Writing about economics for a large audience at Marginal Revolution taught Tyler and me to get to the point quickly, use vivid examples, and avoid unnecessary math and other jargon. We brought all these lessons to our textbook, Modern Principles of Economics. We wanted to teach modern topics such as tying and bundling–pricing schemes familiar […] The post In Praise of Modern Principles appeared first on Marginal REVOLUTION.
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Zacks.com highlights: Facebook, AMC Networks, LyondellBasell Industries N.V., Applied Materials and International Consolidated Airlines Group
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Last week we reported that shortly after the biggest equity fund inflows on record at $43BN, retail investors were whipsawed and amid the latest spike in market vol which sent the VIX back over 20, yanked a "huge" $19.9BN in cash from equity investments, of which the $18.6BN in equity ETF outflows was the second highest on record. And while last week may have been shortened by one day thanks to Easter, the volatility remained with US equities subject to increasingly greater swings in both price and sentiment. As a result, according to BofA, equities closed off the quarter with another "huge" week of outflows, led by $13.1BN pulled from equities ($10.6BN from ETFs and $2.5BN from mutual funds), as well as $2.0Bn in bond redemptions. It is worth noting that already some 22% of the record YTD inflows into equities have now been unwound. With the sharp recent reversal in sentiment, it is hardly surprising that Q1 saw the first quarterly loss in the S&P 500 since 2015 and the first quarterly decline in the FTSE All World index since the start of 2016. And while the US was once again the focus of selling, it was not all doom and gloom. In fact, in what BofA's Chief Investment Strategist, Michael Hartnett, has dubbed "the last QE trade", Japan registered the second biggest inflows on record of $5.8bn & annualizing record $149.3bn inflows for 2018 as investors scrambled into the safety of the only central bank which has not given any indication it will be tapering any time soon. According to the FT, it is likely that local Japanese investors took profits on overseas holdings, bringing the money home ahead of the end of the fiscal year on March 31. EPFR Global said most of the cash into Japanese equity funds was yen-denominated, while recent strength in the yen would also have made such a move attractive. What is bizarre is that this flood into Japan counter-intuitively also coincided with testimony in a cronyism scandal involving Abe’s government: Nobuhisa Sagawa, an ex-finance ministry official, said the decision to alter documents about a sale of public land was made by his staff alone and there were no orders from Abe, his wife Akie Abe, finance minister Taro Aso, or any of the prime minister’s aides (some have said Sagawa was clearly lying to protect his former bosses, potentially under duress but so far there is no proof of that). “It is a respite,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, adding that the scandal was “an ongoing issue”. Perhaps the explanation is far simpler: the BOJ simply stepped in, guns blazing, and bought everything it could... just as the ECB did last week with European bonds. Sure enough, on Tuesday, the day of Sagawa’s testimony, the Topix index added 2.7%. In contrast Europe inflows rolling over with biggest outflows since July 2016. In spite of big losses for big tech companies such as Facebook and Google’s Alphabet in March, tech funds saw net inflows of $500m each in the past two weeks. Concerns ranging from online privacy and Donald Trump’s opinion on Amazon have halted a rally in the shares of large tech companies that has been a pillar of the US bull market in equities. Still, as Michael Hartnett adds the tech inflows may be ending: the e-commerce bubble, i.e., the "belly of tech bull market"... ... is now off 11% from March peak "as Occupy Silicon Valley policy drumbeat gets louder" still, Hartnett notes that the $18bn inflows in past 6 months dwarf $5bn prior 15 years. Tech also represents another key danger to the market as the vulnerability of leadership in the equity sector remains: there are just 5 "sells" out of 250 FAAMG recommendations, and "at March peak market cap Facebook ($541bn) > India ($462bn)" (see:"Hedge Fund CIO: "The Market Generals Are Dead"). Furthermore, at 24%, the tech share of US EPS has rarely been exceeded. Meanwhile, the pillar that has been carrying equities for years (courtesy of cheap debt-funded buybacks) appears to be cracking as bond funds took a $1.9bn hit in the latest week. In fact, as BofA points out highlighting the "crack in credit", we just saw a "rare week of outflows across IG, HY & EM debt; in contrast 10th straight week inflows to Treasuries." This is a classic risk-off move, or as Max Gokhman said, commenting on the interest in short-term government debt, "I would look at that as straight-up de-risking. People may see short duration [assets] as a safe haven given all the recent volatility."
