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Of Artificial Mice and Men Embryos

MouseEmbryosScienceCambridge University researchers have created mouse embryos using stem cells. This is the first time this has been done in mammals. The researchers combined embryonic stem cells and cells that form the placental tissue, rather than starting from a fertilized egg. They then put the cells in a three-dimensional scaffold in a culture mimicking fluids in the womb that allowed them to develop together. The artificial embryos grew for seven days dividing and forming structures found in naturally grown mouse embryos.

The scientists suggest that the same procedures might be applied to create artificial human embryos that would help fertility researchers to figure out why so many pregnancies fail to take. Naturally, advances of this sort provoke bioethical handwringing about “designer babies.” For instance, The Daily Telegraph reports:

Dr David King, director of the watchdog group, Human Genetics Alert, said: “What concerns me about the possibility of artificial embryos is that this may become a route to creating GM or even cloned babies.

“Until there is an enforceable global ban on those possibilities, as we saw with mitochondrial transfer, this kind of research risks doing the scientific groundwork for entrepreneurs, who will use the technologies in countries with no regulation.”

Why a ban? What is ethically wrong with editing disease genes out of human embryos (GM!) so that they develop into healthy babies? What is immoral about cloning human beings? Once perfected, why shouldn’t prospective parents who can’t produce gametes be allowed to access these techniques to give birth to genetically-related children?

Congratulations to the researchers on this breakthrough. Full speed ahead.

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“February Should Have Been A Better Month” – Only 35% Of Managers Beat Their Benchmark

With pairwise correlation between stocks plunging since the Trump victory, leading to a jump in stock return dispersion, conventional wisdom quickly agreed that this would be the ideal environment for “stock pickers” and especially downtrodden hedge funds, the majority of which have underperformed both their benchmark and the S&P 500 ever since the SAC and Galleon insider trading scandals blocked the use of “expert networks.”  Alas it was not meant to be.

According to the latest monthly mutual fund performance update from Bank of America, while stocks continued to set record highs, resulting in another solid month for US equities, it was another month to forget for active managers. The bank found that managers across size segments and styles (with the exception of mid cap Growth) underperformed their benchmarks in February.

Large cap funds lagged the most, with only 35% of the managers beating the benchmark, down from 52% the prior month. This was largely due to the underperformance of Growth managers, despite having the best absolute returns (+3.7%) across all size and style segments in February. Large cap Growth funds struggled to keep pace with the outperforming benchmark (+4.2%), with just 21% outperforming, down from 73% in January. Value and Core managers fared better, but only 45% and 40% outperformed their benchmarks in the month, respectively.

Indeed, February should have been a better month for stock-picking, with pair-wise stock correlations continuing to fall to their lowest levels since 2000.

Alas, it wasn’t, and as Savita Subramanian’s team writes, “better backdrop for stock-picking does not necessarily equate to fund managers making the right picks.” The reason: active managers’ consistent bias towards low quality and high beta was likely a drag on  performance, as both of these factors had poor performance in February.

Sector positioning was also likely a headwind to performance despite two out of their three overweighted sectors (Health Care and Tech) outperforming in February. Fund managers’ biggest overweight (Consumer Discretionary) underperformed by 2ppt while their two biggest underweights (Real Estate and Utilities) outperformed for the month.

And so another month of underperformance for the active community, which will lead to even more outflows and, correspondingly, more inflows into ETFs. Will 2017 end up as bad as 2016? It is hard to say: last year only 19% of active funds was able to outpace major indexes, resulting in a near record outflow from the actively managed community, as some $396 billion was redeemed and then reallocated into index funds and ETFs. As Bloomberg notes “the pressure to justify higher fees is hammering all corners of the mutual fund industry — even benchmark-beating funds couldn’t escape an onslaught of outflows. For managers, this year’s more favorable market environment looked like the path toward redemption.”

A few more more months like February and what is rapidly becoming a 1 and 10 model may soon become 0.5 and 5.

