Monday, February 17, 2014

The Next Big Thing in Finance!

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By: Chris Tell at http://capitalistexploits.at/

That's what its being called. Crowdfinance or crowdfunding, is a space we've spoken about repeatedly on this site. Mainstream media have been a little slow to wake up to it, but wake up to it they will.

It is MASSIVELY DISRUPTIVE, and the implications for traditional brokers, investment bankers, venture capitalists and the numerous flow-on and related industries cannot be underestimated. 

For the last few years we've watched the crowdfunding space intently and have deep connections in the industry. 2013 landed up being a pivotal year for crowdfinance and 2014 looks even better.

In a regulatory environment that has appeared to be sleepwalking into high-vis misery, the SEC removal of the 80 year ban on general solicitation for private companies was a step in the opposite, yet right direction. Catalytic mainstream acceptance was further solidified, and a number of high profile investments were made. Google led a $125 million deal buying a stake in Lending Club, valuing the world's largest p2p lending platform at $1.55 billion. Blackrock came in as a strategic investor to Prosper, to name but two.

Our friend Dara Albright, Co-founder of NowStreet Wire, has 4 predictions for 2014. Incidentally we don't disagree.

CAPITAL WILL BE REALLOCATED FROM TRADITIONAL FIXED INCOME PRODUCTS INTO PEER-TO-PEER (P2P) LOANS2013 was an extraordinary year for p2p lending. The domestic market grew 177%, the global market exceeded $8B, and the industry began winning over an initially skeptical media. As the financial press increasingly draws attention to p2p’s greater and more stable returns, we should experience an exodus from bond funds into p2p. This past year, many active bond managers underperformed their benchmarks, and investors began withdrawing money from bond funds at record paces. According to Lipper US Fund Flows data, over $60B has been pulled from municipal bond funds alone in 2013 – the most since 1992. With p2p garnering mainstream attention, conventional fixed income asset classes languishing, and wealth managers becoming more knowledgeable about p2p investing, more capital is likely to find its way into a diversified portfolio of p2p loans.EQUITIES CROWDFINANCE WILL GERMINATE THROUGH SELL-SIDE CHANNELSWhereas p2p lending sprouted from the yield-hungry investing public before being chased by the institutional buy-side, the equity side of crowdfinance is more likely to germinate through sell-side channels such as boutique investment banks and small cap underwriters who possess decades of experience selling “story stocks”. In 2014 brokerage firms will quickly discover additional revenue streams emanating from corporate crowdfinance products such as PIPRs (“Private Issuers Publicly Raising) and crowdfinanced IPOs. Instead of leaving money on the table, BD’s will embrace these new products that not only contain more attractive commission structures, but mitigated compliance risk.OTHER CROWDFINANCE STRUCTURES WILL PROVE MORE VIABLE THAN TITLE III CROWDFUNDING.Despite what most crowdfunding enthusiasts would like to believe, Title III Crowdfunding, as proposed by the SEC, will not be the holy grail of capital formation. There are more feasible and cost-effective options available to issuers such as PIPRs, intrastate crowdfunding and even rewards-based crowdfunding. Title III Crowdfunding will likely undergo a number of legislative iterations, such as increasing the $1M offering threshold, before it becomes practicable for most emerging businesses. While national securities-based crowdfunding remains in flux, “locavesting” or intrastate crowdfunding will be a better way for most regional businesses to raise funds. As more states follow Georgia and Kansas in bypassing the SEC and implementing their own crowdfund legislation, more businesses will have an opportunity to reach out to their community for growth capital.VENTURE CAPITAL WILL CHASE CROWDFINANCE INFRASTRUCTURE PLAYSVenture capitalists, looking for ways to capitalize on crowdfinance, will recognize that a vast amount of wealth will be generated in infrastructure plays. In 2014, venture capital will flow into those companies that provide settlement & clearing functionality, supply market data to the global investing community, and facilitate secondary transactions of crowdfinanced offerings and p2p debt.Finally, it must be asserted, that no nation has ever succeeded, or will ever succeed, by printing or taxing its way to prosperity. Nor can a nation stimulate its economy by restricting its middle class investors and entrepreneurs from accessing portfolio yield and growth capital. However, employing the doctrines of crowdfinance – granting all citizens the ability to freely invest in the ingenuity and invention of fellow citizens – has proven to be a winning formula. In fact, it is what enabled a simple farmland to become a global innovation leader and the greatest economic superpower in the history of the world. And it is crowdfinance that what will fund the innovation that will fuel the next economic boom. As the crowdfinance industry crosses these new milestones in 2014, it will be paving the way for new medical cures, technological advancement and greater wealth equality.

It is this last prediction which we're seeing happen already and we absolutely, 110% wholeheartedly agree.

The early signs are evident. We have a dedicated staff member who's job is to provide us with a weekly data dump of all that is new in the world of crowdfunding, p2p, etc... Naturally, out of this we hear about a lot of "experts" popping up. Bloggers who clearly know close to nothing about private equity, and nothing about investing in-fact, entering the space touting how you too can make millions in private equity. Yes, you too can become obscenely rich investing in the next Google. Let the games begin. A bubble here we come.

