Mind the GAAP

When William Hewlett filed U.S. Patent 2,268,872 for the HP200A resistance-capacitance audio oscillator, he and his buddy David Packard unwittingly set in motion one America's most powerful illusions.  There's no small irony in the fact that it was Walt Disney's Fantasia that put HP on the map and World War II communications that provided the fuel for the "rocket" that Hewlett would describe in the following manner.

"We just happened to be on top of the rocket when it took off.  We were here with electronic products when electronics became a big thing.  We went up with it.  We don't deserve one damn bit of credit for the success of Hewlett-Packard."

The garage-to-icon myth is one of the most told, most misrepresented, stories of our modern economy.  RCA's David Sarnoff saw the value in Hewlett's technology and integrated it into Walt Disney's epic visual orgy set in motion in late 1930s.  But it was the war, and more precisely, MIT's microwave signal engineers which moved the duo out of the Palo Alto garage and solidified a government procurement cash-flow that would go on to support the enterprise.  It was 30 years between the garage and the first calculator in 1968, the HP9100A.  Hardly the 'overnight' entrepreneurial success that so many have chased into the Silicon Valley mirage.  So, this week when Illusionist-In-Chief Meg Whitman announced the nearly $8.8 billion charge-off, she was doing a lot more than swallowing the ipecac of the misguided Autonomy acquisition.  At the end of day, she was further indicting an economic model that she and her predecessors, though lauding at every turn, have failed to rationalize.  Growth, for its own sake, is to corporations what malignancy is to cancer.  While radical therapy can, on occasion, save the organism, this latest erasure of 'asset' value is but a whisper in light of the nearly $75 billion of market capitalization that has been vaporized in just the past few years from this once unassailable behemoth.  Ms. Whitman is probably correct in writing off Autonomy - itself an illusion created by a myriad ofcompliance and 'big data' noise - because it really wasn’t worth what HP and its investors paid.  But to blame the multi-billion crater on the impact of an accounting discrepancy (true or not) is still an illusion of gargantuan proportion.

What Meg (to say nothing of her unhappy colleagues like Ben Verwaayen at Alcatel and Stephen Elop at Nokia) doesn't get is that it's not GAAP accounting that is the enemy.  Revenue recognition audited by PricewaterhouseCoopers may be aggressive and wrong in the Autonomy deal.  But let's face it, the board (including Meg) should have been independent and inquisitive long before pen ever hit paper on the deal - not now that the target's name has become one of the greatest Icarian jokes of all times.  For Autonomy to work, it requires a bunch of dependencies!  HP, Alcatel, Nokia and others have the short term governance pathology of boards and management who live in the echo chamber of the past 30 years of public market lies.  Being at the top of the equity food-chain, growth through acquisition is favored above organic innovation.  Ironically, HP killed much of its true innovation about the time it adopted the "Invent" brand campaign.   And, when faced with the looming specter of presiding over the death of iconic brands, the same markets that celebrated the growth orgy stand more than willing to indebt the organ donor for one last gasp at profiteering.

For a bit of a digression, consider this week's announcement that Lloyd Blankfein's Goldman Sachs is looking at financing Alcatel in its hour of need.  Generous?  A real corporate citizen helping out another ailing giant?  Not so fast!  According to the press, Goldman is seeking to "stabilize" Alcatel's balance sheet.  This coming on the heels of Verwaayen's announcement that he's looking at selling many of Alcatel's patents to the Sherman Act-testing RPX.  Is Goldman's deal a stability play, an intellectual property collateral land grab, or a bit of both?  Does Goldman, RPX, or Verwaayen know the value of the assets once built in another innovation icon - Bell Labs?  Out of the firm's combined nearly 64,000 patents, slightly under 25% would stand up to validity challenges.  With over $150 billion in revenue generated by parties who are likely infringing a few thousand of the firm's legitimate IP, neither Alcatel nor its investors have any visibility into the assets of consequence.  Having one "too-big-to-fail" bank step into finance a "too-big-to-fail" company isn't going to shed more light on the matter.  However, if Blankfein plays his cards right, he'll get nearly $7 billion worth of collateral for a few hundred million.  And, like the HP story, investors will have their collective pockets picked by a system that has failed.

After 1999, 2001, and 2008, aren't we supposed to be more transparent, more informed?  Don't we have accounting and reporting requirements that are supposed to protect investors from these colossal blunders?  Don't we have oversight from the SEC, L’ Agence Nationale de la Sécurité des Systèmes d'Information, Committee on Foreign Investment in the United States, the UK Serious Fraud Office, and other agencies who are watching out for the stated interests of States and their citizens?  Haven't we learned our lessons about assuming that someone, somewhere is actually paying attention so we don't have to do so?  If this week's news is any indication, the answer is an unequivocal "No".

