Tuesday, November 25, 2014

Former Soros Sidekick Buying Assets In Russia

From FT Alphaville:

Jim Rogers’ contrarian view on Russia
The rouble may be down more than 25 per cent versus the dollar this year, but the currency’s recent slide won’t be enough to dissuade legendary investor and author Jim Rogers from adding to his Russia investments.
Rogers told the Financial Times on Tuesday his bullish case was based on the view there had been a fundamental change in the Kremlin’s mindset when it came to the treatment of foreign investors. This, he said, had led him to about-turn on his previous scepticism about the country’s potential and views he had set from the moment he had first visited the country over 46 years ago.

“They understand that they can’t treat investors the same way Stalin did anymore, and that you have to treat them properly.”
Rogers caveated the point with the assertion that investors had at least been treated better until the international community implemented sanctions on Russia in response to its activities in Ukraine earlier this year. But he added he had no doubt the current crisis would pass like most other crises he had experienced over his lifetime. He said his views were ultimately based on looking to the long term because he was a terrible market timer, and his aim was to invest in an economy while it was still in a depressed state.

Rogers’ Russian investments now include stakes in fertiliser maker Phosagro, airliner Aeroflot, a Russia ETF and the Russian stock exchange, but he said was looking to expand into different sectors as well.

With respect to his position in Phosagro, Rogers’ cited GMO’s Jeremy Grantham longstanding position that because phosphorus cannot be made or substituted there isn’t enough of the vital fertiliser element to serve the needs of a growing global farming industry....MUCH MORE
 On peak fertilizer Rogers and Grantham are either very, very early or flat out wrong.
See for example the backround pieces:
"Has The Earth Ever Run Out of a Natural Resource?"
"Jeremy Grantham on Tesla, Fertilizer Wars" (and lessons learned from 47 years at the market)
The Lore and Lure of Fertilizer: A Century of Potash Intrigue (POT; MOS; IPI)

and more importantly:
Vaclav Smil Takes on Jeremy Grantham Over Peak Fertilizer

5-foot-tall ‘Robocops’ start patrolling Silicon Valley

From RT:

Phorto from knightscope.com
Phorto from knightscope.com
Autonomous “Robocop”-style robots, equipped with microphones, speakers, cameras, laser scanners and sensors, have started to guard Silicon Valley.

The security robots, called Knightscope K5 Autonomous Data Machines, were designed by a robotics company, Knightscope, located in Mountain View, California.

The robots are programmed to notice unusual behavior and alert controllers. It also has odor and heat detectors, and can monitor pollution in carpets as well. Last but not least: with cameras, the Robocops can remember up to 300 number plates a minute, monitoring traffic.

It works like this: someone steps in front of a robot, which stops and moves around the person while sending video to a control center. If a burglar doesn’t leave, then “the robot is looking at the video, listening for glass breakage, any loud sound that breaking in would cause. We'll get the license plate, picture of the vehicle, geotag location, and time,” says project co-founder Stacy Stephens....MUCH MORE 

Ahead of The Big East Coast Thanksgiving Snow Storm: "Watch Out for that Snowbank! How to Recover from 5 Types of Skids"

From The Art of Manliness:
Editor’s Note: This is a guest post from Wyatt Knox from Team O’Neil Rally School.
With winter comes a whole new range of driving hazards — darkness sets in much earlier, wind and snow reduce visibility, and ice makes roads slippery and treacherous. Annually, there are over 100,000 injuries that occur from car accidents on snowy or icy pavement. If you live in an area where snow is a winter reality (roughly 70% of the U.S. population lives in areas that average at least 5 inches of annual snow), then it’s vital to have the skills necessary for driving safely in inclement conditions. One of those skills is how to recover from a skid. The feeling of losing control of one’s vehicle can be quite scary, and it’s easy to panic and make the wrong moves if you don’t know what to do.

Below we outline the 5 most common types of skids on wintery pavement, and how to recover when they happen. In general, if you stay calm, restrain yourself from making drastic movements, and follow the tips below, you’ll be able to safely travel the nation’s highways and byways throughout the winter months.
1. Wheelspin
Wheelspin occurs when you try to accelerate too abruptly or enthusiastically for the available traction. The tires will start to spin at a faster rate than the vehicle is actually traveling, which can lead to different outcomes depending on whether the vehicle is front, all, or rear-wheel drive. The cure for wheelspin is simple: just back off the throttle until the tires regain traction, and try ramping it up more slowly and cautiously next time. This makes wheelspin a very easy litmus test for how much grip you actually have. For example, intentionally hitting the gas while leaving your driveway on a snowy day to see how easily the tires spin is like dipping your toes into a pool to test the temperature.

Wheelspin is generally to be avoided in turns, but can often actually work to your advantage when moving in a straight line. On pavement or glare ice, there is no real benefit to spinning the tires, but we need to think of the road surface as three dimensional in many cases. Say you have a few inches of snow on top of a good paved or gravel surface; spinning the tires will chew through the fluff and catch good traction on the underlying surface, which can often make the difference between getting up a snowy hill or sliding back down. The same is true in mud or anywhere else there is a slippery material on top of a hard, grippy material.
Traction control in some vehicles will not allow your tires to spin in this fashion. It will either cut the throttle, apply brakes to the spinning wheels, or both. This might mean that your vehicle can’t make it up slippery hills or even get out of your parking space if there’s snow. Try the same thing with the traction control off and you might find that you have no problem at all.
2. Wheel Lockup
Wheel lockup occurs when you try to brake too aggressively or suddenly for the surface you’re on. The tires will essentially stop turning while the vehicle is still moving. The solution is thankfully very simple: release the brakes until the tires start to turn again. You may need to release the brakes completely, and try braking again more softly and progressively.

You may find that you can actually brake fairly hard on a slippery road, as long as you do it smoothly. If you suddenly go from 0% to 50% brake on the snow, for example, the tires will probably lock up. If you build up the brake pressure slowly and progressively, however, you might be able to brake well beyond 50% on the same surface. Just like with wheelspin, wheel lockup can be a very handy gauge to have in changing conditions. Occasionally test the brakes in a straight line as you’re driving on a slippery road to feel for wheel lockup; this is a good indication of how much grip you’re working with.

Wheel lockup can also be an advantage in a straight line, in the same conditions that spinning the tires would have benefit. On a loose surface, locking the tires will scuff away the top surface, often digging in and plowing the soft stuff out of the way to find better grip. On snow, gravel, and especially sand, locking the tires up can stop the vehicle very quickly.