I think we are still a ways off the sector really gathering momentum. To front run this inevitable bubble, Mark and I, together with our CPAN members, have just made our first investment in this space. It's an infrastructure play, per Dara's 4th prediction above.

I think 2014 will be a banner year for equity crowdfunding and push us further towards bubblicous territory, which will likely peak in a few years time. Just a guess. An educated one, but a guess nonetheless.

I'll add another couple of predictions to the pot.

We'll see a new version/s of "Shark Tank";Much like co-ops in the third world aggregate community projects, I can envision local communities crowdfunding social projects such as playgrounds, theaters and even community gardens.

Let us know what you think in the comments section. We'd love your feedback!

- Chris

"Venture capital is a bad business" - Fred Wilson (well known venture capitalist and partner at Union Square Ventures)

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Think of the China credit crisis is on? Do not look at this table

Bailing out of the highly-watched product management "Credit equal Gold #1" richness and safe dotted with liquidity (CNY375 billion of the PBOC) the survival of the lunar new year liquidity crisis has much to believe the worst is over. Although we discussed this fallacy in depth here, the table following the total collapse in the largest Chinese coal producers said that it is far from over. The rating equal to or less than the book value, investors clearly are signaling concern about the quality of assets aptly summarized by a local analyst - China coal industry (including loans back a massive amount of wealth management products) is "dead".

Through Bloomberg,.

Shares of largest listed China coal producers have dropped to their lowest valuations on record as the fall of fuel prices make it more difficult to repay the debt.

Bloomberg table above follows the ratio price-to-book of China Shenhua Energy Co., China Coal Energy Co. and Yanzhou Coal Mining Co. trade of China coal and Yanzhou Coal below the value of their net assets, while Shenhua Energy dropped to about 1 times book. The lower panel displays the index energy gauge CSI 300 negotiated at a record price for the MSCI all country world energy last month.

Slowdown in economic growth and designed to increase the use of alternative fuels were dragged to the low price of coal in China, most big world producer and fuel consumption. Bank the country's regulator ordered its regional offices to increase the control risks of credit industry, two people with knowledge of the case, said last month, signaling the concern of the Government about the default possible values.

The coal industry of China are "dead" says Laban Yu, an analyst with Jefferies Group LLC in Hong Kong with a rating of underperform on all three stocks. "There are 10,000 producers in China. Many of them take on the debt. It becomes harder and harder to service debts when the coal prices continue to fall. "

China coal warned on 24 January that net income by 2013 will be probably as much as 65 percent in the previous year. The second producer had 50 billion yuan (8.3 billion$) net debt at the end of last year, the net cash position of 6 billion yuan in 2011, according to a note from Barclays Plc last month. The stock has tumbled by 82 per cent from its 2008 peak.

Shenhua drops, the designated unit of the China coal producer n ° 1, have wiped out 178 billion $ market value since the 2007 reached a peak in stock - equivalent to the value of Bank of America Corp. Yanzhou Coal, ranked fourth, has fallen by 80% of its 2011 high.

So, in summary, the PBOC has to the rescue plan, a 'small' wealth management product due to fears of contagion, just to amplify the future problems and investors are coal companies price (including a large number of shadow banking facilities of return) for major problems to come... and the PBC should pump CNY 375 billion in just last week support the banks through the new year...

But apart from that - Yes, the China credit crisis must be more because the U.S. actions are in place for 3 days...

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Sunday, February 16, 2014

SEC Lashes Out At Wolves Of Wall Street- Suspends 225 Companies

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Courtesy of Joao Peixe of OilPrice.com

The US Securities and Exchange Commission (SEC) has suspended 255 shell companies from trading until 14 February to prevent “pump and dump” fraud, and stocks will not be relisted if companies fail to prove they are operational.

The suspension took hold at the start of trading on 3 February and will end at 11:50 p.m. on Feb. 14. Suspended stocks can't be relisted unless the company can prove it is still operational, a requirement that the SEC said was "extremely rare."

The SEC suspension covers shell companies in 26 US states and two unnamed foreign countries, with the US regulator describing the targets as “ripe for abuse”.

These “pump and dump schemes” being targeted by the SEC generally occur when violators talk up a thinly traded microcap stock through false and misleading statements about the company to the market. The violators buy up the company’s shares cheaply and the pump up the stock price by creating the appearance of market activity and then dump the stock for a massive profit.

This activity was made famous through the 2014 Hollywood movie, The Wolf of Wall Street, which is based on the true story of former US stockbroker Jordan Ross Belfort, who served 22 months in prison for causing investors to lose $200 million through a pump and dump scheme.

The SEC moved to suspend 61 other shell companies in June last year, along with 379 shell companies in 2012. This is part of the SEC’s ongoing initiative dubbed “Operation Shell-Expel,” which was launched in 2012.

The suspension will end at 11:50 p.m. on 14 February, and according to the SEC, the “trading suspension essentially renders the shells worthless and useless to scam artists.”

Because these shells all too often are used by those looking to manipulate stock prices, we will continue to protect unwary investors by suspending trading in shells,” Andrew J. Ceresney, director of the SEC’s enforcement division, said in a statement.

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. Click here to learn more about the Free Oilprice.com Energy Intelligence Report.

