Thursday, April 27, 2017

How Maritime Insurance Built Ancient Rome

Yes, insurance, that's wot done it.

Pre-coffeehouse insurance mart

From Priceonomics, Mar. 18, 2016:
In Ancient Rome, shipping was a very big deal.
Sea voyages were a major economic activity—and a risky one. Ships sank, ran afoul of piracy, suffered delays due to weather, or arrived to find that prices were unexpectedly low. This made insuring and financing voyages the high finance of the time. Before there were private equity firms and hedge funds, there was cargo insurance. It was a speculative way for wealthy families and private banks to earn high returns—as long as ships arrived safely in harbor.
Today, however, the shipping industry no longer dominates the way it did in Ancient Greece and Rome or 18th century London. Most people never consider the skyscraper-sized container ships that carry clothes, grain, and other cargo from one port to another. 
Nor do most people consider the $30 billion maritime insurance industry that insures that cargo for a few cents on the dollar against the possibility of, say, a giant container of cargo falling overboard in stormy seas—a calamity that befalls an estimated 2,000 to 10,000containers (much less than 1% of all containers) each year. 
But 2,000 years ago, cargo insurance was also essential to the survival of some of the world’s first great cities. Rome’s population was the largest in the Western world until 18th century London. Athens and other Greek cities grew large on the strength of their ports rather than landholdings. Without the Ancient Romans insuring trading ships, those cities would never have received enough food each year to become large urban centers whose accomplishments we still study and admire today. 
An Alternative to the Oracle
Maritime insurance is the oldest form of insurance by centuries. But it looked very different when it was sought by sailors crossing the seas that Odysseus had found so perilous. It was much more speculative.
Instead of paying a fee to insure their cargo, merchants funded their voyages with loans that also served as insurance. The loans had very high interest rates, because under the terms of the loan, if the ship sank or the voyage did not succeed, the merchant did not have to repay the loan. This practice, which dates back to at least 1800 BCE and Ancient Babylon, is known as “bottomry”—a reference to the fact that lenders could claim the ship itself if they were not paid back on time. 
In Chances Are… Adventures in Probability, Ellen and Michael Kaplan describe bottomry as an amalgam of modern financial concepts:
It is an arrangement that is easy to describe but difficult to characterize: not a pure loan, because the lender accepts part of the risk; not a partnership, because the money to be repaid is specified; not pure insurance, because it does not specifically secure the risk to the merchant's goods. It is perhaps best considered as a futures contract: the insurer has bought an option on the venture's final value.
Still, it’s clear that merchants and lenders used bottomry and maritime loans to minimize risk and maximize profit. In Ancient Greece, lenders demanded higher interest rates during stormy seasons. They also charged higher rates to unreliable borrowers like Aischines, a merchant whose reputation led Athens’ maritime lenders to say it was “less risky to 'sail to the Adriatic' than to deal with this fellow.”
Greek lenders did not jealously guard access to the best deals. Instead it seems that Athenian lenders spread the risk by investing and insuring small amounts in many voyages. Surviving records of maritime loans all show more than one lender per vessel. 
Historians believe that Greek merchants and lenders thought of the high interest rates as compensation for taking on the risk of the voyage failing. They also note that Rome copied the practice of bottomry from the Greeks, and a legal text from 500 AD, when the Empire’s capital had moved  to Constantinople, explicitly confirms that Romans equated high interest rates with paying for risk. At the time, Roman law capped interest rates at 12%. Yet as James Franklin notes in The Science of Conjecture, the law sanctioned higher interest rates in the case of maritime loans because “the price is for the peril.”
This is why historians consider bottomry and maritime loans to be the earliest form of cargo insurance....MUCH MORE
Possibly related:
"The Lost World of the London Coffeehouse"

There is so much business that has the coffeehouses back in the mists of their early history, Lloyd's and The Jerusalem for the maritime crowd, Jonathan's and Garraway's [#14 on map] for the stockjobbers. Unfortunately the instant piece doesn't go into much detail, I may have to put a post together. For now here's Jonathan Swift on the exchange crowd:

...Meantime, secure on Garraway cliffs,
A savage race, by shipwrecks fed,
Lie waiting for the foundered skiffs,
And strips the bodies of the dead."
Harsh.
(He lost money in the South Sea bubble)


From The Public Domain Review:...

...Here are the main establishments frequented by the stockjobbers and other denizens:

“The Vertue of the COFFEE Drink”: An Ad for London’s First Cafe Printed Circa 1652
The Men Who Brew Too Much: "Old Time Farm Crime: The Coffee Spies of the 1700s"
"The Coffee Houses of Augustan London"

These Are Not Good Days For ISIS

I'm pretty sure getting killed by a pig means no 72 virgins for these guys, no white raisins either.*
From IraqiNews:

Wild boars rampage in Kirkuk, leave 3 Islamic State members dead
Wild boar (representational photo)
Kirkuk (IraqiNews.com) Three Islamic State militants died late Sunday when wild boars attacked them in southern Kirkuk, a local source was quoted saying. 
The animals went on a rampage near a farmland in al-Rashad region, an Islamic State pocket 53 kilometers south of Kirkuk. They attacked the militants and left three killed, according to the source. 
Alsumaria News quoted the source saying that “Daesh (Islamic State) militants took revenge at the pigs that attacked the farmland,” but did not clarify the method....MORE
*Virgins? What virgins?
It is widely believed that Muslim 'martyrs' enjoy rich sensual rewards on reaching paradise. A new study suggests they may be disappointed. Ibn Warraq reports...
The Times also had the story, with a more alpha looking boar:
Isis fighters killed by wild boar as they hid waiting in ambush

And From the Telegraph:
Hackers flood Isis social media accounts with gay porn

"Synchronoss Technologies stock plummets 28% on departures from CEO and CFO; revenue warning"

My first thought was "Well that doesn't sound good"
My second was "Only 28%?"

Ha! That was in late pre-market with a half-hour to the open.

Here's MarketWatch:
Synchronoss Technologies Inc. SNCR, -47.24% stock plummeted 28.1% in premarket trade Thursday on news that the company's chief executive officer and chief financial officer are leaving the company to "pursue other interests" and a first-quarter revenue warning...MORE
CEO'a are a dime a dozen but when the CFO says adios it gets your attention.

