Unspoken but Seemingly True

November 27, 2010

The recent wave of foiled terror plots has to make you wonder if our military and intelligence networks have finally been rebuilt to meet 21st century demands. While this sentiment is filled with apple pie feelings of confidence and safety, I highly doubt it is true. I don’t know that we have or can build technology or weaponry to win the war on terror. And I don’t know that the size of our army has any correlation to better outcomes.

The current administration, thankfully though, has not used terrorism as a device for manipulating the public and resulting policy as was done under Bush. However, with two wars still waging, the economy drifting along a bottom, and the standard disenchantment of the quality of civilian level public servants, it is hard for me to imagine that US security capabilities have been dramatically enhanced over the last two years.

Alternatively and more realistically I can imagine that some smart folks in the intelligence community may have found a low brow way to combat terrorism. It’s beginning to seem to me that our current counter-terrorism strategy is built on the old adage of “if you can’t beat em, join em”, relying on the common street tactic of “sting” operations.

I feel like I keep reading news stories with the same undertow. In today’s news a plot to blow up a tree lighting ceremony was botched by the FBI who had effectively set up a sting operation and waited until the moron tried to detonate explosives before nabbing him. This must mean that the surveillance was early and ongoing, and that the explosives in the idiot’s possession were engineered not to work. This would lead me to believe that our own government may be luring terror suspects into action with the promise to aid them in carrying out their sick sociopaths plots. Doing so of course with the intent of catching them in the act.

While to some this policy may be morally obscure and create some unease, at another level it is quite brilliant, so long as it works in our favor. After all the only way to successfully fight in a guerrilla war is to use guerrilla tactics. Jihadists are constantly testing Western systems to identify and exploit our own weaknesses. I’m shocked its taken us this long to identify a profound weakness in every holy warrior. The greatest weakness of any god fearing guerrilla is his faith in his mission and his belief that his success is preordained by God. This vanity in martyrdom ought to be terribly easy to exploit if you are willing to walk a very fine line, reminiscent of the television series 24. It seems more than obvious that the best way to catch a terrorist is simply to offer to help him. This ought to be a win-win tactic because the downside is that would be terrorists might simply find it more and more difficult to find people they can trust to carry out their horrid plans. This in and of itself would be crippling to a network that relies on speed and flexibility. With all of our technology and military might, it seems covert operations and intelligence are what will be required to “win” the war on terror.

At the end of the day we are all human and susceptible to our own self confidence. If we can make it easier for a terrorist to become a would be martyr by creating more avenues for then to believe they can carry out their mission then we can both control the outcome of events and obscure the trophy of martyrdom while catching a good number of would be martyrs in the process.

As modern terror networks adapt I wonder how long it will take for them to build the sophistication necessary to outsmart this age old tactic.

Welcome to New York City, 1609

November 26, 2010

Stumbled on this last weekend researching my New York City neighborhood of Greenwich Village.  Thought it was an extremely cool concept, with a whole new and almost endless project for Google maps.

Hey Google Map guys!  Once you map the whole globe by van, can you then try mapping the whole globe again by century, decade, year?

How amazing would it be to take any spot on earth and be able to watch its metamorphosis chronologically?  Assuming the Google Map guys keep on doing what they are doing, this may be possible in 10, 20…100 years time.  But it would be fun to go backwards from today.  I’d love to see Manhattan, block by block, in chronological stop motion.  We might learn something about building cities if we could look at history that way.

In any event the link below to is best described by the summary in the site owner’s own words.  Click on the image of the website to be directed to their page or feel free to cut an paste the address: http://welikia.org/explore/mannahatta-map/

Have you ever wondered what New York was like before it was a city? Find out here, by navigating through the map of the city in 1609. You can find your block, explore the native landscape of today’s famous landmarks, research the flora and fauna block by block, and help our team continue to rediscover 1609.

The Welikia Project

Why ‘Welikia’? And Where’s Mannahatta?

I’m Still Taken with Kinect

November 25, 2010

I’m am still dumbfounded by the Kinect platform.  It feels to me what the PC was to the word processor or more relevantly what Mosaic was to the World Wide Web.

