30 July 2012


This story reminds me that, recently, baseball commentators particularly have been complaining that there are too many teams. Jerry Reinsdorf has been on a contraction spree of late. The notion is that there too many players, too few of whom are as good as players were "in the good old days". Being demographics aware, I've never bought into that notion.

Let's look at some base figures.

In 1950, 150,000,000 Americans
In 1950, 16 teams with 25 players: 400 major league players
In 1950, 17,462,000 went to baseball games

In 2010, 308,000,000 Americans
In 2010, 30 teams with 25 players: 750 major league players
In 2010, 73,000,000 went to baseball games

So, there are now slightly fewer major league baseball players per capita than in the heart of the "good old days", and these numbers don't factor in the influx of foreign players, principally Latin American; the per capita value is now even smaller. Don't believe everything you hear. Not only that, even those who bemoan "dilution" acknowledge that today's average ballplayer is far more athletic than back in the "good old days". The reason for calling for contraction is that Americans, at the median, are less able to afford baseball in the flesh and there are far more avenues for wasting time and money on diversion; despite these pressures, attendance is keeping up with population growth and then some. Until the last couple of years, when attendance fell from the 2007 high. D'oh!!! I'll let it go at that. It ain't the quality of ballplayer.

While I haven't spent the time, for this posting, to confirm it, but I'd strongly suspect that the median earnings of major league baseball players is a higher multiple of USofA median earnings today than it was in 1950. Moreover, until Curt Flood, the reserve clause kept ballplayers with the teams at effectively arbitrary salaries. While not as dramatic as LeBron going to South Beach, and Dwight's inability to make up his mind where he's going, there may well be more concentration of talent in the big market teams. If this is true, and does have an effect on attendance will require much more data and time.

It ain't the quality of ballplayer.

27 July 2012

Book 'Em Dano

As most folks not living under a rock know by now, Zynga and Facebook did a "Thelma and Louise" improvisation this week. Herein lies a cautionary tale for both quants and macro-economics. Not necessarily the same lesson, though.

For the quants, the lesson is that real world events, not time series data, determine what happens in the market at the corporate level. Data analysis is useful in estimating, and with luck front running, money movements across sectors, variously defined. All those retail holders feverishly pounding out R graphs to tell them what's gonna happen tomorrow. Not gonna happen. With Thelma and Louise, both "make" ephemera, paid for with adverts, and the occasional lunatic who buys virtual tractors. In the case of Facebook, it went public after it had maxed out the easy 80% of users on the planet. All of these advert agencies, Google being the archetype, are vulnerable to *any* other advert agency which can convince buyers their brand of hokum peddling works better. It needn't be on the web. Have you noted that apps are increasingly iOS and Android based? For Thelma and Louise, here's a new and insurgent advert platform they don't control. Oops.

For the macro-ists, the lesson is even bleaker. Real growth in real economies comes from producing more stuff better and cheaper, with a large share of that productivity growth going to the widest spectrum of the society; either the output gets consumed domestically or it has to be exported, the latter is useful only if the consequent importers' currencies are valuable, see China and Germany for the folly of relying on exports. Not surprising then, that our decade of discontent was marked by financialization of our economy, where we forsook making widgets for money laundering and with the mass of productivity increase going not to the masses, but the Koch brothers, et al. And not surprisingly, consumer demand remains lethargic since the masses aren't garnering increasing real income. That's also why the Inflation Monster and the Bond Vigilantes are nowhere to be found; the $$$ are hold up in mattresses of the Koch brothers and their friends. But that makes the Koch brothers happy (well, not the lack of bad outcomes, of course), in that they get richer as the masses get poorer. After all, wealth and income are relative measures; make my neighbour poorer and make myself richer. Too bad the yokels in Kansas are too stupid to understand that.

25 July 2012

Bonds, James' Bonds

There's an old (or, perhaps, newish) saw, variously constructed, that goes: "When I die, I want to come back as a bondholder". It was spoken often during the Bailout Debacle. Some, notably Sheila Bair, questioned why it was that only bondholders got off scott free in the bailouts, not counting the firms that were allowed to fail.

As mentioned more than once in this endeavor, banking is a low (at best, more likely no) value activity; merely marrying lenders with borrowers. All of the "innovation" in "products" in the last few decades have served only to increase the size of the diverted money stream from lender to borrower into the pockets of Banksters. Financial service companies don't create value; value is created by smarter production, which financial services doesn't do. Financial services just moves money from Abercrombie to Fitch, for a nice fee.

