Thursday, October 20, 2016

How Can You Not Love A Post Headline Containing "...Regulatory Filings As Performance Art"

From FT Alphaville:

The emerging genre of regulatory filings as performance art
This is a marvelously weird apparent prank.

There seems to be an actual entity — it’s registered in Wisconsin — called YNOFACE Holdings Inc, which said in a SEC filing Wednesday that it had acquired more than 4.2 bn shares of Bank of America on September 22, and nearly 800 million shares on August 15 with an exchange of shares.
That’s a lot of shares, and pretty clearly a hoax — though, oddly, the Form 4 filing is still up there. (The purchase of 4.2 billion shares would have cost $66bn. Bank of America’s entire market cap is $171bn.)

As Reuters first reported, the company is run by one Antonio L Lee, who is described on his website as an “American entrepreneur, world renowned artist, and YouTube celebrity specializing in acrylic painting” who is “well known for his work in the field of Scientific and Performance Art”.
Reuters compares the filing to other SEC-filing scams like the fake Avon Products takeover bid, but we think it fits into a colourful trend of oddball regulatory filings meant to make a statement, not a profit.

So far, most of the other such statements have been lobbying efforts under (probable) pen names:
  1. RT Leuchtkafer, a regular commentator on high-frequency trading who says he’s based in New York. Dark Pools postulates that Leuchtkafer is a nom de plume, since it means “lightning bug” in German. (Get it? Lighting-fast traders? Bugging them?)
  2. Danny Mulson, who claimed to be an eighth-grader in the nonexistent town of Wetlawn, Oregon.
  3. Jane Carson, an “80 year old individual investor” based in New York with a uncannily strong grasp of market structure. We were able to find one Jane Carson in the New York area, with an address the Bronx and a disconnected number.
But this statement from YNoFace is a bit more inscrutable and strange than most.

We sent Lee a Facebook message, and got no response. We also called the phone number listed on the company’s Form D filing twice, but couldn’t leave a message because it doesn’t have a voice mailbox. We also left a comment on Lee’s website. We really want to talk to this guy.

Here’s one of the more safe-for-work paintings we found on YNoFace’s Facebook page. It appears to be a dancer and a squirrel, and three children. (Are the children riding the squirrel, or standing behind it? Who can know?)...
There are some paintings about finance as well, as you’d expect:...
...MORE, so much more

Hey, the figures have no faces!

Theranos: The Silicon Valley Case The SEC Has Been Waiting For

From TechCrunch:

The SEC gets the case it’s been waiting for in Silicon Valley
Not so long ago, Theranos was flying high, its claims that it was upending the medical diagnostics business largely accepted by the public. Behind the scenes, however, some employees were growing wary of those claims, with at least one eventually reaching out to regulators to report the company’s failure to report its questionable test results.

A stinging series of articles by the Wall Street Journal soon followed, and in recent months, the government agency that oversees U.S. labs has banned founder and CEO Elizabeth Holmes from operating a blood-testing laboratory for two years, and Theranos has shuttered its clinical labs and wellness centers. To make matters worse, the company was last week slapped with a lawsuit by one of its biggest investors, which claims that Theranos knowingly lied to it.

It’s a nearly ideal scenario for the SEC, which is investigating Theranos and widely expected to use a case against it to expand its mandate into Silicon Valley’s startup ecosystem. The truth is while the SEC has long been viewed as a force in the public markets, it also has the authority to chase after private companies that engage in any “act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.” And lately, Wall Street’s top cop is finding Silicon Valley too high-profile a target to resist.

“If you’re only raising couple million bucks, everyone expects your huffing and puffing,” says one San Francisco-based securities attorney. “But if you’re raising hundreds of millions to billions of dollars, why would the SEC ignore that when they’re auditing the financials of some piddly company that’s raising $50 million in an IPO?”

In many ways, the startup world has been working toward this moment since 2002, with the passage of Sarbanes-Oxley, a law that established new accounting standards for publicly traded companies. SarBox was designed to safeguard public market investors from the likes of Enron, an energy-trading company that perpetrated one of the biggest accounting frauds in history.

VCs grumbled over the additional expense the new regulation created, calling it a deterrent to going public. Whether or not their claims were valid, the rise of Facebook soon after marked an undeniable shift toward staying private longer. Startup founders admired and looked to emulate Facebook cofounder and CEO Mark Zuckerberg, a then twentysomething who wasn’t answering to anyone, yet growing his company at a nearly unprecedented clip.

Facebook’s private shares similarly seduced accredited investors everywhere. Because of secondary marketplaces that mushroomed around the growing social media giant – the platforms enabled many far-flung participants to trade Facebook’s then-private shares – many who were new to startups were rewarded, and they looked to repeat the scenario.

Facebook wasn’t alone in its early ascendance in the Boston area. A year after it was founded in 2004 in Mark Zuckerberg’s Harvard dorm room, a nearby outfit called Y Combinator was being created by entrepreneur Paul Graham and his wife, Jessica Livingston.

It was unlike anything Graham had ever done — and by design. When earlier in his career, Graham cofounded a software company called ViaWeb, few doubted his engineering prowess. But Graham was much weaker when it came to fundraising. In fact, though Yahoo wound up purchasing ViaWeb for $49 million in stock in 1998, it was after being encouraged by a third party to kick the tires a second time.

Y Combinator alums would be different. From nearly the outset, participants in the now-famous accelerator program learned to frame their growth metrics as compellingly as possible. Their pitches proved so irresistible to VCs over time that the mantra of “ramen profitable” gave way to “growth hacking,” which involved burning cash to expand — and figuring out profitability later.

Against the backdrop of these shifts, the SEC’s interest in Silicon Valley was growing. One early, motivating factor was a report in the WSJ in 2006 that questioned whether executives at a variety of healthcare and software companies were manipulating options pricing. Investigations were launched, including into Apple; the SEC even set up a related “Stock Options Task Force” and filed charges against two former Apple execs for their alleged roles in backdating Apple options — both of whom settled without admitting wrongdoing. But the investigations came to be viewed as much ado about nothing, with disagreement even among the government’s experts about how stock options should be issued....MUCH MORE
HT: Matt levine@BloombergView

Chanos On Tesla: Not Impressed (TSLA; SCTY)

The stock is down $4.68 (2.30%) at $198.88.
From Yahoo Finance:

Why Jim Chanos is thoroughly unimpressed by Tesla
Influential short-seller Jim Chanos, who runs hedge fund Kynikos Associates, has been betting against two companies founded by billionaire serial entrepreneur Elon Musk — Tesla Motors (TSLA) and SolarCity (SCTY).

