- New York Set To Be First State With 'Free' Tuition At Public Colleges
A last minute budget negotiation late Friday pretty much ensures that New York will be the first state to offer ‘tuition-free’ public higher education to its entitled snowflakes. The $163 billion state budget agreement includes the Excelsior Scholarship, which covers tuition for any New Yorker accepted to one of the state’s community colleges or four-year universities, provided their family earns less than $125,000 a year.
Of course, for politicians, ‘free’ is just a nice way of saying they’re about to jam more taxes down the throats of working Americans to cover the cost of services they may or may not use personally.
The scholarship program will be phased in over three years, beginning for New Yorkers making up to $100,000 annually in the fall of 2017, increasing to $110,000 in 2018, and reaching $125,000 in 2019. Nearly 1
million families will qualify for the scholarship.It is a last-dollar program, meaning the state would cover any tuition left over after factoring in federal Pell Grants and New York’s Tuition Assistance Program. Students must be enrolled in college full time and take at least 30 course credits a year, though those facing hardships can pause and restart the program or take fewer credits.
As the Washington Post points out, the program is expected to cost New York taxpayers $163 million in its first year and, like all other entitlements, will only grow over time.
Proposed by Gov. Andrew M. Cuomo in January, the scholarship taps into one of the Democratic Party’s most popular ideas and advances a bipartisan movement to lower the cost of college that is taking shape across the country.
“Today, college is what high school was — it should always be an option even if you can’t afford it,” Cuomo said in a statement Saturday. “With this program, every child will have the opportunity that education provides.”
Not much changed from the initial proposal, including the $163 million estimated cost for the first year of the program, though there were concessions to win over lawmakers. Award recipients attending community college now have to remain in New York for two years after graduation, while those at state universities must stay for four years. Private universities, whose leaders said the plan would undermine their schools, will see an increase in state tuition assistance funding.
Of course, the irony of the situation is that, like many misinformed liberal entitlement programs, throwing more money at U.S. universities only serves to exacerbate the underlying problem of bloated, out-of-control college budgets. But, on the bright side, America’s snowflakes will have yet another pool of money on which they can rely to fund their hedonistic, binge-drinking filled spring break trips to Cancun.
- An Unhinged McCain Calls for More War in Syria, Says Russia is Guilty of War Crimes
John McCain was on Face the Nation today, getting his neocon on, discussing the next steps that needed to be taken in Syria — dealing with Assad.
He approved of the President’s strikes — calling it a good ‘first step.’ But, he wants MOAR — accusing both Syria and Russia of war crimes, in addition to blaming Assad for the rise of ISIS. You cannot make this stuff up.
“And I think it was important. But it is now vitally important we develop a strategy, we put that strategy in motion, and we bring about peace in the region. And that obviously means that there has to be a cessation of these war crimes.
John, dropping, using chemical weapons is a war crime, but starving thousands of people in prisons is also. Barrel bombs which indiscriminately kill innocent civilians, precision strikes done by Russians on hospitals in Aleppo are war crimes as well.
So there’s a lot of war crimes that are taking place. And another area — aspect of this that I do not agree with the secretary is that you have to just concentrate on ISIS.
We will take Mosul. We will take Raqqa. And we better have strategies as to how to handle those places once we have won it. But they are not disconnected from Bashar al-Assad and the al Qaeda and the war crimes that have been taking place.
You can’t — to a large degree, Bashar al-Assad, by polarizing the Syrian people, have also given rise to ISIS and al Qaeda. So they are both connected. And I believe that the United States of America can address both at the same time. We can walk and chew gum.
We have the capability to do both. And, yes, we want a negotiated settlement, but the only way that that will happen is if it is not in their interests to continue what they have been successful at for over eight years. And that is why I thought, symbolically and psychologically, the president’s action was very important, but now we better follow it up. And, by the way, we should have cratered the runways.”
Seemingly ignoring the fact that ISIS and US backed ‘rebels’ in the region are responsible for the majority of civilian deaths in Syria, McCain carried on as if Assad was merely bombing civilians and not actually in the midst of a long, drawn out, civil war — which was started by ISIS. McCain wants the U.S. military to set up a ‘safe zone’ in Northern Syria.
“And also, when you see these crimes that are being committed, they are horrifying. John, I also believe that a grieving mother whose child has been killed isn’t too concerned whether it is a chemical weapon or a barrel bomb. He is still slaughtering people. And we may stop the chemical weapons.
But we have also got to stop the other indiscriminate, inhumane war crimes that are being committed as well. And that means, obviously, trying to set up some kind of safe zone, so that these refugees can have a place where they can be. And, also, that would help with the refugee flow issue.”
In response to President Trump’s strike on the Syrian airbase, McCain thinks we should’ve done more.
“Well, I think the fact that we acted was very important, and I support the president’s action.