There is still some hope though: as BofA adds, “dispersion in returns decreased in February, although the overall trend is till increasing and giving way to more opportunities to generate alpha.” Now if only the active management community still remembered how to do that…

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Making Idiosyncratic Art in a Totalitarian Society

Alexander Dovzhenko, a Ukrainian filmmaker, is best known today for a series of political pictures he wrote and directed in the early Stalin years, movies that kept drifting in directions that risked the wrath of the Soviet authorities. Arsenal (1929), set in the Russian Civil War, had hints of pacifism. Earth (1930) was supposed to be a celebration of the collectivization of agriculture, but the picture he actually produced is lyrical, funny, and more surrealist than socialist; the propaganda parts play like tongue-in-cheek interludes. The government reacted to it by kicking Dovzhenko’s father off the farm where he worked and telling the director to make a movie about building the Dneiper Dam. The result was the deeply bizarre Ivan (1932), which isn’t as well-known as Arsenal or Earth but should be. It builds to the required propaganda ending but sure takes a lot of strange turns getting there; it’s arguably as subversive as Earth is.

I get the impression that Dovzhenko’s work became more straightforwardly propagandistic after that. (That’s certainly true of the one post-Ivan film of his that I’ve seen, a semi-science-fiction story from 1935 called Aerograd.) But I don’t want to dwell here on the ugly compromises required to work in the Stalin era. Instead, let’s enjoy a film he made before his produced his best-known pictures.

Love’s Berry (1926) plays like a Harold Lloyd movie from an alternate universe. A cheerful little comedy about a man trying to dispose of a baby, it has no propaganda content at all; if you’re looking for politics in it, your main takeaway will probably be its permissive attitude toward sex. And it’s pretty damn funny:

That was Dovzhenko’s first film, and it suggests a whole other career he could have had in another social context.

A bonus for Hit & Run‘s regular readers: One of the characters sure looks like Reason‘s Robby Soave. Seriously, I think Robby might be a time-traveler. Check it out:

(For past editions of the Friday A/V Club, go here.)

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Bank Of Tokyo’s Chris Rupkey Snaps At Janet Yellen’s “Water Torture”

After years of listening to Bernanke and then Janet Yellen, it is no surprise that some have finally snapped, as Bank of Tokyo-Mitsubishi UFJ’s Chris Rupkey appears to have done in his post-Yellen, post-mortem.

Breaking economy news. If you were looking for a signal that a Fed rate hike was imminent, you would be hard-pressed to find any urgency to respond with a Fed rate hike on March 15 in Fed Chair Yellen’s Chicago speech today.

 

“Likely. indeed, what does that mean? Likely today means nothing about what they do tomorrow. At least she said the future pace of rate hikes would not be as slow as 2015 and 2016.

 

Whew, that’s a relief. We thought the Fed would only hike one time this year like they did in 2015 and then again in 2016.

 

The speech reads to us as more of the same policy: the painful drip, drip, drip of the Fed’s water torturing the markets by failing to move rates up at a consistent and measured pace.

 

Not on a preset course indeed. Rates will certainly be on a preset course after Yellen finishes her last day in office on February 3, 2018.

And for a just as brief, if perhaps even more concise assessment of Yellen’s rambling central planning, here is Axel Merk’s takeaway:

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About That Friday Closing Ramp: Something Snapped In 2016

It’s Friday, which means Wall Street is patiently waiting for what has become a novelty tradition in close of week trading: a late day ramp, starting around 3:30pm and picking up speed into the close.

There have been various explanation for the ramp, most recently from JPM, which proposed that at least in recent months it has been the result of retail buying of ETFs, which in turn rebalance at the end of the day, creating a self-fulfilling buying prophecy and a last 30 minute buying spree to balance out positions. Others have suggested that foreign buyers take advantage of the increase in liquidity at the end of day: per JPM, so far in 2017, 37% of the NYSE trading volume took place during the last 30 mins of trading.