Chanos, famous for nailing the collapse of Enron, said that shareholders view Musk as a “messianic leader.” In other words, he can do no wrong. While Chanos has no doubt about Musk’s intelligence, he does see serious problems with his companies, which he described as a “melange of publicly-traded and privately-traded science projects sort of gone awry.”

“The fact of the matter is this is a company — in Tesla’s case — that’s now really going to need to step up the production. It’s going to be competing against Mercedes, Audi, VW, finally, who are bringing product lines as an OEM [original equipment manufacturer],”  Chanos said at the Vanity Fair New Establishment Summit in San Francisco on Wednesday.

According to Chanos, Tesla has been “leapfrogged” by most the other OEMs, making Tesla’s massive  gigafactory it’s currently building in the Nevada desert “somewhat of a giant white elephant.”

“This is a car company,” Chanos said.

“This is not a high-technology company in that people forget that battery technology has been around a long time,” he continued. “It’s not subject to Moore’s Law. It’s basic chemical reactions.”
Furthermore, he added that the battery technology Tesla uses is not proprietary, but rather belongs to Panasonic (PCRFY).

“A lot of people are continually stunned to find that out.”...MORE
Chanos is being coy about the reasons for his shorts on SCTY and TSLA. 
It comes down to fairly sophisticated cash flow and balance sheet analysis combined with an educated guess as to Tesla's ability to raise quite a bit of cash over the next six to eighteen months.

When he starts talking about the technology, he's mainly correct, but it's just the magician's misdirection to get the competition looking somewhere else rather than at the crux of the matter.
He's been doing this schtick for a while and he's a master of both the analysis and the 'hey look, shiny' explanation.

Here he is at CNBC yesterday addressing a slightly more knowledgeable audience:
Jim Chanos, Kynikos Associates Founder


If You've Noticed A Perma-Bid In Commodities, You're Not Imagining It

The buying has been relentless. Not aggressive but each day taking what hits the bid and then upping the bid.
And it's not just agricultural commods. Except for copper.*
(and cattle, and hogs)

From Agrimoney:

AM markets: grains extend headway, amid talk of fund buying
The idea that funds are getting back into grain markets, as flagged last week, is beginning to find a bit more of an echo.
In fact, it is not just grains that appear to be getting more attractive to investors, but commodities as a whole.
Benson Quinn Commodities, for instance, saying that gains in soybean prices "seemed to be more macro in nature", flagged signs of "funds coming to the commodity sector as signs of rising US inflation along with China hitting its growth target in third quarter reporting GDP of 6.7%".
The CRB commodities index closed the last session above 190 points for the first time in more than three months.
Open interest clue
Meanwhile, there is circumstantial evidence too that there is more than short covering in the rally in corn and wheat derivatives in Chicago, the benchmark market.
If the rise in prices was just down to funds closing the substantial short bets that funds held in futures and options (a level which hit a record two weeks ago), that would be reflected in a drop in open interest, ie the number of live contracts.
But in wheat, while open interest in futures has fallen a bit, the decline is of a modest 5,000 lots or so over the week to last night's close, while for wheat options, opening interest has seen a gain of more than 20,000 contracts.
For corn, open interest in futures has risen by some 7,000 lots over the week, with that in options soaring by more than 70,000 contracts.
In soybeans, for the record, in which hedge funds already had a substantial net long position, open interest in futures is up some 25,000 contracts, and in options by a little over 5,000 lots.
'Buying agenda of funds'
And this despite the ideas of ample world supplies of wheat, and of record US corn and soybean harvests, with the latter proving particularly impressive.
"Harvest reports continue to talk of huge soybean yields," said Joe Lardy at CHS Hedging, adding that "records are being broken across the country".
However, futures in soybeans and grains have continued to recover.
The reason? "Hedge funds remain good buyers," persuaded to buy in part by technical factors.
"Over the past week, soybean futures have traded through the 10-, 20-, 50-, and 200-day moving averages, helping to support the buying agenda of the funds."
'Snap up as much as they can'
In early deals on Thursday, corn futures boosted their own technical credentials by - in rising 0.2% to $3.58 ¼ a bushel for December delivery, as of 09:30 UK time (03:30 Chicago time) - trading above their 100-day moving average for the first time in more than three months....MORE
 *Copper via FinViz:


"Who’s Powering the War on Cash?" (AAPL)

From Wolf Street:
On Monday, during a trip to Japan, Apple CEO Tim Cook vented his spleen once more against physical currency, telling the Nikkei that “we don’t think the consumer particularly likes cash.”

It’s a bizarre conclusion to reach, especially in Japan where cash is still the undisputed king. At ¥90 trillion ($885 billion), or about a fifth of gross domestic product, the value of banknotes in circulation is the highest in the world as a proportion of the economy. Many small businesses, including many restaurants, don’t even take plastic. Yet, the country was also the first to popularize mobile wallets and smartphones.

“We would like to be a catalyst for taking cash out of the system,” Cook said, his mind fixed on Apple Pay, which takes a cut on every transaction it processes.

Yet Apple Pay isn’t generating substantial revenue for the company, as Fortune points out. The service — as with just about everything Apple ever produced — is only compatible with Apple’s own products, leaving the more than a billion people worldwide who use Android-based smartphones out of the loop. Not to mention the billions more who don’t use a smart phone at all.

But cash’s days are numbered, as technological advances and changes in generational priorities dampen its allure. The world is brimming with individuals and institutions determined to put it out of its misery.

The Usual Suspects
Top of the list are the world’s central banks, which have the perfect motive for whacking cash: i.e. to make negative interest rates an eternal — or at least, more enduring — reality. And the only way to do that is to stop depositors from cashing out, as the Bank of England chief economist Andrew Hadlaine all but admitted in 2014.

Japan and Europe are already deep into negative territory, and Fed Chair Janet Yellen has already said that the U.S. should be prepared for the same outcome. But as long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it.

Central banks are not the only ones who dream of a cash-free world. For credit card companies, cash is the ultimate rival. As such, it’s no surprise that the likes of Visa and MasterCard are among those pushing the hardest for a cashless economy. For banks, the benefits are no less obvious, including cost cuts, greater control over the flow of customer funds, and larger fees.

As for politicians, Eurocrats and global plutocrats, including the senior servants of the IMF, World Bank and United Nations, they will enjoy even greater access to and dominion over the people’s funds. What better way of controlling the people than by controlling their access to the money they need to survive? It would amount to what Martin Armstrong calls “totalitarian control over the economy.” 

