The good people over at Bespoke have up a useful table of the best/worst performers of Q1/08 from the Russell 3000. Here they are, with an energy stock leading the way up:

Great to see that I'm not alone in pillorying Henry Paulson's plan for regulation reform in the U.S. Damn investment bankers think every solution involves M&A or a takeover, and that's what Paulson is trying to orchestrate here. This thing is looking increasingly unlikely, a mere 24 hours later.

More here.

Doug Kass over at TheStreet/RealMoney has posed a kind of backdoor market Rorschach test today. By posted a faux conversion/confession on his supposed shift from bearishness to raging bullishness he got lots of attention -- and now bears and bulls alike are harumphing about it.

Why? Because bears are using it to say bulls are idiots, in that they drove stocks higher on a major bear's implausible conversion to bullishness, and that just shows how frothy things are, and so you should Sell. And bulls are saying that the market's extreme sensitivity to a Kass's implausible conversion from bearishness to bullishness shows how oversold things are, therefore you should buy.

Such fun. More here.

This is a strange story: According to various sources, most Apple stores in the country are newly out of iPhones. While you can order them from the Apple Store with 5-7 day delivery, you can't get them in stores.

Just to fact-check this a little, I made a few calls myself. I talked to six southern California Apple stores, and here is the gist:

• No iPhones at any of these six stores
• Most ran out Friday/Saturday
• They don't know when they will get more, so "just keep calling"
• It hasn't happened before

This is tough one to figure. Strikes me that one of three things is going on:

1. Apple has a component issue and is doing a quiet recall
2. Apple has a supply issue with a major sole-source supplier
3. Apple is set to do a surprise launch of a 3G phone

I can't think of any other explanation, and none of these are very palatable. Even option 3), which would be nice, is disconcerting in the face of Apple unable to sell iPhones in-store for 4-ish days now. Anyone have any other ideas here?

I don't often talk about tools and productivity stuff here, but I thought a quick digression would be in order. I consume a lot -- okay, an awful lot -- of information on a daily basis. Sometimes it gets overwhelming, and I'll come back to that, but I thought I'd first mention a few tools that have become indispensable to me in the last year:

• Launchy. Command-line app launcher on Windows. Lots of other versions for Mac and elsewhere, but this is the best for Windows. Lets me do things at hyperspeed without lifting a finger from the keyboard.
• Twhirl. The best desktop Twitter client, bar none. And for those of you that don't use Twitter, it's sort of an experiment in open semi-synchronous chat over the Net. I use it as a kind of realtime information filtering system, and it has become crucial. Send me a note if you have questions, because it's admittedly a baffling service when approached cold.
• Windows Live Writer. I do all my blog posts writing & editing via ... a Microsoft product. Yes, it's true. But Windows Live Writer is all the things most Microsoft products aren't: Fast, appropriately-featured, extensible, standards-based  and free.

And now some notes on the funeral. It has, in essence to do with Google Reader, my primary RSS reading tool. As recently as a few months ago I subscribed to something like 600 news feeds. As of today I'm down to about 150, so a host of feeds have been unceremoniously dumped.

Why? Not because of anything to do with Google Reader, per se. It has much more to do with the info-clutter. I had largely stopped going, mostly because I didn't have time and wasn't finding enough interesting stuff. I like TechCrunch, for example, as well as a host of blogs, but I don't need more feeds/services telling me to go read article XYZ "your friends & colleagues are reading article XYZ". No thanks. Because if my friends and colleagues are, then there is no urgency for me to do it: The news will find me (pace Brian Stelter). Nor do I need more marginalia, with people adding fractionally to other articles without really moving the info ball, giving me investable information, or changing my worldview.

So I stopped reading most of it. I don't want volume or comprehensiveness; I want surprise and interestingness. And to be even more clear, I don't want surprise or interestingness in a Digg sense of the word, with naked nonagenarians or raccoons with their tongues stuck to metal poles, etc. I don't want an information freak-show. I want things that I would have normally read, but wouldn't have found, nor would have most people that I read. Something that changes the way I think.

It is all about interestingness, and algorithmic detection of interestingness remains one of the big unsolved problems out there. It's a combination of recency, intelligence, and freshness of perspective, and it's badly needed -- and nowhere near here.

In a new and interesting interview in MIT's Technology Review magazine economist Robert Merton -- of Long Term Capital Management fame, and, oh yes, a Nobel prizewinner -- offers some musings on risk in the capital markets. He is a smart fellow, and it's a subject he knows well, what with the sorts of adventures his LTCM took along the way toward its eventual demise.