But let's get back to the GAAP.   In our fervor for consolidating small enterprises into cumbersome polyphemes we do grave harm to the economy and rend our social fabric.  In the Small War Plants Corporation Congressional Act of 1942, we once acknowledged that agile small businesses were vital to employ the population and innovate in times of need.  Justified by an innovation-filled war machine in the Third Reich, the U.S. recognized that tactical response to economic, social, and technological demands required a fertile infrastructure to support the formation of new enterprises.  However, in less than a decade, this impulse had been infected with tax and debt incentives that favored a view that small enterprises were, in the end, part of a food-chain ending with the very large corporations they were formed to out-maneuver.  The utility of enterprise - including the gainful employment of millions - when it comes to merger frenzied financial predation - is seen as an inefficiency.  Efficiencies of scale erase livelihoods in the name of profit.  GAAP doesn't cost-account for the social burden of unemployment and underemployment, of failed cities and towns, of lost spirit of enterprise.  After all, those are masked by tax advantaged corporate practices which domicile costs in one jurisdiction and shield profits in another.

What the G-20 need is a peacetime version of the SWPC of 1942.  And, to be sure, failure to address this will cost us more than iconic names like HP, Nokia, and Alcatel.  When the Glencore Xstrata merger actually closes (which looks like it may finally happen), the resulting over $200 billion revenue entity will loom far above the GDP of many of the countries from which the combined firms extract minerals and other resources.  And, like BHP, Vale, and Rio Tinto, this powerful size will attract new challenges.  In a world where being large has run into powerful social and practical headwinds, the ecosystem upon which titans depend is becoming more fragile.  When the industrial incumbents weaken, opportunistic impulses surface.  Nationalization of assets occurs on the margins.  Trade barriers are built explicitly and implicitly.  And in the end, we see fragmentation.  We can either preside over, and participate with, it in an orderly fashion or allow it to happen to us.  The former requires genuine accounting for the things that we value.  The latter will allow us to wax nostalgic for values we failed to explicitly acknowledge.  We could benefit from the recognition that innovation and enterprise is a pathway for purposeful engagement - not an inefficiency from which capitalist pressures should extract every dime.  We benefit from William and David's first impulse - not Meg's last one.  We benefit from a wire stretched between two rooms which made remote communication possible - not from Goldman's final leverage.  It's time that we revisit our myths and divine the truth that they've masked.  We've been weighed in the balance sheet and have been found wanting.  It's time that we mind this integrity gap.

Big Data, Small Imagination

When I wrote my novel, Coup d'Twelve, in the Spring of 2011 the idea that a project with the code name "ORCA" would show up in the U.S. elections during November 2012 in reality and in my fiction would seem to be a rather creepy coincidence. In my novel, ORCA was a system that was used to coordinate massive financial data transmission resulting in unfathomable wealth transfer. In Mitt Romney's failed Presidential election bid, ORCA was a poll and voter watcher that was supposed to coordinate massive data which would have resulted in unfathomable wealth transfer. My personal favorite association of the giant sea mammal and data is the Hamamatsu CCD camera used to photograph cosmic rays… but I digress.

Reviewing the patchwork of contracts that are disclosed in Federal Election Commission filings, Targeted Victory appears to be one of the architects of ORCA and, quite to their chagrin, their name seems to have delivered Defeat to clients Mitt Romney, Floridian Connie Mack, Virginian George Allen, Massachusetts' own Scott Brown, and Wisconsin's Tommy Thompson. Their concoction of text messaging, social media blizzarding, keyword optimization and the like looked more like a penguin diving into the yawning jaws of a hungry sea lion than the silent lord of the deep. Targeted Victory did a nice job of lining their own pockets with campaign cash but, beyond that, they delivered a forgettable performance. The obsession with watery names persisting, Rockfish Interactive also siphoned some of the campaigns' sea lettuce with their "be the first to know" digital campaign apps. Together with MindShift Techonologies (run by former COLT Telecom Group's management team) and SCM Associates (established by Stephen C. Meyers in 1991), it appears that the one thing that the campaign can reasonably be expected to produce is generous donations to Babson College in Wellesley, Massachusetts. Why? Because more Babson alum were at the Republican trough slurping up campaign cash than many if not any other school. U.S. News & World Report gave Babson high marks for entrepreneurship education and they did the French word proud. Their alum stashed the cash while presiding over a national big top circus. Well done! Probably a good idea not to overplay the Technology, Operation, and Information Management degree as the tech side of the story is not quite so rosy.

Why did Romney's whale beach? In part because of the same arrogance promoted by IBM's pronouncement that "90% of the data in the world today has been created in the last two years alone." Daily dozen terabytes of tweets, 500 million phone call records, billions of pictures, videos, and documents - how couldn't they be right? Well, the answer is digital. No, really, I mean digital. Romney's campaign and IBM both think that the only thing worth counting is discrete variables: yes or no; black or white; on or off; red or blue. Complexity (like two or more dimensions) is the enemy of this illusory world. It's best if we ignore the fact that the world we inhabit and the cosmic expanse through which we travel are analog with continuous flux. When you over-attribute confidence to one-dimensional perspectives framed in digital reality, you lose. And when it's done at scale, we all lose.

So… after Mitt and Paul were sent packing in favor of Four More Years, pundits, still trapped in digital flatland decided to blame ORCA - the killer app that, well, wasn't so killer after all. Oh, and in the interest of fair-and-balanced, Charles Pruitt's A.B. Data Group (armed with a lot more money), delivered what WPP's advertising heft couldn't lift - a win for their candidate. Macalester College in Minnesota better be getting a bump in their endowment too! And by the way; good on ya' Macalester (Pruitt's alma mater)! I think that your college website is the only one that promotes Sauropod expeditions and anybody cool enough to have 65 million year old fossils on a website gets cool points in my book!

