Tuesday, May 22, 2007

Did Engadget author the Applegate ?

May 16, 2007 is a red letter day for at least some of those who got creamed by their hurried exit from Apple Inc. (NASDAQ: AAPL) stock. Based on an Apple’s leaked internal email that turned out to be fake, Engadget, a blog on consumer electronics (a part of Weblog Inc. owned by AOL Time Warner) broke the news of likely delay in release of Apple’s latest iPhone and Mac OS X Leopard. This triggered a massive sell-off, driving Apple stock down from $107.89 to $103.42 in six straight minutes (11:56-12:02) wiping just over $4 billion off of Apple’s market capitalization. A lot of people, mostly day traders lost a lot of money very quickly. By 12:22 Apple stock had mostly recovered and it ended the day down just $1.40/share, or $1.25 billion in market cap – making those who exited the stock in a hurry, looking like an orifice.

One thing is clear. The crappy mail server at Apple Inc needs changing. Steve Jobs may have brought it along from his early days in the garage. I am as well tempted to ask “why is it – first options backdating saga, now this – all happening at Apple ?”

This has been one great year for journalists in the US. Few days back Dubya winked at the Queen and got rebuffed. Now a $ 4 b intra-day washout from as much as a spoof…they couldn’t have asked for more.

On a serious note, this isn't something that never happens. Everyone drops the ball. And when you're trying to break news--that risk is always there. Journalism after all is a business in a hurry and I don’t think Engadget swung the lead – Ryan Block knows well to keep his job. The last time I checked, all the Engadget crew are humans. IMO this is not, and should not, rest at the feet of Engadget, who were simply doing their jobs of feeding those mouth-foaming gadget freaks another juicy piece of meat.

It's a PAPER LOSS unless you bought and sold at exactly the wrong time. I'm sure that did happen to some day traders, but they are nothing but compulsive gamblers in my eyes and I have absolutely no sympathy for them. They have to pay for their fickleness. Ultimately, it's each investor's own decision to decide which news source it trusts and whether or not to sell the stock. Unfortunately we will never know if another media outlet would have scooped the story had Ryan not done it first. Day traders normally keep very shallow stop losses and that’s a great way to lose money on knee jerk reactions. Apple stock has appreciated so much that one could easily see a 2% pullback just on profit taking. Come on, let the SEC focus on the real and insidious market manipulation that goes on.

So who authored Applegate ? My guess is that someone in Apple’s IT was "on their way out" and decided to have a little fun and send this little parting gift. You know what? Something is telling me that eventually, both leopard and the iPhone WILL be delayed. I don't find any fault with engadget for what they did. It was totally understandable. But I just have a sick/funny feeling in my stomach that we actually will get an announcement from Apple saying the iPhone is being delayed.....yet it passed FCC recently, so who knows.

Credibility and trust is the currency of a journalist’s realm, and Engadget’s clear they lost some of that. End of the day this is no SEC filing tracked thro EDGAR, it’s just a blog post. Here’s the Engadget man-up.

This is what I would say to Ryan and his crew – “You guys won't and shouldn't be in trouble. Of course, if you went out and shorted Apple stock before posting it, then you will soon have a roommate named bubba”, but that’s another story !

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Tuesday, May 15, 2007

More things change....

The obvious is not necessarily unambiguous.

Awestruck…? I realized it when I was trying to improve my odds at playing Chess against computer. When it beat me game after game (Level : pro), I was raging within. More games, more surrenders later, I sensed there’s more to winning than just strategy and outthinking the machine. That’s when I chanced upon this insightful piece by William Saletan. Worth a read.

Excerpts –

“We certainly needed the challenge. Chess computers, in particular, have exposed our complacency. Grandmasters used to dismiss computers as calculators, unfit for elite competition. Our vanity was so blinding that in 1997, when world champion Garry Kasparov lost to a machine called Deep Blue, he implied that the computer had received human coaching during the match.

Computers kept winning, and we kept whining. In post-game press conferences, players swore that they'd been winning right up until the moment when, for unclear reasons, they lost. Five months ago, the current champ, Vladimir Kramnik, overlooked an instant checkmate by his artificial opponent, Deep Fritz. "I rechecked this variation many times and analyzed quite far ahead," Kramnik protested. "It seemed to me I was winning."

“Kramnik's blunder was no accident. It happened because of flaws in the human brain. We thought we were smarter than computers for two reasons. First, we could choose a goal and figure out how to get there, whereas computers had to start with the available moves and see where they led. Second, computers had to think through every possible move, whereas we could recognize crucial patterns and focus on the moves that mattered. But that's why Kramnik missed the checkmate: It looked different from the usual threat pattern, and he was thinking too far ahead. Even the best brain sometimes needs computer assistance.”

“When the cosmic game between humans and computers is complete, here's how the sequence of moves will read. In the opening, we evolved through engagement with nature. In the middle game, we projected our intelligence onto computers and co-evolved through engagement with them. In the endgame, we merged computers with our minds and bodies, bringing that projected intelligence back into ourselves. The distinction between human and artificial intelligence will turn out to have been artificial.”

