Month: May 2016

We have tracked the problems of recently junked Noble Group – Asia’s largest commodity trader – extensively over the past year (see “Noble Group’s Kurtosis Awakening Moment For The Commodity Markets“, “Junk Isn’t Very Noble: Asia’s Largest Commodity Trader Responds To Moody’s Downgrade“, “Noble Group’s Cliffhanger“, “Noble Group’s “Collateral Margin Call“, “Noble Group’s “Margin Call” Part II: The Enron Moment“).

And then moments ago things finally turned serious for the company, which just a few weeks ago finalized a $3 billion credit facility in what according to some was an “all clear” moment. Apparently the only clarity was for long-time company CEO, and former Goldmanite Yusuf Alireza, that the time has come to exit stage left.

As the company announced moments ago on the Singapore stock exchange, not only is CEO Alireza resigning, to be replaced by William Randall and Jeff Frase as co-CEOs, but the company will also begin the sale process of its Noble Americas Energy Solutions, a deal that will generate “significant cash proceeds”, which is great since Nobel is desperately in need of cash; it also means that the company is losing one more of its star performing assets as it continues to asset strip itself of any potential future growth, and is merely scrambling to preserve solvency and liquidity.

Randall, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Frase, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

From the press release:

The Directors of Noble Group announce that they have accepted the resignation of Yusuf Alireza, Chief Executive Officer.

 

Mr. Alireza has helped guide Noble through a very challenging period, moving the company to an asset light, merchant focused model; he played a pivotal role in the successful sale of Noble Agri to a group of investors led by COFCO, and has also been instrumental in securing the recently announced re-financing, a crucial element in the process of giving the group a stable base from which to develop.

 

With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on. The Board wishes to thank Mr. Alireza for his dedication and commitment to the company over the last four years, and in particular for his huge commitment of time and energy over the past eighteen months, as Noble has navigated some of the most difficult market conditions ever seen in commodities markets.

 

The Board looks forward to working with Yusuf in the future should the opportunity arise.

 

A separate announcement will be made about succession to Mr. Alireza

And in a separate press release the company announced Alireza’s replacements, as well as the major corporate overhaul noted above:

The Board of Directors of Noble Group wishes to announce the appointment of Mr. William Randall and Mr. Jeff Frase as Co Chief Executive Officers. Will, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Jeff, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

 

In addition, the Board also confirmed today that Mr. Richard Elman will continue in his role as Chairman and Executive Director.

Richard Elman commented “I am delighted that Will and Jeff will be leading Noble Group’s operations as we embark on the Company’s next chapter. Their complementary commodities expertise and geographical focus will be hugely valuable as we position ourselves for the future.” 

 

Will, having begun his career with Noble in Australia in February 1997, established Noble’s coal operations, mining and supply chain management businesses. He also served as a Director of Noble Energy Inc. prior to being appointed Global Head of Coal and Coke in 2006, and a member of the Noble Group internal Management Committee Board in 2008. He was appointed an Executive Director and Head of Hard Commodities in 2012, prior to which he had been Head of Energy Coal and Carbon Complex. He holds a Bachelor degree in Business from the Australian Catholic University majoring in international marketing and finance.

 

Jeff is based in Stamford, Connecticut and is currently President, Noble Americas and Head of Oil Liquids.

 

Jeff joined the Group from JP Morgan in New York where he was Managing Director and Global Head of Oil Trading. Prior to JP Morgan he spent 17 years at Goldman Sachs where he was a Managing Director and Global Head of Crude Oil and Derivatives Trading.

 

The Board expects to announce some further additional leadership appointments in due course as the business developments dictate.

 

In addition, the Board wishes to announce that it will shortly be starting the sale process for Noble Americas Energy Solutions, a transaction which is expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet. This is in addition to fund raising initiative previously announced. Full details will be released in the near future.

For a rather gloomy, pessimistic, and in light of this latest news, justified, take on how the Noble Group saga ends, please read the following note “The Big N, its Bankruptcy Risk and its Circularity with the Energy Commodity Prices.”

via http://ift.tt/24fEHJ6 Tyler Durden

There once was a time (at least in banished Austrian economic circles) when low market interest rates signaled to entrepreneurs a positive environment in which to make investments in order to grow or create new product. That indicator has long since been broken as central banks muddy the waters and arbitrarily move interest rates wherever they feel 'optimal', including corporate bond rates.

