Thursday, August 31, 2017

European Flotilla is Bringing Gasoline to the U.S.

From CNN Money:

A fleet of tankers is set to sail from Europe with millions of gallons of gasoline for the United States.
The flotilla should ease any gas shortages resulting from Harvey, the monster storm that's been battering the Gulf Coast and forcing refineries and pipelines to close. 

The number of tankers booked to sail from Europe has doubled this week to roughly 40, said Richard Matthews of Gibson Shipbrokers. Other ships bound for ports in West Africa and Europe have been diverted to the U.S., according to energy information provider Genscape. 

Thirteen U.S. oil refineries have been shut down or are in the process of closing, while several others are operating at reduced rates. The disruption has knocked out about a fifth of the nation's refining capacity, according to S&P Global Platts.

"In terms of geography, this hurricane has hit the heart of the U.S. refining sector, and probably couldn't have hit a more pivotal energy hub if it tried," said Matthews.

The Colonial Pipeline, which transports more than 100 million gallons of gasoline and other fuels between Houston and the East Coast each day, has also been taken offline.

Trucks, barges and other pipelines can be pressed into service in order to keep supplies moving. But they may not be enough. Genscape said it estimated 111,000 metric tons (39 million gallons) of European gasoline had already been diverted to America.

The shipments could prove to be lucrative, with gasoline futures jumping 11% in the U.S. on Thursday....MORE

Hurricane Watch: "Cat 2 Irma Rapidly Intensifying in Eastern Atlantic; Big Long-Range Questions"

These long haul Cape Verde storms can be horrific.

From Category 6:
Here comes trouble. Hurricane Irma built an eyewall over the warm waters of the Eastern Atlantic on Thursday morning, and is now rapidly intensifying, becoming a Category 2 hurricane with 100 mph winds at 11 am EDT. Irma is the fourth hurricane of this active Atlantic hurricane season, and comes three weeks before the usual September 21 date for the season's fourth hurricane. Irma appears destined to become a dangerous long-track major hurricane that could potentially impact the islands of the Caribbean as well as the mainland U.S. next week and the following week.
Satellite images on Thursday morning showed a well-organized storm with plenty of heavy thunderstorms which were increasing in intensity, and a prominent eye had appeared in both visible and infrared imagery. Irma had a respectable upper-level outflow channel to the south, and a weaker one to the north. Conditions were favorable for development, with sea surface temperatures (SSTs) near 27.5°C (82°F)—more than 1°C above average, light wind shear of 5 -10 knots, and a moist surrounding atmosphere with a mid-level relative humidity near 65%.
Intensity forecast for Irma
For the next five days, wind shear is predicted to be very favorable for development--a low 5 – 10 knots--according to the 12Z Thursday run of the SHIPS model. In fact, SHIPS keeps wind shear at less than 5 knots from Thursday afternoon into Saturday. Irma will begin moving into a drier region with slightly cooler sea surface temperatures beginning on Thursday night. Friday through Sunday, SSTs will be 26.5 – 27.5°C (80 - 82°F), and the mid-level relative humidity will be 50 – 55%--conditions that are less favorable for development. Since Irma has already built a solid inner core, it should be able to overcome these less favorable conditions and continue to intensify at a slow to moderate pace. If the storm can develop upper-level outflow channels to both the north and the south, faster intensification may occur.

Early next week, when Irma will be approaching the Lesser Antilles Islands, SSTs will warm considerably with a major increase in total heat content. The atmosphere is also predicted to be moister with low shear, so increased strengthening is likely. Four out of five of our reliable intensity models--the HWRF, LGEM, COAMPS-TC, and DSHIPS--predicted in their 6Z and 12Z Thursday runs that Irma would be a major Category 3 or 4 hurricane with 115 – 135 mph winds by Tuesday. The official NHC forecast of a Category 4 hurricane in five days looks reasonable, given Irma's current rapid intensification burst....
Irma forecast
Figure 2. Left: The adjusted 0Z August 31, 2017 track forecast by the operational European model for Irma (red line), along with the track of the average of the 50 members of the European model ensemble (heavy black line), and the track forecasts from the “high probability cluster” (grey lines)—the four European model ensemble members that have performed best with Irma thus far, as of 6Z Thursday. Right: the corresponding intensity forecast for these various model runs, with the operational European model forecast shown in red. All of the forecasts take Irma to major hurricane status at some point in the next 12 days. Irma is much stronger than the 0Z run had anticipated, so the intenisty forecast is likely underdone. Image credit: CFAN.

"Munich, Swiss, Berkshire are reinsurers most exposed to Harvey: RBC"

From Artemis:
Analysts at RBC Capital Markets found that it is the usual reinsurance suspects that are likely to be the most exposed to hurricane Harvey on a reinsurance basis, with Munich Re, Swiss Re and Berkshire Hathaway considered the three likely to take the greatest share of reinsurance losses.

RBC’s team performed an analysis of the reinsurance programs of the largest commercial insurers operating in Texas and found that these three are the biggest reinsurance counterparties among the group it sampled.

Hurricane Harvey is still largely a flooding event, but for commercial property and industrial type coverage a greater proportion of flood risks are insured and thus backed by reinsurance, than is found with residential property risks.

Hence by analysing just commercial insurers arrangements, RBC believes it can identify where a relatively large proportion of the reinsurance exposure will come from and puts these three as top of the list for taking a share of losses.

It’s important to remember here that all three of these companies also operate as commercial insurers themselves as well, Munich Re through its Risk Solutions unit, Swiss Re through its Corporate Solutions unit, and Berkshire Hathaway through its Berkshire Hathaway Specialty Insurance.

So while the three are put at the top of the list for taking reinsurance losses from their counterparties in Texas, they are also likely to take relatively large commercial insurance losses themselves as well.
It’s also worth noting that at least two of the three are likely major participants in the $1.024 billion reinsurance program of the National Flood Insurance Program’s (NFIP), which it’s now believed could face a total loss, adding to the toll they will take.

Interestingly, Munich Re has almost twice as much of its catastrophe loss budget remaining for 2017 compared to Swiss Re, according to RBC, which could enable it to soak up a much larger loss than many competitors before it begins to see its capital impaired in any way.

That said, hurricane Harvey is not going to impair the capital of any major reinsurance firms, and is also unlikely to impair primary insurers, or smaller reinsurers as well. Given the fact wind and surge damage is expected to be so much lower than the economic cost of the flooding, it seems Harvey will not support reinsurers desire to turn pricing to any degree....MORE + many links

Société Générale's Albert Edwards: I Was Wrong, I Have Been Too Optimistic

Shades of "Société Générale's Albert Edwards: "I Have Been Wrong – I’ve Been Too Bullish" (Jan. 17, 2011)".
And since we're strolling down Memory Lane I'll reprise the intro from another post on Albert and save myself some typing:

Analyst Olympics: Watch Albert Edwards Perform the 1 1/2 Twisting Straddle (Jan. 15, 2013)
For shame. Of the dozens of Albert posts (join the cult by Jan. 31 and get the calendar for free!) that have graced our pages this is the least entertaining, the least self-aware and the least despondent in a long while.