And I have been told that there was some recommendations to take out all six places that the Syrian air force operates out of. But now that they are flying again, basically, within 36 hours is not a good signal.
But I would point out, taking out their — all their support facilities doesn’t let them fly with any consistency. But it — the signal that they are able to fly almost right away out of the same facility indicates that I don’t think we did as thorough enough job, which would have been cratering the runways.
McCain is fucking crazy. pic.twitter.com/t7bzYJUD4I
— The_Real_Fly (@The_Real_Fly) April 10, 2017
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And somebody will say, well, then they can fill in the runways. Yes. And we can crater them again too.”Has it ever dawned on McCain and the other neocons in America that maybe, just maybe, Russia would respond to our attacks on their ally, in an effort to protect Russian soliders on the ground? Has the concept of ‘mutually assured destruction’ gone by wayside somehow — the ultimate quagmire which has kept America out of a war with Russia for the past 70 years?
Content originally published at iBankCoin.com
- Bizarro World: Some Republicans Now Defending "Failing" ObamaCare
For months now we’ve warned, as have many prominent Republican legislators, that Obamacare is on the verge of collapse (see “Obamacare On “Verge Of Collapse” As Premiums Set To Soar Again In 2017“).
It’s not that shocking really as the fundamental concept behind the legislation made it doomed from the start. The idea was that, out of an abundance of compassion for their elders, young, healthy millennial families would fork up $10s of thousands of dollars each year to purchase health insurance they didn’t really need. Those premiums would then be used to subsidize care for the elderly who consume more than their “fair share,” to quote Obama.
Unfortunately, the basic math skills of our young millennials turned out to be better than the Obama administration had planned for and they figured out they were better off just paying the Obamacare tax to the IRS than paying the larger Obamacare ‘tax’ associated with buying a service they never use. This “adverse selection bias” left risk pools way worse than insurers planned, which drove premiums even higher, which forced even more young people to ditch their insurance and the cycle will continue until the system ultimately fails.
In fact, as we pointed out last week, Knoxville, TN could be ground zero for the Obamacare explosion as it’s 40,000 residents live in a county that has been left with no healthcare options for the 2018 plan year after Humana pulled out of exchanges there.
And, with the fate of Obamacare all but sealed, you can imagine our shock to learn that several House Republicans are now apparently warming up to the legislation.
One such person is Patrick McHenry of North Carolina who says that any efforts of the Trump administration to lure votes from the Freedom Caucus by relaxing rules to allow insurance providers to charge people with pre-existing conditions higher premiums would be a “bridge too far” for some more moderate Republicans. Per The Hill:
Rep. Patrick McHenry (R-N.C.), the GOP’s chief deputy whip, said Wednesday that the Freedom Caucus’s calls for states to be able to apply for waivers to repeal pre-existing condition protections are “a bridge too far for our members.”
Those ObamaCare protections include what is known as community rating, which prevents insurers from charging higher premiums to people with pre-existing conditions, and guaranteed issue, which prevents insurers from outright denying coverage to them.
McHenry spoke in personal terms about the importance of keeping in place those Affordable Care Act (ACA) provisions, contained in Title I of the law.
“If you look at the key provisions of Title I, it affects a cross section of our conference based off of their experience and the stories they know from their constituents and their understanding of policy,” McHenry said.
“My family history is really bad, and so my understanding of the impact of insurance regs are real, and I believe I’m a conservative, so I look at this, understand the impact of regulation, but also the impact of really bad practices in the insurance marketplace prior to the ACA passing,” he continued. “There are a lot of provisions that I’ve campaigned on for four election cycles that are part of the law now that I want to preserve.”
Meanwhile, other Republicans are also supporting ObamaCare’s expanion of Medicaid and the so-called “minimum coverage” mandate that, among other things, requires men to pay for maternity benefits…and while it may now be customary for our snowflakes to “choose” their own gender, we’re pretty sure that biology doesn’t actually work that way.
Many Republicans from states that accepted ObamaCare’s expansion of Medicaid are supporting keeping it.
A group of Republican senators, including Sen. Cory Gardner (R-Colo.), the chairman of Senate Republicans’ campaign arm, last month objected to a draft of the House GOP repeal bill because it did not “provide stability and certainty for individuals and families in Medicaid expansion programs or the necessary flexibility for states.”
The House bill would effectively end the Medicaid expansion starting in 2020. Rep. Chris Smith (R-N.J.) warned that change “affects so many of our disabled individuals and families, and the working poor.”
Republicans had long derided ObamaCare’s “essential health benefits,” which mandate 10 health services that insurance plans must cover. They have said, for example, that men should not be forced to pay for plans that cover maternity care.
But now some Republicans are speaking up in favor of those requirements, including the chairman of the powerful Appropriations Committee, Rep. Rodney Frelinghuysen (R-N.J.).
