Friday, March 23, 2018

Gasoline Volume Sales and our Changing Culture

From Advisor Perspectives, March 21:
The Department of Energy's Energy Information Administration (EIA) monthly data on volume sales is several weeks old when it released. The latest numbers, through mid-January, are now available. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.

Because the sales data are highly volatile with some obvious seasonality, we've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 1.0% below its all-time high set in August 2005 and well off its -8.9% interim low set in August 2014.
The next chart includes an overlay of real monthly retail gasoline prices, all grades and formulations, adjusted for inflation using the Consumer Price Index (the red line). We've shortened the timeline to start with EIA price series, which dates from August 1990. The retail prices are updated weekly, so the price series is the more current of the two.


"What Do The Best-Performing Stocks in 2018 Have In Common?"

A twofer, first up the headline story.
From Ivanhoff Capital, March 13:
20 stocks have more than doubled year-to-date.

Many are biotech, but this is a cyclical, not a structural reason. A structural reason is one that persist; one that shows over and over again. 

All of them had a market cap of under $1 Billion on January 1st. 

All of them have a float of under 100 million shares. Most have a float of under 50 million shares...MORE
And pulling back for a longer term view, again Ivanhoff Capital, January 24:

The Three Best Performing Stocks for the Past 15 Years Will Surprise You
Netflix recently hit new all-time highs and it ended up on the first page of many newspapers. 10,000 invested in Netflix’s IPO in 2002 is worth about $2.3 Million today. This amounts to about a 40% average annual appreciation.

As impressive as NFLX’s return is, it is not even the best-performing stock for the past fifteen years. Here are the top three. They are all consumer stocks – a Chinese video game maker, a U.S. energy drinks producer, and a U.S. video content creator and distributor.
NTES +11,706%
MNST +77,230%
NFLX +23,467%

"China’s Surveillance State: AI Startups, Tech Giants Are At The Center Of The Government’s Plans"

So, same question we asked yesterday:

Is It Ethical To Deal With Facebook? "Facebook Advertisers Start Pulling Out" (FB)
(in Edward G. Robinson Voice) Where's your ESG now, see?*
Just as we saw with the hubbub surrounding Harvey Weinstein and his predations, in Facebook we have an open secret that was convenient to ignore as long as the money was slopping around and the stock was heading up.

And nary a peep out of the Environmental, Social And Governance (ESG) crowd about how Facebook earns its money....
From CB Insights:
In part 1 of our China in AI series, we dig into patents, earnings transcripts, startup data, and government documents to detail the growth of surveillance tech in China.

Facial recognition technology is penetrating deep into China. Cameras track passengers at railway stations, identify homeless people on the streets, and even monitor worshippers in state-approved churches.
China’s nation-wide surveillance project, named Skynet, began as early as 2005. But recent advances in artificial intelligence have given the state’s surveillance efforts a boost.

The government’s ambitious plans hinge on three legs: support from big tech giants like Alibaba and Tencent, strong startup partnerships, and elaborately crafted government policies favoring national security over privacy.

In part 1 of our China in AI series, we dig into patents, private market activity, government documents, and public company data to detail the growth of surveillance tech in China.

Table of Contents

China’s plan of action

Unlike the US, China has been vocal about its plans to become an AI-first state — and particularly vocal about how it will put the tech to use to monitor its citizens.

A 2017 documentary co-produced by the Communist Party claimed the country had the largest network of CCTV cameras – 20M – in the world.

Last year, around 55 cities were part of a plan called Xio Liange or “sharp eyes.” Footage from surveillance cameras in public and private properties will be processed centrally to monitor people and events.

Media reports suggest that intelligence collected from the video footage may eventually power China’s Social Credit System, a government plan announced in 2014 to rate the “trustworthiness” of its citizens.

A simple keyword search on worldwide patent database Espacenet shows how much emphsais China has put on surveillance. Over 530 patents related to video surveillance and surveillance cameras were published in China in 2017 alone, compared to just 96 in the United States (based on keyword searches of title and abstract).

China has also seen a rise in facial recognition patents, with 900+ patents published last year. Applicants included government-supported academic institutions like Shandong University and South China Tech, as well as big tech companies and startups whose clientele includes government agencies.
(Note: The patent filing process involves a significant time-lag before the publishing of patent applications.)

Deep govt-startup ties

As the government adds a layer of artificial intelligence to its surveillance, startups are playing a key role in providing the government with the underlying technology.
For instance, facial recognition is already at use in many railway stations for ID verification. Now, AI-enabled smart glasses developed by startup LLvision will be used to help authorities spot criminals.

LLvision builds smart glasses that resemble Google Glass. In 2018, it launched a new product, GLXSS ME, for industrial AI applications.
Using Intel’s Movidius Myriad vision processing chip, LLvision matches faces with a database of known and wanted criminals stored on the device. By storing images at the “edge” (aka on the device), as opposed to sending images to a central server on the cloud, the device can make IDs faster.

A simple keyword search on the CB Insights platform for computer vision deals in China shows the sudden explosion of interest in 2017.

The most well-funded computer vision companies are SenseTime, Face++, and CloudWalk.
CloudWalk received a $301M grant from the Guangzhou Municipal Government in Q4’17. Its facial recognition technology is deployed across several banks and airports, including the state-owned Agricultural Bank of China.

Startup Megvii (which develops the Face++ facial recognition platform) raised a $460M round – the largest to a computer vision startup in 2017 – led by the Chinese state government’s venture capital fund, with participation from the Russian government as well....MUCH MORE

"Real-Estate Agency Turns Apartment Viewing into Exciting ‘Escape Room’ Game"

From Oddity Central:
Evidence Immobilier, a real-estate agency in Montpelier, France, has become the first in the world to revolutionize the apartment viewing experience by turning it into an exciting “Escape Room” game where potential buyers have to look for clues and solve puzzles, while at the same time discovering the layout of the place.

Whether you’re looking to rent or buy a new apartment, the initial viewing is a very important part of the process. However, for most people – youths in particular – it’s just another chore that has to be completed, not something they are overly excited about.  One real-estate agency in France wants to change that, and their first attempt has been attracting a lot of attention from French media. They’ve teamed up with an Escape Room game designer in Montpelier to turn one of their available apartments into an interactive experience for potential buyers.

Instead of being walked through all the different rooms and having to listen to a real-estate agent talk about all the amenities and characteristics of the apartment in an overly positive way, the ‘Escape House’ viewing lets you discover everything yourself, while keeping you entertained.

First off, you and your partner are blindfolded and locked in one of the apartment rooms....MORE

Nestlé Backs New European AgriFood Tech VC Fund

From AgFunder:
Five Seasons Ventures, a new European VC focusing on agrifood tech investments has launched its first fund, announcing a first close on €60 million ($74.3m). Backers include Nestlé, the European Investment Fund, Fondo Italiano d’Investimento, Bpifrance, and selected family offices and entrepreneurs. 