Here, however, is Merton on whether risk is increasing or decreasing in markets as we introduce more technology, complexity, and trading velocity:

Technology Review: Is it fair to say that the current financial system is too risky?

Robert Merton: Let me give you this analogy. If you're driving in inclement weather, you'd say that a four-wheel-drive car is safer than a two-wheel-drive car. Now suppose that we observed that over the last 15 years, the number of passenger accidents per passenger mile driven hadn't changed at all. And someone says, Now wait a minute: Has four-wheel drive made us safer? And the answer would be, Technically, no, because we're having just the same number of accidents we used to have. So, was this all a waste, or were we wrong? I think you know the answer, as I do. What really happened is that people get something that will unambiguously make you safer if you behave the same way you did before. That's the key element to understand first. The amount of risk we take personally, individually, or collectively is not a physical given constant. We choose it. What happens is, we look at some new, safer instrument and we say, Yes, we could be safer doing the same thing. Or, we could take the same amount of risk and do things that were too risky to do before. So with a four-wheel-drive car, you look out the window and see six inches of snow, and you say, That's okay: I'm going to go over and visit my family. So the question to ask is not, Are we safer? The question to ask is, Are we better off?

Interesting stuff, of course, and a restatement of what has come to be known as risk homeostasis theory. The core idea, as Merton says, is that we choose a level of risk with which we are comfortable, but that level can change with the systems in which we operate, as well as with the changing protections afforded by the overseers of said systems. The car example above is a favorite of risk homeostasis supporters.

So, is Merton right? Sort of, but the bigger story is considerably more complex. First, however, as the many critiques say, the trouble with much-promoted highway argument in risk homeostasis is that people don't continuously adjust their behavior incrementally for every change in in-car safety systems. Sure, some people are wrongly more confident in snow because they have ABS, or possibly even because they have seatbelts, but the idea that the behavioral change is so large as to make risk constant is untrue. Matter of fact, despite claims to the contrary by the theory's originator, Gerald Wilde, there is strong evidence (and more here) that must of the homeostasis-related driving data is contradictory, at best. Auto owners don't actually seek out ever higher level of risk in response to safety improvements.

But the situation is very different in capital markets. In those markets, risk and return are strong related. When something becomes too easy in markets, when the real or perceived risk falls, everyone piles in, reducing returns further, and forcing traders/investors to take on even more risk -- whether in the form of leverage, exotic trades, etc. -- to get the same return.

And the system itself is dynamic, with reductions and increases in risk happening in response to the actions of market participants. A previously risk-free trade can become highly risky overnight, and stay that way forever, and for a week. A previously risky trade can become placid and common, as happened with some synthetics and securitization trades over the last few years. Both happen all the time, and they happen, in large part, because of a dynamic system's response to the wild-eyed behavior of its participants.

To return to Merton's analogy, cars don't work the way markets do. Risk changes in the former are a step function, at best, while the latter is dynamic, regime-centric, transient, and savage. Market participants live on the risk/return frontier, a frontier can change in the most sudden and unexpected ways overnight. Give me a call the next time the local I-5 freeway here in San Diego is newly gone one morning.

Here is Bloomberg with the dubious financial headline of the day:

Moody's Is Least Accurate Subprime-Bond Rating Firm

Is that like being the least accurate earthquake forecaster, or more like being the least accurate millennial cult member?

With news today of major management changes at PMC-Sierra, plus Broadcom bouncing along the bottom, and issues elsewhere, am I the only one feeling like we should finally be seeing some consolidation? This sector, while marginally better positioned for a turn than it was a few months ago, still feels crowded with competitors, and could use some overdue winnowing down.

Say you were in charge, who would you bang together? I'm thinking PMC-Sierra and Broadcom, but I'm sure there are others.

Despite weakening commodities and strong export ties to a stumbling U.S. economy, Brazilian markets are still motoring along. After being down for the first three months of the year, the Bovespa index is now flat on the year, and only a single-digit percentage off its 52-week highs.

It is to the point that Brazilian expats are now heading home in larger numbers, as this piece on Marketplace points out. Sadly, however, a great deal of this has to do with growing anti-immigrant sentiments in the U.S., not just improvements in the Brazilian economy.

I wrote yesterday about disappearing iPhones, so continuing on the Encyclopedia Brown approach to investing, let's talk about the case of the missing oil. With most major economies weakening, oil prices through the roof, U.S. refinery utilization at near-term lows, and with the summer driving season still a ways away, the general consensus was that this week's oil inventory figures in the U.S. should have shown a material increase.