Anti-Lock Brake Systems (ABS) will not allow your wheels to lock up; they’ll pulsate brake pressure at all four wheels so that the tires keep turning.  This means that on a loose surface, your car may not decelerate very well, and you’ll need to leave extra braking and following distances to compensate.
3. Understeer...

"Venture Money Pours into Robotics Startups"

From Real Time Economics:

Google snapped up Boston Dynamics, which builds an experimental robot funded in part by the U.S. Marine Corps. that can carry 400 pounds of gear over 20 miles of rough terrain. The legged squad support system robot made an appearance at a Marine expo in Quantico, Va., in September.
Robots are creating work for at least one kind of human: venture capitalists.

They poured $172 million into robotics startups last year, according to an annual survey by PricewaterhouseCoopers LLP—nearly triple the $60 million two years earlier. Travis Deyle, a robotics blogger who keeps his own yearly tally, pegs it even higher—at least $250 million in 2013.

“There’s definitely been a big uptick,” says Mr. Deyle, who notes this year appears headed for another record.

Mr. Deyle attributes the surge in part to high-profile acquisitions of small companies by the tech giants. Amazon.com bought Kiva Systems, a maker of warehouse robots, for $775 million in cash in 2012. Google GOOGL -0.03%, meanwhile, recently went on a shopping spree—snapping up a number of small robotics companies, including one that builds an experimental robot funded in part by the U.S. Marine Corps. that can carry 400 pounds of gear over 20 miles of rough terrain. “That’s attracted a lot of attention for the sector,” he says.

The wave of money is funding a new breed of robots.

In the past, robots worked mostly on factory floors—often locked behind gates to keep them from smashing into people as they did their jobs. But new technologies, including sensors and wireless connections that allow robots to move around obstructions and even find their way around a busy hotel or office, have enabled robots to do more varied tasks as well as function alongside people....MORE
HT: Abnormal Returns

"General Electric: ‘A Generation of Portfolio Managers Has Been Rewarded For for Staying Underweight’" (GE)

The stock is lower today than it was the day Jeff Immelt took over as CEO 13+ years ago.
We've had some thoughts on the management of Tom Edison's baby, links below.
From Barron's Stocks to Watch:
RBC’s Deane Dray and team note that a “generation of PMs, it would seem, has been rewarded for staying underweight” General Electric (GE). That, however, may be about to change. They explain:
GE stock has been a chronic underperformer in the Multi-Industry sector by most measures. Over the past 10 years, GE has underperformed the S&P 500 by 100 ppts. A generation of PMs, it would seem, has been rewarded for staying underweight GE. Without trying to rank-order these negatives, the list of investor grumblings about GE has included: (1) earning mix has been slanted too much (+50%) from GE Capital; (2) quality-of-earnings issues, often with a low GE Capital tax rate or a gain helping to make the quarter; (3) nagging long-tailed liabilities associated with discontinued businesses, creating ongoing “one-time charges.” This has been the case with Japanese retail finance and WMC, GE’s brief but expensive delve into subprime mortgages. (4) GE rarely has a clean quarter. There always seems to be some surprise shortfall detracting from all the other positives…

Theme now at GE is “change”. In our view, there are more changes happening at GE today than during any previous period in the company’s history. We note that CEO Jeff Immelt has now divested, including pending transactions, more than half of the revenues inherited from the Jack Welch era....MORE
Monday, September 10, 2001 was the day that Mr. Immelt took over at GE. The stock closed that day at a split adjusted $32.86. Today it is changing hands at $26.88.

I haven't owned the stock since '99. I was fortunate to not own this stock for the last decade-point-five. In the late '90's a very wealthy and very smart investor said to me:
"GE's phony-baloney earnings smoothing is going to have to end, it's approaching the level of a joke, in addition to violating the '33 act".
Sometimes you get lucky.

Some of our prior posts:

GE's Immelt reduced to whining after homicidal rant from Jack Welch (GE)
Mean Street: The Lost Cause of General Electric and Jeff Immelt (GE)
General Electric; Jeff Immelt: FAIL (GE)
Immelt’s Plans May Comfort Investors as Profit Falls (GE)
General Electric Beats Low Expectations; Speculators Confused (GE)
General Electric has been an investor disaster under Jeff Immelt (GE)
"Can General Electric Still Manage?" (GE)
Jeffrey Immelt to Replace Paul Volcker: Yeah, Right. (GE)
Compared to Volcker Immelt is a dwarf among pygmies.

[I think he is making a reference to Volcker's 6'7'' height while expressing disdain 

for Immelt and the President's other advisers. It can get confusing -ed] 
How General Electric Became a Basket Case (GE)
"Grading Jeff Immelt" (GE)
...Welch used to say that GE's CEO has only two jobs: allocating capital -- deciding where and how much to invest -- and evaluating people. Ask a wide range of expert GE observers -- current and former managers, other top-tier CEOs, Wall Street analysts -- to identify Immelt's wrong turns, and they focus on exactly those two categories...
And many more.

How Big Can Uber get?

Beats me. People see the slide deck and come out of the presentation wishing they had more money to invest into Uber.

From Stratechery:

Why Uber Fights
In his, to my mind, fair defense of Uber, Mark Suster made a very important observation about the reality of business:
Let’s put this into perspective. As somebody who has to rub shoulders with big tech companies often I can tell you that there is much blood spilled in the competitive trenches of Apple, Twitter, Facebook, Google and so on. Changes to algorithms. Clamping down on app ecosystems. Changing how third-parties monetize. Kicking ecosystem partners in the nuts.
Be real.
It’s a brutally competitive world out there because there are extreme amounts of money at stake. I’ve been on the sharp end of it and it doesn’t feel nice. And I pick myself back up, dust off and think to myself that I need to think through the realpolitik of power and money and competition and no matter how unpleasant it is – it’s a Hobbesian world out there. It ain’t pretty – but it’s all around us.
This is particularly relevant to Uber: the company is looking to raise another $1 billion at a valuation of over $30 billion, and, as I wrote when the company raised its last billion, they are likely worth far more than that. Still, though, skeptics about both the size of the potential market and the prospects of Uber in particular are widespread, so consider this post my stake in the ground1 for why Uber – and their market – is worthy of so many sharp elbows. I expect to link to it often!

There are three perspectives with which to examine the competitive dynamics of ride-sharing:
  1. Ride-sharing in a single city
  2. Ride-sharing in multiple cities
  3. Tipping points
I will build up the model that I believes governs this market in this order; ultimately, though, they all interact extensively. In addition, for these models I am going to act as if there are only two players: Uber and Lyft. However, the same principles apply no matter how many competitors are in a given market.

