PrefBlog

Hampton Creek, last discussed here on August 4 may have bought itself a world of trouble:

The U.S. Securities and Exchange Commission is looking into whether a San Francisco-based food technology startup broke the law by not disclosing that it was buying its own vegan mayonnaise from stores, which made the product appear to be more successful than it was, according to people familiar with the matter.

The agency is trying to determine whether Josh Tetrick’s Hampton Creek Inc. improperly recognized revenue from purchases made with company money, said the people, who asked not to be named because the matter isn’t public. The opening of an SEC inquiry into the buybacks is a preliminary step and doesn’t mean the company will face an enforcement action.

In drone news, Intel touts a drone platform:

Intel Corporation today announced its involvement in the development of multiple best-in-class unmanned aerial vehicles (UAVs), commonly called drones, showcasing how they interact with their environment, solve problems and thrill users by helping them explore and interact with their worlds unlike ever before.

Intel® Aero Platform for UAVs

Intel’s® Aero Platform is available today for developers to build their own drones. This purpose-built, UAV developer kit powered by an Intel® Atom™ quad-core processor combines compute, storage, communications and flexible I/O all in a form factor the size of a standard playing card. When matched with the optional Vision Accessory Kit, developers will have tremendous opportunities to launch sophisticated drone applications into the sky. Aero supports several “plug and play” options, including a flight controller with Dronecode PX4 software, Intel® RealSense™ technology for vision, AirMap SDK for airspace services, and will support LTE for communications. The Intel Aero Platform is available for pre-order now on click.intel.com – the Intel Aero compute board is $399, the Intel Aero Vision Accessory Kit is $149, and the Intel Aero Enclosure Kit is $69. A separate Intel Aero Platform Ready-to-Fly Drone will be available in Q4.

The Fed is attempting to keep uncertainty in the market, with Dudley making hawkish noises:

“We’re edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further,” Dudley, who serves as vice chairman of the rate-setting Federal Open Market Committee, said Tuesday on Fox Business Network. Asked whether the FOMC could vote to raise the benchmark rate at its next meeting Sept. 20-21, Dudley said, “I think it’s possible.”

Investors expect about one rate hike between now and the end of next year, according to federal funds futures contracts, and they marked up probabilities only slightly on Tuesday. Dudley said such estimates are “too low” and that “the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so.”

“We are looking for growth in the second half of the year that will be stronger than the first half,” Dudley said. “I think the labor market is going to continue to tighten, and in that environment I think we are getting closer to the day where we are going to have to snug up interest rates a little bit.”

… as did Lockhart:

Federal Reserve Bank of Atlanta President Dennis Lockhart said he’s confident that U.S. economic growth is accelerating, setting the stage for at least one increase in interest rates this year.

“I’m not locked in to any policy position at this stage, but if my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year,” Lockhart said in the text of remarks on Tuesday to the Rotary Club of Knoxville, Tennessee.
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Lockhart described the labor market as nearing full employment, with wages showing signs of a pickup.

“Recent price data hint at the firming of underlying price pressures,” he said. “I’m reasonably comfortable with a forecast of reaching 2 percent by year-end 2017.”

Lockhart said he was focused on monitoring business investment, which he said could have been hurt by uncertainty over U.S. policies. “It’s possible the election is a factor,” he said.

The median estimate of Fed officials in June was for two quarter-point increases this year, though six policy makers projected only one increase.

… and Car Wars continues to heat up:

Ford Motor Co. aims to have a fully autonomous vehicle available by 2021 for ride-hailing services, skipping the interim steps of driver-assisted technology and matching BMW’s ambitious timeframe.

The second-biggest U.S. automaker said earlier Tuesday that it’s doubling the number of people at its Silicon Valley technical center while expanding to two more buildings. Ford also invested $75 million in the leading maker of an advanced radar system to accelerate its development of self-driving cars.

