In the current race for social (already handily won by Facebook) people often forget to look over the horizon. Savvy investor Esther Dyson, however, has not forgotten, and she’s written a nice piece in Project Syndicate describing what’s happening to make this next future possible.

From the article:

To me, the meaning was clear: when people search, they aren’t just looking for nouns or information; they are looking for action. They want to book a flight, reserve a table, buy a product, cure a hangover, take a class, fix a leak, resolve an argument, or occasionally find a person, for which Facebook is very handy. They mostly want to find something in order to do something.

As a result, Bing launched a few forays into vertical integration. And in the last few months Google has begun to react. First, it bought ITA Software, which provides the underlying data to several travel-booking sites (Hotwire and Orbitz) and to Kayak, as well as to Bing. Most resellers, a little nervous about Bing’s tool that sends users to book directly with airlines and hotels, are even more concerned about what Google might be up to.

Then, last month, Google acquired Metaweb and its user-generated database Freebase. While Powerset was a tool for understanding natural language and for structuring it “under the covers” (where programmers could see it), Metaweb lets partners and end-users create data structures or add information to structures created by others. For example, Metaweb/Freebase has an extensive structured database of movies, actors who appear in them, and their directors. You can ask (and get the answer) to “movies directed by Roman Polanski” and get only those movies – not those in which he only appeared. Try doing that with Google. You soon will be able to.

The future will not just be search based, but task based. And a semantic web will help make that happen.

~alex

Two recent articles caught my eye. One by the SF Fed on the Conference Board’s Leading Economic Index (LEI) prediction record, and how to improve it. And the other in the WSJ concerning the weekly claims for unemployment published weekly by the Labor department.

Starting with the SF Fed, they helpfully describe what is the Conference Board’s LEI:

The Leading Economic Index (LEI) prepared by the Conference Board (www.conference-board.org/data/bci.cfm) every month is an indicator of future economic activity designed to signal peaks and troughs in the business cycle. It comprises ten variables that can be loosely grouped into measures of labor market conditions (initial claims for unemployment insurance and average weekly hours worked in manufacturing); asset prices (the monetary aggregate M2, the S&P 500 stock market index, and the interest rate spread between 10-year Treasury bonds and the federal funds rate); production (new orders of consumer and capital goods, new housing units, and vendor performance); and consumer confidence.

They go on to say why its predictive ability is limited.

At least two reasons explain why the LEI’s predictive efficacy is limited. The first is that the index is a one-size-fits-all weighted average of indicators. By this we mean that weights are designed to distill the information contained in 10 variables into a single variable, rather than by selecting weights that would produce the most accurate turning-point predictions. Second, we find that no single combination of indicators is likely to predict well at every time horizon.

The WSJ seems to have better hopes for the unemployment claims.

The Labor Department’s weekly tally of new claims for unemployment benefits—released every Thursday—has a remarkable track record of foreshadowing economic turning points. Its recovery in spring 2009, for example, coincided with the stock market’s bottom and foretold what turned into an economic rebound.

I have yet to see any research to back this up, but the article does include some circumstantial evidence.

Still, claims haven’t risen enough yet to spark worries of a “double-dip.” They behaved similarly after the 2001 recession, improving pretty steadily until September 2002, then began to deteriorate again. That augured a 13% drop in the stock market over the next month, a widening in high-yield bond spreads and higher market volatility, notes Moody’s Investor Service. But it didn’t derail the turnaround.

The Fed’s article contains some charts. I have yet to see any on the unemployment stats, but perhaps that’s something I can create in the future, if the WSJ doesn’t beat me to it.

~alex

HT to Econbrowser for the link.

~alex

The only problem with this chart is that it doesn’t really tell us much other than cost per base pair is decreasing.

But if I want to have my genome sequenced, what will I have to pay? In other words, how is this chart meaningful to me (which may sound selfish, but I am human after all).

I’m here to help you out (along with Wolfram Alpha).

In 1991: about $31 billion

In 2009: about $31,000

The calculations do not include taxes or account for potential insurance payments, in case you were wondering.

