our malls and shopping centers going to look like a few years from now?

The list below comes from information compiled by, but I have only included major retailers that have announced plans to close at least 10 stores.  Most of these closures will take place this year, but in some instances the closures are scheduled to be phased in over a number of years.  As you can see, the number of stores that are being permanently shut down is absolutely staggering…

180 Abercrombie & Fitch (by 2015)
75 Aeropostale (through January 2015)
150 American Eagle Outfitters (through 2017)
223 Barnes & Noble (through 2023)
265 Body Central / Body Shop
66 Bottom Dollar Food
25 Build-A-Bear (through 2015)
32 C. Wonder
21 Cache
120 Chico’s (through 2017)
200 Children’s Place (through 2017)
17 Christopher & Banks
70 Coach (fiscal 2015)
70 Coco’s /Carrows
300 Deb Shops
92 Delia’s
340 Dollar Tree/Family Dollar
39 Einstein Bros. Bagels
50 Express (through 2015)
31 Frederick’s of Hollywood
50 Fresh & Easy Grocey Stores
14 Friendly’s
65 Future Shop (Best Buy Canada)
54 Golf Galaxy (by 2016)
50 Guess (through 2015)
26 Gymboree
40 JCPenney
127 Jones New York Outlet
10 Just Baked
28 Kate Spade Saturday & Jack Spade
14 Macy’s
400 Office Depot/Office Max (by 2016)
63 Pep Boys (“in the coming years”)
100 Pier One (by 2017)
20 Pick ’n Save (by 2017)
1,784 Radio Shack
13 Ruby Tuesday
77 Sears
10 SpartanNash Grocery Stores
55 Staples (2015)
133 Target, Canada (bankruptcy)
31 Tiger Direct
200 Walgreens (by 2017)
10 West Marine
338 Wet Seal
80 Wolverine World Wide (2015 – Stride Rite & Keds)

So why is this happening?
Without a doubt, Internet retailing is taking a huge toll on brick and mortar stores, and this is a trend that is not going to end any time soon....MORE

Chartology: Oil

Front WTI $59.39 up 24 cents, top tick thus far: $59.64.
From Afraid To Trade:

Plotting and Planning the Next Swing Trade in Crude Oil
May 3, 2015: 12:53 PM CST
Crude Oil traded powerfully up to a known resistance target, and we’ll plan our next trade (or even series of trades) based on this key level and the new targets for the next price swing.

Let’s build the case from the Monthly Chart down to the Daily Chart:
While not to the same magnitude or price distance, late 2014’s collapse is similar to the late 2008 collapse.
The reversal bottom at the beginning of 2009 led to a powerful rally up from $35.00 toward $70.00.
At this point, we’re monitoring a possible similar repeat pattern where price once again moves toward the underside of $70.00 – the upside target.

However, price faces a critical resistance target challenge here into $60.00 as we can see above.
The 200 month moving average (red) intersects price just above $60.00 and we’ll begin our planning there.
Crude Oil’s Weekly Chart – as I highlighted to Weekly Intermarket Strategy Members – has clear reference levels and trade planning.

The curling 20 week EMA rests near $56.00 and will be a support-pivot reference.

Climateer Line of the Day: Icahn On Apple Edition

With British markets closed for the Bank Holiday I didn't expect much from FT Alphaville but this is a nice catch by Amie Tsang in the First FT post:

“I feel so secure with Apple that if it goes down, I just buy more, I don’t worry.”

I'm glad Carl's comfy.
And respect 40%+ annualized.

"Where successful London bankers go for the Bank Holiday weekend"

The Cotswolds?
From eFinancial Careers:
If you’re a banker in London, this weekend marks the first May Bank holiday. Sandwiched between Easter and Whitsun and falling before the summer season, it’s an opportunity to catch your breath, recharge, relax, and spend time with like-minded people who might even be good for your career.

Where bankers spend weekendsWhere will the bankers be? That depends upon their genre. Sporty, and they’ll be out golfing or watching the boxing match. Socialites? Throwing parties. Here’s my list of places you can go to find bankers de-stressing. Go along too if you want to network, or simply mention that you were in attendance too back in the office on Tuesday.
  • Watching the Mayweather v Pacquiao match: All bankers tend to be competitive, and this weekend, all of them will be glued to their TVs for the Mayweather v. Pacquiao fight. It’s ‘the’ boxing match of the century and promises to be one of the most profitable fights of all time. Bets will be made and there will be winners and (sore) losers. Bankers will let their adrenaline loose, which will be one way of relaxing. There will definitely be post-match chatter next Tuesday, so make sure you know the match details inside and out.
  • Throwing a Barbecue or Party: The socialite banker will be throwing a casual yet upscale BBQ with Wagyu beef burgers, Lobster skewers and Aperol spritz. They will invite a few select work colleagues just so whispers can be made round the floor and those that didn’t get the invite will be working all year round to make the cut. The really successful bankers will be throwing a birthday party at their Ibiza home and flying all of their friends there, following in the footsteps of David Beckham’s 40th in Marrakech and George Clooney’s party in his Lake Como pad, which are also happening this weekend.
  • Golfing at Wentworth Golf Club: Golfing is still high on the list of ‘relaxing’ activities for top bankers. Of course, the best way to impress your golf-loving boss is to casually mention that your handicap has dropped to 8-9 while 5 years ago it was a 6-7. Also mention that you caught a glimpse of Rory McIlroy playing at Wentworth in practice for the upcoming BMW PGA Championship May 21st. Better still, get him tickets.
  • Renovating a Cotswolds house: For the homebodies, renovating a house is a great source of pleasure and where else to renovate than an old Farmhouse in the Cotswolds. The Cotswolds has become a London outpost where you have Russian and Chinese neighbours seeking the peace of the English countryside. And house renovations are always something to chat about; one banker I know once proudly and gleefully told another banker that his house renovation cost the same as the house itself....

