A Visual History Of Gold: The Most Sought After Metal On Earth

This infographic introduces the yellow metal and tells the story of how it became the most sought after metal on earth. Gold was one of the first metals discovered by ancient peoples and eventually gold grew to symbolize both wealth, royalty, and immortality. Gold began to be used as money by many cultures, but the Romans were the first to use it widespread.

The rarity, malleability, durability, ease to identify, and intrinsic value of gold made it perfect for money. While many civilizations throughout the world used gold for money, eventually its role would change with the coming of the gold standard system.

In modern history, gold was shaped by events such as Roosevelt’s confiscation order in 1933 and President Nixon ending the direct convertibility of gold to US dollars in 1971. Although gold is no longer the basis of the modern monetary system, there is more gold demand today than ever before.


See full infographic here


Source: VisualCapitalist


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For Better Or Worse (But Mostly Worse)

Advancements in Web 2.0 technology and the rising popularity of online dating should make it easier now – more than ever – to find "The One."  So why, ConvergEx's Nick Colas asks, is the U.S. marriage rate still declining when technology is making the process of finding a mate so much more convenient and efficient? For one, cohabitation (both before marriage and instead of marriage) is increasingly popular. Also, there’s the urbanization trend which yields an influx of young, single professionals into major cities across the country; they’re apparently more focused on career than family. However, as Colas continues, falling marriage rates go hand-in-hand with a host of socio-economic issues, and the problem is exacerbated in those with lower levels of educational attainment. A continuation of this trend would undoubtedly have negative implications for society as a whole and further enhance the gap between rich and poor.

Via ConvergEx's Nick Colas,

If you’re in the market for a spouse, consider this: Online dating could save you $6,400 in the long run versus the traditional computer-unaided route.  The typical courtship for marriages that begin offline is 42 weeks, or two years longer than the average 18-week courtship for marriages that begin online, according to statisticbrain.com, which compiled various data from Reuters, PC World and the Washington Post..  At a conservative estimate of one date per week and a cost of $130 per date – $100 for a meal and drinks at a nice restaurant, plus $30 for two movie tickets and popcorn – the dating phase prior to an offline marriage runs up a $23,660 tab.  The average dating site customer spends just $239 a year for online memberships, which more than pays for itself to the tune of $12,803 in cost savings from fewer dates.  Assuming you go Dutch, each party saves a touch over $6,400 in choosing the online route to marital bliss.


Of course, there are some horrors associated with online dating – like the fact that a woman’s online desirability peaks at the ripe age of 21 or that 6% of women set their standards at finding simply “any man I can get” (again, courtesy of the statisticbrain.com compilation of data).  But even so, you might reasonably expect that the technological advances that gave rise to the popularity of online dating would translate to a growing number of marriages in the United States.  After all, it’s theoretically easier now than ever to find a mate, not to mention more cost effective.  Yet the percentage of married adults is still in structural decline.  In 2012, an all-time low of 50.5% of American adults ages 18 and up were married.  That’s down from 57.4% in 2000 and a peak of 72.2% in the 1960s (see Chart 1 following the text).  So what’s the story?   Why is marriage still a falling trend despite the growing popularity of online match-making websites?

First, cohabitation (both before marriage and instead of marriage) is increasingly popular.  According to the most recently available data from the Center for Disease Control (CDC), cohabitation was the first romantic union (meaning either living with a partner without being married or simply getting married) for 48% of women aged 15 through 44 from 2006 to 2010.  This was up from 43% in 2002 and 34% in 1995.  Meanwhile, marriage as a first romantic union declined in popularity; 39% of first romantic unions were marriages in 1995, versus 30% in 2002 and 23% from 2006 to 2010 (refer to Chart 2).  The latest data from private research company Demographic Intelligence shows that 7.5 million couples lived together but were not married in 2010, which marked a 13% increase in just one year.


One explanation for this growth in cohabitation is the spike in divorce rates in the 1970s and 1980s.  The divorce rate peaked in 1979 and 1981 at 5.3 divorces per 1,000 people living in the U.S. (see Chart 3).  This is right around the time when the parents of the current generation of 20-somethings and 30-somethings would have had children, so perhaps seeing their parents and/or friends’ parents go through a divorce has made today’s young people more cautious when it comes to finding a mate.  Today, the divorce rate has settled somewhat around 3.5 per 1,000 population; the most logical explanation seems to be quite simply the decline in marriages.


