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The Participant 7/29/15: China

THE PARTICIPANT
by Jason Kelly

Wednesday, July 29, 2015

___________________________________

CHINESE STOCKS STILL CRASHING

The Shanghai Composite recorded its largest single-session crash since June 2007 on Monday, dropping 8.5% to 3726. A soft manufacturing report confirmed suspicions that the government’s recent attempts to reignite share prices were doomed to fail.

Former US Treasury Secretary and Goldman Sachs CEO Henry Paulson wrote in the Financial Times on July 21 that China’s capital markets have lagged the growth and maturation of its economy. He thinks that rather than rushing in to prop prices back up, China should use the stock market crash as an excuse to modernize its rickety financial system. Little surprise that Paulson’s prescription is for China to open its market to “a wide range of participants, including top-notch foreign institutional investors, investment banks and brokers, to compete on equal footing.” With no touch of irony, he suggests Beijing protect investors through regulation designed to minimize accounting fraud and market manipulation. His knowledge of the subjects runs deep.

Back on Shanghai’s descending price line, analysts offer conflicting advice from familiar camps. The bulls say this is a dip to buy, albeit one that could become deeper in the near term. The bears say this collapse is just getting started, but could exhibit knee-jerk rallies along the way because even unsustainable and misguided stimulus can work wonders for a while.

From the bearish camp, David Cui at Bank of America Merrill Lynch warns that China’s stock market looks a lot like America’s did in 1929. The parallel involves both going through an initial selling phase, followed by a stabilization phase, then another selling phase when authorities give up supporting prices and investors capitulate. Both bear markets sport repeating themes of too much leverage driving valuations to the moon such that no fundamental performance can sustain them.

Another problem is the profile of Chinese “investors” driving the market, who upon closer examination look like kids more than capitalists. An early awareness of this red flag spared onlookers from joining the fray back in spring. From Kelly Letter Note 13 sent to subscribers on April 5:

“Consider that the number of new trading accounts has exploded since China’s bull market took off last summer, reaching a five-year high in early March, and — this is the kicker — two-thirds of new accounts in the past quarter were opened by people who haven’t graduated from high school. Bloomberg economist Tom Orlik said, ‘The significance of the relatively low education level of new investors, I think, is that it suggests relatively inexperienced retail investors are driving the rally. That underlines concerns that it’s a rally divorced from the fundamentals of profit and growth, and so prone to a sudden reversal.'”

The Economist updated this angle on its Free Exchange blog two days ago: “It is not China’s grizzled stock pickers but rather their inexperienced grandchildren who have been the much bigger force in the market’s wild ride of the past year. … In 2004, 27.8% of those with stock-trading accounts were under the age of 30, according to the stock market regulator. This rose to 36.1% by 2013. … In the first quarter of 2015 (figures for the second quarter have not been published), 62% of a record 8m new trading accounts were opened by people born after 1980.”

The magazine quotes a 25-year-old video editor who invested her entire savings “only to watch her stocks halve in value in June and July.” She’s decided to sit back and wait for her stocks to rebound, saying it will be as if she’d left the money in her bank account — and she’s ready to wait for years.

___________________________________

KELLY LETTER CRIB NOTES

From this year’s Note 26 sent to subscribers last Sunday morning, with data as of Friday, July 24:

West Texas Intermediate crude is in an official new bear market, having dropped more than 20% since June 10 to $48 per barrel. The global glut is expanding as US production hovers at 40-year highs, Saudi Arabian and Iraqi output are at record levels, and Iran is gearing up to start exporting again. US exploration and production (E&P) companies are reporting new ways to reduce costs, and hint that new growth lies ahead. This suggests the glut will continue, not abate.

Morgan Stanley is beside itself, saying last week that the worst-case scenario is unfolding before our eyes. In January, it said the crash would be as bad as the one in 1986, but no worse. Last week, it said it had anticipated OPEC would not cut its output, but “we didn’t foresee such a sharp increase. In our view, this is the main reason why the rebalancing of oil markets has not gained momentum.” Now, its projections see little recovery in the years ahead, compounded by an industrial slowdown worse than the one of 1986. If the current oil crash exceeds the one of 1986, it will become the worst in 45 years and have no precedent among data that analysts can study.

Morgan’s Martijn Rats wrote: “If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term. In fact, there may be nothing in analyzable history.”

The price of US oil is back under $50 per barrel. West Texas Intermediate closed Friday at $48.14, down 5.4% for the week. Our oil-price hedge, PowerShares Oil -2x (DTO $91.08), rose 7.6%.

Facebook’s (FB $97) market capitalization overtook that of General Electric (GE $26) last week. A 24% rise in the social networking company’s stock this year has assigned it a market value of $272B, more than GE’s $259B. This strikes some as distorted, considering that GE’s sales totaled $147B last year when it employed more than 300,000 people, while FB’s sales totaled $13B when it employed fewer than 10,000 people. Facebook does boast more friends, however, which could explain the discrepancy.

Jeremy Grantham at GMO said during his keynote speech at the 2015 Morningstar Investment Conference that the stock market is edging toward bubble territory but isn’t there quite yet. … He concedes broad overvaluation by itself has never been enough to trigger a crash. He pegs next year’s presidential election as the time to get careful. “The market will follow the line of least resistance from the Fed, plodding slowly and steadily higher, waiting for speculation from individuals and deals. Be prudent, of course. Be very prudent … but not yet. I’m waiting to be very, very prudent. I’m going to be incredibly prudent starting closer to the election. I recommend the same to you.”