Ride Sharing in a Single City

Consider a single market: Riderville. Uber and Lyft are competing for two markets: drivers and riders.
There are a few immediate takeaways here:
  • The number of riders is far greater than the number of drivers (far greater, in fact, than the percentage difference depicted by this not-to-scale sketch)
  • On the flip side, drivers engage with Uber and Lyft far more frequently than do riders
  • Ride-sharing is a two-sided market, which means there are two places for Uber and Lyft to compete – and two potential opportunities for winner-take-all dynamics to emerge
It’s important to note that drivers in-and-of-themselves do not have network dynamics, nor do riders: Metcalfe’s Law, which states that the value of a network is proportional to the square of the number of connected users, does not apply. In other words, Uber having more drivers does not increase the value of Uber to other drivers, nor does Lyft having more riders increase the value of Lyft to other riders, at least not directly.

However, the driver and rider markets do interact, and it’s that interaction that creates a winner-take-all dynamic.
HT: FT Alphaville's Further Reading post

The Hedge Fund Name Generator

You've done your homework:
"How to Start a Hedge Fund" and "Budding Gordon Gekkos Get Tips on Ponzi Scams in 'History of Greed'"

You've decided on the type of investing you will pursue:
"Asset International's Periodic Table of Hedge Fund Strategy Returns"

 You have set your personal goals:
"The Top 25 Highest Earning Hedge Fund Managers"

You have searched your soul:
"More on The Top Earning Hedge Fund Managers and The Metaphysics of Moolah"

You have begun to spread the word that you are serious:
"Dogbert on Hedge Fund Marketing, Structured Products and Virtual Currency"

There's one last thing to do which may be critical to your success:
Pick a name!

Stumped for ideas? There's always the Hedge Fund Name Generator

Don't use one of these:

Most disliked names
Top 10 Hedge Fund names, the Hedge Fund Name Generator users seem to be trashing. If you like them ... well you might be the only one :) 
Hedge Fund name Average Rating
YellowMount Partners 1.00
SummerTree Brothers 1.00
OakBay 1.00
BrownField Holdings 1.00
StateView Sons & Co 1.00
YellowView Funds 1.00
SpringRoad Sons & Co 1.00
BrownStream Markets 1.00
YellowCrescent Sons & Co 1.00
StateVille Advantage 1.00

Rather, keep spinning until you see something like this:

Most liked names
Top 10 Hedge Fund names favoured by the Hedge Fund Name Generator users. If you like them too, you'd better hurry up as some other traders might already be running with the name. 
Hedge Fund name Average Rating
OakStone Holdings 5.00
RedHill Sons & Co 5.00
OakHill Advisors 5.00
SolidMount Advantage 5.00
BrownTree Trust 5.00
SilverRock Advisors 5.00
StateStreet Funds 5.00
FallStream Funds 5.00
WinterStream Partners 5.00
BlackCity Partners 5.00

Fame and fortune await.

Ground Floor: Seeking Out Startups Before They've Even Formed

And no, this isn't the hipsters/cloners/ripoffs at Berlin's Rocket Internet:

Climateer Line of the Day: Venture Capital Economy Edition

"Our proven winners generated aggregated net losses of €442 million" ($568 million)
-Rocket Internet prospectus via "How Do You Say 'Dot-Com Crash' in German?"

According to the WSJ:
"Rocket is a cross between a venture-capital fund and a consulting firm that founds startups and helps them grow."
RKET was able to price their Oct. IPO at the top end of the expected range.

From Venture Capital Dispatch:
YL Ventures Seeks Out Israeli Startups Before They Even Form 
Israel is a hotbed for startups focused on hard technology like cybersecurity, partly because of the training that founders receive in the Israel Defense Forces, which drafts both men and women and trains some of them in cutting-edge technical skills.

But for investors, backing the best startups is getting harder.

“There are more and more funds that have figured out Israel has great technologists and are operating in the country, competing with us for deal flow,” said Yoav Andrew Leitersdorf, managing partner of YL Ventures, a seed-stage investor focused on Israeli startups. “There was much less competition seven years ago when we started.”

YL Ventures, which is based in the Bay Area with an office in Israel, has developed an unusual approach to ferreting out Israeli startups–it tries to find them before they’re officially formed. The firm has in-house software and teams in India that track about one million people in Israel, watching for signals online to see who might be coming together to form a company.

The firm receives about 100 alerts a month based on the background of a potential founder and whether their social media activity has changed. Indicators of interest include whether they’re in the IDF, working for a tech company or at a university.

The alerts are given a score, and the firm makes contact with a couple of dozen of the potential entrepreneurs each month to see what’s going on.

YL Ventures found the first two investments from its second fund before the founders had registered their companies or contacted any investors, Mr. Leitersdorf said. They are FireLayers Inc., which protects cloud applications and data, and Hexadite Ltd., which automatically alerts users of cyber incidents....MORE

War On Coal: Hedge Funds Bet On Miners Failure

From the Wall Street Journal:

Hedge Funds Bet on Coal-Mining Failures
Investors Make Trades in Anticipation of Bankruptcies
Hedge funds are betting that some of the largest U.S. coal companies are heading for the financial slag heap.
The coal industry is in a prolonged slump with a long list of causes topped by sluggish demand and competition from cheap natural gas, which have pushed prices to historic lows. Many investors have abandoned the sector. Eight coal-mining companies traded on the New York Stock Exchange are down an average of 29% in the last year. The conditions are ripe for hedge funds that target distressed investments. They are first betting against the stock and debt of mining firms such as Walter Energy Inc., then snapping up the bonds when their prices fall as low as 40 cents on the dollar.

The endgame: swapping that debt for controlling shares of the companies if they go bankrupt. Once coal prices rebound, mines and other assets can be sold at a profit.

“People see blood in the water, and that presents an opportunity,” said Ted O’Brien, president at Doyle Trading Consultants LLC. He said he is advising more than a dozen investment firms that specialize in risky debt that have bought or are considering buying coal-company bonds.

So-called vulture funds have used these tactics in other ailing industries, like air travel and paper manufacturing, generating average annual returns of 7.5% from 2011 to 2013, compared with an average of 3.4% for all hedge funds, according to HFR Inc. But an improving economy has left them with few new targets this year, and returns are down. More of the funds are descending on big coal as declining coal prices finally catch up with mining companies that borrowed heavily to spur growth.