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Trina Dalziel/Getty Images The relentless rise of online retailers has led to deep soul searching among brick-and-mortar retailers to find ways to compete. The traditional methods of competing through convenience, assortment, and pricing are largely ineffective against online retailers who outperform brick-and-mortar retailers in these dimensions. The last arrow in the quiver is to use service as a way to distinguish themselves from online retailers. Yet, research suggests that retailers tend to view store associates as an expense to be controlled rather than as a medium to provide better service for customers. Practices such as having barebones staff in stores and unstable scheduling (schedules that vary on a day-to-day basis) have flourished in the guise of enabling greater profits for retailers. In study after study for over a decade, operations researchers have found that retailers understaff during peak hours. Increasing staffing, they found, could increase sales and profits. And yet this message on the costs of lean scheduling fell on deaf ears. Our goal, in a randomized controlled experiment at Gap, was to shift retail associates to more-stable schedules and study the business results. The interdisciplinary team was led by Principal Investigator Joan C. Williams, Co-PI Susan Lambert of the University of Chicago, and Co-PI Saravanan Kesavan of the Kenan-Flagler Business School, University of North Carolina at Chapel Hill. In retail today, most associates are part time, and part-time schedules typically change every day and every week, often with only three days’ notice of next week’s schedule. This was the way scheduling worked at Gap when we began working with them. But after our eight-month pretest in three stores, Gap made two important changes in all U.S. stores: Eliminating “on-calls.” On-calls are when employees are scheduled to work shifts that can be canceled anytime up until two hours before they are scheduled to begin. Requiring employee schedules to be posted two weeks in advance. Once the full experiment was launched in November 2015, 28 stores in the San Francisco Bay Area and Chicago were randomly assigned to control and intervention groups. In intervention stores, store managers who chose to participate committed to trying out the two changes above, plus five additional changes: Giving a core team of associates a “soft guarantee” or 20 or more hours a week. Establishing standard start and end times for shifts. Giving more associates a stable core schedule (meaning that associates will have a consistent schedule from week-to-week). Using the mobile app Shift Messenger, in which associates could swap shifts on their own without getting their supervisor’s approval. Managers could also use the app to post additional shifts. Receiving additional staffing during understaffed periods, which were identified based on analysis of store traffic and conversion rate data. These extra hours were not part of the manager’s labor budget and were only given to the stores that were identified as likely to increase their sales by Co-PI Kesavan’s analysis. More-stable scheduling increased sales and labor productivity The results were striking. Sales in stores with more stable scheduling increased by 7%, an impressive number in an industry in which companies work hard to achieve increases of 1–2%. Labor productivity increased by 5%, in an industry where productivity grew by only 2.5% per year between 1987 and 2014. Our estimate is that Gap earned $2.9 million as a result of more-stable scheduling during the 35 weeks the experiment was in the field. Given that out-of-pocket expenses were small ($31,200), our data suggest that return on investment was very high. (If stable scheduling were adopted enterprise-wide, transition costs might well entail the costs of upgrading or replacing existing software systems.) Unlike the typical way of driving sales through increase in traffic, the sales increase from our intervention occurred due to higher conversion rates and basket values made possible through better service from associates. In other words, the sales increase did not occur due to syphoning of traffic and sales from other Gap stores as the stores that had adopted the new policies became attractive to shoppers. So, this augurs well for the rollout of this initiative to the entire chain as a similar increase can be expected as the risk of cannibalization is low. The conventional wisdom is that lean, unstable scheduling is inevitable in today’s fast-paced, low-profit, brick-and-mortar environment. It isn’t. Our store-level intervention produced a modest shift towards more stable schedules that increased three dimensions of schedule stability: schedules in intervention stores became more consistent and predictable, and employees gained more control over when they worked. Conventional wisdom also suggests that today’s retail environment requires the use of on-calls. Not so: while some store managers expressed initial anxiety about the elimination of on-calls, virtually all managed just fine without them. One manager noted, “I think some managers saw [on-calls] as a safety net to handle business and workload — but we learned we really didn’t need it.” Similarly, while some managers expressed anxiety about having to post schedules two weeks in advance, 90% managed to do so (excluding three outliers where constant changes in store leadership subverted stores’ ability to comply with company policies). A related belief is that unstable scheduling is inevitable due to fluctuations in customer demand. In fact, only 30% of fluctuation in schedule instability