* * * * *

The Kelly Letter is emailed to subscribers every Sunday morning. It costs $19.97 per month or $236.97 per year. Please subscribe now at:

http://jasonkelly.com/letter/

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THE Z-VAL ZONE

Tom DeMark’s first contribution to The Z-val Zone appeared this week, via Bloomberg.

Chinese stocks will decline by an additional 14% over the next three weeks as the market demonstrates a trading pattern that mimics that of the US crash in 1929, according to DeMark, who predicted the bottom of the Shanghai Composite Index in 2013.

The benchmark for mainland stocks will sink to 3,200 after plunging 8.5% Monday to 3725.56 in the worst selloff in eight years, DeMark said on Monday. …

The Shanghai gauge had rebounded 16% from its July 8 low through Friday as officials went to extreme lengths to support stocks. … China Securities Finance hasn’t pulled support for equities and the government will “continue efforts to stabilize market and investor sentiment,” China Securities Regulatory Commission spokesman Zhang Xiaojun said in a statement after the close of trading Monday. …

“The die has been cast,” DeMark … said by phone. “You just cannot manipulate the market. Fundamentals dictate markets. … Markets bottom on bad news, not good news. You want to have the last seller sell. We got good news at the recent low. The rally is artificial. … Lip service and intervention like that — it’s false. There’s a certain way in which the market unfolds. The only thing the government could do is to postpone it.”

I characterized the disposition of this call as “Immediate-Term Bearish” for the Shanghai Composite, and scheduled it to be judged on August 17.

To see this call in The Z-val Zone, please visit:

http://jasonkelly.com/2015/07/demark-chinese-stocks-to-fall-14-more/

* * * * *

Background: The term “z-val” is a shorthand introduced in my book, “The 3% Signal,” for “zero-validity forecasters” and “zero-validity environment.” The latter phrase was coined by Nobel Prize winner Daniel Kahneman in his book, “Thinking, Fast and Slow,” where he wrote that “stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast.” This is why stock market forecasters are proven to sport an accuracy rate of about 50%, same as a coin toss, yet they continue forecasting.

You can peruse the growing collection of tracked forecasts in The Z-val Zone at:

http://jasonkelly.com/z-vals/

Know a good one I missed? Send me the link.

___________________________________

FORWARD WE TRUNDLE

According to Jim Holt at New York magazine, they don’t make ‘em like William Buckley and Gore Vidal anymore. In 1968, the two “celebrity intellectuals” were in their early 40s and “nationally famous in a way that no intellectual is today.”

They were both “patrician in manner, glamorous in aura, irregularly handsome, self-besottedly narcissistic, ornate in vocabulary, casually erudite, irrepressibly witty, highly telegenic, and by all accounts great fun to be around. … Also, they warmly hated each other.”

In that presidential-election year, they engaged in a series of ten nightly clashes on ABC that progressed “from stylish vituperation to arch bitchiness to near fisticuffs, culminating in an explosive exchange between the two combatants that left network executives and viewers at home not quite able to believe what they had heard: Vidal calling Buckley a ‘pro- or crypto-Nazi’ and Buckley calling Vidal a ‘queer’ and threatening to ‘sock’ him ‘in the goddamn face.’ Such language on television was unprecedented. As Dick Cavett later commented: ‘The network nearly shat.'”

Full article at:

http://nymag.com/daily/intelligencer/2015/07/best-of-enemies-buckley-vidal.html

Explosive exchange (73 seconds) at:

https://www.youtube.com/watch?v=nYymnxoQnf8

Be well and enjoy the rest of the week. Kelly Letter subscribers, see you Sunday!

Yours very truly,
Jason Kelly

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DeMark: Chinese Stocks to Fall 14% More

Chinese stocks will decline by an additional 14% over the next three weeks as the market demonstrates a trading pattern that mimics that of the US crash in 1929, according to Tom DeMark, who predicted the bottom of the Shanghai Composite Index in 2013.

The benchmark for mainland stocks will sink to 3,200 after plunging 8.5% Monday to 3725.56 in the worst selloff in eight years, DeMark said on Monday. …

The Shanghai gauge had rebounded 16% from its July 8 low through Friday as officials went to extreme lengths to support stocks. … China Securities Finance hasn’t pulled support for equities and the government will “continue efforts to stabilize market and investor sentiment,” China Securities Regulatory Commission spokesman Zhang Xiaojun said in a statement after the close of trading Monday. …

“The die has been cast,” DeMark … said by phone. “You just cannot manipulate the market. Fundamentals dictate markets. … Markets bottom on bad news, not good news. You want to have the last seller sell. We got good news at the recent low. The rally is artificial. … Lip service and intervention like that — it’s false. There’s a certain way in which the market unfolds. The only thing the government could do is to postpone it.”

— Excerpt contributed by Jason Kelly

_____________________________________

Z-val: Tom DeMark
Via: Bloomberg
Date: 7/28/15
Disposition: Immediate-Term Bearish
Shanghai Composite on 7/27/15: 3726
Shanghai Composite on 8/17/15: TBD
Change: TBD
Judgment: TBD

Z-val definition and more forecasts in The Z-val Zone.

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Faber: Stocks Could Drop 20-40%

The US stock market could “easily” drop 20-40%, said Marc Faber. Recently, there were “more declining than advancing stocks, and the list of 12-month new lows was very high on Friday. It shows you a lot of stocks are already declining.”

