Tuesday, March 31, 2009

The Times they are 'a-changing

Well, we know that Newspaper are going to die, and we'll have to see about print media in general. In fact, my current guess is that the next decade of iPhones and Blackberries and Kindles and podcasts and audiobooks will signal a "paper reversal". In no way do I expect "paper" copies to go away, instead I expect them to slowly be limited to only specific, revered content.

But hey, I'm already receiving my bank statements and pay stubs electronically. So the amount of paper-only content is fast diminishing.

However, I have two great links about paper today.

Time Magazine talks about the End of Excess. Which opens with a great line:
Don't pretend we didn't see this coming for a long, long time.
A few other choice quotes:
We cannot just hunker down, cross our fingers, hysterically pinch our pennies, wait for the crises to pass, blame the bankers and then go back to business as usual...This is the end of the world as we've known it. But it isn't the end of the world.
Which echoes things I've been saying for a long time. The US is going to change and it's going to change very dramatically. The "middle-class" is no longer going to be the center of this giant bell curve, things will tier much more. The US will need a broader base of producers, of people working dirty jobs.

Of course, with such a small population (on a global scale), the only way the US can stay ahead of the curve is to become an intellectual mecca for the new generation of problem solvers and thought leaders. Of course, with such a small realy population base and an underfunded education system, there will be a need to import these people.
Further increases in productivity and prosperity require ingenuity and enterprise applied at the micro scale... As China and other developing countries finally achieve the industrial plenty that we enjoyed 50 years ago, the U.S. can stay ahead once again by pioneering the next-generation technologies that the increasingly industrialized world will require...And no other nation assimilates immigrants as successfully as the U.S.
Those are just my choice quotes, the whole article is a good read.

And here's a good summary about the death of the newspaper. I think this one quote really sums it up nicely:
It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem.
He goes on to mention that we don't really have a good replacement model for all of these journalists we're putting out of work. Personally, I get the feeling that between ease of publisher, ease of search/aggregation and ease of rating, it's quite probably that the future of news will be a truly distributed network. Not an Associated Press style of "distributed network", but rather a loose network of data collectors and aggregators and researchers. Each of which can produce data for the next set.

In the article he makes a mention of reporters attending a town hall meeting "just in case". But in this new era of data, it's quite possible for one to film the event, have it edited for highlights, transcripted and then reviewed, blogged, twittered & pod-casted by multiple people all within hours. And unlike the previous model, these people don't even have to be the same the same people or the same group.

Of course, none of this is very conducive to being done with paper, which may be why Time is calling for changes and the Times will be changing.

Monday, March 30, 2009

Irrational Pessimism

This is in reply to a post on MillionDollarJourney.

@Ed:This recession is, of course, not over yet and may deepen, but none of these statistics are expected to get as bad as the prior recessions.

There are several logical flaws in the comparisons here:

#1: The interest rate on today's mortgages cannot reach the level of those previous recessions. There is already an excess of available homes and lots of people still on ARMs. Interest rates that high would absolutely destroy the economy.

#2: The interest number in 1981 was high b/c of inflation. Volcker, the Fed Chairman, wanted to wring out inflation by slowing the growth of money. He basically raised interest rates until the stagflation stopped.

#3: Your S&P 500 and TSX lines are both based on nominal differences. For a fair comparison you should calculate net change plus inflation. Either way, it's still pretty clear that the drops last year are in line with the drops in the other to recessions.

#4: Inflation, what models do we have stating that this isn't going to sky-rocket?

Clearly, the 0% inflation is due to the fact that the gvmt "printed" money approximately equal to the amount of money that was simply lost via bankruptcies. Of course, the 0.1% number dates back to January, but the most recent number that we have is from February.

Since the end of February, Obama has agreed to a trillion dollars.

The US is likely going to run a $2,000,000,000,000 deficit this year. That's two Canadian GDPs. Much of that money is going to come from Quantitative Easing, i.e: simply inventing money. In fact, that's the goal, the government wants to create inflation. From Paul Krugman of the NYT:

...having some inflationary effect — is what the policy is all about

So we're going to have inflation. We have to, but you haven't seen it yet b/c the money is being invented right now.

What's more, Obama has promised more trillion dollar deficits. Without a dramatic increase in US production, these deficits are going to cause significant inflation.

#5: The numbers are still getting worse.
An average of 55 forecasters in the January 15 Wall Street Journal survey expect real GDP to eventually reach only -2.1%

January 15 predates the enstatement of the Obama administration. Obama has likely seen the most active 100 first days of any president ever. He has produced several plans that simply did not exist in any way on January 15. You need to get more recent data than this.

Industrial production appears to have bottomed in September 2008.
Industrial production in 2009 has been down for 4 months.

The numbers I'm reading are even lower: From February 2008, industrial production has declined by 11.2%.

