Viruses harnessed to split water @MIT

MIT team’s biologically based system taps the power of sunlight directly, with the aim of turning water into hydrogen fuel.

A team of MIT researchers has found a novel way to mimic the process by which plants use the power of sunlight to split water and make chemical fuel to power their growth. In this case, the team used a modified virus as a kind of biological scaffold that can assemble the nanoscale components needed to split the hydrogen and oxygen atoms of a water molecule.

Splitting water is one way to solve the basic problem of solar energy: It’s only available when the sun shines. By using sunlight to make hydrogen from water, the hydrogen can then be stored and used at any time to generate electricity using a fuel cell, or to make liquid fuels (or be used directly) for cars and trucks.

Other researchers have made systems that use electricity, which can be provided by solar panels, to split water molecules, but the new biologically based system skips the intermediate steps and uses sunlight to power the reaction directly. The advance is described in a paper published on April 11 in Nature Nanotechnology. The Italian energy company Eni supported the research through the MIT Energy Initiative (MITEI).

The team, led by Angela Belcher, the Germeshausen Professor of Materials Science and Engineering and Biological Engineering, engineered a common, harmless bacterial virus called M13 so that it would attract and bind with molecules of a catalyst (the team used iridium oxide) and a biological pigment (zinc porphyrins). The viruses became wire-like devices that could very efficiently split the oxygen from water molecules.

Over time, however, the virus-wires would clump together and lose their effectiveness, so the researchers added an extra step: encapsulating them in a microgel matrix, so they maintained their uniform arrangement and kept their stability and efficiency.

While hydrogen obtained from water is the gas that would be used as a fuel, the splitting of oxygen from water is the more technically challenging “half-reaction” in the process, Belcher explains, so her team focused on this part. Plants and cyanobacteria (also called blue-green algae), she says, “have evolved highly organized photosynthetic systems for the efficient oxidation of water.” Other researchers have tried to use the photosynthetic parts of plants directly for harnessing sunlight, but these materials can have structural stability issues.

Belcher decided that instead of borrowing plants’ components, she would borrow their methods. In plant cells, natural pigments are used to absorb sunlight, while catalysts then promote the water-splitting reaction. That’s the process Belcher and her team, including doctoral student Yoon Sung Nam, the lead author of the new paper, decided to imitate.

In the team’s system, the viruses simply act as a kind of scaffolding, causing the pigments and catalysts to line up with the right kind of spacing to trigger the water-splitting reaction. The role of the pigments is “to act as an antenna to capture the light,” Belcher explains, “and then transfer the energy down the length of the virus, like a wire. The virus is a very efficient harvester of light, with these porphyrins attached.

“We use components people have used before,” she adds, “but we use biology to organize them for us, so you get better efficiency.”

Using the virus to make the system assemble itself improves the efficiency of the oxygen production fourfold, Nam says. The researchers hope to find a similar biologically based system to perform the other half of the process, the production of hydrogen. Currently, the hydrogen atoms from the water get split into their component protons and electrons; a second part of the system, now being developed, would combine these back into hydrogen atoms and molecules. The team is also working to find a more commonplace, less-expensive material for the catalyst, to replace the relatively rare and costly iridium used in this proof-of-concept study.

Thomas Mallouk, the DuPont Professor of Materials Chemistry and Physics at Pennsylvania State University, who was not involved in this work, says, “This is an extremely clever piece of work that addresses one of the most difficult problems in artificial photosynthesis, namely, the nanoscale organization of the components in order to control electron transfer rates.”

He adds: “There is a daunting combination of problems to be solved before this or any other artificial photosynthetic system could actually be useful for energy conversion.” To be cost-competitive with other approaches to solar power, he says, the system would need to be at least 10 times more efficient than natural photosynthesis, be able to repeat the reaction a billion times, and use less expensive materials. “This is unlikely to happen in the near future,” he says. “Nevertheless, the design idea illustrated in this paper could ultimately help with an important piece of the puzzle.”

Belcher will not even speculate about how long it might take to develop this into a commercial product, but she says that within two years she expects to have a prototype device that can carry out the whole process of splitting water into oxygen and hydrogen, using a self-sustaining and durable system.

Source:- MIT News

Entropy Economics

What is “entropy”? Some think of the thermodynamic “chaos” or “wasteful heat” of jiggling atoms. But we embrace the more general concept of information theory, where entropy is news, surprise, unexpected bits, or invisible information. We adopt as the guiding force of economics and technology the key insight of our longtime friend George Gilder:

“A high-entropy message requires a low-entropy carrier.”

The written word is most easily read on a clean white page. A phone conversation is best heard when there is little intruding noise. We transmit high-entropy voices and videos around the globe and across the galaxy.  We do this by exploiting the maximally regular frequencies of the electromagnetic spectrum and the crystalline purity of silicon (microchips) and flawless silica (fiber optics).

