Month: July 2014

As we reported earlier, in what was perhaps the first official action by the jihadists with the glossy year end brochures, the newly crated ISIS Caliphate which stretches from Syria to Iraq (and which is not longer ISIS, just IS, or Islamic State) made a global call urging the Muslim proletariat to immigrate to the newly created territory in a clear example of what in the US would be called “porous” immigration policy. Judging the by the expansive proposed borders, the terrorist organization, which in the past has received occasional training and support by the US and with a penchant for cannibalism will have a while to wait before its removes all the slack from its incipient economy, more or less like the Fed.

But perhaps more curious is that the leader of the self-proclaimed al-Qaeda spin off nation, Abu Bakr al-Baghdadi, in addition to a broad religious call to arms, so to speak, also beckoned workers with a specific skillset to present themselves for duty: namely those with military, medical and managerial skills were urged to flock to the newly-declared state in an audio recording released Tuesday.

As Al Arabiya reports, the newly named “caliph” said the appeal especially applied to “judges and those who have military and managerial and service skills, and doctors and engineers in all fields.”

It goes without saying that IS is also in need to fighters (not to mention suicide bombers, although compensation arrangements there could be problematic): Baghdadi also addressed the group’s fighters, saying that “your brothers in all the world are waiting” to be rescued by them.

“Terrify the enemies of Allah and seek death in the places where you expect to find it,” he said. “Your brothers, on every piece of this earth, are waiting for you to rescue them.”

“By Allah, we will take revenge, by Allah we will take revenge, even if after a while,” Baghdadi said. “Fighters should “embrace the chance and champion Allah’s religion through jihad,” he added.

Undated file picture claims to show Abu Bakr al-Baghdadi

Furthermore, since the caliphate is now wealthier than its ideological competitor Al Qaeda ever was, it just may be the case that Europe (and/or the US) may suddenly experience a major skilled worker brain drain as the best doctors, managers and engineers rush to get paid by terrorists, with the occasional virgin thrown in as a Christmas bonus.

Perhaps ironically, the biggest question now is not whether or not IS(IS) will continue its jihad against Baghdad and seek to branch out by, say, crossing the Atlantic – that much is guaranteed – but what happens with the abovementioned Al Qaeda itself, which will hardly stand idly by and watch as it is upstaged by its formerly smaller, and far more irrelevant spin off.

According to AFP, the declaration of an Islamic caliphate in parts of Iraq and Syria is a direct challenge to Al-Qaeda and could set off a dangerous contest for the leadership of the global jihadist movement, experts say.

Paradoxically, it would be the west that suffers the most:

Desperate to retain its preeminent role, the movement behind September 11 may be driven to carry out fresh attacks on Western targets to prove it remains relevant.

 

“This competition between jihadists could be very dangerous,” said Shashank Joshi of the London-based Royal United Services Institute, warning that Al-Qaeda may look to make a “spectacular” show of force.

 

The Islamic State of Iraq and the Levant (ISIL) announced on Sunday it was establishing a caliphate in parts of Iraq and Syria where it has seized control. A form of government last seen under the Ottoman Empire, a caliphate has been a long-held dream of radical jihadists who want to impose their version of Islamic sharia law.

 

Renaming itself simply the Islamic State (IS), the group also daringly declared its chief Abu Bakr al-Baghdadi as caliph and “leader for Muslims everywhere”.

Here is where it gets interesting: Al-Qaeda can hardly ignore what is essentially a declaration of war from an upstart that has scored a string of successes, said Magnus Ranstorp, an expert on radical Islamic movements at the Swedish National Defence College.

“The competition has already started,” he said. “Al-Baghdadi already refused to pledge allegiance to (Al-Qaeda leader Ayman) al-Zawahiri and now he can say: ‘Look what we have accomplished… You are just somewhere, we don’t know where, talking on the Internet.'”

 

For a new, younger generation of radical Islamic militants, Al-Qaeda with its grey-bearded 63-year-old leader is no longer the draw it was under Osama bin Laden.

 

Believed to be holed up in the Afghanistan-Pakistan border region, Zawahiri in their eyes seems to have done little in recent years beyond issuing statements and videos.

