Saturday, November 30, 2013

Catastrophe Bond Buyers Rejoice:"The Unusually Quiet Atlantic Hurricane Season of 2013 Ends"

Rejoice may be putting too strong a face on it but for those folks reaching for yield in 2013 Cat bonds worked out. There is some chance of  storms that would trigger payouts over the next few months but the odds drop considerably:

Peak Of Season
From Wunderblog:
The end of the unusually quiet Atlantic hurricane season of 2013 is at hand. The final tally of thirteen named storms was above the average of eleven for a season, but the two hurricanes (Ingrid and Humberto) and zero major hurricanes were well below the average from 1950 - 2012 of six and three, respectively. The 2013 season ranked as the sixth-least-active Atlantic hurricane season since 1950, in terms of the collective strength and duration of named storms and hurricanes (ACE index), which was just 33% of the 1981 - 2012 average. The 2013 hurricane season was the first time since 1994 no major hurricanes formed, and was only the third below-normal season since the high-activity period for Atlantic hurricanes began in 1995. NOAA and the U.S. Air Force Reserve flew 45 hurricane hunter aircraft reconnaissance missions over the Atlantic basin this season, totaling 435 hours--the fewest number of flight hours since at least 1966, said NOAA in a press release summarizing the 2013 hurricane season.

Worst storm of the season: Ingrid
Mexico took a severe beating in 2013, with eight landfalling storms: one hurricane (Ingrid) and two tropical storms (Barry and Fernand) from the Atlantic side, and two hurricanes (Manuel and Barbara), and three tropical storms from the Pacific side. The deadliest and most expensive Atlantic storm of 2013 was Hurricane Ingrid, which weakened to a tropical storm with 65 mph winds before hitting Mexico about 200 miles south of the Texas border on September 16, 2013. Ingrid's heavy rains triggered flooding that killed 23 and did $1.5 billion in damage, making the storm the 7th costliest tropical cyclone in Mexican history. Barry and Fernand, which both hit the Mexican coast in the Gulf of Mexico between Tampico and Veracruz, dumped torrential rains and triggered floods that killed five and fourteen people, respectively. The first storm of the season, Tropical Storm Andrea, was the only named storm to make landfall in the United States this year. Andrea brought tornadoes, heavy rain, and minor flooding to portions of Florida, eastern Georgia and eastern South Carolina, causing one fatality and damage less than $25 million. No other deaths were recorded from Atlantic named storms in 2013. Tropical Storm Chantal did minor damage on Dominica and Martinique in the Lesser Antilles, and Tropical Storm Gabrielle did minor damage on Bermuda.

Figure 1. The strongest Atlantic hurricane of 2013, Category 1 Hurricane Ingrid, lays siege to Mexico on September 15, 2013. Ingrid killed 23 and did $1.5 billion in damage to Mexico. On the Pacific side, we see Tropical Storm Manuel, which killed 169 people and did $4.2 billion in damage to Mexico. Image credit: NASA Earth Observatory.
A preseason forecast bust
It was a bad year to be in the seasonal hurricane forecast business. All of the pre-season forecasts called for at least 7 hurricanes, 3 major hurricanes, and an ACE index at least 30% higher than average. With the actual numbers being 2 hurricanes, 0 major hurricanes, and an ACE index of just 33% of average , these forecasts were a major bust. The only pre-season forecast that one could deem successful was issued by a team at Penn State, led by Dr. Michael Mann, who only attempted to predict the number of named storms (they said 12 - 20, with a best estimate of 16.) The preseason forecasts largely failed because many of the factors that usually lead to active seasons that we can look at months beforehand all pointed towards an active season....MUCH MORE

Genomics: There's NSA Creepy and Then There's 23andMe Creepy

From Scientific American:

23andMe Is Terrifying, But Not for the Reasons the FDA Thinks 
The genetic-testing company’s real goal is to hoard your personal data
SA Forum is an invited essay from experts on topical issues in science and technology.
If there’s a gene for hubris, the 23andMe crew has certainly got it. Last Friday the U.S. Food and Drug Administration (FDA) ordered the genetic-testing company immediately to stop selling its flagship product, its $99 “Personal Genome Service” kit. In response, the company cooed that its “relationship with the FDA is extremely important to us” and continued hawking its wares as if nothing had happened. Although the agency is right to sound a warning about 23andMe, it’s doing so for the wrong reasons.

Since late 2007, 23andMe has been known for offering cut-rate genetic testing. Spit in a vial, send it in, and the company will look at thousands of regions in your DNA that are known to vary from human to human—and which are responsible for some of our traits. For example a site in your genome named rs4481887 can come in three varieties. If you happen to have what is known as the GG variant, there is a good probability that you are unable to smell asparagus in your urine; those blessed with the GA or AG varieties are much more likely to be repulsed by their own pee after having a few spears at Spargelfest.
At first, 23andMe seemed to angle its kit as a fun way to learn a little genetics using yourself as a test subject. (“Our goal is to connect you to the 23 paired volumes of your own genetic blueprint... bringing you personal insight into ancestry, genealogy, and inherited traits,” read the company’s website.) The FDA had little problem with the company telling you why you had dry ear wax (rs17822931) or whether you’re likely to sneeze when you look at a bright light (rs10427255).

That phase didn’t last for long, because there is much more interesting stuff in your genome than novelty items. Certain regions signal an increased risk of breast cancer, the impending onset of metabolic diseases, and sensitivity to medications. 23andMe—as well as a number of other companies—edged closer and closer to marketing their services as a way of predicting and even preventing health problems. And any kit intended to cure, mitigate, treat, prevent, or diagnose a disease is, according to federal law, a "medical device" that needs to be deemed safe and effective by the FDA. Since mid-2009, 23andMe has been negotiating with the agency, and in July 2012, the company finally began the process of getting clearance from the FDA to sell the kit that it had already been selling for five years.

Everything seemed rosy until, in what a veteran Forbes reporter calls “the single dumbest regulatory strategy [he had] seen in 13 years of covering the Food and Drug Administration,” 23andMe changed its strategy. It apparently blew through its FDA deadlines, effectively annulling the clearance process, and abruptly cut off contact with the agency in May. Adding insult to injury the company started an aggressive advertising campaign (“Know more about your health!”), leaving little doubt about the underlying medical purpose of 23andMe’s Personal Genome Service. This left the agency with little alternative but to take action. “As part of our interactions with you, including more than 14 face-to-face and teleconference meetings, hundreds of email exchanges, and dozens of written communications,” the agency complained, “we provided you with… statistical advice, and discussed potential risk mitigation strategies.” It is the tone of a spurned spouse, exasperated and angry that 23andMe is putting no effort into salvaging their relationship.

But as the FDA frets about the accuracy of 23andMe’s tests, it is missing their true function, and consequently the agency has no clue about the real dangers they pose. The Personal Genome Service isn’t primarily intended to be a medical device. It is a mechanism meant to be a front end for a massive information-gathering operation against an unwitting public.