The Alliance
These powerful agents have already created a perfect platform for achieving their dream: The Better Than Cash Alliance (BTCA), a UN-hosted partnership of governments, companies and international organizations. Its purpose, in its own words, is “to accelerate the transition from cash to digital payments globally through excellence in advocacy, knowledge and services to members.”...MUCH MORE

Picasso Pics For Sale, Cheap (chateau included)

From Messy Nessy Chic:

Picasso Drew all Over the Walls of this French Chateau For Sale
I grew up part-time near a town called Uzès in the South of France and on our way into town, we would always pass a mysterious property by the roadside. I remember my mother telling us it used to belong to a famous art collector, and she would even let us stop and sneak up to the gate on occasion to get a closer look, squeezing our little faces in between the iron bars. It’s been over twenty years since I’ve seen the house, until today, when I happened to be day-dreaming on the Sotheby’s real estate site, and found these photographs of a property that gave me such a feeling of déjà vu. It was the same house! And all these years later, it’s secrets are finally revealed to me…
Indeed, this was the house of a famous collector, Douglas Cooper, who bought the Château de Castille (also known as Chateau d’Argilliers) in 1950. As one of the world’s most important private collectors of Cubist art, Cooper counted a certain Mr. Pablo Picasso as one of his close friends, who frequently visited the 13th century château. Picasso liked the house so much, he even tried to buy it from Cooper. And when that wasn’t possible, he convinced Cooper to give him “one of his walls”. If I had known back when I was a kid that there were five giant Picasso frescoes hiding behind the walls of that house, I sure hope I would have had the sense to squeeze my way through the gate somehow and go take a look at them myself…



The Man Who Sold The Eiffel Tower, Twice and A (bath) Room With A View
We've visited Messy Nessy a few times, most recently on Van Gogh's bedroom and then on the high-end German call-girl antecedents of the Barbie Doll.

This time she's just straight up showing off.
From Messy Nessy Chic...

Volatility and Uncertainty: An Interesting Correlation

From Barron's Focus on Funds:

Volatility And Risk: Not The Correlation You Think
Given the rollercoaster ride that has been 2016, from Brexit to terrorism and the presidential election, it’s no surprise that investors are feeling defensive, and have been piling into low-volatility funds, that try to shield investors from market swings (even if flows have reversed of late, maybe because of high valuations).

But taking a step back, volatility has been dropping off, which seems strange given all the scary headlines this year. Yet it makes sense when you consider that data shows the world is slowly but steadily recovering, the specter of recession is receding, and emerging markets’ worst days may be over, says Citi’s Mark Schofield.

Yet before you stop worrying, consider this: The problem isn’t more uncertainty, but less, Schofield argues, as investors are less concerned that the status quo and inequality will be challenged:
A perception of higher certainty creates consensus, consensus creates complacency and complacency creates risk, particularly when the consensus view is reflected in congested, consensus market positioning.
Everyone fears black swans, but the scariest possibility is an event we all expected, but just with a different outcome (think back to how certain everyone was before the Brexit vote that the UK would stay in the European Union).  Caught off guard, investors are more likely to overreact.
He concludes:
It is this type of surprise that tends to trigger the risk reversals that lead to the largest and most enduring moves. This, however, is not reflected in volatility in the market sense, but by a greater magnitude of moves around unexpected outcomes. It is reflected in more “spikiness” in markets, in fatter tailed distributions, in greater kurtosis....

Wednesday, October 19, 2016

Credit Suisse: "Ag Cycle Won’t Bottom Until 2017 or Beyond" (POT; MOS; AGU; IPI)

We'll see what next year brings, next year.

In the meantime the current IRI/Columbia Niño 3.4 forecast is only showing weak La Niña conditions with a shot at El Niño returning again in 2017:
We'll be back with the plume of model predictions in a few days.
From Barron's Investors' Soapbox AM:

There remains a notion that “all it takes is a single season of adverse weather” for a full inventory correction.
Credit Suisse
We would like to give investors an update of our global team’s view on the agricultural cycle, fertilizer prices and our general expectations as we head into the U.S. harvest and summer-planting season in Latin America.

In conjunction with our updated views on global ag and nutrient prices, we are adjusting our earnings-per-share estimates and target prices on Mosaic (ticker: MOS) (new target price of $19, down from $21) [rated at Underperform], Potash Corp. of Saska tchewan (POT) (target price $11) [rated at Underperform], CF Industries Holding (CF) (target price $26) [rated at Outperform], Agrium (AGU) (new target price of $88, down from $91) [rated at Outperform] and Intrepid Potash (IPI) (target price of $1) [rated at Underperform].

Despite many investors hoping for an “ag cycle bottom” in 2016, we continue to believe pressures will subside in second-half 2017 at the earliest. There remains a notion that “all it takes is single season of adverse weather” for a full inventory correction, but we argue that: 1) the magnitude of inventory hangovers are large enough it would take a very severe supply disruption to correct; and 2) there were adverse weather events in several key regions in 2016, including Brazil, Argentina, South Africa and Western Europe. The latter point begging the question, What will it take to pressure prices higher? As demand is already healthy (exports, feed, etc.), we fail to see material upside in 2017 absent a significant improvement on the macro front, leaving us with an unenthusiastic view in the intermediate term.

We still see risks on the potash front as we head into 2017 (and already seeing “cracks” to the near-term bull thesis) for Mosaic and Potash Corp., but we believe the largest risks in the next two quarters are actually phosphate....MORE

Oops: Google Crashes It's Own Cloud (again)

When Salesforce's cloud crashed last May customers lost hours of data. Permanently.
Still a few bugs in the system.

From the Register:

Google's crash canaries' muted chirping led to load balancer brownout
Google has revealed that it broke its own cloud again, this time because of two failures: a software error and alerts that proved too hard to interpret.

The problem hit Google's cloudy load balancers on Thursday, October 13, causing them to produce HTTP 502 (Bad Gateway) responses. At first, two per cent reported the problem. But an hour and two minutes later, at 16:09 Pacific Time, 45 per cent were generating errors. Which made it rather hard to access virtual machines.

Google says its load balancers are “a global, geographically-distributed multi-tiered software stack which receives incoming HTTP(S) requests via many points in Google's global network, and dispatches them to appropriate Google Compute Engine instances” and that the problem started when “a configuration change was rolled out to one of these layers with widespread distribution beginning at 15:07.”

“This change triggered a software bug which decoupled second-tier load balancers from a number of first-tier load balancers. The affected first-tier load balancers therefore had no forwarding path for incoming requests and returned the HTTP 502 code to indicate this.”

Google says its networks incorporate protections “to prevent them from propagating incorrect or invalid configurations” but that these safeguards “were partially successful in this instance, limiting both the scope and the duration of the event, but not preventing it entirely.”

The Alphabet subsidiary's incident says its first layer of protection is “a canary deployment, where the configuration is deployed at a single site and that site is verified to be functioning within normal bounds.”

But while “the canary step did generate a warning … it was not sufficiently precise to cause the on-call engineer to immediately halt the rollout. The new configuration subsequently rolled out in stages, but was halted part way through as further alerts indicated that it was not functioning correctly. By design, this progressive rollout limited the error rate experienced by customers.”

