Thursday, September 21, 2017

"Global macro in one page - Where is that inflation?"

From AMPHI Research & Trading via Disciplined Systematic Global Macro Views, Sept. 10:
Where is that inflation? Central banks have this fixation on 2% inflation as both a goal and a signal. Policies have been structured for the magic 2% and signals for balance sheet action are based on the inflation hitting 2%, yet current inflation has not been able to reach this number....MORE

"The Fed’s forecasts imply a tough (recessionary?) 2020"

Yesterday, along with Cardiff Garcia, Matthew Klein was showing off his  Federal Reserve chops in "Macro Live, Janet Yellen presser edition". Today he's going solo.

From FT Alphaville:
I think it’s a myth that expansions die of old age. I do not think that they die of old age.
–Janet Yellen, December 16 2015

The Federal Reserve released forecasts through the year 2020 for the first time on Wednesday. Those forecasts imply that America’s central bankers will deliberately tighten monetary policy to slow the US economy, possibly to the point of outright recession, by the early 2020s.

Every few months, the Fed polls the members of the Open Market Committee, which sets monetary policy, to ask them how they think real output, unemployment, and inflation will behave under “appropriate monetary policy” for the next several years. They also ask everyone where they think short-term interest rates should be at the end of each year.

There is no way to identify each individual set of forecasts. At least some policymakers think core inflation should be 2.2 per cent in 2019 and 2020, compared to the consensus of 2.0 per cent. Are these the same people who think short term interest rates should be unchanged from their current level in 2020, or are they those who want the policy rate to rise by nearly three percentage points? We currently have no way to know, which makes it difficult to assess how individual central bankers view the underlying forces affecting the economy and how monetary policy should respond.

With that caveat, it is possible to look at the distribution of forecasts to assess how the FOMC as a whole is thinking about the economy. Take a good look at the table below, with our highlights:...MORE

Wednesday, September 20, 2017

NVIDIA Partner Tesla Reportedly Developing Chip With AMD (TSLA; NVDA; AMD)

Today in leveraged WTFs....

From CNBC:
Tesla is working with AMD to develop its own A.I. chip for self-driving cars, says source
  • Tesla is working with AMD to refine its new chip, which will likely reduce its reliance on Nvidia.
  • GlobalFoundries CEO Sanjay Jha said it's working with Tesla on a chip.
  • Tesla has more than 50 employees involved in the project, including chip star Jim Keller.
Tesla is getting closer to having its own chip for handling autonomous driving tasks in its cars.
The carmaker has received back samples of the first implementation of its processor and is now running tests on it, said a source familiar with the matter.

The effort to build its own chip is in line with Tesla's push to be vertically integrated and decrease reliance on other companies.

But Tesla isn't completely going it alone in chip development, according to the source, and will build on top of AMD intellectual property.

AMD shares spiked after CNBC reported that the company is working with Tesla. Shares of the stock ended the day nearly 5 percent higher and continued to climb after hours.

On Wednesday Sanjay Jha, CEO of AMD spin-off GlobalFoundries, said at the company's technology conference in Santa Clara, California, that the company is working directly with Tesla. GlobalFoundries, which fabricates chips, has a wafer supply agreement in place with AMD through 2020.

A more power-efficient purpose-built chip could help Tesla get closer to delivering totally autonomous driving. Tesla CEO Elon Musk promised this year that capability will be available to consumers in 2019....MORE
HT: The Verge

The reason for the incredulous intro line:
Featured Automotive Partners
Tesla Motors and NVIDIA have partnered since the early development of the revolutionary Model S. Today, all Tesla vehicles—Model S, Model X, and the upcoming Model 3—will be equipped with an NVIDIA-powered on-board "supercomputer" that can provide full self-driving capability....

Automotive Partners

NVIDIA is always careful to use "Tesla Motors" in press releases to distinguish from their own line of Tesla GPUs, e.g.

Tesla Motors’ Self-Driving Car “Supercomputer” Powered by NVIDIA DRIVE PX 2 Technology
 so again, huh?

"Dollar Jumps, Yield Curve Dumps As Fed Sends 2Y Yield To Highest Since 2008"

Following up on this morning's "Currencies: Fall Guy", the dollar index is exuberant:
92.26 last, up 0.69
We're still going through  FT Alphaville's "Macro Live, Janet Yellen presser edition", until we get back here are some quick hits from ZeroHedge:

S&P Loses 2,500, Gold Tests $1300 As Fed Flattens Yield Curve
As Yellen's press conference began, Gold and stocks legged lower, taking out $1300 and 2500 respectively..

As we detailed earlier, the dollar spiked higher and the yield curve spiked lower following The Fed's hawkish statement. 2Y yields hit their highest since Dec 2008...

As December rate hike odds jumped to 63%.. so still not completely buying The Fed's plan...

The dollar spiked...

But the yield curve cracked notably flatter... as the long-end was unimpressed.

This is not what The Fed, or the banks, were hoping for. How long before bank stocks wake up?

Initial Cat Bond Reactions To Mexico City and Insurance Exposure for the Earlier Chiapas Earthquake

I mentioned one of the bonds in passing yesterday:
...We'll see if Mexico's oversubscribed FONDEN (El Fondo de Desastres Naturales) bond is wiped out.
It was floated at the end of July.
Here's Artemis with more, Sept. 20:

Mexico City hit by deadly M7.1 quake, causes significant property damage
Mexico has been hit by another major earthquake yesterday. The magnitude 7.1 temblor struck at 18:14:39 UTC (13:14 local) on Tuesday 19th September, with the epicentre near Atencingo in Puebla state, 75 miles from Mexico City. Extensive damage has been reported to buildings and the death toll stands at over 200 this morning.

The earthquake will result in insurance and reinsurance claims given the region it has impacted includes the capital city of Mexico. However, this earthquake at M7.1 is not sufficiently high on the magnitude scale to trouble the IBRD / FONDEN 2017 catastrophe bond.

Buildings have been reported toppled in Mexico City and other towns in the region, pictures and video footage show significant structural damage in the capital.

As of 08:00 UTC the latest reports suggest there have been 216 deaths due to the earthquake, a number which is likely to rise further.

The earthquake struck at a depth of 51km with shaking reported for a number of minutes. The geology of the region means shaking from quakes can be severe and in this case there has been a sideways motion that tore some buildings to the ground.

