Organizational Ecology (empirical study)

Do larger organizations generate stronger competition?

Organizational ecology is regarded by many to be a theory of small organizations
– most organizations are small
– large organizations are seen to be less susceptible to selection pressures, therefore resource dependency theory or institutional theory would be more appropriate (Scott, 1987)
– – However large organizations wield great political and economic power and show richest aspects of collective behavior (Perrow, 1986)
– – Even if individual large organizations can avert selection pressures, large organizations affect the evolution of entire organizational populations, eg. create or prevent competitive pressure

In this study, the authors discuss why larger organizations may generate stronger competition, or why competition may depend on the number of organizations, regardless of their sizes
– empirical evidence of the effects of organizational size and numbers on founding and failure rates in the early American telephone industry

They find a consistent but unexpected pattern of results in both founding and failure rate
1) increases in population density depressed the founding rate and increased the failure rates, as predicted by the niche heterogeneity argument
2) effects were robust when population mass was controlled -> greater competition was generated by greater numbers of organizations, regardless of sizes
3) however, be careful that density-dependent models may be very sensitive to specification error (including control variables)
4) population mass, with the no. of organizations controlled, had a mutualistic effect on both founding and failure rate -> not only did larger organizations not generate stronger comptititon, they actually increased the viability of other organizations

1) because these companies operated in segregated market segments, they often worked together by connecting their lines (Atwood, 1984; Fischer, 1987) and weak organizations could gain many of other strengths by becoming affiliated with one.
2) estimates of mass dependence show that as any organization in the sample grew in size, it increased the viability of other organizations throughout the region -> generate diffuse mutualism where such interdependencies arise, the viability of each constituent organization strongly depends on the growth and survival of the larger organizations in the community

Large firms afect the evolution of their communities through 2 processes:
1) large firm promoted its interest and thus interest of the community by facilitating the process of organization building
2) a large organization protected its community from exogenous shocks, using its resources to maintain the viability of its community
-> speculate that the concentrated organizational community will have a selection advantage

Density dependence in the evolution of populations of newspaper organizations

A model of density (no. of organizations) dependence is proposed to explain organizational evolution ( regularities in the growth and decline of organizational population), and find both rates of founding and mortality in organizational populations are nonmonotonic functions of population density by analyzing 9 populations of newspaper organizations in 3 countries.

No. of organizations in a population typically follow a concave pattern of growth and decline:
1) organizational populations exploit ephemeral resources, growing rapidly while the resource abounds and then declining as it fades (firms that serve immigrant communities)
2) organizational forms embody historically specific social and material technologies (new technologies emerge and social conditions change)
3) characteristic growth trajectory reflects the operation of opposing processes of legitimation and competition (density dependent). ->  At low density, growth in numbers mainly legitimates a population and the organizational form it uses. But when density is high relative to resources, increases in density mainly strengthen processes of competition.
** The three scenarios are compatible with each other to explain the evolution of any particular organizational population. Nonetheless, although some rudimentary controls for resource fluctuations and historical obsolescence will be introduced, we concentrate here on the density dependent processes of legitimation and competition

Even after controlling for ephemeral resources and historical obsolescence, organizational density consistently had nonmonotonic effects, though more consistently on founding processes than mortality processes -> legitimation affects both founding rates and mortality rates strongly, but that competition has more powerful effects on founding than on mortality
-> density alone can explain the growth and stability parts of the trajectory, but not the eventual decline <-negative effect of age of the population on the founding rate exerts a gradual but accelerating downward pull on population size.

Organizational mortality in European and American automobile industries. Part I: Revisiting the effects of age and size

Recent research on organizational mortality controls for the effect of age-varying organizational size and yields divergent results. Some studies find that aging lowers mortality rates; others find the opposite pattern.

-> We argue that this divergence reflects partly an overly simple specification of the effects of age and size. We argue that the effects of size on mortality rates differ by age group.
-> Using complete data on organizational populations of automobile manufacturers in Britain, France, Germany, and the United States, we find that specifications with such age-variation improve over the usual specifications: the results for the American, French, and German populations indicate that age dependence is negative for the largest organizations and positive for small ones. The pattern is the reverse in the British population.

Organizational mortality in European and American automobile industries Part II: Coupled clocks

This paper presents the results of research on the effects of organizational level and population or industry-level clocks on organizational mortality rates.

-> It reports estimates of a model in which the effect of organizational age varies by organizational size and the effect of density varies by population age. 
-> data on the mortality experiences of all firms reveals complex patterns of effects of organizational age and size. The results concerning density and population age generally support a recent extension of the theory of density-dependent organizational evolution.

Organizational mortality in the newspaper industries of Argentina and Ireland: An ecological approach

The paper use historical data about 19th century Argentinian press and the 19th&20th Irish press to explore the plausibility of an environmental model of selection in populations of organizations.

-> though event-history methods, they show the newspapers suffer high mortality in their early years + major variation in death rates occurs in the early ages of organizational life (environmental selction)
-> environmental dimensions like industry maturity and general economic expansion enhance survival, but timing of birth in business cycles not. (newspapers born under conditions of political turmoil are outlived by the ones born under stable conditions.) -> indirect evidence of ecological formulations


A time to grow and a time to die: Growth and mortality of credit unions in New York City, 1914-1990

One vision of organizational evolution suggests that old and large organizations become increasingly dominant over their environment. A second suggests that as organizations age they become less able to respond to new challenges.

