Thoughts In Grey

Brief Notes

Stuff that's on my mind, which is tending to wander this morning:

• The Europeans continue to founder. I've been critical of much of what this country did when the financial crisis hit us, but I'd have to argue that sometimes doing anything -- even just having a coordinated "no comment" -- is better than doing nothing. At this time the Europeans are doing nothing, or at least nothing that is coordinated in any way. As noted in yesterday's Brief Notes, this European unraveling may undo decades of capital mis-allocation and be a good thing in the long-term, but the short term pain resulting from an apparent lack of any stabilizing force is going to be painful for the entire world.
   
• Why do I have a feeling that what they're going through is something we will go through as well?
   
• Why do I also have a feeling that we will see the same results here, where the strong sections of the country will have to bail out much of the rest, but that severe cuts will be needed?
   
• And if that's the case are you better off being in one of the places that gets bailed out? (Somewhat speaking my book here, as I'm in California, which probably tops the "needs to be bailed out" list.)
   
• Incidentally, this may very well make the whole immigration question somewhat moot. Historically, immigration has been an issue at the end of booms. When the economy is growing, nobody cares and once it's stopped growing for a while, the problem tends to go away because the immigrants (largely motivated by jobs) stop coming. Combine that with a Mexican birthrate that has been dropping like a stone in recent decades (7.3 children/woman in 1962, 3.1 in 1990, 2.1 today) and one has to wonder if the whole thing is worth the debate.
   
• As noted a few days ago, Germany's actions just reinforce the fact that government wasn't doing their job in the first place. Wasn't naked shorting already illegal? If it was (as it is most places), why do we need new laws? This is much the situation as existed here two years ago and to a large degree still exists: laws on the books are unenforced until a crisis hits, and the sudden re-enforcement of those laws during a crisis just makes things worse.
   
• Historically, situations like the current one have represented good opportunities to invest in Korea. It's a binary bet: either tensions get diffused as they have been every time since the Korean War and Korean stocks rebound, or we get a war that wrecks much of the world's economy in which case you have to be holding gold, oil and dollars. The case against investing in Korea can best be summed up as "North Korea has gotten crazier than they were before and are willing to commit collective suicide this time."
  
• I don't believe that Kim Jong-Il wants co commit suicide, even post-stroke. I do believe that those around him are jockeying for position and are willing to provoke the outside world to prove their worth. For that matter I don't think the Iranians are suicidal either. They just know they have the upper hand at the moment and are willing to press their bets as far as they can, realizing that their situation is likely to be temporary.
   
• Of course, the folks in Pyongyang and Tehran are all quite happy to have suicidal loons elsewhere who are willing to do their bidding. We should not make the mistake of presuming that their support of suicidal loons means that they are willing to put themselves in the same position. They all live far too well.
   
• Bet for the rest of the day? With nothing on the table either way and little conviction, I think they'll close the market above the February intraday low at 1044 on the S&P. I have less conviction that they'll hold above it for long.
   
• The only certainty into the close is that there will be at least one cat sleeping through it on my desk when it happens.
   
• Actions for today: continue making a list of stuff I'd like to buy as the sale continues and gets better. Top on the list are the kinds of companies Jeremy Grantham would call "High Quality" value: Microsoft (NasdaqGS: MSFT), Pfizer (NYSE: PFE), HP (NYSE: HPQ), A-B Inbev (NYSE: BUD). Will also be looking into NCR in the wake of David Einhorn's investment. Some guys are worth watching.

mg

Brief Notes

A few new thoughts, a few follow-ups on things I've written about before.

• This article in the LA Times neatly sums up a lot of the reasons I think Foursquare has pretty limited appeal in a way that I couldn't quite put my finger on when I wrote about it. Even if you could get all my friends and venues on the service, it would be of limited use given the local logistics. Of course, the effect is circular: nobody's on it because it's of limited use, which makes it even less appealling and therefore less useful.
   
• Is Facebook really going to adjust in a meaningful way? Actions will tell, as I don't at this point trust their words. As I noted a couple of weeks ago, combining granular controls with easy controls is not impossible, as others have done it. The most important thing I take from this is their concession that giving me an easy way to block all third-party sharing of data is a feature that is desired. After all, even my bank gives me this option (not as easy to exercise as it should be, but it's there as a matter of law), and so do the credit agencies for a nominal fee.
  
