New Big Data tech
Internet thing solution
Bypass policy
Wednesday, June 05, 2013
The Rewards of Advanced Information Technology
Evgeny Morozov thinks advanced IT poses unforeseen risks. I heard him make his case at the World Affairs Council with lots of points based on his books The Net Delusion and To Save Everything, Click Here, but I don't necessarily concur with his conclusions.
He noted the trend of embedding sensors everywhere but didn't call it "the Internet of things." Most analysts would put it in that context because the way sensors collect data will be linked to Big Data in a cloud. He also noted how the sensor trend intersected with social media to redefine ethical behavior (with incentives pushed by gamefication). I just don't see why he finds the private ownership of this problem-solving architecture so objectionable. The free market can incentivize beneficial behavior in real time without waiting for any one-size-fits-all public policy prescription.
Mr. Morozov notes that fact-checking databases are widely available and browser apps can tap them while you read articles on time. I'm not convinced that political bias in any of those databases is some kind of problem that invalidates their utility. Users can tweak their media feeds to collect articles from across the spectrum and check them against a similarly broad array of databases. The information consumer in an open society is free to make an informed choice.
The kind of high-level thinking Mr. Morozov would apply to public policy might work if policy were customizable for every citizen. We see the results of such an effort in tax codes and environmental regulations whose complexity and exemptions require a cottage industry of consultants to interpret them. High-functioning lobbyists have customized plenty of exemptions into those laws that will never apply to most people. The IT revolution of sensors, Big Data, IOT, and social media allow citizens to seek customizable solutions to their problems in real time. Advocating high-level thinking might resonate in the Bay Area, home to the most highly educated people in the world. It will not resonate with the vast majority of humans who use heuristics to make it through the day. Advanced IT enables workable microeconomic solutions for the vast majority of people who won't benefit from high-level public policy.
It is a fundamental attribution error to believe mass behavior is rational. There's enough evidence from evolutionary biology to show that humans act first and then rationalize their actions immediately afterwards. Attributing high-level ethical thinking to mass behavior is a leap in logic that scientific study of the human mind cannot justify. I believe that advanced IT allows for situation-specific solutions to human-scale problems that public policy cannot and should not solve. Besides, some problems are just good to have. If a startup IPO netted me piles of money, finding a way to use it is a much better problem to have than wondering how to pay my bills. I don't need public policy to guide my thinking in that event. I need social media apps that connect me to Big Data so I can study open source intelligence in real time. .
He noted the trend of embedding sensors everywhere but didn't call it "the Internet of things." Most analysts would put it in that context because the way sensors collect data will be linked to Big Data in a cloud. He also noted how the sensor trend intersected with social media to redefine ethical behavior (with incentives pushed by gamefication). I just don't see why he finds the private ownership of this problem-solving architecture so objectionable. The free market can incentivize beneficial behavior in real time without waiting for any one-size-fits-all public policy prescription.
Mr. Morozov notes that fact-checking databases are widely available and browser apps can tap them while you read articles on time. I'm not convinced that political bias in any of those databases is some kind of problem that invalidates their utility. Users can tweak their media feeds to collect articles from across the spectrum and check them against a similarly broad array of databases. The information consumer in an open society is free to make an informed choice.
The kind of high-level thinking Mr. Morozov would apply to public policy might work if policy were customizable for every citizen. We see the results of such an effort in tax codes and environmental regulations whose complexity and exemptions require a cottage industry of consultants to interpret them. High-functioning lobbyists have customized plenty of exemptions into those laws that will never apply to most people. The IT revolution of sensors, Big Data, IOT, and social media allow citizens to seek customizable solutions to their problems in real time. Advocating high-level thinking might resonate in the Bay Area, home to the most highly educated people in the world. It will not resonate with the vast majority of humans who use heuristics to make it through the day. Advanced IT enables workable microeconomic solutions for the vast majority of people who won't benefit from high-level public policy.
It is a fundamental attribution error to believe mass behavior is rational. There's enough evidence from evolutionary biology to show that humans act first and then rationalize their actions immediately afterwards. Attributing high-level ethical thinking to mass behavior is a leap in logic that scientific study of the human mind cannot justify. I believe that advanced IT allows for situation-specific solutions to human-scale problems that public policy cannot and should not solve. Besides, some problems are just good to have. If a startup IPO netted me piles of money, finding a way to use it is a much better problem to have than wondering how to pay my bills. I don't need public policy to guide my thinking in that event. I need social media apps that connect me to Big Data so I can study open source intelligence in real time. .
