Monday, October 23, 2017

"What The ECB Will Announce This Week: A Summary Of All QE Tapering Scenarios"

From ZeroHedge:
The main risk event in the coming week, in addition to a barrage of corporate earnings, will be the ECB's long-awaited announcement of what the central bank's QE tapering will look like.

Conveniently, thanks to a trial balloon released on October 12, we already know the general parameters of this phasing out of monetization: ECB officials are considering cutting their monthly bond buying by at least half, from €60BN to €30BN, starting in January and keeping their program active for at least nine months, with some potential reference to a lengthening of the maturity of purchases.

According to a Bloomberg survey, the ECB will likely keep buying for about nine months to take the program to just over €2.5 trillion, respondents said before the ECB’s Oct. 26 decision. That’s consistent with what some officials see as the limit in the market under current rules. ECB President Mario Draghi is predicted to announce his first interest-rate increase in early 2019.
According to Bloomberg, "such an outcome for quantitative easing would soothe the concerns of policy makers who want a definite signal that the program will end, while giving succor to those who want to keep stimulus flowing as long as the inflation outlook remains lackluster. It doesn’t resolve the question of what happens in a year if consumer-price growth still isn’t on track to the ECB’s goal."
“There has been no dissenting voice at the ECB ahead of the meeting on the need to scale down net purchases,” said Maxime Sbaihi, an economist at Bloomberg in London. “So the question is less ‘if’ they will taper than the details of ‘how’ they will do it.”
Why not taper more? Simple: Mario Draghi is terrified of starting another bond (or stock) tantrum, if investors are spooked that the ECB is withdrawing too much support: "The Governing Council seems concerned that a more aggressive tapering plan could harm financial conditions, especially by letting the euro appreciate even more,” said Kristian Toedtmann, an economist at DekaBank in Frankfurt.

Meanwhile, the major sticking point among ECB governors appears to be whether to commit to an end-date for QE. Draghi has expressed confidence that the region’s economic recovery will eventually help him and his peers to deliver on their mandate. Yet inflation was 1.5% in September and ECB’s own forecast doesn’t see it returning to the goal of below but close to 2% before the end of 2019.
“It seems that the hawks want a definitive end-date while the doves want it open-ended,” Alan McQuaid, an economist at an economist at Merrion Capital in Dublin. “I think we will get a compromise, with the ECB saying that it intends to end its QE scheme in September 2018, but if things take a dramatic turn for the worse on the economic or inflation front in the meantime, it will extend its scheme further until things have stabilized.”
Which is why many model QE as lasting beyond the 9 month horizon, and running through the end of March 2019.

In terms of market consensus, the following Barclays chart visualizes the most likely outcome, showing monthly QE declining by 50% in January through October, when it tapers by another 50% until March 2019, coupled with a modest increase in the ECB's deposit rate around the end of 2018.

Sunday, October 22, 2017

"Category 3 Typhoon Lan Batters Japan"

From Wunderground's Category 6:
Typhoon Lan was drenching Japan’s main island of Honshu with dangerous torrential rains on Sunday as the Category 3 typhoon, with sustained winds of 120 mph at 8 am EDT Sunday, sped northeast at 29 mph towards Tokyo. Lan is interacting with a frontal system that has brought high wind shear and dry air into the typhoon, resulting in the collapse of its inner core. Passage over cool waters of 25°C (77°F) as Lan approaches the coast will cause further weakening, and Lan is likely to be a Category 1 typhoon when it makes landfall Monday morning (Sunday afternoon U.S. EDT), about 100 miles southwest of Tokyo....

...Torrential rains and high landslide risk
While high winds will cause considerable damage and loss of power across much of Honshu, Lan’s primary threat is heavy rain. A moist flow of tropical air interacting with a stalled front had already begun to trigger heavy rains over Japan on Friday, and now that Lan’s rains have reached the nation (see latest Japanese radar images), record 48-hour rainfall amounts have been observed in some locations. As of 21:20 JST Sunday, Lan brought a record 48-hour rainfall amount for October of 700 mm (27.56”) to Shingu, located about 300 miles southwest of Tokyo. In records going back to 1976, the highest 48-hour rainfall there for any month was 782 mm (30.79”). Kamoda, in the Shikoku region, also set an October 48-hour rainfall record today, with 299.5 mm (11.79”.) Additional heavy rains of over 10” are expected over some areas of Japan....MORE
The storm made landfall a couple hours ago.

Super-Typhoon Lan Aiming Directly At Tokyo

DNA Techniques Could Transform Facial Recognition Technology

From The Next Web:

When police in London recently trialled a new facial recognition system, they made a worrying and embarrassing mistake. At the Notting Hill Carnival, the technology made roughly 35 false matches between known suspects and members of the crowd, with one person “erroneously” arrested.

Camera-based visual surveillance systems were supposed to deliver a safer and more secure society. But despite decades of development, they are generally not able to handle real-life situations. During the 2011 London riots, for example, facial recognition software contributed to just one arrest out of the 4,962 that took place.

The failure of this technology means visual surveillance still relies mainly on people sitting in dark rooms watching hours of camera footage, which is totally inadequate to protect people in a city. But recent research suggests video analysis software could be dramatically improved thanks to software advances made in a completely different field: DNA sequence analysis. By treating video as a scene that evolves in the same way DNA does, these software tools and techniques could transform automated visual surveillance.

Since the Metropolitan Police installed the first CCTV cameras in London in 1960, up to 6m of them have now been deployed in the UK. And body-worn cameras are now being issued to frontline officers, creating not only even more video footage to analyse, but also more complex data due to constant camera motion.

Yet automated visual surveillance remains mostly limited to tasks in relatively controlled environments. Detecting trespass on a specific property, counting people passing through a given gate, or number-plate recognition can be completed quite accurately. But analysing footage of groups of people or identifying individuals in a public street is unreliable because outdoor scenes vary and change so much.

In order to improve automated video analysis, we need software that can deal with this variability rather than treating it as an inconvenience – a fundamental change. And one area that is used to dealing with large amounts of very variable data is genomics.

Since the three billion DNA characters of the first human genome (the entire set of genetic data in a human) were sequenced in 2001, the production of this kind of genomic data has increased at an exponential rate. The sheer amount of this data and the degree to which it can vary means vast amounts of money and resources have been needed to develop specialised software and computing facilities to handle it.

Today it’s possible for scientists to relatively easily access genome analysis services to study all sorts of things, from how to combat diseases and design personalised medical services, to the mysteries of human history.

Genomic analysis includes the study of the evolution of genes over time by investigating the mutations which have occurred. This is surprisingly similar to the challenge in visual surveillance, which relies on interpreting the evolution of a scene over time to detect and track moving pedestrians. By treating differences between the images that make up a video as mutations, we can apply the techniques developed for genomic analysis to video....MORE
And kids, I know you want to believe in invisibility cloaks but the technology just isn't there yet. Don't be these guys:

Bank Robbers’ Aluminum Invisibility Cloaks Foiled by CCTV

 Old school helium-balloons-in-front-of-the-camera on the other hand...

