Wednesday, September 30, 2015

"Hurricane Warnings for the Bahamas From Joaquin; Threat to U.S. East Coast Grows"

Hurricane Joaquin
From Wunderblog:
Joaquin is now a hurricane, and Hurricane Warnings are up for the Central Bahama Islands as the slowly intensifying storm moves southwest at 6 mph. An Air Force hurricane hunter aircraft made two penetrations of Joaquin's center on Wednesday morning, and found top surface winds of 80 mph, a central pressure of 971 mb, and a huge 54-mile diameter eye with a fully closed eyewall. Joaquin continues to battle high wind shear of 20 knots due to strong upper-level winds out of the north-northwest, but this wind shear had fallen by about 5 knots since Tuesday morning. Water vapor satellite loops show that a large area of dry air lay to the northwest of Joaquin, and the strong wind shear was driving this dry air into Joaquin's core, keeping intensification slow. Visible and infrared satellite loops show that Joaquin has developed a large Central Dense Overcast (CDO) of high cirrus clouds over the center, characteristic of intensifying storms, and the hurricane's large eye was beginning to be apparent. Upper level winds analyses from the University of Wisconsin show that the hurricane has developed an impressive upper-level outflow channel to the southeast, which is supporting the intensification process. Ocean temperatures in the region are near 30°C (86°F)--the warmest seen there since record keeping began in 1880.

The U.S. outlook for Joaquin
A hurricane watch could be required for portions of the U.S. East Coast as early as Thursday night. The forecast for Joaquin is very complex, and the confidence in both the intensity and track forecast for the storm is low. Joaquin is trapped to the south of a high pressure system whose clockwise flow will push the cyclone very slowly to the southwest or west-southwest at about 3 - 6 mph. As the storm progresses to the southwest, the strong upper-level winds out of the north currently bringing high wind shear of 20 knots will gradually decrease, continuing to allow Joaquin to strengthen. The 8 am EDT Wednesday run of the SHIPS model predicted that wind shear over Joaquin would fall to the moderate range, 10 - 20 knots, on Thursday and Friday. These conditions should allow Joaquin to intensify to a Category 2 hurricane by Thursday. As Joaquin progresses to the west, the storm will also increasingly "feel" the steering influence of a strong upper-level trough of low pressure situated over the Eastern United States on Friday, and begin to turn north. These winds may also open up another upper-level outflow channel to the northwest of Joaquin on Friday, potentially allowing the storm to intensify to Category 3 strength. However, as Joaquin gets closer to this trough, its winds will bring high wind shear of 20+ knots, likely halting the intensification process and causing weakening by Sunday....MORE

Figure 2. Our two top models for forecasting hurricane tracks, both run at 8 pm EDT Tuesday September 29, 2015 (00Z Wednesday) , came up with two very different solutions for the path of Joaquin. The GFS model showed Joaquin making landfall in Virginia, while the European model took the storm to the northeast out to sea without hitting the U.S. Image credit: wundermap with the "Model Data" layer turned on.

Soros Buying Into Real Estate/Real Asset Investment Management Biz

"Real assets" is a catch-all term for agricultural land, timber, infrastructure etc.

From the Press Release (Sept. 24):

Tunbridge Partners Formed To Invest in Real Estate and Real Asset Investment Management Businesses 
Tunbridge Partners LLC ("Tunbridge" or "the Company"), a newly-formed asset management company focused on making minority equity investments in real estate- and real asset-focused investment managers, today announced that it has officially launched. Tunbridge is being formed by a management team led by Brian Finn, Chairman, and Sean Gallary, Portfolio Manager, and Hodes Weill & Associates, a real estate advisory firm with a focus on the real estate investment and funds management industry.  

Tunbridge is a perpetual life investment company backed by a strong institutional shareholder base. The business will be capitalized with approximately $500 million of shareholder capital from a consortium of investors led by Pine Brook, a private equity firm with deep experience building financial services businesses, and Quantum Strategic Partners Ltd., a private investment fund managed by Soros Fund Management LLC. Additional institutional investors are expected to include several US-based public and corporate pension plans.

Tunbridge will make investments, generally structured as minority equity interests, in investment managers focused on real estate and real assets across property sectors, strategies and geographies. In addition to providing capital, Tunbridge will provide strategic and operational support to its partner firms, including access to global institutional coverage and distribution services through its affiliation with Hodes Weill....MORE

Here's the SEC's amended Form D dated Sept. 16.

A Quick Primer on Currency Devaluations

From FT Alphaville:

It’s not the 1930s so…
Currency wars are either everywhere or nowhere. We know that much.

What we also probably know is that currency devaluations in today’s environment are indeed approaching beggar thy neighbour policy without commitments to be irresponsible and/ or supportive fiscal action.

HSBC’s Stephen King broadly agrees.

Devaluations alone, although the path of least resistance and very probably the primary avenue through which monpol seems to work, just aren’t going to cut it anymore. Yes, says King, “a small country might benefit from a major currency decline but, since the latest bout of currency wars began in 2008, three-fifths of the world economy has devalued or depreciated against the remaining two-fifth”.
(Note China and note that stability following its trip to band camp is what most analysts are predicting. Other see another larger deval as nailed on, of course. We’re going to be contrarian and say we don’t know)

And, says King, “the aggregate effect of currency declines has failed to reduce the risk of deflation at the global level and, by adding to uncertainty, may have limited the size of the trade multipliers more typically associated with post-war economic recoveries. Ultimately, the world as a whole cannot devalue.”

