Monday, February 27, 2017

"Softbank’s Son: Why Do I Spend So Much Money? The Singularity Is Real"

From Barron's Tech Trader Daily:
Monday morning at the Mobile World Congress trade show in Barcelona, SoftBank (9984JP) chairman Masayoshi Son gave a keynote to answer the question “Why do I spend so much money?”
Son, who sounds like he’s been taking campaign cues from Donald Trump, emphasized the huge scale of his efforts. His firm’s investment fund, called the “Vision Fund,” has $100 billion committed to it, which is more than the global total of venture capital money of $65 billion. And he spent $32 billion to acquire ARM Holdings, which makes chips that go into smartphones, cars, and much more.
Why all the spending? Son asked the audience if they knew about “The Singularity,” the principle that machine intelligence will overtake human intelligence. Son believes it’s real — not just that, he knows when it’s happening.

“I calculated 20 years ago that it would be 2018” when the cross-over happens, he told the packed auditorium. “I recently rechecked the calculation and it was still 2018. If it’s off by a year or two, I don’t care.”

“I believe it’s coming, in the next thirty years, so that’s why I’m in a hurry,” he said, “to bring the cash.”

Son went through an explanation of human IQ and machine IQ. Human IQ is on average 100. He joked that probably his audience was a bit above that. Then he said geniuses such as Einstein have 200 IQs. Then he said that machine intelligence will have a 10,000 IQ.

Humans have about 30 billion neurons, or binary connections, he said. The billions of transistors inside chips would seem to be about at the point of overtaking the complexity of those 30 billion binary connections in the human brain, if his calculations are right.

What happens is that ARM will ship all the chips for that, he said confidently.

“They run 99% of smartphones,” he pointed out. “ARM will ship a trillion IoT [Internet of Things] chips in the next decade,” he said. So, Son, who controls Sprint (S), said, “we will have a trillion customers” to connect all that. “Okay?”

Okay. He observed that in a few years’ time, the average pair of sneakers will have more chip IQ than the average human....MUCH MORE

NVIDIA: In Case You Missed It, Citron Research (Andrew Left) Says They Covered the NVDA Short

Left had said they were targeting $90, it didn't get there
Up $3.24 (3.19%) at $104.70.

Investor's Business Daily, Fri. Feb. 24:
Graphics chipmaker Nvidia (NVDA) saw its shares tumble for the second straight day on Friday, but reassuring comments from Wall Street analysts helped the stock recover some lost ground.

Nvidia stock dropped as much as 4.8% to 95.70 in morning trading on the stock market today. But shares clawed their way to a gain of 1% to 101.46 at the close.

On Thursday, Nvidia plummeted 9.3% to 100.49 after BMO Capital Markets and Nomura cut their ratings and price targets on the stock, saying it was overvalued. The stock sliced through its 50-day moving average, a key support level.

On Friday, Mizuho Securities and UBS reiterated this buy ratings on Nvidia, saying the pullback had created a buying opportunity.

IBD'S TAKE: Nvidia stock has shown signs of hitting a climax top. It touched an all-time high of 120.92 on Feb. 7, and at that point had been up 358% in the past year.

"We would be buyers with the recent 15% pullback in NVDA post earnings," Mizuho analyst Vijay Rakesh said in a report Friday. "Gaming and Deep Learning will continue to be long-term sustainable trends as new (game) titles get released and enterprise transforms from agility and speed to a smarter, efficient, predictive enterprise."

Rakesh maintained his price target of 130 on Nvidia.
UBS analyst Stephen Chin kept his 12-month price target of 132.

"We keep a buy rating on Nvidia as we expect data center sales to more than double over the next couple years to $2 billion-plus and a 15% growth CAGR in the core gaming GPU business," Chin said in a report.

Short-seller Citron Research announced Friday that it closed out its short position in Nvidia and had rotated into betting against car-sensor tech firm Mobileye (MBLY). 
Nvidia is one of nine chip industry-related stocks on the IBD 50 list of top-performing growth stocks. Others include Broadcom (AVGO), InterDigital (IDCC) and Monolithic Power Systems (MPWR)....

"...technological unemployment will be worse than you think".

From Daniel Susskind:



In the past 15 years a new area of the economics literature has emerged to explore the consequences of technological change on the labour market. This is the ‘task-based’ literature. The account that emerges is optimistic about the prospects for labour in the 21st century. The central argument of this paper is that this particular optimism is unjustified.

In this paper I try to make two contributions. The first is to show that the literature’s current conception of how the latest machines operate and the capabilities that this implies -- what is known as the ‘ALM hypothesis’ -- is incorrect. Put simply, the ALM hypothesis implies that while machines can perform ‘routine’ tasks, they cannot perform ‘non-routine’ tasks. Tasks are ‘routine’ when human beings find it straightforward to explain how they perform them (rather than because they are boring or dull). The ALM hypothesis argues that because human beings cannot easily articulate the rules they follow when performing ‘non-routine’ tasks, it is therefore hard to write a set of rules for a machine to follow to perform these tasks. As a result, it is claimed that these ‘non-routine’ tasks cannot readily be automated.
The problem is that the ALM hypothesis is dated. It assumes that the only way to automate a task is to understand, articulate, and replicate the way a human being performs that task. But recent technological advances in processing power, data retrieval and storage capabilities, and algorithm design, means that this constraint no longer holds. It is no longer necessary to replicate human thinking and reasoning processes in order to outperform human beings....MORE

Headline from and HT to Marginal Revolution

"Warped sense of humour could be ‘sign of impending dementia’"

Following last week's "Long-winded speech could be early sign of Alzheimer's disease, says study" a "friend" sent this along.
I can't catch a freaking break this month.

From the Independent, November 2015:

An increasingly dark or twisted sense of humour could be an early warning sign of impending dementia, according to experts.
The results have appeared in the Journal of Alzheimer’s Disease, which was carried out by University College London.

Dr Camilla Clark recruited 48 patients with frontotemporal dementia from their dementia clinic at University College London. The patient's friends and family were asked to rate their friend or relative's enjoyment of different kinds of comedy.

These included slapstick comedy such as Mr Bean, satirical comedy such as Yes, Minister or absurdist comedy such as Monty Python and examples of inappropriate humour.  Dr Clark found that the dementia patients preferred slapstick humour to satirical, when compared to 21 healthy people of a similar age....MORE
The "friend" courteously included the PubMed citation at the U.S. National Institutes of Health:
Altered sense of humor in dementia.

