Scanning the Financial Horizon

Over to you UN: West Papua update plus ANOTHER update

2019-01-29T16:04:00.001-08:00

This topic has been such a common thread in this blog for years.

Now there is more news. It appears, on its face, that some momentum may be building.

How many people must be murdered before the UN steps in amongst a genocide.

As this article quotes:

"A 2004 report from Yale Law School said the Indonesian government had "acted with necessary intent to … perpetrate genocide against the people of West Papua""

Come on UN, step up and carry out your obligations to the people of West Papua.

Or you should be disbanded, and all the tax free earnings of your tens of thousands of employees used for the correct purpose.

If you are new to this topic, the article is a great backgrounder.

Without the blood and gore that has been spilt.

Indonesia of course, says that West Papua is part of Indonesia and always has been. They don't even look like each other, let alone have cultural similarities or speak the same language(s). Its an island for goodness sake.

Free West Papua.

Same day: and another UPDATE (maybe the UN read this blog?)

UN has been granted access to West Papua by Indonesia

The UN moves..........

FREE WEST PAPUA

Millions of dead fish now: Next - YOU!!

2019-01-29T15:39:00.002-08:00

In the past few weeks, tens of thousands, millions? of fish have died in Australia's rivers.

Today, as I write, another river has killed its fish. Thousands if not millions. Who counts them by the way.

Blame: the drought and weather temperature changes.

Or blame: a ruling government that does not believe in climate change.

Or blame: two ruling parties (Labor and Liberals - progressives and conservatives to you) who have both supported the Murray Darling (rivers in Australia of significant length) Management legislation (Murray-Darling Basin Plan).

Hahahahah!! Maybe there is, maybe there isn't, however I cannot think of any river that has been successfully managed along its entire length by people rather than mother nature.

And here is the disastrous management process first hand. Water allocation is based on a profit outcome. What a surprise.

The Murray Darling river system is more than 3500 kilometers long, the 13th longest in the world and the largest by many many kilometers of any other in Australia. As a friend said, "every man and his dog has been taking water from this river for personal profit".

To understand its scale further, it waters the most densely populated agricultural land of outback Australia.

With thanks to Australia's ABC for the map.

The Royal Commission into the Murray Darling Management Scheme was on released 31 January 2019. Its findings included "gross maladministration" and "illegality". Gee, really?

And here is an insiders view.....of the outcome.

Only one peoples group have successfully managed the Murray Darling for tens of thousands of years. The world's oldest society, Australia's Aboriginals. And they were not consulted once by the now disgraced bureaucrats when establishing or managing the scheme. Seriously.

Now we learn that more than 2000 flying foxes have died in the extreme heatwaves being experienced in Australia.

And 1500 head of cattle.

Australia has enjoyed / suffered multiple new highs in hot days this summer. Multiple broken records since records have been maintained for severity and for duration.

If this was a wholesale market of debt equity or commodities - it would be considered a total collapse.

How many more catastrophes do we need before we realise these are not "black swan events".

UPDATE:

Another author has published his piece about the annihilation of mankind, ending on a vision of hope.

I am not so sanguine. I think it is all over. I believe, the tipping points have been passed.

I wonder if people with children are our worst enemies - they live on hope and a prayer that it will not be as bad as all the evidence is, now, not forecast, suggesting it will be. So they do nothing.
Or their actions have little impact (please, no more of "every little bit makes a difference" - that was 40 years ago; we need massive action NOW).

I chose not to have children. I have always been glad of that decision. Now I am grateful.

Fiddling and farting around with a few refugees - Australia

2018-11-21T12:07:00.001-08:00

Australia is fiddling and farting around with a few refugees when right on its doorstep there is a genocide and nobody is even talking about it. The last remaining ecologically diversified virgin country (that rivals the Amazon), the origin of its own indigenous peoples, and ancient cultures, and there is not even a conversation.

Genocide is defined as the deliberate killing of a large group of people, especially those of a particular nation or ethnic group. To this add in infanticide, rape, economic theft, environmental massacre, and deliberate and shameful willful blindness to international rule of law to which Australia is beholden - ON ITS OWN COGNIZANCE.

I get it, Morrison, the country's Prime Minister is all about protecting Australia's borders - but will bend over for Widodo on an embassy in Israel.

How about looking just over the horizon. At its closest, Australia is 5 kms from the Papuan mainland. Or mainland to mainland, 150kms. That is similar to driving from Sydney to Newcastle.

If there is a fight to be had with Indonesia, at least do it for something domestically relevant.

Oh, the economy you say, must protect the economy!!. Indonesia does not rank in the top ten trade partners (sum of imports and exports) for the whole of 2017. And with exports, Indonesia ranked 12th, with 2.2% of total exports.

I just want to repeat that: 12th in gross Australian exports and 2.2% of the overall total. Imports, it ranks 11th with 2.3% of the total.

Of course the irony (as if more is needed), is that Morrison is now talking about limiting immigration by 30,000 per year. West Papua has a population of more than 4 million. Who, the way things are going, may decide to "migrate" to Australia. Which is too many for the Australian navy to "turn back the boats" as they are renowned for doing.

Boats? They could swim to Australia. Or a half hour trip in a lakatoi - canoe to you.

I think Australia does nothing because West Papuans are black, and Australia's media and dominant population is white. But hey, that's just me.

PS: This topic has been the subject of a number of articles in this blog, in date order below. And finishes with a great update from the Guardian. Which reminds me, please remember to donate to the Guardian whilst you are there. One of the few remaining independent media outlets in the world.

When to intervene in a genocide 2012

United Nations Shame Shame Shame 2017

Update West Papua 2017

Britain West Papua Colonial Occupation 2018

PPS: And speaking of the Amazon...

Update West Papua

2017-10-27T21:56:00.000-07:00

There are many ways to eradicate a race of people. One of them is to cut down all their trees.

One of the few remaining natural growth forests in the world. West Papua.

So Indonesia is doing exactly that.

WBC: Westpac Risk / Risk Management Plummets

2017-10-27T03:30:00.001-07:00

Okay, I had to look them up, they are not the biggest bank in the world. Wikipedia rank them as 48th, with US$642 billion in assets. Westpac is one of the biggest four banks in Australia.

However, apparently their trading in currencies has been blighted.

A friend who rang me in distress gave me this story.

He went to his long standing bankers because he did not want to transact a large sum of his money over the net.

Went to the teller to exchange AUS250,000 into British Pounds, asking for a bank cheque.

The teller said it would be cheaper using a bank draft. A$45.

The teller also said that with a bank cheque you cannot be sure if the British bank will accept it.

Then quoted the exchange rate. It appeared substantially more expensive than my friend had obtained from another friend in treasury in another bank. So he negotiated hard.

Eventually he paid a 5% spread on the wholesale currency exchange rate to the teller rate. That is correct, a good A$12,500+.

My friend then asked the manager of the branch, who by then had joined the teller, wasn't she ashamed to be charging such costs for exchanging money......and she relied "no, the currency traders need a margin to cover their risk".

Other than proving there is an oligopoly in Australia, and the disgraceful charging regime, this story tells a few other pointers.

Westpac's currency traders are either completely hopeless; or the new risk policy of requiring a 5% spread to trade currencies represents the policy of the bank for risk management purposes. Covering past losses? And that tells you a lot about the board, and the executives, and their risk strategy and their ultimate capacity to earn profits.

Second, and completely supporting this conclusion, for a teller to tell a customer that a British Bank may not accept a Westpac bank cheque, is tantamount to a red flag about the sustainability of its business.

I mean if other banks aren't accepting their bank cheques, then why would we?

Not sure if this is a BUY or a SELL story.

I told him to move his banking to another bank. Better still, move overseas.

United Nations. Shame Shame Shame

2017-10-08T17:28:00.000-07:00

Maybe Trump is correct. The United Nations is a waste of time and money.

I should say, Trump is correct.

In January 2012 I wrote a blog entitled "When to intervene in a genocide". In that I illustrated with absolute clarity; not my clarity - using the UN laws and regulations; that it is obligated, ie "must" intervene in a genocide.

Please read the blog, it is important. However, key point is this:

The Convention on the Prevention and Punishment of the Crime of Genocide came into effect on 12 January 1951 by vote of the UN General Assembly. It has been adopted by the International Criminal Court.

In Article II it defines genocide as:

Any of the following acts committed with intent to destroy, in whole or part a national, ethnical, racial or religious group, as such:

(a) Killing a member of the group

(b) Causing serious bodily or mental harm to members of the group

(c) Deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part

(d) Imposing measures intended to prevent births within the group

(e) Forcibly transferring children of the group to another group

Further, the UN Security Council must, by law (Resolution 1674), take action to protect populations from genocide, war crimes, ethnic cleansing and crimes against humanity.

Think West Papua. Details of genocides and other nefarious actions by or on behalf of the world countries against the Papuans is detailed in the above blog.

Now.....1.8 million Papuans (70% of the population) have signed a petition calling on the United Nation to conduct a free vote about independence for this nation, from Indonesia. ABC covers this extensively in a very thoughtful article here.

As they describe it, hand by hand this petition was passed around the nation. In secret. It is illegal under Indonesian law (of course! Not so the marriage postal vote in Australia).

Typically, it is reported, that Papuans who piss off Indonesia are disappeared. It is difficult to imagine 1.8 million people disappearing, however I would not put it past the Indonesians to try**.

This petition was ultimately delivered to the UN in New York. Hand delivered.

The UN denies ever receiving the petition.

Here goes a tautology....the UN denies ever receiving the petition.

Which is beside the point.

By law, its own law, established by its own members, it must intervene in genocides.

