Showing posts from November, 2008

OR: I discover Distribution

The progress on OR is getting me to learn again.

Just as a way of update, the Open Remote Controller (ORC) is a piece of software. ORC assumes various extensions. It runs on Java/Linux and it controls your home.

From an installers standpoint, it runs on a little physical box and network I call "the runtime". Another runtime for professionals can be KNX-TP for example.

By contrast, the runtime for developers can be something as virtual as a VMWare runtime which can mimic the proper OR linux distribution by having the proper image including drivers. You have a virtual representation of your hardware environment. It requires no hardware besides your existing development box.

For those that need a physical runtime, we need a chip somewhere. The EEE B202 is probably retailing at a local 250 :). Although not solid state the EEE packs an awesome PC in a compact format making it a good candidate to easily provide construction grade runtimes.

What I have learned a bunch about is…

The breakdown of the FED $8T bailout packages

Just as I was struggling to get a complete picture of all the TARP turds floating around, the NYTimes puts a comprehensive chart of the commitments from the FED and Treasury. The committed number is mind-numbing: $8T. This is way beyond the FED balance sheet which was .8T, a tenth. The difference is of course a monetary run-off. Spent is 1.5T. Click on the picture if you want a clear picture, the best macro picture I have seen so far (the only one). Commentary below.

Government as insurer, committed 3T spent .1T

This is the smaller spent number so far and the biggest committed. That is normal. This is essentially a default protection and the top number is therefore nominal. It is CDS given to investors in bank debt and money market debt. I was reading commentary that was surprised the spreads didn't fall lower on the guarantee of the US govts. Free lunch? Lots of arbitrage going on here. Only 70B has been eaten up in money markets.

Government as investor, commited 3T, spent .6…

The backlash, Keynes is the new Black

3 articles this morning point to the same theme, with about $7T of commitments from the US government (I had lost track) the flurry of commentary is around the new zeitgeist in Washington and Wall Street. How quickly ideology backlashed. The opposite abuse is just as dangerous.

Some money quotes from the FT.

We are watching a bonfire of the old orthodoxies as well as of the vanities. This week Barack Obama promised to spend hundreds of billions of taxpayers’ dollars to prop up the sinking US economy. Gordon Brown’s British government announced it would soak the rich to pay for an economic rescue package.

And already people are leaving the UK as a result.

Everywhere you look, Keynes’s demand management is replacing Adam Smith’s invisible hand; printing money, a mortal sin under the fracturing Washington consensus, is the new prudence.

Things could move still faster in the months ahead. With their myriad rescue schemes and loan guarantees, the US and British governments have nationalised…

A Trillion here and a Trillion there

TARP3 announced today. Finally a real "Trouble Asset Relief Program"? Actually just a pledge to offer loans of 800B for consumer credit. I am losing count of the Trillions. Reasoning goes that if the banks don't do the lending someone must? Are we about to see FED branch offices battling out for your mortgage. My, my, it smells like real panic in Washington. Scarier is the fact that Wall Street barely reacted to the Trillion in spending. Dead cat.

US Housing -30% so far

Another -15% this year. It would be good if it stopped there. We will probably overshoot, a part of me hope the damage is already done. Namely if we don't see a doubling of foreclosures on this doubling of price drop.

In related news, Obama has pledged another $700B bailout even before getting into office. That is TARP2. I fear we may need TARP5 before we get a hold of this running bull.

Facebook valued Twitter at $500m

Story this morning in the FT that Facebook reportedly valued Twitter at $500m in its own FB stock. The leak is speculated (by the FT?) to be a negotiation tactic by Twitter to get "other bidders to the table". Ah deal-drama, my favorite.

From FB's point of view it makes a lot of sense to get twitter in their social network. Far more people use FB than use Twitter. And as a side note FB does monetize its viewers. For the younger generation FB offers pictures of you and your friends. For the older generation a way to stay in touch. Many of my friends use twitter and seem to like it. The FT article mentions "trend spotting" as an emergent property of twitter. But they make NO money and have 26 employees.

And then I put myself in the shoes of Biz Stone, the co-founder of two and half years old Twitter. In this environment the VC mantra is "if you can sell, sell", as Sequoia recommended to its flock. So the guy would be advised to sell.

Then there is …

FT says "Bring gold dollar link back"

This morning a thought provoking article in the FT. Author Richard Duncan argues that ever since 1971 when the gold exchange window was closed by the US, the world has been living the consequences of the monetary flows that have resulted from fiat money.

Basically once the US govt got free reign to print it's own money, it did and got the world economy clocking again. In a sense it was a crowning moment for Keynes. The cycle of boom bust ensued, starting with a big rash of inflation in the 70's and then world chaos in predictable order. The machine spun until it inflated the biggest asset bubble "housing" (or a bubble too far as the article calls it), until that one deflated.