Architecture: "How to Detect A Brutalist Building"

I'm not quite sure how this bit of genius ended up in the link-vault.

I believe this fellow is the creator although neither of the sources (reddit r/brutalism and 20 Bedford Way have a link)

And while I personally don't care for the style, to each his/her/ze's own. On the other hand I was astounded by this news last November:

Follow-Up On Last Night's Impressionist-Modern Sale At Sotheby’s (BID)

Apparently the market for Italian Fascist/brutalist macho isn't as strong as one might think.

Following up on "Attention Collectors: A Potential Mispricing In the Art Market":
From Art Market Monitor, Nov. 1:
The Baffling But Tireless Tamara de Lempicka Market

Bloomberg’s James Tarmy wonders why Tamara de Lempicka’s portrait of a man, Guido Sommi, is priced so much lower than her private market?...
It didn't sell even though Guido was her favorite model/lover/fascist.
Hey, it was the '20's.

Indicators: "Led by $54.5 M. Munch, Muted Impressionist-Modern Sale at Sotheby’s Nets $157.7 M., Down 48 Percent From Last Year

"Electric-car makers on battery alert as hedge funds stockpile cobalt"

Following up on last May's "Why the CIA Reads The Financial Times (and you should too) Tesla and Cobalt".
From the Financial Times via the Irish Times, Feb. 23:

Speculators swell appetite for metal as price of scarce material up by 50% 
Suppliers to Tesla and other electric-car makers are scrambling to secure shipments of the key battery material cobalt after a group of hedge funds amassed a large stockpile of the scarce metal.

In a bold wager on higher prices, half a dozen funds, including Switzerland-based Pala Investments and China’s Shanghai Chaos, have purchased and stored an estimated 6,000 tonnes of cobalt, worth as much as $280 million, according to the investors, traders and analysts.

The stockpile is equivalent to 17 per cent of last year’s production of the metal. Increasing use of batteries with chemical forms of the metal by Chinese electric-car makers, alongside ambitious plans by the likes of Elon Musk’s Tesla, have created a fertile backdrop for speculators hoping to profit from swelling appetite for cobalt, which boosts lithium-ion batteries’ power.

They are betting that demand for electric vehicles will exceed market expectations and push the up the price as battery makers such as Panasonic, which makes battery cells for Tesla, rush to lock-up supplies of the material. 

Global demand
Global demand is already expected to outstrip supply this year by 900 tonnes, according to commodity consultancy CRU. It estimates demand will grow 20 per cent a year for the next five years, thanks to buying from the electric car industry whose production grew by 41 per cent last year and which accounts for half of annual consumption. 

The price of cobalt, mined almost exclusively in the Democratic Republic of Congo, is already up by more than 50 per cent since November to $21 a metric pound. Prices rose to a peak of about $50 a pound in 2007, before dropping to a low of $10 in 2015....MORE
We have a silly habit of dropping breadcrumbs as we journey along the way, here's the intro to that 2016 piece:
A couple weeks ago we posted a seemingly innocuous piece with a boring headline: "'Freeport Sinks On Sale of Africa Copper Mine To Chinese' (FCX; LUN.TO)".

I figured there were at best two thousand people in the whole world who knew or cared about the back story and real import of what was going on so I'd just drop it as an Easter egg for the cognoscenti and other assorted electric vehicle/conflict mineral/African warlord/Elon Musk/extractive industry/Génocidaire hunter/U.S. political corruption watchers to find.

Well now that cat's out of the bag.

Big kudos to the FT's Henry Sanderson for recognizing one hell of a story and a small request for the Financial Times: Can you tell us what the old ENRC is up to these days?

From The Financial Times, May 25.... 
Apropos of nothing in particular, from the FT, Feb. 26: 

Sunday, February 26, 2017

Elon Musk Slams Unionization Drive at Tesla, Promises Free Frozen Yogurt, Roller Coaster (TSLA)

Following up on last week's "Elon Musk says he doesn’t think Tesla unionization is “likely to occur” (TSLA)".
From BuzzFeed, Fri. Feb. 24:

Elon Musk Slams Tesla Union Drive, Promises Workers Free Frozen Yogurt
Tesla CEO Elon Musk sent an email to factory employees Thursday night calling an employee’s claims regarding working conditions “obviously…untrue”, and the United Auto Workers effort to unionize Tesla’s Fremont factory disingenuous....

...Tesla declined comment. The full text of Musk’s email is below.
"...As we get closer to being a profitable company, we will be able to afford more and more fun things. For example, as I mentioned at the last company talk, we are going to hold a really amazing party once Model 3 reaches volume production later this year. There will also be little things that come along like free frozen yogurt stands scattered around the factory and my personal favorite: a Tesla electric pod car roller coaster (with an optional loop the loop route, of course!) that will allow fast and fun travel throughout our Fremont campus, dipping in and out of the factory and connecting all the parking lots. It’s going to get crazy good 😊"

"Whatever happened to secular stagnation?"

From Gavyn Davies' blog at the Financial Times:
A year ago, Lawrence Summers’ perceptive warnings about the possibility of secular stagnation in the world economy were dominating global markets. China, Japan and the Eurozone were in deflation, and the US was being dragged into the mess by the rising dollar. Global recession risks were elevated, and commodity prices continued to fall. Fixed investment had slumped. Productivity growth and demographic growth looked to be increasingly anemic everywhere.

Estimates of the equilibrium real interest rate in many economies were being marked down. It seemed possible that the world economy would fall into a “Japanese trap”, in which nominal interest rates would be permanently stuck at the zero lower bound, and would therefore not be able to fall enough to stimulate economic activity.
Just when the sky seemed to be at its darkest, the outlook suddenly began to improve. Global reflation replaced secular stagnation as the theme that dominated investor psychology, especially after Donald Trump’s election in November. Why has secular stagnation lost its mass appeal, and has it disappeared forever? Was it all a case of crying wolf?

Lawrence Summers has always made it clear that in his mind secular stagnation was a hypothesis, not a proven reality, especially in the US. He and others have argued that the combination of very low global GDP growth, alongside falling real interest rates, could be caused by two factors: (i) inadequate global demand, stemming from low business investment, high savings rates in Asia, wide disparity in income distribution and rising risk aversion; and (ii) inadequate global supply, stemming from falling productivity growth, and slowing growth in the labour force....MORE

Inside Facebook's Artificial Intelligence Machine (FB)

There's a good chance we'll be referring back to this piece so I wanted to have it easily available.
From Backchannel:

The Applied Machine Learning group helps Facebook see, talk, and understand. It may even root out fake news.
When asked to head Facebook’s Applied Machine Learning group — to supercharge the world’s biggest social network with an AI makeover — Joaquin Quiñonero Candela hesitated.