Whatever the reason, the markets peculiar end-of-day acrobatics have now been noticed by everyone, including the WSJ which wrote that “in the final half hour of trading, the blue-chip index mounted a comeback and popped into the green during a final nail-biting few minutes of trading. The index closed up 11.44 points, extending a streak of record highs one more day. Though Friday’s session was particularly dramatic, there’s an increasingly common pattern whereby the market opens lower only to drift upward through the day. In fact, if it weren’t for the final hour of trading, the S&P 500 would have finished lower on many of the days this year.”

The WSJ has no more insight into this recurring phenomenon than even Wall Street’s most seasoned professionals:

On the one hand, the emergence of buyers late in the trading day is a sign of confidence in the market’s continued uptrend. On the other, it shows the market may be increasingly disconnecting from corporate and economic fundamentals as momentum carries forward.

Our assessment is in the latter camp, especially since as the WSJ points out, “for years, it’s been a market mantra to “buy the dip” when stocks fall. But that’s become even more ingrained in the last year as small drops reliably lead to bigger rebounds, often within the same session.”

Which then reveals another, even more curious observation. Pulling trading data over the past year, FBN Securities’ JC O’Hara has found that most of the gains for the S&P 500 have come during market hours, rather than gapping higher at the open as a result of positive news between trading sessions. As the WSJ notes, “it’s a divergence from historical extremes. It may also mean the tone set by other global markets doesn’t last through the U.S. session. In other words, the market gains are more a drift upward than high-conviction buying.“

O’Hara confirms this stunning divergence with the following dramatic chart, which shows that gains in an S&P-tracking exchange-traded fund are accruing much quicker during the session than between sessions, particularly over the last year.

The chart shows that traders who buy at the open and sold at the close each day since the beginning of 2009, would be up 85%. Buying at the close and holding overnight to sell at the open would have netted you just about half of that. However, the pattern was generally as expected until the start of 2016, when something visibly “snapped:”

As the WSJ’s Ben Eisen points out, “What’s interesting is that most of that divergence came about in the last year. But they began moving apart in early 2016: Since the market hit a recent low on Feb. 11, 2016, stocks have risen 26% during the daytime, and just 3.2% during the night-time.”

As a reminder, the Feb 2016 lows took place just prior to the Shanghai Accord in which the world’s top financial leaders sat down to hammer out a plan on how to prevent the market from falling further. Ever since then, the S&P500 has been on a relentless tear higher – especially during the daytime session – as one can see in the chart above. According to the WSJ, “that’s reflective of the increasing drift as markets take the escalator higher. Market momentum appears unstoppable for now, as investors bet on business-friendly policies coming out of the Trump administration this year. The question now is whether it lasts.” 

The answer: as long as the world’s top financial leaders demand it, or rather as long as is necessary to complete the rotation of risk assets from institutions and hedge fund managers to retail bagholders, as has been the case so far this year per JPMorgan.

However, for today’s practical purposes, a far important question is whether the Friday afternoon surge, which emerged two Fridays in a row will once again “mysteriously” appear again, and take the market suddenly into the green in the last 30 minutes of trading.

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Schwarzenegger Is Quitting The Apprentice, Blames Donald Trump

Following his very public feud with Donald Trump, Arnold Schwarzenegger has had enough, and told Empire Online that his first season as host of NBC’s “Celebrity Apprentice” is also his last. In an interview, the former California governor blamed Trump, who has repeatedly mocked the ratings of his reality TV replacement, as the reason for his early departure.

“Even if asked [to do it again] I would decline,” Schwarzenegger told Empire . “I learned a lot, I had a great time, it was a really great opportunity. But under the circumstances I don’t want to do it again.”

“With Trump being involved in the show people have a bad taste and don’t want to participate as a spectator or sponsor or in any other way support the show. It’s a very divisive period right now and I think the show got caught up in all that division.”

That said, perhaps there is another reason why the governator is quitting: Schwarzenegger’s ratings as host of “Apprentice” have lagged far behind Trump‘s, finishing the season last in its time slot among the four broadcast networks. Arnold, however, refused to take blame and blamed Trump for the bad numbers.