Izabella Kaminska Talks About: "Billion dollar deals and how they changed your world"

From FT Alphaville:
Documentary-maker Jacques Peretti’s new series on the billion dollar deals which changed the world has just finished airing on the BBC. For UK readers, the three-part series is available on iPlayer. But Peretti also has an accompanying book called Done, filled with a great collection of anecdotes about the unexpected circumstances which brought certain deals into being. They range from the academic research which observed consumers are much more likely to spend virtual dollars to physical paper dollars due to the “flinch” effect and the role dark-market money played in bailing out the banks in the global financial crisis, to how AIDS patients inspired subprime securitisation practices. The book also offers a healthy critique of Silicon Valley’s uniquely elitist brand of tech-utopianism, the Uber/gig economy phenomenon (the dawn, as Peretti calls it, of the slave boss state) and the scientific management techniques which brought about the McKinsey management consulting revolution.

Mostly, however, it’s a compendium of all of Peretti’s work to date, including many insightful yarns from the interviews he conducted for his other documentaries...MORE, including the conversation.
Don't tell the BBC but someone has apparently uploaded part II of the "Billion Dollar Deals" documentary wherein Ms Kaminska makes an appearance starting a bit after the half-hour mark,
It probably won't stay up for long.

The Strange Business of Subsidized Yak Insurance

If there was a euro/renminbi to be made, the Dutch re/insurers would already be on it:
...the herverzekering crowd in Amsterdam, they're tough bastards.*
But they aren't, so this reads a bit like Death of a Salesman, Tibet-style.

From Pacific Standard:
On the northeast corner of the Tibetan Plateau, in central China's Gansu Province, nomads can buy insurance policies for their sheep and yaks. The Chinese government subsidizes the plans, and on highways cutting across Gannan, a Tibetan prefecture in Gansu, billboards advertising the insurance programs share the roadside with signs promoting family planning. Behind the billboards lie vast expanses of grassland—rolling canvases of deep green that stretch into oblivion—where sheep and yaks graze, as if Chinese Communist Party officials have placed them there for a photo shoot.
In Langmusi, a small monastery town, I found a local insurance administrator in a café, slumped over a table and mumbling to himself. He stared vacantly at four empty beer cans and then spotted me across the room.

"Meiguo pengyou! Lai!" "American friend! Come!" The day was young—1 p.m. on a Thursday—and I asked why he'd already begun drinking.

"I took a day off today. There's nothing to do."

"My job has no meaning."

"Business isn't good?"

"It's bad," he said. "This insurance thing, it doesn't have any meaning." He looked into his beer glass, sniffled, and shook his head.

I offered, optimistically, that insurance could help a lot of people. There were lots of nomadic shepherds in Tibet—wasn't there demand? He shook his head again.

"Nobody buys the insurance. Nomads don't understand insurance."

This statement perfectly encapsulated the Chinese government's struggle in Tibet. Since the 1950s, when the CCP first occupied Tibet, assimilation by force had brought little beyond resentment. After decades of failure, the Party had begun to try a new strategy; instead of coercing Tibetans for their loyalty, it would try to buy it. The Chinese government invested in infrastructure, provided generous subsidies and tax incentives across various industries, and attempted to bring modern finance—like insurance—to the Plateau. The economic strategy has, so far, been far more successful than the military one, but it is an ongoing project, and one with limits.

"They just don't understand this stuff," he said again, referring to the nomads.
He explained the pricing. The payoffs, he said, were far too low.

"It doesn't matter anyway. No one buys the insurance. The job doesn't mean anything."

As the afternoon wore on, his depression grew more personal. Middle-aged and far from his home village, he worried about his aging parents. At one point, he began to sob, imagining them dying alone while he failed to sell yak and sheep insurance.

Later, at dinner, he ate slowly, the way a sick person does when he's not hungry, and then sauntered out of the café. I expected his exit would mark the last time I ever discussed yak insurance with anyone....MORE
*Last seen in "For Our Dutch Insurance/Reinsurance Readers: Live-blog of the 2011 Berkshire-Hathaway Annual Meeting (BRK.B; BRK.A)". 

What is the Common Variable?

From Dilbert, October 19:

Boss Is The Common Variable - Dilbert by Scott Adams

That's not funny, who sent me this?

"For Switzerland’s Central Bank, $30 Billion in Profits but Not Much Reward"

Following up on September 21's "Update On Speculation In the Stock of the Swiss National Bank (SNBN)":
This is an extra-special type of lunacy.

From the Wall Street Journal. Oct 6:
Swiss National Bank data point to big third-quarter profit later this month, but it is limited in what it can do with it
Imagine being a money manager sitting on profits of over $30 billion in the third quarter alone that you can’t cash in. Welcome to the topsy-turvy world of Swiss central banking.

The Swiss National Bank SNBN -0.75% likely generated profits in the region of 30 billion Swiss francs ($31 billion) last quarter, based on a Wall Street Journal analysis of SNB foreign-reserves data released Friday. That’s thanks to a goldilocks combination of a weaker franc and higher prices for gold, stocks and bonds.

But the central bank can’t lock in these paper profits by selling chunks of their cache of foreign stocks and bonds without the risk of strengthening the franc, which could leave it vulnerable to future losses.

The value of the SNB’s huge foreign reserves swelled to 724 billion francs ($740 billion) in September compared with 694 billion francs at the end of June. Unlike in previous quarters, the 30-billion-franc increase probably represents profit on existing holdings, rather than any new purchases.
A number of factors have helped the SNB likely chalk up a record profit.

Firstly, separate data on sight deposits at the SNB—a proxy for intervention—were flat last quarter, suggesting the central bank didn’t intervene much, if at all, in markets to keep a lid on the franc.
The rise in gold prices, which rallied in the third quarter, would also have likely added a couple of billion francs to the SNB’s profit.

Other items such as the SNB’s Swiss franc positions could affect its gains, as could any changes to the quarter-end currency calculations used.

The SNB doesn’t release its profit figures for the quarter until Oct. 31 but they are likely to be big.
UBS economist Alessandro Bee has yet to issue a formal profit forecast but he said something along the lines of 32 billion francs is a “valid number.”

“It’s an extraordinary situation because we have a rise in gold prices and a broad-based depreciation in the Swiss franc” in addition to lower bond yields and higher equity values, Mr. Bee said.
The SNB has accumulated its huge reserves after years of foreign-exchange interventions, in which it created francs and used them to purchase foreign assets, mostly bonds but also stocks, in a bid to weaken the franc.

In recent years the franc has remained very strong, with investors treating it as a haven amid uncertainty over the global economy, easing measures by other central banks and concerns about the euro.
But in the last quarter the euro strengthened about 5% against the franc and the dollar also firmed, making the SNB’s assets worth more in franc terms.