~alex

Net neutrality and privacy advocates now have (even more?) reason to question where the company stands on these important issues. Crucially, it appears the company is shifting from previously stated positions. Before they were for net neutrality. Now they’re compromising. Before they didn’t track and sell personal information on people. Now they’re thinking of starting a market in personal data (to say nothing of the street views debacle). The WSJ has published a wonderful series of articles on privacy and the web over the past week or so. It’s no accident that Google has featured highly in them.

In addition product development people of all stripes have to wonder what happened with Google Wave. Actually, truth be told, we know what happened: the product didn’t really solve problems for people, merely confused them. Perhaps someone at Google just got a bit ahead of themselves, to put it mildly.

So now people are left to wonder: is Google really just a plain old evil company after all; and is their product development strategy somehow … lacking. This is not the summer of love for Google.

But there are good reasons to remain bullish on Google, despite the public relations whacking.

The spirit of innovation appears to remain alive.
Perhaps it goes without saying that if you create as many new products as Google does, some are bound to suck. Success’s have far outweighed failures. More worrying would be the number of middling products that they are now required to support, such as Google Books, Scholar, and so on. The rules may be a bit different, though, when it comes to Google’s upcoming social network. Failure here would be a big problem.

Open platforms
The battle here is on new devices, mobile and tablet. Android has so far emerged as the only serious alternative to Apple. One wonders to what extent we’ll see history repeat itself (think Apple versus Gates), and how likely the outcome will be the same. Most think the ground has shifted in Apple’s favor (they’re older, wiser), and I won’t disagree. But one wonders. It’s a vicious, cost conscious world out there.

The (presumed) ethics of the founders
Having worked at a few places with some strong headed leaders, it does feel true to say that as go the founders so goes the company. At the very least, don’t underestimate the power of culture, and the power of the founders to influence company culture. With that in mind, you don’t come up with a company slogan like “Don’t be evil” without being willing to put some skin into it. I have to believe that Google will make serious attempts to address privacy concerns. As a start see their Ad Preferences page. One assumes more initiatives will follow. For example, if Google helped internet users learn how to manage their online profiles, they can go a long way mitigating privacy concerns.

I’m sure on second thought the founders at Google might consider their slogan “Don’t be evil” a bit rash. Mature companies shouldn’t put their reputations on the line over idealistic, fuzzy concepts. But that is, to a degree, what we love about Google. The real danger in this summer of unlove is that they become more conventional. I would hate to see Google become more safe in developing new products. Or not try to bring more information together in more useful ways. While we want our companies to be responsible, we don’t want them to lose their edge.

And they’re the subject of one really torturous chart from the WSJ

click to view original

~alex

I wasn’t the only one who was wondering at the decline of the BDI, and stories from The Economist and FT’s Lex discuss the meaning behind it.

The Economist says:

There are growing doubts, however, about what the Baltic Dry is actually signalling. The confusion is whether the index is saying more about the supply of ships than the demand for their cargoes. The index spiked dramatically in 2008 as China’s imports of commodities soared at a time when the supply of ships was constrained and port congestion added to demand for capacity (see chart). The financial crisis soon caused the index to fall back but not before this period of dramatic growth in demand from China had prompted a surge of orders for bulk carriers, especially the very largest ones that are used on the China trade routes.

These ships take around three years to come on-stream. Despite the cancellation of some orders the new ships are now flowing in: in the first half of this year the global fleet increased by 23% as new vessels came into service at the rate of 16 a month. There are now 23 such vessels arriving each month, adding to oversupply.

So, oversupply of ships? The FT’s Lex concurs:

Several analysts have poured cold water on the BDI’s prescience though, given some obvious distortions. It takes about three years to build new capacity and, as the peak of the commodities bubble was two to three years ago, new ships are now depressing charter rates. The global fleet has expanded by about a quarter this year alone. For now, other indicators of commodities demand trump the BDI.

