Broken Symmetry

Happy Independence Day!

From the Founding Fathers:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

These folks understood better than most of us do today what was at stake in deciding whether to cooperate.

Here's a nice piece of history, which gives a bit of insight into the personalities at work behind the document. In the first draft by Jefferson, the "self-evident" truths were "sacred and undeniable." It was Benjamin Franklin that suggested the change to "self-evident." On my view, that cinches the fact that Franklin was the better student of human nature.

How Bear Sterns is like Easter Island

Yesterday I got my hands on a copy of the latest book by Jared Diamond (author of Guns, Germs, and Steel).  His newer book, Collapse, is an anthropological study of how various societies around the world have failed through lack of coordination.  I couldn't help blogging the thought that some of the disasters he describes in this book could have been avoided had more information been available about the relative frequency of supply and demand.

In the book, Diamond describes how the resident of Easter Island disappeared after failing to coordinate consumption of the trees growing on the island.  They used them all up before new ones had time to grow.  The society collapsed afterward.

Imagine that everybody on Easter island could easily access the following information:

• the number of trees
• how many trees were cut down per day (or month, or year)
• how many new trees grow per day (or month, or year)

Even the worst mathematician could have recognized at a glance that the trees were going to be used up faster than they were being grown.

But are we really any smarter or better coordinated than the residents of Easter Island?  I say no.  For what's the difference between keeping track of the amount of subprime mortgage assets you have on your books without keeping track of influx (i.e., number of new subprime mortgage assets added per unit time) and outflux (i.e., the number of subprime mortgage assets sold per unit time).  In this sense, managers at investment banks like Bear Sterns didn't do much better than the residents of Easter Island.  Bear Sterns did do better at least in the sense that there are a few people left at Bear Sterns.  But that's cold comfort.

The moral of the story is that bad things happen when you don't keep the rhythms of supply and demand locked in phase and frequency.  Requiring companies to report turnover rates for each balance sheet account would be a good start in that direction.

The End of the Golden Age?

Over at PE Hub, Michael Butler analyzes the decline of investment banks, and wonders about the future.

"One could easily argue that the industry’s quiet unraveling and the resulting drift toward consolidation started back to the late 1970’s or early 1980’s.  A look at tombstone ads from 25 to 30 years ago reveals a lot of now-extinct names like Dillon Read, White Weld and LF Rothschild. These once-powerful investment banks have either disappeared or been merged into other firms."

He points to the repeal of the Glass Steagall Act as the cause for consolidation in the industry.  That repeal came very late in the game.

Another possible cause, which I found in a paper by Prof. Richard A. Booth, is the NYSE abolition of fixed commissions for institutional investors that came on May Day 1974.  Overnight, the relative costs of assembling a diversified portfolio dropped below the costs of assembling a diversified conglomerate through M&A.  The emergence of mutual funds resulted.

But the emergence of private equity buyout funds required leverage.  Thus, the bond market that resulted after the Federal Reserve floated interest rates in October 1979 was also necessary to the emergence of private equity buyout funds in the 1980s.

In fact, the repeal of Glass Steagall Act in 1999 effectively only permitted investment banks to mimic what it had been profitable for the private equity funds to do alone for the two decades before.  And we know how that turned out.  I guess the early bird gets the worm.

Ford to increase exports to China

From the WSJ:

"Currency is significantly more friendly today," said Stephen Biegun, Ford's vice president for international governmental affairs.

Bill Gross shows some tough love to the financial industry

Anybody still wondering whether we have an inflation problem in the United States should read this commentary by legendary bond fund manager Bill Gross.

As an aside, I wonder whether more people would be involved with public intellectual debates (as he suggests is desirable) if we heard more from the captains of industry like Mr. Gross.  He's setting a good example in this regard.  As are people like Mark Cuban and Marc Andreessen in the technology community.  Actually, as much as I love to criticize venture capitalists, they also have been setting a good example for others in the financial industry by participating more in public discussion both online and offline.