“In addition to the loss of Medicaid coverage for so many people in my Medicaid-dependent state, the denial of essential health benefits in the individual market raise serious coverage and cost issues,” Frelinghuysen wrote in a statement last month announcing he would oppose the House GOP repeal bill.
House Republicans even touted an amendment on Thursday that they said would bring down premiums by the government helping to pay for the costs of high-cost enrollees. That program is very similar to one that already existed in ObamaCare, called “reinsurance.”
Of course, it’s looking increasingly likely that former House Speaker John Boehnor was right about Republicans and healthcare all long when said that the idea of a quick repeal and replace was just “happy talk….Republicans never ever agree on health care.”
- Eric Peters Calls it: "The Change Of Change Is Now Negative"
Ahead of what we hope will be a relatively quiet week following the juggernaut from the past 7 days, we present readers with another excerpt from the latest weekly note from Eric Peters, CIO of One River, which is not only appropriate in the context of recent observation by UBS, involving the sudden collapse of the global credit impulse, but far more importantly, may be critical for those who are in the business of timing key market inflection points.
From Weekend Notes by Eric Peters
“The change of change is now negative,” said the CIO.
“Global growth is still rising, but the rate of improvement is slowing,” he explained. “Same holds true for global inflation, oil prices, copper, iron ore. Credit growth is slowing in the US, Europe, Japan, China.” If these things were all contracting, we’d plunge into recession, but we’re not there. We’re simply at the point in the cycle where the rate of acceleration is slowing – which is both evidence of a pause, and a precondition for every major turn.
“The last time we had a major shift in the change of change was a year ago.” In Jan/Feb 2016, China was imploding. Commodity prices were tanking with equity markets, the dollar soared alongside volatility. Then China unleashed explosive credit stimulus, while the Fed blinked, guiding forward interest rates dramatically lower.
Within a short time, the change of change turned positive. Which is not to say things immediately accelerated, it’s just that they started contracting more slowly. And that marked the time to buy.
“Pretty much everything that happened in 2016 can be explained by two things; China and oil prices,” he said. “Literally, that’s it.”
China’s stimulus-induced rebound and the oil price recovery is all that mattered.
“Brexit was a joke. Trump was a joke. In fact, the only real significance of those events was that they provided investors with opportunities to jump on board the reflation trade at back near Q1 prices.” The reflation trade quietly began in the Q1 collapse, and accelerated off the extreme post-Brexit summer lows in global interest rates.
“That’s what made last year remarkable. Even investors who missed the first opportunity, had two chances to make a lot of money.” You see, that reward is usually reserved for those who act on the first signs of a change in the change of change.
Summary: as Peters helpfully points out, the change of change – that “green light” to buy risk one year ago when it flipped positive – is now negative. Or, as UBS summarized it simply in just one chart several weeks ago…
- Second-Order Consequences of Self-Driving Vehicles
Authored by Mish Shedlock via Mish Talk,
Benedict Evans, a blogger who works for a venture capital firm that invests in technology, has an interesting article on the shift to electric and self-driving vehicles.
Please consider snips from Cars and Second Order Consequences by Benedict Evans.
There are two foundational technology changes rolling through the car industry at the moment; electric and autonomy. Electric is happening right now, largely as a consequence of falling battery prices, while autonomy, or at least full autonomy, is a bit further off – perhaps 5-10 years, depending on how fast some pretty hard computer science problems get solved.
Both electric and autonomy have profound consequences beyond the car industry itself. Half of global oil production today goes to gasoline, and removing that demand will have geopolitical as well as industrial consequences. Over a million people are killed in car accidents every year around the world, mostly due to human error, and in a fully autonomous world all of those (and many more injuries) will also go away.
However, it’s also useful, and perhaps more challenging, to think about second and third order consequences. Moving to electric means much more than replacing the gas tank with a battery, and moving to autonomy means much more than ending accidents.
Electric Discussion
In regards to electric, Evans points out 150,000 gas stations while noting cigarette purchases and snacks are the way most of those stores make their money.
What happens to those stations?
On September 29,2015, Elon Musk said Tesla Cars Will Reach 620 Miles On A Single Charge “Within A Year Or Two,” Be Fully Autonomous In “Three Years”.
How’s that prediction working out?
On March 30, 2016, Bloomberg noted Tesla Model 3 Electric Car Seen Getting 225 Miles Per Charge and we are not there yet. Business insider a month later suggested a range of 215 miles.
Quartz reports Tesla’s cheaper, more powerful battery cell is the perfect embodiment of its factory model.
Supercharging
A Tesla presskit says their “Supercharger network covers major routes in North America, Europe, and Asia Pacific. There are more than 3,000 Superchargers worldwide.”
Their click here link for Supercharger locations turn up “404 page not found”.
Tesla says their Supercharger can “replenish a half charge in about 30 minutes.” Why not state a quarter charge in 15 minutes or a 16th of a charge in 3.75 minutes?