But the other reason why Romney's sea creature was more blubber than sinew was the failure of imagination. When one seeks to understand a complexity - like emotional human behavior - it's pretty important to start with complexity. Race, gender, socio-economic status, and the like are blunt instruments. With them, you might remove the overburden of mud to unveil the site of dinosaur bones but you'll never get into the granular details with digital classifiers. What's the difference, for example, between fossil and the surrounding dirt and gravel? Well, in truth, probably a few million years. The fossil is just earth dust with its geometry preserved. And that's where Romney, IBM and all the "big data" evangelists miss the point. They forget that signals (both digital and analog) are produced in words, pictures, embraces, dances, emotions, reflexes and mediation all the time and they emanate from impulses in context. Any attempt to decipher one without the other - to say nothing of the greater harm in concluding that one is of greater or lesser importance - is madness.

When Herman Hupfeld wrote "As Time Goes By" in 1931 (sung unforgettably by Louis Armstrong), he wasn’t expecting a literal interpretation of "A kiss is just a kiss." Tell this line to Jesus of Nazareth the night he was kissed by Judas. Tell this to your bride at the consummation of nuptials. Tell this to your son or daughter the first time they plant a slobber-filled smooch on your cheek. You see, when you take words out of context, you can fill in a thousand contexts in which they don't apply and then you can form an argument with one of the more romantic, lilting songs from the 30's. The impulse in context is not a "big data" challenge - it's actually something that neither Romney nor IBM can wrap their head around. It's an invitation to realize that by pretending to communicate signals through "social media", we've actually constricted the dynamic range of our communication. And in so doing, we've shrunk the complexity of context thereby generating more meaningless signal devoid of humanity.

Here's a simple way to confound the social spiders crawling every signal to infer meaning from your every move. Don't feed them. If you like this blog post, after you've shared it on your Facebook page, Tweeted it to your friends, and "Liked" it as many times as you can, think of someone you really love and actually READ it to them. You know, that good old-fashioned concept of actually letting your voice resonate with the poetic magic of words. When you do this, do me the favor of imagining me sitting with you and smiling. Imagine that we're starting a conversation that will last long into the night in front of the hearth or to the relentless crashing of the waves on a beach. And then choose to tell your version of this story to others. In so doing, you'll reconnect with a bit of your humanity and enter the realm of cosmic data - a realm too big for campaigns and computers. A realm through which a silent ocean mammal slides quietly waiting for the migration of the perpetually moving seas.

Bribes at the Supreme Court for Thermodynamics

Spending two days in Hilversum (Netherlands) at the Global Breakthrough Energy Movement Conference provides ample cognitive deuterium to power cold fusion reactors for the foreseeable future.  All kidding aside, Global BEM did a phenomenal job of doing something I last saw elegantly executed by John Petersen's Arlington Institute.  With an aptitude somewhat unique to the Dutch, they assembled one of the most improbable of audiences from all corners of the globe and exposed them to content as dimensionally complex as the attendees.  Under the moniker of "Breakthrough Energy" - a more suitable term than the ecosystem disrespecting term "Free Energy" which fails to account for the constituents contributing to the system - they appealed to an expansive consideration of how we animate our future.

I couldn't help but marvel at the allegedly uninvited guest that seems to haunt gatherings such as this.  From Foster and Kimberly Gamble's Thrive: The Movie to the coffee breaks in Hilversum, the ghosts of Bretton Woods, the IMF, and David Rockefeller were running amok again.  The evidence of the homicide of alternative energy efforts seen to threaten the global financial system was presented by speakers ranging from Canada's Honorable Paul Hellyer to George Bush's Former U.S. Assistant Secretary for Housing, Catherine Austin Fitts.  While in years past, these voices were seen as fringe and discounted as conspiracy theorists, in the wake of the continued accountability and performance failure in the global financial sector, current headlines lent a certain credibility to what is very old news.  This post is NOT about the fact that, since 1913 and unquestioned since Bretton Woods cum International Monetary Fund, the current monetary system is controlled by and for private interests at the expense of public interest.  Rather it is about the apparent cognitive dissonance that should disprove the First Law of Thermodynamics.  By observation, in an isolated system (the passionate advocates for alternative energy paradigms), energy expended in blaming the global financial cabal for non-adoption of vital technical solutions is infinite. 

Why the title for the post?  Well, for a bunch of reasons. 

First, according to the practice of law in the U.S. and its thermodynamically constrained allies, perpetual motion isn't.  In one of the landmark cases that struck down perpetual motion as a "violation of the first and second law of thermodynamics" and therefore an "incredible utility", the U.S. Court of Appeals for the Federal Circuit actually did not conclude that Joseph Newman concocted a scam.  To the contrary, the actual case recites a report stating that, "evidence before the PTO and the district court is overwhelming that Newman has built and tested a prototype of his invention in which the output energy exceeds the external input energy; there is no contradictory factual evidence."  But, it goes on to say that since the evidence "seems contrary to recognized scientific principles" the results are "impossible".  Cold fusion researcher Dr. Mitchell Swartz's patent application efforts have been held up as irreproducible and therefore added to the Hall of Infamy by those who accept that science articulated in 1850 is the constraint with which we should all be hobbled today.  Having reviewed neither of these actual devices or the data associated therewith, I have no ability to comment on what the individuals did or didn't do.  What I can say is that the adherence to an 1850's mathematical assumption conveniently cloaked in the ominous designation of "Law" doesn't auger well for our social or scientific "advancement" illusions.  And to declare violations of thermodynamic "laws" to be "incredible" (in the pejorative use of the term) is incredible.