Sunday, May 3, 2015

"Why words are the new numbers"

From the University of Chicago's Booth School Of Business' Capital Ideas Magazine:

We use language to describe, instruct, argue, praise, woo, debate, joke, gossip, relate, compare, reassure, berate, suggest, appease, threaten, discuss, forgive, respond, propose, inspire, complain, interject, boast, agree, soothe, harangue, confess, question, imply, express, verify, interrupt, lecture, admonish, report, direct, explain, persuade.

Every day, we express ourselves in 500 million tweets and 64 billion WhatsApp messages. We perform more than 250 million searches on eBay. On Facebook, 864 million of us log in to post status updates, comment on news stories, and share videos.
Researchers have recognized something in all this text: data. Aided by powerful computers and new statistical methods, they are dissecting newspaper articles, financial analyst reports, economic indicators, and Yelp reviews. They are parsing fragments of language, encountering issues of syntax, tone, and emotion—not to mention emoticons—to discern what we are saying, what we mean when we say it, and what the relationship is between what we say and what we do.
They are making new discoveries. Businesses may be able to learn about a product defect before anyone calls customer service. Economists could pinpoint the start of a financial crisis and determine which policy remedies are most effective. Political junkies can use text to understand why the phrase “mashed potato” boded ill for Newt Gingrich’s presidential aspirations—and learn from that, too. Investors can also benefit from analyzing text (see “Turn text into $$$$$” at left).

“In econometrics textbooks, data arrives in ‘rectangular’ form, with N observations and K variables, and with K typically a lot smaller than N,” write Liran Einav and Jonathan D. Levin for the National Bureau of Economic Research, in their survey of how economists are using big data. In contrast to those simple textbook models, text data—where observations might be tweets, or phrases from the Congressional Record—are unstructured. They have what researchers call “high dimensionality,” meaning there can be a huge number of variables, and an enormous number of ways to organize them in a form that can be analyzed.
With the advent of cloud computing, the data can be stored on thousands or millions of machines. It’s an engineering feat simply to ensure that all those computers are communicating properly with one another. Einav and Levin suggested in 2013 that economists must begin to study computer-programming languages and machine-learning algorithms if they hope to tackle cutting-edge questions. Two years later, researchers are increasingly doing just that.

Newspapers reveal their biases
One of the pioneers of text analysis is Matthew Gentzkow, Richard O. Ryan Professor of Economics and Neubauer Family Faculty Fellow at Chicago Booth, who first became interested as a graduate student in using text analysis to tease out the economics of the media industry. An important vein of his research seeks to uncover economic reasons behind seemingly ideological choices, such as whether newspapers choose political affiliations to differentiate from their competitors, or whether papers in markets that skew politically liberal or conservative tend to use the words and phrases favored by their readers. Gentzkow’s work won him the 2014 John Bates Clark Medal, given annually to the American economist under age 40 whom a committee of the American Economic Association deems has made the most significant contribution to economic thought and knowledge.

He began developing his ideas about the economics of media—and about the process of text analysis—just as technology was beginning to give researchers far more access to text, through online databases and internet archives that could be analyzed with keyword searches and other methods. “I realized there was a ton of data for this industry that people hadn’t really exploited before,” he says. It wasn’t for lack of trying: as recently as the early 1990s, researchers used a laborious process to transform text into a usable data set. Frequently, graduate students assisting in research projects burrowed through stacks of newspapers and checked off every time a word was used in an article. Their work revealed interesting patterns, but even with this monastic devotion, they could analyze only a small number of newspapers in a year, compared with the number available.

Within a few years, economists had gained access to databases of newspaper articles, as well as scanners that use optical character recognition, which allowed them to digitize hard copies of sources such as, say, newspaper directories dating to the 19th century. Researchers also began to hire people in inexpensive labor markets, including India, to combine optical character recognition with hand searches. The work was still tedious and painstaking—but it was speeding up.

Computers can obviously read text far faster than humans can. But unlike humans, they have to be taught to infer meaning. A researcher trying to teach a machine to do this must provide enough examples, over and over, of how to categorize certain patterns, until the computer can begin to classify the text itself. Think of your email spam filter, which learns from the messages you choose to block. Each time you mark an email as spam, you give the filter a new example that helps it become more accurate.

When Gentzkow and Brown University's Jesse M. Shapiro wanted to measure evidence of media slant in newspapers, they did something similar. To classify newspapers as Republican or Democratic, they started with a body of training text comprising a sample set of articles, and searched for political buzzwords and phrases, such as “death tax” and “undocumented worker,” to see which were widespread.

Gentzkow and Shapiro had originally thought they could train the computer using the political platforms produced by each party. But that didn’t work due to idiosyncratic differences in the platform text that had nothing to do with partisanship. Using the text of presidential debates didn’t work, either. But around the same time Gentzkow and Shapiro were working on this puzzle, Tim Groseclose and Jeffrey Milyo, researchers at UCLA and the University of Missouri, respectively, were searching the Congressional Record to count how many times Republicans and Democrats cited particular think tanks in their congressional speeches, and comparing their counts to how often certain newspapers cited those think tanks. 

Influenced by that work, Gentzkow and Shapiro decided to train their computer on the Congressional Record, which captures all the official proceedings and debates of Congress. They wrote computer scripts to scrape all the text from the searchable database. Research assistants, the unsung heroes of text analysis, organized those messy chunks of text in a process Gentzkow compares to painstakingly reconstructing fragments of DNA.

Because the record identifies each speaker, the researchers trained the computer program to recognize the differences in rhetoric between elected Republicans and Democrats. The next step, Gentzkow explains, was to examine the overall news content of a newspaper to determine, “If this newspaper were a speech in Congress, does it look more like a Republican or a Democratic speech?”

To do that, Gentzkow and Shapiro identified how often politically charged phrases occurred in different newspapers in 2005. They constructed an index of media slant and compared it with information about the political preferences of the papers’ readers and the political leanings of their owners. The aim was to find out if the Washington Post, for example, primarily reports the slant preferred by its owner (currently Amazon chief executive Jeff Bezos) or responds to the biases of its customers.