Second, urbanization remains a growing trend and is responsible for the influx of young, predominately single professionals into major cities across the country.  Anecdotal data shows that much of this 20-something cohort is primarily focused on their careers rather than starting a family.  Indeed, the average age at first marriage for men and women is 28.6 and 26.6, respectively, compared to 25.2 and 22.5 three decades ago, according to the Census Bureau.  Adding to this trend has been the growing number of women in the labor force over the past several decades.  No longer as reliant on a husband as a source of income, women, too, are delaying the white-picket-fence stage of life in favor of establishing a career. 


Lastly, there’s the unproductive side of technology when it comes to love and marriage.  Location-based smartphone applications (such as Tinder) that allow you to instantly find other singles in your area – or even in the same bar – encourage instant gratification and nonexclusive relationships.  Technology has also given rise to online dating sites for married people seeking other married people (such as Ashley Madison) which probably don’t do anything constructive for the rate of productive, healthy marriages. 

Falling marriage rates go hand-in-hand with a host of socio-economic issues, so a decline in the popularity of marriage is quite important from an economic standpoint.  A drop in marriages has resulted in a rise in the out-of-wedlock birth rate – in 2011, 40.7% of all U.S. live births were to unmarried women.  Data from the Pew Research Center reveals that 35% of children live in single-parent homes and that 71% of poor families (those in the lowest quintile by income) lack married parents.  Additionally, the poverty rate for single-parent households in which a woman is the head of household is roughly five times that of traditional, two-parent households.

Adding to the problem is the fact that marriage rates are declining faster among those with lower levels of educational attainment – and therefore lower levels of income, as education is typically correlated with financial resources .  In 1970, 88% of college-educated men were married, compared with 85% of men who had not received a college degree.  For women the split was 82% and 83%, and in other words it didn’t appear that educational attainment was correlated with marriage.  However, by 2010 69% of adults with a college degree were married, versus just 56% of those without a college degree.  Furthermore, even among adults whose first romantic union is cohabitation, those with college degrees are much more likely to turn the cohabitation into marriage – 53% versus 39% for those with a high school diploma (refer to Chart 4).
Declining marriage rates among those with lower levels of educational attainment is a warning sign that is worth watching, especially if the trend continues.  But we’ll end this note with two bits of encouraging news.  First, the sheer number of newly married adults increased in 2012, climbing to 4.32 million from 4.21 million the prior year.  America’s aging population is undoubtedly weighing on the overall marriage rate, so it’s somewhat comforting to see a small rise in total marriages (see Chart 5).  Also, the sheer number of Americans getting divorced increased in 2012 for a third consecutive year.  Though troublesome from a societal standpoint, from an economic perspective this indicates that perhaps the economy has recovered sufficiently enough for warring spouses to finally be comfortable going their separate ways.


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Morgan Stanley Warns Of “Real Pain” If Chinese Currency Keeps Devaluing

The seemingly incessant strengthening trend of the Chinese Yuan (much as with the seemingly inexorable rise of US equities or home prices) has encouraged huge amounts of structured products to be created over the past few years enabling traders to position for more of the same in increasingly levered ways. That was all going great until the last few weeks which has seen China enter the currency wars (as we explained here). The problem, among many facing China, is that these structured products will face major losses and as Morgan Stanley warns "real pain will come if CNY stays above these levels," leading to further capital withdrawal, illiquidity, and a potential vicious circle as it appears the PBOC is trying to break the virtuous carry trade that has fueled so much of its bubble economy.

Deutsche Bank notes that Chinese equities yesterday hit 1 month lows and are 65% off the all time highs. There's a mix of reasons but one of the biggest stories of the past week or so has been the depreciation of the Chinese currency, both onshore where USDCNY is up 1.0% over the past week and offshore where USDCNH is up 1.25%.

Whilst these moves may not seem large in the context of other EM currencies, they are significant compared to the usual size of Renminbi moves.

As we noted here,  Deutsche adds that whilst there has been some weak Chinese data which might explain part of the depreciation, the broad feeling is that this move has been driven by efforts by the PBOC to shakeout the large long Renminbi carry trade that has been built on the back of the view that the Chinese currency can only appreciate in value.