It was not that the Spanish-born scientist, a self-described “machine learning (ML) person,” hadn’t already witnessed how AI could help Facebook. Since joining the company in 2012, he had overseen a transformation of the company’s ad operation, using an ML approach to make sponsored posts more relevant and effective. Significantly, he did this in a way that empowered engineers in his group to use AI even if they weren’t trained to do so, making the ad division richer overall in machine learning skills. But he wasn’t sure the same magic would take hold in the larger arena of Facebook, where billions of people-to-people connections depend on fuzzier values than the hard data that measures ads. “I wanted to be convinced that there was going to be value in it,” he says of the promotion.*WruAwz63eh43qtt-jCJ3UA.png
Despite his doubts, Candela took the post. And now, after barely two years, his hesitation seems almost absurd.

How absurd? Last month, Candela addressed an audience of engineers at a New York City conference. “I’m going to make a strong statement,” he warned them. “Facebook today cannot exist without AI. Every time you use Facebook or Instagram or Messenger, you may not realize it, but your experiences are being powered by AI.”

Last November I went to Facebook’s mammoth headquarters in Menlo Park to interview Candela and some of his team, so that I could see how AI suddenly became Facebook’s oxygen. To date, much of the attention around Facebook’s presence in the field has been focused on its world-class Facebook Artificial Intelligence Research group (FAIR), led by renowned neural net expert Yann LeCun. FAIR, along with competitors at Google, Microsoft, Baidu, Amazon, and Apple (now that the secretive company is allowing its scientists to publish), is one of the preferred destinations for coveted grads of elite AI programs. It’s one of the top producers of breakthroughs in the brain-inspired digital neural networks behind recent improvements in the way computers see, hear, and even converse. But Candela’s Applied Machine Learning group (AML) is charged with integrating the research of FAIR and other outposts into Facebook’s actual products—and, perhaps more importantly, empowering all of the company’s engineers to integrate machine learning into their work.

Because Facebook can’t exist without AI, it needs all its engineers to build with it.
My visit occurs two days after the presidential election and one day after CEO Mark Zuckerberg blithely remarked that “it’s crazy” to think that Facebook’s circulation of fake news helped elect Donald Trump. The comment would turn out be the equivalent of driving a fuel tanker into a growing fire of outrage over Facebook’s alleged complicity in the orgy of misinformation that plagued its News Feed in the last year. Though much of the controversy is beyond Candela’s pay grade, he knows that ultimately Facebook’s response to the fake news crisis will rely on machine learning efforts in which his own team will have a part.

But to the relief of the PR person sitting in on our interview, Candela wants to show me something else—a demo that embodies the work of his group. To my surprise, it’s something that performs a relatively frivolous trick: It redraws a photo or streams a video in the style of an art masterpiece by a distinctive painter. In fact, it’s reminiscent of the kind of digital stunt you’d see on Snapchat, and the idea of transmogrifying photos into Picasso’s cubism has already been accomplished.

“The technology behind this is called neural style transfer,” he explains. “It’s a big neural net that gets trained to repaint an original photograph using a particular style.” He pulls out his phone and snaps a photo. A tap and a swipe later, it turns into a recognizable offshoot of Van Gogh’s “The Starry Night.” More impressively, it can render a video in a given style as it streams. But what’s really different, he says, is something I can’t see: Facebook has built its neural net so it will work on the phone itself.

That isn’t novel, either — Apple has previously bragged that it does some neural computation on the iPhone. But the task was much harder for Facebook because, well, it doesn’t control the hardware. Candela says his team could execute this trick because the group’s work is cumulative — each project makes it easier to build another, and every project is constructed so that future engineers can build similar products with less training required —so stuff like this can be built quickly. “It took eight weeks from us to start working on this to the moment we had a public test, which is pretty crazy,” he says....MORE

Vaclav Smil: "Cellphones as a fifth-order elaboration of Maxwell’s theory"

From IEEE Spectrum:

Stages of Electronics
Now that the world has become addicted to portable electronics, billions of people have come to see the companies providing these gadgets as the most innovative, and the people who head those companies as the most exalted, of all time. “Genius” is a starter category in this discussion.
But clever and appealing though today’s electronic gadgets may be, to the historian they are nothing but the inevitable fifth-order elaborations of two fundamental ideas: electromagnetic radiation, the theory of which was formulated by James Clerk Maxwell in the 1860s, and miniaturized fabrication, which followed Richard Feynman’s 1959 dictum [PDF] that “there’s plenty of room at the bottom.”

Maxwell was a true genius. The history of science offers few examples of work as brilliant as unifying electricity, magnetism, and light as aspects of a single phenomenon: electromagnetic waves. As Max Planck put it, “in doing so he achieved greatness unequalled.”

In late 1879 and early 1880, David Edward Hughes actually transmitted and received those invisible signals but did not publish his results. And in 1883, Thomas Edison also came very close to the actual use of such waves with his patent for an apparatus “showing conductivity of continuous currents through high vacuo.” He displayed it in 1884 at the International Electrical Exhibition in Philadelphia, then abandoned it as a mere curiosity.

That is why the second-order elaboration of electromagnetism came only between 1886 and 1888, when Heinrich Hertz deliberately generated and received electromagnetic waves whose frequencies he accurately placed “in a position intermediate between the acoustic oscillations of ponderable bodies and the light-oscillations of the ether.”

The third-order elaboration began with the first broadcasts, by Oliver J. Lodge and Alexander S. Popov, in 1894 and 1895, and it continued with the first transatlantic transmission, by Guglielmo Marconi in 1901; the first long-distance transmission of voice and music, by Reginald A. Fessenden in 1906; and the invention of vacuum tubes—John A. Fleming’s diode in 1904, Greenleaf W. Pickard’s point-contact diode (cat’s whisker) in 1906, and Lee de Forest’s triode in 1907....MORE

A Simple Measure of Economic Complexity

Via arXive, Quantitative Finance > Statistical Finance, Jan. 2016:
We show from a simple model that a country's technological development can be measured by the logarithm of the number of products it makes. We show that much of the income gaps among countries are due to differences in technology, as measured by this simple metric. Finally, we show that the so-called Economic Complexity Index (ECI), a recently proposed measure of collective knowhow, is in fact an estimate of this simple metric (with correlation above 0.9).
1 Introduction
The standard approach to economic growth and development simplifies a country’s whole production to three aggregate s — GDP, labor and capital — thus disregarding its complexity. Complexity of production has to do with the diversity of products a country makes, which is itself a manifestation of the diversity of productive knowledge by which many products can be made — namely the various skills and technical knowledge applied by workers or automated by machines . Products differ precisely by the amount of knowledge involved in their production, which goes from zero for natural resources sold in the raw to maximum values for highly complex products such as aircrafts.

