Thursday, September 29, 2005

The start of the pop?

Three harbingers:
1) A friend of a friend recently bought a condo in Boston that listed for $500K for about $420K
2) I just got an email from a real estate broker that's looking to go to business school
3) An appartment very similar to mine is going for $500K, which is really close to the 20x multiplier between rents and prices.


The company I work for, Creative Good, came out of a newsletter run by our founder, Mark Hurst, called Good Experience. Mark recently (finally?) put together a great little web-application called Goovite (

Goovite is a good version of Evite (Evite, I guess, is a bad version of Evite, since I don't know about other online invite services, and Evite is really bad.) I used Goovite to send out invites for a BBQ I'm having this weekend. One person commented that "it was very simple. I'm not sure why more companies don't do more simple things." Well, Creative Good does and we try to encourage others to do so as well.

Goovite's key features:
- Simple to use
- No registration
- Not annoying

It's so much better than evite it makes my teeth hurt. Check it out.

Tuesday, September 27, 2005

More on housing

Angry Bear has an excellent post with great links on housing. The trigger for the post was a contrarian article by three economists who said that housing was not overvalued if appreciation continued at historic rates.

Just because it is a cheap trick to write an article at odds with conventional wisdom (e.g. "CEOs underpaid", "Americans save too much", and "Healthcare spending is too low") doesn't mean contrarian positions aren't worth considering. Everyone agrees that housing is more expensive now than it was 5-7 years ago. This must be because 1) housing was too cheap in the past or 2) housing is too expensive now. Certainly there were periods in time (in the US at least) where inflation meant that buying a house was way better than renting one, so purchasing has been undervalued at least in some moments in history.

An analagous phenomenon is the "equity risk premium", which is the gap between what stocks should be valued at and what they are actually valued at (historically stocks have been consistently underpriced on a risk adjusted basis. This gap is called the "equity risk premium" and economists have worked hard to explain it. It's also the basis for books like Stocks for the Long Run

Personally, I feel that housing is overvalued in general, and certainly overvalued when compared to renting. If the new prices are correct, then we'll see rents rise in the future and prices remain stable. If prices are too high, we'll see them fall, and rents remain stable. Either way, I see no upside in housing prices -- they can either remain grow inline with inflation (since they are now at the "correct" price) or they can fall. If they grow with inflation, there is no incentive to buy now. If they fall, there is an incentive to wait (and enjoy the too-low rents of today).

Friday, September 23, 2005

Inadvertant humor?

Heh. This Slate argues that we should try conservative ideas about poverty reduction when we construct New Orleans because we're likely to learn valuable things from the experiment. Fair enough. But I found this to be grimly amusing
The only problem: They can't find a corpse—that is, any victim whose estate would owe any tax. But let Republicans go ahead and kill the death tax there if it makes them feel better. Heck, let them privatize Social Security for poor blacks in New Orleans (who Bush says get a raw deal under the current system).
Any corpse they find older than 20 but younger than 65 will have gotten a raw deal from the current social security system. They will have paid into the system, but will never take a dime out, nor will their next of kin (or surviving relatives) get any of that money either.

Tuesday, September 20, 2005

Nintendo and the future of games

Nintendo president, Sitaro Iwata, has long beleived that video games are heading for a crisis. The gaming industry has been shrinking in Japan, and he beleives it is only a matter of time until the markets in the US and Europe follow.

He beleives this is due to games become too complicated and boring (where are the innovative new forms of gameplay)? While XBox and Playstation continue to fight their same-old same-old polygon wars, Nintendo has been innovating on the interface side to enable new forms of gameplay.

The touchscreen Nintendo DS was their attempt at revolutionizing the handheld market, and the upcoming Nintendo Revolution, with its motion sensitive expandable one-handed controller, will be their swing (literally) at the console market.

There is a great video of Iwata discussing Nintendo's strategy and the success they have had so far. (Long). Certainly the problems he cites -- people grow older and have less time to master games, people cannot handle the complex controls, people are bored with FPS, 3D platformer etc. etc. resonate with me.