Sound paranoid? Consider the case of Google. (One of the founders of 23andMe, Anne Wojcicki, is presently married to Sergei Brin, the founder of Google.) When it first launched, Google billed itself as a faithful servant of the consumer, a company devoted only to building the best tool to help us satisfy our cravings for information on the web. And Google’s search engine did just that. But as we now know, the fundamental purpose of the company wasn’t to help us search, but to hoard information. Every search query entered into its computers is stored indefinitely. Joined with information gleaned from cookies that Google plants in our browsers, along with personally identifiable data that dribbles from our computer hardware and from our networks, and with the amazing volumes of information that we always seem willing to share with perfect strangers—even corporate ones—that data store has become Google’s real asset. By parceling out that information to help advertisers target you, with or without your consent, Google makes more than $10 billion every quarter....MUCH MORE
HT: naked capitalism

Bitcoin Mania:You Can Actually Create Your Own Crypto-Currency, For Free

As FT Alphaville's Izabella Kaminska has touched on,* there are definite pyramid scheme aspects to Bitcoin and other crypto-currencies, meaning those first in make the most, meaning it's time to fire up the 'puters.
*See "The Litecoin disruption" and, for some awesome charts "So this is how fiat currency dies, with thunderous CPUs?".

From Forbes:
With Bitcoin now worth potentially more than an ounce of gold, I’m capping off my series of Bitcoin posts with an attempt to answer a recurring question. How to go about creating your very own crypto-currency.

When looking at the various crypto-currencies that have emerged over the last few months, most, if not all of them have had one thing in common. They are essentially cloned versions of Bitcoin. My question isn’t how to clone Bitcoin but rather how can you go about creating a completely new virtual currency. One that is based on varied asset backings. The currency could be like a Bitcoin, based on an algorithm or based upon more traditional assets like US dollars, gold, or even a basket of mixed existing asset types.

As it turns out, there is a free open source project that aims to do exactly this. Called Open-Transactions or OT, the project itself is a transaction processor in the cypherpunk tradition.

Not to be confused with Cyberpunk, Cypherpunk is a concept originally emerging in the late 1980’s. Early cypherpunks communicated through electronic mailing lists, where an informal group of cyber activists  aimed to achieve privacy and security through proactive use of cryptography. With the recent NSA scandal and related electronic spying, the concepts of the cypherpunk movement have become popular once again, specially within the communities involved in crypto-currencies like Bitcoin.

Provided as a free software library, the Open-Transactions platform is a collection of financial cryptography components used for implementing cryptographically secure financial transactions. The author, Chris Odom also known as “Fellow Traveler” and co-founder of Monetas, the company behind the project, describes it saying, “It’s like PGP FOR MONEY. The idea is to have many cash algorithms. So that, just like PGP, the software should support as many of the top algorithms as possible, and make it easy to swap them out when necessary.”...MORE
HT: Economic Policy Journal 

Climateer Line of the Day: November 30, 1874 Edition

It's Winston's Birthday.

Winston Churchills Guide To Good Quotes

Okay, not a real Churchill quote but pretty funny. Here's the Churchill Centre's "Famous Quotations and Stories".

In addition to the false quote above there are hundreds of others that can be debunked using the Centre's 2.5 million word database. (the guy just couldn't shut up)
Churchill Centre homepage

Here are a couple they've gathered at the "Falsely Attributed" page:
"If you're not a liberal when you're 25, you have no heart.  If you're not a conservative by the time you're 35, you have no brain."
"You make a living by what you get; you make a life by what you give."
On a more reflective note, if it weren't for Churchill the Downfall parodies wouldn't be nearly as funny.

Art in 2013

From the New Yorker:
Very important people line up differently from you and me. They don’t want to stand behind anyone else, or to acknowledge wanting something that can’t immediately be had. If there’s a door they’re eager to pass through, and hundreds of equally or even more important people are there, too, they get as close to the door as they can, claim a patch of available space as though it had been reserved for them, and maintain enough distance to pretend that they are not in a line.

Prior to the official opening of Art Basel, the annual fair in Switzerland, there is a two-day V.I.P. preview. In many respects, the preview is the fair. It’s when the collectors who can afford the good stuff are allowed in to buy it. After those two days, there isn’t much left for sale, and it becomes less a fair than a kind of pop-up museum, as the V.I.P.s, many of whom have come to Basel from the Biennale in Venice, continue on, perhaps to London for the auctions there. The international art circuit can be gruelling, which is why pretty much everyone who participates in it takes off the month of August, to recuperate.

The Basel preview began at 11 A.M. on a Tuesday in June. The meat of the fair was in a gigantic convention center on the east side of the Rhine. The dealers’ booths were arrayed along two vast rectangular grids, which enclosed a circular courtyard that resembled a panopticon. The fair occupied two floors. The bottom one featured blue-chip art, offered by the powerhouse dealers; Picassos and Warhols could be seen among more contemporary work. Upstairs, for the most part, was younger work, exhibited by smaller galleries.
On the morning of the preview, after a champagne breakfast in the panopticon, the V.I.P.s gathered at the doors, under the watchful eye of guards in berets and dark crewneck sweaters. Through a window in the door, you could see, down the hall, the dealer David Zwirner, with his sales staff huddled around him, as though for a pep talk. The Zwirner booth was just past the Fondation Beyeler’s. (The Swiss dealer Ernst Beyeler, who died in 2010, was one of Art Basel’s founders and its presiding spirit.) Zwirner comes in force: he had about a dozen salespeople with him, a mixture of partners, directors, and associates, as well as a platoon of assistants and art handlers. A few minutes before the doors opened, they took up positions in a sales-floor spread defense. Bellatrix Hubert, a Zwirner partner, pantomimed a gesture of being slammed by an incoming flood. The doors parted, and the buyers poured in.

Within moments, most of the Zwirner directors had paired off with collectors, as at an officers’-club dance. Some strolled over to this or that work of art. The Zwirner booth was about the size of a couple of shipping containers, with work mounted on both sides of various walls. There were paintings by Elizabeth Peyton, Neo Rauch, Martin Kippenberger, On Kawara, Yayoi Kusama, Luc Tuymans, and Lisa Yuskavage, among others, and sculpture by John McCracken and Donald Judd.
A trustee of the Art Institute of Chicago was interested in a Twombly drawing, and a curator from the museum was there to advise her (the museum could not afford to buy it), so Zwirner led them into a side room to view it. The directors were expecting visits from clients with whom they had previously discussed specific works, sharing high-resolution images and market intelligence. Many pieces were already on reserve, meaning that clients had indicated an intention to buy them, without having seen them in person.

Zwirner tended to collectors and checked in with his staff at a corner table, where an assistant collated sales and inventory information, which directors could track on their iPads. One director, a dapper Spaniard named Ales Ortuzar, sidled up to the table. “The second Kusama is sold,” he said. The price was four hundred and twenty thousand dollars. Zwirner dropped by and reported the sale, to an undisclosed buyer at an undisclosed price, of a Blinky Palermo painting, a last-minute addition to the fair, after a Georg Baselitz picture had got delayed in French customs. Important people stopped by the booth: the commodities trader Marc Rich, looking frail in a wheelchair (he died soon afterward); the Russian billionaire Roman Abramovich and his girlfriend, Dasha Zhukova; Leonardo DiCaprio, whom Zwirner greeted with the exclamation “Movie star!,” as though saying aloud what he’d meant only to think....MORE
HT: Business Insider

Sweet Dreams Are Made Of This: Annie Lennox Lists London Home

From RealEstalker:

SELLER: Annie Lennox
PRICE: £12,000,000
SIZE: 5,131 square feet, 4-5 bedrooms, 3.5 bathrooms
YOUR MAMAS NOTES: We have Our Man in London to thank for sniffing out the open market listing for a Grade II listed terrace house just a few short blocks off Portobello Road in London's Notting Hill nabe that's up for sale with an £12,000,000 price tag and owned by pixie-haired synth-pop/New Wave music pioneer and legend Annie Lennox. (Your Mama's rusty but trusty currency conversion contraption shows that the current guide price—that's U.K. real estate speak for listing price—of £12,000,000 equals $19,581,4000 at today's rates.)