The BBC reports that 86 of the deaths are from Mexico City itself, with 71 people killed in Morelos state to the south of the capital, 43 reported dead in Puebla state, 12 in Mexico State, 3 in Guerrero and 1 in Oaxaca.

In Mexico City alone there are reports of over 44 locations where buildings have either collapsed or been badly damaged, including a school where the tragic deaths of at least 20 children have been reported, a six storey apartment block, a supermarket and a factory.

The recently issued FONDEN 2017 catastrophe bond, that provides the Mexico government with a $360 million source of earthquake and named storm disaster insurance protection, is likely safe from this quake event.

The FONDEN cat bond was triggered by the 8.1 magnitude quake that struck off the coast of Mexico on September 8th, which is expected to exhaust the $150 million Capital-At-Risk Series 113 tranche of Class A notes which are exposed to earthquakes striking Mexico.

That September 8th earthquake was close to the edge of the parametric trigger box, where as this recent M7.1 quake struck right in the heart of the parametric zone being so close to Mexico City, the area with the highest insurance and reinsurance market penetration in the country.

But at M7.1 this second quake is likely not high enough on the richter scale to trouble the cat bond, which is still going through a calculation process right now, despite the fact this earthquake looks to have been much more severe in terms of damage and impact to lives....MUCH MORE
And on the September 8th quake:

AIR puts M8.1 Chiapas, Mexico quake industry loss at up to $1.13bn
The September 8th magnitude 8.1 earthquake that struck off the coast of Chiapas, Mexico is estimated to have caused an insurance and reinsurance industry loss in a range from MXN 14 billion (US $787m) to MXN 20 billion (US $1.13bn), according to catastrophe modeller AIR Worldwide.

It’s a relatively high toll for an earthquake which damaged many rural areas and coastal towns in the region, high enough that some reinsurance capital support may be called on, particularly by commercial insurance providers.

The earthquake was the highest magnitude earthquake to affect Mexico in a century and has triggered the World Bank supported IBRD / FONDEN 2017 catastrophe bond’s earthquake tranche of notes. This cat bond tranche has been priced for a total loss by the market, as investors expect the full $150 million will pay out....MORE

International Energy Agency Commentary: "Looking for balance in the oil market"

From the IEA, Sept. 20:
There is more than one way to look at oil-market balances. The IEA uses a straightforward approach: supply minus demand, which we report in the monthly Oil Market Report as “Total stock changes and Miscellaneous.” Part of the calculation can be easily explained by changes in OECD stocks, floating storage and oil in transit. The remaining “miscellaneous to balance” is less clear. This element, which implies unreported non-OECD stock changes, has come under scrutiny recently particularly as Chinese crude-oil balances have risen to unprecedented levels.

The following commentary expands on the analysis we provided in the September issue of the Oil Market Report, where we took a close look at our “miscellaneous to balance” and drew a distinction between crude oil and product balances to have a clearer view of oil market developments.
The world oil market appears to have returned to balance this year, thanks to a substantial stock draw in the second quarter. As global demand exceeded supply, our balances in 2Q17 implied a 0.9 million barrels a day (mb/d) decline in inventories, the first draw since 4Q13. Somewhat counter-intuitively, the price of Brent was $4/bbl below the first quarter.
In 2Q17, refined product markets drew nearly 1 mb/d of stocks, as refining activity lagged demand growth. The OECD refined product stocks drew by 0.3 mb/d, implying a 0.6 mb/d draw from non-OECD countries. There is no comprehensive non-OECD stocks data to confirm this, however non-OECD total demand grew by 1.1 mb/d year-on-year in 2Q17 while refining throughput was flat. A 0.6 mb/d draw was close to the 0.5 mb/d implied build in 1Q17, so the stock draw would have been technically possible.

Forecasts of refinery runs and demand for 3Q17 and 4Q17 imply continued refined product stock draws. Even in 3Q17, when global headline oil balances show an oversupply of 0.4 mb/d, refined products are forecast to draw by a counter-seasonal 0.4 mb/d, in part due to the hurricane outages in the US Gulf Coast. The draw accelerates in 4Q17 and is double the size of our headline total oil balances....MUCH MORE, leading to the penultimate comment:
...In our view, the Chinese crude balance is price dependent. While it obviously contributed to the market equilibrium, it would be illogical for us to incorporate an assumption of Chinese implied stock builds in our forward-looking balances....

Anything New With the Ubester? Ah Yes: "Uber Faces Widespread Asia Bribery Allegations Amid U.S. Criminal Probe"

But of course.
We would expect nothing more, and accept nothing less.
'Tis Uber.

From Bloomberg:
  • An Uber employee is said to have paid Jakarta police
  • Law firm investigating possible quid pro quo in Malaysia
Uber Technologies Inc., facing a federal probe into whether it broke laws against overseas bribery, has embarked on a review of its Asia operations and notified U.S. officials about payments made by staff in Indonesia, people with knowledge of the matter said.

As the Justice Department looks into a possible criminal case, Uber is working with law firm O’Melveny & Myers LLP to examine records of foreign payments and interview employees, raising questions about why some potentially problematic business dealings weren’t disclosed sooner, said the people, who asked not to be identified because the details are private.

Attorneys are focused on suspicious activity in at least five Asian countries: China, India, Indonesia, Malaysia and South Korea. For instance, Uber’s law firm is reviewing a web of financial arrangements tied to the Malaysian government that may have influenced lawmakers there, the people said.

Uber said it’s cooperating with investigators but declined to comment further. Wyn Hornbuckle, a Justice Department spokesman, declined to comment.

Late last year, Uber had a run-in with Indonesia police over the location of an office in Jakarta providing support to local drivers, people with knowledge of the events said. Police officers said the space was outside city zoning for businesses, so an employee decided to dole out multiple, small payments to police in order to continue operating there, the people said. The transactions showed up on the employee’s expense reports, described as payments to local authorities....MORE
Regarding the headline, although this blog doesn't get very political I think we know how to.
We  can actually draw on some half- assed decent theoretical and more importantly, practical politics. In the case of Uber, Alinsky's Rules for Radicals #5 is always good for grins and giggles:
"Ridicule is man's most potent weapon." There is no defense. It's irrational. It's infuriating. It also works as a key pressure point to force the enemy into concessions.
We also used to work rule #13:
"Pick the target, freeze it, personalize it, and polarize it." Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions.
But with Kalanick gone that's back in the toolbox until another focus presents itself.