He thinks US stocks are on the “high side,” sees “no growth” from Asian economies, and considers the eurozone expansion “anemic.” He called the situation in Greece “basically Ponzi finance” doomed to fail.

He also cited recent commodity price weakness. “Supplies haven’t gone up that much, and do not reflect the price weakness. The price weakness is because of weak demand. Maybe this is the signal that there are strong deflationary forces despite all the money printing by central banks.”

— Excerpt contributed by Jason Kelly

_____________________________________

Z-val: Marc Faber
Via: CNBC
Date: 7/22/15
Disposition: Short-Term Bearish
S&P 500 on 7/22/15: 2114
S&P 500 on 10/22/15: TBD
Change: TBD
Judgment: TBD

Z-val definition and more forecasts in The Z-val Zone.

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The Participant 7/22/15: Commodities

THE PARTICIPANT
by Jason Kelly

Wednesday, July 22, 2015

Good morning,

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COMMODITIES STILL CHEAPENING

The commodity rout remains top financial news this week, for good reason. Look at this year-to-date performance summary of 18 commodity ETFs and ETNs as of yesterday’s close:

-11.8% Aluminum (FOIL $24.17)
-5.3% Coal (TONS $38.32) [since 2/20/15 inception]
+16.1% Cocoa (CHOC $49.17)
-30.5% Coffee (JO $21.20)
-6.1% Corn (CORN $25.02)
-12.4% Copper (CPER $16.66)
+2.6% Cotton (CTNN $27.81)
-7.2% Gold (GLD $105.37)
-12.0% Industrial Metals (HEVY $26.98)
-5.8% Lead (LEDD $30.69)
-15.1% Livestock (COW $25.82)
-6.1% Natural Gas (UNG $13.87)
-23.9% Nickel (NINI $20.08)
-16.9% Oil (USO $16.91)
-6.1% Silver (SLV $14.14)
-3.8% Soy Beans (SOYB $19.97)
-24.7% Sugar (SGAR $19.85)
-17.5% Wheat (WEAT $10.51)

Except for cocoa and cotton, the whole complex has been heading south. That it was led by coffee may come as a surprise, given the recently publicized price increase at Starbucks (SBUX $56.20), but that was the company leveraging its brand’s pricing power rather than reacting to the cost of beans. The price of coffee is fluctuating around 14-year lows, copper around 10-year lows, oil around 7-year lows, and livestock around 6-year lows.

What’s going on? Analysts point to a number of factors. The recent slowdown in world trade, as indicated by China’s weakening economy, is reducing demand. A glut of oil production has created abundant supply in that market. An expected rise in American interest rates at the end of this year has pressured the price of gold and silver, and strengthened the dollar. The stronger dollar has caused the price of commodities to fall because they are priced in dollars, so as the currency grows more valuable it takes less of it to buy the same quantity of a commodity. Finally, it could be that commodities as an asset class is losing its appeal after having been hot for about a decade from 2001 to 2011. The so-called supercycle has come to an end.

Shouldn’t the world’s growing population and the lifting of impoverished areas to developed-economy lifestyles sustain demand for commodities? In theory, yes, but the population has been trending higher and demanding more materials for centuries, during which time the price of goods has fluctuated. It could be that after surging from the tech bubble and Chinese growth in the 1990s and 2000s, a consolidation and catching of the economic breath is underway.

What it means for stock markets is anyone’s guess, but the popular view is that it’s an omen of falling prices to come. If the global economy is so weak it can’t provide a bid for raw materials, how much demand for business activity will it be able to muster? Not much, say the pessimists, hence earnings will fall and take share prices down with them.

Opportunists say the commodity wipeout is the place to focus now, because tides will shift. Jared Dillian, in yesterday’s Daily Dirtnap ($600/yr, http://www.dailydirtnap.com/), noted the market is currently suggesting coal has no value. “If the market is pricing it in as nothing, then I will pay nothing, and hope that it is worth something,” he wrote. He advised saving up cash and making strategic purchases “when things get stupid. Things are already stupid, but likely to get stupider. … This stuff is not going to go to zero. Almost by definition, it cannot. I am going to buy, and hold, and wait.”

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KELLY LETTER CRIB NOTES

From this year’s Note 25 sent to subscribers last Sunday morning, with data as of Friday, July 17:

Last week, our portfolio balance rose $5,998 (0.3%) to $1,853,552 from $1,847,554. Year-to-date by total return, we are up 1.3% (from $1,830,505) compared with 4.3% for the S&P 500 (from 2059, plus dividends). Over the past three years, we are up 25.6% (from $1,476,079) compared with 18.7% for the S&P 500.

West Texas Intermediate closed Friday at $50.89 per barrel, down 3.5% for the week. Our oil-price hedge, PowerShares Oil -2x (DTO $84.67), rose 5.7%.

Gold as represented by SPDR Gold (GLD $108.65) is now under the key $110 level from which it bounced higher in November and March. Its point-and-figure (P&F) bearish target is $91. The bearish case is centered on this: Rising interest rates and the improving US economy suggest that supposed “currency killing” policies of the Fed instituted since the 2008 financial crisis are no longer needed. Higher rates make gold unappealing since it pays no interest or dividends. Lower interest in gold means a lower price for the metal, and a lower price for the metal means lower stock prices for gold miners. The bullish case is just the evergreen one: Central banks will devalue currencies and only gold will retain worth — please ignore the past five years.