Scotland-born Miz Lennox, for those of y'all who weren't around in the early 1980s, was one-half of the duo Eurythmics. In the 1990s Miz Lennox lit out on a successful solo career and, as best as we can tell from our research on the internets, she's got seven BRIT Awards, three Grammys, and both a Golden Globe and an Academy Award for a pop ditty (Into The West) that she co-wrote for The Lord of the Rings. She's also got scads of awards, titles, recognitions for her extensive charity work and international humanitarian efforts.

That Miz Lennox might want to sell her swank house in London isn't such a great surprise since newly wedded rich and/or famous folk often buy a new house to set up home and, in case you missed the gossip glossy reports, 58-year old Miz Lennox recently hitched her love wagon for the third time to Harvard-trained, notably philanthropic, and South Africa-based gynecologist Dr. Mitch Besser.

As far as we can tell, Miz Lennox paid £4.4 million—that's $7,179,830 at today's rates—for the five-floor, Regency terrace house that listing details show was designed by architect and topographical illustrator Thomas Allom and built in 1853.


The Most Valuable Magazine in the World and A Former Apple Executive's Obsessive Search For Sherlock Holmes

Since 2007 we've been marking the anniversary of the publication of  Beeton's Christmas Annual-1887.
There's one little problem, I don't know the date the darn thing rolled off the presses. It wouldn't really matter much except for the fact that the Annual contained the first appearance Sherlock Holmes.
It appears that the Annual was printed in November but we don't have the date and we've run the 'anniversary' as late as December 15.
Here's that 2007 post with a couple additions:

Another Anniversary Already? And How Much is it Going to Cost?

It was 120 126 years ago that Sherlock Holmes came to the world's attention in Beetons Christmas Annual of 1887.

Here's the most expensive magazine in the world:
Sotheby's held the sale in New York City on 21 June 2007.
The owner, a lady, put up two Sherlockian lots for sale."
Lot 105, Beeton's Christmas Annual for 1887, set a new auction record for that magazine and sold for $156,000. The hammer price was $130,000 and the 20% buyer's premium brought the total to $156,000. That beat the previous record of $153,600 set in an auction at Sotheby's in December 2004. The 2004 record was said to make Beeton's the most expensive magazine in the world, and this new sale reinforces that position.
In 2008 Randall Stock who keeps a census of the extant copies emailed and pointed to this page.
I can't imagine there is any one site in the world with more information on "The World's Most Expensive Magazine".

In 2011 he reported on a previously unknown copy that was offered at auction in Australia but failed to reach the reserve.
Maybe in the next equity bull market.
And from Forbes a picture of the madness that can overtake persons of any station:

A Former Apple Executive's Obsessive Search For Sherlock Holmes
“I like artifacts,” says Glen Miranker. “I get an emotional and visceral and intellectual connection with a subject I’m interested in through them.” For the 60-year-old former chief technology officer for Apple that abiding subject is Sherlock Holmes, the legendary detective created by Sir Arthur Conan Doyle in 1887. The evidence? An extraordinary collection of books, manuscripts, illustrations and ephemera (known as “Sherlockiana”) that he began building in the 1970s, which now includes approximately 4,500 items and fills three rooms in his San Francisco home.

Miranker’s interest in Holmes began when he first read Conan Doyle’s mystery stories as a child. Later, as an undergraduate at Yale, he rediscovered Holmes when a roommate dropped a copy of the complete stories into his lap to cheer him up during a night of melancholy–”Maybe I was turned down for a date or thought I blew a test,” says Miranker.

The collecting started a bit later, in 1976 or ’77–he can’t quite recall–when he was in graduate school for computer science at MIT. His wife, Cathy, went out on a walk, ducked into a little book fair at Harvard’s Gutman Library and, for $15, picked up a copy of the first American edition of The Case-Book of Sherlock Holmes. Miranker says the choice of that volume was driven primarily by a simple motive: “To be brutally honest, of the books that might have been of interest to me, this one was the most affordable.” But something clicked when she handed it to him. “I remember thinking, ‘You mean you don’t have to be J.P. Morgan to collect books?’” Today, that book–the seed of his collection–rests in a special box made by Cathy, on which she playfully embossed: “World’s Costliest Book.”

Miranker started collecting slowly, picking up rare and fragile editions of Conan Doyle’s books as he worked his way through the tech industry (with stops at Ardent Computer and NeXT Computer) and adjunct professorships at Columbia University and UC Berkeley. Ten years after getting that first Holmes book, Miranker’s grouping hit a critical mass, turning into a full-blown collection. The tipping point came around 1985, when he acquired the book collection of Marvin Epstein, a mathematician at Bell Labs in New Jersey and a prominent figure in the Sherlockian community.

“Marv had a secret weapon,” says Miranker. “From the ’60s through the early ’80s, he had a WATS line, which he burned up hunting down Sherlockian books.” Miranker counts Epstein, who was “unbelievably generous with his time and knowledge,” as one of his three gurus in Sherlockiana. The other two are Dan Posnansky, “a remarkably talented collector” who lives in Kennebunkport, Maine, and Peter Stern, an antiquarian book dealer in Boston and the world’s foremost dealer in Holmes material (among other specialties), who has supplied Miranker with a sizable portion of his collection.

Miranker’s passion for Holmes continued when he joined Apple in 1996 to help launch the iMac, eventually becoming the chief technology officer until he retired in 2004. Today, he sits on the boards of various organizations, including the Toronto Reference Library and the National Cryptologic Museum. (Cryptology is another passion of Miranker’s, which extends into collecting–he owns two Enigma machines, devices used by the Germans in World War II to encode messages.)

Aside from rare first editions with mint dust jackets, Miranker has collected autographed copies with special association value, original manuscripts and so-called pirated editions–books published in violation of copyright, without paying the author, which often happened to Conan Doyle due to the popularity of his books and the lax enforcement of the day. Miranker points out that some of this material first appeared in book form in these editions (most of the stories originally ran in the London-based Strand Magazine), such as the first American printing of The Sign of Four, published by Collier in 1891, which can be worth more than $10,000. He particularly treasures another pirated edition of this book, issued by the United States Book Company and signed by Conan Doyle himself–despite the theft of his intellectual property–to a Chicago department store magnate, Harlow N. Higinbotham (estimated worth: $50,000-$75,000). While Miranker generally stays away from translations, he is quite pleased with his Yiddish edition of The Sign of Four, published in Brooklyn in 1930....MORE
The other site most noted by the cognoscenti:
Always 1895

Wednesday, November 27, 2013

Thanksgiving and Beer

From a 2011 email to a friend:
So Thursday was beautiful and around 1:00 I said "I'd like a beer".
Rather than "Here let me get one for you" my interlocutor says "You and Samoset".
Being quick-witted I respond "Huh?"
And receive "You remember Samoset?"
"Uh, sure. Samoset, Squanto and Massasoit, right?"
"Look it up"

So I do.

March 16, 1621
The Pilgrims made it through that first winter, spring is coming and lo-and-behold so is one of the locals.
The Pilgrims grab their guns shouting "Indians, Indians" and he continues walking right into the middle of their camp and says:


After the Pilgrim version of "WTF" they say "Welcome".

