Indy Telecom & Industrial Media

NASDAQ has an interesting article on how government accounting works, and how (they claim that) inflation was low because oil prices surged.

To quote from the article:

As odd as it sounds, the government reported that inflation was at a four-decade low in the third quarter, primarily because import oil prices rose so much.

…

Because of the way the government counts and reports the numbers, real-life inflation was understated and growth was overstated.

And of course, they go on to provide a more detailed explanation on how that was made possible by the accounting geniuses working for Uncle Sam (were these guys taking lessons from Chidambaram or something? Or Andrew Fastow maybe?).

The accounting is right. But it’s not reality.

You bet.

As a lot of people predicted, the Feds have lowered the rate yet again by 25 bps.

While this may help the sub-prime and housing markets, it is probably going to be detrimental to other consumer-lending operations. And I think that this move is likely to have some rather severe ramifications for the US economy in other ways, as well.

For one, the USD slid to all-time lows against the Euro, with the Euro hitting 1.45 for the first time. On top of this, the cost of oil has hit all-time highs at close to $96/barrel.

Both of these are bad enough by themselves. But with the new rate cut, what’s likely to happen is that there is now more currency being pumped into the economy. This is only going to drive up the inflation further.

And given the state of the financial sectors today and given that every other i-bank (with the sole exception of my dream-company, Goldman Sachs, of course) is down in the dumps, this is probably not a good thing for the economy.

The other thing that I feel rather strongly about is that the economy probably needs a 10% correction that needs to happen. Now, you can artificially curtail that from happening, but doing so will work for only so long. Eventually, the numbers catch up with you.

Also, it’s been known that it takes longer than just a couple of months for such rate-cuts to seep through the market (I’d love to work on building models for this – ah, some day, when I have the time). So, it is probably too early to see an impact of September’s rate cut, leave alone the new one.

Given all this, the rate cut may help bail out the stock market for now, but it is probably going to be very short term. And since the feds don’t want to be seen to be bailing out the stock market every time, a rate cut will probably not happen in December (speaking of which, Business Week has a rather interesting list of reasons for this, as well).

But what does it mean for the consumers today? That’s the more important question, and the answer to that will probably not be known for a while.

So, my folks were supposed to fly back to India today through Air France, via Paris. But as it turns out, there was a five-day Air France strike, targeted particularly at the Charles de Gaulle & Orly airports in France.

Of course, we were blissfully unaware of this and when we checked the status online, we had a scare. Rather than inform the passengers that there was a strike, the website just said that their reservations were on a waiting list. The whole thing was so confusing that we finally gave up and just called them. You all know just how much I love talking to Air France.

This time, we decided to call Air France India in the hope of better service. Their Chennai counterparts said that their complete system was down and gave me a number in Delhi to call. I finally called Air France in Delhi, and a surprisingly friendly guy named Suresh helped us out.

Now, it turns out that they may fly out tomorrow, but nothing is certain yet.

And oh, this has cost Air France a rather pretty penny and so apparently, everyone is busy suing everyone else over the strike. The travel agents are suing Air France and in turn, Air France is suing the three unions that were responsible for the strike.

Nice.

Welcome to the subprime meltdown – you can check out any time you like, you can never leave.

(via Dealbreaker)

I think Bernanke is being asked the question, “Have you stopped being a puppet of the market yet?” as he decides upon the rate cut.

If he does, he’s going to have to try hard and portray himself to be an independent decision maker. If he doesn’t, well, he’d better find some way to help the markets real quick.

A weird Telugu PSA on why you should use condoms. And oh, it gets particularly interesting ~5:42.

I was talking with someone at work the other day and we got talking about how companies should protect themselves against currency fluctuations. Given the recent conversation that’s been taking place on my article on the failing US Dollar, this was something that caught my attention.

So, how do you protect companies operating in more than one part of the globe from forex fluctuations?

One obvious way, of course, is to hedge your conversion, either by forwarding, spotting or swapping your contracts. This is usually the most effective way, but it does come with its own problems.