Ultimately, the researchers find that customer demand—measured by circulation data that show the politics of readers in a particular zip code—accounted for a large share of the variation in slant in news coverage, while the preferences of owners accounted for little or none. Gentzkow and Shapiro conclude that newspapers use certain terms because readers prefer them, not because the paper’s owner dictates them.
In another study, Gentzkow, Booth PhD student Nathan Petek, Shapiro, and Wharton’s Michael Sinkinson examined thousands of pages of old newspaper directories—including more than 23,000 pages of text—to determine whether political parties in the late 19th and early 20th centuries influenced the press, measured by the number of newspapers supporting each party, and the newspapers’ size and content.  
The era they examine, 1869 to 1928, gives plenty of reason to believe that politicians were manipulating the media for their own advantage. Into the 1920s, half of US daily newspapers were explicitly affiliated with a political party. State officeholders gave printing contracts to loyal newspapers and bailed out failing ones that shared their political agenda. 

The researchers note whether each newspaper reported a Republican or Democratic affiliation. They also looked at subscription prices, because papers that were more popular with readers would have been able to charge more. Did Republican newspapers increase in number and circulation when control of a state governorship or either house of the state legislature switched from Democratic to Republican? 
In the researchers’ sample, political parties had no significant impact on the political affiliations of the newspapers, with one notable exception: the Reconstruction South. In nearly all of the places where Republicans controlled state government for an extended time, Republican newspapers reached a meaningful share of both daily and weekly circulation while Republicans were in power. Republican shares of weekly circulation rose to 50 percent or more in Arkansas, Florida, and Louisiana while Republicans were in control. But Republicans’ share declined sharply in those states and elsewhere when Democrats regained power.

“Even if market forces discipline government intervention in most times and places, this does not prevent governments from manipulating the press when the market is particularly weak and the political incentives are especially strong,” Gentzkow, Petek, Shapiro, and Sinkinson write.

Another study by Gentzkow and his coauthors, in which they again examine newspapers’ political affiliations and circulation figures, suggests that market competition increases newspapers’ ideological diversity. They also find, separately, that the popular notion of an internet “echo chamber,” where people segregate themselves by ideology, has been overblown. Writing in 2011, Gentzkow and Shapiro assert that most online news consumption is dominated by a small number of websites that express relatively centrist political views. In fact, people segregate themselves according to politics much less online than they do in face-to-face interactions with neighbors or coworkers. (For more on whether the web causes political polarization, watch the Big Question episode from August 2013)

Other researchers are using large-scale text analysis to parse bodies of language ranging from financial statements and company documents to eBay product descriptions to the Google Books corpus, Gentzkow says. “It seems like [text analysis] is going to keep getting bigger as the methodology improves.”...

‘Ruffian Dick’: Richard Burton, Victorian Explorer

From the Financial Times Magazine:

‘Ruffian Dick’ spoke 40 languages, infiltrated male brothels and Mecca and is remembered as Britain’s most flamboyant adventurer 
In 1842, a group of Oxford dons glanced up from their game of bowls to see a horse trotting out of the main gates of Trinity College. Seated in the dog cart it was pulling was a young man they had expelled for the crime of attending a steeplechase. Richard Burton had already acquired something of a reputation at the university — for challenging another undergraduate who had laughed at his droopy moustache to a duel, for his debts to his tailor, for rowdy parties and for caricaturing the teachers who believed he might one day be turned into a clergyman. Informed of his sentence, Burton gave a low bow and wished his judges every future happiness. As the wheels of his dog cart ploughed over the college flower beds, Burton sounded a tin trumpet and blew kisses to passing shopgirls. While the dons spent the next 20 years mouldering away in Oxford, the man they “sent down” rose to become the most exotic explorer in the world, simultaneously confident of the pre-eminence of the west and beguiled by the mysticism of the east, driven partly by a passion to discover “Gnosis”, or the meaning of existence, and partly by pure egotism. Like many noteworthy men, he was slightly nuts. “Travellers, like poets, are mostly an angry race,” he boasted.
Burton was described in his Times obituary as “one of the most remarkable men of his time”. Yet his tomb in the suburban Catholic cemetery at Mortlake is one of the great unvisited sites of London, a striking sandstone mausoleum copied from an elaborate desert tent made for him in Damascus. It is perhaps not surprising that it is adorned with a crucifix. But it also carries a Star of David and the Islamic crescent-and-star.

Burton’s name is inscribed on the roll of winners of the Royal Geographical Society’s Gold Medal “for his various exploratory enterprises, and especially for his perilous expedition with Captain JH Speke to the great lakes in Eastern Africa”, when the two men discovered the source of the Nile. The following name inscribed on the roll of honour inside the Society’s doors in Kensington is that of Jane, Lady Franklin, “for self-sacrificing perseverance in sending out expeditions to ascertain the fate of her husband”, Captain Sir John Franklin, who had been frozen to death attempting to discover the Northwest Passage in 1847. The battered boards list name after name of Victorian explorers who left Britain to chart unmapped wildernesses and turn the map pink — Baker, Burke, Fitzroy, Ross, Stanley, Thompson and dozens of others. David Livingstone may be the most famous of them. But Richard Burton is easily the most colourful. . . . 
Sir Richard Francis Burton, August 1864
For a while the rejected undergraduate toyed with emigrating, or enlisting in the Austrian army, the Swiss Guards or the Foreign Legion, until finally deciding to be “shot at for sixpence a day” with British forces in India. Imperial service was the route taken by many a young man sick of the limitations of life in Britain and at the time the army was desperate for officers, having just been cut to pieces during its retreat from Kabul. 
The loss of the war in Afghanistan was one of the greatest imperial disasters of the 19th century. How could an expeditionary force from the world’s greatest military power be reduced to a single survivor by a bunch of Afghan tribesmen? But Burton “blessed the name” of the Afghans for giving him the chance of a new life.
Since the majority of the papers dealing with his childhood were destroyed in a fire, most of what we know of his life to this point comes from what Burton chose to disclose in an autobiography. He was certainly the eldest son of an army officer who considered him something of a prodigy. Burton claimed (he was not overburdened with modesty) that he had learnt Latin at three and Greek at four. Since his father had settled the family in France, he certainly spoke fluent French as a child. It was said that he could play chess blindfolded by 14, at which age he was already a skilled fencer. By the time he went to Oxford (his father had the bizarre idea that he might make a clergyman), the young Burton had brought his music lessons to an end by smashing a violin over the head of his teacher, but had learnt to box, drink and find his way around a brothel....MUCH MORE
Richard Burton, Victorian explorer

Friday, May 1, 2015

From Those Wonderful Folks Who Called First Quarter GDP: "Atlanta Fed Cuts Q2 GDP Forecast To +0.8%..."