Finally, in what could be the coup de grace in its recruitment efforts, the Islamic State is allowing its cannibal terrorists to use FaceBook and Twitter. In other words, the original Al Qaeda will have to blow up some really big and really symbolic buildings to regain its coolness factor from its much younger and much hipper Islamic State terrorist competition.

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By: Chris Tell at: http://ift.tt/146186R

Internally we have a running joke here. We talk of the “Yeti” deal. Like the Yeti, everyone has heard about the deal but few have seen it and the longer this persists the greater the doubt that the “Yeti” actually exists.

The “Yeti deal” is a deal I began work on with a good friend and adviser to Seraph.vc in the middle of last year. Our syndicate members have heard a lot about the deal but as I said, for a number of reasons it’s not come to the stage of being investable… yet. The deal involves coconuts, coconut water to be precise.

We began due diligence nearly a year ago on a particular company which shall remain anonymous, landed up restructuring their existing corporate structures, shareholders, company domicile, rebuilt their financials, and a host of other things required, in order to both fully understand the deal, as well as ensure it was suitable for both ourselves and our syndicates’ capital. Suffice to say, it has been a long, though very interesting journey.

During the course of this due diligence process, we’ve learned a heck of a lot about coconuts and our strategy to participate in this exciting space has changed materially as a result.

Coconuts are truly fascinating for a number of reasons, not least of which is the ability to price taxis in most any Southeast Asian country by asking the taxi driver what price a coconut sells for in the wet markets. There is a pretty consistent ratio between the price of a taxi trip in downtown Bangkok and that of a coconut in a Bangkok wet market. The same is true of the price of a taxi in Colombo, and what a coconut sells for in a Colombo market. Ditto Jakarta and Manila all countries which produce a lot of coconuts.

Aside from double checking if your taxi driver is screwing you by using the “coconut barometer” let’s look at the products and uses for coconuts as a preliminary.

• Water – Nutrient packed with zero fat and the same electrolyte balance as our blood plasma.
• Oil – Here is a commodity which has been globally traded for over 50 years. Increasingly used in pharmaceutical industry, coconut oil has been used to treat Alzheimers, is anti-viral, anti-fungal, anti-bacterial, anti-microbial. It’s also an incredible anti-aging supplement taken both internally, and when used topically on skin, hair, and cuticles. Studies also show that it improves metabolism significantly when taken daily. It’s also been proven to be anti-inflammatory and one of nature’s most potent burn creams. It’s also an incredible anti-aging supplement taken both internally, and when used topically on skin, hair, and cuticles. Studies also show that it improves metabolism significantly when taken daily. It’s also been proven to be anti-inflammatory and one of nature’s most potent burn creams.
• Activated carbon – Though I religiously take activated charcoal when traveling, it was only when doing research on the industry that I found that in fact the highest quality activated charcoal comes from coconuts. The activated carbon is used in water purification. You know that black stuff in your water filtration system? Yep, that’s it.
• Lauric acid – used in cosmetics and soap manufacture.
• Meat – Food. Plain and simple.
• Biodiesel
• Milk – Tom yum goong anyone?
• Fibres – Wow, there are literally a multitude of products we’ve seen in this space. Everything from making mats to mattresses, to using fibres as an alternative to plastics.
• Husks – used as fertilizers and biomass.
• Coconut sugar – Has a low glycemic index score that is roughly half that of white sugar, and tastes amazing, so it’s a positive solution for those watching sugar intake.
• Coconut flour – Gluten free and hypo-allergenic, ideal for baking, with lower in carbs than conventional flours, with the highest amount of dietary fibre (58%) of any flour (twice that of wheat flour).

We’ve long been proponents of investing in agriculture and have mentioned it many times in posts on the site and in our crash course, which provides a bit of an overview and insight into our investment thesis.

In any event, the numbers are hard to ignore, so when I think about coconuts the one thing that stands out is that with a coconut palm you’re literally growing water, food, and other resources together. In a world where water is such a scarce and valuable commodity this is particularly intriguing. Investing in water is problematic not least of which because parasites… ughh. I mean, governments can and will so easily commandeer it in times of crisis. I struggle to see them doing that with coconut plantations though nothing would surprise me anymore.