I cannot see how this technology does not revolutionize computing.  It has been advertised as the Wii without the remote, however this seems quite short sighed to me as it beginning to look like a whole lot more.  As a Wii without a remote the implication is that it is “simply” enhancing/redefining the user’s interaction with existing software (games).  As amazing as that transformation would be by itself, the growing number of hacks of the technology being posted online show something far more sophisticated than that is now taking place.

I think this technology is truly disruptive in that it is creating entirely new applications which will soon be in search of a home.  And later, as the technology matures, experts will develop skills to create applications using 1st, 2nd or even 3rd order derivatives (hacks) of this real time 3D platform to meet complex problems.  I would imagine we may very soon see incubators and venture capital chasing this platform to build portfolios of IP, applications and products.

And the Kinect marvelously coincides with the television and film industries push into 3D displays.  It seems to me that 3D object recognition may be the precipice of an entirely new decade of technological advancement, and somehow I am not sure anyone else feels this way but me!  This either makes me irrationally exuberant about Kinect, or extremely naive.  And I am willing to accept either.  Since I’m a Mac guy though, this is not an intentional love fest for Microsoft.  The applications outside of gaming seem as endless as imagination itself.  I do wish Apple had owned this one!

Consider this seemingly simple hack below.  With a little vision, this could be come complete object recognition technology of the Star Trek variety. Forget scanning barcodes. Imagine a computer just looking at what you have in your hand and identifying it any any number of associated characteristics. Now imagine cross referencing a found object with a missing one, sorted for instance, by GPS coordinates.

Or imagine a full body scan in the comfort of your own home, with the data sent to your favorite apparel retailer for custom, made to order clothing that you can receive by mail.

My mind is small in comparison to some of the videos I have seen, and other people will certainly trump any pea-brained idea I may come up with.   But in general the possibilities seem truly endless.

Does anyone know how protected this platform is for Microsoft?  Is there room for them to build a monopoly around this technology?


Signs the US Can Still Innovate

November 22, 2010

The United States has been left for dead along with capitalism by a good number of people around the world.  People often forget that Microsoft and Apple were born out of past deep recessions, by authentic tinkerers who dared to dream.

There are a new set of viral videos over the last couple of days from a man named Oliver Kreylos at UC Davis.  His videos of the results of his hacking of the new XBox platform called Kinect which is able to allow gamers to use their bodies as the controller.  Oliver has essentially inverted the system, turning the sensors into 3D cameras that can recreate what the Kinect actually sees.  The results are remarkable, and the possibilities are astonishing considering this technology just hit “main street”.  I have pasted a number of links below to his most recent work.

I don’t know if Oliver is the originator of this hack and I am not surmising that he is the next Bill Gates or Steve Jobs, but I am truly inspired by his simple first steps.  It feels to me that this sort of garage innovation is a great reminder of what America still holds as a competitive advantage over the rest of the world: the disruptive combination of wealth and talent.

The videos of his breakthroughs are prehistoric looking for people spoiled by HD video, but it opens the door to a whole new host of applications.

And he seems to be keeping a Kinect hacking blog here: http://idav.ucdavis.edu/~okreylos/ResDev/Kinect/

For more cool videos of connect hacks and applications check out: http://kinecthacks.net/

GDP is Wasted on Me

November 8, 2010

In an increasingly globalized economy I find it absurd that GDP is still the primary commercially and academically accepted measure of growth in the United States.  For those who think GDP and GNP are just confusing acronyms, see the variety of short definitions and comparisons below as the nuance between the two is impotant.

Gross domestic product (GDP). The market value of goods and services produced by labor and property in the United States, regardless of nationality; GDP replaced gross national product (GNP) as the primary measure of U.S. production in 1991. (http://www.bea.gov)

Gross national product (GNP). The market value of goods and services produced by labor and property supplied by U.S. residents, regardless of where they are located. It was used as the primary measure of U.S. production prior to 1991, when it was replaced by gross domestic product (GDP). (http://www.bea.gov)

Or consider this simple side by side comparison of the differences between GDP and GNP.

