Saturday, February 24, 2018

"Arbitrage: Historical Perspectives"

A topic of endless fascination (and some misunderstanding)
Three reposts First up, November 2012's headliner:

An interesting survey by Simon Fraser University Professor Geoffrey Poitras

This article discusses the history of arbitrage from ancient times until the beginning of the twentieth century. Opportunities for arbitrage trading in ancient times are related to the movement of goods over distance. The key role of the bill of exchange in arbitrage trading during the Middle Ages is identified and the connection to ‘arbitration of exchange’ discussed. A 17th century arbitrage involving the gold and bill of exchange markets is detailed. As reflected in merchant manuals of that period, the connection between riskless arbitrage trading and the method of conducting arbitration of exchange in the 18th and 19th centuries is detailed. An overview of 19th century arbitrage trading in securities and commodities is also provided. The article concludes with an examination of the etymology and historical usage of the word ‘arbitrage’ and the associated ‘arbitration of exchange’.

...Arbitrage in Ancient Times
Records about business practices in antiquity are scarce and incomplete. Available evidence is primarily from the Middle East and suggests that mercantile trade in ancient markets was extensive and provided a number of avenues for risky arbitrage. Potential opportunities were tempered by: the lack of liquidity in markets; the difficulties of obtaining information and moving goods over distances; and, inherent political and economic risks. Trading institutions and available securities were relatively simple. Circa 1760 BC, the Code of Hammurabi dealt extensively with matters of trade and finance. Sumerian cuneiform tablets from that era indicate a rudimentary form of bill of exchange transaction was in use where a payment (disbursement) would be made in one location in the local unit of account, e.g., barley, in exchange for disbursement (payment) at a later date in another location of an agreed upon amount of that local currency, e.g., lead [20]. The date was typically determined by the accepted transport time between the locations. Two weeks to a month was a commonly observed time between the payment and repayment. The specific payment location was often a temple....MUCH MORE (24 page PDF)
Secondly, February 2015's

In Which Bloomberg's Matt Levine Goes All "Let's Use Words Correctly, Class" On Us
Not that there's anything wrong with that.*
Following up on this morning's "Meet The Dumbest Insurance Company In The World And the 68.6% Annual Return".

From Bloomberg:

Arbitrage Discovered
Webster's New World College Dictionary defines "arbitrage" as "a simultaneous purchase and sale in two separate financial markets in order to profit from a price difference existing between them," but who reads dictionaries, come on.   The practical definition of "arbitrage," at least in the marketing of financial products, is "a thing we think we can make money doing, keep your fingers crossed." So when someone comes to you and offers you a thing called a "Fixed Price Arbitrage Life Insurance Contract," he's not actually offering you the ability to buy and sell the same thing at different prices, locking in a risk-free profit. It's not actually an arbitrage.

Life insurance is a popular savings product in France, and typically the customer allocates their money among different investment funds offered by the insurer. But this contract was not typical: prices for the funds were published each Friday, and clients were allowed to switch funds at those prices anytime before the next price was published, even if markets moved in the meantime.
L’Abeille Vie called this an arbitrage, but really it was a gift. Is the stock market up this week? Just call your broker to buy it at last week’s price and pocket the difference.
That's from Dan McCrum at FT Alphaville, and while I suspect that most of my readers who enjoy a good derivatives-mispricing yarn also read Alphaville, I figured I'd point it out here because it is the best of all derivatives-mispricing yarns, and I would hate for anyone to miss it. So go read him, and/or the French magazine -- aptly named "Challenges" -- that first reported this....MUCH MORE, including four footnotes:
Webster's is a little weird on this point. I quoted definition 1 in the text, but definition 2 is "a buying of a large number of shares in a corporation in anticipation of, and with the expectation of making a profit from, a merger or takeover." That normally goes by the name "merger arbitrage," or the delightfully paradoxical "risk arbitrage"; in my idiolect you can't just call it "arbitrage." But you see why Webster's would put it there, because otherwise "merger arbitrage" becomes incomprehensible.
Finally the post the little asterisk was hinting at, May 2013's "My Second-to-Last Comment on Izabella Kaminska at Tyler Cowen's Marginal Revolution" which was an update to "Tyler Cowen on Izabella Kaminska's 'Counterintuitive Model of the Modern World'" wherein Ms Kaminska was quoted—and attacked for—using the Fukuyama-ish term "The end of Arbitrage" (we know something of the evolution of said term)

My Second-to-Last Comment on Izabella Kaminska at Tyler Cowen's Marginal Revolution
Earlier today I mentioned that:
"In the comment section Marginal Revolution's usually perceptive, articulate and good looking commenters don't acquit themselves well on this post."
That was before the following two comments:
Becky Hargrove May 3, 2013 at 12:18 pm
There is plenty to quibble with in Kaminska’s assertions but I’ll just make a note about point seven. One assumes she sees greater efficiency and abundance as a positive gain for people in general. But…the end of arbitrage? That is also the end of greater attributable valuation for human skill, someone please send her a memo.
steve May 3, 2013 at 12:28 pm
I was taking the article half seriously when I read the “end of arbitrage”. All I can say is this marks it as quackery. Oh sure, arbitrage may end up being primarily the domain of computers working at lightning speeds. But, the end? Hogwash, there will never be perfect markets.
People, people, people arbitrage opportunities have been disappearing for the past 150 years!

I guessing the two commenters didn't have the definition: "The simultaneous purchase and sale of the same instrument in different markets at different prices" pounded into their head so often their ears bled.
I did.
How many arbitrages do they think present themselves each year?

Spotting and acting on an arb is pure alpha and here is a dirty little secret:
The entire amount of alpha available to the entire hedge fund industry is only $30 billion per year.
As reported by a hedge fund maven via Investment News back in 2006:
...PHILADELPHIA - Everyone in the crowd assembled for the CFA Institute's hedge fund conference took notice when David S. Hsieh said that the amount of alpha available in the hedge fund industry each year is $30 billion.

Mr. Hsieh, a professor of finance at the Fuqua School of Business at Duke University in Durham, N.C., presented a synopsis of his ongoing research, which focuses on the style, risk and performance evaluation of hedge funds, at the Feb. 16 conference here. As part of his work, Mr. Hsieh questioned whether flows into hedge funds are causing a decline in hedge fund returns and what might happen if the high rate of inflow continues.

Because of difficulties in obtaining reliable hedge fund data, Mr. Hsieh used fund-of-hedge-funds data and broke down returns into alpha and beta sources. He said the research led him to "feel comfortable" determining that there is a finite amount of alpha - conservatively, $30 billion - managed by the approximately $1 trillion hedge fund industry. And even if capital invested in hedge funds were to rise, the amount of alpha would remain the same.... 
Got that? All alpha not just arbitrage but all alpha was just $30 bil. in '06.
Here's CBS MoneyWatch in March 2013:
Hedge funds are too big to beat the market
This is probably just a definitional problem so let's say it plainly:

In so called risk (merger) arbitrage the emphasis is on the first word.
Cash-and-carry, buying physical and shorting a derivative is not arbitrage.
When people use the term "arbed away" when talking about market anomalies the are not talking about an arbitrage.
Shorting an ETF and buying the component equities is not an arb, it's just a hedged trade.
Same for Index Arbitrage.