"Time to Explore Alternative Ownership Structures for Network Effects Businesses including Twitter" (TWTR)

Following on the post immediately below on the hyper-Pareto accretion of revs to FB and the GOOG, an idea for the so-far loser in the platform wars.

From Continuations:
At Union Square Ventures, network effects have been central to our investment thesis for a decade. From an investor perspective network effects are one of the few, possibly the only, source of sustainable competitive advantage in a world where almost everything else can be copied quickly.

But we also early on recognized that this has the potential for setting up a deep conflict between companies that operate networks and the participants in those networks: the value to shareholders can be increased through rent extraction from the network. And with many network effects companies reaching near monopoly status the potential for harmful rent extraction has grown. Harm can come in many forms, such as directing too much attention towards commercial use or suppressing innovation.

One response to this problem of how to be a good steward of a network has been my advocacy for the Public Benefit Corporation. I participated in a session with Delaware legislators and spoke when the governor signed the PBC status bill into law. Since then our portfolio companies Kickstarter and Human Dx have both converted to PBC status. Effectively in each case they are making a commitment in their charter to be good steward of their respective networks not just for the benefit of shareholders but for the benefit of all.

But our exploration of alternative ownership structures for network effects businesses should not stop there. Much more experimentation is needed as well as an understanding of historic forms, which showed much more diversity than one would be led to believe from the current dominance of the singularly shareholder focused C Corporation.

I therefore strongly support the shareholder proposal to study alternative forms of ownership for Twitter.
Here are four examples of ownership structures that could and should be examined:

Co-operatives. These have played an important role in the creation of utilities of various kinds from grocery distribution to telephone networks. Generally the members contribute capital to build some piece of shared infrastructure.

Mutuals. Insurance is inherently a network effects business and many insurance companies started out as mutuals. These are similar to co-operatives and may have membership fees but tend not to require an initial contribution of capital....MORE
As for Zuck, Sergey and the gang, regulate them as public utilities.
Tomorrow I shall take on world peace.

Media: Problems With Revenue Flows and the Reason Ms Kaminska Wrote That FT Story

I thought she was just bored and we didn't link but now it appears the article was part of a business-side decision.

From King Lord Murph of Moz (I so hope that catches on) writing under his subsidiary title as founder/editor of FT Alphaville:

It seems Google and Facebook really are taking ALL the growth in ad revenue
It’s a big day in American digital ad land, with the publication of the Interactive Advertising Bureau’s year-end report for 2016.
You’ll find it here.

But before you delve into that, consider this tweet from Jason Kint.
Kint runs a thing called Digital Content Next, which is the key trade body for what is generally regarded as grown-up, mainstream media. They’ve even let the FT in as a member....MORE
"...But the fact is that we are going to have to revisit our content policy here on FTAV.
You’ll be glad to know we’ve made a start."

Wednesday, April 26, 2017

"What Do Germans Think of the Juicero?"

It's come to this, the Germans are making jokes, JOKES, at Silicon Valley's expense.

From The Awl:

Deutschland über us (now almost as strong as two human hands).
Despite the recently accepted honor of most important country in the world, Germany is a small place. Geographically, it is not even the size of Montana; its population (80 million very stern people) is about twice the size of California. At the same time, German speakers are very obsessed with the news: in parts of Germany and all of Austria, for example, the $7 price of a cup of coffee at a Kaffeehaus is justified because patrons can sit and nurse that coffee for ten hours while they read literally every single page of every single newspaper to which the Kaffeehaus subscribes precisely for that purpose. The result? When they run out of their own news (which they always do), Germans and Austrians keep up with news from all over the world — even when (prepare to spit out your breakfast cupcakes, Amis) that news doesn’t necessarily concern them.

And this means that even in a week when the Head Debutante of the West Wing shows up at a German women’s event and touts her daddy’s agenda (and gets reacted to extremely appropriately), there is still space in the German press for the most pressing issue in the world. (That was a pun, which is a German’s favorite method of humor, which is why Heidegger is so hilarious.) And the reason for the employment of that pun (explaining jokes is a German’s second-favorite method of humor) is that the German press still managed to weigh in on a certain American press…a juice press, that is. (GET IT? TWO USES OF THE WORD “PRESS.”)

What, pray tell, does the Teutonic media have to say about a certain $400 wifi-enabled kitchen gadget, one that squeezes juice out of pre-packaged packages of slightly thicker juice, with a unit of force that only people in Silicon Valley are meant to understand (despite it sharing a name with an actual unit of scientific measurement that measures something entirely unrelated to fruit juice) — a unit that, it turns out, is roughly equivalent to slightly less than the gripping power of two journalist hands? HAS THE JUICERO MADE THE GERMAN NEWS? HAS IT? HAS IT? HAS IT?
The answer is ja! First let’s check out jetzt (“now”), a Cool Young People’s Blog operated by the Süddeutsche Zeitung, aka the New York Times of Germany.
https://cdn-images-1.medium.com/max/800/1*ezfszFlWTwc1vM0QxG4Xjg.png
Screengrab: JETZT
This headline translates, loosely, thus: “The hipster juice press is all out of juice,” with juice having the same double meaning here that it does in English, GET IT? Why they didn’t go with the double meaning of press, which is also the same in their language and given our own media’s evisceration of the contraption, don’t know, but there you have it. Literally what it says is closer to “[With] the hipster juice press, the juice is turned off,” which, if you say it to yourself in a thick German accent, is indeed very funny. The piece itself is, as German humor tends to be when not punning, sandpaper-dry:
Anyone who quickly checks their pocket calculator to see just how much a glass of this juice costs will probably come to the conclusion that even Til Schweiger’s Hamburg tap water (at EUR 4,20 a liter) is almost a bargain. On the other hand: Normal juice presses don’t have WiFi — the end-all be-all argument of the Juicero’s adherents.
The best things about this paragraph, other than its reference to a pocket calculator and sick burns on Tils, the ill-fated bottled water venture of sexy German actor-man Til Schweiger, is lost in translation: the German word for “juicer,” Entsafter (ent-ZOFT-ur) literally means “de-juicer,” which, of course, is much more accurate; and, even better, the German expression I’ve translated to “end-all be-all” is Totschlag-Argument (TOTE-shlog-ar-goo-MENT), the first word of which literally means “death blow,” something I am betting Juicero founder Doug Evans would like to deal to the valiant hand-squeezers at Bloomberg that first broke this story.