Whether the people are black or not.

Got it? If it is Eastern Europe the UN is there. Black people (with a stunningly ancient cultural heritage, oh and did I mention a land rich with natural resources?); forget it.

Shame on you United Nations. Shame on you Freeport. And shame on you Australia for standing by and doing nothing for your closest neighbour.

Shame Shame Shame

**Fifty years ago the Indonesians killed half a million of their own citizens; as shown in recently released US documentation.

UPDATE: Australia is expected to be appointed by an uncontested vote to join the Human Rights Council of the United Nations. According to the Guardian, it lobbied hard to be appointed on the following issues:

"Australia has campaigned globally for its position on the human rights council, arguing it will promote gender equality; good governance; freedom of expression; indigenous rights; and strong national human rights institutions."

I cannot think of a thing to say to that, Australia's dishonesty is so appalling.

Less than 1.5 Degrees Celsius Target: Already Passed That. Fact

2017-09-19T02:19:00.001-07:00

Lets overlook the four Category 4/5 cyclones or hurricanes, depending on your verncular, in the Caribbean (Maria, Harvey, Irma and Jose). In a matter of weeks. The massive fires in Canada, USA and Europe. The heatwaves. All this year.

Lets overlook the Paris Agreement signed when? Two years ago? With a target to limit the temperature increase from global warming from you and me to less than 1.5 degrees.

Fact: In Australia, in 2017 it reached 2 degrees higher. The Guardian has the news:

...........2017 was Australia’s warmest on record for average maximum temperatures, which reached nearly 2C above the winter average and beat the previous record set in 2009 by 0.3C, according to a report released by the Climate Council on Tuesday.

In July alone 72 records were broken for the highest maximum temperature, including in Sydney, which set a record high of 26.5C..............

...........Australia has set new seasonal highs for maximum temperatures 10 times so far this century and the Climate Council report found that more than 260 heat and low rainfall records were broken between June and August this year (2017).....

See the full report here.

By way of background, when Australia's coalition came to power (that is, the Liberals and Rural - better known as the Nationals) they abolished the Climate Commission. Malcolm Turnbull is the present Prime Minister and his coalition rules by only one seat or member of Parliament.

At the time the Australian Climate Commission was resourced with some of the leading scientists in the world on Climate Change.

So these leaders, believing the need for independent research must be published in Australia to inform the peoples, they established the Climate Council using cloud sourcing. Hence their website and research reports.

And the US thinks it has problems with Climate Change responses. The times they are a changing. And fast. Here is the scientific summary of why the extreme weather events are occurring in the US. No mystery here.

Voters, from anywhere, are not going to keep supporting governments that are willing to let the grandchildren live in a real Hell.

Think this won't happen? In new and groundbreaking research: the pace of the change increases the likelihood of a tipping point. This research studies it over millennia. Your descendants are toast. and that is within a short space of time.

Indeed refer to the early posts published of this blog: stagnation, miflation, etc. Peak everything has already passed.

This is it. Its here.

An Update: And also in the last few weeks, four significant earthquakes. Mexico, Vanuatu, Indonesia, and New Zealand south island.

Are these caused by climate change? The science is in that they are.

UK, You Were Warned on Thames Water and Macquarie Bank. Now GIB??

2017-09-15T20:29:00.006-07:00

In January 2012 we published a blog on Thames Water and the complexity of what had occured after it was acquired by Macquarie Bank (and co-horts).

At the end of that blog we warned the UK.

And here is the update, hot off the press, with the BBC completing a investigative report. Goes to air on the 5th September 2017.

Suffice to report that things have not gone well: what with polluted water, little maintenance of the infrastructure, Indeed floating sh*t.

The (UK) Environment Agency prosecuted Thames Water over the pollution, in March 2017 fined the company GBP 20 million.

Chicken feed compared to the ~15% they have been taking from the company year after year.

Ahh!!! Privatisation. When will the public (read voters) learn?

Of course, The UK has also sold the VERY successful Green Investment Bank to Macquarie.

Good luck with that.

Global Financial Regulators are doing NOTHING about Climate Change

2017-09-13T18:53:00.000-07:00

Why; or Why Not?

Prompted by a single question, “What action can be taken by financial regulators to methodically and rapidly grow the response to the consequences of climate change”?

In this paper, we consider three fields to draw our conclusions

The global influencers
History of innovation and a time line of its development and obsolescence
List of what to do and why.

Global Influencers

The Bond Market

President Clinton’s political advisor said: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."[i] Everybody with some financial nous knew exactly what he meant. It is unregulated and so big, no country or government or company can influence it.

The bond market tells of the embedded learning of the past and projects it into the future, for countries, governments and companies. Ten, twenty and thirty years forward. Sometimes this future forecast appears wrong, however as that future draws nearer, the bond market reacts to reality and quickly corrects.

The reason it has such intimidation powers and influence is its sheer weight and size, and the timeliness of the information flowing to its traders. It is typically an OTC market for wholesale investors connected by electronic communication and operating 24 hours. Its constantly “live”, sometimes trading in nanoseconds. Billions have been made in less time.

The retail market has some access to this market through ETFs listed on stock exchanges around the world. However, the OTC bond market is the truthteller, the seer. News reaches the bond market more quickly than any other market, good and bad, and the bond market reacts seemingly instantaneously. And that is why it is often the canary in the mine for values of stock markets, property markets, commodity markets and all other markets that feed on it.

It inherently tells the stories of countries and companies. Of economies, risk and reward, and currencies. And if you slice and dice it enough it well tell you about demographics, government and company policies and performance, poverty and wealth, equality, and so it goes.

However, the bond market isn’t just a mirror reflecting the past and the future, it has enormous and forceful influence as it is often described as the invisible hand. Of all the influencers discussed herein, it holds the greatest. Because of its power over governments, companies and its investors and creators, what the bond market says, people usually do. The bond market touches every one and it matters to everyone.

Influencers reliant on the Bond Market

Bonds form the asset / investment base of some of our lesser global influencers such as insurance companies, governments and pension funds. It is the funding resource that other influencers use to create their business model and profits such as banks, rating agencies, and companies. And it provides financing for companies, governments and multinationals for the common good or to create jobs, to drive growth and profits, commercialisation of innovation, and poverty alleviation.

Indirectly it funds or feeds your home, your small business, the investments in your pension fund.

Maybe the argument that you cannot influence the bond market is overdone. You can influence the bond market. You just cannot do it country by country, company by company, government by government.

You can influence it by making it mandatory for an “all in” recognition of climate change. In the end the bond market is made up of people and structures and supporting policies of regulators.

So, it is these entities that are now explored. How can we influence the participants in the bond market to respond to what has been called a “crisis of the planet”: climate change?

Bank of International Settlements “BIS”

One would imagine if there was a body that needed to understand the risk of climate change for its constituency it would be the central bank of the central banks around the world. Right?

One had hoped we had learnt from the Great Depression of early last century, only to experience the Great Recession of early this century. The latter on the BIS watch.

Those “Greats”, ultimately became banking crisis’, and caused massive wealth destruction to the commons, from which developed countries still struggle to emerge from the latter Great. (There is more, but for the sake of brevity). All for the lack of foreseeability of what should have been foreseeable, at least in the latter Great.

Yet we know with absolute certainty that the coming banking calamity from the effects of climate change will make both those two Greats the equivalent of a slap in the face with lettuce leaf. From massive property destruction supporting the loans of banks, to unusable assets such as coal reserves and power stations, to widespread poverty and refugee movements, to food destruction and lost water resources, to floods and fire. This isn’t speculation, this we know as well as we know the sun will rise.

Visit BIS’s website, and the papers in the library and there is nil, nought, nada, nothing, you get the picture. There are no dedicated committees nor throw away lines in recent annual reports; with one glorious exception (which doesn’t mention climate change, see later).

The closest it comes to a crisis in its latest annual report[ii] is to discuss early warning indicator for a banking crisis that needs watching: “"Credit-to-GDP gaps have reached levels signalling elevated risks in a number of emerging market economies," it said. “The banking system is as badly stretched in parts of Asia as it was in Europe and America in 2008, though this time Canada has also blown through the safety barrier, with a roaring property boom. The BIS stress model measures how far credit growth has raced ahead of trend rates for each economy.”” Etc.

So we know BIS does have a stress model.

Moving through its comments, it concludes: “… the only way for the world to dig itself out of this hole is to raise productivity from its current anaemic levels. Countries must reform and shift fiscal policy from consumption to investment.”

Those cognisant of climate change economic opportunities would not agree more: dig itself out of the hole with investment in adaptation and mitigation projects. How about that? If only the BIS had added those last words it would have been off the hook, and also achieved exactly what it wanted with respect to fiscal policy.

Both the Australian central bank, RBA, and the UK, have made it mandatory for their financial constituents to report on the effects of climate change. It has already had an impact, with the Australian banks no longer funding coal mines or new coal power generators. So mandatory assessing of a bank’s balance sheet for climate change does work.

Now that glorious exception. In BIS library[iii] under Game Theory is an excellent paper[iv] on the transfer of wealth from generation to generation. Well worth a read. Essentially “If one assumes that within each generation, people derive their utility from – among other things – the utility of their children, then there logically follows an infinite-horizon planning problem: the parents care for children who care for grandchildren who care for great-grandchildren, etc.”. Not a word in this paper about whether there will be wealth, nor great- grandchildren, as a consequence of climate change. Wilful blindness?

