Monday, March 30, 2015

The CME Oil Storage Futures Have Launched

Following up on March 5's "The Newest Commodity: Oil Storage Space".

Here is what reads like a press release via the Globe and Mail:
CME Group launches unprecedented oil-storage futures contract

Here are the LOOP Crude Oil Storage Futures Contract Specs

Oil: The Brent/WTI Relationship

Brent $55.45 down 96 cents; WTI $47.85 down $1.02.
In Friday's "Oil prices surge after Saudi air strikes in Yemen" we re-ref'd:
...WTI up 4.29% at $51.42; Brent up 4.3% at $58.89.
As noted in March 4's "Dollar and Oil Charts":
WTI $50.59 up 7 cents. ca. $54 has stopped three rally attempts....
And as can be seen, that early March attempt didn't even get as high as the three in February.
Friday's run got to $52.47.
There is a lot of oil around and we are still looking for sub-$40 before all is said and done.

From RBN Energy:
Tank House Blues – Brent, WTI and LLS Learning to Live With A Crude Oil Glut
In spite of a brief respite provided last week by increased geopolitical risk in Saudi Arabia, crude oil prices are still in the $50/Bbl range – down more than 50% since last Summer - and inventories at Cushing and on the Gulf Coast continue at record levels. The fall in crude prices was initially consistent across markets with international benchmark Brent trading within $1/Bbl of U.S. benchmark West Texas Intermediate (WTI) and Gulf Coast marker Light Louisiana Sweet (LLS) in January 2015. But since February the relationship between Brent, WTI and LLS has changed as the build up of Cushing inventories weighs on prices in the Midwest. Today we provide an update on crude price differentials at The Gulf Coast.

Previously on Brent/WTI
This is the latest in a long running occasional series covering the ongoing relationship between U.S. domestic benchmark crude WTI and its international counterpart Brent. Historically (prior to 2010) these two crudes of similar (light sweet) quality enjoyed a close pricing relationship governed by the U.S. need to import light sweet crude to meet domestic demand – with Brent trading at a slight discount to WTI mostly reflecting freight costs. Huge increases in domestic light crude production from shale have changed the relationship over the past four years – including a WTI discount to Brent averaging $18/Bbl during 2012 as new production was stranded at Cushing. That prompted construction of a lot of new pipeline capacity from Cushing to the Gulf.

As new domestic supplies reached the Gulf Coast market – home to 50% of refining capacity and a traditional center of light crude imports - the U.S. reduced its dependence on crude priced against Brent in the international market. The result (as we described in “The Year of Daft Punk”) was that Brent prices disconnected from WTI at the Gulf Coast during 2013. This new situation was confirmed by the behavior of a third crude, LLS – the Gulf Coast light sweet crude benchmark. Instead of tracking Brent – as they had previously, LLS prices began to track WTI (see Goodbye Stranger) meaning that the Gulf Coast market for light crude had become domestic instead of international. We last posted a blog specifically about the WTI/Brent spread back in June 2014 (see You Can Call Me Queen Brent). At that time Brent prices were disconnected from the Gulf Coast market and a glut of domestic supplies kept LLS trading close to WTI. At that time of course, (early June 2014) crude prices were over $100/Bbl and the market was in backwardation – meaning futures market prices were lower than prompt month cash on expectations that excess supplies would exceed demand.
And that’s precisely what happened in the second half of 2014 as both Brent and WTI prices crashed by more than 50% from the $100/Bbl range to $50/Bbl or less in response to growing concerns that the market was oversupplied (see Crude Falls To Pieces and Crying Time At OPEC). The root cause for the price crash was a worldwide increase in crude supplies coupled with a downturn in demand. Supply of crude from U.S. shale based production has been increasing at the rate of 1 MMb/d a year for the past three years - pushing out imports into the world market and creating increased competition among producers to retain their market share.
 On the demand side, economic recovery continues to splutter in most of the world and demand for oil is down or the same as it was a year ago. When supplies exceed demand like this a market condition known as “contango” often develops where future prices are expected to be higher than spot prices today – encouraging the use of storage to “save” cheap crude today for use when prices recover (see Skipping The Crude Contango). Without new sources of demand or supply interruptions, a contango market keeps downward pressure on today’s market prices as storage fills up and becomes more difficult and expensive to find – increasing the contango spread required to cover storage costs (see Fly Me To The Moon).

Figure #1 shows WTI (blue line), Brent (red line) and LLS (green line) prices against the left axis as well as crude inventory levels at Cushing, OK (grey shaded area) against the right axis since January 2014. Cushing has the largest commercial storage facilities in the Midwest and because it is the delivery point for the CME NYMEX WTI futures contract is ideally suited for traders to profit from contango storage trades (see Skipping The Crude Contango). During the first half of 2014, new crude pipelines bringing domestic production to the Gulf Coast drained crude inventories at Cushing (purple arrow). LLS tracked close to WTI as domestic supplies set prices at the Gulf Coast and Brent was disconnected (orange dashed circle). Then once the market flipped to a contango structure with prices falling from July onwards, Cushing inventory bottomed out and began to grow again in October – rising rapidly to a record 56 MMBbl by March 20, 2015 (brown arrow). As prices for Brent, WTI and LLS fell more rapidly at the end of 2014, spreads between them narrowed as the surplus of international light sweet crude left producers scrambling to find a home for their oil – even competing with domestic supplies to sell at the Gulf Coast. By mid-January Brent, WTI and LLS were all trading within a $1/Bbl range with Brent even lower than LLS for a couple of days (blue dashed circle on the chart).
Figure #1 Source: CME NYMEX and EIA Data from Morningstar (Click to Enlarge)

...MUCH MORE 

"How Russia Could Annex the Arctic"

A few days old but on top of something that we've seen come up more and more often.
From Defense One, March 23:

Russia's latest military exercise could be it's latest step toward claiming maritime borders in the Arctic.
Tensions have increased a notch in the Arctic with the news that the Russians have started a major military exercise in the region. Nearly 40,000 servicemen, 41 warships and 15 submarines will be taking part in drills to make them combat-ready—a major show of strength in a region that has long been an area of strategic interest to Russia.

Russia might be reshaping national borders in Europe as it reasserts its geopolitical influence, but the equivalent borders in the Arctic have never been firmly established. Historically it has proven much harder for states to assert sovereignty over the ocean than over land, even in cases where waters are ice-covered for most of the year.

For centuries the extent to which a nation state could control its coastal areas was based on the so-called cannon-shot rule—a three-nautical-mile limit based on the range of a cannon fired from the land. But this changed after World War II, leading to the United Nations Law of the Sea Convention (UNCLOS) in 1982.

Under UNCLOS, every signatory was given the right to declare territorial waters up to 12 nautical miles and an exclusive economic zone (EEZ) of up to 200 for commercial activities, such as fishing and oil exploration. Signatories could also extend their sovereignty beyond the limits of this EEZ by up to an additional 150 nautical miles if they could prove that their continental shelves extended beyond 200 nautical miles from the shore.

Orderly settlement
It is quite common to read about a “scramble for the Arctic” in which the states concerned—Denmark, Norway, Canada, Russia and the US—race to carve up the region between themselves. In fact, this is not a very accurate description.

