David Fuller and Eoin Treacy's Comment of the Day
Category - General

    The Only Thing on Autopilot at Tesla Is the Hype Machine

    Just over a year ago, Tesla sent out a software update to its cars that made its "Autopilot" features available to customers, in what the company called a "public beta test." In the intervening 12 months, several of those customers have died while their Teslas were in autopilot mode. Cars have crashed, regulators have cracked down, and the headlines proclaiming that "Self-Driving Cars Are Here" were replaced with Tesla's assurances that autopilot was nothing but a particularly advanced driver-assist system.

    Given all this, one might assume that a chastened Tesla would take things more cautiously with its next iteration of autonomous technology. But in a launch event this week, Tesla introduced its Autopilot 2.0 hardware with the promise that all the cars it builds from now on will have hardware capable of "the highest levels of autonomy."

    Tesla's proof that its new hardware is capable of driving in the "complex urban environment" was a brief, edited video of the system navigating the area around its headquarters near Stanford University in California. Though exciting for enthusiasts who can't wait to own a self-driving car, the video is hardly proof that Tesla's system is ready to handle all the complexities that are holding back other companies that have been working on autonomous technology for longer than Tesla. As impressive as Tesla's system is -- and make no mistake, it is deeply impressive -- navigating the Stanford campus is a hurdle that even graduate school projects are able to clear.

    Tesla's new sensor suite upgrades what was a single forward-facing camera to eight cameras giving a 360-degree view around the car. It also updates the 12 ultrasonic sensors, while keeping a single forward-facing radar. Yet independent experts and representatives from competitor firms tell me this system is still insufficient for full level 5 autonomy -- the National Highway Traffic Safety Administration's highest rating -- which requires more (and better) radar, multiple cameras with different apertures at each position and 360-degree laser-sensing capabilities.

    What Tesla's upgraded hardware does do is vastly improve the company's ability to pull high-quality data from its vehicles already on the road, giving it an unrivaled ability to comply with new regulatory guidelines requiring granular data about autonomous-drive functions in a variety of conditions. Whereas its competitors' autonomous-drive programs harvest data from small test fleets and extrapolate from there, Tesla has made every car it sells into an independent experiment of conditions that can only be found on the open road. All this real-world data gives Tesla a unique opportunity to validate its autopilot technology. If the company had announced Autopilot 2.0 as another step toward an eventual fully autonomous system, this would be an unambiguously good (if not earth-shattering) development.

    Unfortunately, that's not what Tesla did. Instead, in Wednesday's launch events, it called its new hardware suite "full self-driving hardware." It said the technology would demonstrate the system's ability to drive cross-country without any human intervention. Tesla even hinted that a feature will allow its cars to be rented out as autonomous taxis when not in use by their owners.

    Though Tesla's website noted that many of these features will need validation and regulatory approval, this caveat was lost in the hype. As with Autopilot 1.0, Tesla is again inviting a mismatch between owner/operator expectations and its systems' true capabilities without any apparent recognition that this gap -- not technical failures of the system itself-- is the key point of concern for regulators and critics.

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    EU Is In No State to Snub or Bully Britain

    Elements of the EU reportedly do not accept the reality of Brexit – they imagine that a mix of rudeness and indifference can make it go away. They have even threatened to hold negotiations in French. We would urge readers to remain dispassionate: this is the EU leaders’ game plan and, frankly, it betrays how weak their position truly is. Theresa May should respond with resilience – and lay out a confident vision of what Britain is trying to achieve.

    The British are used to insults from the EU, so nothing coming out of the European Council meeting in Brussels has been a surprise. The messages have been mixed. European People’s Party leader Manfred Weber said that the UK was attracting anger for its intransigence. And yet Lord Hill, the UK’s former Brussels commissioner, spoke of a “surprisingly widely-held view that Britain might still decide to stay in” – something Donald Tusk, president of the European Council, said that he hoped would happen. Mrs May was given just five minutes to discuss Brexit after dinner on Thursday night.

    This behaviour betrays fantasy and arrogance. But also distraction – for the EU leaders have a lot of other, local problems to worry about. Their failure to conclude a free-trade deal with Canada has been symbolic. Getting all 28 European members to agree to a deal was tough enough – but constituencies within constituencies threw up barriers. Belgium as a whole was for it. The Belgian region of Wallonia, on the other hand, was against it, holding up progress for everyone else. Canada’s trade minister concluded that the EU is “incapable” of forging international agreements. The British have known this for years, and it is one of the most compelling reasons why they voted Leave.

