Tuesday, July 7, 2015

Non-Ergodicity and The Evolution of Cooperation

Via Lars P. Syll:
Cooperation, here, is a persistent behavioural pattern of individual entities pooling and sharing resources …

Here we point out a very general mechanism – a sufficient null model – whereby cooperation can evolve. The mechanism is based the following insight: natural growth processes tend to be multiplicative. In multiplicative growth, ergodicity is broken in such a way that fluctuations have a net-negative effect on the time-average growth rate, although they have no effect on the growth rate of the ensemble average. Pooling and sharing resources reduces fluctuations, which leaves ensemble averages unchanged but – contrary to common perception – increases the time-average growth rate for each cooperator …

peters2011_cloudEconomics should be the place to look for an explanation of human social structure, but oddly the basic message from mainstream economics seems to be that optimal, rational, sensible behaviour would shun cooperation. In many ways we see cooperation in the world despite, not because of, economic theory.

Many economists are aware of this shortcoming of their discipline and are address- ing it, often from psychological or neurological perspectives, as well as with the help of agent-based evolutionary simulations.
We show that cooperation and social structure arise from simple analytically solv- able mathematical models for economically optimal behaviour....MORE

Female Economists Obviously Unfamiliar With The Work Of W.C. Fields

From the London School of Economics' The Impact Blog:
" Confidence gap? Women economists tend to be less confident than men when speaking outside their area of expertise."
And from the reformed juggler:

“If you can't dazzle them with brilliance, baffle them with bullshit.”
- W.C. Fields

"A Bitcoin Fund Is Born, With Teething Pains" (GBTC)

Just watching the passing parade.
Daddy, daddy, is that Bozo the Clown?
No dear, that's Bozo the Fund Manager
From the Wall Street Journal:

An ETF-type investment, full of risks, is struggling for acceptance
If you have an online brokerage account, you can now buy shares in a fund that aims to track the price of the digital currency called bitcoin. Just don’t expect a smooth ride.

Bitcoin is a highly speculative investment—the kind most financial advisers say investors should only buy into with money they can afford to lose. But some analysts think the new fund could bring the digital currency a step closer to broader acceptance by investors. For that to happen, the fund will have to overcome some early difficulties.

Bitcoin Investment Trust started trading on the OTCQX market on May 4 under the ticker symbol GBTC. It isn’t technically an exchange-traded fund, but it’s designed to work like one. (The Securities and Exchange Commission is reviewing an application for what would be the first official bitcoin ETF, the Winklevoss Bitcoin Trust.)

Bitcoin Investment Trust is small, with a net asset value of only $35.6 million at the end of June and only 1.4 million shares outstanding. Its tracking of bitcoin’s price has been inconsistent, and there is a wide spread between the share price and the value of the underlying assets. Oh, and by the end of last month the share price had fallen 28% from its $42 close on the first day of trading, to $30.12.

Sparking interest? Still, some analysts think the fund could prompt some speculative interest in bitcoin, like the launch of gold ETFs did in precious metals a decade ago.

Gil Luria, an analyst with brokerage firm Wedbush Securities who has followed the bitcoin market since its infancy, sees Bitcoin Investment Trust as part of bitcoin’s move toward the mainstream of finance. Other recent signs of acceptance on Wall Street include the decision of the New York State Department of Financial Services to regulate itBit Trust Co., a small bitcoin exchange, and research from Goldman Sachs Group Inc. claiming a place for bitcoin in “the future of finance.”...MORE

A Response to FT Alphaville's Gratuitous Slap At Gold

Just kidding.
FTAV in general, and Izabella Kaminska in particular, have been more accurate on investor appetite for gold than people who are paid big money-cough-BlackRock's Evy Hambro-cough-to figure this, and only this, stuff out.

The failure of gold to do much of anything when Greeks were lining up at the banks before the referendum was actually brought to my attention and I actually thought about posting something before getting distracted by some incipient disaster or other. So here's Izzy on the dog that didn't bark:

August gold $1164 down $9.20.
From FT Alphaville:

A not very golden crisis
Here’s a puzzle. Neither the Chinese stock slide or the Greek ‘no’ vote are having much of an effect on the gold price — odd given that the goldbug narrative that gold always performs well in a crisis:
In fact, looking at the 10-day performance, the trend is distinctly to the down side:
What gives?