“Food and agtech is a new story and an exciting one. There are not many LPs who have heard of a fund focused on food and agtech,” said cofounder Niccolo Manzoni, who told AgFunderNews that the firm is targetting €70 million ($86.6m) for a final close after receiving more enthusiasm than expected from investors, causing the firm to raise their target from €50 million. 

The cofounders of the firm, which is based in Paris,  are Ivan Farneti and Manzoni. Farneti was founding partner of Doughty Hanson Technology Ventures and a board member of Seedcamp. Manzoni previously managed a European family office where he invested in  Impossible Foods, Perfect Day Foods, Beyond Meat, Clear Labs, and Memphis Meats. The two were introduced by a common acquaintance who would become one of their first investors. 

The firm is taking a wide view of agrifood tech, focusing on every inch of the supply chain from startups aiming to satisfy shifting consumer preferences like plant-based proteins and personalized nutrition, to supply chain traceability and packaging technologies, to increasing yield on farms and reducing waste....MUCH MORE

"ANALYSIS: Money flees Saudi Arabia at rapid pace"

Ya think?
From Middle East Eye:

Cash is leaving Saudi Arabia at an exponential rate because of the country's struggling economy, report shows
A torrent of money has fled Saudi Arabia as a result of its struggling economy.
It’s bad news for a country that is desperately trying to shed its dependence on the energy business and refashion its economy for a post-oil world.

New research shows the kingdom saw tens of billions of dollars of capital leave the kingdom each year from 2012 up to and including last year. Next year there will be more of the same, states the March-dated report from the DC-based think tank, the Institute of International Finance (IIF).
As much as $64bn in core capital left Saudi Arabia in 2017 based on data through the third quarter
“Core capital flows ran at a substantially negative pace last year... with little sign of improvement in the data through Q3 2017,” the report stated.

Capital refers to cash and other economic assets. In the case of the study, IIF analysts removed overseas borrowing made by the kingdom. The result is the so-called “core capital flow”.
“Prior to recent years, Saudi didn’t borrow externally, so we wanted to strip that out to see whether there are outflows or inflows,” says Greg Basile, senior research analyst at IIF.
What they found was a substantial and consistent outflow of capital.

As much as $64bn in core capital left Saudi Arabia in 2017 based on data through the third quarter, the report estimates. That’s up from $55bn the year before. This year the outflow is set to continue with a projected $26bn to leave the country. 

Why the exodus?
Did the financial seizures of princes and other royals get taken into account in the IIF report? Probably not.

“Chances are we won’t see the effect of the capital outflow from that until this year,” says Marcus Chenevix, a Middle East-North Africa analyst at the financial firm TS Lombard in London.
The reason is simple. The princes were detained and therefore were not free to arrange to move assets out of the Kingdom, says Chenevix.

“Did capital immediately leave the country? Probably not,” he said....

"Why Reuters should exit the financial news business"

 That's the headline TalkingBizNews used to tease this story by Felix Salmon at recode, March 16:

Reuters just got $10 billion to build a sustainable news business. How should it spend it?
Reuters News just won the lottery. What will it do with all that money?
It’s the biggest assignment in journalism: Take a set-in-its-ways 167-year-old news organization and reconfigure it radically so that it can compete on the global stage against countless young digital upstarts. If it’s done right, billions of people could end up with trusted, independent, impartial news they would never otherwise have had access to. On the other hand, if it’s done wrong — or if it’s not assigned at all — then one of the world’s most storied newswires might be entering its final years.
Welcome to Reuters, the news agency which faces, today, the most epochal decision in its history. If it doesn’t scale back, radically and quickly, its core financial-news offering, then in 30 years’ time it will be on life support. If it does make the change, however, then it can not only save itself; it might even be able to help transform billions of people’s access to trusted news.

Opportunities like this don’t come along very often — indeed, to a first approximation, they never come along. But now, thanks to a $17 billion M&A deal in which private equity giant Blackstone is taking over the Thomson Reuters financial-terminal business, Reuters News (which is not part of the deal) has found itself in possession of an astonishing $10 billion lottery ticket. The catch: This lottery ticket is timed to self-destruct. 

Reuters, from its very beginning in 1851, made its name by delivering fast and accurate information to both newspapers and the financial markets. Over the years, the financial data part of the business grew to dwarf the news business, and the billions of dollars in revenue thrown off by financial terminals have helped to pay for a global news operation that now employs more than 3,000 journalists in some 200 locations around the world. 

But once the terminal business becomes controlled by Blackstone, led by Stephen Schwarzman rather than by Thomson Reuters, that business has much less incentive to pay Reuters hundreds of millions of dollars a year for its news. After all, Thomson Reuters had significant control over what Reuters covered. By contrast, Reuters will and must have complete editorial independence from Blackstone.
The result is that if Schwarzman wants to rely on a news operation, he’s either going to build one of his own, like his fellow billionaire Mike Bloomberg did, or else he’s going to contract with a news provider who will let him specify exactly what he wants to pay for. The days when Reuters could rely on financial data terminals to pay for its global newsgathering are now numbered.

That would be bad news indeed for Reuters, were it not for one thing: As part of the deal, Blackstone has agreed to pay Reuters at least $325 million a year for its news. Better yet, that payment is guaranteed for at least 30 years. That’s a minimum of $9.75 billion in total — the kind of money most news organizations can only dream of. (To put that number in context, the Washington Post was bought by Jeff Bezos for $0.25 billion.)...MUCH MORE
Why Reuters should exit the financial news business

"US Threatens Sanctions For European Firms Participating In Russian Gas Pipeline Project"

It's not just U.S. self-interest (selling some LNG) in play here, although that is part of the U.S. rationale, rather, there are actual security concerns.
Especially as the northern hemisphere winter of 2017 - 2018 enters its 15th month.
From ZeroHedge, March 22:
As previewed overnight, the U.S. State Department is warning European corporations that they will likely face penalties if they participate in the construction of Russia's Nord Stream 2 gas pipeline, on the grounds that "the project undermines energy security in Europe", when in reality Russia has for decades been a quasi-monopolist on European energy supplies and thus has unprecedented leverage over European politics, at least behind the scenes.

As many people know, we oppose the Nord Stream 2 project, the US government does,” said State Department spokeswoman, Heather Nauert at a Tuesday press briefing. “We believe that the Nord Stream 2 project would undermine Europe's overall energy security and stability. It would provide Russia [with] another tool to pressure European countries, especially countries such as Ukraine.”

And speaking of Ukraine, recall that in 2014, shortly after the US State Department facilitated the presidential coup in Ukraine, Joe Biden's son Hunter joined the board of directors of Burisma, Ukraine's largest oil and gas company. Surely that was merely a coincidence.
The project which began in 2015 is a joint venture between Russia's Gazprom and European partners, including German Uniper, Austria's OMV, France's Engie, Wintershall and the British-Dutch multinational Royal Dutch Shell. The pipeline is set to run from Russia to Germany under the Baltic Sea - doubling the existing pipeline's capacity of 55 cubic meters per year.