So, today's Times brings this story laying out the plight of the poor but honest bond trader, soon to be extinct. The piece starts with this:
Bond traders have long defined Wall Street's swagger and, in good years, generated a large share of its profits.

I don't have a cite right to hand (mentioned the number countless times before), but in the run up to the Great Recession, even otherwise assumed-to-be product companies (GE comes to mind) had upwards of 40% of profit from financial services. Again, that profit is just a skim off the lender to borrower money flow. If you read the piece, you'll find that bond trading, outside of Treasuries, has been a dark matter sort of endeavor since time immemorial. Opaque trading means gross profit (in both senses of "gross").

But, a hard rain's gonna fall. The scant changes in process mean that they,
...could drive down the large cut that banks take from most bond trades and make it cheaper for investors to buy and sell bonds.

Poor baby!!

Where does the large vig come from?
Banks have found trading these bonds profitable because they have greater leeway over the pricing than if they traded in a market with transparent prices.

In other words, the big banks keep both lenders and borrowers in the dark, and get fat and happy off the manipulation. But times they are a changin'. The days of trading on the telephone are being replaced by exchange trade, and we all know what that means: computers do the work. Once again, the invasion of flunked out hard science types into commerce. We'll see if they avoid screwing things up the way they've done in the past.
The traders here are mostly educated in math or physics, often outside the United States, and their desks are piled high with textbooks like the "R Graphs Cookbook", for working with obscure computer programming languages.

My impression that sites like R-Bloggers is dominated by the stock hounds looks to be accurate. Pick me! Pick me!

Going forward, bonds will be traded more like, if not in concert with, stocks.
This has resulted in banks shrinking the inventories of bonds they used to have on hand in case a customer wanted, say, a million dollars' worth of 10-year General Motors bonds. Now, those same customers have to look more broadly to find the same quantity, potentially bypassing Wall Street all together.

Not so sure I buy the notion of WS being eliminated, just a different part; more like a NASDAQ for bonds. Play Station and X-Box for millionaires. Old style bond traders, the ones who did deals over the phone, are out of work, and the math-y types are in. From a profitability point of view, automation triumphs. I doubt that bond trader out on the street gets the irony of his solidarity with 19th century New England weavers.

22 July 2012

Such a Deal

A few days ago brings one of the more egregious attempts at health care cost analysis I've seen in quite a while. It attempts to make the case that malpractice is the cause of high health care costs. I added some thoughts, which may or may appear by the time you read this.

So, what is the profitability of health insurance? I don't have the time or energy to research the top 10 or top 100, but I do have some association with United Health Care, so I'll look at their SEC approved numbers.

First off, profitability is gross profit divided by invested real capital.

Here's United's invested capital (Property, equipment and capitalized software): $2,515,000

Yes, just a bit over $2 million. I'll bet you didn't know that. Insurance, along with the rest of financial services, is a capital light industry. A few computers and some office cubes is about it. I'll bet you thought they had billions and billions of dollars tied up in the effort. Nope.

So, how much gross profit did United generate in 2011?

Here's the numbers:
Revenues: $101,862,000
Operating costs: $15,557,000

So, gross profit: $86,305,000

Well, not really, since we really should deduct those Medical Costs. United Health claims $8,464,000.

Under normal circumstances we would have gross profit (revenue minus direct costs) and net profit (revenue minus direct costs minus overheads). Okay, why not use net profit? For the simple reason that managements have complete control over siphoning gross profit into "costs" at their whim. In all other business, gross profit is the measure. The financial services industry generally, and insurance far more so, tries like hell to deflect attention from the true level of investment in the business and the true costs of running the business. In particular, that $74,332,000 in "Medical Costs" is just a pass through to providers. One might argue that Big Pharma sucks up too much in total health care costs, and that's reasonable. But Medical Costs aren't a cost of doing business for United Health; it's not equivalent to Ford buying raw steel to make Mustangs. United Health never really touches the money, much less ***adds any value to it*** as Ford does to raw steel to make that Mustang.

United Health made 4 times its invested capital!!! In one year. Not a bad deal. The rest of the difference is waste and corruption up the management pyramid.