The news is full of stories of massive lay-offs, but unemployment is only expected to rise to 8.9%
Unemployment numbers are currently at 8.1% (from 7.6% the previous month). And across all sectors:
In February, job losses were large and widespread across nearly all major industry sectors.

The US national debt is into record highs outside of WWII.

The US is operating a tremendous trade deficit and has been for 25+ years. That number will not turn around.

The only politically feasible way out of the mess is (sadly) the printing of money combined with real economic growth. Of course, China's not really happy about the part where the government prints away its debt (and Canadians should be pretty peeved as well).

But the US has to find a way to convert their dollars into real assets and frankly they have some of the most expensive assets in the world, so they're not doing really well in that category.

#6: Everyone is wondering how low the stock market will get, while trillions of dollars sit in cash on the sidelines waiting for the right time to jump back in.

Where does this data come from?

From what I can see, the banks and insurance companies are tragically under-capitalized (i.e.: lacking in cash). The banks don't want to mark their assets to real market values b/c they're complaining that there is a lack of liquidity in the market. The current US plan with the "private/public partnership" is founded on the concept that these assets would be under-valued if sold at current market prices b/c of a lack of competition and liquidity. So the US government is betting a 500 to 1,000 billion bucks and providing massive leverage to private investors in an attempt to heal the banks. And while this is happening you're claiming that many trillions of dollars are sitting around just waiting to be invested.

If these trillions are waiting to be invested, why does the US government have to cook up plans with 12:1 leverage?

@ED, I don't think that you've made a very good case for yourself with one chart, old data and zero hyperlinks. It's obvious that your data doesn't add up. It's also clear that you're missing something really key about the US economy.

If they do not reverse the trade deficit, the economy will collapse. It's very key that we understand the size of the deficit. The US has been on a 25-year credit card spending spree and they don't have an easy way to even start paying back the money without dramatically "tightening their belts".

Even then a trillion dollars represents $33,000 for every US citizen. That's one median income here in Kansas City. That's a lot of debt, it's not going to be easy to pay off.

I'm going to posit that we're actually under-estimating the breadth of this financial crisis but that we'll have to wait until 2010 for it to widely understood.

Thursday, March 12, 2009

The "Time" has yet to come

Last week Time Magazine ran a special on the US financial crisis.  The first article is House of Cards: The Faces Behind Foreclosures. The article is centered on two Kansas City homeowners both facing foreclosures. I think that a few choice quotes from the article really speak to the root of this US financial crisis.  People simply don't get "it".

The crisis is fundamentally about wanting too much at once.  But the face it has consistently shown is one of over-leverage. Over-leveraged people, over-leveraged companies and an over-leveraged government (ostensibly all the same thing).  

This article tries to paint a picture of those getting those getting the short end of the stick, but all I see are over-leveraged people out of time.

A few choice quotes:
We have entered the one-strike-and-you're-out era. One lost job. One medical emergency. One bad risk or misjudgment of the heart...
We're geared to believe that risk begets reward and our tomorrows are brighter than our todays. One-strike-and-you're-out is a neck-snapping reversal for a culture accustomed to assuming that fate is a welcome friend...
People like Paula Stevens and Joseph Zachery weren't flipping houses or lying on their loan applications. They didn't pile up mountains of credit-card debt. They worked hard for what they had and shared their modest portions with others...Their bitterness stems from a feeling that they've held up their end of the social contract, but now the terms of the deal have been rewritten by malign forces....
Not everyone who has fallen behind on a mortgage is a loser complicit in the housing collapse.
That last line is from the closing paragraph. (emphasis mine) So the big question here is "are these two people 'losers'?"  Are these two really innocent bystanders in the housing collapse? I think the answer is no and the reason should be clear simply by analyzing the risks under-taken by both parties.

Joseph Zachery
Occupation: Firefighter from 1986 to recent. Ended at $60k / year.  
House:  $100k house, needed renovations
Worked a second job: Like most firefighters, he always had a second job...he started his own business, demolishing houses condemned by the city.
He used the equity from his house to buy demolition equipment, resulting in a mortage where "he owed nearly twice the original purchase price."
Crisis: he gets into an accident on the job.

He's shuttled around between hospitals, he gets full disability from the fire department (plus some electroshock treatment?) and he's now living on pension. He get $50k / year. It costs him $800 / month for medical, leaving him with $2,400 for everything else.  But get this, his mortgage is $1,600! On a 100k loan that doesn't make any sense.  But the problem here is that he actually owes 190k which he's paying off at 9%.

