Month: February 2008

Article: Hitting It Off, Thanks to Algorithms of Love

January 29, 2008
Hitting It Off, Thanks to Algorithms of Love

PASADENA, Calif. — The two students in Southern California had just been introduced during an experiment to test their “interpersonal chemistry.” The man, a graduate student, dutifully asked the undergraduate woman what her major was.


Article: America Risks Mother of all Meltdowns

A good Nouriel Roubini summary from the Financial Times. This is the damaging, scenario that’s motivating the Fed and politicians to stuff their CYA (“cover your ass”) files. [Read Roubini’s complete article here: The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster]

February 19 2008
America’s Economy Risks Mother of all Meltdowns
By Martin Wolf

“I would tell audiences that we were facing not a bubble but a froth – lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.” Alan Greenspan, The Age of Turbulence.

That used to be Mr Greenspan’s view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor.


The Australian Pink Floyd Show

Last night, here in Gothenburg, Sweden, some friends and I saw The Australian Pink Floyd Show and were totally blown away.

If you love Pink Floyd and you get a chance to see these guys, do it. They have a totally smoken’ band, complete with saxophones, slide guitar and a 3-woman vocal section. One of those women, Amy Smith, will knock you to the floor and make you cry like a baby when she does her Great Gig in the Sky solo. Just phenomenal. Don’t even get me started on the Wall songs, the Comfortably Numb, the Wish You Were Here, and on and on.


Article: The One-Guy Theory

An interesting article highlighting the agility and decisiveness that comes with “one-guy” leadership. Also covered, of course, are some of the drawbacks.

February 14, 2008
The One-Guy Theory

Diffuse power begets confusion. Companies led by one guy get things done.

There is a central truth about Time Warner (TWX) that new CEO Jeff Bewkes must grapple with: Things. Move. Very. Slowly. There. The stock market yawned after his initial earnings call with analysts on Feb.6, perhaps because two of the major initiatives he mentioned—revamping AOL to sell its dial-up access business more easily and moving toward some decision about Time Warner Cable (TWC)—already have spent a few seasons percolating as possibilities in the press. Furthermore, readying AOL would be “fairly complicated,” Bewkes warned. The process could take several months.

This touches on the fundamental media conglomerate problem: There are too many layers. There are too many fiefdoms. There are too many…guys. Guys strolling the corridors, guys clustering around the boardroom, guys slowing things down. (The litany of executives that follows shows they’re, still, almost exclusively guys.) This, in a time of great uncertainty and fast-shifting consumer appetites, when sheer speed may determine which companies successfully molt and which simply melt.

I was chewing this over with a dealmaker pal and, inevitably, the alacrity and decisiveness with which News Corp. (NWS) makes its moves came up. Said pal had a two-word explanation: “One guy.”


Article: Empty-Stomach Intelligence

I’ve been meaning to post this for about a year… finally got around to it when I wrote this post on my startup’s blog: Bootstrap, Then Raise Funds If/When Necessary.

Update: Also this post: Simulated Startup vs. Real Startup.

December 10, 2006
New York Times
Empty-Stomach Intelligence

Hunger makes the best sauce, goes the maxim. According to researchers at Yale Medical School, it may make quadratic equations and Kant’s categorical imperative go down easier too. The stimulation of hunger, the researchers announced in the March issue of Nature Neuroscience, causes mice to take in information more quickly, and to retain it better — basically, it makes them smarter. And that’s very likely to be true for humans as well.


Real Estate Market: Confirmation Bias on Display in Bozeman, Montana

UPDATE: See the comments to this post for discussion of this story plus continuing updates to the “S.W. Montana Meltdown.”

I find this fascinating:

I pulled this chart from in about 10 seconds. It shows the 1-year percentage price change for Gallatin County, Montana (down 10%) and Bozeman, MT (down 12%).

Yet the below article contains the following quote: Dennis Carlson, government affairs director of the Gallatin Association of Realtors, said “Housing prices are holding in the Gallatin Valley.”

It just goes to show you that the media and special interests will say what they want to say, regardless the facts. And people will believe what they want to believe regardless of the facts. It is a well known principal of psychology (called “confirmation bias“), but it’s always interesting to see it on display.