On the general stock market front, bullishness reigns, much to our disappointment as capital allocators eager to move money from bonds to stocks on a decent pullback. All the bears can muster these days is a yellow flag on the fact that momentum stocks are leading the market higher, and that this happening when the market is at an already high valuation tends to mark the end of a bull run. Sure, just like it was supposedly doing in every year since 2010. This is just another bit of oft-repeated meaninglessness that doesn’t matter until coincidental correlation is confused with causation, at which point it’s said to have mattered.

A bearish observation more worthy of your time is that the S&P 500 exhibited a multi-year rising wedge pattern to its bull market peaks in 2000 and 2007, which were followed by crashes. Since the bottom of the last crash in 2009, the market has exhibited another multi-year rising wedge pattern, suggesting that a top is imminent. The problem here is that chartists have been drawing the rising wedge for a few years now. It’s still rising in a narrowing wedge pattern. When an indicator appears so many years ahead of an eventual and inevitable top in a bull market, can it be considered useful in any way? I don’t think so. Too bad because we’d sure like the bears to be right one of these quarters. Somehow, they just never are.

———-

Tired of indecision in the financial markets? Read The Kelly Letter every Sunday morning to put The 3% Signal and other price-based rationality on your side. You’ll run circles around people following conjecture-based speculation. The letter costs $19.97 per month or $236.97 per year. Please subscribe now at:

http://jasonkelly.com/letter/

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THE Z-VAL ZONE

On April 22, Dana Lyons wrote in “Smart Money Options Indicator Now ‘Off The Charts’ Bearish”:

Since 1998, the put/call ratio on open interest in OEX options has been considered extremely elevated when it has risen above 2.00. From 1998 to 2011, there were just 6 days when the ratio got as high as 2.00. Each of those days either came in the vicinity of a significant market top or at least presented extremely limited upside in the intermediate-term. In the second half of 2014 alone, there were 8 readings. And 2015 has ratcheted up the frequency of such readings to a whole other level. There have now been no less than 34 readings above 2.00, all coming in the past 2 months.

And it hasn’t just been the frequency of the readings, but the magnitude as well. Before a week ago, the highest level of the OEX open interest put/call ratio since 1998 was 2.31 in November 1999. The past 2 days have seen readings of 2.77 and 2.79!

I characterized the disposition of this call as “Short-Term Bearish” to be judged on July 22. The S&P 500 traded at 2108 on April 22 and closed yesterday at 2119, a change of +0.5%. Therefore, in my judgment, this call was wrong.

To see this call in The Z-val Zone, please visit:

http://jasonkelly.com/2015/04/lyons-indicator-off-the-charts-bearish/

———-

Background: The term “z-val” is a shorthand introduced in The 3% Signal for “zero-validity forecasters” and “zero-validity environment.” The latter phrase was coined by Nobel Prize winner Daniel Kahneman in his book Thinking, Fast and Slow, where he wrote that “stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast.” This is why stock market forecasters are proven to sport an accuracy rate of about 50%, same as a coin toss, yet they continue forecasting.

You can peruse the growing collection of judged forecasts in The Z-val Zone at:

http://jasonkelly.com/z-vals/

___________________________________

FORWARD WE TRUNDLE

How about some perspective? See why the book Where is Everybody? by Stephen Webb is one of my favorites by reading the article “The Fermi Paradox” by Tim Urban at “Wait But Why,” from which:

“…given that my normal outlook is that humanity is a lonely orphan on a tiny rock in the middle of a desolate universe, the humbling fact that we’re probably not as smart as we think we are, and the possibility that a lot of what we’re sure about might be wrong, sounds wonderful. It opens the door just a crack that maybe, just maybe, there might be more to the story than we realize.”

Full article at:

http://waitbutwhy.com/2014/05/fermi-paradox.html

Be well and enjoy the rest of the week. Kelly Letter subscribers, see you Sunday!

Yours very truly,
Jason Kelly

Posted in Commodities, The Participant | Leave a comment

Follow-Up With RPI

Following publication of my April 24, 2015 Open Letter to RPI regarding the mistreatment of Socks for Japan by Professor Jose Holguin-Veras, I sent the following letter to Chris Letchford, professor and head of the Department of Civil & Environmental Engineering at Rensselaer Polytechnic Institute, in which Prof. Holguin-Veras works:

Dear Prof. Letchford,

It came to my attention that RPI created a mailing list from the volunteer and donor information logs of Socks for Japan (SFJ), a relief organization I operated to support survivors of the 2011 Tohoku earthquake and tsunami, and used it on Tuesday to ask donors and volunteers to participate in a follow-up survey regarding participation in SFJ.

I did not authorize this.

It looks to me that the survey is well-intentioned, but it is nonetheless inappropriate to convert our donation logs to an in-house mailing list without permission. The people in our organization were motivated by a desire to help survivors. They did not sign up for emails from RPI. Had RPI asked me for permission to send a survey to SFJ’s people, I would have examined the survey, decided whether it was worth our time to participate, and, if so, sent a note in advance of the survey telling volunteers and donors why I thought it was a good idea for us to join the effort.