The total pool of arb opportunities may be as small as $1 billion.
Even the old Royal Dutch and Shell Transport trade was not an arb, just a fairly good pair trade.

The link the two commenters were referring to happened to go through this little blog: "VIX, The End of Arbitrage and the Death of Volatility (VIX; VXX; VVIX)".

It linked at Alphaville to some thoughts by Christopher Cole, a hedgie who specializes in volatility trades.
I'm not sure what Steve and Becky do at the market but I'm guessing from their comments that it is not esoteric volatility trades. Read the darn post.

Next up, I'll deal with another commenter.

Here's Professor Hsieih's Hedge Fund Research page.
Here's some smart commentary on the $30 Billion figure.
See also Hsieh's "The Search for Alpha—Sources of Future Hedge Fund Returns", 11page PDF via the CFA Institute.

Two tautologies:
Hedges are not arbitrage, that's why they're called hedges and all hedges are dirty (imperfect).

I'll leave you with a thought from January's "Spot Gold Down $21.80 as HSBC, Credit Suisse Lower Forecasts (GLD)":

...How can one look at that and not think "Gold point arbitrage"?
You have to go to the master, Professor Officer (take that Herr Prof. Dr. Dr.) for the whole scoopage:

Cambridge: Cambridge University Press, 1996, 342 pp.

but one of these days I'll get around to posting on this perfect little arb where J.P. Morgan was willing to accept a measly $1000 profit per $1,000,000 traded because it was an honest-to-goodness arbitrage, not some "hedge", for, as we chant each morning, (all together now) "The only perfect hedge is at Sissinghurst":

Attention Gamers: The Centre For The Study Of Existential Risk Have Made a Civilization V Mod About Apocalyptic AI

Not being a gamer myself I can't really comment on the module's verisimilitude or apocalypto-graphics but we have visited* the Centre a few times, most recently last week, and can attest that their work would have been a hit with the 19th century melancholia crowd.

From Rock, Paper, Shotgun:
Researchers at the University of Cambridge’s Centre for the Study of Existential Risk (an actual real institution) have released a Civilization V mod exploring the hot new apocalypse everyone’s talking about: unchecked AI casually wiping out humanity in the name of efficiency.

If you’ve already clicked through the universe as a single-minded AI in Frank Lantz’s ace Paperclips, you might fancy this mod. Trapping a brilliant mind in a metal box does also have its benefits, you know.

The Superintelligence mod adds a number of AI technologies to the tech tree. This AI could help you usher in utopia and win or, if you don’t research enough tech to keep it in check, wipe out humanity as it converts the Earth into a giant fractal chessboard or summat to optimise everything towards its task (see above). Win some, lose some.

“We want to let players experience the complex tensions and difficult decisions that the path to superintelligent AI would generate,” said the Centre for the Study of Existential Risk’s Dr. Shahar Avin, who managed the project.

“Games are an excellent way to deliver a complex message to a wide audience. The Civilization games series has an amazing track record of presenting very complex and interlocking systems in a fun and educating way, including major risk issues such as nuclear war and global warming.”...MORE
*2018's  Cambridge, Oxford Uni's, Electronic Frontier Foundation Report: "The Malicious Use of Artificial Intelligence:..."
and 2012's  BBC: "Risk of robot uprising wiping out human race to be studied" come to mind.
We noted in the outro from the latter:
One of the co-founders of the project is Martin Rees who is a bit of a Gloomy Gus.
On the other hand he's also the Astronomer Royal and Master of Trinity College, Cambridge, President of the Royal Society between 2005 and 2010 and he accepted the £1m Templeton Prize which goes to people who make "exceptional contributions to affirming life's spiritual dimension".
And being optimistic/possibly delusional about humanity's survival prospects we have, over the years. sprinkled tips along the trail:
New Doomsday Analysis Says Humans are Doing Better than Expected
Hi, me again, your little ray of sunshine.
NYT “How to Survive the Apocalypse” Forbes: "How To Doomsday Prep Like An Economist"
The Times piece has some good advice: a hoard of mini-bottles of booze used for either barter or the more traditional apéritif/digestif role can make the apocalypse more tolerable. Ditto for cigarettes.

Personally I think of the Wiemar inflation which highlighted the store-of-value character that the humble bar of soap possesses, especially for folks who don't directly own various means-of-production. And one of the lessons of Houston is how prized toilet paper and/or paper toweling can get.
As always we discourage gold as money, if you are going with shiny stuff, junk silver coins make more sense, both for recognition and divisibility.

After the jump we have a few other handy hints that may not be readily apparent but should probably be in your bag of tricks....
When the Time Comes, Will You Be Ready To Rebuild Civilization?
Yes you will !!

Possibly related:
FT: "Twelve ways the world could end"
Listicles, Financial Times style! 

LinkedIn's Reid Hoffman Interview's Y Combinator's Sam Altman

From the Y Combinator blog:

Uncut Interview with Sam Altman on Masters of Scale

Hey, how's it going? This is Craig Cannon and you're listening to Y Combinator's podcast. Today we have an uncut interview from the Masters of Scale podcast and in it Reid Hoffman, the co-founder of LinkedIn, interviews Sam Altman. Alright, here we go.
I'm here with Sam Altman, President of Y Combinator, who is a good friend and has been involved in many scaling things. Let's start with your entrepreneurial. What got you in entrepreneurship, how you started Loopt, why you started Loopt?
First of all, thank you for having me here. I fell into it accidentally. I went to college to be a computer programmer. I knew that was what I wanted to do. And I started college after the dotcom bubble had bust so startups weren't on anyone's find. I remember one thing I was surprised by in college, as a freshman, was that I thought people would still be excited about startups and if you said you were working on a startup people just sort of laughed at you in not a nice way. And I actually didn't want to work on a startup.
I worked my summer of my freshman year in the Stanford CS department as a researcher and I loved that. Out of that grew a project, which eventually developed into Loopt, but it started as just a project that we worked on after class. It would not have been a startup if it were not for Y Combinator. It got to the point where we had worked on it during spring quarter and it was really fun. I'm very ashamed to say that I had been planning to go be an intern at Goldman Sachs that summer. I accepted a job offer
...and I realized I was having much more fun with all three of us working on this project. And we all kind of knew who Paul Graham was. We had followed him online and he posted this thing saying, "Hey, not excited about your summer job? Come hack on your project, make a startup." And that seemed like it would be more fun than being an investment banker so we applied to YC and flew out and interviewed and got funded. We were actually the first company ever funded by YC and then it just kept going.
Is there anything that even this the very beginning, is there anything from now, having done Loopt and a bunch of things we're going to get into that if you could call that younger self of yours going into YC, that you would tell yourself to do differently? Like key things.
One general thing that I didn't understand then and learned pretty quickly, but would have saved me quite a bit of heartache is about how to calibrate risk. Most people worry way too much about risk. When you're young and you have nothing to lose is absolutely the time to take risks and it's the time, unfortunately, that most people are the most risk averse in their lives. They want to work for a few years, build up savings then they're just going to start out. They're going to do what their parents want, whatever.
I ended up in the right place, but it could have gone either way and I was very, totally stupidly nervous about the risk so this idea that most things are not nearly as risky as they seem is a powerful one and one that I always try to tell people in that position. You're a poor college student with no money and a no reputation, if you do a startup and fail you're like two years older with no money and reputation it's fine. It's actually much harder to wait and let your life ramp up and then do it. That's one thing.
Another thing is why do you think I'm super easy to work with today, by I was like infamously difficult to work with when I was 18 or 19 and I would have put more effort into trying to be better about that.
What specifically would you have done to be easier to work with?
A lot of it is how you set and communicate expectations with others and also realizing that if you're the founder of the company and you wanted to work 100 hours a week and be super focused and productive that's cool, but most other people you hire, especially as you get bigger, have other lives and you need to understand that. Again, everyone learns this lesson quickly, but it would have saved some pain along the way if I had learned it earlier. The other thing that I think I got wrong and
19 year olds starting companies often get wrong is because they evolve fairly organically from projects, you never take the time to realize all of a sudden I'm running this company with 10 people and we're doing this and we've raised all this money and do I really believe that this is going to be a market that will support a giant company. There are several checkpoints along the way where people don't give that enough thought.
How do you think that they should make those checkpoints, because from other conversations I know that both you and I think this whole total addressable market, TAM, thing is frequently very illusory.
The most interesting companies start with a TAM of nearly zero and it's like the very bad investors are the one that's focused on the TAM of today. The good investors are focused on the TAM of 10 years from now. The thing that I have seen be most predictive for ... TAM is total addressable market. The thing that I have seen be most predictable for a large TAM down the road is how much the people that are using it today use it and love. One of the things that was obvious when people got iPhones.
Even though only a few million of the iPhones sold, the people that had them used them everyday and loved them. It became like their most precious item. I remember shortly after the iPhone came out I was in a developing world country. It was really quite poor and people had nothing, except they all had a smartphone and once they had one ... You read these statistics and people need to do some lightweight journalism about would you rather give up your smartphone or x, it doesn't really matter what x is,
they're going to keep the smartphone. You could have predicted with a lot of certainty, many people did, that this was going to be a large market. It was small in 2008, 2007; but it was guaranteed that it was going to grow very quickly, because of how much people loved it. The internet, in the early days, was the same thing. And I think a lot of other trends people jump on too early, because a lot of people dabble, but put it on the shelf. A lot of people have bought VR headsets and put them on the shelf....

Jeff Gundlach's Quick-n-Dirty Fair Value Formula For U.S. Treasuries

From/via ZeroHedge: 

This Is What Jeff Gundlach Thinks Is "Fair Value" On The 10 Year
As Bloomberg's Michael Regan writes, "pinpointing the exact level of Treasury yields that will break the back of the bull market has become the trendiest parlor game in town." Earlier today, Tom Lee of Fundstrat became the latest to chime in, predicting that rates - which are rising due to reflation, - should support higher P/E ratios until interest rates are above 4%.
Then, it was Jeff Gundlach's turn.

Recall that it was Gundlach who during a DoubleLine webcast on January 9 predicted that if the 10Year goes to 2.63% - it was at 2.50% then - "stocks will be negatively impacted." However, he also added that if the 10Y TSY passes 2.63%, it will head well higher, likely pushing toward 3%. Gundlach also was the first to note that he expects a 3.25% print on the 10Y in 2018, a target which was since adopted by both Goldman and, today, Bank of America.

Fast forward to today when speaking on CNBC, Gundlach estimated the fair value on 10Y yields in the USA to current nominal GDP. The gap is notable as current nominal GDP prints are above 4% with 10y yields below 3%.

Here is what he told CNBC:
Let’s start out with something people think I know something about, which is the bond market. And it seems that bond yields, let’s just talk about the ten-year treasury, are at a level that makes a pretty good of sense right now. I mean they’ve gone up a decent amount so far this year – ended last year at about 2.41% or so, they’re up 46 basis points or so. But one thing that people talk about is nominal GDP, and I’ve been talking about this for a long time. It’s a fairly good starting place, where you think about maybe the ten-year treasury should be.
Obviously there’s a lot of noise. I mean, they don’t track each-other anywhere close to perfectly. But it’s sort of like a dog that’s tied to a stagecoach that’s going across the country. It’s on a 100 foot rope, I mean, sometimes it will be behind the stagecoach and sometimes ahead, but if the stage coach is nominal GDP, and the not ten-year yield is sort of a dog, and yeah, there will be variation, one versus another, but they’re both going to end up going across the country together. There’s no way the dog can really stay that far away from the stagecoach.
So what’s going on now, nominal GDP in the united states is at 4.4%, which sounds really high compared to the 2.87 10-year treasury yield. But to be honest, it’s also manipulated. We should talk about Germany as a good starting place. The German yield is way down at a ridiculously low level because it’s manipulated. So the economic facts of Germany and the United States are not that different. The nominal GDP is about the same, the inflation rates aren’t that different, manufacturing is good in both areas, retail sales are good in both areas, but the German yield is being manipulated.
So when you think about a 10Y treasury yield, what we’ve been doing at Doubleline for the past few years really, is noting that it tends to reside in the average of nominal GDP and the competitor yield, which is the German yield.
So let’s look at where we are today.
The German yield is roughly 70 basis point, and nominal GDP is probably going to go up a bit, because GDP now from the Atlanta fed is 3.2% at present, and we’ll tack on a little bit of inflation, so let’s call it 5%. And so if you have 5% for nominal GDP in the U.S., and you have 70 basis points on Germany, add those together, you get 5.7. You divide by two, and lo and behold, you get 2.85%, which is within two basis points, even slightly less than that, as where you are today. So as long as bond yields do not break out to the upside, which is a clear and present danger right now, then you probably can keep some stability going in risk markets
Which then brings us to the follow up question: will yields break out to the upside? Here is what Gundlach said:
I have a low conviction feeling that we’re going to break out to the upside on yields. When I talked at the Barron’s roundtable earlier in January, I talked about how rates would likely rise this year, and a lot of people agree with that.

But right now the market is pressing right up against incredibly powerful yield resistance, particularly on the 30-year treasury bond.  The trendlines are all gone on all the maturities of the treasury market. If you go to the trendlines back to the last 5 years, in many cases even the great bull market that’s over 30 years, the move up in rates since September has taken out all of those trendlines. In fact, interest rates across the yield curve, other than the 30 year treasury have been rising since September 7th at an annual rate of about 200 basis points....