-> In this article the authors investigate which of these visions best characterizes the evolution of state-chartered credit unions in New York City from 1914 through 1990 by analyzing the effects of organizational age, size, and population density on rates of organizational failure and growth.
-> The authors find evidence that old and small institutions are more likely to fail, while young and small organizations have the highest growth rates. -> existence of a liability of aging

Organizational populations have clearly differed in the rate at which environmental change has rendered core competencies obsolete (especially in case which the competencies of organizations are tied closely to their core technologies):

– industries such as microcomputer manufacturers have seen a rapid succession of “competence destroying” technical changes (Anderson 1995)
– industries such as beer brewing have been characterized by extraordinary stability in the core technology (Swaminathan and Carroll 1995)
-> obsolescence if effect of aging be strong in microcomputer while weak in brewing / senescence if age dependence as strong for populations facing placid technical environments as those facing continuing competence destroying changes.


Bigger may be better, but is older wiser? Organizational age and size in the New York life insurance industry

Do we live in a world of dominant monopolies and oligopolies, or a world marked by constant flux and turnover of cohorts of organizations?
-> effects of organizational size and age on growth rates and failure rates

Theorists tend to agree that organizational growth and aging processes increase organizational inertia, but they disagree on the effect of that inertia on failure rates.

-> This paper explore the effects of organizational size and age on failure rates among New York life insurance companies between 1813 and 1985.
-> find that organizational size affects failure rates nonmonotonically, but over the actual range of sizes, large size almost always lowers failure rates.
->  also find a strong liability of aging, this runs counter to ecological theories of liabilities of newness and adolescence.
-> an empirical test of the relative effects of age during periods of environmental turbulence and calm indicates that organizational inertia is especially problematic during turbulent times. -> suggests that the liability of aging occurs more through obsolescence than senescence, at least in the population of insurance companies.


Does entry size matter? The impact of the life cycle and technology on firm survival

A wave of empirical studies show that smaller-scale entry is confronted with a lower likelihood of survival than their larger counterparts.

-> this paper examine whether the relationship between size of a firm when entering an industry and the likelihood of survival holds under different technological conditions and across the different stages of the industry life cycle.
-> the empirical evidence suggests that the relationship between firm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle.
-> While the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts, the relationship does not hold for mature stages of the product life cycle, or in technologically intensive products. In mature industries that are still technologically intensive, entry may be less about radical innovation and possibly more about filling strategic niches, thus negating the impact of entry size on the likelihood of survival. 


Strategies for survival in fast-changing industries

Technology strategy variables tend to predominate as predictors of survival in the fastchanging rigid disk drive industry.

-> here test the hypothesis that the technological and market strategies of a new entrant are highly interrelated and that their joint effect plays an important role in a firm’s probability of survival
-> we propose that firms that target new market segments with an architectural innovation will tend to be more successful than those that target existing markets or innovate in component technology, even after controlling for all the compeing predictors of survival.
-> by tracing the main technical elements of a dominant design in the rigid disk drive industry over time, and provides a much more rigorous definition of the concept of a dominant design than we have had in the past.
-> find the notion of first-mover advantage is not applicable in the rigid disk drive industry. Instead, we propose the idea of an entry-window tightly linked to the emergence of the dominant product design as defined.






1。1970年代に「組織の個体群生態学(population ecology of organizations) 」て登場し、のちに「組織生態学(organizational ecology)」に至ったHannan, Freeman, Carrollたちの流れ
2。後に組織変動の一般枠組みとしての「進化的アプローチ(evolutionary approach)」に力点を移行したAldrichの流れ
-> 両方とも、生物生態学研究のモデルの直接的な適用や、個々の組織のミクロなメケニズムと組織群れベルのマクロ的な進化過程とのリンクへの志向など、「生態学」としての特質を強調する点で他の組織研究と一線を画す

1。組織の個体;2。組織個体群;3。組織群集 (Carroll, 1984)
(従来の「組織と環境」に関わる研究のほとんどは1、組織エコロジーは2と3という個体群を単位として加える)<- 現実には多様な組織が共存しており、個々の組織のみからは説明されえない
-> 競争と同調などの組織集団内におけるメカニズムを通じて研究
-> 新しい形態の組織の発生率や、変動率や、特定の形態の組織の死亡率に対してどのような環境条件が影響を与える (Hannan&Freeman, 1989)

組織エコロジーの8つのテーマ(Hanna, Polos, Carroll, 2007):
2。構造慣性と変動 (structural inertia) (個体環境適応/進化論的な淘汰)
3。年齢依存理論 (組織死亡率を組織の環境への適合度の指標とする、年齢は影響を与える)
5。個体群密度依存 (生存率に影響を与える密度、密度に依存した個体群の動態の研究)(Hannan&Carroll, 1992)
6。ニッチ構造 (環境における諸資源の布置状況と個体群の成長衰退との関連)(Popilarz&Zachary, 2007)
7。資源分割 (ジィネラリスト戦略とスベシャリスト戦略の間の競争が市場の分割を生じる)
8。組織の多様性 (多様性がより上位の社会レベル、経済的セクター等にどのような帰結をもたらす)(Podolny, 2005)

2。Hannan&Freemann 1989 組織生態学, Hannan&Carroll 1992 組織の個体群生態 1995 産業における組織 2000 企業と産業の人口学, Aldrich&Ruef 2006 組織進化論 -> ミクロ・マクロ各レベルのより一般的な総合化が図られる時期
3。Hannan, Polos, Carroll 2007 組織理論の論理学 ->ミクロ・マクロのリンクに新しい方向を示す

1970年代には組織と環境関係への関心が昂進しながらも、従来のコンティンジェンシー理論からさらに理論を進化させるために必要な、組織と環境のダイナミックな相互作用を捉える土台を欠いていた。組織エコロジー(Hannan&Freeman, 1977)と新制度派組織論(Meyer&Rowan, 1977)はこの空白地帯にニッチを見出した。