Tuesday, June 04, 2013
The Haiku of Finance for 06/04/13
Super-jerk trader
Brags about really big gain
Won't mention losses
Brags about really big gain
Won't mention losses
Monday, June 03, 2013
The Haiku of Finance for 06/03/13
Case-Shiller Index
Home prices keep rebounding
All because of ZIRP
Home prices keep rebounding
All because of ZIRP
Financial Sarcasm Roundup for 06/03/13
I do exactly what I say I'm going to do. I see financial stuff, I round it up, and I get sarcastic about it all.
China is now Iraq's biggest oil customer. This is one of those no-kidding things that should have part of the forecast prior to the US withdrawal from Iraq. The message to the world is that bad things happen when the US comes into your country and good things happen when China comes in. The downside for Iraq is that China will soon be printing inflated currency to pay for Iraqi oil. Oh, so will we.
China's property prices keep rising. Maybe China could do an in-kind trade of real estate for Iraqi oil. I don't think Iraqis are dumb enough to take that trade. No investor would want to be stuck with overpriced bursts, except of course newly urbanized Chinese who will pay anything for what the believe is a step up from a farm.
We have some pretty dumb real estate investors here in San Francisco. Home prices in The City are way up so far in 2013, although they are nowhere near their 2006 highs. I'm looking to buy some property myself but not at these prices. Homes are not at fair value until they're a low multiple of the median income for a given MSA. I'm not buying anything at a premium to fair value.
I just have to note that one particular Stolen Valor fraud may be cooking up some more websites. I just can't wait to see them when they're ready. I also can't wait to watch a long string of honest people testify against him in court. They'll do exactly what they say they're going to do.
China is now Iraq's biggest oil customer. This is one of those no-kidding things that should have part of the forecast prior to the US withdrawal from Iraq. The message to the world is that bad things happen when the US comes into your country and good things happen when China comes in. The downside for Iraq is that China will soon be printing inflated currency to pay for Iraqi oil. Oh, so will we.
China's property prices keep rising. Maybe China could do an in-kind trade of real estate for Iraqi oil. I don't think Iraqis are dumb enough to take that trade. No investor would want to be stuck with overpriced bursts, except of course newly urbanized Chinese who will pay anything for what the believe is a step up from a farm.
We have some pretty dumb real estate investors here in San Francisco. Home prices in The City are way up so far in 2013, although they are nowhere near their 2006 highs. I'm looking to buy some property myself but not at these prices. Homes are not at fair value until they're a low multiple of the median income for a given MSA. I'm not buying anything at a premium to fair value.
I just have to note that one particular Stolen Valor fraud may be cooking up some more websites. I just can't wait to see them when they're ready. I also can't wait to watch a long string of honest people testify against him in court. They'll do exactly what they say they're going to do.
Sunday, June 02, 2013
The Limerick of Finance for 06/02/13
Easing has the markets in thrall
Wall Street pros cannot make the call
Ignoring what's real
Going with what they feel
None admit any risk of a fall
Wall Street pros cannot make the call
Ignoring what's real
Going with what they feel
None admit any risk of a fall
BIS Says Central Banks Drive Capital Markets Insane
The BIS Quarterly Report dated June 2013 is proof from the horse's mouth that financial markets are totally insane. Saying markets are under central bankers' monetary easing spell may be the understatement of the year. The graphs on page 2 show stock markets rising and bond yields falling. The graphs on page 3 show economic surprises getting more negative, growth forecasts falling, and commodity prices dropping. Knowledgeable practitioners are thus getting pessimistic while know-nothing investors are getting more optimistic. This divergence of market sentiment from economic reality cannot continue forever. Read between the lines of that BIS report for amusement. They hint on page 9 that Europe-wide contagion was narrowly avoided in the Cyprus bank meltdown once Eurocrats backed down from the proposed one-off levy on insured deposits. My blog readers knew about that when it was happening thanks to my extreme genius.
I shake my head in a sorrowful stupor at the people who manage money professionally in this environment. Some investors are starting to wake up but it takes a lot to rouse even so-called smart money. Investors in SAC Capital are reportedly preparing massive redemptions. Not every investor gets a wake-up call in the form of SEC investigations. That's one reason why most investors are sound asleep. Another reason is that so many money managers are just plain stupid. Portfolio managers and their supporting analysts are paid to understand basic trend data. They either don't understand it (too stupid), can't admit what's really happening (too cowardly), or don't want to upset clients with bad news (too dishonest). I don't have those problems and that's why I won't ever be hired as a portfolio manager.
Insane media shills continue to jump on the bull market bandwagon. It's a fun ride until the wagon goes over a cliff at eighty miles an hour. The weightless feeling in freefall is very short. The pain from impact at the bottom lasts a lifetime. Anyone going along with this joy ride is trusting central bankers at the wheel to steer correctly. The central bankers have the gas pedal to the floor. Go watch the last scene in "Thelma and Louise" if you need a good image.
