Diari

2009-04-07T22:19:00.000-07:00

Stock proxy season continues, so it's still worth pointing out: if you own stock, you should receive requests to vote your shares on topics that comes before the annual meeting of shareholders for each company.

If you're angry about executive pay, proxy votes can be a way to let the boards know. Consider voting against any CEO who is also chairperson of the board of the company. Why should the CEO get to be his/her own boss? Or, you can vote against the members of the board committee for compensation. Or, if you're lucky, there's an advisory vote on executive compensation. Even if it isn't perfectly worded, consider voting for it. It's only advisory, it probably will lose, but a meaningful increase in votes should send a message to the board.

Finally, don't forget: if you own shares, you have the right to submit a shareholder proposal. Better if you get a lawyer to help draft it, but even a basic advisory measure requesting shareholder approval of executive compensation will show the board that shareholders are actually watching. Remember, if you own shares of stock, you own part of that business. Are you watching what you own?

2009-02-01T08:55:00.000-08:00

Here's the problem. The banks are lending. If you look at bank lending numbers, there is growth. The banks, per se, are not the real problem with the lack of lending. The real problem is that we vaporized an entire Shadow Banking System that bought securitized debt in a wide variety of forms: autos, homes, student loans, credit cards, etc. That industry exists no more.

...

In essence, we are asking the banking system, with greatly reduced capital, to do the heavy lifting that all the buyers of securitized debt did a few years ago. And if Roubini is remotely right, they simply do not have the capital to do it. Further, the banks are in a bind. The regulators, properly so, are making sure that banks have adequate capitalization and are marking assets to real market prices. But they simply have less capital to make loans, even with TARP.

- John Mauldin

2008-12-03T06:00:00.000-08:00

Early 2007, The Economist ran an article on the logic of privacy--researcher efforts to formalize the logic and instincts most people have for the privacy of their personal information. This seems a commendable approach to bring all companies to a decent level of respect for privacy. However, such efforts seem unlikely to formalize the unpredictable emotional responses people may have in unusual circumstances. As such, privacy modeling software probably will never do a great job of predicting customer responses to new privacy situations.

But the article brings up the interesting discipline of Linear Temporal Logic which uses temporal words like "previously" and "always" as operators. Software, such as Spin has been written or adapted to process LTL. An NYU researcher even developed the Templar language to specify LTL directly, though it appears no compiler exists for this language. The Economist mentions professor John Mitchell at Stanford especially, for his research on privacy and contextual integrity. Mitchell notes at the end of one paper, however, that his work lacks a means for expressings violations of the logic. Legislation usually requires customer notification in this case: obviously, automating such notifications would be of considerable value to a company.

This all seems like fascinating, yet utterly practical work, that awaits a useful software implementation in a web server language such as PHP or JSP.

2008-11-30T11:28:00.001-08:00

When you look for evidence that your ideas are working, start by looking for tests that would indicate they're failing.

A simple example of the tendency to seek confirmatory evidence is the so called "2, 4, 6" problem. In this classic experiment, subjects are asked to figure out the rule being used to classify sequences of three integers as correct or incorrect. Subjects were given an example of a correct sequence: 2, 4, 6. The subjects were then asked to discover the rule for evaluating a number sequence as correct or incorrect by trying various three-number sequences. The subjects would be informed whether the number sequences they proposed were correct or incorrect based on the rule. In other words were the stated number sequences consistent with the undisclosed number generating rule. The actual number generating rule was "any three numbers in ascending order". However, by starting with the sequence "2, 4, 6" most subjects assumed the rule "ascending order with equal intervals" and then set about confirming that this rule was correct. If the subjects only look for confirming evidence, they will always be told that their sequence is correct.

- Mark T. Finn and Jonathan Finn, CFA

Lately, I have been looking back at all the stocks I didn't buy in the last year. It's tempting to congratulate oneself, since almost surely, these stocks have dropped so far this year. More useful would be to look for stocks that went up or at least beat the market or an existing portfolio. What tests do you use to test your investing decisions?