In order to understand the impact of malpractice, it helps to understand demographics. It turns out, not surprisingly, that older doctors get sued with a substantially higher frequency (here)
To look at how claim frequency changed over the duration of a physician's career, we grouped physicians into three age categories: under age 40, between age 40 and age 54, and age 55 and older. Fifteen percent of the young physicians but 60.5 percent of physicians in the eldest age group reported claims.

So, in other words, as the boomers age, so do their doctors, who get senile and get sued. It's not rocket science. Experience is the best teacher, but Father Time sucks your brains out.

19 July 2012

The Emerald City is at Hand

Children, we've arrived at Oz, The Emerald City!! It's called AWS "High I/O EC2 Instance", with unspecified SSD provisions. Woo Hoo. Based on the numbers, Fusion-io/Violin/STEC are the most likely guesses. OTOH, Amazon could well have gone the Google/Sun route of building "SSD" as bespoke flash appliance. Either way, vindication.

In particular, follow the Vogels' link: his notion of "eventual consistency" might, just might, be in "nevermind" land. That would be a Good Thing.

18 July 2012

Mirror Mirror on the Wall

Among the sub-themes of this endeavor has been the question of what will replace NAND as the storage media of SSD? No one ever said that Solid State has to be NAND (or NOR, for that matter). NAND is just EEPROM repurposed, and this is the main reason it doesn't have symmetrical R/W performance. Something better would be better.

My first candidate, years ago, was Unity Semiconductor's CMOx. It was always just scant months away from taking over from NAND. Didn't happen, and eventually Rambus bought it. The received wisdom is that Rambus, being more litigator than producer, is intent on asserting some patent vector. We'll see.

So, yesterday's news from Micron that they've gone production on a NAND replacement is noteworthy. Whether Rambus has lost significant ground with COMx is unknown. If you follow through the comments, you'll note that the notion of super better SSD isn't lost. Yummy. Dr. Codd may finally have his revenge!

12 July 2012

Slice and Dice

Seeking Alpha is, mostly, a stock touts paradise. Every so often one comes across an article which is trend seeking, rather than stock pumping (or, as the term is used, bashing). Today is such a day. This article explores the trend in internet connections from the point of view of ads. I don't much care about internet ads; I avoid them with AdBlock Plus. You should, too.

But the article, reading between the lines, makes my case again for high NF datastores. Just as there is less real estate for ads, there is less real estate for user data. In order to maximize the utility of phones, the data has be amenable to fine dicing while remaining coherent and meaningful. Having been embroiled in a few attempts to take VSAM data, conveniently stuffed into DB2 tables, and disassemble it into bite size pieces, I've decided I won't do that any more. Get it right the first time, as Mike Holmes counsels.

Dr. Codd's goal in devising the RM was to define the minimum cover of a datastore (here is presentation which explains the RM that way; see slide 10 and following). In 1969, when he first presented his findings internally at IBM, IMS was the new kid on the block and on its way to being a cash cow. It was not, however, a very coherent datastore. Just as the lawyers at IBM had devised GML (which later morphed into SGML and still later into html and xml) about the same time, IMS was an ad hoc answer to the general problem of BOM processing. Codd saw the flaws and changed the game with the RM. The Suits in Armonk were not pleased, and Larry Ellison grab the ball and ran with it.

In the 1960's DASD was still something of a new idea, and rather expensive compared to 9-track tape. COBOL was coming into wider use, after assembler, and was built on a file/record sequential processing paradigm. Stuffing all the "related" data into as few files as possible simplified, in a perverse way, applications. Applications of that era, to use today's terms, were siloed.

Fast forward with Mr. Peabody to today, and the demand for smaller, coherent data interaction will only increase. If that sounds a bit oxymoronic, well I won't argue. Think of feeding a baby versus Jabba the Hut.

10 July 2012

Flying Monkeys

Once again, boys and girls, we're into quarterly reporting. If it seems like we always are, well, yes sort of. The "season" often drags on nearly two months. But the really important folks generally report in the first month following. Which brings us to SSDs. The sector is bifurcating in two directions: standalone versus teeny part of MegaCorp and consumer versus enterprise. There is also the private/public split, but the MegaCorps (and a few midgets) are buying the privates up.