Insurance Sector

The insurance market is all over the climate change issue. Whether its risk coverage is appropriate, and with new initiatives. For example, its initiative in Malawi dealing with drought (which failed, but good effort) or its non-inclusion of coverage for flood prone or rising sea prone properties unless substantive adaptation/mitigation has occurred, or its eye watering premium prices for “get lost” risk in cyclone regions. This is the underwriting end of the business.

Further, with enormous wealth invested in the bond market, it is implementing investment policies and strategies and guidelines that preclude investment in the bonds of, say oil companies, coal companies, and implementing ESG analysis within their asset portfolios. This is the investment end of the insurance business.

As investors, there are global alliances / associations established that prescribe and research the effects of climate change.

However, it still has its limitations if we go to the global underwriting organisation, International Underwriters Association[v] (IUA) based in the UK. This part of the business is where it all begins, underwriting the incoming risk. Without this part, the rest (underwriting and investment) doesn’t exist.

One would imagine that the underwriters of the risk, the raison d’etre of insurance companies, would be all over the coming tsunami of risk arising from climate change. But you would be wrong. The IUA represents companies that trade (risk) in the London Insurance market outside Lloyds, and include branches or subsidiaries of nearly all the world’s largest insurance and reinsurance companies.

Its key priorities are (i) Processing efficiency and business attraction, (ii) Promoting expertise and innovation in underwriting and claims (iii) Influencing public policy and compliance. Search its website about climate change, and zip, zero, nada, nil, nought etc.

It does have an Environmental Committee which has published 3 papers: but they do not address the underwriting claims from climate change, but rather legacy problems from environmental harm such as spilled oil, building dust.

We do not mention the claims management side of the insurance industry here. But surely, they are quivering in their boots.

Stock exchanges and Corporate bond issuers

Stock exchanges have almost the smallest influence on the bond market. Notwithstanding, their influence as both market makers, back stop, and also regulators does provide some indirect effect. NDCi-Global recently covered the global stock markets in a piece called The Greening of Stock Exchanges[vi], which appeared to highlight that it is the developing economy stock exchanges introducing mandatory climate change risk reporting, leading the pack, rather than the global behemoths. This seems rational, after all developing economies have the most to gain and the least to lose by effectively leapfrogging the industrial age of developed economies and the concomitant climate change consequences.

However, that NDCi-Global report does end with some comments about those corporate issuers that listed on the stock exchanges, although not the largest part of the bond market, are certainly relevant participants in an “all in” argument. Here is what it had to say about corporate governance of these corporations:

Just issued, the 2017 edition of the OECD Corporate Governance Factbook provides the first comparative report on corporate governance across all OECD, G20 and Financial Stability Board member jurisdictions. The report now covers 47 different jurisdictions hosting 95% of all publicly traded corporations in the world as measured by market value.

It specifically covers, therefore, the entities listed on stock exchanges. In reading its 144 pages, there is not one mention of climate change, ESG, or the Paris Agreement.

Maybe it is time that it was made mandatory for all listed companies and funds on the stock exchanges globally to commence reporting on the risks to their business of the consequences of climate change. Board risk committees have a legal obligation to consider and report to the board, and through them, to shareholders, all significant risks.

If they consider there are no risks from climate change, they should report that also. And let shareholders value them on that basis.

Again, a major failure to consider the consequences of climate change and certainly to influence the bond market into which those corporates may be issuing bonds.

Pensions Funds, Funds Management and other investors in the Bond Market

There is no question from research that a large part of this market is switching to either ESG reporting or investment mandates or guidelines around climate change, or they are not. The latter we won’t discuss because clearly they will be broke soon and gone.

Do this group have influence? You bet. If this group goes “all in” on a mandatory basis (except those outliers that will soon die) then the bond market would struggle if it is not green. Arbitrageurs borrow stock from this market to make profits. Banks and other issuers rely on its long term stable funding to finance their business models. Rating agencies have embedded their business model and brands into the investment mandates of the buyer of bonds. Governments and multinationals also rely on this investing market to fund government policies and infrastructure to improve poverty or economies.

This group is influential and should be, but is it influential enough? Soon enough?

The Green Bond Market

And now to the smallest and least influential influencer of the bond market. The green bond market. The one key element missing from the green bond market is size. Is this important?

It the investment community is investing in green and adopting the ESG guidelines and other relevant policies, what is the problem. Well there are three, and they rotate around liquidity and duration which comes from the size of this market. For the sake of brevity, investors in the green bond market would prefer a deep and liquid market with durations (of specific bond portfolios) to range from the short(ish) term of say one year, and out to 30+ years. A deep and liquid market means a very large quantity where at any given time there are many, many buyers and sellers to make a market.

Because the only time you need a very deep and liquid market, is when every bond holder is heading for the exit. The deeper the market, certainly the more sellers, but there are also more investors potentially on the other side: buyers.

This is a particular barrier for investors with specific duration and liquidity criteria built into the mandates. Mandates mean just that, the investing fund is mandated to buy only certain bonds of a specific maturities and depth of market.

The third key element is ratings. More than 50% of the investment market comprises investors with either policy or mandated ratings of say investment grade bonds.

So the size of the market for the purposes of liquidity (whether unaggregated – currency / rating / maturity or by issuer) and pari passu portfolios from a rating perspective.

However, although the least influential now due to size, wait and watch. It is the smallest participant in the global bond market but with the most exponential growth, and so its influence will grow both within it and likely outpace it.

Others

There is one other sub group that influencers markets and therefore indirectly the above participants. They are the valuers.

If we search the property valuers website, where within their Competency Framework for Professional Valuers there is nothing nada, etc on climate change.

If we search the equity and bond valuers website, Certified Financial Analysts, they have training modules on climate change. Further, they say an ESG investing ethos embodies their efforts to promote a fiduciary culture and a more sustainable form of capitalism through their Future of Finance initiative. They go on to say, this is a global effort to shape a more trustworthy, forward-thinking financial industry that better serves society.

And we do not include what some people may think are obvious: ratings agencies, accountants, and auditors. They all take fees from the above influencers and thus, as has been proven again and again, are more influenced by their source of income than valuing externalities even if they are as obvious as their own nose.

History of innovation

The only personal observations I would like to make in this paper comes from my great age. The first is I am still surprised at how long it takes for new and obvious innovation to become ubiquitous. The second is how fast the effects of climate change are occurring: well within my lifetime. Both of these are concerning for I am part of the baby boomer bump of western countries.

Clearly, the response to both those “surprises” is to move more quickly with the first and slow down the second.

Financial Innovation Example in times of Crisis

If ever there was a similar (if lesser) crisis confronting the world it was the second World War, or WWII. Financing its participation in WWII for the USA was as urgent and unquestionably imperative as what climate change must be considered today. Its target of US$300 billion was ultimately spent on its part to win the war. From 1939 until 1945 the Federal budget swelled from US$9 billion to US$98 billion. A factor of 10 in five years.

So how did it do it? It issued innovative financial instruments that had never been used before with a blanket advertising campaign that was so compelling it worked. Albeit, taxation did rise also, but more than half of that money was borrowed from the American people. That is, almost two thirds of its financing came from the people.

To put some more flavour on that effort, the population of the USA in 1939 was 131 million, so circa US$1500 was raised from every man women and child. The populations today is 326 million; raising and equivalent of US$489 billion (on a straight line basis) or after allowing for inflation, US$8.3 trillion. Put another way, the current US government debt is US$20 trillion[vii], so if we increased that 10 times in six years to fund the climate change crisis…….okay we won’t go there. But the point is made.

The innovation included Defense Bonds at a price of US$18.75, 10 year bullet maturity of US$25. Also available was part of a bond, whereby people could buy a 10 cent stamp and when their book was full they got the bond. Everybody could participate, poor rich everybody.

The advertising campaign was phenomenal in its scope[viii]. Rallies were held with celebrities; and a tour of Norman Rockwell’s paintings around the country raised US$132 million; Bond Booths were set up wherever people congregated; and the Dept Treasury endorsed radio and TV shows that profiled the War Bonds.

The innovation and scale and scope of this fund raising for Defense Bonds has not occurred again. However, there is a history of how, with the will and the recognition of a similar if lesser crisis than climate change, funding can be found to mitigate that crisis.

So Governments are Where; Innovation and its roll out

It is often said of governments that when the hand of the market fails, governments intervene. Most people assume that means after the market has failed, as in the recent Great Recession when governments around the world stepped in and rescued the financial system, whether local or global, from the Great Recession becoming the Great Its All Over. That is, post the event.

However, the governments around the world are typically at the forefront of innovation. If we look at the smartphone in your hand today, it would not exist without government innovation. [ix] In a book published in 2013 (and much awarded), The Entrepreneurial State[x], the somewhat invisible hand shows that pretty much governments are behind all innovation we use today. Quoting examples:

The book comprehensively debunks the myth of a lumbering, bureaucratic state versus a dynamic, innovative private sector. In a series of case studies—from IT, biotech, nanotech to today’s emerging green tech—Professor Mazzucato shows that the opposite is true: the private sector only finds the courage to invest after an entrepreneurial state has made the high-risk investments. In an intensely researched chapter, she reveals that every technology that makes the iPhone so ‘smart’ was government funded: the Internet, GPS, its touch-screen display and the voice-activated Siri.

That is, the government is active “pre” so-called market innovation, and not only “post” market failure.

Think, who first rolled out the trains, planes, telecommunications, sewerage, electricity plants, roads, bridges, waste management, law and order, education, shipping, health care, etc? As a consequence of this innovative government intervention – great industries were born, substantial poverty was alleviated, new trade guilds were created, and previously great industries were laid waste.

And just to conclude this point, the bond market would not be of the size, influence and diversity it is today without the governments issuing bonds to fund their investments. This is obvious when we are reminded that non-government bonds in any country are priced at a margin to sovereign (sometimes notional, government) bonds. The chicken came before the egg.