It is along such line of thought that emerged a literature , by Hausmann and Hidalgo notably, which links complexity of production to economic development [ 1 - 3 ] . Rich countries make various products, especially complex products, while poor countries make fewer and more rudimentary ones . In fact the mere number of products a country makes, or its diversification , indicates its development. Though basic , this opposes the long tradition in economics that link s international prosperity to the specialization of countries . Hausmann and Hidalgo propose a more elaborate metric called Economic Complexity Index (ECI) to quantify the amount of productive knowledge (or knowhow ) that underlies a country’s production. ECI is therefore, to use a more traditional term, a measure of a country’s technology — if technology is taken to mean precisely the sum of practical knowledge within a society . Similarly, we can define the technological sophistication of a product by the amount of knowhow involved in its production. This is measured by the Product Complexity Index (PCI) in the authors’ theory. In fact ECI and PCI are jointly computed, based on the idea that an economy’s technology is reflected in the products it makes, and, vice versa, a product reflects the technologies of the economies making it. A reformulation of the same idea was suggested by Caldarelli et al., which we shall also consider [ 4 - 6 ] . There, the metrics are named Country Fitness and Product Complexity.

Our goal in this paper is to propose a simpler and mo re natur al measure of technology : the logarithm of diversification . This metric derives from the following basic combinatorics. First, a product is but some transformed natural resources, namely some raw materials to which is applied a set of knowhow to turn it in to a valuable outcome . Second, and more fundamentally, knowledge comes in discrete units ( or ‘ bits ’) that combine to make more and more sophisticated knowledge .

Therefore with k units of knowhow , a country can make potentially 2 k d products, whose sophistication s range from zero for natural resources ( sold in the raw) to k . Thus, we can estimate the total amount of knowhow k involved in a country’s production by its log - diversification ( up to a scaling constant) . Only, bits of knowledge don’t combine such randomly: a collection of ideas is productively relevant only when it form s a coherent set of productive knowledge ( namely when they can be put together to transform a raw material ) .

So we shall develop a more realistic (yet still simple ) model of this combinatorics of knowhow . The point remains , however: log - diversification is the natural measure of technology . We show that this simple metric explains much of the income differences among countries. Finally, we show theoretically and empirically that ECI is in fact an estimate of this metric , in standardized form, while Fitness is linked to it by construction. But first we develop a simple conceptual framework and describe the data used throughout...
...MUCH MORE (14 page PDF)

Sticking with the "simple is good" theme, here's a post from 2011:
How to Predict a Nation's GDP per Capita at r=.97 Using "Economic Freedom and average citizenry IQ -- plus slight tweaks from trading block membership and oil"

BIS: Dollar Replaces VIX as the New Fear Guage ("there's something weird going on")

From ZeroHedge, Feb. 18:

"There's Something Weird Going On": Jeff Snider On The Global Dollar Shortage
The first time we explained that one of the biggest risks facing a world in which the dollar is the reserve currency is a global USD shortage, was in mid-2009, when we wrote "How The Federal Reserve Bailed Out The World."

At the time, the IMF calculated that just ahead of the financial crisis, "major European banks’ US dollar funding gap had reached $1.0–1.2 trillion by mid-2007. Until the onset of the crisis, European banks had met this need by tapping the interbank market ($432 billion) and by borrowing from central banks ($386 billion), and used FX swaps ($315 billion) to convert (primarily) domestic currency funding into dollars." The IMF then extrapolated that "were all liabilities to non-banks treated as short-term funding, the upper-bound estimate would be $6.5 trillion."
Since then the shortage, which some have dubbed a potential multi-trillion dollar margin call, has only grown and became a prominent issue back in March of 2015, when this phenomenon was used to explain why the cross-currency swap had plunged to multi-year lows. As JPM explained at the time, "the fx basis reflects the relative supply and demand for dollar vs. foreign currency funds and a very negative basis currently points to relative shortage of USD funding or relative abundance of funding in other currencies. Such supply and demand imbalances can create big shifts in the fx basis away from its actuarial value of zero."

Fast forward a year and a half later, when none other than the Bank of International Settlements, or the "Central canks' central bank", warned last November that it was no longer the VIX that was the widely accepted barometer of market "fear", it was now the dollar's turn to become the global fear gauge: "just as the VIX index was a good summary measure of the price of balance sheet before the crisis, so the dollar has become a good measure of the price of balance sheet after the crisis. The mantle of the barometer of risk appetite and leverage has slipped from the VIX, and has passed to the dollar."
Shortly thereafter we once recapped the main risks emerging from this increasingly more prominent threat to global financial stability, and wondered at what point would the Fed finally address this risk pointed out not only by this website for nearly 8 years, but also by the BIS, in a post which piggybacked on the recent work by ADM ISI's Paul Mylchreest, who has made tracking the global dollar shortage one of his primary objectives.
* * *
Now, in an exhaustive, 70 minute interview, submitted by Patrick Ceresna at, another prominent analyst who has been closely tracking the global dollar shortage, Alhambra Partners' Jeffrey Snider sat down with Erik Townsend to explain - once again - why this is such a critical topic, even if it comes at a time of unprecedented global complacency (it's amazing what record high stock prices will do to concerns - or lack thereof - about the future).