Following up on Wednesday's "A Rare Win for Economic Forecasting: The Atlanta Fed Almost Nails Its First-Quarter Growth Estimate".

From ZeroHedge:
Just as we warned earlier, the April data is not suggesting the kind of post-weather Q2 bounce in economic growth that everyone is praying for  (or not if you're long stocks). On the heels of this morning's tumble in construction spending, The Atlanta Fed forecasts second-quarter real nonresidential structures investment to collapse 20%, leading to a mere 0.8% Q2 GDP growth estimate (dramatically below consensus hope expectations of 3.3% growth).

They nailed it in in Q1...

Izabella Kaminska, Marc Andreessen and Satan Walk Into a Bar...

The "nudge" folks, from Cass Sunstein on down, all say they aren't totalitarian thugs, that what they are prescribing/proscribing isn't forced on you and besides, it's for your own good.

Here's a snippet from Andreessen-Horowitz's 16 Things: Insurance:
...How about an insurance company that empowers you to make smart lifestyle decisions? Examples: the car insurance company that routes you around dangerous intersections; the home insurance company that automatically summons a plumber when it detects water on the floor near the water heater; or the health insurance company that connects you with friends that are also trying to lose weight?...
Of course the wasp's sting is in the tail:
...Yes, some of these will require changes to existing regulations. But some of the regulations were designed for a different era. The world has changed. Let’s help the stodgy insurance ecosystem change with it.
It's always about who gets to write the laws.
Handy reference link after the jump.

For more on the Bitcoin/Andreessen connection see yesterday's "Climateer Line of the Day: Uh Oh Andreessen Edition".

Regular readers of this blog will know that I have an unhealthy fascination with things like artificial intelligence, information asymmetry, monetary systems, bitcoin and Sci-fi. And that I like to speculate wildly.
So come with me now on a little journey. A journey to a distant point in time when the world has grown a nervous system and thinks for itself. A point in time Sarah Connor once called Judgment Day.
Because what I discovered this month is that even as I write and speculate about these things in a semi-whimsical fashion, there are others out there — with not insignificant amounts of capital — preparing to forward this agenda very seriously.

This, I have realised, is the true era of *cult markets, and by that I mean it’s not just greed and money driving advances in the fintech space anymore. In the bitcoin world especially there is — among certain groups at least — something akin to religious fanaticism driving things forward.

Now, I realise that exposing bitconers as cultists is hardly an innovative observation. But there is, I think, a subtle difference between the tendency for absolutist libertarian thinking in this space — something we’ve always seen in the gold market, for example — and the true out-of-this world ambitions of those attempting to coordinate and direct that religious fervour into promoting their agendas.

Because when you unpack the true motives of the core instigators, you discover an absolutely incredible belief system. (* consider this a curtain raiser for my upcoming book: Cult Markets).

The following will, I’m sure, sound a bit crazy. But I, like Herodotus, simply tell the story as I see it unfold in front of me or as I come to learn about. And I think this is a story that is worth telling, no matter how crazy it sounds.

Artificial Intelligence 
A while ago I attended a talk by a prominent artificial intelligence developer and scientist. This particular AI developer was working on a so-called brute force learning system, which as far as I understand from people in this space is a fairly common approach to AI learning and neural path development. This AI expert revealed in passing, very much off the record, that he was already working/talking with hedge funds about deploying the AI on markets, and that his current best guest about the sort of returns that could be achieved was about 40 per cent.

Later I came across a different AI team which took a very different approach to the whole thing. Their AI wasn’t going to be a brute force trial and error type. It was going figure out what to do next with the help of an imagination. This would be achieved with the use of modelling techniques, which would — as I understood it — help the AI 3D-map the world around it so that extrapolations and intuitive guesses could be made about how and where to take further action. I found all this fascinating. And while I desperately wanted to write about it — (Intuitive AIs are out there!) — I couldn’t think of a way to link it in a serious fashion to finance or markets.

But I now finally do have an excuse.

A couple of weeks ago I met up with an incredibly insightful hedgie who I hadn’t heard from for a long time. He explained to me that one of the reasons he had gone “dark” and wasn’t sharing insights with the public and the media as he once did, was because gaining a proprietary advantage in the market based on insight had become increasingly momentary. Nowadays, with his fund fully established, there wasn’t any reason to give away insight for free to the media. Fair enough.

Nevertheless, we got to chatting about the themes he was exploring anyway. And one thing that did come out was his belief that it wasn’t classic HFTs — which apparently are fairly dumb and only as good as the ideas of the hedgie who programmed them — that the likes of Michael Lewis should be worried about, but rather algorithms that adapt and learn as and when they encounter diminishing returns, externalities or other unexpected events.

My source added that he himself had hired a number of AI experts to help develop precisely such algorithms. At this point — and please remember I had’t seen or spoken to him for years — we turned to the topic of the prisoner’s dilemma. We soon realised we had arrived at fairly similar opinions about how the marketplace might evolve next quite independently.