Barclays’ Suki Cooper has an interesting view (our emphasis):
The failure of gold to appreciate given global macroeconomic uncertainty (Figure 2) may seem puzzling initially but is explainable. Over the past few weeks, as the Greek crisis reached a climax, gold prices failed to appreciate in any meaningful way, continuing their downward trend since crossing $1,300/oz in late January. The market has assessed that the risk of contagion from a Greek default is limited, more contained than in 2011 when Greece was last in the headlines.

There is another reason gold has failed to gain ground: in our view, the dominant issue for the gold price this year has been the prospect of a US Federal Reserve rate hike....MORE
And the response, from Harper's Magazine, gold can be pretty:

July 6, 2015, 2:25 pm
Tree, South of France
“Tree, South of France,” photograph printed on glass with gold leaf, from the series Au, by Kate Breakey. The series was inspired by a theory according to which gold (Au) was produced by the collision of neutron stars. As Breakey describes the theory:
The events that produce most of the gold in the universe are called gamma-ray bursts. These occur when two neutron stars, the cores of dead stars, collide under the force of gravity. Neutron stars are as dense as atomic nuclei: though they are only a few miles in diameter they have more mass than the Sun. A pair of dead, dark neutron stars will spin around each other for millions of years at millions of miles per hour, slowly but constantly pulling each other closer. In the moment that they finally they touch, they release more gamma-ray energy than exists in the rest of the universe. Much of their mass collapses into a black hole, but the remainder produces an enormous explosion of gamma rays and newly formed elements, including gold. Some of that stardust joined with other elements to form Earth’s core; other quantities were deposited in the Earth’s crust by asteroids that arrived 3.8 billion years ago, during the so-called Late Heavy Bombardment. The Ancient Egyptians believed that gold was the flesh of their Sun god, Ra....

Monday, July 6, 2015

Yikes: Meet Unicorn Capital Partners

From Fortune:

Peak unicorn? New VC firm doesn't mince words.
Unicorn Capital Partners will focus on tech startups in Asia.

I guess it was only a matter of time…

There is a new venture capital firm called Unicorn Capital Partners, borrowing from the Aileen Lee-coined term that has come to refer to billion dollar tech startups. It already has secured $12 million in capital commitments from U.S. investors, per a regulatory filing, to back companies in China and the rest of Asia.

The group is led by Kah Fai Low, a former Seagate engineer who most recently was executive director of Singapore-based Eagle Asia Partners, and Tommy Yip, previously a partner and head of North Asia for private equity fund-of-funds manager Emerald Hill Capital Partners....MORE

HT: Business Insider who helpfully note:
According to its LinkedIn page, Unicorn Capital Partners "focuses on investing and partnering with the leading and emerging venture capital fund managers at the start of the Age of the Unicorns."
Roger that, Age of Unicorns, over. 

"Crude Oil Plummets Most Since February, Nears 16 Year Support Line..."

Readers who have been with us for a while know we don't have much use for technical analysis that extends back in time much further than a few years.
The reason chartology is at all useful is "market memory" and once you lose that you are much better off going to the neighborhood haruspex.

As I said in 2014's "Chartology: Monster “Mega-Phone” pattern breakout near?":
You have to be careful with this stuff.
Humans are pattern-recognizing machines and are so good at it that we can see patterns that don't even exist.* In the instant case you really have to beware of imputing meaning to lines on charts; the reason technical analysis has any validity at all is because of "market memory" one example of which is resistance to upmoves caused by prior investors waiting to "get even and get out" and supplying stock to the market.
(one of the reasons to like new highs, no overhead supply)

In these long term charts there is no market memory, for example there are very few people with positions established at the Aug. 24, 1987 2722 DJIA high which is used as the basis of one of the trendlines shown here....
From ZeroHedge:
Earlier today we commented that while stock markets across the globe, heavily influenced by central bank intervention from the PBOC to the SNB, are doing everything in the central planners' power to telegraph just how irrelevant Greece is, other indicators are far less sanguine. One example was copper, which plunged to a level not seen since February, and was in danger of breaching its 15 year support level.