Google's fix for the problem is more articulate canaries....MORE
As noted a couple weeks ago:
Econophysics: Or Why, When it Comes to Economics, We All Behave like Particles"
Where synchronization is going to get very interesting is when some critical mass of businesses migrate to cloud computing, say Amazon's Amazon Web Service, and someone takes down AWS.
Unlike the good old days where a computer problem put one company at risk you'll have dozens, hundreds or thousands of companies frozen, all their economic activity halted at the same time.
That's synchronization baby!
See also last week's "Cloud Computing: One 'hiccup' and 'boom' - Amazon Web Services is 'gone'--Cisco President (AMZN)".

"ECB urges EU to curb virtual money on fear of losing control"

They're in control?
What would the landscape look like if they weren't in control?
From Reuters:
The European Central Bank wants EU lawmakers to tighten proposed new rules on digital currencies such as bitcoin, fearing they might one day weaken its own control over money supply in the euro zone.

The European Commission's draft rules, aimed at fighting terrorism, require currency exchange platforms to increase checks on the identities of people exchanging virtual currencies for real ones and report suspicious transactions.

In a legal opinion published on Tuesday, the ECB said EU institutions should not promote the use of digital currencies and should make clear they lack the legal status of currency or money.

"The reliance of economic actors on virtual currency units, if substantially increased in the future, could in principle affect the central banks’ control over the supply of money ... although under current practice this risk is limited," the ECB said in the opinion for the European Parliament and Council....MORE

Questions America Wants Answered: "Is the Short-Covering Wave in Wheat Over?"

A chorus of queries.

From Agrimoney:
Is that it for the short-covering wave in wheat?
Chicago soft red winter wheat futures managed three positive sessions in a row (in line with grain market ideas that changes in money flows take three sessions, initially at least, to work their way through).
But then the key December contract lost a bit of ground in the last session, and stood a further 0.2% lower, at $4.19 ¼ a bushel, in Chicago as of 07:50 UK time (01:50 Chicago time).
That looks a sign of the end of the initial phase, at least, of covering of the hedge fund net short position which two weeks ago reached a record high.
Indeed, the extent of the net short position had raised ideas that it looked a little "crowded", and vulnerable to a reversal which would send prices spiking – especially given that futures were already not that far above 10-year lows, so potentially limiting the opportunity for short bets to come good.
'Worrisome shorts'
As to whether more short bets are covered, there is potential, with Richard Feltes at RJ O'Brien say that the size of the fund short positions in Chicago wheat, and corn, "are still sizeable, and worrisome" for holders.
He cited the "upturn in the charts", offering a positive price signal to investors.
However, Brian Henry at Benson Quinn Commodities was more cautious, saying that Tuesday's "price action followed by a lower close on Wednesday, would be a very strong sign that the funds have covered enough of their respective short positions in the winter wheat contracts and the recent [price] recovery is coming to an end.
In fact, "it feels like the trade is getting ready to gang up these markets from the sell side.
"But I wouldn't be surprised to see them wait for confirmation that the short-covering is over."
'Large amount of wheat'
And, after all, one of the main spurs of the short-covering wave - the appreciation, thanks to offers to an Egyptian tender last week, of just how competitive US wheat has come – is now looking a little historical.
"The globe has purchased a large amount of wheat with the US missing out on the bulk of the higher profile activity," Benson Quinn Commodities said....MORE


"Dollar Softer While Consolidation Continues"

From Marc to Market:
The US dollar has slipped lower against the major currencies and is mixed against the emerging market currencies.  Still, the consolidative tone seen since the start of the week has continued.  There seems to be a technical component here, but after a big push higher, US rates have also eased.   
News yesterday that nine of the 12 regional Federal Reserve banks called for a discount rate hike last month.  The regional Federal Reserve  branches make an non-binding recommendation to the Board of Governors.    The Atlanta Fed became the news convert to the cause.  This is the highest number requesting that the discount rate be lifted from 1.0% to 1.25% since last December.  The Board obviously did not acquiesce, however, it is indicative of the mood.   
The three regional Fed branches that did go with the majority are interesting in their own right.  NY, which is understandable in our framework that sees Dudley as part of the core Fed leadership that drives policy.  Chicago is not much of a surprise.  Evans is among the leading doves.  The Minneapolis Fed may be the most surprising, but Kashkari has taken a dovish line. 
Recall that the September dot plots showed three officials thinking that a rate hike this year would not be appropriate.  At the time, many, including ourselves, suspected Governors Brainard and/or Tarullo were  among those outliers.  It appeared that Yellen had to chose between dissents from the Governors if the Fed hiked or dissents from regional Fed presidents if it stood pat.  However, with the discount rate minutes, there are other scenarios that ought to be considered, and in any event, will likely prevent the odds of a December hike unwind too far ahead of the jobs data early next month. 
There have been two economic reports that investors are digesting now.  First came from China.  The world's second largest economy expanded by 1.8% in Q3 for a 6.7%  year-over-year pace.  It is spot on expectations and is the third quarter at this reported pace.  The GDP estimate sapped the interest from the September industrial output (6.1% vs 6.3% in August) and retail sales (10.7% vs 10.6% in August). 
Perhaps the real takeaway from both the Chinese data and the fact that the dollar is holding above what was previously believed to have been the dollar's cap (~CNY6.7) is that there is not a takeaway.  In August 2015 and again at the start of this year, the global capital markets appeared to be driven by events in China.  This has ceased to be the case.  It is not the focus or linkages cannot be reestablished, but rather it is to appreciate that events in Beijing are not among the key drivers now....MORE 
The dollar index via FinViz:

Tuesday, October 18, 2016

"Now Mercedes Says Its Driverless Cars Won't Run Over Pedestrians, That Would Be Illegal"

From Jalopnik:

 The Mercedes F 015 Luxury In Motion self-driving concept car.
Last week Mercedes got a lot of attention—and not necessarily the good kind—after one of its managers said that in the future, the automaker’s self-driving cars would prioritize the safety of occupants over pedestrians. Now Mercedes is walking that back, and hard. Apparently doing so would be unethical, unacceptable, and also illegal.

We got our information about Mercedes’ official stance on how their self-driving cars would handle the infamous Trolley Problem (In the event of an imminent crash, who does your car protect: you, the occupant, or a pedestrian?) from an interview that Christian von Hugo, Mercedes’ Manager Driver Assistance Systems, Active Safety & Ratings, gave with Car and Driver at the recent Paris Motor Show.