Pretty balanced article from Artificial Intelligence (AI) genre, surprisingly. Normally it leans way too much towards AI or argues in favor of human ascendancy. Truth however is - the more things change, more they remain the same. It’s just a round-tripping exercise in the *human–computer–human* grid. So be it. Certainly I am not the one to relax until I beat it at least 10 games in a row. And when it wins against me, it’s after a lot of sweat for its neural network.

That…means a tough fight. I like that anyday.

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Wednesday, May 09, 2007

Forex Patriotism

Whatever you do, do big. Especially when you are a nation. Shake the earth, surprise the world. Size and scale helps a lot - at least it makes the competition wilt.

Look at the economies of US & China. The former is the world's biggest importer and the latter is the greatest exporter. What happens when the currency of the world’s largest consumption economy - the US $, depreciates against other world currencies ? The whole world is affected, except that of China that artificially manages to hold its currency weak.
It is not "protectionist" to complain about policies that are predatory; China's are just that. The logic of free trade is that comparative advantage ultimately benefits everyone. Countries specialize in what they do best. Production and living standards rise. But the logic does not allow for one country's trade systematically depress its trading partners' production and employment. Down that path lie resentment and political backlash. More from Washington Post Op-Ed columnist Robert J Samuelson here.

Be it the developed market like UK or an emerging economy like India, the rising $ casts a pall of gloom for export oriented businesses. United in grief, this is one occasion when they are free to be a tad less patriotic – and pray for their local currency to fall without any sense of guilt. (Net importers or travelers heading to the US in need of cheap $, please excuse).

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Thursday, May 03, 2007

Plunge Protection Team for Indian markets ?

Contrast the underlying philosophy behind Government’s fiscal policy and RBI’s monetary measures, the clock is stuck at 10 past 10. Finance ministry wants the reforms to continue on the liberalization plank. Liberal SEZ, more FDI, lifting of investment caps, more resources freed towards industrial progress. All these boost forex inflow, enthuse the stock markets that have soared to dizzying levels. With SEBI also considering letting in big ticket investors like Hedge Funds have a direct exposure to Indian equities, barring short term blips, the long term India story is in tact and the buoyancy is likely to persist.

Not all are happy about it. The RBI and its Governor Dr.Y.V.Reddy are a worried lot for one. So far RBI has managed recessionary phases and forex crisis of different kinds over the decades. They are now facing a new kind of problem they’ve often not met with before – Forex reserves are building up at a faster clip than they can count, much less manage. With $ 203 billion as on April 20, 2007 as per latest available RBI statement, they’d better figure a way out to deal with it soon.

The normally intrepid Guv is close to pressing the panic button or is near as he can get, as he continues to let the Rupee appreciate against the US dollar, much to the chagrin of businesses with huge $ billings like IT, Healthcare and Telecom. Though he has also left all key rates unchanged and announced steps that would pave the way for lower interest rates on home loans in its annual credit policy - aimed at sustaining growth without fuelling inflation, it’s totally clueless where it comes to dealing with the mounting forex reserves.

Financial assets if badly managed can often spell disaster for any economy. Compare the 9.5% returns earned by GIC of Singapore as against India’s paltry 3.5%. Isn’t it time that we look at other economies that are handling the situation efficiently and adopt the best practices that worked well with them ?

I am not a fan of regulatory overkill. But if there’s a certainty of idea vaccum at the top, I’d better tweak my belief system than to let my tiny net worth erode. How about a working group on financial markets on the lines of Plunge Protection Team – may not be a panacea, but could well be a dry run to test internal efficacies in an emergency.
What do you think ?

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Well, we just had an Amaranth

The now on, now off worry over inadequate regulation of Hedge funds have come back to haunt the Federal Reserve, if not the global financial system. Though I am a card carrying member of anti regulation brigade (let the buyers beware), I believe in fair game so far as sharing what I know or have heard. The Amaranth paint hasn’t quite dried.

Not many who have survived the nightmare of 1998 hedge fund crisis that threatened the global financial system led by implosion of LTCM could forget the high correlations among hedge fund returns that suggested concentrations of risk around a few trading positions.

The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions according to a paper written by Tobias Adrian, capital markets economist at the central bank.

Similar trading strategies can heighten risk when funds have to close out comparable positions in response to a common shock, the economist Adrian wrote.

Back in 1998, the New York Fed helped bring together Wall Street tycoons who eventually cobbled together enough funds for an unprecedented $3.6 billion bailout.

But with the crisis averted, the hedge fund industry bounced back with a vengeance, increasingly rapidly over the last decade in both size and scope to an estimated $1.4 trillion.

Still, many officials including New York Fed President Timothy Geithner have shied away from calling for explicit regulation, arguing instead that the large banks who lend to hedge funds should police themselves to make sure no one lender gets in too deep.

Hedge funds borrow large sums of money in order to take aggressive bets on financial markets. Many operate heavily in the derivatives market, estimated at around $17 trillion, raising fears about possible future shocks.

The full story (or worry ?) be found here.

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