Much of financial innovation that occurred post government intervention from the private sector such as banks and so on, (bank bills, liquidity, structured finance, securitisation, etc) came post the development of the government financial instruments. For example the securitisation markets in the USA, where it started, and Australia, the second country to adopt this funding method for home ownership, were both driven by government policy and involvement at the commencement stage.

However, there is one overriding issue surrounding this innovation by the government, it took the private sector decades mostly, to make the products ubiquitous.

What to do and why.

Every following action that follows would meet the guidelines for adaptation and mitigation NDCs of 144 countries that signed the Paris Agreement. These actions for each country would count as a contribution to the NDC commitments.

The World Bank states that “an economy's financial markets are critical to its overall development. Banking systems and stock markets enhance growth, the main factor in poverty reduction. Strong financial systems provide reliable and accessible information that lowers transaction costs, which in turn bolsters resource allocation and economic growth”.

http://data.worldbank.org/topic/financial-sector[xi]

These are presented as cascading priorities.

1. The governments of the Paris Agreement should issue sovereign rated Green Bonds in the size and maturity profile to create a substantial and liquid market. This is not an arbitrary ambition. The central bank of central banks has overtly called on governments to do exactly this to invest in infrastructure. The experts in this field speak of ~US$8 trillions required to be spent based on known and quantifiable projects to adapt to or mitigate climate change. Using gap analysis, the only thing missing is the doing.

a. It has the obvious benefit of overcoming the persistent stagflation / miflation and stagnation in the economies around the world in both developing and developed economies. This would create deep and liquid markets, and set sovereign benchmark pricing for the private sector (such as corporates) and multinationals to price against. Dollar volumes, by way of guidance, could be on a per capita or per GDP basis.

b. The preference that these bonds would be either invested in domestic green banks dedicated to building out new infrastructure that would replace clearly obsolete infrastructure and technology.

c. In the alternative, it could form part of the funds committed to lesser developed countries for their green banks to invest in adaptation and mitigation projects.

d. In a final alternative, these bonds would be tagged for investment in green projects, but warehoused until they come to fruition. Most of the major infrastructure projects have significant lead times.

e. Inherently this would engage a very small part of the government other than the will to proceed as the vast majority of the heavy work would be done, or outsourced to, the private sector, who would do much of the heavy lifting; however it would create a technological transformation in its workforce, alleviate poverty and shift towards and sustainable future. And meet the Central Bank’s (BIS) request for investment in infrastructure to enhance economies (see prior).

2. That global financial system supervisors: The Bank of International Settlements, the Basel Committee on Banking Supervision, the International Organisation of Securities Commission, the International Association of Insurance Supervisor and the Committee on the Global Financial System (none of whose website search fields have anything on climate change) convene a Forum to discuss and develop consistent and cross industry policies to create resilient constituents in the face of the rising risk from climate change. In the process consider:

a. Accept that the risk weighting of government green bonds for capital adequacy purposes would continue as zero. Amend the nominal risk weighting of green bonds from other issuers (with explicit criteria) with a say 25% discount to a comparable asset class or bond; including those issued by multinational, companies, banks or other issuers.

b. Create mandatory public reporting of balance sheet risk arising from the effects of climate change to both improve the strength of the global financial system and aid the development of green financing in investment and risk taking.

c. Facilitate the adoption of the liquidity window / discount window / marginal lending facility / and the liquidity swaps agreements of the New York Fed (and other governments[xii]) to enable Green Bonds to have a greater discount rate / repo rate / base rate than traditional Bonds other than sovereign to enhance the holding of Green Bonds as collateral for risk weighting purposes, and to enhance the liquidity of these bonds.

d. Use traditional transition periods to enable calm and contemplative shift towards full adoption of these policies. For example, the two key components of the reporting could contemplate risk as a probability tilting toward inevitability.

3. The licensing regimes for employees in all these industries (insurance banking stocks Investments, etc), that all require continuous annual education, ensure that it becomes mandatory that three modules of climate change education be introduced. (i) Elementary climate change issues (ii) climate change and the risk to your business (iii) valuing the consequences of climate change, including long term.

a. This will quickly train hundreds of thousands of employees in these industries around the world / alert them to potential risks / facilitate present and future leaders have a long lead time (if necessary) to embed within the cultures of their institutions a deep and broad understanding of climate change.

b. This will be relevant whether as part of continuing education to maintain the license qualification or for new entrants entering the industry and wishing to acquire a licence when qualified

c. This licensing education regime would be relevant whether held under an umbrella license of an institution; an individual basis; or financial services segment basis.

d. For some countries it would be part of the various legislation or regulation (Companies Code / Corporations Act / Listing Rules etc) of companies / banks / insurance companies / industry bodies such as Company Directors Associations

e. Robust and strengthened global financial institutions will result as a consequence.

4. Governments that are signatories to the Paris Agreement ensure that all professional organisations within their purview also adopt similar training modules to enhance the opacity of reporting and consistency. As a direct consequence, first not so much as to dictate the truth of climate change as to ensure that when people are reporting on climate change (for their firm, institute, government, etc) they can speak with authority as to (i) why they are not detailing risks / implications or (ii) what the risks and implications are. That is, if they do not agree that climate change exists, they may at least be informed as to why not.

5. Buy and release to all schools throughout each country the rights to “An Inconvenient Sequel: Truth to Power”.

The End

[i] May 29, 2009. Bloomberg - Bond Vigilantes Confront Obama as Housing Falters

[ii] https://www.bis.org/publ/arpdf/ar2017e.htm[ii]

[iii] https://www.bis.org/cbhub/list/jel_classifications/index.htm

[iv] http://www.nbp.pl/publikacje/materialy_i_studia/71_en.pdf

[v] https://www.iua.co.uk/

[vi] http://ndci.global/briefing-the-greening-of-stock-exchanges/

[vii] https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124

[viii] https://www.oldradioshows.org/2011/01/war-bonds-on-radio/

[ix] https://www.theguardian.com/commentisfree/2017/jul/12/phone-state-private-sector-products-investment-innovation

[x] https://marianamazzucato.com/entrepreneurial-state/

[xi] http://data.worldbank.org/topic/financial-sector

[xii] https://www.newyorkfed.org/markets/liquidity_swap.html

QBE doubling down on climate change

2017-06-20T20:51:00.002-07:00

It appears that QBE is still long climate change. With its new downgrade of earnings due in part to weather events. The rest of us call that climate change.

In fact, it has doubled down on climate change it would appear. Earlier this year it announced a AU$1 billion share buyback.

Oh well, may you live a long life, and your children, and your grandchildren. Good luck with that.

Cities and their environmental equivalents: People, bees and fish learning to adapt.

2017-06-01T21:48:00.002-07:00

Not everything living thing exists only in the CBDs of the world. Although if it read the world press, an alien would take that view.

People are vastly outnumbered by the birds and the bees and of course, the inhabitants of our oceans. Less able, or in some cases, more capable, of adapting to the peoples’ influence on climate change, there are significant adaptation projects afoot.

BUZZ

Australian native bees have been sweltering and dying in the record heatwaves in their natural habitat. In droves. Who knew? Not the front page of the global press.

These native sting-less bees cannot cool their hives as can European bees, say, through water retention and fanning the unit. This counter-intuitive consequence of climate change would be catastrophic for Australia. From the agricultural economy (food security) to biodiversity.

This has led to the research and now development of the B Box, an upright, hexagonal-shaped hive made from high density polyethylene (HDPE) plastic. The B Box, recently approved for commercial use, is washable, impervious to diseases, light weight, tough, chemical resistant and does not absorb water – all things that regular hoop pine, say, boxes lack.

HDPE is a recycled product made from things like milk bottles. No mention of its recycling capability.

Critical for all the reasons we love bees: pollination (including commercial for farms) and honey.

BUILDINGS

Local governments in cities around the world have just received an improved tool to ensure they are more resilient to future climate and man-made risks. The Global Platform for DisasterResilience Scorecard was announced at the Cancun, Mexico biennial United Nations Forum for disaster risk reduction (UNISDR).

It follows a pilot project undertaken by 35 cities that are members of the UNISDR Making Cities Resilient Campaign which comprises over 3,500 cities worldwide. These disasters cost an estimated US$300 billion per annum. Plans are in place to have 200 cities using it by the end of the year.

It is targeting local governments and outlines a set of assessment criteria that cover policy and planning, engineering, organisational, financial, social and environmental aspects of disaster resilience.

However, probably one of the most unusual adaptation consequences is that in Australia, where it is reported that by the end of this decade the household “norm” will be a childless couple.

BLUE

We move from GREEN to BLUE, with a major global meetings occurring in USA. Summary of the Eighteenth Meeting of the United Nations Open-Ended Informal ConsultativeProcess on Oceans and the Law of the Sea, just ended, and the report covers almost every country on earth with respect to the current status of our oceans.

And the 3^rd Blue Planet Symposium soon after on 31 May in Maryland, USA.

Another critical meeting has just reached near consensus that an international binding legal instrument regarding the open oceans / 64% beyond national jurisdictions / be ready to present to the UN General Assembly in July 2017.

The main concerns confronting our fishy friends are (i) acidification (ii) rising sea levels (iii) warming (iv) substantial changes to historical ocean flows (v) and last but not least, pollution.

And for the global human population it is also important. Worldwide, three billion people (40%) rely on fish as their major source of protein. The industry provides a livelihood for about 12% of the population and earns approximately US$2.9 trillion pa, the WWF reports.

