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Sat, 23 May 2009

Steve Waldman has a good article over on Seeking Alpha about the difference between “transactional” and “revolving” credit. As we are in the middle of what is often described as a ‘credit crisis,’ understanding the difference between these two products is fairly important, as each have quite different benefits and hazards and create different policy implications.

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Sun, 17 May 2009

In a few months (late August), I’m planning on heading to Yellowstone National Park for a week’s worth of outdoor recreation and, I hope, many opportunities for photography in one of the most beautiful parts of the U.S. Since this is the first major photographic excursion I’ve gone on with a DSLR instead of film, I’ve been putting some thought into the contents of my gear bag.

At the moment I haven’t decided whether or not I’ll be bringing a laptop with me on the trip. If I decide to forgo a computer, I’ll either need to buy a lot more CF capacity than I have now, or get something to download the cards onto when they get full.

The price per GB on CF cards varies based on the speed of the card and the total capacity, with larger cards generally costing more then the older, smaller-capacity cards. The best deals currently going seem to be on the 100x (15MB/s) and 133x (20MB/s) cards, with a significant premium for the 266x (40MB/s) and faster UDMA varieties.

I found a 4GB 133x Kingston card for $15, and an 8GB 133x for $25, both at Adorama, and the latter with free shipping. That works out to around $3.13/GB — not too shabby, but not exactly disposably cheap.

It’s more interesting to consider the cost on a per-frame basis: each click of my Minolta Maxxum 7D’s shutter (when in RAW mode) consumes about 8.6MB, so if I were to use memory cards the same way I used to use film — treating it as a consumable, at least for the purpose of my trip — I’d be paying about 2.6 cents per image. By comparison, bulk-loaded Kodak Portra (my color film of choice) is around 3.3 cents per image, and that’s just for the stock, neglecting processing costs and any waste.

I knew digital photography was cheap, at least in terms of running costs, but that surprised me. CF cards are so inexpensive today that I could use them not only for in-camera storage but also as my archive copy, and I’d still come out ahead.

In terms of ‘film rolls,’ which is still a unit that I find myself thinking in, each 4GB card holds about 465 images or 13 35-exposure rolls. (I never shoot more than 35 frames on a roll of film, because I store them in binder pages that take 5-frame strips. Nothing more annoying than having one or two extra frames at the end of a roll that don’t fit into the binder page, forcing you to waste a second one.) If I were planning on taking my film camera, I’d probably bring 20 or 25 rolls, so I think two 4GB cards will probably do the trick.

Of course, I’ll probably take many more photos with a digital than I would with film, so it makes sense to budget more. It’s an open question in my mind whether I’ll really end up with more ‘keepers’ after the first cut than I would with film; in other words, do all the additional shots I take when I’m shooting digital actually amount to more good images, or do they just decrease the S/N ratio? One of my goals is to try and figure that out.

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Sat, 16 May 2009

I got a letter from BB&T last week, an actual paper letter, on account of owning a couple of shares of their stock. I had already heard the news that they planned to cut their dividend and issue between $1.5 and $1.7 billion in new stock to get out of TARP, but struck me as interesting that they bothered to send out notices, in the form of a letter from the CEO, to all shareholders of record.

The letter is available online here (PDF).

Most news coverage of BB&T’s decision to repay TARP has focused on the dividend reduction, and a remark by CEO Kelly King that it “marks the worst day in my 37 year career.” However, I thought the second page of the letter was really the most interesting:

Many of you have asked why we agreed to participate in the Capital Purchase Program last November. Frankly, we did not need or want the investment, but our regulators urged us along with other healthy banks to participate for the purpose of increasing lending to improve economic conditions.

Them’s fighting words right there, or at least they are by the admittedly low standards of a corporate shareholder communique. For a few months now, rumors have been circulating that healthy banks — like BB&T — were essentially forced or otherwise pressured by regulators to participate in TARP, in order to make it seem less like the plague ward than it really was. This is the first written confirmation that I’ve seen from senior management at a ‘healthy’ bank basically confirming the worst of those rumors.