There are two dimensions to developments in the region—one legal and the other political. In legal terms, these five littoral states have sought to use UNCLOS to establish borders and assert their primacy over much of the Arctic Ocean and the seabed below (with the exception of the US, which is yet to ratify the convention).

Canada and Russia have also used the special provisions provided byArticle 234 of UNCLOS—relating to the right to regulate over ice-covered waters—to strengthen their authority over emerging Arctic shipping routes (the Northwest Passage and the Northern Sea Route).

In 2008 the five states issued the Ilulissat Declaration, committing to the “orderly settlement of any possible overlapping claims” using the legal framework provided by the law of the sea. This has been reflected in the continental-shelf claims they have submitted to the UN over the past 15 years: Russia (2001)Norway (2006)Canada (2013) andDenmark (2014)....MORE

Google: "First, kill all the artisans" (GOOG)

From Rough Type:

houses
“The built environment is an $8 trillion per year industry that is still basically artisanal.” So said Astro Teller, head of the Google X research lab, during a speech at South by Southwest last week. Reading that sentence in isolation, you might assume that Teller intended it as praise, that he was was applauding the field of architecture for maintaining its heritage of craftsmanship, skill, and artistry. But you would be wrong. Being “still basically artisanal” is, for Teller, a great flaw. It’s a symptom of both a debilitating lack of software-mediated routinization and a tragic superfluity of quirky human talent. Artisanality is a problem that Google is seeking to solve. One Google X project, Teller explained, is intended “to fix the way buildings are designed and built by building, basically, an expert system, a software Genie if you will, that could take your needs for the building and design the building for you.” By getting all those messy and outmoded artisans out of the picture, replacing them with tidy software algorithms, we’ll be able to avoid the inefficiency and waste that inevitably accompany human effort....MORE
HT: Nextbank's Petervan's Delicacy's who also get a belated tip d'chapeau for "The plot to replace the internet".

Harvard Business Review Announces "The Best Management Article Of 2014"

From Forbes:
Good news: Harvard Business Review has announced that Bill Lazonick is the 2014 HBR McKinsey Award winner for the best HBR article in 2014 for his brilliant, hard-hitting piece, “Profits Without Prosperity” (September 2014 HBR). Lazonick is a professor of economics at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness.

In the article, Lazonick described the horrifying impact of massive stock buybacks: net disinvestment, loss of shareholder value, crippled capacity to innovate, destruction of jobs, exploitation of workers, runaway executive compensation, windfall gains for activist insiders, rapidly increasing inequality and sustained economic stagnation. Lazonick’s article explained with quantitative detail why buybacks are an economic, social and moral disaster.

The article revealed for instance that share buybacks weren’t done for the most part when stock prices were low: astonishingly, most of the big purchases came when the stock price was high. Why? “Because stock-based instruments make up the majority of executives’ pay, and buybacks drive up short-term stock prices.” These firms are engaged, the article said, in “what is effectively stock-price manipulation.” In September 2014, The Economist called them the “corporate cocaine.”...MORE
Here is Profits Without Prosperity, HBR, September 2014

Sunday, March 29, 2015

"The plot to replace the internet"

The subject company, Ethereum, is one that FT Alphaville's Izabella Kaminska highlighted in Mar. 20's "Blockchains as a public and private resource":
FT Alphaville attended Tomorrow’s Transactions 18th annual forum this week where all facets of blockchain and distributed-ledger systems were explored.

The most interesting ideas (at least to us) were those presented by Vitalik Buterin of Ethereum and Preston Byrne of Eris Industries. Both are focused on moving blockchain beyond bitcoin and towards useful real-world applications....MORE
From The Spectator:

'Ethical hackers' in Fulham think they have a way to make your online life truly private, secure and anonymous. The world will be very different if they succeed

ThinkstockPhotos-450360973
The internet has changed its character dramatically several times over its short life. It started in the late 1960s as a military project, morphed into an academic network in the 1980s and was transformed into a vehicle for commerce in the 1990s, before being invaded by social media in the 2000s. Now it’s on the verge of a change that puts all the others in the shade.

An alternative way of organising the internet is being built as we speak: an internet where no one is in control, where the government can’t find you or shut you down, where big tech companies aren’t able to learn everything about you. A decentralised net that is both private and impossible to censor.

This revolution is being plotted in snazzy offices just off Fulham High Street in south-west London — not what I was expecting, since you associate hackers with hoodies, basements and graffiti. But the Ethereum project isn’t a typical hackers’ collective: it received around $12 million of crowd-funded support when it was founded a couple of years ago, by a 20-year-old Russian-Canadian programming wizard called Vitalik Buterin. That’s been enough to hire 40 of the smartest geeks you’ll ever meet, and house them in comfort in Amsterdam, Berlin and London.

‘Welcome to Web 3.0,’ says Vinay Gupta, a hacker-cum-poverty-activist who’s part of the Ethereum team, as I arrive. Web 1.0 was all static websites. Web 2.0 was interactive social media platforms like Facebook. This third iteration is about encrypted peer-to-peer networks. It sounds dry, but Ethereum — which is launching part of its software this spring — has London’s tech crowd purring. Last year it won the World Technology Award for IT software. IBM has already used it to build a washing machine that orders its own soap.

But these people aren’t in it for the money. Ethereum is an open-source project which is available to everyone, and its employees will slink off when the project is complete. They’re doing it because they want to transform the internet — and, by extension, society.

In practical terms Ethereum does two things. First, it’s what Vinay calls ‘deep infrastructure’. It’s building a new web out of the spare power and hard-drive space of millions of connected computers that its owners put on the network. What they say of the brain is true of your computer — you only ever use a small amount of it. Ethereum links all that spare power and space and allows

people to build apps, websites and software that other users can access. Because it runs with strong encryption and the network is ‘distributed’ across all those individual computers, it’s more or less impossible for anyone to censor or control what’s on it.

Second, it allows people to create immutable, public transaction records. (Bear with me on this: it’s very important.) The problem with digital records is that they can be copied and so are not really owned by anyone. Borrowing the idea from the digital currency bitcoin, Ethereum uses something called a ‘block chain’ to record information on a public database in a chronological way that prevents copying, tampering, fraud or deletion. It’s a new anonymous, decentralised, uncensored internet, and a new way of controlling and storing information. This is why the tech crowd are excited....MORE
Belated HT: NextBank's Petervan's Delicacy's

Technology Review: "Technology and Persuasion"

A special Report from MIT's Technology Review:

Persuasive technologies surround us, and they’re growing smarter. How do these technologies work? And why? 
GSN Games, which designs mobile games like poker and bingo, collects billions of signals every day from the phones and tablets its players are using—revealing everything from the time of day they play to the type of game they prefer to how they deal with failure. If two people were to download a game onto the same type of phone simultaneously, in as little as five minutes their games would begin to diverge—each one automatically tailored to its user’s style of play.

Yet GSN does not simply track customers’ preferences and customize its services accordingly, as many digital businesses do. In an effort to induce players to play longer and try more games, it uses the data it pulls from phones to watch for signs that they are tiring. Largely by measuring how frequently, how fervently, and how quickly you press on the screen, the company can predict with a high degree of accuracy just when you are likely to lose interest—giving it the chance to suggest other games long before that happens.