How the Quanta decision is good for patent owners

The Supreme Court handed down its decision in Quanta v. LG Electronics today.  Already some commentators have concluded that the decision was harmful to patent owners.  Not so fast.

There were two issues before the Court in Quanta:

• Whether exhaustion doctrine should apply to method claims
• Whether on the facts of this case, the patent owner (LGE) had exhausted its enforceable patent rights against Quanta by Intel's sale to Quanta of goods covered by LGE's patents

On my view, on both counts the Supreme Court has helped patent owners by clarifying both the scope of the rights of patent owners and of the obligations of patent licensees.

First, by unifying the exhaustion rules for product and process claims, the Supreme Court is saving everybody time and money.  The procedural posture of the case only highlights the problem with having different rules.  Recall that the holding by the district court that gave rise to the appellate jurisdiction over the first issue arose only after the district court issued a second order clarifying that its summary judgment of exhaustion was based on the product claims of the patents-in-suit.  The reason that a second order was necessary is because the parties were still bickering over whether the distinction between product and process claims might provide some loophole in the summary judgment.  It's not so hard to imagine patent owners and prospective licensees bickering over the same thing in the future had the Supreme Court not unified the exhaustion rules so that they applied, unambiguously, to both product and process claims.  Not to mention the prosecution games that would result.  As the Court was acutely aware in writing this opinion, such distinctions exalt form over substance.

Second, even though Quanta effectively got a free pass in this case, patent licensees like Intel are NOT off the hook because of this opinion.  One thing that's unusual about this opinion is that the activities of Intel, a third-party, feature more prominently in the recitation of facts than do the activities of Quanta, a named party.  The reason there are so many facts about Intel is that the Court knows that this lawsuit (and others like it) could have been avoided had the patent owner (LGE) and licensee (Intel) sorted things out without dragging downstream firms (like Quanta) into their fight.  The lawsuit against Quanta resulted only after Intel refused to play ball with LGE.  At the end of its opinion, the Supreme Court practically begs LGE is to sue Intel for breach of contract.  And they should!  If the understanding between LGE and Intel was that Intel's customers were going to pay part of the royalties due LGE, and those customers didn't come through, then Intel absolutely should be required to make good for the shortfall.

Under Quanta, the Supreme Court did nothing to hurt (and probably helped) patent owners' ability to contract for a fair royalty.  But Quanta does give patent owners a strong argument for demanding higher royalties from their licensees.  Specifically, patent licensees can no longer tell patent owners, "Go and get  the rest of the royalties you want from each of our customers."  Patent owners have a definite answer to that one now: "I can't."

Thus, on my view, this is a modest victory for norms of cooperation.

Schumpeterian Competition

Two weeks ago I read about University of Chicago professor Lee Fennell's work on rebundling real property, and noticed that her theory sort of implies a cycle in the housing market.  This is obviously true post-subprime bubble.  But what has slowly dawned on me since then is that economists do not yet have any simple models to describe bubbles.  Reading in the Wall Street Journal about Bernanke's team, I went to their Princeton home pages and discovered that at least some of the models used in their papers require a theory of psychology.  Psychology is of course important for investors and regulators to understand; but I believe that a theory of psychology is not required for modeling market cycles.

Fluctuations in the market price for a particular good or service can be modeled in time as a relatively simple function of scarcity in an older good and its newer substitute.  (Think of how IBM PCs were replaced by Macs in the 1980s.)  The simplest mathematical model to associate with Schumpeterian creative destruction of price as a function of time and demand for the older good is the simple harmonic oscillator.

The most useful observation about market cycles that can be drawn from Schumpeter's work is that creative destruction will reverse increases in price over time -- even as supply remains steady or decreases.  When a new substitute for an existing good becomes available, the price of the old substitute will decay over time as consumers switch from old to new.  The result is growth, then decay in price, even as supply remains stable. 