They didn't. Matter of fact, they showed the biggest inventory decrease since last August, which was a baffler to many of us who at least try to follow oil markets. Instead of inventories being up this past week, they were down -- and down markedly, with there being a 4.53 million barrel decline to 224.7 million barrels last week. As one trader put it to Bloomberg, "The robust supply cushion for gasoline appears to be vanishing before our eyes".

So, where the hell has all the oil gone? Well, the problem seems to be at the refined end. Crude oil supplies have been up for 11 of the last 12 weeks, so the issue isn't there. Instead,despite higher prices and a weakening economy, people are driving more than most models would predict. Granted higher refinery utilization levels would also help, but that's a two-pronged sword as higher utilization rates make the market much more prone to mad swings, with even a single refinery going offline causing oil prices to go bounding higher.

This is sort of a zen question: What strategy does a hedge fund manager follow who has lost his fund because of investor redemptions? The answer forthwith:

Daniel Zwirn, the New York-based manager who is shutting down a $4 billion hedge fund because of investor withdrawals, plans to start a new fund, according to four people with knowledge of the situation.

Oh, and what strategy will that one follow?

The fund, slated to be called ZLC Global Investments, will focus on companies that have trouble getting financing from other sources ...

How appropriate, in the circumstances.

[via Bloomberg]

Great. Ben Bernanke has decided to steal a page from his predecessor and has started coining quotable phrases. Alan Greenspan had "irrational exuberance" and, yes, "infectious greed" to his name, and today Bernanke coins "chaotic unwinding".

Do these Fed chairs have nothing better to do than sit around and come up with this stuff? Or do they have an "econo-quote boy", like Garry Trudeau famously needled George Will decades ago in a classic series of Doonesbury strips?

And if it turns out that Ben likes to hang around writing these trendy speeches in the bathtub like Greenspan did, I'm going to short the dollar, just on principle.

Quote of the day comes from an article on the brokenness of the venture capital secondary market. Never much of a market in the first place, it's no more fun than usual -- as always, the people who most want access are the people whose portfolios you'd least like a piece of.

Hence the following quote:

“Throw these firms a lifeline? I’m more of a mind to shoot the wounded.”

Mixed metaphors, but salty nevertheless.

[via VCJ]

While we haven't solved the Case of the Missing Oil yet, I do have an update, courtesy of a reader. Here is a recent Bloomberg screenshot showing it covering all bases, in a single headline screen attributing oil's prices change to both supply and demand:

In case people can't tell, I'm traveling and in meetings today. It's one of those days that Paul doesn't scale very well.

Be nice to yourselves and to the market, etc.

I've been pining for a better stock screener since Reuters shut down theirs and ruined 2007 for me. Okay, I exaggerate a little, but I was distressed.

Now, however, we have Google Stock Screener. And my first reaction? I like it. Lots of criteria to scan by, a nice interface, etc.

Biggest issues: Less flexibility about adding custom & calculated criteria than I'd like, no analyst recommendation data, and no ability to monitor the output for changes dynamically.

I know there are oodles of Google Finance people who read this, so listen up. Make the changes. You have a killer product on your hands.

The shorter Jamie Dimon from part two of today's Senate hearing on the JPMorgan takeunder of Bear Stearns:

• You people asked us to do this, so don't blame us.
• It was better for you than for us, because we saved capital markets for everyone.
• We could lose money on this, know. Really.
• We worked hard, even staying up late at night for a few days, pulling this deal together, so you have to think of the billions we'll make on Bear on an hourly basis.
• We think of the Fed's participation as skin in the deal. It's not risk -- it's upside!

Eye-popping traffic stats from Matt Drudge's Drudge Report in the just-completed March period.

THANKS FOR MAKING MARCH '08 THE BIGGEST MONTH IN THE DRUDGEREPORT'S 13 YEAR HISTORY!  MAIN PAGE LOADED 590,943,577 TIMES... TOPS MARCH 2007'S 425,371,511... TOPS MARCH 2006'S 287,443,312

Quote of the day goes to JPMorgan CEO Jamie Dimon today talking about the original $2 price he offered for Bear Stearns:

The price didn't have anything to do with the value of the company.

Precisely. And you have to love the honesty.

NY Fed chief Timothy Geithner gave the most succinct explanation of what has happened in the banking industry of late. Read it twice. Or three times. As many as it takes.

