Sunday, January 21, 2018

Rabobank: "World Vegetable Map 2018"

Over the years we've found Rabo to rank among the sharper (read: more accurate in forecasts) analysts in the food and agtech sectors.
Plus, we've never seen something out of the Dutch behemoth to match this from "The great global avocado trade flow chart":
Correction: An earlier version of this item incorrectly described all the avocados exported by the Netherlands as having been grown there....
No sir, Rabobank knows the sourcing of their avocado toast.
On a more serious note, and riffing off the earlier post "Hedge Funds Are Making Money From Bets on "Exotic" Markets", there seems to be a 'growing' interest in financializing flora foodstuffs beyond the big three in the U.S. (plus softs, of course).

Click for the PDF or check in with Rabobank for a poster.

From Rabobank ag research:
The 2018 World Vegetable Map shows essential vegetable trade flows and highlights some key global trends in the sector, such as the growing importance of production in greenhouses and vertical farms, as well as the popularity of organic vegetables.
Rabobank Vegetable Map.jpg
Download > Click here to download the World Vegetable Map
Poster versions of the World Floriculture Map are exclusively available to Rabobank clients. To receive one, please contact your relationship manager.
Map summary: more than just a local affair The global vegetable market is still predominantly a local market. Only 5% of the vegetables grown are traded internationally. But that share is increasing. Easy market access is vital for export-focused vegetable-producing countries like Mexico, Spain, and the Netherlands. Over the last decade, Mexico has further expanded its prominent position on the North American market, and internal EU trade has continued to grow.
Market for fresh (prepared) vegetables up, demand for canned vegetables down An estimated 70% of all vegetables grown in the world are sold as whole fresh vegetables. This market is still on the increase, mainly outside of the US and the EU. Processing of vegetables (freezing, preserving, and drying) is a good way to prevent wastage, but global consumption of preserved (canned) vegetables has decreased over the last decade. At the same time, demand for frozen vegetables has increased by an average of 1% per year. Demand trends seem most favourable for vegetables that are convenient to eat and prepare and/or do well on (social) media because of considered health effects or their visual appeal. Examples are all kinds of (prepared) salads as well as sweet potatoes. EU imports of sweet potatoes (mainly from the US) have tripled in just four years’ time....MORE
And then there's guar. The gum is made from the guar bean and is a versatile food additive.
It is also used in oil fracking.
Which leads me to ask: Did I ever tell you about the great guar squeeze of 2011-12? In 18 months guar gum ran 17-fold.
Back then men were men and beans were for frackin', not eatin' and.....where was I?

Some of our posts from that memorable year:
April 20, 2012 
Commodities: Guar Trades at Record Prices, Frackers Halliburton, Baker Hughes, Schlumberger Suffer (HAL; BHI; SLB)
June 2012
Guar Shortage Still Gumming Up Works for Big Frackers But Relief May Be on the Way (HAL; BHI; SLB)
July 19, 2012  
Earnings Heads-up: "Guar sowing down in India, still time to catch up" (SLB; HAL; BHI)
With guar prices having risen from $1.50 to $25.00 per Kilo and with both Schumberger and Halliburton blaming guar for their Q1 earnings shortfalls and issuing warnings for Q2, all eyes turn to Rajasthan. (well mine, anyway)
Indian market intelligence purveyor Three Headed Lion will sell you their 2012 Guar Gum Report: INDIA for $2975.
There's big money in guar.
Both BHI and SLB report tomorrow, Halliburton on Monday.
Since the Indian authorities suspended futures trading guar only trades physical. This morning's market report: GUAR: Guar and guar gum maintained their last close in thin trading....
July 20, 2012
Fracking: US Drillers Find Respite in Guar War (BHI; SLB; HAL)

Well, you're probably ahead of me on how this plays out:
September 2012
Fracking: India May See Record Guar Crop (HAL; SLB; BHI)

By October the autopsies were being performed:
Lessons From the Attempted Corner and Price Spike in The Guar Futures Trading Fiasco (HAL; SLB; BHI)
The result of the attempted corner and price rise was classic substitution on the part of the oil well service companies. After Halliburton blamed the guar price spike for the drop in their Q1 margins they, Schlumberger and Baker Hughes all began developing substitutes for the humble bean. From HAL's Sept. 4 Q3 profit warning:
The other two-thirds of the margin depression was due to the jump in prices for a key hydraulic fracturing ingredient, guar. McCollum reiterated that high guar prices would weigh on North American margins throughout the rest of this year.

"I suspect that there won't be significant relief from guar pricing in the fourth quarter," he said, while noting the recent good news of rain in India, the world's dominant supplier of guar beans.

"All indications suggest that we should see a significant moderation in guar pricing as we go into 2013," he added.

McCollum said a positive aspect was that Halliburton's substitute for guar, PermStim, met 5 percent of its guar demand in the second quarter, and the uptake had been even more dramatic in the current quarter. Rival Baker Hughes Inc has reported similar success with its own guar substitute.
The other effect was a rush in India to plant guar rather than foodstuffs with the result that guar has given back 2/3 of the 900% price rise and farmers are in the position of  not being able to cover the costs of inputs. There's no doubt that the situation will add to the epidemic of suicides among farmers which passed the quarter-million mark last year.

From Madhyam:
The recent guar trading scandal gives a peek into the murky world of Indian commodity futures markets and reveals how commodity exchanges are acting like casinos for speculators, moving away from their avowed objectives of price discovery and price risk management in an efficient and orderly manner....
The 900% figure was for the 2012 move, the $1.50 to $25/kg action was over 18 months.

Last I saw guar gum isn't even quoted in American anymore, it was trading at 9,345 Rupees per quintal ($146.37 per 100 kilos) with an open interest of 115 contracts for the expiring month.

I'm hearing good things about Chinese garlic though. 
Something about a new use in silicon solar fabrication. No futures yet, you have to stockpile physical but for chart watchers there is a quasi-periodicity to the action. 
As long as the neighbors don't complain about the aroma.

Smart Cities: "Welcome to the neighbourhood. Have you read the terms of service?"

From the Canadian Broadcasting Corporation, January 19:!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_1180/ts06b25f.jpg?imwidth=720

It's already hard enough to get people to read the terms of service for the apps they use, and experts are skeptical we could expect any better of someone crossing
into the boundary of a smart city neighbourhood, where sensors and data collection abound (Dominique Boutin/TASS via Getty Images)
The L-shaped parcel of land on Toronto's eastern waterfront known as Quayside isn't much to look at. There's a sprawling parking lot for dry-docked boats opposite aging post-industrial space, where Parliament Street becomes Queens Quay. To its south is one of the saddest stretches of the Martin Goodman trail, an otherwise pleasant running and biking route that spans the city east to west.
But before long, Quayside may be one of the most sensor-laden neighbourhoods in North America, thanks to Alphabet's Sidewalk Labs, which has been working on a plan to redevelop the area from the ground up into a test bed for smart city technology.

It's being imagined as the sort of place where garbage cans and recycling bins can keep track of when and how often they're used, environmental probes can measure noise and pollution over time and cameras can collect data to model and improve the flow of cars, people, buses and bikes throughout the day.