The key word is that executives at BB&T didn’t “want” the TARP money from the beginning, indicating they must have been pressured or coerced — given ‘an offer they could not refuse,’ perhaps — to take it anyway. The letter doesn’t get into exactly what form that coercion took, but I suspect in time more details, beyond what are already known, will come out. Doubtless it won’t look all good for the banks when it does; in the end all the majors caved, and when they complain Treasury will accuse them of hypocrisy: buying into the plan when the going was tough, but getting buyers’ remorse now that things are looking somewhat better. This is a legitimate accusation that they’ll have to work hard to defend against. The ultimate question will be what the consequences of not participating — essentially calling the Don’s bluff — would have been, and whether they would have been preferable to what actually occurred.

The government, it seems, is going to turn a fair profit on TARP at great expense to the investors in healthy banks. (The sick banks won’t really have lost money to TARP, at least not in the same way that banks like BB&T did, because they actually needed the capital infusion to stay alive; for them it was money well spent.) I think it’s too much to expect at this point that anything will happen to recoup any of BB&T’s TARP-related losses, either the direct ones in the form of interest payments to the government, or indirect ones like the reduced dividend (which arguably they might have to have done anyway, but perhaps not — now we’ll never know) and share dilution.

There’s not much of a silver lining, but hopefully it will prove to be a ‘learning experience,’ albeit an expensive one. After having been so painfully screwed, it’s doubtful that BB&T or any of the other ‘healthy’ banks will have anything to do with similar programs to TARP in the future; whatever coercion was required to buy their participation this time around, next time they will almost certainly be tougher sales.

TARP may not have injected needed capital into the healthy banks, but it may have given them something far more important in the long run: backbone.

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Sun, 10 May 2009

When I was in perhaps 5th or 6th grade, I recall my math teacher making a halfhearted effort to get us to play The Stock Market Game as part of our curriculum. It didn’t go very well and certainly wasn’t effective as a teaching tool; I remember a couple of class periods spent pretending to make sense of the NY Times’ stock pages while actually reading the comics, and very little else.

A few years ago when I first decided to play my own little stock market game with some Excel spreadsheets, and found myself learning a whole lot more about economics and the market than I had ever really intended, I wondered why I’d never done it before. And then the memory of that abortive attempt to do exactly that came back.

It strikes me as a rather sadly missed opportunity. Until I started playing with my little virtual portfolio in Excel, I had only a very vague idea of how the equities markets worked — and this is despite having taken the two semesters of required Economics in college. Would I have picked a different major or career path as a result of getting that little bit of fundamental understanding that you gain from playing with a paper portfolio earlier? (And would that have been a good thing?) I have no idea. And really, that question doesn’t interest me that much; I have no regrets, certainly, about my actual choices with regards to education or employment.

What does interest me is trying to figure out why, despite someone’s intentions that we would use the Stock Market Game in our math class, it never ended up amounting to anything.

The first problem, I suspect, is that my poor old math teacher — who had been teaching from the same curriculum for probably 30 years — didn’t know that much more about the stock market than we the students did. (I also suspect that she wasn’t the one to decide to include it in class; it just doesn’t, and didn’t at the time, seem like her style.) That combination was deadly, right off the bat. Whatever educational utility a virtual portfolio game might have — and people are rightly skeptical of them at times — it evaporates instantly when the teacher isn’t knowledgeable and interested in it themselves.

Perhaps the root of this problem was making it part of a math class in the first place. There really isn’t that much ‘math’ involved in maintaining a paper portfolio, and what there is represents pretty basic stuff — if you’re using a stock market game to teach percents, chances are you’re not really getting into what makes the stock market interesting and important; you might as well just stick to lemonade stand examples and save students the confusion.

The stock market game would probably have fit better into the history or social-studies curriculum than into math. That might have also caused the focus of the overall lesson to be more about the equities markets themselves — how they work, why they exist, what the effects are of market fluctuations — rather than simply on generating a short-term return in a virtual portfolio. (That would also go a long way towards addressing most of the criticisms of stock market games as propaganda tools expressed in the article by Maier, which are in my opinion mostly quite valid.)