In biology, the infinitely diverse anatomies, capabilities, and personalities of the animal kingdom rely on the supremely uniform structure of DNA.

Entrepreneurship and innovation, likewise, comprise all real economic growth. These information-rich spikes of creativity require a stable foundation of property rights, predictable laws, free trade, and an unchanging value of money.

Dynamic growth and innovation require utterly undynamic foundations. This is the principle of Entropy that guides our research and strategic insights.

More on: Entropy Economics Blog

Derivatives a USD 450 Tril market

“DERIVATIVES” is the financial industry’s fancy term for contracts that market participants make with one another to profit from, and protect against, various kinds of risk. A grain futures contract helps a farmer hedge against an unexpected drop in the price of his crop; a credit default swap enables a bond buyer to insure against a corporate failure. Derivatives, therefore, are wonderful; they grease the wheels of capitalism by promoting economically rational risk-taking. And derivatives can be terrible; they induce investors to take too much risk by giving them a false sense of security. A major cause of the recent financial crisis was AIG’s sale of credit default swaps to big banks, without enough collateral to back them. In its financial regulatory reform effort, Congress must improve federal supervision of the $450 trillion derivatives market to protect against systemic risk without negating the useful functions that derivatives perform. Fortunately, everyone in the debate — from the Obama administration to Wall Street — agrees with that proposition, at least in theory. Not so fortunately, that’s as far as agreement goes: Consequently, the administration, Democrats and Republicans in the Senate, and a host of lobbyists are wrangling over where to draw the line. A basic distinction is between derivatives that commercial firms buy to hedge actual risks to their own business plans — a utility’s purchase of natural gas, for example — and a financial firm’s speculative trading in, say, credit-default swaps for Greek government debt. The former should be more lightly regulated than the latter. The House adopted a bill last fall that would regulate trades by “major swap participants” that “could have serious adverse effects on . . . financial stability.” That standard looks too permissive to us: too hard for regulators to interpret, and thus too easy for financial firms to exploit. Improving on it shouldn’t be so hard, but — it may not surprise you to learn — partisan politics is getting in the way. Republican leaders, eager to deny the Obama administration any accomplishment, walked away from negotiations on financial reform in the Senate Banking Committee that had brought both sides 95 percent of the way to a deal. Now the White House, convinced that it has a winning issue — go ahead, Republicans, side with Wall Street if you dare — is discouraging Democratic senators from working with any Republicans who might still be so inclined. The risk is that the mudfight will keep Congress from doing the essential business: bringing most of the derivatives market into the sunlight.

Singles Pay Higher Taxes?

Before I started studying singlism, I thought I knew what the “marriage penalty” was: On the same taxable income, married people pay more taxes than single people do. What I wondered was just how much more the married couples paid. So I used the handy tax calculator at the Money Chimp website to see. (Here, I’ll use the most recent tax figures, for 2008, so they will differ from the numbers on p. 227 of Singled Out.)

What if I had a taxable income of $50,000 and a married couple filing jointly had the same $50,000 of taxable income? I’d pay $8,844. How much more would the married couple pay? Their tax bill would be $6,698. Hey, that’s less! $2,146 less!

Hmm, well what if the married couple and I both report taxable incomes of $100,000? I owe $21,978. The married couple owes $17,688. Wait, there’s still no “marriage penalty” – the couple is paying less! ($4,290 less)

Let’s try a million dollars. I pay $328,597. A married couple pays about $7,000 LESS.

I kept at this for a while. No matter how giant or how tiny a taxable income I entered into the calculator, the answer was the same: Single people always pay more taxes.

Does it seem unfair to compare the taxes paid by one person to the taxes paid by two? Then remember that the married couple does not need to have two wage-earners and they also do not have to have any children to qualify for the break. So one spouse can go to work, the other can stay home and watch TV, and the couple will still get tax breaks that are subsidized by single people.

In any case, it is clear that I hadn’t understood what the so-called “marriage penalty” really was. Now I’ve read up on it and learned that when Americans rail against the marriage penalty, what they usually mean is this: If two people marry, their total taxes are sometimes higher than if they stayed unmarried. But even this is misleading, because more than half the time, the twosome reaps a tax bonus when they marry, not a penalty. What’s more, the comparison is only about couples – married ones and unmarried ones. It is not as if a single person could file jointly with a sibling, friend, or parent – even if the two of them vowed to care for each other as long as they lived, and actually honored that vow.

Tax rates around the world: Do singles always pay more?

David from Chicago, a Living Single reader, sent me this mind-expanding link documenting tax rates across the globe. The numbers, from 30 different countries, were compiled by the Organization for Economic Cooperation and Development (OECD).

