Tuesday, September 27, 2016

"Is an Editable Blockchain the Future of Finance?"

So, the lady asked, "Inquiring minds want to know: can blockchain reconcile 200% institutional ETF ownership?".
Sure, why not.
Of course this is no longer blockchain, it's some sort of database combined with an eraser head. We'll call it 'blockhead'.

From MIT's Technology Review:
Designed to make the technology more attractive to large banks, the change doesn’t seem to be welcomed by purists—but they may have to tolerate it.

Blockchain, the technology that underlies the cryptocurrency Bitcoin, has been celebrated as a way to change the way transactions of all kinds are made. But a suggestion to make an editable version of the technology is now dividing opinion.

The consultancy firm Accenture is patenting a system that would allow an administrator to make changes to information stored in a blockchain. In an interview with the Financial Times (paywall), Accenture’s global head of financial services, Richard Lumb, said that the development was about “adapting the blockchain to the corporate world” in order to “make it pragmatic and useful for the financial services sector.”

Accenture aims to create a so-called permissioned blockchain—an invitation-only implementation of the technology, and the one currently favored by banks. That’s in contrast to permissionless blockchains, such as Bitcoin, which rely on the fact that they can’t be edited as a means of providing an immutable record of transactions. Accenture insists that the feature would be used only in "extraordinary circumstances," so that troublesome errors could be undone.

Blockchain purists, however, seem unimpressed by the idea. Speaking to Reuters, Gary Nuttall of the consultancy Dislytics, said, “An editable blockchain is just a database. The whole thing about blockchain is that it’s immutable, so this just defeats the object.”

It seems unlikely, though, that records of edits would be cast aside. Financial institutions are legally bound to keep complete records of transactions, so even if it were only held privately for the sake of regulatory requirements, the information would probably persist in one form or other.

It’s not the first time that corporate organizations have decided to put their own spin on the idea of a blockchain....MORE
Technology Review refers us to the Sept. 19 FT article: "Accenture to unveil blockchain editing technique" among others.

Grains- Traders Cover Shorts Ahead of Inventory Report:1-2% Upticks

Last Chg
Corn 331-6s+2-6
Soybeans 952-4s+7-2
Wheat 404-0s+8-0

From Agrimoney:

Traders cover grain market shorts as US stocks report looms

Grain futures rallied on short covering, ahead of this week's US stocks data, aided by news of slower-than-expected US harvest progress. 

And wheat gained support from wet weather worries in Australia, as well as good export demand in the US. 

Weekly harvest data from the US Department of Agriculture showed the corn harvest there was 15% complete, showing just how much rain has delayed the start to the harvest. 

Analysts forecast the harvest to be about 20% complete, compared to 25% at this time last year. 

Good harvest prospects this week
But the harvest is expected to continue mostly uninterrupted into the weekend. 

Kim Rugle, at Benson Quinn Commodities, said that "weather looks favourable for good harvest progress through the end of this week". 

"A large portion of the Corn Belt should get some decent weather which will help aid harvest," said Brent Hasbargen at CHS Hedging. 

"The eastern Corn Belt is expected to be drier that normal and the upper Midwest is looking to have above normal precipitation," he said. 

But weather is currently expected to turn wetter over the 6 to 14 day period. 

Stocks report
And markets are gaining from some short-covering ahead of the USDA grain stocks report, and small grains summery, which come out on Friday, particularly in wheat and corn where funds are heavily short. 

"Grain markets are higher as grain market bulls look for support from a 'turn around Tuesday'," said Paul Georgy, at Allendale. 

December corn futures finished up 0.9%, at $3.31 ¾ a bushel....MUCH MORE

Hedge Funds: "Tudor's Existential Moment"

Global macro is hard.

From Bloomberg Gadfly, Sept. 26:
In general, the hedge-fund industry is starting to stabilize after more than a year of severe withdrawals. But there's one significant exception: For a handful of large macro funds, the pain continues.
These strategies -- which bet on broad economic and market trends -- reported $3.4 billion of withdrawals last month, the most of any hedge-fund type, according to a Sept. 21 report from eVestment.

Among those feeling the heat is Paul Tudor Jones's Tudor Investment Corp., one of the oldest and most expensive hedge-fund firms. After suffering more than $2 billion of investor withdrawals this year, it has cut 15 percent of its staff, including the closure of its Singapore trading desk, and lowered fees to retain clients, according to Bloomberg News reports.

On one level, this isn't surprising given the fact that Tudor's macro funds have lost value this year, despite bonds and stocks both posting substantial rallies.