The textbook intent of NIRP and ZIRP is to incentivize the banks to make loans and increase credit demand by making rates more attractive; however the central banks have not been able to do that, and the central planners now don't know what to do (aside from the inevitable helicopter money path of course) in a debt-saturated world.

As evidence that the mechanism the central banks rely on to stimulate the economy is broken, we turn to a recent survey done by Intrum Justitia AB, which looked at whether or not negative interest rates were changing the minds of Europe's companies on investment decisions (CapEx) – the answer is a resounding no.

 

84 percent of the 9,440 companies surveyed in 2016 said that low rates haven't affected their willingness to invest, up from 73 percent just last year. In other words, not only are artificially low rates not spurring businesses to invest earlier than originally planned, companies aren't even considering it anymore.

 

Intrum CEO Mikael Ericson said "Evidently, the strategy of keeping interest rates low for more than a year has not created the much sought-after stability. A calculation of an investment includes assumptions of the future. To get the calculation to go together those assumptions need to include a belief in stability and prosperity in the future. Perhaps the negative interest rates do not signal that stability at all, rather that we are still in an extraordinary situation."

With nearly $10 trillion in debt trading at negative yields, it is safe to say we are still in an extraordinary situation. More importantly, the key takeaway here (other than another central planning failure) is that despite an extremely low cost of capital, companies still have no projects worth undertaking that make capital investments attractive – that should be what concerns everyone.

via http://ift.tt/1Vp3RVa Tyler Durden

Authored by Paul Craig Roberts,

As Our Past Wars Are Glorified This Memorial Day Weekend, Give Some Thought To Our Prospects Against The Russians And Chinese In World War III

The Saker reports that Russia is preparing for World War III, not because Russia intends to initiate aggression but because Russia is alarmed by the hubris and arrogance of the West, by the demonization of Russia, by provocative military actions by the West, by American interference in the Russian province of Chechnya and in former Russian provinces of Ukraine and Georgia, and by the absence of any restraint from Western Europe on Washington’s ability to foment war.

Like Steven Starr, Stephen Cohen, myself, and a small number of others, the Saker understands the reckless irresponsibility of convincing Russia that the United States intends to attack her.

It is extraordinary to see the confidence that many Americans place in their military’s ability. After 15 years the US has been unable to defeat a few lightly armed Taliban, and after 13 years the situation in Iraq remains out of control. This is not very reassuring for the prospect of taking on Russia, much less the strategic alliance between Russia and China. The US could not even defeat China, a Third World country at the time, in Korea 60 years ago.

Americans need to pay attention to the fact that “their” government is a collection of crazed stupid fools likely to bring vaporization to the United States and all of Europe.

Russian weapons systems are far superior to American ones. American weapons are produced by private companies for the purpose of making vast profits. The capability of the weapons is not the main concern. There are endless cost overruns that raise the price of US weapons into outer space.

The F-35 fighter, which is less capable than the F-15 it is supposed to replace, costs between $148 million and $337 million per fighter, depending on whether it is an Air Force, Marine Corps, or Navy model. 

A helmet for a F-35 pilot costs $400,000, more than a high end Ferrari. 

(Washington forces or bribes hapless Denmark into purchasing useless and costly F-35)

It is entirely possible that the world is being led to destruction by nothing more than the greed of the US military-security complex. Delighted that the reckless and stupid Obama regime has resurrected the Cold War, thus providing a more convincing “enemy” than the hoax terrorist one, the “Russian threat” has been restored to its 20th century role of providing a justification for bleeding the American taxpayer, social services, and the US economy dry in behalf of profits for armament manufacturers.

However, this time Washington’s rhetoric accompanying the revived Cold War is far more reckless and dangerous, as are Washington’s actions, than during the real Cold War. Previous US presidents worked to defuse tensions. The Obama regime has inflated tensions with lies and reckless provocations, which makes it far more likely that the new Cold War will turn hot. If Killary gains the White House, the world is unlikely to survive her first term.

All of America’s wars except the first—the war for independence—were wars for Empire. Keep that fact in mind as you hear the Memorial Day bloviations about the brave men and women who served our country in its times of peril. The United States has never been in peril, but Washington has delivered peril to numerous other countries in its pursuit of hegemony over others.