I’m going to unveil some mighty big numbers, so before you gasp, keep this important qualifier in mind: These aren’t just income taxes. They include payroll taxes, social security contributions, and cash benefits as well.

Of all the nations in the study, the most tax-burdensome to singles is Belgium, where singles (with no kids) pay a rate of 55%! Married couples with 2 kids pay 40%. (That’s the only other category in the table; the more appropriate comparison would be married without kids.)

Germany is the next most onerous place for singles. There, they pay 52%, compared to 36% for married with kids.

The lightest tax rate for singles is in Korea, at 17% (compared to 16% for marrieds). Mexico’s rates are nearly as low, at 18%. Here’s something else interesting about Mexico: It is one of only 3 countries, out of the 30, in which singles do NOT pay higher rates than marrieds. In Mexico, as well as in Turkey (where the rate is 43%), singles and marrieds pay the same rates. Greece really stands out from all the rest – singles actually pay less than marrieds (a shade under 39%, compared to a tad over).

At this time of year it can be hard to think kindly about taxes, but they actually can be put to good use. As a general rule, nations that have higher tax rates also offer more services and protections, such as health care and pensions. So I’m not going to take to the streets (or seaports) to protest taxation. But I don’t think married people should get a tax break just because they are married. (Kids are a separate question.) And they surely should not get a tax break and call it a penalty. That, I will protest.

[UPDATE: A law professor just published an article in a law journal with the same conclusion: Uncoupled singles ALWAYS pay a penalty. I wrote about it here.]

Source: Psychology Today

Seven deadly sins of financial risk management.

In seeking to understand what went wrong with our financial system and what repairs might work, seven risk management errors have been identified that together can be fatal. These errors can result in more risk being built up over time, not only by financial institutions, but also by consumers, businesses and investors. Although manageable in isolation, the impact of these errors was compounded by the contagion of liquidity crises over the past two years that spread across markets, weakened financial institutions and infected the real economy. It will take time to fix, but watching out for these sins will help.

1. Underestimating risk in large nominal exposures with supposedly low risk characteristics. There was a widespread supposition that structures with very low expected loss had consistently low uncertainty of loss and limited risk of downgrades. Given perceived low risk, increased holdings were supported by low funding costs and positive carry. Market participants also underestimated the potential reduction in diversification, as correlations increased towards one as markets or asset classes became stressed.

2. Moving vans became storage vans for too many assets. Assessment of risk in price movements did not allow sufficiently for loss of liquidity and stalling of assets on the balance sheet, particularly for assets being collected for securitization or sale, rather than held as positions in trading books. Even in what were considered liquid instruments, market turmoil, price volatility and counterparty concerns resulted in an unexpected loss of collateral value and liquidity in repurchase agreement (repo) markets.

3. Concentration of hedging with often well-rated counterparties. Trading positions were hedged, but increases in the mark-to-market value of the hedge meant counterparties’ credit condition was deteriorating, reducing the credit value of hedges. Reliance on collateral posting and other risk mitigants further weakened the position of counterparties in a crisis as collateral values were falling, increasing the risk of counterparties falling off a cliff. Risk mitigants, such as representations (reps) and warranties, can be viewed the same way: the ability to collect on the hedge is inversely related to the need to collect. Increasing reserves reflected the reduced likelihood of collecting in full. As the crisis deepened, it became increasingly apparent that many hedge counterparties were ill-suited to absorb the risks they had taken on, in terms of their franchise capabilities or financial resources.

4. Provision of liquidity support too often became credit risk. Liquidity arrangements turned into credit extensions when collateral values were falling or the vehicle itself became insolvent at distressed market prices. More liquidity was committed when liquidity was abundant than could be delivered when liquidity became scarce. There was not enough recognition that a liquidity provision could become a credit exposure in a market downturn, as valuations fell and structures weakened. Even among investment vehicles and funds, liquidity was underpriced and liquidity needs were underestimated. There were not enough constraints on fund withdrawals and the provision of liquidity support was often not appropriately priced for the risk.

5. Not enough attention to potential cost of protecting reputation. Substantial costs were incurred by some institutions as they acted to protect their reputation from poor performance related to securities sold to their clients, losses at funds at their asset managers, and deterioration in their off-balance sheet vehicles. Costs included injecting capital, taking assets on balance sheet and absorbing write-downs. Institutions also felt pressure from their investor bases to support various securities or structured vehicles so as to ensure their future access to capital markets.