Generally speaking, the idea is that all of this data — and the newfound insights its analysis could yield — will help cities run more efficiently and innovate at a faster pace than they do today.
The effort is one of a handful of broad initiatives underway across the world in places such as Dublin, London, Dubai and Seattle. The Canadian government is soliciting pitches for more smart cities across the country, and has promised up to $80 million to communities competing in its Smart Cities Challenge prize.

Sidewalk Labs is basing its smart city proposal on this post-industrial stretch of Toronto known as Quayside — the sort of place where garbage cans and recycling bins can keep track of when and how often they're used, environmental probes can measure noise and pollution over time and cameras collect data to model and improve the flow of cars, people, buses and bikes throughout the day. (Sidewalk Labs)
But when it comes to the data these cities gather, not everyone believes the tradeoff is worth it. Although governments already collect lots of data on their citizens, it's becoming clear that current privacy laws aren't going to be enough to deal with the realities of what most of these visions propose — data collection on a scale that far surpasses what's happening today.

"I think in some ways what we're facing here is a situation where none of this is very much like anything we've seen before," says David Murakami Wood, an associate professor at Queens University, who studies surveillance in cities.
He's not the only one who's skeptical that the law can keep up.

'You can't rely on legislation'
Anyone who's used an app or online service is probably familiar with the concept of consent. It's a legal requirement that companies or public organizations that want your electronic personal information should not only ask first, but explain in detail what they want to collect, what they plan to do with it, who they might share it with and why.

But in a smart city, consent "goes out the window straight away," says Murakami Wood. It's already hard enough to get people to read the terms of service for the apps they use, and experts are skeptical we could expect any better of someone crossing into the boundary of a smart city neighbourhood.

Smart cities, after all, take data collection and analysis to a new, previously unimagined extreme. And with so many different sensors and so much data being collected and analyzed, how could anyone be expected to understand, much less consent to it all?...

Could/Should Jubilee Debt Cancellations be Reintroduced Today?

There was a bit of a hubbub about the idea in the early years of this decade, some links after the jump.
From Michael Hudson's blog:
By M. Hudson (University of Missouri) and C. Goodhart (LSE)
As published by the Center for Economic Policy Research.

In this paper we recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. We note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But we argue that the underlying social purpose of such Jubilees – to keep debt within the reasonable ability to be paid without social and economic polarisation – could be recreated via alternative mechanisms, and we discuss the politico-economic arguments for, and against, doing so.
Keywords: Inequality; Debt-Canceling Jubilees; Babylonian and Byzantine Empires; Equity Participation; Student Loans; Land Tax.
JEL categories: E60, E61, E62, E65, H10, H23, H80, N30, N35, P43, Q15, R52, Z13.

The idea of annulling debts nowadays seems so unthinkable that most economists and many theologians doubt whether the Jubilee Year could have been applied in practice, and indeed on a regular basis. A widespread impression is that the Mosaic debt jubilee was a utopian ideal. However, Assyriologists have traced it to a long tradition of Near Eastern proclamations. That tradition is documented as soon as written inscriptions have been found – in Sumer, starting in the mid-third millennium BC.

Instead of causing economic crises, these debt jubilees preserved stability in nearly all Near Eastern societies. Economic polarization, bondage and collapse occurred when such clean slates stopped being proclaimed.

(2) What were Debt Jubilees?
Debt jubilees occurred on a regular basis in the ancient Near East from 2500 BC in Sumer to 1600 BC in Babylonia and its neighbors, and then in Assyria in the first millennium BC. It was normal for new rulers to proclaim these edicts upon taking the throne, in the aftermath of war, or upon the building or renovating a temple. Judaism took the practice out of the hands of kings and placed it at the center of Mosaic Law.[1]

By Babylonian times these debt amnesties contained the three elements that Judaism later adopted in its Jubilee Year of Leviticus 25. The first element was to cancel agrarian debts owed by the citizenry at large. (Mercantile debts among businessmen were left in place.)

A second element of these debt amnesties was to liberate bondservants – the debtor’s wife, daughters or sons who had been pledged to creditors. They were allowed to return freely to the debtor’s home. (Slave girls that had been pledged for debt also were returned to the debtors’ households.) Royal debt jubilees thus freed society from debt bondage, but did not liberate slaves.

A third element of these debt jubilees (subsequently adopted into Mosaic law) was to return the land or crop rights that debtors had pledged to creditors. This enabled families to resume their self-support on the land and pay taxes, serve in the military, and provide corvée labor on public works.
Commercial “silver” debts among traders and other entrepreneurs were not subject to these debt jubilees. Rulers recognized that productive business loans provide resources for the borrower to pay back with interest, in contrast to consumer debt. This was the contrast that medieval Schoolmen later would draw between interest and usury.

Most non-business debts were owed to the palace or its temples for taxes, rents and fees, along with beer to the public ale houses and other payments to these institutions. Rulers initially were cancelling debts owed mainly to themselves and their officials. This was not a utopian act, but was quite practical from the vantage point of restoring economic and military stability. Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their corvée labor duties and serving in the army.

Most personal debts were not the result of actual loans, but were accruals of unpaid agrarian fees, taxes and kindred obligations to royal collectors or temple officials. Rulers were aware that these debts tended to build up beyond the system’s ability to pay. That is why they cancelled “barley” debts in times of crop failure, and typically in the aftermath of war. Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs....MORE
June 2012 
Screw You: What Central Bank's Do When They Enforce Price Stability
I proceed on the assumption that our readers are not coupon clippers.
This is getting close to sedition against the rentier class and borders on an an open call for Jubilee.
Aux barricades!
January 2013 
Jubilation: Keynes and the Euthanasia of the Rentier
June 2012
"The Debt Jubilee That Gave Birth to Modern Germany"  
From The Economist's Buttonwood blog:...
April 2013 
Let's Just Proclaim Jubilee: "Quantitative easing should be used to write off government debt"
August 2013 
Jubilee! "Just set fire to Japan's quadrillion debt"
October 2012 
The Logical Endpoint of Quantitative Easing: Jubilee
...HT: Abnormal Returns
AR says see also the FT's Gavyn Davies from Oct. 14.

As  the man said, the idea is gaining traction though it is hardly new. Earlier this summer FT Alphaville linked to some serious commentary in "Debt jubilee for one and all — love, the Queen" (Roach, Buiter, Keen et al).

If you wanted to square the books, short of outright debt forgiveness you could resurrect  the "Trillion Dollar Coin" plan that was making the rounds during the 2011 debt ceiling standoff.
(oddly enough the ceiling doesn't apply to coins, go figure)

Rather than the then au courant idea of depositing one or two of these beauties with the Fed and borrowing against them, the Treasury could sell them outright  in exchange for T-bonds, notes, bills, lint in Ben's pockets etc.

The balance sheet would look something like:

      Fed                                                                             Treasury
3 magic beans                                                  World's greatest seigniorage score

And everyone lives happily ever after.

"Set voting age at 16 to renew EU, says Davos report"

Cui bono?
From Euractiv:
The voting age for next year’s European elections should be lowered to 16 as part of a suite of reforms to revitalise the European project. The proposal is part of the “Renew Europe” initiative which will be launched on 24 January at the World Economic Forum in Davos.