OCZ is the first up, sometime after 4 pm EDT today. The share has been on the decline for a couple of months. OCZ hasn't made money for a while, and keeps floating stock to stay above water. They claim to be the leader and all that, but a sector leader who can't seem to make a buck selling its wares? The share fell to $4.14 in June and has been up a bit and down a bit since. Why this all matters to database geeks (such as humble self) is this: for SSD to be used as primary storage of High NF relational databases, SSD has to be seen as mainstream storage, and so much better at what it does as to compel developers to embrace it. More than just faster sequential passing of Big Data. For a sector that the public meme says is cutting edge, a fair amount of IT is antediluvial. Well, only if you count social networking as cutting edge in any technical sense. I don't, but there you are.

Some may remember that MicroSoft, a few years ago, was going to release a new Windows with a relational database built-in; much like OS/400 of a couple of decades earlier. Didn't happen. With SSD as standard storage medium, it makes perfect sense. There were rumours starting last year that some/all of winFS would be in 8, but nothing official that I could find. Too bad.

What gives me agita is the thought that SSD will be treated as DASD was versus tape drives way back when: just a faster sequential store. So, it is in the best interest of database geeks for OCZ, and the other standalone SSD vendors, to prosper. They don't seem to be. If they fail, then SSD becomes the same sort of oligopoly that HDD is now. For SSD, that would be Intel and Samsung, and possibly Hynix which recently bought a private controller maker. On the enterprise side, life is a bit murkier. If STEC and Violin (still private, as of today) also stumble, and STEC isn't showing well, then enterprise SSD supply won't be enough to generate much demand. Texas Memory is still around, but not well known outside of glass house companies. EMC is definitely enterprise and recently bought a controller company; to the extent that EMC brings flash implementation in-house, SSD vending loses yet another client. And you thought I scoffed at supply side economics? Mostly, yes, but in an emerging sector, a tsunami of supply benefits consumers be they humans or the proto-human corporations. DRAM vendors know the problem, but that's a discussion in investment theory for another time and venue.

08 July 2012

Fakin' It

Paul Simon put it for all time, "And I know I'm fakin' it, I'm not really makin' it." One of the themes of this endeavor has been the destruction of physical production in favour of soft/financial "innovation". There have been occasional beeps in the ether that Big Thinkers are beginning to get the problem. Today brings a revelation that some folks on the Other Coast get it.

You really need to read this, if only to make me feel better. The Valley Boys are echoing one of my memes. Victory!

07 July 2012

From the Mouths of Babes

Some may remember that Groklaw started as a means to track the progress of various SCO litigations. For a few years, if not from the beginning (I forget), there has been a "News Picks" column. The entries are precises or cuts from titled stories. Today's includes the following. To clarify, the first bracketed text is my edit, while the second is in the original.

[Facebook] is tracking the apps that people use through its popular Facebook Connect feature, which lets users log into millions of websites and apps as varied as Amazon.com, LinkedIn and Yelp with their Facebook identity. The company then targets ads based on that data, said people familiar with the company's plans.

Facebook may also track what people do on the apps, though it hasn't made a final decision, said one of the people.

[PJ: This may be a new way to test IQs. If you are on Facebook after all this, how dumb are you?]

03 July 2012

March of the Penguins

Maindonald's book opens with the following:

It is easy to lie with statistics. It is hard to tell the truth without statistics.
[Andrejs Dunkels]

While I've always been a fan of quant, since it should tie decisions to the real world, too often they're manipulated to conform to an external agenda. The Barclays evil is about as brazen as it gets. But this piece isn't about Barclays (this just in: Diamond fell on his sword a few minutes ago), but credit raters. From today's NY Times comes the story of how it was that the agencies colluded with the banks. Pretty brazen.

The story closes with a couple of meaningful quotes (note to editors: the punch line comes first in newspaper stories, not the tail end).

The court filings also demonstrate a lack of methodology for analyzing the Cheyne debt. For example, in an e-mail before the deal was sold, S.& P.'s lead analyst wrote to a colleague: "I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it. The documents show that the lead analyst at Moody's noted there was "no actual data backing the current model assumptions" for segments of the Cheyne deal.

"I don't want to miss one deal because of our model assumptions either. Is there any possibility of 'tweaking' the default table to get all of this so that we don't have to compromise?"

And, of course, the quant community continues to deny that they were anything but disinterested technicians. Yeah, right. Sometimes, the Emperor is just nude.