Walter Energy is a particular favorite of distressed-debt investors, including Apollo Global Management LLC, Brigade Capital Management LP, Caspian Capital Management and Knighthead Capital Management LLC, people familiar with the matter said....MUCH MORE
HT: Abnormal Returns

Monday, November 24, 2014

"30 Buildings That Are Going to Radically Change the NYC Skyline"

Think you have a lot of cranes in your city?
From the New York Post:

NYC’s skyline will be radically different in 2018

The high times aren’t going away in New York.

The city of just six years from now will be dramatically taller, with a series of luxury high-rises towering above Central Park, a new West Side development and downtown spires.

“The skyline is changing so much,” said Ondel Hylton, content director for CityRealty, the real-estate search site that generated this rendering of New York in the near future. “To see [the towers] together in one image takes people by surprise. A lot of people are shocked.”

The mega-developments include the 96-story 432 Park Ave., which at 1,396 feet is the tallest residential property in the western hemisphere.

The 104-unit condo, where one penthouse sold for $95 million, is slated to open next year.
The Nordstrom Tower — at 225 W. 57th St. — will rival it at 92 stories once completed in 2018.
At 1,775 feet tall, it will be the city’s second-tallest building and just a foot shorter than One World Trade Center (and that’s only if you include the WTC spire).

Here’s a rundown of what buildings will reach for the sky....MUCH MORE

"Thinking Clearly About Forecasting"

James Picerno writing at The Capital Spectator:
There’s a pernicious rumor making the rounds that economic and market forecasts are accurate. There’s also a misguided notion embraced in some corners that all predictions are worthless at all times under all conditions. Both of these extreme views are unproductive, bordering on dangerous. Yes, peering into the future is hazardous work and it’s a field that’s burdened with an excess of landmines. But avoiding what can be a nasty business is impossible when it comes to the money game. Thinking clearly about forecasting, as a result, is crucial. Unfortunately, a sober-minded perspective on this hot-button topic seems to be the exception to the rule in a world that’s awash with projections.

There’s a fine line between prudent and reckless behavior with generating and consuming predictions. Defining one vs. the other can be tricky at times. It’s even tougher to steer a middle course between those two extremes, in part because we’re all bombarded with a mix of useful and not-so-useful predictions on a daily basis. With that in mind, what follows are some thoughts on how to manage expectations on matters of prognosticating, guesstimating, and otherwise developing a healthy relationship with a treacherous subject. The list is hardly definitive, but it’s a start, if only as a reminder that predictions typically don’t come with instructions.

1. Recognize the inevitable. Imagining yourself as immune to forecasting is the equivalent of thinking that you can live without breathing. Everyone is swayed by predictions of one form or another, and by necessity. We all need guidance about the morrow, and for good reason: that’s where we’ll spend the rest of our lives. Some folks like to assume otherwise. Even a dyed-in-the-wool passive investor with a strict buy-and-hold investment regimen relies on an assumption — a forecast. An investment, regardless of time horizon, is at its core a prediction. Whether you’re buying shares as a short-term speculation or on the basis of a 30-year outlook, you’re making a bet that a transaction today will yield a profit tomorrow. How do you know that you’ll end up in the black? You don’t, but your forecast gives you confidence that you’ll triumph. You may be wrong, of course — in fact, you can count on no less, at least some of the time. But there’s no alternative. Investing sans forecasting is a conflict with no solution. A similar rule applies to macro, starting with the big-picture view that economic growth will, through time, endure, albeit punctuated with bouts of volatility. How do we know that such a future awaits? We don’t, but we have a forecast....

We have so many posts on forecasting, from ""How To Win At Forecasting" (Philip Tetlock and the Intelligence Advanced Research Projects Agency)" to "Pseudo-Mathematics and Financial Charlatanism...." that it is probably easier to just give gentle-yet-wary reader a couple searches of the blog:

Google site search: site:climateerinvest.blogspot.com forecasting
Search blog box, above left

British SAS Hunter-Killer Teams Terrorizing ISIS

Following up on August's "U.S. Special Forces, British S.A.S Form Hunter Killer Groups to 'Smash' ISIS".
These guys pretty much define the term badass.*
From the Daily Mail:

SAS quad bike squads kill up to 8 jihadis each day... as allies prepare to wipe IS off the map: Daring raids by UK Special Forces leave 200 enemy dead in just four weeks  
  • Targets are identified by drones operated by SAS soldiers 
  • Who are then dropped into IS territory by helicopter to stage attacks 
  • The surprise ambushes are said to be 'putting the fear of God into IS'
SAS troops with sniper rifles and heavy machine guns have killed hundreds of Islamic State extremists in a series of deadly quad-bike ambushes inside Iraq, The Mail on Sunday can reveal.

Defence sources indicated last night that soldiers from the elite fighting unit have eliminated ‘up to eight terrorists per day’ in the daring raids, carried out during the past four weeks.

Until now, it had been acknowledged only that the SAS was operating in a reconnaissance role in Iraq and was not involved in combat. But The Mail on Sunday has learned that small groups of soldiers are being dropped into IS territory in RAF Chinook helicopters – to take on the enemy.
Targets are identified by drones operated either from an SAS base or by the soldiers themselves on the ground, who use smaller devices.

The troops are also equipped with quad bikes – four-wheeled all-terrain vehicles that can have machine guns bolted on to a frame. They then seek out IS units and attack the terrorists using the element of surprise and under the cover of darkness.
The missions have taken place on a near daily basis in the past four weeks and the SAS soldiers have expended so much ammunition that regimental quartermasters have been forced to order a full replenishment of stocks of machine-gun rounds and sniper bullets.
An SAS source said: ‘Our tactics are putting the fear of God into IS as they don’t know where we’re going to strike next and there’s frankly nothing they can do to stop us....MORE
*The last time the S.A.S. did a Task Force Black  they killed 3500 al-Qaida-in-Iraq fellows, 2006-2008.

"High status voices have a different sound"

So what does it mean if you sound like Barry White even when you're just schmoozing?
From EurekAlert:
The sound of status: People know high-power voices when they hear them
Being in a position of power can fundamentally change the way you speak, altering basic acoustic properties of the voice, and other people are able to pick up on these vocal cues to know who is really in charge, according to new research published in Psychological Science, a journal of the Association for Psychological Science.
We tend to focus on our words when we want to come across as powerful to others, but these findings suggest that basic acoustic cues also play an important role:
"Our findings suggest that whether it's parents attempting to assert authority over unruly children, haggling between a car salesman and customer, or negotiations between heads of states, the sound of the voices involved may profoundly determine the outcome of those interactions," says psychological scientist and lead researcher Sei Jin Ko of San Diego State University.