To add some phenomenological richness to the simple oscillator model, one can model in variables for transactions costs, liquidity, and external money supply.  These additional variables change the simple harmonic oscillation predicted by Schumpeter into a damped, driven harmonic oscillation.  RLC circuits and tuning forks are other systems that can be modeled as damped, driven harmonic oscillators.  In my analogy to the RLC circuit, price is a voltage signal that varies in time, which is in turn a function of the aggregate demand for the older good.

A time varying price signal will behave considerably differently after taking the effects of liquidity, external money supply, and transactions costs into account.  For example, when demand (and hence price) swing rapidly, a resonance response (i.e., bubble) may occur when transactions costs are not too large and liquidity and external money are not too small.  These were the conditions that obtained in the subprime mortgage market recently.  A corollary is that the period of the cycle could have been estimated by looking only at the magnitude of liquidity and external money supply (this is the "resonant frequency" for the bubble).  Another corollary is that the "quality factor," which is equivalent to the liquidity divided by the transactions costs, tells us how big a bubble effect we might see.  And indeed the subprime market could fairly be characterized as having very strong liquidity and very low transactions costs as it approached its peak.  (We sort of blew the circuit at that point.)

Yet another useful observation that can be drawn from the model is that bundling supply without including a proportional bundling of demand or other negative price effect will lead to an unsustainable exponential growth in price.  Actually, there are many such lessons that could be drawn from Control Theory, which physicists now routinely use to design and monitor dynamic equilibriums in other systems.

Finally, I note that no physicist would attempt to design or monitor such a system without first getting comfortable with the accuracy of her tools of measurement.  In the case of markets, our tools are not working too well for the moment because the accounting rules do not make any sense in view of the actual relationship between price and value, which is a function (ultimately) of the value that everybody in a market places on a particular good, not simply the value placed on a good by the two parties to a transaction at a moment in time (which is what most people think of when we talk about "price").  Increasing transparency into what company managers see is useful and important in preventing fraud on shareholders.  But adopting rules that are consistent with reality in terms of how economic growth and decay occurs is equally important.

It's also worth mentioning that in some sense, all of these price cycles are coupled, either weakly or strongly.  Hence the entire economy could be modeled as a chain of coupled damped, driven oscillators.  This is actually a theoretical model from which quantum field theory and non-equilibrium statistical mechanics depart.  Among other useful results, these theories have permitted physicists and chemists insights into how and when to expect phase transitions in what would otherwise be considered unstable thermodynamic states.  This in turn suggests another insight into the problems economists and accountants have been having dealing with bubbles.  Like the static models of supply and demand, thermodynamics is successful in making forward-looking predictions about how a physical system will behave in response to changes in temperature, volume, and pressure.  But it still took a mathematical model of molecular dynamics to understand exactly how and when transitions would occur: thermodynamics, like static economics, provides little insight into how long unstable equilibriums will persist.

Stable Market Design with Control Theory

Earlier this week, I had a vision of how analog circuit design theory could have provided some useful insights into how to avoid bubble markets.  I haven't found too much on this from googling, although this paper looks pretty close from the abstract (I don't have a subscription so can't verify whether they're actually thinking the same way).

The field that physicists and applied mathematicians call Control and Dynamical Systems has basically developed to aid engineers in building systems that use feedback to stabilize the state of any system that goes through cycles.  There are lots of things that machines (like the stealth fighter) do that humans would not be able to do because of the magic of feedback-stabilized oscillation.

The implications that this has for business cycles in public and private markets is so obvious that I'm quite certain that somebody already knows how to do this.   Alas, they're probably making boat loads of money on it as we speak.  Another problem worth solving is how to give incentives to such people to share their insights through something other than bidding or asking price.  (Actually, granting patents on financial engineering innovations isn't a bad way to do this.  But a two-decade term would be overkill in most cases.)