The paper, which was drafted by the WEF following consultations with more than 100 youth, business and political leaders and academics, argues that 17-year-olds are more likely to vote than 18–24-year-olds, and that “those who begin voting early are more likely to carry on doing so”.
Austria is the only EU country to give 16-year-olds the right to vote in national elections, although Scotland did the same for its independence referendum in 2014 and parliamentary elections.

Lowering the voting age across the 27 EU countries that will hold the 2019 European elections has the support of the European Parliament but would require a majority of EU governments to approve a change to electoral law.

The EU will be heavily represented at the Davos forum. Jean-Claude Juncker will attend for the first time as European Commission president while France’s Emmanuel Macron is also scheduled to speak on the final day.

While the Eurozone economy grew by more than 2% in 2017, and unemployment across the bloc fell to a nine-year low of 8.7% in January, the onset of the Fourth Industrial Revolution, and the possible job losses that could result from automation, is expected to dominate many of the fringe meetings in Davos.....MORE
Seriously, who benefits? 
To repurpose Paul Krugman's famous locution: "A first pass answer is..." those who control the levers of agitprop.

Also at Euractiv:
Watch out for the next crisis, gloomy Davos report tells leaders

Hedge Funds Are Making Money From Bets on "Exotic" Markets

These boys don't know the meaning of the word. Some slow news day remind me to regale wary yet intrigued reader with a couple tales of the truly exotic.

From Bloomberg, Jan. 14:
  • AHL Evolution, Systematica’s fund beat other trend followers
  • Florin Court up after switching focus; Aspect, GAM join fray
Cheese, sunflower seeds and rough rice sounds like an unappetizing mix -- unless you happen to be a hedge-fund manager.

A handful of computer-driven funds had a bumper 2017 by betting on the future price of such “exotic” assets. The success of this type of managed futures strategy, the industry’s term for trend-following, is now drawing new entrants despite the risks created by the low levels of liquidity.
Hedge funds returns have been battered by central bank monetary policies that have made it more difficult for them to outperform the market in everything from bonds to equity futures. That’s prompting some trend followers to move into less crowded markets such as over-the-counter securities, electricity and coal.

Man Group Plc’s AHL Evolution fund, one of the first to enter this niche market, had a return of 18 percent last year. The Systematica Alternative Markets fund run by Leda Braga fared even better, posting gains of 24 percent, according to a person with knowledge of the matter. By contrast, funds that speculated on more mainstream assets and indexes had average returns of just 1.9 percent.

“Exotic markets provide an opportunity to take bets away from the usual macro risk factors," said Douglas Greenig, the founder of Florin Court Capital and a former chief risk officer of Man Group’s AHL unit. “Sharpening our focus to exotics just made sense."

Quick Turnaround
In April, Florin Court switched its fund’s strategy to focus entirely on exotic assets. That enabled the London-based hedge fund to turn a first-quarter loss of 9 percent into a full-year gain of 7.6 percent, according to a person with knowledge of the matter....MORE

On Today's Installment of What the Hell? "I bought a cryptocurrency mystery box"

From The Outline, January 18:

Saturday, January 20, 2018

Frank Pasquale: "Entrepreneurship Can Be Unproductive or Destructive"

We linked to a similarly titled post last August which someone (ahem) mistook for this piece.
See after the jump if interested.

From Professor Pasquale via Law & Political Economy,
In contemporary American law, few figures are as lionized as the “entrepreneur.” Lobbyists evoke entrepreneurship as a cornucopia of better goods and services at lower prices. Even ostensibly academic business law courses tend to offer a narrative of wise incremental development of legal doctrine toward enabling disruption, easy entry into markets, and ultra-flexible corporate forms. The lawyer is ideally, in this view, a fixer capable of profit-maximizing distributions of responsibility and liability. Some even dream of automating this role via smart contracts, to ensure even more rapid entrepreneurial activity.
Professional Responsibility courses also tend to adopt a similarly reverential attitude toward the business client, instilling an ethic of “zealous advocacy” in generations of students. Few question whether the near-evacuation of ethical self-reflection from advocacy roles systematically advantages dubious (or worse) business propositions.

This emphasis on the disruptive and new is jarring in law, because legal systems’ internal values so often prize stability, regularity, precedent, and tradition. Pressed to justify it, partisans of disruptive innovation often turn to economics—a discipline all too happy to oblige with just-so stories of creative destruction. As William Baumol has observed, where economic growth has slowed, it is often “implied that a decline in entrepreneurship was partly to blame (perhaps because the culture’s ‘need for achievement’ has atrophied). At another time and place, it is said, the flowering of entrepreneurship accounts for unprecedented expansion.” Both policymakers and mainstream legal scholars tiptoe through the tulips of entrepreneurship, wary of disrupting the business plans of the disruptive innovators they admire.

However, as Baumol went on to wisely observe, there is no obvious connection between entrepreneurship and genuine productivity. Productivity, defined from a properly politico-economic perspective, reflects society’s ability to meet real needs, create capabilities, and to promote human flourishing. Some entrepreneurs contribute to it, but others do not. As Baumol observes, there are unproductive entrepreneurial activities, and at “times the entrepreneur may even lead a parasitical existence that is actually damaging to the economy.”  Baumol also argues that the relative balance of productive, unproductive, and destructive entrepreneurs is not dictated by technology or culture. “Changes in the rules and other attendant circumstances can, of course, modify the composition of the class of entrepreneurs,” he reminds us, insisting on the intertwining of political and economic reality.

Frank Pasquale is a Professor of Law at University of Maryland Francis King Carey School of Law.
Note: Some of this post was based on my recent testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs Committee, available here.

"The Dangerous Rise Of Unproductive Entrepreneurship"

from the this-is-bad-news dept
For many years now, we've talked about Andy Kessler's concept of political entrepreneurs vs. market entrepreneurs. In Kessler's telling, market entrepreneurs are the kind of entrepreneurs that people usually think about -- the ones creating startups and high growth companies and the like. While not everyone appreciates it, those entrepreneurs tend to provide a lot more to the world than they take away. They may get filthy rich in the process, but they tend to make the world a better place by creating lots of value. The "political entrepreneurs," on the other hand, are those who basically look to abuse the system to create monopoly rents and to limit competition. Those entrepreneurs may also get filthy rich, but they tend to do it by limiting value and locking it up so that only they can get it.

Obviously, one of those is a lot better for society than the other.

Of course, this idea certainly didn't originate with Kessler, either. Just recently, we had James Allworth on our podcast where we talked about this issue in response to an excellent article he'd recently written about how prioritizing profit over democracy was actually damaging American entrepreneurship. In that article, he referred back to the work of William Baumol, who wrote a paper back in 1990, entitled: Entrepreneurship: Productive, Unproductive, and Destructive. As you can see, that one divides entrepreneurship into three categories. Productive loosely maps to "market entrepreneurs" in Kessler's world, while "Unproductive" loosely translates to "political entrepreneurs" as well. Baumol also includes destructive entrepreneurs, who are actively making the world worse -- and getting rich off of people's misery (think drug dealers, and such).