GDP vs GNP (Source: http://www.diffen.com/difference/GDP_vs_GNP)

Or for a short lesson on the differences watch this video:

If the Bureau of Economic Analysis (an agency of the U.S. Department of Commerce) is correct, it is ironic that GDP was replaced by GNP at just about the time that the US corporations began systematically off-shoring production and systematically began penetrating global markets with a vengance.

Today US manufacturing industries are in systemic decline, as are most unskilled jobs that don’t require a US presence.  The off-shoring of entire industries and the loss of US competitiveness in many sectors has created what I believe will become a structurally higher full employment rate.  Said another way, an unemployment rate of four to five percent (half of today’s rate and emblematic of full employment)  is most likely never going to return unless the data is manipulated.  Some may recall that president G.W. Bush reclassified fast food workers assembling burgers as manufacturing jobs sometime after 9/11 to help “spur” a recovery.  Our old paradigm of full employment is over, and structurally it is going to only get worse over the next 10-15 years as baby boomers of retirement age choose to work longer than planned to meet retirement goals, and extend their retirement benefits.

A current look at home prices in Detroit Michigan offers a good perspective on the result of loosing entire industries.  Today you can buy a house in Detroit for $5,000.  If you don’t believe me go to zillo.com.  You will find dozens if not hundreds or even thousands of house selling for less than the price of the roof just to eliminate the homeowner’s burden of paying annual property taxes because so many jobs have abruptly and permanently been eliminated.

With US jobs leaving the country and never returning, and US corporations continuing to obtain global competitive advantages in labor, natural resources and technology, I cannot understand why anyone still really cares about GDP as a measure of long term growth trends for the US economy.  The old adage is that US corporations cannot grow any faster over the long-run than the underlying economy.  At some point soon, the new parading will eventually become clear which is that US multinationals WILL be able to grow at a faster rate than the US economy because they are increasingly linked to other economies with much higher growth forecasts than in the US. Consider the data from 2008 to 2012.  Click to link to the Worldbank data page.

The global outlook in summary, 2008-2012 (Source: http://web.worldbank.org)

In fact that is exactly what US multinationals have been planning to do for the last 20 years when they first realized that US growth would eventually and permanently slow down as the country’s economy finally matured, much like has happened in Europe where unemployment has remained well above US rates for many years.  US corporations in pursuit of profits and who have adequately structured their businesses to capitalize on high GDP growth rates around the world will be producing goods and services, many of which may never even be consumed in the US. The widely cited “New Normal” speaks of structurally slow US growth for the foreseeable future where growth is generally defined as economic activity and the creation of new jobs.  I suggest that this may be correct, but it is at best misleading.  Despite slow US GDP growth I suggest that this paradigm ignores significant increases in GNP and the potential for significant upswings in corporate earnings at US multinational corporations.

Americans who have hated big business, bailouts and the continued bifurcation of social classes are in for an alarming shock when they begin to realize that the largest US corporations and their executives will be able to increase profits and all of the metrics that drive executive compensation while large swaths of their companies continue to lose their jobs or remain unemployed.  Great recessions give tightly managed firms an amazing excuse to cut “excess”, where “excess” can be defined as jobs that may have been harder or more costly to eliminate during periods of good economic activity.  This “opportunity” to trim and remain lean is not a cyclical process anymore.  The world has become too interconnected, and the fact that a Ford car sold in the US could have any variety of parts casted, assembled and finished in a variety of countries gives Ford (and US consumers) privileged access to advantages available in other countries.  In return for these advantages, presumably the finished Ford car is cheaper for the consumer at home.  However with US household incomes cut, waning or no better than flat over the last few years, fewer cars are demanded, and therefore consumed at home.  Thus, more and more of US corporate profits will originate and culminate and settle outside of the US.

As a tangent, one “solution” which has been unpopular under the current administration would be to allow US companies a tax holiday to repatriate profits from overseas.  The word “solution” is euphemistic as there is no guarantee that those profits would be used to create American jobs, however therein lies a great policy idea.  Allow a tax holiday for US companies if they choose to use those proceeds to create American jobs.  This might be a bipartisan win on Capitol Hill, but I freely admit a politician I am not.