It’s something we’ve heard David Woo say before and Eichengreen rebut with caveats.
Caveats that King builds on. His ultimate point being that for devaluations to work at the global level they need to signal a major revolution in domestic monetary (and fiscal) regimes. Something, he argues, the 1930s did:

There are four alternatives [to currency devaluations taking the world to a cliff edge -- his phrasing, we quickly stress]:

The first, and probably the most fatalistic, is to accept that monetary policy can do little more to boost economic growth. The world’s major industrialised nations have been slowing down decade by decade (see chart 21). This appears to reflect a series of structural constraints that are unlikely to be influenced significantly by monetary policy. More needs to be done on the supply-side as opposed to the demand-side, in particular in order to tackle the persistent absence of decent productivity growth....MORE

"The ‘Hot Hand’ Debate Gets Flipped on Its Head"

From the Wall Street Journal:
A new paper shows how a simple coin toss may prove that basketball players really can get hot
People have been hunting for proof of the hot hand in basketball longer than Stephen Curry has been alive.  
The search has lasted three decades and exhausted almost all options. But the results were usually the same. There was no evidence of the hot hand. A player who made a shot was no more likely to make his next shot. 
Then something strange happened this summer. Economists, psychologists and statisticians started talking about a new paper on basketball. It claimed that the hot hand really does exist. But what made it truly mind-boggling was that the authors used the simplest scientific method: coin flips. 
The new paper, written by Joshua Miller and Adam Sanjurjo, begins with a riddle. Toss a coin four times. Write down what happened. Repeat that process one million times. What percentage of the flips after heads also came up heads? 
The obvious answer is 50%. That answer is also wrong. The real answer is 40%—and the authors say their correction should alter years of thinking about the hot hand. 
The fallacy of the hot hand was established in a classic 1985 study that has since become a part of the social-sciences canon. The paper’s conclusion—that the appearance of shooting streaks was a misreading of randomness—was so counterintuitive that many refused to believe it. The uproar hasn’t abated over the years, yet even the most promising follow-ups found only a tepid hand. The feeling that you can’t miss after making several shots in a row was still a “massive and widespread cognitive illusion,” as the Nobel Prize winner Daniel Kahneman has written.
Nobel laureates think about the hot hand because it’s a bias that shapes important decisions. For these academics, the hot hand isn’t an isolated basketball occurrence. It’s an accessible example of how human beings behave with consequences for almost every industry. 
Now, though, comes the most intriguing argument that human intuition wasn’t wrong. A basketball player who shoots the same percentage after a streak of makes as he does after a streak of misses was long accepted as proof against the hot hand. Miller and Sanjurjo’s paper asserts it’s actually evidence of the opposite....MORE

Tuesday, September 29, 2015

Credit Suisse: The Smart Money Is Betting On Fat

I knew it!
All our years of research into the tallow/grease/lard complex is going to pay off!
Living high on the hog. Fat and sassy.

As noted in May's "Huh, There Goes The Theory of Natural Selection":
First it was cholesterol in the dietary guidelines and now this. 
It appears Yeats was right, things fall apart, the centre cannot hold.
From Credit Suisse, September 22:

Fat: The New Health Paradigm
Consumers are making new choices, switching away from carbs to food containing fat such as red meat, butter and eggs. This trend offers powerful investment ideas, according to a study by the Credit Suisse Research Institute.  
Over the last 50 years, general nutritional wisdom has recommended a moderate consumption of fat. We have been told to dramatically lower our consumption of saturated fats (contained in butter, lard, milk, red meat, coconut oil…) and cholesterol (found in eggs, poultry, beef…). We have also been advised to increase our intake of polyunsaturated fats (contained in soybean, sunflower, corn, cottonseed oil…) and carbohydrates (found in pasta, bread, sugar…). But fat is a complex topic and these recommendations have been debated and questioned over the past 30 years. Some experts believe that these dietary recommendations – closely followed by the US population – are the main cause behind the country's high obesity levels and the rapidly growing number of people suffering from metabolic syndrome.   
Changing Medical Evidence 
Medical research is, however, gradually moving away from the recommendations just mentioned, according to the report "Fat: The New Health Paradigm," issued by the Credit Suisse Research Institute. This report is based on more than 400 medical research papers and books written by academics and industry experts, as well as two in-house surveys of doctors, nutritionists and consumers. Eating cholesterol, for instance, has basically no impact on the level of cholesterol in the blood or on potential heart diseases, and the link between saturated fat intake and cardiovascular risk has not been proved. "But we found that 40 percent of nutritionists and 70 percent of general practitioners surveyed believe that eating cholesterol-rich foods has damaging cardiovascular effects. This is not true, according to the extensive research that has become available in recent years," said Giles Keating, Vice Chairman of Investment Strategy & Research and Deputy Global Chief Investment Officer for Private Banking & Wealth Management. A high intake of vegetable oils (containing omega-6 polyunsaturated fats) has not been proved to be as beneficial as earlier thought, and trans-fats have been shown to have negative effects on our health. In short, saturated fats and monounsaturated fats are not behind the high rates of obesity and metabolic syndrome in the US. The two leading culprits are the higher intakes of vegetable oils and the increase in carbohydrate consumption....MUCH MORE
From the Credit Suisse Research Institute: "Fat: The New Health Paradigm" (84 page PDF)
It's really quite solid.