Today for the first time in its history the US faces peril as a result of Washington’s attempts to assert hegemony over Russia and China.

Russia and China are not impressed by Washington’s arrogance, hubris, and stupidity. Moreover, these two countries are not the native American Plains Indians, who were starved into submission by the Union Army’s slaughter of the buffalo.

They are not the tired Spain of 1898 from whom Washington stole Cuba and the Philippines and called the theft a “liberation.”

They are not small Japan whose limited resources were spread over the vastness of the Pacific and Asia.

They are not Germany already defeated by the Red Army before Washington came to the war.

They are not Granada, Panama, Iraq, Libya, Somalia, or the various Latin American countries that General Smedley Butler said the US Marines made safe for “the United Fruit Company” and “some lousy bank investment.”

An insouciant American population preoccupied with selfies and delusions of military prowess, while its crazed government picks a fight with Russia and China, has no future.

via http://ift.tt/1NXuvTB Tyler Durden

Authored by Paul Craig Roberts,

As Our Past Wars Are Glorified This Memorial Day Weekend, Give Some Thought To Our Prospects Against The Russians And Chinese In World War III

The Saker reports that Russia is preparing for World War III, not because Russia intends to initiate aggression but because Russia is alarmed by the hubris and arrogance of the West, by the demonization of Russia, by provocative military actions by the West, by American interference in the Russian province of Chechnya and in former Russian provinces of Ukraine and Georgia, and by the absence of any restraint from Western Europe on Washington’s ability to foment war.

Like Steven Starr, Stephen Cohen, myself, and a small number of others, the Saker understands the reckless irresponsibility of convincing Russia that the United States intends to attack her.

It is extraordinary to see the confidence that many Americans place in their military’s ability. After 15 years the US has been unable to defeat a few lightly armed Taliban, and after 13 years the situation in Iraq remains out of control. This is not very reassuring for the prospect of taking on Russia, much less the strategic alliance between Russia and China. The US could not even defeat China, a Third World country at the time, in Korea 60 years ago.

Americans need to pay attention to the fact that “their” government is a collection of crazed stupid fools likely to bring vaporization to the United States and all of Europe.

Russian weapons systems are far superior to American ones. American weapons are produced by private companies for the purpose of making vast profits. The capability of the weapons is not the main concern. There are endless cost overruns that raise the price of US weapons into outer space.

The F-35 fighter, which is less capable than the F-15 it is supposed to replace, costs between $148 million and $337 million per fighter, depending on whether it is an Air Force, Marine Corps, or Navy model. 

A helmet for a F-35 pilot costs $400,000, more than a high end Ferrari. 

(Washington forces or bribes hapless Denmark into purchasing useless and costly F-35)

It is entirely possible that the world is being led to destruction by nothing more than the greed of the US military-security complex. Delighted that the reckless and stupid Obama regime has resurrected the Cold War, thus providing a more convincing “enemy” than the hoax terrorist one, the “Russian threat” has been restored to its 20th century role of providing a justification for bleeding the American taxpayer, social services, and the US economy dry in behalf of profits for armament manufacturers.

However, this time Washington’s rhetoric accompanying the revived Cold War is far more reckless and dangerous, as are Washington’s actions, than during the real Cold War. Previous US presidents worked to defuse tensions. The Obama regime has inflated tensions with lies and reckless provocations, which makes it far more likely that the new Cold War will turn hot. If Killary gains the White House, the world is unlikely to survive her first term.

All of America’s wars except the first—the war for independence—were wars for Empire. Keep that fact in mind as you hear the Memorial Day bloviations about the brave men and women who served our country in its times of peril. The United States has never been in peril, but Washington has delivered peril to numerous other countries in its pursuit of hegemony over others.

Today for the first time in its history the US faces peril as a result of Washington’s attempts to assert hegemony over Russia and China.

Russia and China are not impressed by Washington’s arrogance, hubris, and stupidity. Moreover, these two countries are not the native American Plains Indians, who were starved into submission by the Union Army’s slaughter of the buffalo.

They are not the tired Spain of 1898 from whom Washington stole Cuba and the Philippines and called the theft a “liberation.”

They are not small Japan whose limited resources were spread over the vastness of the Pacific and Asia.