6. Arbitrage of regulatory capital rules. These rules encouraged financial institutions to hold higher-yielding, well-rated securitization tranches that attracted low regulatory capital charges. The rules supported the more extensive use of increasingly complex structures and expanded the participation in these markets by institutions that lacked the skills and resources to cope with distressed markets. Capital charges are not well aligned with risk in longer maturities, encouraging holding longer-dated paper relative to funding nor with the risk in more complex structures.

7. Build-up of large securities portfolios, often funded with shorter-term wholesale funds. Availability of wholesale funds and drive for revenue growth resulted in a search for yield that was met by investing in higher-yielding, well-rated tranches of securitizations, a process that was facilitated at banks by Basel regulatory capital rules. For many, these portfolios, which also included loan portfolios purchased from third party sources, over-leveraged the funding base and added exposure outside franchise footprints, but did not add value to the franchise. Write-downs and strained funding resulted from these imbalances.

Roger Lister is chief credit officer at DBRS, Inc., a provider of credit ratings of financial institutions, corporate entitites, government bodies and various structured finance product groups.

Source: GARP

AIG, Basel & BOE’s Macroprudential Policy

Mending broken banking system.(Cover story)
Date: 2010-04-01

By Holbrook, Emily

In 1360, a Barcelona banker was executed on the steps of his failed bank. In 2008, when AIG, a company known for its big bonuses and risky investments within its financial products division, was on the verge of bankruptcy, it was not allowed to die. Instead, the Federal Reserve stepped in to save the insurance giant and sent AIG a check for $85 billion, a tab that ballooned to $170 billion within a few months.

It soon became apparent that AIG was far from the only financial firm in need of a life preserver to stay afloat, and Washington created the $700 billion Troubled Asset Relief Program to rescue the banks. Given the unprecedented sums of taxpayer money going to Wall Street, a public outcry for strict banking regulation immediately followed. This could never happen again.

But as Congress has focused more closely on the health care debate, financial reform has seemingly been pushed aside. And as the stock market has slowly risen (the S&P is up nearly 60% since its 13-year low on March 9, 2009), fears of another financial disaster have subsided. It looks as though the financial industry, glowing again with self-confidence, may now have the clout to defeat reforms.

In January, President Obama vowed that he would put a stop to the excessive risk taking of large financial institutions, claiming that they nearly brought down the entire U.S. economy by taking “huge, reckless risks in pursuit of quick profits and massive bonuses.” But so far, neither the administration nor Congress has done much to mend what many perceive as a broken system in need of an overhaul. They have, however, introduced some proposed regulations.

One possibility is the Volcker Rule, named after former Federal Reserve chairman and current chairman of Obama’s Economic Recovery Advisory Board, Paul Volcker. The Volcker Rule aims to prohibit bank holding companies from owning, investing or sponsoring hedge fund or private equity funds and from engaging in proprietary trading (when firms trade from their own account for profit). Some feel the focus should not be on banning proprietary trading because, for most investment firms, trading their own account essentially makes up for only a few percentage points in terms of total revenue. Others feel proprietary trading is risky enough to bring down an entire bank–or economy for that matter–and should be prohibited.

The administration has also proposed a bank tax that targets institutions that rely on short-term borrowing. The plan, known as the Financial Crisis Responsibility Fee, would tax large banks based on their exposure to risk as a way to recover taxpayer losses from the 2008 bailout. The fee would fall most heavily on the nation’s top banking institutions, such as Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs. One Wall Street Journal estimate projects that such a tax would cut 5% of the banks’ revenues this year.

As expected, these proposed rules have attracted a lot of criticism aimed at the administration from both political conservatives and the banking industry. But Obama claims he is not backing down. “If these folks want a fight, it’s a fight I’m ready to have,” he said. Thus far, it seems the fight has yet to begin.

Betting on Basel

In the late 19th century, a typical British or American bank had a core capital equivalent to 15% to 25% of its total assets. Heading into the financial crisis of 2008, some U.S. banks’ core capital was only 3% of their assets–or less–and less than one-tenth of those assets were liquid, or easily accessible. Overleveraged to such staggering degrees, few major institutions had reserves as a buffer to protect them from the ensuing financial disaster.

Blame was placed on quants who relied heavily on financial models such as value at risk (VAR) and the Gaussian copula function, a complex formula used throughout the financial industry that allowed large, complicated risks to be modeled with more ease and supposed accuracy than ever before.

There was also the failure of the ratings agencies, which consistently gave their highest rating, AAA, to the riskiest instruments. The blame cannot fall solely on those within the industry, however. Consumers also played a part by taking on too much debt and living well beyond their means.

But quants, ratings agencies and consumers were only a small part of the collapse. Among the main sources of the crisis was a poor regulatory framework based on the belief that banks could be trusted to regulate themselves. We now see that is far from true. And many are looking to Basel to help devise a better system.