Previously on the triglycerides are yummy channel:

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".

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

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... 
Volatility Getting You Down, Bunky?
Maybe it's time you looked into the tallow market.
The tallow/grease/lard complex has been traded for five thousand years:

2992 B.C.
Honey I'm home!
Hi dear, anything new in tallow?
Nope. Same ol', same ol'.

2008 A.D.
Commodities: Action in the Grease/Tallow/Lard Complex--"Tallow Replaces Crude Oil as Biofuels Go to War"
A headline you won't see just anywhere.And a subject near and dear to our sometimes over-amped hearts.Tallow has attracted academic econ interest. In this 2003 paper we have a price series for tallow that goes back to the year 1209 (starting on page 53 of the PDF).

"Will Underfunded City Pensions Lead to Crippling Social Problems?"

Yes, yes they will.
Just think of the big American cities in the news this year, Baltimore, St. Louis, Chicago, Detroit.

From Barron's Income Investing:
Underfunded pensions are an increasing headache for municipal bond investors, a topic covered in this week’s Current Yield column in Barron’s, “Muni Investors Face Pension Woes.” 
A near-term concern is that the securities will be downgraded by credit rating agencies, causing a downdraft in the price of the bonds. 
But a longer-term concern for holders of bonds issued by cities is that underfunded pensions could eventually lead to crippling social problems, said Tom Tzitzouris, head of fixed income research at Strategas. He was speaking Tuesday at a conference on munis put on by the Global Interdependence Center....MORE
See also:
"San Francisco Is Smarter Than You Are"

Municipal Bonds: "Judge Approves California City’s Bankruptcy-Exit Plan"

Helpful Headline Hints From the Guardian: Spawn of Marc Rich Edition

From the Guardian:
"Glencore should have prepared better for China slowdown"
Roger that, over.

Piketty’s Co-Author: The Missing $6 Trillion Is In The Tax Havens

From Real Time Economics:

Is Wealth Inequality Hidden in Tax Havens? Piketty’s Co-Author Thinks So
The idea of stashing money in a Swiss bank account or some Caribbean island sounds a bit antiquated—the act of a 1960s James Bond villain. But the amount of wealth flooding into tax shelters around the world may in fact be rising to unprecedented levels. 
The economist Gabriel Zucman, a protégé and co-author of the French economist Thomas Piketty, has published a new book that attempts to document money hiding out in tax havens. Mr. Zucman’s book, “The Hidden Wealth of Nations,” documents just how dramatic the recent rise has been. 
To estimate the amount of hidden money, Mr. Zucman begins with a simple trick. If you add up all the financial liabilities and all the assets in the world, they ought to balance. One person’s liability ought to be another’s asset. (Or one company’s, one country’s, etc.) But if you add up all the world’s reported liabilities, the figure is about $6 trillion higher than the reported assets—a sum that’s been growing. The likeliest explanation: around $6 trillion in assets are being hidden....MUCH MORE

Bangladesh Prime Minister Asks Britain To Stop Exporting Jihadis

From Bangla Desh News 24:

Hasina asks Cameron to step up efforts to combat British jihadis
Prime Minister Sheikh Hasina has urged David Cameron to tackle recruiters from the Bengali community in Britain as experts say jihadis are fanning extremism in Bangladesh. 
Influential ‘The Guardian’ newspaper ran a report on the rise of religious extremists in Bangladesh and the role of those returning home from Europe and the US in fuelling radicalism.

The Guardian journalists Simon Tisdall and Anna Ridout spoke to the Bangladesh leader, some other politicians, campaigners against Islamic radicalism and security experts for the report....MORE 

Signposts: It's The End Of Accounting As We Know It

Well, it was a good run, 524 years since Pacioli.
From goingconcern:

In Order Save the Accounting Profession, It Has to Be Destroyed First

If you like hearing a broken record about the accounting profession's problems, look no further than this Accounting Today piece.
It lists dozens of quotes from people wringing their hands over the profession's three-headed monster of insurmountable obstacles: irrelevance (via technology), people and change. You'll read it and either think, "The accounting profession is pathetic," or, "Maybe I should start a firm to compete with these clowns."
Really! It paints a grim picture of firms that are still out there, clinging to the past:
“Technology is moving so fast that all the bean-counting that has been the heart and soul of the industry is disappearing fast,” warned 2020 Group chairman Chris Frederiksen, describing how staples of accounting like recording purchases, writing checks, invoicing and others have disappeared in the face of automation.
And also the offshoring of not only work, but knowledge: 
“It will not be long before automation will be able to handle most of the role of current CPAs,” said Sage senior director Ed Kless. “What computers can’t handle, offshoring will. It will not be long before there are more people in India more knowledgeable about the U.S. Tax Code than there are CPAs in the U.S.”
Ron Baker, of course, says that the accountants get the profession they deserve:
VeraSage Institute founder and value pricing proponent Ron Baker was even willing to doom the profession: “Unless our profession continuously innovates and adds value, we deserve irrelevancy,” he said. “What was the last innovation from the profession? We continue to avoid the tough issues, such as auditor independence. … CPAs need to help their customers make history, not just report on it.”