But part of the point of Allworth's article is that it feels like too many people are just focusing on "profit" as the end goal, and thus either unwilling or unconcerned with determining if the entrepreneurship that drives the profit is "productive" or "unproductive." And, now the Economist has weighed in on this issue as well, noting that we're seeing more and more unproductive entrepreneurship in America, and that's a problem. The article focuses on the work of two economists, Robert Litan and Ian Hathaway, who are building on Baumol's concepts and are concerned about where things are heading. One interesting thing: they find that the issue can't be neatly put into the category of "too much regulation" or "too little regulation," but rather find that both of those situations can create the same rise in unproductive entrepreneurship:...

Some Stories About William Baumol

"Turkey's Erdogan says ground offensive on Syria's Afrin has begun"

A threefer-one deal, starting off with DeutscheWelle:
President Recep Tayyip Erdogan says Turkish forces have begun a new air and ground operation to oust Kurdish militants from Afrin. Turkey accuses the Kurdish militia YPG of being a terror group.
Turkish President Recep Tayyip Erdogan said on Saturday that a military operation against the northwestern Syrian town of Afrin, held by US-backed Kurdish militias, "has de-facto been started on the ground."

"This will be followed by Manbij," he added, referring to another Kurdish-controlled Syrian town to the east.

Turkish Prime Minister Binali Yildirim later said Turkish jets had also launched airstrikes against Afrin. The Turkish army said the new operation, dubbed "Olive Branch," aimed to hit positions held by the People's Protection Units (YPG) and "Islamic State" (IS) militants....MORE
From Reuters, Jan. 20:
Russia to demand in UN that Turkey halts Syria operation - RIA citing lawmaker
And from IndraStra, Jan. 19:

The Afrin Gamble: Turkey Starts Offensive on the U.S. backed Kurds
Turkey has started the cross-border bombardment after the threats issued a week ago by Turkish President Tayyip Erdogan to crush Kurdish People’s Protection Units (YPG) militia in Syria's Afrin canton in response to growing Kurdish strength across a wide stretch of north Syria.

Reuters crew filmed Turkish artillery at the border village of Sugedigi firing on Friday morning into Afrin region, and the YPG militia said Turkish forces fired 70 shells at Kurdish villages between midnight and Friday morning. Shelling continued in the late afternoon, said Rojhat Roj, a YPG spokesman in Afrin. Turkish bombardments are the heaviest since Ankara stepped up threats to take military action against the Kurdish region.

Earlier, Turkish media reported that military planning for the offensive was complete and two brigades and 5,000 Free Syrian Army (FSA) fighters were expected to participate. Media reports also stated that General Ismail Metin Temel, a hero of Turkey’s "Euphrates Shield" military incursion into northern Syria in 2016, was handed charge of the Afrin offensive. "Euphrates Shield" was launched on August 24, 2016, and cleared a roughly 2,000 square km area from Islamic State (IS) and YPG control. Officially, the operation was ended in March 2017.

On January 13, the threat was issued after reports that the U.S. plans to create a 30,000-strong Border Security Force (BSF) predominantly made up of Kurdish militias. According to Col. Thomas Veale, the public affairs officer of Operation Inherent Resolve, the U.S.-led coalition is training the Syrian Democratic Forces (SDF) to maintain security along Syria’s borders. SDF is an umbrella group of fighters dominated by the YPG. U.S. State Department spokeswoman Heather Nauert on Thursday urged Turkey not to take any action in northern Syria.

“The operation has actually de facto started with cross-border shelling,” - Nurettin Canikli, Turkish Defence Minister

Turkey sees the YPG as an extension of the separatist Kurdistan Workers’ Party (PKK), which is considered a terrorist group by the U.S. and has fought a bloody insurgency since 1984 that has killed at least 35,000 people. With around one-fifth of Turkey’s population identifying as Kurdish, Turkey views the PKK and moves toward Kurdish independence regionally as an existential threat.

On the other hand, the Syrian Kurds have their own fight with Russia-backed Bashar al-Assad's regime where latter is setting its sights on territory held by Kurdish-led forces including eastern oil fields. Till now, SDF has used the power vacuum caused by the civil war to occupy and seize territories in Syria along the Turkish border. But, the question is how much they are open to the concept of greater autonomy within the framework of the borders of the state as proposed by Walid Muallem, Syria's foreign minister in September 2017.

The American Signal
U.S. President Donald Trump decided to arm YPG fighters despite Turkey's objections and a direct appeal from Erdogan at a White House meeting in May 2017. Tensions between the U.S.and Turkey remain high, despite Trump saying last November that Washington would no longer supply weapons to the YPG. Since then, Ankara has been reinforcing its southern border by sending armored vehicles, tanks, and heavy machine guns, according to local media.

Up until now, the U.S. has been able to deter Russian strikes on SDF forces by launching fighter jet intercepts against Russian jets that cross east and north of the Euphrates river valley. Besides that, there are currently about 2,000 U.S. troops in Syria working with Syrian Kurds. It was unclear how large a contingent of U.S. military might be required for a long-term commitment.

In a speech at Stanford University's Hoover Institution, the U.S. Secretary of State spelled out a U.S. plan to advance a political transition in Syria to oust Bashar al-Assad. A central pillar of Tillerson’s speech is a UN-supervised election that Tillerson predicted would result in new leadership. Key questions that Tillerson left unaddressed, he continued, included how long Assad should remain in power and whether he would play a role in any political transition.

The Russian Influence
In the current situation, it is Moscow, not Washington, that appears to be dictating the terms of engagement over Syria. Russia has based military observers in Afrin since 2015, and the subject of their removal was part of negotiations held between Turkish Army Chief Hulusi Akar and his Russian counterpart Valery Gerasimov and other military and intelligence officials in Moscow on Thursday.

Approximately 180 Russian observers were pulling back from their positions on the Afrin/Turkish border, hours after Turkish artillery began what Ankara said was the "de facto" start of operations against members of the Kurdish YPG militia, which it considers part of the PKK terrorist group. In short, Ankara was waiting for a green light from Moscow....MORE

Apple's Tim Cook Joins the Chorus: "'I don't want my nephew on a social network'"

It's becoming a movement!

"Il faut bien que je les suive, puisque je suis leur chef"
-Ledru-Rollin, 1848*
From The Guardian:

Apple chief talks about tax affairs and overuse of tech at launch of school coding initiative
The head of Apple, Tim Cook, believes there should be limits to the use of technology in schools and says he does not want his nephew to use a social network.

Cook was talking at Harlow college in Essex, one of 70 institutions across Europe that will use Apple’s Everyone Can Code curriculum, it was announced on Friday.

“I don’t believe in overuse [of technology]. I’m not a person that says we’ve achieved success if you’re using it all the time,” he said. “I don’t subscribe to that at all.”

Even in computer-aided courses, such as graphic design, technology should not dominate, he said.
“There are are still concepts that you want to talk about and understand. In a course on literature, do I think you should use technology a lot? Probably not.”

The 57-year old chief executive, who took the reins at Apple after the death of Steve Jobs in 2011, said the company cared deeply about children outside the classroom.