For example, I had proposed just a few weeks ago that perfect competition and smart algorithms probably would in the long-time lead to the outbreak of a spontaneous algorithmic consensus. 
Self-adjusting algorithms, I proposed, would eventually figure out that a race to the bottom was against all their interests, and that sharing information — whether wittingly or unwittingly — to establish a de facto rent-extracting cartel system made much more sense. This, I then proposed, might be the moment that markets become self-aware.

Bitcoiners and the Mark of the B
This brings me to the latest Bitcoin panel I attended. The panel started as they always do: wildly over enthusiastic claims about bitcoin’s potential, profound disrespect for the social bit of society and reflections that proved a generally poor understanding of how the financial system works.
But there was one guy — who used to own a mining business — who intrigued me a lot. He will remain nameless (for now)....MUCH MORE ending with:
P.s. I’m pretty sure you can extract a meaningful satanic anagram out of the name Satoshi Nakamoto as well.
For which the reddit r/bitcoin had an answer a couple years ago:
if you rearrange the letters in satoshi nakamoto you get...
Here are the first thousand results from Wordsmith's anagram generator.

Credit Suisse Says There Is $4.3 Trillion Available For Mergers and Acquisitions

From ValueWalk:

Credit Suisse: $4.3 Trillion Of Cash Available For M&A
Credit Suisse Group AG (ADR) (NYSE:CS) has laid out the case for further M&A activity this week. The bank points out that ‘dry-powder’ at private equity companies and corporate cash levels still sit at record levels. While in many sectors it has now become cheap to buy capacity, rather than build it.
The bank makes the case that:
  • 73% of European companies and 63% of US companies have a FCF yield above their respective corporate bond yield.
  • The combined firepower from corporate cash, re-leveraging and private equity ‘dry powder’ is $4.2 trn, or 10% of global market cap
  • M&A activity is only in line with 10-year norms and 40% below its long-run average
  • In many cases, it is cheaper to buy than build: 56%, 29% and 19% of Japanese, GEM and European corporates trade below replacement value
  • Private equity for the first time appears willing to pay higher multiples than strategic buyers
All of these factors support the case that another wave of M&A activity is just around the corner.
CS M&A 1
CS M&A 2

M&A – Awash with cash

According to data from Worldscope, there is $4.2trn of cash on corporate balance sheets globally. Of this, $1.4trn sits with US corporates. A significant amount of this cash is parked overseas, $690bn according to Credit Suisse’s estimates. Nonetheless, US corporates repatriated $301bn last year, the highest since the repatriation holiday of 2005....MORE

"How Foreign Stock Markets Stack Up by Shiller P/E "

From the Wall Street Journal's Total Return blog:
More than six years into a bull market, U.S. stocks look expensive. But it looks like Poland is on sale.
Stocks in Austria, France, Italy, Japan, Malaysia, Peru, Singapore and Spain also appear relatively inexpensive, based on the cyclically adjusted price/earnings ratio, or CAPE, as calculated by Joachim Klement, chief investment officer at Wellershoff & Partners, an investment consultancy based in Zurich.
This figure is also known as the Shiller price/earnings ratio, or Shiller P/E, as it was popularized by Robert Shiller, a Yale University economist and Nobel Prize winner.

In each of those countries, the CAPE as of March was more than 20% lower than the historical average, which Mr. Klement says is a good rule of thumb for determining when the gap between the current ratio and the historical ratio really matters.

The U.S. isn’t the only place where stocks look expensive by that standard. The CAPE is well above average in Denmark, Indonesia and South Africa, according to Mr. Klement’s data. Canada, Germany, the Philippines, Switzerland, Thailand and the U.K. are among the places where it’s about average....MORE

"Jeremy Grantham: U.S. Stocks Still Have Legs" (GMO's Q1, 2015 Quarterly Letter)

Back in 2014 we had a series of posts on the usually dour Mr. Grantham that featured him as damn near jolly about the prospects for bullish investors. Links below. Here's a follow-up.
From Barron's:
The legendary investor thinks the S&P 500 can rise 8%, though foreign stocks are a better bet.

As you know, dear reader, I have been hacking on for several years about the downward pressures on U.S. long-term growth prospects. What amazed me two years ago was to see the authorities, including the Federal Reserve, estimating a nearly 3% trend for the U.S., which seemed to me then and now as impossible. 

Negligible growth in population and man-hours offered to the workforce is the most important brake to growth, with a net drop of fully 1% from the pre-2000 trend. Less capital investment and growing income inequality do not help. But the most underappreciated important factor, in my opinion, is the drag on growth from the loss of sustained cheap energy as oil has moved from a $16/barrel 100-year trend pre-1972 to today’s approximate $75/barrel trend price.

The global financial crisis, in contrast, was a temporary factor and one that I believe (on my own, apparently) was given an exaggerated importance. Given these negative factors, I estimated a few years ago that the U.S. trend line growth for GDP was likely to be no higher than 1.5% a year, and perhaps only 1% for Europe and Japan. Well, wheels turn and estimates are re-estimated: official estimates for the longer-term growth trend of the U.S. have been falling slowly but surely over the last few years to a range from 2% to 2.5%. In the two or three years since 2012, I had expected to see them in the range of 1.5% to 2%.

Well, into this quiet world of creeping adjustment, an International Monetary Fund paper released in early April of this year acted as an unexpected jolt of excitement as, unusually, estimates tumbled all the way down to 1.5%.

Wonders never cease. Now, the question is how much will this affect the Fed’s beliefs? Presumably enough to matter. This would be timely because, as you may remember, I have been anxious about the Fed’s whipping our actual 1.5% donkey in the mistaken belief that it was a 3% racehorse. The danger was, as I said, that they would keep on whipping it until either the donkey turned into a racehorse or dropped dead. Death from overstimulation.

Not only has the IMF paper been a necessary gust of reality that might just convince Ms. Yellen that she is indeed dealing only with a humble donkey, but it has also raised some interesting further questions. It made its main point the reduced rate of growth and the ageing of the workforce. How, by the way, does this point, straight from the U.S. Bureau of Census, take over five years to make it into semi-official GDP growth estimates? It then references lower capital investment ratios in a traditional way.