Nauert said that Washington may introduce punitive measures against participants in the pipeline project - which could be implemented using a provision in the Countering America's Adversaries Through Sanctions Act (CAATSA). 
“At the State Department, we have spent a lot of time speaking with our partners and allies overseas to explain to them the ramifications of CAATSA and how an individual or a company or a country can run afoul against CAATSA and fall into sanctions," Nauert said. "We don't tend to comment on sanctions actions but we've been clear that firm steps against the Russian energy export pipeline sector could – if they engage in that kind of business – they could expose themselves to sanctions under CAATSA.”

Several EU nations, particularly Germany, have repeatedly expressed interest in participating in Nord Stream 2, however the pipeline has been opposed by several minor bloc nations, including Poland, Latvia, Lithuania, Romania and Hungary. Ukrainian authorities are also staunchly against the project, as it bypasses Ukraine and would impact them monetarily....MORE
"Germany’s Pivot From Russian Gas Will Be Costly"

Thursday, March 22, 2018

"Calm Down, Turkey’s Not Going To Invade The Balkans"

That's why the market is trading down, right?
From Oriental Review, March 21:
President Erdogan’s regular addresses to the Muslim and Turkish people of the Balkans are a soft power tactic that isn’t any functionally different from the transnational outreach attempts that other forces engage in elsewhere across the world and on different ideological-identity pretexts.
The Alt-Media Community has once again been thrown into hysteria after one of President Erdogan’s latest speeches where he addressed his fellow Muslim co-confessionalists and ethnic Turkish kin in the Balkans on the eve of what ended up being his country’s monumental military victory in the northwestern Syrian town of Afrin. His words were reported on widely in the press and ominously framed in such a way as to imply that a similar operation might be commenced in Southeastern Europe one of these days as well, though nothing could be further from the case. The Balkan people are psychologically scarred by the centuries of Turkish occupation and have a reason to fear Ankara’s aggression against them, but their historical experiences over the previous centuries might be blinding them to how much the world has changed since then....MUCH MORE
Over the years we've only linked to Oriental Review a couple times as their bias is readily apparent from a quick look at their headlines. That said, O-R's response to the linked EurActiv story:
Bulgaria reacts to disturbing statement by Turkey’s Erdogan
seems measured and correct. Erdoğan isn't moving west, rather his follow-up to invading Syria appears to be:

—Middle East Eye, March 20
See? No worries.

Real Estate: It Doesn't Look Like Turkey Will Be Leaving Syria Any Time Soon 

Now about that U.S. stock market...
March 1
Uh Oh: "When To Sell In a Bull Market" Revisited,124603&p=d1&rev=636573331453897635
January 25, again just before the first leg down:

In 2016 We Had the #1 Stock In the S&P 500, In 2017 We Had the Top-Performing Commodity, In 2018 We've Got....
So here's a little victory dance 'til we figure something out.
And after that, a pretty good Warren Buffett story....

News You Can Use: "What to Bid on at the Historic Ritz Paris Auction"

From Messy Nessy Chic, March 21:
When they closed the Ritz Paris for a four year renovation in 2012, my mind often went to that place where I imagine I can walk through walls and suddenly, I’m roaming empty hallways and rooms with the ghosts of the city’s most storied hotel. Sometimes I wandered into the secret Ritz warehouse (yes, such a place exists), where thousands of pieces of furniture and decorative objects lived during much of the renovation and redesign. It would be just like walking through the warehouse of treasures from the final scene of Citizen Kane....

....As it turns out, the reality isn’t that far off. In 2017, a team of 10 lucky people were “locked inside” the secret Ritz furniture warehouse for 6 months to inventory 10,000 items in preparation for their auction this Spring. From Hemingway-era bar stools and beds from the Coco Chanel suite to minibars and the signature hotel bathrobes, it’s all there, and it’s all about to go up for sale. Take a look inside the warehouse…MUCH, MUCH, SO MUCH MORE
Previously from Messy Nessy;
Now It Can Be Told: Mohammed bin Salman Was the Mystery Buyer of the $300 Million French Château
Some Airbnbs Are Better Looking Than Others
There's Realism, There's Hyperrealism, There's Photo-Realism and Then There's This
Construction Used to Be More Labor Intensive (and other pictures you may not have seen before) CMB
Picasso Pics For Sale, Cheap (chateau included)
The Man Who Sold The Eiffel Tower, Twice and A (bath) Room With A View
Art Institute of Chicago Recreates Van Gogh's Bedroom, Puts it On Airbnb
Huh, Apparently The Barbie Doll Began Life As a High-end German Call Girl Named Lilli 

"The forgotten history of free trade: the Medici dynasty and Livorno"

From the Oxford University Press blog, March 20:
The Medici had everything, almost. They got immensely rich as bankers during the fifteenth century. As patrons of the arts they assembled some of the finest collections in Italy. They placed two scions on the papal throne as Leo X and Clement VII. They won political control over the city of Florence—first as informal rulers and, after 1530, as hereditary dukes. The Medici lacked only one thing to render their earthly felicity complete: they lacked a port city.

The Medici dynasty had big ambitions for their little state, and they turned to the malaria-ridden village of Livorno to realize them. The alchemically-inclined Francesco I (r. 1574-87) began the process of planning a new port in Livorno. His brother Ferdinando I (r. 1587-1609) put aside his cardinal’s cap to take up the grand duchy when Francesco died, perhaps by poison. It was Ferdinando who turned Livorno into “one of the most famous places for trade in all Christendom,” as one English merchant put it.

But, what did a Mediterranean port city mean during the long seventeenth century?

In an earlier age, commercial powers such as Venice had tried to control trade, with violence if necessary; they sought to capture commerce for their own ports and deny their rivals access to the richest routes. But such designs were increasingly out of place by the sixteenth century. The expansion of global trade and the entrée of new powers such as the Dutch and the English made the pursuit of monopoly in the Mediterranean a fruitless endeavor. A program of hospitality toward people and goods was a more profitable avenue for commercial expansion.

In 1591, Grand Duke Ferdinando invited foreign merchants of any religion or nationality to settle in his port of Livorno. There they would enjoy security of person, property, and conscience—unlike elsewhere in Europe, where rulers enforced religious orthodoxy throughout their territories, and happily seized the assets of merchants when it suited their interests. Such policies earned Livorno a reputation as “a continuous fair of foreigners,” recalling the freewheeling fairs of the Middle Ages.
The Medici grand dukes also relaxed rules governing goods. In most cities during the Middle Ages, wares were subject to high taxes and a welter of bureaucratic controls—international trade occurred under strict supervision. By contrast, merchants in Livorno enjoyed a package of incentives for the warehousing, transit, and exchange of their wares. These measures culminated in a decree in 1676 that eliminated import/export dues entirely. The 1676 reform instantiated the principle that trade was to be taxed only for the provision of commercial services; that is, only to defray the cost of infrastructure such as harbor and warehouse facilities. “You know exactly what you have to pay, you pay it, and you’re done,” wrote one admirer,” without those annoying inspections that one so often finds in other places.”...MUCH MORE

Sometimes This Investing Thing Seems Easy: Consumer Packaged Goods Edition (GIS)

But first, a bit-o memento mori:
We're all victims of our own hubris at times. 
—Kevin Spacey
Hubris is one of the great renewable resources. 
—P. J. O'Rourke
Every time I get accustomed to low volatility, like we were towards the end of the Greenspan era, and we think we have all the levers under the control... something erupts to remind us that the idea that anybody is in control of everything is hubris. 
—Lloyd Blankfein 
All via BrainyQuote

We've been talking for a while now about what a lousy business consumer packaged goods (ex-Nestlé) has become, some links after the jump.