Indeed worries at the PBOC may have been triggered by one sign of this carry trade in action – the premium with which offshore USDCNH has been trading over the tightly controlled onshore USDCNY value over the course of 2014. This premium has now largely disappeared.

The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn. The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications.

Morgan Stanley believes that one such carry-trade structured product that will be the "pressure point" for this – should the Yuan continue to depreciate – is the Target Redemption Forward (TRF) which has a payoff that looks as follows…

While this is just an example of a product payoff matrix to the holder, the broader point is that the USD/CNH market has a particular level (or range of potential levels) at which three factors can create non-linear price action. These are:


1. Losses on TRF products will (on average) crystallize if USD/CNH goes above a certain level. This has implications for holders of TRF products, who are mostly corporates;


2. The hedging needs of writers of TRF products (banks) mean that there is a point of maximum vega for banks in USD/CNH. Below this level banks need to sell USD/CNH vol; above this level banks need to buy USD/CNH vol;


3. The delta-hedging needs of banks are complex. As we approach the average strike (the 6.15 in the theoretical point of Exhibit 1), banks need to buy spot USD/CNH. Above this point but below the European Knock-in (EKI) (i.e., between 6.15 and 6.20 in Exhibit 1), banks need to sell spot. Then above the EKI, banks don’t need to do anything in spot.

From internal Morgan Stanley data, we estimate that the point of maximum vega is somewhere in the range of 6.15-6.20, and that the 6.15-6.20 in Exhibit 1 is reasonably indicative of the average strikes and EKIs in the market.


In other words, so long as the TRF products remain in place (i.e., are not closed out) and we remain below the maximum vega point (somewhere between 6.15 and 6.20), there is natural selling pressure by banks in USD/CNH vol. When we get above that level, there is natural vol buying pressure.



Of course, in the scenario that USD/CNH keeps trading higher and goes above the average EKI level, the removal of spot selling flow by banks and the need to buy vol means the topside move may accelerate.

Simply put, if the CNY keeps going (whether by PBOC hand or a break of the virtuous cycle above), then things get ugly fast…

How Much Is at Stake?
In their previous note, MS estimated that US$350 billion of TRF have been sold since the beginning of 2013. When we dig deeper, we think it is reasonable to assume that most of what was sold in 2013 has been knocked out (at the lower knock-outs), given the price action seen in 2013.

Given that, and given what business we’ve done in 2014 calendar year to date, we think a reasonable estimate is that US$150 billion of product remains.

Taking that as a base case, we can then estimate the size of potential losses to holders of these products if USD/CNH keeps trading higher.


In round numbers, we estimate that for every 0.1 move in USD/CNH above the average EKI (which we have assumed here is 6.20), corporates will lose US$200 million a month. The real pain comes if USD/CNH stays above this level, as these losses will accrue every month until the contract expires. Given contracts are 24 months in tenor, this implies around US$4.8 billion in total losses for every 0.1 above the average EKI.

Deutsche Bank concludes…

Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch…

As Morgan Stanley warns however, this has much broader implications for China

The potential for US$4.8 billion in losses for every 0.1 above the average EKI could have significant implications for corporate China in its own right, as could the need to post collateral on positions even if the EKI level is not breached.


However, the real concern for corporate China is linked to broader credit issues. On that, it’s worth reiterating that the corporate sector in China is the most leveraged in the world. Further loss due to structured products would add further stress to corporates and potentially some of those might get funding from the shadow banking sector. Investment loss would weaken their balance sheets further and increase repayment risk of their debt.


In this regard, it would potentially cause investors to become more concerned about trust products if any of these corporates get involved in borrowing through trust products. In this regard, this would raise concerns among investors, given that there is already significant risk of credit defaults to happen in 2014.

Remember, as we noted previously, these potential losses are pure levered derivative losses… not some "well we are losing so let's greatly rotate this bet to US equities" which means it has a real tightening impact on both collateral and liquidity around the world… yet again, as we noted previously, it appears the PBOC is trying to break the world's most profitable and easy carry trade – which has created a massive real estate bubble in their nation (and that will have consequences).


The bottom line is the question of whether the PBOC's engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC's willingness to break their momentum spirit).

It appears, as Bloomberg notes, the PBOC is winning:

Yuan has gone from being most attractive carry trade bet in EM to worst in 2 mos as central bank efforts to weaken currency cause volatility to surge.