The article concludes with a call to design a new monetary system. Gold seems to be an emotional favorite.

The events of September 2008 – the nationalisation of Fannie Mae, Freddie Mac and AIG; the disappearance of the investment banking industry in the US; and the Bush administration’s $700bn…

I am turning 40 today

We are having a party with family in Madrid. I feel a bit strange. I feel very lucky to have had what I have had. Great parents and family, great studies, a lucky company that gave me enough to retire at 38 and a fantastic family of my own.

I look forward to the next 20 years.

FED says deflation possibility has increased probability

Via FT, Don Kohn:

The Fed vice-chairman stressed he did not believe deflation was the most likely outcome for the US economy, but was a “less remote” possibility than he previously thought.

“Some people have argued that we should save our ammunition, that interest rate cuts aren’t effective,’’ Mr Kohn said. “I think that were we to see this possibility, that we should be very aggressive with our monetary policy, as aggressive as we can be.”

He is saying 2 things.
1- less remote possibility of deflation.
When financial types talk about possibility and probability they are speaking in well defined mathematical terms. The world of future possibles, the enumeration of possible states that an economy can reach in the future is a Hilbert space of configuration. In some worlds we are experiencing hyper inflation, in another world war and famine and yet in others peaceful existence in sustenance. These are possible world, possibilities. Then the possibility has a probability. The probability de…

Chocolate con churros--Meet the Neighbors

This is my favorite Spanish breakfast--Spanish hot chocolate is very thick and soupy and churros are sort of like string shaped donuts with no sugar. It is in no way heart-healthy and the first time I tasted it, I thought it tasted weird, but it grew on me. I've finally found an unpretentious bar--Cafe Simpatia--on my walk back from taking the children to the school bus--where this costs two euros twenty centavos and the barman automatically knows what to bring me.

My biggest preoccupation in Spain is the details of daily life and raising four children in a foreign country. Any insights I might have will reflect that, so if you are expecting to read about the latest, coolest nightclub or the most up-to-date cultural offerings in Madrid, this is not the spot. "Chocolate con churros" is a metaphor, for me, of adapting to a different place and the quick sketch writing that most suits my schedule and interests.

Meet the Neighbors

We live in a nineteenth century building in the…

What has changed is the consumer

Thinking back on things that have changed recently, in terms of context for the economy, I believe the consumer to have changed.

This is an economy lead by consumer spending. Clearly the consumer was spending more than he brought in and took on debt burden that would tap out eventually. But I don't think we are seeing just a slight re-adjustment to kill overlever (which would be a -3% variation in consumption).

The read downside to consumption may be the consumer re-aligning his priorities. For example it is clear to me that while the price of oil has been all over the place, it has awaken fears of inflation and oil dependency that I think will trigger behavioral changes as powerful as what we have seen with 911.

It is Chic, already in Iceland, to dress like you are feeling the pinch. Makes me think of Zoolander and the expo of "Derelict".

Obama should thank Bush, a $4T gift

Obama wanted to spread the wealth around and has virtually been passed on a carte blanche to do so by the conservative movement.

In the US fiasco, the conservatives have so expanded public sector spending, with 2 wars and the 3T TARP at home, that it will in fact be difficult for Obama to spend it all.

Couldn't have wished for a better gift from Bush?

Brave new market world

Barron's this weekend explains the world has changed. It means quant models need to be rethought.

What is being predicted as rare events by the models are daily occurences.

All the melodramatic talk of the lowest-ever consumer-confidence reading, the greatest increase in the money supply and the highest sustained market-volatility levels in the annals of markets is spreading numbness.

The clustering of so many once-rare "90% days" -- when 90% of stocks and trading volume move in one direction -- has muted the commentary on them. When the Dow industrials jumped 6.7% Thursday after erasing steep losses, it was their largest one-day jump since...Oct. 28. So maybe it's telling that the morning after this huge gain (and 11% intraday reversal), the market story made neither page A1 of The Wall Street Journal nor the front page of the New York Times business section.

The world has changed, the models are virgin once more. Hacker quants are going to be in demand for a long tim…

OR: riding the eee wave

Just wanted to do give a quick week end update on Open Remote. We hang out around OR skype chat these days. This is a good way of working. Everyone is remote, but chatting with someone in China is not a problem. It is fun and it also leaves a trace you can read. The chuit-chuit sound is as intrusive as email so it works for me.

Most notable, Juha is making progress on the hardware. We were looking at assembling custom hardware to fill the role of the Controllers. It is a Linux box on miniATX hardware (Alix, Atom etc). After spec'ing around we are going to go with the eee. I am awaiting a shipment of 10 B202, origin TW. These will be OR limited series :) development machines. I was going to have them tagged by a talented street artist here in Madrid, but he flew back to Chile.