Yesterday one of the poster boys, General Mills - Kellogg Co, is the other one we use as a proxy for the business - yesterday GIS reported earnings and management's view of the future which elicited a negative reaction in the stock:

GIS General Mills, Inc. daily Stock Chart

The stock price is down there in the lower right of the chart. They teach us in chart reading school "upper right good, lower right bad". It was the worst performer in the S&P yesterday, down 8.9%.
From MarketWatch this morning:

General Mills price target cut at least three times as analysts express surprise, concern after earnings 
General Mills Inc. GIS, +0.71% shares saw its price target cut at least three times with analysts expressing surprise and concern after third-quarter earnings were announced. RBC Capital Markets analysts cut their price target to $52 from $60 "primarily due to an unexpected increase in supply chain and commodity costs." They continue to rate General Mills shares sector perform. Analysts think General Mills will be "disproportionately impacted" by freight costs compared with other companies in the food sector because of volume growth and more "facility-to-facility shipments." Stifel cut General Mills' price target to $48 from $57 after a "surprisingly weak" third quarter. They maintain their hold stock rating. And J.P. Morgan lowered its price target to $44 from $54 because they don't think General Mills management gave investors enough information to rule out that some of the problems in the third quarter were non-recurring....MORE
Roger that, not enough information, over.
The stock is at  $45.85 down from $59.00 a year ago, during one of the bigger equity bull markets in history.
The risk of course was that some private equity group or Warren Buffett (do I repeat myself?) would swoop (see below) and wreck our fun in the short term but maybe set up a bigger and better opportunity down the road, sort of an intertemporal no-lose deal,

October, 23, 2017
Trouble In Packaged Food Land (K; GIS; MDLZ; NESN)
This is becoming a series, more after the jump.... 
October 3, 2017
The David Says Eat More Packaged Food (and short the stocks)
Note: that's The David, not some guy named Dave:

He's lonely and wants more people to look like him.
The big guy was last seen in "If You Want To Be Happy, Listen Up. Now! alternative title: The FT's Izabella Kaminska Is..." wherein Ms. K interviewed Robert Lustig, a pediatric endocrinologist at UCSF on neurotransmitters and the difference between happiness and pleasure and metabolic pathways and all kinds of stuff. And that's the hook for this quick post....
May 25, 2017
Nine of the World's Biggest Packaged Food Companies Have Launched Venture Capital Units
March 7, 2017
M&A In European Food
I'm not sure that consumer packaged goods is the area to be in, at least not in the U.S. and not based on names like Kellogg or General Mills.
For a quarter-century those manufacturers ratcheted prices as though they were tobacco companies but people find it easier to give up their Cheerios than their cigarettes.

The managements milked that approach for pretty much all it was worth so, as operating entities, they aren't all that attractive but someone will decide the only thing left to do is to asset strip or dividend recap the life out of the former cash cows.

Top o'the market to ya.... 

Matt Levine Writes About CryptoKitties ("this column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners").

While we haven't heard Mr. Bloomberg explicitly state that he is in favor of CryptoKitties, it is difficult to see how he could argue with the comfort they bring as an antidote to the hurley-burley of daily life.*
Not to mention the "CryptoKitties as an asset class" angle.

From Bloomberg View, March 22:
...The crypto.
Look, I am not a knee-jerk crypto-skeptic. I write a lot about the rubes and hucksters and scams in the cryptocurrency sector, but there are also sophisticated investors, many of whom have deep experience in traditional technology venture-capital investing, who are bringing that sophistication and experience to the crypto space. These investors aren't chasing pointless fads; they understand the transformative power of blockchain technology, and are investing in the revolutionary infrastructure that will underpin the future of the internet, the financial system, and the world as a whole. Here, for instance, is a blog post from Union Square Ventures about how it is investing in ... oh, wait ... oh it's CryptoKitties, never mind:
At USV, we think digital collectibles is one of many amazing things that blockchains enable that literally could not be done before this technology emerged.
We also think digital collectibles and all of the games they enable will be one of the first, if not the first, big consumer use cases for blockchain technologies.
So, one, I am not convinced that there were no pre-blockchain digital collectibles -- I think a lot of gamers would disagree with that -- but more importantly, "X literally could not be done before blockchain" is not an especially good argument for X. The question is: Should X have been done before blockchain? Were people really sitting around back in the dark ages of 2006 saying "sure I can get an animated cat on my computer screen but so can anyone else; what I need is a rare animated cat"? Maybe? I don't know anything anymore.

Elsewhere here is "Buy Bitcoins Without Risk of Losing Money:...MUCH MUCH MORE (margin loans, enhanced stablecoins, Elon Musk's compensation and bond ETF liquidity)
*You can see the evolution of our thinking from November 2017's "Kittens On the Blockchain Is NOT the Future I Was Promised" to March 7's "The Blockchain Is Just Another Way To Make Art All About Money":
At least I'll always have my CryptoKitties. Besides being cute as can be, I was told:
CryptoKitties Sales Hit $12 Million, Could be Ethereum’s Killer App After Al
Through March 11's "Elaine Thinks About Signaling and Destroys My CryptoKitties Dreams":
Her piece was written a couple weeks ago i.e. at least two cryptocurrency price tumbles ago.
Think of a waveform, but not the smooth, soothing shape of a sinusoid. Rather think of a faux quasi-periodicity with just enough regularity to trigger a mirage of pattern recognition, just enough to suck you in, across the event horizon of speculation into the madness of Hunter S Thompson:...

Is It Ethical To Deal With Facebook? "Facebook Advertisers Start Pulling Out" (FB)

(in Edward G. Robinson Voice) Where's your ESG now, see?*
Just as we saw with the hubbub surrounding Harvey Weinstein and his predations, in Facebook we have an open secret that was convenient to ignore as long as the money was slopping around and the stock was heading up.

And nary a peep out of the Environmental, Social And Governance (ESG) crowd about how Facebook earns its money.

Everybody knew. Hell we've been posting on the privacy/security issues since the IPO (at $38) and there are a lot of smarter people who had even deeper insight but looked the other way as the stock went from the Sept. 4, 2012 bottom tick $17.55 (as the various lock-ups were expiring) to the $193 top-tick last month.