Yuan’s Sharpe ratio turned negative this yr as 3-mo. implied volatility in currency rose in Feb. by most since May, when Fed signaled plans to cut stimulus


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George Soros On “Sustaining Ukraine’s Breakthrough”

Authored by George Soros, originally posted at Project Syndicate,

Following a crescendo of terrifying violence, the Ukrainian uprising has had a surprisingly positive outcome. Contrary to all rational expectations, a group of citizens armed with not much more than sticks and shields made of cardboard boxes and metal garbage-can lids overwhelmed a police force firing live ammunition. There were many casualties, but the citizens prevailed. This was one of those historic moments that leave a lasting imprint on a society’s collective memory.

How could such a thing happen? Werner Heisenberg’s uncertainty principle in quantum mechanics offers a fitting metaphor. According to Heisenberg, subatomic phenomena can manifest themselves as particles or waves; similarly, human beings may alternate between behaving as individual particles or as components of a larger wave. In other words, the unpredictability of historical events like those in Ukraine has to do with an element of uncertainty in human identity.

People’s identity is made up of individual elements and elements of larger units to which they belong, and peoples’ impact on reality depends on which elements dominate their behavior. When civilians launched a suicidal attack on an armed force in Kyiv on February 20, their sense of representing “the nation” far outweighed their concern with their individual mortality. The result was to swing a deeply divided society from the verge of civil war to an unprecedented sense of unity.

Whether that unity endures will depend on how Europe responds. Ukrainians have demonstrated their allegiance to a European Union that is itself hopelessly divided, with the euro crisis pitting creditor and debtor countries against one another. That is why the EU was hopelessly outmaneuvered by Russia in the negotiations with Ukraine over an Association Agreement.

True to form, the EU under German leadership offered far too little and demanded far too much from Ukraine. Now, after the Ukrainian people’s commitment to closer ties with Europe fueled a successful popular insurrection, the EU, along with the International Monetary Fund, is putting together a multibillion-dollar rescue package to save the country from financial collapse. But that will not be sufficient to sustain the national unity that Ukraine will need in the coming years.

I established the Renaissance Foundation in Ukraine in 1990 – before the country achieved independence. The foundation did not participate in the recent uprising, but it did serve as a defender of those targeted by official repression. The foundation is now ready to support Ukrainians’ strongly felt desire to establish resilient democratic institutions (above all, an independent and professional judiciary). But Ukraine will need outside assistance that only the EU can provide: management expertise and access to markets.

In the remarkable transformation of Central Europe’s economies in the 1990’s, management expertise and market access resulted from massive investments by German and other EU-based companies, which integrated local producers into their global value chains. Ukraine, with its high-quality human capital and diversified economy, is a potentially attractive investment destination. But realizing this potential requires improving the business climate across the economy as a whole and within individual sectors – particularly by addressing the endemic corruption and weak rule of law that are deterring foreign and domestic investors alike.

In addition to encouraging foreign direct investment, the EU could provide support to train local companies’ managers and help them develop their business strategies, with service providers remunerated by equity stakes or profit-sharing. An effective way to roll out such support to a large number of companies would be to combine it with credit lines provided by commercial banks. To encourage participation, the European Bank for Reconstruction and Development (EBRD) could invest in companies alongside foreign and local investors, as it did in Central Europe.

Ukraine would thus open its domestic market to goods manufactured or assembled by European companies’ wholly- or partly-owned subsidiaries, while the EU would increase market access for Ukrainian companies and help them integrate into global markets.

I hope and trust that Europe under German leadership will rise to the occasion. I have been arguing for several years that Germany should accept the responsibilities and liabilities of its dominant position in Europe. Today, Ukraine needs a modern-day equivalent of the Marshall Plan, by which the United States helped to reconstruct Europe after World War II. Germany ought to play the same role today as the US did then.

I must, however, end with a word of caution. The Marshall Plan did not include the Soviet bloc, thereby reinforcing the Cold War division of Europe. A replay of the Cold War would cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them. Ukraine depends on Russian gas, and it needs access to European markets for its products; it must have good relations with both sides.

Here, too, Germany should take the lead. Chancellor Angela Merkel must reach out to President Vladimir Putin to ensure that Russia is a partner, not an opponent, in the Ukrainian renaissance.


