Veteran's Day, 2012

2011: your correspondent pays
his respects at the National Cemetery
of the Pacific, Punchbowl

As the World War II generation leaves the scene, let's take every opportunity to honor their service. Give them a call, pay a visit, or buy them a coffee. Encourage them to talk about the old days, though maybe you'd rather be doing something else.

Because we don't know when we will die,
we get to think of life as an inexhaustible well.
Yet everything happens only
a certain number of times,
and a very small number really.
How many more times will you remember a certain afternoon of your childhood,
some afternoon that's so deeply a part of your being that you can't even conceive
of your life without it.
Perhaps four or five times more, perhaps not even that.
How many more times will you watch the full moon rise?
Perhaps twenty. And yet it all seems limitless.
--Paul Bowles, The Sheltering Sky

Still Going Strong

Eugene Fama on too-big-to-fail (H/T Tyler Cowen) [bold added]:

Basically, the institutions that are considered to be too big to fail have their debt priced as if it’s riskless, which gives them a low cost of capital and makes it very easy for them to expand and become an even bigger problem. Plus, everybody now accepts the assertion that they are too big to fail, which creates a terrible moral hazard for the management of these financial institutions. Business leaders won’t consciously tank their companies, but too big to fail will push them toward taking more risk, whether they realize it or not.

I don’t think Dodd–Frank (the Dodd–Frank Wall Street Reform and Consumer Protection Act) cures that moral hazard problem. Even if lawmakers could devise the perfect regulation for such a cure, the chance that it will be implemented by the regulators in the way designed is pretty close to zero.

The simplest solution would be to raise the capital requirements of banks. A nice place to start would be a 25% equity capital ratio, and if that doesn’t work, raise it more. The equity capital ratio needs to be high enough that a too-big-to-fail financial institution’s debt is riskless, not because of what is essentially a government guarantee but because the equity ratio is very high.

In 1969 Fama, Fisher, Jensen and Roll wrote the seminal article on the efficient-market hypothesis. Lesser lights have won the prize; as Tyler Cowen says, give the man his Nobel.

Now That the Election's Over

Now that the election's over we are likely, finally, to learn the truth about:

Benghazi

Obamacare's costs

End-of-year defense layoffs

FEMA's before-and-after performance on Hurricane Sandy

Unemployment statistics

Whether General Motors is really healthy

What the President meant when he said he would be "flexible" on missile defense

Your humble observer believes that the President will wind up unscathed on at least some of these issues, so this post is not a criticism of him.

The mainstream media turned a blind eye to these questions in the run-up to the election. Their neglect was a gross dereliction of its duty to help the electorate make informed choices.

Reporters sometimes have to choose between their professed responsibility to discover and disclose the truth (please, no sophistry about the subjectivity of knowledge) and their personal politics. CPAs tabulate inventory counts that could unexpectedly lower their clients' earnings. Scientists report the harmful side effects of experimental drugs and possibly negate millions of dollars and years of research. Even lawyers, who have a primary responsibility to their clients, have a duty to disclose material facts that could help the other side.

If the press had pursued these 2012 stories with even a fraction of the enthusiasm with which it pilloried the Bush Administration over Hurricane Katrina, Abu Ghraib, Guantanamo, and the 5.5% unemployment rate in 2004, then it would be deserving of the esteem with which we regard most of our venerable professions. After its performance in 2012, it's doubtful whether the press will ever recover, and we all will be the poorer. © 2012 Stephen Yuen

Big Data Wins the Biggest Prize

When Rush Limbaugh made fun of the Obama campaign dinner at Sarah Jessica Parker's townhouse, I laughed right along. It was the apotheosis of the Hollywood love-in for President Obama, ripe for mockery. It turns out that the Democrats were playing chess while the Republicans thought the game was checkers (the way things turned out a cute dog might have helped). Key to the President's re-election was

a massive data effort that helped Obama raise $1 billion, remade the process of targeting TV ads and created detailed models of swing-state voters that could be used to increase the effectiveness of everything from phone calls and door knocks to direct mailings and social media.