The researchers had long been interested in non-language-related properties of speech, but it was former UK prime minister Margaret Thatcher that inspired them to investigate the relationship between acoustic cues and power.

"It was quite well known that Thatcher had gone through extensive voice coaching to exude a more authoritative, powerful persona," explains Ko. "We wanted to explore how something so fundamental as power might elicit changes in the way a voice sounds, and how these situational vocal changes impact the way listeners perceive and behave toward the speakers."

Ko, along with Melody Sadler of San Diego State and Adam Galinsky of Columbia Business School, designed two studies to find out.

In the first experiment, they recorded 161 college students reading a passage aloud; this first recording captured baseline acoustics. The participants were then randomly assigned them to play a specific role in an ensuing negotiation exercise.

Students assigned to a "high" rank were told to go into the negotiation imagining that they either had a strong alternative offer, valuable inside information, or high status in the workplace, or they were asked to recall an experience in which they had power before the negotiation started. Low-rank students, on the other hand, were told to imagine they had either a weak offer, no inside information, or low workplace status, or they were asked to recall an experience in which they lacked power....MORE
HT: Marginal Revolution's Assorted Links
Also at MR: "Best non-fiction books of 2014"

In a Stunning Development It Appears Izabella Kaminska Has Staged A Coup At FT Alphaville (FTAV)

In league with Keohane she has apparently implemented the tactics from Luttwak's Coup d'État: A Practical Handbook, beginning with seizing the means of communication.

Has anyone heard from Paul Murphy since this morning?

The headlines and datelines at Alphaville:

Oil-price decline: the bank-exit liquidity theory
| |

Lies, damned lies, and liquidity expectations
| |

Markets Live: Monday, 24th November, 2014
| |

Signal vs noise from the PBoC
| |

On the hypothetical eventuality of no more petrodollars
| |

Further reading  
| |

FirstFT, the email briefing formerly known as The 6am Cut

schedule of events:
DURING the past 23 years, more than half of the world's governments have been overthrown by coups d'etat. Conspirators are increasingly aware that complex societies are vulnerable to attack. Slash a wire, start a rumor, dump LSD into reservoirs: today any determined guerrilla can stop The System. One man with one bullet can change history. A handful can take over a country.
Acid in the FTAV reservoir?

How to Plot Your Takeover
-Eric Hobsbawm at the New York Review of Putsch's

"Goldman Sachs Has Invested In A Company That Could Replace Analysts With Algorithms"

Ha, replace analysts with software. Like that will ever hap...

From the Financial Times:

Goldman Sachs leads $15m financing of data service for investors
Goldman Sachs has emerged as the largest investor in a financial analytics start-up that enables institutions to mine a wealth of big data, underscoring Wall Street’s drive to tap new technology.
Goldman led a $15m round of financing in Kensho, an analytics platform that can instantly answer millions of complex financial questions by automating previously human-intensive research. The bank will roll out the platform across its business as well as to some of its big clients.

Kensho, which has been likened to a Siri-style service for investors, analysts and traders, enables them to ask questions such as, “What happens to US homebuilder stocks if a category three hurricane makes landfall?”

Analysts said Goldman was probably seeking to save on costs while also tapping into a wealth of so-called “unstructured” data. Such information involves text as opposed to the numeric “structured” data that have traditionally been easier for computers to digest.

Research scientists estimate that 80 per cent of all data come in unstructured form; being able to quickly analyse this wealth of information is the holy grail for banks seeking to use big data to augment their business.
“Wall Street historically was constrained to playing in the 20 per cent of data that move markets,” said Daniel Nadler, chief executive of Kensho. “Every Wall Street bank could only look at – with any real speed or automation – financial statistics: P/E ratios, and book value and market cap and similar things.”...MUCH MORE
Hurricanes? What the hell...
HT to and headline from: Business Insider.

"Can the Bloomberg Terminal be “Toppled”?"

"Evidence of an Early December Weather Pattern Digression Lessening Heat and Natural Gas Demand"

That is the title of the PDF linked by Bespoke.
Over the years I've mentioned we follow the temperature outside the NYMEX, here's December 2011's recitation:
"Natural Gas traders looking for Old Man Winter... "
*When options on the futures were introduced in 1992 a buddy of mine eschewed all weather reports from the Midwest and Great Lakes figuring that the only temp that mattered was whether or not the traders felt cold at the exchange.

He retired rich, I don't know if there's a correlation.
From Bespoke Investment Group, Nov. 21, 2014:

Is The Short Term Top in on Natural Gas?
swctweather.com covers weather forecasts and patterns for Connecticut and New York and is run by Jacob Meisel, a sophomore at Harvard College.  Jacob has close to 8 years of experience already forecasting weather both for the CT/NY region and for the nation.  As far as forecasting sites for the region are concerned, swctweather.com gives the best detail and explanation behind its forecasts, allowing the reader to see not only the what of the forecast, but the why as well.  So, if the forecast is calling for snow, Jacob will discuss all the variables involved in the forecast, and detail what factors need to break in order for the given forecast to pan out.  His new premium service provides daily, detailed forecasts for residents of the CT/NY area relying on in-depth weather analysis, and his school closing percentages during winter storms have put him on the map for anyone in the region that has kids!

Jacob also discusses patterns impacting the entire country.  A case in point was a discussion he was having today regarding the weather patterns driving the current snap of cold weather for much of the country.  Signs are pointing to a shift that could cause temperatures in the early part of December to be closer to, or even above, average.  If this occurs it would be nearly the exact opposite of what most forecasters are calling for....MORE
HT: Abnormal Returns

Here's the recent action via  FinViz:

Here is the forecast temperature, note the (lack of) temperature anomaly over 10282 (NYMEX zip):

Fairfax Financial's Prem Watsa: "There are very few countries in the world today that are as exciting as India"

Mr. Watsa has been called "The Buffett of Canada", especially if you forget the whole Blackberry debacle.

From Alpha Ideas:

Prem Watsa:Modi is the Lee Kwuan Yew of India
I am inspired by the Prime Minister because for the first time in about 67 years this country has a prime minister who is pro-business, a prime minister with a track record of achievement in Gujarat, a prime minister who is not corruptible, a prime minister who is focused on what is good for the country and has huge ambition for India. I think of Lee Kwuan Yew in Singapore, I have said publicly in Canada, Mr Modi is the Lee Kwuan Yew of India....