In the interest of aiding translation between physicists and economists (and hopefully help avoid yet another major bubble in our financial markets), I'm going to identify the simplifying assumptions that I think are most useful in modeling markets with control theory, and then offer a few extremely crude observations about the potential benefits of applying this theory.  I'll use electrical engineering terminology to show the relationship between the variables.

* Price can be modeled as a two-dimensional current signal in time and demand P = P(t, d)
* Price changes will be amplified by bundling supply and demand (e.g., through securitisation) so that P = A*P where A is either less than 1 (supply bundling) or greater than 1 (demand bundling) depending on whether buyers or sellers are being aggregated by a particular security.
* Transactions cost can be modeled as resistance (and Price * Transactions Cost will approximate Demand)
* External money supply can be modeled as capacitance (which will introduce a phase lag into price)
* Liquidity can be modeled as inductance (which also introduces a phase lag into the price)
* Demand can be modeled as voltage

For purposes of this model, I'm assuming that the external money supply obeys some predictable rules (like Taylor's Rules).  The system is going to be extremely indeterminate if the external money supply doesn't behave in predictable ways.  (There's a useful result right there!  Let's implement Taylor's Rules.)

From my very crude understanding of theory, this kind of model would permit the following predictions to be worked out from the nonlinear differential equations that govern such a system:

* Systems that include both inductance and capacitance (i.e., external money supplies and liquidity) are going to oscillate at a characteristic frequency.  That frequency is the "resonance peak," and it's amplitude will vary depending on the amplifiers.  If they're too strong, the circuit blows up.

* Systems that include large inductance but low capacitance (i.e., liquidity but no external money supply) are going to decay exponentially to zero price

* Systems that include mostly positive feedback (i.e., amplify demand without inverting or phase shifting the input signal) are going to increase exponentially (until they blow up).  (This was Monday's insight.)

* Systems that are tuned to include just the right amount of positive and negative feedback are going to oscillate stably within a limit cycle for long-periods of time.  In fact, such systems will "magically" self-correct price to demand.   Actually, this is most markets, most of the time.  We just haven't been paying enough attention to the bigger picture.

Somebody out there must have done some graduate school research on this topic.  We should send them to Bernanke and hope for the best.

UPDATE: Thanks Google.  Here's Steve Fairfax of MTechnology making a similar point.  And here's Donald D. Hester and D.L. Brito making a similar point... in 1974!  Do we ever learn?  (Don't answer that.)

UPDATE2: Here's a book on "Economic Dynamics" with a whole section working out a version of control theory applied to a more complicated model.

UPDATE3: I've worked out a numerical example with estimates for the subprime mortgage market here.

How did the United States get stuck on the peak of a Sombrero?

Consider a ball resting at the center of the sombrero pictured at right.  Poised at the very center of the sombrero and at rest, the ball will not move.  It is in an (unstable) equilibrium.  Nonetheless, if nudged, the ball will roll down into the ring of the sombrero.  The lowest ring around the peak of the sombrero is a stable equilibrium.  Any further nudges will push the ball around the ring a bit; but the ball will end up rolling around the ring from then on.

In this example, physicists would call the direction in which the ball gets nudged an "order parameter."  And here's what makes the order parameter interesting: Starting from the peak of the sombrero, the ball will roll in any direction easily.  But starting from the ring of the sombrero, the ball will tend to roll only along tangents to the ring.  The symmetry of the order parameter is broken as it moves into a new equilibrium.  Thus, broken symmetry signals a new equilibrium.

People, firms, and even whole markets can persist in unstable equilibriums, like the peak of the sombrero.  If it's a big enough sombrero, even relatively big nudges won't move us off the peak.  In addition, from the peak of the sombrero, every direction looks about the same.  So for a long time we might get nudged one way and then nudged back again without ever leaving the peak.