If a gas fill-up takes up to 4 minutes, then via Supercharger you will only need to stop 16 times as often for a long trip.
Am I missing something here?
It would be one hell of a lot easier if there was a quick and easy way to slide one battery pack out and another into its place.
Home Batteries
Evans notes …
“More speculatively (and this is part of Elon Musk’s vision), it is possible that we might all have large batteries in the home, storing off-peak power both to charge our cars and power our homes. Part of the aim here would be to push up battery volume and so lower their cost for both home storage and cars. If we all have such batteries then this could affect the current model of building power generation capacity for peak demand, since you could complement power stations with meaningful amounts of stored power for the first time.”
Long Distance Woes
Large home batteries do not solve long distance travel.
There either needs to be much greater battery capacity, much faster charging, or a way to quickly swap batteries.
I suppose one could simply swap vehicles every 200 miles but that seems like quite a nuisance.
For those who drive back and forth to work, or only drive within a city, electric works.
But why have a car at all if that’s all you do? Fleets of self-driving cars will work quite nicely vs the cost of one of these babies.
Autonomy Discussion
Per Evans …
The really obvious consequence of autonomy is a near-elimination in accidents, which kill over 1m people globally every year. In the USA in 2015, there were 13m collisions of which 1.7m caused injuries; 2.4m people were injured and 35k people were killed. Something over 90% of all accidents are now caused by driver error, and a third of fatal accidents in the USA involved alcohol. Looking beyond deaths and injuries themselves, there is also a huge economic effect to these accidents: the US government estimates a cost of $240bn a year across property damage itself, medical and emergency services, legal, lost work and congestion (for comparison, US car sales in 2016 were around $600bn). A similar UK analysis found a cost of £30bn, which is roughly equivalent adjusted for the population. This then comes from government (and so taxes), insurance and individual pockets. It also means jobs, of course.
Even simple ‘Level 3’ systems would cut many kinds of accident, and as more vehicles with more sophisticated systems, moving up to Level 5, cycle into the installed base over time, the collision rate will drop continuously. There should be an analogue of the ‘herd immunity‘ effect – even if your car is still hand-driven, my automatic car is still much less likely to collide with you. This also means that cycling would become much safer (though you’d still need to live close enough to where you wanted to go), and that in turn has implications for public health. You might never get to zero accidents – the deer running in front of a car might still get hit sometimes – but you might get pretty close.
I am in complete agreement with the above. And with that is where it gets very interesting. Evans has given this a lot of thought.
if you have no collisions then eventually you can remove many of the safety features in today’s vehicles, all of which add cost and weight and constrain the overall design – no more airbags or crumple zones, perhaps.
As more and more cars are driven by computer, they can drive in different ways. They don’t suffer from traffic waves, they don’t need to stop for traffic signals and they can platoon – they can safely drive 2 feet apart at 80 mph.
Parking is another way that autonomy will add both capacity and demand. If a car does not have to wait for you in walking distance, where else might it wait, and is that more efficient?
So, the current parking model is clearly a source of congestion: some studies suggest that a double-digit percentage of traffic in dense urban areas comes from people circling around looking for a parking space, and on-street parking ipso facto reduces road capacity. An autonomous vehicle can wait somewhere else.
If you remove the cost of the human driver from an on-demand trip, the cost goes down by perhaps three quarters. If you can also remove or reduce the cost of the insurance, once the accident rate has fallen, it goes down even further. So, autonomy is rocket-fuel for on-demand. This makes it much easier for many more people to dispense with a car, or only have one, or leave their car at home and take an on-demand ride for any given trip.
Do you end up with reduced bus schedules? Do marginal bus-routes close, pushing people onto on-demand who might not otherwise have used it – if they can use it? Does a city provide, or subsidise, its own-demand service to replace or to supplement buses in lower-density areas? Does your robotaxi automatically drop you off at a bus stop on the edge of high-traffic areas, unless you pay a congestion charge?
Then, of course, there are the drivers. There are something over 230,000 taxi and private car drivers in the USA and around 1.5m long-haul truck-drivers.
Does an hour-long commute with no traffic and no need to watch the road feel better or worse than a half-hour commute stuck in near-stationary traffic staring at the car in front? How willing are people to go from their home in a suburb to dinner in a city centre on a dark cold wet night if they don’t have to park and an on-demand ride is cheap?
In 2030 or so, police investigating a crime won’t just get copies of the CCTV from surrounding properties, but get copies of the sensor data from every car that happened to be passing.
More Questions than Answers
There is much more in the article. It’s worth a closer look.
Evans raises far more questions than he answers. Yet, I think the question list is just beginning.
My timeframe for long-haul driving jobs vanishing has not changed. I still say it starts 2021-2022 at the latest.
How Many Jobs?