There have been numerous anecdotal and academic reports over the years, that show marine species have been migrating with the warmer water and change in flows. Recent report in Science Advances (10 May), provides the most confident proof of the increased warming. Before 1980 and after.

Since then it has been increasing steadily, and involving deeper layers of the ocean. All ocean basins examined have experienced significant warming since 1998, with the greatest warming in the southern oceans, the tropical/subtropical Pacific Ocean, and the tropical/subtropical Atlantic Ocean.

Adaptive migration on land has been occurring at a rate of ten miles per decade; but by sea our salty friends are moving fourtimes faster.

So with the macro providing non jurisdictional law to enable mitigation and adaption, and the fish themselves adapting through migration; where are the local projects. The Caribbean for one.

The Caribbean Community is putting all its efforts into preserving its Blue Economy, which the World Bank said earned the region US$407 billion in 2012.

Recent adaptation projects have included:

· setting up an integrated network of climate and biological monitoring stations to strengthen the region’s early warning mechanism
· ending the fishing of sea mammals (cultural legacy) by enforcement of current law
· major supermarkets have stopped the capture and sale of parrot fish

This week they rolled out, among other things, a coastal adaptation project and a public education and awareness (PAE) programme launched on April 26 in Belize City. The PAE project, named Feel the Change, is funded by the United Nations Development Programme (UNDP) and Japan-Caribbean Climate Change Project (J-CCCP) public awareness programme.

CONCLUSIONS

Birds and the bees and the fish are adapting by migration. If people do that we will all be balancing on one foot, on the island of Antarctica, or what is left of it when the ice has melted.

When I say all, I mean the few remaining people who haven't been eaten by the others.

Solar: When does a trickle become a torrent

2017-05-21T16:08:00.004-07:00

If you are a financier intending to fund a climate adaptation or mitigation project, knowing that for every dollar spent the impact is doubled or alternatively the cost halved relative to comparable projects, may be critical to whether the project proceeds at all. Or to know that a disruptive technology exists that may meet a demand previously unsolvable. Or, the return on your on-cost of capital is materially greater than comparable solutions.

This may especially important in developing economies, for which source of private funds are lower.

Also, if you are the person responsible for building out energy mitigation projects in a developing economy, with plenty of sun but limited funds, maybe plenty of financiers, and no technical skills, it is difficult to know where to start.

Or maybe you are the person responsible to the owner/s of a large multi-storey building in a city, (in which of the latter more than 50% of the global population reside), how do you become more energy efficient and less reliant on an increasingly unstable grid system. Without a complete and costly retro fit or building your own farm and infrastructure, and energy storage on vacant land.

Below we look at two technical breakthroughs, or disruptors, reported to go live in 2017. However, a quick overview of the renewable sector.

Reading the recent report from the International EnergyAgency is a good start at the global landscape, but limited as to renewables.

Electricity production was up 0.9% 2016 yoy, with the geothermal solar and wind segment up 9.5%. Within the latter segment, Europe had the smallest increase, with Asia/Oceania up 12.6%. However, US was a stand out with solar up 45% yoy.

The vast majority of the solar power is photovoltaic (PV), a technology first discovered by Becquerel nearly 200 years ago with the conversion of light into electricity.

It involves either rooftop or utility scale solar capture to produce energy to a single home / small business for the former or power into an existing electrical grid, the latter. The former including small installations in remote villages in India, say, for a single light bulb or a larger off-grid home. The latter, is well documented.

Whatever the size, they all have the same problems of the cost of infrastructure. Not only the capture and conversion, but this must be combined with integration of delivery on demand, which may require storage. Surprisingly, the small technology that delivers a single light bulb at night to a single household in a small remote village, may be the most efficient in the market today for this synchronisation.

Two new innovations are to launch commercially in 2017 that may transform the sector with unique features relative to the plethora of other breakthroughs in solar.

City Challenge

Launching this year, is the see through, financially electric, electricity generating coating for glass. SolarWindow is ground shifting technology. Taking each of these in no apparent order. (Please note all of the following is public information provided by the product supplier).

First, critical: Financial Returns

· Payback in less than one year
· Versus conventional of 5-11 years; by which they mean that may require urban land or vasty rooftop available
· No costly retrofitting of existing abodes (large or small) required

Technology

· What they refer to liquid electricity
· Outperforms rooftop solar 50 fold (not a typo)
· Operates in natural, shaded and indoor light versus conventional solar that requires direct sunlight
· Meaning the product may be applied almost anywhere, including non sun-facing infrastructure

· For the tech savvy, there is an excellent summary on Wikipedia

“SolarWindow™ modules are created by applying ultra-thin layers of liquid coatings on to glass and flexible plastics. These liquid coatings produce ultra-small solar cells and form groups called ‘arrays’. Because of the family of materials used and the way in which we architect the design, the final product is generically referred to as an ‘organic photovoltaic solar array’ (OPV). Importantly, the liquid coatings are primarily made of hydrogen and carbon – two of the most abundant materials found in nature.”

Applications

· Windows on city tower blocks
· Internal glass divides
· There are many other applications contemplated on the website. However, these are more contemplative than actual at the time of writing.

Food Security Challenge

Across the Pacific, there is another unique solar technology due for commercial production launch in 2017. And similar to the ubiquitous challenge of CBD buildings, this connects with the other half of the global population. The non-urban dwellers.

Not to suggest that the two technologies aren’t transferable between segments or indeed applications.

Whether you travel by train, bus or plane, Asia, Europe, Africa or the Americas, it is the greenhouses that are ubiquitous. Commercial, rural, market gardens and backyards. Greenhouses are on all continents. Some recent examples include:

Sundrops farms in Australia, Europe, and US seeks out locations that are barren, desolate, remote, near seawater to build.

Saudi learned early to commence this technology:

Vietnam is upgrading with Israeli technology:

A new Philippines project costed at US$50 million….

USA award winners in the greenhouse space:……

The global commercial greenhouse industry recently reported to a CAGR of more than 8.8% using current technology, with revenue expected to reach US$30 billion by 2020……and so it goes.

This is a breakthrough new technology, of a clear glass that harvests energy whilst letting most of the visible light pass through. The research has been part funded by Australian Research Council with researcher Professor Kamal Alameh (Edith Cowan University) collaborating with ClearVue technologie.

First, critical: Financial Returns

· world's first commercially viable clear, solar glass where one square metre of the glass can produce up to 30 watts of power.

· It gives daylight in which it lets the light through, it gives solar control, thermal control, it's also safety glass and it gives you power.

· Meaning a financial benefit of no extra infrastructure cost (wind solar)

· Returns may also be measured in terms of environment, social, resilience in adaptation

Technology (nano)

· The Professor calls it energy-harvesting clear glass
· The glass (as compared to nano technology using film) is embedded with nanoparticles and micro-structured elements that help absorb and re-distribute, internally, up to 90 per cent of the ultraviolet (UV) light energy
· Also a good fraction of infrared rays’ energy from the sunlight
· Then transfers this energy to solar cells embedded around the edges of the glass pane

"This is a glass that can pass the visible light through for photosynthesis, while blocking the UV and infrared components of the sunlight, and routing them to the edge of the glass for conversion to electricity via solar cells placed around the edges of the glass."

· Not the first glass solar on the market, but the only one with completely clear glass

Applications

· The energy harvested could be used in many applications, with a strong potential identified in creating new smart greenhouses, which would power their own water filtration, irrigation, heating and cooling inside the greenhouse
· The glass has already been used in a self-sustainable bus shelter in Melbourne, Australia
· Is being developed commercially in collaboration with ClearVue technologies, in what Professor Alameh describes it as a “game changer” for the glass industry in buildings.
· Brings food security to isolated communities in developing countries where the national energy infrastructure may not reach them for decades

Some further readings on innovations – when does a trickle of innovation become a torrent:

Solar cells that researchers at the ANU surpassed silicon efficiency records ………http://reneweconomy.com.au/anu-breakthrough-butterfly-effect-boost-solar-cell-efficiency-14263/

This new material could lead to smaller, faster, and more powerful electronics, as well as more efficient solar cells….. https://www.sciencedaily.com/releases/2017/05/170505151620.htm

Global greenhouse market report 2017-2022…… https://journalismday.com/2017/05/global-greenhouse-horticulture-market/.....building out the landscape of the global market

http://www.climatefinancelandscape.org/?gclid=Cj0KEQjw0v_IBRCEzKHK0KiCrKMBEiQA3--1Nh5Q8ZFm7zZ85lOjDwE-kifz_E3H_PYvyZw1Uni6zWgaAjPl8P8HAQ

http://newsroom.unfccc.int/lpaa/renewable-energy/international-solar-alliance/

https://www.pv-magazine.com/2017/04/20/getting-ready-for-terawatts-of-solar-with-charts/

Paris Agreement Kaput in Trump's Term?

2017-05-09T13:45:00.000-07:00

New research suggests that the 1.5 degrees limit agreed in the Paris Agreement will be reached within nine to 15 years.

It is not subject to Trump's policies (to be announced over the next few weeks) but the shorter or longer timeline is subject to the behaviour of the Interdecadal Pacific Oscillation.

At the moment it is snoozing, but when it wakes and plants its feet on the floor, all bets are off.

Make's Trump irrelevant.

Australian Misogyny

2017-04-24T10:09:00.001-07:00

If there is one thing Australian men hate it is women.

If there is one thing Australian men hate it is a woman who won’t do what she’s told.

If there is one thing Australian men hate it is a woman who answers back.

If there is one thing Australian men hate it is a woman who has an opinion different to theirs.

If there is one thing Australian men hate it is a woman who doesn’t smile all the time.