    Then there are internal economic strains: ongoing crisis in Mediterranean markets, turbulence in Deutsche Bank. The refugee crisis continues to pose challenges for national security and will only be resolved with Britain’s help. Nor would the Europeans want to encourage a rift across the English Channel while squaring off against Russia – and Mrs May rightly called for a united stand among democratic Western nations.

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    Why Corporate America Debt Is a Major Risk

    Here is the opening of this topical article from Bloomberg, and don’t miss their graphs:

    Are investors in denial about how dim the outlook is for American businesses?

    That’s the question Société Générale’s Andrew Lapthorne, global head of quantitative strategy, posed to his bank’s clients.

    “Asset valuations are extreme; returns are poor, the probability of losses is high and the ability to recover any losses quickly is low,” he writes.

    In particular, the strategist sounded an alarm over the state of corporate America’s balance sheet. Company spending exceeds cash flow by a near-record amount—a fundamentally unsustainable situation—as net debt continues to increase at a rapid pace.

    In many cases, companies have used debt to repurchase their own stock, flattering their bottom-line financial performance. Whilenot all buybacks are financed by debt, Lapthorne did note a correlation between net repurchases and the change in corporate indebtedness.

    “U.S. corporate balance sheets are a major risk going forward,” he says. “U.S. corporates are massively overspending.”

    To be fair, servicing this debt load isn’t as onerous as it might appear, because of low interest rates. And despite the recent steepening of corporations’ yield curve, companies have continued to extend duration, which offers them more certainty about what their interest payments will be over the long term.

    “For corporate credit, there’s very little concern about short-term coverage from the market,” write analysts at Bespoke Investment Group. “We note that maturities continue to creep up slowly; despite higher spread costs, corporates are generally borrowing further out the curve and ‘locking’ low rates.”

    But over the long haul, the performance of stock markets will be primarily driven by earnings increases—and the level of corporate indebtedness implies that any latitude to boost earnings per share by shrinking the denominator is limited.

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    Scientists Just Showed What It Truly Means When a Huge Antarctic Glacier is Unstable

    If there is one story that, more than anything else, makes you wonder if global warming could cause very fast changes and hit planetary tipping points in our lifetimes, it was a moment in 2014.

    That was when two separate research papers said there was reason to think a frozen sector of West Antarctica, called the Amundsen Sea region, may have been destabilized. West Antarctica as a whole contains enough ice to raise sea levels more than 3 meters (10 feet), and the Amundsen Sea’s ocean-front glaciers themselves account for about 1.2 meters (4 feet). Two of the largest are Pine Island Glacier, about 25 miles wide at its front that faces the ocean, and capable of someday driving about 1.7 feet of sea level rise, and Thwaites glacier, the true monster, which is 75 miles wide where it hits the ocean. It contains about 2 feet of potential sea level rise but also, it is feared, could destabilize the ice in all of West Antarctica if it goes.

    On Thursday, the National Science Foundation and the U.K.’s Natural Environment Research Council made a joint announcement signaling how grave this really is — they will fund a multi-million dollar research initiative to the less-studied Thwaites, in order to determine just how much it is capable of contributing to sea level rise during our lifetimes, and by the end of the century.

    [This Antarctic glacier is the biggest threat for rising sea levels. The race is on to understand it]

    It will take years of preparation for scientists to even get to the glacier, however. And in the meantime, a new study of Pine Island Glacier, just released in Geophysical Research Lettersreaffirms why this region of Antarctica is so worrisome. The study finds that as the ice melts, the glacier that remains has retreated so far backwards in the face of warm ocean temperatures, exposing so much additional thickness to the ocean in the process, that even a recent bout of cooler water temperatures did little to slow the pace of its ice loss. The work was co-authored by 20 separate scientists based at U.S., British, and Korean institutions, and the first author was Knut Christianson, a glaciologist at the University of Washington in Seattle.