The dinner with Sarah, and its West Coast counterpart dinner with George Clooney, were not affectations but part of a well-thought-out strategy [bold added]:

For the general public, there was no way to know that the idea for the Parker contest had come from a data-mining discovery about some supporters: affection for contests, small dinners and celebrity. But from the beginning, campaign manager Jim Messina had promised a totally different, metric-driven kind of campaign in which politics was the goal but political instincts might not be the means. “We are going to measure every single thing in this campaign,” he said after taking the job. He hired an analytics department five times as large as that of the 2008 operation, with an official “chief scientist” for the Chicago headquarters named Rayid Ghani, who in a previous life crunched huge data sets to, among other things, maximize the efficiency of supermarket sales promotions.

Michael Scherer's article in Time is a fascinating read. Comments:

1) The Republicans undoubtedly will create, if they haven't done so already, a similar big-data operation.

2) The first important step, which began shortly after 2008, was the 18-month-long project to create a "mega" file that unified the many disparate Democratic databases. This means that work on 2016 has already begun (sigh).

3) Holding the Presidency confers an enormous advantage. The incumbent party--whether Democrat or Republican--will have access to oceans of data not necessarily available to its opponent. It is nigh impossible to enforce privacy rules, especially since enforcement is done largely through self-policing. [Flashback: Big Data is the new Plastics.]

San Francisco: Your Government on Display

Yesterday Americans voted on who is best equipped to lead them on matters of war and peace, jobs and the economy, health care, education, and public safety.

On the East Coast state and local governments were strained to the breaking point as millions tried to recover from the damage wrought by Hurricane Sandy. Thousands have no food, power, or water as winter approaches.

Meanwhile, in Baghdad by the Bay there are other priorities. The San Francisco Board of Supervisors met on Monday to consider whether to ban public nudity.

For two hours, speakers tussled over whether the Castro "naked guys" were a few harmless individuals just expressing themselves, or a growing public nuisance that San Franciscans should no longer have to tolerate. Supervisor Scott Wiener, who represents the Castro, is proposing legislation forbidding genital exposure on city sidewalks, plazas, parklets, streets and public transit while exempting street fairs, festivals and parades.

Comments:
1) These issues always seem to find politicians named Wiener (or Weiner)
2) Activists are right to take a stand. Let them take away your plazas and parklets, and parades will be right behind.
3) If the naked guys look anything like the sagging, pot-bellied specimens I see at the gym (hey, I'm not exempting myself), it's obvious why there's a public outcry.

Quote of the day: "when it's in my neighborhood and I can't enjoy lunch because a guy is spread-eagle near me, it's a problem."

Tuesday After the First Monday in November

Our voting machines are easy to use.

After I signed my name, the polling-place lady asked if I wanted a paper ballot.

No, I trust the machines, I said smilingly.

The machine is much faster, and there was little chance someone would risk vote tampering because the headline race was a foregone conclusion. Here in California a clear majority admire the President's governance, and we do our best to make sure his policies and results are replicated in Sacramento.

With one exception I adhered to my two general rules of not voting for lawyers (although some of my best friends, yadda yadda...) and not voting for propositions, regardless of how much I sympathize with their intent. Laws hastily drafted often have unintended consequences, and we pay legislators to resolve those problems in committees before laws are signed, not afterwards in the courts.

As for the exception, well, it's something I've wanted for a long time. © 2012 Stephen Yuen

Along the Bike Path

Redwood Shores Oracle HQ: as seen from Foster City

The synthetic turf soccer field was completed in September

This pond is a favorite with water skiers., but not after a dry summer.