All Trucking says “There are approximately 3.5 million professional truck drivers in the United States, according to estimates by the American Trucking Association. The total number of people employed in the industry, including those in positions that do not entail driving, exceeds 8.7 million.”
I may have over-estimated the number of long-haul jobs that vanish. However, I may have under-estimated the add-on effects.
One should presume autonomous vehicles change cities as much as cars did. That’s just a starting point for thinking about this
— Benedict Evans (@BenedictEvans) September 19, 2016
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If a truck can be on the road 24 hours instead of 11, how many trucks so we need? How many people servicing trucks do we need?
Opportunity for short-haul drivers with smaller trucks will vanish as well. How quickly?
Package delivery by drone is going to happen, especially smaller packages in rural areas. How Quickly?
For now, the savings on long-haul trucking are the greatest, and the obstacles the least, so I see no need to change my belief this will begin in a major way within a 2021-2022 timeframe.
The competition is so massive, all of the above things will happen much faster than most realize.
- Bank Of America: "Previously This Has Only Happened In 2000 And 2008"
Although it will not come as a surprise to regular readers that, for various reasons, loan growth in the US has not only ground to a halt but, for the all important Commercial and Industrial Segment, has dropped at the fastest rate since the financial crisis, some (until recently) economic optimists, such as Bank of America’s Ethan Harris, are only now start to realize that the post-election “recovery” was a mirage.
A quick recap of where loan creation stood in the last week: according to the Fed’s H.8 statement, things continued to deteriorate, and C&I loans rose just 2.8% Y/Y, the worst reading since the start of the decade and on pace to print a negative number – traditionally associated with recessions – within the next four weeks, while total loans and leases rose by just 3.8% in the last week of March, less than half the stable 8% growth rate observed for much of 2014 and 2015.
Yet while zerohedge readers have been familiar with this chart for months, it appears to have been a surprise to BofA’s chief economist. However, in a report titled “Is soft the new hard data?”, Ethan Harris confirms that he has finally observed the sharp swoon lower and is not at all happy by it.
As he writes in his Friday weekly recap note, “this week saw some softness in hard data as auto sales and jobs growth declined sharply. While two observations do not make a trend, this occurrence nevertheless is noteworthy as on the one hand very positive sentiment indicators suggest activity should pick up…
… while on the other hand loan data suggests everybody is in wait-and-see mode pending details of fiscal stimulus (=tax reform) – which highlights the risk of softer hard economic data.”
A frustrated Harris then admits that such a sharp and protracted decline in loan creation has only happened twice before: the 2000 and 2008 recessions.
Weekly bank asset data shows that C&I lending has not increased since September 7 last year (Figure 2)…
… the first period of no growth for at least six months since the 2008-2011 aftermath of the financial crisis, and prior to that after the early 2000s recession (Figure 3).
At the same time, consumer loan growth has slowed substantially – up just 1.4% since the US elections compared with 3.1% the same period the prior year (Figure 4).
Then again, with tax reform seemingly dead, not even a formerly uberbullish Harris find much room for optimism…
As tax reform by House Speaker Ryan’s own account is not going to happen anytime soon, and likely will be watered down as the Border Adjustment Tax (BAT) is replaced by a Value Added Tax (VAT) and the elimination of net interest deductibility for corporations, the biggest near term risk to our bullish outlook for credit spreads we maintain is a correction in equities – most likely prompted by weak hard data.
… and concludes by echoing Hans Lorenzen’s recent warning, that “the biggest near term risk to our bullish outlook for credit spreads we maintain is a correction in equities – most likely prompted by weak hard data.”
- An "Investment" Even More Ludicrous Than Government Bonds
By Chris at www.CapitalistExploits.at
“What about investing in hard assets like diamonds?”
I get asked this sometimes so figured I’d cover it here.
I wrote the below piece some years ago and it answers the question about whether diamonds should be treated as a store of value in an investor’s portfolio.
The word monopoly has its roots in the Greek words monos (single) and polein (to sell). It first appeared in Aristotle’s Politics where Aristotle describes how in Greece in the 6th century BC the philosopher Thales of Miletus cornered the local olive press market:
“Thales, so the story goes, because of his poverty was taunted with the uselessness of philosophy; but from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of money and paid round deposits for the whole of the olive-presses in Miletus and Chios, which he hired at a low rent as nobody was running him up; and when the season arrived, there was a sudden demand for a number of presses at the same time, and by letting them out on what terms he liked he realized a large sum of money, so proving that it is easy for philosophers to be rich if they choose.”
Historically one of the most interesting and controversial monopolies is arguably that of the diamond market in recent times.
Throughout history the supply of diamonds has been very scarce. So much so that it was very difficult even for the creme de la creme of society to get hold of these little stones.
Things, however, started to change in the late 19th century when diamonds were found in South Africa and a lot of supply suddenly flooded the market. The price of what had been valuable only due to its scarcity was bound to tumble. To prevent this taking place, in 1888, a cartel with all the movers and shakers of the diamond mining world was formed under the name De Beers. And oh, what a cartel it has proved to be.