But equally incredible is the insistence that, with adequate financing (do we recall that the money is distributed by private institutions for the benefit of their shareholders?) we would be able to unleash alternative energy that would economically harm the shareholders that actually mint the thing that we "need" to destroy them.  If this sounds like the convoluted logic replete in the iocane powder laced Vizzini scene from The Princess Bride, good.  It should.  Because it is.  If we need distributed power available at each home, office, and human point of electrical consumption to rid ourselves from our vampirish monetary overlords, asking them for permission is more illogical than, "getting into a land-war in Asia or matching wits with a Sicilian when death is on the line." (For those of you who haven't seen the movie, you won't get this but you can click the link above and catch up.)  Which is only slightly more illogical than our continued addiction to our 60 Hz matrix unto which we've sworn unqualified allegiance.  We're blaming the poppy grower while the diacetylmorphine (a.k.a. heroin; a.k.a why we're really still fighting a land-war in Afghanistan…Asia?) needle is pumping the drug into our arm at our own hand.  If I were James Carville, I'd probably say, "It's the electricity addiction, stupid."  If we're serious about cutting the literal and metaphoric cord, we need to examine all of our dependencies we've placed on our electrical grid and figure out how to amend our technological entitlements which reinforce the incumbent system. 

If we spent as much of our time coming up with empowered appliances which actually address human needs and desires as we do trying to force gravity, fluid dynamics, toroidal fields, magnetism, light, and biodynamics into the 19th century utility grid, we may find that we need a lot less of a lot - including conflict metals, scientific ego reinforcement for "finally being recognized", money, and corporatization of energy.  We say that we want humanity, justice, peace, liberty, and countless other aspirations.  We say that these ideals can be achieved with distributed energy (or free software, or free medicine, or any of a number of other 'causes').  Yet we pave the road to our own demise with the sticky sludge of our refusal to emancipate ourselves from our reflexive preconditions that keep us enslaved to the very system that we claim is harming us.

The only perpetual motion machine that has clearly violated the Second Law of Thermodynamics is our fractional reserve currency system in market application.  What we've seen is clear evidence that trillions of dollars representing the notional value of hypothetical credit default and other synthetic instruments actually moved into dis-entropy between 2007 and the present.  This phenomenon, by the way, actually challenges Newton's Laws of Motion as money in motion actually suspended in an invisible cul-de-sac in the face of the clear violation of the Antoine Lovoisier Law of the Conservation of Mass in which the isolated system actually just created more ex nihilo.

Let's review.  You don't use the only perpetual motion machine that is embraced by governments and private elite alike (fiat, debt-based currency) to replace coal-fired electrical generators with gyroscopes, water screws, photonic or acoustic cavitation, and the like.  You start with what the Global BEM did well.  Bring together an eclectic, yes, at times, somewhat erratic crowd.  Let them share perspectives and interdisciplinary thinking.  And then, after all the energy condenses into infinite mass in infinitely small space, you spark the birth of a star by changing the paradigm that you perceive to be your principle constraint.  This cosmic process is, by its very nature, volatile.  But what you know is that somewhere on a planet far, far away, what will be seen is Light.  And that is what I wish for us all!  Pure, undefiled, LIGHT.

Austerity: Progress in Retrograde

Bernard Mandeville's Fable of the Bees, first published in 1705, served as one of the many philosophical underpinnings for Adam Smith's, John Maynard Keynes', and numerous other economists' causal economic models.  For those who have the time, I commend the 1714 full text for edification.  For those who don't, I've quoted the fable's moral below.

"Then leave Complaints: Fools only strive 
To make a Great an honest Hive. 
T' enjoy the World's Conveniencies, 
Befamed in War, yet live in Ease 
Without great Vices, is a vain 
Eutopia seated in the Brain. 
Fraud, Luxury, and Pride must live; 
Whilst we the Benefits receive. 
Hunger's a dreadful Plague, no doubt, 
Yet who digests or thrives without? 
Do we not owe the Growth of Wine 
To the dry, crooked, shabby Vine? 
Which, whilst its Shutes neglected stood, 
Choak'd other Plants, and ran to Wood; 
But blest us with its Noble Fruit; 
As soon as it was tied, and cut: 
So Vice is benefcial found, 
When it's by Justice lopt, and bound; 
Nay, where the People would be great, 
As necessary to the State, 
As Hunger is to make 'em eat. 
Bare Vertue can't make Nations live 
In Splendour; they, that would revive;

A Golden Age, must be as free, 
For Acorns, as for Honesty."

Despite the conspicuous absence of a "Finance Minister", the G20 have convened in Mexico for what undoubtedly will be one of the most stupefied assemblies to date.  The missing minister happens to preside over the economy of greatest magnitude currently careening towards a self-imposed fiscal cliff with no driver at the wheel.  On Tuesday, House Majority Leader Eric Cantor (R-VA) correctly stated that we can't "tax our way out of it."  It turns out that revenue sufficient to be a nation "Befamed in War..." living …"in Ease" where "…Fraud, Luxury, and Pride must live; Whilst we the Benefits receive," is as illusory today as it was in 1705.  Britain's continental conflicts were then what our War on Terrorism is today - an imposition of uncommon values at the end of a gun.