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The Ups and Downs of the Stock Exchange

How the volatility of the market can be seen every day! Yesterday, the London financiers were out there celebrating on their 14-year high and backing that the ‘only way was up’. Then today they woke up too late after hitting the bottle too much and now that high has dropped as China’s economy is causing greater concerns for the rest of the financial world.

How things change in the space of just a few hours. Nothing is constant and nothing lasts forever. But a rose by any other name still smells of the same thing and here it is pretty much of a stench. People might be harping on about the bankruptcy imminently to be announced by Mt. Gox and the collapse of the Bitcoin Foundation just over the horizon, but aren’t the financial markets doing the self-same thing and just virtually inflating their own markets?

Yesterday shares around the world reached highs amidst a succession of mergers. The FTSE 100 hadn’t been that high since 2000. But, it was only analysts that stood back and calmly stated that there needed to be supporting arguments to believe that the economy was out of the dark ages and into brighter times. They were right today and it was only false hopes and wishing that pushed the markets higher yesterday.

• It was all virally emanating from Wall Street which saw the S&P 500 hit an all-time high, closing up 0.62% at 1847. 
• The Dow Jones Industrial Average increased to 16207, up 0.6%.
• The NASDAQ rose 0.69% to 4292. 
• The FTSE 100 closed at 6865, with an increase of 28 points.
• That’s just 70 points short of the dotcom days of 1999 when the old year went out with a bang.
• Investors around the world are confident (perhaps overly so, as usual) and the Facebook purchase of WhatsApp has something to do with that buoyancy. 
• But balls eventually stop bouncing when there’s no momentum left. 
• There was also talk of the merger going on between Dixons and Carphone Warehouse in the UK that had some effect on investor confidence.
• Although you only have to look at Consumer confidence to get some of the picture. 
• The figures released today show that they are lower than expected and stand at 78.1, rather than the estimated 80. 
• What exactly do consumers have to be confident about?

As usual the market was not showing the reality of the economic situation and we have been hearing of over-pricing in the market for weeks and even months now. But, some in the UK are expecting the FTSE to go beyond the 7000-mark in the next few months. Europe was doing much the same thing and was riding on the crest of that wave too.

• The DAX increased by 0.5% yesterday by close and Spain saw a 1.2%-rise. 
• But, on opening today the Dow Jones Industrial Average had already lost 52 points to 16154, or 0.3%. 
• The S&P 500 also dropped 1.8% or 0.1% to 1845. Where did all the confidence go?

Have the investors suddenly woken up to the fact that it’s all based upon nothing? The highs that we are experiencing are nothing more than fabricated evidence and that it’s pointless throwing money out of the windows and let alone a helicopter unless the economy is really stabilized.

France has just announced that it will miss its deficit target set for 2015 (3.9%). 
• So will Spain (6.5%). 
• That will mean more budget cuts in the future. 
• The forecasts just released on growth by the European Commission say that GDP will grow by 1.2% in 2014, rising to 1.8% by next year for the EU.
Cyprus will suffer a worse contraction than economists had forecast for this year, down by -4.8%.
Inflation has also been lowered from 1.5% to just 1%.

The FTSE 100 dropped this morning by 61 points, or 0.9% to 6804 by mid-day today. Now it is down 0.41% at 6810 at 15.45 GMT. So is it going to reach the 7000-mark and break the records? It was the Shanghai Composite that dampened the confidence of the investors this morning as it recorded its biggest decrease for the past half year, down by 2%.

• The Shanghai Composite fell because there was an unexpected slowdown in house-price growth according to figures released yesterday. 
• The housing bubble has been in the spotlight for the past few months now and there is a prediction that it is getting closer. 
• Banks are also slowing down on their lending and the government is placing a tighter control on credit.

The London Stock Exchange is like a bipolar sufferer going from one extreme to another, constantly on the medication. We are just watching them go through their elevated agitated mood of euphoria, mania. The bout of extreme depression will follow, impairing not their but our ability to function in daily life.

That’s the good thing about their disorder. They get the euphoric partying stage and we end up with the depression.

Originally posted: The Ups and Downs of the Stock Exchange



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Russia Responds To US Warning: Expands Military Presence Globally

Shortly after the US warned Russia over its "provocative actions" with regard Ukraine…


RiaNovosti reports defense minister Sergei Shoigu saying Russia plans "to expand permanent military presence outside its borders by placing military bases in a number of foreign countries," including Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, and Singapore. "The talks are under way, and we are close to signing the relevant documents," Shoigu told reporters in Moscow.