The commodity weakness today has persisted and is now crushing both WTI crude and Brent, both of which are in freefall, and WTI is now down over $3 on the session, or 6%, to a $53 handle, the biggest one day plunge since February (and the third largest in years) to a level last seen in early April when there was much hope that the dramatic plunge in December and January was finally over. Turns out it wasn't.

And, just like in the case of copper, should the drop in Brent persist it too, like coper, would be in danger of breaching a very long-term support line starting with a base in 1999 and continuing all the way through the the plunges of booth 2008 and early this year. SocGen with more:
As previously highlighted, last May price action in Brent formed a monthly Spinning top pattern at the key resistance of $70/72, the interception of the upward channel upper limit and 2010 levels. A Spinning Top is a bearish pattern, rarely a reversal one though, which usually happens after an extended rally/a new high which indicates a pause in upside momentum.
After peaking at $70/72 levels, Brent has been correcting lower within a down sloping channel ($64.37-$58.30) and the down move suddenly accelerated after the up sloping channel in force since last January finally gave way (i.e. $62.00/62.30 levels, blue dash)....MORE

"Hedge funds smash record for turning bullish on ags"

As the herd turns and espies some tempting morsels...
From Agrimoney:
Hedge funds were driven by worsening weather for grains to undertake, by far, their biggest swing positive in positioning in agricultural commodities on record, official data later will reveal.

The Commodity Futures Trading Commission, the US regulator, is poised later on Monday to reveal that managed money, a proxy for speculators, slashed its negative positioning in futures and options in the top 13 US-traded agricultural commodities, turning net long for the first time in nearly three months.

Net long means that long positions, which profit when values rise, exceed short holdings, which benefit when values fall.

Indeed, from holding a net short of 27,560 lots on June 23, hedge funds turned to a net long of 342,857 contracts as of June 30, the date as of which the updated data, seen by sources including Rabobank, will be accurate.

That overall swing of 371,417 lots would represent by far the biggest turn bullish in hedge fund positioning on records going back to 2006 – far exceeding the previous high of 208,019 contracts set in July 2010, amid a rally in grains fuelled by concerns over dryness in the European Union and the former Soviet Union.

'Ongoing global weather concerns'
Weather fears were behind the latest swing positive in positioning too, with Midwest rains holding up the harvest of US soft red winter wheat, the type traded in Chicago, besides undermining the condition of corn and soybean crops.
Meanwhile, dryness has been undermining hopes for grain crops in Australia, the European Union, Argentina and Canada, where many analysts have also cut expectations for canola output.
In Chicago wheat, the CFTC data will show hedge funds eradicating a net short of 52,716 lots in favour of a net long of 14,106 contracts, according to sources, including Rabobank, which have seen the statistics....MORE

"Iran Wants to Double Oil Exports After Sanctions Lifted"

There's already quite a bit of the stuff slopping about, NYMEX front futures $53.44, down 6.13% ($3.49)
From MoneyBeat:

Exports could hit 2.3 million barrels a day, deputy oil minister Moazami says
Iran wants to double its crude exports soon after sanctions are lifted and is pushing other members of the Organization of the Petroleum Exporting Countries to renew the cartel’s quota system, a top Iranian official said.

Both developments could set up a clash with Saudi Arabia, which is scrambling to raise its own export numbers and has opposed the return of production limits on individual OPEC members.

Iran’s efforts underscore how the country’s full return to the export market would upend the status quo among leading producers if Tehran clinches a deal with six world powers that would lift sanctions in exchange for curbs on its nuclear activities.

The latest deadline for a deal is Tuesday and officials said the elements of an agreement were falling into place over the weekend, though there were still important sticking points that could scuttle it.

Should sanctions be lifted, Iran’s deputy oil minister for planning and supervision, Mansour Moazami, said in an interview that his country’s oil exports would reach 2.3 million barrels, compared with around 1.2 million barrels a day today.

“We are like a pilot on the runway ready to take off. This is how the whole country is right now,” he said.
Iran is already in contact with former oil buyers in the European Union—traders such as Vitol Group and big oil producers such as Royal Dutch Shell PLC, Total SA and Eni SpA—as well as existing importers in Asia to help absorb the potential new shipments or invest in new fields if sanctions are lifted, according to the oil ministry and the companies.