stemmed from customer traffic. So more stable scheduling is feasible, and holds the potential for improved sales and productivity. Will these findings on stable scheduling meet the same fate as the decade’s worth of findings on lean scheduling? We hope not. Our study also helped pinpoint the reasons why companies have found it challenging to be able to hear the message that lean and unstable scheduling is not the best business model. Unstable schedules look good because retailers count their benefits and ignore their hidden costs Unstable scheduling allows headquarters to point to the money saved on decreasing labor costs, which is important because labor accounts for 85% of controllable costs in retail stores. However, the money saved on achieving a tight fit between labor supply and labor demand is visible but back-end costs to achieve this fit remain invisible. Our deep reservoir of qualitative data — we did check-ins with participating store managers every two weeks, as well as surveys — gave us a detailed looked into the hidden costs of unstable scheduling, and how a move towards scheduling stability decreased them. Thirty years of studies have documented poor execution in retail, and we found ample evidence linking poor execution to unstable scheduling. Lean staffing with short-hours part-time staff who have unstable schedules can jeopardize customer service in many different ways, most obviously by leading to long check-out lines or situations where customers can’t find someone to help them get a size or style they need. Stable, predictable schedules improved customer service in these and other ways. One very simple improvement? Employees found it easier to show up on time, because they were able to more accurately predict their commuting time. Changing company practices so that employees could take the same bus at the same time of day turned out to be a powerful way to improve the customer experience. Prior research also links unstable scheduling with lower “process conformance” — stores’ conformance to company processes. Store managers linked more stable schedules with a decrease in thefts and an increase in the orderliness of stock, which decrease “phantom stock-outs” (when a customer is told an item is out of stock when it in fact is just out of place). Another hidden back-end cost of unstable schedules was the inordinate amount of time managers spent on the schedule: one manager of a large store decreased time spent from three days to four hours. No wonder unstable scheduling remains popular: companies count its (front-end) benefits and don’t count its (back-end) costs. How cognitive bias and agency misattribution underpin unstable schedules Retailers today invest millions of dollars on marketing campaigns to drive customers into stores but don’t invest in labor planning to ensure that traffic is converted into sales. They do so because poor execution in retail is treated as inevitable, or attributed to the limitations of store managers or staff. What it typically is not attributed to is headquarters. Wharton Professor Marshall Fisher highlights the role of cognitive bias in sustaining retailers’ faith in unstable scheduling. Humans tend to overweight what’s immediate and easy to measure—the payroll checks a retailer write every week to its stores’ staffs—and to underweight what’s longer-term and harder to measure—the costs of unstable scheduling. “This opens the door to self-delusion,” notes Fisher. “Retailers can convince themselves that they can cut payroll by 5% in the last three weeks of a quarter to meet their profit promise to Wall Street and it really won’t impact customer service, because there’s probably people in the stores not doing anything anyway.” Headquarters’ incentive is to make its numbers in the short term. Store managers’ incentive is to run their stores to sell more in the long term. When departments have different incentives, “agency misattribution” often results: coordination failures are attributed to personality drawbacks in another unit, instead of recognizing that the other department just has different information. At the start of the study, we often heard HQ fault store managers for “emotional scheduling”—a script pushed by the purveyors of scheduling software. “In measuring customer experience and making decisions related to a labor model, retailers should rely solely on facts. Too often, changes are made because of an anecdotal or emotional response from the field,” notes a best practices guide from Kronos. However, our experiment shows that a hybrid approach of combining algorithms with manager intuition can lead to better staffing decisions. While our experiment provided guidelines for managers, it still allowed the managers to make the final decision on how much of the interventions to implement. The increase in sales and productivity witnessed at the Gap shows that retailers stand to benefit when they allow discretion to store managers. What would an effective change initiative look like? Some retailers have announced stable scheduling initiatives to great fanfare, only to have them flounder. Our three years of experience with Gap suggests that launching a stable scheduling initiative is a major undertaking. The good news, and the bad news, is that we found—contrary to popular wisdom—that a lot of schedule instability stems from headquarters. Store managers consistently identified