The Basel Committee on Banking Supervision, an institution created by the central bank governors of the G10 nations, meets four times per year with the mission of improving banking supervision worldwide. Proposals referred to as Basel I were introduced in 1998 to, among other things, establish minimum capital requirements for banks. Currently, U.S. banks follow Basel I standards.

In 2004, Basel II was introduced to set up rigorous risk and capital management requirements designed to protect the international financial system from the types of problems that might arise should a major bank or series of banks collapse. Though designed to protect, they ultimately failed. “Basel II, at the time, was a significant step forward, but now is seen as not nearly risk-sensitive enough,” said Peter Davis, a principal in the financial services office of Ernst & Young, where he coordinates the firm’s Basel II services.

After the financial crisis, it was clear that changes were needed to address the modern landscape of increasing risk. More stringent rules and more specific forms of regulation were necessary. In December of 2009, the Bank of International Settlements (BLS), the secretariat of the Basel committee, proposed what is referred to as Basel III.

The new Basel proposals introduce a number of changes to Basel II standards, including the following five proposals: (1) modified available capital definitions, (2) revisions to counterparty credit capital standards, (3) new global leverage ratio, (4) explicit capital buffer standards, and (5) a new global liquidity standard.

Possibly the most important proposal is the first, which pertains to the quality, consistency and transparency of the capital base. It states that financial institutions will be required to hold more capital and increase capital when markets are stronger and less erratic. These funds can then act as a buffer in more volatile times. Additionally, the quality of capital will need to be strengthened, with more emphasis on common equity and retained earnings.

The second proposal calls for the strengthening of capital requirements for counterparty credit risk exposures arising from derivatives, repurchase agreements and securities financing activities. Within this proposed change, banks will be required to use stressed inputs when calculating their capital requirements surrounding counterparty credit risk. “The committee will also promote further convergence in the measurement, management and supervision of operational risk,” states BIS.

The third proposed rule suggests introducing a global leverage ratio as an additional measure to the Basel II risk-based framework. The leverage ratio will help contain the build-up of excessive leverage in the banking system. Though the details of the leverage ratio (the ratio between a company’s debt and its equity) are still being determined, the BIS states that it will not only work to rein in risky leverage scenarios, but will also place additional safeguards against model risk and measurement error. “The idea of the leverage ratio was introduced in December to tell banks ‘regardless of the amount of risk you’re taking, there will be an absolute cap on the amount of leverage you can take,'” said Davis.

The fourth proposal introduces a series of measures that promote the build-up of capital buffers in good times that can be drawn upon during periods of stress. Along with proposing that financial firms operate in what is often called “counter cyclical” motion, the rule also advocates that banks move towards an expected loss approach, meaning that there will be ongoing assessments of expected credit losses. However, this type of model creates a disconnect between corporate accountants and regulators, since accountants go by the current state of affairs while regulators want to play by the expected loss approach, which follows predictions, not reality. It is a constant conflict between accounting regulations and regulatory desires.

The fifth proposed regulation introduces a global minimum liquidity standard for international banks that includes a 30-day liquidity coverage ratio requirement. In other words, banks will be required to hold high-quality liquid assets to cover the minimum of a 30-day stress scenario. Also included in the proposal is a significant regulatory reporting requirement that will require a level of data and transparency from banks that has never been required before. “Financial firms will be asked to implement a transparent process of internal capital management and allocation so that the businesses and senior leadership are aware of the risks inherent in their activities,” said Michael O’Connell of Aon Risk Services’ financial institutions practice.

The committee hopes that the United States will be able to implement the Basel III recommendations more efficiently than Basel II, which, six years later, is still being put in place throughout U.S. financial institutions.

“The fully calibrated set of standards will be developed by the end of 2010 to be phased in as financial conditions improve and the economic recovery is assured, with the aim of implementation by 2012,” states the Basel committee.

Macro Mending vs. Fixing Firms

The Bank of England recently issued a report stressing the need for “macroprudential” regulation. Regulation of the financial system as a whole instead of focusing on the soundness of each bank, says the bank, is the key to fixing the system.

Similar to the Basel III proposals, its “Role of Macroprudential Policy” paper suggests banks hold an amount of capital that matches their risk-taking, but that their risk-taking also be reined in drastically–and by external forces. The paper identifies two sources of systemic risk that macroprudential policy would aim to address. The first, is the banks’ “tendency to become overly exposed to risk in the upswing of a credit cycle and to become overly risk-averse in a downsizing,” while the second recognizes “the tendency for individual firms to take insufficient account of the spillover effects of their actions on risk in the rest of the financial network.”

It may seem obvious, but nearly 18 months after the financial collapse that triggered the largest global downturn since the Great Depression, this dual strategy might be the way to mend a system on the brink. Overarching regulatory reform, from both Washington and in accordance with the principles of Basel III, is necessary–and past due.