Ford chose to focus on purely self-driving vehicles that don’t require a human to take over in complex situations, said Raj Nair, Ford’s head of product development. The automaker is chasing Alphabet Inc.’s Google self-driving car project as well as efforts by General Motors Co. and other automakers. Ford said today it’s investing in or collaborating with four startups on autonomous vehicles, bringing its roster of such partnerships to 40.
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Ford and China’s top search engine company, Baidu Inc., are each investing $75 million in Velodyne Lidar Inc., the automaker said in a statement. Lidar bounces light off objects to assess shape and location, giving self-driving cars a 360-degree view of their environment with the help of cameras and traditional radar. Morgan Hill, California-based Velodyne said the money will help it improve design and expand production, making the sensors more affordable for mass adoption.

Meanwhile, here in the frozen North, some degree of success is being achieved in the regulatory campaign to shut down markets:

As Canada’s regulatory regime has evolved and, in some cases, become more onerous, many American investment dealers have reduced their trading operations in Canada. That hurts Canadian institutional investors that are trying to build diversified portfolios for ordinary Canadian clients.
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In a recent letter to provincial securities regulators, the Canadian Bond Investors’ Association (CBIA) said its members are having difficulty trading and tracking the debt of Canadian companies issued in the U.S. market, such as the bonds of Valeant Pharmaceuticals International Inc. and Bombardier Inc.

That’s because many foreign banks, including Goldman Sachs Group Inc. and Citigroup Inc., have stopped trading Canadian bonds with Canadian investors in the U.S. secondary market, the CBIA letter states. The reason derives from a 2015 amendment that prevented foreign investment dealers from being classified as both an exempt-market dealer and an international dealer.

The CBIA’s second concern pertains to the regulators’ bid to better track the sales of bonds and stocks sold without a prospectus. The change, introduced June 30, requires banks to collect more details about the issuer and the Canadian purchaser. Then, it requires a banker to certify its accuracy, creating new personal liability risks.

“It’s going to become more expensive and time-consuming to sell into Canada,” said Anthony Spadaro, a lawyer at Davies Ward Phillips & Vineberg LLP.

As the saying goes in the regulators’ offices: “The only fair market is a closed market”. And what we want is fairness, right?

American preferreds are doing really well:

A kind of buying panic has broken out. The iShares U.S. Preferred Stock exchange-traded fund, which seeks to track the market, has taken in $2.2 billion in new money so far this year. Historically, the price of preferred stocks almost never rises, with virtually all their return coming from the fixed dividend rates they offer; this year, however, nearly half the 7% total return of the S&P preferred index has come from climbing prices.

To see why overheating could be a risk, it helps to understand more about how preferred stocks work.
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There’s another concern. At the end of last year, the iShares fund held more than 10% of the total outstanding value of 37 of its holdings. As of Aug. 10, according to FactSet, the fund owns more than 10% of the outstanding value of 185 of its holdings. (It has a total of 293 positions.) That’s a lot of any market for a single fund to control in such a hurry.

Take a recent study by Fed economist Jeremy Nalewaik, who found that while inflation expectations and actual inflation were closely connected prior to the mid-1990s, the relationship has deteriorated markedly since then.

The hardest thing to deal with in investment management is regime switching:

“Movements in inflation expectations now appear inconsequential since they no longer have any predictive content for subsequent inflation realizations,” Nalewaik wrote.

He cites as a potential explanation for this a hypothesis offered in a 2000 paper co-authored by Yellen’s husband, Nobel prize-winner George Akerlof, who wrote that “when inflation is low, it may be at most a marginal factor in wage and price decisions, and decision-makers may ignore it entirely.”

Akerlof’s and Nalewaik’s research jibe nicely with ideas that St. Louis Fed President James Bullard has injected into the debate on the rate-setting Federal Open Market Committee this year.

Bullard stopped submitting longer-run economic forecasts when the latest round of policy makers’ projections was compiled in mid-June, stating in a June 30 speech that “the timing of a switch to an alternative regime is viewed as not forecastable, and so we simply forecast that the current regime will persist.”