Our relationship with RPI is via Prof. Jose Holguin-Veras. He first contacted me to discourage me from launching SFJ because he assumed we would make mistakes that most grassroots support groups make in the wake of a disaster. I explained how we had already researched common pitfalls and were proceeding in a way that would avoid them, and he asked if he could study our effort. I agreed to share our logs with him. We even took him with us on a distribution to Higashi-Matsushima, a place that proved to be such a vital part of his tour of the disaster zone that it became the focal point of his op-ed — yet he neglected to mention SFJ in the piece.

He also never publicly retracted his skepticism toward SFJ even after it was proved misplaced. Instead, he used our effort for his own self-promotion, crediting Japanese university colleagues rather than SFJ for the behind-the-scenes transportation that we coordinated for him. It felt to us that he did not want to admit to discovering an effort whose success called into question some of what he’d written on the subject during his career. Instead, he selectively reported from the disaster zone in a way that cast himself in a positive light as the intrepid on-the-ground researcher working with professors from Japanese universities boasting name recognition. A successful grassroots effort such as SFJ did not fit the picture he’d painted for academia over many years.

For more on our grievances with Prof. Holguin-Veras, and why we’re sensitive to further disrespect from RPI, please see my “Open Letter to RPI” at:

http://jasonkelly.com/2015/04/open-letter-to-rpi/

I request:

<> that RPI stop using SFJ data for new purposes without first receiving permission from me,

<> a public acknowledgment from Prof. Holguin-Veras that our operation did not make the mistakes he said it would make,

<> and credit in follow-up reports from RPI that reference SFJ data and history.

Thank you,
Jason Kelly

On April 28, 2015, Prof. Letchford replied:

Dear Jason,

I want to thank you for your email.

With regards to your requests, I am pleased to inform you that RPI follows accepted standards of practice for research and has an Internal Review Board that makes sure this is the case. As part of these standards, participants are able to bow out of any study, and may be acknowledged for participation if confidentially permits.

Important research into Humanitarian Logistics, such as carried out by RPI, relies on community engagement and participation in often difficult and trying times. We certainly appreciate your willingness to share data under the conditions established in the non-disclosure-agreement you signed with Professor Holguin-Veras on October 4, 2011. Please be assured that your contributions will be acknowledged in research publications produced using SFJ data. Furthermore, I need to mention that Professor Holguin-Veras credited your contributions in his LA Times Op-Ed. See:

http://articles.latimes.com/2012/mar/11/opinion/la-oe-holguin-veras-tsunami-20120311

The general policy in Professor Holguin-Veras’ group is to conduct evidenced-based research and, certainly not to publically criticize the work of specific relief groups. RPI is interested in enhancing disaster relief operations through informed research and analyses of actual events. Any comments made by Professor Holguin-Veras on the SFJ efforts were addressed directly to you and since Professor Holguin-Veras has not made any public criticisms of SFJ, I cannot ask him to retract.

As a matter of clarification, the main objective of the survey is to gain insight into donor behavior.

I believe I have addressed your three requests, and if you have no objections I will post this response to your open letter to RPI on your website.

Best regards,
Chris

Due to business travel, I was unable to reply until May 8, 2015, when I sent the following:

Dear Chris,

At last, I’ve had time to read your response and reply.

Upfront, I would like to thank you for investigating a situation you knew nothing about, and doing your best to address my concerns. I will go through your note by section.

I appreciate that Socks for Japan will be credited in future uses of its data. However, the citation in Prof. Holguin-Veras’s op-ed that you mentioned is invalid evidence of credit in the past. It did not appear in the original, printed version of the op-ed. It was tacked on at the end for the digital archive only after volunteers noticed its absence in the LA Times and told me, and I complained to Prof. Holguin-Veras. It’s obvious that this is the case even in the wording, which is, in total: “Jason Kelly contributed to this essay.”

It was more than Jason Kelly, it was the SFJ network of people that planned the day and made it possible across backroads in our van, and it was more than a contribution. Worse, the op-ed missed the point of our day in the field, which was to demonstrate to the professor how citizen volunteer efforts can be effective, his own protestations notwithstanding. The main person mentioned in the op-ed, Koutaro Ogata, is a community leader who requested multiple visits by SFJ. The reason Prof. Holguin-Veras could hear the story of running up a higher hill to escape the tsunami is that we arranged to take him with us to hear it. Even at the time of its relating, Mr. Ogata joked that advice to get to a higher hill is not exactly a breakthrough, but it became the focus of the op-ed. In fact, Mr. Ogata spent much more time explaining to the professor how personal deliveries of goods boosted the spirits of his neighbors, but that part was left out of the op-ed.

Whether we agree or disagree on the merits of the op-ed, what I would like is an admission that SFJ has not been properly acknowledged by Prof. Holguin-Veras in the past. Please do not refer to a hasty addition to the end of the professor’s bio after the op-ed had been published, as acknowledgment. Indeed, it was the lack of acknowledgment that led to my complaint that generated the tacked-on sentence.

Moving on, you wrote that “RPI follows accepted standards of practice for research and has an Internal Review Board that makes sure this is the case.” I am not comforted by this information due to what we consider to have been an inappropriate survey of our volunteers without first clearing the project with us. The IRB is evidently not very strict in its enforcement. The way our volunteers were approached suddenly after four years had passed gave the impression that the survey was being done in conjunction with SFJ’s management, which it was not. This is why volunteers were confused.

The NDA I signed, dated October 3, 2011 in the opening paragraph, said I would share the data SFJ collected for Prof. Holguin-Veras’s research purposes. The emphasis was on our data. The NDA even specified that the confidentiality of individuals listed in the data would not be released or used in a way that permits the identification of specific individuals. It also said the data would not be released to other institutions.