As Snider puts it, while most other risk indicators imply smooth sailing, "there is 'something' weird going on" when it comes to dollar funding and global imbalances of the world's reserve currency, i.e., dollar shortage.
  • In the interview, among the many topics covered, are
  • Understanding the Eurodollar Money Market
  • Swap Spreads and Interbank Hierarchy
  • Dimensions in the Eurodollar Futures and Eurodollar Money Supply
  • Why does the World Need So Many Dollars?
  • How the Eurodollar market supplanted the Bretton Woods System
  • U.S. Dollar and the Dollar Funding Gap
  • Reflation Trade Debunked
  • Interest Rates Trapped
  • Failing Global Currency System
While we urge readers to listen to the full interview below, here are some of the highlights, starting with "why the Dollar shortage a symptom of an inherently unstable system."
As Snider explains, "the dollar shortage isn't so much the shortage per se, it’s the fact that it's a symptom of what is an inherently unstable system." He notes that "the reason banks are withdrawing from the system is that it's just is no longer tenable" and "so there has to be some kind of – whether you want to look at it like another Bretton Woods – conference, a global monetary system, a global monetary get together where people start to analyze solutions to the problem as they are rather than keep trying to apply band aids that are not going to work. "

But, he concludes, "step one of that task is to actually recognize the problem as it is and so doing more stimulus or doing more QE isn't going to solve anything it isn’t do anything just like prior QEs and prior stimulus haven't done anything either because the problem is an unstable system."...MUCH MORE

Saturday, February 25, 2017

Marc Andreessen Is Tweeting Again

From @pmarca:

Jalopnik: "Uber Is Doomed"

Readers who have followed the Uber story over the last few years, especially if you read Izabella Kaminska at FT Alphaville, know that despite posting on the lurid details from time to time (us more than she) our (and her) focus has been on the business/finance/econ aspects of Uber, although the political economy and other social science stuff can't help appearing, because what Kalanick built was in his own image.

From a 2014 post, "Here's the Real Problem With Uber: You Can't Trust Them":
The first thing I thought of when I started digging into Uber:
"From all our legends, mythology, and history (and who is to know where mythology leaves off and history begins – or which is which), the first radical known to man who rebelled against the establishment and did it so effectively that he at least won his own kingdom – Lucifer."
-Page ix of Rules for Radicals.
That's Alinsky seemingly quoting himself and the way I read it he's saying the Devil challenged authority and won his own kingdom.
That emulating the methods of Satan using any means fair or foul, including lying, cheating and stealing is the way to get riches and power.

And that was the moment when I stopped thinking of Uber as frat boys making stupid boob jokes and started thinking of them as nasty little political operatives.

If you're into this kind of stuff, Rule 12 appears to be the approach Uber management favors:
RULE 12: Pick the target, freeze it, personalize it, and polarize it." Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions. (This is cruel, but very effective. Direct, personalized criticism and ridicule works.)
I should note we are fans of Alinsky's tactical brilliance, oftentimes struggling to resist employing rule #5:
#5 Ridicule is man’s most potent weapon. It’s hard to counterattack ridicule, and it infuriates the opposition, which then reacts to your advantage....
So yeah, although the focus has been on the quantifiable, the soft science stuff is there as well and may be the thing that takes Uber down. At least that's the charitable interpretation, that Kalanick, blinded by hubris didn't see the flaws in the business plan.

The less favorable interpretation is that he knew all along and kept pushing in the hope that magic would happen.
That would be a fraud.

Anyhoo, here's one of the best automotive websites on the net talking Uber.

From Jalopnik:
If there is one quote that sums up the ethos of Uber, it might be this cut from the company’s firebrand CEO Travis Kalanick: “Stand by your principles and be comfortable with confrontation. So few people are, so when the people with the red tape come, it becomes a negotiation.” But after a month marked by one disaster after another, it’s hard to see how Uber’s defiant, confrontational attitude hasn’t blown up in its face. And those disasters mask one key, critical issue: Uber is doomed because it can’t actually make money.

After a discombobulated 2016, in which Uber burned through more than $2 billion, amid findings that rider fares only cover roughly 40 percent of a ride, with the remainder subsidized by venture capitalists, it’s hard to imagine Kalanick could take the company public at its stunning current valuation of nearly $70 billion.

And now, in the past few weeks alone, Uber has been accused of having a workplace that fosters a culture of misogyny, accused of stealing from Google the blueprint of a successful self-driving system, and has lost 200,000 customers over ties to President Donald Trump and how it responded to a taxi driver boycott.

Yet even when those factors are removed, it’s becoming more evident that Uber will collapse on its own. Barring a drastic shift in the company’s business—an implausible rollout of self-driving car fleets across the U.S., an increase of fares by three-fold, or a complete monopolization of the taxi and ride-hailing markets—Uber’s lifeline is shrinking. Its business model could collapse if one court case, and there are many, goes against it. Or perhaps more pressing, if it simply runs out of cash.
That Kalanick quote about confrontation may be as innocuous as a random sound bite, but it’s representative of the ride-hailing giant’s methodology since its founding in 2009: a perpetual resistance to regulatory oversight; a belief that, ultimately, an unfettered market is the key to prosperity. 

At first glance it seems like Kalanick’s libertarian ideals have paid off. Most recently valued at a reported $69 billion, Uber has captured a majority of the ground transportation market and flipped the taxi industry—a sector Kalanick once famously and snidely referred to as the Big Taxi Cartel—on its head. His philosophy mirrors the mindset of one of his favorite authors, the laissez-faire Ayn Rand. In 2012, Kalanick proffered that Uber’s battle against government regulations has an “uncanny resemblance” to the Randian philosophy. A billionaire fighting The System—and prevailing. It’s a good story for those who find truth in Atlas Shrugged.

Uber’s long had skeptics, and it’s not innovative to paint Kalanick, 40, as the boogeyman of Silicon Valley, where unseemly savants exist in vast supply.
The precarious moment in the company’s eight-year history falls on Kalanick’s lap. It’s his baby after all—a startup founded on seemingly nothing more than a vague idea, without much regard for the workforce to make it possible, or even a clear idea of what business model it actually wants to pursue. Uber has jumped from one idea to the next: UberX, UberEats, autonomous cars, and now flying cars, of all things.

The impact of Uber’s death would probably be as much of a rebuke of Kalanick’s vision of running on a scatterbrained dream, not so much a solid business model and philosophy, that you could muster.
It would also be devastating for some. The livelihood of 11,000 employees across the world rests on Kalanick’s decision to submit to that philosophy—which, at its core, is a ruthless way of doing business. At the very least, drivers in the pre-Uber market could earn a decent living. Conversely, for example, Uber drivers taking advantage of new “vehicle solution” pilot program in Boston — renting cars by the hour through Zipcar — will earn less than Massachusetts’ minimum wage. How innovative. 

The Contractor Problem
One of the biggest issues that has left Uber’s business model hanging in the balance is its resistance to classifying its drivers—there are reportedly 600,000 in the U.S.—as employees, not contractors. If Uber is a house of cards, this is a key part of the foundation that, once removed, would demolish the structure.