Here’s what C and D ran:
All of Mercedes-Benz’s future Level 4 and Level 5 autonomous cars will prioritize saving the people they carry, according to Christoph von Hugo, the automaker’s manager of driver assistance systems and active safety.
“If you know you can save at least one person, at least save that one. Save the one in the car,” Hugo said in an interview at the Paris auto show. “If all you know for sure is that one death can be prevented, then that’s your first priority.”
Well, Mercedes just emailed Jalopnik to say that this was a misquote, and that some of von Hugo’s words were omitted.

What this official Mercedes project manager said in the interview, moreover, does not reflect Mercedes’ official corporate stance on self-driving car policy....

Uber: Too Funny

Words fail me.

HT: Ms Kaminska.

Automation: "How Wal-Mart May Revive U.S. Productivity — And Its Own Fortunes" (WMT)

From Investor's Business Daily:

Wal-Mart brought back its Smiley icon this year as the mark of its low-price deals. Now it hopes to revive its longtime status as a technology innovator and productivity leader by deploying new apps, bar codes and drones.  (Dennis Nishi)
Wal-Mart brought back its Smiley icon this year as the mark of its low-price deals. Now it hopes to revive its
 longtime status as a technology innovator and productivity leader by deploying new apps, bar codes and drones.
A future with slow-growing productivity — and by extension, slow-growing incomes — seems close to becoming conventional wisdom. But the strides that Wal-Mart (WMT) is making with technology that streamlines everything from tracking inventory to simplifying check-out suggest a brighter outlook.

The retail giant was considered a prime force behind the last productivity boom (think bar codes, scanners and retailer-supplier data links) and the subsequent productivity bust (heavier reliance on temps and part-time workers come to mind).

But facing competitive threats from Amazon (AMZN), Dollar Tree (DLTR), Dollar General (DG), Target (TGT) and Costco (COST), and the simultaneous challenge of substantially raising its own wage scale, Wal-Mart is re-engineering virtually every aspect of its business. New technologies and strategies have been tested, sending drones flying through warehouses, equipping shoppers with their own scanners and putting apps in the hands of efficiency-seeking store managers. Now sales are on the upswing, though profits have yet to follow, as the pace of change at Wal-Mart is accelerating.

The payoff for investors won't be immediate. On Oct. 6, Wal-Mart cut its profit outlook again as it invests heavily to improve operations in stores and online. The stock has a lousy 19 Composite Rating out of 99, which means the stock only outperforms 19% of all other stocks based on earnings, share price performance and other key criteria. The Retail-Major Discount Chains group is No. 190 out of 197 industries that IBD tracks.

The good news for consumers is that the retail giant is sharing some of its efficiency gains via lower prices, which means you can expect its efficiency measures to spread to other companies. Amazon may be the most disruptive force in retail, but Wal-Mart's sheer scale still gives it an outsized influence on the economy. Kroger (KR), Target and the dollar stores are feeling heat from Wal-Mart price cuts, the companies have hinted at and analysts have signaled in recent weeks. Even fast-casual restaurants and quick-service chains like McDonald's (MCD) appear to be feeling pressure due to Wal-Mart's grocery price cuts along with its upward pressure on wages, with the cost of eating out rising at a record pace vs. eating in. When Wal-Mart makes up its mind to cut prices and do what it must to accomplish that, suppliers and competitors have little choice but to change the way they do business too.

Here's a look at some technology programs underway at Wal-Mart and how they could change the productivity paradigm for retailers and the broader economy. 
 IBD'S TAKE: Wal-Mart is the best stock in its sector, but its Retail-Major Discount Chains group is ranked 190 out of 197 by IBD based on stock performance and Wal-Mart shares aren't near a buy point. For a primer on how to find stocks to buy at the right time, visit IBD University.
1. Skip The Cashier — And Checkout Process
Wal-Mart CEO Doug McMillon said on the Aug. 16 earnings call that the company will roll out its new self-scan-and-pay technology at all Sam's Clubs this fall, letting members of the discount warehouses "skip the checkout line."

Customers can use the "Scan & Go" app to ring up items as they put them in their shopping cart and see a running receipt total on their phones. The app also handles payment, so customers just show their receipts to greeters on the way out.

The technology has been a long time in development. In 2014, the company pulled the plug on a year-old Scan & Go pilot program at 200 Wal-Marts using an app that was only compatible with Apple (AAPL) iPhones.

But the company isn't reserving its latest innovations for Sam's Club customers. In June, Wal-Mart rolled out mobile payment technology at all of its 4,600 U.S. locations. It is testing out customer handheld scanning devices provided by the store in a number of Wal-Mart locations, but management has noted the logic of offering the same self-scan capability via smartphone that it's doing at Sam's Club.

2. Next-Generation Bar Code...

HT: Ritholtz@BloombergView

Related at CNN Money:
Amazon only needs a minute of human labor to ship your next package

"London Is Still Paying Rent to the Queen on a Property Leased in 1211"

From Atlas Obscura:
Earlier this October, at a ceremony at the Royal Courts of Justice, London paid its rent to the Queen. The ceremony proceeded much as it had for the past eight centuries. The city handed over a knife, an axe, six oversized horseshoes, and 61 nails to Barbara Janet Fontaine, the Queen’s Remembrancer, the oldest judicial position in England. The job was created in the 12th century to keep track of all that was owed to the crown.
Horseshoes, 61 nails, an axe and billhook are part of the rent London owes to the Queen.
In this case, the Remembrancer has presided over the rent owed on two pieces of property for a very long time—since 1235 in one case, and at least 1211 in the other. Every year, in this Ceremony of Quit Rents, the crown extracts its price from the city for a forge and a piece of moorland.

No one knows exactly where these two pieces of land are located anymore, but for hundreds of years the city has been paying rent on them. The rate, however, has not changed—the same objects have been presented for hundreds of years.

The Ceremony of Quit Rents is not well-publicized or much talked about: news services have covered it occasionally over the years, but the only official references I could find to this year’s ceremonies were a notice about a city-sponsored essay contest where the prize includes the privilege of attending the ceremony and an off-hand reference by the Lord Chief Justice of England and Wales.

But each fall, usually in October, the city and the crown perform the same exchange, for no particular reason other than that they always have.

In a small annual ceremony the city hands over an axe, a knife, 6 horseshoes, and 61 nails.

The older rent is paid on a piece of land that’s supposed to be in the county of Shropshire, far from London. Known as “the Moors,” its exact location was lost long ago (although UPI reported in 1980 that London’s then-mayor Peter Gadsden picked a piece of land in the area and declared it the Moors in question).

The rent on the Moors is a billhook—a knife-like tool used in agriculture—and an axe. The billhook is supposed to be dull: one early instruction said it should “bend in green cheese,” Copley News Service reported in 1972. About three centuries after this rent was first recorded, though, the standard had changed: the billhook should be in such a condition that it could strike a one-year-old hazel stick and make “little or no mark.”