Look at what happens, however, when a group of people start seeing the sombrero rather than its peak alone. That group will start rolling the ball in the same direction.  And note that it doesn't much matter what direction that is.  Any direction will do in getting us off the peak of the sombrero (so long as there isn't another group just as big trying to roll it back the other way).  Once off the peak, things will look very different to everyone, not just the people who can see the whole sombrero.  We might even be able to reach a new consensus: "We'll either go left or right around the ring.  But any other direction doesn't make sense."

When it comes to patent law in the United States, we're at the peak of a sombrero right now.  Here's what I see: We're spending tens of billions of dollars every year on new R&D.  But some of that money is spent redundantly (in ignorance of the prior art), and some of it is completely lost (to patent infringement) because ideas, once disclosed, are impossible to take back.  Trade secret torts and contracts just aren't as good a way to solve these problems.  Turning a blind-eye to patent infringement is bad long-term policy for the United States.  There are already a few other countries that are watching and hoping that we'll drop the ball on this one.  (Or I guess not push the ball far enough in the right direction.)

With the big sombrero in mind, it shouldn't be so hard for everyone to see how strong patent rights are a smart way "to promote the progress of science and the useful arts" through market-based incentives.  Both the Venetians in the 15th Century and our Founding Fathers in 1787 saw the value of patents.  Where did we go astray?

I also gave a brief explanation for the name "Broken Symmetry" in my first post to this blog, but I wanted to revisit the metaphor because it has been so fruitful for me in understanding the organic evolution of markets and firms.

The more things change...

Thousands of years ago Plato (top left) wrote that "Until philosophers are kings, or the kings and princes of this world have the spirit and power of philosophy, and political greatness and wisdom meet in one, and those commoner natures who pursue either to the exclusion of the other are compelled to stand aside, cities will never have rest from their evils, -- nor the human race, as I believe, -- and then only will this our
State have a possibility of life and behold the light of day."

Plato's student Aristotle (bottom left) understood government differently: "When several villages are united in a single complete community, large enough to be nearly or quite self-sufficing, the state comes into existence, originating in the bare needs of life, and continuing in existence for the sake of a good life. And therefore, if the earlier forms of society are natural, so is the state, for it is the end of them, and the nature of a thing is its end. ... Hence it is evident that the state is a creation of nature, and that man is by nature a political animal. And he who by nature and not by mere accident is without a state, is either a bad man or above humanity; he is like the 'Tribeless, lawless, hearthless one, ' whom Homer denounces- the natural outcast is forthwith a lover of war; he may be compared to an isolated piece at draughts."

This week, Judge Posner (top right) made the following remarks on problems in the current credit-market: "This would be fine if zero regulation were the social desideratum, but it is not. The correct approach is to carve down regulation to the optimal level but then finance and staff and enforce the remaining regulatory duties competently and in good faith. Judging by the number of scandals in recent years involving the regulation of health, safety, and the environment, this is not being done. And to these examples should probably be added the weak regulation of questionable mortgage practices and of rating agencies' conflicts of interest and, more basically, a failure to appreciate the gravity of the moral hazard problem in the financial industry."

As Aristotle saw things differently from Plato, so Becker (bottom right) sees the purpose for regulation differently from Posner: "It would run counter to human nature for regulators to take a skeptical attitude toward the riskiness of various assets when the market is indicating that these assets are not so risky, and when originating and holding these assets has been quite profitable. One can expect regulators to mainly follow rather than lead the market in assessing riskiness and other asset characteristics."

How Abraham Lincoln was wrong about one thing, but right about almost everything else

On February 11, 1859, Abraham Lincoln gave a lecture to the inhabitants of Jacksonville, Illinois on the topic of discoveries and inventions.  His most famous words from this lecture are the last few that were recorded:

"Next came the Patent laws.  These began in England in 1624;* and, in this country, with the adoption of our constitution.  Before then, any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention.  The patent system changed this; secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things."