Most of us know that the stock market and the real economy don’t dance in the same time. Or in simpler terms they don’t always move in the same direction.  If I used recent stock market performance as my benchmark I would be inclined to think that US growth is on the verge of picking up dramatically. Conversely if I took the March 2009 stock market lows at face value, I would have thought the real economy was about to have the bottom fall out (far worse than it did).  I say this with full sensitivity to the many thousands of unemployed Americans, and the length of time many of them have been looking for work.

The stock market is by definition a measure of future corporate profits and is normally considered to be a leading indicator.  Alternatively GDP is generally a lagging indicator, reporting on recent but nonetheless past economic activity.  The stock market recovery since the March 2009 lows, as of November 5th 2010 has proven to be more of a V-shaped recovery while the rebound in domestic economic activity seems to be following a U-shaped recovery with unemployment at sustained high levels, and overall GDP growth muted in comparison to past recoveries.

If GDP is a sign of economic recovery and we are in a U shaped pattern, how can the stock market be moving so dramatically upwards?  Occam’s Razor might lead me to believe that the stock market cares less about GDP and more about US corporate earnings which will be linked more directly to GNP in the “New Normal”.

Curiously I looked into the historical relationship between GDP and GNP.  The chart below was developed from data at FRED (Federal Reserve Bank of St. Louis).  In it I plotted the difference in % terms of GDP to GNP.  When the number is lower (towards -1.2%) then GDP was lower than GDP by 1.2%.  When the number approached 0%, then GDP and GNP were approaching parity (the same values).  None of the data was normalized for current 2010 USD values which should not affect the relationship between the two sets of data.  It is interesting to note that the only other period that looked like this one, back to the Great Depression was recession and following inflationary period in the late 1970’s.  I would argue that our newly globalized economy should create a more dramatic rift between GDP and GNP, particularly if “decoupling” really begins to take foot.  If that were to happen, -1.2% would no longer be the bottom of this cycle, and noone would know how far GDP and GNP would need to diverge before narrowing again.  One thing that did come to mind looking at this chart is that it might be an indicator of secular bull and bear markets. While there are not enough trends to base this on it is interesting to consider.  However if one were to consider this as an indicator for such trends in stock markets, it would be important to note that the secular bear market during the depression saw GDP gaining on GNP vs. today’s relationship where GDP is losing ground to GNP in the current secular bear market.

Click to enlarge.  (Wish all things were that easy!)

GDP Expressed as a % Difference of GNP

Be careful of pundits who us GDP as a fear mongering tool much like they did with terrorism to keep us believing that the world will be forever ailed.  GDP will not recover to the “trend growth” we are used to without severe manipulation and it will be used to pace blame and misplace blame on Capitol Hill.  Most of the uses of GDP will simply be misleading as they are today.  GNP will be, at the very least, a better indicator on which to base meaningful investment decisions.

By the way, I’m not the only one who feels this way.  In this video Joseph Stiglitz offers a number of other failures in the use of GDP as our most common metric to include political misuse, lack of accounting for the use of natural resources, and the consequential, adverse, and often hidden effects of over-focusing on GDP as a measure of national economic prosperity and success.  Joseph Stiglitz – Problems with GDP as an Economic Barometer

How Much S&P 500 Can Be Bought with an Ounce of Gold?

November 5, 2010

This thought came to me today with the major move in equity markets, which is what has the long term relationship been between Gold and the S&P?  The Gold bugs had a great day too, and volatility dropped like a rock.  What does it all mean?

This is not so artfully “borrowed” from Barry Ritholtz circa May 2010.  Click on the chart to enlarge.

Gold Relative to S&P500 (1928-2010)

Nice additional commentary from Zero Hedge here with additional charts comparing the S&P/Gold ratio between the Great Depression and now.  Makes you wonder if we are to repeat history how we would get there.  Will gold go to 5,000, or will the S&P 500 drop to 250, or will they meet in the middle with a reversion to the 2009 March lows in the 600’s on the S&P while Gold rallies to 2,500 or so?  Seems inevitable that some combination will prevail at this point.  Certainly the markets returns are lackluster when converted out of USD into any for of currency that has held its own value.