The axe, on the other hand, is supposed to be sharp. The current version of the ceremony tests both: First, the city representative uses the billhook to hack away at a pile of sticks. After that tool is proved ineffective, the axe gets its turn—and swipes cleanly through the same wood. “Good service,” the Remembrancer says....MORE

Artificial Intelligence: Google's DeepMind No Longer Needs Humans to Help It Learn

And so it begins.
From the DeepMind blog:

Differentiable neural computers
In a recent study in Nature, we introduce a form of memory-augmented neural network called a differentiable neural computer, and show that it can learn to use its memory to answer questions about complex, structured data, including artificially generated stories, family trees, and even a map of the London Underground. We also show that it can solve a block puzzle game using reinforcement learning.
Plato likened memory to a wax tablet on which an impression, imposed on it once, would remain fixed. He expressed in metaphor the modern notion of plasticity – that our minds can be shaped and reshaped by experience. But the wax of our memories does not just form impressions, it also forms connections, from one memory to the next. Philosophers like John Locke believed that memories connected if they were formed nearby in time and space. Instead of wax, the most potent metaphor expressing this is Marcel Proust’s madeleine cake; for Proust, one taste of the confection as an adult undammed a torrent of associations from his childhood. These episodic memories (event memories) are known to depend on the hippocampus in the human brain. 
Today, our metaphors for memory have been refined. We no longer think of memory as a wax tablet but as a reconstructive process, whereby experiences are reassembled from their constituent parts. And instead of a simple association between stimuli and behavioural responses, the relationship between memories and action is variable, conditioned on context and priorities. A simple article of memorised knowledge, for example a memory of the layout of the London Underground, can be used to answer the question, “How do you get from Piccadilly Circus to Moorgate?” as well as the question, “What is directly adjacent to Moorgate, going north on the Northern Line?”. It all depends on the question; the contents of memory and their use can be separated. Another view holds that memories can be organised in order to perform computation. More like lego than wax, memories can be recombined depending on the problem at hand. 
Neural networks excel at pattern recognition and quick, reactive decision-making, but we are only just beginning to build neural networks that can think slowly – that is, deliberate or reason using knowledge. For example, how could a neural network store memories for facts like the connections in a transport network and then logically reason about its pieces of knowledge to answer questions? In a recent paper, we showed how neural networks and memory systems can be combined to make learning machines that can store knowledge quickly and reason about it flexibly. These models, which we call differentiable neural computers (DNCs), can learn from examples like neural networks, but they can also store complex data like computers.

In a normal computer, the processor can read and write information from and to random access memory (RAM). RAM gives the processor much more space to organise the intermediate results of computations. Temporary placeholders for information are called variables and are stored in memory. In a computer, it is a trivial operation to form a variable that holds a numerical value. And it is also simple to make data structures – variables in memory that contain links that can be followed to get to other variables. One of the simplest data structures is a list – a sequence of variables that can be read item by item. For example, one could store a list of players’ names on a sports team and then read each name one by one. A more complicated data structure is a tree. In a family tree for instance, links from children to parents can be followed to read out a line of ancestry. One of the most complex and general data structures is a graph, like the London Underground network.
When we designed DNCs, we wanted machines that could learn to form and navigate complex data structures on their own. At the heart of a DNC is a neural network called a controller, which is analogous to the processor in a computer. A controller is responsible for taking input in, reading from and writing to memory, and producing output that can be interpreted as an answer. The memory is a set of locations that can each store a vector of information....MUCH MORE
HT: The Next Web's "Google’s ‘DeepMind’ AI platform can now learn without human input"

I blame the human enablers for what's coming:

AI software should be able to register its own patents, law prof argues

Tieto appoints bot to leadership team
Sandinavian tech firm Tieto has appointed an artificical intelligence agent to the leadership team of a new data-driven business unit, giving the bot the opportunity to participate in team meetings and cast a vote on business direction....

The bank of the future will be invisible - KPMG

From Finextra:
By 2030, technology will have made banks and banking invisible to customers, hidden by Siri-like personal assistants that cull data from our connected lives to fulfil daily personal and financial obligations, claims KPMG.

This revolution will see large parts of traditional banks - customer service call centres, branches and sales teams - disappear, predicts the professional services giant in a report.

This will leave the future of today's banks uncertain, and in a worst case scenario they could become relegated to the position of white labelled product providers. The winners will be those that are able to make best use of their data, drive down costs, build effective partnerships with third parties, and build strong cybersecurity.

To illustrate its vision for banking in 2030, KPMG has imagined a Siri descendant called EVA (Enlightened Virtual Assistant) that uses advanced data analytics, voice authentication, AI, connected devices, APIs, and cloud technology to serve customers.

In an example of a day with EVA, the assistant approaches the customer having accessed its payment data and noticed an increase in spending on junk food. Coupling this with health data gathered from the customer's wearable device, EVA suggests a yoga class and then books and pays for it.

Asked by the customer about their finances, the assistant then explains that it has "shifted some savings around to get you a better interest rate and there was an unexpected charge from the USA which I have arranged a refund for".

In this vision, there is no "banking app" - access to money is interwoven with health, time management, leisure and other parts of daily life. This means that the "platform layer" - the customer interface - is likely to be provided by global technology players such as Google, Apple and Facebook....MORE

Oil Trader Andy Hall Nipped By $676,250 Art Forgery

I say nipped because Mr. Hall has lost more than the value of the forgery in an hour (and done it more than once with his stubborn long oil positions since $114 in June 2014)

From Art Market Monitor:

Collector Andrew Hall Victim of Leon Golub Forgery Scheme
The New York Times has the story of an unlikely set of Leon Golub forgeries that passed through Sotheby’s and Christie’s before going to leading collector Andrew Hall. The cache of two dozen works by a not-especially valuable painter is likely to cause far more damage to everyone’s reputation than the $676,250 that Hall spent on the fakes.
The NYTimes’s Dealbook has the details:
Mr. Hall started collecting Golub’s work in 2003 and within six years he had amassed 40 pieces, wagering that Golub’s work was undervalued and due to appreciate. In 2011, he discovered that the professor, Lorettann Gascard of Franklin Pierce University in New Hampshire, shared his passion for Golub’s art. She and her son, Nikolas, seemed to have a collection of Golubs to rival his own, he learned, and they wanted to sell.
Mr. Hall had, it turned out, already bought eight of their Golubs through auction houses in New York beginning in 2009. And after making direct contact with the Gascards in 2011 he bought another 16 from them, cutting out the middleman.
But now he says all 24 of the Golubs he bought from the Gascards are fake. […]

Hall is a pretty big deal in the collecting world, even putting on a semi-annual show at Oxford's Ashmolean Museum.