Coconuts enjoy a hot humid climate and grow in the tropics and sub tropics, which often means that many of the countries where coconuts are grown, water in fact demands a premium – clean drinking water, that is. In most of Southeast Asia, central America, South America and the Caribbean you can’t drink the water from the tap without getting violently ill. When you’re drinking the water from a coconut you never have to worry about whether its going to make you sick or not as the tree strips all impurities out.

In fact, further to the above point, while its not necessarily a marketable point, we’ve spoken with agriculture professionals, including a professor of agriculture, who claim that there exists no discernible difference between organic coconut water and non-organic. This is because the tree is so efficient in extracting impurities that the water found in the nut is identical. The soil which the palm trees are grown in shows a difference between organic and non organic but not the coconut water found in the nut.

Let’s take a look at some of the numbers involved in getting you that lovely refreshing bottle of coconut water, fresh of the shelf of your favourite supermarket:

You’ll get approximately 22 trees per rai (there are 2.5 rai to an acre). A good tree will produce 120-150 nuts a year so let’s be super conservative and work on 100 nuts a year. Each nut holds roughly 300ml. (bearing in mind the younger the nut the sweeter, and larger nuts hold more but are more sour in comparison). So each rai will produce 30,000ml x 22 or 660 litres a year. Bear in mind it’ll take about 3-4 years for a tree to reach full capacity. They grow very quickly.

Now consider that Harmless Harvest, a US based company who source their coconut water from Thailand, sell their coconut water for between US$6.49 and US$7.99 per 500ml bottle, at Whole Foods in the US, and one nut in the Bangkok wet markets goes for between 8 and 20 baht (depending on time of year). At roughly 30 baht to the USD this means 300ml sells for between US$0.26c and US$0.66c. Now their exists bottling, logistics and HPP involved so it’s not all profit but the rough cost is under US$1. Nice, huh?

With demand continuing to grow as the overall coconut water market expands, while US cities continue to experience drinking water price increases due to droughts that threaten cities like Las Vegas, it’s not difficult to imagine moving 50,000 or even 100,000 bottles of coconut each week.

Let’s put the two together now, shall we? Assuming 660 litres per rai and an end consumer price of US$13 per litre ($6,49/ 500ml bottle) we’re looking at $8,580 gross from just 22 trees on one rai of land. Now I’m not going to delve into the price/rai of agricultural land in Thailand, simply because it varies greatly depending on location, quality, etc. I will say though that if Thai farmers were receiving anywhere near this for their coconut water, let alone all the other products from a coconut, they would all be driving Maserati’s not Toyotas.

The money comes from commoditizing it and moving product from grove to grocer – the biggest spread isn’t growing the underlying nuts, but controlling the nuts from co-op onward (in our opinion). There is SIZABLE profit in coconuts – but the farmers don’t make it.

Attentive readers will understand quickly what we’re investing in, and why we’ve taken so much time to delve into this market and understand it from the inside out.

Looking beyond the coconut water, let’s take a nosy at activated carbon.

When first looking at activated carbon I was stunned!

Take a look at the prices of activated carbon being sold on Alibaba. You’ll notice it’s selling for up to US$2,000 a metric ton. Now I’ve lived in Southeast Asia for years and one thing that is extremely common is a sight such as this: 

Yeah, they’re burnt simply to get rid of them.

For the most part coconut husks are treated as a liability. In fact, the company we began due diligence on actually pays someone to come and take their husks away for them.

Now consider that activated carbon sells for up to $2,000 a ton.

This is nuts (pun intended)! My guess is that the average coconut farmer has no idea about such things as activated charcoal.

Let’s take a commodity such as zinc, for example, which requires a complicated process to bring to market. Unlike coconuts, it doesn’t just grow on trees on the side of the road. First, an ore body needs to be identified, geological surveys conducted, a mine built and then the zinc needs to be crushed to powder, treated by froth flotation which is a process involving about 50% zinc and the remainder being sulphur, iron and silicon dioxide. Then with roasting the zinc in this concentrate it becomes zinc oxide. This crude zinc oxide is then turned into a metal using thermal smelting or eloctrolytic refining.