The second major problem had to do with how the game itself was executed; this being the pre-Internet era, we did everything on paper and got pricing information out of the newspaper. Hopefully this wouldn’t be a problem today; it would be simple to use Google Finance, or even the Excel sheets I played with a few years ago, to do it now, and you’d at least get pretty graphs out of the bargain.

The only benefit I can attest to as a result of having to once try to use, or at least look at, the printed financials pages, is a vast appreciation for the electronic tools that are available today to the individual investor, or even to the merely curious. From the looks of the photos on TSMG’s website, they have changed with the times. (Damn kids will just take them for granted. Get off my lawn.)

Aside from simply replacing graph paper and the Times financial section with some pretty electronic system, bringing in computers also allows for a lot more research than would have previously been possible in a classroom setting. Research and due diligence are a huge component of investing and non-technical speculation, and that’s a lesson that you don’t need to become a stock broker or day trader later on in life in order to appreciate — anyone with a 401k will do.

I think the concept of a stock market game is a pretty sound one, in terms of teaching students about a fundamental and important part of our economy — one which can, as recent events have made plain, affect their lives whether they pay attention to it or not. I can only hope that how that concept is being executed today is better than the pathetic attempt I experienced many years ago.

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Fri, 08 May 2009

Earlier today I got an instant message from a friend I haven’t talked to since 2003. Although normally I’d be pleased to hear from an old friend, the fact that the message contained nothing but a link to a web site in the .ru TLD made me suspicious.

Out of curiosity, I grabbed a copy of the page using curl, and then examined it using a text editor. This is the safest way I know of to investigate potentially-hostile web pages; even if the page exploits a flaw in your browser, chances are it’s not designed to exploit a bug in emacs or vi when it’s just being read locally. To no surprise at all, the page was nothing but a bit of JavaScript. (Which is a good reason to browse with something like NoScript enabled.)

Since I’ve just recently started to play around with JS, I thought it would be interesting to take the program apart and see what it does. For safety reasons and because I don’t want to give the malware authors any additional traffic, I’m not going to link to the original Russian site or actually host their index page, but in the interest of science, I’ve put it up on Pastebin for anyone who wishes to poke at. Just be careful and don’t run the thing outside of a sandbox.

Pastebin link to the page’s raw HTML.

They’ve done some (fairly trivial) obfuscation to hide the actual code by way of the two script elements on the page. The first <SCRIPT> defines a Decode function and includes the actual payload in a long string; the second <SCRIPT> calls the decoding function.

Their decoder:

function Decode()
    var temp = "", i, c = 0, out = "";
    var str = "60!33!68!79!67!84!89!...blahblahblah";
    l = str.length; 
    while (c <= str.length - 1) {
       while (str.charAt(c) != '!') {
          temp = temp + str.charAt(c++);
       out = out + String.fromCharCode(temp);
       temp = "";

Obviously I’ve truncated the value of str here for brevity; it’s several thousand bytes long. What we’re looking for — the actual, presumably-malicious code — is inside that string. There are a number of ways we could get at the contents, but since the malware authors have so helpfully supplied us with a decoder, why not use it? Of course, we don’t want to run it from within a browser, or using any of the online JS shells (which might — stupidly — run the code that’s being obfuscated), but the js CLI shell is a pretty safe option.

If we weren’t absolutely sure what the code was going to do when we ran it, we might want to take additional precautions, like running it inside a walled-off VM, but in this case the code to be executed is trivial.

In order to make Decode() run inside the js CLI shell instead of inside a browser’s JS environment, one small change is necessary: where the code above has document.write(out), we need to change this to a simple print(out). This writes the results to standard output when we run the decoder via js -f badscript.js > badscript.out or something similar.

What we’re left with after running this is the page that the hapless victim actually arrives at, but which the malware author attempted to hide inside the script.

I haven’t had a chance to step through the resulting page completely yet, but it seems like a mess of advertisements combined with scripts designed to make it impossible to close the page. I assume there’s probably more nastiness buried in it besides the obvious, however: since the link was sent to me automatically, it’s a good bet it has a way of propagating itself.