The big guy responds "I am Samoset".

Time for another quick "WTF" before he continues:

"Do you have beer?".
Friday, the 16th, a fair warm day towards; this morning we determined to conclude of the military orders, which we had begun to consider of before but were interrupted by the savages, as we mentioned formerly. 
And whilst we were busied hereabout, we were interrupted again, for there presented himself a savage, which caused an alarm. He very boldly came all alone and along the houses straight to the rendezvous, where we intercepted him, not suffering him to go in, as undoubtedly he would, out of his boldness. 
He saluted us in England [English], and bade us welcome, for he had learned some broken English among the Englishmen that came to fish at Monchiggon [Monhegan Island], and knew by name the most of the captains, commanders, and masters that usually came. He was a man free in speech, so far as he could express his mind, and of a seemly carriage. We questioned him of many things; he was the fist savage we could meet withal. He said he was not of these parts, but of Morattiggon [Monhegan Island or Pemaquid, Maine], and one of the sagamores or lords thereof, and had been eight months in these parts, it lying hence a day's sail with a great wind, and five days by land. He discoursed of the whole country, and of every province, and of their sagamores, and their number of men, and strength. 
The wind being to rise a little, we cast a horseman's coat about him, for he was stark naked, only a leather about his waist, with a fringe about a span long, or little more; he had a bow and two arrows, the one headed, and the other unheaded. He was a tall straight man, the hair of his head black, long behind, only short before, none on his face at all; he asked some beer, but we gave him strong water and biscuit, and butter, and cheese, and pudding, and a piece of mallard, all which he liked well, and had been acquainted with such amongst the English.
- Mourt's Relations, Edward Winslow, 1622
 (damn near contemporaneous, eh)
There is no record of Samoset being at the harvest feast of 1621 but he helped make it happen so that 213 years later, in ca. 1934, Macy's could do this:
-The Macy's Thanksgiving Parade Balloons Used to Be Extremely Creepy

"Global Oil Supply Ready to Grow: Morgan Stanley"

From Barron's Focus on Funds column:
Well, this would be good news for the global economy if it bears out.

The potential for an expanding global crude oil supply is “greater than at any point in recent memory, leaving the outlook for oil prices skewed to the downside over the next few years.”
That’s according to Morgan Stanley commodity strategists Adam Longson and Alan Lee, who this morning forecast Brent crude oil’s price to average $103 a barrel during 2014 before falling to $98 during 2015.
Over this period, non-OPEC crude growth should “far outpace demand,” they write:

Downside risk concentrated in 2014/2015. Our field-level analysis shows global supply growth is front-end loaded and should be most challenging for global oil balances in 2014 and 2015 given the resolution of supply outages (mostly in OPEC) and ongoing growth in North America and Brazil. An improved USD outlook only compounds the challenge. However, US shale is simply the latest iteration in the long run oil cycle and will not solve the world’s energy problems. As we look to the second half of the decade, heavy decline rates at tight oil plays and a leaner project slate result in slower supply growth and firmer oil markets....MORE
See also last year's "Goldman Sachs on Oil Prices to 2016 with Breakeven Prices For the Top 360 Projects".

"How Academia Resembles a Drug Gang"

From Alexandre Afonso:
In 2000, economist Steven Levitt and sociologist Sudhir Venkatesh published an article in the Quarterly Journal of Economics about the internal wage structure of a Chicago drug gang. This piece would later serve as a basis for a chapter in Levitt’s (and Dubner’s) best seller Freakonomics. [1] The title of the chapter, “Why drug dealers still live with their moms”, was based on the finding that the income distribution within gangs was extremely skewed in favor  of those at the top, while the rank-and-file street sellers earned even less than employees in legitimate low-skilled activities, let’s say at McDonald’s. They calculated 3.30 dollars as the hourly rate, that is, well below a living wage (that’s why they still live with their moms). [2]

If you take into account the risk of being shot by rival gangs, ending up in jail or being beaten up by your own hierarchy, you might wonder why anybody would work for such a low wage and at such dreadful working conditions instead of seeking employment at Mc Donalds. Yet, gangs have no real difficulty in recruiting new members. The reason for this is that the prospect of future wealth, rather than current income and working conditions, is the main driver for people to stay in the business: low-level drug sellers forgo current income for (uncertain) future wealth. Rank-and file members are ready to face this risk to try to make it to the top, where life is good and money is flowing. It is very unlikely that they will make it (their mortality rate is insanely high, by the way) but they’re ready to “get rich or die trying”.

With a constant supply of new low-level drug sellers entering the market and ready to be exploited, drug lords can become increasingly rich without needing to distribute their wealth towards the bottom. You have an expanding mass of rank-and-file “outsiders” ready to forgo income for future wealth, and a small core of “insiders”  securing incomes largely at the expense of the mass. We can call it a winner-take-all market.

Academia as a Dual Labour Market
The academic job market is structured in many respects like a drug gang, with an expanding mass of outsiders and a shrinking core  of insiders. Even if the probability that you might get shot in academia is relatively small (unless you mark student papers very harshly), one can observe similar dynamics. Academia is only a somewhat extreme example of this trend, but it affects labour markets virtually everywhere. One of the hot topics in labour market research at the moment is what we call “dualisation”[3]. Dualisation is the strengthening of this divide between insiders in secure, stable employment and outsiders in fixed-term, precarious employment. Academic systems more or less everywhere rely at least to some extent on the existence of a supply of “outsiders” ready to forgo wages and employment security in exchange for the prospect of uncertain security, prestige, freedom and reasonably high salaries that tenured positions entail[4].