By standardizing on the eee it enables us to focus on software and delivering a box that works with IR as a milestone. We are actively pursuing delivering iPhone-IR integration as a first runtime. The …

CDO schematics

Look at this thing. That is the "architecture" of a CDO. Does it remind you of object design a little bit :)

Oil at 57

such volatility in such an important commodity is astounding. How can the planet "plan" with such price variations. From 140 to 57 in 3 months? How can this be the result of offer and demand.

BBB to AAA, the CDO trick

After rereading the article below and help from wikipedia, I finally understood how to transform BBB debt into AAA debt, and the whole colateralized debt obligation (CDO) thing that seemed so magical and is supposed to have gotten us in the mess.

The trick is actually quite simple. It says put all your BBB together in a company (SPV or Special Purpose Vehicle) and redistribute payments from the lot to create a sub AAA tranche. The investors in that tranche are holding on to a AAA rated security.

By redistributing the cash flows, you can in fact extract 10% of AAA and leave 90% residue that is worse than the original BBB. Making up numbers here.

Investors awash in leverage, loved to consume the AAA tranche, plus some entities can only buy AAA securities. Bankers loved to make them.

Furthermore I am under the impression from reading this article that they in fact recycled the leftovers from the first CDO process into another CDO. Except at that level you are stretching to find a cash…

The wall street corruption as a loop

Great article, the end of wall street's boom. It is a little long but reads really well. Basically this guy puts the root cause of the current mess at banks going public. From the comments, a program for why Wall Street went kookoo.

Comments mine.

Posted: Nov 11 2008 11:05pm ET
I imagine the code review went like this:

"Hey wait, that function never returns -- it's infinitely recursive!"
"Yes, but we get a payout on each recursion"
"...How soon can you get it into production?"

void createCommissions( shittyLoans )
commissions = 0.0

// Shitty loans get securitized as CDO
cdo = BulgeBracketFirm.formatAsCDO( shittyLoans )

// Ratings get assigned to the securitized debt, AAA
aaaDebt = RatingsAgency.formatAAA( cdo )

// Wall Street makes money selling debt to investors
commissions += BulgeBracketFirm.Sell( aaaDebt, bulls)

// Hedge the CDO with a Swap.
cds = BulgeBracketFirm.createDefaultSwap( cdo )

// There is two sides to the trade, notice that is never the Firm

TARP is a hedgefund

The lack of transparency on the TARP, the name given to the US gov rescue program, may be by design. It doesn't want to show where all the stuff is coming from. It is on record, just not public.

The TARP is buying hedgefund grade securities and getting a lot of volatility on its books. It is a 700lB gorilla entity in a market that measures 1500B? Yes, the TARP is a hedgefund, and a big one. The system generated too much bad debt and systemically. TARP is here to take care of it. Time for the asset class to appear as just an expensive fee schedule. Will the hedgefund industry go poof! like Iceland did?

But don't cry for the masters of finance. They got their bonuses on a annual basis and in cash. They will do just fine, through the credit winter. In fact they are looking forward to some well earned R&R now that that weather is getting rough. Thank you for the fish! When the going gets tough, the hedgefunders pack up.

Fintag's funny


USA and the war on intellectuals

This is something I have felt for a long time. Being a over-educated frenchman, I always felt this anti-intellectualism. Not that it bothered me.

Obama and the War on Brains

Barack Obama’s election is a milestone in more than his pigmentation. The second most remarkable thing about his election is that American voters have just picked a president who is an open, out-of-the-closet, practicing intellectual.

Maybe, just maybe, the result will be a step away from the anti-intellectualism that has long been a strain in American life. Smart and educated leadership is no panacea, but we’ve seen recently that the converse — a White House that scorns expertise and shrugs at nuance — doesn’t get very far either.

We can’t solve our educational challenges when, according to polls, Americans are approximately as likely to believe in flying saucers as in evolution, and when one-fifth of Americans believe that the sun orbits the Earth.

Almost half of young Americans said in a 2006 poll that it was not …

AIG second bailout: $150Bn

The fun never stops. A huge bail-out package is announced this morning to the tune of $150Bn. That is a big number for ONE company. It goes to show that risk distribution via CDS was a bit of a mirage. CDS ended up concentrating at the re-insurance level a.k.a AIG. It does provide a big fat target for the mother of all corporate bailouts.

From the FT:

The renegotiation of the bail-out, which could be politically controversial, came after AIG rapidly used up most of the government original facility, raising fears that it could run out of cash.

The first wad of cash was $85Bn. They burnt through that money in a blink. AIG is nationalized at 85%.

TF 16. Nov 2008 Ronnie Foster

Download file here.

You know when people say “there is a candy in store for you?” meaning you have been missing out on something great and you are in for a treat. Via the play-list of DJBone on RA, I discovered the work of Ronnie Foster. Canadian born, living in Japan, musical drums genius.