We really, really dislike big companies that play politics the way Uber does.

And Some Good News Out Of Mexico

Since the collapse of the schoolhouses in China's Great Sichuan Earthquake in 2008, folks who have to pay attention to this stuff dread reports of building collapses in general and schools in particular.
In the China quake, of the 87,000 killed at least 5,000 (official account) to 10,000 (parent's figures) kids were killed in their schoolrooms.

That's why we were watching for news of the schools in the Mexico earthquake. The very early reports were that the Enrique Rebsamen school in Mexico City and another, unnamed, school in Puebla had collapsed. There are quite a few deaths in the Capital but the Puebla story was in error, the second school building was actually located in Jojutla in neighboring Morelos state and the AP is reporting:
....Buildings also collapsed in Morelos state, including the town hall and local church in Jojutla near the quake's epicenter. A dozen people died in Jojutla.

The town's Instituto Morelos secondary school partly collapsed, but school director Adelina Anzures said the earthquake drill held in the morning came in handy.

"I told them that it was not a game, that we should be prepared," Anzures said of the drill. When the quake came, she said, children and teachers rapidly filed out and nobody was hurt....

Insurance: "Is 'Hurricane Fatigue' Set to Continue?"

From Risk Management Solutions' blog:
The midway point of the Atlantic hurricane season has just passed, and despite a relatively tame start, we have already witnessed two major U.S. hurricane landfalls — Harvey and Irma — in quick succession. It is the first calendar year on record where two hurricanes of Category 4 strength or greater have made landfall in the contiguous U.S. To add insult to injury, Maria has quickly intensified and is expected to be the fourth major hurricane of the season as it tracks through the Leeward Islands, an area left devastated by Irma less than two weeks ago.

With 13 named storms, seven hurricanes, and three major hurricanes, we have already met the National Oceanic and Atmospheric Administration (NOAA) definition of an above-average full Atlantic hurricane season. It is understandable that many in the insurance industry may be suffering from “hurricane fatigue” well before the calendar flips over to October.

But we should not be too surprised by this year’s activity. In August, NOAA elevated its 2017 hurricane season forecast originally issued in May, warning that this season had the potential to be extremely active. Several other seasonal forecasting agencies, such as Colorado State University and Tropical Storm Risk, also increased their May outlook reports during early August to call for a more active season.

It appears that these forecasts of an above-average season are increasingly being validated, with favorable conditions set to continue. With these forecasts in mind, what does the remainder of the 2017 hurricane season have in store?

Increased Chance of a Late Season La Niña
From October 1, hurricane activity tends to reduce, with an average of two to three named storms occurring before the official end of the season on November 30.
Table 1. October and November Atlantic hurricane climatology. Source: NOAA National 
Centers for Environmental Information, State of the Climate
However, the latest forecasts suggest we might see an active end to the season due to the influence of one of the primary drivers of seasonal activity in the Atlantic — the El Niño-Southern Oscillation (ENSO). My colleague, Christopher Allen, recently provided a detailed overview of the discovery and dynamics of ENSO, the planet’s largest source of natural climate variability.
ENSO remains in a neutral state at present, but equatorial sea surface temperatures in the central and eastern Pacific have been observed to be slightly below average during the last month. Similarly, sub-surface temperature anomalies have become increasingly negative in recent months. These cooler temperatures may signal cool-neutral or La Niña ENSO conditions in the coming months, favoring decreased Atlantic wind shear and offering a healthy environment for basin cyclogenesis.

Operational ENSO guidance favors cool-neutral conditions through the fall, but some models predict the formation of La Niña. In response, the Climate Prediction Center issued a La Niña Watch, indicating an increased chance of La Niña formation in the near term.
Figure 1. Summary of ENSO forecasts issued in September 2017. Source: NOAA
Although other climate signals can drive hurricane variability, historical late season cool-neutral ENSO phases have produced above-average activity in the latter months of the season. Weak La Niña conditions observed at the end of last season contributed to the formation of three major hurricanes in October and November....MORE
If interested see also yesterday's "Hurricanes, La Niña and Wind Strength"
"Investors taking more risk with cat bonds"

"The Morning After: Mexican Earthquake Leaves Over 248 Dead, Millions Without Electricity"

That's as somber a headline as I've ever seen at ZeroHedge:
Across central Mexico, rescue workers including soldiers and volunteers worked late into the night Tuesday to free the living who were still trapped in the rubble of collapsed buildings following Mexico's deadliest earthquake in more than 30 years.

The death toll from the 7.1 magnitude quake – which bizarrely occurred on the anniversary of a 1985 quake that left 5,000 dead – has climbed to 248, with more than half of those deaths occurring in the Mexican capital city.  It also comes two weeks after another powerful quake left nearly 100 dead in Mexico City. The quake was unusually close to Mexico City, located just 60 miles south of the capital in Chiautla de Tapia, a small town in neighboring Puebla state, according to Mexico’s seismological service.

More are feared dead, including possibly dozens of teachers and schoolchildren feared buried in the rubble of a Mexico City school, one of hundreds of buildings that was destroyed by the quake, according to Reuters.

Additionally, several buildings collapsed in the chic neighborhoods of Roma and Condesa in central Mexico City, where many foreigners live. In Condesa, rescue workers scrambled to find eight to 10 people believed trapped under the debris of a building that collapsed near Mexico Park, one of the city’s most famous parks. Hundreds of volunteers formed a human chain to help clear rubble and bring food and water to rescue workers.

Mexico was also hit earlier this month by Hurricane Katia, which killed two. Even the Popocatépetl volcano southeast of the city sent a large cloud of ash into the sky on Tuesday. “This is too much. It’s like we’re cursed or something,” said Marcos Santamaría, a 62-year-old retiree.

Philippines and the United Nations have offered to support the recovery effort. At least 30 second-grade students are still missing, along with eight adults.

Mexican President Enrique Pena Nieto said in a video message released late Tuesday that the initial focus of rescue efforts must be to find people trapped in wrecked buildings, according to the Associated Press.
"The priority at this moment is to keep rescuing people who are still trapped and to give medical attention to the injured people."...