“I don’t have a kid, but I have a nephew that I put some boundaries on. There are some things that I won’t allow; I don’t want them on a social network.”...MORE
*Schoolboy French translation: "I must follow them for I am their leader." 


"CalSTRS Releases Statement on Letter to Apple"
I'm starting to think everyone involved is trying to get in front of a train that had been gathering momentum....
UPDATED—"Investors Push Apple to Develop Tools to Respond to Smartphone Addiction in Youth" (AAPL)
Counterpoint: "No, Apple Is Not Responsible For Your Kids' Smartphone Addiction"
Apple's Response To iPhone Addiction Concerns (AAPL)  

Turing: "Strong meat with strawberries"

By Sir John Dermot Turing, DPhil, 12th Baronet Turing at ETH Zürich's Turing Center blog, January 2018:
To the outsider, some of Alan Turing’s work can be difficult to grasp—unless you are an academic specialist it can be challenging. To use Alan Turing’s own words, when he was himself wading through John von Neumann’s book on Quantum Mechanics (in German) in the 1930s, it can be ‘rather strong meat’. As an outsider, I do not even know how to begin with, say, Alan’s paper 'Computability and λ-Definability' [1] with its profusion of Greek and Gothic letters. Lambda-calculus is not for the faint-hearted. It’s possibly for this reason that some people said Alan Turing was completely impossible to understand.

But Alan himself knew that new ideas needed to be described and explained in homely ways. His most enduring work—the discipline of computability, created in his 1936 paper 'On Computable Numbers, with an Application to the Entscheidungsproblem' [2]—was described in terms of an imaginary machine, an idea that non-specialists can easily grasp. The practical, hands-on approach to his work was always evident—for example in his designs for the British cryptological Bombe and for his phone-call encryption machine Delilah, as well as for an analogue machine that would find solutions to Riemann’s zeta-function.

As his career moved on, so Alan Turing’s writings and speeches moved away from lambda-calculus as a form of expression. Having had to explain himself at Bletchley Park to non-specialists, military folk, newcomers, and people from many non-mathematical disciplines, he became more adept at an everyday way of writing. His 1950 paper 'Computing Machinery and Intelligence' [3] includes a famous passage on the subject of his Imitation Game, now also known as the Turing Test. He wrote:

Let us listen in to a part of such a viva voce:
Interrogator: In the first line of your sonnet which reads "Shall I compare thee to a summer’s day", would not "a spring day" do as well or better?
Witness: It wouldn’t scan.
Interrogator: How about "a winter’s day". That would scan all right.
Witness: Yes, but nobody wants to be compared to a winter’s day.

Perhaps this next passage from 'Computing Machinery and Intelligence' is less well-known. Alan is debunking arguments that machines can’t think because it will never be possible to build a machine that can do such-and-such a thing, for example learn from experience, use words properly, or enjoy strawberries and cream:

A man has seen thousands of machines in his lifetime. From what he sees of them he draws a number of general conclusions. They are ugly, each is designed for a very limited purpose, when required for a minutely different purpose they are useless, the variety of behaviour of any one of them is very small, etc., etc. Naturally he concludes that these are necessary properties of machines in general … The inability to enjoy strawberries and cream may have struck the reader as frivolous. Possibly a machine might be made to enjoy this delicious dish, but any attempt to make one do so would be idiotic....

"Bitcoin and Ethereum Have a Hidden Power Structure, and It’s Just Been Revealed"

From MIT's Technology Review:

Close examination reveals how power is being consolidated across their networks.
In cryptocurrency circles, calling something “centralized” is an insult. The epithet stems from Bitcoin creator Satoshi Nakamoto’s revelation: a monetary system doesn’t need a central authority, like a government, to work. That’s such a potent idea that it’s morphed into a battle among crypto-enthusiasts between good—that is, “decentralized”— currencies and evil ones, or anything with a whiff of “centralization,” that are assumed to threaten the utopian view of cryptocurrencies as the vehicle for a new financial world order.

Do these arguments hold any water? Emin Gün Sirer, a cryptocurrency expert at Cornell University, says in many cases the jury’s still out—mainly because no one’s bothered to take a hard look at how decentralized these networks actually are.

“We don’t have any real metrics yet.” he says. His group aims to help change that with newly published results from a two-year-long study focused on Bitcoin and Ethereum, the world’s most popular cryptocurrency networks.

Perhaps the most striking finding is that the process of verifying transactions and securing a blockchain ledger against attack, called mining, is not actually that decentralized in either system. Bitcoin and Ethereum are open blockchain systems, meaning that in principle anyone can be a miner (see “What Bitcoin Is, and Why It Matters”). But organizations have formed to pool mining resources. The researchers found that the top four Bitcoin-mining operations had more than 53 percent of the system’s average mining capacity, measured on a weekly basis. Mining for Ethereum was even more consolidated: three miners accounted for 61 percent of the system’s average weekly capacity....MORE

The Bit Bomb: The True Nature of Information

The subject of this article, Claude Shannon has a couple interesting connections to finance/investing/trading beyond 'just' creating information theory (along with MIT's Norbert Wiener who was coming in on a different angle of attack), more after the jump.
Both Aeon and Climateer are reposting, "The Bit Bomb" first appeared at Aeon on August 30, 2017 and graced our pages over the Labor Day weekend, September 3, 2017.

From Aeon:

It took a polymath to pin down the true nature of ‘information’. His answer was both a revelation and a return
Just what is information? For such an intuitive idea, its precise nature proved remarkably hard to pin down. For centuries, it seemed to hover somewhere in a half-world between the visible and the unseen, the physical and the evanescent, the enduring medium and its fleeting message. It haunted the ancients as much as it did Claude Shannon and his Bell Labs colleagues in New York and New Jersey, who were trying to engirdle the world with wires and telecoms cables in the mid-20th century.
Shannon – mathematician, American, jazz fanatic, juggling enthusiast – is the founder of information theory, and the architect of our digital world. It was Shannon’s paper ‘A Mathematical Theory of Communication’ (1948) that introduced the bit, an objective measure of how much information a message contains. It was Shannon who explained that every communications system – from telegraphs to television, and ultimately DNA to the internet – has the same basic structure. And it was Shannon who showed that any message could be compressed and transmitted via a binary code of 0s and 1s, with near-perfect accuracy, a notion that was previously pegged as hopelessly utopian. As one of Shannon’s colleagues marvelled: ‘How he got that insight, how he even came to believe such a thing, I don’t know.’

These discoveries were scientific triumphs. But in another way, they brought the thinking about information full-circle. Before it was the province of natural scientists, ‘information’ was a concept explored by poets, orators and philosophers. And while Shannon was a mathematician and engineer by training, he shared with these early investigators a fascination with language.

In the Aeneid, for example, the Roman poet Virgil describes the vast cave inhabited by the god Vulcan and his worker-drones the Cyclopes, in which the lightning bolt of Jupiter is informatum – forged or given shape beneath their hammers. To in-form meant to give a shape to matter, to fit it to an ideal type; informatio was the shape given. It’s in this sense that Cicero spoke of the arts by which young people are ‘informed in their humanity’, and in which the Church Father Tertullian calls Moses populi informator, the shaper of the people.