But now we've got everybody and their brother clutching their pearls and tut-tutting.
Here are a few lines from ZeroHedge's "Facebook Advertisers Start Pulling Out":
...Meanwhile, Facebook shares remain under rising pressure - falling approximately 8.6% in three trading sessions and down again on Thursday premarket as investors - particularly "ethical" investment funds - reconsider their decision to hold the increasingly radioactive company.
Nordea, the largest bank in the Nordic region, which manages about £283 billion (~$400 billion USD), said that it had put some of its Facebook investments in “quarantine” while it assessed the scandal. Union Investment, a German group that manages about £255 billion ($360 billion USD), said that it was reviewing its holding of Facebook shares. -The Times
*This is the second time in a week we've had Rico "Little Caesar" Bandello in the inro. to a post.

I know Edward G. Robinson didn't add the "see" to his great line in The Ten Commandments: "Where's your Messiah now?"
But with Easter approaching the cross-wiring of the Robinson movies has begun. And it's not just me:

"Considering Skewness Of Returns As A Risk Metric"

Another tool in the toolbox.
Intech Investment Management recently published a primer on monitoring market stress by way of several risk metrics, including skewness of returns (SoR). In the grand scheme of quantifying risk, SoR is relatively obscure, but Intech makes a good case for paying more attention to this data.

Applied to financial markets, skewness measures the degree of return asymmetry in terms of the probability distribution around the mean. In English, skewness tells us if returns have been extreme or not. A relatively high positive skewness reading indicates returns deep in the right tail of the distribution. A negative number equates with a loss in the left tail. In short, skewness offers a straightforward tool for quantifying and monitoring tail risk.

Intech advises that “when investors become irrationally exuberant, market returns tend to become less negatively skewed or, even briefly, positively skewed (e.g., beginning of 1987 and mid-1990s), which supports the potential for an increased likelihood of a significant market dislocation. Conversely, very low levels of skewness often coincide with the market shock itself, and eventually manifest themselves as increased market dislocation with positive outcomes (e.g., early 2004 and following the Global Financial Crisis in 2009).”

Measuring return skewness for, say, the US stock market offers a useful lens for quantifying the degree of exuberance, or the lack thereof. A chart in the Intech research note shows the ebb and flow of market sentiment through time.
Another way to use skewness is by comparing markets. Consider, for instance, how the US stock market stacks up against the US bond market in recent history. Let’s use two ETFs as proxies to crunch the numbers: SPDR S&P 500 (SPY) for equities and iShares Core US Aggregate Bond (AGG) for fixed-income securities. For easier comparison, the data in the chart below is shown as Z-scores, which reflect how the skewness values rank in terms of standard deviations above or below their means. For this example, the results are based on a rolling 30-day window of daily returns.
Note the negative relationship between stock and bond skewness values. The correlation for the two data sets in the time period shown in the chart above is -0.46. That’s a key clue for expecting that when the crowd is relatively bullish in one market, the opposite will be true in the other. No one should be surprised by that relationship, but it’s valuable to have hard data for tracking the stock/bond connection in real time, perhaps with an eye on a tactical asset allocation application....MORE

Re/insurance "Business as usual is not sustainable, says Lloyd’s Chairman"

From Artemis, March 21:
If you thought that the Lloyd’s of London insurance and reinsurance market had changed in the last decade, it’s likely nothing compared to the change we will see over the coming years, as the world’s oldest re/insurance market accepts the fact its model has become unsustainable.

This morning the Chairman of Lloyd’s, Bruce Carnegie-Brown, admitted as much as in the annual results pack, which revealed the market fell to an aggregated pre-tax loss of £2 billion in 2017.
The underwriting loss was significant, at £3.4 billion for the year, as the results were driven down by the impact of the major losses from hurricanes and catastrophes in the second-half of the year which delivered a major loss bill of £4.5 billion to the Lloyd’s market and its underwriters.
While the impact of the catastrophes was significant last year, the fact remains that Lloyd’s remains an expensive place to do business and as a result losses can tip it into unprofitability relatively easily.
Which led Carnegie-Brown to explain, “The market’s 2017 results are proof, if any were needed, that business as usual is not sustainable.”

Lloyd’s operates on an expense ratio of around 30%, with 2017’s results showing acquisition expenses contributing 27% to the combined ratio and administration expenses 12.5%. The combined ratio in 2017 rose to 114%, but the goal going forwards will be to bring that down, through greater efficiency.

“The market is embracing new ways of working, and I am confident the combination of our strategic focus and the market’s proven ability to respond to challenging conditions will ensure Lloyd’s continues to offer innovative and competitive solutions across all lines of business,” Carnegie-Brown said.

The fact is that for years now Lloyd’s has been urged to open up, modernise, accept more efficient capital and risk transfer models, but it is only in the last few years that this has truly been heard and steps are now being taken to leverage the state of the market, the advancement of technology and of course the entry of efficient capital, to attempt to drive change.

Lloyd’s, like all other traditional insurance and reinsurance players, has to find a way to be able to sustainably operate in an environment where risk pricing is lower and competitors are bringing increasingly efficient capital to market through increasingly streamlined business models.
Here Lloyd’s should actually have an advantage, being a marketplace into which risks are placed and then syndicated among the capital and capacity providers.

Think of a market-based model for the future of reinsurance.
Risks are placed into the marketplace through technology based distribution channels, here we mean open channels developed specifically for their efficiency, not owned by bits and pieces of the market itself.

Capital providers (syndicates) get to see all of the data on the risks, analyse them, then place bids to underwrite them (a bit like an auction), with the risks eventually being placed through algorithms that know the preferred markets, the most efficient capital and the most sustainable way to syndicate the risk around that marketplace.

Sitting atop this efficient risk transfer structure is Lloyd’s itself, providing the oversight for the market but also perhaps facilitating following markets, with their efficient capital, to take the lead from the best underwriters in a class of business, augmenting the leads capacity and benefiting from their expertise. Perhaps the lead even gets a commission fee, for ‘introducing’ their underwriting of a risk to the followers.

As we’ve said before, and no doubt will again, every market player in insurance and reinsurance needs to identify the models that allow them to monetise their expertise, while increasing efficiency and leveraging the lowest-cost capital.

The above is but one way Lloyd’s could do this, although questions over the necessary size of Lloyd’s and whether it needs an enormous building (or even such a physical presence as it has today) to achieve this will remain.

Efficiency is just one of the levers that Lloyd’s has at its disposal and its likely we’ll see the market drive down the digitalisation route towards modernity, but hopefully not at the expense of getting locked into systems developed only for a segment of the broader global risk market and avoiding vendor lock-in as well....MUCH MORE

Wednesday, March 21, 2018

Is Walmart Mooving Into Farming? (WMT)

Apologies for the headline, I can't stop myself.

From CB Insights:

Walmart is applying for a range of patents using drones to automate farming. The move could support its grocery business and give the giant greater control over its supply chain.
As Walmart goes head to head with Amazon, it is focused on shortening its supply chain and improving its grocery delivery business — including patenting automated storefronts in people’s homes and technology that can help improve online food shopping.

Today, we picked up on a signal that Walmart is looking to manage more of its supply chain at the source.

The retail giant applied for a series of 6 patents targeting farm automation. The applications propose using drones to identify pests attacking crops, monitor crop damage, spray pesticides, and pollinate crops.