Makes me think of Bush’s quote after the New Orleans disaster: “Heckuva job, Brownie!” Or his “Mission Accomplished” fantasy. Right now we see the same thing going on as the media, and much of the public, continue in their recession denial.

Note: I do hope the housing contraction bottoms soon (it will be a great buying opportunity when it does), along with the credit crisis and stagflation, but I do not deny their existence. Now on to the article:


Spitzer, Grim Reaper, Shoeshine Boy, and Hope

Thinking out loud here:

I’m wondering if this “credit crunch” investment theme is getting played out, at least in the short-term. I mean we are pretty much at the stage where the shoeshine boy is talking about the credit crisis and opening shorts in shit that has been falling for over a year.

Make no mistake, I think there will be at least one more leg down before this bear market ends, but I also think that the apparently imminent monoline rescue package will spark “hope” in the market.

Hope is what bear market rallies are made of, at least the first one. If hope replaces fear, there will be a rally. We will see. Today is the last day of trading for February options. So next week opens up a whole new set of possibilities. It’s also when Elliot Spitzer’s 5-day ultimatum expires (see article below).

Briefly, this is why I think we did not see this bear market’s low: Because people are still in “recession denial.” And we have not had a “hope” rally yet. The capitulation stage comes later. The capitulation stage is the stuff of bear market bottoms. Period, end of story!

Now on to the front-page (telling?) Wall Street Journal story.


NYT Article on Intrade

A friend and I have been discussing the arbitrage opportunities, such as the ones described in the following articles. I even looked into opening an account with Intrade, but I was put off by:

  • the high per-trade commissions,
  • the wide bid/ask spreads, and
  • the low trading volume.

It’s a chicken-and-egg kind of thing. The key to the market’s growth and success is a steady reduction in per-trade commissions, which will, without a doubt, stimulate trading volume. The increased trading volume will stimulate tighter bid/ask spreads, tighter spreads will stimulate increased trading volume, increased volume will stimulate tighter spreads, etc. It’s a self-reinforcing process. It’s the same path that all/most successful markets went through on the road from illiquid to liquid.

Come on Intrade! You continuously lower your commissions. Your DARTs (Daily Average Revenue Trades) are rising, your marginal costs are low (it costs virtually nothing to process an additional trade), which means your contribution margins are high. Your fixed costs are relatively high. All this means you are in a volume business. From the discount broker industry, we know that price elasticity applies with respect to per-trade commission prices. I know the market you’re in has few competitors, but your high pricing is a screaming invitation to some smart discount broker to come in and take over the market you created. You need to get your shit together and stimulate your market or else someone else will come take it away from you.

Now on to the article. PS: Here’s my most recent blog posts on Intrade: Super Tuesday.


Happy Valentine’s Day, Facebook Style

I don’t know which analogy to lead with: Hotel California (“You can check out, but you can never leave”) or Fatal Attraction (“I won’t be ignored”).

What’s this all about? Apparently, Facebook makes it near impossible to remove your account from their system. Sure, you can deactivate it, but you cannot leave. Ok, you can if you find and run some hidden obstacle course, but it ain’t easy. When asked about this new privacy concern, Facebook basically said “tough shit, we have no plans to offer a one-step delete account option.” I doubt of they’ll be offering data portability either. Talk about “owned.” Screw that.

Read the New York Times article below. Read the Facebook Rant here.


Pics: Salmon Fishing on Lake Vänern

We left at 5:30 in the morning and got back at 9:30 at night. Total catch was seven fish, including Salmon and Lake Trout. The largest fish was a 7.6 kilogram Lake Trout. I caught a 4-kilo Salmon, which was my first-ever Salmon (also my largest fish to date). An incredible experience!

We were on Lake Vänern, which is the largest lake in Sweden and the third largest lake in Europe. See map (below) and Wikipedia for more info. The other areas circled on the map are Kiruna and Lofoten, where Susanne and I were this summer. In between Kiruna and Lofoten, we stopped in Abisko and Narvik.

PS: I’m selling this beautiful piece of land in Montana, check it out and tell your friends. Make me an offer.