From the Middle Ages onwards, this form-giving aspect of information slowly gave way, and it acquired a different, more earthy complexion. For the medieval scholastics, it became a quintessentially human act; information was about the manipulation of matter already on Earth, as distinct from the singular creativity of the Creator Himself. Thomas Aquinas said that the intellect and the virtues – but also the senses – needed to be informed, enriched, stimulated. The scientific revolution went on to cement these perceptible and grounded features of information, in preference to its more divine and form-giving aspects. When we read Francis Bacon on ‘the informations of the senses’, or hear John Locke claim that ‘our senses inform us’, we feel like we’re on familiar ground. As the scholar John Durham Peters wrote in 1988: ‘Under the tutelage of empiricism, information gradually moved from structure to stuff, from form to substance, from intellectual order to sensory impulses.’

It was as the study of the senses that a dedicated science of information finally began to stir. While Lord Kelvin was timing the speed of telegraph signals in the 1850s – using mechanisms rigged with magnets, mirrors, metal coils and cocoon silk – Hermann von Helmholtz was electrifying frog muscles to test the firing of animal nerves. And as information became electric, the object of study became the boundary between the hard world of physics and the elusive nature of the messages carried in wires.

In the first half of the 20th century, the torch passed to Bell Labs in the United States, the pioneering communications company that traced its origins to Alexander Graham Bell. Shannon joined in 1941, to work on fire control and cryptography during the Second World War. Outside of wartime, most of the Labs’ engineers and scientists were tasked with taking care of the US’ transcontinental telephone and telegraph network. But the lines were coming under strain as the human appetite for interaction pushed the Bell system to go further and faster, and to transmit messages of ever-higher quality. A fundamental challenge for communication-at-a-distance was ‘noise’, unintended fluctuations that could distort the quality of the signal at some point between the sender and receiver. Conventional wisdom held that transmitting information was like transmitting power, and so the best solution was essentially to shout more loudly – accepting noise as a fact of life, and expensively and precariously pumping out a more powerful signal.
The information value of a message depends on the range of alternatives killed off in its choosing
But some people at the Labs thought the solution lay elsewhere. Thanks to its government-guaranteed monopoly, the Labs had the leeway to invest in basic theoretical research, even if the impact on communications technology many years in the future. As the engineer Henry Pollak told us in an interview: ‘When I first came, there was the philosophy: look, what you’re doing might not be important for 10 years or 20 years, but that’s fine, we’ll be there then.’ As a member of the Labs’ free-floating mathematics group, after the war Shannon found that he could follow his curiosity wherever it led: ‘I had freedom to do anything I wanted from almost the day I started. They never told me what to work on.’...MUCH MORE
Last year we linked to in "Claude Shannon, the Las Vegas Shark" which highlighted some of his dealings with one of the 'quantfathers', Ed Thorp:

The father of information theory built a machine to game roulette, then abandoned it.
Many of Claude Shannon’s off-the-clock creations were whimsical—a machine that made sarcastic remarks, for instance, or the Roman numeral calculator. Others created by the Massachusetts Institute of Technology professor and father of information theory showed a flair for the dramatic and dazzling: the trumpet that spit flames or the machine that solved Rubik’s cubes. Still other devices he built anticipated real technological innovations by more than a generation. One in particular stands out, not just because it was so far ahead of its time, but because of just how close it came to landing Shannon in trouble with the law—and the mob.

Long before the Apple Watch or the Fitbit, what was arguably the world’s first wearable computer was conceived by Ed Thorp, then a little-known graduate student in physics at the University of California, Los Angeles. Thorp was the rare physicist who felt at home with both Vegas bookies and bookish professors. He loved math, gambling, and the stock market, roughly in that order. The tables and the market he loved for the challenge: Could you create predictability out of seeming randomness? What could give one person an edge in games of chance? Thorp wasn’t content just pondering these questions; like Shannon, he set out to find and build answers.

In 1960, Thorp was a junior professor at MIT. He had been working on a theory for playing blackjack, the results of which he hoped to publish in the Proceedings of the National Academy of Sciences. Shannon was the only academy member in MIT’s mathematics department, so Thorp sought him out. “The secretary warned me that Shannon was only going to be in for a few minutes, not to expect more, and that he didn’t spend time on subjects (or people) that didn’t interest him. Feeling awed and lucky, I arrived at Shannon’s office to find a thinnish, alert man of middle height and build, somewhat sharp featured,” Thorp recalled.

Thorp had piqued Shannon’s interest with the blackjack paper, to which Shannon recommended only a change of title, from “A Winning Strategy for Blackjack” to the more mundane “A Favorable Strategy for Twenty-One,” the better to win over the academy’s staid reviewers. The two shared a love of putting math in unfamiliar territory in search of chance insights. After Shannon “cross-examined” Thorp about his blackjack paper, he asked, “Are you working on anything else in the gambling area?”

Thorp confessed. “I decided to spill my other big secret and told him about roulette. Ideas about the project flew between us. Several exciting hours later, as the wintery sky turned dusky, we finally broke off with plans to meet again on roulette.” As one writer, William Poundstone, put it, “Thorp had inadvertently set one of the century’s great minds on yet another tangent.”

Thorp was immediately invited to Shannon’s house. The basement, Thorp remembered, was “a gadgeteer’s paradise. ... There were hundreds of mechanical and electrical categories, such as motors, transistors, switches, pulleys, gears, condensers, transformers, and on and on.” Thorp was in awe: “Now I had met the ultimate gadgeteer.”

It was in this tinkerer’s laboratory that they set out to understand how roulette could be gamed, ordering “a regulation roulette wheel from Reno for $1,500,” a strobe light, and a clock whose hand revolved once per second. Thorp was given inside access to Shannon in all his tinkering glory:...MUCH MORE
If interested see also 2012's "How did Ed Thorp Win in Blackjack and the Stock Market?" and a couple more from 2017
A Review of Garry Kasparov’s Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins
"How Information Got Re-Invented"

Friday, January 19, 2018

Mark Zuckerberg: "Continuing our focus for 2018 to make sure the time we all spend on Facebook is time well spent..."

From Mr. Z's Facebook account;
Continuing our focus for 2018 to make sure the time we all spend on Facebook is time well spent...

Last week I announced a major change to encourage meaningful social interactions with family and friends over passive consumption. As a result, you'll see less public content, including news, video, and posts from brands. After this change, we expect news to make up roughly 4% of News Feed -- down from roughly 5% today. This is a big change, but news will always be a critical way for people to start conversations on important topics.

Today I'm sharing our second major update this year: to make sure the news you see, while less overall, is high quality. I've asked our product teams to make sure we prioritize news that is trustworthy, informative, and local. And we're starting next week with trusted sources.

There's too much sensationalism, misinformation and polarization in the world today. Social media enables people to spread information faster than ever before, and if we don't specifically tackle these problems, then we end up amplifying them. That's why it's important that News Feed promotes high quality news that helps build a sense of common ground.

The hard question we've struggled with is how to decide what news sources are broadly trusted in a world with so much division. We could try to make that decision ourselves, but that's not something we're comfortable with. We considered asking outside experts, which would take the decision out of our hands but would likely not solve the objectivity problem. Or we could ask you -- the community -- and have your feedback determine the ranking.