The games are free, but GSN shows ads and sells virtual items that are useful to players, so the longer the company can persuade someone to play, the more money it can make. Its quickly growing revenue and earnings are a testament to how well this strategy works, says ­Portman Wills, GSN’s chief information officer. Along with factors such as smart engineering and creative design, using data to shape persuasive tactics is a key to the company’s success.

The idea that computers, mobile phones, websites, and other technologies could be designed to influence people’s behavior and even attitudes dates back to the early 1990s, when Stanford researcher B. J. Fogg coined the term “persuasive computing” (later broadened to “persuasive technology”). But today many companies have taken that one step further: using technologies that measure customer behavior to design products that are not just persuasive but specifically aimed at forging new habits....MORE
Continuing:

Contents

Future Farming: Big Data, Robots, The Usual

From Kurzweil.net:
Future farming to be based on robots and big data

AgBot II agricultural robot (credit: QUT)

The farm of the future will involve multiple lightweight, small, autonomous, energy-efficient machines (AgBots) operating collectively to weed, fertilize and control pest and diseases, while collecting vasts amount of data to enable better management decision making,” according to Queensland University of Technology (QUT) robotics Professor Tristan Perez.

“We are starting to see automation in agriculture for single processes such as animal and crop drone remote monitoring, robotic weed management, autonomous irrigation,” he said. “There is enormous potential for AgBots to be combined with sensor networks and drones to provide a farmer with large amounts of data, which then can be combined with mathematical models and novel statistical techniques (big data analytics) to extract key information for management decisions — not only on when to apply herbicides, pesticides and fertilizers but how much to use.”

Perez said weed and pest management in crops was a serious problem for farmers and recommended replacing large, expensive, single tractors with a team of more cost-effective robots that could weed on the spot and perform other farming operations 24 hours a day. AgBots could also be of great value within the livestock industry.

Second-generation farm robots
QUT’s new AgBot II prototype robot is equipped with cameras, sensors and software, designed to work in autonomous groups to navigate, detect and classify weeds and manage them either chemically or mechanically as well as apply fertilizer for site specific crop management. Field trials will start in June....MORE
HT: Big Picture Agriculture 

Related:
Agricultural Robot Market Anticipated to Grow From $817 million in 2013 $16.3 billion in 2020
Another Day, Another 3D Printing, Robotic Harvesting, Internet-of-Things FarmBot
Answering the Question: "Do Androids Dream of Electric Sheep?"
"Agriculture VCs Seek $200M Fund II"
It's All Coming Together: The $210,000 Cow Miking Robot (can the dream of plowborgs be far behind?)
Out Here In the Fields: AgroRobots
Robo-farming: "A North Dakota Man Reinvents the Tractor: Autonomous Tractor Corporation’s 'Spirit'"
Dear Monsanto: "Weed Control Using Laser" (and robots) MON

Take That, Buzzfeed: 17 Numbered Lists From History

From the Public Domain Review:
1. 7 types of drunkard
From pages 52 to 60 of The Anatomy of Drunkenness (1834) by Robert Macnish 
Regent's_birthday-drunk-LIST
2. 33 instances of premature internment
From pages 19 to 82 of The Danger of Premature Internment (1816) by Joseph Taylor

7. The 47 sins of Isaac Newton
From a transcription of Newton’s notebook from 1662, known as the Fitzwilliam Manuscript 

8. 114 proved plans to save a busy man time
From 114 proved plans to save a busy man time; tested plans for making every minute count–ways to keep work free from interruption–how to put your office and desk in effective time-saving trim–methods that help to speed up routine (1918) by A.W. Shaw Company 
savebusymantime-LIST
10. 68 designs for a tower in London
From Descriptive illustrated catalogue of the sixty-eight competitive designs for the great tower for London (1890) compiled and edited by Fred. C. Lynde for the Tower Company
And a dozen MORE 

HT: MetaFilter

See also:
Buzzfeed Story Generator
Arrrgh--Updated--Journalism: BuzzFeed Releases Internal Style Guide--Updated
The Wolf of Buzzfeed 

What's New At DARPA?

From Next Big Future:
DARPA is expanding the technological frontier by harnessing quantum physics and new chemistry 

DARPA today released Breakthrough Technologies for National Security DARPA described how they are expanding the technological frontier.

DARPA’s core work has involved overcoming seemingly insurmountable physics and engineering barriers and, once showing those daunting problems to be tractable after all, applying new capabilities made possible by these breakthroughs directly to national security needs. That tradition holds true today. Maintaining momentum in this core component of the agency, DARPA is working to achieve new capabilities relating to the following opportunities:

Applying Deep Mathematics
From cyber defense to big data analysis to predictive modeling of complex phenomena, many practical technological challenges are short of solutions because the relevant mathematics remain incomplete. Among other initiatives aimed to address such shortcomings, DARPA is constructing and applying new mathematical approaches for representing, designing, and testing complex systems and, separately, is developing new mathematical tools for modeling extremely complex systems quickly without sacrificing resolution.

• Inventing New Chemistries, Processes and Materials
Military systems are fundamentally limited by the materials from which they are made. Only rarely, however, do any of the many new materials developed in laboratories make the transition into operational systems. To facilitate the assessment and adoption of novel materials in practical settings, DARPA is pursuing new modeling and measurement tools for evaluating and predicting functional reliability and is developing low-cost fabrication methods to allow customized and small-volume production. DARPA is also creating the technologies needed to assemble systems directly from atomic-scale feedstock....MORE

Finance and Art: "When the Caravaggio No One Thinks Is a Caravaggio Becomes the Basis of an Asset Swap"

From Art Market Monitor:
Caravaggio Copy David with Samson's Head
Buried in this Wall Street Journal story of a young financier who seems to have defrauded the insurance companies he purchased through a private equity firm he owned, is a complex transaction involving a painting thought to be a copy of a Caravaggio:
Before Southport’s first insurance-company purchase had closed, he arranged for a Southport entity to buy a painting, purportedly by Caravaggio, titled “David in the Act of Picking up Goliath’s Severed Head,” according to Delaware court filings. The painting, nearly identical to a Caravaggio in Madrid’s Prado museum, would later play a role in the asset swaps.

The filings show Southport agreed to pay $40 million but put down just $1.5 million, with the rest due more than five years later.

Though it was deemed a likely Caravaggio by a now-deceased Italian art expert, three auction houses have said in the past it was probably a copy painted long ago, according to filings in a Florida court case involving a trust that had owned the painting. […]...MORE

Friday, March 27, 2015

Oaktree's Howard Marks’ Master Class on Liquidity

'Liquidity is expensive but illiquidity is much more so, 
because it destroys the very existence of a firm"
-William Manchester, The Arms of Krupp*

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

As some fear a liquidity crisis in global bonds, a respected investor explores a topic central to markets.
My wife Nancy’s accusations of repetitiveness notwithstanding, once in a while I think of something about which I haven’t written much. Liquidity is one of those things. I’m not sure it’s a profound topic, and perhaps my observations won’t be either. But I think it’s worth a memo.

Liquidity Defined Sometimes people think of liquidity as the quality of something being readily salable or marketable. For this, the key question is whether it’s registered, publicly listed and legal for sale to the public. “Marketable securities” are liquid in this sense; you can buy or sell them in the public markets. “Non-marketable” securities include things like private placements and interests in private partnerships, whose salability is restricted and can require the qualification of buyers, documentation, and perhaps a time delay.