They are pulling kids out of the Mexico City school we mentioned yesterday but no word on a second school in Puebla that may have collapsed.

Currencies: Fall Guy

DXY 91.55 down 0.02.

From The Macro Tourist:
In July I wrote a piece titled, “Is the real US Dollar Pain Trade Lower?”. At the time the US dollar was sucking wind, but many traders were still playing for a bounce. The prevailing wisdom was that the Fed’s tighter monetary policy, combined with Trump’s business acumen, along with a tax reform bill, and topped off with a massive short covering surge from emerging market US dollar denominated issuers, would ensure the two-year US dollar rally would continue.

In the article, I quoted Luke Gromen, who said, regarding a move down to 80 in the DXY, “…while COT (committment of traders) [data] shows more are cautious on the USD, as best I can tell, there isn’t a soul that thinks this kind of move is even possible.”

Yup, Luke was bang on correct, during the summer, precious few believed the US dollar would go down, forget about plunging more than 10%.
Earlier this year, according to most market participants, US dollar strength was inevitable due to all the reasons I suggested. Although Luke had been arguing his US-dollar-loss-of-reserve-currency-status theory for quite some time, apart from Grant Williams and some other hard money guys, Luke’s theories were not gaining traction. Hedge funds were much more enamoured with the soothing sounds emanating from the USD bullish investing crowd. The idea of the US dollar losing its reserve status was laughable. I remember suggesting something to that effect to a colleague and he chuckled, “what will possibly replace the US dollar? The Euro? The Yuan?”

Yet today, Luke is a rock star whose theories about the loss of US dollar reserve status are all the rage. Hedge funds and other traders are positioning their portfolios to take advantage of the coming US de-dollarization.

Now, don’t misconstrue this next part of my argument. Luke is a unique, big picture thinker that everyone should take the time to understand. No sense rehashing his arguments. Instead, if you haven’t listened to it, head over to MacroVoices to hear Luke’s interview. Although I agree with Luke’s long term conclusions, my quibbles have all to do with the timing of this inevitability....MORE

"Don’t you hate it when you become a billion-dollar company through no effort of your own, only to have some asshole take it away from you?"

Elaine Ou writng at her personal blog, Elaine's Idle Mind, Sept. 10:

R3 Should Have Used a Smart Contract
Don’t you hate it when you become a billion-dollar company through no effort of your own, only to have some asshole take it away from you?

Such is the plight of R3.

A year ago, Ripple gave R3 an out-of-the-money call option to buy 5 billion XRPs at $0.0085 apiece. Now that the price of XRP has gone up by 4000%, the option is worth a billion dollars and represents R3’s single most valuable asset. Ripple wants to renege, and R3 is understandably annoyed.
You guys!! This is exactly the type of thing that should have been done with a smart contract.
R3 is a busy consortium, so maybe they forgot what line of work they were in. A quick reminder: R3 created their own distributed ledger platform to execute smart contracts in a trust-minimized manner. It’s called Corda, and it already has a contract template to represent blockchain token assets.

People will be quick to point out that the Ripple agreement can’t simply be a smart contract, because there are weird edge cases and unforeseen circumstances that can’t be accommodated with code. For example, Ripple claims that they were misled in the agreement, because they thought they would benefit from R3’s banking partnerships. “R3 turns out to be useless” is not a state that can be codified by a smart contract.

That’s fine: Nobel Prize laureate Oliver Hart has a whole body of work about how to deal with incomplete contracts. The solution is to pre-allocate decision rights. In a Corda smart contract, it might look something like this:...MORE

Is Anything About Online Advertising Real? Uber Sues Their Ad Agency For Click Fraud

From Bloomberg: 

Uber Goes on Rare Legal Offensive, Suing Ad Agency for Fraud
Uber Technologies Inc. is accustomed to getting sued. Now it’s doing the suing. And it’s partly thanks to Breitbart News.

The global ride-hailing company is taking advertising agency Fetch Media Ltd. to court for click fraud, alleging that the firm improperly billed Uber for “fake” online ads and took credit for app downloads it had nothing to do with. Fetch is owned by the world’s fourth-largest advertising company, Japan’s Dentsu Inc.

Uber filed the lawsuit Monday afternoon in U.S. District Court in San Francisco. The company said it discovered something was amiss when it canceled a campaign on the conservative website Breitbart, where Fetch was placing Uber ads. As part of the lawsuit, Uber plans to seek at least $40 million in damages, according to people familiar with the matter, who asked not to be identified disclosing legal plans.

“We are shocked by Uber’s allegations which are unsubstantiated, completely without merit, and purposefully inflammatory so as to draw attention away from Uber’s unprofessional behavior and failure to pay suppliers,” Fetch Chief Executive Officer James Connelly said in a statement Tuesday. “We vigorously deny the allegations from Uber and will be responding robustly to ensure we set the record straight.”

Going on the offensive in court is a rare move for Uber. The company is a plaintiff in only two federal cases, according to data compiled by Bloomberg. Meanwhile, it has been a named defendant in about 250 federal cases. The data aren’t comprehensive but show Uber is usually on the defensive.
Online advertising fraud has been a problem for the industry since the dawn of the internet. The practice has grown more sophisticated in recent years along with the amount spent on such ads. Fetch has acknowledged the challenge publicly and said it was working with research firm Forensiq to “fight against mobile ad fraud.”

“One of the biggest challenges we face as digital marketers is to reduce mobile ad fraud,” Fetch’s Connelly said a year ago.

Around the same time, Fetch’s global head of media, Steve Hobbs, told Adweek that a “significant amount” of downloads in Fetch’s system are flagged as suspicious. “Where there’s money, there is fraud,” he told the publication. “Being 100 percent on top of it is an impossibility, but we think with Forensiq’s help we can get it significantly lower.”

Uber learned of the alleged fraud when it was trying to avoid scandal of a different kind. The company had asked Fetch not to post advertisements on Breitbart News, a site run by President Trump’s former chief strategist, Steve Bannon. But it saw ads appearing there anyway....MORE
Digiday says:

‘An industrial complex’: Why the Uber-Fetch lawsuit won’t change anything
The latest marketer-agency suit to rattle the industry will have many claiming the death knell for agencies. 