It is important to understand that investment banks now perform many of the economic functions traditionally associated with commercial banks, and they are also vulnerable to a sudden loss of liquidity. Unlike commercial banks, which rely significantly on deposits for funding, investment banks operate according to a business model in which they fund large portions of their balance sheets on a secured, short-term basis in what is known as the repo market. Because the assurance of access to short-term secured funding on a daily basis is such a critical component of business functioning for these entities, they are vulnerable to the possibility of a sudden pullback in short-term lending, or a reduction in the willingness of investors to lend against certain classes of securities. [Emphasis mine]

From the intro to Armageddon in Retrospect, the first collection of previously unpublished works by author Kurt Vonnegut since his death:

The unhappiest times in his life were those months and sometimes a whole year when he couldn't write, when he was "blocked." He'd try just about anything to get unblocked, but he was very nervous and suspicious about psychiatry. In my early-to-mid-twenties he let it slip that he was afraid that therapy might make him normal and well adjusted, and that would be the end of his writing. I tried to reassure him that psychiatrists weren't nearly that good.

Here is a sneak peek at some links from my weekly Weekend Reading column over at TheStreet.

• Hurricane price tags soaring on crowded U.S. coast (Reuters)
• Housing crisis is hitting the Mortgage Banking Association itself (washingtonpost)
• Inside the run on E*Trade (Fortune)
• U.S. could escape with no more than a mild recession (Bloomberg)
• Sam Zell sees himself as sort of an industrial Viagra (Globe & Mail)
• How hedge funds are pushing the boundaries of computational science (Alpha)

The current issue of Alpha has the most interesting piece on quantitative investors I have read in ages. Lots of Money:Tech-style stuff about what's happening at the bleeding edge, right where technology and capital markets smack into one another. Everything from computational linguistics, to herding models, micro stochastics, etc.

Granted, there is also lots of hubris, nuttiness, and even some chatter about creating the Bell Labs of computational finance. But where is the fun in capital markets if you can't dream big?

Apparently recent criticism of Alan Greenspan's March 17th column on risk in the Financial Times got under the ex-maestro's skin. He has responded today with a thin-skinned and consciously obscurantist defense, one that you would do well to read in its entirety. While I may yet come back and pick it apart in more detail, for now here is an amusing live visualization of his many lines of defense:

Nice figure in a current IMF paper on the global boom-bust cycle in residential real estate. Here we can compare what's been happening in a host of countries all finding real estate going off the rails at once: Denmark, Spain, the U.S. and Ireland are leading the way down. Most striking, at least to me, were the bubble-ish peaks put in in many non-U.S. countries.

This is just too easy, but it's hard not to be amused at the mortgage troubles faced by the Mortgage Bankers Association. It is being forced to pay much higher prices than it expected on its new Washington offices, and it is doing that with smaller coffers given the disappearance/shrinkage of a goodly chunk of its mortgage-making membership.

But are they feeling badly for themselves? Of course not -- because it's always a good time to buy property.

Anytime is the best time to buy," said Kieran P. Quinn, chairman of the association. "Over a 10-year horizon, [the purchase] looks great."

C'mon, its eye-rolling member companies must be thinking, save the "real estate is always a great investment" patter for the chumps buying property in places like Maricopa, Arizona.

By all accounts Yahoo's Jerry Yang is a nice guy. But he is beginning to bug me, especially with his latest "Dear Steve" note to Microsoft's Steve Ballmer.

Purportedly a calm and rational letter laying out why Yahoo continues to reject Microsoft's acquisition-related entreaties, it is mischievous and irritating. The note is replete with cute stuff and homespun dealmaking ditziness, all running over top of that Yang-ian "i love lower-case" faux familiarity.

Granted, there is no "sent from a Blackberry" lower case this time around, but there is that opening "Dear Steve". Why the we're-just-dealmaking-buds tone? In part because that's one of Yang's embarrassing tropes. He wants to seem warm and personal to his Yahooligans, a combination of Yahoo's founder and its curator, not some Microsoft-style power-mad CEO presiding over a company of fawning minions.

The trouble is, Yang is Yahoo's CEO, and this isn't about who's friends with whom in the techie schoolyard. Microsoft wants to buy his company, and while such discussions can get personal, Yang seeming more warm and cuddly than Steve Ballmer is a) not hard, and b) irrelevant and offensive. And to twist Ballmer's words on what does or does not constitute productive negotiations, as Yang does, puts the lie to the rest of Yang's happy-talk.