“It’s not about the show,” Schwarzenegger said. “Because everyone I ran into came up to me and said ‘I love the show…but I turned it off as I read Trump’s name I’m outta there.’” “When people found out that Trump was still involved as executive producer and was still receiving money from the show, then half the people [started] boycotting it,” he added.

Despite still serving as executive producer, Trump has more than once mocked the drop in viewership. “Now compare him to my season 1,” Trump tweeted in January. “But who cares, he supported Kasich & Hillary.”

The bad blood between the two TV stars is well-documented: Schwarzenegger spoke out against Trump during last year’s campaign and has sharply criticized his travel ban, saying the executive order “makes us look stupid.”  

Last month, after the president pointed out the drop in “Apprentice” ratings during his comments at the National Prayer Breakfast, the former Republican governor responded on Twitter.  “Hey Donald, I have a great idea,” Schwarzenegger said. “You take over TV, because you’re such an expert in ratings, and I take over your job. And then people can finally sleep comfortable again. Hmm?”

While we leave it to readers to decide if Arnie “will be back”, it remains unclear who – if anyone – will replace the Austrian immigrant as the show’s next host.

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Who’s in the Mood for a Feud? New at Reason

'Feud'Last month, as the Oscars approached, Camille Paglia took to the pages of the Hollywood Reporter to mourn the loss of “the mythic grandeur of old Hollywood and its pantheon of celestial stars.” Fortunately, their viciously overweening ambition, viperish appetite (and aptitude!) for malice and general capacity for epic bitchery is still with us in FX’s Feud: Bette and Joan, producer Ryan Murphy’s loving miniseries homage to Hollywood harridans.

Bette and Joan, of course, are Bette Davis and Joan Crawford, who for more than four decades were the Hatfields and McCoys of Hollywood, squabbling over men, money, roles and awards. Their scorched-earth war came to an end only with Crawford’s death in 1977 and Davis’ parting shot: “You should never say bad things about the dead, only good. … Joan Crawford is dead. Good.” Television critic Glenn Garvin examines Murphy’s latest, along with two much less interesting shows about time travel.

View this article.

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Trump’s Charge for FDA Regulatory Reform Could Be Good News for Snus

If President Donald Trump is serious about reforming how the Food and Drug Administration operates, he could start by requiring the agency to use common sense when regulating alternatives to smoking.

Alternatives like snus, for example. The Swedish-made tobacco product consists of a small packet, similar to a tea bag, that’s filled with tobacco powder and placed in the upper lip. It delivers a jolt of nicotine but doesn’t come with the same health risks as smoking or using chewing tobacco.

But you wouldn’t know that by looking at the label. Swedish Match, the company that makes snus, has been trying since 2014 to get permission from the FDA to identify its product as a safer alternative to smoking. In Sweden, where snus is marketed that way, its popularity is credited with cratering smoking rates and associated diseases, and Swedish Match executives believe they could reshape the American tobacco market (and improve smokers’ health) in much the same way.

In December, the FDA ruled that snus would have to continue carrying a warning about the potential for causing tooth decay and gum disease, but punted on the more important question: whether snus could be marketed in the U.S. as less dangerous than cigarettes.

“Because there is already a warning label, they’re not inclined to remove it no matter how much evidence we present,” says Jim Solyst, vice president for federal regulatory affairs for Swedish Match, in an interview published by Tobacco Reporter, a trade publication.

That’s where Trump enters the picture. In his address to a joint session of Congress on Tuesday, the president specifically identified the FDA as a target for his administration’s regulatory reform effort.

The FDA’s “slow and burdensome approval process,” Trump said, prevents too too many advances from reaching those in need.

He was talking specifically about the FDA’s approval process for new drugs—an area where FDA foot-dragging can literally cost lives, as Reason’s Ron Bailey pointed out earlier this week—but the same logic makes a case for changing how the administration regulates tobacco, with an eye towards improving Americans’ health.