The Buffett of Canada on The Lee of India would have been a bit esoteric for a headline but maybe I can ask if the blog should become "The Saudi Arabia of...analogies" or what's a meta for?
(yeah I know, 7th grade stuff)

Artificial Intelligence Company Sentient Raises Another $103 Million, Emerges From Stealth

From Venture Capital Dispatch:
Sentient Technologies (USA) LLC, which has been quietly developing technology to distribute artificial intelligence software to millions of graphics and computer processors around the world, emerged Monday with $103.5 million in new funding.

The Series C round comes from Access Industries and Tata Communications 500483.BY +1.77% and includes current investor Horizon Ventures, a Hong Kong-based firm founded by business magnate Li Ka-Shing. It takes total funding in the company to more than $143 million.

Sentient, which has about 60 employees, has been operating in stealth in San Francisco under the name Genetic Finance Holding Ltd. The company was started nearly seven years ago by a team that worked on the technology that later became Siri, the voice recognition software in Apple Inc.’s iPhone that understands and learns from human speech.

Chief Executive Antoine Blondeau said Sentient so far has proven its technology in the trading space, where it started out, and also in medical research. The company worked with the Massachusetts Institute of Technology’s Computer Science and Artificial Intelligence Laboratory team on detecting sepsis, which is a top killer of patients in intensive care units, by analyzing blood pressure in more than 6,000 patients in real time and predicting within about 30 minutes whether a patient was likely to succumb.

Artificial intelligence has been a popular area of investment, with many startups claiming to develop products in this area. But Mr. Blondeau argues that none of them so far have figured out how to scale and distribute artificial intelligence to the extent that Sentient has, although he does acknowledge work done at Google Inc. and International Business Machines Corp. and says they are potential partners for Sentient....MORE
See also:
The First Conscious Machines will Probably Be on Wall Street
Or in porn....
'Deep Learning' as Applied to Investing

Goldman Sachs and Neuberger Berman Want the Fee Income Hedge Funds Take In (10%?)

From Barron's Fund of Information:

Big Investors Buying Stakes for Hedge-Fund Fees
There have been headlines almost daily about hedge funds’ poor performance and hefty fees. The funds, which typically levy a 2% management fee and take 20% of returns, have gained less than 3% in 2014, versus a 12.3% rise for the Vanguard S&P 500 ETF (ticker: VOO), whose expense ratio is 0.05%. But a small group of sophisticated investors say they’ve found a different way to get dependable, income-like returns from hedge funds without relying on sometimes erratic returns. They’re buying minority stakes in hedge funds’ management companies and getting some of those fees.

“Our institutional investor base, sprinkled with a few high-net-worth individuals, is looking for consistent, attractive yield, which has been averaging a net 10%,” says Michael Brandmeyer, co-head of the private-equity group at Goldman Sachs Asset Management, which runs Petershill Fund I, established in 2007 with $1 billion in assets. Securing a 10% rate of return in a low-rate world is no small feat.

Brandmeyer is operating in a narrow slice of the investment world, but one that’s attracting a growing number of big investors, including Goldman Sachs, Affiliated Managers Group, Neuberger Berman, Blackstone, and Foundation Capital Partners. They’ve bought stakes in hedge fund managers, including BlueMountain Capital Management, ValueAct Capital Management, Caxton Associates, and Orchard Square Partners.

The big investors want long-term income. Hedge fund fees can be sizable over time, even if the funds’ performance isn’t always predictable. As a fund’s assets grow, the fees grow; emerging-market funds, for example, have expanded by more than 9% annually since 2008, according to BarclayHedge, which tracks fund performance. Minority stakeholders get a portion of both the management and performance-based fees. About 75% to 85% of the fund’s earnings in such arrangements go to stakeholders.

What’s in it for the hedge funds? They can monetize some of the equity in the firm without losing control. They can also get help from the new stakeholders in managing or expanding their businesses, better technology, aid on compliance, and possibly access to broader distribution. The new money can give the fund the financial flexibility to cash out retiring partners or attract new talent.

Assembling a basket of minority stakes involves extensive due diligence to confirm performance figures, operating procedures, and regulatory compliance. Investors want a diversified portfolio, so they must become familiar with a variety of funds, from event-driven to distressed to global macro. It can take three to five years to commit all of the money. 

Publicly listed funds such as Och-Ziff Capital Management (OZM) and Fortress Investment Group (FIG) haven’t proved to be steady performers since the financial crisis, suggesting that a multifund, private-equity-like structure may be better at avoiding some of the pitfalls.

GSAM’s Petershill Fund I says it focuses on high-quality hedge funds with at least a four-to-five-year track record and solid cash flow. It targets funds with revenue between $100 million and $1 billion, and assets ranging between $2 billion and $15 billion. Like the hedge funds they invest in, Petershill and others charge a 2% management fee and 20% of performance. Petershill must generate an average annual yield of 8% or more to 
collect the performance fee, says Brandmeyer.
THE STEEP MINIMUMS exclude most retail investors, but the little guy isn’t completely left out. The $80 billion New Jersey Division of Investment, representing 760,000 public employees, has put $110 million into hedge fund investor Neuberger Berman’s Dyal Capital Partners’ Fund I. In the 14 months ending in December 2013, New Jersey pensioners reaped a 16% return. If all goes well, New Jersey plans to commit a total of $400 million to the strategy over time, says Maneck Kotwal, co-head of alternative investments at the state fund.
In a twist, the United Kingdom pension fund of Santander Bank reduced its allocations to various hedge funds in early 2013, but committed about $100 million to Dyal Capital....MORE

Sunday, November 23, 2014

Okay, The Second Time Is Farce: Some Additional Taglines for the Karl Marx Credit Card

Following up on Thursday's "The Karl Marx Credit Card – When You’re Short of Kapital", a few of these taglines are hilarious.

Some years ago we pointed* out that Marx's use of the famous tragedy/farce line in his "The Eighteenth Brumaire of Louis Bonaparte" was probably swiped, without attribution, from Engels, link below, which brings to mind Proudhon's La propriété, c'est le vol ! (Property is theft!) which Marx said was itself lifted from Brissot de Warville.
(he hated Proudhon)

The early Planet Money contenders:
  • There are Some Things Money Can’t Buy. Especially If You Abolish All Private Property.
  • From each according to their ability, to each according to his need. For everything else, there’s #Marxcard.
  • The Marx Card – Because Credit is the Opiate of the Masses.
  • The Karl Marx MasterCard – When You’re Short of Kapital
And the rest, via NPR:
...MORE and MORE  and MORE

* Climateer Headline of the Day: Tragedy/Farce Edition

Tangentially related:
The Great Marx Debate
"Marx at 193"
Privatizing Marx and Engels (happy belated b-day Karl!)
Karl Marx Dabbles in the Market (and rationalizes his success)
Friedrich Engels: Global Macro With an Emphasis on Commodities
Karl Marx on Market Manias
Marx and Engels Meet The Jetsons

College Bound? Prep for the SAT With Kim Kardashian

From the New York Daily News:

Kim Kardashian’s butt on Paper magazine cover can help kids do math
Famous photo inspired SAT prep company Catalyst to teach geometry in a broad new way. Area of a circle is a crucial skill to learn when gazing upon the reality TV star's tush.
Here’s a cheeky way to do math.