HT: Fabius Maximus

The Corruption That is Russia

From the London Review of Books:
There are any number of paths and initiations into sistema, the liquid mass of networks, corruptions and evasions – elusive yet instantly recognisable to members – which has ordered the politics and social psychology of Russian civilisation since tsarist times. When I arrived in Moscow to work as a TV producer my initiation took the form of a driving test. I would never pass, my instructor explained, if I didn’t pay a bribe (500 dollars, but soon to double; I should get a move on). When I protested that I wanted to pass the test for real he said the traffic police would fail me until I paid up. He was a friend of a friend of my parents and I was told by everyone I knew that he was trustworthy. I gave him the money and he made the deal. I had assumed I would receive the licence in an envelope. To my surprise he told me to go to the traffic centre to take the test along with everyone else. The theory exam was held in a large, bright room with brand-new computers. There were around twenty of us working through on-screen simulations of various driving scenarios. I now decided, rather relieved, that my bribe had been lost in the works and set about using my common sense to get through the test. I got a handsome 18/20, enough to pass. Later I realised that every computer in the room had been rigged for an 18/20 result: everyone had paid.
Then came the practical, which involved a sequence of manoeuvres round cones in a car park. I got into a car, an instructor’s model with two sets of pedals, next to a traffic cop in uniform. He told me to start the car. I was so nervous, and had completed so few lessons, that I couldn’t master the pedals and kept stalling. The traffic cop smiled, glanced over his shoulder, and took control of the car. ‘Put your hands on the wheel and pretend to drive,’ he told me. While he ran the vehicle from his set of pedals I cruised around with an inane grin. After a while I thought: this is almost like driving. It was the system in miniature – the strange intermeshing of corruption and scrupulousness (you did have to go through the motions of the test), the role of officialdom as both obstructor and enabler, the co-option and the simulation.
Everyone talks – we all talk – about sistema but the first person to pay it attention and try to define it academically is Alena Ledeneva in her book Can Russia Modernise? Towards the end, a sistema player recounts a formative experience:​
I was about 12 and went to a sports camp. My friends were fishing near the camp and wanted to cook fish soup on the fire, so I went to the kitchen to ask for a saucepan and a couple of potatoes. I knew a girl in the kitchen and she gave me a saucepan and told me to pick up some potatoes from the cellar. As I was coming out of the cellar with four potatoes in the saucepan I bumped into the director of the camp. He decided I was a potato thief at once. Everyone was scared of him and I guess the kitchen girl denied her involvement. I was grounded to ‘think about my behaviour’ but remained fairly confident that I had done nothing wrong. By the evening of that day a man passed by, flipped his ID and introduced himself as a security officer. He threatened to lock me away as a young offender if I didn’t confess to the wrongdoing. I cried through the night and into the next day. Others were instructed not to talk to me, until one morning, an elderly trainer came over and spoke to me like a good cop. He said he understood I didn’t mean it and I didn’t do it, he said, the man who threatened me was only some friend of the director; and he said it would be easier for everyone if I simply apologised – then everything would be back to normal. He looked old, wise and trustworthy, and I couldn’t bear my isolation any longer, so I gave in. My memory blocked how exactly the apology went, but I felt shame, fear and disgust when I saw the director in subsequent years. This was what sistema did to ‘initiate’ people – it made them lie: to accept responsibility for what one didn’t do and vice versa; to compromise oneself by wrongdoing in order not to get others into trouble, to apologise for what one didn’t do in order to be allowed to break free and enjoy life. Yet one never breaks free from sistema.
For many young men initiation comes through the army, the subject of one of my documentary projects for Russian TV. A year of national service is in theory mandatory for males between 18 and 27 (with some exceptions), but anyone who can avoids it. The most common way out is a medical certificate. Some people play mad and spend a month at a psychiatric clinic. Their mothers bring them in. ‘My son is psychologically disturbed,’ they say, even though they know the doctors know they are pretending....MORE
HT: naked capitalism 

French La Poste to offer 3D printing service, starting with three offices

The EU, and EU members, are quite serious* about advanced manufacturing and although the end products in this article are kid stuff the Europeans probably have the lead in metalworking applications. Something for the Anglosphere to think about.

La Poste, the mail service of France, announces today that it is set to launch a trial version of its new 3D printing service at three post offices: "Hôtel de Ville" in Boulogne-Billancourt, "Bonne Nouvelle" and "La Boétie" in Paris.

"The goal is to offer our customers access to 3D printing and show them what 3D printing technology is. A lot of people have heard about it but never know specifically what it is." said Philippe Bajou, Director General of La Poste.

La Poste will conduct this experiment for six months, and analyze how the general public and professionals react to this new offer.

In each office two postal workers have been trained to use the printer "and to help customers make the right technical decisions." says the company.

Customers will be able to order small custom 3D printed items from a catalog, such as smartphone cases, card holder, jewelries etc. They could also customize the items to their own need, or bring their own 3D files to the office to get them printed.

Same as the UPS 3D printing service in the U.S, the French post office will also provide dedicated service to professionals, SMEs and start-ups. La Poste has partnered with Sculpteo, the French 3D printing company to provide printing service for complex 3D models, prototypes, parts or gadgets....MORE
*Here's the European Commission's Advanced Manufacturing Technology Task Force homepage.
The Task Force aims to get industrial production to 20% of euro GDP by 2020.
Here's EurActiv from last week:
3D printing needs rapid attention of EU Commission

Oil: We Now Resume Our Regularly Scheduled Decline

Still betting on lower U.S. prices, there is just so much of the stuff sloshing around. $92.39 last.

"U.S. oil falls to 5-month low ahead of data; WTI-Brent spread hits USD18"
U.S. oil futures fell to a five-month low on Wednesday, as traders looked ahead to key U.S. economic reports as well as data from the U.S. government on oil and fuel supplies later in the day.

On the New York Mercantile Exchange, light sweet crude futures for delivery in January traded at USD92.62 a barrel during U.S. morning trade, down 1.15%.

New York-traded oil futures fell to a session low of USD92.53 a barrel earlier, the lowest since June 3. The January contract settled 0.44% lower at USD93.68 a barrel on Tuesday.

Oil futures were likely to find support at USD91.37 a barrel, the low from June 3 and resistance at USD94.69 a barrel, the high from November 26.

Wednesday’s government report was expected to show that crude oil stockpiles rose by 600,000 barrels last week, while gasoline inventories were forecast to increase by 260,000 barrels.

After markets closed Tuesday, the American Petroleum Institute, an industry group, said that U.S. crude inventories rose by 6.9 million barrels in the week ended November 22, while gasoline stockpiles increased 200,000 barrels....MORE
The last 24 hours via FinViz:

Fed Reveals New Concerns About Long-Term U.S. Slowdown

If we go into a steady-state economy you probably don't want to be net long.
From Bloomberg:
Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects even as they forecast faster growth in 2014.

Worker productivity, a key component of an economy’s health, has risen at an annual clip of 1 percent during the last four years, as the U.S. has struggled to recover from the worst recession since the Great Depression. That’s less than half the 2.2 percent average gain since 1983, according to data from the Labor Department in Washington.

“Slower growth in productivity might have become the norm,” the central bankers noted at their Oct. 29-30 meeting, according to the minutes released last week. That’s a switch from past comments by Bernanke that the deceleration probably was temporary and would end as the expansion continued.

A combination of forces may be at work. Chastened by the deep economic slump, corporate executives have reduced spending plans for factories, equipment, research and development. Startup businesses have been held back as would-be entrepreneurs find it harder to get financing from still-cautious lenders. And out-of-work Americans have seen their skills atrophy the longer they’re without jobs.

“We’re in a slow-growth period of unknown duration,” said Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel prize in economics....MORE

Looking Ahead: Corn price 'to return near to $5 a bushel', SocGen

$4.275 up $0.0275.
This year's most accurate forecasters, on both direction and magnitude, were Macquarie and Deutsche, we'll get to them next week.
From Agrimoney:
The pullback in the corn market to three-year lows will prove a temporary setback, with futures "to return to nearly $5 a bushel" by the end of 2014, Societe Generale said, foreseeing corn prices far outperforming those of soybeans.
The bank, which was ahead of the curve in foreseeing the fall in corn futures from August 2012 highs, said that investors were now underestimating price potential, flagging the boost that lower values will give to consumption by the likes of ethanol plants and livestock feeders.
"While the market is focused on the sheer volume of the US harvest after a year of volatile production estimates, we contend that the true focus should be shifted to the demand side of the crop balances," SocGen analyst Christopher Narayanan said.
"Demand has been notable in the first quarter" of the 2013-14 marketing year, which began in September.
"US exports continue to outpace even the latest US Department of Agriculture revision.
"Further, we note that the drop in feed prices, and continued shortage of cattle, has encouraged higher poultry egg sets and higher pork production given gains in margins on consumers shifting to cheaper meats and lower input costs."
Soybeans vs corn
As an extra boost, South American output of corn looked likely to be constrained by the relatively low price of corn compared with soybeans, an alternative crop for the current planting window, and indeed the default choice for growers in Argentina and Brazil....MORE

Tuesday, November 26, 2013

"Goldman Sachs Explains How To Make Money In 2014, Parts One And Two"

From DealBreaker:
First, put all of your money into S&P index funds and short bets against the Australian dollar. Guaranteed* 13% return.