Nalewaik suggests that a return to a world in which inflation expectations and actual inflation become more tightly linked, as they were before the mid-1990s, may not be in the cards.

There are concerns that Gilts are distorting the global bond market:

The rally in gilts has been extraordinary, with the yield on the U.K.’s longest-dated bond, the 2068 maturity, almost halving from 2% on the day of the referendum to 1.06% on Thursday.

The price of the bond is up 53% this year, the sort of gains usually produced by risky stocks, not rock-solid government paper. (Its performance roughly equals the gains of sixth-best stock in the S&P 500, Range Resources.)

“This is not normal,” said Mike Amey, who manages sterling bond portfolios for fund manager Pimco. He called the speed of the move “eye-popping.”

The 18.8% two-month return on the 30-year gilt has been bettered only during the rescue of hedge fund Long-Term Capital Management in 1998, according to Thomson Reuters data since the late 1980s.

The result has been that falling gilt yields have taken over from Japanese government bonds in exerting downward pressure on Treasurys and other global bond markets.

I was very disappointed with Angus Reid’s poll regarding guaranteed income:

The Angus Reid Institute described the guaranteed income idea to respondents as follows:

Those who made less than the threshold through employment earnings would be paid the difference by the federal government, while those who made more than the threshold would receive no additional funding. This payment would typically replace most or all other forms of government assistance, such as welfare and employment insurance.

ARI then asked respondents whether they would support or oppose such a program if the threshold were set at each of three different levels: $10,000, $20,000, or $30,000 per adult per year. Roughly one-third of the total sample (approximately 500 respondents) each weighed in on one of the three options.

So in other words, all income below the threshold is subject to a 100% effective marginal tax rate. There is absolutely no incentive to pick up another shift or to get a slightly better job, because every single cent you make from this will be taxed away from you. Nobody in their right mind would support Angus Reid’s version of the concept.

More encouraging was news of alternative technical schools:

The Flatiron School’s 12-week course costs $15,000, but earns students no degree and no certificate. What it does get them, at an overwhelming rate, is a well-paying job. Nearly everyone graduates, and more than nine in 10 land a job within six months at places like Alphabet Inc. ’s Google and Kickstarter. Average starting salary: $74,447.

Employers are increasingly hiring graduates of the Flatiron model—short, intensely focused curricula that are constantly retailored to meet company needs. Success, its backers say, could help fuel a revolution in how the U.S. invests in higher education, pushing more institutions toward teaching distinct aptitudes and away from granting broad degrees.
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Google, which has hired workers from Flatiron and other academies, recently studied the efficacy of coding camps. The company found that while the camps have shown promise, most of their graduates weren’t prepared for software engineering without additional training or prior experience, Maggie Johnson, Google’s director of education and university relations, said in an email.

“In a broader sense, most of our hires have [computer science] degrees because we prefer to hire generalists who can work on any type of product or service. Bootcamp alumni tend to be more specialized,” Ms. Johnson added.
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Flatiron said it accepts only 6% of applicants, making it almost as selective as Harvard. The typical coding-boot camp student was 31 years old and had nearly eight years of work experience and a bachelor’s degree, according to Course Report, an industry group.

The Google evaluation of the programme sounds reasonable to me. I suspect that the graduates of this programme are basically what I call teeny-bopper programmers … you can give them small jobs and they’ll execute competently, but they won’t really understand why they are being told to do something in a particular way and you certainly can’t give them design responsibilities because you’ll just get spaghetti-code. But hey, we were all teeny-boppers once!

I’m amazed that a for-profit technical school has an acceptance rate of only 6%. I wonder how long it will be before some MBA in the president’s office points out that profit could be doubled with a 12% acceptance rate!

But it’s nice to know you can still educate people nowadays without having an Athletic Centre, beautiful accommodation and two-star dining halls, all paid for with ridiculous amounts of student debt!