I shake my head in a sorrowful stupor at the people who manage money professionally in this environment. Some investors are starting to wake up but it takes a lot to rouse even so-called smart money. Investors in SAC Capital are reportedly preparing massive redemptions. Not every investor gets a wake-up call in the form of SEC investigations. That's one reason why most investors are sound asleep. Another reason is that so many money managers are just plain stupid. Portfolio managers and their supporting analysts are paid to understand basic trend data. They either don't understand it (too stupid), can't admit what's really happening (too cowardly), or don't want to upset clients with bad news (too dishonest). I don't have those problems and that's why I won't ever be hired as a portfolio manager.
Insane media shills continue to jump on the bull market bandwagon. It's a fun ride until the wagon goes over a cliff at eighty miles an hour. The weightless feeling in freefall is very short. The pain from impact at the bottom lasts a lifetime. Anyone going along with this joy ride is trusting central bankers at the wheel to steer correctly. The central bankers have the gas pedal to the floor. Go watch the last scene in "Thelma and Louise" if you need a good image.
Saturday, June 01, 2013
The Haiku of Finance for 06/01/13
Crowdfund your project
Co-op, land trust, or maker
Wealth from the ground up
Co-op, land trust, or maker
Wealth from the ground up
Friday, May 31, 2013
Crowdfunding for Decentralized Wealth
I attended a Commonwealth Club lecture today by Gar Alperovitz, author of What Then Must We Do? I won't spoil the book for you, but he contends that the concentration of the control of wealth among a small elite and a handful of corporations make America's systemic problems unsolvable. Labor unions are no longer powerful enough to serve as a countervailing power to corporate control of wealth and state socialism is an unsatisfactory alternative to free markets. His solution lies in democratic, decentralized ownership of wealth. I think he'd really like the concept of resilient communities but he touched on older concepts that already work. He mentioned some models; I'll mention others.
The Democracy Collaborative's Community Wealth project is a clearinghouse for models that share access to capital. The National Cooperative Business Association is a home for co-ops that have been around forever. The Bank of North Dakota is the only state-owned bank in America and it's been successful for almost a century in providing capital to private enterprise. Many of us have seen NCUA's credit unions in our communities. Entrepreneurs who sell their companies to their workers' own ESOPs can reap very attractive tax benefits. Real estate investors can use land trusts to limit liability and expand their options. The Mondragon Corporation is an example of how a cooperative ownership structure can adapt to a complex enterprise. The University of Wisconsin Center for Cooperatives studies, well, what else but co-ops. The Hub is a global network-cum-movement for microenterprises with a Bay Area presence. B-corporations are not-for-profit corporations that are chartered to serve a public interest. CiviCRM is an open-source platform for fundraising and contact management; I regret that I missed CiviCon 2013. I also regret that I'm missing the Public Banking Institute's Public Banking 2013 conference this weekend, but I've already got plenty to do.
Some of these models may seem a bit touchy-feely and environmentally green for die-hard free market fans but I hope they get over that knee-jerk reaction. I'd like to see an ecosystem of these types of grass-roots financing and organizing tools grow up as alternatives to the unstable model of TBTF megabanks that are wrecking the economy. There's enough room for profit in these enterprise structures for conservatives to like. The New America Foundation's Asset Building Program sure looks a lot like George W. Bush's call for an "ownership society."
The hodge-podge list of tools above begs a return to the author's question about what we must do now. I got a chance to ask a question of my own when I asked Mr. Alperovitz how the crowdfunding phenomenon can contribute to the growth of these concepts. He was optimistic about the potential of crowdfunding but didn't have specific data on hand. There's my window of entrepreneurial opportunity. I'll get specific right now.
B-corps are already using crowdfunding platforms like Kickstarter and Indiegogo to raise donations. Once FINRA finally completes its SEC-mandated certification of crowdfunding portals for JOBS Act compliance, they can raise equity capital. I think public banks operating in each of the fifty states could operate their own crowdfunding portals. Anyone who wants to start a co-op or credit union could step on up and launch fundraising from the public bank's portal. Companies that sponsor ESOPs could borrow directly from the public banks so the ESOP can buy the company's shares. REITs that organize as land trusts could use the public bank for 1031 exchanges and trust services. Makers, here's your chance to grow new organizations making brand new things.