Second, put all of your money into five-year Eonia bonds and borrow as many five-year Treasuries as you can find and sell them. No guaranteed return, at least according to MoneyBeat.
“Currently, a very accommodative monetary policy stance is largely priced in in the U.S., while the market is underestimating the possibility that the European Central Bank can provide further easing, even by cutting the deposit rate below zero,” Goldman wrote in a note to clients about this trade.
“All told, we see room for markets to re-price U.S. rates higher during 2014 without much spillover into euro rates,” the bank said.

"On the ECB and EONIA"

"Why not lie? Costs enforce honesty in an experimental signalling game"

From Proceedings of the Royal Society-B:
Communication depends on reliability. Yet, the existence of stable honest signalling presents an evolutionary puzzle. Why should animals signal honestly in the face of a conflict of interest? While students of animal signalling have offered several theoretical answers to this puzzle, the most widely studied model, commonly called the ‘handicap principle’, postulates that the costs of signals stabilize honesty. This model is the motivating force behind an enormous research enterprise that explores signal costs—whether they are physiological, immunological, neural, developmental or caloric. While there can be no question that many signals are costly, we lack definitive experimental evidence demonstrating that costs stabilize honesty. This study presents a laboratory signalling game using blue jays (Cyanocitta cristata) that provides, to our knowledge, the first experimental evidence showing honesty persists when costs are high and disappears when costs are low.

Gold Miners: What a Long Strange Trip (GDX; GDXJ)

A picture is worth a kiloword:
 Chart forMarket Vectors Gold Miners ETF (GDX)
5-year chart from Yahoo Finance

The Junior Miner ETF is even worse, all-time lows:
Chart forMarket Vectors Junior Gold Miners ETF (GDXJ)

"Cash Costs A Better Indicator Of Pressure On Gold Mining: Citi" (GDX; GDXJ)

A subject near and dear, links below.
From Value Walk:
Gold mining operations have been under severe pressure for years, and major companies have burnt through $11 billion in the last decade, but that hasn’t stopped mines from increasing production, raising the gold supply by 10% between 2009 and 2012. Normally you would expect cost pressures to force some mines to halt production, but Citi analyst Jon Bergtheil thinks that cash costs may be a better indicator of short-term pressure than all-in costs.

Gold miners failed to cut costs
“Gold miners have failed to cut costs quickly enough to keep up with the fall in the gold price. Indeed, Citi equity analysts calculate that average all-in costs production costs decreased by 6.1% y/y in H1 2013 to $1,666/oz, while average spot gold prices fell at a faster rate of 7.4% to $1,530/oz. during the same period,” writes Bergtheil. “We estimate that practically the entire global gold industry is cash-burning on an ‘all-in’ cost basis.”
gold all in costs

Gold: All-in cost

All-in costs include everything from CAPEX and exploration costs to taxes, but a lot of the time these costs are overhead that mining operations can’t get out from even if they halt operations. This is the comparison that has a lot of people worried about the industry. Looking only at cash costs, a more reasonable picture emerges.

This doesn’t mean that all-in costs aren’t relevant, and they’re still a good indication of the long-term health of the sector, but cash costs seem to be a better indicator of gold production in the short term. This implies that gold’s spot price will have to keep falling before miners start pulling back on supply, and while Bergtheil doesn’t think gold will fall below $1000/oz, he concedes that it is a possibility. Above ground inventory has also been increasing, meaning that even if miners do reduce production there will be a significant delay before the reduction is able to support prices.

Something unexpected could always send investors back to gold as a defensive measure, but with falling prices and a still increasing supply, it looks like gold’s bear market hasn’t completely played itself out just yet, causing Citi to rate the sector as a whole as neutral.
Nov. 18 
This is what Izzy was warning against in last week's Alphaville post "The gold producer wild card".
Which brought out the dimwits:
Scipio78 | November 14 1:55pm | Permalink
This post is nonsense. The real "all-in cost" of mining gold is about $1100oz for most producers. On new mines (usually in Africa or Latam with little infrastructure and greedy politicians) it can be about $1500-1600oz. For many gold miners current spot prices are about breakeven, if spot were to go below $1k, they would not hedge .... they would close down!! 
It isn't the all-in cost that matters here, companies will forgo capex, environmental remediation and a half-dozen other components of "all-in".
What matters is cash costs. What do they have to pay the miners? What is this month's electrical bill? etc....
Nov. 12 
Sept. 23 
One thing to keep in mind, there are a few measures of 'cost of production'.
As the Financial Times put it a on Monday in "Gold mine measure ‘to reflect true costs’":
Gold is being mined by some of the world’s biggest producers at costs that are higher than the price of the precious metal, according to a new measure that may become a benchmark of industry efficiency for companies and investors.

Several miners reporting earnings in recent weeks have revealed “all-in sustaining costs” of production of more than $1,200 per troy ounce, the price to which gold dropped this year. Some have shown an AISC of more than $1,400. Gold ended last week at $1,314 per ounce, having fallen more than 5 per cent during the week.
The AISC measure intends to show more clearly the full costs of getting gold out of the ground. Its adoption comes as this year’s sharp fall in the price of the precious metal has put the industry under more pressure than it has known for almost a decade and heightened investors’ interest in miners’ true profitability.
Goldminers, like other miners, have traditionally used “cash cost” – showing the cost of running a mine to produce a given amount of a metal – as a benchmark of their operating efficiency.

However cash cost measures have disregarded other expenses, from general office spending to some of the capital that must be spent to develop a mine, to keep it in production or to rehabilitate a site at the end of its life....MORE 
Although the new measurement is closer to reflecting financial reality and thus more honest in reporting, you can bet that some managements will use the cash cost bogey at least for periods up to a year meaning that there will be more supply coming out than if one used the AISC number.
June 26 
April 18 

Stratfor: "Israelis, Saudis and the Iranian Agreement"

No, they did not pinky swear to be BFF's. But they do have some aligned interests.
From Stratfor:
A deal between Iran and the P-5+1 (the five permanent members of the U.N. Security Council plus Germany) was reached Saturday night. The Iranians agreed to certain limitations on their nuclear program while the P-5+1 agreed to remove certain economic sanctions. The next negotiation, scheduled for six months from now depending on both sides' adherence to the current agreement, will seek a more permanent resolution. The key players in this were the United States and Iran. The mere fact that the U.S. secretary of state would meet openly with the Iranian foreign minister would have been difficult to imagine a few months ago, and unthinkable at the beginning of the Islamic republic.

The U.S. goal is to eliminate Iran's nuclear weapons before they are built, without the United States having to take military action to eliminate them. While it is commonly assumed that the United States could eliminate the Iranian nuclear program at will with airstrikes, as with most military actions, doing so would be more difficult and riskier than it might appear at first glance. The United States in effect has now traded a risky and unpredictable air campaign for some controls over the Iranian nuclear program.

The Iranians' primary goal is regime preservation. While Tehran managed the Green Revolution in 2009 because the protesters lacked broad public support, Western sanctions have dramatically increased the economic pressure on Iran and have affected a wide swath of the Iranian public. It isn't clear that public unhappiness has reached a breaking point, but were the public to be facing years of economic dysfunction, the future would be unpredictable. The election of President Hassan Rouhani to replace Mahmoud Ahmadinejad after the latter's two terms was a sign of unhappiness. Supreme Leader Ali Khamenei clearly noted this, displaying a willingness to trade a nuclear program that had not yet produced a weapon for the elimination of some sanctions.