組織の進化図式(Weick, 1979; 藤本, 1997):環境決定論に陥らず、組織の進化を変異、淘汰、保持の三段階として捉えた上で、人間の主体的自発的な変革を契機を変異の中に組み込み、環境的な制約との相互作用を淘汰の段階に当てはめて両者の均衡の結果の変革の定着を保持と位置づけるのような、人間の主体性と環境からの制約を統合する理論
しかし、個体レベルの進化論は組織が環境との相互作用を通じて進化する過程の存在を主張することはできても、その過程の内容がいかなるものか特定できない <- 個体群レベルの観察が必要

組織の存続に関わる中核的な特質と、環境との相互作用によって変化する周辺的な特質それぞれの変動メカニズムの違いを主張 (Hannan&Freeman, 1984)
前提の「組織は変わらない」->「個体群の定義に関わる特質は変わらない」-> 1。変異淘汰保持の過程を通じて進化的な変動モデル;2。組織個体よりも組織個体群を組織の本質とみる

1。社会学理論としての有用性 (Young, 1988)
a) 基本概念の定義ならびに測定の曖昧さ; (社会学共通問題)
b) 主要な主張は生物学より従来の分野から導入されたもの;  (生物学的モデルはあくまで出発点)
c) 方法論的な疑問点が多い
前提の過激さとは裏腹に、発見結果についてはむしろ既存の社会学理論との親和性を強調:例えば「密度依存」の発見結果を新制度派の組織研究と結びつけよう、組織発生率消失率と密度(=個体数)の関係を個体群の正当性(legitimacy)と競争で解釈 (Carroll&Hannan, 1989)
新制度派からの批判(Zucker 1989):
a) 正当性と競争を直接測定したわけではなく、経験的研究の結果に結びつけても、これだけが可能な説明とは限らず、新制度派の組織理論とは無関係 (新制度派でも間接的測定が一般的)
b) また組織エコロジーが歴史的な時間ではなく、個体群形成以来の経過時間を重視する点と新制度派の相違 (反論:無視ではなく説明要因の中に組み入れている)

進化への発展 Aldrichの流れ:
一度個体群生態学に接近しながらも生態学の制約から解放された -> 生態学的の基礎概念を社会現象に適用する困難さや、生物学理論とは異なる内容の理論体系に生態学を冠するへの抵抗

基礎概念の追求への発展 Hannanたちの流れ:
Hannan, etl 2007はファジー集合論と様相論理の導入により、種の定義を含む社会的概念の形成過程に間で遡る組織理論の試みを示した:組織個体群は組織が持つ共通の形態によって定義される、形態の形成に関連する一連の過程を考察すること






経済危機に面し経営を継続することの難しさ/企業の積 み重なった信頼の正統性という価値
a) 総じて経営の源となる理念を大切にした堅実な経営を守り,時には大胆に変革を行い、企業が模倣しにくい事業システムを構築し競争優位を持続する
<- 経営理念や経営方針,事業の継承や変革,経営戦略,経営史の分野において,経営者や企業の 内部環境に注目した視角を基本に企業の存続に関する歴史的な知見を示してくれる.
b) ひとつの企業が一層複雑に他者と関係し合う社会において,外部環境と企業との関係
<- 経営理念が企業内で変化しない性質があるのに対し,事業システムは存続しつづけるために環境適応の変化をする性質がある
* 外部環境と組織の適応関係 -> 存続する企業の形態や規模 + 組織個体群単位の存続システム

日本の長期存続企業:%e3%82%b9%e3%82%af%e3%83%aa%e3%83%bc%e3%83%b3%e3%82%b7%e3%83%a7%e3%83%83%e3%83%88-2017-02-18-23-28-28長期存続企業はほとんどが中小企業 であり,長期存続企業は長い期間の経営を経て大規模な組織にならない場合が多いことが示さ れる.(実際すべて企業のうちほとんどは中小企業)
これまでの長期存続企業の研究は,ミクロ的視角から分析されることが多い が,経営理念のように変化しない性質とは異なり,変化可能な事業システムの分析はマクロ的 視角を採り入れる必要がある <- 個人や集団に注目するミクロ組織論と構造や体系を扱うマクロ組織論
-> しばしば活動フィールドの重複する複数の企業の併存が見られ,併存する業界内の企業間関係が存続に影響している可能性がある (長期存続企業は中小企業の形態のままで存続を果たすことから、企業の存続システムが単に競争に勝つと生き残るというシンプルなものではないかも)

a) 経営理念と承継
-> 経営理念は企業内の規範として企業倫理の役割を持ち,行動規範のベースとして構造や戦略の指針となる、同時に経営理念の浸透により共有する価値観を従業員に認識させ,組織文化を形成する (近江商人の三方よし) (問題はどの企業もおよその経営理念については内容の重複が見られ)
長期存続企業はファミ リー企業が多くなっている.(年輪のように地道に堅実な経営を継承し,時には進化して 姿を新しくする老舗の特徴である、前川(2011))
b) 事業システム
複数の企業との取引制度システムを成す企業の集合体について,中小の企業が地域的に集まっているケースは産業集積の研究として蓄積されてきている (加藤(2006)は,産業集積における仲間型取引の機能について東大阪の金型産業の事例研究によって存続の仕組みを示した)
-> 取引ネットワークでつながった企業の集団をシステムとして捉え、長期的な存続を組織個体群単位の観点で考える
c) 長期存続企業と事業システムの存続
伝統的な事業システムは環境との不適合を生み出すことがあり,この不適合を改善 するための策が2つ考えられる: 事業システムの革新、事業の仕組みを変える/企業内に複数の事業システムをもつこと