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Saturday, February 15, 2014

Which Hedge Fund Strategies Will Work In 2014: Deutsche Bank's Take

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While January was a bad month for the market, it was certainly one which the majority of hedge funds would also rather forget as we showed yesterday. So with volatility, the lack of a clear daily ramp higher (with the exception of the last 4 days which are straight from the 2013 play book), and, worst of all, that Old Normal staple - risk - back in the picture. what is a collector of 2 and 20 to do (especially since in the post-Steve Cohen world, one must now make their money the old-fashioned way: without access to "expert networks")? For everyone asking this question, here is Deutsche Bank with its take on which will be the best and worst performing strategies of 2014.

So without further ado, here is the Deutsche Bank Asset and Wealth Management's forecast of hedge fund performance matrix:

Summary of key drivers for hedge fund returns

Below is a non-exhaustive list of market parameters that we believe drive hedge fund returns and our forecasts for these drivers.

What this means for a balanced hedge fund portfolio is set out below, with desired allocations in the penultimate column

We expect hedge funds will again outperform their historical average return in 2014.  Below, we set out our forecast for each strategy.

Equity long/short: Overweight

Our positive forecast for equity long/short is underpinned by our expectations of steady gains for equities and a helpful environment for stock-pickers, particularly as progress on tapering is priced into markets during the year. The latter will be a continuation of conditions in 2013, when correlations declined within equity markets and managers were rewarded for their research on individual company valuations.

In the US, we think equity markets will reflect company fortunes first and foremost, rather than macro and political influences – we do not expect a re-run of last year's Congressional stalemate. Overall, the Federal Reserve’s reiteration of its low interest rate policy should support growth and equity valuations.

We have a similar outlook for Europe, where the tail risk of a eurozone unwind has diminished markedly, the German election results support the future of Europe as a single entity, and signs of economic recovery are increasing. In emerging markets, we see more selective opportunities driven by individual country risk.

Equity market neutral: Overweight

Both factor-driven and statistical arbitrage managers should receive tailwinds in 2014. Factor-driven approaches should benefit from the improved stock-picking environment, as well as an increased focus on style and valuation factors by investors in more stable markets. Further support should come from the re-opening of new markets to the strategy (including Japan), as well as reduced capital in the sector, which should expand the opportunities for the remaining universe of managers. Statistical arbitrage managers should also benefit from a relatively uncrowded operating environment, as well as likely intermittent rises in volatility.

Discretionary macro: Neutral/Overweight

For some time this sector has been battling headwinds in the form zero interest rates and compressed FX volatility. We expect these to abate, especially during the second half of 2014, at last allowing managers to expand their opportunity set into interest rate and FX markets. In particular, the timing and pace of tapering in the US should offer opportunities for fixed income curve trading.

The contrast in the use of central bank balance sheets in the US and Europe throughout 2013 – expansion for the Federal Reserve, contraction for the European Central Bank – should create relative fixed income trading opportunities and, by implication, FX opportunities in 2014. Any change in ECB policy, perhaps sparked by the spectre of deflation, will increase volatility and return potential.

In Japan the reflation theme should continue to provide trading opportunities, while in emerging markets weaker economies more reliant on international capital flows should witness higher volatility in their exchange rates.

CTAs: Neutral/Underweight

We are marginally negative on medium-term and long-term trend followers in a portfolio context. CTA strategies will offer more for investors only when trends pervade beyond long equities. For now, long-term trends are likely to be in short supply in an environment of gradually rising equity markets, where the balance of returns is driven by stock-picking.

The Federal Reserve and other central banks are making greater use of forward guidance to try to head off sharp moves in risk assets. That said, some short-term strategies may benefit from the intermittent volatility we expect to see across certain asset classes.

Credit strategies: Neutral/Overweight

Despite current tight spreads and the potential for rising interest rates, we are constructive on credit. These headwinds are tempered somewhat by opportunities in floating-rate paper and higher convertible bond issuance.

Long/short credit strategies should benefit from the improved conditions for fundamental approaches, even though spreads are likely to remain unchanged. In this sector astute research by managers will be required, because many bonds continue to trade above par, limiting the upside against call risk.

There are opportunities for longer-term strategies in structured credit. These are supported by an improving US housing market and the potential for rising interest rates, which would reduce pre-payments and thus support mortgage derivatives. Meanwhile, higher equity markets have spurred new issuance in the convertibles market, creating opportunities in secondary markets.

Event-driven: Overweight

Event-driven strategies should continue to perform well. Activist managers should be able to derive opportunities from the significant cash piles on company balance sheets. For merger specialists, the potential for consolidation in the telecoms and materials sectors especially should drive increased returns. Similarly, we expect better performance for risk arbitrage and merger arbitrage managers on higher deal flow driven by company management teams' desire – or necessity – to increase return on capital.

Distressed: Underweight

The dearth of bankruptcies (both current and expected) will drag on returns for managers in this sector throughout 2014. Default rates are currently at a historically low level of 2.2% (compared to an average of 4.9%), and forecasts suggest they will remain muted throughout 2014. Debt maturities will not ramp up until late 2016.
Valuations remain full, with defaulting bonds and bank debt trading above long-term averages. The proportion of performing credit trading at either stressed or distressed levels is therefore also historically very low. As a result, there appear to be few opportunities – and significant money is chasing those that do exist, especially in Europe.