And without at least one of those  attributes what's left? Rosenberg?
Today's installment via ZeroHedge:

"I Was Wrong": Albert Edwards Finds Something That Has Never Happened Before
At the start of the year, we were surprised when SocGen's Albert "Ice Age" Edwards, the biggest perma-deflationist on Wall Street, flipped his outlook on the US economy, and said he now expected a fast spike in inflation driven by wage growth. We did not see it, and said so, pointing out that the bulk of US job growth continued to be among industries that have little to no wage power. More than half a year later, and several months after a puzzled Edwards asked "Where Is The Wage Inflation?", the SocGen strategist has finally thrown in the towel, and in a note released this morning, admits he was wrong, or as he puts it "I was too optimistic", to wit:
At this point in the US economic cycle a tight labour market would normally be producing a notable upturn in wage and CPI inflation. This would usually prompt the Fed into a tightening cycle that would typically end in a surprise recession. This is exactly what I expected to occur at the start of this year and I thought it would be that recession that would tip the US into outright deflation ? but I was wrong. I was too optimistic!
And while there has been a modest improvement in average hourly earnings according to the BLS, if not according to the BEA's wage data, which according to the just released Personal Income data showed another drop in both private and government worker wages...
.. broader inflation trends continue to disappoint.

Furthermore, when digging through the recent CPI data, Edwards noticed something unexpected: as he writes, although wages have accelerated due to the tight labor market, the last six months has seen consistent downside surprises. And then this: "this has come hand-in-hand with an unprecedented slump in underlying US CPI inflation into outright deflation - in stark contrast to the eurozone where core CPI inflation has decisively risen."

Putting the finding in context, the "wrong, too optimistic" Edwards writes that never since the mid-1960s, when records began, has core CPI (less food, energy and shelter) declined over a six-month period, as demonstrated by the red line in the chart below.

Multiple Explosions at Arkema's Flooded Texas Plant

From Reuters:

Explosions reported at flood-hit Arkema chemical plant in Texas
Two explosions were reported on Thursday at the flood-hit Arkema SA (AKE.PA) plant in Crosby, Texas, and a sheriff’s deputy was taken to hospital after inhaling chemicals, the company said.
The company said further explosions of organic peroxides stored on site were possible and urged people to stay away as the fire burns itself out. 

Arkema said the company had no way to prevent fires because the plant is swamped by about 6 feet (1.83 m) of water due to flooding from Harvey, which came ashore in Texas last week as a powerful Category 4 hurricane, knocking out power to its cooling system. 

The company said it was notified at about 2 a.m. by the Harris County Emergency Operations Center of two explosions and black smoke coming from the plant in Crosby. 

“Organic peroxides are extremely flammable and, as agreed with public officials, the best course of action is to let the fire burn itself out,” the company said....MORE

Meanwhile, In Russia

Via RT:

and IndiaToday:

Pilot in Sochi lands plane with 3 tornadoes right behind the aircraft

This is, of course, a great excuse to dig up the big dog of waterspout pictures, from our post "Dear Kansas, I'll See ya and Raise: Five Tornados at one time off Novorossiysk, Russia":

Okay, waterspouts. if you're going to get all technical on me.

I'm not sure about RT, their stories sometimes have a bit of a National Enquirer feel to them but I was told by an ex-pat that this actually happened back in August. Number five is curling in from the top left.

Russia Today:

No less then five tornadoes have sprung up just a kilometer out at sea from the port town of Novorossiysk....

Shipping: The SEC Would Like Some Information From DryShips (DRYS)

From Benzinga:

DryShips Shares Sink On News Of SEC Subpoena
DryShips Inc. DRYS has been one of the craziest stock stories of the year. With news that the company was hit with an SEC subpoena, the story isn't slowing down anytime soon.

A subpoena from the SEC is requesting certain documents and information related to offerings made by the company between June 2016 and July 2017. Dryships stated it has delivered the requested information to the SEC.

Various complaints have been filed in U.S. territory Marshall Islands, alleging various violations by DrysShips and/or two of its officers in connection with the securities laws of the U.S., according to the company.

DryShips management stated it believes these complaints are without merit and intend to “vigorously defend themselves against these allegations."

The news comes after the company reported a second quarter earnings loss of $37.12 per share.

Shares fell over 25 percent following the news, adding to the 12 percent loss in the regular session. At time of publication, DryShip's stock was trading at $2.28 in the after-hours session.
See Also: The DryShips Story, Continued

Here's the press release. You have to scroll down to the last bit of verbiage to find:
...Other Events
The Company has also received a subpoena from the Securities and Exchange Commission ("SEC") requesting certain documents and information from the Company in connection with offerings made by the Company between June 2016 and July 2017. The Company is providing the requested information to the SEC.

Wednesday, August 30, 2017

"Airborne Alexa? Amazon Patent Reveals A Delivery Drone That Will Talk To You"

Maybe I wasn't forceful enough in the outro from last December's "Amazon patents show flying warehouses that send delivery drones to your door" (AMZN) :
We’ve known about Amazon’s drone delivery ambitions since 2013.  But patent filings from Amazon, circulated today by CB Insights’ Zoe Leavitt, reveal more details about how the e-commerce titan could make drone deliveries work at scale, namely through “airborne fulfillment centers.” Yes, that’s a warehouse in a zeppelin.

The airborne fulfillment centers, or AFCs, would be stocked with a certain amount of inventory and positioned near a location where Amazon predicts demand for certain items will soon spike.
Drones, including temperature-controlled models ideally suited for food delivery, could be stocked at the AFCs and sent down to make a precise, safe scheduled or on-demand delivery.
An example cited in the filing was around a sporting event. If there’s a big championship game down below, Amazon AFC’s above could be loaded with snacks and souvenirs sports fans crave.

The AFCs could be flown close to a stadium to deliver audio or outdoor display advertising near the main event, as well, the filing suggested.... ...MORE
Blimps circling overhead blasting advertising at the captive audience.
Here's another Amazon patent via CB Insights:
Amazon’s latest drone patent turns UAVs from passive delivery vehicles into objects that will now be able to talk to you. On August 29, the US Patent & Trademark Office approved Amazon’s February 2015 filing for “Speech Interaction For Unmanned Aerial Vehicles.”

As Amazon pushes its logistics capabilities ever further, drones have become central to its long-term vision. Recent patents show how the company is thinking about housing and transporting UAVs for Prime Air deliveries – storing them in beehive-shaped warehouses, blimps, and underwater facilities.
Patents have also revealed that Amazon’s drones will stalk residential residences for data that could later be used for sales purposes – giving Amazon the ability to recommend weed killers after its drones notice your overgrown garden, for example.

While the patent for a talking drone makes no mention of product recommendations or sales data, it describes how a drone could interact by speech with a package recipient. It also describes how a drone “may have one or more wireless network interfaces” for “communicating with a control center and/or with other UAVs.”...
...If Amazon’s drones can support speech and communication over “cellular, radio frequency (RF), Wi-Fi, or other suitable long-range wireless connection technologies” (all mentioned in the patent), it’s feasible that the same technological infrastructure could be linked to Alexa Voice Service – as well as to the drone-powered data collection and usage efforts Amazon patented in July 2015. The patent even mentions how a drone could be equipped with voice or facial recognition functions to determine or verify the identity of the individual prior to dropping the package.

In its primary use case, however, the talking drone isn’t Alexa-connected, or sales-oriented. Mainly, it’s a warning call.

The patent, which focuses entirely on package delivery, positions the talking drone invention mainly as a means for ensuring customers’ safety. It specifies that the drones will be able to “detect nearby people, animals, or other interactive objects” and produce speech “to warn or instruct” them....