Iran’s oil reserves are the fourth-largest in the world and its production capacity stands at about four million barrels a day—making it the second-biggest producer in OPEC if its output were unrestricted.
EU sanctions in 2012 banned the import of Iranian oil and prohibited most big oil companies from working with Iran, while American pressure forced Asian nations to reduce purchases.

The return of Iran’s oil would come at a sensitive time for the world’s oil markets....MORE

Greece: Analysts Analyze

And just for you smart-ass [so to speak] kids, the root word is not anal, it's ana, 'up'.
From ZeroHedge, July 5, 2015:

More Sellside Reactions To The Greek Referendum
Today, Greeks sent a resounding message to Brussels, Frankfurt, and Berlin that they are not willing to acquiesce to further humiliation at the hands of creditors and that, even if it means braving the economic abyss in the short-term, the country is determined to salvage a better tomorrow from what, after today's referendum, are the smoldering ashes of Greece's second bailout program.

Now, a stunned sellside — which had, over the past three months, very carefully tweaked their base cases to reflect the growing risk of Grexit — is scrambling to explain to nervous clients what happens next.
Having heard from JPM earlier, we bring you the latest from Barclays, Deutsche Bank, and RBC.
* * *
From Barclays:
A “no” vote means EMU exit, most likely
We argue that an EMU exit would become the more likely scenario, even if Greece remaining in the euro area cannot be ruled out. Agreeing on a programme with the current Greek government would be extremely difficult for EA leaders, given the Greek rejection of the last deal offered. EA leaders accepting all Greek proposals would be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections.
How will the crisis play out? The bank liquidity crisis is likely to turn into a solvency crisis once the ECB shuts down ELA, probably no later than 20 July (when a EUR4.2bn payment to the ECB becomes due). Fiscal problems would become more acute; the government may be forced to issue IOUs, which effectively become a parallel currency to the euro. A new currency by the central bank of Greece is likely to eventually become necessary to inject both liquidity and recapitalise banks. At this stage, we would expect IOUs to be converted into the new Greek drachma (NGD).

The NGD would likely depreciate significantly and hence many local companies (clearly those in the non-tradable sector) and households would need to default on their foreign currency debt, now including euro-denominated liabilities. Many of the domestic contracts that are now denominated in euros would also become unviable and need to be restructured. Non-performing loans would surge because of: 1) the negative balance sheet effects for firms and households; and 2) the local currency needed to pay euro debts would increase with the devaluation, exceeding the increase in local currency revenue. Likewise, the government would also be forced to default on its euro-denominated liabilities.

Redenomination away from the euro would also cause massive transfers between agents, adding to the above-mentioned transfers between debtors and creditors. A majority of households with local accounts and savings will suffer substantial losses while cash rich agents with accounts abroad will be the big winners and could take advantage of the chaos to seize capital and production capacities. Given the weak state of the government, these redistributions would likely benefit the already oversized unofficial sector....MORE

New York Fed: Will Silicon Alley Be the Next Silicon Valley? Will Henry Blodget's Sensibilities Be Vindicated?

Back in the day--well, May 16, 2007--Former Merrill analyst Henry Blodget launched a website named Silicon Alley Insider.

Silicon Alley Insider

Anyhoo, the financial mess slowed New York's tech scene to almost nothingness (Boston's Route 128 basically died before it was resurrected) and the former flagship vertical (that's how people used to talk) of Business Insider declined as Clusterstock rose to prominence.
Pretty much all that remains of the original are three little letters in the "Technology" vertical of BI:
This intro has been a long meander to get to the Federal Reserve Bank of New York's Liberty Street Economics blog who, by-the-bye, only asked the first of the headline questions:

Will Silicon Alley Be the Next Silicon Valley?

For at least the past few decades, New York City’s economy, both its booms and busts, have been driven primarily by the finance sector, or more specifically the securities industry (a.k.a. Wall Street). In contrast, the city’s current economic boom—one of the strongest on record—has seen virtually no job growth on Wall Street. Much of the job creation has been in lower-paying sectors like retail trade, restaurants and hotels, and health care and social assistance, with some of the fastest job growth going on in what would be considered “information technology” industries—jobs that pay quite well for the most part. But how big is the Big Apple’s “tech sector,” how fast has it been growing, and how does it stack up against other tech hubs across the United States? Before addressing these questions, we must first answer a more fundamental question: what exactly is the tech sector?