three ways HQ created schedule instability. Last-minute changes in shipment dates or inaccuracies in the number of units meant that a store received 5,000 units on Thursday instead of the 2,000 units it had been told to expect on Tuesday; this wreaked havoc with posted schedules. Last-minute changes in marketing meant that merchandise had to be marked down, tables set up, stock moved around, signs made, windows changed—and sometimes there were three different promotions in a single week. The third was leadership visits, which meant extra hours were spent ensuring the store looked perfect. To quote one manager, “If payroll is such a commodity, I feel it’s crucial to spend it on the business versus visits. This isn’t a museum. You know we aren’t curating a museum.” All meant that hours had to be added here and subtracted there, after the schedule was posted. The bad news is that for retailers to implement more stable scheduling, they will need to involve several different complex business processes. The good news is that if headquarters is playing a major role in producing schedule instability, it can play a major role in reducing it. But the important message is that an effective stable scheduling initiative is not a simple human resources issue. A truly effectively move will require a concerted strategy that starts at the top and includes not just HR but also operations, marketing, and supply chain. Here’s the bottom line: a shift to more stable schedules is a win-win for retailers and their employees. During a challenging time in the retail industry, Gap made a commitment to its values and it paid off. Retailers would be well-advised to take the initiative to implement more stable scheduling for their associates and improve customer service to effectively combat the threat from online retailers.
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Daniel Day/Getty Images I first met Eric (not his real name) in a new manager training I was facilitating. He had recently become a manager after several successful years as an individual contributor and was excited to learn more about his new role. Throughout the next two days Eric fully immersed himself, engaging with other participants and actively practicing new concepts. At the end of the training, Eric committed to let go of more of the tactical work he was doing to empower his team and open up his time to think strategically. Months later I talked with Eric about how things were going. He acknowledged that after a few weeks of creating space for big picture work, he’d gotten buried with a new project and jumped back into the details. Some members of his team had begun to feel like he was micromanaging them and his boss had recently given him feedback that he needed to have a clearer vision for the future. Eric’s situation certainly isn’t unique. In my experience developing leaders at Intuit, Pinterest, and Google, just about everyone I’ve ever worked with is capable of and interested in getting better. And yet time and again many of these individuals struggle to improve despite their best intentions. I believe one reason for this is that in learning and development programs, far too little time and focus is devoted to how to change existing habits and behaviors, which are often the greatest barriers to personal growth. Fortunately, there is lots of behavioral science on how people best achieve their goals and change their behaviors. Research by psychologists Gabrielle Oettingen and Peter Gollwitzer has found that doing two things significantly increases the likelihood of goal achievement in virtually every context. The first step is considering your ideal future state and the obstacles you expect to face on the way to achieving that state. In Eric’s case, possible obstacles may be a lack of time to think strategically, the sense of satisfaction he gets from doing tactical work, or even discomfort he feels from letting go of control. Most of us do great on the first part, declaring what we want to achieve, but rarely complete the second part, thoughtfully considering all the obstacles we’ll face. Oettingen calls this exercise mental contrasting and has found that it increases the likelihood that we will stick with our goals. At first glance this may seem counterintuitive. Shouldn’t focusing on obstacles discourage us from pursuing our goals? But the opposite is true. Anticipating obstacles and deciding to pursue the goal anyway increases our commitment. And considering obstacles allows us to plan for them. The second step builds on mental contrasting and involves framing your goal as an “if-then” statement. The “if” is a goal-relevant situational cue, and the “then” is your goal behavior. Gollwitzer calls these implementation intentions. Implementation intentions are powerful because they create a strong associative link between the cue and action which becomes automatic over time. Implementation intentions can be powerful both as reminders to take action and in helping create contingency plans for obstacles that may take you off track. Eric would think about what time, situation, or circumstance would help prompt or remind him to focus more on big picture work. A few examples: If Eric’s main obstacle is not making time or forgetting: If it’s 9am on a Friday, then I will spend 60-min focused on our team’s strategy and vision for the future. If Eric’s main barrier is