The Bulgarian Playlist Scam

Clocking in at number 1, from Inverse Innovation:

How a Random Bulgarian Playlist Made Millions by Hacking How Spotify Works
This was all probably totally legal ... probably.
This is the story of a scam … probably. It is, if nothing else, the story of one inexplicably successful Bulgarian Spotify playlist.

As Music Business Worldwide reported earlier this week, multiple music industry insiders say a random playlist managed to siphon off what may well have been millions of dollars in Spotify’s pool to pay artists’ royalties — all potentially without breaking any of the site’s rules.
The alleged scam is the perfect mix of absurd and audacious. An individual or group in Bulgaria created a couple playlists, unimaginatively titled “Soulful Music” and “Music From the Heart.” The more successful of these, “Soulful Music,” was at its peak as the 35th most popular playlist in the world and the 11th biggest in the United States, even though it had a measly 1,797 followers and only about 1,200 monthly listeners.

Music Business Worldwide’s story explains how the moneymaking trick worked. “Soulful Music” had 467 songs by virtually unknown artists — which is to say, artists who may have been created for the purpose of this alleged scheme. The vast majority of songs were about 30 seconds long, which is the minimum length a song needs to be to count as a monetized play on the service.

The most probabl explanation for all this is that someone or someones in Bulgaria set up 1,200 computers with premium Spotify accounts, then had them play the songs on “Soulful Music” constantly. While it would cost $12,000 to set up all those accounts, the payoff would be worth it.
The report estimates it would be possible to squeeze out at least 72 million plays of the songs out of those 1,200 accounts, which would be the equivalent of $288,000 each month. A little finagling of the playlists so each song played for the bare minimum of 30 seconds could up that number to north of 100 million plays, or about $415,000....MORE

"Amazon Doesn’t Just Want to Dominate the Market—It Wants to Become the Market"

The Nation put together a special issue on monopolies.
The tone is a bit irritating at times, it is, after all, The Nation; comfort the afflicted, afflict the comfortable, it's what they do; but taken together the six pieces are a good counterpoint to the Bezos apologists who seem to be popping up.

Trust me, I've looked at the arguments, from the simplistic "No one is making consumers go to Amazon" (no one was making people burn John D. Rockefeller's kerosene either) to more sophisticated philosophical issues. As noted, this series is just an opposing opinion, not received wisdom.

From The Nation, February 15:

The company is a radically new kind of monopoly with ambitions that dwarf those of earlier empires.
Chris Lampen-Crowell started to feel the undertow four years ago. Gazelle Sports, the running-shoe and apparel business he founded in downtown Kalamazoo, Michigan, in 1985, had grown steadily for decades, adding locations in Grand Rapids and Detroit and swelling to some 170 employees. But then, in 2014, sales took a downward turn. From the outside, at least, it was hard to see why. Gazelle Sports was as beloved as ever by local runners. People continued to flock to its free clinics and community runs. And scores of enthusiastic reviews on Google and Yelp, along with an industry ranking as one of the best running-shoe retailers in the country, gave Gazelle Sports and its e-commerce website plenty of prominence in online searches.

The problem wasn’t so much that customers had made a conscious decision to buy their running gear elsewhere, Lampen-Crowell says. Rather, a number were doing more of their overall shopping on Amazon—and as the online giant became a pervasive, almost unconscious habit in their lives, they had started dropping into their Amazon shopping carts some of the items they used to buy from Gazelle Sports. Lampen-Crowell’s initial response was to double down on marketing his company’s own website. But while that helped, there were many potential customers who still had little chance of landing on it. That was because, by 2014, nearly 40 percent of people looking to buy something online were skipping search engines like Google altogether and instead starting their product searches directly on Amazon.

By the fall of 2016, the share of online shoppers bypassing search engines and heading straight to Amazon had grown to 55 percent. With sales flagging and staff reductions under way, Lampen-Crowell made what seemed like a necessary decision: Gazelle Sports would join Amazon Marketplace, becoming a third-party seller on the digital giant’s platform. “If the customer is on Amazon, as a small business you have to say, ‘That is where I have to go,’” Lampen-Crowell explains. “Otherwise, we are going to close our doors.”

Gazelle Sports isn’t alone. Faced with Amazon’s overwhelming gravitational pull on the Internet’s shopping traffic, thousands of Amazon’s competitors—from small independent retailers to major chains and manufacturing brands—have felt compelled to join its orbit.

Setting up shop on Amazon’s platform has helped Gazelle Sports stabilize its sales. But it’s also put the company on a treacherous footing. Amazon, which did not respond to an interview request, touts its platform as a place where entrepreneurs can “pursue their dreams.” Yet studies indicate that the relationship is often predatory. Harvard Business School researchers found that when third-party sellers post new products, Amazon tracks the transactions and then starts selling many of their most popular items itself. And when it’s not using the information that it gleans from sellers to compete against them, Amazon uses it to extract an ever larger cut of their revenue.

To succeed, sellers need to “win the buy-box”—that is, be chosen by Amazon’s algorithms as the default seller for a product. But according to ProPublica, “about three-quarters of the time, Amazon placed its own products and those of companies that pay for its [warehousing and shipping] services in that position even when there were substantially cheaper offers available from others.” As more third-party sellers have agreed to sign up for these services, Amazon has repeatedly raised its fees, with fulfillment fees rising this year by as much as 14 percent for standard-size items (and more for oversize goods), on top of similar increases in 2017.

For now, Lampen-Crowell’s primary suppliers have chosen not to sell directly to Amazon, giving Gazelle Sports and other independent retailers exclusive access to their products and, with it, a measure of insulation from Amazon’s predatory tactics. That could change, however. In 2016, Amazon backed Birkenstock into a corner, threatening to allow a deluge of counterfeit Birkenstocks onto its site—many from overseas sellers—unless the shoe company agreed to sell directly to Amazon the niche products it had previously reserved for specialty retailers. Birkenstock pushed back, but other companies, including Nike, appear to have caved to a similar demand....MORE

"How capitalism tamed medieval Europe"

From CapX, Feb. 13:
 While knights engaged in violent tournaments, traders shaped the medieval period. Photo: Oli Scarff / Getty Images
  • A quarter of 14th-century aristocrats died violently, but merchants avoided conflict
  • Traders in Flanders became sufficiently rich to fend off the French army
  • The growth of mercantilism in Europe was also the beginning of a marked reduction in violence
In 1278 the King of England came up with a new plan to raise money and land, as leaders are fond of doing. Certain that historic privileges had been usurped by uppity subjects, King Edward sent royal officers around to prominent individuals demanding by what legal right – quo warranto – they held their honours. However when Edward’s men arrived at the home of one John de Warenne, Earl of Surrey, the ageing aristocrat pulled out his rusty sword and proclaimed: “My ancestors came with William the Bastard, and conquered their lands with the sword, and I will defend them with the sword against anyone wishing to seize them.”

And that was that. In the Middle Ages social status derived from military strength, or more importantly the military strength of one’s ancestors. The very European order rested on a caste of knights devoted to violence, one of the reasons why society was so absurdly dangerous, with Oxford’s homicide rate at the time being twice that of modern Baltimore. Because knights were strong, so knighthood was celebrated in songs and poems, and yet the violent culture that underpinned their position only led to further bloodshed – until the rise of the merchants swept them away. Although a number of things contributed to the huge decline in violence of the late medieval period, among them the Catholic Church and the legal system, the development of capitalism, and the rise of a merchant class whose wealth was not won with a sword, played a huge part.

The medieval system began with the Franks, whose mastery of cavalry made them the most powerful tribe in the former western empire. Later the Normans used horses in far larger numbers and developed the cavalry charge, used to lethal effect at the Battle of Hastings. Cavalry underpinned the European social order because only those with a reasonable amount of land could afford the destrier warhorse, which cost 30 times as much as a regular farm animal and which could carry up to 300lb in weight, including 50 lb of iron armour – itself very costly.

The sons of the aristocracy were mostly schooled in warfare from a young age and despised learning and trade as dishonourable, leading to an excess of landless younger sons whose only skill was fighting, many of whom found their way to wars, or caused them, or made a living at absurdly dangerous tournaments. Cavalry developed certain rules – chivalry, which primarily concerned the treatment of aristocratic prisoners – as well as an idealisation of the aristocratic warrior through the stories of Arthur, Lancelot and Roland that singers recited at the courts of dukes and counts.

This order was first shaken in 1302 when France’s cavalry confidently marched north to suppress a revolt by the Flemish. Flanders is not naturally rich in resources –Vlaanderen means flooded – but its people had turned swamps into sheep pastures and towns, building a cloth industry that made it the wealthiest part of Europe, its GDP per capita 20 per cent greater than France and 25 per cent better than England. The wealth of Flanders’ merchants was such that when Queen Joan of France visited she afterwards wrote in horror that: “I thought I would be the only queen there, but I find myself surrounded by 600 other queens.”...MUCH MORE

Friday, February 23, 2018

"The Best Bond Villain Ever – TLT"

Oh we had fun with this one and its leveraged mirror image, the TBT.

In the early years of the 2010's Doug Kass was getting on every TV show he could find to pitch his contention that bonds were the "Short of the Decade". It got so bad that the usually peaceable LearnBonds put up a post in August 2012 titled "Doug Kass and the WORST Trade of the Decade" with a picture of Kass' chosen vehicle that was worth a thousand words:
Remember, that chart was only the first few years of the trade.
It is difficult to be so wrong for so long. And he never fessed up.

Mr. Kass kept it up until late 2016. It got so bad, the TBT (UltraShort Lehman 20+ Yr. ETF) fell so far that the ETF sponsor, ProShares, had to do a 1:4 reverse split. In total the decline was roughly 300 to 33 last December 15th before heading up to this week's intermediate-term high.
$38.72 last.
Good times.

Anyhoo, here's the latest from Risk Reversal:
I am listening to a great discussion on CNBC between the Halftime Report’s Host Scott Wapner and Doubline Capital’s Jeffrey Gundlach, watch here:...

... Jeffrey, nick-named the Bond King has been calling for higher Treasury yields, weaker dollar and high commodity prices for months, and he’s obviously been right.

Gundlach made a pretty important point for those who like to look at charts, that 10year US Treasury yield has broken the long-term downtrend, and that he has a low conviction view that rates continue to go higher, but this is also a matter of how you connect the dots.

Here is a 20-year chart of the 10yr and the 30yr Treasury yields, connecting the peaks over that period.To my eye it shows both very near long-term resistance:

10yr yield

30yr yield
For the last ten or so years, it has been a take it to the bank trade to buy US Treasury Bonds when the yield has approached the downtrend. Now I get it, that was in a QE & ZIRP regime, both which have ended, with the Fed now embarking on QT, but the near precision of the double bottom in the one year chart of the TLT, the Ishares 20 year treasury bond etf is a sight to behold:...MUCH MORE
The long bond ETF, TLT is up a few cents at $124 even.
The double short TBT is off a few cent at $15.55. Compare with chart below.

Most everyone who pays attention to this stuff know that some day treasuries will mean-revert and trade lower.
What most everyone isn't doing is publicly recommending the trade and using double leveraged inverse ETF's to do it.
There's a lesson in here somewhere....
One of these days we'll reprise Mr. Kass' Adventures in Tesla Shorts.

Credit Suisse Global Investment Returns Yearbook 2018

From Credit Suisse, February 20:
 Back to the future
  • Equities, not housing, have been the best long-run investment, contrary to  recent claims
  • Globally, the returns and risks from housing have been between those on equities and bonds
  • Gold has given poor returns, high volatility, and been a poor inflation hedge
  • Collectibles such as art, wine and musical instruments have beaten cash and government bonds
  • Episodes of volatility, as in early 2018, are hard to predict, tell us little about future returns, and appear as mere blips in the long secular rise of equities
  • We should expect lower investment returns in future on all asset classes
  • Value investors have experienced a lost decade, but there is no guarantee that is about to change
Published by the Credit Suisse Research Institute, in collaboration with London Business School professors, the Credit Suisse Global Investment Returns Yearbook has evolved into a reference volume providing respected long-run return data and risk premium estimates for 23 national stock and bond markets. The 2018 edition of the Yearbook is published today.

In the book, Professors Elroy Dimson and Paul Marsh and Dr Mike Staunton of London Business School examine the industrial transformation that has taken place since 1900, alongside the parallel transition in markets as countries have moved from emerging to developed status. The authors also assess the returns and risks from investing in equities, bonds, cash and currencies in 23 countries and three different regions. They also examine factor investing and the profitability of different investment styles. In a new study, they analyze the investment performance of nonfinancial assets such as housing, collectibles and precious metals. 

Key highlights:
  • Since 1900, global equities have beaten bonds and bills, outperforming cash (Treasury bills) by 4.3% and bonds by 3.2% a year – a reward for the higher risk associated with investing in stocks
  • Emerging markets were the stars of 2017, with a return of 38% vs 23% for developed markets. But over the last 118 years, they have underperformed developed markets by 1% per year.
  • Since 1900, the average collectible rose 30-fold in terms of purchasing power – equivalent to an annualized price appreciation of 2.9% - but returned less than stocks globally.
  • Of the four collectibles for which the Yearbook considers data back to 1900, wine performed the best with an inflation-adjusted price appreciation of 3.7%, while art achieved just 1.9% per year
  • Precious metals and gemstones are not an effective hedge against inflation. Gold, silver and diamonds gave a return lower than US Treasury-bills
  • Recent claims that housing provides a large financial reward at lower risk are incorrect. Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately –2% per year.
  • Housing has been less risky than equities, but the expression "safe as houses" is misleading. US house prices fell by more than 36% in real terms from their late-2005 peak until their low in 2012....

HT it was out: Abnormal Returns

Some previous years:
2017 Credit Suisse Global Investment Returns Yearbook (and testing smart beta factors)
Lessons From the 2015 Credit Suisse Global Investment Returns Yearbook: Vice Pays
The Enigma Inside The Credit Suisse Global Investment Returns Yearbook 2014
Last year I referred to the authors of the Credit Suisse Global Investment Returns Yearbooks as "the hot new boy band Dimson, Marsh and Staunton" while looking at a picture of Professor Dimson.

Cracks me up but hasn't gained much traction in the academy.*
"Credit Suisse Investment Returns Yearbook 2013

And dozens and dozens of posts regarding Professor Dimson's interests, use the "search blog" box if interested.  

Media: "Newspaper company Tronc eyes buying TheStreet"

We haven't looked at The Street stock (TST) since last March, thinking that, as deer nuts (under a buck) it wasn't something for the blog but damn, it's up from $0.68 to $1.42 last.
Go figure.

From Talking Biz News:
Newspaper company Tronc is exploring whether to make an offer to purchase financial news company, reports Keith Kelly of the New York Post.

Kelly writes, “Tronc had looked at TheStreet in the past, sources said, but Cramer’s 22-year-old operation was struggling at the time. TheStreet, in fact, was warned by Nasdaq in late 2016 that its stock could be delisted since its shares had traded below $1 for more than 30 days in a row.

“In addition, the last time Tronc came kicking the tires, TheStreet still had a prohibitively expensive block of $55 million in preferred stock from Technology Crossover Partners on its books....MORE
Also at Talking Biz News:

Scaggs gets new beat at Financial Times
Fnancial Times reporter Alexandra Scaggs is now covering corporate fixed-income markets for the Alphaville blog and paper.

Scaggs has been at the FT since June 2016 as an Alphaville columnist.

She previously worked at Bloomberg News from February 2015 to June 2016, covering the government bond market....MORE
Part of our intro to her Wednesday post "US companies might be liquidating their offshore bond hoards" we said:
Alexandra seems to be one of the few journos bulldogging what for market operators is a pretty important story....

La Niña? El Niño? La Nada? Where We're At and Where We're Going

From IRI Columbia, February 19:
2018 February Quick Look
Published: February 19, 2018 

A monthly summary of the status of El Niño, La Niña, and the Southern Oscillation, or ENSO, based on the NINO3.4 index (120-170W, 5S-5N)

Use the navigation menu on the right to navigate to the different forecast sections
In mid-February 2018, the tropical Pacific reflected La Niña conditions, with SSTs in the east-central tropical Pacific in the range of weak to moderate La Niña and most key atmospheric variables showing patterns suggestive of La Niña conditions. The official CPC/IRI outlook calls for La Niña continuing through at least early spring, followed by a likely return to neutral conditions around mid-spring. Support for this scenario is provided by the latest forecasts of statistical and dynamical models....
Image result for IRI ENSO Forecast February 2018 

You Want Autonomous Vehicles? The Mining Industry Is Already Going to Level 5

The barriers to introducing fully automated vehicles on public roads are high. Self-driving vehicles will need to safely navigate near infinite scenarios “in the wild,” and meet high regulatory hurdles before full deployment is possible.

Mining sites offer an almost opposite environment — highly structured and physically remote, with pre-defined, repeatable tasks. The mining industry is using this structural advantage to deploy self-driving vehicles and robotic machinery ahead of the technology’s wider deployment.
Mining companies are highly sensitive to operating costs, and automation is one lever to improve margins. Even small efficiencies gained from automation can result in exponential savings when applied across global mining operations.

International mining companies and machine OEMs, including Caterpillar and Komatsu, are leading the industry’s automation push. Startups have emerged to provide the sensors and platforms that enable newly autonomous vehicle fleets.

We used CB Insights data to unearth startups enabling mining automation and analyze mining company and OEM activity in the space. This is the first in a series of three posts examining technology trends reshaping the mining industry.

OEMs Deploy Autonomous mining trucks
Moving rocks from one place to another has been an early target for automation. The large, ore-carting vehicles ubiquitous at surface mining sites are quickly being automated.
OEMs are doing much of the heavy lifting to develop the technology. Caterpillar first deployed autonomous mining trucks in 2013. The company’s Cat® Command platform implements autonomous hauling solutions for truck fleets.

Komatsu, another heavy equipment provider, makes hauling trucks for surface mining with autonomous capabilities. In 2016, the company unveiled a prototype cab-less mining truck. Widespread use of the prototype would be a big step forward from today’s automated vehicles, which are either retrofitted or built with self-driving capabilities on existing configurations.

All major mining companies use automation solutions offered by the machine OEMs. BHP Billiton, the second-largest mining company by revenue, deploys a range of autonomous vehicles, including underground trains and surface mine trucks.

The company sees autonomous equipment as the most mature emerging technology it currently uses.

BHP Investor Presentation, May 2017
Rio Tinto also has mature autonomous capabilities, with about 20% of its fleet of 400 haul trucks in the Pilbara region of Australia retrofitted with autonomous capabilities. The company estimates that each autonomous truck operated an average of 700 hours more than conventional trucks in 2017, with 15% lower unit costs.
STARTUPS Provide Sensors and Software
Startups have moved into the automation space to support OEMs and mining companies. No startup has attempted to create an autonomous mining truck, instead entering the space through the LIDAR sensors and software systems that enable automation.
LIDAR: Companies in this category provide LIDAR sensors for self-driving vehicles. LIDAR, which stands for Light Detection and Ranging, is a technology that uses light to sense objects.
Integrated Platform: These companies go a step further than sensor companies, offering sensors, automation software, and fleet management solutions....MUCH MORE

Grain Traders

From the Streetwise Professor, Jan. 23:

It’s pretty clear that the major agricultural trading firms, notably the ABCDs–ADM, Bunge, Cargill, and Dreyfus–are going through a rough patch of tight margins and low profits.  One common response in any industry facing these conditions is consolidation, and in fact there is a major potential combination in play: ADM approached Bunge about an acquisition..

I am unsatisfied with most of the explanations given.  A widely cited “reason” is that grain and oilseed prices are low due to bumper crops.  Yes, bumper crops and the resulting low prices can be a negative for producers, but it does not explain hard times in the midstream.  Ag traders do not have a natural flat price exposure. They are both buyers and sellers, and care about margin.
Indeed, ceteris paribus, abundant supplies should be a boon to traders.  More supply means they are handling more volume, which is by itself tends to increase revenue, and more volume means that handling capacity is being utilized more fully, which should contribute to firmer margins, which increases revenues even further.

Greg Meyer and Neil Hume have a long piece in the FT about the potential ADM-Bunge deal. Unfortunately, they advance some implausible reasons for the current conditions in the industry. For example, they say: “At the same time, a series of bumper harvests has weakened agricultural traders’ bargaining power with customers in the food industry.” Again, that’s a flat price story, not a spread/margin story.  And again, all else equal, bumper harvests should lead to greater capacity utilization in storage, logistics, transportation, and processing, which would actually serve to increase traders’ bargaining power because they own assets used to make those transformations.
Here’s how I’d narrow down where to look for more convincing explanations. All else equal, compressed margins arise when capacity utilization is low. In a time of relatively high world supply, lower capacity utilization would be attributable to increases in capacity that have outstripped gains in throughput caused by larger crops.  So where is that increased capacity?

There are some hints of better explanations along these lines in the FT article.  One thing it notes is that farmer-owned storage capacity has increased.  This reduces returns on storage assets.  In particular, when farmers have little on-farm storage they must sell their crops soon after harvest, or pay grain merchants to store it.  If they sell their crops, the merchant can exploit the optionality of choosing when to sell: if they store at a local elevator, they pay for the privilege. Either way, the middleman earns money from storage, either in trading profits (from exploiting the timing option inherent in storage) or in storage fees. If farmers can store on-farm, they don’t have to sell right after harvest, and they can exploit the timing options, and don’t have to pay for storage.  Either way, the increased on-farm storage capacity reduces the demand for, and utilization of, merchant-owned storage. This would adversely impact traders’ margins.

The article also mentions “rivals add[ing] to their crop-handling networks.” This would suggest that competitive entry/expansion by other firms (who?) is contributing to the compressed margins.  This would in turn suggest that ABCD margins in earlier years were abnormally high (which attracts entry), or that the costs of these unnamed “rivals” have gone down, allowing them to add capacity profitably even though margins are thinner.

Or maybe it’s that the margins are still healthy where the capacity expansions are taking place. Along those lines, I suspect that there is a geographic component to this. ADM in particular has its biggest asset footprint in North America. Bunge has a big footprint here too, although it also considerable assets in Brazil.  The growth of South America (relative to North America) as a major soybean and corn exporting region, and Russia as a major wheat exporting region, reduce the derived demand for North American handling capacity (although logistical constraints on Russian exports means that Russian export increases won’t match its production increases, and there are bottlenecks in South America too).

This would suggest that the circumstances of the well-known traders that have more of a North American (or western European) asset base are not representative of the profitability of grain trading overall. If that’s the case, consolidation-induced capacity “rationalization” (and that’s a major reason to merge in a stagnant industry) would occur disproportionately in the US, Canada, and western Europe.  This would also suggest that owners of storage and handling facilities in South America and Russia are doing quite well at the same time that owners of such assets in traditional exporting regions are not doing well....MUCH MORE

Thursday, February 22, 2018

"Turkey mulls 'national' bitcoin"

From Al-Monitor:
The alliance between Turkey’s ruling Justice and Development Party (AKP) and its de facto partner, the Nationalist Movement Party (MHP), has extended to an unlikely realm: the idea to develop Turkey's own bitcoin.

Amid bitcoin’s meteoric rise last year, the Turkish government had taken an unwelcoming stance toward the cryptocurrency. Ministers likened it to a pyramid scheme and warned citizens to stay away. The MHP, however, argues that instead of dismissing cryptocurrencies, Ankara should draw up legislation to regulate and control the market. MHP deputy chair and former Industry Minister Ahmet Kenan Tanrikulu has penned a detailed report on the issue, proposing the state-controlled release of a “national bitcoin” called "Turkcoin."

For Tanrikulu, missing out on blockchain, the underlying technology of cryptocurrencies, would be a serious mistake. “The world is advancing toward a new digital system. Turkey should create its own digital system and currency before it’s too late,” he told Al-Monitor.

The politician stressed that cryptocurrencies were already in use in Turkey, despite the lack of a legal framework. “The need for regulation is obvious,” he said. “Also, the use of those currencies in illegal activities must be prevented.”

He continued, “We need to create the infrastructure for the blockchain database. There are nearly 1,400 digital currencies in the world today and many countries are using them. We, too, can create a digital currency, based on companies in the Wealth Fund. Since the demand exists, we should create and release our own digital currency. Opposing those currencies is meaningless. This is a national issue which requires a national consensus.”...MUCH MORE

See Something, Say Something...

...expose yourself as a dimwit.

From TIME:
A news tip earlier this week that reported a Confederate flag flying beneath an American flag in the Greenwood neighborhood of Seattle, Washington was discovered to be a mistake...

...The Seattle Times received the following tip from New York Times best-selling author Rebecca Morris after she believed that she saw a Confederate flag flying in her neighborhood: “Hi. Suddenly there is a Confederate flag flying in front of a house in my Greenwood neighborhood. It is at the north-east corner of 92nd and Palatine, just a block west of 92nd and Greenwood Ave N. I would love to know what this ‘means’ … but of course don’t want to knock on their door. Maybe others in the area are flying the flag? Maybe it’s a story? Thank you.”

However, a more thorough examination revealed that it was actually a Norwegian flag was flying at the house of Darold Norman Strangeland, who raised it at the start of this year’s Winter Olympics in PyeongChang, South Korea as an homage to his Norwegian-American background — his parents emigrated to the states in the mid-1950s....MORE
The Seattle Times story is now ten hours old. At the time they reported the mistake Norway's Pyeongchang Medal count was 13/11/9 GSB.
It is now up to 13 gold, 12 silver, 10 bronze so at least the flag-flyer, Darold Norman Stangeland is probably happy although the French nudging the Norwegian women's biathlon relay team into fourth place may have been hard on Mr. Stangeland.

Still though, the 35 total medals for Norway far outdistances second-place Germany's 25, Canada's 24 or the USA's 21.

Stangeland said his father practiced the very Norwegian  profession of tugboat captain after emigrating. Here's the picture used to illustrate the original story although I'm not sure that is Mr. Stangeland's home:
Credit—Seattle Times

"After years of testing, The Wall Street Journal has built a paywall that bends to the individual reader"

Behind the algo curtain.
A major piece from NiemanLab:
Non-subscribers visiting now get a score, based on dozens of signals, that indicates how likely they’ll be to subscribe. The paywall tightens or loosens accordingly: “The content you see is the output of the paywall, rather than an input.”
The Wall Street Journal thinks it might know your reading habits — and your potential spending habits — better than you know them yourself.

For the past couple of years, the Journal — home to one of journalism’s oldest paywalls — has been testing different ways to allow non-subscribers to sample its stories — refining a subscription prediction model that allows it to show different visitors, who have different likelihoods of subscribing, different levels of access to its site.

Non-subscribed visitors to now each receive a propensity score based on more than 60 signals, such as whether the reader is visiting for the first time, the operating system they’re using, the device they’re reading on, what they chose to click on, and their location (plus a whole host of other demographic info it infers from that location).
Using machine learning to inform a more flexible paywall takes away guesswork around how many stories, or what kinds of stories, to let readers read for free, and whether readers will respond to hitting paywall by paying for access or simply leaving. (The Journal didn’t share additional details about the score, such as the exact range of numbers it could be. I asked what my personal score was; no luck there, because since the scores are anonymized.) 

“I think back to maybe eight months ago, when we were looking at all these charts with a lot of different data points. Now we’ve got a model that’s learned to a point where, if I get a person’s score, I pretty much know how likely they will be to subscribe,” Karl Wells, the Journal’s general manager for membership, told me when we spoke last week, with a Journal spokesperson on the call. “What we’ve found is that if we open up the paywall — we call it sampling — to those who have a low propensity to subscribe, then their likelihood to subscribe goes up.” (The Journal’s model looks at a window of two to three weeks.)

The Journal has found that these non-subscribed visitors fall into groups that can be roughly defined as hot, warm, or cold, according to Wells....MUCH MORE
HT: Talking Biz News

Activist Hedge Funds and Anti-Competitive Mergers

Matt Levine call your office.*
From The Hill:

Antitrust policy must account for hidden culprits: hedge funds
The recent surge of corporate mergers — last year’s Amazon purchase of Whole Foods being a glaring example — is gaining ground on the left as a political issue.

Antitrust policies are an important but under-utilized set of tools for addressing these mergers and the drag they put on our economy while padding the pockets of the very wealthy.

Yet, to really get at the root causes of this trend, policymakers must look beyond traditional antitrust policy and crack down on the predatory hedge funds often pushing these mergers to make a quick profit with no concern for the wreckage they leave in their wake.

The scale of corporate power today is something we have not seen since the Gilded Age more than a century ago. Since 1990, America has seen a spate of sustained merger activity. According to one 2017 study, the average publicly-traded firm is three times larger today than it was 20 years ago.
Corporations are merging across a range of industries — from telecom to airlines to agriculture and food production —and working people feel the negative consequences every day.

Mergers push up prices for consumers in the long run (think cellphone and cable bills), diminish competition and the invention of new and better products (including medicines) and inevitably lead to declining wages and job losses. These newly formed behemoths also wield outsized political power, which only serves to exacerbate the issue.

After growing pressure from progressive economists and advocates, congressional Democrats have begun recognizing the problems of these merger trends.

Their late summer “Better Deal” economic platform argued for much stronger antitrust regulation, as well as enforcement of existing rules, to boost competition and business opportunities for small businesses and suppliers, lower the cost of everyday goods and put economic and political power back in the hands of the American people.

Yet, one thing that is missing from their proposals — and much of the recent attention on corporate consolidation — is the role that so called “activist” hedge funds play in driving this troubling wave of mergers.

(The term “activist” refers to investors — hedge fund or otherwise — who obtain enough corporate shares to garner influence and effect change at the company.)

Today’s activist hedge funds are akin to the corporate raiders of the 1980s and have profoundly shaped the way corporations do business in the 21st century.

Despite the fact that their share of ownership of any one company is brief (on average two years), many are able to put extraordinary pressure on executives and boards to abandon any existing long-term strategy for a quick boost in share price.

They push companies to cut costs by laying off workers and selling assets, and they implore them to use company coffers by buying back stocks to elevate price, which amounts to insider trading. On top of that, many hedge funds pressure companies to sell themselves to their competitors to bump up share prices before they themselves cash out....MORE
*Back in 2015 Mr. Levine had a few posts that riffed off a tangentially related topic, some commentary on the paper: "Anti-Competitive Effects of Common Ownership.", the exemplar that I remembered being his "Should Mutual Funds Be Illegal?"

I'm guessing Mr. Levine's mention of the paper helped it to attain its current position on the SSRN leaderboard, #441 in downloads with 38,489 views of the abstract.

Unfortunately for Levine fans the post I remembered only has six footnotes while I have a nagging para-memory that the others contained more.
Sorry about the recall fail.

San Francisco: "UN expert decries homeless conditions in Bay Area as ‘cruel,’ ‘unacceptable’"

You may have seen the story.
The UN's special rapporteur on Adequate Housing has been jet-setting around, Mexico City, Mumbai, S.F., documenting what she sees:
“In Mexico City, I visited a low-income settlement that had been moved by the city onto empty land near a railway line,” [Farha] said. “They had no running water. They stole electricity.” The camp was noisy and dangerous. She noted that the camp in Mexico is virtually identical to those she visited in Oakland, including the Wood Street and 23rd Avenue encampments....
The above snip is from the East Bay Express reprinted in Curbed San Francisco.

Curbed has had one of the most impressive series on the situation of any major media.
There's the January 22 piece  we used for the headline which wraps up with:
After her trip to the Bay, Farha headed out to assess conditions in LA, an errand she told the East Bay Express she dreaded after observing encampments here.
Additionally they had coverage a week later with "How SF tourism industry deals with the homeless crisis":
“I actually think it’s the worst it’s ever been”

February 12's "San Francisco backs new law to intervene with severe homeless population":
“This is a public health issue and needs to be treated as such”

February 19's "Some SF streets filthier than world’s poorest slums, says UC Berkeley professor"
So kudos to Curbed.

Someone else who's been pointing out various aspects of the culture that is San Francisco is Elaine Ou who we linked to last summer in: San Francisco's Dirty Little Secret
And again in November's "Elaine Would Prefer That Amazon Not Move to San Francisco (AMZN)".

As I noted the first time we linked to the Curbed headliner:
It's a deliberate policy decision by the municipal and county government. More on that point next month....
Still not ready to do that but I thought we should update with the nod to Curbed.

Daily Mail Schadenfreude: Man's Ferrari Is Impounded, Towed

Granted, if you (or dad) can afford the car you can afford the £25K insurance premium so not having it is stupid but the DM seems to be taking quite a bit of pleasure in this story.

Moment limited edition Ferrari is towed away in front of stunned onlookers in Mayfair after police seized £500,000 supercar because it wasn't insured
    • Ferrari 458 Speciale Aperta, one of only 499 made, seized off Berkeley Square in London on Sunday afternoon
    • The incident attracted 20 to 30 onlookers who watched the £500,000 be towed away by police officers
    • Police said the driver was reported on suspicion of using the vehicle without insurance
      This is the moment a rare £500,000 Ferrari was towed away in front of stunned onlookers in Mayfair after police seized it for having no insurance.

      The Ferrari 458 Speciale Aperta, one of only 499 ever made, was stopped just off Berkeley Square in London on Sunday at around 2pm.

      The incident attracted a crowd of around 20 or 30 onlookers with people filming the moment the Ferrari was lifted onto a towing vehicle. Police said the driver was reported on suspicion of using the vehicle without insurance....MORE

      The Porsche in front of the Ferrari is dad's 918.