Four-fifths of its reserves are in bonds and the other 20% are stocks, with euro-denominated assets comprising about 40% of reserves, dollar assets at 35% and the rest a mix of yen, sterling and others. The SNB’s U.S. equity holdings at the end of the second quarter included $2.8 billion in Apple Inc. shares and $2.1 billion in shares of Google parent Alphabet Inc. Its equity investments mirror broad indexes....MORE
Probably related:
The Rate of Growth of Central Bank Balance Sheets Is Rapidly Decelerating
So, Shares of the Swiss National Bank Are Up 89% Since Late July (SNBN)
The Swiss National Bank's Largest U.S. Equity Positions

How Alcohol and Caffeine Helped Create Civilization

From Human Progress:
No two drugs have arguably defined human civilization the way alcohol and caffeine have.

Nature created both to kill creatures much smaller than us — plants evolved caffeine to poison insect predators, and yeasts produce ethanol to destroy competing microbes.

True to its toxic origins, alcohol kills 3.3 million people each year, causing 5.9% of all deaths and 25% of deaths among people aged 20 to 39. Alcohol also causes liver disease, many cancers, and other devastating health and social problems.

On the other hand, research suggests that alcohol may have helped create civilization itself. Alcohol consumption could have given early homo sapiens a survival edge. Before we could properly purify water or prepare food, the risk of ingesting hazardous microbes was so great that the antiseptic qualities of alcohol made it safer to consume than non-alcoholic alternatives — despite alcohol’s own risks.

Even our primate ancestors may have consumed ethanol in decomposing fruit. Robert Dudley, who created the “drunken monkey” hypothesis, believes that modern alcohol abuse “arises from a mismatch between prehistoric and contemporary environments.”

At first, humans obtained alcohol from wild plants. Palm wine, still popular in parts of Africa and Asia today, may have originated in 16,000 BC. A Chilean alcoholic drink made from wild potatoes may date to 13,000 BC.

Researchers now believe the desire for a stable supply of alcohol could have motivated the beginnings of agriculture and non-nomadic civilization. Residue on pottery at an archeological site in Jiahu, China, strongly suggests that humanity has drunk rice wine since at least 7,000 BC. Rice was domesticated in 8,000 BC, but the people of Jiahu made the transition to farming later, around the time we know that they drank rice wine.

“The domestication of plants [was] driven by the desire to have greater quantities of alcoholic beverages,” claims archeologist Patrick McGovern. It used to be thought that humanity domesticated wheat for bread, and beer was a byproduct. Today, some researchers, like McGovern, think it might be the other way around.

Alcohol has been with us since the early days, but caffeine use is more recent. Chinese consumption of caffeinated tea dates back to at least 3,000 BC. But the discovery of coffee, with its generally far stronger caffeine content, seems to have occurred in 15th century Yemen.

Before the Enlightenment, Europeans drank alcohol throughout the day. ...MORE
There's a joke in that last line, I'm sure of it.

Saturday, October 21, 2017

Super-Typhoon Lan Aiming Directly At Tokyo

Because we come at this stuff from the insurance and energy angles we tend to focus on the Atlantic basin and the Gulf of Mexico.
Once in a while however...
These Pacific monsters make a lie of the ocean's name.

First off, they can get very big:

That's 1979's super-typhoon Tip, a bit less than half the size of the contiguous United States.

Secondly they can develop very high wind speeds. In 1996 Severe Tropical Cyclone Olivia had a wind gust measured at 253mph, the world record non-tornadic wind speed. See below for some of the other measures.*

Third, the combination of size and strength can be very destructive.
There are stories of fleets destroyed by these storms that go back centuries. Kublai Khan's attempted invasions of Japan in 1274 and 1281 were probably thwarted by "kamikaze" (divine wind).

In December 1944 U.S. Admiral Halsey tried to beat past Typhoon Cobra and suffered some large losses:
"...three destroyers,  the Spence, Hickox, and Maddox, capsized and sank in the high seas.  Nine other ships were substantially damaged and over 100 aircraft were lost.  790 men were killed in the typhoon, but 93 sailors were rescued from the sea...." More after the jump.**
From Sputnik:

Super Typhoon Lan to Make Direct Hit on Tokyo
Speeding north at almost 20 mph, Super Typhoon Lan, packing 150-mph sustained winds and 184-mph gusts, is scheduled to strike Japan’s largest metropolis at about 6 a.m. local time on Monday.

Officials have been placed on high alert as schools and some travel corridors are expected to be closed on Monday as the dangerous Category 4 storm is expected to bring heavy rains, wind-related damage and a destructive tidal surge to the region.

Currently some 300 miles east of Japan, super-typhoon Lan forecasts warn of landslides and flash flooding inland around the Tokyo metropolitan area, home to some 38 million people, or about 30 percent of the nation‘s population....MORE 
From Stars and Stripes:!/image/image.jpg_gen/derivatives/landscape_900/image.jpg

Arrival at the start of the work day may be fortunate, if people stay home.
We'll be back with more tomorrow.

*From Wunderground via our October 23, 2016 post on Mexico's Hurricane Patricia (200 mph winds):
...Patricia's 200 mph sustained winds make it the 3rd strongest tropical cyclone in world history (by 1-minute averaged wind speed.) Officially, here are the strongest tropical cyclones in world history, according to the Joint Typhoon Warning Center and the National Hurricane Center (using 1-minute averaged sustained winds): 
Super Typhoon Nancy (1961), 215 mph winds, 882 mb. Made landfall as a Cat 2 in Japan, killing 191 people. 
Super Typhoon Violet (1961), 205 mph winds, 886 mb pressure. Made landfall in Japan as a tropical storm, killing 2 people. 
Super Typhoon Ida (1958), 200 mph winds, 877 mb pressure. Made landfall as a Cat 1 in Japan, killing 1269 people 
.Super Typhoon Haiyan (2013), 195 mph winds, 895 mb pressure. Made landfall in the Philippines at peak strength. 
Super Typhoon Kit (1966), 195 mph winds, 880 mb. Did not make landfall. 
Super Typhoon Sally (1964), 195 mph winds, 895 mb. Made landfall as a Cat 4 in the Philippines. 
However, it is now recognized (Black 1992) that the maximum sustained winds estimated for typhoons during the 1940s to 1960s were too strong. The strongest reliably measured tropical cyclones were both 10 mph weaker than Patricia, with 190 mph winds—the Western Pacific's Super Typhoon Tip of 1979, and the Atlantic's Hurricane Allen of 1980. Both storms had a hurricane hunter aircraft inside of them to measure their top winds. Haiyan's winds were estimated using only satellite images, making its intensity estimate of lower confidence. ...MUCH MORE
** Via Wikipedia's Typhoon Cobra page:

...3rd Fleet damage

Waymo v. Uber: "Meet the judge who codes — and decides tech’s biggest cases"

Judge Alsup actually has tech-nerd fanbois and fangrrrls.
From The Verge, October 19:

The Judge’s Code
On May 18th, 2012, attorneys for Oracle and Google were battling over nine lines of code in a hearing before Judge William H. Alsup of the northern district of California. The first jury trial in Oracle v. Google, the fight over whether Google had hijacked code from Oracle for its Android system, was wrapping up.