How We Define the Tech Sector
This question is actually trickier and more subjective than it may appear. Traditional industries are classified based on what they produce, be it a manufacture or a service. But what we often think of as tech companies are actually just firms that are good at exploiting current technology in more traditional industries: local firms like Etsy (retail marketplace), Spotify (music distribution), Refinery29 (fashion magazine), and Uber (transportation services). A recently published study on the city’s “tech ecosystem” defines tech industries as those that “enable or produce technology,” but also notes that there plenty of tech jobs (based on occupational classifications) in non-tech industries.

While we recognize the important role and sizable number of tech jobs in traditional industries—for example here at the New York Fed—we will focus on a handful of industries in which firms use technology as the core of their business strategy. These industries will serve as a rough proxy for the tech sector. We then use these specific industry codes, as defined by the North American Industrial Classification System (NAICS), to approximate the relative size of New York City’s tech sector, to gauge how fast it has grown, and to compare New York with other leading high-tech cities. For the analysis presented below, we specifically focus on the following industry codes:

• NAICS 334Computer Manufacturing
• NAICS 454111Electronic Shopping
• NAICS 5112Software Publishing
• NAICS 518Data Processing, Hosting & Related Services
• NAICS 51913Internet Publishing & Broadcasting and Web Search Portals
• NAICS 5415Computer Systems Design & Related
• NAICS 5471Scientific R&D Services
There are other industries that we arguably could have included—most notably telecommunications. However, we opt to exclude this industry, because most of these jobs are not what are typically viewed as “techie.” In fact, the vast majority of employment is at firms that rely more on existing infrastructure (such as fiber optic networks) than the development and creative implementation of technology as their primary productive asset.

A Geographic Profile of New York City’s Tech Sector
When asked where tech firms in the city are located, many New Yorkers will mention Silicon Alley in Manhattan—roughly speaking, the area between the Lower and Midtown Manhattan skylines. But as shown in the map on page 13 of this study, there are also plenty of tech firms in both Lower and Midtown Manhattan, as well as some clustered in neighborhoods of Brooklyn and Queens near the East River, where distance to Manhattan is minimized. Similarly, this map of New York tech start-ups shows that they proliferate throughout the southern part of Manhattan, while there are a few such clusters in nearby parts of Brooklyn and Queens.

Using 2014 data from the Quarterly Census of Employment and Wages, we see that the vast majority of the city’s tech sector jobs (86 percent) are in Manhattan, while most of the rest are in Brooklyn and Queens. Overall, tech, as defined here, accounts for about 3½ percent of jobs citywide but almost 5 percent in Manhattan, which is about a percentage point above the nationwide share. Moreover, these industries, taken together, pay fairly well: an average of roughly $118,000 per year citywide as of 2013—not quite on par with the securities industry, but well above the citywide average for all jobs of $84,000. By far the largest of these industries is defined as Computer Systems Design & Related, which accounts for more than half of the city’s tech jobs (above the U.S. average of 40 percent). New York City also has a relatively high concentration of jobs in Electronic Shopping and Internet Publishing & Broadcasting and Web Search Portals. This makes sense when we consider that such firms as Spotify, Facebook, Etsy, BuzzFeed, and Seamless all have offices located in New York City. The numbers above illustrate the current tech landscape here, but how has this landscape changed over the past few years?

Recent Trends in the Tech Sector
Tallying up jobs or even income in just these industries will tend to understate the absolute size of New York City’s tech sector because it misses some businesses like online magazines, web-based advertising firms, and so forth. This count also does not include the self-employed—for instance, web designers, programmers, and other consultants who work on contract and are not on any firm’s payroll. Still, these job tallies can be useful for gauging trends and growth rates in the tech sector. The chart below shows how employment in New York City’s tech sector, as we define it, changed from 2007, before the Great Recession, to 2014, for which we have the latest available data....MUCH MORE

Sunday, July 5, 2015

Foreign Exchange: Euro Declines Versus Dollar

It's down there, bottom right.

From FinViz:

For oil shorts an old joke:
As the financier jumping from the 10th floor said at floor 5: "So far, so good".