Paging Art Anderson, gonna make history, not report it.

The New Trend In Apps: Content Blockers

From The Verge:

Discontent is an iOS content blocker that finally rids the world of content
For years now, people on the web have complained about content. Too often it is biased, it's clickbait, or worst of all, it's supported by invasive advertisements, which learn your most private desires, store them in a database, and use them to sell you Ikea furniture timed to the dissolution of your marriage. Despite these drawbacks, the popularity of content has ensured that it can be found on most major websites, perpetually tantalizing us with its meretricious charms. 
The release of iOS 9 this month introduced the ability for developers to build content blockers that, once installed, would prevent certain types of content from appearing in mobile Safari. Most controversially, it enables the creation of ad blockers, which can prevent the sites that run them from earning ad revenue. Publishers have reacted to this news with characteristic calm, but it has proven controversial among developers — with some saying it's a good idea, and others saying it's not.
But none of this has addressed the issue of content itself, which continues to be published on all manner of websites, this one included. Enter Discontent, a new content blocker that prevents web content from finding its way into your web experience. For a mere $0.99, you can ensure that this very article never again befouls the screen of your rose gold iPhone 6S. In the words of the developer, Paul Miller: "Stop distracting yourself with marginally informative blog posts and start living." The app "pairs nicely with an ad blocker for a true barebones web experience," he added....MORE

Staff, what does this little -don't post- sticker mean?

Hurricane Watch: New York May Get Wet, Virginia Will

From Wunderblog:

Tropical Storm Joaquin

Tropical Storm Joaquin

Tropical Storm Joaquin

And of course one model has the storm heading to Ireland.

With H2O Discovery Elon Musk To Develop Hyperloop Water Park On Mars

From the Washington Post:

Elon Musk needs a vacation
Elon Musk is a notorious workaholic. As the chief executive of SpaceX and Tesla has long made clear, he doesn’t really need much vacation. He’s described lounging on the beach as “the worst,” and something that would leave him “super-duper bored.” He joked in a recent biography that “vacation will kill you,” after recounting a trip that left him with a malaria infection.

This makes Musk’s recent remarks to a Danish television station so surprising, and a reminder that long hours can grind down even the toughest and more passionate workers.

“My priority right now is to try to add some more management bench strength to Tesla in particular so that I can take a vacation,” Musk said in an interview published Sunday. “In the last 12 years I’ve only tried to take a week off twice.”

An emotional Musk grew misty-eyed during parts of the interview, and reflected on the toll that running SpaceX and Tesla has had on him.

“Creating a company is almost like having a child,” Musk said. “It’s almost like, how do you say your child should not have food?”...MORE
Okay, I may have hallucinated the part about the hyperloop water park.

"Hedge Funds Profit from Glencore Implosion"

From FINalternatives:
The stunning decline in mining and commodity specialist Glencore’s share price accelerated Monday, wiping a further 29% off the value of the beleaguered company and generating major profits at least two hedge funds short the company’s stock. 
Lansdowne Partners and Passport Capital have bet heavily against London-based Glencore and hold the top two short positions. Lansdowne’s net short position is some 117 million shares, while Passport’s is more than 106 million, according to Bloomberg. ...MORE
The Evening Standard's take is pretty funny:

Glencore: Hedge funds poised for £200 million windfall after shares tumble
Two top hedge funds stand to make nearly £200 million from Glencore’s tailspin after placing bets on a plunge in the group’s share price last month. 
US based hedge fund Passport Capital and Mayfair-based Lansdowne Partners both declared short positions on the stock before yesterday’s dramatic price plunge, giving both firms a hefty paper profit on the positions.   
Hedge funds borrow shares in the market from other investors and then sell them - before buying them back at a lower price when they fall.  
San Francisco Passport, led by hotdog salesmen turned hedgie John Burbank, has a paper profit of around £80 million after borrowing about 106 million Glencore shares – equivalent to 0.81% of the company’s share capital - at the start of September. Shares were trading at 144p when it declared the position....MORE

"Are banks behind energy and metals price swings?"

Speaking of finance, we heard yesterday that GLEN was being asked to post collateral on positions that a week ago would not have required same.
However we've seen no confirmation of this.
From the Financial Times, September 29:

Free Lunch: Supercycle suspicions
Currency commoditiesThe abrupt end of what some saw as a commodity price “supercycle” has caused wider ructions whose ultimate effects we are only beginning to understand. Commodity-related companies are of course deeply affected, as the seemingly bottomless pit that the miner-trader Glencore’s shares have fallen into illustrates. The International Monetary Fund, meanwhile, devotes a whole chapter in its latest World Economic Outlook to the macroeconomic effects of the commodity price collapse on exporting countries (not good, as you might expect).
Just as interesting is to look at cause rather than effect. The overwhelmingly popular account of how energy and metals prices went over a cliff last year (and have kept tumbling) is a China story: the Chinese slowdown marks the end of the emerging giant’s voracious appetite for commodities to nourish its industrial expansion. For hydrocarbons, the US shale boom is also mentioned — but it is harder to find similar bursts of supply in metals whose prices have also fallen. So the big factor everyone acknowledges is softening Chinese demand. It is the story told by oil guru Daniel Yergin, and it is one that helps Leonid Bershidsky make sense of the freefall in Glencore’s and other commodity traders’ shares.