Indeed, the company has said reclassifying drivers could “force Uber to restructure its entire business model.” The result of its opposition to readjust has been entirely expected. Without the perks and protections that an employee may enjoyhealth care, benefits, gasoline and work reimbursements, vehicle maintenance, all of which could reportedly total as much as $730 million—complaints from drivers have piled up, ranging from low pay to new services like UberEats (a loathed food delivery service that’s reportedly set to lose over $100 million annually) and UberPOOL, its carpool option which increases the company’s take per-ride, lowers the take-home pay for drives, and is understood to be quite a drag for drivers and passengers alike. Drivers themselves said as much in a recent, disastrous question-and-answer session with Uber’s president....MUCH MORE
If interested, we have an awful lot of posts on Uber; here's the Google search of the site: uber

Technology Review's "10 Breakthrough Technologies 2017"

From MIT's Technology Review:

10 Breakthrough Technologies 2017

These technologies all have staying power. They will affect the economy and our politics, improve medicine, or influence our culture. Some are unfolding now; others will take a decade or more to develop. But you should know about all of them right now.

A Quick Lesson In Writing: "And there appeared a great wonder in heaven"

From Oxford American, December, 2015:

Prayers for Richard
David Ramsey

And there appeared
a great wonder in heaven

Little Richard has always been attuned to signs. At the height of his fame, on tour in Australia in October 1957, he saw a big ball of fire in the sky above the stadium. This was his second vision of fire. On the flight over, the glow of the engines appeared to him as flames and he pictured yellow-haired angels holding the plane aloft.

The message, to Little Richard, was clear. He had to leave show business, quit singing the devil’s music, and get right with God.

“It looked as though the big ball of fire came directly over the stadium about two or three hundred feet above our heads,” he later told his biographer, Charles White. “It shook my mind. . . . I got up from the piano and said, ‘This is it. I am through. I am leaving show business to go back to God.’” And he did. He ditched the tour—leaving half a million dollars’ worth of canceled bookings, with multiple lawsuits to come. The change in plans kept him off a scheduled flight that crashed into the Pacific Ocean. The Lord wasn’t messing around.

Little Richard quit rock & roll altogether, at least for a time. He enrolled at Oakwood College in Huntsville, Alabama, to study to become a minister. All to the despair of the money men at Specialty Records—owner Art Rupe said that Little Richard was so popular they could have recorded him blowing his nose and made a hit.

What Little Richard saw overhead in Australia was in fact Sputnik, the Russian satellite traveling 18,000 miles an hour in the night sky.

Picture Little Richard, far from home, drenched in sweat. “He made an impressive entry,” according to Australian newspaper the Age, “wearing a brilliant red coat over a canary yellow suit, topped off with a bright green turban. But he discarded all the trimmings until he was left with only pyjama pants and the turban.” Pounding on the piano and then dancing on top of it and then throwing his bedazzled clothes into the crowd. And Richard saw the bright yellow burn of the satellite, or probably the rocket casing trailing it, perhaps streaking past the vibrant Alpha and Beta Centauri stars of the Southern Cross.

A star who mistook a satellite for a ball of fire. And we might pause here to note that whether or not it was a message from God, something like a miracle was afoot. A freaky-deaky bisexual black man who grew up poor in the Jim Crow South in Macon, Georgia, singing a wild, sexy nonsense song that changed music forever, everywhere—even in a packed stadium halfway around the world, as shrieking Australian teenagers nearly started a riot, scuffling to touch the man’s discarded clothes. Fire in the heavens and fire on earth.

There are miracles everywhere if you know where to look. And know how to listen: A wop-bop-a-loo-mop-a-lop-bam-boom!

Good intro, eh?

"The paths to power and success are narrowing. So is the worldview of the powerful."

From The Daily Beast:

America’s New Mandarins
Yesterday, I wrote about the silliness of requiring a file clerk to have a college degree. This morning, a friend sent me the following note about the narrowing of opportunity in modern America:
Random thought inspired by the NYT article re: requiring BAs for everything and your post, especially the note about your IT team and their varied backgrounds, which is far less likely to be true today.

It seems to me that a similar version of that narrowing-entry option is occurring in many fields

You've written in the past about how the top banks have steadily narrowed the pool of candidates whom they'll consider - e.g., only 5-6 schools will even be looked at. A similar phenomenon has been occurring in law as well, and not just post-08 . . . even before the recession.

Not sure I have a handle on the larger meaning of it all: it just seems like a generalized phenomenon to me that entry pathways are narrowing all over.
He also pointed me to a telling passage in Diary of a Very Bad Year, Keith Gessen's interviews with a hedge-fund manager: 
HFM: I’m sure today I would never get hired. 
n+1: Really?  
HFM: Yeah, it would be impossible because I had no background, or I had a very exiguous background in finance. The guy who hired me always talked about hiring good intellectual athletes, people who were sort of mentally agile in an all-around way, and that the specifics of finance you could learn, which I think is true. But at the time, I mean, no hedge fund was really flooded with applicants, and that allowed him to let his mind range a little bit and consider different kinds of candidates. Today we have a recruiting group, and what do they do? They throw résumés at you, and it’s, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that probably they’re less likely to make good investors than people with sort of more interesting backgrounds. 
n+1: Why?  
HFM: Because I think that in the end the way that you make a ton of money is calling paradigm shifts, and people who are real finance types, maybe they can work really well within the paradigm of a particular kind of market or a particular set of rules of the game—and you can make money doing that—but the people who make huge money, the George Soroses and Julian Robertsons of the world, they’re the people who can step back and see when the paradigm is going to shift, and I think that comes from having a broader experience, a little bit of a different approach to how you think about things....

Inequality: Apparently What the World Needs Is Some Death and Destruction

From Inverse, February 15:

Income Inequality Is Likely Here to Stay
Author Walter Scheidel explains why it's so hard to level the playing field.,15,1920,960&dpr=1.5&auto=format,compress&q=75
Income inequality has become an increasingly visible and salient issue in the past few years, with ideas for fixing it on all sides of the aisle. But according to Stanford History Professor Walter Scheidel, author of The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, these approaches may not be the panacea many might like them to be.

Scheidel says that’s because violence is the only force in history that has truly managed to liberate wealth from the upper stratum of society. He frames his historical analysis of trends in inequality around what he calls the Four Horsemen: “mass-mobilization warfare, transformative revolutions, state collapse, and catastrophic plagues.” Only these “shocks” have the transformative power required to reduce inequality. It’s a grim, grisly prospect, one that raises more questions than it answers about how to move forward.

