Fraud epidemic
Few senior bankers in jail
Investors lose trust
Few senior bankers in jail
Investors lose trust
Saturday, February 08, 2014
Friday, February 07, 2014
Climate Change Demographics Should Place Income First
I usually like the Climate One series of talks at the Commonwealth Club but today's talk on "Green Latinos" fell short. Climate change shouldn't be the concern of one ethnic group because it affects everyone. Replace "Latinos" with any other interest group and the effects remain the same. Honing the message matters, and some demographics may respond more enthusiastically to culturally-specific images. The single most important demographic factor impacted by climate change is probably income level.
Take a look at the social justice messaging from groups like 350.org and the Greenlining Institute to see their strident attitudes. Justice is a worthy goal but limiting the dialogue to race is far from Dr. Martin Luther King's message of inclusiveness. A race-specific approach will turn off the broad middle where political coalitions win converts for action. Contrast the radicals' approach with Fuel Freedom's common sense emphasis on the economics of free market choices that benefit everyone.
Low-income citizens live closer to pollutant sources than high-income people. A constituency for environmental stewardship should thus exist among low-income people of all races. That constituency should be more than just an activist base where politicians win votes. It should be a target market for entrepreneurial solutions. California's green transport fleet incentives are the right regulatory reform for high-traffic areas. The unintended side effects will include pricing self-employed truckers out of port service and chassis fleet markets if they cannot afford upgrades to meet the state mandates. This means high-polluting truckers will still find business servicing other areas, likely the same high-traffic intermodal sites near freeways and railyards where low-income people live. This is where entrepreneurial innovation solves the rest of this problem. Somewhere between Google X and the X-PRIZE's reward for energy and environmental innovation is a solution to pollution.
Politicians and policy analysts consider the California ARB's cap and trade revenues to be a windfall for funding all sorts of green projects. That should raise red flags with anyone concerned about accountability. I'd like the state to avoid the problems the US DOE experienced with its loans and grants to troubled green enterprises like Solyndra. Cap and trade revenue can be a decent source of subsidies for low-income Californians who want upgrades to more efficient home appliances. I'll trot out my favorite pet project for the poor once again - the public option bank - as a conduit for such subsidies. Paying a subsidy to owner-operator truckers for engine upgrades should be contingent upon income ceilings and an account at a public bank. Energy rebates to low-income households should run through a similar public bank channel.
Climate change is not an ethnic issue. It's an income issue, especially for the parts of our population who can't afford to mitigate its effects. Energy efficiency reduces utility bills and raises personal income, but the poor among us will need some help with the initial capital outlay for more efficient technologies. The California PUC should ask me about my public option bank plan if it's serious about helping the poor escape from pollution.
Take a look at the social justice messaging from groups like 350.org and the Greenlining Institute to see their strident attitudes. Justice is a worthy goal but limiting the dialogue to race is far from Dr. Martin Luther King's message of inclusiveness. A race-specific approach will turn off the broad middle where political coalitions win converts for action. Contrast the radicals' approach with Fuel Freedom's common sense emphasis on the economics of free market choices that benefit everyone.
Low-income citizens live closer to pollutant sources than high-income people. A constituency for environmental stewardship should thus exist among low-income people of all races. That constituency should be more than just an activist base where politicians win votes. It should be a target market for entrepreneurial solutions. California's green transport fleet incentives are the right regulatory reform for high-traffic areas. The unintended side effects will include pricing self-employed truckers out of port service and chassis fleet markets if they cannot afford upgrades to meet the state mandates. This means high-polluting truckers will still find business servicing other areas, likely the same high-traffic intermodal sites near freeways and railyards where low-income people live. This is where entrepreneurial innovation solves the rest of this problem. Somewhere between Google X and the X-PRIZE's reward for energy and environmental innovation is a solution to pollution.
Politicians and policy analysts consider the California ARB's cap and trade revenues to be a windfall for funding all sorts of green projects. That should raise red flags with anyone concerned about accountability. I'd like the state to avoid the problems the US DOE experienced with its loans and grants to troubled green enterprises like Solyndra. Cap and trade revenue can be a decent source of subsidies for low-income Californians who want upgrades to more efficient home appliances. I'll trot out my favorite pet project for the poor once again - the public option bank - as a conduit for such subsidies. Paying a subsidy to owner-operator truckers for engine upgrades should be contingent upon income ceilings and an account at a public bank. Energy rebates to low-income households should run through a similar public bank channel.
Climate change is not an ethnic issue. It's an income issue, especially for the parts of our population who can't afford to mitigate its effects. Energy efficiency reduces utility bills and raises personal income, but the poor among us will need some help with the initial capital outlay for more efficient technologies. The California PUC should ask me about my public option bank plan if it's serious about helping the poor escape from pollution.
Thursday, February 06, 2014
The Haiku of Finance for 02/06/14
Low valuation
Either bargain or bad sign
Check the earnings growth
Either bargain or bad sign
Check the earnings growth
Wednesday, February 05, 2014
Tuesday, February 04, 2014
The Haiku of Finance for 02/04/14
New Chair at the Fed
Intends to keep tapering
Markets slipping down
Intends to keep tapering
Markets slipping down
Monday, February 03, 2014
Painted Pony Petroleum . . . Has Paintings Of Ponies
Painted Pony Petroleum (PDPYF / PPY.V / PPY.TO) is a natural gas producer in western Canada. That country has low political risk and supports new LNG infrastructure for Asian exports. It's nice that the CEO is a geologist with lots of exploration experience. The only relevant result for me is whether this company can produce at a profit.
They have been in production for some time. I would prefer to evaluate their most recent financial statements and NI statements of reserves but I don't see very many year 2013 documents on their investor relations page at this time. I searched SEC's EDGAR and I found no 10-Q or 10-K financial statements, so I went to SEDAR to find their recent information. Their interim financial statement for November 12, 2013 shows comprehensive net losses for much of 2013 and 2012. You know something . . . I'll stop right there.
I'm not going to invest in a company that shows such persistent losses. I only have so much time in the day to analyze market action, corporate results, and general business ideas. I won't waste one more second trying to understand how a company in production can keep losing money in a region primed for export with natural gas prices rising. They do have pictures of painted ponies on their website. I hope their shareholders like those ponies.
Full disclosure: No position in Painted Pony Petroleum at this time.
They have been in production for some time. I would prefer to evaluate their most recent financial statements and NI statements of reserves but I don't see very many year 2013 documents on their investor relations page at this time. I searched SEC's EDGAR and I found no 10-Q or 10-K financial statements, so I went to SEDAR to find their recent information. Their interim financial statement for November 12, 2013 shows comprehensive net losses for much of 2013 and 2012. You know something . . . I'll stop right there.
I'm not going to invest in a company that shows such persistent losses. I only have so much time in the day to analyze market action, corporate results, and general business ideas. I won't waste one more second trying to understand how a company in production can keep losing money in a region primed for export with natural gas prices rising. They do have pictures of painted ponies on their website. I hope their shareholders like those ponies.
Full disclosure: No position in Painted Pony Petroleum at this time.
Pricing and Exporting North American Natural Gas For Asia
The investor relations community works hard to convince analysts like Yours Truly that junior exploration companies in North America have good prospects. One premise for making this case is the Asian energy market's willingness to pay for cheap North American natural gas. The IEA's 2013 report "Developing a Natural Gas Trading Hub in Asia" notes that the Asian gas market is not fully responsive to supply and demand fundamentals. That will change as more producers move to meet demand. The USDOE's EIA natural gas page shows how the price of gas has recovered nicely from its drop two years ago, and that demand from exports is projected to remain strong.
Gas exports from the US and Canada must travel via liquified natural gas (LNG) ocean carriers. There are no gas or oil pipelines under the Pacific Ocean; subsea transport of petrochemicals via pipeline over anything other than short distances presents insurmountable technical obstacles. Canada has taken an aggressive approach to building LNG infrastructure that can serve Pacific Ocean carriers. The US lags behind, with fuss over the Keystone XL oil pipeline demonstrating the anti-infrastructure mentality of very ignorant pressure groups. The National Energy Board of Canada still requires export approval but I fully expect that to be reduced to a formality once more Pacific coast LNG infrastructure is complete. The "pick and shovel" plays for pipeline operators and construction firms operating in Western Canada will be compelling for years.
Forecasting the future price of natural gas is more difficult than forecasting either demand or supply. Demand can be derived from population growth and energy use per capita. Supply is a function of capex spent to counter decline rates in well-known geology. Pricing is different due to all sorts of random factors, including political news, accidents, and weather conditions. I do not typically pay attention to price forecasts from private firms like PIRA or IHS CERA. They are valuable in the market because preppie investment bankers hire them to do work they are not smart enough to do themselves. A more intellectually honest approach would use the NG market price and figure its probability of mean reversion. This admits the ambiguity of commodity prices, and justifies the hedging strategies all producers use. EIA reports the NYMEX prices and CME Group prices Henry Hub natural gas futures with this reality in mind.
I do not know the specifics of import requirements that Asian governments set for natural gas. The US federal coordinator for Alaska natural gas states that Asian market favor wet gas, with more ethane and other liquids to raise the gas' heat content. A Google search of other Asian content requirements reveals a preference for "sweet" gas with a lower hydrogen sulfide content. The booming Bakken shale fields are notorious for producers who flare off NG because they have no pipelines or storage tanks to capture it. That will change as Asian demand moves the NG price far enough to drive such investment.
There's big demand in Asia for natural gas. The US and Canada have big supply. Together the twain shall meet. It's only a question of transport cost, terminal liquefaction (and regasification) services, and content regulation. Actually, that's several questions, with multiple sub-questions in each one. The shale drilling boom in North America marches on.
Gas exports from the US and Canada must travel via liquified natural gas (LNG) ocean carriers. There are no gas or oil pipelines under the Pacific Ocean; subsea transport of petrochemicals via pipeline over anything other than short distances presents insurmountable technical obstacles. Canada has taken an aggressive approach to building LNG infrastructure that can serve Pacific Ocean carriers. The US lags behind, with fuss over the Keystone XL oil pipeline demonstrating the anti-infrastructure mentality of very ignorant pressure groups. The National Energy Board of Canada still requires export approval but I fully expect that to be reduced to a formality once more Pacific coast LNG infrastructure is complete. The "pick and shovel" plays for pipeline operators and construction firms operating in Western Canada will be compelling for years.
Forecasting the future price of natural gas is more difficult than forecasting either demand or supply. Demand can be derived from population growth and energy use per capita. Supply is a function of capex spent to counter decline rates in well-known geology. Pricing is different due to all sorts of random factors, including political news, accidents, and weather conditions. I do not typically pay attention to price forecasts from private firms like PIRA or IHS CERA. They are valuable in the market because preppie investment bankers hire them to do work they are not smart enough to do themselves. A more intellectually honest approach would use the NG market price and figure its probability of mean reversion. This admits the ambiguity of commodity prices, and justifies the hedging strategies all producers use. EIA reports the NYMEX prices and CME Group prices Henry Hub natural gas futures with this reality in mind.
I do not know the specifics of import requirements that Asian governments set for natural gas. The US federal coordinator for Alaska natural gas states that Asian market favor wet gas, with more ethane and other liquids to raise the gas' heat content. A Google search of other Asian content requirements reveals a preference for "sweet" gas with a lower hydrogen sulfide content. The booming Bakken shale fields are notorious for producers who flare off NG because they have no pipelines or storage tanks to capture it. That will change as Asian demand moves the NG price far enough to drive such investment.
There's big demand in Asia for natural gas. The US and Canada have big supply. Together the twain shall meet. It's only a question of transport cost, terminal liquefaction (and regasification) services, and content regulation. Actually, that's several questions, with multiple sub-questions in each one. The shale drilling boom in North America marches on.
Financial Sarcasm Roundup for 02/03/14
I'm so glad US stocks are headed down. This is more than just an opportunity to buy assets at reduced prices. It's another big chance to throw my sarcasm in the face of bull shills who bought in at high prices.
The US and EU are promising economic aid to Ukraine. I do not see the point of antagonizing Russia. This risks a retaliation if Gazprom decides to jack up natural gas prices for its European customers. Perhaps this intervention is some kind of revenge for Russia's ascension after the Syria chemical weapons controversy last year. Ukrainians are perfectly capable of solving their own problems. They key to understanding what's at stake is the Russian ethnic minority in the southeastern part of the country. The southeast is Ukraine's most economically productive region with most of the country's arable farmland. Ukraine's viability as a political entity is doubtful without control of that region. The only silver lining is that unrest could potentially force more hot Ukrainian women to emigrate to the US and expand my available dating pool in San Francisco.
Corporations realize that the American middle class is weakening. The class of middle income consumers is getting smaller and its disposable income is declining. Enterprises are adjusting their business models to accommodate this change. I've blogged before about how mid-market retailers are toast. Extend this change to other brands. We'll see more low-end restaurants with fast food dollar menus and more five-star venues for rich palates with fat wallets. If the middle class ceases to exist, class warfare will be inevitable. Most Americans don't see it coming. The $35,000 leather hammock I saw in a high-end Union Square shop will end up in a hedge fund manager's office, or it will be looted by a rioting mob. That linked article said hedge fund investors want a restaurant chain to spin off its high-end properties to isolate their performance. I think those fund managers just don't want upscale chains associated with the same corporate parent as middle-income chains. It really is about snobbery.
Politicians can't figure out how to fix Fannie Mae and Freddie Mac. I've known how to fix those things all along. I'd shut them down and stiff their creditors. That would destroy the speculative investors who bought up their stock, counting on continued government lifelines. I don't care at all. The housing market can't reach a sustainable long-term equilibrium until every misguided government effort to support housing prices reaches a sunset. These GSEs' continued existence tempts activists to use them to fund disastrous social justice experiments. Landlords will have fits during hyperinflation if the GSEs impose national rent controls as conditions for securitizing mortgages on multi-unit properties.
There is so much to be sarcastic about in the world but I only have a limited number of waking hours during the day. Others are welcome to pick up where I leave off.
The US and EU are promising economic aid to Ukraine. I do not see the point of antagonizing Russia. This risks a retaliation if Gazprom decides to jack up natural gas prices for its European customers. Perhaps this intervention is some kind of revenge for Russia's ascension after the Syria chemical weapons controversy last year. Ukrainians are perfectly capable of solving their own problems. They key to understanding what's at stake is the Russian ethnic minority in the southeastern part of the country. The southeast is Ukraine's most economically productive region with most of the country's arable farmland. Ukraine's viability as a political entity is doubtful without control of that region. The only silver lining is that unrest could potentially force more hot Ukrainian women to emigrate to the US and expand my available dating pool in San Francisco.
Corporations realize that the American middle class is weakening. The class of middle income consumers is getting smaller and its disposable income is declining. Enterprises are adjusting their business models to accommodate this change. I've blogged before about how mid-market retailers are toast. Extend this change to other brands. We'll see more low-end restaurants with fast food dollar menus and more five-star venues for rich palates with fat wallets. If the middle class ceases to exist, class warfare will be inevitable. Most Americans don't see it coming. The $35,000 leather hammock I saw in a high-end Union Square shop will end up in a hedge fund manager's office, or it will be looted by a rioting mob. That linked article said hedge fund investors want a restaurant chain to spin off its high-end properties to isolate their performance. I think those fund managers just don't want upscale chains associated with the same corporate parent as middle-income chains. It really is about snobbery.
Politicians can't figure out how to fix Fannie Mae and Freddie Mac. I've known how to fix those things all along. I'd shut them down and stiff their creditors. That would destroy the speculative investors who bought up their stock, counting on continued government lifelines. I don't care at all. The housing market can't reach a sustainable long-term equilibrium until every misguided government effort to support housing prices reaches a sunset. These GSEs' continued existence tempts activists to use them to fund disastrous social justice experiments. Landlords will have fits during hyperinflation if the GSEs impose national rent controls as conditions for securitizing mortgages on multi-unit properties.
There is so much to be sarcastic about in the world but I only have a limited number of waking hours during the day. Others are welcome to pick up where I leave off.
Choosing Between Meritocracy And Topocracy
Topocracy is a counterpoint to the meritocratic distribution of rewards within an economic network. This isn't some mere theoretical description of how economies behave as their structures mature. It's a description of reality as plutocratic regimes become entrenched in modern economies.
Contrast the Arrow-Debreau model of supply-demand equilibrium with the Sonnenschein–Mantel–Debreu theorem that individual rationality does not necessarily lead to macroeconomic rationality. This is not intuitive; Kantian reasoning tempts us to believe that rational actors everywhere would construct a rational world even without a deliberate attempt to do so. The lack of rationality in humans, such as with the inability to apply Bayes' Theorem or game theory in thinking, begs theoreticians to construct explanations that account for non-rational economic actions. This leads academics to the study of the tension between topocracy and meritocracy in a world where a perfect Arrow-Debreau equilibrium does not always hold for every commodity.
Serious students of these topics are welcome to peruse "To Each According to its Degree: The Meritocracy and Topocracy of Embedded Markets" from Scientific Reports. One doesn't need an understanding of advanced mathematics to comprehend the study's implications. Social networks have costs, and those costs channel rewards to economic actors favored by "nodes" of connectivity regardless of whether they produce things of value. A plutocratic society skews these reward channels upward through manipulation of the legal and political systems. Increasing income inequality is the result. Economic advantage is locked into the most robust social networks. Members of lower social classes find themselves locked out of opportunities to join social networks that channel excess economic rewards upward to the ruling elite.
The choice between meritocracy and topocracy is never completely mutually exclusive. Economies have always been inseparable from social networks. Only the complete disintermediation of all production, all consumption, and all knowledge from social connections would theoretically eliminate the possibility of topocratic rewards skewed to those of high connections and status. The greatest promise of additive manufacturing (3D printers allowing anyone to design and produce), automation (the possibility of production anywhere, anytime), and MOOCs (free education and knowledge) is the potential to confine topocracy to a very small portion of the economy. The convergence of those three forces can unleash a meritocratic economy that bypasses plutocratic social nodes.
Contrast the Arrow-Debreau model of supply-demand equilibrium with the Sonnenschein–Mantel–Debreu theorem that individual rationality does not necessarily lead to macroeconomic rationality. This is not intuitive; Kantian reasoning tempts us to believe that rational actors everywhere would construct a rational world even without a deliberate attempt to do so. The lack of rationality in humans, such as with the inability to apply Bayes' Theorem or game theory in thinking, begs theoreticians to construct explanations that account for non-rational economic actions. This leads academics to the study of the tension between topocracy and meritocracy in a world where a perfect Arrow-Debreau equilibrium does not always hold for every commodity.
Serious students of these topics are welcome to peruse "To Each According to its Degree: The Meritocracy and Topocracy of Embedded Markets" from Scientific Reports. One doesn't need an understanding of advanced mathematics to comprehend the study's implications. Social networks have costs, and those costs channel rewards to economic actors favored by "nodes" of connectivity regardless of whether they produce things of value. A plutocratic society skews these reward channels upward through manipulation of the legal and political systems. Increasing income inequality is the result. Economic advantage is locked into the most robust social networks. Members of lower social classes find themselves locked out of opportunities to join social networks that channel excess economic rewards upward to the ruling elite.
The choice between meritocracy and topocracy is never completely mutually exclusive. Economies have always been inseparable from social networks. Only the complete disintermediation of all production, all consumption, and all knowledge from social connections would theoretically eliminate the possibility of topocratic rewards skewed to those of high connections and status. The greatest promise of additive manufacturing (3D printers allowing anyone to design and produce), automation (the possibility of production anywhere, anytime), and MOOCs (free education and knowledge) is the potential to confine topocracy to a very small portion of the economy. The convergence of those three forces can unleash a meritocratic economy that bypasses plutocratic social nodes.
Sunday, February 02, 2014
The Limerick of Finance for 02/02/14
Momentum has started to slip
As China and others did trip
You're in for a ride
If you're on the buy side
Central bankers are losing their grip
As China and others did trip
You're in for a ride
If you're on the buy side
Central bankers are losing their grip
Accurate Performance Metrics For NFL Teams
Super Bowl Sunday brings visions of Americans gorging themselves on fast foods high in corn syrup and saturated fats. Most Americans devolve to tribal loyalties today and cheer on their favorite gladiators while I engage in dispassionate analysis. Professional football needs some serious Moneyball disruption.
Las Vegas oddsmakers and professional NFL team scouts have been using the wrong metrics to evaluate gridiron performance. The most commonly cited metrics include yards per game (YPG) and team yards per play. The NFL's official team stats page has tracked both of these for each team since 1970, with some select stats predating those years. Both of those metrics have little correlation with either season win percentage or Super Bowl championship. I ran the numbers myself on those stats until I realized I was wasting my time.
Results-oriented metrics matter. The winning result in football is scoring points, not accumulating yardage. Football coach Tim Chou proposed the "yards per point differential" at an MIT Sloan Sports Analytics Conference. Critics have questioned its relationship with skill while favoring yards per play. There's an intuitive link between yards per play and the on-base percentage of Moneyball fame, but there's one crucial distinction. Hitting is a one-on-one competition between a batter and pitcher. Scoring is a total team effort, reflecting the coach's ability to call plays. I think yards per play still bears too much similarity to older metrics like YPG. Scoring relationships like yards per point can be linked to individual players, which in turn influences their monetary value when under contract.
The point of finding better metrics is to optimally allocate the limited resources of NFL coaches and managers. Coaches wasting time on plays and drills that gain yards will not raise their winning percentages if they don't score points. Managers overpaying for players will ignore the unheralded value of players whose ability to score is hidden in overlooked stats. NFL teams need some Moneyball disruption.
Las Vegas oddsmakers and professional NFL team scouts have been using the wrong metrics to evaluate gridiron performance. The most commonly cited metrics include yards per game (YPG) and team yards per play. The NFL's official team stats page has tracked both of these for each team since 1970, with some select stats predating those years. Both of those metrics have little correlation with either season win percentage or Super Bowl championship. I ran the numbers myself on those stats until I realized I was wasting my time.
Results-oriented metrics matter. The winning result in football is scoring points, not accumulating yardage. Football coach Tim Chou proposed the "yards per point differential" at an MIT Sloan Sports Analytics Conference. Critics have questioned its relationship with skill while favoring yards per play. There's an intuitive link between yards per play and the on-base percentage of Moneyball fame, but there's one crucial distinction. Hitting is a one-on-one competition between a batter and pitcher. Scoring is a total team effort, reflecting the coach's ability to call plays. I think yards per play still bears too much similarity to older metrics like YPG. Scoring relationships like yards per point can be linked to individual players, which in turn influences their monetary value when under contract.
The point of finding better metrics is to optimally allocate the limited resources of NFL coaches and managers. Coaches wasting time on plays and drills that gain yards will not raise their winning percentages if they don't score points. Managers overpaying for players will ignore the unheralded value of players whose ability to score is hidden in overlooked stats. NFL teams need some Moneyball disruption.
Saturday, February 01, 2014
USAA And GEICO Compete For Monkey Business
I shopped around a couple of automobile insurance quotes before I renewed my policy. It came down to a choice between my current insurer USAA and the possibility of switching to GEICO. They both have ultra-cheap business models because they don't maintain a horde of field offices with sales reps running up marketing expenses and administrative overhead.
I fiddled with the coverage criteria and discovered that I could dramatically reduce my premiums by adjusting my coverage for bodily injury and property damage to cover only the nationally-adjusted average costs per driver in an auto accident. Check out the RMIIA's data on the cost of car crashes. The National Safety Council also has estimates of the costs of motor vehicle injuries. This is why I'm ten steps ahead of the average American consumer. I use open-source Big Data products as the basis for my analysis, and I keep my decisions as rational as humanly possible. This data is now easy to find, so I no longer have any excuse for overpaying for coverage out of ignorance of the likeliest costs.
It came down to a pretty close decision, and I ended up staying with USAA. They carried over a discount from my last term that made the final cost worthwhile. I don't know if that discount will still apply when I renew my policy, and if it doesn't then GEICO's military discount may be the tie-breaker next time. Another feather in USAA's cap is the ability of its banking and brokerage services to shave a few bucks off routine transaction costs. I don't need that right now but it may come in handy if I have to move my savings and checking accounts from TBTF banks.
This cost comparison exercise drove home a really cool lesson. The difference in product cost between the two companies for the same policy terms was microscopic. USAA is a private club run by retired military officers who've never met a bottom line in their entire lives. GEICO is a Berkshire Hathaway company and Warren Buffett handpicks their executives. The difference in product characteristics and cost is virtually nonexistent because insurance company metrics are determined by actuaries, the original Big Data professionals who are so rational they may as well be inhuman. The performance of an insurance company has nothing to do with its executives' professional competence and everything to do with the structure of data profiles and risk pools. This is something the architects of the Affordable Care Act are going to learn the hard way as plan providers drop out of the exchanges.
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