Kevin Murphy wins MacArthur Genius grant

U Chicago economist Kevin Murphy has just won the MacArthur Genius grant. He is definitely a genius, and also a great teacher.

Dollar decline: optimism vs. pessimism?

This post by Brad DeLong is excellent. He reports back from Jackson Hole on those who felt a large decline in the value of the dollar would be bad vs those who felt it would not be a big deal.

The optimists would argue
Yes, the dollar is likely to decline steeply either when foreign central banks stop buying dollar-denominated assets to keep the values of their currencies down or when international speculators lose confidence or both. But so what? The fall in the value of the dollar will boost foreign demand for U.S. exports. Workers will be pulled out of other sectors into the export sector. The effects of the dollar decline are much more likely to be a plus for employment rather than a minus, a boom rather than a recession.
The pessimists would say
When foreign central banks stop buying or international speculators lose confidence in the value of the dollar and thus stop buying U.S. long-term bonds, two things happen: the value of the dollar falls, and the rate of interest on dollar-denominated long-term bonds spikes. The spike in long-term interest rates discourages investment spending directly, and also discourages consumption spending because higher interest rates mean lower housing and stock prices and thus lower consumer wealth. The fall in domestic spending happens now. The rise in exports as the falling dollar makes U.S.-made products more attractive to foreigners happens two years from now. In between, a lot of people are unemployed--and as they are unemployed, they cut back further on their spending. Plus there is the risk that the fall in the value of the dollar and the fall in long-term asset prices generated by the interest rate spike will cause enough bankruptcies among financial institutions to cause a flight to quality--which will further raise non-safe interest rates, and further discourage investment and consumption spending
The whole back and forth is very good. At the end, Brad summed up
Martin Feldstein said... the domestic-side economists were keying off the past experience of the U.S. after 1985 and of Britain after 1982, and so were saying "no big deal"; while the international finance economists were keying off of the experiences of developing countries that had run large current-account deficits--Mexico 1994, East Asia 1997, Argentina 2001
Based on this, I am firmly in the optimist camp. I was working at a hedge fund during the East Asia crises of 97 and it was pretty clear to me that the problems there were caused by 1) people holding foriegn assets in local currency and 2) a very homogeneous investor class. When the currency fell, people were unable to make their margin calls and sell into falling markets. Since all investors were in exactly the same situation, no one was capable of stepping in and buying the bargains. Liquidity dried up and the market tanked.

This is simply not the case for the US. Firstly, most US bonds were paid for using dollars. A dollar depreciation is not going to make most bondholders much poorer. Secondly, there are lots of different types of US bondholders, so while some may need to sell into falling markets, plenty of people will be standing ready to snap up bargains. To put it another way, I think the liquidity in US bonds is very robust, and I'm basing this notion of liquidity not on trading volume or depth, but on the diveristy of the investor class.

Incidently, I often rib DeLong as being a frothy nut. In case you think I'm being unfair, read his excellent article and then read the comments left on the site. While Brad cannot be held accountable for who reads his site and what they choose to say, I think it's informative to see who reads his site and what they choose to say:
Let's put it this way. In an idiologically hostile world, why not brings US to its knee and buy the pieces on the cheap? Economist only think about this or that monetary. What if, a shrewed global investor play the game instead?

The question should be asked, then: what does it take to destroy US economy using currency exchange and what precious technology can other countries buy?

Money is just that 'carrier of value', If it worth more to destroy it by gaining a lot of technologie and institutions, why not?

eg. If China destroys 80% of US economy, will walmart suddenly stop importing cotton underwear or Saudi Oil?Who says we are too big to fail. What if Russia and China play our game in the 80's. Let's bring down US and buy out the pieces. Make it beg. How much will it cost? $500B to $1T maybe? It's a good deal if you ask me. Weapons, relative large market, intelectual propterties.

The british empire was also thought to be too big to fail once.