The second way is to have a reserve where open currency convertibility can happen, which while not oblivious to market fluctuations does let just your reserves take the beating.

The third way, depending on the country, is if you have free currency convertibility available (e.g. an American company operating in countries that allow free dollar convertibility w.r.t the local currency).

Of course, some economies by themselves tend to project a stable (or penned) value w.r.t other major currencies, in order to encourage investors and trade. China is the perfect example of this, where everything is pegged to their biggest consumer – the USA.

So, are there any other ways in which companies could protect themselves against such fluctuations. The reason, of course, is that the company that we were talking about wasn’t doing that good a job, and we were wondering if they were hedging at all, or if they were, they weren’t doing it properly.

Thoughts?

Jim Rogers, who worked with George Soros to build the multi-billion dollar Quantum Fund, feels that the US is “undoubtedly” in a state of recession. Not that I necessarily disagree with him; but I just feel that the market may need to make as much as a 10% correction before it can think of going back to being in the green. That could take as little as six months, given that there have been a lot of write-downs by financial institutions — or as long as a year or more.

Of course, that’s assuming that the shrub in power does not do something ridiculously stupid (you know, like attacking Iran) or some such crazy thing. In which case, we all can go back to living in caves etc.

And to top it off, Rodrigo Rato, the IMF chief, has warned that the dollar may suffer “abrupt failure”. And of course, other countries are taking steps to temper their local currencies from appreciating too much against the dollar, mostly because some of them are worried about a repeat of the late 1980s. This includes Asian countries (especially India and China) and of course some European countries which are wary of the sharp rise of the Euro against the US Dollar.

The US Treasury secretary had these pearls of wisdom to offer us –

US Treasury Secretary Henry Paulson, addressing the plenary session of the 185-nation twin financial institutions, also sounded a note of caution.

“We need to continue to be vigilant, because all of our capital markets are not yet functioning normally,” Paulson said.

“Not yet functioning normally” — when financial institutions are announcing losses in multi-billions and profits fall over 90%, not normally is as good a phrase as any, I suppose.

Their website sucks, their support sucks, their call-centers keep you waiting on lines for hours (I’d been on hold for over 2 hours with no luck) and they do not even give you the option to turn off the stupid song that’s on an infinite repeat loop (not that it’s a bad song, but listening to it on one ear for two hours straight does give you a headache).

And good luck finding anything on their website. All that I get is errors — great QA, right there.

Secondly, who the hell runs their IVRs and call-centers? Are they idiots? Seriously. At least their agents seem to know what they are doing, and that’s a saving grace. But otherwise, it’s a horrible experience. Imagine if I were in a hurry — do they really expect customers to wait on line for hours at an end?

Worst. Customer. Service. EVER.

Someone at work today gave me a copy of John Bogle’s article on the need for Democracy in Corporate America.

While I don’t necessarily agree with everything that Mr. Bogle postulates, it most certainly is a rather interesting article. Worth a read.

Today is the 20th anniversary of the Black Monday crash of 1987, which was something that everyone’s favorite cynic Mr. Taleb would call a Black Swan event.

It would have been nice to look back and reminisce, if it were not for the fact that post August, the markets aren’t exactly healthy today, either.

And in related news, Wallstrip turned a year old this week.  And they celebrated it by talking about one of the two most profitable areas (not sex, since Lindsay Cambpell makes up for it) — guns.

Finally, I’ll be off the weekend and probably a bit for next week. I’m going on a trip to the Smokeys with folks and Lana to hopefully catch some fall colors, so see all you wonderful readers sometime next week.

Have a good weekend, all!

The MIT Technology review has an interesting two part write-up on the quant meltdown from this August.

Extremely interesting and a must-read.

A quick look at the market the past few days would suggest that the banks and other financial institutions are having a particularly bad time. Most of it is the remnant effect of the sub-prime mortgage tomfoolery that everybody happily part-took in, but the other half is the serious credit crunch that’s been going on in the market.