On Monday night, The Wall Street Journal reported that Uber had filed a suit against Dentsu-owned mobile ad agency Fetch, alleging the agency had failed to return rebates to the brand and misrepresented how effective its media buys were. It also alleged that Fetch caused $50 million worth of damage to Uber by purchasing nonexistent and fraudulent ads for Uber without telling the company.

But unfortunately — or fortunately, depending on where you sit — agencies won’t be so quick to get killed off. After all, a $48 billion business is hard to kill. And as everyone from Publicis Groupe’s Rishad Tobaccowala to Pivotal analyst Brian Wieser has said, agencies are like cockroaches — they end up surviving.

“Advertising is an industrial complex,” said Engine chief experience officer and Deep Focus founder Ian Schafer. “There are as many forces propping it up as trying to disrupt it.” 

In a statement, Fetch CEO and co-founder James Connelly not only said Fetch had not engaged in anything Uber was accusing it of, but that Uber itself was unprofessional: Fetch claims Uber stopped paying invoices for services provided by 50 vendors Fetch had worked with to place its advertising — and that Uber claimed ad fraud as a reason to not pay invoices.

“Any negativity around the industry doesn’t help. There may be short-term fallout, with some clients questioning whether they should take their mobile budgets in-house,” said Ollie Bishop, CEO at Roast. But in the longer term, this may encourage transparency between clients and agencies, he said....MORE

Tuesday, September 19, 2017

"Major Hurricane Maria Poised To Devastate Puerto Rico"

This is very bad.
From the National Hurricane Center:
12:00 AM AST Wed Sep 20
Location: 17.4°N 64.9°W
Moving: WNW at 10 mph
Min pressure: 908 mb
Max sustained: 175 mph

Up to 150 mph sustained winds when it gets to Puerto Rico, who knows what the gusts will be clocking.

From the blog at
Maria continues to strengthen this evening as it moves towards Puerto Rico. I’ve already gone over the forecast for Maria, but some of the key points bear repeating as the storm is forecast to be a devastating event for Puerto Rico.

Satellite imagery of Maria shows a nearly perfect system. It’s hard to find a flaw anywhere in its structure. A very clearly defined eye is visible and is surrounded by a region of extremely powerful thunderstorms. Outflow continues unimpeded in all directions, and well-organized spiral bands extend out from the center. Maria’s satellite image belongs in the intense hurricane textbooks, and that’s not good news for Puerto Rico. If you’re interested in learning more about satellite imagery and how to find/read maps like this at, check out this video.
When a hurricane threatens the mainland US, escaping the storm is fairly straightforward for most people: get in a car, and drive out of harm’s way....MUCH MORE

"Investors taking more risk with cat bonds"

For the last decade and in particular the last three years some people have been acting as though cat bonds were the new risk-free rate.

From Pensions & Investments, Sept. 19:
Positive performance and higher coupon rates relative to investment-grade debt has increased demand for catastrophe bonds in recent years. The increased demand and relatively lower supply has pushed coupon rates lower on new issues despite an increase in the average expected loss. More than $10 billion in new debt has been issued so far in 2017, bringing the total amount of outstanding issues to $30 billion.

The ratio of the average coupon offered by cat bonds to their expected loss provides a metric of the risk investors are willing to accept for each unit of return. That ratio is about half of what it was in 2013 and down 20% from 2016.
Also at P&I, Sept. 7:
Stormy seas ahead for cat bond holders

We'll see if Mexico's oversubscribed FONDEN (El Fondo de Desastres Naturales) bond is wiped out.
It was floated at the end of July.

Mexico Earthquake Death Toll Up to 73

Damn, damn, damn.
This is from Earthquake-Report who are now refreshing their page every five minutes:
Update 21:03 UTC:  Number of fatalities with the repartition in states and cities

Screen Shot 2017-09-19 at 23.02.40-compressed

That number is already known to be too low for Mexico City and there's no report yet from the elementary school that collapsed in the capital and another in Puebla.

"At Least 5 Dead, Many Trapped After Powerful Quake Rocks Mexico City"

From ZeroHedge:
Update (4:05 pm ET): The BBC is reporting that several deaths have already been reported as a result of the quake. Reuters says at least five have been killed. The AP quoted Mexico City's mayor as saying that there are reports of peole still trapped in collapsed buildings....Much More
The city of Puebla, southeast of Mexico City, appears to have suffered even more. Via Earthquake-Report:

Update 19:16 UTC:  Earthquake impact numbers are frightening !
Screen Shot 2017-09-19 at 21.14.51-compressed
Screen Shot 2017-09-19 at 21.15.25-compressed
Update 19:08 UTC:  Another video of many building in dust clouds...

Cementos de Mexico up On 7.1 Mexico City Earthquake (CX) - UPDATED

Fortunately not many injuries being reported for this sizable event.
Here's the USGS (blogroll, right) initial report:
18.584°N 98.399°W
51.0 km

We'll be back with more.
The cement company is up 8/10% at $9.15.

Update: ah hell buildings are down:

For Sale: Very Large Palm Beach Estate (ignore the hurricane)

Priced for quick sale.
Possible fixer-upper.

Via Zillow:

1800 S Ocean Blvd, Palm Beach, FL 33480 
7 beds 11 baths 24,000 sqft
Extraordinary opportunity to own a private compound on nearly 2.5 acres of irreplaceable Palm Beach property. This gated compound offers a 1923 Mizner designed estate & guest house and has 300 feet of oceanfront property with a private beach and nearly 300' on the Lakefront with a dock. Swimming & lap pools, ponds grace the elaborate gardens with beautiful shade trees and privacy...MORE

I'm not sure I would have gone with 'irreplaceable' in the listing.

A quick look at HurricaneCity show these 'canes:
King, How, Hazel, Judith, Donna, Cleo, Isbell, Abby, Dottie, David, Isadore, Bob, Gordon, Jerry, Mitch, Irene, Frances, Jeanne, Katrina, Wilma, Ernesto, Fay, Matthew, Irma,
Hmmm. Those are just the named storms. And the Weather Service only started naming in 1950.

Longest gap between storms
14 years 1910-1923

How often this area gets affected?
brushed or hit every 2.07 years

...Behold a Pale Horse: and his Name that sat on him was Death, and Hell Followed with Him.

In other news....

