Chaos theory and financial crisis

You may have heard butterfly effect before, that a butterfly flips its wing in new york central park might cause a sand storm in Beijing a month later; or you might remember in the movie Jurassic park Dr. Ian Malcom demonstrated chaos theory Dr. Ellie Sattler with a water drop on her hand. Essentially chaos theory statesthat it is impossible to make a long term prediction in a dynamic systems even if the system is deterministic if the system is  very sensitive to a tiny difference in the input.

Without any substantial proof I declare the financial system a chaotic system. Under the chaos theory we shouldn't be surprised by the financial crisis then. We think we have built very sound mathematical models to identify risk, to distribute risk, to hedge  risk, to insure risk, in a word, to control and comprehend risk. we didn't know that at the same time we were also building a huge dynamic systems that is very complicated and would be sensitive to small input changes. Given the unpredictable nature of human beings being part of the system, it was amazing that we think we be able to predict the future of financial system. If we truly understand the chaotic nature of the financial system we wouldn't make so many risk bets then; regulators won't be so sure about the regulation then; Fed won't be so sure about their interest tweak; we would move in a slower pace.

Doing nothing sometimes is OK; doing things slowly is OK as well.

What will NY152 say today, I wonder. I turn on my computer. I wait impatiently as it connects. I go online, and my breath catches in my chest until I hear three little words: You've got mail. I hear nothing. Not even a sound on the streets of New York, just the beating of my own heart. I have mail. From you. -- From You've Got Mail, by Kathleen Kelly

Apple becomes underdog again

So Android phones sold more than iPhone in the second quarter according to some data from NPD or Gartner. First, quantity has nothing to do with quality. Now I am an iPhone fanboy, and I still think iPhone 4 is the best phone out there, and i am actually very relieved (or semi excited) as a consumer that Apple has become an underdog at least in the quantity factor. I am sure this would drive Apple engineer to work even harder, and would also make Apple to make iPhone available on Verizon and other carriers sooner. I am sure as a consumer I would benefit from the fierce competition between Google'sAndroid and Apple's iOS, Apple's hardware and HTC's and Motorola's. However, I am also an Apple share holder and I am not sure the competition would benefit me as an Apple share holder at all.

Warren Buffet once gave a powerful presentation at a summer Idaho sun valley retreat. In that presentation he mentioned that return for trend chasing investor was miserable. For example, airplane might be a great invention and many company competed in the airline industry but as a whole there had been zero money made from the aggregate of all stock investment in the airline industry in history. We could certainly recall the painful lesson chasing the internet stocks in the early 2000s.

Palm Inc., and probably its share holders have been the first victim of this phenomena. Nokia is in the middle of becoming a second victim. RIMM has lost its momentum and is looking to be the third one even if they are to make a switch to use Android.

How would this fierce competition affect AT&T and Verizon stock performance? As more people upgrade to smartphones AT&T and Verizon should be able to reap the benefits of more data plan charges. Moreover, they don't face global competition at all unless congress passes a law to force them to share their bandwidth. Currently both AT&T and VZ have a dividend yield of more than 6 pct. I think they are good diversification for your investment portfolio.

Buyer be aware.

Disclosure: long apple and google. No position on VZ and T.

Well... if he's not here, he has a reason, because there is not a cruel or careless bone in his body. But I wouldn't expect you to understand anybody like that. You with your theme park, multi-level, homogenize-the-world mochaccino land. You've deluded yourself into thinking that you're some sort of benefactor, bringing books to the masses. But no one will ever remember you, Joe Fox. And maybe no one will remember me, either, but plenty of people remember my mother, and they think she was fine, and they think her store was something special. You are nothing but a suit! -- From You've Got Mail, by Kathleen Kelly

It was the best of times, it was the worst of times

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.

As I was reading the novel on iBooks I couldn't help saying to myself the above wording presciently describe our current affair. We are in the age of anxiety, in the age of uncertainty, in the age of lost confidence, in the age of instantaneous satisfaction, in the age of iPhone and Android, in the age of Google and Facebook,  in the age of netflix and itunes, in the age of super rich and absolutely poor and everything between, in the age of gene modified corn, salmon, in the age of organic food, in the age that we have everything and in the age we have nothing indeed. It is the best of times, it is the worst of times.

Here is Mr.Dickens again:

It was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

-- Charles Dickens,  A Tale of Two Cities

Because we're going to sell them cheap books and legal addictive stimulants. In the meantime, we'll just put up a big sign: "Coming soon: a FoxBooks superstore and the end of civilization as you know it."