a) 組織生態学
組織間関係の代表的な分析枠組みとして,資源依存,組織セット,協同戦略,制度化,取引コストの5つの パースペクティブをあげている(山倉(1995))
組織生態学の主張する「あらゆる組織は構 造的慣性を備えており,現代社会における組織淘汰の過程では,高度の慣性を備えた組織のほ うが生き残りやすいという命題」が,経営戦略論の基本前提対立する(戦略的業種変更の有無よりも設立時の資本規模が組織の適応力を相対的に強く規定しており,慣性的な効果が働いている+業界内資源配分の構造や体系が存続に関係する、戦略よりも組織生態、高瀬(1989))
b) 組織進化論
オルドリッチ(2007)の進化論アプローチは,組織生態学の主張と経営学における既存の理 論を統合する形でまとめられている (山田ら(2011)は,進化過程の3つ変異選択保持に加えて闘争概念を組み込もうとし,社会運動論をもとにベンチャー企業の生き残りについてイノベーションの闘争モデルを示し)
再生産者組織とイノベーター組織の2種が生き残る組織タイ プである -> 組織の存続には独自の資源確保,正統性の獲得,個体群の形成が必要であり,これらの取引関係はひとつの仕組みとしてシステムを構成する
変異による組織個体群内の新たな組織の発 生は,組織個体群の健全なシステムが働いている(組織生態学における人口論的に,新たな組織の発生によって世代が新しく築かれなけれ ば,個体群ごと衰退してしまう)
%e3%82%b9%e3%82%af%e3%83%aa%e3%83%bc%e3%83%b3%e3%82%b7%e3%83%a7%e3%83%83%e3%83%88-2017-02-19-4-10-37c) 生物進化論
-> 短期的に見れば競争優位を大企業が持つとしても,環境が変わればその競争優位の効果が得られない場合が考えられる.その場合,大企業は規模の大きさから変化させることが容易ではなく,環境適応能力は小さく抑えられよう.+ 長期的に見ると,歴史的な革命や非常に不安定な状況を企業は幾度か乗り越えていかなければならない.-> そうした激動の環境下においては,適応力の弱さにより大企業という形態は必ずしも強いとは限らず,むしろ中小企業の形態が長期的な環境適応能力に優れている場合も考えられ,中小規模の組織が多様化することで集団として全体の生存可能性を高めている可能性がある.



Disappearing of Risk on/Risk off and Volatility

Is Risk-On, Risk-Off in the Rearview Mirror?

One thing that may matter most for your portfolio in 2017—and how you manage risk—is how markets responded to surprises like trump, Brexit in 2016.


In each case, global stock markets and other risk assets initially sold off, only to recover swiftly -> As any investor active in recent years knows, risk-on/risk-off has been a recurring pattern in markets since the global financial crisis. -> keeping pace with abrupt shifts in risk sentiment (market timing) has been a challenge

The risk-off periods certainly appear to be getting shorter -> If this risk-on/risk-off pattern is breaking down (to be replaced by trending markets)?

Explanations: global growth is finally starting to gain traction boosting many growth-sensitive risk assets, such as stocks and high-yield bonds <-developed markets are moving beyond a singular reliance on monetary policy to boost growth (Japan is supplementing ultra-loose monetary policy with fiscal stimulus, and the US may soon do the same

Implications: Momentum and volatility, for example, may become important factors driving stock markets again. (less important when risk-on/risk-off prevailed)

atkin_riskonriskoff_display-2_d1actual stock market volatility is unusually low today. But that doesn’t necessarily mean we’re in for a long, tranquil period. Other measures, such as the spread between implied and actual volatility, tell a different story.

->> If we’re entering a period of reflation—or renewed inflation—and moderately faster growth, investors will want the ability to move seamlessly across asset classes and regions into areas best positioned to benefit from higher prices. These might include commodities, currencies or select emerging markets. -> A holistic, multi-asset strategy allows investors to pivot quickly to seize these types of opportunities

->> If markets are entering a new period in which assets trade based on their own merits rather than on what central banks do, a hands-on approach will be essential.

->>> investors may be tempted to put their portfolios on autopilot, thinking they can stay afloat just by going with longer-lived trends <- a risky approach as even in trending markets, there’s always the possibility of an expected disappointment or a big sell-off.

Surprises/uncertainty that might upend the current growth trajectory or policy outlook:
Will Britain negotiate a smooth exit from the European Union?
Which policies will Trump prioritize—and which will he get through Congress?
Will French and German voters opt for antiestablishment leaders of their own in elections this year?


2016 Was Not a Particularly Volatile Year

Though sounds like, financial markets in 2016 wasn’t a crazy year. In fact, it was amazingly normal.

<- Annualized daily volatility during 2016 came in at 13.1%. Based on rolling same-length periods going back to 1929 this falls at the 47th percentile, as well as at the 54th percentile since WWII, the 42nd percentile since 1990 and only at the 54th percentile when compared to the last five years.
-> Realized daily volatility simply was not high in 2016 compared to pretty much any prior period

1-Year Daily Rolling Volatility (1946-2016) / Time Series Plot010317_1yovol010317_1yovoltimeseriesSource: AQR and Bloomberg using the S&P 500 index.

Max 1-Month Absolute Return Over Prior Rolling Year (1946-2016)010317_1moabs
Prior 1-Year High Divided By Prior 1-Year Low (1946-2016)010317_prioryrhilo

2016 Beyond Equities: Still Boring

In 2016, not only equities was plain, boring, and average. Cliff’s analysis was further extended to include a broader set of markets: fixed income (Barclays Aggregate U.S. Index “Barclays Agg”); commodities (GSCI Index “GSCI”); currencies (Dollar Index “DXY”); and volatility itself (VIX Index “VIX”). Similar to what we observed in equities, when looking across realized risk/variability metrics, 2016 was pretty ordinary across the broad set of markets.