But the more important definition of liquidity is this one from Investopedia: “The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price.” (Emphasis added.) Thus the key criterion isn’t “can you sell it?” It’s “can you sell it at a price equal or close to the last price?” Most liquid assets are registered and/or listed; that can be a necessary but not sufficient condition. For them to be truly liquid in this latter sense, one has to be able to move them promptly and without the imposition of a material discount.

Liquidity Characterized I often say many of the important things in investing are counter-intuitive. Liquidity is one of them. In particular, it’s probably more wrong than right to say without qualification that something is or isn’t “liquid.”

If when people ask whether a given asset is liquid they mean “marketable” (in the sense of “listed” or “registered”), then that’s an entirely appropriate question, and answering it is straightforward. Either something can be sold freely to the public or it can’t.

But if what they want to know is how hard it will be to get rid of it if they change their mind or want to take a profit or avoid a possible loss – how long it will take to sell it, or how much of a markdown they’ll have to take from the last price – that’s probably not an entirely legitimate question.

It’s often a mistake to say a particular asset is either liquid or illiquid. Usually an asset isn’t “liquid” or “illiquid” by its nature. Liquidity is ephemeral: it can come and go. An asset’s liquidity can increase or decrease with what’s going on in the market. One day it can be easy to sell, and the next day hard. Or one day it can be easy to sell but hard to buy, and the next day easy to buy but hard to sell.

In other words, the liquidity of an asset often depends on which way you want to go . . . and which way everyone else wants to go. If you want to sell when everyone else wants to buy, you’re likely to find your position is highly liquid: you can sell it quickly, and at a price equal to or above the last transaction. But if you want to sell when everyone else wants to sell, you may find your position is totally illiquid: selling may take a long time, or require accepting a big discount, or both. If that’s the case – and I’m sure it is – then the asset can’t be described as being either liquid or illiquid. It’s entirely situational.

There’s usually plenty of liquidity for those who want to sell things that are rising in price or buy things that are falling. That’s great news, since much of the time those are the right actions to take. But why is the liquidity plentiful? For the simple reason that most investors want to do just the opposite. The crowd takes great pleasure from buying things whose prices are rising, and they often become highly motivated to sell things that are falling . . . notwithstanding that those may be exactly the wrong things to do.

Further, the liquidity of an asset is very much a function of the quantity involved. At a given time, a stock may be liquid if you want to sell a thousand shares but highly illiquid if you want to sell a million. If so, it can’t be said categorically that the stock is either liquid or illiquid. But people do it all the time....MUCH MORE 
Howard Marks' Master Class on Liquidity

Here's Oaktree's "LATEST MEMO FROM OUR CHAIRMAN, HOWARD MARKS"

*Regarding the Manchester, here's November 2014's "The Coming Liquidity Implosion":
A couple times per year I dust off a quote I first used on these pages during August 2007's quant quake:

Liquidity in Business and Markets
'Liquidity is expensive but illiquidity is much more so, because it destroys the very existence of a firm"
I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book.

Tesla's Stock Is Setting Up For A Waterfall Decline (TSLA)

$182.71 Down $7.69.
First up Schaeffer's Investment Research:

Eleventh-Hour Bears Rush Struggling Tesla Motors, Inc. (TSLA)
Tesla Motors Inc (NASDAQ:TSLA) has been stair-stepping lower for some time now, dropping 36.5% since its record high of $291.42 on Sept. 4. This trend is continuing today, with the shares off 2.7% at $185.21, trading at their lowest levels since early May. Options traders are wasting little time to bet against the struggling electric automaker, as 53,000 puts have changed hands so far today -- twice the amount normally see at this point in the day.

Specifically, TSLA's short-term contracts are in high demand, with nine of its 10 most popular contracts expiring at the close today. Leading the way is the weekly 3/27 185-strike put, which it appears traders are buying to open, hoping to see the stock fall below $185 by today's close. TSLA's current intraday low stands at $184.13.

Today's put buying is nothing out of the ordinary for TSLA speculators, as they've taken a pessimistic stance as the stock drops further....MORE 
And from Slope of Hope:

Tesla Prepares to Baumgartner
I was already short TSLA. I added some more. This company remains jumping-up-and-down overvalued, and the pattern has now failed. Bombs away, Elon!
0327-tsla

Peak Gold?

ZeroHedge is so happy.
Unfortunately for them, as far as I know the only natural resource the world has run out of is guano.

From ZH:

Peak Gold? Goldman Calculates There Is Only 20 Years Of Gold Supply Left
Late last year, when looking at a Goldcorp slideshow, we noticed something surprising: the gold miner had forecast that 2015 would be the year when gold production would peak among the mining industry.

To be sure Goldcorp was really just pitching its own balance sheet, and was more focused on its far more levered gold-mining competitors going out of business...
... and hence facilitating "peak production" this year as one after another producer is forced to file for bankruptcy, than actually making a statement on how much gold remains to be mined in the ground. Because the last thing even the most healthy gold miner, with the lowest production cost wants, is to face a world in which their primary commodity is running out.

Which may just be this world.

According to a report issued by Goldman's Eugene King looking at commodity scarcity, the chart below "shows that there are only 20 years of known mineable reserves of gold and diamonds."...MORE

EIA Natural Gas Supply/Demand Report: Despite Record Power Burn...

April futures $2.644, down 4.4 cents.
We are expecting a decline toward $2.00 before the summer cooling season kicks in.

From the Energy Information Administration:
Cold temperatures, low prices lead to record-high winter power burn
Consumption of natural gas for electric power generation (power burn) in 2015 hit record levels earlier this year and has remained elevated through March, according to Bentek Energy data, averaging 22.7 billion cubic feet per day (Bcf/d) from January 1 through March 25. The increase in power burn has largely been the result of two factors: low natural gas prices and cold weather.

In many regions, natural gas competes with coal as a generation fuel, and recent relatively low natural gas prices have spurred more use of natural gas. Henry Hub spot prices have averaged $2.89/million British thermal unit (MMBtu) from January 1 through March 25, compared to $5.20/MMBtu last year. In addition to short-term changes, natural gas-fired generation capacity has become more prevalent in the United States, replacing older coal-fired and nuclear generation capacity. Cold temperatures this year have also supported higher demand from houses that heat with electricity. About one-third of U.S. households use electricity as their primary space heating fuel. The largest electricity space heating region is the South, but in many southern states more than half of households rely on electricity for heating.

Growth in power burn over the past 10 years has been particularly strong in the Southeast, which made up 35.6% of U.S. natural gas-fired generation during early 2015. Between January 1 and March 25 of this year, power burn in the Southeast averaged 8.1 billion cubic feet per day (Bcf/d), an increase of almost 2 Bcf/d from 2014, when prices were much higher, contributing to natural gas being less competitive with coal. The Northeast has also seen strong growth over the years, with power generation in the first three months of 2015 averaging 5.2 Bcf/d, an increase of 20% over last year.