* * *

Which probably means that in retrospect Distressed - that most universally panned of all strats - will likely be the winner. But then again, this is the New Normal, where nothing makes sense, and where groupthink is generously rewarded...

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Fukushima's Legacy: Understanding The Difference Between Nuclear Radiation & Contamination

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Submitted by Chris Martenson of Peak Prosperity,

Are fish from the Pacific safe to eat?  What about the elevated background radiation readings detected in Japan, and recently in California? Are these harmful levels?

Should we be worried? And if so, what should be done about these potential health threats? What steps should we take to protect ourselves?

As many of you know, I'm a scientist by training. In this report, I'll lay out the facts and data that explain the actual risks. I'll start by pointing out that Fukushima-related fears have been both overblown as well as heavily downplayed by parties on each side of the discussion.

Much of this stems from ignorance of the underlying science. But some of it, sadly, seems to be purposefully misleading. Again, on both sides.

To assess the true risks accurately, you need to know about the difference between radiation and contamination.  The distinction is vital and, unfortunately, one of the most glossed-over and misused facets of the reporting on nuclear energy.

All of my research and understanding of the risks of radiation at this point indicate that people living in the west coast of the US or in Hawaii are currently not in danger from the radiation released in the wake of the Fukushima tragedy. 

While the background levels are elevated somewhat, those detected so far remain well within what I consider to be a safe zone.  However, should there be another accident at the damaged facility leading to the release of another large plume of radioactive matter, then this assessment could, understandably, change.

The exception to this assessment is for those living within a hundred kilometers of Fukushima. For those people, my analysis points to serious risks, especially for those living with a kilometer or two of the coast, extending 100 kilometers in either direction. The details behind my assessment are contained in the full report below.

The intent of this report is to help readers understand the likely implications of the Fukushima situation with more clarity, as well as to provide a useful framework for identifying the risks posed by any future nuclear incidents and what your response to them should be.

The most important takeaway from this analysis should be this: Radiation, itself, is less a threat than most people imagine. But radioactive contamination is an entirely different and far more dangerous beast. 

While both deliver a ‘dose’ of radiation, it's contamination -- especially ingested contamination -- that has the greatest odds of delivering a concentrated dose to human tissue in a way that can lead to serious acute and/or chronic damage.

The difference between these two will be explained in detail. For those who chose not to read the full report and just want the punchline, it's this: Contamination is the process of acquiring radioactive particles that then become lodged on, or more dangerously in, your body. Do all you can to protect yourself against it.

Should you find yourself nearby during a nuclear accident, your first order of business is to avoid breathing or ingesting any contaminated particulate matter.  This usually involves sheltering in place and is when duct tape and plastic sheeting become your best friends.  While it may sound silly to use such a dime-store defense against a nuclear hazard, it is in fact both remarkably effective and entirely necessary. Merely keeping you and your family away from the fallout for a matter of 2-3 days, possibly a bit longer depending on conditions, can make an enormous difference in your survival odds. 

For now, the levels of radiation that have been detected and reported outside of Japan are between two and three orders of magnitude below what I would personally consider to be worrisome. And there’s no concrete evidence the the bigger concern, contamination, has traveled to countries outside of Japan.

And within Japan, the story takes on its own complexity (just as happened in the areas surrounding Chernobyl), where local wind patterns in the days after the accident created a complex quilt of danger and (relative) safety.  

For those who wish to engage with the context and details of the post-Fukushima world, the journey begins by understanding what ‘radiation’ actually is. 

What do we mean when we say 'radiation'?  It turns out, that word can mean any number of things. 

You are bathed in radiation every day: from sunlight, radio waves, wifi, etc. Some radiation is electromagnetic (in the case of light) and some is composed of particles (matter).

When we hear about ‘radiation’ in the press, what’s typically being referred to are potentially harmful forms of energetic emissions, both electromagnetic and particulate, that can damage biological organisms.

The main distinction between harmful and benign radiation lies in the ability of the radioactive wave or particle to ionize a molecule in your body. Technically, 'ionizing' means "to create an ion", which involves forcibly stripping an electron off of a molecule or atom. This leaves the molecule or atom in a charged state (referred to as 'ionic form'), and thus can cause the affected particle to break apart or otherwise not work as it did before. 

For example, the hemoglobin in your blood is a very complex molecule. Breaking even one of its internal bonds can completely destroy its ability to carry oxygen.  

Every cell in your body is an enormously complex machine with thousands of different molecules each with a crucial function. Wreck enough of these molecules through the process of ionization and the cell dies. Destroy or disrupt the DNA at the center of the cell, and malfunction will result; one dramatic form being the loss of the ability to self-regulate its growth, which we call cancer. 

Radioactive substances emit various forms of energy. Some of the energetic releases are in the form of photon waves (such as gamma or X-rays) while some are in the form of actual fast moving particles (such as alpha and beta particles, and neutrons).

We lump them all together and call them ‘radiation’. But when it comes to their impact on living organisms, not all forms of radiation are created equally. Some are far more effective 'disrupters of life' than others.