Inverse talked with Professor Scheidel about just that: the inequality of the past and what it means for the solutions of the future.

Your idea of the “Four Horsemen” — will those always look the same going forward?
Well so much has changed over time. State collapse and plagues, they’re not currently on the table. States are much more resilient now, very difficult to dislodge unless you’re in Sub-Saharan Africa or the Middle East. We’re not going to have another Black Death … probably. Even the others don’t currently apply, right? There is no Communist Revolution on the horizon and if there’s another war, it’s not going to be a mass mobilization war with millions of people in trenches. In a sense, history is over. That raises a very big question about future mechanisms of equalization. Nobody wants the old ones to come back, but are there others that are equally powerful? If they exist, they didn’t occur in history. It doesn’t mean we can’t one day discover them or design them.

Do you think something like state collapse would take on a new form? Might we define it differently than we would have previously?
Maybe. But if you think of some lower degree of disturbance, it doesn’t seem to be enough to have an effect on inequality. The overall state as an institution is not going to go away. You could say that in the next few decades there will be more violence or violent dissent, but that’s not going to bring down the state, wholesale, in the West.

Do you think advancements in technology would be something that add to inequality?
Yeah. You can think in particular of genetics. That would be both within societies and between societies. It’s no longer totally futuristic. If you can have designer babies and you have to pay for it, that may be available only to a certain group, a particular class in a country or one country rather than another. That could create inequalities like we’ve never seen before. Now, we are still all “people,” but that could change....MORE

Friday, February 24, 2017

WTH Is Up With Rybolovlev? "A $100 Million Mystery: A Russian, His Art, and His Big Losses"

From Bloomberg:

Dmitry Rybolovlev sold three works for an estimated $100 million loss and stands to lose even more in upcoming auctions
 “Otahi” (1893) by Paul Gauguin recouped “less than $50 million” 
according to court documents, a loss on the $120 million purchase price.
It was meant to be one of the world’s top collections of 20th century art, anchored by Amedeo Modigliani nudes and Claude Monet water lilies.

But two years after Dmitry Rybolovlev sued his dealer, alleging he was overcharged by as much as $1 billion, the Russian fertilizer magnate is unloading works he acquired at often record prices. He has already sold three for a loss totaling an estimated $100 million, and is offering five more at Christie’s auctions in London starting next week, some for a fraction of their purchase prices.
Rybolovlev—whose fortune totals about $9.8 billion according to the Bloomberg Billionaires Index—invested about $2 billion in 38 works, from Leonardo da Vinci to Pablo Picasso. They were procured privately by Swiss art dealer Yves Bouvier, better known for creating a network of tax-free art storage warehouses in Singapore and Luxembourg.

Rybolovlev was among new buyers from Russia, China and other emerging economies who drove an unprecedented expansion of the art market in the past decade. Booming wealth created a network of collectors hungry for trophies by top modern and contemporary Western artists and willing to pay almost anything. Between 2003—the year Rybolovlev met Bouvier—and 2014, global sales more than tripled to $68 billion.

Since then, the market has contracted, and some of the art world’s most expensive pieces have been resold for less than their purchase price, mired in lawsuits and investigations.

The biggest of these disputes began in February 2015, when Rybolovlev filed a criminal complaint against Bouvier in Monaco, claiming the dealer fraudulently misrepresented his acquisition costs. Rybolovlev, 50, has been selling off the pieces privately and at auction—some for steep losses, according to calculations based on court filings, art catalogues, auction results and people familiar with the transactions. Prices of euro- and pound-denominated purchases were converted using exchange rates at the time.

Two Rybolovlev trusts in the British Virgin Islands recouped “less than $50 million” when the Russian sold Paul Gauguin’s “Otahi,” according to court papers they filed in New York. That’s about 60 percent below the $120 million Rybolovlev paid. In November 2015, he sold Gustav Klimt’s “Wasserschlangen II” for $170 million, down from the $183.8 million purchase price. In May 2016, his Auguste Rodin sculpture, “L’Eternel Printemps,” fetched $20.4 million, an auction record for the artist but less than a half the $48.1 million he paid.

“The gulf between Christie’s estimates and the original purchase prices of the works is a further illustration of the unprecedented scale and audacity of the fraud that the plaintiffs allege was perpetrated by Mr. Bouvier,” Sergey Chernitsyn, a representative of the Rybolovlev Family Office, said in an e-mailed statement. The office is an umbrella organization for the trusts.

Bouvier, 53, was arrested and held overnight by Monaco police after Rybolovlev’s 2015 complaint. His lawyer, Ron Soffer, said he’s confident Morgan Raymond, the Monaco magistrate investigating the criminal complaint, will decide not to charge Bouvier formally and will dismiss the case. Raymond declined to comment through his clerk....
...Works Still To Be Auctioned

“Te Fare (La Maison)” (1892) by Paul Gauguin

Bought: $85 million
Christie’s estimate: $15 million-$22.4 million

Even though much of what Rybolovlev bought wasn't premier cru, to mix vices, it's not as though the Gauguin market fell out of bed. As noted earlier this month in "Sotheby’s Hires Wall Street Vet to Head Private Sales" (BID) this pretty picture changed hands for quite a bit of loot in 2015:

Gauguin, When Will You Marry?
$300 million February 2015

Previously on the fruits o'fertilizer saga:

Oprah Said to Snag $150 Million Selling Klimt to Chinese Buyer
Big Money: What Geneva’s Art King Lost in Battle with Russian Billionaire
Big Money: "What Did Sotheby’s Know And When Did They Know It"
Dirty deeds, not dirt cheap.
It's pretty well established that the punishment for an agent's breach of the duty of loyalty to his principal is death.
At least in Russia at any rate  
Art: War Between the 'Freeport King' and the Oligarch and How Dmitry Rybolovlev Made a Quick $300 Million
"Oligarchs and Orchestras: Inside Luxembourg’s Secretive Low-Tax ‘Fortress of Art’ Warehouse"
The Power of Potash: Russian Billionaire Part of Record Deal For Trump Mansion

Natural Gas: EIA Weekly Supply/Demand Report

As the March contract rolls off here's the soon to be front month April over the last two weeks:
$2.750 up 0.001

From the Energy Information Administration:
for week ending February 22, 2017   |  Release date:  February 23, 2017   |  Next release:  March 2, 2017   
In the News:
Drilling Productivity Report forecasts production rise in six out of seven shale regions
Natural gas gross withdrawals are forecast to increase from February to March in six of the seven most prolific shale regions in the Lower 48 states, according to EIA’s most recent Drilling Productivity Report (DPR). This is the first time since March 2015 that more than five of the seven shale regions have seen month-to-month increases. Through March, the DPR forecasts that only the Eagle Ford shale region has decreasing production; natural gas production in Eagle Ford has been declining since December 2015. The DPR expects total production from the seven shale regions to reach an all-time high of 48.6 billion cubic feet per day (Bcf/d) in February, followed by a new record of 49.1 Bcf/d in March (note these projections do not consider weather, capacity constraints, or changes in realized prices). The previous record production level from these regions was 48.3 Bcf/d in August 2016.