I haven’t even mentioned the costs associated with building the infrastructure so often required to extract zinc, as its not typical for ore bodies to be found conveniently next to railroad tracks, barges, or highways. Then there are the environmental impact assessment reports and the like involved in ultimately getting to our US$2,180 per tonne, price point which is what it is what it currently sells for on the LME.

The one thing that I absolutely love about my work is that what I inevitably start investigating so often involves opening up doors of opportunity and knowledge I had yet to identify existed. It’s enough to make anyone feel alive and like a child again.

At our upcoming Seraph Aspen Meet Up we’ll be covering the company we, together with our members, will be investing in very shortly targeting the coconut water market. The management team, together with many of our portfolio companies, will be meeting with us for a private and intimate meet in a stunning Aspen resort.

If you’ve ever wanted to build your own private equity hedge fund this private meet up provides an excellent opportunity to look into what we’re all about.

– Chris

 

“Eat coconuts while you have teeth.” – Singhalese proverb

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When the price of everything is rising, there’s nothing more important that knowing the cheapest (and most expensive) places in the world to get a drink…

 

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Submitted by Jo Salerno via Mises Economic blog,

Forbes’ columnist John Tamny executes an inspired and wonderfully savage critique of GMU economist Tyler Cowen’s dotty blog post touting the positive effects of war on economic growth.  Tamny takes his cue from Henry Hazlitt and writes in plain and muscular language.

“Economics is haunted by more fallacies than any other study known to man.” – Henry Hazlitt, Economics In One Lesson, p. 15

 

The great Henry Hazlitt’s wise words came to mind while reading a recent New York Times post by George Mason economist Tyler Cowen. Fresh off of his unfortunate assertion (one that Hazlitt would have had a field day with) from a few years ago that economic growth has become difficult to achieve, Cowen strangely observed that “The world just hasn’t had that much warfare lately, at least not by historical standards,” and “Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely.”

 

They’re ultimately only words, but Cowen’s about war theoretically boosting animal spirits are pretty disturbing ones, and that’s truly saying something when we consider past mutterings from the economics professor about a supposed lack of “low-hanging fruit” rendering future growth a distant object.

Here is a juicy sampler that should whet your appetite for the full meal:

[T]o clarify Cowen’s views to readers, he writes that “the very possibility of war focuses the attention of governments on getting some basic decisions right – whether investing in science or simply liberalizing the economy.” His first example is laughable, and his second easily disprovable.

 

Government spending on science presumes that politicians can better allocate capital than can private actors operating under market discipline. To believe what Cowen is offering up, the lack of a war threat today is depriving Harry Reid, Mitch McConnell, Nancy Pelosi and John Boehner of the opportunity to expertly invest the money of others in the killing machines of the future; the knowledge gained from those investments eventually migrating to commercial ideas that would boost growth. You can’t make this up. Cowen is serious.

 

As for the notion that countries somehow need the threat of war to achieve great scientific advances, or better yet, liberalize their economies, apparently Switzerland, Hong Kong, and New Zealand (among many others) didn’t get Cowen’s comical memo. With all three, no credible voice in modern times has argued that either faced war or imminent attack that would have “focused” the attention of their politicians on the way to economy-boosting liberalization, or, if Cowen is to be believed, political advancement of “technological invention” and greater “internal social order” supposedly needed for major expansion.

 

Indeed, what all three remind us, and it’s something seemingly lost on Cowen, is that economic growth is really very simple. We all have myriad wants and needs, our production is our demand, so when governments remove the barriers to production, the individuals who comprise any economy tend to thrive.

 

Thinking about the U.S. economy with the latter in mind, our economy is presently limp not because we lack some national, war-mongering purpose (apparently Cowen forgot all the national initiatives of the 20th century that robbed the world of well over 100 million people), but precisely because our political class has violated the four basics (taxes, regulation, trade, and money) to economic growth.

Read Tamny's full 'attack' here

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He may be “richer than you”, but when it comes to cancer we are all the same. Moments ago, Dow Jones and Bloomberg broke news that JPMorgan CEO Jamie Dimon has been diagnosed with throat cancer.