The basic types of radiation you would encounter as a consequence of a nuclear accident like Fukushima are:

Alpha particles.  These are fast moving nuclei of helium, meaning they consist of two protons and two neutrons.  The electron shell is missing, so these are charged particles in search of electrons to strip from some other hapless molecule or atom. In the subatomic world, these are very large particles and so are the most easily stopped. They cannot penetrate even a single sheet of paper or the layer of dead skin cells on the outside of your body. As a result, they are quite easy to protect against with minimal effort. However, we shouldn't take total comfort in this fact. The deadly toxin Polonium 210, the one used to kill various enimies of the Russians over the years, emits alpha particles and is quite effective as a poison. The reason for this lies in the fact that, once ingested, it works its damage in close proximity to a person's cells. On the outside of a body, alpha particles bump into already-dead skin cells, so no harmful damage results.  On the inside, they careen straight into living cells and are quite damaging.Beta particles.  These are electrons that have been ejected through a radioactive decay process (technically, it's when a neutron decays yielding both a proton and an electron).   Beta radiation can penetrate a sheet of paper easily, and requires something along the lines of an aluminum plate a few millimeters thick to stop it. Beta particles have medium ionizing power and medium penetrating power, but there is a very wide spectrum of potential power intensities depending on exactly which radioactive substance is emitting the beta particle. One very common radioactive substance found in nuclear plants, tritium, is a beta emitter.Gamma rays.  These are high-energy photons with strong penetrating power and high ionizing potential.  In the past, they were distinguished from x-rays on the basis of their energy potential, but they are really the same thing (they are both high-energy photons). Although, what we call an x-ray generally carries a lot less energy than a gamma ray. That is, an x-ray is at the low end of the energetic spectrum while a gamma ray is at the higher end. This is exactly analogous to the difference between visible sunlight and UV rays, which are the radiation (composed of high-energy photons) that burn your skin.  Just place gamma rays a lot further along that same spectrum all the way at the point where, instead of being stopped by your underlay of skin, the gamma rays can create an equivalent ‘sunburn’ on tissues all the way through your body. Gamma rays vary in strength and actually occupy a spectrum of energies (not unlike how white light includes the spectrum of all the colors of the rainbow), so we need to know more about the specific gamma rays in question to know how damaging they might be. Neutrons.  Neutrons are the bad boys of the radiation story; and are only found as a consequence of a nuclear reaction (controlled or uncontrolled).  Their penetrating power is extraordinary, requiring several meters of solid substance to stop them. They work their harm by indirect ionization, which is not unlike a pool ball smashing into a lamp. A typical example would be the capture of a neutron by a hydrogen nucleus consisting of a single proton, which is then ripped away from its position by the kinetic energy contained by the neutron, and then, like our billiard ball, careens about breaking things, ionizing some atoms/molecules, or shattering the bonds between atoms. In terms of biological damage, neutrons are horrific -- roughly ten times more damaging than beta or gamma radiation on a per unit of energy basis.

Of course, there's a lot of complexity buried within each of these 'buckets' of radiation types; especially given the uncertainty that each bucket has a range of energies associated with it. 

To help clarify this, imagine that we're talking about radiation as if it were vehicles traveling on a highway. It's not really possible to predict how destructive it would be to collide with 'a vehicle' because that answer depends on knowing factors like the vehicle’s size, weight and speed.

Bumping into a small car traveling slowly in your same direction will be far less damaging than slamming head-on into a large fully-loaded Mack truck going 80 mph.

The way this is technically measured is by the energy that each type of radiation carries, measured in units called 'electron volts' (eV).  Think of the eV rating as combining both the speed and the mass of the vehicle we are trying to rank. 

To the eV designation, we'll add the scientific shorthand of K for 'kilo' signifying 1,000 and M for Mega signifying 1,000,000. So 1 KeV = 1,000 eV, and 1 MeV = 1,000,000 eV

Along our radiation 'highway' we find that x-rays carry the least energy and are in the vicinity of 1.2 KeV.  They are small, light cars. Think Fiat.

Gamma rays are not a single vehicle type because they can have energies anywhere from a few KeV all the way up to 25 MeV.  They are everything and anything from tiny TR-6s to massive, fully loaded, Peterbuilt double trailer trucks traveling 80 mph. For reference, the gamma rays emitted by Cesium 137, a very common byproduct of nuclear reactors and a main component of the Fukushima releases, is 700 KeV, hundreds of times more energetic than your typical dentist x-ray, but not nearly the most potent gamma ray you could encounter.

Some common gamma emitters are cesium-137, cobalt-60 and technetium-99.  Also, about 10% of the radioactivity of iodine-131 is gamma, the rest is beta (making this is a mixed radioelement).

Alpha particles have very high kinetic energies standing at about 5 MeV. However, they have exceptionally poor penetrating power, so we might think of them as very large steamrollers that can lurch forwards violently, but only for a few feet. If you are right next to it, you're in big trouble; but otherwise you're safe.

In years years,  a potent alpha emitter, polonium-210, was used to assassinate both Yasser Arafat and Russian critic Alexander Litvinenko. Because polonium-210 only emits alpha particles, you could carry it in a glass vial in your pocket and slip though radiation detectors at any facility because none of the alpha particles would make it through the vial wall (and even if they somehow did, they’d be stopped by the fabric of your pants pocket). In fact, you could merrily rub it on your skin and suffer no ill effects. 