The argument centered on a function called rangeCheck. Of all the lines of code that Oracle had tested — 15 million in total — these were the only ones that were “literally” copied. Every keystroke, a perfect duplicate. It was in Oracle’s interest to play up the significance of rangeCheck as much as possible, and David Boies, Oracle’s lawyer, began to argue that Google had copied rangeCheck so that it could take Android to market more quickly. Judge Alsup was not buying it. 

“I couldn't have told you the first thing about Java before this trial,” said the judge. “But, I have done and still do a lot of programming myself in other languages. I have written blocks of code like rangeCheck a hundred times or more. I could do it. You could do it. It is so simple.”
 As counsel for Oracle tried to continue speaking, the judge only became more and more indignant.
It was an offhand comment that would snowball out of control, much to Alsup’s chagrin. It was first repeated among lawyers and legal wonks, then by tech publications. With every repetition, Alsup’s skill grew, until eventually he became “the judge who learned Java” — Alsup the programmer, the black-robed nerd hero, the 10x judge, the “master of the court and of Java.” 

Judge Alsup would like everyone to know that he doesn’t know Java. 

Not very well, anyway. He can, however, definitely code. He’s been coding in BASIC for decades, actually, writing programs for the fun of it: a program to play Bridge, written as a gift for his wife; an automatic solution for the board game Mastermind, which he is immensely fond of; and most ambitiously, a sprawling multifunctional program with a graphical interface that helps him with yet another of his many hobbies, ham radio.

His interests have served him well on the judicial bench, informing his outlook on the multibillion-dollar intellectual property cases that come to him. The fortunes of tech companies can rise or fall depending on his rulings. Oracle v. Google has wide repercussions for big companies and smaller developers alike, to say nothing of the $9 billion at stake. The yet-to-be-totaled billions Alphabet is seeking from Uber in the ongoing Waymo v. Uber suit could make or break Uber as a player in the nascent self-driving car market. 

By sheer coincidence, these major cases have wound up in the docket of maybe the one judge in America capable of understanding their technical details: a judge who can code. Alsup’s long-cherished hobby illuminated issues at the very heart of Oracle v. Google, and his off-hours tinkering with photography, lenses, and the science of light will inform him in Waymo v. Uber, a case involving LIDAR, a laser-based technology for self-driving car navigation.

The tech industry has long despaired of the law’s inability to comprehend it, making much of the legal system’s struggle to keep up with the rapid pace of progress. The belief that the law will never “catch up” to technology is borne in part of tech exceptionalism, a libertarian elitism that derides any kind of legal or regulatory impediment as Luddism. But it’s also fueled by genuine frustration with the state of law. The patent office is perceived to be rubber-stamping obvious technologies. Supreme Court justices appear befuddled by the basic process of coding. And attorneys stack juries with non-technical jurors who return massive verdicts for patents on online shopping carts.
In this landscape, Alsup is an outlier — a mystifying exception to the accepted wisdom that the law cannot make sense of the fast-changing tech industry. Alsup’s secret is simple: he’s a lifelong geek.

Alsup is notorious among San Francisco’s attorneys for the early hours he keeps (and forces upon the lawyers who appear before him). At 9AM, most of the judges’ chambers at the federal courthouse were still dark, and doors were closed. But when I got to Alsup’s chambers, the door was flung open and the bustle inside suggested that everyone had already been at work for hours. 

A white-haired man with rectangular wire-frame glasses and a soft Southern accent, Alsup is of normal stature, but his imposing presence leaves you with the impression that he towers over you.
Alsup’s chambers have many of the classic aesthetics of the legal profession: the shelves upon shelves of leather-bound books, the stained wood paneling, a small black-and-white portrait of Abraham Lincoln hanging over an intimidatingly large desk. Off to the side sits a sofa strewn with dog toys. Alsup’s Jack Russell Terrier, who he often brings to work, was not at the office that day.
The judge sat me down on the sofa and walked me through his programs on a 2011 court-issued Dell laptop. He couldn’t run the same programs on his desktop computer, he said with some irritation, so the Dell was here to stay. “It’s the last one that will support QuickBASIC, which is kind of a shame, because it’s the only language I really know.”

The judge is not a hardware fanatic. He uses computers and whatever smartphone the court has provided him with. He has a court-issued iPhone, but if the Northern District of California issued him an Android, he’d use an Android, he said. 

I asked him if I could put his code on GitHub, and he asked me what GitHub was. In lieu of that, he handed me printouts of his computer programs, three stacks of paper that had been neatly stapled at the corners. The one on the top, he apologized, had several dependencies that he hadn’t had the time to print out. Long before he became the judge presiding over Silicon Valley, Alsup had been a hobbyist operating in isolation; he’s a geek, but he’s a geek from another era....MUCH MORE

...MoFo lawyer Arturo Gonzalez told Alsup that complying with court orders to turn over information to Waymo, protecting Uber’s confidentiality, and not stepping on Levandowski’s rights is akin to navigating a “minefield.” Gonzalez noted that Levandowski -- but not Uber -- appealed Alsup’s ruling requiring Uber to turn over a report containing key evidence in the case....MORE 

MoFo lawyer?

This is the third time the mofo's have dissed Judge Alsup:

May 12
Uber Suffers Legal Setbacks In Europe, U.S.
In the Waymo case Uber's bid to make their arguments in private was turned down by the judge overseeing the action but even worse for Levandowski, hizzoner is using his Federal Judgeship powers.*
April 1
Uber: Judge Says He May Grant Waymo's Request For An Injunction Against Uber's Self Driving Efforts
I was going to put something together on Anthony Levandowski's use of the 5th amendment in a civil matter and some of the implications of doing so but didn't get to it. In the meantime here is a look at some high-buck lawyering and tactics of litigators...
I was thinking more along the lines of inferring guilt--in a criminal proceeding an inference from the assertion of the 5th amendment right is strictly verboten and judges so instruct the jury, whereas in most state courts (California being a notable exception) and U.S. federal court,  a civil pleading of the 5th may be assumed to be an admission of guilt.

But yeah, another implication is: if you piss off a tech savvy* federal judge you've got a problem....
And many more. Use the search blog box, keyword Waymo, if interested. 

Guy Gets On Stage To Play Drums With The Foo Fighters, Crushes It

Okay, this is not on the same level as Milly the cloakroom girl standing in for the ailing world famous soprano at Wigmore Hall last August but is still impressive in its own way.