Via RiaNovosti,

Russia is planning to expand its permanent military presence outside its borders by placing military bases in a number of foreign countries, Defense Minister Sergei Shoigu said Wednesday.


Shoigu said the list includes Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, Singapore and several other countries.


The talks are under way, and we are close to signing the relevant documents,” Shoigu told reporters in Moscow.


The minister added that the negotiations cover not only military bases but also visits to ports in such countries on favorable conditions as well as the opening of refueling sites for Russian strategic bombers on patrol.


Moscow currently has only one naval base outside the former Soviet Union – in Tartus, Syria, but the fate of this naval facility is uncertain because of the ongoing civil war in that country.


Post-Soviet Russia closed a large naval base in Vietnam and a radar base in Cuba in 2002 due to financial constraints.


However, Russia has started reviving its navy and strategic aviation since mid-2000s, seeing them as a tool to project the Russian image abroad and to protect its national interests around the globe.


Now, Moscow needs to place such military assets in strategically important regions of the world to make them work effectively toward the goal of expanding Russia’s global influence.


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Clearing Billions in Profit Is About To Get Much Harder

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The math of netting $1 billion is daunting.

The mainstream financial media nearly wet its collective pants with excitement in reporting that the planet's corporations paid $1 trillion in dividends in 2013. What they didn't report is that clearing billions in profit is about to get much harder.

As a refresher, let's look at what it takes to net $1 billion in net profit.

You sell 10 products or services that each yield $100 million in net profit. There aren't too many such products or services. Aircraft carriers come to mind, but there are fewer than 40 active-duty carriers in the world. A semiconductor fabrication plant that costs $1+ billion might yield $100 million in net profit for its vendors, but there aren't many $1+ billion fabs around.

You sell 100 products or services that each yield $10 million in net profit. Examples include large airliners, power plants, etc.

You sell 1,000 products or services that each yield $1 million in net profit.

You sell 10,000 products or services that each yield $100,000 in net profit.

You sell 100,000 products or services that each yield $10,000 in net profit.

You sell 1,000,000 products or services that each yield $1,000 in net profit.

You sell 10,000,000 products or services that each yield $100 in net profit.

You sell 100,000,000 products or services that each yield $10 in net profit.

You sell 1,000,000,000 products or services that each yield $1 in net profit.

Let's consider a well-known example of a highly profitable company: Apple. Back in the good old days, when Macintosh computers were scarce and highly desirable, Apple famously netted $1,000 per computer in profit. (Please adjust for inflation to dial in the time-frame.)

So Apple had to sell 1 million Macs to net $1 billion.

Margins have dropped considerably as competition increased and the cost of components dropped. Can any company net $1,000 nowadays on a personal computer? It seems unlikely, as technology works to lower costs and increase supply, reducing margins.

Let's say Apple nets $100 per iPhone and iPad. If so, Apple has to sell 10,000,000 of these devices to net $1 billion.

But since low-cost Android phones and tablets can be had in China for $50 each wholesale, manufacturers without the cache of the Apple brand and features have to sell 100,000,000 such low-cost phones and tablets at $10 net profit each to net $1 billion.

At the consumer-products level, companies selling shampoo, diapers, etc. have to sell 1 billion items that each net $1 to reap $1 billion in net profit.

As the costs of production and the demand both decline, profits plummet along with prices and sales. Apple looks ahead and sees a market for smart phones and tablets that is increasingly saturated in advanced economies (i.e. everyone who wanted one has already bought one, and the market for replacements is not a high-growth scenario) and increasingly competitive in emerging markets (i.e. consumers might desire an Apple product but are unable to afford one, so they buy a $50 device instead).

Thus it is not entirely surprising that Apple is looking far afield for new opportunities to reap high margins and profits: Apple exploring cars, medical devices to reignite growth (S.F. Chronicle, subscription required)

Such a buying spree has ignited fierce speculation in tech circles and on Wall Street about Apple's future ambitions, especially as smartphone and tablet sales start to slow. Most of that speculation has centered on wearable technology or perhaps a souped-up upgrade of Apple TV.But Apple is thinking bigger. Much bigger.

A source tells The Chronicle that Perica met with Tesla CEO Elon Musk in Cupertino last spring around the same time analysts suggested Apple acquire the electric car giant.