If there is one thing Australian men hate it is a woman who won’t back down when confronted.

If there is one thing Australian men hate it is a woman who calls out the bullshit of the man’s, well, bullshit.

If there is one thing Australian men hate it is a woman who gets in the way of what they want.

If there is one thing Australian men hate it is a woman who won’t stay down and die when hit.

Literally and figuratively.

If there is one thing Australian men hate it is a woman who doesn’t do a little metaphorical curtsy.

If there is one thing Australian men hate it is a woman who knows more about a subject than they.

If there is one thing Australian men hate it is a woman who questions their authority.

If there is one thing Australian men hate it is a woman who reports them to authority.

If there is one thing Australian men hate it is a woman who is confident in themselves.

If there is one thing Australian men hate it is a woman who is financially secure.

If there is one thing Australian men hate it is a woman who won’t overpay.

If there is one thing Australian men hate it is a woman who has a better car / house / job / anything.

If there is one thing Australian men hate it is a woman who earnt and paid for all the above.

If there is one thing Australian men hate it is a woman who complains about being treated poorly.

If there is one thing Australian men hate it is a woman who tries to negotiate a better deal.

If there is one thing Australian men hate it is a woman who speaks with authority.

Visit a courtroom where a female judge is presiding over an Australian male perpetrator.

If there is one thing Australian men hate it is a woman who won’t shut up.

If there is one thing Australian men hate it is a woman Prime Minister.

If there is one thing Australian men hate it is a woman who……oh you know, pick anything.

Sugar and spice and all things nice, that’s what little girls are made of. And don’t you forget it you fcking bitch. Whack!!

And just a few articles…..

http://www.sbs.com.au/news/article/2017/04/20/australian-values-debates-always-racist

https://www.theguardian.com/commentisfree/2016/may/27/our-action-on-domestic-violence-is-like-throwing-popcorn-at-the-taliban

http://www.smh.com.au/lifestyle/news-and-views/opinion/amber-harrison-refuses-to-quietly-disappear-which-is-why-i-salute-her-20170213-gubm2h.html

And then someone comes along and writes a book about exactly this topic with microscopic accuracy about the misogyny against women in Australia. It is so deeply reflective of the truth of life in Australia it is almost unbearable. Literally and figuratively.

The Natural Way of Things by Charlotte Wood deserves a Nobel Prize for Literature.

Kamran Jamshidi

2017-04-05T03:35:00.003-07:00

The apparent owner of the scam website according to Paypal.

At least, that is the person to whom the money was paid according to Paypal.

Paypal is a scam. There is no guarantee.

2017-04-05T03:32:00.004-07:00

See previous post......

https://beniourainrugs.com.au/

2017-04-05T03:32:00.000-07:00

This website is a scam.

You pay via Paypal. That allegedly guarantees its counterparties (ie the above website supplier) with a money back guarantee.

Try making a claim on Paypal. You cannot.

The product simply is not delivered. Sometimes the amount of money is in the thousands of dollars.

Save yourself the bother.

Of course, the scammers will just shut down and open under a different name. Just doing my bit.

Hockey: All fat no meat

2014-08-15T04:28:00.003-07:00

Hockey, the Treasurer for Australia, has always been known in the Australian financial markets from what I have been told by the financial community as all fat no meat.

So his latest comments are new??

In my opinion a loser..again. All fat no meat.

Good luck with that!!

2014-04-02T14:15:00.003-07:00

Sometimes it is just too difficult to stay silent.

The IPCC has in the past four months issued two massive reports. Detailing what is going to happen as a consequence of human emissions of carbon almost without doubt, this century.

And the climate change deniers are out and about - just another excuse for them to put their faces on TV.

And all I can say to the deniers is may you live a long life. May you have many children, and may they also live long lives. And their many children.

Good luck with that!!

Check the share portfolio for CARBON

2012-07-25T18:43:00.000-07:00

In January this blog suggested that carbon companies were a SELL. It became one of our best recorded posts. Much of that commentary was based on the excellent research conducted by the Carbon Tracker Initiative. That website is listed at the bottom of this page.

Now the Rolling Stone magazine has given their work much greater coverage with a fantastic article by Bill McKibben; himself one of the renowned authors in this field. It is five pages but provides an excellent summary of where we have been and are headed. I exhort you to read it. Most of the following comes from his article.

And he starts of with the fact there are only a few numbers anybody needs to know when considering carbon dioxide (CO₂₎ in the atmosphere. The first is that the temperature around the world has increased 0.8 degrees Celsius. Which I have written about previously.

The international community has agreed that beyond 2 degrees Celsius is catastrophic for the weather and humans. So we are nearly half way there already.

But some reports calculate that even if we stopped increasing CO₂ now, the temperature would likely still rise another 0.8 degrees, as previously released carbon continues to overheat the atmosphere. That means we're already three-quarters of the way to the 2 degree limit target.

The second number that it is important to know is that to reach that 2 degrees, by mid century humans can only release another 565 gigatons of carbon dioxide into the atmosphere.

The third important number is that in 2011, the International Energy Agency said that CO₂ emissions rose to 31.6 gigatons. So by the end of this year, that means that we have only 16 years remaining before we must stop emitting ANY CO_2.

Not just reducing, but stopping. Cars, power plants, fires, planes, etc.

Now here is the next important number (and a return to our investing theme) the number of CO₂ contained in confirmed coal / fuel / gas fields is 2,795 gigatons. That is, 5 times higher than what we can burn.

That is, this is the known reserves in the ground and excludes any future discoveries from exploration.

Now we can put some further analysis around those numbers. The first point to make is that for children entering primary school this year, when they graduate, they will face a very frightening world (as McKibben points out). That is how soon it is.

The second is in our investment portfolios. At some stage in the next 16 years, we are going to realise – through more catastrophic weather events – that owning shares in the companies that produce this fuel is not a good idea.

And that is because those 2,795 gigtons is actually on the companies’ balance sheets, and is built into the share price as an asset, and we simply cannot burn it all and survive. The Carbon Tracker Initiative lists all those companies and you can look it up if you like. Al Gore puts the number at US$7 trillion of value in carbon related companies, of which one fifth is US$1.4 trillion - an overvaluation of US$5.6 trillion.

So can we then derive that those company balance sheets are possibly 5 times over-valued? I guess it is a toss-up really. Kids or carbon. Australian legislation on what has become known as the "carbon tax" is not the first to introduce it, but it became effective this month. And as McKibben points out, it is the only way to stop these behemouth companies in their tracks and save this planet. Oh, but sell the shares first huh!

This is what you get!!

2012-07-13T01:23:00.001-07:00

I recall the first time I went to the USA. On business. I stayed at the Ritz in New York. And every time I walked out the door, a few paces, I would be accosted all the way down the street by people trying to sell me drugs, consorts, and pan handlers. The touts were rampant. And frightening. It would have been fall 1987. It seemed to me at that time that the city’s crime rate, which was very high, could never be turned around. Tourists were turning away in droves.

And of course it was. Turned around. I visited the city a hundred times over the next several decades, and observed its transformation. The touts disappeared; new buildings were erected; the parks cleaned up; and it once again felt safe to walk down the street. Into the parks, the churches, just walk and walk. Or run on occasion. On one occasion, there was a street person with all his worldly goods beside him, and as I passed, his mobile phone rang. And he answered it. How bad could it be?

Yet still my current view of the USA, is a country at war with itself. We have all read of the 46 million on food stamps. The shockingly difficult unemployment figures. And recently I read that new job creation has a ratio of 1 in ten being a permanent job, and the rest temps or contract. The average wage is $25,000, and the wealth of the average middle class American has declined by 41 % in the last five years (versus an increase in the top quartile, and mainly because their wealth is held in their home which have declined in value).

Yet as I have written here, one of the few industries with huge growth over the last four years is guns: “98% increase in Ruger quarterly firearm sales since 3Q08 from $117m to $232m”.

Another blog dealt with the crash and grab of the legislature as it throws up and sometimes passes the most extraordinary legislation.

But I am going to again bang on about the out of control law(less?) enforcement being used to target its citizens by the USA. I just don’t get why more people are not commenting on this in the international press. The country is simply heaving with cities or suburbs in lockdown with an occupation style mentality, and people all armed. Syria, huh!!

Hotel rooms and TV; watched a documentary the other night about the city of Philadelphia, in north eastern USA. It reputedly (at the time of the show) had the highest murder / gun crime rate in the USA. The show, Louis Theraux: Law and Disorder in Philadelphia.

The cops were all doing their best in Philli. The put-upon African Americans who were being constantly harassed by them, also got a little heated about what they believed was racial profiling. And I have to admit, on several occasions, that’s what it looked like to me. But African Americans represent 43.4% of the population there, and whites 41%. So I am not sure that claim can be substantiated.

But a young articulate African American speaking to camera summed up one incident between the police and a group of his friends this way: “This is what you get in America right now”. Couldn’t have put it better myself.

Peak Oil v Peak Carbon v Giant Carbonised Insects

2012-07-06T22:35:00.002-07:00

More on how the rug rats of today are going to live as adults, dodging the gnashing jaws of carbonised giant insects: is it just me or is the oil peak being pushed out further and further?

Over the last few months, and despite limited interest in the industry (other than to shut it down), there seem to be a plethora of new oil deposits found / exploited. Big ones. Some media refer to them as giant fields. If this observation is correct, then Peak Oil is a thing of the past and we are definitely all going to be gobbled.

As an aside, with so many giant carbonised insects – such as the meter long centipede referred to in an earlier blog – we will also have a new source of food /protein to feed the masses tipped to hit 10 billion in my [old already] lifetime.