2008-11-25T21:20:00.000-08:00

Those issued reprieves had been found guilty of mostly garden-variety offenses; one recipient, Leslie O. Collier, was issued a pardon for a 1996 conviction for the unauthorized use of a pesticide in killing bald eagles

Dubya, supporting patriots while hard at work on the financial crisis (NYT)

2008-11-21T11:55:00.000-08:00

The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

- Paul Krugman, NYT

Well written, well noted.

2008-10-20T06:00:00.000-07:00

Things we should see if our leaders really expect to improve our financial system:

a regulated CDS/CDO market
mechanism to hold credit ratings agencies responsible for their ratings--no more blind acceptance of models from investment banks
substantial re-enactment of the Glass-Steagal law, including major reduction in leverage allowed.

It blows my mind that investment banks geared up 30:1 and still only managed fairly normal profit margins. Or losses. Really, how much leverage should be allowed? If I have $10,000 saved, make $50,000 a year and have even $10,000/year in disposable income, would you loan me $250,000 so I could invest it in the markets? Because someone basically said "yes" to Lehman on that proposition.

2008-10-15T16:48:00.000-07:00

Munger was clearly influenced by my thoughts on the excessive leverage at banks. If 30:1 gearing only gets you 10% returns, that is a risk/reward profile only the MAO-deficient should welcome.

2008-10-15T05:00:00.000-07:00

Who is your god?

There are really disturbing trends--huge imbalances, disequilibria of risk--call them what you will, altogether the circumstances seem to me as dangerous and intractable as any I can remember--and I can remember quite a lot. I don't know whether change will come with a bang or a whimper, whether sooner or later, but as things stand, it is more likely it will be a financial crisis rather than policy foresight that will force the change.

- Paul Volker, Feb 11 2005

(as read by Charlie Rose)

Prolonged periods of expansion promote a greater rational willingness to take risks, a pattern very difficult to avert by a modest tightening of monetary policy.

-Alan Greenspan

2008-10-12T12:30:00.000-07:00

Nice to see the WaPo point out what I think is going dangerously overlooked during this financial meltdown. Pakistan stands on the verge of becoming the next failed state. Musharraf was a Faustian bargain at best, but like Hussein in Iraq, he was the only plausible option for stability. The problem in both cases--like so many others--stems from wealthy nations propping up bad leaders until the point of no return, then arguing that those leaders are a necessary evil.

As with the US (and rapidly, global) financial meltdown, it seems the only road remaining to stability is to take our lumps and fix the rules so it doesn't happen again. Worse, I see no signs of material improvements to any rules that will prevent a recurrence.

2008-08-10T15:17:00.000-07:00

A glorious article from the Washington Post about the trials and tribulations of wikipedia contributors and editors trying to forge a description of Ahmadinejad acceptable to all. If you have only read bits and pieces of discussion about Wikipedia being compromised or hopeless, this article gives the sense that Wikipedia is working better than it seems. Which helps me, at least, reconcile my sense that Citizendium and Knol are getting no traction for a reason.

2008-07-30T21:04:00.000-07:00

Gooooood call. From a coworker: let's compare the Republican National Convention official clothing...

with the pants worn by Rex Kwon Do in Napoleon Dynamite.

Now: is it Vanilla Ice or MC Hammer who should demand royalties?

Update: to my shock, some people don't believe me. Stop! Collaborate and listen. Then read the news for yourself Hammer time!

2008-07-25T21:39:00.000-07:00

Is it more amazing that an Indian sociologist would research gangs in hardcore, inner-city, Chicago neighborhoods, and not only live to tell about it, or that for want of inventing a clever new word like Freakonomics, he would get a tiny fraction of the attention for it?

Regardless, see his latest wonderful article on the need to reform or eliminate HUD.

If you've read Venkatesh's book on gangs, please let me know what you think of it. I'd love to have an excuse to read it. It's been a long time since I read Baby Insane and the Buddha and Do or Die, it would be good to get current.