Anybody who thinks The middle east, Russia, China, and India are so needing our market to survive is deluding themselves.The US is openly running a confidence game, relying on past glory and the gullibility of the rest of the world. Well, you can't fool all the people all the time. Remains to be seen when those buyers/lenders will wake up - but wake up they will. Then it'll be an Argentina here, and we'll discover the value of intellectual property in a depression.

The tragedy here is that Economics is such a pathetic science, and fails to offer any real help with these giant blunders. Just a lot of fashionable speculation dressed up with fancy but baseless math.

The other factor OF COURSE is the devastating incompetence and corruption and cronyism of our Rethuglican oligarchy. If the voters don't take a sharp turn away from this crew, we can be SURE that any transition will be completely screwed up, in so far as the govt can screw it up.

Perhaps the deciding factor is really the American voter. If they remain under the sway of the Rethugs, kiss the good life goodbye.

Monday, September 19, 2005

Tricky in Boston

This is a very hard holiday to celebrate in Boston, but I'll try.

AAAAAAAAAAAAA! Close enough?

Easy cell phones

I want one of these. Maybe they will become the OXO Good Grips of the telco world? OXO Good Grips were easy to use kitchen utensils for old people, but everyone loved them so much that they became a mainstream (and much imitated) line.

Nintendo Revolution ad

This is an ad for the new Nintendo Revolution, highlighting all the cool things you can do with its controller. It takes a long time to load, so be patient. (Note: old link was broken, have updated it to Joystiq article which has a click through).

I particularly liked the clips showing a young boy with his grandfather, or a group of girls, playing simple fun games. While Sony and Microsoft chase after the 24 year old Halo addict, Nintendo thinks that games could be for everyone if they were simpler and more innovative. I find XBox and PS2 games too hard to play. They take too long to learn and go on for ever. I no longer have the time or motor skills to play them. And I'd prefer games that my wife might (occassionally) play (if only for a few minutes) as well. Mario Kart falls into this category, but few other games do.

Belmont Club

A superb number of posts from the Belmont Club, as usual. I thought this one was particularly good.
Apart from its symbolic significance to the Shi'ites, the pilgrimage to Karbala must constitute a prime target in a month full of prime targets for the insurgency. In a period when Iraq is preparing to hold a plebiscite on its constitution and the insurgents seek revenge for Tal-Afar, the pilgrimage is like a cherry sitting on whipped-cream topped fudge. Not only that, but as Bill Roggio points out, there is a whole slew of offensive activity against insurgent in Anbar, Haditha and Qaim and even Samarra and Ramadi. The enemy must react. Some sources have warned of a Great Ramadan Offensive aimed at getting back at the Coalition for all the knocks the invincible (are you listening George Galloway?) insurgency has received.

Saturday, September 17, 2005

Whither VC?

One of the many lessons learnt in the internet bubble of the late 90s was that VCs were bad. In 99, the conventional wisdom was that if you could get VC money, you would become rich. Two years later, it was pretty clear that VC financing was no path to wealth and if anyone did not rich it would probably not be the VC, it would be you. Anyone who has looked over a VC term sheet or negotiated with them thinks they are a total rip-off. But I think the Internet has made start-up financing much more efficient, and reduced the value (and role) of VCs in startups.

Once upon a time, starting a software company required a big team of engineers and a big salesforce. This required money, hence venture capitalists. Now, A small team of folks can put together a great web application using Ruby-on-rails, or Ajax, or any other low-latency web technology, and a single person can see if anyone might buy it. In all the assumptions that go into a startup, the biggest one is "will anyone actually shell out money for this thing". If your revenue projections are close, everything else will work itself out. And a company with customers is worth a lot more than an idea.

Since there are enough rich entrepreneurs out there now, finding the $100K-$200K to get something off the ground should be pretty easy. If you can't figure out if your idea has legs for that amount of money, it probably doesn't (at least not in your hands).

What triggered this train of thought? I was in a VC office recently and found it very empty.