The logic here suggests a process leading to the elimination of all sanctions in exchange for the supervision of Iran's nuclear activities to prevent it from developing a weapon. Unless this is an Iranian trick to somehow buy time to complete a weapon and test it, I would think that the deal could be done in six months. An Iranian ploy to create cover for building a weapon would also demand a reliable missile and a launch pad invisible to surveillance satellites and the CIA, National Security Agency, Mossad, MI6 and other intelligence agencies. The Iranians would likely fail at this, triggering airstrikes however risky they might be and putting Iran back where it started economically. While this is a possibility, the scenario is not likely when analyzed closely.

While the unfolding deal involves the United States, Britain, France, China, Russia and Germany, two countries intensely oppose it: Israel and Saudi Arabia. Though not powers on the order of the P-5+1, they are still significant. There is a bit of irony in Israel and Saudi Arabia being allied on this issue, but only on the surface. Both have been intense enemies of Iran, and close allies of the United States; each sees this act as a betrayal of its relationship with Washington.

The View from Saudi Arabia
In a way, this marks a deeper shift in relations with Saudi Arabia than with Israel. Saudi Arabia has been under British and later American protection since its creation after World War I. Under the leadership of the Sauds, it became a critical player in the global system for a single reason: It was a massive producer of oil. It was also the protector of Mecca and Medina, two Muslim holy cities, giving the Saudis an added influence in the Islamic world on top of their extraordinary wealth....MUCH MORE

"On the ECB and EONIA"

From International Financing Review Asia:
Divyang Shah projects the December meeting.
The market is searching for clues as to the outlook for ECB policy but they are finding little answers from either ECB speakers or informed source based articles. We are likely to see the uncertainty persist into the December ECB meeting next week where the outcome is as predictable as what was seen in November.

The fact is that the ECB itself does not know and while the latest source story suggests that there is no consensus this could change once the ECB members gather around the table. This is what happened in November and the same risks are in play for the December meeting where we reiterate the propensity of the ECB under Draghi to surprise and further measures at the December meeting should not be ruled out.

We get the latest update on inflation this Friday with the flash release for November and next week we will get updated ECB staff projections for growth and inflation. Neither are likely to change the ECB view on inflation and it might be that they decide to keep the prospect of a negative deposit rate and a further refi rate cut in play even if we are talking about a further 10bp reduction.

More of a pressing matter is whether the ECB wants to strike early with regards to excess liquidity. We are already seeing a jittery market with regards to EONIA and the inability to fully sterilise the SMP only adds to concerns over the liquidity environment; even if such concerns are unfounded and likely related to month/year end considerations (see below)....MORE

"For the third time in 134 years, this will be the world’s most expensive book"

From Quartz:
Today, at 7pm New York time, the most expensive book ever will be auctioned off at Sotheby’s. The 1640 text is a rare translation of biblical Psalms, the Bay Psalm Book. It’s the first English language book ever printed in North America and is expected to fetch between $15-$30 million. From an initial printing of 1,700, there are eleven surviving copies.
Page from the Bay Psalm BookSotheby's
The two previous sales of the the Bay Psalm Book were the most expensive book sale at the time. In 1879, when rail magnate Cornelius Vanderbilt paid $1,200 for a copy and broke records for book auctions in the US. Then in 1947, book collector Abraham Rosenbach bought the last copy of the Bay Psalm book sold for $151,000 on behalf of Yale University....MORE

"Platinum deficit to widen while prices decouple from gold"

More on HSBC's platinum call.
Pt $1,378.7, Au $1,245.00
From Mineweb:

According to HSBC, the metal’s long term outlook is bullish, but it has been more influenced by gold prices this year than expected.  
The deficit between platinum supply and demand should widen to nearly 889,000oz this year before narrowing to around 402,000oz in 2014, HSBC says.

But, this doesn’t mean necessarily that platinum prices will head higher. According to the bank, while it expects the tight supply picture to drive prices in the future, it has cut its average price forecasts for this year and next to $1,500/oz  and $1,625/oz respectively from 1,580/oz and 1,725/oz.

Part of the reason for this, the bank writes in its latest Platinum Group Metals Outlook publication, is that the metal has been more influenced than it expected by the recent falls seen in gold, which it says will likely pull average platinum prices lower than might otherwise have been the case.

But, the bank writes, tighter fundamentals in the platinum market over the course of the next year are expected to see the metal shake off the yellow metal’s influence and increasingly decouple from gold.
Adding that a rotational shift out of commodities and into equities has also taken a toll on platinum prices this year, the bank argues that another reason for the lack of decisive upwards movement (despite a significant deficit seen so far this year) is that the availability of above-ground stocks, may be larger than is generally believed.

But, it writes, “While above-ground stocks may be currently ample to finance the production/consumption shortfall in the platinum market, we believe that persistent deficits going forward will eventually drive prices higher. Currently low lease rates imply there is no immediate shortage of platinum.”

On the demand side, the bank does not expect the recently launched South African platinum ETF to enjoy quite the same level of success in 2014 as it has enjoyed this year (HSBC raised its forecast for ETF increases in 2013 to 750,000oz) but it does expect ETF demand to continue to grow. It expects ETF demand to rise by 150,000oz in 2014.

Demand for autocatalysts is also expected to grow in stature in 2014, as “moderating but still strong demand in the US and China” complements a mild recovery in demand from Europe....MORE
If You Absolutely Have to Have Precious Metals Exposure, Consider Platinum (HSBC)

Oil Market Goings-on During the 2008 Price Spike

I can't recall a situation in commodities that led to more polarization between market participants and the academics we depend on ex post facto to tell us what happened.

I'd get in arguments that something very strange was going on in the complex and the economists would get vitriolic in their insistence that prices were simply being driven by classic supply and demand and anyway where were the storage builds and I'd posit in situ storage and the econ guys would laugh and when it was over I'd show them a chart of the action:
Ten Year Oil Chart
And I'd laugh and point out that this sure looked like a bubble and that guys smarter than I, Wilbur Ross, George Soros and Paul Tudor Jones for example, had thought it was a bubble and bet accordingly and....good grief, who has time for all the jaw, jaw, jaw to swipe Churchill's locution and speaking of journalists one of the few who got that '08 was an anomaly was Izabella Kaminska and here she is again with  a sweet find of a paper.

From FT Alphaville:
The role of dark inventory in the commodities bull run of 2008
We’ve argued before that the 2005-2007 commodity bull-run could have been the product of an unwitting self-manufactured squeeze, as the industry rushed to monetise as much inventory as possible to benefit from higher than usual interest rates and as inventory levels dropped. (All pretty much unwittingly, of course.)
As prices increased, the economy choked.
But here’s an interesting addition to that view by way of Ing-Haw Cheng and Wei Xiong in a paper on the financialization of commodity markets. As the researchers note it’s entirely conceivable that as the economy began to choke from 2007 onwards (and in some cases even earlier), what appeared to the world to be tight inventory levels justifying higher prices, were in fact sufficient stores given the demands of the system at the time.
The final price hike therefore may have had little to do with insufficient supply, and more to do with the speculative inflows from other classes seeking diversification and principal protection in the wake of the housing asset collapse.
From the authors:
While no one doubts the importance of the theory of storage, the dramatic increase in oil prices during the first half of 2008 presents a challenge for studies which attribute it to a rise in fundamental demand. Although strong oil demand from emerging markets such as China drove prices to high levels before 2008, oil prices further increased by 40% in the first half of 2008 before peaking at $147 per barrel in July 2008. During this period, oil inventory did not spike, leading many to conclude that the price increase during this period was driven by strengthening demand as it was before 2008.