Slow and burdensome certainly describes what Swedish Match has gone through. The company has filed more than 130,000 pages of applications with the FDA since May 2014, according to Tobacco Reporter, in trying to become the first product to gain the coveted “modified-risk tobacco product” designation.

“We think that telling smokers that these products are 97 percent safer than similar products is the key message; this message is getting lost,” Solyst told the trade publication.

Swedish Match sees the obvious marketing benefit of earning that designation, but that doesn’t cancel out the very real public health benefits that could be realized if snus was more widely used.

The research continues to pile up. A peer-reviewed study published in Tobacco Control found that snus “does not appear to cause cancer or respiratory diseases” and cardiovascular risks from using snus were lower than with smoking. A study conducted in Norway and published in Nicotine and Tobacco Research found that using snus was much more effective at getting smokers to quit using cigarettes than nicotine replacement products like patches and gum. Snus-ers were three times as likely to quit smoking as smokers using nicotine gum, the researchers found. They believed snus was so effective because it delivered a nose of nicotine that was almost the same as cigarettes and provided a “sensory effect that medicinal nicotine products perhaps lack” because snus smells and tastes like tobacco. Researchers at the University of Alabama at Birmingham reported in 2007 that 200,000 smoking-related deaths per year could be prevented if tobacco uses across the whole of the European Union adopted snus at the same level as Swedes.

While there hasn’t been any official announcement of changes in FDA policy towards tobacco, there’s good reason to believe the agency’s new boss is open to changing tobacco regulations.

Tom Price, the orthopedic surgeon and former Georgia congressman appointed by Trump to run the Department of Health and Human Services (Price was confirmed by the Senate in a party-line vote last month) is on the record as being skeptical of the FDA’s history of regulating all tobacco products equally. In fact, as a member of the Senate, he twice voted against bills allowing the FDA to regulate tobacco—both bills passed despite his opposition.

Price heading the Department of Health and Human Services, combined with Trump’s focus on streamlining the FDA’s permitting process, could be good news for snus—and for anyone who’s been unable to quit smoking using other means.

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Zodiac Turns 10: Why This Amazing Film Is Libertarian

ZodiacThe Washington Post‘s Alyssa Rosenberg notes that David Fincher’s Zodiac was released 10 years ago. The film received rave reviews, but still seems underappreciated by the general public. In her retrospective, Rosenberg notes that Zodiac—which chronicles the efforts of police officers and journalists to catch a real-life serial killer in the 1960s and 70s—still resonates:

The characters have resources to pursue their investigations, and they’re given time and plenty of leeway by their superiors (though one local politician runs for governor on the argument that the cops didn’t have what they needed to crack the case). And neither is “Zodiac” a story about the sorts of failures involved in the Vietnam War, where brilliant people, restricted both by their own faith in technocratic solutions and their fears of being seen as soft on Communism, made fatally terrible decisions.

Instead, Fincher captures the uncertainty and loss of confidence that follow from a prolonged failure by institutions and people who are doing everything they’re supposed to, only to find that it doesn’t produce the correct results. …

Ten years after “Zodiac” was released, and almost fifty years after the July 4 killing that sets the movie in motion, we’re still living with and working through the consequences of the decline and loss of faith David Fincher captured in this masterful film. Fincher’s “Fight Club” offered up a vision of weaponized male turned against society as a whole, while his “Gone Girl” portrayed female anger that had been distilled into a particularly venomous domestic poison. “Zodiac” is his movie for the rest of us, who have to live in a world going slowly insane without losing ourselves.

For me, Zodiac was a story about obsession—what it feels like to care about something that most other people have lost interest in. The serial killer—who calls himself the Zodiac and sends cryptic messages to the authorities—slaughters a handful of people, and then largely retreats into the shadows. He botches some of his attacks, and others don’t fit his profile, calling into question whether he’s a single person or a group of completely unrelated nutcases taking advantage of a momentary spotlight.