The newspaper has also learned that Apple is heavily exploring medical devices, specifically sensor technology that can help predict heart attacks. Led by Tomlinson Holman, a renowned audio engineer who invented THX and 10.2 surround sound, Apple is exploring ways to predict heart attacks by studying the sound blood makes at it flows through arteries.

Taken together, Apple's potential forays into automobiles and medical devices, two industries worlds away from consumer electronics, underscore the company's deep desire to move away from iPhones and iPads and take big risks.

Allow me to state the obvious: Apple is grasping at straws in its search for new ways to net $1 billion. Electric autos are a small but growing market, but Mr. Musk appears to be doing quite well on his own at Tesla and has little incentive to cut anyone else into the deal.

High-cost medical devices depend on the tottering sickcare system for payment, and if the Affordable Care Act (ACA) has indeed provided the final destabilizing push over the cliff, counting on the gummit to pay full price for millions of costly devices/tests may not be a sure bet any more.

The math of netting $1 billion is daunting. You have to sell a million products or services that net $1,000 each to clear $1 billion. Say the battery pack on an electric car costs $12,000 now. It's certainly possible to net $1,000 on each pack at that price. But you have to sell 1 million packs a year to net $1 billion. Since electric autos are selling in the thousands, not millions, it will be a long time before anyone can sell 1 million battery packs a year.

As the price of batteries declines, it will become more difficult to net $1,000 per pack. By the time the price has declined to the point that someone can sell 1 million packs a year, the net profit per pack might be $100 rather than $1,000.

Here's the macro picture: China and the emerging markets are slowing as various credit bubbles pop, meaning the profits from moving commodities to Asia will plummet. The developed world is also depending on credit bubbles and the one-time consumption of seed corn (capital/equity) for its anemic expansion. Eating Our Seed Corn: How Much of our "Growth" Is From One-Time Cashouts? (February 25, 2014)

The point is this: technology lowers margins, and credit bubbles inevitably pop. Any company or nation that depends on maintaining high margins in credit-bubble-based "growth" is about to find that it's much harder to net $1 billion, much less $1 trillion.


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Bloggers Beware; Government-Criticizing Chinese Newspaper Editor Hacked With Cleaver

Kevin Lau, the 49-year-old former editor of the respected Ming Pao newspaper (who was unexpectedly replaced last month by journalist with no experience) following his reporting on human rights abuses in China is in critical condition after being attacked with a meat-cleaver. As The Daily Mail reports, slashed three times by a man in a crash helmet in a residential neighbourhood who then fled on a motorbike, police said. His sudden dismissal sparked protests across the city over freedom of the press as the move raised fears among journalists that the newspaper's owners were moving to curb aggressive reporting on human rights and corruption in China. It appears, given this attack, they were right.


Via The Daily Mail,

The former editor of a Hong Kong newspaper is in critical condition after being attacked with a meat clever earlier today.

Kevin Lau was slashed three times by a man in a crash helmet in a residential neighbourhood who then fled on a motorbike, police said.

Lau was hospitalised in critical condition with slashes in his back and legs, said Kwan King-pan, acting superintendent of Hong Kong Police.

Police are searching for two men in connection with the attack.

'One of them alighted from the motorcycle and used a chopper to attack the victim,' police spokesman Simon Kwan told reporters.

'He suffered three wounds, one in his back and two in his legs,' Mr Kwan said, adding that the back wound was deep.

Police did not announce any motive for the attack and appealed to the public for information. 

Lau was replaced last month after criticising the Chinese government over human right's abuses

Lau, 49, was named editor of the respected Ming Pao newspaper in 2012 but was replaced last month by a Malaysian journalist with no local experience.

Lau was transferred to the parent company's electronic publishing unit.

The move raised fears among journalists that the newspaper's owners were moving to curb aggressive reporting on human rights and corruption in China.

His sudden dismissal sparked protests across the city over freedom of the press.

The Hong Kong Journalists Association said it was shocked and angered by the attack, calling it a 'serious provocation to Hong Kong press freedom.'

Speaking outside hospital, Hong Kong leader Leung Chun-ying said: 'We strongly condemn this savage act.'

Freedom of speech and the press is a growing concern in the semi-autonomous Chinese city, where such rights are guaranteed by its mini-constitution.