To compete against Amazon, Walmart has been busy building up its grocery business. Last year, Walmart started offering same-day grocery delivery in certain areas. It also acquired delivery startup Parcel and just last month partnered with Instacart to roll out same-day delivery for its Sam’s Club business.

Walmart has even piloted a smart lock partnership, so Walmart delivery people could unload grocery orders directly into shoppers’ fridges when they’re not home.Amidst all this competition, we also know brands and shoppers are moving toward more natural food products and transparent labeling.
By taking more control over how its produce is grown, Walmart could a) potentially save on costs, by vertically integrating its food supply chain, b) manage crop yields more effectively, and c) increase its emphasis on transparency and sustainability to attract shoppers....MORE
Additionally, Walmart is getting into the dairy business in a big way. From WITF, Harrisburg, PA:
Milk processor cancels farm contracts as Walmart makes own milk
As if low milk prices aren't nerve-wracking enough, dairy farmers are worrying about getting a steady monthly milk check.

Milk processors face dramatic changes in the marketplace. They buy the farmers' milk, or at least most still do.

"The fluid milk market has always been competitive, but we're in unprecedented times," said Reace Smith, a spokeswoman for Dallas-based Dean Foods.

Dean Foods, branded as Swiss Premium, is ending contracts this spring with more than 100 farmers in eight states, including Pennsylvania. The company's reasons: Consumers are drinking less milk, and other companies are entering or expanding their presence in milk processing.

Industry observers say a recently constructed Walmart milk plant in Fort Wayne, Indiana, played a major role in Dean Foods' decision. The new plant will bottle 100 million gallons of milk annually for 600 Walmart stores.

"By operating our own plant and working directly with the dairy supply chain in the Midwest, we'll further reduce operating costs and pass those savings on to our customers so that they can save money," said Tony Airoso, senior vice president of sourcing strategy for Walmart U.S.

Americans are drinking 28 percent less milk than they drank in 2000, 42 percent less than in 1970. Cheese and yogurt consumption has increased, but not enough to mend the hole in a farmer's pocket.
U.S. farmers meanwhile have more cows, each increasingly producing more milk, according to the U.S. Department of Agriculture. The industry is producing about 350 million more gallons of milk each year than the year before, Smith said.

Local milk processors are taking other actions....MORE

"China Unveils How It Will Retaliate To US Tariffs, USDJPY Snaps"

If I was a pig in the Midwest I'd be tempted to vote for Donald Trump in 2020.
And I'm not talking deplorables.
As my favorite translator of Mandarin tells me, Chinese people love pork. And we've been babbling on about China's Strategic Pork Reserve for over a decade. Here's 2010's '"...Pork Signals Record Meat Prices' and China's Strategic Pork Reserve (SFD)":
I just threw Smithfield's symbol into the headline, neither story directly mention's the country's largest hog and pork producer. We first mentioned the Strategic Pork Reserve in an October 2007 post "Is China Going to Own the World?".
As it turned out, Smithfield was purchased by China's largest protein processor, Shuanghui International Holdings (now WH Group), in 2013 in a move that triggered a national security review in the U.S., I kid you not,

Anyhoo, China has been playing power politics for something like 5000 years and should President Trump go through with the threatened tariffs the Chinese will strike directly at his base while the porkers breathe a little easier as a major export market is taken off the table, so to speak.

First up, ZeroHedge with the headline story, March 21:
While it will hardly come as a surprise considering that trade wars always evolve in an escalating tit-for-tat manner, the WSJ reports that just hours ahead of Trump's announcement of as much as $60 billion in tariffs targeting Beijing, China is preparing to hit back with its own countertariff aimed at President Donald Trump’s support base, including levies targeting U.S. agricultural exports from farmbelt states in retaliation to the mounting trade offensive from Washington.

At the same time, and in hopes of avoiding further escalation, Beijing is also reportedly weighing concessions, including easing restrictions on foreign investments in securities firms and insurance companies.
In taking a stick-and-carrot approach, President Xi Jinping is seeking to avoid escalating trade tensions with the Trump administration.
“Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making.
Should the carrot not work, China's "stick" is said to target U.S. exports of soybeans, sorghum and live hogs....

And from Bloomberg via AgWeb, March 20:

US Pork 'Easy Target' for China Tariffs
 A boost in China’s sow herd means pork from the U.S. is an “easy target” amid escalating trade tensions between the nations.

Pork prices in China have dropped after hogs tumbled as much as 30 percent in the past three months, analysts at Vertical Group, a New York-based investment bank, said in a report. For the Asian nation, “the timing would be opportune for a ban on pork exports in more ways than one,” the report said.
China, the world’s top pork consumer, is one of the leading buyers of U.S. agricultural goods and is the second-largest market for the meat by volume, industry data show....MORE
Here's the ten second tutorial on Ag cycles:

The Hog Cycle
No not Harley-Davidson, although I imagine some econ grad student has written the paper.
Wheat and hogs are two commodities with long price series. We mentioned the hog cycle back in January:

The hog price series is one of the longest we have records for, back to the 1200's. The cycle is:
slaughter begets scarcity begets higher prices begets breeding begets over-supply begets slaughter. It's been going on for a while....

Tale of the Tape: "Tesla's debt price is deteriorating" (TSLA)

For the equity, as noted way back on December 1st:

$300 Looks Like an Important Line For Tesla's Stock (TSLA)
It's not that $300 is some magical round number, rather looking at the chart if the stock moves decisively through that line there is a lot of air down to the $240 base where the run began.
TSLA Tesla, Inc. daily Stock Chart 

That one day dip below the line on February 9th, $294.76 low print, almost got us to pull the trigger on a (very) rare Tesla short but the recovery started so fast, actually that very day, $310.42 close, that we were saved from our own lightning fast reflexes.
Or something.

From FT Alphaville;
Let's examine Tesla's $1.8bn unsecured bond, which reached a near all-time high yield of 6.57 per cent this week.

Should stock market investors care?

A rule of thumb on Wall Street is that corporate bond investors are the 'smart money' - able to identify distress at companies long before the equity traders catch on.
Bondholders' sole concern is the preservation of their original investment, and the interest payments they are due.

So even a small upward move in the yield of a corporate bond can signify potential problems with a company and their expected cash flows.

Issued at par with a yield of 5.30 per cent in August, the bond's price has been grinding downwards since, its yield going in the opposite direction: 
Quill Cloud

And by request, the spread:
Quill Cloud
Tesla's bond yield is trading 366 basis points above the 7-year Treasury note. It isn't the highest the spread has ever been, but is a lot more than fellow cash-guzzling market superstar Netflix's 2025 unsecured bond, which is trading 202 basis points above its benchmark, according to Bloomberg....MUCH MORE

"Germany’s Pivot From Russian Gas Will Be Costly"

This is what the Poles have been trying to tell the EU for at least the last half-decade.
Poland has an understanding of their neighbor to the east that Brussels (and even Berlin) seems to lack. As noted in the introduction to January's "Poland's Plan to Dominate Europe, Continued", the Poles built their LNG terminal knowing full well the cost of various sources:
Following the December series of posts* on Poland I had intended something on a gas pipeline or two or geopolitics or the Baltic-to-Black Sea (and Greece) Via Carpathia Highway or the new (security-at-a-cost) LNG terminal but....but...Bambi !!
Some things you can't measure in zlotys alone.
(or rubles or euros or krone or...)