Meanwhile, the Osnabrücker Zeitung — the functioning local newspaper out of the small Saxon town of Osnabrück — dispenses with both subtlety and puns, and wonders, simply:...MUCH MORE
All i can say in response is: Rocket Internet.
(note the subtlety symbolic use of red ink)

"The Statistics of Coin Tosses for Theater Geeks"

From JSTOR Daily:
Heads. Heads. Heads. Heads. Heads. Heads. Heads. Heads. Heads. Heads. Heads, again.

Tom Stoppard’s classic play Rosencrantz and Guildenstern Are Dead opens with two Elizabethan players, some well-stocked prop moneybags, and the flip of a coin that lands as heads. Again. And again. And again.

In Stoppard’s scene, the bit actors Rosencrantz and Guildenstern kill time during a production of Shakespeare’s Hamlet by betting on coin tosses. Guildenstern flips a florin and Rosencrantz predicts that it will land as heads. It does. Guildenstern spins another coin and it lands as heads again. After Rosencrantz has successfully bet heads 77 times in a row, Guildenstern proclaims that, “A weaker man might be moved to re-examine his faith, if in nothing else at least in the law of probability.” He ends up flipping heads 92 times in a row. Forsooth, what are the odds?

The likelihood of Rosencrantz and Guildenstern’s scenario actually happening is 1 in 5 octillion, a probability so small that it is practically impossible to imagine. According to NOAA’s website, it is more likely that a person in the United States will be struck by lightning four times in one year than repeat the results of Guildenstern’s coin tossing. The 92 heads in a row is, however, more likely to happen than randomly shuffling a deck of cards and discovering that they appear sorted.
More interesting than sussing out precise odds, however, are the premises of the scene. What makes it so absurd? What do we “know” about the probable outcome of tossing a coin that lets us “get” Stoppard’s joke? We know that the odds of a coin toss ought to be a 50/50, split between heads and tails, so surely there must be something wrong with the universe—something unfair?—for Rosencrantz and Guildenstern’s scenario to play out.

The Mystique of the Biased Coin
The toss of the coin functions as cultural shorthand. A flipped coin is assumed to be an unbiased way to pick between two possible outcomes, since both parties involved in the toss have an equal chance of winning.

So long as the coin is a fair coin, that is. A fair coin is one where either side of the disk has an equal chance of turning up, according to the probabilities worked out by the seventeenth-century Swiss mathematician Jakob Bernoulli. It means that one side can’t be favored, whether it’s inadvertent (say, the manufacture of the coin adds weight to one side, favoring a flip to one side over the other) or intentional (a two-headed coin). When an unfair coin is tossed, it conveys an unfair manipulation of the world to shift the odds in someone’s favor.

In other words, Guildenstern and other flippers of coins have a profound faith that odds of a coin toss are split 50/50, between heads and tails. Part of what makes Stoppard’s scene so compelling is that it plays to the audience’s skepticism that someone could win 92 tosses in a row by betting heads. Sure, Rosencrantz and Guildenstern’s epic coin tossing demonstrates that such a thing is possible, we tell ourselves—it’s just not very probable.

A Short History of Coin Flips 

https://daily.jstor.org/wp-content/uploads/2017/04/Roman_coin_2.jpg
Roman coin depicts the head of Emperor Caracalla (via Wikimedia Commons)
Tossing a coin to decide an outcome is nothing new. Since the Roman Empire and throughout the Middle Ages of Europe, a coin toss has offered a way to decide between two alternatives. Known as “heads or ships,” in reference to the images that appeared on the Roman sestertii, the coin toss was a children’s game of chance as well as a gambling game among the patrician elite. Legend has it that Julius Caesar would settle legal disputes with a coin toss.

A medieval variant called “cross and pile” was a favored game for children (and even young apprentices) during the Middle Ages. In the late thirteenth-century, King Edward II’s own exchequer records the royal losses of “cross and pile” when the king played against domestic servants.

In more recent eras, the coin became linked to probability, statistics, and mathematical modeling. In the eighteenth century, for example, famed mathematician and naturalist Georges-Louis Leclerc, count de Buffon, tossed a coin 4,040 times, which resulted in 2,048 heads, or very close to half the throws. (The relative frequency was ~.5069.) In the early twentieth century, the English mathematician Karl Pearson tossed a coin 24,000 times, with 12,012 of the throws coming up heads. (The relative frequency of Pearson’s experiment was ~.5005, even closer to the 50/50 odds we associate with a fair coin. Following such demonstrations, the coin became, in essence, the smallest random number generator available....MUCH MORE
Previously:
Think a coin toss has a 50-50 chance? Think again.
Gamblers Take Note: The Odds in a Coin Flip Aren't Quite 50/50

Oil: "WTI/RBOB Jump On Largest Crude Draw In 2017 Offset By Major Product Build, Rising Production "

WTI up 34 cents at $49.90.

From ZeroHedge:
WTI/RBOB prices were at the lows of the day after last night's huge surprise inventory data from API, but kneejerked higher after DOE reported a surprisingly large crude draw (the biggest since Dec 2016. However, it's clear that refineries are on fire as gasoline and distillates inventories surged by the most in at least 3 months. US crude production rose once again to its highest since August 2015.
API
  • Crude +897k (-1.75mm exp)
  • Cushing -1.971mm - largest since Feb 2014
  • Gasoline +4.445mm (+500k exp) - largest since Jan 2016
  • Distillates -36k
DOE
  • Crude -3.64mm (-1.75mm exp) - biggest since 2016
  • Cushing -1.203mm
  • Gasoline +3.369mm (+500k exp) - biggest in 3 months
  • Distillates +2.651mm (-1mm exp) - biggest since first week of Jan
As Bloomberg notes, the U.S. refining system is absolutely on fire: up another 347,000 barrels a day last week to 17.3 million barrels a day processing. It's huge. And that explains the major builds in products (gasoline/distilates) and surprise draw in crude...
...MORE

Waymo vs. Uber: 8 Things I Learned From Anthony Levandowski Taking the 5th

As noted in April 1's "Uber: Judge Says He May Grant Waymo's Request For An Injunction Against Uber's Self Driving Efforts":
From the introduction to yesterday's "In Waymo v. Uber, honing the craft of litigation gamesmanship" (GOOG):
I was going to put something together on Anthony Levandowski's use of the 5th amendment in a civil matter and some of the implications of doing so but didn't get to it. In the meantime here is a look at some high-buck lawyering and tactics of litigators...
I was thinking more along the lines of inferring guilt--in a criminal proceeding an inference from the assertion of the 5th amendment right is strictly verboten and judges so instruct the jury, whereas in most state courts (California being a notable exception) and U.S. federal court,  a civil pleading of the 5th may be assumed to be an admission of guilt.