2008-07-23T21:43:00.001-07:00

Be ready to back up your words.

Echoing Warren Buffett's comments that the best investment is in yourself, Google SVP Jonathan Rosenberg tells students to major in learning.

I think if Google wants anyone to listen, they should put their resources where their blog is, and emphasize learning in their job posts. It's no good to say "be good at learning" but then have job postings that require, for example:

BS/MS/PhD in CS or equivalent.
Strong Java skills and object oriented design experience, including working knowledge of core libraries, design patterns, JSP and servlets.
Experience in database design and SQL; mySQL a plus.
Significant development experience in a Unix/Linux environment.
Experience with Python and C++, Javascript, and/or SOAP desired.
Knowledge of session management, object relational mapping, XML web services, and agile development methodologies desired.

and make no mention of the "strong learning skills" or the idea that you could learn any of these things on the job because they are so much more excited to have hired such a great learner.

What's it gonna be, Google? Great learners, or candidates who only match today's needs?

2008-07-04T13:11:00.000-07:00

"YouTube alone now consumes more bandwidth than the entire Internet did in 2000, said Scott Cleland, president of the Precursor Group, a technology research firm." - Portland Oregonian, June 29, 2008.

I see many mentions of the growth in Internet traffic, but this one seems as tangible and relevant as any.

2007-12-15T12:17:00.000-08:00

The head slap of the week, possibly even the month, comes from Paul Krugman of the New York Times. Krugman writes on Dec 14 "the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency." I at least will happily confess that I have been led along by all the commentary on the liquidity problems in the market. Liquidity liquidity liquidity, as if some magic force swept through with a financial paper towel and soaked up all the liquidity.

The problem is really, as Krugman points out, that we have now hit a time when no financial institution trusts any other to remain solvent. And thus, nobody will lend anyone money. And thus, no liquidity. So the newspapers are not wrong, but they're describing the symptoms, not the disease.

2007-09-28T19:47:00.000-07:00

Just found a wonderful article about Europe's liberalizing markets that goes on to point out that competition policy set in terms of consumer benefit winds up working out better for the economy as a whole. As an example, the authors cite the EC decision to regulate cell phone network connection charges.

One wonders if Cheney's secret Energy Policy Committee took this kind of thinking into account. No wait, one doesn't wonder that.

2007-09-02T23:25:00.001-07:00

Odd things don't make the news. Like the opposition party in Japan taking over one house of parliament for the first time ever. And the SEC offering up a 1-year stay-out-of-jail-free card to proud American citizens who didn't get around to getting jobs after they got mortgages:

The SEC has announced that they will allow mortgage lenders to work out resetting mortgages with borrowers in cases where there is an obvious default about to happen. In many cases, that will mean extending the lower coupon rate another year. That may just put off the problem, but it will keep a home off the market and allow for a more orderly solution.
--John Mauldin

So far, I can't find a reference for this, if anyone does, please add a comment. If this is true, I expect the real estate bubble not to pop as badly as I expected over the next year. If people who couldn't afford the true mortgage payment on their houses have another year to sell or get better jobs, I expect many will wake up and do so. Thus, I expect that the stock market won't crash as badly as I thought. Which isn't the same as saying it'll go up...

2007-08-29T21:24:00.000-07:00

Barry Ritholtz commented recently on the not-surprising rise in credit card and mortgage defaults as the US economy heads south. Humorously, he figures that people will default on their credit cards to avoid defaulting on their mortgages, while the Financial Times has it the other way around.

Regardless of who's right, it gets me wondering about a 3rd factor. This economic cycle has been odd for its utter lack of wage growth. Generally, macro economics types pin this on the deflationary effects of globalization. I think that's generally true, but I wonder if the easy credit (and the skyrocketing house prices it fueled) is what's kept people from complaining. With the housing bubble popping, I can't help but notice more comments at work about the lack of raises in recent years...