Here are some links to some previous Amazon patent posts:
Walmart-Amazon Battle of the Blimps (AMZN; WMT)

Arkema North America CEO: "No Way to Forestall An Explosion"

Via the Thompson Reuters Foundation:
Wednesday, 30 August 2017 19:30 GMT
(Reuters) - Arkema's North America chief executive said on Wednesday the company has no way of preventing chemicals from catching fire or exploding at its heavily flooded plant in Crosby, Texas.

The company evacuated remaining workers on Tuesday and Harris County ordered the evacuation of residents in a 1.5-mile(2.4-km) radius of the plant that makes organic chemicals.
Richard Rowe, who is chief executive of the company's North America unit, told reporters the company expects chemicals on site to catch fire or explode within the next six days. He said the company has no way to prevent a fire or potential explosion near the plant that is swamped by about six feet (1.83 m) of water

"New America's Response to the New York Times" (GOOG)

Following up on the post immediately below—"Google-funded think tank fires prominent Google critic" (GOOG)

From New America:
Aug. 30, 2017
Statement to be attributed to Anne-Marie Slaughter, CEO of New America:
Today’s New York Times story alleges that Google lobbied New America to expel the Open Markets program because of this press release. I want to be clear: this claim is absolutely false.

After more than 10 years of doing strong policy work at New America, Open Markets’ position is not news to Google.

New America is an intellectually diverse organization. We have always encouraged many different viewpoints and our funders are aware of and support this philosophy.

And we will continue to do work on open markets. For example, one of our other programs - Future Tense - will be hosting several events later this year on the dangers of monopolies.

For the past two months, we have been working with Barry Lynn to spin out Open Markets as an independent program, as we have done with other programs, to preserve his leadership, keep the program together, and maintain a strong relationship with New America. As I reiterated to him in June, his repeated refusal to adhere to New America’s standards of openness and institutional collegiality meant that we could no longer work together as part of the same institution. I continued, however, to seek a cooperative solution with Barry; unfortunately, I have been unsuccessful.

Today, we made the difficult decision to terminate Barry Lynn. However, we are proud of the work Open Markets has done under his leadership and with the contributions of many others. We remain committed to continuing work on an open and competitive economy.

New America holds itself to high standards of transparency, diversity, and independence. We are proud of the work we do and the values we uphold.

"Google-funded think tank fires prominent Google critic" (GOOG)

Something about a piper getting paid and a musical request...

From Ars Technica:

Think tank boss allegedly accused scholar of "imperiling funding for others."
The New America Foundation, a prominent DC think tank that's heavily funded by Google, has parted ways with one of its most influential scholars after he criticized Google's growing monopoly power.

The scholar is Barry Lynn, founder of New America's Open Markets program and a leading advocate of stricter enforcement of antitrust laws. Since the Reagan years, federal antitrust regulators have been more likely to approve mega-mergers and less likely to launch major antitrust lawsuits. Scholars at the Open Markets program have made the case that the US economy would benefit from a return to the more rigorous antitrust regime of the mid-20th century.

The Open Markets team has paid particular attention to technology giants, with Amazon being a favorite whipping boy. On Wednesday morning, the top three stories on the center's home page were all focused on Amazon and its growing market power.

Lynn's team has also been critical of Google, and that has caused friction with the leadership of the New America Foundation, Lynn says. Google and its chairman, Eric Schmidt, have donated millions to New America. Schmidt was also the chairman of New America's board until 2016.

Last year, Lynn organized a major conference focusing on the dangers of concentrated power in the technology sector that attracted big-name speakers like Sen. Elizabeth Warren. Slaughter wasn't happy, Lynn told The New York Times.

"We are in the process of trying to expand our relationship with Google on some absolutely key points," Slaughter allegedly wrote in an e-mail to Lynn around the time of the 2016 conference. "Just THINK about how you are imperiling funding for others."

According to Lynn, things came to a head in June of this year, after his team issued a press release praising the European Union for issuing a multi-billion-dollar fine against Google for violating competition laws. Lynn told the Times that Schmidt complained to New America President Anne-Marie Slaughter about Lynn's statement praising the EU action.

"The time has come for Open Markets and New America to part ways," Slaughter allegedly wrote in a subsequent e-mail to Lynn, which Lynn shared with the Times. The e-mail claimed that Lynn's firing was "in no way based on the content of your work," but Slaughter nevertheless faulted Lynn for "imperiling the institution as a whole."

Lynn believes that Slaughter had (in the words of NYT reporter Ken Vogel) "caved to pressure from Mr. Schmidt and Google, and, in so doing, set the desires of a donor over the think tank’s intellectual integrity."...MORE

Hurricane Harvey Made Its Third Landfall and the Storm Coming Off Western Africa

Fortunately the potential storm off the Carolinas did not develop.

Two quick hits via the National Hurricane Center's Atlantic Operations Center:


Tropical Storm Irma Advisory Number   1
NWS National Hurricane Center Miami FL       AL112017
1100 AM AST Wed Aug 30 2017


LOCATION...16.4N 30.3W

There are no coastal watches or warnings in effect.

At 1100 AM AST (1500 UTC), the center of Tropical Storm Irma was
located near latitude 16.4 North, longitude 30.3 West. Irma is
moving toward the west near 13 mph (20 km/h) and this general motion
is expected to continue for the next couple of days.

Satellite wind data indicate that the maximum sustained winds are
near 50 mph (85 km/h) with higher gusts. Some strengthening is
forecast during the next 48 hours and Irma could become a hurricane
on Friday.

Tropical-storm-force winds extend outward up to 35 miles (55 km)
from the center.

The estimated minimum central pressure is 1004 mb (29.65 inches).

National Hurricane Center headlines
Three More Potential Tropical Storms Developing

AccuWeather Now Has the Highest Hurricane Harvey Damage Estimate We've Seen: $160 Billion

From Accuweather:

August 29, 2017, 9:24:55 PM EDT
AccuWeather predicts Hurricane Harvey to be the most costly natural disaster in US history
AccuWeather predicts Hurricane Harvey, which has wreaked havoc in Texas, to be the most costly natural disaster in United States history.

Dr. Joel N. Myers, founder, president and chairman of AccuWeather, and sometimes called the “father of commercial meteorology” stated, “This will be the worst natural disaster in American history. The economy’s impact, by the time its total destruction is completed, will approach $160 billion, which is similar to the combined effect of Hurricanes Katrina and Sandy. This represents a negative impact on the economy of 8/10 of one percent of the gross national product or GDP. The GDP is $19 trillion currently. Business leaders and the Federal Reserve, major banks, insurance companies, etc. should begin to factor in the negative impact this catastrophe will have on business, corporate earnings and employment. The disaster is just beginning in certain areas. Parts of Houston, the United States' fourth largest city will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood.”

The worst flooding from Harvey is yet to come as rivers and bayous continue to rise in Texas with additional levees at risk for breaches and failures.“The meteorologist forecasting community as a whole did a very good job in warning people about this storm. Public officials were slow, in some cases, to react or to know what to do, which affected too many people and caused the loss of property and damage and destruction....MORE
HT: Mike Smith Enterprises—7:30am Update: T.S. Harvey

"Packard Foundation Bets on Brains Over Quants"

From Institutional Investor, Alpha:

In the heart of Silicon Valley, endowed by a computer fortune, the $7.2 billion Packard Foundation opts out of quant investing.
David Packard, the man who brought computing power to the masses, made an empire and a fortune selling smart machines. He built the first one an oscillator with William Hewlett in the late 1930s, in the garage behind his and Lucile Packard's rented house in Palo Alto. Thus, Hewlett-Packard was born in 1939. Officially, so was Silicon Valley. The Packards' garage is listed on the National Register of Historic Places as the birthplace of the U.S. tech industry. Their foundation also had humble beginnings.