Cross-checking with ostensibly similar global measures such as air freight sheds little light on the matter, but rail traffic compares more reliably. Trains carry the same types of materials as shipping and volumes rather than tariffs are reported while capacity changes only slowly. American carriers provide the most detailed and timely data and they continue to report outstanding year-on-year gains for tonnage of key industrial commodities such as metallic ores, coke and lumber, up 93 per cent, 28 per cent and 11 per cent for the first 27 weeks of the year, respectively.

However, both articles hedge their bets. With the threat of a double dip recession, that’s probably smart. And if it comes to pass, the BDI may not be so misleading after all.

~alex

Well, it’s true, they haven’t taken the world by storm, but, based on my (extremely) casual observations, there appear to be two main themes in the prediction markets arena of late.

1. Fewer, but more serious, offerings.
One sees fewer of the random prediction markets that used to pop up all over the place. Yootopia, Washington Stock Exchange (WSX), ProTrade, PicksPal, and so on. Even News Futures seems to have gone the way of the Dodo. But that doesn’t mean that new prediction markets aren’t happening. Witness the Hollywood Stock Exchange finally getting its real money market. And Mr. Pennock’s Predictalot.

In other words, fewer prediction markets are coming from hobbyists and idle entrepreneurs. Now it appears that new prediction markets have real money behind them, or at least a serious agenda.

And if they’re happening in the corporate world, well, we’re just not hearing about them.

2. (Even) more skepticism.
Take this recent quote from Constructive Economics.

I ultimately believe that a real-money HSX is unnecessary. These markets are supposed to provide a way to hedge risk on people seeing films (of course, shouldering such calculated risks should be the whole purpose of a studio in the first place, but regardless…), but if I were a studio with exposure risk on box office returns I would shop that risk around to creative hedge funds with good models willing to take an equity gamble. The two big things a market provides, consolidation and anonymity, are just not necessary in this scenario. On every contract there’s just one movie and one seller of exposure risk.

Certainly there was always intellectual rigor in the prediction market community, but that always seemed to take the form of true believers debating who’s using the best formula for automated market making. Now people are questioning whether a prediction market should even exist! Egads, where have we gone?

Furthermore, some of this sort of talk is coming from our prediction market luminaries (or at least under their guidance). Take the recent paper (pdf download) by Sharad Goel, Daniel Reeves, Duncan Watts, and Dave Pennock. Here they assert that, sure, prediction markets are better are predicting the future than other methods, but not so much that it makes a difference. In other words, why waste you time setting up a prediction market when you can just use a (gasp) poll!?!? The results will pretty much be the same.

Somewhere I feel like I can hear John Maloney talking about industry maturity, but that doesn’t quite seem right. Prediction markets, as an industry, doesn’t feel any further along than three years ago. Which is quite sad, since I think some people had high hopes selling prediction markets to all the companies in the world.

Maybe it’s the recent recession. Maybe it’s that I just don’t care as much as I used to, but prediction markets still seem like they have a ways to go before they are widely considered a useful tool to people other than gamblers, media companies looking for a quick story, and academics.

~alex

An inverted yield curve happens when long dated US treasury bonds yield less than short dated ones. Typically the yield curve inversion is calculated by using the 10 year US treasury bond and the 3 month US treasury bill.

Why do they invert? Think of it this way. A lower yield on the 10 year bond means that investors are more comfortable tying up their money for a longer period of time than for a shorter period of time. In other words, people fear that bad things might happen to the economy in the short term, and they want to have lots of cash around to protect themselves.

A simple chart illustrates its record of predictions.

10 year treasury bond yield – 3 month treasury bill yield, since 1962, mapped against US recessions

click for larger size

There’s plenty of economic brainpower to back this all up, and plenty to wade through on the internet if you so wish.

This has been charted before, of course, but I took a shot at redesigning it because the ones put out by the Fed just seemed to leave something to be desired. The one below is a typical example. My goal was mainly to show what adding a bit more visual information could do to help bring out the correlation between yield curve inversion and US recessions.

click for larger size

~alex