Treat, no Trick

Talk about a Treat!!! There is a "preview" build of R Studio (note the switch to .com) and now supports vi(m)!!! Adults use either emacs (the demented side of the family) or vi(m) (the sane and smart side). Woo Hoo!!

I Vant to Biite Your Nheck

R version 2.15.2 is out, aptly name "Trick or Treat". Just in time for Sandy. Note that you need to build from source, and run configure with the --enable-R-shlib switch in order to use R with Postgres through PL/R. Works like a charm.

Merry Quant

The return of the mini (and micro-mini) skirt does my heart good. Once again, we wait for the heaven sent Sharon Stone moment. Ah, not so often. I do wonder: do our Merry Quants know they're the descendants of such a creative mind? Or, are they just in it for the money? Just the money I guess. But that begs the question: why did financialization overwhelm our economy, and other countries'? In the 1960s, Uruguay started down that road, and ended up with guerrilla warfare and military coup. While I've long since lost my thesis, this paper provides a more recent appraisal. It's not any prettier.

So, why did/do the quants hold sway, and play only in fiduciary instruments? Why financialize (conversely, de-industrialize) an economy? Is there a Maslow's pyramid of economic development? No, I think not. What's happened since Reagan is a shift of power, aided and abetted by Washington's Right Wing tilt, to the easy, fast buck. Dr. Smith used the phrase of "the quick buck versus the slow deuce". While something of a Right Wingnut (he considered himself an entrepreneur stuck in a small New England college; his signature idea was a concrete Sunfish. I'm not joking.), he had no use for the quick buck artists. Yet, we've allowed them to take over the economy. Why?

The answer, by my lights, is obvious: fiduciary capital is easier; there's no messy physics (in all of its manifestations) to muck up the plan. That which exists only as bytes in computers can be controlled (or so the thinking goes) by programs in computers. The Merry Quants, and their handlers, ignore the truth; at some point a fiduciary attaches to a real object. In the case of The Great Recession, that object was a McMansion in Boca. It was attached to a subprime, fixed reset, ARM sold to a minimum wage janitor. And so the dominoes fell.

Last Sunday's NY Times "Sunday Business" has a long piece describing the impetus for the flight to fiduciaries. When one makes direct investment in physical capital, one is tied to the market for the widgets involved. To earn that return, it's not merely a matter of scarfing some of the money flow between saver and borrower, as the vampire squid do their voodoo so well. When you build it, you're betting they will come. And buy your widgets. Which widgets you've made for cheaper due to your investment. And, if you've been really clever, they buy more widgets, to boot.

This endeavor has oft quoted Your Good Mother: "what would the world be like if everybody behaved like you?", in the context of opprobrium for bad behaviour. Turns out, if everybody tries to make and sell the same widget at the same time, nobody makes any return on the invested capital. Thus Warren Buffett's observation about moats.

In the shale gas case, a gold rush meme doesn't work out. Gold is craved for no good reason, so having it, when and where others not so much, is always profitable (aside: it was the merchants who served the miners that made out selling eggs and the like for obscene prices), while natural gas is only valuable in use. Explode the supply, and well, you get it.

But while the gas rush has benefited most Americans, it's been a money loser so far for many of the gas exploration companies and their tens of thousands of investors.

Not that the Banksters didn't try for a nice slice of the pie.

Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company.

After the financial crisis, the natural gas rush was one of the few major profit centers for Wall Street deal makers, who found willing takers among energy companies and foreign financial investors.

Not all were convinced.

"He is like the bartender serving drinks for people who can't handle it," said Fadel Gheit, a managing director at Oppenheimer & Company, about Mr. Eads [one of the money men profiled]. "And the whole gas industry has gotten a rude awakening, a hangover, with gas prices plummeting. The investment bankers were happy to help with a smile and get their cut."

To the predictable conclusion.

In hindsight, it should have been clear to everyone that a bust was likely to occur, with so many new wells being drilled and so much money financing them.

But, there is a silver lining; well for those of us with an eye-for-an-eye streak.

Some local landowners, having spent their initial lease bonuses, are now deeply in debt. Local restaurants and other businesses are suffering steep losses now that so many drillers have left town.

From the point of view of our Merry Quants, they flew just a bit too close to the sun. Best to stick with fiduciaries. How about re-insurance in Bermuda?

The Next Time Bomb

Our Regular Reader knows my fascination with Bermuda; there've been more than a few missives about the country. Most reflect my belief that Bermuda represents a real life, real time social petri dish. As Bermuda goes, so will the USofA. The reason is straightforward: Bermuda abandoned its natural strengths in tourism, to becoming a tax evasion haven (Bermudians dislike that characterization, but so what?). The government rewrote its laws (much as North Dakota did for the credit card industry) to support tax evasion. The result of this was to import a significant number of foreigners, at high salaries. The result of this increased skewing of income distribution has led to two inflation forces: demand pull, due to the high salaried imports bidding up housing, in particular; and cost push, due to the increased demand for imported goods caused by those same high salaried minority. The predictable reaction: native Bermudians demand wage increases to "keep up with prices", as such folks always do. They'd done nothing to produce the higher prices, and didn't buy the argument that they deserve to have their incomes de facto reduced. Income is always relative, never absolute.