Down Time
Tudor's macro hedge funds have disappointed investors, posting losses this year
As a whole, macro funds reported average gains that were significantly lower than returns on broad indexes of stocks and bonds, making it hard to justify the higher fees charged more broadly throughout the hedge-fund universe.

The Laggards
Macro hedge funds have generally underperformed stocks and bonds this year on a total return basis...
But the problems within macro hedge funds go beyond just near-term performance.

It's getting harder to read economic tea leaves and determine the future path of markets. Some of the traditional gauges of market stress are increasingly dismissed as irrelevant or less accurate in an era of central-bank interference and new banking regulations....MORE 
Here's some of our commentary from a 2009 post repeated in 2016's "Global Macro: Paul Tudor Jones Interview at Institutional Investor":
...The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.
Continuation of Paul Tudor Jones interview at Institutional Investor:...

Palantir Is Demanding The U.S. Army Give It Some Business

Interesting approach to business.

From Beyond Search, Sept. 25:

Bam! Pow! Zap! Palantir Steps Up Fight with US Army
Many moons ago I worked at that fun loving outfit Booz, Allen & Hamilton. I recall one Master of the Universe telling me, “Keep the client happy.” Today an alternative approach has emerged. I term it “Fight with the client.” I assume the tactic works really well.

imageI read “Palantir Claims Army Misled to Keep It Out of DCGS-A Program.” As I understand the Mixed Martial Arts cage match, the US Army wants to build its own software system. Like many ideas emerging from Washington, DC, the system strikes me as complex and expensive. The program’s funding stretches back a decade. My hunch is that the software system will eventually knit together the digital information required by the US Army to complete its missions. Like many other US government programs, there are numerous vendors involved. Many of these are essentially focused on meeting the needs of the US government.

Palantir Technologies is a Sillycon Valley construct. The company poked its beak though a silicon shell in 2003 and opened for “real” business in 2004. That makes the company 12 years old. Like many disruptive unicorns, Palantir appears to be convinced that its Gotham system can do what the US Army wants done. The Shire and its Hobbits are girding for battle. What are the odds that a high technology company can mount its unicorns and charge into battle and win?

Image result for comic book pow zapThe Palantirians’ reasoning is, by Sillycon Valley standards, logical. Google, by way of comparison, believes that it can solve death and compete with AT&T in high speed fiber. Google may demonstrate that the Sillycon Valley way is more than selling ads, but for now, Google is not gaining traction in some of its endeavors. Palantir wants to activate its four wheel drive and power the US Army to digital nirvana.

The Defense News’s write up is a 1,200 word explanation of Palantir’s locker room planning. I noted this passage:
The Palo Alto-based company has argued the way the Army wrote its requirements in a request for proposals to industry would shut out Silicon Valley companies that provide commercially available products. The company contended that the Army’s plan to award just one contract to a lead systems integrator means commercially available solutions would have to be excluded.
Palantir is seeking to show the court that its data-management product — Palantir Gotham Platform — does exactly what DCGS-A is trying to do and comes at a much lower cost.
I like the idea of demonstrating the capabilities of Gotham to legal eagles....MORE

"Uber launches global assault on food delivery market"

From Reuters:
Uber is making an aggressive drive into meal delivery, backed by a wave of staff recruitment, with the U.S. tech heavyweight gearing up to enter at least 22 new countries and take on local rivals.In a measure of rising ambition beyond its taxi business, Uberwill begin delivering meals in Amsterdam on Thursday just as Dutch market leader Takeaway.com, begins trading on the city's stock market.

And according to current job listings on Uber and other recruiting sites - for about 150 roles ranging from general managers and sales staff to bike couriers - UberEats is planning to enter at least 22 new countries across the world in the near future. That is on top of the six countries where it already operates.
As recently as May, Uber executives were signaling that UberEats' international ambitions were a modest extension of its core business of transporting people. But its job hiring efforts over the last three months suggest something more ambitious is taking shape.

"UberEats is one (business) we feel incredibly confident is resonating across the world and resonating across the footprint of the cities in which Uber operates the transport business," Jambu Palaniappan, recently named head of UberEats for Europe, Middle East and Africa, told Reuters in an interview on Tuesday.

He named eight cities including Dubai and Johannesburg that UberEats plans to enter by the end of the year, but declined to spell out later targets.

Europe is home base to many of the most active international players in the online food takeaway business. They are counting on their local ties, established customer bases and sprawling restaurant networks to insulate them from U.S. tech giants.