It's hard to overstate the importance these words have had for patent law.  They have been a motto for patent lawyers for generations.  But not many people, even patent lawyers, have read the whole speech.  Everyone in America should be required to read this speech in high school or college.  I will come back to it again and again in the future.  There are many, many posts I could write about this speech.  Practically every sentence in it sparkles with insight into human nature and invention.  The speech is as beautiful a piece of American prose as we are ever likely to get from a patent lawyer.

In this speech, Lincoln anthropomorphizes the United States into "Young America," the "most current youth of the age," which some people "think conceited, and arrogant; but has he not reason to entertain a rather extensive opinion of himself?"  Lincoln is funny, but also honest.  For example, he observes how Young America "is always very anxious to fight for the liberation of enslaved nations and colonies, provided, always, they have land, and have not any liking for his interference."  Have we changed much?  Read the whole thing to get all of his insights into questions about the relationship between "Old Fogy" and "Young America" (i.e., international trade and politics), natural resource use,  the process of invention, joint invention, and more.

But my point in this post is that he miscalculated one important thing.  It's a miscalculation that he can hardly be faulted for.  Nobody can see into the future.  But it's important to revisit the past, and reconsider Lincoln's words now as we consider and reconsider how we as a nation are going to grow in the future.

In this speech, Lincoln delineates four stages of human progress in making inventions and discoveries. 

First, Lincoln points to human speech.  "If I be in pain I wish to let you know it, and to ask your sympathy and assistance; and my pleasurable emotions also, I wish to communicate to, and share with you.  But to carry on such communication, some instrumentality is indispensable."  Second, is writing -- "the art of communicating thoughts to the mind, through the eye."  Third, printing, "a great gain; and history shows a great change corresponding to it, in point of time."

And finally came the fourth, and the passage from this speech that everyone is familiar with.  Lincoln picked patent law as the fourth stage of human progress in promoting inventions and discoveries.

Even Lincoln couldn't have predicted the Internet.  None of us did.  It just happened, much like the printing press did in the 15th century.  We're still experiencing the aftershocks, and will be for some time. There are some Catholic churches in the world that are not ready for the democratisation of knowledge made possible by the Internet.

So Lincoln was wrong about one thing: patent laws are not the fourth stage in human progress.  They're the fifth.

* As an aside, regular readers will note that Lincoln was also mistaken in attributing the origination of patent laws to the English Statute of Monopolies.  The Venetians had a patent system in place in the late 15th century.  And English and other European monarchs were granting exclusive rights to inventions by letters patent well before the Statute of Monopolies anyway.

Lawyers as Choice Architects: Holmes, Posner, Hayek, and Sunstein

111 years ago, Oliver Wendell Holmes, Jr. wrote in The Path of the Law:

For the rational study of the law the blackletter man may be the man of the present, but the man of the future is the man of statistics and the master of economics.

Holmes's prophecy came true with the advent of law and economics, which is now the dominant theory of law for academics and practicing lawyers alike.  There isn't an area of law left untouched by the theory.  Judge Posner, perhaps its most prominent proponent, has himself put every major area of law on display through the lens of economics.  Economic analysis turns out to be ridiculously useful in achieving what Holmes identified as the object of the study of law: "the prediction of the incidence of the public force through the instrumentality of the courts."  Without economics, how else could lawyers predict the prospective behavior of large groups of people?

The answer is psychology.  And psychology, after taking a back seat for the past few decades, is making a comeback in law through the work of professors like Cass Sunstein, Richard Thaler, and Ian Ayres.  (I would add Charlie Munger, but he doesn't publish widely or often enough.)  What these professors share is an interest in the cases in which the behavior of people predictably deviates from the fundamental rational hypothesis of economics.  See the series of guest posts that Sunstein has done on "choice architecture" and "libertarian paternalism" on the Volokh Conspiracy for a sampler.