Mandeville paints an entirely hopeless picture of the struggle for the State to encourage the populace to "conquer (rather) than indulge his Appetites".  To encourage citizens to "disapprove their Natural Inclinations, or prefer the good of others to their own," while admirable, is futile as there are not enough rewards suitable to encourage such an ideal body politic.  And so Congressman Cantor eludes courageous unpopular leadership like his English lord forebears just 300 years ago.  Correctly describing the untenable without once evidencing the courage required to deliver the sober message:  We the People have become Entitled to the point of Sloth and that's what's got to change.

Befamed in War and Living in Ease (a dubious expenditure-to-GDP ratio distinction shared by the U.S., Saudi Arabia, Israel, Oman, Jordan and the United Arab Emirates - all luminaries of human excellence and...well,...) is an ironic paradox given the U.S. insistence on being dedicated to Freedom and Liberty.  "Physicians valued Fame and Wealth Above the drooping Patient's Health," while we spend over 15% of our GDP on disease management suggesting that the "Living at Ease" ideal is not adding to our well-being.  Between war, disease and debt, we spend more on these three than we do on all those things that would add to our benefit.  And this is the "big government" that the Democrats are accused of supporting and the same "big government" that the Republicans are unwilling to challenge.  Tragic, when you think about it!  Both sides sharpening their teeth on the same pestilence that will devour all in the end and no one willing to call either side's bluff.

Which is why I'm so fascinated by the much ballyhooed scourge of "austerity".  We've been conditioned to see ourselves dependent on Defense, Health, and Money - the sovereign duty of the government under the current paradigm.  Yet we enjoy neither safety, wholeness, nor productive value exchange!  So when we hear that the conditions under which government is operating are not sustainable, what precisely do we find so repugnant about this prospect?  Isn't this a time to celebrate the natural end of a failed experiment of nation-state intervention and a time to embrace the personal and community accountability we've been conditioned to eschew?  A world with fewer self-incriminating corrupt political actors incentivized to duplicitous behavior through opaque indulgences brokered through graft - now that's some austerity we could all use.

Rather than swooning under the popular fear of the terminal condition of a system wracked with the cancer of corruption, I suspect that we'd do ourselves a favor for examining the value of that which we're warned we'll lose.  Sure, the transition from public funding to community values may be bumpy but maturation is always a bit messy.  Think about it - were your teenage years your best?  While I'm sure one of you passed through puberty with nary a pimple, most of us had more than our share of the generalized plague-like appearance that no amount of Noxzema could fully tackle.  But, for most of us, this was a passing state and we came out the other end with a character that learned to accept that which was uniquely our challenges and release the emotional scars that were skin blemish deep.  We the People are now invited to join our European brothers and sisters and realize that the pruning that is upon us is not our enemy.  We are confronted with an opportunity to engage an accountable life at scale.  And this may form a More Perfect Hive.

Indemnify Us From Evil

Tragedy struck civilization on Monday when six scientists and one government representative were sentenced to six years in prison for manslaughter.  The seven were convicted for failing to predict, and communicate the severity of, a 6.3 magnitude earthquake that lead to the deaths of over 300 people.  This verdict – including the €7.8 million fine – represents an indictment not on the scientists but on the state of humanity.  And as I write this blog post on the eve of the Mid-Atlantic’s much heralded “Frankenstorm”, I am struck with the chilling commentary this case elucidates on where humans go when they perceive themselves “victims”.

Before I get into the meat of my comments it’s helpful to put some context around the data.  The years 2004 and 2010 hold the recent decade’s record for earthquake attributed deaths (228,802 and 320,120, respectively).  The 2009 L’Aquila quake came in a year of relatively few earthquakes worldwide (14,825 or nearly half the annually observed number) and a year of quite low deaths (1,790).  So, in any year in which “science” and “experts” were relied upon to forecast anything, betting against tectonic plates was a safer bet than fear-mongering.   And let’s be clear, it is relatively rare for earthquakes to actually kill people.  Rather, it is the failure of human infrastructure built to “protect” humans that actually is the culprit.  Following the illogical impulse of the Italian court, the long, blind arm of justice could have equally embraced building code urban planners, architects, builders, building supply enterprises, and the institutions that finance and incentivize the creation of them all.  China, which holds the dubious record for the deadliest natural disasters of the past 150 years (most of which were floods killing as many as an estimated 4 million in 1931), shows us that nature’s mortality statistics have more to do with how many people live in zones of dynamism than they do with the forces of nature.

But what is of far greater import in this week’s story is the “perfect storm” of three idolatries which shake far more foundations than a plate on the earth’s crust.  And while I’ve addressed these tangentially in many previous posts, the meteorological mantra on the Eastern Seaboard of the United States seems to be inviting their revisiting.  They are:

• The Idolatry of Prediction: the notion that we can use observed metrics of our own creation to foretell that which we fear or covet;

• The Idolatry of Experts: the notion that through deepening inquiry into a single field one becomes more useful than by embracing the intuition borne of generalists; and,

• The Idolatry of Culpability:  the notion that identifying a nexus of blame serves to inform others of the gravity of responsibility.