-- You've Got Mail, by Joe Fox

You've Got Mail (Deluxe Edition)

Conforming Loan Limits

So i am in the market for buying a house and in recent weeks my wife and I found two places we like. I was then checking into see the conforming loan limits for 2010. I am amazed at what I found out. One of the houses (let's call it house A) we are interested in is in the normal limits, aka, $417,500, and the other one (let's call it house B) locates in the so called high cost area, hence the limits is set to $625,000. 

First, I am surprised cause we think house A is in a better location, the township is nicer; there is a very large relative new community near by with many houses in the range of $800K-$900K. As I did more research it turns out the loan limits is not set for each township but for a whole county. House A's county has many shabby townships (aka, many cheap houses) that drag the average price down even though house A's township is very nice and in a completely different category with other townships in the same county. You see where I am going? When a policy is set very generic, covers many places and not chance of localization it bounds to have all this kind of illogical situation. 

Second, what and who does this high cost area high conforming loan limits policy try to help? If a person qualifies for a $625,000 loan he is certainly well off and the least person that needs extra government help. I could understand the government has duty/obligation to help poor people/weak people but this high conforming loan limits certainly is not set to help such people. 

Third, we could argue that there is a need right after the huge crash after Lehman Brothers fiasco.  How long would this policy last? Isn't it time to terminate this kind of artificial limits? To be fair to the earlier localization propose, we should be able to make any loan that has a loan to value ration less than 70% to be a conforming loan. 

So the conforming loan limits could be set:
1. a certain fixed amount ($417,000 for 2010) that would adjust for inflation. It should still requires at the loan to value ratio not exceeding 80%
2. and loan that is less than 70% of the value.
3. No more loan limits. There is no business for the government to sponsor GSEs at all.

It is a shame that FinReg bill doesn't address this issue. 

Don't you love New York in the fall? It makes me wanna buy school supplies. I would send you a bouquet of newly sharpened pencils if I knew your name and address. On the other hand, this not knowing has its charms.-- From You've Got Mail, by Joe Fox

Missed the iPhone 4

It is really difficult to use the iPhone 3G again after three weeks with the iPhone 4. I am going to the local AT&T store to see if I could get it sooner than the 3 weeks quoted by the Apple online store.

I decided on the SwitchEasy PurePlus Protector.

So Oracle sued Google's for Java. What's the effect would it be? First, companies probably won't buy the Android phones for the employees for now; and what would the case impact on Java in general? Does Google has a language in its making? Why does Oracle decide to file this case?

Joe Fox: I think you'd discover a lot of things if you really knew me. 
Kathleen Kelly: If I really knew you, I know exactly what I'd find: instead of a brain a cash register, instead of a heart a bottom line. -- From You've Got Mail


Search Amazon.com for You've Got Mail dvd

iPhone 4 returned

As I revealed in the previous blog, i returned the iPhone 4 to the 5th ave Apple store, along the way I discovered the mainland china grey market machine in its best showing.

Well, the reason I returned the iPhone 4 was because I followed Apple's suggestion, or at least what Apple implies, to my own detriment.

Even before iPhone 4, Apple has decided to remove screen protector products from its retail store, citing that the screen glass is so hard that there is really no good reason to put a screen protector on. I followed suit a week later by removing the screen protector from my old iPhone 3G. the screen looks much better, no more dust be trapped between the protector and the screen. I am happy. And Apple is right, there is no scratch whatsoever on the 3G.

So I decided not to put a screen protector on the iPhone 4 either, partly because of the 3G experience, partly because Apple touted the new screen is 30 times harder. Then on Sunday I almost suffered a seizure when I discovered there were three scratches on the iPhone 4 (I swear I really took good care of the iPhone 4). At first I thought it must be some dirt that stuck on the screen. I used a moist soft cloth trying to wipe them out to no avail. Then I tried to rub them with my thumb and they were still there challenging me. I debated whether I should return it to Apple or not. At the end I just cannot look at my iPhone 4 anymore and had to return it to Apple. I guess Apple has really tested its screen either, or you shall not overestimate. And thanks to the antenna-gate,  I don't need to pay a restocking fee for the return. Horray!!!

Now my AT&T plan has been reverted back to the old 3G contract and I am eligible for an upgrade again. I am ordering the iPhone 4 now. And I am searching the internet to find a good screen protector. I am narrowing down to Powersupport or SwitchEasy.

The Godfather is the I-ching. The Godfather is the sum of all wisdom. The Godfather is the answer to any question. What should I pack for my summer vacation? "Leave the gun, take the cannoli." What day of the week is it? "Monday, Tuesday, Thursday, Wednesday." -- From You've Got Mail, by Joe Fox