For the Greek people:
Good luck.

"A "No" Victory Appears Probable: What Happens Next According To Deutsche Bank"

Although the FT's Greek coverage has been first rate, probably the best available in English, today ZeroHedge seems more nimble.

From ZH:
With early forecasts all telegraphing a modest victory for the "Oxis", barring some last minute miracle, the Varoufakis gambit - with some last minute assistance by the IMF - may succeed. What happens next? Here is Deutsche Bank's "map for the post referendum" which presents the four possible outcomes
In this document DB, which is one of the banks that may stand to lose the most from any major stresses to Europe's precarious status quo as a result of its tens of trillions of notional derivatives, lays out the possible post-referendum scenarios.
Here is how the German megabank sees the possible outcomes of what is shaping up to be a "No" vote:
  • N1 – Soft deal: The most unlikely scenario is that the euro-area partners offer a much softer programme to Greece.
  • N2 – Default-and-stay: Moderately less unlikely is a scenario where Greece defaults but stays in the euro thanks to a direct recapitalisation of Greek banks by the euro-area partners, with the Greek government using only domestic resources for the country’s fiscal needs.
  • N3 – New deal: The third scenario is one in which the rising economic and political cost of a closed banking system results in the Syriza government being replaced by a new government of national unity and a new deal with creditors being reached.
  • N4 – Grexit: In our view, Grexit and Scenario N3 are the most likely – with about equal probabilities. That said, we see the probability of Grexit increasing the larger is the margin of victory of the NO vote. Even with a NO vote, the cumulative probability of the first three scenarios still exceeds that of Grexit.
And the details:
NO, Scenario #N1. Soft deal
This, in our view, is by far the least likely outcome, as it would generate significant moral hazard issues, which in the longer term could be as damaging as an exit. If Europe were to offer significant concessions to Greece following a no vote, it would de facto incentivize other borrowing countries to call domestic referenda to improve the terms of their rescue packages. This would be unsustainable in the long-run as (a) it would create obvious political issues in creditor countries, (b) it would not deal with the structural adjustments and political integration which are necessary for the longer term viability of the euro area....MORE
Also at ZeroHedge:
Risk Off: FX Carry Trades Tumble, Euro Opens Under 1.10; USDJPY Under 121

Greek Referendum: Barclays On What Comes Next
"Grexit: What might it mean for the US? 3 things to consider"
Greek Vote: "No" Vote On Bailout Terms Seen Ahead By Most

The 37 Artificial Intelligence Projects Elon Musk Is Funding

From the Future of Life Institute:

New International Grants Program Jump-Starts Research to Ensure AI Remains Beneficial
Elon-Musk-backed program signals growing interest in new branch of artificial intelligence research

Amid rapid industry investment in developing smarter artificial intelligence, a new branch of research has begun to take off aimed at ensuring that society can reap the benefits of AI while avoiding potential pitfalls.

The Boston-based Future of Life Institute (FLI) today announced the selection of 37 research teams around the world to which it plans to award about $7 million from Elon Musk and the Open Philanthropy Project as part of a first-of-its-kind grant program dedicated to “keeping AI robust and beneficial”. The program launches as an increasing number of high-profile figures including Bill Gates, Elon Musk and Stephen Hawking voice concerns about the possibility of powerful AI systems having unintended, or even potentially disastrous, consequences. The winning teams, chosen from nearly 300 applicants worldwide, will research a host of questions in computer science, law, policy, economics, and other fields relevant to coming advances in AI.

The 37 projects being funded include:
  • Three projects developing techniques for AI systems to learn what humans prefer from observing our behavior, including projects at UC Berkeley and Oxford University
  • A project by Benja Fallenstein at the Machine Intelligence Research Institute on how to keep the interests of superintelligent systems aligned with human values
  • A project lead by Manuela Veloso from Carnegie-Mellon University on making AI systems explain their decisions to humans
  • A study by Michael Webb of Stanford University on how to keep the economic impacts of AI beneficial
  • A project headed by Heather Roff studying how to keep AI-driven weapons under “meaningful human control”
  • A new Oxford-Cambridge research center for studying AI-relevant policy

As Skype-founder Jaan Tallinn, one of FLI's founders, has described this new research direction, "Building advanced AI is like launching a rocket. The first challenge is to maximize acceleration, but once it starts picking up speed, you also need to to focus on steering."...