Using the individual email addresses of our donors to create a follow-up study by a person at RPI other than Prof. Holguin-Veras violates the NDA. It identifies individuals in a way that surprised many of them. The use of our data was intended to enable RPI to see the volume of donations that came from various countries and states, at what cost, based on the information that we tracked. It was not intended to provide an in-house mailing list for RPI follow-up efforts by anybody within the university, on any project, with no time limit. None of us had ever heard of the research assistant whose name was attached to the survey.

I recognize that the survey of SFJ’s network was intended to improve insight into donor behavior, and I support such efforts, but it should have been cleared with me first. If I had approved it, I would have been happy to provide input on its wording and some of the questions, and would have explained to donors that it was on the way with my blessings. As it happened, people were surprised and unhappy to discover that they’d been entered into a database without their consent.

I believe the survey was conducted in violation of the October 2011 NDA. I request that RPI cease and desist in further use of SFJ data without clearing future projects with me in advance. Future agreements will be on a project-specific basis. I would like to further the understanding of disaster donation patterns, but when studies are done on SFJ volunteers I want to be part of the process and to be able to remove the entire dataset of email addresses from studies when necessary. If this is too much to ask, then simply stop using SFJ data in any manner.

It’s possible that if SFJ had been better treated by Prof. Holguin-Veras in the past, we’d be more forgiving now. However, the survey without our consent continues a pattern of disrespect from the professor that I want stopped.

Finally, I have no objection to your posting your reply to me on the open letter to RPI on my site. I will append this response to yours as well to provide full transparency to those following the issue.

Thank you, again, for your help with this matter.

Sincerely,
Jason

After thinking about the issue more that weekend, I decided it must have been difficult for Prof. Letchford to understand why SFJ is so upset with Prof. Holguin-Veras. We could be sure Prof. Letchford would not receive background details from Prof. Holguin-Veras. To bring Prof. Letchford up to speed on the history, then, I sent him the following backgrounder on May 11, 2015:

Hi Chris,

Attached are several images from our May 21, 2011 Socks for Japan distribution with Prof. Holguin-Veras. The “Day With Jose” document is the top page of the trip schedule, which included details on subsequent pages such as local contact information, approximate number of survivors at each stop, hazards along the way, and so on. You can see the two volunteers who joined us that day, Rumiko Ogane and Miwa Kurita, putting the top part of the document into our van’s navigation system at 3am in one of the photos.

The day’s distribution schedule was carefully planned by our logistics manager, Takako Otani, specifically to show Prof. Holguin-Veras a behind-the-scenes look at the disaster zone and our operation, which he requested to see. It was not prepared by the professor’s colleagues at Japanese universities, as implied in his op-ed.

This implication was cleverly inserted into the professor’s op-ed, “Japan’s 1,000-year-old warning,” from which: “After a long day of field work, my colleagues and I were chatting with a community leader, Koutaro Ogata, from a fishing village called Murohama.” These colleagues were the three of us from Socks for Japan. Yet, later, the only colleague identified is Eiichi Taniguchi from Kyoto University, who had nothing to do with the distribution: “The day before, an engineering colleague, Eiichi Taniguchi, had told me that researchers at Tohoku University in Sendai, Japan, had found sediments indicating that a huge tsunami had hit Miyatojima about 1,000 years ago.” The implication is that the day was planned by university colleagues and that Prof. Holguin-Veras was accompanied into the field by fellow professors. This is not explicitly stated, but implied — and wholly untrue.

In truth, the day was planned by Socks for Japan for the purpose of helping survivors and showing Prof. Holguin-Veras the heart of the disaster zone, where real aid was being provided.

From the professor’s April 1, 2011 email to me: “I’d like to get your help in identifying volunteers that could collaborate with us as guides and translators. I already got some of my colleagues from Kyoto University to assist us, though it would be best to have local contacts.”

From my April 26, 2011 email to him: “I’m glad you received the go-ahead for a trip to Tohoku May 16-20. We’ll be distributing in the area on Wednesday, May 18. Let me know if you’d like to join us for a sock and letter distribution to see firsthand what we’ve been doing. If your area and ours are close enough, it might be possible.” The date that worked became May 21.

From his May 18, 2011 email to me: “I am very interested in getting your perspective (from the ground level) on the humanitarian response.”

From his May 19, 2011 email to me: “So far, most of the meetings have been with: the Regional office of the Ministry for Land, Infrastructure (MLITT), Miyagi Prefecture, Cities of Ishinomaki and Kesennuma, Yamato and Sagawa (the transport companies), in essence the official response to the disaster. I have been stressing to my colleagues the need to schedule interviews with the local volunteers, NGOs and the like. However, when scheduling their interviews they primarily focused on the official side, which is what they are more familiar with.”

The following is my complete response, showing frustration at the many schedule changes and the official bias of the professor’s exposure to the disaster. We worked hard to try to show him the real situation and the effectiveness of our operation, all while running our operation:

———-

Jose,

Your reply gives me hope that you’re trying to research the real situation instead of the official party line on the situation. I’ve doubted that, to be honest. It seemed that your schedule was replete with meaningless meetings and bereft of the people who are actually making a difference on the ground.