Nevertheless, the content of Yang's letter, most of which, unlike the tail-wagging salutation, was likely pushed on him by the board, makes clear a few things:

• Yahoo is ready to do a deal ["open to all alternative"]
• It wants more cash in the deal, or at least a higher floor on the price [that's the "more certainty" part of the note]
• It would like a higher price [the poorly worded "at a value that fully reflects the value"]

The sooner Yang stops trying to be a kinder, gentler CEO, and just gets on with getting this deal figured out -- which the above points make clear his company wants to do -- the better.

A few people are wringing their hands at news that Foundation Capital has raised a $750mm fund, using it as an excuse to wax despairingly about the disappearance of early-stage investors from the market. After all, you can't very well make oodles of $2-4mm investments from a fund that size: You'd have few hundred companies in your sprawling portfolio.

Fair enough, but that's not what's happening here. Foundation is moving more to cleantech, a capital-intensive area of venture investing requiring a large fund. At the same time, there is, if anything, too much Series A money floating around, especially in information technology. We have post-bubble money hanging around, new IT funds being raised, and angels moving up-market, most of them value-less, and most them taking a bead at Series A deals. Anyone who complains about an absence of Series A venture money needs to get out of their parents' basement more often.

The real problem isn't in Series A, it's what happening with so-called angel investors. In the same way that true entrepreneurs are often celebrated and seldom seen, true angels are often talked about but rarely seen writing gut checks. Many of them are echo-bubble babies, now pulling in their horns in the recent stock market carnage; others are moving up-market, especially in oxymoronic  "angel investing associations". Granted, sometimes such things have a purpose, but, as one entrepreneur-turned-investor put it to me recently, I became an entrepreneur/investor to avoid having to be a member of anything. Why would I start now?

A related data point: Today I had lunch with a smart, seasoned entrepreneur who told me about a 4-inch deal binder he had been forced to create for angel diligence. As I said to him: Run. Hide. Any angel who wants that much security in an early-stage deal is to be avoided like a banker.

I'm seeing more and more of this sort of thing in existing home sales listings around San Diego. Not sure if it constitutes bottoming in the local market, but it is interesting:

Sales History
Historical home sale price (1): $736,500
Prior sale date: Mar 19, 2008
Change since this sale (1): NA

Historical home sale price (2): $658,750
Prior sale date: Sep 20, 2007
Change since this sale (2): +12%

Historical home sale price (3): $840,000
Prior sale date: Jan 31, 2005
Change since this sale (3): -12%

As you can see, this house sold near the real estate peak in San Diego for $840k, and then the owners abandoned ship a scant two years later for $658,750, taking a whopping 21% drop. A few weeks ago, however, the home changed hands again for $736,500, up 12% from where it had sold back in September of last year.

Quote of the day comes from commodities markets -- lead, to be specific. Here is John Deave, a retired barrister and churchwarden in Stathern, England, talking about the spate of lead roof thefts at local churches. It is driven, of course, by high lead prices:

"Whenever I get an early morning phone call these days, I think, ‘Oh no, they’ve taken the roof again.'"

[via NYT]

Region: Some economists—you know them well—say that the stock market crash of 1929 and the more recent climb and decline of the market in the early 2000s suggest that “irrational exuberance” affects the stock market. How do you reconcile this alleged evidence of herding behavior and animal spirits with the notion of market efficiency?

Fama: Well, economists are arrogant people. And because they can’t explain something, it becomes irrational. The way I look at it, there were two crashes in the last century. One turned out to be too small. The ’29 crash was too small; the market went down subsequently. The ’87 crash turned out to be too big; the market went up afterwards. So you have two cases: One was an underreaction; the other was an overreaction. That’s exactly what you’d expect if the market’s efficient.

The word “bubble” drives me nuts. For example, people say “the Internet bubble.” Well, if you go back to that time, most people were saying the Internet was going to revolutionize business, so companies that had a leg up on the Internet were going to become very successful.

I did a calculation. Microsoft was an example of a corporation that came from the previous revolution, the computer revolution. It was hugely profitable and successful. How many Microsofts would it have taken to justify the whole set of Internet valuations? I think I estimated it to be something like 1.4.

Region: About one and a half Bill Gateses.

Fama: That’s right. And Microsoft was a good example because the worse their products were, the more money they made [laughter]. Who didn’t struggle with DOS and then the first versions of Windows?

[Emphasis mine]

Let me get this straight. The market is efficient because the stock market crashes you cite weren't perfectly efficient? Maybe I'm just slow today, but I feel like Fama has out-cuted himself here.