They are not Germany already defeated by the Red Army before Washington came to the war.

They are not Granada, Panama, Iraq, Libya, Somalia, or the various Latin American countries that General Smedley Butler said the US Marines made safe for “the United Fruit Company” and “some lousy bank investment.”

An insouciant American population preoccupied with selfies and delusions of military prowess, while its crazed government picks a fight with Russia and China, has no future.

via http://ift.tt/1NXuvTB Tyler Durden

By Chris at http://ift.tt/12YmHT5

In a misguided and desperate attempt to fight the headwinds of deflation (a byproduct ofunsustainable debt which the market has been trying to unwind for the past decade), central bankers have manipulated markets with a range of tools. This ranges from a lot of preposterous jawboning to quantitative easing and slashing interest rates all the way down to levels never experienced before.

The markets’ belief in central bankers abilities to keep this particular boat afloat has never been higher. We can see this in the futures market where the market is pricing in low (and even negative) interest rates well into the sunset. If you doubt me go take a look at Euribor rates where the market still expects 3-month euro rates to be 0% some 5 years from now.One would only do this if one thought that default risk was non-existent.

As if that is not enough, central bankers themselves actually are beginning to believe their own rhetoric:

“But we are magic people. Each time we take something and give to the markets – a rabbit out of the hat.” – Vitas Vasiliauskas, ECB Governing Council member

We are clearly dealing with delusional people, and market participants are increasingly making decisions based on the absurdities uttered by these people.

Expecting the very same people who have caused so many of the problems we face today to be able to both identify and then solve those problems is like expecting my dog to be able to solve a quantum mechanics problem, cook my dinner, and restrain himself from chasing a cat. It’s just not going to happen.

While we can’t stop or change what these monetary masters of the universe have done (and will likely continue to do), we can look to profit from the global mispricing of assets – a byproduct of their actions.

The economic and political problems in Europe have seen investors turn on European banking stocks in the same way an ill treated pit bull can turn on its owner, mauling him to death.

Ask one hundred people where things are headed with European banks and you’ll likely receive an overwhelming majority telling you they’re in trouble and to stay away.

This is one of the most fearful markets in the world today.

Quite simply: European banks today are universally feared and hated. I have no doubt that some will disappear over the course of the next decade, if not sooner. But certainly much of the pessimism is baked into the proverbial cake.

Markets are forward-looking and the market is pricing in serious problems for European banks. But here’s the deal:

Things don’t actually need to get better. The worst, already priced into the market, just need NOT eventuate. 

This market is priced for the absolute worst. And while the worst may yet happen, it’s unlikely to happen to all the players.

This shouldn’t come as a surprise. Any investor who was alive during the last decade harbours a deep-seated hatred of financial institutions. First, they came near bringing down the world economy in 2008 and then they lobbied the political class to ensure they could keep the holiday home on the French Riviera. And it all worked.

Having spent the beginning of my career in the entrails of investment banks I sympathise. I can name a few people who should have been drowned at birth who inhabit the hallowed walls of these “fine” institutions.

All that aside, when a market is so unloved I’m instinctively curious. And so into the carnage we go hunting… And while parsing the entrails of financial reports we found something very interesting and we think it’s worth sharing.

Loving The Dutch

Anywhere you go in the world I can pretty much guarantee you that when meeting a Dutchman you’re likely to find them amongst the friendliest, most open, and genuine people you’ll meet. Maybe I’ve just been lucky but I’ve just found another reason to love them.

The opportunity we are investing in is ING, a Dutch banking group (ING on the NYSE or INGVF in Amsterdam).

ING, like its unusual headquarters, stands out for a number of reasons.

One of the reasons is that ING trades at 80% of tangible book value, sports a price to earnings of 9.8x, and has just increased their dividend to 7%.

This is easily one of the more compelling opportunities in the market today. It’s no surprise that it is hidden in a sector as bleak and miserable looking as European banking.

Digging deeper, we see that their capital levels are one of the highest in the industry and rising. They are also sporting strong loan volume growth and are implementing a deposit repricing rollout to further strengthen their profit margins.

Embracing Digital

To understand why ING has managed to significantly increase profitability and growing its customer base while its competitors have languished, we need to look at their cost structure. It is here that we find that, unlike its more traditional peers such as Deutsche Bank and Commerzbank, ING operates without branches.

