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]