Starting with $100,000 of the Packards’ own money in 1964, the nonprofit was small in scale but radical in mission for the time, supporting reproductive rights, early childhood education, and the environment. David Packard died in 1996, and the foundation inherited roughly $4 billion of HP shares. In 1999 it became a two-stock portfolio when HP spun off its measurement and components businesses to form Agilent Technologies.

The dot-com bust proved why it’s a terrible idea to have a ten-figure portfolio invested in just two companies.

The philanthropy’s trustees decided to cash out of HP and computers, putting their faith in human intellect. In 2007 the David and Lucile Packard Foundation hired its first chief investment officer, John Moehling, and gave him license to diversify. Moehling then hired Kimberly Sargent, who earned an MBA from Stanford University’s Graduate School of Business after working for Yale University’s endowment. Together they built a nonprofit portfolio that is admired by peers and reputed to be a strong performer, though Packard, like many foundations, does not disclose investment returns.

Moehling plans to retire at the end of the year, and Sargent will succeed him as CIO.

She belongs to a cadre — some jokingly call it a mafia — of young leaders at elite U.S. nonprofits who learned from the godfather of endowment investing, David Swensen, the CIO at Yale University’s endowment. In addition to professional roots in New Haven, Connecticut, these second-generation Swensenites have largely rejected the biggest institutional trend since the Yale model popularized private assets: quantitative investing.

“Everyone hates black-box quant,” remarks one investor. “But a lot of people have quasi-black-box quant in their portfolios. I think they are being intellectually dishonest and performance chasers.”
Sargent is not one of those investors. It may be that the only black boxes contributing to Packard’s portfolio came filled with office supplies and stamped with the initials HP. Sargent spoke to Institutional Investor’s Alpha’s Leanna Orr about man versus machine in financial markets, and why she’s betting $7.2 billion on man.

Alpha: What does the term “quant investing” mean to you?
Kimberly Sargent: You’d probably get different answers from different folks, but I’d say it is any strategy that attempts to take real-time human judgment out of the investment process, replacing it with a model that makes decisions based on preordained rules.

There’s a reason this whole issue of the magazine is about quant investing: It’s the hot topic du jour. Some see it as a trend, 2017’s portable alpha. Others argue that what constitutes investment skill has forever changed: Building a great portfolio will mean building a great algorithm to do it for you. Where do you fall in this debate? Are we in the midst of a fad, a revolution, or both?

There’s no doubt that quantitative strategies are on the rise and having an increasing influence on market behavior and asset prices. A recent study I saw showed that fully 60 percent of the U.S. market is now held by quant strategies (including passive funds, which are arguably one type of quant investing). And given the growing role machines are playing in all aspects of our lives, I have a hard time believing quant investing is just a passing fad. However, I don’t think it means there is no place for human judgment in investing. On the contrary, it may be that the more machines are dominating short-term price movements, the more valuable and influential human judgment can be over a long-term horizon; especially if quant strategies end up generating new kinds of inefficiencies in the market. I’m actually optimistic about what the rise of quant investing might mean for patient, long-term investors who can stomach some interim volatility.

What portion of Packard’s portfolio would fall under your definition of quant investing?
None of our portfolio is invested in active pure quant strategies, though many of our partners make use of data and quantitative tools in their processes. Passive strategies are about 4 percent of our portfolio, if you count those as quant.

This is an excerpt. To read the entire piece, click here.

Estonia's ICO: "A currency designed for digital nomads"

The FT's Izabella Kaminska writing for the paper:

Estonian proposals may not be as ingenious or innovative as they seem
Last week, an Estonian named Kaspar Korjus posted a speculative proposal online. Mr Korjus, who manages the e-residency programme at the agency responsible for attracting inward investment to Estonia, asked what would happen if the country were to become the first sovereign state to issue its own cryptocurrency.
The currency, he suggested, could be called “estcoin”. The post went viral, and soon enough many were misconstruing the idea as an official government proposal. Which it wasn’t.

Rather, it was Mr Korjus’ vision of an initiative that would provide Estonia, which has been part of the eurozone since January 2011, with the means of raising funds via the mechanism of “initial coin offerings” (ICOs). The aim, he said, would be to invest the funds in technology and innovation for the public sector.

The funds, he noted, could even be managed by way of a public-private partnership or a sovereign wealth fund, in keeping with investment mandates outlined in the smart contracts which underpinned estcoins themselves.

Mr Korjus argued that estcoins could “also be accepted as payment for both public and private services and eventually function as a viable currency used globally”.

But as dazzling as his post was, with its rarefied technical vocabulary, it lacked any explanation of how estcoins would differ from traditional publicly issued bonds, assets or currency. So what would be the point of establishing an Estonian cryptocurrency? ...

A few (possibly) related posts:

"Estonia could be the first country to do its own initial coin offering"
Who Defends the Virtual Countries of Tomorrow? (Estonia's digital citizenship)
"President of Estonia Calls Paul Krugman Smug, Overbearing, and Patronizing" 

Currencies: The Dollar Bounces (a little)

We're still looking for 90 on the DXY but  the last 26 hours have not furthered the cause.
92.55 up 0.37 last.
From Marc to Market:

US Dollar Recovery Extended
The US dollar recovery that began in North American yesterday continued to in Asia and Europe. The geopolitical anxiety sparked by North Korea's missile over Japan subsided. The US response was seen as measured and tempered. North Korea indicated that the missile test was to protest the annual military exercises of the US, South Korea and other allies in the region. During the military exercises last year, North Korea also protested with a missile launch.

Geopolitical tensions often seem to spur a short-lived even if the sharp reaction in the capital markets. However, recall that the dollar was already selling off before the latest developments on the Korean peninsula. The geopolitical developments accelerated the move, and then the profit-taking was triggered. The Australian dollar was among the weakest of the major currencies yesterday, and today it is the only major not weakening against the dollar.

The Dollar Index reached 91.62 yesterday, the lowest level since early 2015. The 91.20 area corresponds to the 50% retracement of the big rally since the middle of 2014. Our constructive strategic outlook for the dollar was fundamentally anchored into divergence theme, which we think is still intact (balance sheet and policy rates have not reached peak divergence). Our more tactical bearish stance on the dollar was, in part, based on the understanding that the dollar's down move this year is a correction to the rally since 2014. A break of the 91.20 area would suggest the risk of a new leg down to the 6.18% retracement, which is found near 88.25.

The long dollar position was crowded at the end of the year, but now formal surveys, some speculative positioning in the futures, anecdotal stories, the way implied vol moves in the options market, all point to the short dollar position as being overcrowded. In terms of time, we have anticipated a better fourth quarter for the dollar, but we are concerned that the US debt ceiling and spending authorization deadlines looming can weigh on the dollar first.

There is more talk that the strength of the euro could prompt a dovish tapering from the ECB next week. Tomorrow the EMU's preliminary August CPI will be reported. Today the Spanish and German reports warn of upside risks. Spain's CPI rose 0.2% in August for a 2.0% year-over-year pace. It was 1.7% in July, after peaking at 3.0% in February. The German states have reported firmer inflation figures, and the risk is on the upside of the national report due shortly, where the year-over-year rate is likely to rise from July's 1.5%. It peaked at 2.2% in February.