But individual institutions must also overhaul the way they think about risk. Lehman Brothers, the sacrificial lamb of the meltdown, had a supposedly strong internal risk committee. Yet this group met only twice per year–hardly enough interaction, it seems, to create a truly diligent risk task force. And, of course, it was not just Lehman that failed in this respect.

Financial firms need a risk management department that carries a large voice in day-to-day operations. The profits earned by deposits, investments and securities will always be the bank’s bread-and-butter. But if some of these firms had listened to their risk managers as much as they did their traders, the financial crisis may have been avoided. It is now up to everyone–the regulators, the legislators, the rating agencies, the consumers and, mostly, the banks themselves–to reform the rules of the game, both from the top down and the bottom up, to make sure it does not happen again.

Incorporating such changes will be challenging. Let us just hope it is not just wishful thinking.

Emily Holbrook is associate editor of Risk Management.

Courtesy: GARP

TfL the new owner for Oyster brand!

Transport for London (TfL) has purchased the Oyster brand from the TranSys consortium for £1 million. TfL announced in August 2008 that it planned to terminate the ‘Prestige’ Private Finance Initiative contract with the consortium of Cubic Systems, EDS (part of the HP group), Fujitsu Services and WS Atkins from August 16 this year, replacing it with a five-year contract with Cubic Transportation Systems and HP Enterprise Services UK. TfL has repaid £101m of PFI debt early, saving around £4m in interest and giving it ownership of the ticketing equipment and back office systems. TranSys retains advertising rights on gate lines and ticketing media until March 2015. The move means that TfL will be able to investigate the future potential for Oyster to be extended to new and existing technologies and the commercial opportunities that provides.

Russia’s first soverign bond after 1998 default

It has been 12 years since Russia defaulted on its sovereign debt and a lot has changed. With market fundamentals in its favour, can Russia get it right this time?

Russia is currently on the road marketing its first sovereign bond issue since it defaulted on its debt in 1998.

At the AsianInvestor/FinanceAsia Russia Capital Raising and Investment Summit in Hong Kong this week, Ben Aris, editor-in-chief at Business New Europe, led a panel discussion about what the deal will mean for the development of the Eurobond markets and for Russia.

The country’s return to the international markets, which comes amid strengthening Russian credit fundamentals, is part of the Ministry of Finance’s plan to borrow about $17.8 billion from overseas.

Observers say the window for pricing is there for the taking. “Russia doesn’t have any need to issue debt at the moment but it can take advantage of low interest rates,” said Sergey Babayan, Russian country head at Bank of America Merrill Lynch.

“Looking at yield curves, compared to Turkey and Greece which have lower credit ratings than Russia, the yields are quite attractive for Russia to issue now,” added Dmitry Dudkin, head of fixed income at Uralsib Capital.

With such strong fundamentals, observers say the bond is a marketing exercise designed to open up the Russian capital markets to the world.

Though Dudkin views the trade as a one-off event and said the Ministry of Finance is more focused on the development of the rouble market than the Eurobond market. “This will be more like the last train for investors who want to buy into the Eurobond,” he said.

However, given such a long stint away from the international markets, the counter view is that in an environment where interest rates are low, a lower spread is achievable here and therefore it may be a suitable climate for Russia to set a new benchmark that can be followed by Russian corporates and banks.

Paul Forrest, director of Forrest Research, said the deal could be an exercise to deepen and widen the Russian capital markets. “After this, expect one to two issues a year to get the market rolling, coupled with issues in the rouble bond market,” he said.

With rating agencies still holding Baa1/BBB ratings for Russian debt, there is a distinct possibility that the bonds may come to market undervalued.

Currently, Russian markets are very volatile and the performance is tied closely to movements in the oil price. For example, at the peak of the recent financial crisis Russia went from reporting 7% growth to an 8% contraction within a two to three month period.

Rating agencies have certainly recognised this interdependence and weigh it heavily into the sovereign rating; however the extent to which the economy is reliant on the performance of oil is debatable.

Dudkin noted that in May 2008, rating agencies underestimated how affected Russia was by the global financial crisis. It wasn’t until the Ministry of Finance announced a 7% slump in GDP (the first reported decline in 10 years) that it was clear the economy was not primarily dependant on oil. In fact, it was estimated that Russia lost almost $200 billion of reserves as a result of the financial crisis.

Despite this, the country’s banking system was able to weather the crisis and Russia became one of the few global economic powers that did not require government funding to bail out its financial sector.

“Last year showed the institutional strength of the economy that has been built up since 1998,” said Forrest. “Russia has built the market economy in less time than it took the UK to build Wembley Stadium,” he added, referring to the fact that Russia has only been operating as a market economy for the past eight years.