But if ingested? Just a few milligrams, a speck the size of a small grain of salt, would be sufficient to kill. All those gigantic lurching steamrollers would be positioned right next to your living cells, crashing into them and destroying your tissues one cell at a time.

Common alpha emitters include radium, radon, polonium, uranium and thorium.

Beta particles are electrons ejected during proton decay, and they travel at high speed. They can range anywhere between 5 KeV and 20 MeV. For our purposes, the isotopes most commonly associated with nuclear reactions are in the range of 19 KeV (tritium) to 600 KeV (iodine-131 and strontium-90) to 2.3 MeV (yttrium-90).  So these range from medium-sized cars to tractor trailers in our analogy.

Beta particles have medium penetrating power and they can easily get through your skin to the living tissues beneath. Think of them as being able to give you a very harsh sunburn from the outside-inwards if you were exposed long enough. Again, their worst effects come if ingested, where they can cause lots of damage.

Some common beta emitters are strontium-90, yttrium-90, iodine-131, carbon-14, and tritium.

Neutrons are a very wide topic, so we'll just talk about them in terms of a nuclear reactor. The moderate to fast neutrons emitted as a product of fission are extraordinarily dangerous and can penetrate lead shields and many meters of concrete. They are most readily stopped by interacting with hydrogen, so water and wax (and human bodies)-- which contain lots of hydrogen atoms -- are better at stopping neutrons than concrete. 

Neutrons are not part of the radioactive release from Fukushima. They really aren't ever an issue unless you somehow find yourself near an open, uncontained source of fission -- like inside the containment shell of an operating reactor, or in the vicinity of an exploding nuclear bomb. Then neutrons are a BIG problem.

Of note: in the early stages of the Fukushima meltdown, neutron 'beams' were detected 13 times from outside the reactors. This understandably caused the TEPCO workers a lot of worry and slowed their response efforts. This was a certain indication that there was spontaneous fission happening outside of a sealed containment vessel, something that TEPCO was busily assuring the world had not happened. They were still claiming that the vessels were intact and full of pumped cooling water. 

The bottom line is that the topic of radioactivity is complex. If we want to make intelligent decisions, then we need to know which type of radiation we are talking about. 

For example, there are folks walking about with mail-order radiation detectors and reporting ‘counts per minute’ readings. But counts of what exactly?  Is each ‘count’ a low-energy beta particle or a high-energy gamma ray? There’s a world of difference between the two.

So we owe it to ourselves to dig into the context before coming to conclusions. To determine how concerned we should be about any new data, we have to translate ‘counts’ of any particle into their potential health effects. 

Okay, here's the thing most people don't know about radiation: we are surrounded by it and have evolved with it over billions of years. The body can deal with exposure to a certain amount of ionizing radiation without any difficulty at all. Naturally occurring radioactive elements such as uranium and radon and carbon-14 have been a part of life since the very beginning. Gamma rays rain down from the celestial heavens every day.

So radiation alone is not a cause for concern for me.  Even temporary radiation levels that are significantly above my normal background baseline, as much as ten or twenty times, are not a concern of mine as a healthy adult.

But as our vehicle analogy above showed, first we have to know what kind of radiation we are talking about. Is it alpha, beta, or gamma?  How much energy is it carrying?

We also need to know about the person being exposed to the radiation. Tolerance levels for what's "safe" will be lower for kids, the old, and the frail.

For these reasons, science has struggled to come up with a universal measurement for the health impact caused by radiation. As a result, we have several different measurement methodologies parked into a few slightly different, but essentially related, scales. Each attempts to combine the acute effects of radiation exposure into a single 'dose' that is a measure of both the intensity and the duration of the exposure.

As mentioned previously, some radiation has the ability to travel right through our bodies entirely without being absorbed. So, the ‘dose’ reading needs to focus on the amount of any specific radiation type that will be absorbed (or stopped) by the body and thereby have opportunity to impact the molecules in that body.

The radiation absorbed dose is measured in the Gray, rad, rem and Sievert

Rads and Grays are related to each other. One Gray is a huge dose; and the rad just breaks the Grays down into finer units. One Gray = 100 rads (rad stands for Radiation Absorbed Dose). These measure the amount of energy that ionizing radiation imparts to matter.  This matter could be anything: a block of cement, or a human.  

Sieverts and rems are likewise related. One Sievert = 100 rems, but these are adjusted to provide a measure of the impact of the absorbed dose of ionizing radiation on biological tissue. To equate the two systems, the absorbed dose in Grays or rads is multiplied by a 'quality factor' that is specific to each type of radiation to account for their different biological impacts: the result is Sieverts or rems.  Thus, using our vehicle analogy from before, our small sedans get an adjustment factor of 1, while heavier vehicles get an adjustment factor as high as 10-20 times greater. 

(Source)

Based on this table, it's no wonder that polonium-210 is such a devastating radiological poison, because alpha particle get an adjustment factor of 20(!) making them twice as deadly as fast neutrons even. But, again, the alpha particles have to be ingested to have that impact; whereas neutrons can travel through ten feet of concrete and still be dangerous.

Keep in mind this table is a huge simplification of a very complicated field of study. For example, it also matters which tissues are being exposed, as they have very different sensitivities to radiation. 