From Barstool:

This Kid Has Got BALLS To Request To Play Drums For The Foo Fighters On A Song That Isn't Theirs...And He Absolutely CRUSHES It
First thing’s first: Dave Grohl is the fucking man. The fact he even lets a kid on stage at all to mess around with is awesome. But how about the confident canola’s on this chap? The dude has the audacity to ask and shake Taylor Hawkins out of his seat…but for a song that isn’t even the Foo’s? I know the Foo Fighters often whip out Under Pressure and other great jams, but still. That’s a bit intrusive on someone else’s turf. Then he jumps right into the damn thing without Grohl’s cue like Miles Teller at the end of Whiplash. The outright BALLS on this little shit....MORE
HT: Digg

The Case of the Mafia and the Stolen Caravaggio

From Garage:

Charley Hill, the art world's preeminent sleuth, relates his ongoing search for a missing masterpiece, a mission that so far has taken him to a Sicilian town that's "wall-to-wall gangsters." 
Meet Charley Hill, the legendary bloodhound who has retrieved stolen masterpieces the world over. Most notably, Edvard Munch's The Scream, taken from the National Gallery of Norway in 1994 and rescued by Charley from the basement of a summer house in Oslo Fjord. "The art world enables me to see the worst in everyone—myself and others. I often think that in those early days of humankind, grave robbery was the first human profession, not prostitution—although that may be a close call." And so long as humans are humans, expensive things will be stolen. Here, Charley takes us on the trail of his latest lead . . .*

On October 18, 1969, Caravaggio's The Adoration was stolen from the Oratorio di San Lorenzo in Palermo, Sicily. It's a nativity scene in which Caravaggio placed St. Laurence, and more importantly St. Francis, along with Jesus, Mary, and Joseph, a shepherd, an angel and a young man. It's a huge painting with quite a history. It was stolen by mafiosi at about the same time they tried to steal Caravaggio's Burial of Santa Lucia from Syracuse. There have been theories galore about what happened to The Adoration. I think that the mafia chief nicknamed Diabolik who is on the run has control over it. It represents his power in Sicily. The intellectual historian Peter Watson wrote a book on Caravaggio, concluding it had been destroyed by an earthquake in Naples, or so he had been told. But who knows?

I became involved in Sicily in 2003 when an eminent Northern European art dealer came to me saying he had some valuable stolen jewels, and wanted to know if I would return them to their owner. The stones were taken from a pre-iconoclastic icon that the Pope had given to Count Roger, before Count Roger, a Norman knight, became King of Sicily in the 11th century.

I flew to Catania, rather than Palermo, because I thought that Catania security would be less inclined to search my bag, which was full of the precious stones. It worked. Off I drove to a lovely Baroque cathedral, Piazza Armerina, and took those jewels he gave me back to the church. The rector, Padre Filippo, was delighted. Then I promised the Bishop of Piazza Armerina, now the Archbishop of Monreale, that I would do everything I could to get back the Caravaggio and other Church property. I've tried to keep my word to him for the past fifteen years.

In August 2017, an old contact, William Veres—quite a character, an Anglo-Hungarian reminiscent of Peter Lorre's character in Casablanca—said it was about time we spoke. He told me he knew a man who wanted to see me; there had been movement back in Sicily on the Caravaggio, and Veres had told him I was still interested. For Veres it's reputational, and also financial. He doesn't think the Catholic Church is going to put money in his pocket. But, he thinks, if he plays his cards right, the Holy Father will be pleased.

I then met a gangster from Riesi— a Sicilian town that's wall-to-wall gangsters—who told me that my theory on the Caravaggio was right, and he thought something could be done. They're thinking about what and how much; I'm probably many times removed from the picture. He's active with other people who are active, and they will be the people talking about this, and doing the heavy lifting.

So they're hard-work types, but police authorities are tough as well....MORE
HT: ARTnews

"Silicon Valley Is Not Your Friend"

From the New York Times, October 13:

We are beginning to understand that tech companies don’t have our best interests at heart. Did they ever?
LATE last month, Mark Zuckerberg wrote a brief post on Facebook at the conclusion of Yom Kippur, asking his friends for forgiveness not just for his personal failures but also for his professional ones, especially “the ways my work was used to divide people rather than bring us together.” He was heeding the call of the Jewish Day of Atonement to take stock of the year just passed as he pledged that he would “work to do better.”
Such a somber, self-critical statement hasn’t been typical for the usually sunny Mr. Zuckerberg, who once exhorted his employees at Facebook to “move fast and break things.” In the past, why would Mr. Zuckerberg, or any of his peers, have felt the need to atone for what they did at the office? For making incredibly cool sites that seamlessly connect billions of people to their friends as well as to a global storehouse of knowledge?

Lately, however, the sins of Silicon Valley-led disruption have become impossible to ignore.

Facebook has endured a drip, drip of revelations concerning Russian operatives who used its platform to influence the 2016 presidential election by stirring up racist anger. Google had a similar role in carrying targeted, inflammatory messages during the election, and this summer, it appeared to play the heavy when an important liberal think tank, New America, cut ties with a prominent scholar who is critical of the power of digital monopolies. Some within the organization questioned whether he was dismissed to appease Google and its executive chairman, Eric Schmidt, both longstanding donors, though New America’s executive president and a Google representative denied a connection.
Meanwhile, Amazon, with its purchase of the Whole Foods supermarket chain and the construction of brick-and-mortar stores, pursues the breathtakingly lucrative strategy of parlaying a monopoly position online into an offline one, too.

These menacing turns of events have been quite bewildering to the public, running counter to everything Silicon Valley had preached about itself. Google, for example, says its purpose is “to organize the world’s information, making it universally accessible and useful,” a quest that could describe your local library as much as a Fortune 500 company. Similarly, Facebook aims to “give people the power to build community and bring the world closer together.” Even Amazon looked outside itself for fulfillment by seeking to become, in the words of its founder, Jeff Bezos, “the most customer-obsessed company to ever occupy planet Earth.”

Almost from its inception, the World Wide Web produced public anxiety — your computer was joined to a network that was beyond your ken and could send worms, viruses and trackers your way — but we nonetheless were inclined to give these earnest innovators the benefit of the doubt. They were on our side in making the web safe and useful, and thus it became easy to interpret each misstep as an unfortunate accident on the path to digital utopia rather than as subterfuge meant to ensure world domination.

Now that Google, Facebook, Amazon have become world dominators, the questions of the hour are, can the public be convinced to see Silicon Valley as the wrecking ball that it is? And do we still have the regulatory tools and social cohesion to restrain the monopolists before they smash the foundations of our society?

By all accounts, these programmers turned entrepreneurs believed their lofty words and were at first indifferent to getting rich from their ideas. A 1998 paper by Sergey Brin and Larry Page, then computer-science graduate students at Stanford, stressed the social benefits of their new search engine, Google, which would be open to the scrutiny of other researchers and wouldn’t be advertising-driven. The public needed to be assured that searches were uncorrupted, that no one had put his finger on the scale for business reasons.
To illustrate their point, Mr. Brin and Mr. Page boasted of the purity of their search engine’s results for the query “cellular phone”; near the top was a study explaining the danger of driving while on the phone. The Google prototype was still ad-free, but what about the others, which took ads? Mr. Brin and Mr. Page had their doubts: “We expect that advertising-funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.”