So why did he end up here? Was it the work accident? What did he do wrong? What are the risks he took?
  1. Leveraging non-existing home equity:
    He didn't pull out just the home equity he "actually had" from his down payment or his mortgage payment.  He pulled out "speculative" equity that the bank extended based on the prevalent housing prices at the time.  He wasn't borrowing "his own" equity, he was borrowing equity that he hoped the house would have.
    Rather than taking out a business loan for his small business, he took out a loan against his home meaning that a crisis in his life would likely cause his to lose his home.
  2. Leveraging his ability to fix the home:
    As stated, the home was a fixer-upper. He was banking on his ability to fix the house in order to prop up the value of the house.  Of course if he wasn't able to fix the house for some reason, it's value would bleed from lack of maintenance.
  3. Leveraging his second job:
    He knew his pension income and he knew his medical payments, he knew the money he had to work with. Based on the fact that he's losing his home, it's pretty obvious that he wasn't going to be able to keep his home on just his pension.  He needed that second job to keep him going.
  4. Under-insuring:
    This is a really big point.
    There is no indication that he has disability insurance on his second job.  Here he has a second job that he needs to keep in order to remain solvent. He's dependent on his own mobility and capacities. But he's not insured if he loses them.
    Yes he had disability from the fire department, but that was only for his fire department salary.  Where's his insurance for his other business?
    He buys 100k in equipment, but doesn't buy 100k+ in disability to cover his potentially catastrophic liabilities.
So if you look at the risks, he was basically gambling that this wouldn't happen.  He's unmarried, he's supporting his mother, his kid is in college, he's has no "backup support". 

He's a firefighter, he runs into burning buildings for a living and he's gambling his livelihood and his home on the fact that he won't be injured.

So he got injured and lost his home.

Paula Stevens
Occupation: Gateway tech support. No college degree, serial "entry-level" worker. In her best year she grossed 42k  
House:  3,000 sq ft, purchased in 1994. Re-financed 3 times, now owes 159k (@ 9%!)
Crisis: lost her job at Gateway and can't find one that pays as much.

So the obvious risks:
  1. Living without a buffer:
    "It takes $14 per hour for me to meet my bills...That's what I was making at Gateway when I was laid off. But no one wants to pay that much..."
    If you're making $14 / hour, you need to be living off $11 or $12. How else are you going to save up cash for retirement or even just emergency expenses like job losses?
  2. No professional development:
    She made it to 56 and somehow doesn't have the skills that she can market for $14. There's no sign that she took college night courses or professional training.
  3. Where did the equity go? the savings?:
    She's 14 years into a mortgage and she owes 159k. The median home price in Kansas City during the last recent peaks was just under 190k.
    But she bought in 1994, close to the bottom, 14 years ago.  She most likely owes more on the house than its original asking price. And she's paying 9% on it to the tune of $1,400 / month.
    And where are her savings? It doesn't seem like she had retirement plans of she would have money right now.
  4. Family Obligations: 
    ...but her oldest daughter, Maggie, 28, has a new baby and is enrolled in nursing school. "I just have to get her through that," Stevens explained
To put #4 in context.  I am currently living in the heart of Kansas City in a luxury apartment in a premium location. I have 1100 square feet, 2 bedrooms and 2 full baths. In-suite washer/dryer/dishwasher and a few other luxuries.  You could very comfortably have two people and child here.

I pay less than $1,400 after utilities.  That's less than her mortgage and this is a luxury suite. You can get an older apartment or a townhouse down the street for $600 to $900.  That would make it a lot easier to balance the bills.

So where does that leave Paula?  She's obviously over-extended, but all of the signs are pointing to her basically not having savings.  Her telling quote is this defeatist line: "That's how it works. You just keep starting over."  Rather than spending her life accumulating, she just kept starting over.

My personal opinion (because it's my blog): neither of these people should be in their homes.  They should both be renting, either really close to family or really close to public transit.

Disagree? I'd love to hear other thoughts.

Saturday, March 7, 2009

The US labour problem

Here's a great quote from the founder of Mint.com on the mint blog.
While the downturn in the economy has meant a flood of resumes for sales, marketing, and general business positions, the engineers, scientists, and researchers who actually make the next innovations possible are still in very short supply.
I think that he really captures the fundamental US problem.  All of the job futures are in sciences & engineering.  But the US has been a services economy for decades. Bankers and financial analysts don't actually "make" anything.  Lawyers and Accountants don't really "make" anything.  They are fundamentally just business overhead. Sales people help connect people and products, but a year in the US will show that we clearly already have more than enough people in Sales and Marketing.

Yeah, maybe I'm biased b/c I work in the computer industry.  But if you look around at the "future jobs" boards, they're all centered around "making stuff".  And that's what the US needs to do become financially solvent again.  They need to "make stuff" that they can export.  You can build a better battery and export that to China.  You can build windmills and power stations and ship them across the world.  You can train great scientists and have other countries license their technology.  But you can't export Lawyers and Accountants.  And you certainly can't export US bankers :)

Of course, the US has had some serious educational issues over the last couple of decades, especially in the realms of education in "Math and Sciences".  So we have a populace that's ill-prepared to tackle the new problems.