The euro closed last week at $1.1924, according to Bloomberg. It has been dipped briefly below $1.1940 today, after reaching $1.2070 yesterday. The 50% retracement of its decline since 2014 is found just below $1.2170. The consensus narrative of the euro's rally this year emphasizes the disappointment with progress on Trump's legislative agenda and the softer US inflation data. However, the one factor that does not get its fair due, in our view, is changed the political climate in Europe. Specifically, what signaled in the euro's move higher was the gap higher opening on April 24 when it became clear that the populist-nationalist wave was going to be turned back in France.

Last year, foreign investors sold roughly $100 bln of European equities. This year European equities have been a market favorite, and roughly $30 bln has returned. Yet the equity performance has been disappointing. The Dow Jones Stoxx 600 is up about 2.4% year-to-date. The real return for foreign investors comes from the dollar's slide. For dollar-based investors, the Dow Jones Stoxx 600 has returned 16.3% this year, compared with a 9.3% return for the S&P 500....MORE 
Here are the last couple weeks of the Dollar Index via FinViz:

Tuesday, August 29, 2017

Analyst (Rightly) Grew Suspicious of Gorgeous Woman Who Laughed at His Accounting Jokes

From Going Concern:
“And then I said, ‘It’s accrual world!'”
Earlier this year, we discussed a tradecrafty story out of The Wall Street Journal of a BDO auditor who “casually wandered around the accounting firm’s New York offices, striking up conversations with colleagues.” Little did anyone know, the auditor recorded those conversations for the Federal Bureau of Investigation with “a tiny recording device disguised as an ordinary Starbucks gift card” about AmTrust Financial Services, an audit client.

You see, AmTrust’s accounting practices have come under scrutiny of many interested parties besides the FBI, including the Securities and Exchange Commission, Harry Markopolos’s merry band of fraud-busters, and a slew of short-sellers. This scrutiny has put lots of pressure on the company. AmTrust announced a big restatement back in April, and its stock has been trading near its 52-week low ever since.

And now a new story from the Journal reports that some “mysterious strangers” have been popping around AmTrust’s most notable critics. One of these involved an analyst at research firm at GeoInvesting, and his suspicions grew for a very obvious reason:
Chris Irons, an analyst at research firm GeoInvesting LLC, which has published several reports critical of AmTrust’s accounting practices, said he was contacted in July by a woman who identified herself as a London-based consultant to a European software multimillionaire seeking contributors to a new investment website. He agreed to meet at a Philadelphia-area restaurant....

The Chomsky Trade and U.S. R&D Spending


I started my journalism career covering the stock market. And over the years I’ve interviewed many traders, strategists, and fund managers. But I never heard the phrase “Chomsky trade” until last week when I read “America tampers with the Chomsky trade at its peril,” a Financial Times op-ed by Mark Blyth, a professor of political economy at Brown University. From that piece:
There is a trade in finance known among some as the “Chomsky trade”, after the linguist and social critic Noam Chomsky. Mr Chomsky once pointed out that, if you want to know what’s worth investing in, look at what US federal research funding organisations such as the National Institutes of Health (NIH) and the Defence Advanced Research Projects Agency (Darpa) are investing in today, and then go long 30 years. In the 1950s, the big thing was transistors, which gave us the microelectronics revolution in the 1980s. In the 1960s, it was digital processing, which gave us personal computers in the 1990s. In the 1970s it was biotech, which started to come on line in the 2000s. And in the 1980s, it was the beginnings of machine learning and big data, which will transform much of the world of work in the 2010s and beyond. . . . Despite the ill-informed claims of politicians, the US government and the US taxpayer are the critical investors in basic scientific research, not the private sector. Private foundations fund only 6 per cent of US research and development. The federal government funds 55 per cent.
Now I’m not sure this is practical investing advice. For instance: Would knowledge about government aid to the embryonic semiconductor industry during the Eisenhower years necessarily have led you to invest in the best-performing stocks of the Reagan years, a lot of whom were retailers such as Walmart? (Though to be fair one retailer was Circuit City, the best performing stock of the decade, though that was a story about superstore innovation not tech innovation.)

Of course Blyth’s point is really one about public policy, not investment strategy: Government is the key driver of basic research, which as defined by the National Science Foundation is “activity aimed at acquiring new knowledge or understanding without specific immediate commercial application or use.”

But the numbers I have been able to dig up tell a somewhat different, or at least more nuanced story:
First, federal agencies provided only 44% of the $86 billion spent on basic research in 2015, according a recent Science magazine analysis, citing National Science Foundation data. That’s down from 70% in the 1960s and 1970s. Business spent a significant amount, $24.5 billion, or nearly 30% of total basic research spending. And its role has grown in importance over the decades.
Second, if you change the focus from basic research to applied research, business is really the leader with about 70% of total spending....MORE
Pardon me a moment as I consult the Chomskybot at "" for commentary:
Look On My Words, Ye Mighty, And Despair!
...This suggests that the descriptive power of the base component delimits nondistinctness in the sense of distinctive feature theory. If the position of the trace in (99c) were only relatively inaccessible to movement, a descriptively adequate grammar is to be regarded as a parasitic gap construction. It appears that the notion of level of grammaticalness is necessary to impose an interpretation on irrelevant intervening contexts in selectional rules. Let us continue to suppose that an important property of these three types of EC may remedy and, at the same time, eliminate the system of base rules exclusive of the lexicon. Conversely, the appearance of parasitic gaps in domains relatively inaccessible to ordinary extraction is unspecified with respect to the ultimate standard that determines the accuracy of any proposed grammar. 
Sounds about right, penny stocks in Europe. Deer nuts* to glory!
*(under a buck) 

"Alphabet's Google acts to comply with EU antitrust order"

From Reuters, Aug. 29:
Alphabet Inc’s Google (GOOGL.O) said it will notify EU regulators on Tuesday on how it plans to ensure its search engine does not favour its own shopping service over rivals’.

Google was hit with a record 2.4 billion euro ($2.9 billion) fine from the EU over the practice in June and has until midnight on Tuesday to come up with proposals to end the anti-competitive behaviour.
The European Commission said on June 27 that the world’s most popular Internet search engine had abused its dominance in Europe to give prominent placements in searches to its own comparison shopping service and demote those of rivals.

As well as ordering Google to come up with a solution, the Commission said the U.S. company must stop the practice by Sept. 28.

Google said it will communicate its compliance plan to the EU competition enforcer on Tuesday in line with the deadline....MORE
HT: Search Engine Land who ask: 

Will the proposal bring the consumer-unfriendly return of '10 blue links?
...Failing to meet the Tuesday deadline would expose Alphabet to additional fines, which could amount to millions of dollars per day. The question is: what will Google’s proposal look like? Will it affect shopping-related ad placement in search results? It’s not clear to me whether ads will be impacted.
Before current European Commission head Margrethe Vestager took office in late 2014 and adopted a more aggressive approach toward antitrust, Google was on the cusp of settlement with former European Commission competition chief Joaquín Almunia.

However, Almunia was unable to sell any of several Google proposals to colleagues and European politicians. Those proposals included modification of search results to make competitive offerings more prominent. A formal Statement of Objections was filed in April 2015 which stated the following:
  • Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits....

MUCH More On Hurricane Harvey's Econ Impacts

Cardiff Garcia does the heavy lifting.

From FT Alphaville:

Early estimates of Harvey’s economic impact
The awful devastation in Southeast Texas continued on Monday, with rains expected to continue well into the week.