There was a crucial need for “a competitive search engine that is transparent and in the academic realm,” and Google was set to be that ivory tower internet tool. Until, that is, Mr. Brin and Mr. Page were swept up by the entrepreneurism pervasive to Stanford — a meeting with a professor led to a meeting with an investor, who wrote a $100,000 check before Google was even a company. In 1999, Google announced a $25 million investment of venture capital while insisting nothing had changed. When Mr. Brin was asked by reporters how Google planned to make money, he replied, “Our goal is to maximize the search experience, not maximize the revenues from search.”...MORE
HT: FT Alphaville's Further Reading post, Oct. 16

Friday, October 20, 2017

Gaming: "Steam Boss Gabe Newell Is One of America’s 100 Richest People According to Forbes"

We've been reluctant to link to this site, they are banned from a couple sub reddits for failure to disclose/link to original sources and/or fake news but some months ago that seemed to change for the better. This is a test on our part with this heads-up:
WCCFTech has sort of been considered "nerd clickbait", posting all sorts of rumors and unconfirmed information about unreleased hardware. My question is, how frequently have they been accurate? How frequently have they been wrong?
I see all these leaks but I have no clue whether I should believe them.
Here's the PC Gaming subreddit and their website blacklist of banned domains.
And here is the Hardware subreddit thread.

From WCCFTech:
How much does being the Pope of PC Gaming pay, exactly? Valve co-founder Gabe Newell maintains a fairly humble public image, but the guy gets a cut of every game sold on Steam, so he has to be doing pretty well for himself. Turns out that’s a massive understatement.

According to Forbes, Newell is now one of the 100 richest people in America, with approximately $5.5 billion in his coffers. That’s enough to put him in a 10-way tie for 97th place. It also makes ol’ Gaben the 43rd richest tech billionaire in America, and the 427th richest person in the world. Newell’s ranking should continue to rise over the coming years – according to Forbes’ estimates, he was only worth 4.1 billion in 2016. Steam isn’t going anywhere, and neither is Newell’s Uncle Scrooge-like flow of cash.

For the sake of comparison, Gabe Newell is currently worth more than Uber founder Travis Kalanick (115th), George Lucas (118th), Marvel Entertainment CEO Isaac Perlmutter (179th), and Steven Spielberg (206th). He still lags well behind tech giants like Elon Musk (21st), Mark Zuckerberg (4th), and the big dog, Bill Gates. Come on everybody, buy more loot boxes! Re-buy Portal! Maybe if Newell makes a few more billion he’ll finally be able to buy some new polo shirts....MORE
The creator of Minecraft, Markus Persson is probably more famous but trails in the billionaire stakes at $1.4 bil.
There are a half-dozen folks from Asia ahead of both Persson and Newell. 

Marketers Want to—Literally—Get Inside Your Head

From Futurity:

To predict crowdfunding, scan consumers’ brains
Brain activity can predict consumer choices more accurately than what consumers say they want in questionnaires, a new study of people’s decisions to back crowdfunding campaign suggests.
Surveys and self-reports are a time-honored way of trying to predict consumer behavior, but they have limitations. People often give socially desirable answers or they simply don’t know or remember things clearly.

The study suggests neural activity can not only be a better predictor of individual choices, but also can help forecast aggregate outcomes in the marketplace.

The researchers literally got inside people’s heads using functional magnetic resonance imaging (fMRI) to scan test participants during a decision-making task. Marketers could eventually use the findings to better predict a product’s success.

“Surveys and behavioral reporting can work for a lot of things, but they’re not great for everything,” says Carolyn Yoon, a professor of marketing at the University of Michigan. “So much consumer behavior happens at the implicit level, and traditional tools often fall short of capturing what’s unobservable.”

Yoon and colleagues measured people’s neural activity with fMRI scans while they performed a task selecting which documentary films to support on the popular crowdfunding site Kickstarter. They then asked them questions on what they thought about particular pitches.

The researchers subsequently tracked which projects achieved funding on Kickstarter. In the first study, 18 of the 36 selected projects were funded, and in the second 14 were eventually funded.

When they evaluated both the fMRI scans and responses to the questionnaires, they found that greater activity in a specific part of the brain (the nucleus accumbens) during the decision task predicted the success of a project being funded more reliably than the questionnaires....MORE
The nucleus accumbens is a critical component of the brain's reward/pleasure circuitry; modulated by our old pals dopamine and serotonin.
See, if interested, the very accessible:
Reward Deficiency Syndrome
(14 page PDF)

"In Kuroda's face - researchers find ways to predict central bank changes"

From Reuters:
For decades, economists have tried to guess central bank policy direction by studying subtle changes in official language -- now, researchers are finding new clues on policy, not in the words of central banker but in their faces.

In Japan, two artificial intelligence researchers, one from Nomura Securities and the other from Microsoft, are using software to analyze split-second changes in the facial expressions of Bank of Japan Governor Haruhiko Kuroda at his post-meeting press conferences. 

Their study found that Kuroda showed fleeting signs of “anger” and “disgust” at news conferences that preceded two recent major policy changes -- the January 2016 introduction of negative interest rates and the adoption of the so-called “yield curve control” policy September last year. 

The implication is that Kuroda was beginning to sense the constraints of existing policies about six or seven weeks before the central bank’s board actually decided to change them, the researchers concluded. The research was presented last weekend to a subcommittee meeting of the Japanese Society for Artificial Intelligence (JSAI)....MUCH MORE
HT: ZeroHedge's Frontrunning post

"A history of employer-approved drinking on the job—or, as it’s put here, 'Intoxication as compensation.'"

From Lapham's Quarterly:

Also at LQ's Charts and Graphs:
Gross Domestic Consumption
User and pushers from around the world.

See also Lapham's Roundtable:
Dancing girls, ancient lentils, and Sylvia Plath goes to college.

HT to, and headline from ARTnews

"Russia, Saudis Team Up To Boost Fracking Tech"

From OilPrice, Oct. 18:
While Saudi Arabia and Russia are leading the production cut pact between OPEC and 11 non-OPEC oil producers, Russian oil company Gazprom Neft will cooperate with Saudi Aramco on ways to boost production, including in fracking technology and hard-to-recover oil, Gazprom Neft’s CEO Alexander Dyukov said on Wednesday.

The two companies have identified six areas for cooperation, and will have to find the format of cooperation and financing, Dyukov told reporters, as quoted by Reuters.

Earlier this month, Gazprom Neft and Saudi Aramco signed a memorandum of cooperation during the visit of Saudi King Salman bin Abdulaziz Al-Saud to Russia.