But yeah, another implication is: if you piss off a tech savvy* federal judge you've got a problem....
Here's today's headline story from the brainiacs at IEEE Spectrum:
In February, Google’s self-driving car spin-out Waymo accused Anthony Levandowski of stealing 14,000 confidential files about the laser-ranging lidars developed while he was working there and taking them to Uber. On Friday 14 April, the engineer sat down in the San Francisco office of Waymo’s lawyers to face six hours of hard questioning.

When asked what his current responsibilities were at Uber, Levandowski took the 5th, citing his right under the U.S. Constitution’s Fifth Amendment not to answer questions that might incriminate him. He plead it again to questions about whether he stole the files, and again when asked if he subsequently used the files to build lidars for Uber. In fact, he took the 5th over 400 times in the course of the day.

The transcript of the deposition, released on Friday, is predictably repetitious. Despite that, it is one of the most illuminating documents to emerge from the lawsuit so far, revealing Google’s early suspicions of Levandowski, details about key suppliers, previously secret code-names, and technical details of the lidars in question. Here’s what I learned, and how:

1. Questions can be just as informative as answers
Although Levandowski’s answers were identical, I learned a lot from Waymo’s questions. It seems Waymo now thinks that Levandowski was deceiving Google almost from the moment it hired him to work on Street View maps project back in 2007. Google first had concerns when it found out that Levandowski was working with his own start-ups, 510 Systems and Anthony’s Robots, to build a self-driving car, as first revealed in IEEE Spectrum.

“When Google discovered that you were involved in 510 Systems and Anthony’s Robots, it was concerned about potential conflicts,” said Waymo’s lawyer, David Perlson. “You used confidential information from Google to help develop technology at 510 Systems; correct?” He went on to accuse Levandowski of using Street View code to calibrate 510’s Velodyne lidar, and in the start-up’s self-driving car technology.

2. Levandowski names his lidars after mountains
Perlson said that the lidar Levandowski built at 510 Systems was called Little Bear, after a mountain in Colorado. “The Fuji system at Uber is named after Mount Fuji,” he went on. “And the reason that the Fuji system at Uber is named after Mount Fuji is that it is derived from Google technology that was also code named with names of mountains.” Perlson revealed Google’s lidars are all named Grizzly Bear, probably after Grizzly Peak in Berkeley, where 510 Systems was based. The latest Waymo lidar is called Grizzly Bear 3 or GBR3.

3. The side hustles kept coming
Perlson accused Levandowski of controlling a company called Dogwood Leasing that hired ex-Google contractor and 510 Systems engineer Asheem Linaval to use Google’s secrets to develop self-driving car technology. Linaval was eventually hired to Levandowski’s autonomous truck start-up Otto, which Uber bought in 2016.

Waymo also accused Levandowski of founding yet another start-up, Odin Wave and feeding it confidential lidar technology. In 2013, one of Google’s suppliers called Google because it had received an order from Odin Wave that was similar to parts used by the technology giant. Perlson accused Levandowski of then moving Odin Wave and renaming the company Tyto, to hide his involvement....
...MORE

"Oil focus on EIA inventory report following slump"

From Saxo Bank's Head of Commodity Strategy:
  • EIA inventories report to be published at 1430 GMT
  • Tuesday's API print showed a near 1-million barrel build in stocks
  • Market still feeling the effects of last week's surprise gasoline build
  • WTI support at $48.80/b key to keeping door locked on $45.80/b move
Crude oil's latest 8% selloff was accelerated by a surprisingly bearish US inventory report last Wednesday. One week later and the 'Weekly Petroleum Status Report' from the EIA is once again the sole focus in the market. The weekly industry report from the American Petroleum Institute, released one day in advance of the official EIA report, once again cast some doubts on the outcome.

The API last night reported that US crude oil stocks rose by 897,000 barrels last week while gasoline jumped by 4.45 million barrels to the highest since January 20. A Bloomberg survey ahead of today's official EIA report has pinned expectations on a 1.75 million decline in crude oil stocks together with a small 500,000 barrel increase in gasoline.

WTI crude oil is holding above key support at $48.80/b ahead of the report. Failure to hold could see the market targeting $45.80/b. A move back above $50/b is likely to confirm our overall view that the market remains rangebound for now.
https://www.tradingfloor.com/images/article/max608w/5d8461ad-1615-4189-8ffe-6f621307d50a.png

The latest surveys carried out by Bloomberg shows the previous two results together with the price reaction following last week's bearish report (see below). The estimate on the weekly change in production slowed to 17,000 b/d last compared with an average increase of 30,000 b/d since last October....MORE
Front (June) futures $49.15 down 41 cents.

“All the best people left banking years ago”

I'm not sure why it does but the headline reminds me of some 1920's socialite coming in to work from Long Island on their commuter yacht. Here's a later vision/version of the species, 1937's "POSH":

https://indianrivertoday.files.wordpress.com/2013/04/iv-042213-wheels-6.jpg

From eFinancialCareers:
If you’re a young person starting in banking now, you might expect to find an industry replete with the wisdom amassed from various financial crises and filled with brilliant battle-worn managers. You could be disappointed. The way a lot of senior bankers tell it, the best people are long gone. All that remain are journey-men going about their business with neither fire nor flair.

“A lot of people who had successful careers – the most talented people of my generation – have left the industry to do other things,” said Kerim Derhalli, the ex-Deutsche MD who himself has exited banking to run Invstr, a social network for amateur investors, when we spoke to him earlier this year. “The people who are hanging on are getting paid less every year as margins and volumes collapse. Their incomes are falling and their lifestyles are having to adjust, but they stay because they’re still getting paid much more than they would doing a comparable job in a different industry.”