I'm briefly on CNBC's Power Lunch today in about an hour, at noon EST. Talking tech stocks, earnings, GPS, etc. If you have anything particularly striking you think worth mentioning,  feel free to post it here.

[Update] Some stocks I mentioned, or meant to: CSCO, CRM, GRMN, SIRF, and AMD. Only the first two were positive mentions.

In scanning the Fed's minutes from its March meetings my eyes kept glazing over, even more so than usual for such turgid stuff. So I decided to check the document's readability, via the Flesch-Kincaid test. Here is the result:

How does that compare to other documents? Well, lower numbers on the F-K test mean the text is less readable, so higher, to a point, is better. Time magazine scores around 40, and a random academic paper I grabbed out of Current Biology (okay, a classic on why monkeys trade-off juice for images of female monkeys) comes at a reading ease of 30-ish, and a similar grade level.

In other words, the Fed transcript is tough stuff to slog through. Maybe the Fed is trying to cloud our minds with unreadable text. Admittedly, it's only a theory.

Rather than wasting so much time doing pre-emptive reputation management, as he did yesterday in the FT and today in the WSJ, ex- Fed chair Alan Greenspan might mull why so many people think he is so tone deaf to his own tone deafness.

Why? Because here is a guy who presided over back-to-back bubbles -- tech equities and real estate -- in the U.S. market, and yet seems genuinely puzzled why so many people are questioning his actions. Might he not have some minute responsibility for what happened on his econo-watch? Granted, greed helped, whether in dot-coms or in mortgage markets, but the Fed was a facilitator.

One of my favorite points with young growth companies, whether private or public, is that I focus on the people because the company almost certainly won't end up building what it says it will, so I better like you guys. That point -- i.e., companies mutate or die -- is less understood than it should be.

Here is one example:

In the 1890s Wrigley's Scouring Soap started bundling baking powder with its products. Eventually the baking powder proved more popular than the soap, so the company decided to focus on that instead. Soon afterward they started bundling two sticks of chewing gum with every can of baking powder, and eventually the gum became more popular than the powder. Naturally Wrigley's decided to start focusing on selling chewing gum, which worked out pretty well.

And another:

Lamborghini started as a tractor manufacturer.

More here.

While chairing Money:Tech 2008 I got to see oodles of early-stage financial technology companies, and many of the most interesting were in the New York area. It's nice to see New York leading in this area (along with doing well in media technology), and that point is reinforced by an article in Reuters today.

Admittedly, it isn't cheap to start a company in New York, but it sure isn't cheap in the Bay Area either -- and you have considerably more experts in financial technology in New York than in Menlo Park.

I love teardowns -- taking apart consumer electronic devices to find what public company components are hiding inside -- and I'm doubly fond of fantasy teardowns. What are those? That's when analysts tear apart, metaphorically speaking, a product that hasn't shipped and isn't available yet, trying to come up with a best guess as the components therein. Yes, it's silly, but the suppositions can be decent.

We are seeing some of that right with Apple's upcoming 3G iPhone. Given that Walt Mossberg tells us it's coming in June, analysts are wasting no time doing fantasy phone teardowns. Here is one from Friedman, Billings Ramsey quoted by Eric over at Barron's today:

• Broadcom (BRCM), he says, keeps the touch screen controller socket in the 3G iPhone and a potential iPod Touch refresh design. He also thinks the company could have a Bluetooth/WiFi combo chip in the next iPod Touch.
• Marvell (MRVL), Berger says, likely keeps the 802.11 WiFi socket in the iPhone, but may have lost the WiFi socket in the Touch to the Broadcom combo chip mentioned above.
• Infineon (IFX) and Samsung “remain overall device winners,” he says. Berger says Infineon may be providing the 3G baseband chip, the RF transceiver, a power management chip. (The company supplies the EDGE baseband chip in the current iPhone.) Samsung is likely to provide the application processor, as it does in the current phone.
• NXP and Texas Instruments (TXN) “also have peripheral smaller sockets in the 3G iPhone,” he writes.

From the above, Infineon looks like the big winner. Could the stock eventually get a lift from its current languishing status, not far from its lows and down almost 40% this year? Granted, Infineon has big issues, like a money-losing memory subsidiary, but once/if investors look through that to a (reputed) position on the 3G iPhone, we could see a speedy lift in the stock.

Here is Reason #7,732 why Yahoo management is delusional, just in case you needed it:

Yahoo Inc. Chairman Roy Bostock said the Internet company's plan to grow on its own received a "very positive'' response from investors, countering reports that they would prefer a takeover by Microsoft Corp.