Immediate like for me, on first ear. Heavy drums. Strong Detroit sound, hi-hat patterns (!). Then melody on drums and synth. Yes. It is a good energy head sound.

So it is natural that it would mix well with some deep house. Although one can hardly call Aril Brikha deep house. He is technically classified as Techno, but truly the drums from Foster are dominant anyway, so it is the Aril melody that comes out and that melody is house. Or at least the resulting mix is.

The mix is 20 minutes long with 3 titles from RF that stand out for me,

1- Techrider. RF
Excellent drum driven track. Plays solo in the beginning and is repeated on house.
2- The Pretender. RF
Something .... is happening. I lo…

Stem Cells on tap

Via Science.

To rule out any risk of viral vectors integrating into the host genome and causing tumors, Okita et al. (p. 949, published online 9 October) used a plasmid transfection procedure to introduce transcription factor genes into mouse embryonic fibroblasts to make pluripotent cells. These cells show many features of embryonic stem cells, including the expression of pluripotency markers, as well as the capacity to develop teratomas and chimeras when transplanted into mice. Importantly, there was no evidence of plasmid integration and, although less efficient than other methods, this method looks like it will offer a safer way of inducing pluripotent stem cells.

Basically this is a safer way to go about delivering the transcription genes necessary to trigger a pluripotent state in embryonic muscle cells. It is safer because it does not use viral vectors that affect the target DNA by retro-fitting.

The resulting cells express protein markers that are signatures of pluri-potent ce…

Carbon nanotubes as injectors

Via Nature a domino like collapse in nanotubes. Pinch the end of a nano-tube and it will collapse on all its length. Driving force is Van Der Waals in this case (electrical).

Dominoes in Carbon Nanotubes

Tienchong Chang
Shanghai Institute of Applied Mathematics and Mechanics, Institute of Low Dimensional Carbon and Device Physics, Shanghai University, Shanghai 200072, People's Republic of China

(Received 17 June 2008; published 21 October 2008)

We demonstrate by molecular dynamics simulations that the domino process can be developed in single-walled carbon nanotubes (SWCNTs). Once a section of a SWCNT with an appropriate diameter (>3.5 nm) is collapsed, the successive collapse of the neighboring portions can generate a domino wave along the longitudinal direction of the tube. The wave is driven by van der Waals potential energy and its natural speed can be up to 1 km/s. Molecules inside the SWCNT can be accelerated by the domino wave and finally shot out. The finding shows for the…

O/R: The installer's dilimma

Home Automation today is an expensive hobby. To play in that field you need to commit $/E100k. It doesn't need to be that way. The cost of hardware, built at $5 and sold at $500, is there to take care of the ecosystem needed to implement the solutions in the field, a.k.a "the installer".

The reason the margins need to be so big is because the installation and maintenance side of the job are so time intensive. You do few jobs per year, so these jobs need to be expensive. This has confined automation to commercial and high end residential. The cost of automation becomes marginal compared to the whole but doesn't scale down.

To scale volumes and profits, one has to save time. Saving time in programming, installing and servicing are ways to scale the activity up.

Some of the self service tools we are developing go a long way towards that goal. You will find that the iPhone UI we are building is going in that direction with easy to use web based interfaces so that…

O/R: What is in a name?

Matt Asay asks us what is in the Open Remote name.
For him it means pointing remotes at houses. He was surprised to discover that we do Audio-Video control and Home Automation control. Frankly there isn't much in the name.

I wanted it to call it iRemote, which was an even more restrictive name. The website was kind of available but the name was already registered. Then Juha Lindfors, an old JBossian, pointed out that Open Remote was available both as a URL and a trademark. So we went ahead.

We are making progress on the software and hardware fronts. See Juha Lindfors progress report on Hardware.

OpenRemote October Update

It's been a while since I last blogged. There's been a lot of activity happening in the forums and some discussions behind the scenes and it's time to summarize some of those here.
Controller Hardware

One of the main things we've been doing over the last month is decisions on the pre-built hardware boxes. As you may know, we have a hardware refe…

Deflation, Inflation, the debate is back

Sustained variants of D and I are always and everywhere monetary phenomenons. I have this theory that what we have seen recently (95-08) in terms of market growth, was largely the result of monetary expansion showing up as asset inflation. Growth can be mistaken with asset inflation in fact.

And if the process is in reverse will we in fact see strongly negative growth following monetary levels or is there a magic floor at 0%? In that light some commentary in mainstream press goes as far as saying that stagnation, a la Japan, would be a best case scenario. Maintaining nominal zero would be an achievement.

This morning the FT argues that the governments will be able to balance inflation and deflation. A positive scenario.

But remember that most of the leverage was in the financial industry, is there enough room in real industry, for the government to inject that kind of money into the economy through public works. War economy follows the same logic although I would hardly call it pu…