That's a joke.
And I'm reminded I forgot to post "When Dark Humor Stops Being Funny". Maybe this weekend.

The reason for the hyperbole is the Federal Reserve, the interpreters thereof and their likely effect on the forward march of humanity.

No pressure.

"China Upgrading Milky Way 2 Supercomputer to 95 Petaflops"

It was just six days ago we posted "The Astonishing Engineering Behind America's Latest, Greatest Supercomputer" and bitched at the source of the headline and story, Wired:
What's truly astonishing is that:
a) Wired does not mention the graphics processing units are from NVIDIA
b) the Chinese may have taken an insurmountable lead in the need-for-speed derby and the ORNL computer, designed to be the world's fastest may not make it.
The folks at Wired are smart and have been on the tech beat for a long time, they should know better than to do puff pieces.  
If interested in this stuff, whether for modeling complex-chaotic systems such as markets or weather or for national security applications or just because supercomputers are amazing in their own right see also:...
I apparently was crabby that day.
I'll repost the ten fastest 'puters from the Top500 list after the jump so you can see what a lead China is building at the pinnacle of the computer-makers art.
From Inside HPC [high performance computing]:
We have some breaking news from the IHPC Forum in Guangzhou today. Researchers in China are busy upgrading the MilkyWay 2 (Tianhe-2) system to nearly 95 Petaflops (peak). This should nearly double the performance of the system, which is currently ranked at #2 on TOP500 with 33.86 Petaflops on the Linpack benchmark. The upgraded system, dubbed Tianhe -2A, should be completed in the coming months.
Details about the system upgrade were presented at the conference opening session. While the current system derives much of its performance from Intel Knights Corner co-processors, the new system swaps these PCI devices out for custom-made 4-way MATRIX-200o boards, with each chip providing 2.46 Teraflops of peak performance.
According to tweets posted by Satoshi Matsuoka, the upgraded system is impressive in that it is only 2+years in making design-to-board, wit/80,000 chips for the upgrade....MORE
A bit over a year ago we were impressed that China had built the world's fastest machine, still ranked #1, with all-Chinese tech:
June 2016
China has had the world's fastest computer for the last three years or so, the Tianhe-2, which used Intel microprocessors so this latest computer is a remarkable achievement. The U.S. plans to recapture the top spot for the first time in five years years when Oak Ridge builds their latest machine using IBM CPUs, NVIDIA GPUs and NVIDIA's NV Link tying it all together. The ORNL 'puter should hit either the Nov. 2017 or June 2018 Top 500 lists....
 (Milky Way 2 uses Intel) but now #2 is about to become #1 and I am out of superlatives.

Rank System Cores Rmax (TFlop/s) Rpeak (TFlop/s) Power (kW)
1 Sunway TaihuLight - Sunway MPP, Sunway SW26010 260C 1.45GHz, Sunway , NRCPC
National Supercomputing Center in Wuxi
10,649,600 93,014.6 125,435.9 15,371
2 Tianhe-2 (MilkyWay-2) - TH-IVB-FEP Cluster, Intel Xeon E5-2692 12C 2.200GHz, TH Express-2, Intel Xeon Phi 31S1P , NUDT
National Super Computer Center in Guangzhou
3,120,000 33,862.7 54,902.4 17,808
3 Piz Daint - Cray XC50, Xeon E5-2690v3 12C 2.6GHz, Aries interconnect , NVIDIA Tesla P100 , Cray Inc.
Swiss National Supercomputing Centre (CSCS)
361,760 19,590.0 25,326.3 2,272
4 Titan - Cray XK7, Opteron 6274 16C 2.200GHz, Cray Gemini interconnect, NVIDIA K20x , Cray Inc.
DOE/SC/Oak Ridge National Laboratory
United States
560,640 17,590.0 27,112.5 8,209
5 Sequoia - BlueGene/Q, Power BQC 16C 1.60 GHz, Custom , IBM
United States
1,572,864 17,173.2 20,132.7 7,890
6 Cori - Cray XC40, Intel Xeon Phi 7250 68C 1.4GHz, Aries interconnect , Cray Inc.
United States
622,336 14,014.7 27,880.7 3,939
7 Oakforest-PACS - PRIMERGY CX1640 M1, Intel Xeon Phi 7250 68C 1.4GHz, Intel Omni-Path , Fujitsu
Joint Center for Advanced High Performance Computing
556,104 13,554.6 24,913.5 2,719
8 K computer, SPARC64 VIIIfx 2.0GHz, Tofu interconnect , Fujitsu
RIKEN Advanced Institute for Computational Science (AICS)
705,024 10,510.0 11,280.4 12,660
9 Mira - BlueGene/Q, Power BQC 16C 1.60GHz, Custom , IBM
DOE/SC/Argonne National Laboratory
United States
786,432 8,586.6 10,066.3 3,945
10 Trinity - Cray XC40, Xeon E5-2698v3 16C 2.3GHz, Aries interconnect , Cray Inc.
United States
301,056 8,100.9 11,078.9 4,233

The $100M Synthetic Biology Bet From Bayer and Ginko Bioworks (YAR:Oslo; CF)

You may have noted yesterday's pop in CF Industries (6.7%, largest in the S&P 500) which followed the upgrade of the world's largest nitrogen fertilizer company, Norway's Yara.
If this Bayer joint venture works out CF and Yara may not be long term holds.

Which is a shame, partly because the founder of Yara's predecessor, Norsk Hydro was one of my heroes when I was a kid. And now Norway is taking Birkeland off the 200 Kr banknote and replacing him with a fish. And this, of course.

From Xconomy Boston:

How Bayer and Ginkgo Teamed Up in a $100M Synthetic Biology Bet 

Nitrogen is essential for plant growth and photosynthesis, but plants can’t pull it directly from air. They rely on bacteria on their roots to convert the gas into a usable form. Many major food crops don’t have these bacteria but Bayer wants to change that. The multinational company is teaming up with Boston startup Ginkgo Bioworks to form a new company, placing a big bet on technology to engineer new microorganisms that could bring nitrogen fixation to more crops, and reduce the amount of nitrogen fertilizer farmers need.