The mint.com founder (Aaron Paatzer) suggests an increase in the H1Bs and other foreign visas. And he has a point.  Smart people from around the world can migrate to the US and enjoy a US quality of life. It would make a lot of US citizens unhappy and importing "the rich" would definitely "make the poor poorer", but I strongly suspect that's going to happen anyways.

Maybe making the US into a mecca for brains will provide it a means of conquering its financial crisis. It's not a great deal for the "average American" who will still see a decrease in quality of life, but they're going to see that anyways.  Maybe salvaging lifestyles for the top 20% of earners will at least provide reason for continued US solvency.

Monday, March 2, 2009

Big vs. Small in IT

Posted this to Hanselman over the weekend, and it's probably worth a redux in my own blog.

The underlying issues being discussed is that Joel Spolsky ripped in to Uncle Bob Martin. A couple of summaries are available.

On to the reply:
@Scott, I think a valuable read relative to this topic is Malcolm Gladwell's book "Outliers". Bob makes that comment that "it takes 5 years for a developer to really become experienced", which is a statement backed up by the research in this book (10,000 hour rule). A lot of this podcast felt like "dancing" around the subjects discussed in the book.

The core of your podcast is dancing around the question of "What is good enough?"

The definitions of enough vary quite dramatically from project to project and person to person.

In particular the definitions will vary by the size of the project / company. And this is where Joel and Bob really work at odds. They are coming from two completely different realms of project / company. Let's say there are 4 classifications:
  1. Small / Micro / Start-up
  2. Medium, established niche
  3. Large, thousands of users, typically a legacy base
  4. Web-scale, millions of users (Google, MS)
Now Joel clearly comes from world #1.
Bob is from world #3 or 4.
Scott, you're from world #3 (& now #4).

For most developers in world #1 or 2, Bob's SOLID principles are at best guiding lights for solving the "next big bottleneck". (And there's a lot to be said about first having bottlenecks worth solving) There is simply not enough value generated by writing interfaces for the large mass of internal layers that are never exposed. Lots of objects simply don't need a "single responsibility", because the cost to change is very low. In my simple DB app, I don't extend more than 1% of my classes, so why do I worry about the OCP? In "Fog Creek" world, there's a lot of leeway in the term "Quality".

The cumulative sum of generating unit test for vast swaths of Maintenance screens simply doesn't justify the time spent on this screens. In fact, most people in world #1 & #2 seek out tools (like CSLA) quite specifically to generate Maintenance screens b/c they just don't justify any custom functionality.

Let's flip this into a practical application. (with no offense to Jeff Atwood here)

I can tell you right now that StackOverflow will not scale to 100x as it is currently architected. If the number of StackOverflow users grows by 100x the entire architecture will need to change. No, I've never seen the codebase, I've just listened to the podcasts (Hanselminutes and their own) but just listening to the problems it's obvious that things would need to change.

For example, to achieve 100x:
  • They would need multiple databases.
  • They would need specialized services to push data back and forth.
  • Your rep score would be updated every 60 minutes by a service (not in real time).
  • There would be a server responsible for updating RSS feeds. Data about updates would be pushed to the DB and replicated to bulk insert files on the RSS server to manage the reads against the primary.

As I said above the SOLID principles would be a guiding light in solving these problems.
  • They would need to break out interfaces for "high-communication" features and build standard interfaces for communication (Web Services, Bulk Insert files, etc.).
  • They would need to reduce connectivity dependence. Web servers would read from local DB copies and update themselves periodically.
  • LINQ-to-SQL would suffer as tables became stored on different DBs. They would need an IOC model for managing connections at a table level so that they could point connections at the right spots.

Of course, in the process of growing by 100x, they would move from world #1 into #3. And the nature of these SOLID principles is that they become more valuable as the scope of the project grows and the available resources to build that project also grow.

I work for an ad network, so I live in world #2 & #4.

In one world we serve 100s of millions of impressions in a day. In another world, we operate a user interface with 100s of users. The definition of "Quality" varies dramatically between these worlds. In one world, we can build drag & drop UIs with MS AJAX and leverage the servers for good response times. In another world we write these massively scalable and distributed apps with lots of interfaces and IOC and robust, error-resistant code.

When Joel talks about Bob having "never written much code", he's talking about Bob not having written very much of the type of code that Fog Creek writes.

When Bob lays out the framework for a new project he simply has too many tools that do not provide value in Joel's world.

When Joel lays out the framework for a new project he ignores many of the tools in Bob's framework because he's never really needed them before.

And that's OK... I mean look at StackOverflow, it already has every dev on its mailing list :). It doesn't actually have to grow 100x to cover its potential market.