When one considers the data used to understand asset allocation, it is fascinating to see the consensus that industry participants accept when they replace modeled, adjusted, or index data for actual market observations.  These approaches, subject to selection and subjective biases are used to explain past events and prognosticate expectations about the future.  As seen with the credentialed economists of the past decade who neither understood, predicted, averted, nor remedied the economic dislocations through which we’re still passing, the reliance on models built on self-fulfilling assumption justifications is remarkable.  The “raw data” upon which many models are built are neither “raw” nor “data”. Upon this foundation, advisors rearward "model" historical market events and then forward cast lines drawn from modeled observations.  What’s most disconcerting is the belief system which allows anyone to presume that sufficient understanding of measured phenomenon (to say nothing about the accuracy of the metrics) is suitably complete to have confidence in a linear assembly of data.  The notion that, by placing heterogeneous data in a two-dimensional projection (all of which are constrained by user bias and selection preference) one can express confidence in tomorrow is an affront to the experience of life.  To take money from others for the “service” of purveying such approaches is dubious in the best of days (to say nothing of the possible FINRA violations which, while prima facie, are neglected because FINRA’s own enforcers are among the perpetrators).

When seismologists in Italy were asked to comment on the likelihood of an earthquake a week hence, they were not invited to consider the structural engineering of the buildings in L’Aquila.  Their responses didn’t include the covariance of the buildings and infrastructure and its predisposition to fall – earthquake or not.  When meteorologists are asked to comment on the path of a storm and its likely rainfall, they are not asked to contemplate the agrarian cycle which may expose tilled soil to erode worsening the horrific floods in Johnstown Pennsylvania in 1889, 1907, 1924, 1936 and 1977.  When we have “100 year” weather and seismic events every other year, shouldn’t we call into question the value of narrowly focused experts in favor of the broad swath of observations made by generalists well informed?  Most notably, the indictment of our expert idolatry is the Stockholm Syndrome which pervades our cultural behavior.  Having failed to anticipate the cataclysm, we turn to the very same sources to explain their surprise rather than calling into question our blind subjugation to their “expertise”.  Whether it’s the revivalist preacher selling heaven by being an expert is the torments of hell or an economist promoting job creation having never signed a paycheck in his life, expertise is killing us yet our adherence and faith is growing.

Until it breaks…

And then, rather than reflecting on the fact that we built the pedestal from which the diviner of models and statistically robust science made expert proclamations which were falsified by reality, we decide that the priest must be killed.  Six scientists and a government official did not commit manslaughter.  Alan Greenspan did not create the global financial dislocations of 2007-2008.  And the sordid disclosures in her tell-all book notwithstanding, former FDIC Chair Sheila Bair, was neither the Oracle of Delphi nor the collaborator for consensus that she’s been portrayed.  Investors in Bernard Madoff’s scheme were first greedy for unrealistic returns before he was the opportunistic predator he’s been made out to be.  The SEC, the FBI, and the Department of Justice had plenty of time to stop the crimes at a much smaller scale but the system fueled by greed and complacency prefers meteoric super-villains more than it calls for pre-emptive accountability and adherence to law.  “Truth commissions” have never exterminated the root evil – they merely inform the future perpetrators how better to bury their trails.  

In the time that it takes you to read this blog, the World Health Organization confidently states that 382 people will be dead due to our collective disregard for suitable water, food, housing and infrastructure.  More people will be quietly killed by our economic adherence to Adam Smith this year than were killed in the bloodiest year of World War II.  A decade after our Millennium Development Goals were lauded, we’ve done precious little to alter our thoughtless predation on the minerals, forests, chemicals, and labor of the poor while we rush to our Wal-Marts to get the lowest price deal on the things we don’t need.  And as long as we wait for an expert to give us a model to teach us how to end Poverty by 2015, we’ll quite merrily go about living without making any difference. 

Which gets me to the point.  Data, models and experts are, at best, inputs.  At worst, they provide an indemnity (an insurance) against us ever taking responsibility for the roles we all play.  Burying ourselves in statistics and evidence means that we’ll never have to take responsibility for the decisions and actions we take each day.  Millions, on this day, recite what is called the Lord’s Prayer which goes like this:

Pater noster, qui es in caelis:

sanctificetur Nomen Tuum;

adveniat Regnum Tuum;

fiat voluntas Tua,

sicut in caelo, et in terra.

Panem nostrum cotidianum da nobis hodie;

et dimitte nobis debita nostra,

sicut et nos dimittimus debitoribus nostris;

et ne nos inducas in tentationem;

sed libera nos a Malo

Today, let’s pretend that the diety to which this prayer ascends answers, “You got it.  I’ll give you a heaven as you’ve done on earth.  I’ll forgive you like you forgive those you hate and have offended you.  You’re doing fine on your own with the temptation bit without needing me to not lead you there.  Oh, and I did deliver you from evil but it seems you’ve taken it back on yourselves.”  

And then, let’s stop pretending and start living like there’s no tomorrow!