Shipping: Hanjin Re/Insurance Loss Could be $2 Billion Says Credit Suisse

From Artemis:

Hanjin re/insurance loss could be half a Tianjin ($2bn): Credit Suisse
The insurance and reinsurance sector could ultimately face a loss of as much up to $2 billion due to the financial collapse and bankruptcy of Hanjin Shipping this year, according to analysts at Credit Suisse. If that size of loss manifests, it has the potential to seep through to ILS funds investing in specialty risks.

Hanjin Shipping insolvency insurance and reinsurance lossCredit Suisse’s insurance equity analysts believe that the industry will face losses either in their results this quarter or next, depending on when they log estimates for the coming business interruption impact.

The Hanjin Shipping company suffered a spectacular financial collapse earlier this year, resulting in a technical insolvency and a need to restructure debt and causing cargo ships and containers to be stuck at sea, in ports and dockyards around the world.

The resulting business interruption claims have the potential to be enormous and of course where there is business interruption the knock-on effects could result in contingent BI claims as well.
The risks of cargo being delayed, stuck outside ports, on the quay side, in warehouses and generally not reaching its final destination, are one of the marine cargo areas of specialty insurance where losses can accumulate quickly.

Hanjin Shipping’s insolvency came after its creditors pulled its line of credit and at that time the company had an estimated 530,000 teu’s (which are 20ft container equivalent amounts of cargo) being carried on its fleet or in its care in transit.

To give an idea of the scale of Hanjin, it is said to carry around 7% of the cross-Pacific cargo each year, which is an enormous volume. Around $14 billion of cargo was said to have been stranded around the world due to the collapse of Hanjin....MUCH MORE
Meanwhile, Platts is taking a modest victory lap:

Hanjin Shipping’s demise no surprise to Platts Ocean Intelligence chief
Hanjin’s demise hardly came as a crashing surprise to Platts Ocean Intelligence chief Jason Silber.

Consider the following: “Hanjin…is undergoing a restructuring…results for FY 2013 and 1Q FY 2014 continue to be worrying – not surprising given that the container shipping sector is still suffering from severe supply-demand imbalance and high bunker costs (and is) expected to remain challenging in the near term, and we are not optimistic that the company’s current cost-cutting and other measures to improve its bottom line will return it to profitability in the next few years.”

And this: “Hanjin’s strained financial position would affect its ability to pay its counterparties on time, as evident in the delays in payments…Ocean Intelligence recommends a credit limit of USD low-seven figures for the company. This account should be monitored closely, and any deterioration in its payment performance would warrant an immediate credit review.”

Prophecy or intuition? No: merely an Ocean Intelligence report published two whole years before the momentous collapse of Hanjin, the world’s seventh (or eighth or tenth – depends who’s asked) largest container liner and South Korea’s flagship carrier.

Our analyst recommended a relatively modest credit line of low $ seven figures. Now that may seem generous, but given mid-2014 bunker prices of around $700/mt (now $250), and the amount of fuel larger container carriers digest, it’s a very conservative recommendation.

Take the Hanjin Green Earth, a 13,000 ton-container ship. Not the largest of liners, but still very big, the vessel boasts a 12,000-ton bunker fuel tank, plus another 400 tons for distillate fuel used when sailing in certain coastal zones. Filling up the bunker tank alone would cost $8.4 million in 2014, and $3 million in today’s low fuel price environment. A low $ seven figure credit line would suffice for fixing only one vessel a month....MORE

Should You Keep Reading Something That Contains An Error By The Fourth Paragraph?

Life is short and wasting time is a crime against yourself so how do you decide when to cut your losses?
This serious question was triggered by a trivial example from a source to which we link from time to time, Aeon Magazine:

The Soviet InterNyet
Soviet scientists tried for decades to network their nation. What stalemated them is now fracturing the global internet
On the morning of 1 October 1970, the computer scientist Viktor Glushkov walked into the Kremlin to meet with the Politburo. He was an alert man with piercing eyes rimmed in black glasses, with the kind of mind that, given one problem, would derive a method for solving all similar problems. And at that moment the Soviet Union had a serious problem. A year earlier, the United States launched ARPANET, the first packet-switching distributed computer network that would in time seed the internet as we know it. The distributed network was originally designed to nudge the US ahead of the Soviets, allowing scientists’ and government leaders’ computers to communicate even in the event of a nuclear attack. It was the height of the tech race, and the Soviets needed to respond.

Glushkov’s idea was to inaugurate an era of electronic socialism. He named the colossally ambitious project the All-State Automated System. It sought to streamline and technologically upgrade the entire planned economy. This system would still make economic decisions by state plans, not market prices, but sped up by computer modelling to predict equilibria before they happen. Glushkov wanted smarter and faster decision-making, and maybe even electronic currency. All he needed was the Politburo’s purse.

But when Glushkov entered the cavernous room that morning, he noticed two empty chairs at the long table: his two strongest allies were missing. Instead, he faced down a table of ambitious, steely-eyed ministers – many of whom wanted the Politburo’s purse and support for themselves.
Between 1959 and 1989, leading Soviet men of science and state repeatedly ventured to construct a national computer network for broadly prosocial purposes. With the deep wounds of the Second World War far from healed (80 per cent of Russian men born in 1923 died in the war), the Soviet Union continued to specialise in massive modernisation projects that had transformed a dispersed tsarist nation of illiterate peasants into a global nuclear power in the course of a couple of generations....
That highlighted bit is impossible.

For cohorts of male Russian babies born in the 1920's almost half didn't even make it until the Nazi invasion in 1941. Childhood mortality was pretty high at that time and in that place..
And then there's the whole conflating Russia and the Soviet Union thing. Russian losses during the war, horrific as they were, were lower than those of other members of the USSR, Ukraine and the Byelorussian SSR, which bore the brunt of the fighting.

So I decided to look it up.
First I came across:
Uncounted  Costs of  World War II: The  Effect of  Changing Sex  Ratios  on Marriage and Fertility of Russian Women
T h e Soviet Union suffered devastating population losses during World War II, currently estimated at 27 million or nearly 14 percent of the prewar population. The disproportionate deaths of young men resulted in a drastic change in sex ratios among the population surviving the war. For example, the ratio of men to women in the 20-29 age group declined from .91 to .65 between 1941 and 1946.... 
On the right track. If no women born in 1923 had died after birth, and assuming the same was true of each '20's cohort, the ratio could have dropped as low as .19.
Of course that is a silly supposition but the fact the ratio didn't get much lower than .65 is telling.

So I looked around a bit more and and found:
Professor Mark Harrison at the University of Warwick:
Was the Soviet 1923 Male Birth Cohort Doomed by World War II? 