Article: If Your Hard Drive Could Testify

Interesting one from the New York Times:

January 7, 2008
If Your Hard Drive Could Testify

A couple of years ago, Michael T. Arnold landed at the Los Angeles International Airport after a 20-hour flight from the Philippines. He had his laptop with him, and a customs officer took a look at what was on his hard drive. Clicking on folders called “Kodak pictures” and “Kodak memories,” the officer found child pornography.

The search was not unusual: the government contends that it is perfectly free to inspect every laptop that enters the country, whether or not there is anything suspicious about the computer or its owner. Rummaging through a computer’s hard drive, the government says, is no different than looking through a suitcase.

One federal appeals court has agreed, and a second seems ready to follow suit.

There is one lonely voice on the other side. In 2006, Judge Dean D. Pregerson of Federal District Court in Los Angeles suppressed the evidence against Mr. Arnold.


Article: Hate Springs Eternal

I hope this is not true. We all need to say “No to Nixonland!”

February 11, 2008
New York Times
Hate Springs Eternal

In 1956 Adlai Stevenson, running against Dwight Eisenhower, tried to make the political style of his opponent’s vice president, a man by the name of Richard Nixon, an issue. The nation, he warned, was in danger of becoming “a land of slander and scare; the land of sly innuendo, the poison pen, the anonymous phone call and hustling, pushing, shoving; the land of smash and grab and anything to win. This is Nixonland.”

The quote comes from “Nixonland,” a soon-to-be-published political history of the years from 1964 to 1972 written by Rick Perlstein, the author of “Before the Storm.” As Mr. Perlstein shows, Stevenson warned in vain: during those years America did indeed become the land of slander and scare, of the politics of hatred.

And it still is. In fact, these days even the Democratic Party seems to be turning into Nixonland.


Article: Pushing Paper Out the Door

February 10, 2008
New York Times
Pushing Paper Out the Door

CHRIS UHLIK’S children can be found in their home computer lab almost every morning. Nicole is writing a story about her two lizards. Tony is playing an interactive spelling game, while Andy is learning multiplication tables. Even 5-year-old Joceline is clicking away at a storybook game.

Mr. Uhlik, an engineering director at Google, and his family live a practically paper-free life. The children are home-schooled on computers. Other sources of household paper — lists, letters, calendars — have become entirely digital.

Going paperless was a conscious decision by the Uhliks. But many families may be closer to entering a paperless world than they realize. Paper-reducing technologies (ScanSnap Scanner) have crept into homes and offices, perhaps more for efficiency than for environmentalism; few people will dispute the convenience of online bill-paying and airline e-tickets.


Article: The Rise of the Mortgage ‘Walkers’

Note on the chart above, it shows a loss to the owner of a straddle at asset prices close to the strike price. That’s because it usually costs money to acquire a straddle (or any other option). In those situations, for the long straddle to make money, the asset price has to move far enough into the money to cover the straddle’s cost. So if a straddle costs $10, the asset price has to move $10 into the money to break even (rise above the zero line of the y-axis on the chart above). Every penny further into the money is profit.

However, in the case of the options acquired by homeowners with “zero down” mortgages, the straddle was essentially free. In other words, homeowners get the profit if prices rise and they get to stick someone else with the asset if prices fall. Prices have fallen. Hence, the title of this article.

See below for more of my comments, plus the article that inspired this posting.


Retesting the Lows… Will They Hold?

Just a quick update to note the restest of the recent lows. I circled a few indicators flashing positive short-term signs. However, the tall upper shadow on the day’s candle is a negative sign.

Even if a bear-market rally does develop, new lows will almost certainly be seen before a new bull market begins.

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Apartment attacked with flying tin of fermented fish
7 Feb 08

Police in Motala are investigating the fishy case of a 52-year-old man who was awoken on Thursday morning by an open tin of fermented herring flying through his bedroom window. [YouTube video]

As anyone who has ever smelled the strange delicacy will know, this was breakfast in bed with a cruel and unusual twist.

Police in the southern town are classifying the herring grenade attack as property damage, TV4 reports.

Investigators are believed to have strong suspicions as to who may have been behind the pungent missile launch.

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