Historical Percentiles of Risk Measures by Asset Classes since 1990011017_exhibit1

Commodities were the only one one asset class that showed above normal risk/variability in 2016. / the dollar was calmer than normal on all measures, and the VIX was just about at the median

Historical Percentiles of Risk Measures by Asset Class since 2012 (a Normal year)011017_exhibit2

The Becalming of Stock Volatility

Markets have been eerily calm for the past few months.


Despite lots of evidence the peace is related to improving economic expectations, the tranquility continues to strike some people as weird. One thing they cite is a measure of global policy uncertainty that has gotten more extended versus the fear gauge than at any point in the past two decades.

“We have a new president who’s completely unorthodox, yet the market’s not moving,”  “It’s a challenging time for investors because they see all these risks, but the market is waving them off.”
Mostly worried about: unwelcome political developments and unexpected Chinese currency debasement.


Volatility and performance in stocks can be very cyclical over time, and in a different way.
These things don’t run on a set schedule, but it makes sense for investors to understand how markets typically function over the long haul.)



-> This shows how the cycle of fear and greed can play tricks on investors over time. When markets become too calm, investors can become complacent. / And when markets become too volatile, it can put investors on edge far too often. ->>  Highly volatile, low-returning markets end in fear, which leads to higher-returning markets with much lower volatility, followed by the eventual greed that starts the cycle again.



A higher Oil Price?

Cost of Shale to Drive Oil Prices Higher

Over the 18 months since June 2014, the price of Brent Crude oil fell from $115 per barrel to a trough of $32 in January 2016. After last year’s oil-price rebound, many analysts think that oil can’t get much higher than $60‒$65 a barrel in the next three years. Our research suggests that these projections underestimate the costs of producing oil in order to meet global demand growth that increasingly relies on US shale. We think oil prices could touch $80 by the end of the decade.

Strong demand: Over the past four years or so, global demand for crude oil has increased by roughly 1%‒2% per year, peaking at 2.4% growth in 2015. Projecting through 2020, we see a steady 1% annual rise in demand.

Fading non-US, non-opec supply: 
1.members of OPEC have until now met much of the annual increase in demand. <- Iran, Saudi Arabia and others have little scope to grow capacity.
2.Production of non-OPEC, non-US oil-producing countries has declined, while US production has started to recover recently from a decline over the past two years.
<- With oil below $50 a barrel until recently, investments in new oil reserves just weren’t profitable + Since new exploration and production (E&P) takes a few years to bring online, that lack of investment due to low oil prices in 2014‒2016 could suppress oil supply levels for years.
3. US oil production will be essential to meet steadily growing global demand for oil
-> in the coming years, oil prices will be increasingly determined by the costs of extracting that oil from various US shale deposits.


US shale activity declined in synch with the falling price of oil from the summer of 2014 through early 2016.
->  As oil prices fell, E&P companies drilled fewer wells, but focused on more efficient shale wells. The US shale drilling locations are grouped into tiers based on their level of productivity and economics. The tier 1 wells, which produce oil more economically, made up 38% of the oil wells in the first quarter of 2014 and have grown to 49% of the mix today.
–>>  Unfortunately, there are only so many tier 1 shale sites, and based on current estimates, all 26,000‒27,000 of these sites will be depleted halfway through 2019.
+Furthermore, as US activity ramps up, the cost of drilling and completing a well will rise.

–>>> If this plays out, E&P firms would then need to shift their attention to tier 2 locations, which are less efficient. Our research indicates that the cost of drilling profitably at these locations would require WTI crude—the key benchmark for US oil prices—to reach $78 a barrel by late 2019, when accounting for inflation of drilling costs.


*At current costs, the breakeven price is about $45 a barrel. And since the world will be looking increasingly to the US to meet ongoing demand by 2019 and beyond, we think the economics of drilling at tier 2 sites will start to set the oil price in 2019

-> As the long-term recovery unfolds, energy stocks—especially oil producers and oil-services groups—could continue to outperform.

Risks to the assumptions:
An unexpected recession could undermine demand.
OPEC could surprise with much higher production.
And new technology could theoretically uncover more tier 1 shale locations.


Always Cry Over Spilt Milk-GMO

Oil is indeed the real McCoy, a true paradigm shift. But it, too, faces a short-term glut caused by U.S. fracking.

U.S. fracking oil is a small resource, under one and one-half years of global consumption. It will soon run off and show the underlying implacable rising costs of finding ever-diminishing pools of new oil.
Existing oil wells deplete faster than they used to, because enhanced technologies squeeze more into the early years. Over 5 million barrels a day out of a global total of 95 a year now needs to be replaced every year. Half a new Saudi Arabia!
Today’s draconian cutbacks in exploration almost guarantee another sharp price spike in the next two to four years.
– But beyond a five-year recovery for oil prices and oil stocks, there lurks a third paradigm shift: the terra incognita of electric, self-driving vehicles; cheap electric storage; climate change; and carbon taxes. Taken together, this shift to alternative fuels is likely to cause oil’s final paradigm shift!


History and investment

The only thing that really matters in asset allocation is sidestepping some of the pain when the rare, great bubbles break. At other times, traditional diversification will usually be good enough.

The Japanese equity bubble: the best example of an extreme outlier that nevertheless turned out to be an epic bubble rather than a paradigm shift.

* Every major bull event is called a paradigm shift, but they almost never exist. Almost never. But not never, ever.

saupload_ex_2Oil, by 1979, had once spiked to over $100 a barrel in today’s currency. Against the previous 100-year trend of $16 that was over a 1 in 1 billion long shot. 