his satisfaction completing tactical work: If I’m doing work that a member of my team could do, then I’ll ask her if she can take over the work in our next 1:1. If Eric’s main barrier is discomfort letting go of control: If I start to feel uncomfortable about not completing the work myself, then I’ll ask for updates on the work in our next team meeting. At Pinterest, we began using this science to modernize our development planning approach. Early results were encouraging. We first tested this approach with a group of our managers who attended a one-hour action planning workshop following the results of our bi-monthly employee engagement survey. During the workshop, managers filled out a one-page action planning worksheet, which prompted them to list things like goals, obstacles, and if-then plans. They also paired up to coach one another. Two months later we launched our next engagement survey and asked employees whether they perceived their manager had taken action since the last survey. 97% of employees reporting to one of the managers who attended our workshop felt that their manager had taken action. While we don’t know for certain whether our worksheet and workshop made the difference in managers’ follow-through, we feel confident that aligning the structure and focus of the worksheet with the behavioral science that exists significantly increased the likelihood that managers would act on their intention. Gurus and coaches often tell people to “visualize success,” but that’s not enough. To really achieve your goals, don’t stop there. Think through what will get in your way, and make a plan for overcoming it.
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Authored by Raul Ilargi Meijer via The Automatic Earth blog, There are numerous ways to define the Precautionary Principle. It’s something we can all intuitively understand, but which many parties seek ways to confuse since it has the potential to stand in the way of profits. Still, in the end it should all be about proof, not profits. That is exactly what the Principle addresses. Because if you first need to deliver scientific proof that some action or product can be harmful to mankind and/or the natural world, you run the risk of inflicting irreversible damage before that proof can be delivered. In one of many definitions, the 1998 Wingspread Statement on the Precautionary Principle says: “When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.” Needless to say, that doesn’t easily fly in our age of science and money. Cigarette makers, car manufacturers and oil companies, just to name a few among a huge number of industries, are all literally making a killing while the Precautionary Principle is being ignored. Even as it is being cited in many international treaties. Lip service “R” us. Are these industries to blame when they sell us our products, or are we for buying them? That’s where governments must come in to educate us about risks. Which they obviously do not. Nassim Nicholas Taleb -of Black Swan and Antifragile fame- has made the case, in his usual strong fashion, for applying the Precautionary Principle when it comes to GMOs. His argument is that allowing genetically modified organisms in our eco- and foodsystems carries unknown risks that we have no way of overseeing, and that these risks may cause irreversible damage to the very systems mankind relies on for survival. Taleb is not popular among GMO producers. Who all insist there is no evidence that their products cause harm. But that is not the point. The Precautionary Principle, if it is to be applied, must turn the burden of proof on its head. The absence of evidence is not evidence of absence. Monsanto et al must prove that their products do no harm. They can not. Which is why they have, and need, huge lobbying, PR and legal departments. But I didn’t want to talk about GMOs today, and not about Precautionary Principle alone. I wanted to talk about this: Paragraph 2 of article 191 of the European Union’s Lisbon Treaty (2009) states that: “Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.” In other words, the EU has committed itself to the Precautionary Principle. Well, on paper, that is. However, then we get to a whole series of reports on wildlife in Europe, and they indicate all sorts of things, but not that Brussels cares even one bit about adhering to the Precautionary Principle, either for its people or its living environment. One voice below calls it a “state of denial”, but I would use some other choice words. Let’s start with the Guardian this morning, because they have an interesting perspective: Most Britons remain blithely unaware that since the Beatles broke up, we have wiped out half our wildlife… …since the fall of the Berlin Wall in 1989, the number of flying insects on nature reserves in Germany had dropped by at least 76% – more than three-quarters… Things like ‘since you were born’, ‘since man landed on the moon’, ‘since the wall came down’ or ‘since 9/11’ may be a bit clearer than 100 years, or 25 years. Moreover, I read somewhere that since Columbus landed in 1492, America has lost on third of all its biodiversity, but that doesn’t yet explain the rate of acceleration that is taking place. In October last year, the Guardian had this: Three-Quarters Of Flying Insects In Germany Have Vanished In 25 Years The abundance of flying insects has plunged by three-quarters over