However, major world economies such as the U.S. were falling into recession in late 2007, with the U.S. beginning its recession in December 2007 (as marked by the NBER). The S&P 500, FTSE 100, DAX, and Nikkei equity indices had peaked by October 2007; with the collapse of Bear Stearns in March 2008, the world financial system was facing imminent trouble. Growth in China was also slowing: year-on-year growth in China’s GDP peaked in mid-2007, and the Shanghai CSI 300, MSCI China, and broader MSCI Emerging Markets equity indices peaked in October 2007.

With the benefit of hindsight, it is difficult to argue that the growth of the emerging economies, themselves slowing, was strong enough to more than offset the weakness in the developed economies to push up oil prices by over 40% in half a year. The puzzle is then how perceptions of demand could have strengthened in early 2008. Explicitly accounting for the informational role of commodity prices helps solve this puzzle....MUCH MORE
I think the authors and Izzy are being too kind to the oil traders but we'll leave it for now.

Looking For a $65 Million 36,000 Square Foot Unfinished Estate In Russia?

I'm sure there's a story here.
From Homes of the Rich:
Location: Russia
Square Footage: 36,188
Bedrooms & Bathrooms: 6 bedrooms & 7+ bathrooms
Price: $65,000,000
This newly built and unfinished estate is located in Russia. It features a 23,874 square foot main house, a 10,161 square foot indoor pool complex and a 2,152 square foot 8-car garage with staff accommodations. The main house features 6 bedrooms, 7+ bathrooms, 2 elevators, formal living and dining rooms, 2 gourmet kitchens, music room, home office and more.
It has that Fortress Moderne look:

Although it really, really doesn't compare with:

From our January 2011 post, Nice Shack: "RuLeaks posts photos of alleged 'Putin Palace'":
Quick, what's Vlad's net worth?
From Foreign Policy's Passport blog:
RuLeaks, a WikiLeaks type site owned and operated by the Russian Pirate Party, was shut down by a denial of service attack yesterday after posting photos of a lavish mansion alleged to be Prime Minister Vladimir Putin's estate on the Black Sea. The site, and the photos, are now back up. 
The existence of the "Putin palace" on the Black Sea was discussed by the Washington Post's David Ignatius in an article last year. According to Russian whistleblower Sergey Kolesnikov, the still under-construction digs cost more than $1 billion, include an amphitheater and three helipads and is being "predominantly paid for with money donated by Russian businessmen." Putin's spokesman denied the report, saying that the building has nothing to do with Putin.

From the photos, the place certainly looks fit for a Romanov, with frescoed ceilings, outdoor maze bushes, marble floors, and four-post beds. Bizarrely, a man who appears to be a construction worker with his face blacked out poses in a number of the shots. (He may want to read up on the fates of previous WikiLeakers.) RuLeaks' description of the photos coyly describes them as "photographs of a palace, which has recently been discussed in the press"....MORE
On the net worth question, check here

Monday, November 25, 2013

Climateer Line of the Day: Damn Gold With Faint Praise Edition

"Gold seems to anticipate monetary policy developments earlier than USTs. This is possibly because gold has, in the end, no intrinsic worth and no yield and is therefore hyper-sensitive to U.S. and global monetary policy."

HT: LearnBonds 

Update 8:01 a.m. EDT:

Just as equity is the longest dated paper and just as zero coupons have the highest convexity....

"Why Fed's taper is essential to stabilize agency MBS liquidity"

From Sober Look:
While we've discussed some of the economic implications of the Fed's current policy, let's now take a quick look at the impact of QE on the overall mortgage bond market.

Here is a simple fact: the amount of mortgage-related securities in the US has been declining since 2008 - after reaching just over $9 trillion at the peak.
Source: SIFMA

The reason is simple. With a large portion of all mortgages funded via the bond markets, the ongoing decline in total mortgages outstanding results in smaller MBS balances. Of course as the population grows and more homes are built (albeit very slowly) this trend should reverse.
And now with these market dynamics as the backdrop, put the Fed into the mix. At it's current pace the Fed is taking about half a trillion of MBS securities out of the market. In fact the Fed is now removing more than 100% of the paper that is being issued....MUCH MORE

Attention Managers, You Can Improve Corporate Efficiency by Randomly Promoting Employees

A repost from November 2010.

It sounds like a Dilbert strip but it's true.
From the abstract at Physics arXiv:
The Peter Principle Revisited: A Computational Study
...Here we show, by means of agent based simulations, that if the latter two features actually hold in a given model of an organization with a hierarchical structure, then not only is the Peter principle unavoidable, but also it yields in turn a significant reduction of the global efficiency of the organization.

Within a game theory-like approach, we explore different promotion strategies and we find, counterintuitively, that in order to avoid such an effect the best ways for improving the efficiency of a given organization are either to promote each time an agent at random or to promote randomly the best and the worst members in terms of competence. 
Here is the paper presented at Econophysics Colloquium 2009 (55 page PDF)
Here is the layman's version in the NYT's 9th Annual Year in Ideas:
Random Promotions
...They also tried alternately promoting the absolute best and absolute worst performers. That, too, worked out better than promoting on merit. The scientists say these strategies work because they harness "Parrondo's Paradox," a piece of game theory in which you win by alternating between two losing strategies. "In physics or game theory, this isn't new," says Andrea Rapisarda, a physicist at the University of Catania in Italy and a co-author of the study, which was recently published in the journal Physica A.

As Rapisarda points out, if you could know for sure that the people being promoted would excel in their new jobs, that would be the best strategy of all. But if you aren't sure — and in the real world, we rarely are — then random works better. 
HT: Improbable Research who awarded the authors the 2010 Ig Nobel Prize in Management for this work.

Wrap up: "Oil price reaction muted to Iran nuclear deal"

Following up on yesterday's "Société Générale: Initial Impact on Oil Prices From Iran Deal Should Be 'Muted'".
From the Financial Times:
Oil prices fell on Monday morning after Iran agreed the deal with world powers on its nuclear programme. As the market recovered, however, many traders are asking: why did they not move more?
The fate of Iranian sanctions, which have cut Iran’s exports in half over the past year and led Saudi Arabia to pump at unprecedented levels to fill the supply gap, has been a wild card for the oil market all year. 

As US shale production booms, some analysts had tipped a breakthrough on Iran to push oil below $100 per barrel, providing welcome relief to a global economy labouring under high energy prices.

Instead, market reaction to the deal has been muted. Brent, the international benchmark, fell by almost $3 to $108.05 per barrel before recovering, with prices remaining several dollars higher than when negotiations began in Geneva last week.

“In normal market conditions, when such a huge cloud over supplies leaves the market, you would expect a much bigger reaction,” said Miswin Mahesh at Barclays....MUCH MORE
Yes both the FT and the BloomPo headlines used the word muted which is a pretty good description.
The verb would have been very different had the agreement allowed a million barrels a day to come on the market. In that event the we'd probably be looking at:
 Nov. 6: 
If Iran can resume exporting 1mm bbl/day I'd look for a quick overreaction $20 haircut for both Brent and WTI ($105.62, $94.40). And then depending on how fast Saudi Arabia cuts production that should narrow to a $10 decline....
See also:
"Iran and the oil markets"