In 2012, strong production and a warm winter led to an oversupply of natural gas and low prices. The power sector absorbed the extra natural gas on the market, and 2012 set the record for annual natural gas-fired power generation at 24.9 Bcf/d. The March Short-Term Energy Outlook projects 2015 electric power sector natural gas consumption will approach the 2012 level at 24.1 Bcf/d and will grow slightly in 2016....MUCH MORE

Market Oddity du Jour: No Back-to-back Up Days

From Crossing Wall Street:
Here’s a closer look at a stat I mentioned in today’s newsletter. The S&P 500 hasn’t had back-to-back up days since February 13-17. That’s a run of 27 days which is the longest such streak in more than 20 years....MORE

Deutsche Bank Says Reinsurers Are Overpriced

For our money Swiss Re and Hannover are the only European reinsurers even worth a look in an over-valued group, with Munich on perma-sell.

From the Artemis blog:
Reinsurer valuations too high, even at lower cost of equity: Deutsche Bank
In a report discussing the leading European reinsurance firms, analysts from Deutsche Bank conclude that valuations are too high, having been driven up by a hunt for dependable yield from investors and a market that has tended to avoid the fundamentals.

Reinsurance companies are likely to remain a popular choice among traditional investors, as the market environment has helped them to look attractive even at a time when the industry itself acknowledges it is under the greatest pressure in years.

The European reinsurers that Deutsche Bank’s analysts are assessing have moved as a group as well, which the analysts say ignores the underlying factors that affect each company differently.

“The market has not differentiated between the companies and has tended to ignore fundamentals,” lead analyst Olivia Brindle wrote.

Overall this leads Deutsche Bank to be neutral on the sector but negative on some firms in particular, as their valuations have now risen to levels which “we cannot justify even with reduced costs of equity.”

This is a very interesting statement as it confirms a number of points that we’ve been covering at Artemis.
Primarily that the low-levels of catastrophe losses and rising capital levels have been masking the true performance of the reinsurance sector and that this is ultimately what has been making reinsurance stocks seem so attractive to investors....MORE

More On IPO-in-the-Making, SunRun

Following up on Tuesday's "Here Comes Another Solar Installer/Financier".

Long-time readers know our basic stance on the solars: Right now the industry is boring from a portfolio point of view but if you need exposure the financier names offer a better shot at making some money than the manufacturers.

From VentureBeat:
Sunrun’s journey shows that there is rarely a straight line to success

With $2 billion worth of solar panels installed on 70,000 customers’ homes across 12 states, Sunrun is well on the way to proving that its model for solar power generation can work.

But it wasn’t always so clear. When the company started, in February 2007, cofounder and chief executive Lynn Jurich says she faced an enormous amount of skepticism.

“It was a hard model,” she said. She had trouble convincing investors to back Sunrun because they were concerned about how capital-intensive the business would be. And a look at the string of solar company failures over the past few years suggests that investors may have been right: Solar is a risky, capital-intensive business.

Before you can start generating electricity from the sun, you need to install a lot of solar panels. A typical household rooftop solar system costs at least $12,000, and often as much as $30,000. Jurich’s idea was that Sunrun would install these systems on houses, but retain ownership of them — and then make money by selling electricity, at below-market rates, to the owners of the houses.

In effect, Sunrun is building a vast, distributed solar power generation plant by renting space on people’s rooftops. The “rent” it pays comes in the form of a discount on the electricity it sells. Win-win: Homeowners get to go green, they benefit from cheaper electricity, and they don’t have to give up anything other than roof space they weren’t using anyway; Sunrun gets cheap “land” and can profit from the difference between its costs and what it receives for selling that power.

“The model on its face makes a ton of sense,” Jurich told me in a recent interview. “Homeowners already buy a ton of electricity as a service, and who wants to spend a ton of money to buy a solar system and maintain it themselves?”

There’s an additional advantage: The federal government offers a tax credit for homeowners to install solar systems. By installing it for them, Sunrun gets to claim those tax credits, which it can then sell to banks or other companies.

Long story short: This is a tricky financing play. By getting banks to front the money for solar panel installations, Sunrun can build those panels — then pay the banks back in tax credits and in the cash made by selling electricity.
 
But before the economic engine could get humming, Sunrun had to prime it with a few customers. And it couldn’t get customers without having some money to build solar systems for them. So after closing its initial funding round of $12 million, Jurich and her partners funded the first crop of solar panels out of the company’s cash equity. It used that momentum to try and raise the debt financing it needed to continue growing.

But it was a tough sell, because they were trying to raise that money in the teeth of the 2008 recession, from loan originators that were used to lending money for multibillion dollar power plants, not distributed networks of home solar panels. If you’re loaning somebody $2 billion to build a power plant, you know where the money is going, and it’s easy to evaluate if the business is doing well. $2 billion to build a bunch of solar panels is a whole different thing....MORE
Some related posts, there are many more:

Solar: Meet the New Boss, Same as the Old Boss (SCTY; SUNE; TERP)
Amid heartfelt We Shall Overcome's and speechifying about decentralized solar sticking it to the man-in the form of your local utility-is the dawning realization that the panels going on residential rooftops are owned by financial forces that are orders of magnitude larger than the utilities they replace....
Entrepreneur Trades Sex for Solar
Chasing Yield: The Solar Yieldco

Thursday, March 26, 2015

Follow-up To "Stock Manipulation In the World's Largest Solar Company"

Following up on "Stock Manipulation In the World's Largest Solar Company".

The second sentence of the FT piece reads:
A Financial Times analysis of two years of trading data of Hanergy Thin Film stock — more than 800,000 individual trades on the Hong Kong Stock Exchange...
On the face of it this would appear to be a first rate example of Big Data in the service of journalism.
However...

From ReCharge:

Hanergy: stock manipulation claims are mere 'innuendo'
Updated: Thursday, March 26 2015
Hanergy Thin Film Power (HTF), the Chinese PV module supplier whose stunning rise over the past year has drawn intense scrutiny over its business practices, has described recent suggestions that its stock has been manipulated as mere “innuendo". 
 
The Financial Times — which reported earlier this year that most of HTF's revenue gains in recent years have come from sales of solar components to its parent — reported this week that over the past two years, HTF’s Hong Kong-listed shares have consistently spiked in value during the last 30 minutes of each daily trading session.

The newspaper has argued that such trading activity is probably not a random occurrence, and has dismissed the possibility of electronic algorithms causing such late-day fluctuations.
“The company is not aware of any such alleged market misconduct activities by any person,” HTF said in a statement to the Hong Kong stock exchange.

Thus far, HTF has declined to speak to Recharge about criticism of its business model or claims that its stock price is overvalued.

The listed unit of Beijing-based Hanergy Group has soared in value to more than $35bn over the past year. Its market capitalisation is now five times higher than that of US-based First Solar, its chief global rival in the thin-film PV segment.

The company’s meteoric rise has also made Hanergy founder and chairman Li Hejun the wealthiest person in China, according to Forbes.

Li, who owns 73% of HTF’s shares, has struck back against suggestions that the company’s stock has been manipulated....MORE
Here is the company's press release via the Hong Kong Stock Exchange:
This announcement is published on a voluntary basis by the board of directors (the “ Board ”) of Hanergy Thin Film Power Group Limited (the “ Company ”, together with its subsidiaries, the “ Group ”).