The ecosystem I just described above will probably require legal changes that will enable public banks and crowdfunding portals to work together in the ways I've imagined. State governments can perform their traditional role as public policy laboratories by experimenting with different forms of governance for this co-op ecosystem. Resilient communities will need a myriad of management structures and funding mechanisms. Entrepreneurs should educate policymakers on how to make this happen. That is what we must do, answering the question above.
The Democracy Collaborative's Community Wealth project is a clearinghouse for models that share access to capital. The National Cooperative Business Association is a home for co-ops that have been around forever. The Bank of North Dakota is the only state-owned bank in America and it's been successful for almost a century in providing capital to private enterprise. Many of us have seen NCUA's credit unions in our communities. Entrepreneurs who sell their companies to their workers' own ESOPs can reap very attractive tax benefits. Real estate investors can use land trusts to limit liability and expand their options. The Mondragon Corporation is an example of how a cooperative ownership structure can adapt to a complex enterprise. The University of Wisconsin Center for Cooperatives studies, well, what else but co-ops. The Hub is a global network-cum-movement for microenterprises with a Bay Area presence. B-corporations are not-for-profit corporations that are chartered to serve a public interest. CiviCRM is an open-source platform for fundraising and contact management; I regret that I missed CiviCon 2013. I also regret that I'm missing the Public Banking Institute's Public Banking 2013 conference this weekend, but I've already got plenty to do.
Some of these models may seem a bit touchy-feely and environmentally green for die-hard free market fans but I hope they get over that knee-jerk reaction. I'd like to see an ecosystem of these types of grass-roots financing and organizing tools grow up as alternatives to the unstable model of TBTF megabanks that are wrecking the economy. There's enough room for profit in these enterprise structures for conservatives to like. The New America Foundation's Asset Building Program sure looks a lot like George W. Bush's call for an "ownership society."
The hodge-podge list of tools above begs a return to the author's question about what we must do now. I got a chance to ask a question of my own when I asked Mr. Alperovitz how the crowdfunding phenomenon can contribute to the growth of these concepts. He was optimistic about the potential of crowdfunding but didn't have specific data on hand. There's my window of entrepreneurial opportunity. I'll get specific right now.
B-corps are already using crowdfunding platforms like Kickstarter and Indiegogo to raise donations. Once FINRA finally completes its SEC-mandated certification of crowdfunding portals for JOBS Act compliance, they can raise equity capital. I think public banks operating in each of the fifty states could operate their own crowdfunding portals. Anyone who wants to start a co-op or credit union could step on up and launch fundraising from the public bank's portal. Companies that sponsor ESOPs could borrow directly from the public banks so the ESOP can buy the company's shares. REITs that organize as land trusts could use the public bank for 1031 exchanges and trust services. Makers, here's your chance to grow new organizations making brand new things.
The ecosystem I just described above will probably require legal changes that will enable public banks and crowdfunding portals to work together in the ways I've imagined. State governments can perform their traditional role as public policy laboratories by experimenting with different forms of governance for this co-op ecosystem. Resilient communities will need a myriad of management structures and funding mechanisms. Entrepreneurs should educate policymakers on how to make this happen. That is what we must do, answering the question above.
Thursday, May 30, 2013
Wednesday, May 29, 2013
Innovation Premium Metrics Go Beyond Guesswork
I'm all about new metrics in business, so long as they're based on solid criteria. I welcome discussions of the "innovation premium" for companies that create great solutions. I must suggest that using NPV based on forecasts of future project cash flows is probably not valid for more than a year or two. The future of any product line is unknowable outside of those few sectors with strong barriers to entry and high switching costs. The unique thing about innovation is that it springs from a pool of intellectual capital that a company has spent time cultivating.
I believe other metrics are more appropriate factors for inclusion in an innovation premium. I'll name a few.
Number of patents filed. The US Patent and Trademark Office has a searchable database of patents filed by year. The search results offer breakdowns by organizations. Find the top patent-generating corporations in America to see who's serious about committing capital to applied research.
Size of IP portfolio. This is related to the number of patents filed, but some companies can build their IP portfolios through acquisitions. IP portfolio management is a cottage industry serving companies who elect to outsource the tracking and fulfillment of things like trademark registration payments. Some companies may wish to keep the size and nature of their portfolios close to the vest.
Size of R&D budget. Good luck getting a company to discuss its hottest research openly. Read a public company's financial statements to get a glimpse of how seriously they take R&D. No way is a privately held company going to reveal their budget. Reverse engineering their budget by reviewing their appearances at conferences may lead to a wild guess.
Number of new innovations launched. This is probably the real bottom line for a company aspiring to the top ranks of innovation. The total number of new products announced in a year is not the only metric. Old products can get new features. Counting this category means separate weights for the number of new products, number of upgrades, and number of new features for existing products. Innovation gets stale if it doesn't get to the market.