"Long-tail, e-tail"

Remember -- you heard it here first. I'm announcing the next big thing on the internet -- "long-tail, e-tail." It means exactly what is says -- the next wave in web retailing will be niche vendors selling niche stuff. Some favorites of mine include Headroom (headphones), Timbuk2 (bags), and Penners (guayaberas). You may now have your sticky eyeballs back.

Friday, September 16, 2005

Nintendo Revolution

While Microsoft and Sony battle it out over polygons, features, and additional buttons on joysticks, Nintendo introduces new dimensions of gameplay. Check out the remarkable new Nintendo Revolution joystick and the explicit goal of making it easier for normal people to play console games. I like my Gamecube, and I'm very excited about getting a Nintendo Revolution.

Ebay buys Skype

A buddy of mine actually works in the finance group at eBay, so I called him up and asked him why (oh why) they bought Skype. He's new there and referred me to the webcast, which I have not bothered watching, and mentioned something about VoIP being helpful in complicated transactions like buying cars.

I am unconvinced. Firstly, while Skype is assuredly useful in complicated transactions, so is the telephone and I don't see eBay buying AT&T. Moreover, when one thinks of all the potential things VoIP can do, assisting auctions falls near the bottom of the list. And if eBay just wants to be a telco that's fine, but I can't see why someone else couldn't do that better. I have not heard any reason why eBay can wring more value from Skype than anyone else.

If you ask me, I think eBay is spooked by Google's IM service (which includes VoIP, like all other IM clients) so wanted to buy some VoIP too. Both firms seems to be violating the iron law of strategy: profits dissappear as differences vanish. If Google wants to run ads along IM that's fine, but VoIP IM actually reduces this ability. eBay following Google's folly is even more foolish.

Saturday, September 10, 2005

Jane Galt and Katrina

Jane Galt has a series of excellent posts on hurricane Katrina and the devestatin, tragic aftermath in New Orleans.

Firstly, the makes the uncomfortable point that, in the US the poor are poor because:
1) The don't finish high school
2) They have children outside of marriage
3) They have more than two children
4) They don't work full time

They make these choices because they are not good at making good decisions, they live in social groups that have (and enforce) damaging norms, they have personality problems. I may be putting words in her mouth, but I'd phrase it as, 1) on the margin, bad culture exacerbates bad personality traits and 2) some people are going to have bad traits and those people have to end up somewhere.

These problems are, to a large part, intractable by governments, at least in a way that's humane. Think of the incentives you would have to put in place to improve these metrics:
1) School is actually improvable -- more on this later. But in general, you would further penalize high-school dropouts (although how, I'm not sure).
2) Delegitimize children born out of wedlock just as they did in the bad old days. Deny government payouts, and shun. The bulk of this cost will need to be borne by women.
3) Penalize poor people who have more than two children, perhaps by not providing any state child support at all. Again, the bulk of this would need to be borne by women.
4) Clinton's welfare reform increased workforce participation rates for poor people. Cut the minimum wage and welfare even more, and see that number improve more.

All of the above are basically finding someone who is down and kicking them some more -- very hard to support politically and morally repellent as well. As a society, we give stuff to poor people because the are poor and try not to think about how much additional poverty those transfers are creating (this may be a lot, this may be a little, I don't know the marginal elasticity for stupid decision making).

Returning to the topic of education, one argument against vouchers is that they will enpower poor parents who care about their child's schooling to take their kid elsewhere, leaving a concentrated pool of neglected children with no positive role models at all. I think its morally dubious to place the cost of socializing neglected children on the poor (and their parents) but there is also the very real risk that parents unable to take their children out of bad peer groups will end up having their (good) kid assimilate into that peer group instead of the group becoming more virtuous. The net effect of this policy could be more undersocialized, undereducated children, not less.

Kids that are seriously neglected need more (and different) stuff from a kid who is just poor. If the merely poor students can use their voucher to go to a good school somewhere else, it enables the remainder (children who have had the misfortune to be born to parents who don't give a damn about them) to get more specialized care. These kids need fewer classes in history and more classes in life skills.