Also obvious enough. But what does it leave out? Resource limitations! I like to joke that the only thing that unites Austrians and Keynesians is their complete disregard for the limitations imposed by Spaceship Earth. In their thinking, a dramatic increase in price trend from the old $16/barrel to the new $75/barrel had no effect. Mainstream economics continues to represent our economic system as made up of capital, labor, and a perpetual motion machine. It apparently does not need resources, finite or otherwise. Mainstream economics is generous in its assumptions. Just as it assumes market efficiency and perpetually rational economic players, feeling no compulsion to reconcile the data of an inconvenient real world, so it also assumes away any long-term resource problems. “It’s just a question of price.” Yes, but one day just a price that a workable economy simply can’t afford!

I am still just about certain about three things: first, our secular growth rate in the U.S. is indeed about 1.5% (at least as stated in traditional GDP accounting, wherein expensive barrels of oil increase GDP; perhaps closer to 1% in real life); second, economists move their estimates slowly and carefully in order to stay near the pack and minimize career risk (despite the recent IMF heroics); and third, that we do not like to give or receive bad news and, when in doubt, we tend to be optimistic.
A brief update on the U.S. market: still not bubbling yet, but I think it will
The key point here is that in our strange, manipulated world, as long as the Fed is on the side of a strong market there is considerable hope for the bulls. In the Greenspan/Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully-fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity bubble and housing bubble in U.S. history. Yellen, like both of her predecessors, has bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect. 

Thus far, she seems to also share their view on feeling no responsibility to interfere with any asset bubble that may form. For me, recognizing the power of the Fed to move assets (although desperately limited power to boost the economy), it seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet. 

To remind you, we at GMO still believe that bubble territory for the S&P 500 is about 2250 on our traditional assumption that a two-sigma event, based on historical price data only, is a good definition of a bubble. (As we like to describe it, arbitrary but reasonable, for it fits the historical patterns nicely.) 

For the record, probably the best two measures of market value – Shiller P/E and Tobin’s Q – have moved up over the last six months to 1.5 and 1.8 standard deviations (sigma), respectively. So, just as with the price-only series, they are also well on the way to bubble-dom but, clearly enough, not there yet. If we used these value series instead of just price it would add 5%-10% to the bubble threshold, further improving my case that the current market still has a way to go before reaching bubble territory. Historically, we have often used the price series as both less judgmental than using measures of value, and as a much fairer comparison with other bubbles (e.g., commodities currencies and housing)....MORE
Jeremy Grantham: U.S. Stocks Still Have Legs

Here's the letter at GMO's website.

Previously on Grantham through the looking glass:

July 18, 2014 
Jeremy Grantham: M&A Boom Poised For a ‘Veritable Explosion’
July 19, 2014 
If You Want to Make Serious Money Listen to GMO's Jeremy Grantham Right Now
Oct. 24, 2014
Revisiting Jeremy Grantham's Bullish 2 Year Outlook
Nov. 18, 2014
"Jeremy Grantham's Bubble Watch Update: 'S&P To 2250 Before It Crashes'"
Nov. 19, 2014
More Jeremy Grantham: "Calling the Next Market Top"

See also:
Feb 2010
"Grantham’s ‘Horrifically Early’ Calls Challenge GMO"
March 2014
How Good Is Jeremy Grantham's Forecasting Record?
His strong pessimism drives GMO managed funds toward the most stable (large capitalization) value stocks, and these funds have performed fairly well (reflecting perhaps a value premium rather than market timing).

Thursday, April 30, 2015

"Dow Tumbles Back Into The Red For 2015"

From ZeroHedge:
Dow joins Trannies in the red year-to-date...

Triggered by Iran headlines...

"Creative destruction: Newspaper ad revenue continued its precipitous free fall in 2014, and it’s likely to continue"

During the Great Nastiness of aught-eight I would refer to Professor Perry as "the Happy Economist" because he relentlessly focused on the green shoots.
Today, not so much, at least for the information gate-keepers/toll-takers.

From Carpe Diem:
For the last several years, I’ve been regularly posting charts like the one above showing the history of US newspaper advertising revenue back to 1950, based on data from the Newspaper Association of America. Those charts have been noteworthy for several reasons.

First, more than any of the hundreds of charts and graphs that I’ve created and posted on Carpe Diem over the last seven years, the newspaper ad revenue charts have received the most attention by far. Those charts have been featured on so many other blogs and websites that a recent Reuters article referred to a recent version as a “much-reproduced chart.” If you do a Google image search for “newspaper ad revenue,” you’ll see many versions of the CD chart above. I hope this is a testament to how powerful and compelling the graphical representation of data can be!

Second, it’s possible that the attention the ad revenue charts were generating on the Internet may have contributed to the decision by the Newspaper Association of America (NAA) in 2013 to suddenly stop its long-standing practice of reporting quarterly advertising revenue data, and switch to releasing only annual data (not yet available from NAA for 2014, but available here from BIA/Kelsey). In a 2013 interview, NAA CEO Caroline Little was quoted as saying that she and the organization’s board decided it was “time to stop beating themselves up four times a year with the negative numbers.”

The updated chart above shows annual data from 1950 to 2014 in inflation-adjusted (2014) dollars. The blue line represents total annual print newspaper advertising revenue (for the three categories national, retail, and classified), and appear in the chart as billions of constant 2014 dollars....MORE

Climateer Line of the Day: Uh Oh Andreessen Edition

From a very interesting piece at FT Alphaville:

...Bitcoins are like “tulips you can send anywhere in the world in arbitrary quantities”.
-Andreessen Horowitz partner Balaji Srinivasan

Mr.Srinivasan may not be aware that, since ca. 1637 or so, tulips have not had the best connotation in the world of finance.

From FT Alphaville:
The Manhattan Project-type secrecy surrounding a company called 21 Inc — hitherto known as 21e6 — has been stupendous, even by Silicon Valley standards.