The author used to believe:

1.This 1 in 1 billion 1979 event was caused by the newly effective cartel, OPEC. The response of oil prices could not have been caused by any mixture of pre-existing factors. It was therefore a paradigm shift. But cartels can end. This produces a special case of paradigm shift: likely to last as long as the new factor, in this case OPEC, stays effective.

2. After 1999, the costs of finding new oil started to rise very rapidly. By today, in my opinion, the price needed to support the development of new oil reserves has risen to at least $65 a barrel. This rise from $16 (in today’s currency) constitutes a second paradigm shift in oil. Less is found each year in smaller fields, and is more difficult and costly to extract.

3. If we were running out of low-cost oil, I asked myself in 2011, why should we not run out of other finite resources? Also, China uses a much larger fraction of total global minerals than it does of oil. China’s growth, together with increases in world population was causing us to be facing “peak everything.”


*”But alas, I was fooled – along with all of the CEOs of the miners – by China. The four-sigma event in mineral prices did not occur because those resources were running out. Not yet.”



Food is in a comparable situation to metals, though, in that it faces a short-term glut. But for very different reasons: Almost four years of terrible growing weather and ensuing shortages and buying panics had pushed grain prices so high that an unprecedented quantity of extra land was brought into use



An Investment Only a Mother Could Love: The Case for Natural Resource Equities

■We believe the prices of many commodities will rise in the decades to come due to growing demand and the finite supply of cheap resources.

Public equities are a great way to invest in commodities and allow investors to: 1) Gain commodity exposure in a cheap, liquid manner; 2)Harvest the equity risk premium; 3) Avoid negative yields associated with rolling some futures contracts


%e3%82%b9%e3%82%af%e3%83%aa%e3%83%bc%e3%83%b3%e3%82%b7%e3%83%a7%e3%83%83%e3%83%88-2017-02-12-18-36-18(Survival bias?)%e3%82%b9%e3%82%af%e3%83%aa%e3%83%bc%e3%83%b3%e3%82%b7%e3%83%a7%e3%83%83%e3%83%88-2017-02-12-18-42-26


■ Resource equities provide diversification relative to the broad equity market, and the diversification benefits increase over longer time horizons.


■ Resource equities have not only protected against inflation historically, but have actually significantly increased purchasing power in most inflationary periods.


■ While resource equities are volatile and exhibit significant drawdowns in the short term, over longer periods of time, resource equities have actually been remarkably safe investments.


■ By some valuation metrics, resource equities have looked extremely cheap throughout 2015 and the first half of 2016, and that may bode well for future returns.


■ Given the difficulty in predicting commodity prices, the low valuation levels of the past year and a half may be unjustified.


■ Despite all of this, investors generally don’t have much exposure to resource equities. Those investing with a value bias may be particularly underexposed to resource equities, as value managers tend to be especially averse to the risks posed by commodity investing.




The future of JGB

Last year we have talked quite a lot about BOJ and the unsustainable balance sheet it holds. Now, with the rising yield pushed by FRB, the BOJ has to face a substantially worse situation as it has increasingly little room for monetary policy while the prospect of economy and inflation are still in gloom. I will continuously gather the relevant articles in this blog.

Japan – It’s Finally Happening

Large hedge fund managers like Kyle Bass or Crispin Odeywere have been shorting JGBs for a while. After all, it was an awfully compelling story. It’s difficult to see how Japan will be able to manage its monster debt load without inflating it away.



Yet the great global bond rally of 2016 that drove European sovereign yields to batshit crazy negative levels, dragged Japanese government bonds along. ->  One of the most overindebted countries in the history of modern finance trading with a 0% thirty year bond.

-> Then a crazy thing happened. Worried its bonds would trade at negative yields and pressure the financial system, the Bank of Japan pegged its 10 year yield at 0%. -> In doing so, the BOJ moved from a set rate of balance sheet expansion to one that varies based on whether that peg is either too high, or too low. -> If the equilibrium level of 10 year rates was in fact below 0%, the Bank of Japan would be forced to sell bonds to keep rates stuck at 0%. If there was demand for credit and 10 year rates moved higher, then the BoJ would be forced to buy bonds to keep them from declining. -> at its heart, the BoJ was giving up control of its balance sheet so it could peg a specific part of the yield curve.
(Of course Central Banks do this all the time. The difference is they usually operate at the front part of the curve, and when there is too much demand or supply, they change the rate.)

-> The Bank of Japan had not eliminated volatility, but merely postponed it.

–>> An expansionary feedback loop: Eventually the Bank of Japan’s massive balance sheet expansion would kick in. At that point, inflation would pick up, credit would be demanded (?) and the BOJ would be forced to defend the 0% peg -> be forced to buy an unlimited number of bonds at a level below the market and expand the amount of base money, which if not offset with a decline in the velocity of money, would create more inflation, etc… All of this would be occurring with an already highly supercharged Japanese Central Bank balance sheet.


BoJ was tested by the market last week as the JGB 10 Year bond spiked through the previous high yield on news the BOJ would not be expanding their balance sheet quite as aggressively as expected in their regular QE program.
(“Market looks to have been looking for a broader spectrum of purchase increases to reaffirm the commitment”)

  • The short-term policy rate, which applies to some bank reserves, was held at -0.1 percent.
  • The long-term policy rate, which is a target applied the yield on 10-year Japanese government bonds, was left unchanged at around 0 percent.
  • The inflation forecast for the fiscal year starting on April 1 was kept at 1.5 percent.
  • The GDP projection for the fiscal year was raised to 1.5 percent, from 1.3 percent.