From OilPrice, March 20:
More problems are mounting for Russia’s oil and gas sector. This time it’s coming from Germany, which until recently usually gave Russia’s energy sector more lead way than the U.S. or other allies.
But now it seems that German Chancellor Angela Merkel has also had enough. On Monday, Bloomberg reported that Merkel’s government is seeking to build a liquefied natural gas (LNG) industry in Germany basically from scratch to reduce the nation’s dependence on supplies arriving by pipeline from Russia and Norway.

Merkel backs “all initiatives supporting further diversification of gas supply -- whether from different regions or means of transporting gas,” said German Economy and Energy Ministry spokeswoman Beate Baron.

The move comes as natural gas resources from the UK and the Netherlands are depleting, and Germany is forced to rely more on Russian gas. Merkel’s newly formed coalition has a “coalition contract” that among other policies sets out energy agenda including LNG for the next four years, the Bloomberg reported added.

Germany, for its part, is Europe’s largest gas consumer.  In 2015, the country consumed 7.2 billion cubic feet per day (Bcf/d) of natural gas, according to U.S. Energy Information Administration (EIA) data. According to the German energy research group, AG Energiebilanzen, imports account for about 90 percent of Germany’s total natural gas supply, while most imports come from three countries: Russia (40 percent of total imports in 2015), Norway (21 percent) and the Netherlands (29 percent).

Moreover, German companies are participating in Russia’s controversial Nord Stream 2 pipeline, an expansion of an existing route for gas to flow from Russia to Europe under the Baltic Sea. The U.S., Poland and others have recently condemned the pipeline as a threat to European security.
As Russia becomes increasingly aggressive, even wreckless geopolitically, the security threat to not only the EU but to Germany is apparent, causing the country of some 83 million people to do an abrupt energy policy about face.

Germany’s LNG pivot also comes as a geopolitical storm between the U.K. and Russia intensifies over an alleged Moscow-orchestrated nerve-agent attack on British soil against what the BBC called a double spy and his daughter.

British Prime Minister Theresa May retaliated last week by expelling Russian diplomats and seeking alternatives to Russian gas, including LNG produced at its new Arctic plant, the Yamal LNG export project. Addressing the UN Security Council last week, the U.K.’s deputy UN ambassador, Jonathan Allen, accused Russia of breaking its obligations under the Convention on the Prohibition of Chemical Weapons.

The U.S. for its part also condemned the nerve agent attack. U.S. ambassador Nikki Haley said that Washington stood in "absolute solidarity" with Britain, citing the "special relationship" between the two countries and saying that Washington would "always be there" for the UK.

Germany’s abrupt LNG pivot...

Related at Bloomberg, March 18:
Russia Says Its Gas Is Best Deal for Europe Amid U.K. Spat

Oil/Gas and Geopolitics: Keeping the Politicians Warm Edition
"Europe’s Energy Geopolitics is Getting Dicey"
Natural Gas: "Polish PM: Nord Stream II Would Make Russia Free to act Against Ukraine, So Must Not be Built"
"U.S., Poland Oppose Gas Pipeline Linking Russia And Germany"
The Nord Stream 2 Natural Gas Pipeline Is A Game Changer For Gazprom

Germany May Be Trying to Destabalize Poland But No Worries
New Russian Pipeline In Baltic Sea Could 'Collapse' Ukraine

See also:
"Berlin, Moscow Negotiate New Trade Accord".
-Reading Eagle
Feb. 12, 1940

Tuesday, March 20, 2018

President Zuckerberg To Address The Nation On Cambridge Analytica

First public comment since the surprising results of the collaboration with Cambridge Analytica became public.
From The Verge:

Mark Zuckerberg is ‘working around the clock’ on the Cambridge Analytica controversy, Facebook says
After nearly four days of silence from top executives on the unfolding controversy around Cambridge Analytica’s misuse of user data, Facebook on Tuesday made a statement about what Mark Zuckerberg and Sheryl Sandberg are doing. “Mark, Sheryl and their teams are working around the clock to get all the facts and take the appropriate action moving forward, because they understand the seriousness of this issue,” Facebook told The Daily Beast. “The entire company is outraged we were deceived. We are committed to vigorously enforcing our policies to protect people’s information and will take whatever steps are required to see that this happens.”

The company’s statement is notable for three reasons. One, it escalates the emotional tone of Facebook’s response — on Friday, it called Cambridge Analytica’s actions “unacceptable”; today they are an outrage. Two, the statement frames the story as a deception in which Facebook was not the bad actor but the victim. Three, it buys the company time amid growing demands to hear from Zuckerberg himself....MORE
In another example of the power of the Facebook - Cambridge Analytica Partnership for a New World, Pan-Arabia Enquirer, March 20:

Egyptian President Sisi Tempted to Try Cambridge Analytica to Push Election Win Past 100%
Despite having forced all other candidates to withdraw from next week’s election, Sisi says he “just wants to be sure”
Egyptian president Abdel Fattah el-Sisi has revealed that he’s considering employing the services of under-fire data analyst organisation Cambridge Analytica in order to boost his ongoing election campaign.

“Sure, I may have locked up or intimidated every other potential candidate ahead of next week’s elections....MORE

"Self-driving Uber ‘likely’ not at fault in pedestrian fatality"

From Boy Genius Report via the New York Post:
Uber’s reputation is still in a downward spiral, especially after the numerous scandals and lawsuits it had to face over the past year alone. The fact that an Uber self-driving car was the first such vehicle involved in a fatal accident won’t help either. But it looks like it’s not Uber’s fault, at least according to preliminary findings.

One of Uber’s autonomous Volvos killed a pedestrian on Sunday night in Tempe, Arizona — 49-year-old Elaine Herzberg. Uber’s CEO, Dara Khosrowshahi, announced a halt of the self-driving car pilot program in the wake of the incident, as the company and authorities launched independent investigations.

Tempe police now say the accident might have actually been Herzberg’s fault. The woman was crossing the street within 100 yards of a crosswalk. The Volvo, meanwhile, was traveling at 38 mph in a 35 mph zone on a Sunday night, and the human sitting in the driver’s seat made no attempt to break.

“It’s very clear it would have been difficult to avoid this collision in any kind of mode (autonomous or human-driven) based on how she came from the shadows right into the roadway,” Tempe police chief Sylvia Moir told the San Francisco Chronicle after viewing videos that recorded the accident....MORE

"Concerned about your health? Don't become an investment banker..."

From City AM:

Investment banking worst for your health says giant survey of British bank employees
Investment bankers think their jobs are the more damaging to their health than their counterparts in business or retail lending, according to a massive survey of British bank employees.