    The problem is that in this part of West Antarctica, you have everything you don’t want on a warming planet – a changing ocean up against glaciers that are both very wide and very deep. And scientists now know that warm ocean water is reaching these glaciers at depth, and melting them from below – causing them to shrink, leaving the remaining glacier to retreat backwards and inland. And as they retreat, the seafloor gets deeper the further back they go — what researchers refer to as a “retrograde” configuration. The deeper the water gets, the more ice that can be exposed to the ocean, and the more the glaciers are thereby capable of losing. So there is a fear that there is here something that is called a “marine ice sheet instability” in which, once you start this process, you can’t stop it — and that it has already been started.

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    Euro Falls to Lowest Since March as Draghi Eases Nerves on QE

    This article by Anchalee Worrachate and Lananh Nguyen for Bloomberg may be of interest to subscribers. Here is a section:

    The declines came as speculation faded that central bankers back a sudden end to QE after March, which is the latest date that they’ve committed to for the program. Pacific Investment Management Co. predicts the ECB will actually ease further in December and that it won’t remove stimulus until inflation is “solidly on track” for its goal of close to 2 percent.

    “The euro in general has been weakening” on expectations that the ECB will extend stimulus, said Sireen Harajli, a foreign-exchange strategist at Mizuho Bank Ltd. in New York.

    “This is all the after-effects of the ECB meeting -- the message has been quite clear by Mr. Draghi that tapering is not on the table.”

    The euro dropped 0.6 percent to $1.0864 as of 1:36 p.m. in New York, after touching the lowest since March 10, when the ECB cut its main interest rates to record lows. The shared currency has fallen 1 percent versus the greenback this week, and is down against most of its 16 major peers.


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    Fed Risks Repeating Lehman Blunder as US Recession Storm Gathers

    The risk of a US recession next year is rising fast. The Federal Reserve has no margin for error.

    Liquidity is suddenly drying up. Early warning indicators from US 'flow of funds' data point to an incipent squeeze, the long-feared capitulation after five successive quarters of declining corporate profits.

    Yet the Fed is methodically draining money through 'reverse repos' regardless. It has set the course for a rise in interest rates in December and seems to be on automatic pilot.

    "We are seeing a serious deterioration on a monthly basis," said Michael Howell from CrossBorder Capital, specialists in global liquidity. The signals lead the economic cycle by six to nine months.

    "We think the US is heading for recession by the Spring of 2017. It is absolutely bonkers for the Fed to even think about raising rates right now," he said.

    The growth rate of nominal GDP - a pure measure of the economy - has been in an unbroken fall since the start of the year, falling from 4.2pc to 2.5pc. It is close to stall speed, flirting with levels that have invariably led to recessions in the post-War era.

    "It is a little scary. When nominal GDP slows like that, you can be sure that financial stress will follow. Monetary policy is too tight and the slightest shock will tip the US into recession," said Lars Christensen, from Markets and Money Advisory.

    If allowed to happen, it will be a deeply frightening experience, rocking the global system to its foundations. The Bank for International Settlements estimates that 60pc of the world economy is locked into the US currency system, and that debts denominated in dollars outside US jurisdiction have ballooned to $9.8 trillion.

    The world has never before been so leveraged to dollar borrowing costs. BIS data show that debt ratios in both rich countries and emerging markets are roughly 35 percentage points of GDP higher than they were at the onset of the Lehman crisis.

    This time China cannot come to the rescue. Beijing has already pushed credit beyond safe limits to almost $30 trillion. Fitch Ratings suspects that bad loans in the Chinese banking system are ten times the official claim.

    The current arguments over Brexit would seem irrelevant in such circumstances, both because the City would be drawn into the flames and because the eurozone would face its own a shattering ordeal. Even a hint of coming trauma would detonate a crisis in Italy.

    To be clear, the eight-year old US cycle has not yet rolled over definitively. The picture remains fluid, hard to read in a world where key signals have been distorted by central bank repression. The third quarter will almost certainly look a little better. 

    "We are getting closer and closer to a recession, but we are not quite there yet, looking at our forward-indicators," said Lakshman Achuthan from the Economic Cycle Research Institute in New York.

    "I can understand why people are getting worried. We have been seeing a 'growth-rate' cyclical downturn for the last two years. The longer this goes on, the less wiggle room there is," he said.

    "We are sure there will be no recession this year or into the first two months of 2017, but beyond that there are worrying signs. The deterioration of our leading labour market index is very clear," he said.

    Mr Achuthan thinks it is still possible that US growth will pick up again for another short burst - lifted by a global industrial rebound of sorts - before the storm finally hits.

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