  In fact, I think this could be a source of income: want a completely free Facebook? Give up some degree of info to get it. Want complete privacy? Pay a fee for the service. This idea actually lets the market work things out, as it lets a customer know what Facebook thinks the ability to share your information is worth and you can make a fair economic judgement about how you choose to pay for the service: directly or indirectly. This isn't all that different from allowing paid subscribers to not be subject to popups and other annoyances.
   
• Strippers Declare Inflation Dead! Business headline writers need to have fun too.
   
• Though, on that note, an old neighbor who moonlights as a "gentlemen's entertainer" tells me that even in the usually impervious Westside L.A. market, demand for her "services" is extremely slow these days.
   
• Transparent ratings are the kind of thing my friend Dennis at Institutional Risk Analytics has been promoting for some time. I'm not sure if Bloomberg's move into this business is good for him, but it certainly is good for us. Removing the importance given to the incompetents at the big ratings agencies would be a plus for everybody except those who are in on the sleazy "AAA" rated deals.
   
• One of the more interesting things I've read recently is a piece by Charles Gave, forwarded by John Maudlin. I won't reproduce copyrighted stuff here, but the upshot of the commentary is that the European crisis is a good thing, as it'll end the severe mis-allocations of capital that went along with the notion of a "single Europe." As he notes, ending the mis-allocation of capital into places like Greece is no different from ending the severe mis-allocation of capital into Miami condos that we experienced. Eventually the crisis forces us to start doing the right thing. The downside from my perspective? There's a lot of pain to be felt before the positive benefits of capital reallocation are realized.
   
• Spring has sprung, though it apparently snowed in the mountains here last night as well as in my "home" mountains outside of Salt Lake. Sadly, I think I'm done with skiing for the year. Might change my mind if Memorial Day plans fall through though.
   
• My best advice for energy efficiency in warmer climates? A simple ceiling fan. I just replaced mine yesterday after more than five years of good service. The new one is super-efficient, quiet and drops the temperature in the place 5-10 degrees. Been putting my money where my mouth is: installed one in each room for my brother and having them put into mom's place in Manhattan during her renovation.
   
• I've been grilling lots of lean meats and veggies. Because I'm on a diet? Well, a bit. Mostly because now that the weather is nice, it's pleasant to grill and the grill is so much easier to clean than the kitchen.

Now, if only the wind would calm down a bit so I could get the kayak out for the first time this spring.

mg

Confidence Lost

So our friends in Europe have jumped in today to halt trading activities that are harming the Euro and their big financial institutions. They seem to think this will restore confidence. They should have learned from us, or from the many, many times in history that this has failed, as it did today.

In truth, there's not much wrong with what they did. It's how they did it and the selective nature of enforcement that is causing the problem. Last I checked, naked shorting was illegal in Europe as well as here. Enforcing that law is a good thing. But letting it go on unabated then selectively enforcing the law with regards to ten "blessed" financial institutions does not help "restore confidence." It sends the message that something is really, really wrong with those institutions, that in fact something is so wrong that it justifies sudden and selective enforcement of laws that were ignored until now.

And much the same is true of the restrictions on naked CDS trades. There's little if any justification for the existence of these conduits for expanding risk with no benefit to any actual holder of the underlying asset. But to suddenly and selectively prohibit a few CDS products from trading sends the message that there's something seriously wrong.

I hate to harp on Taleb the second time this week, but his Ten Principles for a Black-Swan-Robust Society, (reproduced as Postscript VIII in the second edition of The Black Swan) makes the point quite bluntly:

Only Ponzi schemes should depend on confidence. Governments should never need to "restore confidence."

...Governments cannot stop the rumors. Simply, we need to be in a position to shrug off the rumors, be robust to them.

Easier said than done.

Taleb should stay off TV (and we're all worse for it)

Taleb was on TV briefly yesterday. I actually turned up the volume on CNBC to hear what he had to say. I should not have bothered.

Not because Taleb doesn't have a lot to say, he most certainly does. Not even because his involvement with one Universa Investments, who may or may not have had something to do with last Thursday's momentary crash, prevents him from commenting on some things that might be interesting.