The biggest international players - Britain's Just Eat (JE.L), Germany's Delivery Hero and Takeaway.com - focus on advertising local takeaways and booking orders for nearby users, while leaving deliveries to the restaurants themselves.
They have been raising fresh capital or swapping assets to bulk up in the expectation that Uber would ratchet up its challenge.

Meanwhile, smaller players - Belgium's Take Eat Easy, delivering in 20 European cities, and London-based Pronto, which cooked meals as well as delivered them - have shut down in recent months, as the rush of funding that created dozens of start-ups modeled on Uber in recent years has dwindled.

Investors have poured nearly $10 billion (8.9 billion euros) into 421 food delivery deals since the start of 2014, but funding dropped by more than half in the first six months of 2016, according to research from CBInsights....

Iran Doesn’t Want Oil Deal; Goldman Cuts Oil Price Target From $50 To $43

And market participants are getting desensitized to the swings.

Much like Seligman's dogs in the learned helplessness/electric shock experiments traders eventually stop trying to avoid the torture and instead brace themselves but do nothing.
In the words of one commentator:
...You are just like these dogs.
If, over the course of your life, you have experienced crushing defeat or pummeling abuse or loss of control, you learn over time there is no escape, and if escape is offered, you will not act – you become a nihilist who trusts futility above optimism....
We saw this in 2008 during the inexorable spring/early summer run to $147 with Goldman calling for $200. In July of aught-eight I dropped a comment at the WSJ's Environmental Capital blog, repeated as we approached the 1-year anniversary of the day the shorts joined the dogs and just cowered as they waited for the next shock, with some background:
...As best as I’ve can tell approx. 40% of the move from $80 to $147 (25-28 bucks) came from “speculation”. I use quote marks because of the terminology problems most of the talking heads have when the subject is commodities. Speculators in commodity parlance take the other side of a hedgers trade, thus performing a societal good.
The problem was, until last week, the shorts had been beaten up so bad by the relentless flow of “investor” money that were out of the game. The $10.75 uptick on June 6 was their capitulation.
They covered and said screw it.
Try trading this:
WTI $44.87 down 2.31%; Brent $46.27 down 2.28%.

From Bloomberg, Sept. 27: 

Iran Doesn’t Want Oil Deal in Algiers, Won’t Freeze Output
  • Gulf nation seeking to raise output to 4 million barrels a day
  • OPEC could reach a formal deal in November, Zanganeh says
Iran is not willing to freeze its oil output at current levels and doesn’t intend to forge an agreement with other major crude producers at talks in Algiers this week, the nation’s oil minister said.

Iran wants to raise its crude production to 4 million barrels a day, Bijan Namdar Zanganeh told Bloomberg Television in an interview Tuesday. OPEC’s third-largest producer -- with daily output of 3.6 million barrels last month -- will talk to other members at the International Energy Forum in the Algerian capital and it’s possible the group could reach a formal supply deal at its November meeting in Vienna, he said.

“It’s not our agenda to reach agreement in these two days,” Zanganeh said. “We are here for the IEF and to have a consultative informal meeting in OPEC to exchange views. Not more.”.....CONTINUE
And from ZeroHedge:
While we await every new headline out of Algiers, overnight Goldman threw in the towel on its "transitory" oil market bullishness, and in a note by Damien Courvalin looking "Beyond Algiers, Weakening Oil Fundamentals", the bank cut its Q4 oil price target from $50 to $43, as the bank admits the previously anticipated rebalancing will take longer to achieve, and now expects "a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously."
Speaking of the Algiers meeting, Goldman also notes that "while a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals."

Here is the summary from Courvalin:
Oil prices have remained range bound ahead of the OPEC consultation in Algiers this week and as production disruptions have yet to meaningfully ramp up. Statements by participants suggest potentially greater collaboration between OPEC members than in previous attempts, although the outcome of this advisory meeting remains uncertain. Our production forecast continues to reflect a seasonal Saudi production decline into year-end and no growth elsewhere (the equivalent of a deal) with OPEC exc. Libya/Nigeria production growth only resuming in 1Q17.

Nonetheless, our 4Q16 oil supply-demand balance is weaker than previously expected given upside surprises to 3Q production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously. Importantly, this forecast only assumes a limited additional increase in Libya/Nigeria production of 90 kb/d vs. current estimated output. As a result, we are lowering our 4Q16 forecast to $43/bbl from $50/bbl previously. While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals....