Last month, the NY Times ran a piece on Bermuda's next foray into manipulating the financial services sector of the global economy. Further revealing the hollowness of Bermuda protestations of innocence.

We have another mine. We need a new canary. Herewith, some eye opening quotes.

The hedge fund industry has been rushing headlong to open Bermuda-based reinsurers. ... And while the hedge funds are likely to profit, the question is: Who's watching to make sure this doesn't lead to another financial calamity?

And, of course, few if any strings attached:

Yet while they are partly hedge funds, these new companies are regulated as reinsurers. And Bermuda requires only minimal capital requirements and disclosure of financial positions, and it does not strictly regulate how these companies invest their money.

As the incentives which led to The Great Recession, hedgies are looking for better than risk-free return (Treasuries, for example), damn the torpedoes.

Let's close with one more quote (you really should read the whole piece; especially if you're the Stephen King sort of weeny):

In other words, the reinsurance market is starting to look like many of the markets before the financial crisis -- lightly regulated and interconnected in ways that policy makers can't see, with banks potentially left with the wreckage. The industry may be right that reinsurance is different and has its own checks and balances, but we've also heard that before. It behooves United States regulators to make sure.

Given that Wall Street runs DC, not the other way around, do you think that likely? Will the Merry Quants blow up the world again? How many of you, Dear Readers, have even heard of re-insurance? How many would know to even go looking? QED

A Horse's Ass?

It would appear the Gallup is trotting down the same bridle path as The Literary Digest. While likely not as well known as the Chicago Tribune "Dewey Defeats Truman" headline, it is actually more significant today.

In retrospect, the polling techniques employed by the magazine were to blame. Although it had polled 10 million individuals (only about 2.4 million of these individuals responded, an astronomical sum for any survey), it had surveyed firstly its own readers, a group with disposable incomes well above the national average of the time (shown in part by their ability still to afford a magazine subscription during the depths of the Great Depression). The magazine also used two other readily available lists: that of registered automobile owners and that of telephone users. While such lists might come close to providing a statistically accurate cross-section of Americans today, this assumption was manifestly untrue in the 1930s. Both groups had incomes well above the national average of the day, which resulted in lists of voters far more likely to support Republicans than a truly typical voter of the time.

Today, Gallup is doing something similar, by relying on landlines. They say they've decreased the sampling using such, but when one poll is the outlier among many, it's wrong.

Come Into My Parlor, Said The Spider

A minor, but recurring, theme of this endeavor is the fragility of advert driven business, web division. As most know, virtually everything on the web is either advert based, or shopping (well, by most accounts porn is the majority by far). Deriving one's revenue from folks who may or may not want to buy something else has been debated for decades. I first got a glimpse when I read "The Hidden Persuaders" by Vance Packard, either high school or junior high (now often called Middle School). It was written in the late 50s, and I read it sometime later.

Over my Panera coffee this morning, there was this article about click based adverts in my dead trees version. Made some notes, thought about posting about it, but... nah. Then, kaboom, Google pooped the bed!

What to make of all this? First and foremost: the advert based interTubes was always fragile. The 2000 dotbomb wasn't the end of things, although I do miss the Pets.com sock puppet. (Aside: I read some wag who opined that CEOs are so overpaid, because these MegaCorps could be run by a sock puppet. That was before 2008, of course.) As Mr. Telford found out, there always other, and oft times cheaper, ways to get people to buy your widgets. As I've written long before, Google is always one "innovation" away from irrelevance: a more effective (at least to the advert buyers) advert platform will do to Google what Google did to newspapers. Of note, Mr. Udell (another small businessman):

"The cost to get someone just to visit your Web site has, in some cases, become prohibitive. Something that cost $3 might be a no-brainer, but at $20 it becomes absurd. It's basic math, and if it doesn't add up, we won't do it." He said he planned to redirect some of his advertising dollars to print, television and radio. [my emphasis]

Google is trying to do, successfully, what Sun didn't do with java: leverage one product to sell something else. Sun expected java to increase its shift of servers. Google is trying much the same with Android; which is not java. We'll see. Google may have overpriced its advert platform. On the other hand, Yelp is reported to be tracking fake positive reviews, and other business espionage.

One wonders: will Google tweak its "algorithm" yet again to degrade organic matches? Do they really have any choice? For myself, I always use AdBusters, which I found when I was on dialup as a way to reduce bandwidth hogging. AdBusters causes some controversy, but I don't see the issue. If one has no intention of following ads, as I don't, why object to AdBusters? It isn't as though I'll start madly clicking away, while page loading slows to a crawl!

Make a widget and sell it.

Sherlock Holmes Plays One

Yet another dive into the deep end of the pool. Most folks interested in enterprise level SSD know about Violin, but because it's been private (unlike Texas Memory, it's newly minted, relatively speaking) the moolah folks and general public haven't heard of them much.

Get out your checkbooks. Hopefully, not another OCZ fiasco! No, I don't think so.