the past 25 years , according to a new study that has shocked scientists. Insects are an integral part of life on Earth as both pollinators and prey for other wildlife and it was known that some species such as butterflies were declining. But the newly revealed scale of the losses to all insects has prompted warnings that the world is “on course for ecological Armageddon”, with profound impacts on human society. The new data was gathered in nature reserves across Germany but has implications for all landscapes dominated by agriculture, the researchers said. The cause of the huge decline is as yet unclear, although the destruction of wild areas and widespread use of pesticides are the most likely factorsand climate change may play a role. The scientists were able to rule out weather and changes to landscape in the reserves as causes, but data on pesticide levels has not been collected. “The fact that the number of flying insects is decreasing at such a high rate in such a large area is an alarming discovery,” said Hans de Kroon, at Radboud University in the Netherlands and who led the new research. “Insects make up about two-thirds of all life on Earth [but] there has been some kind of horrific decline,” said Prof Dave Goulson of Sussex University, UK, and part of the team behind the new study. “We appear to be making vast tracts of land inhospitable to most forms of life , and are currently on course for ecological Armageddon. If we lose the insects then everything is going to collapse.” [..] When the total weight of the insects in each sample was measured a startling decline was revealed. The annual average fell by 76% over the 27 year period, but the fall was even higher – 82% – in summer, when insect numbers reach their peak. Previous reports of insect declines have been limited to particular insects, such European grassland butterflies, which have fallen by 50% in recent decades. But the new research captured all flying insects, including wasps and flies which are rarely studied, making it a much stronger indicator of decline. Then last week from AFP: France’s Bird Population Collapses As Pesticides Kill Off Insects Bird populations across the French countryside have fallen by a third over the last decade and a half, researchers have said. Dozens of species have seen their numbers decline, in some cases by two-thirds, the scientists said in a pair of studies – one national in scope and the other covering a large agricultural region in central France. “The situation is catastrophic,” said Benoit Fontaine, a conservation biologist at France’s National Museum of Natural History and co-author of one of the studies. “Our countryside is in the process of becoming a veritable desert,” he said in a communique released by the National Centre for Scientific Research (CNRS), which also contributed to the findings. The common white throat, the ortolan bunting, the Eurasian skylark and other once-ubiquitous species have all fallen off by at least a third, according a detailed, annual census initiated at the start of the century. A migratory song bird, the meadow pipit, has declined by nearly 70%. The museum described the pace and extent of the wipe-out as “a level approaching an ecological catastrophe”. The primary culprit, researchers speculate, is the intensive use of pesticides on vast tracts of monoculture crops, especially wheat and corn. The problem is not that birds are being poisoned, but that the insects on which they depend for food have disappeared. “There are hardly any insects left, that’s the number one problem,”said Vincent Bretagnolle, a CNRS ecologist at the Centre for Biological Studies in Chize. Recent research, he noted, has uncovered similar trends across Europe, estimating that flying insects have declined by 80%, and bird populations has dropped by more than 400m in 30 years. Despite a government plan to cut pesticide use in half by 2020, sales in France have climbed steadily, reaching more than 75,000 tonnes of active ingredient in 2014, according to EU figures. “What is really alarming, is that all the birds in an agricultural setting are declining at the same speed, even ’generalist’ birds,” which also thrive in other settings such as wooded areas, said Bretagnolle. Not that it’s just Europe, mind you. Still ‘ove’ this one from Gretchen Vogel in ScienceMag, about a year ago, on a phenomenon most of you stateside will have noticed too: Where Have All The Insects Gone? Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.” Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. After all those numbers, and before they get worse -which they will, it’s already baked in the cake-, you would expect the EU to remember the Precautionary Principle all its member nations signed on to for the Lisbon Treaty. You would expect wrong. Instead Brussels vows to continue with the exact same policies that have led to its mind-boggling biodiversity losses. EU In ‘State Of Denial’ Over Destructive Impact Of Farming On Wildlife Europe’s crisis of collapsing bird and insect numbers will worsen further over the next decade because the EU is in a “state of denial” over destructive farming practices, environmental groups are warning. European agriculture ministers are pushing for a new common agriculture policy (CAP) from 2021 to 2028 which maintains generous subsidies for big farmers and ineffectual or even “fake” environmental