It’s a harsh appraisal and one that some say applies more to European than to U.S. banks. At Goldman Sachs, for example, the argument runs slightly differently – there are complaints that the three co-heads of the securities division, Pablo Salame, Isabel Ealet and Ashok Varadhan, became partners long before the financial crisis and should cede to new blood. By comparison, at the European banks which were burned by events in 2008, departing bankers complain that a generation of bureaucrats has taken control.

“European banks today don’t like entrepreneurs,” says a managing director who recently left Credit Suisse’s equities business after a career spanning two decades. “The people in charge are the chief operating officers and the accountants, not the dealmakers and the traders.” He says John Cryan, CEO of Deutsche Bank and a former CFO of UBS, is typical of this new regime: “It’s all about a safe pair of hands. Banks are being run by the people who were historically in the number two positions.”

Years of cost cutting haven’t helped. In their zeal for extracting expenses from the industry banks stand accused of mindlessly hacking the senior ranks. At Credit Suisse, Tim O’Hara, the former head of the markets business and an ex-COO of the fixed income division, allegedly had a policy of ditching 25% of the most senior people and cutting the balance sheet by a similar proportion. “This doesn’t work,” argues the ex-MD. “It makes more sense to keep the productive senior staff and to maximize profits for the growing regulatory cost base.”

To make matters worse, departing bankers argue that today’s junior recruits are less capable than yesterday’s. “When I went into banking [in 2000] my graduate class was comprised of the best students from the best universities in the world,” said Chris Yoshida, the former global head of rates sales at Deutsche Bank who’s now promoting the Kairos Society, an organization that helps young entrepreneurs change the world. “This is no longer the case – the very top students now want to work for Google and Facebook. Banks are attracting the students who are in the top 50% to 75% [instead of the top 25%].”...MORE

First Quarter Returns On U.S. Farmland Lowest In 25 Years

From Agrimoney:

California farmland returns shrink - even as rains return
The end of California's drought has not answered all its farmers' problems.

Returns for US farmland owners in 2017 made their weakest start to a year on records going back to 1992, according to data from Ncreif, the National Council of Real Estate Investment Fiduciaries.
At 0.49%, total returns for the January-to-March period undershot the 0.65% reported for the first three months of 2002 which had represented the lowest reading for a first quarter.

Declining Q1 returns on US farmland
2017: +0.49%
2016: +1.38%
2015: +2.08%
2014: +2.31%
2013: +5.44%
Source: Ncreif. Returns comprise both  price change and income

And the weak start to 2017 reflected a rare negative return in the Pacific West, which is centred on California and has been a star performer, helped by strong returns to the state's almond and tree fruit farmers.
"The Pacific West was the only region with a negative total return in the first quarter as permanent cropland lagged, which accounts for 179 of the 220 farmland properties [surveyed] in the region," Ncreif said.
Steep decline
The Pacific West's performance represents a marked turnaround on that in the last three months of 2016, when it offered the best returns of all eight regions in which Ncreif divides the US.
Indeed, the region has been a leading performer for the past five years, thanks to its focus on permanent crops such as apricots, avocados and peaches, rather than the annual produce, such as corn and soybeans, grown in the likes of the Midwest.
The state is responsible for two-thirds of US fruit and nut output, as well as more than one-third of vegetables output, according to official data.
Ncreif flagged an "extended divergence in total farmland returns by property type since 2012", with permanent cropland outperforming in a way "unique to this cycle" in the landmarket.
"Historically, total returns for these two categories are much closer as shown by the since-inception [1992] return for permanent cropland of 12.40% versus 10.60% for annual cropland."...
...MORE

Tuesday, April 25, 2017

Hemingway the Investor

From the Paris Review, March 24:

Papa the Investor
How Hemingway became a major shareholder in a venerable Italian publishing house.
Ernest Hemingway had a rough time with his Italian publisher, Einaudi, the venerable Turin-based house that still prints a good portion of his titles today. The issue, as is so often the case, was money: Einaudi, Hemingway complained, were communists looking for any excuse to withhold his overdue royalties. After 1947, he’d grown so exasperated that he refused to publish another book with them. So it’s all the more startling to discover that in the spring of 1955, he quietly agreed to convert a large part of his growing credit with the house into company stock, becoming a major shareholder overnight. Hemingway was usually very prudent with his money—and the chronically mismanaged Einaudi was hardly a safe investment. But having a stake in the publication of his own books, he hoped, would make it easier to get his hands on his growing pile of Italian cash.

As an author, Hemingway had gotten a late start in Italy. During the twenties and thirties, when the Anglophone world consecrated him as one of its brightest talents, he was persona non grata in the country. His blacklisting started as early as 1923, when Hemingway, still a young reporter for the Toronto Star, described Mussolini as “the biggest bluff in Europe.” In 1927, he wrote a few sardonic sketches on Fascist Italy for the New Republic. But it was the 1929 publication of A Farewell to Arms, with its antimilitarism and its powerful description of the rout of the Italian Army after Caporetto, that made him an enemy in the eyes of the Mussolini regime—a reputation further sealed by his support for the Republican cause in the Spanish Civil War.

Thus Hemingway’s books were banned in Fascist Italy even as the works of other American writers, such as Sinclair Lewis, William Faulkner, John Steinbeck, and John Dos Passos, were brought into translation with success and acclaim. But as soon as Mussolini fell, in 1943, publishers scrambled to buy up the translation rights to his novels. The first Italian edition of The Sun Also Rises was published by a little-known company, Jandi Sapi, in the early summer of 1944, only weeks after General Mark Clark’s troops liberated Rome. A Farewell to Arms, For Whom the Bell Tolls, and To Have and Have Not came out in quick succession with different houses the following year, immediately after the liberation of Northern Italy. The translations were hurried and the first editions sloppy; it was unclear which house owned which rights, if it owned any at all.

To sort things out, Hemingway gave his agents the go-ahead to sign several deals with Einaudi, a young, left-leaning literary house with a strong list of American authors. By early 1947, they’d secured the rights to The Sun Also Rises, The Fifth Column and the First Forty-Nine Stories, Green Hills of Africa, Death in the Afternoon, and To Have and Have Not, thus emerging triumphant in the postwar battle for Hemingway. But his two biggest titles, A Farewell to Arms and For Whom the Bell Tolls, still eluded them.