Greek Referendum: Barclays On What Comes Next

Via MarketWatch:


"Grexit: What might it mean for the US? 3 things to consider"

The stronger dollar/weaker euro play seems like such a no-brainer that I fear central bank intervention just to screw up the FX trade (and oil).

Via Pethokoukis@AEIdeas, June 29:
Over time, a Greek exit could impose significant economic and geopolitical costs on the United States. This could occur through the following three channels. Again, from AEI’s Desmond Lachman:
1.) In the immediate aftermath of a Greek exit, one must expect a significant further depreciation of the Euro as the ECB took more forceful measure to prop up the European periphery and as investors fled to the safety of the dollar. This would have the effect of causing a further effective appreciation of the dollar that would come on top of a 15% such appreciation over the past year. As the Federal Reserve has noted, a strong dollar appreciation could constitute a significant headwind to the US economic recovery and could exert significant downward pressure on US headline inflation.

Lachman Grexit and US dollar 6-29-15 chart 1

2.) Any eventual spread of the Eurozone debt crisis to other countries in the European periphery, like Italy, Portugal, and Spain, could roil global financial markets and dent European household and investor confidence....MORE

Greek Vote: "No" Vote On Bailout Terms Seen Ahead By Most

From ZeroHedge:
At 7pm local time the Referendum polls closed. Here is what the early forecasts predict:
  • A poll by GPO on Mega TV gave 51.5% in favor of “no” and 48.5% in for “yes”
  • Metron Analysis on Antenna TV showed “no” leading with 52% vs 48% for “yes”
  • MRB on Star TV showed “no” leading with 49%-54% vs 46%-51% for “yes”
  • Marc opinion poll for Alpha TV shows “no” ahead with 49.5%-54.5% vs 45.5%-50.5%

Also at ZeroHedge:
The Economist Calls Victory For "No" Camp: Sees 60% Voting "Oxi"
Europarliament President Threatens Greeks With Armageddon If They Vote No
Trillion-Dollar Asset Managers Warn On Greece Fallout: "No Blueprint" Means "All Kinds Of Uncertainty"

Saturday, July 4, 2015

"Adam Smith on the Economics of U.S. Independence"

From The Conversable Economist:
For economists around the world, 1776 means the publication date of Adam Smith's classic The Wealth of Nations.  Book IV, Chapter 7, is entitled "Of Colonies." Smith expresses the view that Europe contributed very little to the economic success of its American colonies--except for some talented people. He also believed that the while England benefited from trade with its colonies, England also had to bear the costs of defense and of the monopolies on trade that it created. He painted a picture of how the American colonies might be allowed democratic representation, but viewed it as a politically unlikely outcome. He also predicted that even when a nation didn't benefit from having colonies, it was still reluctant to let the colonies go peacefully. The quotations here are from the ever-useful "Library of Economics and Liberty," which has number of classic works  of economics freely available in searchable form on-line.

Here's Smith on the topic of what Europe contributed to its American colonies (with footnotes  omitted for readability): 
"The policy of Europe, therefore, has very little to boast of, either in the original establishment or, so far as concerns their internal government, in the subsequent prosperity of the colonies of America. Folly and injustice seem to have been the principles which presided over and directed the first project of establishing those colonies; the folly of hunting after gold and silver mines, and the injustice of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality.... MUCH MORE
HT: Fourth of July: Economics and Ruminations

Thursday, July 2, 2015

Chartology: Oil At Support

From the NYMEX:
$56.60 down 36 cents.

Very interesting, eh what?
More tomorrow to come.

Blackstone's Byron Wein On The Only Way to Make Serious Money

It means stepping outside of one's comfort zone.
Back in the day you could maybe out-analyze the crowd on the home-team utility or some Graham and Dodd net-net but no more. You must have some exposure to growth.

On the other hand if you are just trying to keep the loot you've already plundered you have a few more options.
But that's a story for another post.