Once the supply of the diamonds was under their control, they had to take care of the other side of the equation – the demand.
To do this they joined forces with an advertising agency N. W. Ayer & Son to impact “social attitudes of the public at large” and thereby channel American spending toward larger and more expensive diamonds instead of “competitive luxuries”, as they put it.
To prevent any price fluctuations caused by selling the diamonds they had to convince the masses to hold onto them and not to “trade”. This is where the motto “diamonds are forever” was born. With a sophisticated advertising and PR campaign they turned diamonds into epitomes of eternal romance and love. In the next few decades, sales of diamonds in the US increased a hundredfold. Not bad, right?
However, it didn’t end there.
They then proceeded to expand to other global markets. In Japan they literally turned a 1,500 year old Japanese marriage tradition upside down as the number of men giving diamond engagement rings to their women rapidly increased in a mere 14 years. Let me tell you, changing Japanese cultural norms is no small task, and yet today Japanese men purchase diamonds for their brides as readily as Americans or Europeans.
Whenever a new diamond deposit was discovered in the world De Beers rushed in and bought it to minimize fluctuations in diamond prices. They had been relatively successful at that until the very end of the 20th century. At the turn of the century some of the diamond producer countries decided to bypass De Beers’ distribution channels and alternatives began to hit the market.
Determining the validity of a diamond takes an expert, and these days even the experts struggle to tell an artificial diamond from a natural one. The average man on the street hasn’t a hope in Hell of knowing the difference.
There are two alternatives to diamonds I’m aware of: moissanite and cubic zirconia, and neither of them have defects, which incidentally is one means of identifying fake from real diamonds. Synthetic diamonds have also been created in labs for decades now and these diamonds are indistinguishable from real diamonds because they are, in fact, diamonds. They are also produced at an absolute fraction of the price of real diamonds.
For anyone who does a little research they’ll find that diamonds are clearly as rare as macaroni cheese and if they’re not rare, they’re not valuable. Certain diamonds, such as graded diamonds, are somewhat rare, but diamonds themselves are certainly not rare. Even if we pretended for a minute that yes, diamonds are rare, we’re faced with the problem that artificial diamonds can be created by the boatload for next to nothing.
Diamonds aren’t liquid, either. Try selling a diamond back to Joey the jeweler and you’ll find that typically Joey will pay between 75% and 80% of the purchase price if the diamond wasn’t bought from his store and isn’t verifiable. In fact, many jewelers won’t buy a diamond back unless you’ve previously purchased that same diamond from them and have the documentation to prove it. Even then, they’ll typically only do a trade in, whereby you buy another higher priced diamond and trade your old diamond in.
In my book, diamonds are a terrible investment. Not rare, not liquid, and not valuable.
That’s my opinion, which is clearly not shared by the world at large. It’s the perception of rarity that matters. Not unlike the perception of safety afforded JGBs, US Treasury bonds, and EU bonds, people value these assets because they are perceived to be valuable. They’re not, but that’s beside the point… until, well… until it isn’t.
How come people buy Rolex watches when many of the fake versions today are indistinguishable from the real ones and, according to a number of jewellers, function just as well? Why do people buy Coca Cola, paying more than any number of the cola versions out there which cost less and have the same amount of disgusting ingredients? How is it that diamonds, which are not rare, and which can be produced for a fraction of the cost, sell for such ridiculous prices?
The answer seems to be that the con job pulled off by arguably THE most successful marketing campaign in corporate history lives on. 15 years ago, De Beers controlled about 80% of the market but that figure has now fallen below 40%. I’m simply surprised that their hold on the market has lasted as long as it has. An exceptional feat. Well done, chaps.
A good friend of mine who is a successful real estate agent likes to say that the key to a sale is ensuring that the woman is pulled over the line. A man will rarely buy a home his wife doesn’t like. I think the same is probably true of diamonds. Try telling your fiance that you bought her a synthetic diamond engagement ring and, “Oh, honey, aren’t you glad I saved a couple of grand?” See how well that goes down.
– Chris
PS: Don’t forget to share this article if you liked it, and if you hated it, don’t forget to send it to everyone you know telling them how bad it is. Have a great weekend!
“A diamond is forever.” — N.W. Ayer & Son Agency
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- China Offers "Concessions" To Avoid Trade War As Trump Readies Anti-Dumping Probe
While there was much fanfare over last week’s summit at Mar-A-Lago between the presidents of the US and China, the tangible results to emerge from what was the year’s most important political meeting, aside for a few photo ops, were few and far between. That may change, at least for purely optical purposes, after a report in the Financial Times that China will “offer concessions” to the US to avoid a trade war, including better market access for US financial sector investments and beef, after the nation’s leaders decided last week in Florida they needed results on trade talks within 100 days.