Taleb shouldn't go on TV because there's just no point. Taleb's ideas are as complex as the financial mess the world finds itself in right now. Inviting him in to discuss one point in time, or to try to draw simple cause-effect conclusions just doesn't make much use of him or provide any illumination for the viewers. It's most likely why he's spent a good chunk of time recently avoiding TV appearances altogether, he knows that the vast bulk of media consumers just don't want to hear that the problem is far more complex than any one individual can possibly understand or solve.

Taleb and others like him are where the solutions -- or at least the pieces of the solution -- lie. Whether it's the world of finance, healthcare, immigration or just about anything else that plagues us right now, the situation is complex and the solutions will be too. That just doesn't come across well in a media world that has conditioned us to believe that meaningful content can be shared in 140 characters or that every question has an answer in a 20-30 second sound bite.

Unfortunately, Television and most of our media falls for what Taleb calls "The Ludic Fallacy," which is the notion that everything has an anecdotal and easy to follow explanation. The TV medium as it has been constituted today is simply unsuited for doing much beyond "telling a story." When the story fails to follow a clear "plotline" with obvious cause-and-effect relationships, it fails and is forced to grasp for something else, as the interviewers on CNBC did.

When I present this problem to some people, the response is that the people with the good ideas will need to adjust. They'll need to figure out how to explain complex and multidimensional problems by splitting them into little 20 second bits. I take the opposite view. Our problems are going to continue to escalate until we are willing to recognize that there are no easy solutions and that sound bites won't save us. I suspect further crises will need to happen before we get to that point.

It's too bad, but until we are willing to dispense with the notion that there are always simple solutions, Taleb should stay off TV. Those of us who want good analysis of the realities of the world have to look elsewhere, which is too bad.

mg

Some more on Foursquare

[Note that a previous entry on this topic has been deleted, as some of my criticisms have been resolved and some others turn out to be inaccurate, though it took a lot of searching to find the resolutions.]

I've played with Foursquare a bit since my last comment, and have decided that for now I'm done with it. Will not be cancelling my account, but just don't see much utility in continuing to play at this point.

There are lots of reasons for this including the wrong venue locations, horrible customer service, inability to get locations corrected, etc. But the core reason is that none of my friends are on it, none of them are especially interested in it, and none of the places I regularly hang out care about it at all.

To some degree it's generational, but also location and outlook, I suspect. Nothing could have crystallized the problem for me more than the fact that I "won" the "Far Far Away" badge after checking in a few places this past weekend. Foursquare, of course, doesn't actually tell you what you have to do to win the various badges, but there are some online listings that private individuals have come up with. Most of them suggested that the badge is won for checking in outside city limits. That didn't work. What did? Three checkins above 59th St. in Manhattan. Yup, those of us who don't live downtown or in Brooklyn are "far, far, away" according to the people who run Foursquare. Thanks assholes. You've confirmed your status as a bunch of useless faux-hipsters who think you're too good for the rest of the world. Did one of you send this text message too?

My personal feelings about this aside, it's just tough for me to use this in a way that is useful and beneficial to me. I'm not getting any benefits from my regular venues because they seem to exist primarily at other types of venues: coffee houses and cheap restaurants or bars, especially the impersonal chains that don't get to know their customers and/or have rules against rewarding them appropriately except as part of an organized campaign vetted by lawyers and marketing types. The places I hang out at most aren't especially looking for lots of checkins, they'd be a lot happier with a smaller number of high-dollar checkins, but Foursquare doesn't measure that. I am getting lots of frustration from not being able to check in at the places that I go to often because of mapping problems. A few weeks ago, up at Snowbird, I didn't even try. Why bother when you know the locations are all off the map, aren't getting corrected even when you report them, and the checkins won't work? And of course, my friends aren't on it.

So for now, my account's still there and I'll be watching how they're doing because the whole notion of location-based apps interests me, but for now the utility is nonexistent. I suspect that the technology will either be bought or reproduced by somebody like Facebook or Twitter. It would make a lot more sense if it were fully integrated into just about any other social networking platform.

mg

[The Foursquare logo is property of Foursquare,
used under "fair use" provisions of copyright law.]