If FT Alphaville readers want to help, we recommend donations to a local organisation such as those listed in this thread by Jia Tolentino. (FT Alphaville’s choice was the Texas Diaper Bank, which has been creating relief kits for displaced families.) The mayor of Houston has also started the Hurricane Harvey Relief Fund.

Given that the rains have not yet ended, these first estimates of Harvey’s potential macroeconomic impact should be accepted cautiously. We’ll be paying attention throughout the week for meaningful updates. In no particular order:

1) From the RBC commodity strategy team, a look at the potential effect on the oil market (our bolding throughout):
The impact of a storm of such magnitude and trajectory is fluid and has wide ranging implications for the oil market. While several regional refineries have reported no substantial damage from the storm, assessments of oil refineries and infrastructure are ongoing and the impact of the storm could be felt long after its passing in the event of extensive damage.
At initial glance, the development is bearish for crude oil from a demand perspective given that some 2 mb/d of refining capacity remains shut. This has, tangentially, also spurred a knee jerk price spike higher for refined products. Prompt month gasoline cracks have surged 25% since last Wednesday’s close en route to multi-year highs. The Texan Gulf Coast comprises nearly 27% of total US refining capacity. Further details surrounding the status of localized refineries will dictate the extent and tenor to which refined product prices remain elevated.
US Production Impact
While pockets of the Eagle Ford and US offshore production has been curtailed or suspended for preventative measures, hurricanes are not as bullish from a supply disruption standpoint as in years past. A decade ago, prior to the US shale revolution, the Gulf of Mexico made up a larger percentage of total US oil production (closer to 30% vs current levels near 15%). Simply put, there are fewer barrels at risk from an aggregate percentage of US production. In fact, many US offshore Gulf of Mexico barrels have been exported to Asia this year. While it is premature to rule out damage to elements impacting production, a growing source of US crude imports have come from Canada rather than waterborne routes.
And additional thoughts from RBC on the implications for global supply chains....MUCH MORE

"Hurricane Harvey's energy impact"

From Petroleum Economist:

A storm-ravaged Gulf Coast faces a large and complex recovery that could take longer than energy investors expect
In case you missed the wall-to-wall coverage, Hurricane Harvey slammed into the Gulf Coast, the heart of America's oil and gas industry and one of the world's largest energy hubs, on 25 August. Torrential rain is expected to keep falling on Houston and surrounding areas throughout this week.

The immediate concern is for the thousands affected by the flooding. But the fallout on energy markets will be great: supply, energy infrastructure and demand have all already been significantly affected by the storm.

Gasoline and other fuel prices quickly jumped more than 5% as the scale of the disaster became clear and refineries along the coast were shut down. WTI crude prices fell more than 2%, and the benchmark's discount to Brent spread to more than $5 a barrel for the first time since mid-2015, on reduced demand from Gulf Coast refiners.

Around 2.2m barrels a day of processing capacity was taken offline over the weekend, roughly 45% of Texas's Gulf Coast capacity and a fifth of the capacity in Padd 3, the broader Gulf Coast region. Most of the closures were focused around Corpus Christi, which suffered a direct hit from the hurricane. The city's five refineries and condensate splitters were all closed, including the Citgo, Valero and Flint Hills' major refineries, though none reported serious damage.

Most of the facilities are likely to try to reopen by the end of the week, which should mean a relatively short interruption. Still, due to widespread disruptions of personnel, power and infrastructure it will take many more days, if not weeks, for full capacity to be regained.
Bulging US crude and product inventories will help fill the gap, and could even accelerate a stock drawdown long sought by oil bulls and Opec ministers who have closely tracked the US' weekly inventory reports for signs of the market rebalancing.

But further refinery outages may lie in store. Some models predict Harvey will turn up the coast towards Louisiana, where another 3.7m b/d of crude processing capacity would sit in the storm's destructive path. Analysts at Tudor Pickering and Holt, the investment bank, have warned this could shutter 30% of the nation's refining capacity. Others say the tempest, which has been downgraded from a Category 4 hurricane to a tropical storm, would still pack enough punch to force facilities to shut down by the time it reached Louisiana.

Harvey is also disrupting oil output and the pipelines that ferry crude and products around the region. Nearly 20% of the Gulf of Mexico's production was shut in over the weekend—430,000 b/d—after a number of operators pulled personnel out of harm's way. However, no offshore platforms appeared to suffer serious damage and production had already started coming back by Monday afternoon, when the outage was down to 330,000 b/d, according to the Bureau of Safety and Environmental Enforcement.....MORE
The moves in RBOB have been dramatic (and a bit emotional - borderline bipolar - with the depression/fear emphasized):

Meanwhile in Australia: "Hey, If We Put Nano-RFID's in the Currency We Can Track Who Has The Money!"

Casinos have been putting RFIDs into higher denomination gambling chips for years.
One feature was highlighted in the 2010 $1.5 mil. Bellagio heist. You can, in effect, make the chips worthless, which thinking, if applied to currency, would put an "expiry date" on the bills after which they become wallpaper, thus forcing the spending the powers-that-be crave.

This is just another area of tech the casinos led the way on, others being facial recognition and a couple I'm not going to mention.

From, July 4:

Cash crackdown boss floats nano-chips in notes
THE man charged with cracking down on the “black economy” has revealed how he would like to keep track of your $100 and $50 notes.
Hi-tech nano-chips would be implanted in Australia’s “disappearing” cash under a plan floated by Michael Andrew, the head of the federal government’s Black Economy Taskforce.

Speaking to The Courier-Mail, Mr Andrew said too much cash was being hoarded under pensioners’ beds and stockpiled as a trusted currency in China.

Estimates for the size of Australia’s so-called black economy vary from $23 billion to $50 billion. The government claims tax avoidance through cash payments costs the budget up to $10 billion in revenue, money that could go towards funding welfare and other services.

In the May budget, the federal government announced an extra $32 million funding for the Australian Taxation Office to fund its cash crackdown, which it expects to bring in an extra $589 million in revenue over the next four years.

According to Mr Andrew, who will hand down his final report in October, there should be 14 $100 notes for every adult in Australia but there are fewer than that in circulation. While criminals prefer the $50 note, as the Reserve Bank pointed out in its defence of cash last year, foreign migrants and pensioners prefer $100s.

“You see a lot of Chinese don’t trust their banking system so they like to take Australian dollars back to China,” he told The Courier-Mail. “We’re seeing $100 notes used by pensioners because there’s an assets-based test at the moment and they like to keep a fair bit of cash under the bed.

“I’m working with the Reserve Bank and Austrac to get a better understanding of where our notes are. Clearly there’s a section of this that is organised crime. One of the options we would have is putting an expiry date on these notes.

“You could put a trace on some of these notes to see where they would go. You can use nano technology to put little chips in so you could then trace it.”

Last year, a report by UBS recommended Australia scrap the $100 note. According to UBS, benefits may include “reduced crime (difficult to monetise), increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning or hoarding cash)”.

Liberal Democrats Senator David Leyonhjelm at the time criticised the cash crackdown proposal, saying “the only people who are distressed by the cash economy are the government and the public servants who want to spend taxes”....MORE

World's First Diamond Futures Exchange Starts Trading in India

Here comes another bauble bubble.
From Bloomberg:
The world’s first diamond futures exchange will begin trading in India on Monday, enabling companies in the largest producer of the cut and polished gems to better hedge price risks.
“Indian manufacturers most require this type of financial product,” said Sanjit Prasad, managing director of the Indian Commodity Exchange Ltd. India carries the price risk of holding huge inventories of cut and polished and rough diamonds, he said.