Not that this has stopped cryptocurrency friendly journalists like Michael J. Casey at the WSJ (co-author of the Age of Cryptocurrency) and Coindesk’s Pete Rizzo from propagating 21 Inc’s claims about bitcoin being bigger than Google.

All we do know is that the company, headed by Matthew Pauker, has raised more than $116m worth of venture funding, a record for the sector, and claims to be developing technology that they believe will help to mainstream bitcoin.

Leading investors include Andreessen Horowitz, RRE Ventures, a Chinese PE firm called Yuan Capital and Qualcomm. But, Casey reports, the wider investor list includes everyone from PayPal co-founders Peter Thiel and Max Levchin, to eBay co-founder Jeff Skoll and Dropbox Inc CEO Drew Houston, to Expedia Inc. CEO Dara Khosrowshahi and Zynga Inc co-founder Mark Pincus.

To date, the only worthwhile snippets of info as to what 21 Inc might actually do have come by way of Balaji Srinivasan, Andreessen Horowitz partner and 21′s chairman. At a recent event Srinivasan claimed things like … “payments are now packets. Bitcoin is here to stay” and that Bitcoins are like “tulips you can send anywhere in the world in arbitrary quantities”....MUCH MORE

Putin to Have Superhuman Mind-Controlled Exoskeletons in 5 Years

From the Fiscal Times via Yahoo Finance:

Yikes! Putin Will Soon Have Superhuman Robo-Soldiers!
It may not be sharks with frickin’ laser beams attached to their heads, but for a leader bent on expanding his global sphere of influence, an army of soldiers equipped with mind-controlled robotic exoskeletons may be the next best thing. According to Russian media, that’s just what President Vladimir Putin’s army has in the pipeline. 

On Wednesday, the headline on the government-run Sputnik News website was, “Lock and Load: Russian Hybrid Robo-Soldiers Could Be Just Five Years Away.” Russia Today, the equally servile outlet aimed at English speakers led with “Iron Man mass production? Russian army may get combat exoskeletons by 2020.” Even the more independent Moscow Times trumpeted, Russian Army May Have Superhuman Mind-Controlled Exoskeletons in 5 Years. 

None of this, of course, means that a Russian army of Terminator-like super-soldiers is around the corner. But that wasn’t stopping speculation.
“The Russian Army is set to receive mind-controlled exoskeletons,” Sputnik reported. “The wearable robots will be controlled by brain waves and will increase the strength and endurance of the serviceman wearing it by several times.” 

Russian soldiers equipped with the new gear, according to Sputnik, would be able to carry more than 600 pounds of gear. Their endurance, it added, would also be greatly increased....MORE

Updated: "The impossible just happened: American wages are rising"

Update below.
Original post:

It is factoids like this that have kept us bullish on the overall market even as a major component of the indices, energy, got whacked.
From Quartz:
This might be the best economic news Americans have had in a good long while.
New claims for unemployment benefits continued to plummet, tumbling to their lowest level since 2000.

And what’s more, there are even signs of life in nominal wages, which were up 2.6% in the first quarter, year-on-year.

This is precisely why we told you to ignore the weak first-quarter GDP data produced yesterday....
Update- ZeroHedge takes a different view:

No Growth In Personal Income Pushes Savings Rate To Lowest In 2015; Spending Misses Expectations

"Lessons In Oil Price Forecasting"

From Forbes:
When I published a working paper in 1992 at MIT called “The Fog of Commerce: The Failure of Long-Term Oil Market Forecasting,” many thought the lesson was that forecasting the long-term price of oil couldn’t be done. My actual point had been that bad theories and bad models lead to bad forecasts, specifically the belief that resource economics proved that fossil fuel prices had to rise exponentially.

Recently, I opened a talk with a slide showing the early-2014 survey of long-term oil price forecasts published by the Department of Energy, in which my forecast of $50 a barrel was far below all the others. But in the next slide, previous forecasts in which I had called for lower prices for the past ten years were included, in part, because I don’t want to cherry-pick my record (the way some peak oil advocates do), but also to focus the discussion on pertinent lessons from forecasting, not just the accuracy of any given prediction.

This is important because too many of late have been drawing superficial conclusions about forecasting, whether it is that it can’t be done (as many do) or Al Gore’s triumphant note that predictions of the failure of renewables have proved wrong, therefore the energy transition is under way. (Technology predictions will be addressed in a later post.)

The lesson to be drawn from the many oil company “Titans” that were convinced lower prices were unlikely or incredible is that they tend to let wishful thinking dominate their expectations, an all too human failing. T. Boone Pickens, claiming “…because I know more about it than they do,” shows that he hasn’t learned from the ancient Greeks about hybris, or pride, to say nothing of his own mistakes. Anyone who has been in the business of predicting oil markets should be pretty humble, because we’ve all gotten it wrong many times, sometimes spectacularly....MORE

"Christopher Hitchens And George Orwell’s Ironclad Rules for Making a Good Cup of Tea"

From Open Culture:

It’s not that I don’t appreciate good coffee—I consider it a delicacy. But at the end and the beginning of the day, coffee mostly functions as a caffeine delivery system. But not tea. Tea must be savored, and it must be good. Americans’ enthusiasm for tea does not come naturally. What passes for tea in the U.S. is best described by Christopher Hitchens as “a cup or pot of water, well off the boil, with the tea bags lying on an adjacent cold plate.” (See his January 2011 piece in Slate called “How to Make a Decent Cup of Tea.”) If this doesn’t sound wrong, he elaborates, setting up his endorsement of George Orwell’s methodical instructions for proper tea:
Then comes the ridiculous business of pouring the tepid water, dunking the bag until some change in color occurs, and eventually finding some way of disposing of the resulting and dispiriting tampon surrogate. The drink itself is then best thrown away, though if swallowed it will have about the same effect on morale as a reading of the memoirs of President James Earl Carter.
I like Jimmy Carter. I haven’t read his memoirs, and this does indeed sound awful. And before I had learned anything at all about drinking tea, it was all I knew. I tried. I cribbed a few notes here and there, wrote in tea shops, read the rough-hewn formalism of Sen no Rikyu, and looked to the East. I did not look to Britain and her former Commonwealth.