As days become weeks and even years, everybody moves on, except the police officers assigned to the case and the newspaper cartoonist who can’t let it go. They’re driven, not by public safety—as one character points out, more people die crossing the street than at the hands of the Zodiac killer—but by their own insatiable, personal need to solve the case. Asked why he still cares about a serial killer who has long since fallen inactive, Jake Gyllenhaal’s character snaps, “I need to know who he is!” Anyone who’s ever attempted a 500-piece jigsaw puzzle, but misplaced the last few pieces, will relate.

Zodiac also makes some lightly libertarian criticisms of authority—in particular, its limits. The various representatives of the institutions that fail to capture the killer—the police, newspapers, local politicians—aren’t evil, or incompetent. They’re decent people trying to do right by the citizens of California. But they encounter structural problems: the crimes cross city and county lines, and no single entity has all the relevant information. In an early scene, the lead detectives ask a county official to make copies of the evidence in his possession and fax it to San Francisco PD. He replies, “We don’t have telefax yet.”

The film also explores the notion that violence is random, and its underlying causes don’t fit neatly into preconceived narratives. The Zodiac killer isn’t Hannibal Lecter, or Ramsay Bolton. He’s a weird loner whose actions don’t reflect a discernible ideology of evil. This kind of real-world violence is the hardest to address through public policy, because there’s no identifiable reason for it.

In the end, it took someone outside the law enforcement bureaucracy—Gyllenhaal’s character, cartoonist Robert Graysmith—to finally solve the case, to the extent that it’s solved at all.

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Juncker Has Meltdown While Debating Future Of EU: “Shit! What Do You Want Us To Do?”

Via Daniel Lang of SHTFPlan.com,

There should be no doubt about the current status of the European Union. It’s crumbling before our very eyes. Between the sprawling unaccountable bureaucracy in Brussels, the unpayable debts, the unfettered immigration, and the unprecedented emergence of conservative, nationalistic groups, it’s obvious that the EU is not long for this world. No nation can survive those pressures; much less a loosely held, 24 year old political union consisting of a wide variety of languages and cultures.

And this fact is beginning to show. Not just because nations like the UK have already voted to leave the EU, and talk of independence referendums is spreading like wildfire across the continent. This fact is beginning to show on the faces and lips of the EU’s leaders.

Currently EU parliament members are debating about what direction the union should go in following Brexit, in an effort to to keep the union together. Some have proposed bringing the EU back to the days when it was a modest trading block with no political authority. Others think that the only way forward is to strengthen the EU, and turn it into a federal union much like the United States. And during that debate Jean-Claude Juncker, the President of the European Commission, appeared to have a little breakdown. When Juncker was criticized for wanting to consult ordinary Europeans on what they should do, this is what happened.

After listening to their rambling speeches a thunderous looking Mr Juncker replied:

“What I will say to those who think that the Commission has chosen poorly, is that in Europe you can’t have enough innovation.

 

“There are many traditionalists, many conservatives, who cannot accept changing a method and my method has been criticised.

 

“The approach of making a number of proposals which have had thought put into them, but which have never been discussed with the broader public, that has been the approach that has been criticised.”

He added:

“So we are putting forward on this occasion a number of different scenarios. Not all of them have met with approval, I’m sure that you will understand that amongst the scenarios put forward there is one that I would like more than the other four.

 

“But if we were simply to put that forward then there wouldn’t be any discussion and voices would be raised against us saying that we had stifled the debate and saying that we had not listened to the voices of our citizens.”

Finally losing his temper at the Catch-22 situation, he then raged:

“But sh*t, I would say sh*t if we weren’t in the EU parliament. What do you want us to do?”

 

These are not the words of a leader who is confident in the future. This exasperation reeks of defeat. And in any case, what he said basically sums up the biggest problem with the EU. It’s run by unelected bureaucrats who don’t have to consult ordinary people on what to do, and those political systems rarely survive for very long.

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