Arnoldo Mondadori, who’d built his eponymous publishing house during Mussolini’s years, claimed those two books based on contracts signed in Switzerland during the war. In the spring of 1945, he wrote an unctuous letter to Hemingway, begging him in rudimentary English for the privilege of becoming his “sole publisher” in Italy. “I intended to diffuse your name, almost unknown to the Italian public, as largely as possible, because I know the moral and cultural advantage our readers would have had by coming in touch with your poetic world,” he wrote. He would’ve written sooner, he added, but he was prevented by “draconian fascist prohibitions.” Mondadori had been a card-carrying member of the Fascist Party.

Understandably, Hemingway didn’t want his work disseminated by a former Fascist—at least not in the spring of 1945, when most of Italy was still in ruins. He left Mondadori’s letter unanswered. Even so, a series of court rulings awarded Mondadori the rights for Farewell to Arms and For Whom the Bell Tolls. The line was now drawn: Einaudi and Mondadori were rivals as the world plunged into the Cold War.
*
Three years later, in September 1948, Hemingway and his fourth wife, Mary Welsh, sailed to Europe. They’d planned to land at Cannes and cruise Provence, but a series of mechanical mishaps forced the ship to dock in Genoa. Hemingway hadn’t set foot in Italy in more than twenty years, and memories of his time as a volunteer at the front in 1918 came crowding back. He drove Mary to Stresa, on Lake Maggiore, where he’d spent time recuperating from his war wounds....MORE, including Silvio Berlusconi.
Bunga-Bunga

HT: Arts & Letters Daily
On blogroll at right

Unroll.me Co-Founder Responds To Criticism The Company Sold User Info To Uber

From Digg:
Over the weekend, a startup called Unroll.me faced backlash from customers over the revelation that it sold anonymized data from their inboxes to Uber. 
Update: On Tuesday, Unroll.me's co-founder, who no longer has a role or ownership stake in the company, added fuel to the fire by writing what people on Twitter are already calling "the worst possible take" on the Unroll.me debacle. 
"Data is pretty much the only business model for email and Unroll.me is not the only company that looks at, collects and sells your data. What exactly do you think is going on in your FREE gmail inbox? And honestly, anonymized and at scale why do people care? Do you really care? Are you really surprised? How exactly is this shocking? 
Or maybe you just hate yourselves because you think Uber is gross but you use them anyway and "why are these tech founders such assholes" that they have to ruin your experience where you need to delete your apps? And you love Unroll.me and you feel righteous and you have to delete that now too because you need to take a stand against these plain-as-da-in-the-terms-of -service practices. 
Look, respectfully, you have clearly been living under a rock because if you look at the entire tech ecosystem — It’s fucking gross."
There are plenty more typos and aggressively sarcastic rhetorical questions in Chase's defense of Unroll.me, which is really worth reading in full.
[Medium]
Here's some background on Unroll.me, how its data collection practices came to light, and why no one is satisfied by its CEO's attempt to explain the mess....MUCH MORE

"The Untenable Case for Perpetual Dual-Class Stock"

From The Harvard Law School Forum on Corporate Governance and Financial Regulation:
Editor's note
 Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance, at Harvard Law School. Kobi Kastiel is the Research Director of the Project on Controlling Shareholders of the Program. This post is based on their Article, The Untenable Case for Perpetual Dual-Class Stock, forthcoming in the Virginia Law Review. The Article is part of the research undertaken by the Project on Controlling Shareholders.
We recently placed on SSRN our study, The Untenable Case for Perpetual Dual-Class Stock. The study, which will be published by the Virginia Law Review in June 2017, analyzes the substantial costs and governance risks posed by companies that go public with a long-term dual-class structure.
The long-standing debate on dual-class structure has focused on whether dual-class stock is an efficient capital structure that should be permitted at the time of initial public offering (“IPO”). By contrast, we focus on how the passage of time since the IPO can be expected to affect the efficiency of such a structure.

Our analysis demonstrates that the potential advantages of dual-class structures (such as those resulting from founders’ superior leadership skills) tend to recede, and the potential costs tend to rise, as time passes from the IPO. Furthermore, we show that controllers have perverse incentives to retain dual-class structures even when those structures become inefficient over time. Accordingly, even those who believe that dual-class structures are in many cases efficient at the time of the IPO should recognize the substantial risk that their efficiency may decline and disappear over time. Going forward, the debate should focus on the permissibility of finite-term dual-class structures—that is, structures that sunset after a fixed period of time (such as ten or fifteen years) unless their extension is approved by shareholders unaffiliated with the controller.

We provide a framework for designing dual-class sunsets and address potential objections to their use. We also discuss the significant implications of our analysis for public officials, institutional investors, and researchers.

Below is a more detailed summary of our analysis:

1990, Viacom Inc., a prominent media company, adopted a dual-class capital structure, consisting of two classes of shares with differential voting rights. This structure enabled Viacom’s controlling shareholder, Sumner Redstone, to maintain full control over the company while holding only a small fraction of its equity capital. At the time, Redstone was already one of the most powerful and successful figures in Hollywood. Indeed, three years earlier, he had bought Viacom in a hostile takeover, exhibiting the kind of savvy and daring business maneuvers that subsequently helped him transform Viacom into a $40 billion entertainment empire that encompasses the Paramount movie studio and the CBS, MTV, and Showtime television networks. Investors during the 1990s could have reasonably been expected to be content with having Redstone safely at the helm.

Fast-forward twenty-six years to 2016: Ninety-three-year-old Redstone faced a lawsuit, brought by Viacom’s former CEO and a long-time company director, alleging that Redstone suffered from “profound physical and mental illness”; “has not been seen publicly for nearly a year[;] can no longer stand, walk, read, write or speak coherently; … cannot swallow[;] and requires a feeding tube to eat and drink.” Indeed, in a deposition, Redstone did not respond when asked his original family birth name. Some observers expressed concerns that “the company has been operating in limbo since the controversy erupted.” However, public investors, who own approximately ninety percent of Viacom’s equity capital, remained powerless and without influence over the company or the battle for its control.

Eventually, in August 2016, the parties reached a settlement agreement that ended their messy legal battles, providing Viacom’s former CEO with significant private benefits and leaving control in the hands of Redstone. Notably, despite the allegation and the evidence that surfaced, the settlement prevented a court ruling on whether Redstone was legally competent. Note that even a finding of legal competency would have hardly reassured public investors: Legal competence does not by itself qualify a person to make key decisions for a major company. Moreover, once Redstone passes away or is declared to be legally incompetent, legal arrangements in place would require the control stake to remain for decades in an irrevocable trust that would be managed by a group of trustees, most of whom have no proven business experience in leading large public companies. Thus, even assuming that Viacom’s governance structure was fully acceptable to public investors two decades ago, this structure has clearly become highly problematic for them.