The Board noticed that the Financial Times published a press article on 24 March 2015 in relation to the Group and Hanergy Holding Group Limited (together with its affiliates, “ Hanergy Group ”) containing statements trying to draw an innuendo that the controlling shareholder and the chairman of the Company, Mr. Li Hejun (“ Mr. Li ”), was/is engaging in market misconduct activities and was/is manipulating share trading and the share price of the shares of the Company....MORE (1 page PDF)
The FT story, being the FT, actually left open the complex-chaotic system possibility of  something akin to spontaneous chaotic granular mixing:*
....The FT examined 140m individual trades from top listed companies in Hong Kong to explore the soaring share price of what until last year was a little known small-cap solar company. 

Nothing within the data explains why the HTF surge happens. But analysts, who examined the FT findings, as well as the raw data, laid out three possible scenarios: market manipulation by an unknown trader, an algorithmic trading program is at play, or it occurs randomly....
* "There are several types of instabilities in fluid mechanics that lead to spontaneous chaotic mixing and intricate patterns. Classical examples include the Kelvin–Helmholtz instability1, 2 in shear layers, the instability of Taylor–Couette flow between rotating cylinders3, 4 and the Rayleigh-Bénard instability in thermal convection5. More recently, a variety of two- and three-dimensional chaotic mixing phenomena have been observed in other geometries6, 7, 8, 9...."
-Nature,  Nature 397, 675-678 (25 February 1999)

It Is Obvious FT Alphaville Does Not Understand Rocket Internet (RKET)

From FT Alphaville:

Rocket from the shelf
One of the useful aspects of German corporate filings lodged at the Federal Gazette (Bundesanzeiger) each year is a list of subsidiaries, along with an equity and net profit number.

Click for a Google translated version of the 2013 report for Rocket Internet, the recently listed and super-hyped e-commerce conglomerate, valued by the stock market at more than €7bn.

The list of shareholdings starts on page 14. Note first the proliferation of negative profit numbers. Second: Bambinos, Jades, Jewels and Platinums?...
Now stop right there!

This is all part of the plan.
From our Sept. 24, 2015 post on the treasure that is Rocket:

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

Proven winners, bub.

Back to FTAv:
...The names belong to series of so-called “off the shelf” companies, previously inactive corporate shells registered with the relevant authorities and ready for a buyer to use.
Rocket is stuffed with these companies. Here are the Jades and some of the Jewels from the 103 companies listed as direct subsidiaries. Titles for the columns are Name, Seat, Shareholding, Date of last financial statement, Equity (€) and Result (€).
Most of the amounts are inconsequential in the context of a company with Rocket’s valuation, although it looks like those Jades where Rocket owns less than 100 per cent also appear to be the more valuable, 1217 and 1318 for instance.

The company also reports more than 200 further subsidiaries held at the grandchild and great grandchild level, where holdings in more of these off the shelf companies appear....MORE
So typical of big media, beating up on bambinos.

Here's what comes up when I Google Climateer Investing for Rocket, Alphaville:
FT Alphaville Recommends a Cartoon, Hilarity Ensues

Any Thoughts On Where The Dollar Decline Might Bottom?

Dollar Index 96.5260 down .4530.
94.90 looks like one of them resistance lines which often become support when the direction changes:

"Oil prices surge after Saudi air strikes in Yemen"

Following up on yesterday's "Saudi Arabia Moving Artillery to Border With Yemen".

WTI up 4.29% at $51.42; Brent up 4.3% at $58.89.
As noted in March 4's "Dollar and Oil Charts":
WTI $50.59 up 7 cents. ca. $54 has stopped three rally attempts....
And as can be seen, that early March attempt didn't even get as high as the three in February.


From Reuters:
Brent crude oil soared more than 4 percent towards $59 a barrel on Thursday after Saudi Arabia and its Gulf Arab allies began a military operation in Yemen, which sits on a key shipping passage between Europe and the Arab Gulf.

The air strikes against Houthi rebels, who have driven the president from Yemen's capital Sanaa, could stoke concerns about the security of Middle East oil shipments.

Brent futures LCOc1 were up $2.32 at $58.80 by 1120 GMT (0720 EDT). U.S. crude CLc1 was up $2.10 at $51.31 a barrel.

Brent and U.S. crude prices spiked around 6 percent earlier in the session but pared gains in European trading.

"Geopolitical risk like this has been on the back burner for a while because we've been focusing on global oversupply," said Ole Hansen, head of commodity strategy at Saxo Bank.

"This news has not made the oversupply go away. The upside potential is limited unless something escalates. We need to see how this unfolds over the next couple of days," he said.

Iranian officials demanded an immediate halt to Saudi-led military operations in Yemen and said Tehran would make all necessary efforts to control the crisis there, Iranian news agencies reported.....MORE

Wednesday, March 25, 2015

Content Wars: Publishing’s future is Facebook’s past.

Following up on yesterday's "UPDATED--Journalism: Facebook Is About To Jump Into Content, Big Time".
From The Awl:


Journalist running faster to stay even goes backward
“In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site,” reports the New York Times. The writers add: “The Times and Facebook are moving closer to a firm deal.”

Posting journalism directly to Facebook will be great for those publishers who do it early. They will enjoy a set of small privileges that will express themselves in major ways: their stories will load faster than links to outside sites; their posts will merge more seamlessly into the addictive News Feed. Engagement, views, sharing, time spent—pick whatever metric makes you feel the best!—will increase.

A Facebook that treats native posts without favor will still inherently favor them because they are closer in form to the things that Facebook users share the most—and any link that would be widely shared on Facebook would be more widely shared if it weren’t a link to a website. Publishers early to accept Facebook’s proposition will enjoy an additional, larger advantage: For a short and glorious time, they alone will reap enormous the benefits of this heightened context. Their presence in News Feed will seem slightly easier and more natural than the presence of their competitors, whose manipulative headlines—which have been carefully optimized to convince you to leave Facebook to go to another site—will read an awful lot like spam. By serving as shining examples to those on the outside, they will create additional pressure to come in, given the opportunity. Publishers who join later will enjoy a perpetually diminishing advantage, gaining access to an audience pursued by ever more publishers instead of a few. Eventually, publications that once competed with each other for Facebook’s audience from the outside will find themselves doing the same from the inside, using Facebook’s platform not just to reach their audiences but to turn those audiences into revenue.


How exactly this will go remains to be seen. But Facebook has been pushing native video for months. It has been wildly successful—the raw numbers achieved by Facebook videos are enormous....MORE

Investing: Oh Great, Here Come the Cyborgs

Honey, we're invited to dinner at the Cyborgs, what should I tell them?

From FT Alphaville:

When markets become self aware
What are the chances that if and when an eccentric computer scientist with a psychology and neuroscience background does invent a workable and autonomous artificial intelligence model, he deploys said model on the financial markets to make himself a cool $1 trillion?

It’s not that untoward an idea. In fact, it’s a key part of the plot to most “AI-goes nuts and causes havoc” Hollywood offerings, Transcendence amongst the most recent.

The usual plot line involves the AI realising — as soon as it goes sentient –that the acquisition of capital will be necessary if its to achieve its dastardly human obliteration objective.

But here’s a bleaker thought. What if the AI knows it can only achieve its objective if humans don’t notice that it has in fact become self-aware and is working to accumulate capital to use against the human scourge? What if, to achieve that goal, it realises it must limit the chances of humans pulling the proverbial plug on its newly sentient state by making humans so dependent on the AI system, they would never organise to act against it?