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Tue, 05 May 2009

Finem Respice is one of my newest favorite blogs, and I’m almost embarassed to not have found it sooner. Written by an insider in the private equity world, it’s an interesting take on finance and politics that’s different from the investor’s view one gets from outlets like Seeking Alpha or Calculated Risk, or even the economist’s perspective embodied in Tyler Cowens’s Marginal Revolution. Perhaps because it’s written by someone engaged in a profession — that of PE financier — that has lately been made a scapegoat by politicians looking to distract the angry mob from their own incompetence, it doesn’t pull punches where they are deserved.

With that by way of general introduction, the article that caught my eye on FR was “Human Sacrifice At The Altar Of The Cult Of Buoyancy,” which suggests that not only is the ‘bubble mentality’ that led to the overheated technology sector and real estate market not dead, it’s driving the current “recovery” plans by the Obama administration.

Everything in the present climate and the events of the last 30 years is suggestive of bubble worship, unshakable and dangerously, even dogmatically religious in its practice, and consequences. The only aspect of the Cult of Buoyancy in opposition to its title is the lack of fringe status. The Cult of Buoyancy is mainstream.

The ‘Cult of Buoyancy’ is, in short, the belief — bordering on religious faith — that the economy ought, perhaps must, return steady gains year after year, and that if anything interrupts this giant money-printing machine, something is gravely in need of ‘correction.’ Viewed through this lens, I can imagine a believer thinking that market corrections such as the popping of the tech bubble and the current RE slide are not only undesirable, they are unnatural, and must therefore be the fault of some shadow conspiracy. (Whether they actually believe that or not is immaterial; the important point is that there are clearly people in influential positions who act as though they believe it.)

The administration is in the thrall not of the High Priests of Capitalism, but of the Cult of Buoyancy. In retrospect it is quite obvious. The administration wants banks for one purpose. To pump out more loans. Period. This perspective makes almost all of the administration’s actions perfectly logical.

This doesn’t strike me as a particularly controversial assertion. The Obama administration has come very close to saying it outright at various times; their goal is to pour enough cheap money into the banks to “restart” lending (as if it ever stopped; it just stopped being quite so dirt cheap), get the economy back on an upward trajectory via consumer spending and mortgage lending, and — although they generally don’t say this part out loud — leave the underlying problems for someone else to fix at a later date. They take the credit, maybe get a second term out of it, during which they administer another dose of painkiller and soothing words, and are long gone from DC when the patient realizes they’ve been getting morphine for the cancer that’s been steadily worsening all along.

Someone is going to have to stand up and point out to the investing public that there is no quick fix. Someone is going to have to work to start deprogramming the United States after three decades of indoctrination. So long as the Cult of Buoyancy holds such sway, we will never see rational measures to put the economy back on track. We will see the same, tired and now clearly very dangerous tools at work. Inflation. Centralized interest rate planning. Underwriting standards tinkering. Rampant consumerism. Class warfare.

Amen. Of course, I don’t have any real hope that such a ‘someone’ will ever come from Washington; our political system just isn’t designed to allow for it. The public will get milquetoast populists bearing empty platitudes until the flaws in our economy are too obvious to ignore; a point that we are probably at least another one, if not two, boom/bust cycles away from.

The ‘Cult of Buoyancy’ is but a small splinter sect of the big-tent Church of Growth, and that church includes as its adherents virtually everyone who matters in politics, and a fair share of both the Left and Right intellegensia. Even more dangerous than the belief in ‘buoyancy’ with regard to equities and commodities is the belief that the growth experienced by the United States in the 20th century can continue unabated into the next. Any policy founded on this belief, on an assumption of basically never-ending growth, is doomed to failure — possibly spectacular failure, if the policy involves critical social functions like healthcare or retirement.

The current administration’s embrace of cheap-money policies as “solutions” to what they perceive as an economic malfunction is interesting in itself, but the immediate effects of such a policy pale in comparison to its importance as a telltale of an underlying growth uber alles philosophy that makes its non-economic domestic agenda far more dangerous than it might otherwise be.

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