From Barron's Wall Street's Best Minds column:

The Wall Street veteran interviews a wise colleague who argues that tech and biotech is where the action is.
 For the past fifteen years I have written annually about a person I have come to call “The Smartest Man in Europe.” For new readers, he is a finance person in his 80’s who has built his reputation by identifying important trend changes early and putting serious money behind his conclusions. Descended from a mercantile family that operated canteens selling food and weather protection along the Silk Route, he was educated in Europe, trained in New York and returned home to take advantage of the wealth-creating opportunities resulting from the post-war recovery. Listening to conversations around the dinner table, he was encouraged to focus on the major events early, and his success is a product of this skill. That success is reflected in his homes and other comforts he enjoys. His art collection spans centuries, from Canaletto to Koons, but what keeps him vibrant is ideas.

Notable among the past events he was early to observe are the rise and fall of Japan, the opportunities in China after the death of Mao, the end of the command economy in Russia and the unrealistic valuations of technology at the end of the last century. We get together a few times a year, but this year our conversation was by telephone. 

“The whole world is suffering from too much debt. As a result, growth almost everywhere is going to be slow. I know you believe the problem is insufficient demand, but the major industrialized countries already have considerable debt and do not want to add any more to it to stimulate the consumer. Japan is an exception. They already have the highest debt to Gross Domestic Product (GDP) of any major country and they are willing to add more. China is an exception on the other side. They are in a position to take on more debt because their debt to GDP ratio is low. Without more fiscal stimulus, demand will be tepid and growth will be disappointing. This is the state of the world now, and it is likely to endure for some time. In the near term, I don’t see a calamity, just sluggish economies and many equity markets not doing much. 

“It is not easy to make money these days. In the past, if you had the right asset allocation, you could do well for institutional investors. Now most asset classes are fully valued. The bond market is expensive, equities are not cheap anywhere, gold is dead; other commodities are in bear markets, the emerging markets are generally not attractive, China is dangerous, and Europe and Japan are reasonably fully priced. As I said last year, the only way to make serious money is by carefully investing in innovation. You can make a modest return in equities in the major markets – I agree with you that the U.S. market will end the year higher than it is now. But if you want to make real money investing, you will have to do it by picking stocks in technology and biotechnology, and I would emphasize the latter. 

“Most people still don’t recognize the gigantic implications of this phenomenon. Major breakthroughs are going to be taking place in cancer, heart disease, Alzheimer’s, diabetes, multiple sclerosis and other diseases. Picking the right companies can produce impressive returns in a difficult overall market environment. Right now there are literally hundreds of small companies working on significant products. Many of them will fail, but a few will change the world the way Google and Facebook did. Most are located in California and Boston, but there are also some in Europe and Asia. The United States is dominant, however. You should spend your time trying to understand what these companies are doing. The returns for picking the winners could be huge. What’s more, the pace of innovation is quickening. The rewards for proper asset allocation will be very modest. I like Facebook (ticker: FB ); Salesforce.com ( CRM ); biotech ETFs; an industrial company, CS Industries ; Visa ( V ); Apple ( AAPL ) , of course; Alibaba ( BABA ); and Palo Alto Networks. I am out of Google. 
“Think of all the tasks your smartphone can do for you. There is almost no question that comes to mind that cannot be answered with a Google search, from politics to sports to business to entertainment. I am convinced technology has made the world more productive, but it is hard to measure. The recent figures on productivity are negative, meaning there is less output per worker hour, but the benefits of information technology may be difficult to determine in traditional ways. 

“There is also a question of the impact technology is having on the middle class. Millions of jobs have been eliminated through robotics and other forms of technology. The technical skills required to get and hold a good job are increasing all the time. Service jobs are growing, but manufacturing jobs are rising more slowly, and service jobs generally are lower-paying. Many kids completing college cannot find jobs in their chosen field and are forced to work at something temporary to pay the bills and student loan debts. This is a problem that is likely to get worse as more technology breakthroughs take place, so the social implications of this phenomenon are enormous. Advances in biotechnology also have the social costs, as more people live longer.

“In addition there is the problem of wasting time. Playing video games rather than reading books, and communicating with followers on Twitter, can keep a young person busy. The typical Facebook user is said to be spending twenty hours a month on that site. According to recent studies, the average college student only spends one hour a night studying alone, perhaps because of other distractions. These numbers could signal problems for American competitiveness going forward, so there is a downside to what is happening in technology....MORE