Kim Kardashian’s naked butt broke the internet — but now it’s helping to fix students’ understanding of basic geometry.

Catalyst, a test prep company, is using the ultimate semi-circle in its latest pop-culture-inspired questions to get kids primed for the SAT. (See questions below).

Catalyst’s interest in Kardashian’s image from the cover of Paper magazine is not just sexploitation. It’s downright Platonic.

“Kim Kardashian’s backside is almost perfectly circular,” company founder Jared Friedland tells the Daily News. “As soon as we saw that, it occurred to me that we could teach three types of geometry questions.”

And as every eighth grade boy knows, Friedland is talking about circumference, angles and area of a circle. The median age of the test taker is 16...MORE
No comment on the median age of the (re)blogger.

Corrected: Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 18: Mechanics--Legal, Finance, HR, etc.

Very sorry, forgot the video.
Again jumping ahead, back on schedule Monday.
From Stanford University:

Annotated transcript.


  • How to Work with Lawyers at a Startup by Mark Suster
  • Startup Company Lawyer by Yorim Taku
  • Useful resources - clerky.com, zenpayroll.com, zenefits.com

  • Previously:
    Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 15 With Andreessen-Horowitz Founder Ben Horowitz
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 10
    Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 9: Marc Andreessen on "How to Raise Money"
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 8
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 7
    Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 6: Growth
    Peter Thiel at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 5
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 4
    Paul Graham at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 3
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture Two
    Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture One    

    Climateer Line of the Day: Everybody Hates Silicon Valley Edition

    Today's winner of the prestigious CLoD:
    “Fuck, I wish the Mission would just gentrify faster,” a 20-something acquaintance recently said to me, complaining about the bar scene in San Francisco’s artsy Mission District. “I’m not trying to step over a homeless guy just to pay $14 for a drink, you know?” 
    That's from The Kernel and although the Mission District is 50 miles up the peninsula from San Jose the quote nails the zeitgeist. Here's the story:
    The hidden cost of the on-demand economy
    part of the Kernel's Everybody Hates Silicon Valley series.

    "Investors: Damn Ubergate and Full Speed Ahead With Mega-Funding"

    And once they can go with fully autonomous vehicles* the bottom line jumps as well.
    From re/code:
    full speed ahead
    Did last week’s online outrage hinder the ongoing Uber mega-funding round? Apparently not.

    Investors still seem to be bullish on the ride-sharing company, despite the recent outcry about its trustworthiness and ethics, said multiple sources who have talked with the company during its ongoing pitches to raise a yet another enormous round of investment.

    This is for one big reason: Uber is telling potential investors that it expects a gross revenue run rate of more than $4 billion for 2014. The gross run rate is on track to more than double in 2015, to some $10 billion, added those who have heard the pitch.

    Uber itself keeps about 20 percent of that gross revenue, the total amount that it bills to customers, giving it about $1 billion or more in net revenue once costs are taken out.

    As such, the discussed valuation for the latest round is apparently now at $30 billion, several sources said. We’d previously reported $25 billion, although even higher numbers had already been publicly floated....MORE
    *...Uber will eventually replace the people who drive its cars with cars that drive themselves, CEO Travis Kalanick said today at the Code Conference....
    ...Asked about what he would tell the Uber drivers who will some day replaced, Kalanick said that day was still a long way off. But it's also inevitable, he said. "I'd say 'Look, this is the way of the world, and the world isn't always great.' We all have to find ways to change with the world." His statement came a day after the company boasted that its drivers could earn $90,000 a year....

    Big Data and Other Trends to Influence Hedge Funds in 2015

    Of data shadows and chaotic butterflies.

    From All About Alpha:
    At a gathering at the Andaz Hotel in New York, October 22, a number of the alternative investment industry’s best and brightest discussed the new drivers of growth.

    The event, sponsored by Gravitas, turned on four themes: Big Data; Branding; Cybersecurity; and Innovation.

    I’d like to focus on just one of those points, the first of them, for further discussion here. So: what is Big Data and why might it be one of the major Drivers of Growth for 2015?

    Learning to Tell Time
    When I was a child, one of the rites of passage involved “learning to tell time.” It is likely that parents skip this in our enlightened second decade of the new millennium, because digital read-outs of time are so ubiquitous that there is no real margin any longer in teaching one’s little one how to draw inferences from the “big hand” and the “little hand.”

    That reflection points to one of the meanings of Big Data. In one area after another (most of them of course much more involved and intricate than that), matters that once would have been the consequence of laborious research and inference are now available immediately. So one is looking at a display rather than thinking about the hands of an analog clock. On the one “hand,” this means that the skill involved in making the inference to get there the old-fashioned way is obsolete.

    But, on the other hand, the Big Data makes possible new ranges of inferences, and gives value to new skill sets. As Mark Graham of the Oxford Internet Institute has put it, there will “always be uneven data shadows; and always be biases in how information technology and technology are used and produced.” However blinding the light may become, there will continue to be plenty of roles for human beings in recognizing the “shadows” Graham mentions and sorting out the patterns they make within the light.

    In-store radio frequency identification (RFID) tags, sensors, smart meters, are each examples of what SAS has called the “torrents of data in near-real time” now available.

    The New Skill Sets
    That rite of passage from my ‘60s childhood also taught me about ambiguity. The talk of the “big hand” confused me at first. One of the hands is fatter, the other is longer. Which of those characteristic is meant by “big”? In time I figured it out. But the term “big” in “big data” includes a similar ambiguity. Sometimes the focus is on the velocity of the data streams, sometimes on the sheer volume, and yet at other times it’s on the wide variety of sources with which entrepreneurs, managers, and investors must all deal now.

    The new skill set for those who would be empowered, rather than left behind, by Big Data includes the ability to integrate everything from hard numbers to sentiment-conveying tweets; weighing the intangibles along the way and deflecting the fat tails of chaotic butterflies.