•  J.P. Morgan JPM Chairman, CEO Jamie Dimon Tells Employees, Shareholders He Has Been Diagnosed With Throat Cancer, Condition Curable
• Dimon Says Prognosis “Excellent,” Cancer “Caught Quickly”
• Dimon Says Cancer Confined, No Evidence Elsewhere
• Dimon to start Radiation and Chemotherapy Treatment
• Dimon advised able to continue to be actively involved in the business

And now the best healthcare that money can buy will be promptly put to use. We wish him a speedy recovery as it would be far more equitable for the JPM CEO to answer for his actions in full health before a jury of his peers, where guilt can not be “admitted or denied” away.

Full Dimon email

Message from Jamie Dimon to all colleagues and shareholders

Subject line: Sharing some personal news

Dear Colleagues and Shareholders –

I wanted to let you know that I have just been diagnosed with throat cancer. The good news is that the prognosis from my doctors is excellent, the cancer was caught quickly, and my condition is curable. Following thorough tests that included a CAT scan, PET scan and a biopsy, the cancer is confined to the original site and the adjacent lymph nodes on the right side of my neck. Importantly, there is no evidence of cancer elsewhere in my body.

My evaluation and treatment plan are still being finalized, but at this time it appears I will begin radiation and chemotherapy treatment shortly at Memorial Sloan Kettering Hospital, which should take approximately eight weeks. While the treatment will curtail my travel during this period, I have been advised that I will be able to continue to be actively involved in our business, and we will continue to run the company as normal. Our Board has been fully briefed and is totally supportive.

As you all know, we have outstanding leaders across our businesses and functions – the best team I’ve ever had the privilege of working with – so our company will move forward together with confidence as we continue to deliver first-class results for our customers, communities and shareholders.

I feel very good now and will let all of you know if my health situation changes.

I appreciate your support and want to thank our employees for the amazing work they do day-in and day-out. I’m very proud to be part of this company and honored to be working with such an exceptional group of people.

Jamie

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This shortened week is dominated by a veritable explosion of critical jobs market data on Thursday. As Citi's Steven Englander notes, there are five key US labor indicators – two of which will be initial asset market drivers: Citi expects disappointment; and three more that will give signals more relevant to the medium term evolution of asset markets and Citi think will give a more positive signal.

 

Via Citi's Steven Englander,

Below we look at five key US labor market data to be released Thursday, July 3 at 8:30AM.

Starting from the standard to the less followed:

1)      NFP —  median 215k, Citi 190k. Of 59 published forecasts 52 are in a 190-230k range, so the consensus range is tight again. The skew is to the upside, but right now the strongest support for the USD comes from the labor market, so a 190k disappointment will likely push bond yields down more than a 230k will push them up

2)      UR/labor force – consensus flat at 6.3% but most 20 of 56 forecasters see 6.2%, suggesting pessimism on labor force participation. Two sided risk here because further decline in UR brings even doves closer to full employment (although they may argue that full employment is lower than 5 ¼- 5 ½% ). Pop to 6.4% will support Fed Chair Yellen view that there is a reserve army of workers available.  Participation rates show no sign of rising (Figure 1). Best outcome for bonds and equities, worst for USD, is UR moving up on participation rates gains.

3)      Average hourly earnings – we like to look at production workers because production workers wages are better measured, they are 80% of all private sector employees and their wages are roughly half of the remaining 20% (so they qualify as working class). It is likely that total AHE will pull back on a y/y basis because of base effects, but these base effects are less visible in production worker wages so it is possible that these could accelerate to 2.5% y/y, which would be the highest since 2010.

4)      Construction worker hires – there has been a lot of volatility in construction hires and a weak December will be dropping out of the six-month average. Were hires to be around 25k we would be close to the 2013 cyclical high in construction, suggesting that construction is back on track.

5)      Hospital employment

This is what made Q1 look dreadful. We already see a bounce in hospital employment in April and May. It is hard to see why hospitals would be hiring if demand is as dreadful as BEA assumptions make out. Another month of gains and it will become likely that the Q4 spike/Q1dive were the aberrations.

*  *  *

1) and 2) will be the initial asset market drivers and Citi economists lean to a modest disappointment on headline NFP.

By contrast, 3), 4) and 5) will give signals more relevant to the medium term evolution of asset markets and we think will give a more positive USD signal.

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