But back to the new oil sources. Some months ago I read about BP (and others) making a large find off the northern coast of the UK. Or was it the end of last year?

Anyway another has been announced only last month. UPI reports “British energy company Premier Oil announced that it made an oil discovery in the Catcher area of the country's territorial waters of the North Sea.”

And remember a few months ago the announcement of the large oil deposit find off the coast of Ireland; poor ol’ Ireland that has lost its wealth, its income, and a whole generation to austerity?? Exploration company Providence Resources announced the find off the coast of Cork. The find was referred to as “major”. The article went on to say ”The coastal Basins surrounding Ireland have long been known to harbour valuable natural resources. It’s estimated that they could produce 10 billion barrels of oil and an unquantifiable amount of gas. In the past, exploration has been held back by a lack of technology and low oil prices.”

As probably more of a political statement, Kurdistan has started shipping oil to Turkey. Whilst in east Africa, “Tullow Oil, a London-based explorer with the most licences in Africa, said it planned to accelerate drilling in Kenya after making the East African (Kenya) state’s first discovery earlier this year. Tullow forecast Kenya has the potential to exceed Uganda, where with Total and CNOOC it plans to invest more than $10bn to unlock an estimated 2,5-billion barrels of oil. $4 per barrel.”

But wait, there’s more.

The Norwegian oil firm DNO International said it is ramping up oil production in Iraq as it confirmed an oil discovery in the country's resource-rich Tawke field and has resumed drilling operations in Yemen. DNO, which explores and produces oil and gas in Iraq and Yemen and plans to expand activities in North Africa and the Middle East

And more.

“Online PR News – 05-July-2012 –PierMax Energy Exploration is pleased to announce that, it has made a significant oil discovery in current onshore Kurdistan oil exploration project.”

And so it goes on and on.

And to crown my paranoia about never reaching Peak Oil (which has been forecast to be occurring around now) and thus never reigning in the carbon problem, I read George Monbiot recent article False Summit (meaning oil summit or ‘peak’). The great eco campaigner.

His first sentence is “We were wrong about peak oil: there’s enough in the ground to deep-fry the planet.” And ends with “But right now I’m not sure how I can look my children in the eyes.”

In between those two emotionally charged sentences, is a great article, and as usual well researched. Citing various article, he asserts that the recent sustained high price of oil has triggered to new oil resource boom. That indeed, it is not so much how much oil, but at what price. With US$2.6 trillion spent over this three year period in exploration etc (end 2012). Some of it extracted using fracking, the environmentally fraught polluter.

Yeah gads!!

So back on the research car and this was found. Published in 2006, so it overlooks the recent massive investment in oil production and discoveries; by the way, all of which are found and delivered from very difficult methods / places (fracking, deep sea). These five key points are believed at that time to be irrefutable and the basis of Peak Oil.

1. The biggest oilfields in the world were discovered more than half a century ago, either side of the Second World War.

2. The peak of oil discovery was as long ago as 1965.

3. There were a few more big discovery years in the 1970s, but there have been none since then.

4. The last year in which we discovered more oil than we consumed was a quarter of a century ago.

5. Since then there has been an overall decline.

So anything written since then to confirm this thesis? Well in May this year, there is a long post on oil and the industry on scepticblog.org by a reasonably senior academic geologist. It is extremely lengthy, however sufficiently erudite and simplistic (for this oil idiot) for it to be recommended to all. These are just a few extracts of interest:

Academic geologists are nearly 50% women now, and they are distributed across all age classes. Oil geologists, by contrast, are nearly all old white guys in their 60s or older, with a lot of young men (and a few women) just recently hired in the business. The entire generation that would now be in their 40s and 50s is missing because of the attrition during the oil busts of the late 80s-90s. [I just thought this was interesting].

As the Time magazine article pointed out, now they’re spending most of their time and money on increasingly risky and expensive operations like fracking, pumping water in old fields to push out the last drops of oil, or mining oil sands with all their environmental costs. The biggest push is in offshore oil platforms—and the 2010 Gulf oil disaster (along with previous oil disasters on platforms around the world) shows just how risky it is to drill so far offshore.

So what about the world discovery rate? That answer has been known for a long time. World discovery rate peaked in 1965, and has been steeply declining ever since, even though more and more exploration is conducted in the farthest reaches of the globe in the past 47 years. The “peak oil” effect has probably already occurred, and we are likely on the slow downward decline in discoveries of cheap, easy-to-pump oil.

……in recent years most of the estimates place the total volume of ultimately recoverable oil in the range of 1.8 to 2.6 trillion barrels, with most estimates around 2.0 trillion barrels.

The booming economies of China and India, along with some other developing nations, are greatly exceeding any increased production due to new discoveries. The numbers are truly staggering. From only 50,000 barrels/day in 1980, world consumption is now almost 100,000 barrels/day. As oil executive Peter Tertzakian pointed out in his book title, we’re nearing the once-unimaginable consumption rate of a thousand barrels a second! Even as the U.S. finds more oil in unconventional places, we cannot keep our domestic prices down because demand outside the U.S. is driving the world price upwards.

So by my calc that is ~55,000 years of oil supply at today's consumption levels if we use the 2 trillion estimate with current consumption at 100k barrels per day. At that level we are toast!! Something doesn't seem to be adding up here. Then we look at the next argument, of 1,000 per second. That equals about 86 million barrels per day; being 60,000 per minute; 3.6 million barrels per hour; etc. So I think he meant 1,000,000 not 100,000. Which brings the ~55,000 back to ~55 years of supply at today's consumption level. Phew!!

There is also the fact that the peak of discovery of major oil fields occurred 47 years ago, and there have been no giant oil fields found in a long time, and most of the world’s older oil fields are nearing their ends.

An acre of corn consumes 80 gallons of oil in the form of pesticides, fertilizers, and fuel for the tractors. Without [oil], our food supply would collapse, and the world would be looking at a global famine. The end of cheap oil will force everyone to re-examine agricultural practices, since you can’t make most pesticides or fertilizers out of coal.

And thus cannot replace lost oil with biofuel.

So rug rats. There are your choices: eaten by giant carbonised insects or die of starvation. Blame the old white guys in the oil industry.

However, I believe that we can confirm that peak oil has definately come and gone. So that is hopeful. Right?

You're Officially Fired

2012-07-03T22:01:00.003-07:00

As anyone will tell you, hosting a blog requires frequent posts. And here is the confession: it is five weeks since I last posted. I am sorry. And especially to the many great people who have been reading this blog regularly from all over the world. Truly gobsmacking that people do (read the blog). Thanks.

Since the last post though, absolutely nothing has happened to change the very real major catastrophes around the world about which I have written relentlessly: Climate and those idiots running the economies into a global depression.

The recent global intercessional meeting s in Bonn (the Bonn Climate talks following on from Durban last year) ended with a complete and utter failure. This is how it is reported in the USA site:

"Parties in Bonn eventually broke the deadlock and agreed on an agenda that will guide the Durban Platform negotiations through 2015………. It is now very clear that we have a difficult four years ahead of us of negotiating the Durban Platform, an agreement that will bind all nations to curtail greenhouse gas emissions after 2020. Scientists warned us again in Bonn that the door to avoiding a maximum 2 degrees Celsius global average temperature rise is about to close."

The emphasis is mine.

But there was a minor advance at the G20 meeting in Mexico, where:

"Mexico, host of the G20 talks this year, passed a law ratifying their COP15 pledges (namely a 30% pollution reduction below business as usual by 2020 and a 50% reduction by 2050)."

Well goody, but that is of course too late. The carbon emission peak must be well before 2020. And most countries haven’t even started.

One event that did happen during my “break” from blogging, was I watched a documentary called “How to Grow a Planet”. Fantastic. In one section it explored the great Oxidation Event, from which much of life was derived. This occurred about 2.5 – 3 billion years ago.

To cut a long story short, I have always wondered what would happen to mankind when the oxygen / atmosphere is so carbonised that our bodies cannot work properly. I mean, I don’t really care, I’ll be dead.

During the show, it illustrated that when there was substantially less oxygen in the air mix (where we are heading!) at the time lived giant insects relative to our size today. Centipedes a meter long; dragon flies with four meter wing spans; giant ants. You get the picture.

And it soon became apparent that the end of mankind may not be from a lack of oxygen, but being eaten alive by giant insects. There are more of them right? Anyway good luck with that all you little rug rats.

And which countries will be safer on a relative basis? Those where the population have already eaten most of the insects (Asia) or killed most of the birdlife (Italy, say) or the fish (just about everywhere). Those countries working hard to save biodiversity are in trouble. So which side are you on?

Pennies and Dimes and the 99%

2012-05-25T21:06:00.000-07:00

It was this time last year that I fell out of love with London. I was staying in a three story walk-up flat, in Kensington. Close to shops, tube, and some great pubs. And walking distance to the Chelsea Flower Show and Q&A amongst other museums. From my bower window I could sit in the afternoon spring sun and watch the pedestrians far below, hithering and thithering.

Kensington was dirty, and the people grasping. The young women wore stiletto heals that were reminiscent of the foot binding days of the Chinese. All the shops had sales, although I am not a shopper, it was noticeable that along the strip the retailers were doing it tough. Clear signals of a weak economy.

The fact that it rained most of the week could have also contributed to my gloom. In one day alone we had boiling heat, torrential and flooding thunderstorm, hail, and a wind storm.

Across the street from my flat, and a floor lower was a gorgeous apartment. Decorated and furnished in the old English style it was immaculate, with real old world charm. The curtains were always open as though the owner was inviting people to glance in and admire.