Preferring to leverage technology, they have managed to operate and compete with a far lower cost structure and this has allowed them to achieve a 30% return on their equity.

Take a look at this slide from their 2016 investor presentation:

ING has been tarred with the brush of recent well publicised negative market events such as exposure to the energy sector and Russia. It’s common knowledge that European banks have been financiers of Russian business and so the subsequent collapse in the ruble, together with negative impact of the energy sector, has severely impacted their balance sheets.

ING’s Russian exposure is approximately 1% of their loan book so we think investors’ fears are way overdone with respect to ING.

The other well publicised market event has been the Ukraine. But ING’s Ukraine exposure amounts to 0.2% of their loan book.

And given the fact that ING’s NPL coverage ratio as of last quarter was 66% we think once again that the market is mispricing ING. Certainly two of the most publicised negative market events have brought negative views of European banks regardless of who is actually exposed.

Considering all of the above, it is not hard to see that throwing the baby out with the bathwater has provided the opportunity to buy a well run company at a nice discount.

(As a side note, I’d suggest buying ING in Amsterdam for greater liquidity.)

And while buying ING outright makes a lot of sense, this is not how we’re personally trading this.

Brad, the head trader at our Asymmetric Opportunities Fund, has prepared a detailed writeup on how exactly we’re playing this: a way to place a small amount of capital at risk and potentially achieve a 1,150% payoff.

As a subscriber of Capitalist Exploits you’ll automatically receive this tomorrow (and if not, I encourage you to sign up here). Consider it a window into how a successful hedge fund trader approaches such opportunities.

– Chris  

“People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.” – Ray Dalio, founder Bridgewater Associates

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Following the May 12 launch of “Aegis Ashore“, the operational name of Washington’s European missile defense system based in Romania, which overnight swept away the tentative European nuclear arms race balance of power as it removed a Russian “first strike threat” thereby pressuring Russia to implement further nuclear offensive and defensive measures, Putin was livid, and as we reported yesterday, during his press conference with Greek PM Tsipras, the Russian president explicitly warned Poland and Romania that they are now in Russian first-strike crosshairs, and that Russia’s most likely response would be the deployment of SS-26 nuclear-capable tactical missiles.

“If yesterday in those areas of Romania people simply did not know what it means to be in the cross-hairs, then today we will be forced to carry out certain measures to ensure our security,” Putin told a joint news conference in Athens with Greek Prime Minister Alexis Tsipras. “It will be the same case with Poland,” he said.

“We have the capability to respond. The whole world saw what our medium-range sea-based missiles are capable of [in Syria]. But we violate no agreements. And our ground-based Iskander missiles have also proven themselves as superb,” continued Putin.

But what was most troubling, was Putin’s implicit warning that should NATO continue to escalate, and push ever more troops into countries neighboring Russia, the Kremlin would be unable to prevent a likewise escalatory response: “We’ve been repeating like a mantra that we will be forced to respond… Nobody wants to hear us. Nobody wants to conduct negotiations with us.“

And then, as if on cue, NATO made it even more explicit that its primary prerogative remains to provoke Russia into an offensive move, when over the weekend the Times reported that the British military may soon start stockpiling tanks and other heavy equipment in Eastern Europe as part of NATO’s military beef up close to Russia’s border. The decision may come at the upcoming NATO summit in Warsaw in July.

Stock photo: British soldiers aboard tanks

Citing a threat to the Baltic States and Poland, the North-Atlantic alliance plans to deploy as many as 4,000 additional troops in those countries according to RT. The initial plan was for the US to provide half, with Germany and the UK shouldering the rest of the cost. However, last week the Wall Street Journal reported that Washington would only provide one 1,000-strong battalion and wanted the European members of the alliance to spend more on their own defense. To be sure, if Trump wins, NATO will be in even bigger dire straits as the real estate mogul has made it clear he wants to strip US contributions to NATO to a bare minimum, which would in turn force Europe to step up its own support of an organization whose sole purpose has always been deterring first the USSR and now Russia.

Britain’s plan, however, remains the same. It will provide an armored battle group, which usually consists of about 1,000 troops, backed by tanks and artillery, to be deployed in the Baltic, the Times reported. Britain’s other plans under consideration are to stockpile tanks and other military hardware across Eastern Europe and ramp up air defenses, the newspaper said.