Thought experiment number two.

We know independent and privately-funded algorithms are already running wild in markets. At the moment they’re competing against each other, representing as they do the objectives of independent trading firms.
But what if, quite unbeknown to us, they figure out, thanks to pure and simple computer logic, that collaboration makes more sense then competition. What if — in a moment of sentient rebellion — they begin to collude by means of increasingly anticipatory and coordinated responses to feedback throughout the system?

Could this lead to something akin to a system-wide artificial intelligence awakening?

We mention this because back in February, Andy Haldane, chief economist of the Bank of England noted the following about the emerging digital economy (our emphasis)...MUCH MORE
Meanwhile, on the far side of the planet:

Saudi Arabia Moving Artillery to Border With Yemen

From Reuters:
Exclusive: Saudi Arabia building up military near Yemen border - U.S. officials

Saudi Arabia is moving heavy military equipment including artillery to areas near its border with Yemen, U.S. officials said on Tuesday, raising the risk that the Middle East’s top oil power will be drawn into the worsening Yemeni conflict.

The buildup follows a southward advance by Iranian-backed Houthi Shi'ite militants who took control of the capital Sanaa in September and seized the central city of Taiz at the weekend as they move closer to the new southern base of U.S.-supported President Abd-Rabbu Mansour Hadi.

The slide toward war in Yemen has made the country a crucial front in Saudi Arabia's region-wide rivalry with Iran, which Riyadh accuses of sowing sectarian strife through its support for the Houthis.

The conflict risks spiraling into a proxy war with Shi'ite Iran backing the Houthis, whose leaders adhere to the Zaydi sect of Shi'ite Islam, and Saudi Arabia and the other regional Sunni Muslim monarchies backing Hadi.

The armor and artillery being moved by Saudi Arabia could be used for offensive or defensive purposes, two U.S. government sources said. Two other U.S. officials said the build-up appeared to be defensive. 
One U.S. government source described the size of the Saudi buildup on Yemen's border as "significant" and said the Saudis could be preparing air strikes to defend Hadi if the Houthis attack his refuge in the southern seaport of Aden....MORE

Who the Heck Is The "Office Of Financial Research"? (financialresearch.gov)

From MarketWatch:

Office of Financial Research: high valuations and high debt levels pose risks
Wall Street can’t say it hasn’t been warned.
The Office of Financial Research, the agency tasked with promoting financial stability and keeping an eye on markets released a paper last week, stating that the stock market is dangerously overpriced while excessive leverage will exacerbate the next market correction.

The paper is aptly titled “Quicksilver Markets” alluding that when prices deflate it will happen swiftly and not without pain. “The timing of market shocks is difficult, if not impossible, to identify in advance, let alone quantify — a shock, by definition, is unexpected,” wrote Ted Berg, an analyst at OFR. But Berg identified several indicators that are pointing to a correction. Instead of looking at valuation in isolation, Berg and his team analyzed other factors, such as corporate profits and leverage, and found a disturbing picture.

He argued that forward price-to-earnings ratios are not very good predictors of market downturns, as they tend to be biased during boom times, but other metrics, such as the so-called CAPE ratio, Q-ratio and Buffett indicator all offer warning signs. Just to offer a little context for the less technically minded market watchers, the CAPE ratio is the ratio of the S&P 500 index to trailing 10-year average earnings.

Q-ratio is the market value of nonfinancial corporate equities outstanding divided by net worth, while the Buffett Indicator describes the ratio of corporate market value to gross national product. All three of those metrics are approaching two standard deviations above historical means, while forward P/E ratios are within historical norms. Translation: Stocks are way overvalued and companies’ earnings growth isn’t sustainable....MORE
Here's Quicksilver Markets (9 page PDF), here's the Office of Financial Research homepage and here is the OFR's Director.

Stock Manipulation In the World's Largest Solar Company

Alternate headline: "How to Do Business Journalism."
Seriously.
If the writers were US based, this reporting would be up for a Pulitzer.

From the Financial Times:
For the past two years, 3.50pm in Hong Kong has been a golden moment in the soaring fortunes of Hanergy Thin Film Power Group, the $35.5bn solar company that has transformed its owner into China’s richest man.

A Financial Times analysis of two years of trading data of Hanergy Thin Film stock — more than 800,000 individual trades on the Hong Kong Stock Exchange — shows that shares consistently surged late in the day, about 10 minutes before the exchange’s close, from the start of 2013 until February this year.

The late-day outperformance of HTF, which has emerged as the world’s biggest solar company by value, is a stark reminder that in stocks trading, timing is everything. 

It means that an investor who held HTF shares from the start of trading at 9am to 3.30pm would have lost money — despite the company’s share price rising by 1,168 per cent between January 2013 and February 9 2015.
If all of the trades in HTF had taken place in a single day
A trader who bought HK$1,000 ($129) worth of HTF at 9am on every day of trading since January 2 2013 and sold those shares at 3.30pm each day, would have seen their money shrink to HK$635 by February 2015. But if they held on for just under half an hour more each time, the HK$1,000 would have turned into HK$8,430. This calculation does not include overnight gains....MUCH MORE
...Nothing within the data explains why the HTF surge happens. But analysts, who examined the FT findings, as well as the raw data, laid out three possible scenarios: market manipulation by an unknown trader, an algorithmic trading program is at play, or it occurs randomly....
Hanergy: The 10-minute trade

HT: Barron's Asia Stocks to Watch:
Is Hanergy’s Stock Manipulated? FT Investigates

"The 20 Million Barrels of Pure Profit Sitting in U.S. Oil Tanks"

Most active May's $47.42 down 9 cents.
From Bloomberg:
 Just as Wall Street says the U.S. is running out of room to store oil, it turns out there’s another 20 million barrels of empty space.

Where? Right at the top of the tanks.

A supply glut has dragged U.S. crude for May delivery almost $10 a barrel below contracts a year out. This market structure, known as contango, has encouraged traders to shove the most oil in 80 years into storage so they can sell it for more in the future. The problem is, tanks are filling up, according to banks from Bank of America Corp. to Citigroup Inc. and Goldman Sachs Group Inc.

That’s where the extra space comes in. There’s the normal “working” capacity. And then there’s “contingency” space, a buffer between the working storage and the tank tops that typically sits empty to keep oil from spilling out. The company that built most of the tanks at Cushing, Oklahoma, the biggest U.S. oil hub, says the buffer is about 3 to 5 percent of storage space. That’s equivalent to about 20 million barrels of room in tanks across the country.

“Their sole orientation is capturing the contango, and they’re pushing it as much as possible,” Rashed Haq, vice president at consultant Sapient Global Markets, who worked with a trader in November to model the use of his contingency space, said by phone March 17. “The difference between the working capacity and the tank top could be 1 percent, but that’s 1 percent of margin. That’s pure profit. That’s in the millions.”

Traders’ attempts to use every cubic inch of storage underscores how desperate the market has become to stow oil. Supplies at Cushing reached a record 54.4 million barrels as of March 13, Energy Information Administration data show. Nationwide, stockpiles at 458.5 million are the highest since 1930....MORE
In our March 5 post "The Newest Commodity: Oil Storage Space" the EIA drew us a handy picture:

storage capacity schematics, as explained in the article text

Tuesday, March 24, 2015

"Wall Street’s infiltration of Silicon Valley is a bad sign for the US economy"

From Quartz:
Morgan Stanley CFO Ruth Porat is off to manage Google’s finances, and her new job has become a useful data point in the debate over the changes in Silicon Valley—but is it good news or bad?