or “greening” measures, they say. In a week when two new studies revealed drastic declines in French farmland birds – a pattern repeated across Europe – the EU presidency claimed that the CAP continued to provide safe food while defending farmers and “protecting the environment”. “The whole system is in a state of denial,” said Ariel Brunner, head of policy at Birdlife Europe. “Most agriculture ministers across Europe are just pushing for business as usual. The message is, keep the subsidies flowing.”Farm subsidies devour 38% of the EU budget and 80% of the subsidies go to just 20% of farmers , via “basic payments” which hand European landowners £39bn each year. Because these payments are simply related to land area, big farmers receive more, can invest in more efficient food production – removing hedgerows to enlarge fields for instance – and put smaller, less intensive farmers out of business. France lost a quarter of its farm labourers in the first decade of the 21st century, while its average farm size continues to rise. A smaller portion – £14.22bn annually – of EU farm subsidies support “greening” measures but basic payment rules work against wildlife-friendly farming: in Britain, farmers can’t receive basic payments for land featuring ponds, wide hedges, salt marsh or regenerating woodland. Signals from within the EU suggest that the next decade’s CAP [..] will continue to pay farmers a no-strings subsidy, while cash for “greening”, or wildlife-friendly farming, may even be cut. Birdlife Europe said the “greening” was mostly “fake environmental spending” and wildlife-friendly measures had been “shredded” by “loophole upon loophole” introduced by member states. [..] This week studies revealed that the abundance of farmland birds in France had fallen by a third in 15 years – with population falls intensifying in the last two years. It’s a pattern repeated across Europe: farmland bird abundance in 28 European countries has fallen by 55% over three decades, according to the European Bird Census Council. Conservationists say it’s indicative of a wider crisis – particularly the decimation of insect life linked to neonicotinoid pesticides. 20% of farmers work 80% of the land in Europe. That is used as an argument to single them out to pay them billions in subsidies. But it simply means these 20% use the most detrimental farming methods, most pesticides, most chemicals. The subsidies policy guarantees further deterioration of an already disastrous situation. The polluter doesn’t pay, as the Lisbon Treaty demands, but the polluter gets paid. And even that is apparently still not enough for the fast growing bureaucracy. In a move perhaps more characteristic of the EU than anything else, it approved something last week that a million people had vehemently protested: the Bayer-Monsanto merger. The European parliament may have thrown out all Monsanto lobbyists recently, and voted to ban Roundup, but the die has been cast. A million citizens can protest in writing, many millions in France and Germany and elsewhere may do the same on the street, none of it matters. The people who brought you WWII nerve gases and Agent Orange can now come together to take over your food supply. EU Approves Buyout Of Monsanto By German Chemical Firm Bayer German conglomerate Bayer won EU antitrust approval on Wednesday for its $62.5bn (£44.5bn) buy of US peer Monsanto, the latest in a trio of mega mergers that will reshape the agrochemicals industry. The tie-up is set to create a company with control of more than a quarter of the world’s seed and pesticides market. Driven by shifting weather patterns, competition in grain exports and a faltering global farm economy, Dow and Dupont, and ChemChina and Syngenta had earlier led a wave of consolidation in the sector. Both deals secured EU approval only after the companies offered substantial asset sales to boost rivals. Environmental and farming groups have opposed all three deals, worried about their power and their advantage in digital farming data, which can tell farmers how and when to till, sow, spray, fertilise and pick crops based on algorithms. The European Commission said Bayer addressed its concerns with its offer to sell a swathe of assets to boost rival BASF [..] “Our decision ensures that there will be effective competition and innovation in seeds, pesticides and digital agriculture markets also after this merger,” European Competition Commissioner Margrethe Vestager said in a statement. “In particular, we have made sure that the number of global players actively competing in these markets stays the same.” [..] Vestager said the Commission, which received more than a million petitions concerning the deal, had been thorough by examining more than 2,000 different product markets and 2.7 million internal documents to produce a 1,285-page ruling. [..] Online campaigns group Avaaz criticised the EU approval. “This is a marriage made in hell. The Commission ignored a million people who called on them to block this deal, and caved in to lobbying to create a mega-corporation which will dominate our food supply,” Avaaz legal director Nick Flynn said. Dow-Dupont, ChemChina and Bayer Monsanto have a lot more political influence than a million Europeans, or ten million Americans. They have even convinced numerous, if not most, people that without their products the world would starve. That their