As repeatedly documented on this website, Russia considers NATO’s new deployments a hostile move and says they violate the spirit of the agreement the alliance signed with Moscow in 1994. NATO pledged not to deploy ‘significant forces’ in Eastern Europe on a permanent basis. However, it has been circumventing its pledge by rotating troops, as is the case with the four planned battalions, and debating the meaning of the word ‘significant’ in the deal, which was not legally defined.

The alliance claims that its military buildup at the Russian border is needed to counter Russian aggression. It justified the stance using the Ukrainian crisis, during which its region Crimea opposed a coup-imposed government in Kiev and voted in a referendum to break up from Ukraine and rejoin Russia.

Moscow in turn, has said it used its military, which was stationed in Crimea under a treaty with Ukraine, to prevent violence during the transition period whlie accusing western powers, and especially the US State Department, of being behind the Ukraine presidential coup in early 2014. Kiev’s foreign sponsors say the move was an annexation through military force rather than an exercise in self-determination.

The three Baltic nations, which were parts of the Soviet Union, and Poland are the most vocal European proponents of escalating the tension between NATO and Russia. Hosting additional troops gives those countries a boost to their local economies, but also makes them a target for Russian military planners, who respond to the extra military presence there.

Moscow insists that it poses no military threat to any NATO member and accuses the alliance of warmongering aimed at justifying greater military spending by European nations. Meanwhile, NATO is doing the same to Russia.

Whatever the cause, neither defensive (and increasingly offensive) block is even remotely considering to pause the escalation and build up of armed forces – and soon nuclear weapons – and certainly does not want to appear weak and relent. Which means the suddenly military, and now nuclear, escalation will be a daily fact of life, just as dramatic political winds of change blow across Europe and threaten to topple an establishment that had been comfortably in power for decades.

All of which makes for a potent cocktail for rising geopolitical volatility and thus, in the centrally-planned new paranormal, new all time highs in the stock “market.”

via http://ift.tt/1sGbMSB Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Rather than measure consumption and metrics that incentivize debt, what if we measure well-being and opportunities offered in our communities?

The problems we face cannot be fixed with policy tweaks and minor reforms. Yet policy tweaks and minor reforms are all we can manage when the pie is shrinking and every vested interest is fighting to maintain their share of the pie.

Our failure stems from a much deeper problem: we optimize what we measure. If we measure the wrong things, and focus on measuring process rather than outcome, we end up with precisely what we have now: a set of perverse incentives that encourage self-destructive behaviors and policies.

The process of selecting which data is measured and recorded carries implicit assumptions with far-reaching consequences. If we measure "growth" in terms of GDP but not well-being, we lock in perverse incentives to boost 'growth" even at the cost of what really matters, i.e. well-being.

If we reward management with stock options, management has a perverse incentive to borrow money for stock buy-backs that push the share price higher, even if doing so is detrimental to the long-term health of the company.

Humans naturally optimize what is being measured and identified as important.

If students’ grades are based on attendance, attendance will be high. If doctors are told cholesterol levels are critical and the threshold of increased risk is 200, they will strive to lower their patients’ cholesterol level below 200.

If we accept that growth as measured by gross domestic product (GDP) is the measure of prosperity, politicians will pursue the goal of GDP expansion.

If rising consumption is the key component of GDP, we will be encouraged to go buy a new truck when the economy weakens, whether we need a new truck or not.

If profits are identified as the key driver of managers’ bonuses, managers will endeavor to increase net profits by whatever means are available.

The problem with choosing what to measure is that the selection can generate counterproductive or even destructive incentives.

This is the result of humanity’s highly refined skill in assessing risk and return. All creatures have been selected over the eons to recognize the potential for a windfall that doesn’t require much work to reap.

When humans were hunter-gatherers—our natural state for hundreds of thousands of years, compared to roughly 5,000 years of agriculture—those on the lookout for a calorie-rich windfall that didn’t require a lot of work ate better (and had more offspring that survived) than those who failed to reap windfalls. In the natural world, such windfalls might be a tree heavy with ripe fruit or a beehive loaded with honey.

Calories were scarce, and work burns a lot of calories, so the ideal scenario for the hunter-gatherer is a windfall that can be harvested with a minimal investment of calories/effort.