The owner himself was of old world charm style, an English gentleman. Maybe ex military, because he stood tall and ramrod straight despite his clearly many years, and groomed to within an inch.

As I sat in the evening, it was the only time I saw him, despite having a clear view the entire length of his apartment. At that time, he would sit beside the window and read the paper, on occasion leaning into the window as the light faded, holding up the paper.

Maybe I am slow, but it took a few days to realise that he was using daylight to read by rather than turn on an overhead light. And further, that I at no time when glancing out the window saw lights – either overhead or from a flickering TV – in the evening. In the kitchen, I only ever saw tin cans on the bench, despite the inviting décor. It took me a little time to understand that all over London some, like this elderly gentleman living in a million pound apartment, and others less fortunate, were not turning on the lights nor cooking, because they couldn’t afford it from their income. I wasn’t just the poorer demographic. The seemingly wealthy were suffering also.

And maybe like this gentleman, they lived a proud existence, and told nobody for the shame.

I have written about inflation and ivory towers, in which I suggested that the governments would soon (and again) be adjusting how they measure inflation to grab back money on say, pensions. Inflation is a number on which the whole world spins, whether measuring real investment returns, pensions adjustments, or planning for future expenditure.

And that the western economies are experiencing stagflation, whereby the cost of essentials – food, water, energy, healthcare – are rising faster than the income on which we rely to meet these essentials. And I don’t see how it is going to be any better for decades. (I took my own advice and bought a farm.)

Then a month ago there was this extraordinary article, as if to prove me completely correct. So that I am sure you have the benefit of reading it (and the following comments) here is the link in full.

http://www.bloomberg.com/news/2012-04-25/chained-cpi-switch-is-a-slam-dunk-even-in-election-year.html

I learnt various things from this article. First, that Bloomberg now had its own editors publishing editorials. When did that happen? Second, that they also posted comments about an editorial. Again, since when? Third that Bloomberg is still getting its facts wrong. Evan when written by the “editors” themselves, whose primary role is, after all, to edit the facts.

Here is the opening line: “Sadly, Congress and the White House seem incapable of agreeing on substantive measures to tackle the $10.4 trillion mountain of U.S. debt.”

Now the interesting thing about that line, is that the US debt is in fact US$15 trillion, because I looked it up on Bloomberg.

The article then goes on (the “slam dunk” in the heading is a tip to its quality) to say that the government should switch to a Chained Inflation measure rather than the standard measure used today.

Chained inflation is a measure, that reputedly tracks changes in consumer purchasing behaviour. The example they use is that when the price of a granny smith apple rises, the consumer switches to the lower cost red delicious apple.

Now, for sure you are getting the drift. As inflation on food essentials (as an example) keeps rising, people will continuously switch to lower and lower cost products. Cat food comes to mind, as it did to the many commentators who overwhelmingly mocked this article. Dog bones anybody? What inflation?

The “editors” suggested that this would save the government US$300 billion over ten years. No suggestion how this was going to pay down the debt. And at 0.2% it isn’t even enough to pay the interest on the debt.

And you guessed it, the savings came from: social security and cost of living adjustments; pensions; and probably food stamp recipients. The 99%.

And again this turns to a continuing theme in this blog – penny and diming the 99% whilst the 1% carry on. As pointed out in prior blogs, taxing the OTC derivative market, US$700 trillion and counting, just 0.1%, would raise US$700 billion. And if the duration of the OTC market is 3 months, that would be US$2.8 trillion per year, or enough to pay off the USA debt in total plus a huge surplus using Bloomberg’s 10 year measure.

Of course the USA is not the home to all the global derivatives, but probably a lot of them. There would be quite a material amount in other financial centres such as London.

And you guessed it, the Telegraph reports that that government is about to pennie and dime its citizens by adjusting how the RPI is measured. That's the retail price index.

It reports “A reduction in RPI would save the Government up to £3bn a year on the interest payments it makes on index-linked gilts, but would also slash income for pensioners and those whose pay packages are linked to the measure.”

Like the pension for that charming elderly gentleman living in Kensington. Or should I say, surviving, just!

All wrong on JP Morgan

2012-05-18T00:35:00.001-07:00

In our Pennies and Dimes blog in April, we identified that JP Morgan had US$70 trillion of derivative exposure at the end of 2011, of a total market of ~US$707 trillion. So it had 10% of the market.

We argued that if governments wacked these OTC derivatives onto an exchange and then taxed the market at 0.1% turnover then it would generate US$700 billion in tax revenue and is easily the slam dunk for the global debt problems (see tomorrow’s blog). Taking it further, if the average life of each derivative was 4 months (qtr – but the total global portfolio of derivatives may well be a bit longer) then total tax revenue would be four times US$700 billion per annum = US$2.8 trillion. Enough to bail out Italy I believe, and certainly enough to pay off some of USA government debts.

Continuing this theme, we then blogged on the massive US$1.5 trillion in excess reserves held with the Fed by the US banks. We raised the question “Why hoard expensive capital, with the toll on profits given there is little place to invest it with much return, unless you are (i) scared out of your wits about another mighty downturn and massive liquidity crunch or (ii) there is a lot of short term risk (OTC derivatives?) they may have but we do not know, against which they are holding this capital (and not required by prudential standards).”

And followed on with the distrust on counter parties being a rationale for this excess capital – and as it turned out for good reason.

Then of course we learnt of the rating agencies demands that (To Big To Fail) banks must hold much greater capital relative to that required for “prudential” guidelines to ensure that they have their derivative exposure covered in the event of loss. Or indeed any margin call on their leveraged books. Remember you and I bailed them out last time so this is a good thing. Again, this is all about counter party risk and who gets shafted if one makes a blunder. So we were correct on both fronts with respect to the excess capital: derivative cover and counter party risk.

And as an aside, making the prudential guidelines for capital meaningless as clearly the market is dictating the terms of capital guidelines.

So, thennnnn………JPMorgan blows up US$2 billion. As I said this story theme just keeps giving. And of course it is now reported to be close to US$3 billion (in Bloomies) as the market vampires sink their teeth into the unwinding artery and suck. Heh heh heh!!

There are several points here, again that I have not seen written about. But first, if I had picked up this theme in April – and I am not in the market these days – then the market knew about JPM at least as early as April, and this has since been reported as correct.

The second thing is that JPM was reputedly trying to hedge long tail risk in its book – or total portfolio. And people have been jumping up and down about this being a hedging exercise rather than a portfolio (b/s) risk management exercise (and hence the Volker Rule in the USA must be passed). Frankly I disagree with all of it. There is nothing wrong with hedging your whole portfolio. Fund managers do it by asset allocating (if they are long only) and insurance companies do it by laying off risk, either in tranches of value or tranches of time. Perfectly acceptable.

But what possibly was happening at JPM which is unforgiveable was that it was only participating in a meme – an imitation of what is a very trendy risk management tool in investment banks at the moment: hedging out your long tail risk. So, sadly, they were actually just doing it for trendy reasons rather than for strategic risk management. Or maybe I am wrong and should give them more credit (no pun intended) for independent thinking.

The problem with all this is that long tail risk is meant to be covered by / with (i) today’s profits stored in reserves until the risk expires (ii) the pricing mechanism when the lending business (which in aggregate makes up the whole portfolio) is actually written, or struck. That is, the margin above the risk free rate which is composed of credit risk, liquidity risk, etc.

So, to want to hedge your long tail risk, you should be reserving profits today AND pricing your risk (especially on long term business) correctly.

So one of these two things at JPM must have changed if we are to give them credit for making sound rationale for hedging their long tail risk (and not just imitating the meme). Either they are reserving insufficient capital for long tail risk, or they have miss – priced their book when the business was written.

OR we are completely wrong in all of this and they were just prop trading. A big no no.

But back to giving them some credit. The (now) US$3 billion they have lost is just 0.004% of their reported derivatives exposure. (Which leads my blood pressure to rise: what if they had lost more?) I mean, really, it is hardly risk taking is it? That is, if you measure it against their total derivative exposure of US$70 trillion. And as a loss to book is concerned, it is still only 12 basis points or 0.12%. Loose change.

Where the first problem comes in: why do you need US$70 trillion of derivatives to protect a ~US$2.5 trillion book? That is 28 times. And if it is intended to be a hedge of their book rather than a punt, then it should in theory always be net neutral so it is highly unlikely – even black swan events – to be losing money. (But you could argue that a .004% loss on US$70 trillion is virtually net neutral).

So why is everybody jumping up and down. Frankly, I do not believe they have thought it through. Just doing back of the envelope numbers; capital on the US$2.5 billion book would be US$250 billion assuming 10%. So they have lost a little over 1% of capital.

Which leads to the second: what if they lose 1% of their derivative book? That would be US$700 billion, or nearly three times capital reserves. So in theory, JPM would need to increase their capital base 3X to maintain an AAA counter party rating, if a 1% margin call was the criteria.

When you are 10% of the total market – you are at multiplies of greater risk for it to move against you - whether punting or hedging. This is the position JPM finds itself, and frankly should have been smart enough to price this illiquidity when hedging its book. And there are other practical issues, such as the market turning for other unrelated reasons when you are in the process of placing your “net neutral” position. I mean, their loss is so small on a relative basis, this is probably what happened, together with the market dominance risk above.

No, I think everybody is looking in the wrong direction. Banks and other risk takers are meant to take and manage / mitigate their risk to optimise profits.

The real problem is the scale of the derivative market. JPM exposure (and every other bank) should have a limit on it (think of the concentration in AIG in 2008). THAT would make them think how to use it more judiciously. I mean US$70 trillion for US$2.5 trillion? That’s the problem.