Business Insider Testing a Reader Paywall, and an Ad-Blocking Response

From AdvertisingAge:
Business Insider, according to co-founder and CEO Henry Blodget, has long harbored ambitions to create a dual-revenue business model, buoyed by both advertising and subscriptions.

The company plans to test those ambitions, starting this week, with a "small," randomly selected group of readers, who will be prompted to subscribe to Business Insider. As is standard with so-called metered paywalls, the readers selected for this test will get an allotment of free articles. Multiple meter levels will be tried, starting at 10 free stories. For those impacted, the meter will re-start every 30 days.

These selected users will see the subscription message three times, at the beginning of the test, at the mid-point of their free story allotment, and with one story remaining.

Business Insider, which was sold last year to European publisher Axel Springer, will charge $1 for the first month of a subscription, and $9.95 for the successive months. It's probably not a coincidence that the Financial Times, which Mr. Blodget mentioned as an inspiration and a competitor, also charges $1 for the first four weeks of a subscription, an approach the company introduced in early 2015.

At the same time, Business Insider is getting tough with ad-blockers. Also starting this week, readers that have installed and enabled an ad blocker will be told to either whitelist Business Insider's website or pay up for a subscription, the same one offered to the small group of paywall-testers. (The New York Times is experimenting with a similar, whitelist-or-pay approach, which CEO Mark Thompson said in June is seeing results.)

The subscription offering will be "ad light," which means paying customers will see branded content but not display advertisements, which are considered to be more distracting. Mr. Blodget said Business Insider has been materially hurt by ad-blocking, but that the impact has been small, "not huge," relative to the industry average.

The company already has a "very expensive" market research service, BI Intelligence, which Mr. Blodget said has been very successful. (The service starts at $495 annually for newsletters, and all-access memberships begin at $2,495.)...MORE

Monday, September 26, 2016

"Can Iceland be to data what Switzerland is to money?"

For folks keeping track, Facebook opened a Swedish data center in 2013 nicknamed the "Node Pole" although it's actually about 1° latitude south of the Arctic Circle.

Norway's Green Mountain operates a data center at Stavanger with plans for another at Telemark.
There is some development talk for a couple other sites, one of which is actually in the Arctic.
Additionally, the Lefdal Mine Datacenter at Måløy is supposed to be the largest in Europe when it is completed.

From Inverse:
In the satellite town of Keflavík, a forty-minute drive from the center of the Icelandic capital of Reykjavík, sits a 200,000-square-foot data facility containing 400,000 servers. Poking up above the snow-covered hills, the whitewashed exterior of the complex resembles a military barracks. Inside, winding, sterile corridors are flooded with the hard light of fluorescent ceiling bulbs.

The place feels dystopian — like the wrong side of a quarantine fence — but it isn’t. Not at all. Owned by a company called Verne Global, the world’s first zero-carbon data center represents both the future of big business (BMW keeps ones and zeroes here) and a national ambition. Data centers are sprouting up from Iceland’s cold soil as the country races to build out a data infrastructure sufficient to make it a global “Data Capital.”

Innovation in data infrastructure, both physical and legislative, is an Icelandic speciality. In 2010, the Icelandic Modern Media Initiative (IMMI) was passed unanimously by the oldest standing parliament in the world. This legislative framework was designed to transform the country and its capital city into safe havens for information by providing strong legal protections, unrivaled by any other country on Earth.

“Icelanders are gadget freaks. We live on this tiny island with 330,000 people. It’s a very long winter, so we’re like a completely indoor culture,” says Birgitta Jónsdóttir, the parliamentarian who co-founded the Icelandic Pirate Party and appears poised to become the country’s next prime minister.

Iceland’s journey towards data haven status began on the streets of Reykjavik in 2008, when the global financial crisis hit and Iceland’s economy imploded. Unlike the rest of the world, the island nation didn’t freeze. The Icelanders made moves: They jailed the bankers responsible for the crash, crowdsourced a new constitution and got behind the Pirate Party — the once fringe political movement that’s expected to win a majority in next month’s parliamentary elections.

Jónsdóttir’s work has been instrumental in drafting, championing and implementing the IMMI legislation that underlies Reykjavik’s metamorphosis into the forward operating base for the digital rights movement. “95% of Icelanders are on the Internet and almost as many are on Facebook. We are not a technology-afraid nation and that really changes what is possible,” she explains.

There’s also a lot of local expertise. Having homed NATO bases for the US nuclear early-warning system during the Cold War, Iceland has been a key data hub since the inception of the internet. Data sent back and forth between Europe and North America is bounced along submarine data cables that plug directly into Iceland’s internet infrastructure.