But there is another, much less well understood factor behind the rise and fall in commodities prices over the past decade. That is the way the sector became financialised and commodities turned into a financially traded asset, on which topic the Financial Times’s very own Izabella Kaminska is the go-to repository of wisdom.

Two facts are important. The first is the commodity industry’s need for large-scale financing of its operations, which makes the sector sensitive to developments in the financial industry, which provides the funding. In an FTAlphaville post a few weeks ago, Ms Kaminska explained how a commodity trader’s balance sheet depends hugely on its ability to secure loans against the security of physical commodity stocks. For a long time, money was loose and banks were more than willing to provide that financing. But things can go wrong with such commodity-secured loans. And the hangover of a financial capital glut in the shale industry could, today, encourage overproduction so as to drive prices even lower, as Tracy Alloway explains....MORE

Monday, September 28, 2015

Bard Finance, LLC: Dirty Deeds in the Wool Trade

From the Guardian:

Shady dealings of William Shakespeare’s father ‘helped to fund son’s plays’
Research into family finances gives fresh insight into the playwright’s early life story
The story of how William Shakespeare’s father slipped from wealth to bankruptcy, leaving his impoverished son to struggle to establish himself as a poet and actor before making his own wealth in the London theatre, has long been an established part of the mythology surrounding the playwright. But a new study of the family’s business in the wool trade suggests this is far from an accurate account.

David Fallow, a former financier, has spent years studying the Shakespeare family’s wealth, poring over documentary evidence from a time when “wool was to the English economy what oil is to Saudi Arabia today”.

It has long been assumed that Shakespeare’s father was a small-town glover and dealer in hides and wool, who went from riches to rags. The new research suggests that, far from going bust, John Shakespeare was reinvesting in wool and making even more money than ever, some of it via shady deals. It was also wool, not the theatre, that prompted William to leave Stratford-upon-Avon for London in 1585, where he could act as the family’s business representative.

Fallow analysed financial records of the time, including wool markets, the value of exports from regional ports, statistics on the rise of trade in London and industry consolidation, as well as Stratford court documents from John Shakespeare’s illegal wool trading and the modest revenue generated by the theatres. Using his business acumen, he has pored over figures that he believes literary scholars have struggled to understand: “You get some very brilliant academic writing about Shakespeare. The minute they try to talk about money or numbers, it becomes almost incomprehensible.”

Financial transactions and other surviving records have led him to conclude that the portrayal of John Shakespeare as a failed trader is a fable: “John Shakespeare was a national-level wool dealer, and legal research, coupled to analysis of the wool market, proves this. The Shakespeare family never fell into poverty.”

He also argues that the family’s wealth could not have come just from William’s theatrical activities: “Nobody made a fortune from theatrical seat sales alone.”
 Detail of a drawing of William Shakespeare’s house in Stratford-Upon-Avon
Leading scholars Stanley Wells and Paul Edmondson of the Shakespeare Birthplace Trust, the academic charity, are so interested in Fallow’s research that they commissioned him to write a chapter for a major publication marking next year’s 400th anniversary of Shakespeare’s death. Fallow is among 25 of the world’s foremost academics and writers, including Michael Wood, Germaine Greer and Margaret Drabble, who have contributed essays to The Shakespeare Circle: An Alternative Biography, to be published by Cambridge University Press later this year....MORE
Thanks to a reader.
Some of our other folios:

Whether 'tis Nobler In The Mind To Suffer The Slings and Arrows Of Econ Commentators
William Shakespeare: Annuity Beneficiar
"Shakespeare: tax evader and food hoarder?"

"In Denmark You Are Now Paid To Take Out A Mortgage"

Good News! In Commodity Bear SuperCycles™ Most Of The Damage Is Done In The First Six Years

From Bloomberg:

With Glencore, Commodity Rout Beginning to Look Like a Crisis
  • Sell-off stems from falling China demand, end to easy money
  • Markets may be in 20-year `bear super-cycle,' researchers warn
The 15-month commodities free-fall is starting to resemble a full-blown crisis. 
Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses.

Now it all seems to be coming apart at once. Alcoa Inc., the biggest U.S. aluminum producer, said it would break itself into two companies amid a glut stemming from booming production. Royal Dutch Shell Plc announced it would abandon its drilling campaign in U.S. Arctic waters after spending $7 billion. And the carnage culminated Monday with Glencore Plc, the commodities powerhouse that came to symbolize the era with its initial public offering in 2011 and bold acquisition of a rival in 2013, falling by as much as 31 percent in London trading.

“With China slowing down and a lot of uncertainty, fears in the market have intensified, and the reduction in the pace of demand growth for all commodities has seemed to send everybody off the cliff,” said Ed Hirs, managing director of a small oil producer who teaches energy economics at the University of Houston. 
Peak prices in gold and silver are four years old, oil’s plummet since June 2014 has been pushed along by OPEC’s November decision to keep pumping despite excess supply and U.S. natural gas prices have fallen to less than a fourth of their 2008 value.

It’s about to get worse, according to analysts John LaForge and Warren Pies of Venice, Florida-based Ned Davis Research Group. Commodities may be in the fourth year of a 20-year “bear super-cycle,” according to an Aug. 14 research note. The analysts looked at commodity busts dating to the 18th century and found them driven by factors such as market momentum rather than fundamentals, LaForge said Monday in an interview.