We decided that having the community determine which sources are broadly trusted would be most objective.

Here's how this will work. As part of our ongoing quality surveys, we will now ask people whether they're familiar with a news source and, if so, whether they trust that source. The idea is that some news organizations are only trusted by their readers or watchers, and others are broadly trusted across society even by those who don't follow them directly. (We eliminate from the sample those who aren't familiar with a source, so the output is a ratio of those who trust the source to those who are familiar with it.)

This update will not change the amount of news you see on Facebook. It will only shift the balance of news you see towards sources that are determined to be trusted by the community.
My hope is that this update about trusted news and last week's update about meaningful interactions will help make time on Facebook time well spent: where we're strengthening our relationships, engaging in active conversations rather than passive consumption, and, when we read news, making sure it's from high quality and trusted sources.....

Shipping: "Baltic index falls, capesizes post biggest weekly drop in 2 years"

Following up on Wednesday's "Shipping: Today's Word Is 'Overcapacity'".
From Reuters, Jan:
The Baltic Exchange’s main sea freight index fell on Friday and continued to linger around five month lows as the capesize segment recorded its biggest weekly percentage decline in two years.

* The overall index, which factors in rates for capesize, panamax, supramax and handysize shipping vessels that ferry dry bulk commodities, shed 14 points, or 1.23 percent, to 1,125 points, the lowest since Aug. 10, 2017.

* For the week, the index ended 12 percent lower.

* The capesize index fell 118 points, or 7.32 percent, to 1,493 points, its lowest since Aug. 2.

* It fell about 35 percent this week, its biggest weekly percentage decline since Jan. 15, 2016.

* Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, fell $741 to $11,571....

PreviouslyJan. 4
Global Fleet Capacity to Bulge as More Containerships are Delivered in 2018; Baltic Dry Index Down 21%, Hyundi Heavy Up
I'm going to have to learn how to say "Boom-and-bust cycle" in Korean..... 

Dec. 4 
"Shipping Magnates Shock Industry With Huge Orders"

Bezos/SoftBank-Backed Indoor Farming Powerhouse Plenty Planning for 300 Farms in China

This is one of the two biggies. Some of our links after the jump.

From Global AgInvesting:
San Francisco-based indoor vertical farming startup Plenty is taking the initial steps toward its planned expansion into China and Japan.

The company is currently adding to its team on the ground in China, and is scouting out locations and distributors in Beijing, Shanghai, and Shenzhen for up to 300 of its vertical indoor farms across the country. The startup has also already established a team in Japan, and has secured farm sites in that country, company CEO Matt Barnard told Reuters.

Founded in 2014 by Matt Barnard and Nate Storey, Plenty is headquartered in a 52,000 square-foot facility in San Francisco. There it grows leafy greens including purple Siberian kale, red leaf lettuce, sorrel, and varieties of basil and chives using a highly-efficient vertical system that grows plants in rows of 20-foot tall columns rather than horizontally. This configuration is highly efficient as it allows water to trickle down the column, and enables nutrients to be gravity fed rather than pumped into the system. Plenty also uses cutting-edge LED lighting systems that emit less heat than traditional LEDs, along with microsensor technology and big data processing, that together can be used to produce high-quality produce at lower prices. And because of the configuration of this production system, (which can produce up to 350 times more produce compared to the same area of traditional farmland while using only 1 percent of the water), Plenty is able to work with the forces of physics, not against them, enabling the company to save significantly on cost of production.
This past year has been notable for Plenty; most markedly due to its securing of record setting funding from a range of high-profile investors, and a top-tier addition to its team.

In July of last year Plenty made headlines after raising a record-setting $200 million Series B led by SoftBank Vision Fund – the $93 billion all-stage tech fund headed by Japanese billionaire Masayoshi Son.  Other participants in the round which brought total funding for the startup to $226 milion, included affiliates of Louis M. Bacon, the founder of Moore Capital Management, and existing investors Eric Schmidt’s Innovation Endeavors, Finistere, DCM, Data Collective, and Bezos Expeditions.

“Indoor farming isn’t new, but Plenty has developed the next critical contribution to the global food supply evolution, creating a healthier crop economy with fresher, more nutrient-rich produce. As an early investor in Plenty, we saw the potential of indoor farming from the start,” Finistere told GAI News last year. “…not only to dramatically increase and improve food production, but also to accelerate AgTech innovation and R&D in adjacent areas like breeding, high-value ingredient production and genomics.”

A Fitting Landscape
Despite the fact that Chinese consumers don’t often opt to eat raw vegetables, China is a highly strategic market to move into for Plenty. It’s production system provides the perfect answer to two of China’s largest food challenges – safety and quality, and land degradation....MORE
October 2017
Tesla's Former Battery Director Joins Farming Startup—UPDATED
December 2017
"This Is Why Jeff Bezos Is Spending Millions on an Indoor Farming Startup"

The competition:
December 2017
A Behind-the-Scenes Look at Europe’s Huge New Vertical Farm
December 2015
AeroFarms Raises $20 Million for High-Tech Urban Agriculture
The Other Musk: Overthrow Big Agriculture?

The Meaning of Life or Investing Insights From Hedgeye

From Hedgeye, Jan. 17:

FLASHBACK: Valuation Is Not a Catalyst (Buy The Dip)


Farm Economy: "Rural Mainstreet Index Sinks for January: Rising Farm Loan Defaults Identified as Greatest 2018 Challenge"

From Creighton University, January 18:
January Survey Results at a Glance:
*  The overall index sank from December’s weak reading and remained below growth neutral.
*  Approximately 40 percent of bank CEOs named rising loan defaults as the greatest economic challenge for 2018.
*  More than seven in 10 bankers expect that the abolition of NAFTA would have a negative impact on their economic area.
*  For the 50th straight month, the farmland price index sank below growth neutral.

OMAHA, Neb. (Jan. 18, 2018) – The Creighton University Rural Mainstreet Index declined slightly in January from December’s weak reading, remaining below growth neutral, according to the latest monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.  

Overall: The index, like all indices in the survey, ranges between 0 and 100 with 50.0 representing growth neutral, fell to 46.8 from 47.8 in December. Though the overall index remained below growth neutral, it is significantly higher than the reading for January 2017.

“While the overall Rural Mainstreet Index (RMI) for January declined and remained below growth neutral, year-over-year indices are trending higher. Clearly, based on our recent surveys, the negatives are getting less negative,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

When asked to name the greatest 2018 economic challenge for their banks, four in 10 bankers reported that loan defaults represented the biggest challenges for the year ahead. This is well ahead of the second ranked challenge of competition from Farm Credit coming in at 15.6 percent.

Farming and ranching: The farmland and ranchland-price index for January rose to 42.2 from 39.8 in December. This is the 50th straight month the index has fallen below growth neutral 50.0. ...

The story at the Omaha World-Herald (a Berkshire Hathaway company):

Bankers see rocky road ahead for rural Midwest, and NAFTA worries aren't helping
The rural Midwest remains in an economic slump, and worries about the future of the North American Free Trade Agreement are adding pessimism to the outlook for 2018, a Creighton University survey of rural bankers showed.