Based on Russia’s demonstrated resilience, Dudkin and Babayan were in agreement that the economy can recover the bulk of its budget deficit by the end of this year and potentially close the year at break-even. The Ministry of Finance projects a deficit this year of 6.8% of GDP.

Realistically, in order for this to happen, specialists note that the oil price would need to hold around the $80 a barrel mark, which is an achievable target. However the Ministry of Finance is far more conservative and estimates that it will take approximately four years to return the budget to a surplus.

Babayan said the current budget is based on an oil price at $58 a barrel, despite the real price being significantly higher, and Dudkin added that the government has included expenditures in the budget that will most likely not be spent, for example, the recapitalisation of banks. If anything, the overly conservative budget is viewed as a politically driven move to ensure that the proposed 2011 budget, which is currently going through parliament, is approved.

Despite the politics and the issues surrounding the budget deficit, Russia’s economic standing is much better than that of recent sovereign issuers to the Eurobond market, such as Greece and Turkey. Together with the rarity of the deal, this should help the bond to perform well. At the same time, the scarcity value is expected to result in a good pricing for the borrower.

Investor talks have been arranged in London, Singapore and Germany by Barclays, Citi, Credit Suisse and VTB Capital. Russia analysts expect that, once the roadshow ends on April 21, execution will be swift and well received by a market that has been waiting for Russian debt for over a decade.

EGEE to be used in iPhone & SPS3

Enabling Grids for E-sciencE (EGEE) is the world’s largest multi-disciplinary computing grid, supporting the research of thousands of scientists and bringing together to the processing power of hundreds of thousands of computers worldwide. The grid and the software that glues it all together, known as middleware, is designed to run on a widely diverse range of computers. Now, a team from Ireland has adapted the grid software gLite to run on the Play Station 3. An Italian group has been able to use the iPhone to access grid enabled digital repositories.

Since 2007 researchers from Trinity College Dublin (TCD) and the Royal College of Surgeons Ireland (RCSI) have been collaborating on the computing challenge inherent in drug discovery, and so when in the latter half of 2008 Symbiosis Ltd introduced a PS3 port of their eHITS drug discovery, the TCD team began in early 2009 to look into adapting, or porting EGEE’s grid middleware, gLite, to the PS3 platform. Since then their PS3 cluster has grown to 16 machines, which they can use to investigate the interactions between possible drug candidates and the diseases they are trying to treat. What makes this possible are the seven Synergistic Processing Elements (SPEs) that give the machine its computational power at relatively low cost. These elements are designed especially to support the complex 3D vector calculations that enable graphic intensive gaming — but also happen to be ideally suited to the team’s drug discovery work.

Eamonn Kenny who is on the TCD team was delighted with how well received the work has been by EGEE, “EGEE represents a major platform for European science, and its impetus toward multi-platform support is extremely helpful.”

While the EGEE computing grid is known for supplying huge amounts of processing power, it also provides a framework that allows databases and other information sources to be interlinked easily. Teams looking to create global digital repositories can use the grid to give access to their resources to research communities from all over the world. With both smart phones and high speed 3G networks moving rapidly into the mainstream a group of researchers from INFN Catania and University of Catania in Sicily saw an opportunity for an application to allow people access to digital repositories wherever and whenever they want.

Using gLibrary, which is based on the gLite middleware, an organisation can organise, populate, browse, search and access libraries of digital objects that have been stored on a distributed grid system. Accessing these resources from a user’s home machine is quite straightforward but more problematic if the researcher is travelling. This is where smartphones and multi-media devices such as the iPhone and the upcoming iPad show their strengths. Devices of this type are designed for accessing information while on the move but can also handle different types of data, such as videos, audio files, images, documents, spreadsheets and many more.

Using the Catania team’s application, a user can browse the digital libraries stored on the grid from their iPhone, query and inspect all the objects’ metadata and simply tap the screen to download a copy the from the closest storage element. They can choose the closest source either by selecting a location from a list or by using the built-in GPS to calculate their current position. During the event, the browsing of digital repositories of ancient manuscripts (cultural heritage) and satellite data (earth science) created with gLibrary will be demonstrated.

Both of these projects use commercially available platforms to run or interface with EGEE’s software. This demonstrates the flexibility and portability of EGEE’s software as well as one of the real world applications for distributed 24/7 access to the digital repositories made possible by EGEE.

The resources currently coordinated by EGEE will be managed through the European Grid Infrastructure (EGI) from May 2010. In EGI each country’s grid infrastructure will be run by National Grid Initiatives. The adoption of this model will enable the next leap forward in research infrastructures to support collaborative scientific discoveries. EGI will ensure abundant, high-quality computing support for the European and global research community for many years to come. Learn more at EGI.