That said, as the FT itself concedes, “the two concessions on finance and beef are relatively easy for Beijing to make“, especially since one wonders which US firms are in a rush to enter the “bubble-bust” Chinese financial markets which as we described two weeks ago, are persistently on the edge of collapse- not to mention a banking system which has at least $6 trillion in bad debts – and only ever greater government intervention in the form of various Beijing backstops have kept afloat.
In any case, for those brave enough to rush after Chinese financial “bargains”, they will now be allowed to hold majority stakes in securities and insurance companies which at present they can not do. The country’s largest companies in these sectors, such as Citic Securities and China Life Insurance, have achieved enormous scale which as the FT notes “makes them formidable competitors for new entrants to the market.” Which once again begs the question: which private investor would want to compete with the Chinese government which is the de facto owner of all financial enterprises in China?
It is also the case that while US companies are invited to invest domestically, this would result in the creation of more Chinese jobs and perhaps boost China’s current account, without actually benefiting US-Sino trade relations.
Additionally, the FT reports that China is also willing to end a ban on US beef imports that has been in place since 2003, “and buy more grains and other agricultural products as it seeks to reduce tensions stemming from the $347bn annual trade surplus in goods that it enjoys with its biggest trading partner.”
Putting the relatively modest market in context, the US currently exports roughly $6 billion in beef around the world, with Japan, the biggest import market, accounting for about a quarter. It is unclear how big the potential Chinese market would be, and whether it could compete with other foreign importers. That said, the FT notes that “beef exporters have complained about the lingering Chinese ban on US imports, which was introduced after a BSE scare in the US herd.”
The bottom line: “while a comprehensive Sino-US investment treaty remains a distant prospect, both sides are hoping to achieve a number of smaller trade deals in the coming three months.” The real take home message, however, is that if China’s concessions are only aimed at finance and agriculture, is that China will – at least for the time being – not touch its 25% auto tariffs, arguably the most controversial issue in Chinese-US trade relations.
US officials are pressing their Chinese counterparts to lower their current 25 per cent tariff on automotive imports. Beijing in return would like greater protection for Chinese investment in the US, which tripled last year to more than $45bn, and also for Washington to relax restrictions on the sale of certain high-tech products to China. The Chinese government may simply commit to buy more US imports in the same way that Japan did in the 1980s.
Then there is the issue of steel exports, a long-running topic of contention between the two countries: here, too, China is not budging.
“We’re not going to export a whole lot of steel to China,” said Chad Bown of the Peterson Institute. Thanks to a state-directed investment stimulus unleashed in the wake of the global financial crisis, Chinese steelmakers now produce more steel than the rest of the world combined. With the Chinese economy now growing at its slowest pace in a quarter century, reduced demand at home has led to a surge in steel exports, causing global prices to collapse.
Still, with Trump’s economic successes few and far between, the president will gladly take any “concessions” the Chinese offer, even if it means little in the grand scheme of trade relations between the two nations.
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Meanwhile, in a separate report, Axios reported that the Trump administration is preparing an executive order that would probe “unfair” product dumping from foreign companies and could result in tariffs on a wide range of products. Here is what Axios’ Jonathan Swan said he has learned so far:
- Steel and aluminum will be targeted.
- Other products, including household appliances, could be targeted as well.
- If the investigations result in new import duties it could make some consumer goods more expensive and could hurt the stock prices of American companies that rely on cheap steel imports. A good number of American manufacturing companies, however, could benefit from this hit to their low-cost competitors.
A White House official was cited as saying this investigation is part of Trump’s effort to protect American jobs and end unfair trade practices like dumping and foreign government subsidization.
“The administration will use the results of that investigation to determine the best path forward, which could potentially include everything from no action at all to the levying of supplemental duties,” the White House official said. “But whichever action we take will be informed by the results of the investigation and not by predetermined conclusions.”
Axios further adds that Wilbur Ross is the point man on this executive order, which could arrive as early as late April. “But there’s no point getting too wedded to that timeline, because Trump has slowed the pace of executive actions and this is an especially sensitive one: If it’s clumsy, foreign trading partners could see this as the first shot in a trade war.“
Keep in mind this EO would only lead to a probe, no definitive action yet. So putting it in context, if the investigation does lead to penalties on foreign trading partners, “it will be seen a big win for Steve Bannon, Stephen Miller, Peter Navarro, and other economic nationalists in Trump’s orbit. Given the Syria strikes and Bannon’s demotion from the NSC, their clout has appeared to diminish. The Goldman wing, meanwhile, will likely oppose aggressive trade moves.“
Which, disappointingly, is what the Trump narrative in recent days has boiled down to – which camp is winning, the “nationalist” or the “Goldman” one. For now the score is firmly for the latter.
- How U.S. LNG Transformed The Market
Authored by Nick Cunningham of OilPrice.com,
The global market for LNG is changing quickly, spurred on by new sources of supply from U.S. shale.