Cooperation would include “drilling and well workover technologies, improvements to pumping systems, and the development of large-scale non-metal pipes. The parties also plan to discuss perspectives for collaboration in research and development and experimental engineering works, as well as options for applying innovative solutions to a wide range of technological challenges,” Gazprom Neft said.

“Given the ongoing macroeconomic uncertainties, it is of paramount importance that major oil producers coordinate their activities to improve the stability of the global oil and gas market,” Dyukov noted.

Apart from Gazprom Neft, Aramco signed deals in Russia with Gazprom on gas cooperation, with the Russian Direct Investment Fund on investment in energy services and manufacturing, with LUKOIL’s trading arm Litasco on collaboration in trading, and with Russian Direct Investment Fund and SIBUR on strategic marketing for petrochemicals....MORE

Trading the Yield Curve and Listening to the Market

From the Macro Tourist:

[Climateer note: the story is also told abut U.S. Marine pilots]
Back to Macro Tourist:
Lately, one of my biggest duds of a call has been for the yield curve to steepen. Sure, I have all sorts of fancy reasons why it should steepen, but reality glares back at me in black and white on my P&L run. Sometimes fighting with the market is an exercise in futility.

Now I know many of your eyes glaze over when I start talking about different parts of the yield curve flattening or steepening, but I urge you to stick with me, as the fate of the curve might end up being central to the next financial crisis. Yield curve talk is usually only exciting to propeller twirling bond geeks, yet there well might come a day when the 2-30 year Treasury yield spread is plastered across the front page of USA Today.

And it’s not just me that thinks yield curve steepening trades are the next little-noticed-financial-time bomb in-the-making. Business Insider has recently reported that the discreet monster macro hedge fund run by Alan Howard is launching a new fund set up to bet on a steepening yield curve.
The fund, called the Brevan Howard CMS Curve Cap Master Fund, will be led by senior trader Rishi Shah, who has been with the firm since 2010 in Geneva and New York, according to documents seen by Business Insider.
The new fund will use what are called constant maturity swap curve caps to bet on both a steepening of the US yield curve and an increase in curve volatility.
In simple terms, the yield curve shows the difference between yields on short term government debt and long term government debt. The smaller the difference, the flatter the curve.
Interest rate policy and government bond buying have combined to both flatten the curve and reduce volatility.
Brevan Howard is betting that’s going to reverse as central banks start to shrink their balance sheets and uncertainty over the leadership of the Fed circulates.
Until I read about this fund, I had not heard of any hedge funds setting up single purpose vehicles to bet on a steepening of the yield curve. Sure over the past couple of years, there were plenty of guys warning about a repeat of the 2008 credit crisis. Whether it was Carl Icahn’s Danger Ahead, or any one of the hedge fund monthly letters to investors, there were no shortage of end-of-the-world deflationary collapse calls (and the corresponding funds to profit from this “inevitability”.) Yet there were precious few warning about inflation. Whereas most hedgies were advocating hiding in long-dated sovereign paper, Brevan Howard seems to be taking the exact opposite tack. All I can say is, come ‘on in - the water’s warm!

And here is a question for you. Do you think the best bet for the next financial crisis is a repeat of the last one? Or could it be that the little-talked-about more obscure risk that just a handle of smarter guys are setting up for is a better candidate? Well for me it’s no contest. Slick youtube presentations warning about Danger Ahead (that looks exactly like the Danger Behind!) are like an investor in 2007 warning about tech stocks because the 2000 DotCom crash was still ringing in their head. Sure, tech stocks went down in the Great Financial Crisis, but they weren’t the center of the problem like the previous time. So, all I can say is sold to them. I am going to go with smart shrewd guys like Brevan Howard that are willing to think about the next problem instead of focusing on the last problem.

But let’s face it, so far the yield curve steepening prediction has proved to be nothing but a world of pain.

Ever since the 2010’s scare that quantitative easing would cause run-away-inflation dissipated, the yield curve has been steadily flattening. US 5 year yields have been rising, while the 30-year yield has been declining.

Yet what does this mean? Economic bears often use the flattening of the yield curve as a sign that the economy is about to collapse. But I must to admit to getting a chuckle from a recent twitter exchange between Bloomberg reporter Luke Kawa and George Pearkes from Bespoke Investments:
Yup, George is correct. Yield curves flatten as the Fed raises rates. If you think about it logically, it makes complete sense. Barring default, what’s a sovereign bond investor’s worst nightmare? Inflation. If the Central Bank raises rates, does that make inflation more or less likely? And given that, as the Fed raises rates, why should we be surprised when the long end outperforms?
Here is a chart of the 5-30 year US treasury yield spread over the last forty years....MUCH MORE
Great minds and all that. I happened to mention the curve in the post on Bluetooth-enabled buttplugs:
There go the dreams of a teledildonics empire, I guess it's back to a real perversion, treasury curve flatteners.
The British pilot story - actually a variant - may go all the way back to the '60's with a WWII ref:
The British pilot of a jetliner who was having trouble finding a particular gate at Frankfurt airport. The Air Traffic Controller got frustrated and said "Ach! Haven't you been to Frankfurt before??" And the British captain said: "Twice, actually. But it was dark both times and we didn't land." 

"Tax Prospects Lift Rates and Dollar Ahead of Weekend"

From Marc to Market:
The US Senate approved a budget resolution that is a necessary step toward using a parliamentary maneuver that prevents the Democrats to block tax reform by filibuster. This has helped spur dollar gains against all the major currencies and nearly all the emerging market currencies. The US 10-year yield is extending this week's rise. It was up four basis points on the week coming into today, and it is up another four basis points today, to once again approach the upper end of its six-month range.

While parliamentary maneuvering by the minority party was a threat, since the attempt(s) to repeal and replace the Affordable Care Act, the biggest challenge lies in the differences within the majority party. The Senate vote and the House agreement to vote on that bill as well shows greater coordination. We caution that there are many moving parts and many details that have yet to be worked out and time is of the essence for the debt ceiling and spending measures.

Politico initially reported that Trump was leaning toward Powell to succeed Yellen at the Fed's helm. Bloomberg is reporting that Trump's advisers were encouraging Powell or Taylor. Previously, reports indicated than Treasury Secretary Mnuchin favored Powell. PredictIt has Powell drawing ahead at a little better than a 2:1 favorite. Yellen is second at about one-in-six chance. Taylor has slipped to a one-in-seven chance.

The notable move this week regarding Fed expectations was not just who will get the nod, but terms of the trajectory of Fed policy. The implied yield on the December 2017 Fed funds futures contract rose a single basis point this week to 1.27%. Our work suggests fair value, assuming no chance of a hike in November and fully discounting a December hike, is 1.295%. The more significant change took place in the December 2018 contract. Its' implied yield rose six basis points to 1.68%. This means that one hike next year is fully discounted. The Fed's forecasts suggest that three hikes may be appropriate.