On Sunday, thousands of people took to the streets to protest Lau's dismissal, the ousting of an outspoken radio host, and reports that Beijing-backed businesses were pulling ads from some newspapers over editorial stances.


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Harvard Supercomputer “Abused” To Mine Dogecoin

Harvard’s Research Computing department’s 14,000-core supercomputer “Odyssey” has been moonlighting as a virtual currency miner. As The Register reports, a Harvard student has had their access credentials revoked after the discovery that the Odyssey cluster had been scheduled for use in a Dogecoin mining operation. Harvard is not happy: “Any participation in ‘Klondike’ style digital mining operations or contests for profit requiring Harvard owned assets to examine digital currency key strength and length are strictly prohibited for fairly obvious reasons.”

That someone would seek to employ a supercomputer cluster in a mining operation is hardly a surprise, given the current market for Bitcoin and the various altcoin formats.

As The Crimson reports,

A “dogecoin” (bitcoin derivative) mining operation had been set up on the Odyssey cluster consuming significant resources in order to participate in a mining contest,” wrote Assistant Dean for Research Computing James A. Cuff, in an email to the FAS Research Computing Users Group last Friday.

Cuff went on to write that research computing resources cannot be used for “personal or private gain or any non-research related activity.” He wrote that the person involved in the mining operation no longer has access to “any and all research computing facilities on a fully permanent basis.”

The Odyssey cluster is a bunch of computers networked together in a way that allows fast data transfer between processors. Although each individual processor isn’t much more powerful than your personal laptop, having many processors together can be a huge benefit when doing scientific computing,”

Or mining virtual currencies…


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The Ominous Message in 200 Years of Global Public Finances

Submitted by F.F.Wiley via Cyniconomics blog,

After our recent article showing the history of non-defense budget balances for large, developed countries, some readers wondered how our results might change with defense spending included.

Here’s a new chart showing total budget balances:


fiscal balance with defense

As in the first chart, we started in 1816 with four countries (the U.S., U.K., France and Netherlands) and then added seven more at different points in time, while weighting each country by its GDP. (Click here for data sources and more details.)

New chart, same story

The message is basically the same, regardless of whether you isolate non-defense budget balances as in the earlier chart or look at total balances as above.

That is, current fiscal risks are unlike any the world has ever seen.

Echoing our thoughts from the earlier post:

The [growing deficits of the past 50 years] suggest that we’ve never been in a predicament comparable to today. Essentially, the world’s developed countries are following the same path that’s failed, time and again, in chronically insolvent nations of the developing world.

Look at it this way: the chart shows that we’ve turned the economic development process inside out. Ideally, advanced economies would stick to the disciplined financial practices that helped make them strong between the early-19th and mid-20th centuries, while emerging economies would “catch up” by building similar track records. Instead, advanced economies are catching down and threatening to throw the entire world into the kind of recurring crisis mode to which you’re accustomed if you live in, say, Buenos Aires.

The diminishing ability of wars to explain public finances

The new chart shows more clearly how the purposes of public borrowing have evolved. In the 19th and early-20th centuries, governments borrowed mostly to fund wars. In fact, any military history is incomplete without consideration of warring nations’ access to capital. You can argue that government borrowing not only enables wars, but that the ability to borrow heavily is a major determinant of whether your army wins or loses, more important in many cases than military prowess.

(Niall Ferguson claims exactly this in his bestseller, The Ascent of Money: A Financial History of the World. Are you interested in the Napoleonic Wars, U.S. Civil War and World War 1 – three periods of significant public borrowing as shown in the chart? Ferguson links the ultimate outcomes of each of these wars to the victors’ superior access to government bond investors.)

Fast forward to today, and deficits have broken free of the costs of tanks, bombs and warplanes. Considering current public finances, it’s hard to imagine another widespread war that doesn’t lead to financial mayhem. A surge in military spending would surely end any hopes that large, developed nations won’t eventually be forced into defaults and/or wealth confiscation.

Worse still, it’s looking more and more as though we’re headed for disaster even without a future spike in military spending. The risks of a severe fiscal crisis are obvious in our earlier chart showing non-defense budget balances, and they’re just as apparent with defense spending added back in.

Bonus chart

The chart below separates budget balances into two pieces – the non-defense portion (as in the earlier post) and defense spending. We’ll add more detail in the future, including a country-by-country breakdown of the underlying data.

fiscal balance ex-defense 2


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