Currently, the seven shale regions covered in the DPR account for more than half of the total natural gas gross withdrawals in the Lower 48 states, compared to about a quarter of the total in 2009. Production from these regions has been increasing at an average annual rate of 14% since 2007. These production rises came as well laterals became longer and overall rig productivity steadily rose. However, the average annual growth rate was at its lowest in 2016 (January through November); gross withdrawals were only 5% higher compared to the same period in 2015....
... Prices/Supply/Demand:
Prices fall sharply everywhere on unseasonably warm weather. This report week (Wednesday, February 15 to Wednesday, February 22), the Henry Hub spot price fell 39¢ from $2.92/MMBtu last Wednesday to $2.53/MMBtu yesterday, a 13% decrease. This is the lowest Henry Hub price since mid-November 2016, when the price dipped nearly to $2.00/MMBtu on mild weather and high storage stocks. Weather was warmer virtually everywhere in the country by the end of the report period, with temperatures breaking records.

At the Chicago Citygate, prices decreased 25¢ to $2.59/MMBtu yesterday. The price at SoCal Citygate decreased 23¢ to $2.82/MMBtu yesterday. Prices at PG&E Citygate in Northern California fell 24¢ to $3.06/MMBtu yesterday.

Northeast prices down sharply. At the Algonquin Citygate, which serves Boston-area consumers, prices went down $1.83 from $4.02/MMBtu last Wednesday to $2.19/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York, prices fell $1.01 to $2.10/MMBtu yesterday.

Several Appalachian price points fell below the $2.00/MMBtu mark this week. Tennessee Zone 4 Marcellus spot prices decreased 53¢ to $1.93/MMBtu yesterday. Prices at Dominion South in northwest Pennsylvania fell 56¢ from $2.64/MMBtu last Wednesday to $2.08/MMBtu yesterday.

March Nymex contract down. At the Nymex, the price of the March 2017 contract decreased 33¢, from $2.925/MMBtu last Wednesday to $2.592/MMBtu yesterday. The price of the 12-month strip, averaging March 2017 through February 2018 futures contracts, declined 30¢ to $2.950/MMBtu.
Supply falls slightly. According to data from PointLogic, the average total supply of natural gas fell by 1% compared with the previous week. Dry natural gas production remained constant week over week. Average net imports from Canada decreased by 12% from last week.

Demand falls across all sectors. Total U.S. consumption of natural gas fell by 15% compared with the previous report week, according to data from PointLogic. Power burn declined by 3%; industrial sector consumption declined by 4%, and residential and commercial sector consumption declined by 29%. Natural gas exports to Mexico decreased 2%....

News You Can Use: "The Economics of Kidnap Insurance"

From the Conversable Economist:
There is reason to be dubious, at least in theory, about  how kidnap insurance can work. After all, buying kidnap insurance only makes sense if you believe that, in the case of being kidnapped, it will increase your chance of being released. After all, if kidnappers know (or can figure out) that certain people have kidnap insurance, won't they tend to target such people? Also, if a kidnap victim has insurance  has insurance, won't the kidnappers demand the monetary equivalent of the earth, moon, and stars as a ransom? In these ways, might the presence of kidnap insurance increase the amount of kidnapping? On the other side, insurance companies have a profit motive to take actions that would reduce the number of kidnappings and the size of ransom payments. But if kidnappers make extraordinarily high demands and the insurance company pushes back, then it seems likely that negotiations over ransom will tend to break down--in which case the rationale for buying kidnap insurance in the first place would disappear. And how can kidnap insurance companies figure out a way to deal with the situation of kidnap victims who don't have insurance: if the representatives of those victims (who may in some cases be national governments) pay high ransoms, then it will be harder for the companies that sell kidnap insurance to keep other ransom demands down.

 Anja Shortland explores "Governing kidnap for ransom: Lloyd's as a `private regime," in an article forthcoming in Governance magazine (the publisher, Wiley, has laudably made an "Early View" preprint version of the article available here). The short answer to the concerns over how kidnap insurance markets are likely to break down is that if all the companies providing that interact with each other, swap information, and follow common protocols, then kidnap insurance can function. For kidnap insurance, Lloyd's serves as a place where that interaction happens. Shortland writes (citations omitted):
Kidnapping is a major (if largely hidden) criminal market, with an estimated total turnover of up to US$1.5 billion a year. Transnational kidnaps, where the victims are foreign tourists, high-net-worth local residents insured by multinational insurers, and the employees of foreign enterprises, are scary one-off events for almost all families and most firms. Ransoming hostages is beset with trust and enforcement problems. Kidnappers seek to maximize ransoms and can employ extreme violence to pressurize stakeholders to reveal their assets. Law enforcement may prepare rescue operations while families (pretend to) negotiate a ransom. Any sequential payment process is potentially problematic, but ransom drops can fail even if both parties act in good faith. Kidnappers need not release (live) hostages after payment and may demand multiple ransoms. Yet, despite these considerable difficulties—and contrary to general perceptions based on newspaper headlines—the vast majority of transnational kidnap victims survive and most cases conclude relatively quickly.  ...
Commercially, kidnap insurance is only viable under three (related) conditions. First, kidnaps should be nonviolent and detentions short—otherwise, individuals and firms withdraw from high-risk areas. Second, insurance premia must be affordable. Although insurance is only demanded if people are concerned about kidnapping, actual kidnaps must be rare, and ransoms affordable. Insurers struggle in kidnapping hotspots: High premia deter potential customers. ... Third, ransoms and kidnap volumes must be predictable and premium income must cover (expected) losses. If kidnapping generates supernormal profits, more criminals enter the kidnap business. Premium ransoms quickly generate kidnapping booms. Insurers, therefore, have a common interest in ordering transactions and preventing ransom inflation. ...