2007-07-28T21:40:00.000-07:00

Barry Ritholtz at The Big Picture cites this interesting discussion on the nascent US recession. In a Barron's interview, Gabelli mutual fund manager Larry Haverty says "We are not getting a classic recession, probably due to the fact that inventory management has been so much better than it was 30 years ago, largely due to computers."

As Ritholtz says, this will allow corporate America to manage the slowdown efficiently, but not avoid it. From an investment standpoint, this makes me think that we are less likely to see shocking quarterly results from a manufacturing or import/export-oriented company. Those companies have learned to use computers responsibly, and FASB & SEC rules mostly keep them honest.

But there is a sector that continues to use computers for harm instead of good, and without decent regulatory oversight: investment banks. Between the over-reaching deals private equity has done, the dubiously rated securities based off sub-prime mortgages, and the massive, uncontrolled use of derivatives, it seems inevitable that an investment company will bite the dust during this recession. As Buffett says, it's only when the tide goes out that you can see who has lost his pants.

2007-07-25T21:21:00.000-07:00

Bill Gross runs the bond funds for PIMCO. PIMCO has more than $687 billion in assets under management which is more than I have in all my pants pockets combined, so we might as well listen to him. Gross writes quoting Buffett, "society should place an initial emphasis on abundance but then should continuously strive to redistribute the abundance more equitably." Following that reasoning, Gross continues "the wealthy fire back ... that they can more efficiently redistribute wealth than can the society that provided the basis for their riches in the first place." Gross disproves the narrower point by citing the typical parade of self-indulgence on which many rich spend their money. But rather than argue details, it seems safe to look at all countries where taxes do not attempt to redistribute income. Think of any you like, but Saudi Arabia, Brunei and several central African countries past and present come to mind. Not exactly the result to which most citizens aspire.

2007-07-19T20:25:00.000-07:00

Me-too blogger Steve Jobs makes a great point in the process of mocking the record stores. In the long run, whole classes of retailers have disappeared or are disappearing because of the internet. First it was computer stores, because their salespeople knew less than their customers, and their customers wouldn't pay the premium for customers who knew more. Now it's record stores. Their salespeople have always known more than their customers (except in the mall), but their employees are generally snobs about it, and their product can be sold--profitably--at half price on the internet. One has to assume that the movie stores, like Hollywood Video (RIP) and Blockbuster, face the same fate. Who else goes on the pile of doom? Things to look for:

product can be sold digitally (e.g. music)
product depends only on specifications (PC's)
customers can stand to wait a few days to get product

Post your ideas in the comments, please...

2007-07-04T09:00:00.000-07:00

The NY Times brings weight to a theory I've had about the Prius for quite a while. First, because it's not mentioned in the article, remember that a Prius makes no economic sense. The additional cost of a Prius vs. say a Camry swamps any savings in gasoline a customer will see. Second, more recently, you have the option of buying hybrid versions of the Accord (now discontinued), Civic and Camry. Note that all their sales have fallen below expectations. So, what drives the Prius buyer? They want a car that looks like they have a hybrid. The NY Times says this has only been true more recently; I suspect it has been true all along, just never well elucidated from customers. The Prius is different looking, but attractive. The Honda Insight was different looking but tiny and weird. What's puzzling is that carmakers have still only dimly grasped this truth. Expect US carmakers to roll out hybrid versions of existing vehicles, see poor sales and claim that the market for hybrids is saturated.

2007-06-22T17:53:00.001-07:00

From a Los Angeles Times article on urban development: neighborhoods in Portland with mixed use and good transit have a much lower share of auto use: 58% of trips by auto compared to 87% in suburban neighborhoods. Nice to see some solid justification for light rail. Even as a great fan, the cost is cause for concern...

2007-06-13T17:38:00.000-07:00

Barry Ritholtz shows why he makes the big money with a post on reality-based inflation that goes well beyond what I had tried to do using Bureau of Labor Standards (BLS) data.

You'll note that not every item falls in with the stated 2-3% inflation. Ahem.