More impressive still, Reykjavik’s energy grid is powered entirely by geothermal and hydroelectric sources. Iceland’s volcanoes and glacial rivers provide virtually unlimited sustainable energy for data centers, and at dirt cheap prices too. When the servers get too hot, smart ventilation systems open up and allow the sub-arctic winds to cool the systems at near-zero cost.

Because of its unique natural assets and its population’s determination to leverage them, Reykjavik, which has the same population as Evansville, Indiana, could become a global leader for all things digital. Two-thirds of Iceland’s population live in the metropolitan area, which is poised to become to data what Zurich is to finance....MORE

Agricultural Commodities: Corn, Wheat Soybeans Fall Again

Last Chg
Corn 329-0s-7-4
Soybeans 945-2s-9-6
Wheat 396-0s-8-6

The big three are all within a few percentage points of recent lows, again.*
Corn and wheat are flirting with life-of-contract lows.

From Agrimoney:

PM markets: grain futures fall back, as US turns drier

Corn futures tumbled, as US weather forecasts suggested that the US Midwest will turn drier, allowing the harvest to pick up pace. 

The harvest got off to a slow start this year, due to wet weather, and there were fears that if the wet weather persists disease problems could develop.

US harvest progress due to be released this afternoon to show the harvest about 15% complete, compared to an average of 25% at this time of year. 

Harvest pressure
"Harvest activity is expected to pick up pace this week," said Brent Hasbargen at CHS Hedging.
"This week traders will be closely monitoring harvest progress and actual yield reports coming out of the field," said Mr Hasbargen. 

"Look for harvest progress to ramp up if the weather turns dryer which could add a little pressure to the market," Mr Hasbargen said. 

Drier outlook
And that drier weather is on its way, according to the latest forecasts. 

"Showers will favour the eastern Midwest over her next few days, but drier weather should prevail over the Central US this week, favouring corn and soybean drydown and harvesting and allowing wetness to ease across the north-western Midwest," said Kyle Tapley at MDA Weather Services.
The dry weather should continue into the 6-10 day period, but rains should return to the north-western Midwest late in the 6-10 day period," Mr Tapley said. 

US corn export expectations were reported at 1.34m tonnes, compared to 1.30m tonnes last week.
December corn futures finished down 2.3%, at $3.29 a bushel, breaking back below the 20 and 40-day moving average....

*Here are soybeans as the most extreme example viz recent prices:


Trading The SolarCity/Tesla Merger (SCTY; TSLA)

Always remember: merger arbitrage is not arbitrage.

From Barron's Stocks to Watch:

Why It’s a Good Time to Play the Tesla-SolarCity Merger
Will the merger between Tesla Motors (TSLA) and SolarCity (SCTY) happen? The market has its doubts, but Baird’s Ben Kallo and Tyler Frank expect it to happen…and that makes this a great time to play the merger:
We like SolarCity as a short-term trade as the spread between SolarCity’s share price and expected Tesla acquisition price is substantial, and we expect the deal to close. Under the proposed merger, SolarCity shareholders would receive 0.11 Tesla shares per SolarCity share, equivalent to ~$23 based on Tesla’s current price, which represents potential upside of >15% from current levels. We like SolarCity as a short-term trade and we expect the stock to catch up to its deal price as the shareholder vote nears.

We are increasingly confident that the merger will go through....

Deutsche Bank: Chalk One Up For The Electron-Stained Wretches

Today's most commented post (ex-Markets Live, see below) at Alphaville:
Deutsche’s new market cap, in context

Yes, the humble, anonymous toilers who post simply as FT Alphaville, bring home the comment bacon.

Of course I had to exclude The Murphy/Elder production which is in a different commenting class and seems to have a different class of commenter.

Here's the part of their post on Deutsche Bank:
... BE Yep. We’re choosing, largely through a lack of alternatives, to worry about Deutsche Bank and Opec.
BE Which, in addition to the Fed, are the default worries in times when it’s a down day and there’s no specific new news.
PM Well Deutsche is a worry!
PM Especially if you work there
BE Yeah, sure …. but ……..
BE  Deutsche since 1992, rebased against the Dax.
BE Put a dollar in a Dax tracker in 1992, you get $7.
BE Put it into Deutsche and you get 36 cents.
PM This are shocking stats Bryce
BE It’s been a terrible investment for decades, because the vicious cycle inherent in banks.
BE As in, they need to issue stock to retain their best people and keep the plates spinning on capital.
BE As soon as they’re fragile they can’t raise cash. And that is basically that.