There's my criteria rundown for an innovation premium. In each factor, a larger number (more patents, bigger budget) means more innovative power. I do agree that an innovation premium is not necessarily a valuation premium. Railroads rarely innovate but Warren Buffett prefers them to technology stocks. Investors who paid a valuation premium for the most innovative dot-com stocks in the '90s learned the hard way that innovation is not the only requirement for successful execution.
I believe other metrics are more appropriate factors for inclusion in an innovation premium. I'll name a few.
Number of patents filed. The US Patent and Trademark Office has a searchable database of patents filed by year. The search results offer breakdowns by organizations. Find the top patent-generating corporations in America to see who's serious about committing capital to applied research.
Size of IP portfolio. This is related to the number of patents filed, but some companies can build their IP portfolios through acquisitions. IP portfolio management is a cottage industry serving companies who elect to outsource the tracking and fulfillment of things like trademark registration payments. Some companies may wish to keep the size and nature of their portfolios close to the vest.
Size of R&D budget. Good luck getting a company to discuss its hottest research openly. Read a public company's financial statements to get a glimpse of how seriously they take R&D. No way is a privately held company going to reveal their budget. Reverse engineering their budget by reviewing their appearances at conferences may lead to a wild guess.
Number of new innovations launched. This is probably the real bottom line for a company aspiring to the top ranks of innovation. The total number of new products announced in a year is not the only metric. Old products can get new features. Counting this category means separate weights for the number of new products, number of upgrades, and number of new features for existing products. Innovation gets stale if it doesn't get to the market.
There's my criteria rundown for an innovation premium. In each factor, a larger number (more patents, bigger budget) means more innovative power. I do agree that an innovation premium is not necessarily a valuation premium. Railroads rarely innovate but Warren Buffett prefers them to technology stocks. Investors who paid a valuation premium for the most innovative dot-com stocks in the '90s learned the hard way that innovation is not the only requirement for successful execution.
Intangible Asset ROI Needs Clear Attribution
I recently read a proposed calculation method for the ROI of a public company's intangible assets. It advocated simple division of net income into the sum of goodwill and other intangibles to find "intangible asset ROI." I've seen variations of this calculation elsewhere, so I wonder if it's gaining traction. It looks easy, but my gut tells me nothing in business should be that easy.
I disagree with that method for two reasons. First, the entire net income of a corporation is attributable to the application of all of its assets. Calculating ROI means breaking out how much of the income from all business segments is directly attributable to intangible assets. Using the brute-force method above will lead to wild conclusions. Consider a fast-food conglomerate whose intangible assets consist of the brand and menu recipes. If it acquires another chain of restaurants, the new goodwill from the acquisition will push the "intangible asset ROI" down for the year. Faulty decision-making will follow if executives decide that intangible assets aren't delivering value. A company with little IP but lots of plant and equipment would portray an absolutely whopping intangible asset ROI by using this method. Furthermore, goodwill can be impaired, which would invalidate any assignation to intangible assets until the impairment is resolved.
Even companies that are presumably heavy on intangibles can't deliver value without fixed assets. Social media companies need server farms. Entertainment companies need video production facilities and broadcast studios. Analysts and executives looking to unlock value need to probe financial statements to see just how much income is attributable directly to intangible assets. Not every reporting company breaks down revenue attribution to asset categories the way they do for strategic business units. That's why finding the ROI for intangibles is just so dog-gone intangible.
I disagree with that method for two reasons. First, the entire net income of a corporation is attributable to the application of all of its assets. Calculating ROI means breaking out how much of the income from all business segments is directly attributable to intangible assets. Using the brute-force method above will lead to wild conclusions. Consider a fast-food conglomerate whose intangible assets consist of the brand and menu recipes. If it acquires another chain of restaurants, the new goodwill from the acquisition will push the "intangible asset ROI" down for the year. Faulty decision-making will follow if executives decide that intangible assets aren't delivering value. A company with little IP but lots of plant and equipment would portray an absolutely whopping intangible asset ROI by using this method. Furthermore, goodwill can be impaired, which would invalidate any assignation to intangible assets until the impairment is resolved.
Even companies that are presumably heavy on intangibles can't deliver value without fixed assets. Social media companies need server farms. Entertainment companies need video production facilities and broadcast studios. Analysts and executives looking to unlock value need to probe financial statements to see just how much income is attributable directly to intangible assets. Not every reporting company breaks down revenue attribution to asset categories the way they do for strategic business units. That's why finding the ROI for intangibles is just so dog-gone intangible.
Tuesday, May 28, 2013
Saturday, May 25, 2013
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