The good news: most of the damage is done in the first six years, LaForge said.
“In commodities you’re going to get a lot of failures, companies closing up,” he said. “This needs to happen to bring down supply.”

A debt-reduction strategy announced three weeks ago by Glencore Chief Executive Officer Ivan Glasenberg and a plan to sell a stake in its agricultural unit failed to stem the bleeding. Investec Plc warned Monday that there is little value for equity shareholders if low raw-material prices persist....MORE
We took this story to be a positive: "Junior Gold Miners Consider Cashing Out, Pursuing Medicinal Marijuana Opportunities", but of course it's not enough.

Maybe more of these:
Oil: Here Come the Shale Bankruptcies
Gold: Peter Hambro's Petropavlovsk On the Verge Of Bankruptcy (POG: LON; GDXJ)
"Goldman Forecasts Lower Commodity Prices as Super-Cycle Ends" 
Just as we expect bankruptcies among the mining companies to mark the bottom in gold we would expect front page human interest stories on the travails of the American farmer before the ags turn decisively....
The name of the Ned Davis analyst reminds me that I once read something by a Mr. Warren Pease.

Markets: Today's Terrible, Horrible, Very Bad, Not Good Day

Our friend the Grizzly is also known as Ursus arctos horribilis.

From ZeroHedge:
Stocks Battered To Black Monday Lows Amid Credit Crash, Biotech Bloodbath, & Commodity Carnage
The epicenter of today's earthquake was Biotech and Corporate Bonds... 
Biotechs were bloodbath'd - IBB dropped almost 8% today alone - the biggest drop since August 2011 - testing back to Black Monday lows and now unchanged since October 2014...

This is the longest losing streak for Biotechs since Lehman
Investors should not worry though... 
...And of course - Glencore...


Solar Stocks Getting Crushed

It started with the Chinese names, Trina down 10.1%; Canadian Solar, name notwithstanding, down 8.8%, ReneSola down 5%.

Then the U.S. market opened and we have SunEdison down 17.1%  yieldco 8point3 Energy Partners LP down 7.1%, First Solar down 5.8% and their partner in 8point3, SunPower, down 8.45%.

The Guggenheim Solar ETF  has made fresh 52-week lows and is cut in half this year.

On no news.

Here's last Thursday's story at Bloomberg:
China's Solar Power Analysts Can't Agree Why Shares Are Plunging

"Swiss Regulator Is Examining Precious-Metals Market"

From the New York Times' DealBook blog:
 Switzerland’s Competition Commission said on Monday that it had begun investigating seven financial institutions, including the Swiss banks UBS and Julius Baer, over potential collusion to manipulate the precious-metals market. 
In a statement, the commission said it was examining whether there was collusion among banks around the bid-ask spread in the trading of gold, silver, platinum and palladium. 
The financial institutions are Barclays, Deutsche Bank, HSBC, Julius Baer, Morgan Stanley and UBS, and the trading house Mitsui & Company Precious Metals, a unit of Mitsui & Company of Japan. 
Barclays, Deutsche Bank, Morgan Stanley, Mitsui and UBS declined to comment, while HSBC did not immediately have a comment when reached on Monday. Julius Baer said that it was “fully cooperating” with the inquiry....MORE

Signposts: Chinese Coal Miner Heilongjiang Longmay Lays Off 100,000 Workers

For CO2 buffs, the company supplies coking coal used to make steel rather than thermal coal, used to generate electricity.
From the Times of India:

In biggest layoff in China, coal company axes 100,000 workers
BEIJING: A coal company announced the biggest layoff seen in China in recent years as it is set to relieve 100,000 workers accounting for 40% of its labour force. 
The announcement came in the midst of Chinese president Xi Jinping's ongoing tour to the United States, where he assured politicians and businessmen that China's economy will achieve the targeted 7% growth in gross domestic product. 
Much of China's clout in the US is based on its economic achievements in past years. But the Chinese economy has slid from the earlier 10% growth level to the present situation where it is struggling to achieve 7%. 
Heilongjiang Longmay Mining Holding Group Co Ltd. said it was taking action to reduce recurring losses, and will bring about the labour cut in the next three months. It has 240,000 workers on the rolls at present. 
Company chairman Wang Zhikui said the job cut was a measure adopted to "stop bleeding" the company....MORE
Heilongjiang Longmay is the largest state owned enterprise in Heilongjiang province.
By-the-bye, state owned enterprises's were the subject of this morning's piece by the Financial Times' David Keohane:
SOE you think you can reform? Mixed-ownership edition

Deloitte's Art and Finance Report 2014: Buying Art On Margin

In the Mutually Assured Destruction game the auction houses are playing, the guarantees to sellers has become key to getting the opportunity to sell the stuff. And then there are the art loans...
From Penta:

Booming Art Market Paints a Picture of High Risk
Should art be considered a new asset class? That’s a valid question according to a report from Deloitte and ArtTactic, which notes that half of the family office executives surveyed said “one of the most important motivations” for owning art and collectibles was to better diversify the portfolio. The survey also finds that 76% of art buyers and collectors are now snapping up art as an investment, up from 53% in 2012. 
But should they be? It’s worth considering. Deloitte estimates that there are “at least 400,000 art collectors in the top wealth segments [high net worth and ultra-high net worth folks], with an estimated $1.5 trillion of wealth in art assets.” 
Deloitte also notes that investors are doubling down. The survey finds that investors are increasingly taking out loans on their existing collections to buy yet more art. About 53% of collectors used their collections as collateral to buy new art; versus 38% investors who used the loans to fund “business activities”; and nine percent to refinance existing loans. 
Private banks typically offer these loans to their clients at a rate of 2% to 3%, lending up to 50% of an artwork’s value. Last year, Northern Trust, for instance, approved $200 million in loans collateralized by art. (For investors desperate for liquidity, a cottage industry is emerging with firms like Borro, Right Capital and Art Capital offering nonrecourse loans at annual rates sometimes well above 20%.) 
At 2% to 3%, that’s not a bad arbitrage but, from a pure investment standpoint, this added layer of complexity sets up a high hurdle for art investments. Art, as an asset class, has a questionable track record, with taxes and auction house fees chipping away at returns. A 2013 study found that, between 1900 and 2012, art, stamps, wine, diamonds and violins underperformed the equity markets. Stocks earned real returns of 5.2% annually versus between 2.4% and 2.8% for the range of collectibles. A key finding: During times of economic duress, artwork collapsed between 15% and 30%, as investors sold off their collections at fire-sale prices....MORE
Deloitte Art & Finance Report 2014 (136 page PDF)

"From Boom to Bust: A Typology of Real Commodity Prices in the Long Run" Plus a Compendium of Dylan Grice at Société Générale, 2009-2012

This is a repost from April 2013:

One of the first persons we quoted on the expected real return from commodities was Dylan Grice, then at Société Générale:
Société Générale's Dylan Grice-"Commodities: ‘Their Expected Long-Run Real Return is 0%’"

Not to be outdone I had to do an intro:

Well duh.
Commodities are for tradin' not investin'.
Which makes one wonder how CalPERS and the other big institutions got snookered by Goldman Sachs into being "Long-Only Index Investors".

Do you, gentle reader, think for one minute that Goldman's crown jewel, Alaron Trading, just buys and socks the stuff away?
Of course not. Alaron makes directional bets, both long and short, to take advantage of the movement.
To a competent trader, volatility is your friend.

In the case of the grains the darn things are mean-reverting.
If wheat doubles in price, the acreage devoted to wheat goes up and prices come down. The substitution effects at the producer level are predictable if not timable:
better net profit for soybeans than corn? Beans it is boys!

In the metals and in energy the more important substitutions are at the user level. If a utility's cost of a BTU is cheaper when gas-fired, the coal orders slow down.
And over-arching everything is the point that Mr. Grice is making. Human beings are adaptable....
In his comments Mr. Grice doesn't use the technical term "Well duh".
And both he and I may have been too disparaging of real commodity price increases which, while definitely not monotonic, appear to have developed over the last sixty years. The patterns of price may be more complicated than I thought.
More below the jump.

From Simon Fraser University:
From Boom to Bust: A Typology of Real Commodity Prices in the Long Run
David S. Jacks
NBER Working Paper No. 18874
March 2013
JEL No. E3,N7,Q30

This paper considers the evidence on real commodity prices over 160 years for 30 commodities representing
7.89 trillion USD worth of production in 2011. In so doing, it suggests and documents a complete
typology of real commodity prices, comprising long-run trends, medium-run cycles, and short-run
boom/bust episodes. The findings of the paper can be summarized as follows: real commodity prices
of both energy and non-energy commodities have been on the rise from 1950 across all weighting
schemes; there is a consistent pattern, in both past and present, of commodity price super-cycles which
entail decades-long positive deviations from these long-run trends with the latest set of super-cycles
likely at their peak; these commodity price super-cycles are punctuated by booms and busts which
are historically pervasive and becoming more exacerbated over time. These last elements of boom
and bust are also found to be particularly bearing in determining real commodity price volatility as
well as potentially bearing in influencing growth in commodity exporting economies.

David S. Jacks
Department of Economics
Simon Fraser University
8888 University Drive
Burnaby, BC V5A 1S6
and NBER

I. Introduction

Once—maybe twice—in every generation, the global economy witnesses a protracted and widespread commodity boom. And in each boom, the common perception is that the world is quickly running out of key materials. The necessary consequence of this demand-induced scarcity is that economic growth must inexorably grind to a halt. While many in the investment community acknowledge this as a possibility, they also suggest that in the meantime serious fortunes are to be made in riding the wave of ever increasing prices.

On the other hand, economists are often quick to counter that such thinking is somehow belied by the long-run history of real commodity prices. Building on an extensive academic and policy literature chartering developments in the price of commodities relative to manufactured goods in particular, this side of the debate argues that the price signals generated in the wake of a global commodity boom are always sufficiently strong to induce a countervailing supply response as formerly dormant exploration and extraction activities take off.
What is missing from this discussion is a consistent body of evidence on real commodity prices and a consistent methodology for characterizing their long-run evolution. To that end, this paper considers the evidence on real commodity prices over 160 years for 30 commodities.

Individually, these series span the entire range of economically meaningful commodities, being drawn from the animal product, energy product, grain, metals, minerals, precious metals, and soft commodity sectors. What is more, they collectively represent 7.89 trillion USD worth of production in 2011. Even accounting for potential double-counting and excluding potentially idiosyncratic sectors like energy, the sample constitutes a meaningful share of global economic activity.