Perhaps I should. George Orwell would probably say so. Hitchens as well, though they don’t perfectly agree with each other. “Tea,” wrote Orwell in his famous 1946 essay “A Nice Cup of Tea,” “is one of the mainstays of civilization in this country, as well as in Eire, Australia and New Zealand, but… the manner of making it is the subject of violent disputes.” The only disagreement Hitchens musters against Orwell is that some of his rules, “(always use Indian or Ceylonese—i.e. Sri Lankan—tea; make tea only in small quantities; avoid silverware pots) may be considered optional or outmoded.”

Many old restraints may be loosened. But make no mistake, for Hitchens, as for Orwell, making a good cup of tea is not about mindfulness, patience, impermanence, or meditation. It is about rules. Orwell had 11. The “essential ones are easily committed to memory, and they are simple to put into practice.” What are they? Hitchens has his own succinct paraphrase, which you can read over at Slate. Orwell’s rather baroque list we reprint, in part, below for your edification. Read the complete essay here. Hitchens recommends you straighten out your next barista on some tea essentials. Imagine, however, presenting such an unfortunate person with this list of demands:...MORE

Wednesday, April 29, 2015

"Byron Wien on Population Growth and Stocks"

From Barron's Wall Street's Best Minds column:

The Wall Street vet analyzes how big changes in population and productivity will affect investments.
We were all lucky to be born at the right time. Over the past fifty years, world gross domestic product growth has been averaging 3.6%, driven by employment increases and productivity improvements in roughly equal proportions. An exhaustive and important study by the McKinsey Global Institute concludes that over the next 50 years population growth will decline to 0.3% annually. If productivity continues to contribute 1.8%, overall growth will decline to 2.1%, a rate 40% less than during the past half-century. The implications of this slowdown on global changes in the standard of living and investment opportunities could be enormous. 

The developing world can improve its growth potential by adopting operational practices and technology used by the advanced countries (that is, by catching up), but the United States, Europe and Japan will continue to depend heavily on innovation to approach anything like their historical rate of growth. Those subscribing to Mohamed El-Erian’s concept of “the new normal” or Harvard Professor Alvin Hansen’s “secular stagnation” may turn out to be right, but for reasons somewhat different than they originally thought. I have been worried about a lack of demand causing a slowdown in growth. I had not thought that the main problem might be that there aren’t enough people out there to do the buying. 

The global economy grew sixfold in the past 50 years. Taking into account the projections above, it is only expected to grow threefold in the next 50. Population growth rose because of high fertility rates, declining infant mortality and longer life expectancy. Also, the number of people of working age (15-64) grew from 58% of the population in 1964 to 68% in 2014. The productivity improvement resulted from a shift from agriculture to manufacturing and services. Technology obviously played an important role. According to the McKinsey study, the average world employee today generates 2.4 times the output of his counterpart in 1964. Because Europe and the United States were relatively efficient in 1964, their productivity only rose 1.5% and 1.9% annually respectively, while South Korea and Japan rose 4.6% and 2.8% respectively. As expected, China’s productivity grew at 5.7% annually, but Mexico and Saudi Arabia experienced less than 1% annual productivity growth. The study notes that the productivity gap between the developed and the developing economies remains wide, at almost five times, providing a significant opportunity for emerging markets going forward.

The big change in the future will be the slow growth in population. Fertility rates are declining, and the average age of the population in Europe, China and Japan is rising. China’s peak employment is expected to occur in 2024. The working age population in the G19 countries plus Nigeria is expected to decline from 68% to 61% over the next 50 years. By 2064 India’s employment could expand by 54%, while China’s could shrink by 20%. The number of employees in the United States is expected to continue to rise, but at a slower rate than in the past. By employing more women and encouraging people to stay at their jobs beyond age 64, the expected 0.3% rate of working population growth could double, but that would still be well below the pace of the last 50 years. 

The McKinsey estimates of annual population growth seem low to me, but the concept of slower growth in the number of people in the world appears sound. A somewhat less pessimistic study of population growth was prepared for me by Dick Hokenson, the demographic analyst at Evercore ISI. He points out that the G19 plus Nigeria universe includes Germany, Russia, Japan, China and South Korea, all of which will experience overall declines in their populations and labor forces over the next fifty years....MUCH MORE
 Wien is vice chairman of Blackstone Advisory Partners LP, where he acts as a senior advisor to both Blackstone and its clients in analyzing economic, social and political trends.
 Byron Wien on Population Growth and Stocks

"A Rare Win for Economic Forecasting: The Atlanta Fed Almost Nails Its First-Quarter Growth Estimate"

Why do scientists make predictions?

To judge whether their theories are based in reality.

If someone purporting to practice a science says they don't make predictions they aren't doing science but rather something faith-based i.e. more akin to a religion.

From Real Time Economics:
The U.S. economy’s sharp slowdown in the first three months of the year may have caught almost all Wall Street forecasters off guard. But it didn’t surprise the Federal Reserve Bank of Atlanta.

The regional Fed bank’s frequently updated GDPNow forecast proved to be one of the most reliable indications of where first-quarter growth would stand. The Commerce Department reported Wednesday that the economy grew at a mere 0.2% annual rate, against Wall Street expectations of a 1% gain. When most private sector forecasters were overestimating growth, the Atlanta Fed gauge, last updated on Friday, had growth in gross domestic product pegged at 0.1% for the quarter.

The GDPNow gauge has been warning of weakness in the first quarter for some time. That notion was not by itself controversial, as most forecasters and Fed officials saw a weak 2015 kickoff. But the Atlanta Fed proved to be standout when it came to accurately quantifying how much trouble the economy had on its hands.

The Atlanta Fed “certainly nailed it this time,” said J.P. Morgan Chase chief U.S. economist Michael Feroli....MORE