The Bayer/Ginkgo joint venture does not yet have a name, but it does have financing. The partners, joined by Viking Global Investors, have committed $100 million to the new company. Bayer already has a biologics business that sells agricultural microbes used to improve plant health. But Mike Miille, vice president of strategy and business management for Bayer’s biologics division, and interim CEO of the new company, says Bayer has been looking for ways to bring agricultural microbials further, taking on problems such as nitrogen fixation.

“Taking the technology that Ginkgo has, and using it with the beneficial microbes that we have at Bayer, we are essentially able to come up with a new line of microbes that address some of these issues,” he says.

At least, that’s the goal. In Ginkgo, Leverkusen, Germany-based Bayer has a partner with experience developing microbes now found in a wide range of uses. Consumers can taste and smell Ginkgo’s work in beverages and perfumes. The company figures out the compounds that produce a particular flavor or odor, then designs microorganisms that produce those compounds, says Ginkgo CEO Jason Kelly. The work combines information technology and biology. Software designs the DNA that gives a microbe the instructions to make something, such as a flavor compound. Once Ginkgo has designed the DNA and developed the new microbe, Ginkgo has the capability to produce the microbes at scale.

Companies that use compounds made from Ginkgo-engineered microbes include food giants Cargill and Archer Daniels Midland (NYSE: ADM). Last year, Ginkgo raised $100 million to expand. Kelly says that though Ginkgo has been looking for new partners, the company was not actively pursuing ways to apply its technology to agriculture. Late last year, he received an inquiry from Bayer....MORE
Some of our previous posts on Birkeland can be found at "Shipping: He May Not Have Received His Nobel Prizes But The World's First Fully Electric Autonomous Container Ship Will Be Called the Birkeland"

Hurricanes, La Niña and Wind Strength

In our August 22 post "Hurricane Watch: 'Atlantic tropical activity forecast above-average over next two weeks'" we dropped a little Easter egg for diligent reader to find:

This is our first heads-up of the season. Although we are 83 days into it, the season is still around three weeks from the statistical peak. From NOAA....

...From Unisys the Sea Surface Temperature anomaly map:

The extreme anomaly we saw along the US eastern seaboard in May has dissipated a bit but is still running above the 30-year average.
Meaning storms that get to, say South Carolina, will have fuel to intensify.

Probably more interesting is the west coast of South America at the equator and extending out to the Dateline: that damn near looks to be a budding La Niña....

We followed that with September 15's "NOAA Climate Prediction Center: 'ENSO Alert System Status: La Niña Watch'"

And here's the reason it's important, from NOAA's

Impacts of El Niño and La Niña on the hurricane season
With the approach of the 2014 hurricane season and the strong potential for El Niño to develop during the next few months, the effect that El Niño has on both the Atlantic and Pacific hurricanes seasons is worth exploring. The hurricane impacts of El Niño and its counterpart La Niña are like a see-saw between the Pacific and Atlantic oceans, strengthening hurricane activity in one region while weakening it in the other.

Typical influence of El Niño on Pacific and Atlantic seasonal hurricane activity. Map by NOAA, based on originals by Gerry Bell.
Simply put, El Niño favors stronger hurricane activity in the central and eastern Pacific basins, and suppresses it in the Atlantic basin (Figure 1). Conversely, La Niña suppresses hurricane activity in the central and eastern Pacific basins, and enhances it in the Atlantic basin (Figure 2).

Typical influence of La Niña on Pacific and Atlantic seasonal hurricane activity. Map by NOAA, based on originals by Gerry Bell.
These impacts are primarily caused by changes in the vertical wind shear, which refers to the change in wind speed and direction between roughly 5,000-35,000 ft. above the ground. Strong vertical wind shear can rip a developing hurricane apart, or even prevent it from forming.

ENSO perturbs tropical and subtropical atmospheric circulation
During El Niño, the area of tropical Pacific convection and its associated Hadley circulation expand eastward from the western Pacific, sometimes extending to the west coast of South America. (A tutorial on El Niño and La Niña can be found at the NOAA Climate Prediction Center website.) At the same time, the equatorial Walker circulation is weaker than average.

These conditions produce an anomalous upper-level, ridge-trough pattern in the subtropics, with an amplified ridge over the subtropical Pacific in the area north of the enhanced convection, and a downstream trough over the Caribbean Sea and western tropical Atlantic. Over the central and eastern Pacific, the enhanced subtropical ridge is associated with weaker upper-level winds and reduced vertical wind shear, which favors more hurricane activity.

Over the Atlantic basin, the amplified trough is associated with stronger upper-level westerly winds and stronger lower-level easterly trade winds, both of which increase the vertical wind shear and suppress hurricane activity. In addition to enhanced vertical wind shear, El Niño suppresses Atlantic hurricane activity by increasing the amount of sinking motion and increasing the atmospheric stability.

La Niña has opposite impacts across the Pacific and Atlantic basins. During La Niña, the area of tropical convection and its Hadley circulation is retracted westward to the western Pacific and Indonesia, and the equatorial Walker circulation is enhanced. Convection is typically absent across the eastern half of the equatorial Pacific.

In the upper atmosphere, these conditions produce an amplified trough over the subtropical Pacific in the area north of the suppressed convection, and a downstream ridge over the Caribbean Sea and western tropical Atlantic. Over the central and eastern subtropical Pacific, the enhanced trough is associated with stronger upper-level winds and stronger vertical wind shear, which suppress hurricane activity. Over the Atlantic basin, the anomalous upper-level ridge is associated with weaker upper- and lower- level winds, both of which reduce the vertical wind shear and increased hurricane activity. La Niña also favors increased Atlantic hurricane activity by decreasing the amount of sinking motion and decreasing the atmospheric stability....MORE
And wind speed?
These long haul Cape Verde storms coming off the Sahara would have been torn apart in prior seasons of the last decade or not even formed if, as was the case for quite a chunk of the "twenty-teens" the wind had been laden with sand/dust in the very dry Saharan Air Layer.

The fact the disturbances are not ripped to shreds by wind shear means they have more time to develop.
Look at the Unisys Sea Surface Temperature anomaly map again. The SST anomalies are not exceptionally warm - compared to the 30 year average - from the coast of Africa, the Main Development Region, until you get inside the Leeward Islands and south of Hispaniola but the lack of wind shear means disturbances heading west across the Atlantic have the opportunity to develop into tropical depressions, then into tropical storms and then into hurricanes.

