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Fracking, Trade Follies, Nissan and a Jittery Quant

Fracking, Trade Follies, Nissan and a Jittery Quant

(Bloomberg Opinion) -- Here are some weekend bites for you to nibble on:

Frack, Baby, Frack

Earlier this month, the Wall Street Journal reported that New York State had written down more than $1 billion worth of development projects in upstate New York, the most prominent of which was a solar panel factory it built for Tesla in Buffalo. The factory, announced by Governor Andrew Cuomo in 2013, was supposed to help jump-start the struggling upstate economy.

Around the same time, Cuomo signed a bill to establish four upstate casinos. The casinos, said the governor, would also help the economy, by attracting tourism, and bringing “thousands of well-paying jobs.” It hasn’t exactly worked out that way. These days, the headlines read “Struggling NY casinos cut back on slots,” and “Upstate NY’s largest casino facing bankruptcy.” The Empire Center for Public Policy, a non-partisan think tank, reported last year that upstate New York “has gained private sector jobs at barely one-third the national average.”

Yet there is an obvious solution to these economic woes: fracking. Almost all of New York sits above the Marcellus shale formation and upstate counties also sit atop the Utica formation. If energy companies were allowed to drill in New York, fracking could supply those thousands of well-paying jobs Cuomo hoped to get by legalizing casinos. But of course, fracking was banned in New York — by Cuomo. Which is not to say that New Yorkers don’t depend on fracked natural gas. They do — they just import most of it from Pennsylvania, where fracking jobs are plentiful. Maybe it’s time for New York to forget about casinos and Tesla solar plants, and start thinking about fracking.

Trade War Follies

The most frustrating aspect of the Trump administration’s ongoing trade war with China is that it is so very beside the point. The latest iteration is President Donald Trump’s demand that China buy $50 billion worth of U.S. farm products, which is more than double what it bought before the trade war began (and which isn’t going to happen). But it’s Trump who has hurt U.S. farmers. His decision to start the trade war caused China to retaliate by placing a 33% tariff on soybeans and tariffs up to 72% on pork.  Up until then, U.S. farm exports were doing just fine. Now they’re a disaster.

There are many people, both liberals and conservatives, who think the administration’s get-tough policy towards China has been a healthy development. I would agree if Trump would only focus on what actually matters: China’s ongoing theft of U.S. intellectual property, its insistence that U.S. companies hold minority interests in their Chinese ventures, and its demand for technology transfers in exchange for market access. Obsessing about the trade deficit with China, as Trump is doing, is not solving the real problems and is a waste of everyone’s time.

A Nervous Quant

Jim Simons is the greatest investor of the modern age — and probably ever. Since 1988, his Medallion Fund has had average annual returns of 66%, or 39% net of fees. His firm, Renaissance Technologies LLC, has done it by creating complex computer algorithms that eliminate human emotion from trading. Simons’s role in helping to invent quantitative trading has made him a billionaire many times over.

Yet in a recent biography  about Simons, the author Gregory Zuckerman tells the following story: Late last year, while Simons and his wife were vacationing over the Christmas holidays, the stock market started to tank. Simons began to grow anxious — so much so that he called Ashvin Chhabra, who runs his family office.

“Should we be selling short?” Simons asked. Chhabra suggested that they try to ride it out and wait for the market to calm. Which it soon did. The irony, as Zuckerman notes, is that the man who took emotion out of trading still acted emotionally when he saw the market falling. If he can’t rein himself in, what hope is there for the rest of us?

Nissan’s Annus Horribilis

I wonder if Nissan Motor Co. wishes it had never brought in those Japanese prosecutors to arrest its then-chairman Carlos Ghosn. This week marks the one-year anniversary of Ghosn’s shocking arrest as he got off a plane that had just landed in Tokyo. As awful as the year has been for Ghosn — held in solitary confinement for 129 days as prosecutors tried to force a confession out of him; not allowed to see or speak to his wife; the subject of a constant stream of leaks to the Japanese media — it hasn’t been much fun for Nissan either.

Ghosn, who insists he is innocent, will be facing a trial next year sometime. But so will Nissan, which prosecutors have accused of making false disclosures in securities reports. Hiroto Saikawa, Nissan’s chief executive officer, acknowledged that he and several other top executives had received excess compensation. That admission led to Saikawa’s forced resignation in September.

Meanwhile, Nissan’s business has fallen off a cliff. In July it announced a quarterly profit drop of 99%, and said it would lay off 12,500 employees. Its once-vaunted alliance with Renault, which Ghosn orchestrated in 1999 and which remained hugely important to the company, is in tatters. And the stock has dropped 30% since Ghosn’s arrest.

When the trial gets underway, Ghosn is going to argue that he has been the victim of a conspiracy between prosecutors, the Japanese trade ministry and Nissan. The goal, he will say, was to prevent him from merging the Japanese company with Renault. I suspect he’s right. In any case, there are other ways to oust a chairman without having him arrested. Nissan would have been better served choosing one of them.

The book’s title is “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution.”

To contact the editor responsible for this story: Timothy L. O'Brien at tobrien46@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."

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