Israel Test

Appenzell Daily Bell, an Interview with Scott Smith (04/11/10):

DAILY BELL: Can you give us some background on your life – where you grew up and what your interests were?

GEORGE GILDER: I grew up on a dairy farm in the Berkshires in Western Massachusetts, where my prime interests were cows, birds, sports, and girls.

DAILY BELL: How did you become involved in free-market thinking?

GEORGE GILDER: I didn’t. I got interested in human creativity and the conditions that foster it. It is enterprise that causes free markets, not free markets that summon enterprise. Adam Smith was wrong in his assertion that the extent of the division of labor is determined by the extent of the market. It is the other way around. The extent of the division of labor – the creativity of entrepreneurs – determines the extent of the market.

DAILY BELL: Who were your big influences?

GEORGE GILDER: Jean Baptiste Say of Say’s Law – supply creates its own demand – introduced to me by Thomas Sowell, who devoted his thesis to the subject. Supply-side economics is not a mere elaboration of free market theory. It is a new theory, founded by Say. It says markets are mere effects of enterprise.

Now from my studies of communications technology and Claude Shannon, I am intrigued with information theory and its concept of information entropy, which registers unexpected bits. Creativity always comes as a surprise to us. No information is transmitted unless it is unexpected. In this sense, Entropy is another word for “news.”

I believe that information entropy also represents entrepreneurial “profit” (the unexpected component of returns; the expected component is the interest rate). Entrepreneurial economics is the economics of entropy. My former colleague Bret Swanson has an excellent website Entropy Economics.
The key rule of information theory is that it takes a low entropy carrier (no surprises) to bear high entropy information. That is why information gravitates to the electromagnetic spectrum, with its predictable waves guaranteed by the speed of light. And that is why creative enterprise gravitates to countries with stable currencies attuned to gold and the rule of law (no surprises).

DAILY BELL: Do you see differences between the Austrians like FA Hayek and the Fresh Water school of Milton Friedman?

GEORGE GILDER: Yes. The Austrians stress entrepreneurial creativity over free markets. When I went to China in the 1990s with Milton Friedman, he urged the Chinese to “take control over their money supply” as if the communists needed any further recommendations for “controls.” I urged them to “let a billion flowers bloom.” As I have said, there can be no free markets without free entrepreneurs. Entrepreneurs are not tools of the market, they are creators of new tools. The entrepreneur precedes the market. Without him, there is no market. The computerized markets of the quants careened to a predictable crash.

DAILY BELL: Did you at the time you were writing Wealth and Poverty, a great book in our opinion.

GEORGE GILDER: Yes, I always preferred the Austrians for their stress on entrepreneurial creativity, but even the Austrians, beyond Von Mises, fell for the temptation of seeing entrepreneurs as products of “the free market” rather than its creator.

DAILY BELL: Would you define yourself today – Republican, Conservative, Libertarian?

GEORGE GILDER: Yes.

DAILY BELL: What do you think of the growing movement of Austrian economics?

GEORGE GILDER: Ever since Ludwig von Mises, the Austrians have been supreme in economics. But as far as I know no one has excelled the master.

DAILY BELL: What do you think of Murray Rothbard?

GEORGE GILDER: Murray always struck me as a brilliant dogmatist, letting the ideal always trump the possible advance and allowing his hatred of bureaucracy to blur his ability to distinguish between totalitarianism and mere political muddle, between the Soviet Union and the United States, for relevant examples.

Read the Complete Interview:
http://www.gold-speculator.com/appenzell-daily-bell/26569-george-gilder-austrian-finance-internet-supply-side-economics.html

Read Gilder’s Response to Critics:
http://thedailybell.com/958/George-Gilder-on-Austrian-Finance-Internet-Technology-and-the-Virtues-of-Supply-Side-Economics.html

Readings /

Economists Split Over Inflation
http://online.wsj.com/article/SB10001424052702304628704575185753956511626.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

Google’s Horseless Carriage
http://www.forbes.com/2010/04/14/apps-microsoft-zoho-intelligent-technology-google.html?boxes=Homepagelighttop

The Bankers are Guilty
http://blogs.forbes.com/beltway/2010/04/15/bailouts-failures-and-death-panels/?boxes=Homepagelighttop

Networked Networks Are Prone to Epic Failure
http://www.wired.com/wiredscience/2010/04/networked-networks/

Intel Predicts Light Peak to Replace USB 3.0
http://www.crunchgear.com/2010/04/15/intel-predicts-light-peak-to-replace-usb-3-0/

How to Get the Best Cell Phone Service Possible
http://www.networkworld.com/news/2010/041310-boost-weak-cell-service-at.html

Courtesy: Gilder’s Friday