*Note:  This post was edited November 7, 2012

Just One Click from Extinction

In 1998, it was an interesting TED talk.  In June of 1999 Jeffery Brewer stated that the business model "has staying power" on the day of Goto.com's DLJ underwritten IPO.  On Thursday, Google demonstrated the value of "staying power" when it destroyed billions of dollars of the value TED listeners and eager investors thought would be sustained on the pay-per-click (PPC) business model that was to revolutionize Madison Avenue.  Goto has become went from and all for a simple, yet deeply complex uncoupling between value and its exchange.  

What GoTo.com (subsequently Overture Services, Inc., acquired by Yahoo! for about $1.6  billion in 2003) and its founder Bill Gross (think Twitter, not PIMCO) thought would last forever was the presumed desire for internet users to transform enticing hyperlinks into consumer behavior.  And, when you look at the tens of billions of dollars poured into his thesis, you'd assume that he's right.  And if "right" is measured by how many billions of dollars flow in any certain direction, then cease reading.  But if you want to know why I'm so intrigued by Google's collapsing (over 11%) market cap in just a few short hours this week, read on my intrepid alchemist!

Pay-Per-Click presumes a few unsubstantiated preconditions.  First, one most devoutly hopes that the "right" siren is singing to the "right" object of seduction.  Second, one hopes that the "right" seduction appeals to said "right" object.  Third, one presumes that the "right" gratification stands behind the "right" seduction so that the "right" object acts according to plan.  And, tens of billions of dollars later, what we found out from Google's collapsing equity soufflé was that this Homeric ideal has a half life of, well, less than a decade.

What's more fascinating than the loss of $20 billion in an hour or so - once thought to be "real" money - is what this illusion erasure portends.  PPC didn't really fail in and of itself.  PPC failed because the unconsidered assumption above was linked to an even more tenuous illusion - the value of "search".  

Now I'm dating my self here but I remember when the Yellow Pages was about 25% of the phone book.  In Los Angeles!  Once upon a time, somebody decided that adding advertisements to the Yellow Pages would be a great way to connect with customers.  This 1886 invention lasted 100 years with positive market penetration and revenue growth suggesting that R.H. Donnelley had 10 times the "staying power" of Bill Gross.  But, like the rotary telephone that it used to sit beneath, the Yellow Pages went the way of the clackety dial when your fingers stopped doing the walking and instead started doing the sweeping across the rounded-edged rectangular surfaces of your mobile device.

But before we get too hard on the spawn of the IdeaLab, it's worth taking a deeper look at what's wrong with Google (and, dare I comment on the likes of the zombie Yahoo!, the technologically deficient Microsoft bing, and the Mandarin behemoth Baidu?).  The real problem with PPC is the platform on which it's served.  That is the principle of "search" and the misnomer "search engine".  

Information - digital or analog - is a commodity.  Putting it on massive servers or in euphemistic clouds is warehousing - just like any other commodity.  There's nothing intrinsically wrong with either of these two foundational steps.  The market failure enters precisely at the next step.  We make the mistake of assuming that when looking for the thing we think we're looking for, we know what to call it.  Then we make the mistake of assuming that what we call it is identical to what others call it (and have called it in multiple times, markets, cultures, languages, etc.).  Then we make the mistake of assuming that if we're presented with a page of 15 hyperlink options, we'll recognize the thing we're looking for as the "right" expression of that thing.  And then, in our sloth, we concede any future inquiry by confirming that what we were presented matches our expectation and we pay NO attention to what we didn't know we didn't know we could have been interested in.  And then, we're invited by PPC to transact in this mediocrity and pretend to be satisfied.  And, by the way, far from being equanimical, we live in a world where search engines have sold seduction premiums to purveyors of words wholly contaminating any chance of actually making a considered selection.  Like a small bird eating the regurgitated worm from the vomit of its caring mother or father, we wonder why our search engine experience tastes like puke.  Well, here's a thought.  Maybe because it is.  There's no way that Wikipedia is the most relevant thing I should see when I'm looking for the Banking Act of 1933.  I should actually be shown the Banking Act!

Which brings me to the point.  The PPC failure which has cratered the market value of Google, Yahoo, Facebook and all the other greats is a failure not of advertising but of complacency.  These companies, rather than focusing on advancing the human condition and experience, have elected to harvest the most accessible fruit at the most voracious pace.  And in so doing they've fouled the very nest that was supposed to have given them persistence.  At the end of the day, that's really the point.  What PPC teaches us is the cost of low ecosystem IQ.  If you don't factor in the conditions required for a system to operate, the neglect of the ecosystem will ultimately destroy the entire enterprise and this destruction will be complete.  PPC is dead because it was the cover-up for the failure of search.  When search fails, all the parasites attached to it fail too.

It's time for something new.  I think of this week as the clarion call for an Network-Inspired Holographic-Integrated Linguistic Ontology (NIHILO).  In this paradigm, I would communicate as much as I can about myself and what I'm doing.  The engine takes the artifact of my communication and immediately links me to those who are already doing things that are similar.  My next impulse is to reach out to these individuals I've never known and see what we can do together.  And when we get together, we just might find out that the impulse that linked us is LESS interesting than what we find we could do together.  In short, we'd actually create something from nothing… but our shared lives!  And that would have "staying power".  Stay tuned because we've got the design for this already running and we're working with some amazing friends in Oakland to take it to a whole new level!