Let us now turn from Viacom to Snap Inc. The company responsible for the popular disappearing-message application Snapchat has recently gone public with a multiple-class structure that would enable the company’s co-founders, Evan Spiegel and Robert Murphy, to have lifetime control over Snap. Given that they are now only twenty-six and twenty-eight years old, respectively, the co-founders can be expected to remain in control for a period that may last fifty or more years.

Public investors may be content with having Spiegel and Murphy securely at the helm in the years following Snap’s initial public offering. After all, Spiegel and Murphy might be viewed by investors as responsible for the creation and success of a company that went public at a valuation of nearly $24 billion. However, even if the Snap co-founders have unique talents and vision that make them by far the best individuals to lead the company in 2017 and the subsequent several years, it is hardly certain that they would continue to be fitting leaders down the road. The tech environment is highly dynamic, with disruptive innovations and a quick pace of change, and once-successful founders could well lose their golden touch after many years of leading their companies. Thus, an individual who is an excellent leader in 2017 might become an ill-fitting or even disastrous choice for making key decisions in 2037, 2047, or 2057. Accordingly, as the time since Snap’s IPO grows, so does the risk that Snap’s capital structure, and the co-founders’ resulting lock on control, will generate costly governance problems....MUCH MORE

"Jack Ma Sees Decades of Pain as Internet Upends Old Economy"

Feel the pain, embrace the pain, use Alibaba's Ant Financial, etc.

From Bloomberg:
  • Alibaba founder says education can ease blow from automation
  • ‘Machines should only do what humans cannot,’ Ma tells forum
Alibaba Group Holding Ltd. Chairman Jack Ma said society should prepare for decades of pain as the internet disrupts the economy.

The world must change education systems and establish how to work with robots to help soften the blow caused by automation and the internet economy, Ma said in a speech to an entrepreneurship conference in Zhengzhou, China.

“In the next 30 years, the world will see much more pain than happiness,” Ma said of job disruptions caused by the internet. “Social conflicts in the next three decades will have an impact on all sorts of industries and walks of life.”

It was an unusual speech for the Alibaba co-founder, who tends to embrace his role as visionary and extol the promise of the future. He explained at the event that he had tried to warn people in the early days of e-commerce it would disrupt traditional retailers and the like, but few listened. This time, he wants to warn against the impact of new technologies so no one will be surprised.

“Fifteen years ago I gave speeches 200 or 300 times reminding everyone the Internet will impact all industries, but people didn’t listen because I was a nobody," he said.

Ma made the comments as Alibaba, China’s largest e-commerce operator, spends billions of dollars to move into new businesses from film production and video streaming to finance and cloud computing. The Hangzhou-based company, considered a barometer of Chinese consumer sentiment, is looking to expand abroad since buying control of Lazada Group SA to establish a foothold in Southeast Asia, potentially setting up a clash with the likes of Amazon.com Inc....MORE

The Coming Opportunity From The Shift To Passive Investment Management

It is still some time in the future but when it comes the current and evolving structure of the market and the advisory biz is going to result in one of the largest wealth transfers in history. More to come as we get closer but in the meantime it is probably wise to internalize the parameters of the current game.
From David Keohane at FT Alphaville:

Soooooon, passive vs active edition
At some point in the next nine months a historic milestone will be passed. More than half of managed equity assets in the US will be run on a passive basis (for global equities the figure is 38%). At the current rate we forecast that this will happen sometime in January 2018. We don’t think that there will ever be any reversion back past this point, so from here on the majority of equity AUM in the US will be passive. In this short note we consider what this means.
That’s from Bernstein’s Inigo Fraser Jenkins and team. The charted version looks like this:
https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fftalphaville-cdn.ft.com%2Fwp-content%2Fuploads%2F2017%2F04%2F25110209%2FScreen-Shot-2017-04-25-at-15.24.10-590x340.png?source=Alphaville
While the less intimidating version points out that when other holders of equities — retail, corporates holding their own stocks, SWFs etc — are taken into account, expressed as a share of market cap, passive is “only” 14.5 per cent, according to Bernstein.
And yes, this is the same Bernstein team which previously suggested that passive investing was worse than Marxism and ranked capital markets thus:
  1. Capitalist society with functioning capital markets
  2. Marxism
  3. Capitalist society with predominantly passive capital markets
Their argument is/was that markets exist to allocate capital and passively dominated markets won’t allocate it very well since there won’t be active managers doing the necessary fundamental legwork. Or: “In a Marxist society at least someone is doing the planning of capital allocation, but in a predominantly passive market then the capital allocation process is done by a marginal participant.”
There are numerous potential problems with this which have already been raised. For one, there is an argument, put forward by Credit Suisse’s Mauboussin earlier this year, that the shift away from active might actually be good for market efficiency:
Investors are shifting their investment allocations from active to passive management. This trend has accelerated in recent years. The investors who are shifting from active to passive are less informed than those who stay. This is equivalent to the weak players leaving the poker table. Since the winners need losers, this can make the market even more efficient, and hence less attractive, for those who remain. If you can’t identify the patsy, or weak player, it’s probably you…
Small and unsophisticated investors should build passive portfolios, with an emphasis on asset allocation and low cost. Sophisticated investors should seek active managers in asset classes with high dispersion. There are ways to assess money managers beyond past performance that may shade the odds in your favor
But even if you buy Bernstein’s side, their operative word is “predominantly” since the argument is that at some advanced level of passive domination the capital allocation function of the market will be damaged. It’s an argument that makes logical sense for an undefined level of passive domination.