"The feedback that we got from the roadshow and from our investors certainly helps inform the positions that we have taken and will take in the future,'' Bostock said today in an interview in Purchase, New York.

Translation: Smart investors told Bostock that if any idiot investors bought into his and Jerry's line of patter about organic growth and the stock soars before the Microsoft deal closes, they'll happily hang on for the ride.

[via Bloomberg]

People outside of financial services are much more fascinating with hedge fund managers than are the rest of us. Like many/most of my readers, having spent an unholy amount of time with hedgies over the years, you realize fairly quickly that they really aren't that special. Some are smart, some are stupid, some are larcenous, etc. Nevertheless, the outside fascination with such people persists, with them often the deux ex machina of capital markets.

The latest example comes in a series in online literary journal n+1 called "Interviews with a hedge fund manager". Assuming we are meant to believe these interviews are real -- a point about which I'm not entirely clear -- I'm not convinced. Read this latest one through for yourself, but there are a host of things that ring falsely to me, including word usage (no hedge fund manager says "off-laid" about risk), vocabulary (the number of fund managers who can use "solipsistic" in a cogent sentence is vanishingly small), etc.

Other thoughts?

Quote of the day comes from a piece up on Bloomberg today. It is purportedly about the environmental consequences of 100 Hiroshima-size nuclear weapons, as the following snippet shows:

A nuclear war involving 100 Hiroshima-size bombs would open a massive hole in the earth's ozone layer, exposing life to dangerous levels of the sun's rays, a new study shows.

Again which the loss of a million or three lives from bombing admittedly pales, of course.

Thanks to a reader for the pointer.

The secret of Tiger Woods' success, according to former coach Butch Harmon:

His work ethic on his golf swing, his work ethic in the gym, his mental toughness, his discipline, the way he budgets his time. On top of that, he probably has more talent than anybody that has ever played.

So he's got that going for him, which is nice.

[via Bloomberg]

And, of course, the obligatory Caddyshack video, this time on the Dalai Lama's golf tricks:

One of the trickier questions in the business of calculating default risk -- the likelihood of a firm missing payments on a credit note -- is in the feedback dynamics of the thing. Sure, you can estimate interest coverage, capital requirements, etc., but all those things presume that everything else stays more or less static, which is rarely the case, and even less likely during extreme market duress, such as that faced by Bear Stears.

One way of asking the question is as follows: How does your default risk change based on the number of times you have been perceived to have default risk? What is the feedback?

A recent paper looks at this subject using a stochastic urn moel, one where you pull a ball from an imaginary urn, and then, based on the color of the ball take a particular action. Specifically, the ball color tells you the likelihood of default -- none, risky, or default in this simplified three-level model -- and then there is a reinforcement mechanism that kicks in based on the number of times you have been in the risky state.

Got it? It's fairly straightforward, at least conceptually, even if the mathematics of these Polya urn processes can be a bear (no pun intended). Analytics aside, the results are interesting, with the stochastic urn model doing a better job than more traditional default models in matching actual defaults. The following graph shows that nicely, with the traditional Z-score model not doing nearly as nice a job UbGesm (the urn model) in tracking against actual defaults.

One of the trickier questions in the business of calculating default risk -- the likelihood of a firm missing payments on a credit note -- is in the feedback dynamics of the thing. Sure, you can estimate interest coverage, capital requirements, etc., but all those things presume that everything else stays more or less static, which is rarely the case, and even less likely during extreme market duress, such as that faced by Bear Stears.

One way of asking the question is as follows: How does your default risk change based on the number of times you have been perceived to have default risk? What is the feedback?

A recent paper looks at this subject using a stochastic urn moel, one where you pull a ball from an imaginary urn, and then, based on the color of the ball take a particular action. Specifically, the ball color tells you the likelihood of default -- none, risky, or default in this simplified three-level model -- and then there is a reinforcement mechanism that kicks in based on the number of times you have been in the risky state.

Got it? It's fairly straightforward, at least conceptually, even if the mathematics of these Polya urn processes can be a bear (no pun intended). Analytics aside, the results are interesting, with the stochastic urn model doing a better job than more traditional default models in matching actual defaults. The following graph shows that nicely, with the traditional Z-score model not doing nearly as nice a job as UbGesm (the urn model) in tracking against actual defaults.

Many people, myself included, worry about the politicization of the U.S. Federal Reserve. To what extent have recent decisions -- the bailout of Bear Stearns, introducing new lending facilities, etc. -- been driven by markets and economic need, versus being driven, to some extent, by political considerations?