Stubbornly Staying Put

Indefatigable California native and critic Victor Davis Hanson says he's not leaving because California has all the tools it needs to recover its past greatness:

The four-part solution for California is clear: don’t raise the state’s crushing taxes any higher; reform public-employee compensation; make use of ample natural resources; and stop the flow of illegal aliens. Just focus on those four areas—as California did so well in the past—and in time, the state will return to its bounty of a few decades ago. Many of us intend to stay and see that it does.

Too simple? Let's give it a try for a few years by concentrating on basic governmental services, e.g, education, transportation, and public safety, and by eliminating expensive trophy projects like $100 billion high-speed rail lines to nowhere.

Watch what animal spirits are unleashed. I hope I live long enough to see it.

Saturday Mass

Being more of a Sunday Christian than an everyday one, I find Holy Week (before Easter) and Christmas week to be taxing because of the multiple services that are shoehorned into an already crowded calendar.

This Saturday, however, I was receptive to an "extra" service. The setting was St. Paul's, a 100-year-old church on the Peninsula.

A group had gathered for the annual convocation of the Deanery--one of the organizations that I participate in and one of the many that are sprinkled throughout the Church. I was in a contemplative mood. The passage of another anniversaire will do that to you.

Apple, Bitten

Apple's market cap has fallen $118 billion since Google Maps was removed September 19th.

Other companies (GE, Microsoft, Cisco, AIG) have fallen further in market capitalization, but Apple's recent drop is nonetheless remarkable in a non-crisis year. A scant 44 days ago AAPL had been rising on the heels of the iPhone 5 announcement and the rumored iPad mini. Then the new operating system, IOS 6, was released.

The premature removal of Google Maps was one of the greatest blunders in Apple's 36-year history. Apple knew that it was taking a chance but underestimated the negative reaction:

in breaking with Google and giving iPhone users worse maps than before, Apple has gambled on three things. First, that users will like its maps’ embedded content. Second, that it will be able to improve fast. And third, that the allure of the iPhone and the loyalty of Apple’s fans will buy it time. After all, people do not buy smartphones for the maps alone, and queues for the iPhone 5 were every bit as long as for previous incarnations of the revered device. But Apple has more catching-up to do than it expected. In a market where brands can rise and fall fast, it may also have less time than it thought.

The removal of a single app, important as it may be, wasn't the reason that the market values Apple $118 billion less. Now that Steve Jobs is gone, Apple is beginning to look like just another good but not extraordinary company. The revolutionary product in the pipeline may well be a myth.

It's going to be an uphill slog back to $700 per share.

[Disclosure: I am long Apple.] © 2012 Stephen Yuen

Joy, Again

Pitcher Matt Cain & family (Chron photo)

Sometime this century we who live on the San Andreas Fault will be in the headlines. Our fair land will suffer destruction and death, comparable to or perhaps exceeding that visited upon our countrymen in the East. So while we do think about, pray for, and send help to the victims of Hurricane Sandy, one hopes that they will indulge us this moment of celebration.

Moments of widespread, unadulterated joy are rare. (By contrast, the upcoming elections will bring elation to only half of the population.) In the Bay Area the Giants have blessed us with two such occasions in 24 months through a magical mixture of teamwork, character, planning, cleverness, and yes, good luck.

On the morning of Halloween we ate, drank, and were merry.

Cruising to Re-Election

The former mayors of SF and Oakland in August

California Senator Dianne Feinstein is cruising to re-election and doesn't see any need to debate her Republican opponent:

she's heard nothing from her challenger, Elizabeth Emken, that she needed to debate. "There's just nothing constructive coming out of their campaign," said the four-term Democratic senator.

That's a hilarious construction--"nothing constructive", when the real reason is that there are many downsides and no upside in debating a little-known opponent. However, there are not many Republicans who are incensed about her pending victory. Dianne Feinstein is a Democrat whom they can work with.

Senator Feinstein has been known to break with the more extreme elements of her party, especially when it comes to national security. She chairs the Senate Select Committee on Intelligence, one of the least partisan committees in Congress. Whether her role is that of chairman or of ranking minority member, her continued presence should help Senators reach agreement on future issues that will arise in this sensitive area. She has my vote.