The power of "choice architecture" lies in its promise for weaker government interference with private choice.  In a world in which public and private rulemaking is uninformed by the quirks of human psychology (think of our herd instincts), government is more likely to ban entirely some activities that might be efficient at low intensity, or mandate some activities that might be done voluntarily, but not as consistently as necessary.

As "choice architects," lawyers seek to build legal systems with privately adaptable rules, which permit a decentralized, spontaneous order.  In this sense, libertarian paternalists build on the work of Hayek and Rothbard (although both would have disliked being associated with any form of "paternalism").

Would it be too bold to say: "For the rational study of law the master of economics may be the lawyer of the present, but the lawyer of the future is the student of irrational human nature and the master of psychology."

Broken symmetries at Ford

In the automotive industry, Ford has one of the strongest brand names in the world.  But for the past ten years, it has been dogged by persistent problems, driving its market value close to $10 billion at one point earlier this year.  What are we to make of Ford's long-term prospects in the automotive market?  Here are a few factors relevant to Ford's durable competitive advantage I have been considering:

• Product Quality: the newest quality ratings from J.D. Powers and Consumer Reports put Ford quality in striking distance of its Japanese competition
• Brand Identity: Ford has a brand name that is very differentiated from that of its Japanese competition, and probably in a favorable way from the perspective of customers in the emerging markets of Europe, South America, Asia, and India
• Economies of Scale: Mullaly is implementing at Ford the same scale advantages that have been practiced at Toyota for some time: centralizing worldwide design and production, narrowing the number of models and brands to the core few that offer the highest margins.

It's possible that GM and Chrysler will catch-up eventually, but Ford appears to have a good head start on its American competition in these regards.  And it's selling at under $20 billion despite doing almost $200 million in sales annually, and a well-capitalized balance sheet.

Is this what Charlie Munger would call a Lollapalooza?  Probably not, but it's definitely got me interested.  My grandfather used to own a factory that sold parts to the automakers in Detroit.  I also have some sentimental interest in seeing the American automakers recover their mojo.

UPDATE: here's the WSJ mulling it over.

UPDATE 2: for some of us, this wasn't too surprising.

A tabloid for every profession? The democratisation of gossip.

It is commonplace for us to observe that the Internet is changing the face of modern mass media.  One interesting consequence of the granularization of media coverage made possible by declining costs of distribution and marketing is the emergence of tabloid-style gossip rags for relatively small markets.

In the past, newspapers or magazines serving niche markets couldn't afford to be too risque in their news coverage because of the need to appeal to everyone in the niche market in order to maximize circulation and hence advertising revenue.  For example, it would have been unwise for a venture capital newspaper to run stories on the sex trade.  Similarly, it would have been unheard of for a newspaper on events relevant to practicing lawyers to report on the affairs of prominent legal academics.  But we have seen both over the past few months on Valleywag and AboveTheLaw.

In the future, we might expect to see similar developments in nearly every professional or non-professional field in which writers can pander to the prurient interests of readers educated well-enough to know and care about the gossip in a given field or industry.  A gossip page for dentists?  Why not, we already have too many straight-laced dental blogs: see here, here, and here.  What about a gossip blog for pharmacists?  We've already got The Angry Pharmacist,  The Angriest Pharmacist, and  Drugs 'R' Phun!  Even postal workers have their own blog.

Here's another prediction: the common law of defamation, libel, and slander isn't setup for this world.  How are courts going to handle defamation claims that arise from posts on the Internet?

Blood in the Streets

The largest financial institutions in the world are now trading at 2002 prices.  I'm thinking that means that there are even better buying opportunities than there were in 2002.

Washington Mutual in particular is looking awfully cheap at under $20 / share.  This is a company that has been paying $2 / share in dividends, making its dividend yield alone almost 12% at this price level.

Wow.

UPDATE: Make that 3%.  WaMu announced after market close today that it was cutting its quarterly dividend to $0.15.  Ouch.  And is selling $2.5 billion more stock.  Double ouch.  Looks like more bloodletting shall ensue.