    I wrote about this thirteen months ago, and then quoted Paul Rowaday enthusing about the new social media and their ability to let institutions crowd source high-volume data on catalytic events “from just about anyone, anywhere and at any time.”

    Big Data could have been one of the big stories of the year now lumbering toward its close. But it wasn’t....MORE

    Don't Drink And Trade

    One of the funnier examples of the problems with mixing booze and technology.
    From Oilprice.com, 26 Sept. 2012:

    Broker Sent Oil Prices to Eight Month High in a Drunken Stupor
    On June the 30th 2009 oil mysteriously jumped by more than $1.50 a barrel during the night, to reach its highest price in eight months, the kind of swing that is caused by a major geopolitical event.

    The amazing, true cause of this price spike has now been released by a Financial Services Authority investigation (FSA).

    Although not authorised to invest company cash in trades Steve Perkins, a long standing, senior broker at PVM Oil Futures, had managed to spend $520 million on oil futures contracts throughout the night.

    On the morning of the 30th an admin clerk called Mr Perkins to ask why he had bought 7 million barrels of crude during the night. Mr Perkins had no recollection of the transactions, and it turned out that he had made the trades during a “drunken blackout.”

    By the time PVM had realised the transactions had not been authorised by a client, they had incurred losses of $9,763,252.

    Between the hours of 1.22am and 3.41am, Mr Perkins gradually bought 69 percent of the global market, whilst driving prices up from $71.40 to $73.05, by bidding higher each time.At 6.30am, presumably sobering up and realising what he’d done, he sent a message to his managing director claiming an unwell relative meant he would not be able to make it into work....

    "Money is the Crystallisation of time and Free Will"

    From the Financial Times Magazine:

    Douglas Coupland: 3.1415926535
    The invention of the hamburger was a way of homogenising cows. Take whatever you want from any number of animals (but one hopes cows), grind it all up and suddenly you now have a consistent and uniform beef unit: the hamburger “patty”. In this same manner, humanity took time as it was once experienced and converted it into seconds, minutes and hours. A second is basically a “time patty”, or “the duration of 9,192,631,770 periods of the radiation corresponding to the transition between the two hyperfine levels of the ground state of the Caesium 133 atom”.1 Romantic!

    Modern culture since 1900 has been about the relentless homogenising of anything that can be homogenised: pig by-products into hot dogs; coffee into Nespresso capsules; junk bonds into hedge funds.

    In this spirit of investigation I began to wonder, “What, then, does money homogenise?”
     . . . 
    The average person with a high school education uses 3,000 words a day and is able to recognise about 20,000. But when it comes to sequences and numbers, when does a word stop being a word? Examples: is the alphabet itself a word? Abcdefghijklmnopqrstuvwxyz – we all know it. It ought to be. Is the sequence 1234567890 a word?

    We know that 1,000,000 is a word but is 1,000,001 a word, too? My high school maths teacher gave us all an extra point if we memorised pi to 10 decimal places and, of course, we all did, so is Threepointonefouronefive-ninetwosixfivethreefive a word? And if so, is it a different word from pi to nine decimal places?(Three-pointonefouronefiveninetwosix-fivethree.) Who would even know the answer to this?
     . . . 
    A few years back, I was cleaning out an old space that came with the house and, from inside a rusty paint can, I found a canvas bag filled with silver coins – silver Canadian pre-1967 dimes, plus a wide selection of older US coins. I don’t know what it’s like to find treasure but it must surely feel like finding a rusty paint can full of coins. I mentioned it on the phone to my mother, and she said, “Bring it over right now. Have you sorted them out yet?”


    “Dump them all back in the can. I want to sort them here.”

    I went to her place and she had a magnet ready to help sort them out (silver isn’t magnetic). It was my first money-sorting party in the Scrooge McDuck tradition and, in the end, the value of the coins came to $2,100. If my accountant phoned to say he’d found a tax break for $2,100, I’d be in a good mood – but it wouldn’t have felt like treasure. Good accountants should hide bags of rebated money all around your house. Imagine the joy they could bring to people....MORE

    "The Illusion Machine That Teaches Us How We See"

    From Nautil.us:
    A mathematician is using computers to manufacture award-winning illusions.
    The man sprang onstage dressed as a miner, complete with headlamp and pickaxe. After swinging the axe a few times, he proclaimed to the audience that he had discovered a “supermagnet”—a substance so strong it could attract even wood. A video screen above him appeared to prove him right: It showed wooden balls rolling up four ramps, seemingly unbound by gravity.
    The man was not in fact a miner, but a mathematician—Kokichi Sugihara, of Meiji University in Tokyo, Japan. He was competing in the 2010 finals of the annual Best Illusion of the Year Contest in Naples, Florida. And, as the video went on to show, the balls were not really rolling uphill. A look at the back of the ramp structure showed that pillars that from the front had seemed vertical were in truth anything but, and that the ramps were pointing downhill, not uphill. The demonstration (which won that year’s top prize) was an illusion, and Sugihara had designed it together with an unusual collaborator: a computer program.

    Sugihara didn’t originally set out to become a master illusionist. As a young mathematician in 1980, he was interested in robot vision and computer-assisted design. With those applications in mind, he created a computer program that could take a line drawing of a polygonal shape and come up with a list of three-dimensional objects that would create that drawing when projected onto a flat plane—akin to working backward from a shadow to the possible objects that could have cast it.

    To test his program, Sugihara fed it drawings of impossible-seeming objects, like M.C. Escher’s endless loop of stairs. He expected the program to reject the drawings, but to his surprise, in some cases it claimed to have found a solution: a three-dimensional object that looked just like the drawing. “I thought my software was incorrect,” Sugihara said.

    On closer inspection, he realized that what was incorrect was his assumption that these “impossible” two-dimensional objects couldn’t exist in the three-dimensional world. He started making paper models of his program’s designs, and gradually, the robot and design applications fell by the wayside—his program wasn’t ideally suited to them, he discovered. Instead, he dedicated himself to exploring the strange constructions that came so easily to his program, and that appeared so baffling to human viewers. He had built an illusion machine.

    Over the 34 years since then, Sugihara has used his illusion machine to create and build more than 100 illusions: impossible objects such as a solid model of Escher’s staircase, and intuition-defying motions such as balls rolling uphill. “Sugihara has come up with systematic ways of playing with what happens when the rules of the vision system fall apart,” said Arthur Shapiro, a neuroscientist at American University in Washington, D.C. Part scientist and part artist, his work is helping to elucidate the basic mathematics underlying how our brains construct our world.