Other good Jane posts:
Jane throws a fit at some smug European. I was informed by my own brother the other day that the Gulf Stream was broken due to global warming and catastrophe was imminent. Implicit in all of this is how bad the US is for not supporting Kyoto, even though Kyoto would do nothing to stop global warming, and the US pollutes because it produces. The irony is that my brother lives in Copenhagen, and so ought to at least know the discussion around environmental change in the local Consensus.

This post by Jane on the ignorance of left-wing commentators is also excellent. She points out that the area devestated by Katrina is as large and the United Kindgon, and that power was knocked out of the eqiuvelent of Ireland and France.

In particular, I liked
Y'all apparently don't even need the "natural" part to produce the disaster. A heat wave that wouldn't even make a New Yorker reach across the sofa to turn up the fan killed as many people in France as the worst-case scenario for American losses to Katrina. They were apparently not saved by Europe's admirably high fuel prices, its finer moral sensibilities about the poor, its stronger committment to taking care of its citizens, or [COUGH] its enlightened attitudes on matters of race and ethnicity.
When I first came to the US I was ignorant about the country in the same way that foriegn commentators are now. I had no idea of its dynamics, scale, or breadth. There is nothing stupider than one who has been educated by sitcomes and blockbusters.

Steve Jobs presentation style

I guess it helps to have the coolest, most beautiful technology on the planet, but Steve Jobs is a fantastic presenter. I wonder where he learnt to do that.


I first dismissed internet radio at first, since the marginal cost was greater than regular radio, and satellite alternatives seemed to solve the narrow casting problem more efficiently. I may have been wrong. I have been really enjoying KEXP online, and various excellent radio stations broadcast by the BBC.

I am also very much enjoying podcasts of radio programming as a sort of radio TiVo. People have called podcasting the next blogging, but I think this is wrong. I would rather read a person's thoughts than sit through them saying it. I can read faster, and most people do not have great radio voices. However, radio programming with music is *great* on podcasts. KEXP podcasts here.

I am also checking out Pandora.

Wednesday, September 07, 2005

Good lord

I am overcome with techno lust.

Monday, September 05, 2005

The Commanding Heights

I just picked up The Commanding Heights, and have been enjoying it greatly. It discusses how the destruction from WWI and bitter aftermath (with the Great Depression in the 30s) dramatically made the case for massive governmental expansion and intervention in markets, and how the new era of liberalism, born at the University of Chicago, took hold and now competes with socialist, centrally planned models. It is an excellent book, and I will write more about it soon.

It's also interesting to consider the arguments for centralized control with this reasonable account of "Liberals vs Conservatives" over at Angry Bear. Kash argues that Liberals believe that bad luck happens and that it is correct (and efficient) that governments step in and help in those situations, whereas Conservatives beleive that individuals should bear risk and responsibility individually. I would phrase the Conservative position as "people respond to incentives" and the line between helping people from misfortune and subsidizing (and therefore increasing) bad decisions is narrow.

The devestation from Hurricane Katrina is a mixture of appallingly bad luck and bad decision making. Marginal Revolution outlines the possibilities here
1. They were plain, flat out stupid.

2. They were not stupid per se, but human beings underestimate the potential for small probability, massive disruptions to their accustomed status quo.

3. They made a rational calculation, but just happened to catch the wrong number on the roulette wheel of nature.

4. Bad policy meant they didn't have many good options for leaving.

Sadly, #4 seems to have played a role:

"As many as 100,000 inner-city residents didn't have the means to leave, and an untold number of tourists were stranded by the closing of the airport. The city arranged buses to take people to 10 last-resort shelters, including the Superdome." (link here).
And here we are simply talking about people's decision to stay or leave, not investment in levies (which are discussed here). I am pleased to see serious relief efforts finally getting underway, but also believe that five years from now, New Orleans will be rebuilt, repopulated, and with levies that will not withstand a category 5 hurricane.

Great gmail feature

I recommend learning gmail's keyboard shortcuts. Keyboard shortcuts are a great way to dramatically improve your productivity at your computer. It's great that Google's brought them to the web.