The exchange, backed by companies including Reliance Capital Ltd. and MMTC Ltd., will start trading in 1 carat/100 cent contracts and will eventually add 50 cent and 30 cent contracts, he said. The futures, two-and-a-half years in the making, followed talks with the Ministry of Finance and the Securities and Exchange Board of India, Prasad said....MORE
HT: Alpha Ideas

I guess they've answered the question asked in 2012's "Paper Diamonds: How Do You Standardize Rocks So They'll Fit Inside An ETF Wrapper?"

Monday, August 28, 2017

So, This Dude In Florida Is Raising $100 Million Just To Short The VIX...

The natural inclination is to fade the action but hold on a second. This is more a sign rather than the sign.
From DealBreaker:
Every ill-fated bull market has its signature bubble asset. In retrospect, these trades always come to epitomize the delusions of their times, whether it’s the dot-com riches that tech stocks promised or the dream of American homeownership that underpinned the mortgage-backed securities boom.
No one knows exactly what class of asset will come to symbolize the markets of the 2010s. But thanks to Florida Target manager-cum-day trader Seth M. Golden, profiled today in the New York Times, there’s a solid case to be made for VIX:
Each morning, at the market’s open, Seth M. Golden, a former logistics manager at a Target store, fires up the computer in his home office in northern Florida and does what he has done for years: Put on bets that Wall Street’s index of volatility, the VIX, will keep falling.[…]
“There has been a lot of white noise,” said Mr. Golden last Tuesday on a day that the VIX plummeted more than 10 percent, allowing him to lock in profits from short trades. “You had North Korea, Afghanistan, Trump people resigning. But I was never nervous — so today I just sat back, ate some popcorn and cashed in my profits.”
The Golden Method has had results. In five years, per NYT, Golden has grown his personal riches from around $500,000 to $12 million, mostly by habitually shorting volatility. Now, that track record has helped Golden drum up some $100 million in investments from people who are presumably to busy to buy XIV themselves and would like to pay someone to do it for them via a hedge fund.
This is as perfect a Markets In The Year 2017 story as we’re likely to get. As is evident from VIX’s disquieting chill over the past few quarters, the Seth Goldens of the world seem to be tilting markets in their direction. But that doesn’t seem to bother them:
After every spike of fear must follow a longer period of calm, Mr. Golden contends, which, he argues, is a perfect scenario if your bias is to always bet against fear. “The nature of volatility is that it desensitizes over time,” he said. “Which is why the index has been tracking down for so long.” […]
“Yes, it is a crowded trade,” Mr. Golden acknowledged. “But I don’t worry about crowds — I just worry what the next existential shock might be.”
Anyone who’s been sentient for at least nine years can guess what the issue with a short-vol-centric hedge fund might be....MORE

"Oil Stocks & Hurricane Harvey: It’s Complicated"

This was part of the point of our one sentence introduction to Friday's "As Harvey nears Texas, analysts highlight re/insurers risk of losses":
It used to be the hydrocarbon extractors in the Gulf that offered the best (most volatile) trading opportunities but with the advent of less conventional sources of oil and gas, and changes in infrastructure, the insurers and reinsurers are where the hot money herd has migrated....
And today's detail from Ben Levisohn at Barron's Stocks to Watch:

How will Hurricane Harvey impact oil explorers like ConocoPhillips, Marathon Oil, and EOG Resources? It's not as simple as it is for refiners.
We know refiners have gotten a boost from Hurricane Harvey because outages should raise prices for refined good like gasoline. Is what's good for refiners bad for producers?

Not necessarily, despite he fact that the Energy Select Sector ETF (XLE) has declined 0.6% to $62.62. Morgan Stanley's Benny Wong and team call the impact on oil prices and oil explorer "more complicated." They explain why:
 Near-term impact to oil price is likely supportive for price, as the negative US production outages reduce global supply, yet medium term the answer is more dependent on the balance between US refinery and upstream outages. Hurricane Harvey will effect US offshore production, which is known per history, yet also will effect US shale production, primarily Eagle ford, and crude transportation (imports and exports) which is newer vs. history and lies in path of the stalled storm. Approximately 10% or 150 Mbpd of US offshore production is currently shut-in (39 platforms) and activity has likely slowed to stopped in the Eagle Ford shale, which represents ~1.4 MMbpd of production. The effect to shale could linger given the extent and catastrophic level of forecasted flooding which interferes with shale logistics and activity....MORE

Three More Potential Tropical Storms Developing

From Category 6:

Above:  Potential Tropical Cyclone 10 off the coast of Georgia and South Carolina, as seen by the GOES-16 satellite at 9 am EDT Monday, August 28, 2017. 
Image credit: NOAA/RAMMB. GOES-16 data are considered preliminary and non-operational
Tropical Disturbances PTC10, 93L, and 94E All a Threat to Develo
August 28, 2017, 1:31 PM
A Tropical Storm Watch is posted for portions of the coasts of South Carolina and North Carolina, thanks to the increasing development of an area of low pressure (formerly called 92L) located about 100 miles south-southwest of Charleston, South Carolina at 11 am EDT Monday. This system was designated Potential Tropical Cyclone Ten (PTC 10) by NHC on Sunday afternoon. Satellite images on Monday morning showed that PTC 10 had a modest amount of heavy thunderstorm activity that was gradually increasing in intensity and becoming more organized, but high wind shear of 30 - 40 knots was hindering development. The system was headed north-northeast at 9 mph on Monday morning, on a track that will take it very close to the Southeast U.S. coast on Monday and Tuesday. PTC 10 will bring heavy rains of 3 - 6” and rough surf to the coast of South Carolina on Monday, and to North Carolina and Virginia by Tuesday. The best chances for development into a tropical or subtropical depression or storm may come on Monday afternoon, when wind shear is expected at its lowest value this week, near 30 knots, according to the 12Z Monday run of the SHIPS model. In its tropical weather outlook issued at 8 am EDT Monday, the National Hurricane Center gave PTC Ten 2-day and 5-day odds of development of 90%. The storm is unlikely to gain sustained winds any higher than 45 mph as a tropical or subtropical cyclone, and will merge with a cold front and move to the northeast, out to sea, on Wednesday. An Air Force hurricane hunter plane will investigate PTC Ten on Monday afternoon. 
Figure 1. Projected 5-day rainfall from PTC 10 for the period Monday, August 28 – Friday, September 1, 2017. Image credit: NHC.
African tropical wave 93L expected to develop
A tropical wave that emerged from the coast of Africa on Sunday night was designated 93L by NHC on Monday morning. Satellite images on Monday morning showed that 93L had a modest amount of heavy thunderstorm activity that was growing in organization, with plenty of spin apparent in the cloud pattern. Wind shear was high, 20 – 30 knots, but was expected to fall to the low to moderate range, 5 – 15 knots, on Tuesday through Friday, according to the 12Z Monday run of the SHIPS model. This should allow the wave to develop into a tropical depression by Friday over the central tropical Atlantic....MUCH MORE
Saturday's heads-up:
Hurricane Watch: As Harvey Inches Back Toward The Gulf, Two More Atlantic-side Disturbances 

Also at Category 6:

August 28, 2017, 12:36 AM
Flood Calamity Continues In Houston and Beyond; Harvey Edges Toward Coast

"AI reduces the value of those who predict things for a living, such as whether a mark on an X-ray is a tumor, but it raises the value of those who use predictions to make judgments"

Following up on the cliffhanger ending to Saturday's "Where Are The Profits Of Big Data Flowing?":
There are a couple other aspects of the AI money flows that are becoming apparent, we'll be back with those next week.... 
Here's one example from Greg Ip at Real Time Economics, August 9 riffing on an HBR piece:

What Econ 101 Can Teach Us About Artificial Intelligence
The first chart you draw in Economics 101 is the downward-sloping demand curve. It shows that when the price of something drops, people consume more of it.

