Steve Bull's Blog, page 1193
February 13, 2018
The Relevancy of Probability in Economics
Modern economics in addition to sophisticated mathematics also employs probability distributions. What is probability? The probability of an event is the proportion of times the event happens out of a large number of trials.
For instance, the probability of obtaining heads when a coin is tossed is 0.5. This does not mean that when a coin is tossed 10 times, five heads are always obtained.
However, if the experiment is repeated a large number of times then it is likely that 50% will be obtained. The greater the number of throws, the nearer the approximation is likely to be.
Alternatively, say it has been established that in a particular area, the probability of wooden houses catching fire is 0.01. This means that on the basis of experience, on average, 1% of wooden houses will catch fire.
This does not mean that this year or the following year the percentage of houses catching fire will be exactly 1%. The percentage might be 1% or not each year. However, over time, the average of these percentages will be 1%.
This information, in turn, can be converted into the cost of fire damage, thereby establishing the case for insuring against the risk of fire. Owners of wooden houses might decide to spread the risk by setting up a fund.
Every owner of a wooden house will contribute a certain proportion to the total amount of money that is required in order to cover the damages of those owners whose houses are going to be damaged by the fire.
Note that insurance against fire risk can only take place because we know its probability distribution and because there are enough owners of wooden houses to spread the cost of fire damage among them so that the premium is not going to be excessive.
…click on the above link to read the rest of the article…
February 12, 2018
Oil Prices: Collapse Now, Spike Later
Oil prices closed out the week sharply down, wiping out all the gains posted since the start of the year.
Surging U.S. shale production, along with broader financial turmoil, has clearly put an end to the bullish mood in the oil market. U.S. shale struck several blows against oil prices this week.
First, the EIA dramatically overhauled its forecasts, predicting U.S. oil production would hit 11 million barrels per day (mb/d) this year, rather than late next year. Then, on Wednesday, it revealed estimates that put U.S. oil production at 10.25 mb/d for the week ending on February 2, a staggering 330,000 bpd increase from a week earlier. Those weekly estimates are subject to revision when more data becomes available, but if those figures hold, it would point to a significant ramp up in drilling activity and new supply coming online.
As a result, it seems that, in the short run at least, U.S. shale has killed off the oil price rally, which saw WTI move from $50 per barrel in October to the mid-$60s per barrel by January. Brent saw a similar jump from the mid-$50s to $70.
But we’re now potentially moving into the next phase of this cycle, an all-too-familiar correction after prices have seemingly climbed too far.
This time around the downward swing could be aided by a rebound in the strength of the dollar. Typically, a weakening dollar pushes up oil prices, and the rapid run up in prices over the last few months occurred not coincidentally at a time when the dollar posted a steep decline. But the greenback has clawed back gains, particularly over the last week, with expectations of rising interest rates.
“The dollar index got down to 86 [cents], crude got to $66,” John Kilduff, founding partner of Again Capital, told CNBC.
…click on the above link to read the rest of the article…
What Just Changed?
The illusion that risk can be limited delivered three asset bubbles in less than 20 years.
Has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing’s changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in a state of sustainable wonderfulness.
As for that spot of bother, the recent 10% decline in stocks: ho-hum, nothing to see here, just a typical “healthy correction” in a never-ending bull market, the result of flawed volatility instruments and too many punters picking up dimes in front of the steamroller.
Now that’s winding up, we can get back to “creating wealth” by buying assets–$2 million homes in Seattle that were $500,000 homes a few years ago, stocks, bonds, private islands, offshore wealth funds, bat guano, you name it. Just borrow whatever you need to borrow to buy more.
(But don’t buy bitcoin. No no no, a thousand times no. It is going to zero, Goldman Sachs guaranteed it.)
Ahem. And then there’s reality: something has changed, something important.What changed? The endlessly compelling notion that risk has magically vanished as the result of financial sorcery is now in doubt. If risk hasn’t been made to disappear, and even worse, can’t be corralled into a shortable instrument like VIX, then–gasp–every asset and instrument might actually be exposed to some risk.
As I’ve noted many times here, risk cannot be made to disappear; it can only be transferred onto others or off-loaded into the financial system itself. Risk can be cloaked or masked, and indeed, that is the beating heart of financial alchemy: we can eliminate risk by hedging via exotic instruments.
…click on the above link to read the rest of the article…
Peace: The One Thing the US Warmongers Do Not Want
Vice President Mike Pence made fools of the US at the South Korea Olympics. Kim Jong Un’s sister stole the show.
For a welcome change of pace, a thaw between North and South Korea is taking place. Unfortunately, the US wants no part of it as vice president Pence showed the world at the Olympics.
View image on Twitter
[image error]ian bremmer
@ianbremmer
Kim Jong Un’s sister and Pence, trying very hard to pretend the other isn’t there. #OpeningCeremony
9:15 AM – Feb 9, 2018
New York Magazine describes the great lengths Pence took to make a fool of the US at the opening ceremonies (above Tweet) and even more so at at a dinner party on Friday put on by South Korean president Moon Jae-in.
After showing up late, the VP intended to quickly leave after a photo session. Moon asked him to greet the other dignitaries at the event and Pence did, shaking the hands of everyone at the VIP table except for Kim Yong-nam [Kim Jong Un’s sister].
By leaving early, Pence missed out on a special dessert — a chocolate representation of the Korean peninsula with a dark chocolate piece of barbed wire laying over it.
And then, during the ceremonies, as North and South Korean athletes entered the stadium together under a unified flag, Pence and his wife Karen remained seated while everyone around them rose to applaud.
…click on the above link to read the rest of the article…
The Looming Crisis in the Private Provision of Public Services Close Parallels With the Systemic Failure of Banks
The collapse in January of Carillion PLC, the UK’s second largest construction and outsourcing company has attracted considerable media coverage. Carillion was principally engaged in public sector contracts to build (and in some cases operate) hospitals, prisons, roads, and part of the new high-speed rail link between London and Leeds.
Mainstream media rightly reported many unpalatable aspects of the collapse: aggressive accounting, suspension of pension fund contributions, the company’s rapid growth by acquisition. However, they generally missed the parallel with the story of systemically important financial institutions. The truth is that companies such as Carillion, Capita, G4S and MITIE now manage such a large slice of UK public services that the failure of more than one raises the spectre of the armed forces being deployed to keep schools open. Unfortunately, all these companies might be in financial trouble because, just like large banks, it is impossible to assess their health or lack of it by studying their financial reports and accounts.
Background – 25 Years of Privatisation of UK Public Sector Procurement
Since the early 1990s, all British governments have embraced public-private partnerships as the preferred construction procurement method. The initial appeal of such partnerships was an accounting trick whereby the payments were expressed as conditional upon service provision, and hence the long-term liabilities did not appear on the public sector balance sheet. They came on balance sheet in 2012, but the procurement method persists.
However, the privatisation of public sector infrastructure quickly changed the industry. So great was the volume of business, and so complex was the tendering process that initially consortia of building companies and facilities management companies were formed to pool resources and submit joint tenders.
…click on the above link to read the rest of the article…
Why Are European Governments So Terrified of ‘Fake News’?
When Swedish authorities representing a Swedish left-wing government and media announce a project to prevent “fake news” from “decisively influencing” the 2018 elections, this ought to set off loud alarm bells among Swedes. Who determines what constitutes “fake news” anyway? Is it not the very essence of “fake news” when a media outlet refuses to report mass sexual assaults, because the perpetrators happen to be foreigners from third world countries?
A British Cabinet Office spokesperson told Sky News: “The Government is committed to tackling false information and the Government Communications Service plays a crucial role in this”. Perhaps their “rapid response fake news unit” should begin with Theresa May herself, who falsely and against all factual evidence continues to claim that Islam is a religion of peace and that ISIS is not Islamic.
Meanwhile, European citizens continue to face costly legal prosecution for refusing to accept the fake news about Islam propagated by people such as Theresa May.
“I also thought that Islam was just a normal religion, but then I read the Koran and became shocked by the hatred that exists there, the misogyny… The more Islam takes over, the more we compromise. Islam is a totalitarian ideology, which means dictatorship. So, I believe that our democratic system is in danger… I hate no people. What I hate is ideology, Islam. One can criticize fascism or Nazism, but why not Islam? Why should Islam have any protection status?” — Denny, on trial in Sweden for “incitement to hatred” for calling Islam “a fascist ideology” on Facebook. If found guilty, he faces up to two years in prison.
…click on the above link to read the rest of the article…
The 11 Cities Most Likely To Run Out Of Drinking Water
As of Sunday afternoon, the dreaded “day zero” – the day residents of the city of Cape Town, South Africa, will need to begin queuing for drinking water after supplies sink below the threshold of sustainability – was estimated to be Nov. 11, 2018.
The shortage is the result of South Africa’s worst drought in 100 years…
And with city government efforts to secure alternative water supplies progressing slowly, Cape Town (pop. 440,000) is on track to become the first major world city to run out of water.
Hiring security forces to guard water supplies and forcing residents to ration their use must be unimaginably frustrating for the city’s government. But during a press conference late last month, Patricia de Lille, Cape Town’s mayor, expressed another secondary annoyance that, in some ways, is even more profoundly disturbing.
A disaster that was until recently only imaginable by writers of dystopian science fiction is playing out in front of our eyes: And what’s worse: Nobody seems to care.
“We have reached the point of no return,” Patricia de Lille, Cape Town’s mayor, warned this month. With anger in her voice she added: “It is quite unbelievable that a majority of people do not seem to care.”
But they should – if only because they’re city might be next:
As the BBC notes, over one billion people lack access to water and another 2.7 billion find it scarce for at least one month of the year. A 2014 survey of the world’s 500 largest cities estimates that one in four are in a situation of “water stress”.
Here’s a list of 11 other major cities where the taps may soon run dry, courtesy of the BBC.
Sao Paulo
Brazil’s financial capital and one of the 10 most populated cities in the world went through a similar ordeal to Cape Town in 2015, when the main reservoir fell below 4% capacity.
…click on the above link to read the rest of the article…
February 11, 2018
Don’t Expect A Central Bank Bailout This Time, ECB’s Nowotny Warns
To all those hoping for a sign or signal from central bankers that the recent correction in US stocks was necessary and sufficient for intervention, here are some disappointing examples of what they have said recently:
“If stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?” asked outgoing Fed Chair Yellen during her exit interview, selling the all-time highs. “The financial system is much better capitalized. The banking system is more resilient,” the former US central banker added, listing her accomplishments. “I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”
That was that moment when the “Yellen Put” instantly vanished, and stocks – predictably – plunged, while the industry’s most obviously ill-conceived financial innovations – inverse VIX ETFs – collapsed to essentially zero in the space of thirty minutes on the first day of new Fed chair’s Jay Powell tenure.
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“I think it’s basically a market event, and these things can be healthy,” stated Dallas Fed president Robert Kaplan, diagnosing Monday’s -4.1% S&P 500 epileptic fit. “I don’t think it will have economic implications. 2018 will be a strong year in America. We’re at or near full employment. I continue to expect three rate hikes this year,” explained the former Goldman banker.
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“This is the most predicted selloff of all time because the markets have been up so much and they have had so many days in a row without meaningful down days,” said Philly Fed president Bullard. “Something that has gone up 40% like the S&P tech sector would at some point have a selloff.” he added philosophically.
…click on the above link to read the rest of the article…
Israel “Preparing For War In North”, Boosts Air Defenses; Warns Iran
One day after the most “significant escalation” in tensions between Israel and Syria/Iran, when an Israeli F-16 was shot down over the Golan Heights after it attacked a Syrian base which allegedly launched a drone into Israeli airspace, Israel appears to be “preparing for war in the North” according to the Jerusalem Post, which reports that the Jewish state has boosted its air defense in the region along the Syrian border following the “significant confrontation between the Jewish State, Syria and Iran.”
Witnesses cited by JPost reported seeing a convoy of missile-defense batteries heading north near the Israeli-Arab city of Baka al-Gharbiya. Other witnesses posted photos of several trucks carrying the batteries on central highways in northern Israel.
Israel’s air defenses currently include the Iron Dome, designed to shoot down short-range rockets.
Additionally there is the Arrow system, which intercepts ballistic missiles outside of the Earth’s atmosphere and the David’s Sling missile-defense system, which is designed to intercept tactical ballistic missiles, medium- to long-range rockets and cruise missiles fired from ranges of between 40 km. to 300 km.
The Arrow system was first reportedly used in April when it was launched to intercept three surface-to-air missiles fired toward IAF jets by Syrian-regime air defense.
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Meanwhile, according to AFP, Israel issued a stark warning on Sunday over Iran’s presence in neighbouring Syria after the previously reported confrontation between the neighboring nations threatened to open a new and unpredictable period in Syria’s seven-year civil war, which now appears to also be engaged in de facto war against Israel.
In a dramatic escalation, Israel carried out major air raids in Syria on Saturday, including against what it described as Iranian targets – the first time it had publicly acknowledged doing so since the war began. The raids came after an Israeli F16 fighter was shot down by Syrian air defenses.
…click on the above link to read the rest of the article…
The Problem with Conspiracy Theories
People today spend a lot of time talking about conspiracy theories. These theories often do harm because they divert attention away from the facts and thereby allow real crimes and other harmful effects to continue. Such conspiracy theories can be spotted based on three basic characteristics.
They lack evidence.
They spread widely before the facts are examined.
Much simpler alternatives are not considered.
For example, take the most popular conspiracy theory of recent times—the official account for the crimes of 9/11.
This theory was produced by mythologist Philip Zelikow, who, before the investigation began, created an outline that was kept secret from his own Commission staff. Zelikow’s outline determined the outcome of the investigation before any facts were examined. Moreover, the 9/11 Commission claimed sixty-three times in its report that it could find “no evidence” related to important aspects of the crimes. Evidence that the Commission did rely on, as a basis for its report, was later found to be false. Similarly, the evidence collected and held secret by World Trade Center investigating agency NIST was later found to contradict the agency’s conclusions. Much of that evidence is still being held secret including the computer model data that NIST was forced to substitute for physical testing that contradicted its conclusions.
The conspiracy theory reports provided by the 9/11 Commission and NIST spread quickly before anyone could examine them. Getting government representatives to commit to any explanation for what had happened on 9/11 took years but, once ready, news media sources were prepped in advance to allow rapid parroting of the official line. The timing of NIST’s reports coincided with political events, like each anniversary of the 9/11 crimes, so that media could quickly present the official story while public interest was high but critical review was not possible.
…click on the above link to read the rest of the article…