However, if we are talking about an episode of external exposure to radiation, like a worker at Fukushima might get, then we care about the Sievert or rem scale:

1 Sievert (or 1 Sv), or 100 rem, will induce nausea and reduce the white blood cell count5 Sv, or 500 rems, would cause death for 50% of those exposed in a matter of months10 Sv, or 1,000 rems, is 100% fatal within weeks

The above table leaves out the element of time, so if you are standing near a source of ionizing radiation that is hitting you at the rate of 1 SV per hour, after ten hours you will have received 10 Sv, a fatal dose.  If you stand next to that source for an hour you will get nauseous, and destroy some of your white blood cells.  If you only stand there for ten minutes, you'll receive something like 100 mS (the maximum yearly allowed dose for US nuclear workers) and likely not feel any adverse effects.

Thus, dose is a function of intensity and time. You may recall seeing the grainy footage of Chernobyl ‘workers’ ducking out from behind cover and racing to move a single wheelbarrow of rubble from point A to point B. In those few seconds, they may have received a lifetime maximum dose of radiation and were (hopefully) sent home after accomplishing that one task.

The average global background radiation is 0.27 microS/hour (that's millionths of a Sievert). If we multiply that number by 24x365, it yields an average yearly dose of 2.4 mS/yr.  TEPCO workers are permitted to receive 250 mS/yr, while US nuclear worker standards are 100 mS/yr, which is roughly 25 times greater than background.

The average airport security screening device delivers a dose of 0.25 microS, or the equivalent of a full day's background radiation.  If that alarms you, just know that during the actual flight you take, the average exposure is ten times higher than that -- providing 2.7 microS per hour of flight at cruising altitude, or ten times normal background. So a 5-hour flight at cruising altitude will provide you with a dose of gamma radiation that measures 54 times more than you get at the airport screening itself, or two full days worth of background radiation.

Again, at these levels I am not even remotely concerned.  It there were something to worry about then the epidemiological data from flight attendants and pilots would have long ago revealed a health concern. That's one reason why I'm not worried about periodic episodes of 10x normal background radiation.

Of course, the Sievert is a very crude scale, developed a long time ago. One might argue that the biological impact of airport screeners and whole-body gamma irradiation might be more subtle and complex due to differences in tissue responses and how the radiation is concentrated on the surface of the skin by airport scanners.  All of that remains an open question to me, but no enough of one to concern me.

Still, the point here is that we are surrounded by radiation all the time and we absorb a yearly dose no matter where we live, but Denver-ites get a lot more than people living in Miami due to the altitude (less atmospheric protection from extra planetary gamma arrays).

Here's a link to a super useful graphic that visually shows the Sievert doses of both ordinary life and the Fukushima accident in relation to each other.

Based on this chart, plus all of the information above, even if your background radiation goes up by a factor of ten or twenty, I wouldn't be concerned.

But radioactive contamination?  That's a whole different beast. 

By "contamination", I mean ingesting some radioactive isotopes or particles that become lodged in the body somehow.  Perhaps it's a small speck of radioactive dust that gets lodged in the lung where it will persist (like coal dust and asbestos do), or perhaps it's a substance that our bodies try to accumulate because it resembles a biologically useful element (as is the case with iodine or strontium).

In Part II: The Contamination Threat, we examine in depth the threats posed by radioactive contamination, including the most prevalent contaminants to be wary of, and the compounding effects of bioaccumulation and biomagnification. One of the most nefarious aspects of contamination is how it uses Nature's processes against itself.

For the record, we are aware of no imminent public health threat from nuclear contamination outside of already-identified "hot zones". But for those who wish to better understand the risks and prudent protection measures related to the real dangers of a similar Fukushima-type event in the future (or an unfortunate escalation of the current Fukushima situation), being forewarned is forearmed.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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Friday, February 14, 2014

Why Draghi's OMT "Whatever It Takes" Dream Is Fundamentally Flawed

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Authored by Ashoka Mody, originally posted at Project Syndicate,

The German Constitutional Court’s recent decision to refer the complaint against the European Central Bank’s so-called “outright monetary transactions” to the European Court of Justice (ECJ) leaves the scheme’s fate uncertain. What is clear is that the economics behind OMT is flawed – and so is the politics.

The OMT program arose in August 2012, when months of relentlessly rising risk premiums on Spanish and Italian sovereign bonds were threatening the eurozone’s survival and endangering the world economy. To restore confidence and buy time for governments to reduce borrowing, ECB President Mario Draghi pledged to do “whatever it takes” to preserve the eurozone – and that meant potentially unlimited purchases of distressed eurozone members’ government bonds.

Draghi’s declaration worked, prompting a sharp decline in risk premiums across the eurozone’s troubled economies. But Bundesbank President Jens Weidmann, a member of the ECB’s Governing Council, immediately challenged OMT, asserting that the program exceeded the ECB’s mandate and violated Article 123 of the Lisbon Treaty, which bars monetary financing of distressed sovereigns. Before OMT was ever activated, Weidmann took his case to the German Constitutional Court.