And, just for fun.  I was amazed at the end of my bike ride yesterday afternoon (during which I hit my third fastest land speed record of 48.3mph) at the fact that in my yard, nature had applied its alchemy to unveil a rainbow!  Truly all the colors of the spectrum greeted me as I rode up that last 100ft climb.  So, here's a little autumn gift… just for fun.

When a Dollar Was Worth a Dollar

 As we near the U.S. Presidential and Congressional elections, a tired refrain echoes from the incessant media outlets and increasingly choreographed "Town Halls" which bear no resemblance to any town or any hall I've ever seen.  "Are you better off now than you were 4 years ago?"  This question is supposed to evoke one of two reflexes.  The first, if you're of the Obama persuasion, is to allege that the President has staunched the bleed of banking and economic collapse that was hemorrhaging around the world at the ignominious end to the Bush-Cheney reign.  If you're of the Romney persuasion, you point to trillions of dollars of debt and economic stagnation in industrial production and growing unemployment and you want your man to do his alchemy.  Spoiler alert.  The question is rhetorical.  "Better" is exclusively in the eye of the beholder and is contaminated by the nasty human deficiency in the capacity for long-term memory.  Few of us remember what we ate for dinner three nights ago.  We might remember a few names and faces from the party we attended a month ago.  We may recall bits and pieces of last year's birthday celebration.  But doing a full consciousness scan four years back?  Remote, at best for the most awakened among us.  Reliable for even fewer.  And a great basis for determining leadership - absolutely worthless.

It's been impossible to escape this week's market foreboding if you're tracking the economic press.  China's exports unexpectedly rose.  Apple's report card one year post Steve Jobs has analysts wondering if the world's largest company by market capitalization (a company whose post iPhone 5 launch nearly $60 billion market cap LOSS would put the LOSS at number #90 on the world's largest corporations) is going to continuing rising like a Red Bull balloon over Roswell, NM or whether it's going to return to Earth like so many aspirants have done in the past.  If you're long Exxon (still clinging to its second place $420 billion), you're probably in safer company as our oil addiction seems to be well in hand.  If you're Saudi Arabia (at $597 billion GDP and at number 20 in the world's largest sovereign economies) beware.  Apple knocked off Sweden without a second thought and they've got promoters who are looking to pump more hot air into the stock than all the oil you've got under the sands.

Though routinely distracted by Felix Baumgartner's record setting sky-diving attempt funded by Red Bull - a drink that I simply cannot understand, but, whatever - I thought it might be informative to decaffeinate the hype surrounding the four-years-better question and see if we could get some sense of where we actually are.  

The last time the U.S. dollar was worth, well, a dollar was in the April of 2003.  Now what I'm referring to is the Dollar Index which measures the dollar against the Euro, the Yen, the Pound, the Canadian Dollar, the Swiss Franc, and the Swedish Krona.  With all of the currency manipulation that we've had lately, the dollar is currently worth just under $0.80.  And, for those of you who are NOT paying attention, the fraternity to which we're comparing our health is not filled with economic Olympians.  In fact, there's a bit more life support than wholesome living in our comparables.  So when we find out that we're relatively less healthy, we must remind ourselves that we're comparing ourselves to a club that includes zombies and organ donors.

When we hear about market capitalizations soaring, it's somewhat advisable to recall that we're not comparing Apples to apples (pun fully intended).  But there's an even more fascinating piece of data that I focused on this week.  The "YOU" in the question.  Remember that the question is not some abstraction about whether the world's better off:  you know; more drone strike assassinations; more lives lost in the wars on drugs, terror, and transparency; more permanently unemployed; more displaced due to environmental and social dislocations; more connected to the internet; more smart phones; more Monopoly money; more engaged in cross-border collaboration.  The question is about YOU. 

And that's where the numbers are fascinating.  Now mind you, I'm not suggesting that any of these metrics are either positive or negative - they're just numbers.  But they may inform some of our perspectives.  Four years ago, nearly 250 million equity trades were executed each day on the Dow Jones Industrials.  Friday, there were about 117 million.  The S&P was traded in over 1.7 billion daily trades years ago - now 453 million.  High-frequency and quantitative model driven trades outnumber direct, conscious discernment mediated trades on many stocks.  In short, machines are trading less often at higher frequency and notional values with increasingly less valuable money.  Sooo… if you're a machine, you're better off.  You're working less, deciding with less conviction, and pretending to be smarter.  If you're a human… well… ummm????

So here's a question.  Is it Romney or Obama, is it Labor, Greens, Christian Democrats, Socialists, Communists - who is better suited to preside over the Digitocracy we've created in our holographic image?  Tragically, there's probably little difference.  In fact, while we slept as Exxon's oil, Apple's gadgets, and Wal-Mart's hideous smiley face cheapness surpassed the majority of nation state relevance we ceded our values to those we neither elect nor impeach.  

Which leads me to THE question.  What is relevant now?  Dollars aren't.  Governments and Nations aren't.  What is relevant on this day that a man broke the speed of sound in free fall and landed where aliens are prone to visit is whether it's time for us to jump from the tethers that have bound us and relent to the boundry-less space in which we're known by our contribution to humanity rather than by our self-imposed limitations.  We are better off when we realize that it's always been in the interactions between people that civilization is enhanced - not in the transactions through which we're constrained.  Go ahead, Jump!  

BTW... thanks for all the comments and thank you to the commentators... keep it rolling!