The survey’s Rural Mainstreet Index dropped to 46.8 from 47.8 in December on a scale of 0 to 100, with 50 being growth-neutral and figures below that showing economic decline.

Creighton economist Ernie Goss said the survey’s confidence index, reflecting the six-month outlook of the 180 bankers responding to the survey, fell to a pessimistic 46.7 from an optimistic 51.2 in December....MORE

"If Quantitative Easing (QE) is inflationary in theory, but deflationary in practice, will Quantitative Tightening (QT) have the opposite effect?"

From 13D Research:

By raising the cost of capital, QT could tip the balance in favor of capital discipline.
The answer to this question will be revealed gradually over the next couple of years, as the Fed gears-up for a gradual reduction in the size of its balance sheet and the ECB lays the groundwork for a tapering of its QE program. Suffice to say, the lowest interest rates in 5,000 years have done little to promote a pick-up in real gross investment or labor productivity in advanced economies (AEs), as the red lines in the following BIS charts illustrate.

In WILTW June 23, 2016, we argued that much of the blame for this predicament belongs to the central banks: “If the Fed and other major central banks had not lowered interest rates to zero (or below), it would have been harder for corporations to justify financial engineering at the expense of capital investment. But, financial engineering goes hand-in-hand with management compensation practices that focus on short-term at the expense of long-term performance.”
QE did not drive U.S. price and wage inflation higher on a sustainable basis as central banks had expected. One of the frequent criticisms against QE is that the liquidity that was created remained largely within the banking system but did not filter down to the wider population who could spend it, which exacerbated income and wealth disparities. Hence, asset prices such as stocks, bonds and real estate rose, but broader measures of price and wage inflation lagged. Another criticism of QE is that it led to inefficient capital allocation and mal-investment in the commodity space, among other sectors, which was deflationary.

By raising the cost of capital, QT should result in more efficient capital allocation and less mal-investment across the commodity space, which previously caused a drag on the CPI. This should result in an inflationary impact in the energy sector, restraining supply growth in shale oil by curtailing the supply of cheap finance. Halliburton’s (HAL, $43.32) executive chairman, David Lesar, recently said that a “tapping of the brakes is happening all over North America” and earlier this week, Anadarko Petroleum (APC, $45.17) announced that it would cut $300 million from its capex budget for the remainder of this year.

Will others follow? Only time will tell, but the higher cost of capital triggered by QT could tip the balance in favor of capital discipline. Crude oil prices appear to have bottomed-out, and if Anadarko’s move is copied by others and capital discipline returns to the shale oil patch, oil could rise farther and faster than anyone currently expects.

Higher capital costs will also affect supply-growth in the agriculture space, and this could be compounded by adverse weather and tighter supply of migrant labor — all of which could push food prices higher. Global weather has been uncharacteristically benign in the past five years. That period may be ending — ushering in higher food prices — as we have seen in the nearly 35% rise off the lows in wheat prices and poor growing conditions in soybeans.

If QT results in a sustainable rise in the cost of capital, the U.S. federal and state budgets will get squeezed, which will lead to a vicious cycle of higher taxes and/or spending reductions, which could push interest rates up even further. We have made the following point often but it bears repeating: according to the latest baseline budget estimates by the Congressional Budget Office (CBO), federal net interest expense could double from $240 billion in FY2016 to $481 billion in FY 2021, even though the average interest rate on publicly-held debt is assumed to increase by less than 100 basis points.

Further QT could trigger a weaker U.S. dollar, which would, counterintuitively, put upward pressure on consumer price inflation. A November 2, 2015, study by Harvard’s Gina Gopinath estimated that “a 10% depreciation of the dollar relative to its trading partners will raise cumulative CPI inflation two years out by 0.4–0.7 percentage points.”...MORE

Norway Wealth Fund Dumps Shipping Investments, Others on Ethics Grounds

This follows the recommendation to remove oil and gas investments from the benchmark.
Next up, the fund will begin shorting anything to do with cod or brown cheese and the transformation will be complete.

From Bloomberg via gCaptain:
Norway’s wealth fund dumped a series of companies involved in making nuclear weapons and excluded others based on human rights concerns as the $1.1 trillion investor steps up its scrutiny over how corporations behave.

AECOM, BAE Systems, Fluor Corp. and Huntington Ingalls Industries Inc. were excluded “because of their involvement in the production of nuclear weapons,” the central bank, which oversees the fund, said in a statement. An exclusion of Honeywell International Inc. was maintained on this criterion.

The world’s largest wealth fund takes into account ethical rules encompassing human rights, some weapons production, corruption, the environment, coal and tobacco when deciding on its investments. The fund sells its stakes before it announces an exclusion....MORE

"Dollar Crushed as Government Shutdown Looms"

From Marc to Market:
The US dollar is broadly lower as the momentum feeds on itself. Asia is leading the way. The Japanese yen, Taiwanese dollar, Malaysian Ringgit, and South Korean won are all around 0.45% higher. Asian shares also managed to shrug off the weakness seen in the US yesterday. The MSCI Asia Pacific Index advanced 0.7%. It is the sixth consecutive weekly gain. The dollar's drop comes as US yields reach levels now seen in year. The 10-year yield is at its highest level seen 2014, while yields from bills to three-year paper are at their highest level since 2008.

The risk of a US government shutdown beginning tomorrow may be providing the latest fodder for the dollar's sell-off. The Dollar Index is set to post its fifth consecutive weekly loss, the longest drop since April-May 2015. The House of Representatives voted to extend the spending authorization for a month (Feb 16), but the Senate is balking. The Democrats in the Senate, whose votes are needed, unlike tax cuts, Many Democrats in the Senate want a deal on the adults that were brought by their families illegally as children.

The dollar bears have not only pushed aside the rise in US interest rates but also economic data that suggests the US economy accelerated in Q4 17 (initial estimate will be reported next week). In addition, even disappointment, like the UK's retail sales report today, has failed to stem the greenback's slide. December retail sales fell a sharp 1.5%, the latest drop since mid-2016, and 1.6% excluding gasoline. The median expectation was for a 1.0% decline after a strong 1.1% and 1.2% rise respectively. Those November gains were revised lower by 0.1%. Household goods purchases fell 5.3%, while clothing was off 1%. The average monthly change in Q4 was zero, after 0.2% in Q3 and 0.4% in Q2.

Sterling softened on the news, but only after it made a new high since the UK referendum (~$1.3945) and it remained above $1.39. It has not had a losing session against the dollar since January 1. This is the third week it is rising on a trade-weighted basis as well.

The euro is knocking on $1.24 after having fallen to $1.2165 yesterday. The high from the middle of the week was nearly $1.2325. European assets markets are firm. The Dow Jones Stoxx 600 is up 0.45%, showing resilience in the face of yesterday's losses in North American. It is up in each of the three weeks of the new year. European bonds are mixed, but the peripheral yields are two-three basis points lower. Italy is lagging a bit, as the March election deters some investors....


Here's the last year of the Dollar Index (DXY). A trend appears to be emerging.