OMT supporters were aghast at Weidmann’s attempt to overturn the arrangement. After all, the mere announcement of the program had provided relief to struggling governments and may well have saved the monetary union, at least temporarily. Draghi audaciously described OMT as “probably the most successful monetary-policy measure undertaken in recent time.”

But the German Constitutional Court remains dubious. While it has withheld a final judgment in deference to the ECJ, it has upheld the Bundesbank’s view that OMT, in its current form, violates the Lisbon Treaty. OMT may still survive; but, if it does, it will likely be diluted, allowing the problems that inspired it to reemerge.

However problematic this might be for OMT’s supporters, it should not have come as a surprise. The program was ill-conceived and sold by sleight of hand. The court was right to question the factual basis of the ECB’s claim that the risk premiums reflected an unfounded market fear – a claim that was based on cherry-picked evidence. Indeed, the program’s public defense rests shakily on a presumption of baseless speculative pressures.

The program’s design, however, conceded that the market’s assessments of creditworthiness reflected a real default risk. As a lender of last resort to sovereigns, a central bank must stand ready to purchase sovereign debt unconditionally, in order to neutralize the effects of temporary market disruptions. But OMT is intended to operate more like the International Monetary Fund’s lending – that is, to rescue a particular government conditional on its pursuit of fiscal belt-tightening. If the ECB were truly convinced that risk premiums were unreasonably high, and that distressed countries’ debt was sustainable, conditionality would have been unnecessary.

Moreover, by tackling default risk, the OMT program created a new problem: private creditors, assured that the ECB would prevent governments from defaulting, were encouraged to lend with greater abandon. Reading the decline in risk premiums as a sign of renewed market confidence in distressed sovereigns’ creditworthiness was another self-serving misinterpretation.

A similar situation has unfolded before. In the pre-euro era, propping up the Italian lira invited unrelenting speculative pressure. With the lira eliminated, holding down yields on sovereign debt can be a fool’s errand.

Just as untenably high exchange rates must ultimately depreciate, default is necessary in cases of unsustainable sovereign debt. This is all the more important in view of the ECB’s disinclination to reverse near-deflationary conditions, which raise the effective debt-repayment burden further.

Sovereign-debt attorneys Lee Buchheit and Mitu Gulati warn that markets could “mercilessly test the ECB’s willingness to persist in buying unlimited quantities of peripheral sovereign bonds.” This test will be all the more severe if, as the ECB has conceded to the German Constitutional Court, the bond purchases would actually be limited.

The eurozone must allow for selective default on sovereign debt, with the ECB acting as a lender of last resort for solvent governments. Of course, solvency can be difficult to assess during a crisis. But pretending that sovereigns are never insolvent serves only to compound the problem. As the German court pointed out, the prospect of default will help to maintain financial-market discipline.

By attempting to create a quick fix for the eurozone’s deep-rooted problems, the ECB has stepped into a political quagmire. Even if the ECJ gives OMT the benefit of the doubt, the program’s legitimacy will remain plagued by qualms, leaving the ECB – if only behind the scenes – locked in political jockeying with distressed sovereigns.

The line between audacity and hubris is a fine one. Rather than constituting a great success, OMT may well be remembered as an error born of expediency. Worse, it could undermine the ECB’s hard-won independence and credibility. That is an outcome that the eurozone might not survive.

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What Does Bill Ackman Know About The Future Of Commercial Real Estate?

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Bill Ackman helped rescue General Growth Properties (GGP) - the US 2nd largest shopping mall operator - from bankruptcy in 2009/10 as the company collapsed in the financial crisis. Ackman  "turned $60 million into $1.6 billion" in the process but, according to Bloomberg, has now exited his entire position, dumping his final 28 million share back to the company via a buyback.

The spin, of course, is that it's right to take profits and that GGP is now 'a much different company than it was then."

However, given Ackman's knowledge of JCP (and perhaps RSH), we can't help but wonder, given all the exuberance about Fed tapering must mean the recovery is here and sustainable - just why Ackman would unload it all at such a pivotal time in the US economy...?

Via Bloomberg,

Bill Ackman sold all of his shares in General Growth Properties Inc. (GGP), the second-largest U.S. shopping-mall owner, marking the end of one of the hedge-fund manager’s most profitable investments.

General Growth bought back about 28 million shares from Ackman’s Pershing Square Capital Management LP for $556 million, the Chicago-based real estate investment trust said yesterday in a statement. The hedge-fund firm, which in September sold 25 million shares for $500 million, no longer holds any common stock, the company said.

Ackman, 47, helped rescue General Growth from near-collapse by pushing it to file for bankruptcy in 2009, and was part of an investor group in its subsequent reorganization. The effort “turned $60 million into $1.6 billion,” the hedge-fund manager told Bloomberg News in 2011, and contributed to his flagship fund’s net return of 29 percent in 2010.

...

General Growth shares have climbed 3.2 percent in the past 12 months and are up about 60 percent since the company’s exit from bankruptcy.

The company used “available liquidity” to fund the purchase of Pershing Square’s shares, according to yesterday’s statement.

“It’s a good thing,” Alexander Goldfarb, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview. “This settles up and neatly separates the turnaround from where the company is today.”

Yellen is confident of economic growth; Economists are confident of economic growth; so what does Ackman potentially know about 'anchor tenants' in malls that means commercial real estate exposure is not for him...

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