Furthermore, this paper suggests and documents a complete typology of real commodity prices from 1850. This typology argues for real commodity price series as being comprised of long-run trends, medium-run cycles, and short-run boom/bust episodes. As such, there a few key findings of the paper. First, perceptions of the trajectory of real commodity prices over time are vitally influenced by how long a period is being considered and by how particular commodities are weighted when constructing generic commodity price indices. Applying weights drawn from the value of production in 2011, real commodity prices have increased by 252.41% from 1900, 191.77% from 1950, and 46.23% from 1975.

Drilling down even further, extensions of this approach which exclude energy products and precious metals as well as apply equal weights reveal that real commodity prices have collectively been on the rise—albeit sometimes quite modestly—from at least 1950 across all weighting schemes. This suggests that much of the conventional wisdom on long-run trends in real commodity prices may be unduly “pessimistic” about their prospects for future appreciation or unduly swayed by events either in the very distant or very recent past. It also suggests a potentially large, but somewhat underappreciated distinction in between “commodities to be grown” which have evidenced secular declines in real prices versus “commodities in the ground” which have evidenced secular increases in real prices.

Second, there is a consistent pattern of commodity price super-cycles which entail decades-long positive deviations from these long-run trends in both the past and present. In this paper as in others it follows, commodity price super-cycles are thought of as broad-based, medium-run cycles corresponding to upswings in commodity prices of roughly 10 to 35 years. These are demand-driven episodes closely linked to historical episodes of mass industrialization and urbanization which interact with acute capacity constraints in many product categories—in particular, energy, metals, and minerals—in order to generate above-trend real commodity prices for years, if not decades on end. Significantly, this paper finds that fully 15 of our 30
commodities are in the midst of super-cycles, evidencing above-trend real prices starting from 1994 to 1999.

The common origin of these commodity price super-cycles in the late 1990s underlines an important theme of this paper: namely that much of the recent appreciation of real commodity prices simply represents a recovery from their multi-year—and in some instances, multi-decade—nadir around the year 2000. At the same time, the accumulated historical evidence on super-cycles suggests that the current super-cycles are likely at their peak and, thus, nearing the beginning of the end of above-trend real commodity prices in the affected categories.
...MUCH MORE (63 page PDF)
Here are SocGen's Cross Asset Research Team's "Popular Delusions" Reports from 2009 to 2012.
The commodity essays begin on page 142:
Cred and Credulity A collection of Popular Delusions essays from 2009 to 2012

Probably The Smartest Piece On The 1099 Economy You Will See Today

I am surprised the IRS and the U.S. Department of Labor haven't already adopted this simple test:
Do you work for more than one company?
No? You aren't an independent contractor.
From Interfuidity:

1099 as antitrust
I have no idea what legal, regulatory, or policy process might achieve this outcome. But maybe it would be a good thing if it happened. 
Suppose the criteria for 1099 status really emphasized having multiple customers. For example, if you make money by offering people rides, the fact that you get to set your own schedule doesn’t cut it, if substantially all of your business comes from Uber. To qualify as an independent contractor, if you do substantial business with a regular, repeat customer, you must have multiple customers in that line of business for whom you do substantial work. Otherwise, there is a strong presumption that you should be considered an employee of your customer. 
Right now, the greatest danger to to the rest of us from “sharing economy” platforms like Uber is that these platforms benefit from network effects that render them “winner-take-all”. Today’s apparent innovators are really contesting a tournament to become tomorrow’s monopolists. The outcome we should be hoping to achieve is neither to strangle these products in their cribs (they are often great products that create real efficiencies), nor to permit wannabe monopolists to win their prize. We should want competitive marketplaces in the products these platforms provide. 
Much of the network effect that might render Uber-like platforms anticompetitive derives from density of suppliers. Customers flock to the platform that has the densest, richest set of offerings. When suppliers pick just one, they prefer to work for the platform that has the most customers. So once one platform pulls ahead, a cycle may kick in, virtual or vicious depending on your perspective, leading to a single dominant platform. But if suppliers “multihome”, if pretty much all of them sell through pretty much all of the networks, this “market cramp” can be interrupted and multiple platforms might survive. I’ve recommended before, in a vague way, that policy should be geared to encouraging multihoming. But that was going to be hard work, because platforms’ incentives are to make it hard as possible for suppliers to be promiscuous....MORE

HT: Alphaville's Further Reading post.

Glencore: In Which We Are Reminded That Shares Are A Residual Claim

From FT Alphaville's MarketsLive post:
Here’s Investec.
Sector first.
The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve. We have adopted a P/E-based approach to evaluate how the equity value of the major diversified companies might vary over time in proportion to debt and have identified the companies where equity values are most at risk. If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.
The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve. We have adopted a P/E-based approach to evaluate how the equity value of the major diversified companies might vary over time in proportion to debt and have identified the companies where equity values are most at risk. If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.
 In the current climate, debt is fast becoming the most important consideration for mining company management. “Never underestimate the ability of debt to undermine the value of equity,” neatly sums up the problem that equity holders face when considering how the highly leveraged companies, such as Glencore, see their much diminished earnings absorbed by the obligations to debtholders....

Also at Alphaville:

Zug at 80p

A history of leverage and the mining industry, 2010-2015