Tim Harford's BBC Radio programme "More or Less" asked me to comment on a claim that is widely repeated on the internet, for example on Buzzfeed:
Almost 80% of the males born in the Soviet Union in 1923 did not survive World War II.
My answer
Here's the numbers I worked from on the programme(in thousands, rounded to the nearest hundred thousand). Each of the lines is sourced below.
  • Males born in the Soviet Union in 1923: 3,400
  • Infant (0-1) mortality: 800
  • Childhood (1-18) mortality, famine, and terror: 800
  • Surviving to 1941: 1,800
  • Wartime mortality: 700
  • Surviving to 1946: 1,100
Leaving me to wonder if I had gotten a bit obsessive.
I stopped reading.

Monday, October 17, 2016

Maybe The New Normal In Trade Is Normal

From naked capitalism:

The Great Normalisation of Global Trade
By Alexander Al-Haschimi, Economist, External Developments Division, ECB, Martin Gächter, Economist, Directorate General International and European Relations, ECB, David Lodge, Principal Economist, External Developments Division, ECB, and Walter Steingress, Research Economist in the International Macroeconomic Division, Banque de France; research affiliate; IZA. Originally published at VoxEU.

Exceptionally weak global trade growth over recent years has presented a puzzle to academics and policymakers alike.1 Annual world import growth has fallen below its long-run average since mid-2011 and remained there since, representing the longest period of below-trend growth in nearly half a century. Even more importantly, the link between global production and trade appears to have changed.2 While global trade grew at approximately twice the rate of global GDP prior to the Global Crisis, the share of trade in global GDP has discontinued its strong upward trend and largely stagnated over recent years (Figure 1).

Figure 1. Ratio of Global Imports to GDP (ratio of levels, quarterly data)
Source: National sources.
Notes: Real imports of goods and services. Real global GDP is aggregated 
with market exchange rates. The last observation refers to 2015Q4.
Pre-crisis trade elasticities have, however, also shown considerable variation over time, with the ratio of global import to GDP growth fluctuating significantly prior to the Great Recession (Figure 2). In fact, the growth ratio peaked in the mid-1990s, and has gradually declined thereafter.3 A recent study by an expert network of European central banks4 finds that the decline in this ratio is primarily due to structural factors, which had temporarily lifted the income elasticity of trade significantly above unity (IRC Task Force 2016). More recently, these push factors have largely run their course and thus provide less support to trade growth. From this perspective, the current environment therefore reflects a normalisation of the trade elasticity towards its long-run value of unity.
Figure 2. Ratio of Global Import Growth to Global GDP Growth (ratio of growth rates; annual data)
Source: IMF WEO.
Notes: Real imports of goods and services. Real global GDP is aggregated 
with market exchange rates. The last observation refers to 2015.
Specifically, the study shows that the change in the global trade-income relationship between the pre-crisis period and more recent years is driven by both compositional as well as structural effects. The former are not necessarily structural and can reverse over the medium term. The latter, on the other hand, alter the fundamental relationship between trade and economic activity also at the country level. These two factors each contribute roughly half to the overall decline in the trade elasticity, respectively....MORE

"The Fed's Game Changer?"

From Pension Pulse:
Howard Schneider and Svea Herbst-Bayliss of Reuters report, Fed's Yellen says 'high-pressure' policy may be only way back from crisis:
The Federal Reserve may need to run a "high-pressure economy" to reverse damage from the 2008-2009 crisis that depressed output, sidelined workers, and risks becoming a permanent scar, Fed Chair Janet Yellen said on Friday in a broad review of where the recovery may still fall short.

Though not addressing interest rates or immediate policy concerns directly, Yellen laid out the deepening concern at the Fed that U.S. economic potential is slipping and aggressive steps may be needed to rebuild it.

Yellen, in a lunch address to a conference of policymakers and top academics in Boston, said the question was whether that damage can be undone "by temporarily running a 'high-pressure economy,' with robust aggregate demand and a tight labor market."

"One can certainly identify plausible ways in which this might occur," she said.

Looking for policies that would lower unemployment further and boost consumption, even at the risk of higher inflation, could convince businesses to invest, improve confidence, and bring even more workers into the economy.

Yellen's comments, while posed as questions that need more research, still add an important voice to an intensifying debate within the Fed over whether economic growth is close enough to normal to need steady interest rate increases, or whether it remains subpar and scarred, a theory pressed by Harvard economist and former U.S. Treasury Secretary, Lawrence Summers, among others.

Her remarks jarred the U.S. bond market on Friday afternoon, where they were interpreted as perhaps a willingness to allow inflation to run beyond the Fed's 2.0 percent target. Prices on longer dated U.S. Treasuries, which are most sensitive to inflation expectations, fell sharply and their yields shot higher.

The yields on both 30-year bonds and 10-year notes ended the day at their highest levels since early June, and their spread over shorter-dated 2-year note yields widened by the most in seven months.

Jeffrey Gundlach, chief executive of DoubleLine Capital, said he read Yellen as saying, "'You don't have to tighten policy just because inflation goes to over 2 percent.'

"Inflation can go to 3 percent, if the Fed thinks this is temporary," said Gundlach, who agreed Yellen was striking a chord similar to Summer's "secular stagnation" thesis. "Yellen is thinking independently and willing to act on what she thinks."

While investors by and large think the Fed is likely to raise interest rates in December this year, in a nod to the country's 5.0 percent unemployment rate and expectations that inflation will rise, they do not see the Fed moving aggressively thereafter.

"This is a clear rebuttal of the hawkish arguments," to raise rates soon, a line of argument pitched by some of the Fed's regional bank presidents, said Christopher Low, chief economist at FTN Financial....

"How Clones Can Experience Unequal Economic Outcomes"

From The Conversable Economist:
A certain amount of economic inequality is just luck. At the extreme, some people win the lottery, and others don't. But there is also the potential for more subtle kinds of luck, like two equally talented entrepreneurs, where one business happens to take off while the other doesn't. Or two equally talented workers who go to work for similar-looking companies, but one company takes off while the other craters. Richard Freeman discusses the research literature on why this final example might be significant enough to play a role in overall economic inequality in the US in his essay, "A Tale of Two Clones: A New Perspective on Inequality," just published by the Third Way think tank. Freeman sets the stage like this (footnotes omitted):
"[C]onsider two indistinguishable workers, you and your clone. By definition, you/clone have the same gender, ethnicity, years of schooling, family background, skills, etc. In 2006 you/clone graduated with identical academic records from the same university and obtained identical job offers from Facebook and MySpace. Not knowing any more about the future than the analysts who valued Facebook and MySpace roughly equally in the mid-2000s, you/clone flipped coins to decide which offer to accept: heads – Facebook; tails – MySpace. Clone’s coin came up heads. Yours came up tails....