chemicals are needed to feed a growing human population. Farming based on algorythms. They are not ‘seed companies’. They are ‘seeds-that-need-our-chemicals-to-grow’ companies. And they are out to conquer the entire world. A 100-times worse version of Facebook. And our governments subsidize the use of their products. As we not-so-slowly see our living world be massacred by those products. We don’t know how bad GMOs will turn out to be. Which is in itself a very good reason to ban them. Since once they spread, they can’t be stopped anymore. Then the chemical boys will own all of our food. But we do know how bad the pesticides and other chemicals they produce are. And we’re not even banning those. We just eat all that sh*t and shut up. It’s a failure to understand what science is: that you must proof harm first before banning stuff. The only real science is the one that has adopted the Precautionary Principle. Because science is supposed to be smart, and there’s nothing smart about destroying your own world. Because science should never be used to hurt people or nature. Science can only be good if it benefits us. Not our wallets, but our heads and hearts and forests, and our children. Do no harm. Yeah, I know, who am I fooling, right?
In a new report from BofA's equity derivatives team, the bank analyzes how vol regimes have existed through time spanning subsequent bull and bear markets, where bull market vol tends to be a good predictor of the following bear market vol (chart below, left-hand side). The bank has found that vol tends to be somewhat predictable within market cycles, and that bull markets in particular exhibit a "volatility smile" in which realized vol is more elevated during the first and fourth quartiles of each period relative to the second and third quartiles (chart below, right-hand side). Simplified, and rather intuitive, this shows that volatility rises heading into the end of a bull market. Which is ironic because as Nitin Saksena notes, as recently as the end of January and before the Feb vol shock, realized vol was near the most depressed levels in history, suggesting perhaps even more upside pressure as we head into the late stages of this bull market. For perspective, 12m realized vol as of 26-Jan-2018 (the peak of the current cycle) was 7.0%, a level below even the least volatile bull market in history from June-1962 to Feb-1966 when realized vol was only 8.4%. How quickly things have changed in the past 2 months, when both implied and realized vol has exploded higher. So what happens next in theory? To answer that question, BofA first looks at a stylized example, and finds that based on historical data, vol has risen 3/4ths of the time in the last 12 months of a bull market relative to the period prior to the last 12 months. The BofA chart below on the left-hand side plots looks at some of the more popular recent bull markets and plots the SPX realized vol 24 months to 12 months prior to the end of period vs. SPX realized vol during the last 12 months. The chart shows that 9 of the 12 periods (those above the dashed line) saw vol pick up, the biggest being the bull market ended by the start of WW2 (Apr-42 to May-46). In other words, "history suggests that if we are indeed in the final innings of the current bull market, it is more likely than not that we will see upward pressure on realized vol." To be sure, rising vol in itself is not a necessary and sufficient condition for a recession, although even if the bear market is 24 months away, vol still tends to rise according to BofA. What's more, even if the there is some gas left in today's bull market - a case made by virtually every Wall Street analyst - increasingly more are expecting an uptick in realized vol. Specifically, we found that vol also tends to increase heading into the final two years of a bull market relative to the year before. The most prominent examples occurred during the Oct-90 to Jul-98 bull market, which saw a large pickup in vol in the last two years amid the start of the Tech Bubble, and the Aug-82 to Aug-87 bull market, which saw vol take off ahead of the Black Monday crash in Oct-87. Stepping back from the abstract, BofA's next question is troubling, if only for the bulls, because the bank asks, point blank, "what if Jan-2018 was the peak and we are now at the beginning of a new bear market?" To answer this, BofA extends the above analysis further to examine how vol reacts during the first 12 months of a subsequent bear market relative to the final 12 months of a bull market. The bank's results indicate that in 13 of 15 bull-to-bear market rollovers, vol increased. Of course, this result is not exactly surprising as everyone - perhaps with the exception of a 23-year-old "hedge fund manager" - expects bear market vol to surpass bull market vol (after all, full period median bear market vol is 21.0% versus a bull's 12.9%). There is one caveat, or rather two: there are two instances in which vol declined at the start of the bear market relative to the end of the prior bull market: Jun-49 to Aug-56 and Oct-74 to Nov-80. So going back to the original question: was Jan 2018 the peak for the market... something which Morgan Stanley determined last week, and has a new bear market unofficially begun, the first in a decade? Should we get a few more days like today's Nasdaq collapse, we won't need complex vol analyses for the answer.