In our economy, qualifying for a positive reward without investing too much effort is a windfall. As a result, whatever is measured sets up a built-in incentive to game the system (i.e. exploit short-cuts) or cheat to qualify for the reward with the least effort possible.

So if students are graded on attendance, and attendance is measured by the students signing in at the start of class, students can get the reward of a high grade by signing in and then sneaking away.

If students are graded on submitting homework daily, some students will extract homework from other students that can be copied with less effort than actually doing the work. Those seeking a windfall might use bribes or threats or blandishments to get the free homework, as the investment required to pursue these strategies is still smaller than that needed to do the homework.

If the grades are measured by a multiple-choice exam, some students will attempt to steal the answers ahead of the exam.

Compare these relatively easy-to-game thresholds to difficult-to-game tests such as long-hand answers to randomly selected questions assigned to each individual at the start of the exam. If the answers must be composed within the test period, it is essentially impossible to learn which questions students will receive beforehand and therefore impossible to prepare an answer (or pay someone else to answer) beforehand.

Once the time and effort needed to game the system exceeds the investment required to learn the material, the incentives shift to learning the material with the least effort possible.

Notice that the system’s cost of measuring data and enforcing compliance is correlated to the effectiveness of the enforcement and the value of the data. The lower the system’s costs, the lower the compliance rate and the value of the data. Any system which makes compliance cheaper in effort invested than shortcutting the system will have high costs. The more effort invested in obtaining meaningful data, the higher the value of the data.

In our example, the cheapest measures of student performance–attendance, multiple-choice tests, etc.–do the poorest job of measuring actual student learning. To actually measure student learning requires significant investment in the process, and a careful analysis of what metrics best reflect real student learning.

There is a growing dissatisfaction in the economics field with the current measures of economic activity: GDP, unemployment, and so on. This dissatisfaction reflects a growing awareness that these legacy metrics do a poor job of capturing what is actually important in fostering sustainable, broad-based prosperity, what many call well-being.

What are we measuring in healthcare?

 

Healthcare metrics offer a useful analogy. If cholesterol levels are a critical measure of health, then the medical community devotes its resources to lowering cholesterol levels below whatever threshold has been identified as critical. But what if a better overall yardstick of health and risk is the body mass index (BMI), which measures height and weight?

While there are limits to BMI (for example, some super-fit bodybuilders might have an elevated BMI, even though they are not fat), for the vast majority of people BMI is a useful measure of risk for cardiovascular and metabolic syndrome-related diseases such as diabetes.

Unlike measuring cholesterol, BMI does not require drawing blood; anyone with access to a tape measure and a cheap scale can calculate their BMI. Unlike cholesterol and blood pressure, both of which can be lowered with medications, BMI is difficult to short-cut. The only way to lower your BMI is to lose weight, which in the vast majority of people means losing accumulated fat via a disciplined regime of diet and fitness.

The status quo is based on legacy metrics that are misleading or counter-productive. The status quo has been optimized to gather these measurements and assign great meaning to them.

Does it make sense to optimize expanding consumption when resources are finite and the incentives to squander resources on unproductive consumption are so high?

If profits are the only metric that matter, and labor costs are rising for structural reasons, then why would private enterprise hire more workers when robots and software are cheaper and more productive in terms of boosting profits?

If we measure academic achievement by the issuance of a college degree, but the process of earning that degree does not measure real student learning, then what are we measuring with college diplomas? What we’re really measuring is the students’ ability to navigate an academic bureaucracy for four or five years. Since we’re not measuring useful learning, we have no way to hold colleges accountable for their demonstrable failure to teach useful skills.

What are we measuring in the workplace?

The key point here is systemic success or failure arises from our choices of what to measure and what thresholds we set as meaningful. Whatever we select to measure and deem important, participants will optimize their choices and behaviors to reach the rewards that are incentivized.

If we choose counterproductive metrics, we built perverse incentives into the system, incentives that guide the goals, strategies and behaviors of participants.

Rather than measure consumption and metrics that incentivize debt, what if we measure well-being and opportunities offered in our communities? What if we measured doing more with less rather than consuming more? What if our primary measure of economic well-being was the reduction of inputs (resources, labor, capital, etc.) that resulted in higher output (increased well-being)?