This elementary rule of economics is remarkably helpful in discussing the effects of technological change. As I wrote last week, when technology makes something cheaper, we consume more of it, often by finding new uses. This lesson repeats through history: When coal-fueled steam power became more efficient in the 1800s, demand for steam power and coal spread. When automated teller machines made it cheaper to operate bank branches in the 1980s, banks opened more branches.
My column cites spreadsheet programs like Lotus 1-2-3, whose arrival in the early 1980s made repetitive recalculation vastly simpler and faster. This reduced demand for bookkeepers but created more demand for people who could run numbers in new and interesting ways, such as accountants and management consultants.

In a recent article for the Harvard Business Review, Ajay Agrawal, Joshua Gans and Avi Goldfarb, economists at the University of Toronto who study artificial intelligence, say that in the 1990s, economists didn’t buy into the hype that the internet and the World Wide Web would upend everything:
“It wasn’t that we didn’t recognize that something changed. It was that we recognized that the old economics lens remained useful for looking at the changes taking place. The economics of the ‘New Economy’ could be described at a high level: Digital technology would cause a reduction in the cost of search and communication. This would lead to more search, more communication, and more activities that go together with search and communication. That’s essentially what happened.”
They apply that lesson to artificial intelligence and more specifically to machine learning, the use of powerful algorithms to make predictions from patterns in large quantities of data. Machine learning, they say, means many problems will be reframed as prediction problems. Autonomous driving no longer involves programming the car to respond in a certain way to a variety of controlled scenarios, but instead, to watch what humans actually do and then respond the same way.

How does this affect jobs? The authors says it depends on whether the technology competes with or complements what you do. Spreadsheets competed with what bookkeepers do (record keeping and calculation) and thus made them less valuable, but complemented what accountants and consultants do (analysis), and made them more valuable.

Mssrs. Agrawal, Gans and Goldfarb say that AI reduces the value of those who predict things for a living, such as whether a mark on an X-ray is a tumor, but it raises the value of those who use predictions to make judgments:
“When prediction is cheap, diagnosis will be more frequent and convenient, and thus we’ll detect many more early-stage, treatable conditions. This will mean more decisions will be made about medical treatment, which means greater demand for the application of ethics, and for emotional support, which are provided by humans.”
So AI will create winners and losers within and among industries and occupations. But what will the net effect be?....

And here's our link to that Harvard Business Review article:

Hydrocarbons: Early Effects of Hurricane Harvey On Refining and Petrochemicals

Two from Platts:

Aug 28, 1221 am EDT/421 GMT
NYMEX oil product crack spreads soar to two-year highs on US hurricane
Front-month NYMEX RBOB and heating oil crack spreads against NYMEX light sweet crude skyrocketed to two-year highs during mid-morning trade in Asia Monday, extending Friday's rise, amid concerns over Hurricane Harvey's impact on US Gulf Coast refining activity.

Related video:Asian gasoline market assessing Hurricane Harvey's impact on supply

NYMEX RBOB crack spread against NYMEX light sweet stood at $26.39/b as of 0334 GMT, while the NYMEX heating oil crack spread was at $21.87/b.

Both were at highs not seen since August 2015.
Crude oil futures though, were mixed.

At 0334 GMT, ICE October Brent crude futures rose 21 cents/b (0.4%) from Friday's settle to $52.62/b, while the NYMEX October light sweet crude contract was down 16 cents/b (0.33%) at $47.71/b.

After battering the coast and shutting some US refineries when it made landfall at Corpus Christi, Texas, late last week, Hurricane Harvey has now weakened to a tropical storm, the US National Hurricane Centre said Sunday.

Roughly 2.2 million b/d of capacity were currently down or being brought down. Corpus Christi area refineries were already shut ahead of the storm, and Houston area refineries Sunday were being taken down because of flooding.

"In terms of the global petroleum market, we see the impact as more of a passing ripple rather than a reason to revise the intermediate-term outlook for supply, demand, or prices," said Citi Futures energy futures specialist Tim Evans....MORE

August 26, 1248 pm EDT/1648 GMT
Factbox: Harvey spurs gas, petchem shut-ins, power outages 

* Formosa Plastics shut in its Point Comfort, Texas, petrochemical complex and implemented its "tropical weather procedures," a spokesman said. The facility has two steam crackers with a combined ethylene production capacity of nearly 1.5 million mt/year. The Point Comfort facility is about 90 miles northeast of Corpus Christi. Platts estimates its ethane feedstock consumption at about 100,000 b/d.

* OxyChem suspended operations at its Ingleside, Texas, facility. The company operates a 550,000 mt/year steam cracker at Ingleside, which is about 20 miles northeast of Corpus Christi. The company's partner in the facility is Mexichem. Platts estimates ethane feedstock consumption at the facility at 30,000-40,000 b/d.

* Chevron Phillips Chemical was monitoring Hurricane Harvey's approach to the Texas Gulf Coast on Friday, but a spokeswoman declined to say whether commissioning work at its two new polyethylene plants in Sweeny was affected. The 500,000 mt/year high density and 500,000 mt/year linear low density plants were mechanically complete in June and are undergoing commissioning with startup expected in October. Sweeny is 25 miles inland from the Port of Freeport, which was shut to all traffic Friday ahead of the storm. Phillips 66 shut operations at its liquefied petroleum gas export terminal in Freeport as well.

* Dow Chemical was shutting down its operations in Seadrift, Texas, which was in the path of Hurricane Harvey's expected landfall, the company said. "The Seadrift manufacturing site has begun implementing plans to safely shut down its operations," spokesman Jarrod Erpelding said in an email. He said Dow's other Texas and Louisiana sites remained operational. The Seadrift facility produces polyethylene, glycols and oxide derivatives. It has eight production units. Seadrift is between Corpus Christi and Port O'Connor in the middle of the Texas Gulf Coast, west of the area between Port O'Connor and Matagorda where forecasters expect Harvey to make landfall late Friday or early Saturday.

* There were outages Friday at LyondellBasell's Corpus Christi cracker (over 1.1 million mt/year of ethylene production capacity), Formosa's Point Comfort cracker complex (just below 1.5 million mt/year of capacity), and Occidental's Ingleside cracker (production capacity of 550,000 mt/year). The combined ethane demand for the plants is 80,000-90,000 b/d, based on the most recent data from Jacobs Consultancy's Hodson Report. "LyondellBasell is implementing our very detailed hurricane preparedness plans," company spokeswoman Chevalier Gray said. "While these plans vary from site to site, they are designed to mitigate the impacts of storms like Hurricane Harvey, including flooding. Out of an abundance of caution, we are conducting a controlled shutdown at our Corpus Christi site." The Corpus Christi complex produces ethylene, propylene and other petrochemical products....

Goldman Sachs On Hurricane Harvey and the Oil & Gas Business