Some 29 per cent of investment bank employees said their job is having a negative impact on their wellbeing, a poll of more than 36,000 bankers by the Banking Standards Board (BSB) will show today.

On average across the banking sector 26 per cent of employees had a negative perception of their job’s effect on their health.

Investment banking was the outlier on wellbeing in both the 2016 and 2017 surveys, in spite of investment bankers reporting they felt under less “excessive pressure” than other branches. The BSB’s report suggested high levels of pressure are par for the course for banks’ dealmakers.
Investment bankers were also the least likely to respect their risk and compliance departments.

The poll also found women were significantly more likely to believe that turning a blind eye was a problem at their bank, at a time when the spotlight on sexual harassment in the workplace has become more intense.

The huge survey was started to help banks work out how to improve their cultures, after the string of misconduct scandals which has besmirched the reputation of the sector and lead to billions of pounds of fines....MORE

Real Estate: It Doesn't Look Like Turkey Will Be Leaving Syria Any Time Soon

From Al-Monitor, March 19:

Erdogan vows to carry fight beyond Afrin
Turkish-backed forces faced little resistance when they rolled into the Syrian city of Afrin, seizing a Kurdish stronghold and knocking back their dreams of self-rule in northern Syria.

NATO member Turkey’s blitz in Afrin has further complicated Syria’s seven-year war, which has also drawn in external powers Russia, Iran and the United States. President Recep Tayyip Erdogan vowed on Monday his army would press on to undo Kurdish territorial gains all the way to Iraq.

A faction of the Free Syrian Army, backed by Turkish tanks and warplanes, entered Afrin on Sunday, just two months after Turkey launched an offensive to expel the People’s Protection Units (YPG) from the northwest Syrian province, arguing the Kurdish militia posed a security threat at its borders.

Civilians escaped the arrival of the FSA forces in Afrin, which had a pre-war population of 35,000 people, as the fighters raised their rebel flag and the Turkish banner in the city center, news footage showed.

“The symbols of peace and security now wave in Afrin’s city center, not the rags of the terrorist organization,” Erdogan said in a speech hours after the city fell. “Most of the terrorists tucked their tails between their legs and fled. Our special units and members of the Free Syrian Army are cleaning up the remains of the sword and the traps they left behind.”

Turkish newspapers celebrated the fall of Afrin for coinciding with the 103rd anniversary of an Ottoman victory in the battle of Gallipoli during World War One.

“Same spirit, same faith,” Daily Sabah's headline read. The paper compared the relatively unscathed Afrin to the devastation wrought on Mosul and Raqqa after US-backed Kurdish forces took those cities from the Islamic State last year.

Turkey sees the YPG as part and parcel of the armed Kurdistan Workers Party (PKK), which has waged a three-decade insurgency within Turkey that has killed more than 40,000 people, and the United States’ collaboration with the YPG as a betrayal.

Before Turkey had encircled Afrin, analysts had warned it would face bloody urban street battles. But the YPG withdrew before dawn on Sunday without putting up a fight.

Withdrawal from one battle doesn’t mean [the loss] of war and giving up the struggle,” tweeted Saleh Muslim, the former chairman of the Democratic Union Party, the YPG’s political wing.

In a statement, the YPG said its fight would now enter a new stage, transitioning from direct confrontation to “hit-and-run tactics." It read, “Our forces are everywhere in Afrin. These forces will strike the positions of the Turkish aggression and its mercenaries at every opportunity,” promising “a constant nightmare for them.”

The YPG decided to pull out to prevent more civilian deaths in an area that had been largely peaceful before the Turkish incursion, absorbing thousands of displaced Syrians fleeing fighting elsewhere, said Mutlu Civiroglu, an independent Kurdish affairs analyst, citing sources within the Kurdish administration.

“From the perspective of Kurds, naturally it is a demoralizing situation when Afrin had been spared throughout the war and is home to different cultures. But there is also the feeling among Kurds that this isn’t over,” Civiroglu told Al-Monitor. “They don’t assess this as the fall of Afrin. The YPG is saying that it is changing its war tactics from holding ground to undertaking raids,” he said.

For his part, Erdogan said Afrin was merely a “comma” in Turkey’s battle against Kurdish militants. “We will now add the full stop, God willing … We will now continue to Manbij, Ain el-Arab, Tal Abyad Ras al-Ain and Qamishli until the terrorist corridor is gone,” he said, adding that Turkey was prepared to go into Northern Iraq’s Shinjar region, where PKK fighters are based.
Meanwhile, Israel  is a bit concerned about Turkey adjusting their southern border. From the uber-translators at MEMRI, March 7:

Turkish Newspaper Close To President Erdogan Calls To Form Joint Islamic Army To Fight Israel
On December 12, 2017, ahead of the summit of the Organization of Islamic Cooperation (OIC) in Istanbul,  the Turkish daily Yeni Şafak, which is close to President Recep Tayyip Erdoğan and his ruling AKP party, published an article  titled "A Call for Urgent Action,"[1] which also appeared on the paper's website under the title “What If an Army of Islam Was Formed against Israel?"[2] The article called on the 57 member states of the OIC to form a joint "Army of Islam" to besiege and attack the state of Israel. It notes that such a joint army will greatly exceed the Israeli army in manpower, equipment and budget, and presents statistics to prove this. It also advocates establishing joint bases for the army's ground, air and naval forces that will arrive from all over the Muslim world to besiege Israel, while noting that Pakistan, as the only nuclear country, has "a special status" among the OIC countries. An interactive map provides information on military forces stationed in various locations and the role they can play in the potential joint Muslim attack on Israel.

The Source Of The Yeni Şafak Article: The SADAT Company Website
The main points of the article are taken from the website of the Turkish SADAT International Defense and Consulting Company, which provides consultancy on defense and warfare, both conventional and unconventional, and on military organization, training and gear. The company has an agenda of promoting pan-Islamic military cooperation. According to its mission statement, it seeks "to establish defense collaboration and defense industry cooperation among Islamic countries, to help the Islamic world take its rightful place among the superpowers by providing... strategic consultancy and training services to the militaries and homeland security forces of Islamic countries."[3]
According to Israeli security sources, the SADAT company is involved in aiding Hamas, and seeks to assist – with funds and military gear – the creation of a "Palestine Army" to fight Israel.[4]

SADAT Founder Adnan Tanrıverdi
The SADAT company was founded by Erdoğan’s senior advisor on military affairs, retired general Adnan Tanrıverdi, and is chaired by his son, Melih Tanrıverdi. Adnan Tanrıverdi (b. 1944) served in the Turkish army's Artillery Corps and headed the Home Front Command in northern Cyprus.  He is an expert on assymetric warfare, and was dismissed from the Turkish military in 1996 for his Islamists leadnings. A former Turkish army officer, Ahmet Yavuz, described him as "an enemy of Atatürk" and stated that his dismissal from the army was not surprising.[5]....

Fortunately for the Israelis, Erdogan's purge of the military seriously degraded Turkey's offensive capability vs. a state vs against the Kurds.