And of course, a lot of this originated from the fact that these guys decided to sell asset-backed securities when their very assets were in question. So, our beloved (I use that term very loosely, of course) treasury department decides that that is not a good thing.

What do these guys do? Citi, JP Morgan Chase and Bank of America decide to come together and build a $100 billion Structured Investment Vehicle backed by – get this – more asset backed commercial paper. Heh.

Quite aptly, the folks at Dealbreaker have termed this “master” SIV as The Entity.

This weekend, a bunch of us were at the Halloween Haunt at Kings Island here in Cincinnati. They had this weird looking animatronics monster in some radioactive themed zone that reminded me of one of the monsters in Half Life.

And now, look at these guys –

Weird, eh?

As a patent attorney who deals with computer software, I have become somewhat inured to hearing that my entire profession is evil and that the IP system is nothing but sand in the gears of industry. Today, however, I ran across something new: apparently, there is a misconception that even knowing about patents is somehow dangerous, and should be avoided. Case in point: this Groklaw article about the first patent lawsuit filed based on the use or sale of the Linux operating system. Overall, the article was an exercise in tracing connections between Microsoft and the current plaintiffs. However, the following quote caught my eye:

Here’s the patent, for those who can look at it without risk. If in doubt, don’t.

The quote is written as though patents were radioactive, which is simply not the case. At one point, it was true that knowledge of a patent gave rise to an affirmative duty of due care to avoid infringement, and that failure to satisfy that duty could lead to enhanced damages in the case of litigation. However, at this point, that is simply false. The Federal Circuit, which has appellate authority over patent cases has clearly eliminated that duty and stated that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness” (In re Seagate)(emphasis added). This means that, unless there is an objectively high likelihood that you are infringing a patent, you can’t be found liable for enhanced damages based on willfulness. Also, my thought is that if there is an objectively high likelihood that you infringe a patent, it’s still better to find out yourself by reading the patent (so you can design around the patent or take other protective actions), rather than waiting for the patent holder to sue you and having to pay an attorney to defend you from their slam dunk infringement case.

The take home lesson from all this? There is no good legal reason to avoid patents and, if you happen to read one which is relevant to your life, you can save yourself a huge amount of grief by dealing with it proactively, rather than waiting till the patent holder drags you into court.

As a note, I normally blog about the law surrounding data privacy and information security here. Since I already have a blog devoted to those topics, my posts here will cover anything else that comes to mind.

As part of my job, I do a lot of data analysis and interaction analytics. Lately, I have been playing around with this tool called Weka, from the University of Waikato, New Zealand.

And last night, I was bored and decided to play around with some of the historical stock data from the S&P 500 with Weka and see if I could do some interesting things.

Initially, I had trouble getting JVM to work with more memory and it turned out that this was a fairly common memory problem with Weka. I finally managed to fix it (but it still is only running on 1 GB of memory; for whatever reason I couldn’t get it to go beyond that).

Since I got that figured, I’ve been trying to run a clustering algorithm on the data for a while now (and it’s been taking forever). So far, I’ve found some interesting patterns, but here are some interesting teaser visualizations.

And if you are interested in playing with it yourself, here is the ARFF file for the stock data (zipped).

Update: This dataset is from 12/31/2004 until 10/09/2007.

While I do enjoy the occasional Chardonnay, Riesling or Merlot, I know little else about wines.

But I was rather reassured to read that I was at least not foolish enough to spend (my imaginary) millions on fake wines that are auctioned off as rare commodities – from tens of thousands of dollars to anywhere in the millions.

And on that very topic, The New Yorker has an interesting article on how some wine con-artists make their living doing just that. Better yet, it would seem that this is not something that’s necessarily done under the wraps but rather at large auction houses, such as Christie’s of London.

Shakespeare may have said, “… good company, good wine, good welcome, can make good people.”, but the man is also known to have proclaimed, “Lord, what fools these mortals be!”

Indeed, sir.

…what would Hari Seldon do?

Start a hedge fund? Become a quant? Father the theory of psycho-analysis for financial markets?

(This random thought of the day brought to you by too many numbers on my mind…)