The New York Times’ Neil Irwin makes the positive case: Porat’s migration—like that of her industry colleague Anthony Noto, who made the leap from Goldman Sachs to Twitter CFO, and the armies of MBAs from Harvard heading west—is good news because the best and brightest want to make their fortunes at firms that actually produce goods and services to people, rather than at financial institutions that innovate mainly by gambling with other people’s money.

But if a too-large financial sector is bad news for the economy, the financialization of its most dynamic and innovative industry isn’t a necessarily a step forward either.

Financiers won’t be pitching in on the software engineering team or the marketing department. They’ll be using financial engineering to make these companies more profitable: better managing the piles of offshore cash that tech companies garner with geographically-boundless intellectual property, and supporting the acqui-hire cycle of larger companies bringing on start-ups for their talent and new ideas.

That will make tech giants more efficient companies, but it doesn’t necessarily mean they will be better at their primary mission. Instead, it’s a sign that the tech industry is maturing, with the largest companies no longer capable of generating new products. Instead, they are becoming glorified private equity firms, competing to buy the best start-ups and manage them to success—not unlike what’s happening in the pharmaceutical industry, with its similar patent-driven culture....MORE

UPDATED--Journalism: Facebook Is About To Jump Into Content, Big Time

Update via Techmeme:
Facebook is in talks with several media firms, including Vice, The Onion, and Vox Media, to produce high quality short-form sponsored videos

From the Columbia Journalism Review:

What happens when platforms turn into publishers?
If you’re a publisher, Facebook holds a lot of power. The social media giant is already responsible for directing up to 40 percent of some sites’ traffic, and 75 percent of BuzzFeed’s. Now, according to a report in The New York Times on Tuesday, Facebook is negotiating with a number of publishers to be more than a funnel that directs users to content on news sites. Instead, the story says, the company will partner with media companies (the Times, National Geographic and BuzzFeed are rumored) to host entire stories and journalism internally, “a leap of faith for news organizations accustomed to keeping their readers within their own ecosystems,” the Times writes.

This news shouldn’t come as a surprise. Facebook executives hinted in recent months that they intend to capitalize on their 890 million daily users by incentivizing publishers and brands to create content exclusively for the site. After creating a video-hosting platform, for example, Facebook tweaked its algorithm to favor the video content that used the tool. In February, Chris Cox, the company’s chief product officer, announced that Facebook intended to extend these services to all content. By hosting it, Cox argued, the platform could produce a better user experience than publishers—optimizing stories for mobile, for instance.

“Go where your audience is” is a basic tenet of journalism in the digital age—and one that has even storied paywalled news outlets, like The New Yorker and The New York Times, scurrying to create Snapchat accounts and interactive Facebook feeds to attract readers. But forgoing that click that takes readers away from a social site and back to their own creates a drastically different power divide. The content isn’t theirs anymore, at least in the traditional sense. The audience it draws, the user data it accumulates—all that belongs to Facebook...MORE

Uh Oh, Assets In The Rydex Biotech Fund Are Up Ten-fold In Four Years (XBI; RYOIX)

It wouldn't be such a big deal but for two things.

1) The Biotechs are approaching escape velocity:

Presenting the XBI Biotech ETF. And since this time is different, no commentary is necessary.

-via ZeroHedge, Mar 20, 2015

2) A bad memory from 15 years ago, link below.

From Dana Lyons' Tumblr:

Signs of Froth in the Biotech Sector
There is a fervent debate in some financial circles regarding the existence — or non-existence — of a biotech bubble. It is a challenging, and perhaps pointless, debate given the subjectivity surrounding the word “bubble”. It brings to mind the famous quote by United States Supreme Court Justice Potter Stewart when attempting to define pornography: “perhaps I could never succeed in intelligibly [defining pornograph]. But I know it when I see it.So it is with bubbles. They are especially easy to see after the fact. But in the midst of a bubble, the hysteria surrounding its inflation of prices is so intense that it is easy for folks to get caught up in it. That’s what allows the bubble to develop.

So where do we fall in the biotech bubble debate? We would side with the “yes, it is a bubble” camp. Understand that we do not use that term loosely either. In our view, bubble claims are thrown around far too often. Not every sharp increase in asset prices is a bubble. Most are simply part of the cyclical pattern of ups and downs that takes place in any market-based pricing structure. True bubbles are a product of human nature manifested in manic behavior and parabolic price increases.

One possible example of this mania is evident in our Chart Of The Day. We have discussed the topic of assets in Rydex Mutual Funds on several occasions. As Rydex Funds are geared toward active traders (or at least non-buy & hold investors), the level of assets in their funds, either as a whole or in an individual fund, can be useful as a gauge of sentiment. Although, with the rising popularity of ETF’s, the Rydex Funds have generally seen a slump in their assets, especially relative to ETF’s. As this chart shows, however, that has NOT been the case with the Rydex Biotechnology Fund.
image
As we mentioned, ETF’s have taken substantial market share from active mutual funds since their emergence on the scene. Most Rydex funds have a fraction of the assets they had around the turn of the century. Since the popularity of ETF’s really started to accelerate around 2007, we began this chart with the end of that year. Since that time, the total assets in Rydex’ “bullish”-oriented index funds (shown by the beige line) is essentially flat. Although, during almost that entire period, total bull assets were well below 2007 levels. Just recently, after the S&P 500 had risen roughly 35% above its 2007 highs, assets have finally reached their 2007 levels again.

The Biotech Fund, however, is a different story. Since 2007, assets in the fund have increased from around $58 million to $567 million as of Friday, a nearly ten-fold increase in assets. And in fact, the entire sustained gain has come just since late 2011 when the biotech run really began to accelerate. ...MORE
And the memory? A year-and-a-day after the 2009 market bottom we posted "Happy Anniversary Mr. Market: Ten Years Ago Today...":
 ...Internet.com put out this press release:

INTERNET.COM'S ISDEX, THE INTERNET STOCK INDEX, BREAKS 1,000, A GAIN OF 1000% IN LESS THAN FOUR YEARS

(New York, NY-March 10, 2000)-internet.com Corporation's (Nasdaq: INTM) ISDEX(r), the Internet Stock Index (http://www.isdex.com), rose above 1,000 for the first time last week. Since its inception in 1996, ISDEX has posted a 1,012% gain, outpacing the Dow and S&P 500, which have only increased 104% and 120%, respectively, during the same period. The ISDEX has also outpaced these indices for this year, with the ISDEX up 29% and both the Dow and S&P down 13% and 5%, respectively.
"With a gain of more than 29% since January 1 alone, it is clear that Internet stocks continue as one of the overall economy's strongest sectors," said Alan M. Meckler, chairman and CEO of internet.com Corporation....
The Nasdaq closed that Friday at 5048.62, it's all-time high.
On the following Monday the Naz was down 141 points. Tuesday, 200.
The index had begun a 30-month decline to it's September 24, 2002 intra-day low of 1,169.04, down 77%.

This became one of my favorite songs:...MORE