Case in point: the fully-stocked warehouses you’ve undoubtedly been shown as proof that people have everything they need and that further supplies are being wasted, are a separate category. The great shame is that those warehouses are stocked with tax-write-off goods and donated junk of the kind you and others warned me against (SWEDOW), and are often not scheduled for proper distribution to the needy because the bulk of the benefit to the donors and workers happened by just stocking the warehouse. We’ve seen it dozens of times. Within a short drive of a brimming warehouse, people are going without the very food and clothing that warehouse workers are complaining about and laughing about as they point to the piles upon piles of “amatta bushi,” which means left-over supplies, on the news.

So, I would like to show you the street-level view of the disaster that puts needed goods directly into hands and provides cheer for the heart, which is critical at this stage. As part of that, I’d like to show you parts of the disaster zone that don’t make the news, that officials barely acknowledge, and that the big NGOs have largely overlooked.

If you promise me you will not miss another chance at meeting, we’ll make a special distribution schedule in Higashi Matsushima on Saturday — for the express purpose of showing what you probably won’t see via your other sources. We know the community leaders who are scrambling to get goods to their people and complaining that nobody cares about less-famous areas. It’s easy to know what Ishinomaki, Kesennuma, and Minami Sanriku need. It’s harder and requires real dedication to know what a small inlet community along the Matsushima coastline needs. It’s also harder to get to the small areas where the one access road is destroyed, in many cases.

My idea is to have you join us for a special distribution in Higashi Matsushima on Saturday. It’s close enough to Sendai that you can stay in a hotel there in the big city and make a day trip with us to Hig Matsu. If you need transportation, we can even pick you up in Sendai and take you with us. Meeting outside the city would be better, though.

With this plan, you can actually hand out some socks and letters to people in places that will show you a different side of the disaster. We’ll distribute in the morning, and can spend the afternoon talking with you about our operation.

I’m willing to do all of this only if you guarantee you won’t leave us hanging out to dry in favor of meeting another government official. We carefully planned yesterday to show you several facets of our operation. When you didn’t connect, many of our team members were very disappointed and complained that “it always goes this way with universities. They always study the wrong things in the wrong way to reach the conclusions they know in advance they want to reach.” Having interacted with you, I want to give benefit of the doubt and proceed in hope that you’re not part of the way it “always goes” in these studies.

Please understand, though, that this is the second time we’re preparing a special day for you. If you agree to it, do not let us down. We’re busy in our aid operation and don’t like special planning when we can avoid it. For you, given your interest in our effort and the broader impact you might be able to help us make, we’re willing to change our plans a bit.

Let me know asap. You would need a place to stay in Sendai Friday through Monday, and a flight to Osaka from Sendai on Monday. We will need your hotel name and info. We’ll set a hard time to pick you up (no more on-the-fly planning, please) Saturday morning, and we’ll prepare the details of the distribution so you simply join us for the day.

Once I hear back from you, we’ll proceed accordingly.

Thank you,
Jason

———-

From his May 19, 2011 reply: “… thanks for going out of your way to assist me in this important work.”

The attached photos show the extent of the day he witnessed with us, and it included hands-on involvement in a volunteer effort to distribute needed donations directly in a way that did not interfere with larger efforts underway.

Despite witnessing this, despite SFJ having been the colleagues with him in the field that day, despite his whole day having been about how volunteer relief efforts can work when managed properly, his op-ed told a tiny story of running to a higher hill and neglected to mention SFJ in any way.

Further, the following is from his paper, “The Tohoku Disasters: Preliminary Findings Concerning The Post Disaster Humanitarian Logistics Response” submitted to the 2012 Annual Meeting of the Transportation Research Board in Washington, DC:

“The research also highlighted the importance of proper and effective donation management. At the heart of the issue is the fact that, if left unchecked, the flow of non-priority (not needed) and low priority (items that may be needed later on and must be stored) supplies slowdown the flow of the high-priority supplies. Preventing this from happening consumes large amounts of resources as non/low priority supplies must be processed to prevent the collapse of DCs and entry points to the disaster area. For that reason, effective donation management would require a combination of: access control to the disaster area so that non/low priority goods are prevented to enter, or redirected to suitable processing points; public awareness campaigns aimed at education the general public, private and public sector executives about how and what to donate; proactive engagement of the news media; and, information systems to match supply to needs in the ground.”

Doubts similar to what’s expressed in the paragraph above are what Prof. Holguin-Veras cited when urging us to stop SFJ. From his March 16, 2011 email to me: “I am afraid that, in spite of your noble intentions, your campaign is likely to do more harm than good. The fundamental reason is that disasters prompt an emotional response on the parts of individuals that led them to donate ‘stuff.’ The sad part is that a very large component of what people donate is **not actually needed.**”

From my reply sent March 16, 2011: “We considered this, but know firsthand that socks are needed and we are accepting ONLY socks. That avoids the accumulation of unneeded items. Also, socks don’t break and don’t spoil. Because we are handling the logistics of the operation by receiving, sorting, and distributing, we will not burden the other relief groups with our effort.

We’re making it clear to people that this is not primary aid, but rather a small point of comfort provided to victims on their long journey back to normalcy.

Already, victims are holding up signs requesting socks. Survivors of the Hanshin quake in Kobe in 1995 praised the socks and letters they received.

Thank you for raising this concern. We’ll make sure that nobody is wasting their efforts. If we find that the campaign is not helpful, we’ll change tactics.”