U.S. natural gas production surged over the past decade, as fracking opened up a wave of new gas supply. That wave led to a glut and a crash in prices long before shale drillers did the same for oil. The U.S. was sitting on massive volumes of gas that routinely traded as low as $2 or $3 per million BTU (MMMBtu).
At the same time, Asian consumers – mainly Japan, South Korea and increasingly China – paid a hefty premium to import gas, with prices spiking close to $20/MMBtu following the Fukushima meltdown in 2011 that left Japan painfully short of functioning electricity capacity.
That presented U.S. gas companies with a straightforward arbitrage opportunity – export cheap American gas to Asia, selling it for a much higher price. The race to build LNG export terminals was on.
But by the time the first LNG export terminal in the U.S. came online in 2016, the gas market was radically changed. On the demand side, Japan – the largest LNG importer in the world – was no longer desperate for gas imports in the same way that it was back in 2011 and 2012. New renewable energy, a monumental efficiency campaign, and a greater reliance on coal cut into gas demand. China’s gas demand has also grown slower than expected.
The effects on the supply side of the equation are arguably much more significant. LNG export capacity around the world has surged in recent years, hitting 340 million tonnes per annum (mtpa) in 2016, up from 278.7 mtpa at the end of 2011, an increase of 20 percent. New megaprojects have come online, including Chevron’s Gorgon LNG project in Australia. A whopping 879 mtpa of new export capacity has been proposed for the future, although much of that probably won’t be constructed now that the market is oversupplied.
Surging supply and disappointing demand caused prices to come down from their peaks. Spot prices in East Asia – the Platts JKM marker – hit $19.42/MMBtu in March 2014. By 2016, Japan only paid an average of $7/MMBtu for imported LNG, or around one-third of the prices from three years ago. Spot prices for May 2017 delivery are now trading below $6/MMBtu.
The glut of LNG today is upending long-standing trade practices. LNG has historically been traded on long-term contracts at prices linked to the price of crude oil. The volume of LNG traded had once been limited, so there wasn’t much of a true market price for the product. Fixing cargoes to the price of crude oil became a common practice. The crash of crude oil in 2014, not coincidentally, also helped push down the prices of LNG.
Now, with so much supply on hand, the market is no longer favorable to sellers. But the U.S. is just beginning to ramp up. Cheniere Energy brought the first LNG export terminal online last year on the Gulf Coast. Other projects are under construction and by the end of the decade, the U.S. could be the third largest LNG exporter in the world behind only Australia and Qatar. By 2035, the U.S. is expected to pass them to become the largest LNG exporter in the world.
“As U.S. exports ramp up, we’re going to see even more flexibility with more people trying to buy and trade volumes. The old models of stable long-term contracts will really have to change,” Zhi Xin Chong, a gas analyst for Wood Mackenzie Ltd., told Bloomberg. “We’ve already seen the impact of U.S. LNG on contract trends, with more destination flexibility coming into play.”
Contracts used to not only have long time horizons, but would also prohibit buyers from reselling cargoes, limiting the development of a true market for LNG. That is changing, and the more reselling and spot purchases, the more liquid (no pun intended) the market will become.
But just because new U.S. suppliers are adding competition does not mean that American LNG is the most competitive. At one point it was – cheap Henry Hub prices competed favorably to high-priced LNG in Asia, particularly when oil traded at $100 per barrel. But spot LNG prices in Asia are now lower than some of the American LNG contracts.
For example, Indonesia’s Pertamina is contracted to buy LNG from Cheniere Energy at Henry Hub prices, plus 15 percent, plus a fixed $3.50/MMBtu fee, according to Bloomberg. When the deal was negotiated in 2013, that equated to something like $8/MMBtu – much better than the $18/MMBtu that LNG traded at the time. However, with spot prices down below $6/MMBtu, Pertamina is now trying to get out of its contract.
Buyers are demanding that these age-old contract practices be scrapped. JERA Co., a partnership between Japanese utilities Chubu Electric Power and Tokyo Electric Power, is the world’s largest buyer of LNG. JERA formed a common front with Korea Gas Corp. and China National Offshore Oil Corp to establish a buyer’s club in March to force changes in the LNG market. It is sort of the opposite of OPEC – a buyer’s cartel meant to influence prices and dictate contract terms. JERA is expected to sign a deal with France’s Total, which would see flexible volumes delivered based on spot prices.
But fixed prices and multi-year contracts are not going away entirely – they may just be shifting to lower prices and shorter terms. The former head of Cheniere Energy, Charif Souki, recently offered Japanese customers five-year contracts fixed at $8/MMBtu from an LNG export terminal on the U.S. Gulf Coast beginning in 2023, a contract much shorter than in yester-year when they spanned decades. Now head Inc., Souki is confident his capacity will sell out.
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