And then, if they are already full blown storms to start with, hitting the warmer waters with their terajoules of energy they can explode. The atomic bomb exploded on Hiroshima was around 63 terajoules so a storm like Harvey (not a Cape Verde, rather a Golfo de México ) which was moving the equivalent of a million Hiroshima nukes worth of energy per day from the 86°F Gulf water would more accurately be measured in exajoules (1018 [one quintillion] joules) and Irma was moving even more energy, but it's at this point I start to get confused so we'll stop now.

There are dozens of La Niña posts on the blog, use the 'Search blog' box if interested.
The search box is a Google product which distinguishes between "n" and tilde "ñ".
If you go tilde-less you only get results where someone forgot their Spanish. Ahem.

To make a lowercase ñ in Microsoft Windows, hold down the Alt key and type the number 164 or 0241 on the numeric keypad (with Num Lock turned on). To make an uppercase Ñ, press Alt-165 or Alt-0209. Character Map in Windows identifies the letter as “Latin Small/Capital Letter N With Tilde”.

"Mapped: The Top 263 Companies Racing Toward Autonomous Cars"

Think you know the players?

From Comet Labs via Wired:

Forget dot coms and social networks. The hotspot for research and investment in Silicon Valley right now is the future of transport. Convince the valley you have a new way to create a brain for a self-driving car, help people find parking, detect a drowsy driver, or build a personal electric plane, and you'll find yourself showered in VC funding.

That explains the madness of the above chart (desktop users: mouse over for a zoomed in view). The "Future of Transportation Stack," produced by VC firm Comet Labs, counts 263 companies, most of which you’ve probably never heard of, all of them vying to cash in on the nascent automotive revolution.

"We really wanted to make a comprehensive list of AI startups in this space, and also the enabling technologies," says Taylor Stewart, who heads up transportation at Comet Labs. She spent weeks poring over company data to find the most interesting, based on criteria like employees, interaction with academia and universities, valuation, and approach to whatever problem they're targeting. “We’re sure there’s some people we’ve missed globally, but this is our research into who’s taking a unique approach to the problems.”

The stack functions as a mix of shopping list and how-to guide for autonomous cars. Start at the bottom and grab the sensors that will let your car see the world: lidar, cameras, radar. The autonomy bit comes in the middle of the stack because you need more than driving skills to win this game. The top rung goes to the startups with ideas on how to make driverless cars useful, secure, and profitable. That's where you’ll find Uber and Lyft, along with lesser known folks like RideCell, which works with mass transit agencies.

Of course this chart only gives one layer of information—that these companies exist. Under the calm surface of a neatly ordered diagram, the picture is more complex, because these companies are all interacting with each other, and the larger, more established car companies......MORE

"...The supposed cost of privacy laws to consumers and to companies may be lower than perceived"

From The Register, Sept. 19:

Google's data hoarding is like homeopathy. It doesn't work – study
Boffins find search quality unaffected no matter how much information web giant amasses
Data, it has been argued, is the new oil – the fuel for the information economy – but its importance to search engines may be overstated.

In a paper published Monday through the National Bureau of Economic Research, Lesley Chiou, an associate professor at Occidental College, and Catherine Tucker, a professor at the MIT Sloan School of Management, all in the US, argue that retaining search log data doesn't do much for search quality.
Data retention has implications in the debate over Europe's right to be forgotten, the authors suggest, because retained data undermines that right. It's also relevant to US policy discussions about privacy regulations.

A decade ago, Google changed its search data retention policy for server logs from as long as it wants, to... as long as it wants, with a caveat: the data is identifiable only for the first 18‑24 months, after which it gets anonymized.

It was an issue other search engine providers like Microsoft and Yahoo! had to confront, too.
By 2008, Google had settled on the removal of the last 8 bits of the IP address after nine months, and on more substantive anonymization after 18 months.

At the time, the company said one of its reasons for keeping search logs was "to improve our search algorithms for the benefit of users."

There are other reasons to retain data, such as legal compliance and anti-spam efforts.

But it can be beneficial to avoid keeping too much data around. Data retention turns a company into a magnet for legal requests and represents a liability in the event of hacking. Storage infrastructure also has a cost.

To determine whether retention policies affected the accuracy of search results, Chiou and Tucker used data from metrics biz Hitwise to assess web traffic being driven by search sites....MORE
Also at The Register:
Google tracks what you spend offline to prove its online ads work. And privacy folks are furious

Monday, September 18, 2017

Shipping: "CMA CGM Confirms Nine Ship Order in Strong Q2 Results"

There have been rumors of the ship orders for months but this is the first time CMA CGM has acknowledged they are buying multiple copies of what will be the largest container ships in the world.
From Port Technology:

CMA CGM has confirmed its latest ship order of nine 22,000 TEU vessels after sharing impressive first half results for 2017, with a strong increase in shipping volumes driving revenue by 56.8% in comparison with Q2 2016 to reach US$ 5.55 billion.

Volumes carried by the world’s third-largest shipping line grew by 33.3% in comparison to Q2 2016, largely due to the integration of APL and the launch of Ocean Alliance.

The company also confirmed that its vessel capacity is only going to rise as an order for nine 22,000 TEU ships will see new vessels enter into service from the end of 2019 to “keep pace with market growth and the group's needs”.

CMA CGM said that it expects the newbuilds to further reduce unit transport costs, particularly on the Asia-Europe routes.

An increase in freight rates on most of the group's lines also led to a 12.5% increase in average revenues per container in the second quarter of 2017.
CMA CGM stated that the company has positioned itself as “the best performing player in the global container shipping market in terms of core EBIT margin” for Q1 of 2017.

The carrier reported a core EBIT margin of 8.9% to US$ 472 million, with APL contributing $137 million to the results after its acquisition a year ago....MORE

The Loadstar highlighted CMA CGM's bragging: "CMA CGM 'outperforms the industry' as Q2 profits hit $227m" and illustrated the story with a pic of  one of the shipper's current big boats, the Benjamin Franklin at 17, 859 TEU:
 CMA CGM Benjamin Franklin

The newbuilds will surpass the OOCL and Maersk leviathans which run 21413(x3) and 20568(x4) TEU respectively.

The pic of big Ben reminds me I'd intended to embed this timelapse of a 30 day voyage, from Digg: