Steve Bull's Blog, page 1217
January 2, 2018
Why Models Fail
QUESTION: Mr. Armstrong; Did AIG use the Black-Scholes Model and that is what created the crisis again in 2007?
WJ
ANSWER: No. It’s my understanding that AIG developed different models, they called a “Value-at-Risk Model,” (VaR) which used a binomial-expansion-technique to start valuing their positions. I believe the original model was developed at Moody’s. However, like the Black-Scholes Model, it too lacked depth. In model development, it is extremely complex.
Virtually every model created tends to be predominately flat with a minimum of dynamic variables lacking understanding of TIME. Then the testing period lacks the database reflecting all conditions. In the case of Black-Scholes, they back-tested only with data to 1971. If I created a model with only data from 2009 forward, then it would be biased to presume a bull market is normal in the stock market.
The Value at risk (VaR) model is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day. VaR is typically used by firms and regulators in the financial industry to gauge the number of assets needed to cover possible losses. It obviously failed in 2007-2009 because once again it was not a “normal market condition” for it fails utterly to understand CONTAGION when sound assets are sold to raise cash for other assets that collapse. The assumption of the model is its own nemesis.
For example, if a portfolio of stocks has a one-day 5% VaR of $10 million, this actually means that there is a 5% probability that the portfolio will fall in value by more than $1o million over a one-day period if there is no trading.
…click on the above link to read the rest of the article…
Russia’s Grip On European Gas Markets Is Tightening
Despite years of effort from the EU, Russia’s grip over natural gas supplies in Europe is tightening, not waning.
Gazprom shipped 190 billion cubic meters of natural gas to Europe in 2017—a record high, according to Bloomberg. In 2018, that figure is expected to dip slightly to 180 billion cubic meters, which will still be the second most on record.
The higher reliance on Russian gas may come as a surprise, not least because of the ongoing tension between Russia and some European countries on a variety of issues. Russia’s intervention in Ukraine and its annexation of Crimea in 2014 led to a standoff between Russia and the West—but Europe’s imports of Russian gas are up more than 25 percent since then, despite a lot of rhetoric in Brussels about diversification.
There has been some progress. U.S. LNG has begun arriving on European shores for the first time, promising to compete with Russian gas. Importing LNG has been a lifeline particularly in some areas that are acutely exposed to Russia’s gas grip. Lithuania began importing LNG, offering an alternative to Russian gas and forcing price concessions from Gazprom.
For years, U.S. LNG has been billed as somewhat of a game changer, threatening to end Russia’s control of the European market. There have been some notable concessions from Gazprom—more flexible pricing, for example, and an erosion of oil-indexed pricing—but the Russian gas giant has not lost market share. A lot of U.S. LNG has been shipped to Latin America, not Europe.
Part of the reason is that European natural gas production continues to fall, leaving a void that Russia has been eager to fill. At the same time, Gazprom’s Deputy Chief Executive Officer Alexander Medvedev told Bloomberg that coal prices are expected to rise a bit in 2018, making Russian gas more competitive.
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Momentous Change in US Natural Gas, with Global Impact
Even China is buying U.S. LNG.
In 2017, the US became a net exporter of natural gas for the first time. It started small in February, when the US exported 1 billion cubic feet more than it imported. By October, the last month for which data from the Energy Department’s EIA is available, net exports surged to 45 billion cubic feet. For the first 10 months of 2017, the US exported 86 billion cubic feet more than it imported. And this is just the beginning.
Exports to Mexico via pipeline have been rising for years as more pipelines have entered service and as Mexican power generators are switching from burning oil that could be sold in the global markets to burning cheap US natural gas. The US imports no natural gas from Mexico.
Imports from and exports to Canada have both declined since 2007, with the US continuing to import more natural gas from Canada than it exports to Canada.
What is new is the surging export of liquefied natural gas (LNG) by sea to other parts of the world.
This chart shows net imports (imports minus exports) of US natural gas. Negative “net imports” (red) mean that the US exports more than it imports:
The first major LNG export terminal in the Lower 48 – Cheniere Energy’s Sabine Pass terminal in Cameron Parish, Louisiana – began commercial deliveries in early 2016 when the liquefaction unit “Train 1” entered service. Trains 2 and 3 followed. The three trains have a capacity of just over 2 billion cubic feet per day (Bcf/d). In October 2017, the company announced that Train 4, with a capacity of 0.7 Bcf/d, was substantially completed and is likely to begin commercial deliveries in March 2018. Train 5 is under construction and is expected to be completed in August 2019. The company is now lining up contracts and financing for Train 6. All six trains combined will have a capacity of 4.2 Bcf/d.
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WILDERNESS OF MIRRORS
Photo: Henry Burroughs/AP
WILDERNESS OF MIRRORS
Documents Reveal the Complex Legacy of James Angleton, CIA Counterintelligence Chief and Godfather of Mass Surveillance
VETERAN CIA OFFICER Cleveland Cram was nearing the end of his career in 1978, when his superiors in the agency’s directorate of operations handed him a sensitive assignment: Write a history of the agency’s Counterintelligence Staff. Cram, then 61, was well qualified for the task. He had a master’s and Ph.D. in European History from Harvard. He had served two decades in the clandestine service, including nine years as deputy chief of the CIA’s station in London. He knew the senior officialdom of MI-5 and MI-6, the British equivalents of the FBI and CIA, the agency’s closest partners in countering the KGB, the Soviet Union’s effective and ruthless intelligence service.
Cram was assigned to investigate a debacle. The Counterintelligence Staff, created in 1954, had been headed for 20 years by James Jesus Angleton, a legendary spy who deployed the techniques of literary criticism learned at Yale to find deep patterns and hidden meanings in the records of KGB operations against the West. But Angleton was also a dogmatic and conspiratorial operator whose idiosyncratic theories paralyzed the agency’s operations against the Soviet Union at the height of the Cold War, and whose domestic surveillance operations targeting American dissidents had discredited the CIA in the court of public opinion.
In December 1974, CIA Director William Colby fired Angleton after the New York Times revealed the then-unknown counterintelligence chief had overseen a massive program to spy on Americans involved in anti-war and black nationalist movements, a violation of the CIA’s charter. Coming four months after the resignation of Richard Nixon, Angleton’s fall was the denouement of the Watergate scandal, propelling Congress to probe the CIA for the first time.
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December 31, 2017
An Open letter to the School of Public Health, UQ, re: the looming net energy cliff
Geoffrey Chia publishes here the letter that he sent to his colleagues a few months ago. As you may have expected, he received no answer. But we know it is how it goes. So, here it is, for the record. Geoffrey Chia has also been the author of a previous post on “Cassandra’s Legacy” (UB)
Open Letter To: Staff of the School of Public Health,
University of Queensland, Brisbane, Australia, August 2017
From: Dr Geoffrey Chia, MBBS, MRCP, FRACP
Re: The looming Net Energy Cliff, Global Economic/Industrial collapse and Human Die-off
“infinite consumption from a finite resource base is impossible”
Dear Colleagues,
I am a Cardiologist who convened the group “doctors and scientists for sustainability and social justice” in Brisbane from 2006 to 2013 www.d3sj.org. I am writing to your department in the virtually forlorn hope that a tiny handful of you may open your eyes to the most urgent public health issue we face, which will horrifically accelerate human suffering and die-off within a decade1. The effects are already being felt in many parts of the world, masquerading as global economic recession2 or the collapse of certain Middle Eastern societies. This issue has been ignored, denied and dismissed for years by “endless growth” economists and other flat earthers, but denial does not make a problem go away. I refer to the looming catastrophic curtailment of liquid hydrocarbon fuels, the “ net energy cliff ” that we face in the near future, which will trigger ever more wars (perhaps even nuclear war), cause global economic and industrial collapse, and cause the die-off of billions of people worldwide.
The countries most addicted to petroleum will be hardest hit and Australia will be no exception.
…click on the above link to read the rest of the article…
How The Investor Fundamentally Changed The Silver Market
While silver investors continue to be discouraged about the low price, the market has experienced a fundamental change that needs to be understood. Ever since governments removed silver from official coinage, over 50 years ago, the market has been supplemented by several billion ounces of silver. The majority of that supply has been depleted.
The reason the United States and other countries stopped producing official silver coinage wasn’t due to any monetary conspiracy; rather it was based on a straightforward problem; supply versus demand. Because industrial silver consumption had skyrocketed after World War 2, the silver market would have suffered deficits if the U.S. Treasury didn’t sell silver into the market.
It was quite simple; there just wasn’t enough silver to go around. So, governments started to reduce, then eliminate silver from their coinage in the 1960’s. A lot of this silver, known as “junk silver,” was either purchased by investors or remelted and sold back as supply into the market. While there is no way of knowing how much of the older official junk silver remains in the market, the majority of it was recycled for much-needed supply.
We can see the dwindling down of government stocks and older official silver coinage in the following chart:
The BLUE bars represent silver scrap supply, and the OLIVE colored bars show the amount of net government silver sales. From 2000 to 2013, governments sold 636 million oz (Moz) of silver into the market. Net government sales were from stockpiled silver and older official coins. However, in 2014, this supply totally dried up. For the past four years, there haven’t been any government silver sales.
Another interesting aspect of this chart is the declining amount of silver scrap supply. Even though the price of silver during the 2015-2017 period was much higher than from 2000-2007, scrap supply is considerably less.
…click on the above link to read the rest of the article…
Prepper TV: What Survival-Themed Series Should You Binge-Watch?
With the advent of Netflix, Hulu, YouTube, and Amazon Prime, watching a series has never been easier. No longer do you have to wait a week for the next episode – it’s right there, ready when you are. (If you’re more of a movie buff, check out this list of prepper movies.)
Preppers tend to watch programs a little differently than the rest of the world. Most of us really enjoy survival-themed TV shows because we can really get into the whole analysis of it. It’s like the prepper version of a sporting event, where we can cheer on the smart moves, analyze the situation, and yell at the screen when the characters do something that is bound to get them killed. (And often, we can pick up a few tips or think of things we hadn’t previously considered.)
If you’re going to watch TV, it might as well be thought-provoking, right? We all need some downtime now and then, and watching these shows is a way to relax and be entertained, but still let your mind shift into survival mode. I haven’t had cable for years and personally prefer streaming so I can avoid the annoying commercials.
I asked folks in the Facebook group to give me their favorite shows and got so many I had to break it into two articles. (Be on the lookout for Reality TV: Prepper Style, coming soon.)
15 Survival TV Shows for Preppers
Here are the shows to put in your queue, in no particular order.
The 100
Ninety-seven years ago, Earth was devastated by a nuclear apocalypse, with the only survivors being the inhabitants of orbiting space stations at the time. Three generations later, resources are running out.
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Who Are the Leading State Sponsors of Terrorism?
Who Are the Leading State Sponsors of Terrorism?
As 2017 draws to a close, it is difficult to be optimistic about what will be coming in the new year. The American President, whose margin of victory was certainly based on his pledge to avoid unnecessary wars, has doubled down on Afghanistan, refuses to leave Syria even though ISIS has been defeated, and is playing serious brinksmanship with a psychopathic and unpredictable regime in Pyongyang. The White House has also bought into the prevailing largely fabricated narrative about a Russia and has decided to arm Ukraine with offensive weapons, which has already resulted in a sharp response from Moscow and will make détente of any kind between the two leading powers all but impossible in the upcoming year.
But, as I have observed before, the red hazard light that continues to be blinking most brightly relates to Washington’s relationship with Iran, which has unnecessarily deteriorated dramatically over the past year and which brings with it collateral problems with Russia and Turkey that could trigger a much wider conflict. I say unnecessarily because all the steps taken to poison the relationship have come out of Washington, not Tehran. The Trump administration refused to certify that the Iranians had been in compliance with the nuclear agreement negotiated in 2015 and has since escalated its verbal attacks, mostly at the United Nations, claiming that the regime in Tehran is the major source of terrorism in the world and that it is seeking hegemony over a broad arc of countries running westward from its borders to the Mediterranean Sea.
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Several Simple Suppositions and Suspicions for 2018
A New Year of Symbiotic Disharmony
The New Year is nearly here. The slate’s been wiped clean. New hopes, new dreams, and new fantasies, are all within reach. Today is the day to make a double-fisted grab for them. Without question, 2018 will be the year in which everything happens exactly as it should. Some things you will be able to control, others will be well beyond your control.
How new years generally work… [PT]
Certainly, your ability to stop your neighbor’s cat from relieving itself in your side yard is limited, barring extreme measures. What we mean is each day shall unfold before you – both good and bad – in symbiotic disharmony. You can count on it.
But what are the specifics and particulars for the year ahead? What about stocks, the 10-Year Treasury note, gold, bitcoin, and everything else? Are we fated for World War III? Will this be the year Hillary Clinton finally croaks?
Today we endeavor to answer these questions – and more – with hesitation and humility. Obviously, predicting the future is more art than science. But so is Fed monetary policy, or a charted wave pattern that extends resistance and support lines out into the future.
Predictive Methodology and Disclaimer
“Past performance is no guarantee of future results,” counsels your broker. Thus, we eschew common forecasting techniques for a conjectural approach. We look to connect seemingly unrelated big picture nodes with the illogical grace of an Irish joke.
To be clear, our methodology is as unscientific as your street corner palm reader’s. First, we engage all matters of fact, fiction, fakery, and fraud. Then, through induction, deduction, biased interpolation, and metaphysical reduction, we arrive at precise, unequivocal answers.
But before we get to it, a brief disclaimer’s in order. This proviso from King Solomon should suffice:
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How Much Death and Destruction Awaits Us in 2018?
The New Year is one full of economic, political, and war threats.
Among the economic threats are stock, bond, and real estate markets artificially pumped up by years of central bank money creation and by false reports of full employment. It is an open question whether participants in these markets are aware that underlying reality does not support the asset values. Central banks support stock markets not only with abundant liquidity but also with direct stock purchases. The Japanese central bank is now one of the largest owners of Japanese equities. Central banks, which are supposed to provide economic stability, have created a massive fraud.
Throughout the Western world politics has degenerated into fraud. No government serves the public’s interest. (See: https://www.paulcraigroberts.org/2017/12/29/eric-zuesse-explains-americas-worst-enemy/ ) Except for some former Soviet satellites in Eastern Europe, European governments have defied the will of the people by admitting vast numbers of refugees from Washington’s wars and others pretending to be refugees. The European governments further imperil their citizens with their support for Washington’s rising aggression toward Russia. The universal failure of democratic politics is leading directly to war.
The Saker explains that Americans with intelligence, honor, courage, and integrity have disappeared from the US national security establishment. In their place are arrogant morons high on hubris who believe: (1) We can buy anybody, (2) Those we cannot buy, we bully, (3) Those we cannot bully, we kill, (4) Nothing can happen to us, we live in total impunity no matter what we do. http://www.unz.com/tsaker/2018-war-or-no-war/
Scott Bennett reports that US soldiers are being propagandized that Russia is an enemy with whom we are headed to war. https://www.facebook.com/capsule.ninetynine.7/videos/1992321041038611/
The Anglo-Zionist empire is trying to overturn the Iranian agreement and to restart the attempt to overthrow the government of Syria. Lebanon’s Hezbollah is also in the empire’s sights. Washington is arming Ukraine in order to enable an attack on the breakaway provinces of Novorussia.
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