As yields popped through the previous 0.10% yield ceiling, the Bank of Japan came charging into the market. <- The BoJ bid 3-4 basis points through the market with unlimited size to push yields back down to the 0.10% level. (Many analysts interpret the BOJ’s target of around zero percent to mean a range between positive and negative 0.1 percent.)

–>> The market is finally saying the demand for credit is enough to force the Bank of Japan to buy bonds to keep rates down. And that was the signal of shorting JGBs. 

+ BOJ faces the challenge of seeking to hold down borrowing costs just as accelerating inflation and an improving outlook for some of the world’s biggest economies push up bond yields globally.
(putting upward pressure on Japanese yields while also pushing down the yen. -> Further weakness in the currency, which would support exporters and help the central bank toward its distant inflation goal [A weak yen helps to boost exports and corporate profits, which should also encourage more investment and wage growth, though these flow-on effects have been disappointing so far.], may also raise the ire of Donald Trump and provoke a protectionist response that Japan can ill afford) 



(However, It would be just like the Market Gods to finally usher in the JGBs collapse once all the hedge fund guys had given up on it…)




Moreover, Japan’s biggest banks benefits from this trend

Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are on course to exceed their fiscal-year profit goals, having all beaten analysts’ estimates for third-quarter earnings. Surging global bond yields and market volatility since Trump’s November election victory have been a boon to the banks’ fixed-income trading, helping to offset weak lending profitability, the results showed. And bank executives have welcomed Trump’s moves to relax financial regulations in the U.S., where the three firms have operations.
1000x-11(Bond and securities trading profit jumped and credit-related costs fell)

Other tailwinds include a weaker yen, which has fueled inflation expectations (weaker yen inflating earnings abroad) and prompted economists to predict that the BOJ’s monetary easing is over.

“A year ago the outlook was for continually lower rates, whereas now we’re starting to see prospects of higher rates going forward”

(However, Domestic interest margins remain tight, interest rates are low or negative and competition is fierce,” “Japan’s megabanks still face a tough environment.”)


Update 2017/02/14

No Laughing Matter for Kuroda With BOJ Near 40% of Bond Market

The BOJ holds more than 40 percent of Japanese government bonds, and the central bank’s stake continues to rise and rise.


As the central bank’s need to control yields drives unprecedented purchases of benchmark 10-year debt ->  exacerbating concerns it will run out of willing sellers to supply it with bonds to buy.

“The BOJ actually decreased the pace of purchases late last year, but after the market started to price in the risks to drive the yield up to 0.15 percent, and forced the central bank to accelerate again”

-> The yen rallied after the increased operations showcased concerns the BOJ’s shift to targeting the yield curve hasn’t removed questions about the durability of its quantitative easing.


BOJ is also aimed at steepening the yield curve:
With Japanese investors selling off Treasuries at the fastest pace since 2013, it also raises the likelihood of pension funds and life insurers, which need long-term assets to meet similar liabilities, being drawn back to so-called superlong bonds — worsening the BOJ’s potential supply constraint
+ raising stimulus-sustainability issues: banks are seen getting closer to their target limits when it comes to selling down JGB holdings. (Japan’s banks sold 141 trillion yen of government debt in the first 3 1/2 years of Kuroda’s easing, playing a key role in supplying the 298 trillion yen that the BOJ bought in the same period. Banks have just 219 trillion yen of the securities left, and they need to keep some of that to meet regulatory requirements. That all adds up to the real possibility that the BOJ will face constraints on its capacity to buy bonds.)


And almost a third of the bonds it owns have no income — or just pay it 0.1 percent a year in interest.
-> surge in bond prices over the past four years could still create losses for the BOJ, because most of the debt it buys costs well above face value, even though face value is what the central bank will get back, because it plans on holding the securities to maturity. The looming balance sheet shortfall that creates is another of the concerns surrounding the long-term sustainability of the policy.

Looking forward, it seems the BOJ can’t stop buying, otherwise it would lose control of yields while its inflation target remains far from 2 percent. Yet it can’t go on buying forever either, thanks to a lack of ready sellers.


PS.1 China’s Bond Market Has a Forgery Problem

PS.2 Bank of England Is Right to Ignore Inflation

PS.3 Germany’s Worrying Squeeze

China macro update 2017/01


「人民元の急落」と「中国経済の大幅な減速」のいずれかもしくは両方が発生した場合 -> 世界経済には大きなディスインフレ圧力がかかる -> 中国では、内需の落ち込みを受けて経常黒字が再び膨れ上がる見通しですが、このような景気減速シナリオでは、日米欧の国債は下支えされるでしょう

PIMCOが昨年12月に中国を訪問して実地調査を行なった結果、経済指標は第1四半期を通して比較的好調な結果を示すと確信する <- これまでの堅調な不動産販売の好影響が時間差を伴って波及すること+インフラ投資が遅ればせながら実現すること(不動産の販売実績は、中国と関連の深いコモディティ(石炭、銅、鉄鉱石、鋼鉄)の価格に9カ月ほど先行する傾向がある)

*しかしながら、第2四半期には景気が減速するシナリオがほぼ固まったように見受けられ <- 大規模な財政刺激策や信用拡大、そして2016年下期に新車購入需要を前倒しで喚起した税制優遇措置の効果の剥落が予想されるため + 多くの大都市における最近の不動産規制強化の影響が時差を伴って現れることも予想され、経済成長は停滞する

-> 資本流出の問題がさらに悪化することも考えられ、金融政策による景気減速対応も難しくなる可能性があり (資本規制の強化だけでは、資本流出および関連する外貨準備高の減少を食い止めることは不可能でした)