[Update: Note how Dianne Feinstein carefully chose her words on October 17th about the Obama Administration's changing story re Benghazi:

"I can tell you this, I think we do know what happened now. There’s no question but that it was a terrorist attack, there is no question but that the security was inadequate and I think that there is no question that we need to work on our intelligence."

“I think what happened was the director of intelligence, who is a very good individual, put out some speaking points on the initial intelligence assessment. I think that was possibly a mistake.”

She didn't give some Republicans the red meat they were looking for--particularly regarding Administration decision-makers' motivations--but she didn't excuse the Administration for the disastrous outcome either. A good politician or someone who's looking out for the national interest? Both, maybe, but if I had to pick one it would be the latter.] © 2012 Stephen Yuen

de Tocqueville It's Not

Below is Taiwanese Next Media's take on the Giants' sweep of the Tigers. Fox Sports, are you watching?

Cloud Cover

The Friday night dump is a time-honored tradition for releasing bad or awkward news that one doesn't want to discuss. Once again Apple has shown how it even does obfuscation better than everyone else: send out the press release in the midst of a hurricane that has closed the markets for a couple of days.

The announcement this morning:

Scott Forstall, the man in charge of its iOS mobile software efforts and a major and longtime executive at the tech giant, is leaving next year and will remain an adviser to CEO Tim Cook until then. [snip]

More to come on what happened, but Forstall’s departure is very big news and a drastic move for such an important player in the tech space. He had big fans and also many detractors for his sharp-edged personality, as well as what some described as exhibiting “growing open challenges” to Cook himself. Forstall had previously been called “CEO-in-waiting” in one media account in Fortune.

In addition, numerous sources noted persistent tension between Forstall and several other key execs, especially the powerful design chief [Jony] Ive.

Veiled internal politics at Apple aside, Forstall has been a key part of Apple’s success over the last decade, especially in the development [of the] iPad and the iPhone.

The departure of Scott Forstall, who was in charge of the operating system that runs Apple's most successful products, is "very big news" indeed. Apple could have disclosed the management shake-up at the same time as last Thursday's earnings release, but talking about strategy and people is a lot tougher than talking about numbers, even disappointing ones.

Let's hope Apple's spokespeople have their stories straight when the market re-opens Wednesday.

(Disclosure: I am long Apple.) © 2012 Stephen Yuen

Under Sunnier Skies

Sergio Romo and Buster Posey (Chron photo)

The San Francisco Giants completed a sweep of the Detroit Tigers and won the 2012 World Series tonight, 4-3,in a hard-fought ten-inning contest. This was the Giants' second title in three years.

The TV ratings for the entire 2012 Series were low, probably due to the Giants' domination and no teams playing from New York, LA, or Chicago, but look at it this way: the Giants' sweep kept the ratings from being even worse by cutting the Series short.

If Detroit had won tonight, Game Five on Monday would have been problematic as a side effect of Hurricane Sandy:

Severe weather bearing down on the Eastern Seaboard could lead to waves as high as 33 feet on parts of Lake Michigan and dangerous conditions on other Great Lakes.

The National Weather Service has issued Great Lakes gale and storm warnings in effect through Wednesday. It says waves on Lake Michigan could be 10 to 18 feet by Monday afternoon, then build to 20 to 33 feet on Tuesday before subsiding. Waves on parts of Lake Superior and Lake Huron could top 20 feet.

A weather delay for a World Series whose conclusion was foregone (all 23 teams leading three games to none have gone on to win the Series in four or five games) would have been ratings death. When would the weather allow Game Five to be played? No one outside California or Michigan would care, especially with political and hurricane news capturing the headlines.

Given their comparative youth--the average age of Sunday's starting lineup was 29--the Giants' success should begin to attract a national following. Then future TV ratings as well as World Series games will occur under sunnier skies. © 2012 Stephen Yuen