More so, it’s unclear that a level high enough to be damaging to the market will be reached — arguably as soon as the market starts to become dysfunctional it will pay active managers to jump back in. That’s what those like Burton Malkiel who are passive fans would say, anyway....MUCH MORE

Ag Commodities: "Grain Bears Take Heart in Rapid US Plantings"




Last Chg
Corn 364-4-1-0
Soybeans 968-0-3-6
Wheat 418-4-0-6

From Agrimoney:
Grain bulls were stopped in their tracks by the advance of crop planting technology.
Investors hoping that strength in corn and soybeans, at least, in the last session might be the start of something more significant found such expectations challenged by data overnight, highlighting how significantly growers can exploit dry windows for accelerating sowings.
The US Department of Agriculture data showed that US farmers planted 11% of their corn crop last week, nearly catching up with the average sowings progress after a rain-delayed start.
Corn plantings were, as of Sunday, 17% complete - just 1 point behind the average pace, and 2 points above the level that the market had expected.
'Things can get done quickly'
The first reading of the season for soybean seedings, meanwhile, showed progress of 6% - twice the typical amount completed for the time of year, and three times the figure of 2% that investors had expected.
"Planting progress data was slightly bearish," said Joe Lardy at CHS Hedging,
Indeed, the data underlined what farmers, equipped with modern machinery, are capable of.
"Thanks to Precision Planting's new Speed Tubes, corn can be safely placed in the seed trench at speeds of 7.5-9.5 mph," Tregg Cronin at Halo Commodity Company noted.
"At 7.5mph, a 16-row corn planter can plant 36 acres an hour, while at 9.5mph it can plant 46 acres of corn per hour.
"With corn planters are large as 120 feet, things can get done quickly."
'Things could get interesting'
This "should keep producers calm for another 7-10 days", Mr Cronin added, with weather seen returning to a wet pattern which will hamper plantings.
"Heavy rains are slated for the heart of the Corn Belt through this week," said Benson Quinn Commodities.
"Looking out to May 7, the bulk of the Corn Belt is slated for average-to-above-average precipitation and average-to-below-average temperatures."
Mr Cronin said that if corn sowing progress "doesn't move past 50% by the May 7 report, then things could get interesting".
Dollar down
However, with farmers having achieved more sowings last week than the market had expected, easing crop uncertainty, it was hard for bulls to get excited in early deals, even with the dollar easing back a touch more....MUCH MORE

Monday, April 24, 2017

Deliver Us From Traffic

From CityLab, April 20:

Cities Seek Deliverance From the E-Commerce Boom
It’s the flip-side to the “retail apocalypse:” A siege of delivery trucks is threatening to choke cities with traffic. But not everyone agrees on what to do about it.

This post is part of a CityLab series on open secrets—stories about what’s hiding in plain sight.
Just before 3 in the afternoon on a rainy spring day, Keith Greenleaf busts out his “bricklaying” skills. That’s delivery-driver parlance for balancing an inordinate amount of cardboard boxes on a metal handcart. As high as his collarbone he stacks them, packages labeled HP, J. Crew, Amazon Prime. “This is probably one of the first days I don’t have Pampers or dog food,” he says.

Greenleaf also doesn’t have any 60-pound boxes of copier paper, which is a welcome way to finish his daily rounds.The veteran UPS driver is parked near 22nd and I St. in Washington, D.C., having arrived there about six hours earlier in a truck loaded down with 320 boxes. In a few hours he’ll drive back to the distribution center in Landover, Maryland; several hours after that, he’ll be at Outback Steakhouse downing beers with a few fellow drivers.

Right now, however, Greenleaf’s in the thick of it. For 15 of his 25 years driving for UPS, he has delivered along roughly a 10-block route close to 22nd and I. Several years ago, to meet the demand, UPS shortened Greenleaf’s route by two blocks and gave them to a new driver on a new route. When I meet up with him mid-afternoon one Friday (per UPS media ride-along convention, I’ve been given my own iconic brown uniform, including pants so baggy MC Hammer would cringe), he’s unloading boxes from his parked truck onto a loading dock underneath the Residences on the Avenue, an apartment building with a Whole Foods right next door. As I get ready to climb aboard, he tells me we won’t be making any deliveries in the truck.

Several years ago, the 56-year-old was delivering mainly to commercial locations. Now half his drop-offs are residential. The traffic congestion and lack of available parking has become so unworkable that Greenleaf would rather walk the remainder of his route, delivering packages by handcart, which is what he’s done every afternoon for the last three years.

Pick any other major city or metropolitan area in the U.S., and the situation’s probably the same: a massive surge in deliveries to residential dwellings, one that’s outstripping deliveries to commercial establishments and creating a traffic nightmare.

Consumers today are spending less time in local stores and more time online, buying not only retail items but also such goods as groceries from Peapod, office supplies from Postmates, and whatever the hell they want from Amazon. It’s estimated that, on average, every person in the U.S. generates demand for roughly 60 tons of freight each year, according to the National Capital Region Transportation Planning Board. In 2010, the United States Post Office—which has overtaken both FedEx and UPS as the largest parcel-delivery service in the country—delivered 3.1 billion packages nationwide; last year, the USPS delivered more than 5.1 billion packages. The growth in e-commerce is fueling a commensurate rise in the number of delivery vehicles—box trucks, smaller vans, and cars alike—on city streets.

While truck traffic currently represents about 7 percent of urban traffic in American cities, it bears a disproportionate congestion cost of $28 billion, or about 17 percent of the total U.S. congestion costs, in wasted hours and gas. Cities, struggling to keep up with the deluge of delivery drivers, are seeing their curb space and streets overtaken by double-parked vehicles, to say nothing of the bonus pollution and roadwear produced thanks to a surfeit of Amazon Prime orders.

“A humongous amount of externalities are being produced,” says José Holguín-Veras, director of the Center of Excellence for Sustainable Urban Freight Systems at Rensselaer Polytechnic Institute. “Every 25 people produce one Internet delivery. … So imagine any congested city you know of. Imagine that you were to increase freight traffic by a factor of three. This is what’s happening now.”

It didn’t used to be like this.

The urban home-delivery ecosystem of yore evokes images of icemen making their rounds or kindly white-capped milk men stopping by with a new glass bottle. City dwellers, with their density of retail options within close walking distance, often had newspapers and perishables delivered daily, but in the earlier decades of the 20th century, home delivery of purchased goods was typically something arranged after a trip to the store, where shoppers tried on or tested out the clothes and furniture they wanted, and then scheduled what they couldn’t carry back by hand or in taxis or streetcars to be dropped off later. It was for this very purpose that UPS was founded in 1907 in Seattle. Overall, though, bulk deliveries predominated. These were deliveries of large retail goods to stores in shopping districts, where some thought had been given to how streets would accommodate trucks....MUCH MORE
HT: MetaFilter