The market has also been confident of a Bank of England rate hike next month. We have been less convinced on the grounds that this is not the first time or even the second time that Governor Carney and the MPC have sounded as if they were prepared to hike and then pulled back, and that the price cycle is peaking as the economy is slowing. Now, MPC member Cunliffe has joined Ramsden injecting a little more doubt in the market's mind about the timing of the move. The yield of the December short sterling futures contract did test a two-week lower today was have recovered and is now down one basis point on the week.

Germany's Merkel provided UK Prime Minister May with a glimmer of hope. Merkel's comments were among the most positive from officials that progress is being made and hold out the possibility (likelihood?) that sufficient progress will be made to take talks to the next stage. It appears that a greater financial commitment from the UK could get the ball rolling....MORE

Thursday, October 19, 2017

Bali's Mount Agung Doesn't Erupt But Is Starting to Steam

It's time to put the livecam on the blog but first a beautiful still pic.
From The Daily Express, I believe this was last week:

By way of Coconuts, (Bali edition):

Click for live view, the mini-earthquakes are coming every two - to - three minutes now.

"Will Short Volatility Trigger the Next Black Monday?"

From MoneyBeat:
Market watchers are increasingly eyeing the popular bet against volatility as ground zero for the next financial crisis.

More than $2 trillion has flowed into the “global short volatility trade,” says Artemis Capital Management founder Christopher Cole. Those wagers both influence and are influenced by stock market turbulence. They also could backfire, threatening the eight-year-old bull market.

The tactics include options selling strategies by the largest pension funds and asset managers alongside exchange-traded products tracking the CBOE Volatility Index, or VIX, and VIX futures. Exchange-traded products betting on a pickup in volatility are some of the riskiest, and some investors could see extreme losses if the VIX jumps, Mr. Cole wrote in an Oct. 18 note.
Among the other strategies are ones that utilize volatility to make investing decisions, such as so-called risk parity strategies, that tend to bank on assets like stocks and bonds moving in different directions. If stocks and bonds rise and fall at the same time, it could hurt the billions of dollars in investments that rely on this relationship, he said.

“The danger is that the multi-trillion dollar short volatility trade, in all its forms, will contribute to a violent feedback loop of higher volatility resulting in a hyper-crash,” wrote Mr. Cole.

If that happens, there is no limit to how high volatility could go, Mr. Cole wrote, a moment markets experienced 30 years ago to the day. The Dow Jones Industrial Average plummeted 22.6% on Black Monday, fueled by many of the drivers that markets are experiencing right now, he said.

Artemis is not alone in flagging these risks. The International Monetary Fund recently warned in its Global Financial Stability Report that low volatility can heighten how sensitive a financial system is to risks because when things are calm, investors ramp up exposure to financial assets. Investors also use more leverage, which can amplify any swings when they do happen.

Ironically, so-called volatility-targeting investment strategies, meant to keep portfolio fluctuations at a certain level, can lead to market disruptions and heavy selling when market jitters pick up...MORE
Here's Mr. Cole's Artemis Capital Management:

Volatility and the Alchemy of Risk 
Reflexivity in the Shadows of Black Monday 1987

Volatility and the Alchemy of Risk 
The Ouroboros , a Greek word meaning ‘tail devourer’, is the ancient symbol of a snake consuming its own body in perfect symmetry. The imagery of the Ouroboros evokes the infinite nature of creation from destruction . The sign appears across cultures and is an important icon in the esoteric tradition of Alchemy. Egyptian mystics first derived the symbol from a real phenomenon in nature. In extreme heat a snake, unable to self - regulate its body temperature, will experience an out - of - control spike in its metabolism. In a state of mania, the snake is unable to differentiate its own tail from its prey, and will attack itself, self - cannibalizing until it perishes. In nature and markets, when randomness self - organizes into too perfect symmetry, order becomes the source of chaos (1) .

The Ouroboros is a metaphor for the financial alchemy driving the modern Bear Market in Fear. Volatility across asset classes is at multi - generational lows. A dangerous feedback loop now exists between ultra - low interest rates, debt expansion, asset volatility, and financial engineering that allocates risk based on that volatility. In this self - reflexive loop volatility can reinforce itself both lower and higher. In a market where stocks and bonds are both overvalued, financial alchemy is the only way to feed our global hunger for yield, until it kills the very system it is nourishing .

The Global Short Volatility trade now represents an estimated $2 + trillion in financial engineering strategies that simultaneously exert influence over, and are influenced by, stock market volatility (2). We broadly define the short volatility trade as any financial strategy that relies on the assumption of market stability to generate returns, while using volatility itself as an input for risk taking. Many popular institutional investment strategies, even if they are not explicitly shorting derivatives, generate excess returns from the same implicit risk factors as a portfolio of short optionality, and contain hidden fragility.

Volatility is now an input for risk taking and the source of excess returns in the absence of value. Lower volatility is feeding into even lower volatility, in a self - perpetuating cycle, pushing variance to the zero bound. To the uninitiated this appears to be a magical formula to transmute ether into gold... volatility into riches... however financial alchemy is deceptive. Like a snake blind to the fact it is devouring its own body, the same factors that appear stabilizing can reverse into chaos. The danger is that the multi - trillion - dollar short volatility trade, in all its forms, will contribute to a violent feedback loop of higher volatility resulting in a hyper - crash. At that point the snake will die and there is no theoretical limit to how high volatility could go.

Thirty years ago to the day we experienced that moment. On October 19th, 1987 markets around the world crashed at record speed, including a - 20% loss in the S&P 500 Index, and a spike to over 150% in volatility. Many forget that Black Monday occurred during a booming stock market, economic expansion, and rising interest rates. In retrospect, we blame portfolio insurance for creating a feedback loop that amplified losses. In this paper we will argue that rising inflation was the spark that ignited 1987 fire, while computer trading served as explosive nitroglycerin that amplified a normal fire into a cataclysmic conflagration. The multi - trillion - dollar short volatility trade, broadly defined in all its forms, can play a similar role today if inflation forces central banks to raise rates into any financial stress. Black Monday was the first modern crash driven by machine feedback loops, and it will not be the last....MUCH MORE (19 page PDF)
Previously from Mr. Cole:
"Volatility and the Prisoners Dilemma"—CBOE Risk Management Conference Asia, December 1, 2015

And many more, use the search blog box keywords 'Cole, Artemis' if interested.
(just using 'Artemis' will get you a hundred posts on reinsurance and cat bonds, worthy but not related, directly) 

Baby Got Black (Swan)
(With apologies to Sir Mix-a-Lot)
I like… fat… tails and I cannot lie
You vol sellers can’t deny
When a hot trend breaks with a well-timed stop
and a great big black swan pop you get
Paid… P&L year gets made
‘Cause you noticed that trade was packed
Buncha mean reversion suckers got jacked

Oh baby I wanna get lumpy
Long gamma for when it gets bumpy
Central banks tried to haze me,
But those carry trades just don’t faze me!...MORE
Genius or madman?