Saturday, March 29, 2008

I've officially moved Mark Andreesen's blog to the "humor" section of Google Reader.

Here's Comedy Central's wrap up of Cramer and Bush's comments on the recent troubles on Wall Street. At the end Bush pronounces "The economy is fine..." The economy must be totally fucked.

Friday, March 21, 2008

The sources of human misjudgement

Here's a transcript of a talk Charlie Munger gave a while back on the sources of human misjudgement. Munger is Warren Buffet's partner in Berkshire Hathaway. This is a good synopsis of a bunch of sources of material from Darwin to Skinner to Cialdini. Interesting for investing, marketing, and everyday life.

In the talk he refers to a set of mental tricks used by Darwin to reduce confirmation bias - I'm going to see if I can find the biography he refers to. I've been collating my own list of checkpoints before making investing decisions. The list constantly gets longer - so many errors to make, so little time.

Saturday, March 15, 2008

Bank mortgage losses - just beginning or almost over?


Interesting data in this link on recent trends in home ownership from the Census Bureau:

http://calculatedrisk.blogspot.com/2008/01/homeownership-rate-cliff-diving.html

Back in 2006 I found it interesting that the US home ownership rate had risen to about 5% over the 100 year average (69% vs 64%). Knowing that after bubbles burst, things tend to revert to the mean, I thought I might be able to estimate what the banks will lose post-bubble. A back of the envelope calculation yields about $1.5 Trillion in lender losses if the ownership rate returns to the 64% historical average. This is based on 20% loss on foreclosure assumption and the median home price of $235K - see the Census Bureau report in the above link for the number of housing units involved. The loss rate could be pretty optimistic - most banks are assuming their subprime CDO losses are between 50-100%, but this is due to trying to mark them to market in an illiquid market, not any real assessment of what home prices will do. The contrary opinion is here:

http://seekingalpha.com/article/68550-subprime-write-downs-more-than-50-done-write-ups-coming-next?source=feed

Given how wrong S&P has been about just about everything, I'm taking their opinion as evidence that someone paid them to paper over a really big hole. If the $1.5T is correct, it means only about 20% of the $1.5T has been written down so far, which means the failure of Bear Sterns is just one of many to come.

There is evidence that one cause of the higher home ownership rates is a permanent demographic shift towards people marrying later in life and thus there being a higher number of single-occupant homes. This would increase demand for housing absent that trend. However we also know that there were several other now reversed causes such as low interest rates, a blind rush to profit on rising home prices, and loose lending standards. In previous bubbles, ownership rates and prices of the asset in question reset to historical averages only after undershooting their historical averages, which could mean the 1.5T is too low.

Once the 10% of US homeowners that have zero or negative equity believe that the price of their largest asset is headed south for the long haul many will just bail. No lowering of interest rates will matter because they just won't want the albatross. The only thing that might have an impact is if lenders forgive the principle amount impacted by the price decline. Which puts us back into at least a trillion in losses for the banks. A loss like that would wipe out the market cap of a good fraction of Wall Street. Think tech stocks 2001-2003. Or Japan over the last 15 years.

The Fed's recent actions suggest that they will do just about anything to try to prevent it. We'll have to leave the efficacy and side effects of a mass bailout to another post.

What do you think? What do you trade?

[disclaimer: I am wicked short C, FNM, NTAP, QQQQ, DSL, BSCI but have bailed out of my builder shorts as of three months ago. ]

Thursday, March 13, 2008

Positioning your product

This sign cracks me up every time I pass it on the way home. Reminds me of a few startups. First they try breakfast. But the cook's not that good. Few customers come back a second time. So they add expresso. But the expresso isn't that good either.....by the time they're trying to add balloons to the list the investors bail.

Do one thing. Do it well.

"One thing" usually means providing one solution to a problem for a group of people. Doing it well may mean having a critical mass of features. This is often a challenge in a first rev product. I try to find new product ideas and market segments where the team can solve one problem and do it well enough to make a real difference without taking on an un-doable number of features. The trick is finding a group of users or an application where we can make a difference (= beat the competition) with a subset of the ideal feature list.

In mature markets this is difficult. New markets that have shorter requirement lists are ideal. Sometimes old markets where a new "disruptive" technology can be applied will work too.

Someday I hope to meet Sweet Amy and ask her how it all went down.

Wednesday, March 12, 2008

A ranked feed for the Rails community

I've been working on a solution for two problems in my daily feed reading. First, there are just too many quality things to read. I need them organized by topic and ranked inside each topic . Second, Google Reader doesn't give me visibility to the comments in each blog without clicking through to the posting. What I want is one place where all my feeds, say on RubyonRails, are ranked, visible, and include all the comments. Ideally I can comment on the postings without exiting the feed reader interface. I've hacked together a partial solution you can try out at

http://friendfeed.com/rails

This is a few dozen Ruby on Rails related feeds from my Google Reader collection fed into aideRSS. AideRSS ranks based on the number of delicious saves, Google Reader Shares, diggs, and comments for each post. Next that AideRSS output is piped into Friendfeed which provides one place where people can comment in a way that all comments are visible in one spot. The friendfeed feed can then be pulled into G.R., or just used as -is.

There are a number of problems with this hack. You'll still want to use your favorite feed reader. In the feed reader you're not able to contribute to the comments without exiting the reader, nor can you actually read the posting without clicking through to it. However if commenters use Friendfeed, Google Reader will embed comments in the feed. Today of course most of the comments will still be on each blog rather than centralized on this feed. I've seen some feed readers that pull in comments, and then there's Cocomment, but these various pieces need to work together.

If only Blogger/Wordpress/Typepad, Google Reader, AideRSS and Friendfeed would get busy and have a bastard child I'd have a solution.

I'm interested in feedback on this - does anyone else have this problem? What would be your ideal solution?