On the SFJ website, I wrote that we had researched mistakes made by volunteer efforts in past disasters, and had checked with the Japanese government and postal service and local authorities to be sure our operation would be helpful and not harmful, and we received assurance that it would be. The basic reply was, “By all means, please help!”

We did so. The professor saw this, but never included our experience in his findings or his op-ed. Why is this? Could it be that the SFJ result contradicts his writings over the past two decades, and he didn’t want to reveal such? Why not mention that if not for SFJ, he would never have seen the real humanitarian efforts underway beyond the official parade route? Could it be that it was better for his career to mention only university colleagues rather than a local volunteer operation doing everything right, contradicting his previously expressed doubts?

In the end, Prof. Holguin-Veras confirmed the worst suspicions of the SFJ team members who complained that “it always goes this way with universities. They always study the wrong things in the wrong way to reach the conclusions they know in advance they want to reach.” In retrospect, they were right and I was wrong to have given Prof. Holguin-Veras the benefit of the doubt.

I hope this in-depth backgrounder on our day in the field and the interactions surrounding it gives you a better understanding of how disappointed we’ve been in Prof. Holguin-Veras, and why we’re sensitive to further disrespect by RPI.

What could have been a chance to show the right way to run a grassroots volunteer donation effort was instead turned into a career-boosting stunt by the professor. The refusal to consider real-life evidence that a well-run program can work wonders — even when it calls into question the professor’s previous advice — is a disservice to future survivors.

Sincerely,
Jason

These are the images that were attached:

May 21, 2011: SFJ Trip Plan with Prof. Jose Holguin-Veras

May 21, 2011: SFJ Trip Plan with Prof. Jose Holguin-Veras

May 21, 2011: SFJ Volunteers Rumiko and Miwa Preparing the Navi

May 21, 2011: SFJ Volunteers Rumiko and Miwa Preparing the Navi

May 21, 2011: SFJ’s Jason Kelly Meeting RPI Prof. Jose Holguin-Veras

May 21, 2011: SFJ’s Jason Kelly Meeting RPI Prof. Jose Holguin-Veras

May 21, 2011: SFJ’s Jason Kelly Driving Through the 
Ishinomaki Disaster Area with Prof. Jose Holguin-Veras

May 21, 2011: SFJ’s Jason Kelly Driving Through the
 Ishinomaki Disaster Area with Prof. Jose Holguin-Veras

May 21, 2011: SFJ Distributing Socks to Survivors 
as Prof. Jose Holguin-Veras Looks On

May 21, 2011: SFJ Distributing Socks to Survivors 
as Prof. Jose Holguin-Veras Looks On

May 21, 2011: SFJ Sock Distribution with Prof. Jose Holguin-Veras Helping

May 21, 2011: SFJ Sock Distribution with Prof. Jose Holguin-Veras Helping

May 21, 2011: SFJ Sock Recipients

May 21, 2011: SFJ Sock Recipients

May 21, 2011: SFJ Sock Recipients

May 21, 2011: SFJ Sock Recipients

May 21, 2011: SFJ Distribution Van in the Matsushima Disaster Zone

May 21, 2011: SFJ Distribution Van in the Matsushima Disaster Zone

May 21, 2011: SFJ Distribution in Higashi Matsushima 
as Jason Kelly, Prof. Jose Holguin-Veras, and Koutaro Ogata Look On

May 21, 2011: SFJ Distribution in Higashi Matsushima 
as Jason Kelly, Prof. Jose Holguin-Veras, and Koutaro Ogata Look On

May 21, 2011: SFJ volunteers Rumiko and Miwa
 Distributing Socks at a Shelter in Higashi Matsushima

May 21, 2011: SFJ volunteers Rumiko and Miwa
 Distributing Socks at a Shelter in Higashi Matsushima

May 21, 2011: SFJ Distribution to a Shelter in Higashi Matsushima
 with Volunteer Rumiko and Prof. Jose Holguin-Veras

May 21, 2011: SFJ Distribution to a Shelter in Higashi Matsushima
 with Volunteer Rumiko and Prof. Jose Holguin-Veras

May 21, 2011: SFJ Volunteer Rumiko Speaks with Prof. Jose Holguin-Veras
 in the Higashi Matsushima Disaster Zone

May 21, 2011: SFJ Volunteer Rumiko Speaks with Prof. Jose Holguin-Veras
 in the Higashi Matsushima Disaster Zone

May 21, 2011: SFJ Distribution Location in Higashi Matsushima

May 21, 2011: SFJ Distribution Location in Higashi Matsushima

May 21, 2011: SFJ Sock Recipients Looking Happy After Dark in Higashi Matsushima

May 21, 2011: SFJ Sock Recipients Looking Happy After Dark in Higashi Matsushima

As of this post date, I have not heard back from Prof. Letchford. I sent him a note requesting, again:

<> that RPI stop using SFJ data for new purposes without first receiving permission from me,

<> a public acknowledgment from Prof. Holguin-Veras that our operation did not make the mistakes he said it would make,

and am now adding a new request because it’s clear Prof. Holguin-Veras was not forthcoming with Prof. Letchford regarding the lack of acknowledgment in his op-ed (apparently having claimed he did acknowledge SFJ with the tacked-on one-liner for the digital archive):

<> an apology from Prof. Holguin-Veras for failing to acknowledge in his op-ed that his “colleagues” referenced therein were not Japanese university professors but rather members of Socks for Japan, which planned and managed his field trip into the disaster zone.

I’ll provide follow-up here as I receive it.

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