1。政府はリスク回避の姿勢を大きく強めるとの予想に反し、金融システムの安定化に対する主なリスク要因に対処する動きを予想よりも早めに容認してきました -> 住宅ローンや住宅開発業者向け融資に対する規制が強化され + シャドーバンキングによるさまざまな手法のレバレッジの取締まりを強め -> このような国内の不確実性が、民間部門の米ドルに対する需要を強める傾向があり


3。政府に対する政策提言の質が悪化する公算が大きい <- 経済政策立案の中核的機関として、中央財経指導小組が、より規模の大きい国務院に取って代わりましたが、同グループは、概ね市場経験がほとんどない官僚で構成されている

*-> 中国経済成長の安定は、大規模な財政政策や信用刺激政策によって辛うじて保たれてきました + 国際収支赤字と信用の大幅な拡大が長期化した結果、拡大する信用をホールセール調達に依存することが構造的に高まってきました -> 流動性が潤沢に存在するという見方は、最早根拠を失いつつあり



現在の利上げサイクルは、2000年代半ばよりも1990年代に近いと思われ <- 2000年代半ばには、アジアにおける過剰貯蓄が外貨準備高の着実な増加と米国債投資の拡大につながったため、米連邦準備制度理事会(FRB)の引き締めサイクルにおいて米ドルの長期金利は概ね安定的に推移していました

中国経済の減速は、コモディティ輸出国に対して、価格と取引量の両面で打撃を与えることになります。国際収支赤字を持続可能な水準に押し下げようとするエマージング諸国の取り組みが頓挫し、需要の縮小に投資資金の流出が重なった場合、信用の逼迫につながる可能性が高まります-> 中国経済が大幅に減速すれば、エマージング関連資産のバリュエーションの均衡が崩れる公算が大きいでしょう。つまり、各国の実質実効為替レートの適正水準が、実際の為替レートと足並み揃えて下落する


-> 中国の経済成長の持続性と米ドル金利の間には相互連関性があり、2017年にはそれが悪化する可能性もある

-> 経済成長の原動力になることはないものの、過剰設備を抱えたセクターの生産者価格引き上げによるプレッシャーを緩和する役割があり
<- しかしその結果、国際収支赤字による国内の流動性流出と預金対比で過剰な信用拡大というコストを払う
<- 中国人民銀行は金融政策によって流動性を潤沢に供給することはできるものの、その場合、資本流出の動きが加速してしまい
-> 金融システムの流動性を自然体で引き締めることも可能: 住宅市場や債務の持続可能性をより広範に損なうリスクが生じ
-> 中国が人民元の自由変動相場制への移行を余儀なくされた場合、グローバル経済にはボラティリティ急上昇の影響が及ぶでしょう


グローバルな投資家にとっては ⼈⺠元がすべて-PIMCO

過去数カ⽉にわたって⼈⺠元の下落と資本の国外流出が続くなかで、中国⼈⺠銀行は金融引き締め政策を打ち出しました -> 金利が大幅に上昇したことを受けて、社債発行がキャンセルとなる事例が数多く見られ、一部の中国企業の資金繰りの悪化要因となり

*中国は依然として「トリレンマ」と呼ぶ状況に直面:⼈⺠元の安定化または固定化、資本の自由な移動、金融政策の独立性という3つの政策目標を同時に達成することは不可能なことが明らかになりつつあり -> 金融情勢が逼迫化したことを合わせて考えると、為替が引き続き「調整弁」の役割を担う見通し

中国⼈⺠銀行の政策の軸足は、経済成⻑の促進からレバレッジが極めて高い金融セクターの規制強化にシフトしています -> 少なくとも2017年の早い時期に関しては、流動性は全般にタイトな状況が続き、金利は高止まりする可能性が高いでしょう

-> 金利上昇がこの先1年にわたって経済成⻑を下押しする -> 悪材料がさらに顕在化し、現地通貨建て債券市場におけるストレスが解消されず -> 債券利回りは向こう数カ⽉間高い状態で大きく変動する、今年の半ば頃までは明確な投資の好機は到来しない

-> 短期的には、資本流出が続く可能性は高いでしょう <- 実際、⼈⺠元の下落が続くなかで両替の動きが進む公算が大きいでしょう + 中国⼈⺠銀行が⼈⺠元の自由な変動を容認するか、少なくとも変動幅を拡大する可能性が高まった -> 2017年もFRBの利上げサイクル(PIMCOでは2〜3回の利上げを予想)と⼈⺠元の下落が続く環境において、⼈⺠元およびその他のエマージング・アジア通貨に対して米ドルのロング・ポジションを選好




人民元安は進行していましたが、少なくとも中国当局は外貨準備を用いて人民元を介入により下支えしていたと見られます + 最近では金融政策も引き締め傾向です



China: fighting an uphill battle to stabilise RMB – AXA

Pressure on the RMB exchange rate and capital outflows has intensified, as the dollar rally gained momentum after the US presidential election. Our estimates suggest that capital outflows accelerated to US$60-80bn in Nov and Dec , up from $30-50bn in the previous two quarters.


-> While these numbers are still small compared to those seen at the start of 2016, they have nevertheless exerted a tangible weight on the local bond market, resulting in higher yields, and posed a challenge for the PBoC in managing FX reserves and monetary policy.

-> In response, the authorities have taken three categories of measures to ease market pressure: 1) asymmetrically managing the capital account; 2) deploying FX reserves; 3) tweaking the FX operation. -> but there is no guarantee that these efforts will pay off. As the dominant influence in FX is now from the US, Beijing is in a reactive position and fighting an uphill battle.

*However, a large one-off adjustment is unlikely in a year of leadership transition
-> divergent interpretations were exactly what we saw following the August 2015 adjustment: The PBoC told the market that it was a one-off adjustment to realign the fixing and spot rates; but the market interpreted it as the end of the central bank’s defence of the exchange rate