It's a tough question to answer, but one way of backing in is to understand how much time the Fed's senior officials spend in private meetings with politician and political appointees. According to ace Fed watchers at the Financial Markets Center, Alan Greenspan met with senior political officials in the 1996-2000 period about twice a week. They deemed that frequency "apolitical". Post 2000, however, Greenspan's time with political sorts escalated, with him meeting at Treasury and with the President an average of 3.1-times per week.

How has current Fed chief Ben Bernanke fared in maintaining Fed political neutrality during the credit crisis? Well, according to the aforementioned FMC, in his first year in office Bernanke averaged 2.2 political meetings a week, which is in-line with what we saw from Greenspan in his early days. He was, to that way of thinking, being fairly apolitical, at least as evidenced by the amount of time he spent with ear-bending politicians and their appointees.

But that has seemingly changed. According to data I recently received via an FOIA request for Ben Bernanke's daybook covering the 11/07-03/08 period, he is spending considerably more time with political sorts than he did in his early term. Instead of averaging twice a week, he is now averaging 3.1-times week, a 50% increase, or right up there with amount of pol-time Alan Greenspan did during the period from 2000 forward.

Are these mandarins, or junior no-name senators from East Wherever? No. Bernanke meets weekly, and often twice-weekly, with Treasury Secretary Paulson, even having had dinner with him on a Saturday not long ago. Good for him, of course, because Paulson never invites me over, but it is unusual stuff.

To to clear, I'm not saying Fed chiefs should never meet with politicians. Far from it. It is a useful source of information, and the Fed is, even at arm's length, a quasi-governmental body. I am saying, however, that a further politicization of the Fed -- at least as evidenced by a material increase in the frequency of meetings with key officials -- is something worth watching, especially during a time of crisis.

Wish I had more time to look at the results of this paper, because its results strike me as entertainingly implausible -- not to mention sort of creepy and unhygienic -- but I'm at least intrigued:

Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room

BRUCE MIZRACH
Rutgers, The State University of New Jersey - Department of Economics
SUSAN WEERTS
Rutgers, The State University of New Jersey - Department of Economics

---

March 16, 2008

Abstract:
We analyze the trading activity in an Internet chat room over a four-year period. The data set contains nearly 9,000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they have statistically significant alphas of 0.17% per day after controlling for the Fama-French factors and momentum. Traders hold their winners 25% longer than their losers. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short. The estimates show a strong influence from other traders, with a buy (sell) order 40.7% more likely to be of the same sign if there has been a recent post. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade.

In case people hadn't seen it, here is a screen capture of the iPhone 2.0 microcode containing a reference to the presence of Infineon's 3G baseband chipset in that upcoming product.

Nice catch by the folks at Ziphone.

I'm out for the balance of the day in meetings. Behave yourselves, especially those of you along the torch route in San Francisco.

Quote of the day comes in the dizzying Perils of Pauline-style adventure that is MSFT's attempt to buy YHOO.

Recall: At the end of Episode 26 the evil MSFT had forlorn YHOO strapped to the tracks, saying YHOO has only three minutes to give up the gold's location before a freight train rushes through and crushes YHOO flat. Cue whistle in the middle distance as the credits roll.

But wait! As Episode 27 begins, mute and legless beggar AOL has appeared in a wheelchair! It is frantically signing "I'll help!" as it lurches its way across the rocky ground. And then, however, curses! The fat and corrupt NWS starts rolling boulders in AOL's wheelchair's path, painfully slowing its progress to YHOO. Meanwhile stationmaster GOOG has woken up from a drunken stupor and is trying to switch the rusty tracks, sending the oncoming train in another direction.

And then the end credits roll, saying "Stay Tuned for Episode 28 ...."

Got all that? It's, you know, complicated. Anyway, here is the quote of the day:

...Yahoo might have difficulty convincing its shareholders that a Yahoo-AOL combination is attractive.

Gosh, you think? Thanks.

[via WSJ]

Emptying my burgeoning browser tabs:

• Jefferson Country, Alabama, teeters on edge of bankruptcy (Bloomberg)
• Latest issue of the always-excellent Chance News (ChanceWiki)
• Nifty bit of code to analytics on your own mail if you're a Gmail user (persistent.info)
• Historical trading and backtesting data (opentick)
• Infochimps.org: Free Redistributable Data Sets of Every Kind (Infochimps)
• The Inefficient Use of Macroeconomic Information in Analysts' Earnings Forecasts in Emerging Markets (SSRN)