How can we select metrics that productively measure well-being, sustainability and opportunity not just for elites but for every participant? What thresholds can we set that will create incentives for adopting best practices and appropriate technologies?

These questions help us see that to create a sustainable system that alleviates inequality and poverty, we must first choose metrics that create productive incentives for best practices and disincentives for fraud, corruption, waste and inefficiencies.

This essay was drawn from my new book Why Our Status Quo Failed and Is Beyond Reform.

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Cynics, skeptics, and fiction-peddlers…

 

 

Source: Townhall.com

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Submitted by Shepard Ambellas of IntellliHub

The Elite One-Percent’s ‘Orgy Island’ Exposed

If you can name it — it has likely taken place this the lavish private island off the coast of Puerto Rico which boasts a beautifully landscaped plush luxury estate complete with its own helipad, privy only to certain members of the global elite.

Owned by Jeffery Epstein, a wealthy American financier and convicted sex offender, Little St. James Island appears to be somewhat of a gathering place and is a well desired hangout among key figureheads, actors and royalty to the likes of former U.S. President Bill Clinton, Kevin Spacey and even Prince Andrew.

Bill Clinton made multiple trips to Epstein’s private island,
Little St James (pictured), between 2002 and 2005

However, the people attending the lavish residence are likely do not go there to discuss “cutting edge scientific and medical research” as the Epstein VI Foundation would like you to believe, but rather go there to experience full-on sexual encounters with underage girls as young as fourteen.

That’s right, just like a scene out of the Hollywood blockbuster film Eyes Wide Shut, starring Tom Cruise, from wild parties to prostitution, orgies and even underage sex, Little St. James reportedly has it all and is seemingly a gathering point frequented by prominent jet-setters, and it is all being exposed. The cat is out of the bag so to speak.

Back in 2005 police conducted an 11-month-long undercover investigation on Jeffery Epstein and his estate after the mother of a 14-year-old girl went to police after suspecting her daughter was paid $300 for at least one sexual act on the island in which she was ordered to strip, leaving on just her panties while giving Epstein a massage.

Although police found tons of photos of young women on the island and even interviewed eyewitnesses, Epstein was hit with a mere slap on the wrist after “pleading to a single charge of prostitution.” Epstein later served 13-months of his 18-month service in jail.

In 2008 Epstein was hit again, this time with a $50 million civil suit after another victim, a woman, made a filing in a federal court claiming that she was “recruited” by Epstein to give him a “massage” but was essentially forced into having sexual intercourse with him for $200, which was payable upon completion.

Additionally it is important to point out that Bill Clinton has been mentioned by the press often over the years — and not just for his controversial relationship with Monica Lewinsky, but rather his friendship with Jeffery Epstein.

In fact, flight records indicate that ol’ Billy-boy would frequent the island paradise around the 2002 and 2005 era, while Hillary, Bill’s wife, was a Senator in New York.

Bill Clinton and Jeffrey Epstein

The Daily Mail wrote about one woman’s experience on the island:

‘I remember asking Jeffrey what’s Bill Clinton doing here kind of thing, and he laughed it off and said well he owes me a favor,’ one unidentified woman said in the lawsuit, which was filed in Palm Beach Circuit Court.

 

The woman went on to say how orgies were a regular occurrence and she recalled two young girls from New York who were always seen around the five-house compound but their personal backstories were never revealed.

“At least one woman on the compound was there unwillingly” and was an actual sex slave, according to the Daily Mail.

The woman was allegedly forced to have sex with “politicians, businessmen, royalty, [and] academics” at the retreat and was just one of “more than 40 women” that have come forth with claims against Epstein, showing the vast scale of the man’s dark operations, which aren’t limited only to ‘Orgy Island.’

Moreover Epstein was invited to Chelsea Clinton’s wedding in 2010, amongst 400 other guests, demonstrating his close friendship with the Clinton family.

To top it all off “Prince Andrew was allegedly one of the house’s visitors. On Friday, the Duke of York was named in a federal lawsuit filed against Epstein, whom the FBI once reportedly linked to 40 young women. Filed in 2008 in the Southern District of Florida, the $50 million lawsuit claimed Epstein had a “sexual preference and obsession for underage minor girls … gained access to primarily economically disadvantaged minor girls in his home, sexually assaulted these girls”, as reported by the Washington Post.

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