My car, which runs a version of Windows CE (the stereo head unit, to be exact), has been perfectly content playing music from my iPod.  However it does not like my iPhone because of the iPhone 3.0 software, and it turns out that I have to patch my stereo in order to control my iPhone with it.

I was struck by the fact that I had just experienced a version compatibility issue between my phone and my car.  How crazy is that.

The interviewer calls in the mathematician and asks "What does two plus two equal?"   The mathematician replies "Four." The interviewer asks "Four, exactly?"  The mathematician looks at the interviewer incredulously and says "Yes, four, exactly."

The interviewer calls in the accountant and asks the same question "What does two plus two equal?" The accountant says "On average, four - give or take ten percent, but on average, four."

Then the interviewer calls in the economist and poses the same question "What does two plus two equal?"

The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says "What do you need it to equal?"

...

And that little economist grew up to be Lawrence Summers.  (Kidding.  Kind of.)

For all of the fraud and stupidity that has transpired thus far in this financial crisis, I was absolutely floored by what happened recently with Chrysler's bankruptcy.  The Obama administration ramrodded through a deal with completely obliterated black letter law in regards to who has precedence in a bankruptcy.

Pension funds and investors--regular people just like you and I--had invested in Chrysler bonds.  These bonds are, by law, senior to other debt in a bankruptcy.  Obama decided that it was more politically expedient for the unions to take precedence, and so it was.  Pensions and individual investors received basically nothing, while the unions who contributed to Obama's campaign got full payment on their debt.

The administration argued that this was better for the economy.  Ok.  So what.  You have sworn to uphold the Constitution of this country.  You lied.

The Supreme Court issued a temporary stay on this decision, but they caved today and it will proceed.  So much for checks and balances.

I was willing to give Obama the benefit of the doubt, but this is indisputable.  He does not care about the rule of law, he is already campaigning for the next election.  The laws of this country be damned, all hail King Obama.

This is a sad day.  I really don't care what he does from this point on, the Chief Executive of this country has proven beyond any doubt that he does not care about fulfilling his duties as the head of the Executive branch--that is, enforcing our laws--but is more concerned about scratching the backs of the people who scratched his.

If I had any shred of faith left in our government before today it is gone.  Sorry all you Obama-supporters out there--I know many of you--your guy is an empty suit with no moral compass or sense of duty.  Our Commander in Chief blows with the wind.  Yay.

By the way, this is going to do wonders for the credit markets.  When you're thinking about buying debt that is supposed to be senior to other debt, you'd like to know that that is, in fact, what you are buying.  When this can be changed by the whims of The King you might think twice.  So long, credit market, nice knowing you.

Hi ho, all hail King Obama.

What's more, I think I know his secret identity!

(BTW the Treasury used 8.9% unemployment as it's "worst case scenario" number for all of 2009 in those bank stress tests.  Glad we have experts on the job.)  Paying for this powerful medicine is hammering the bond market, doing great things for mortgage rates:

This is going to be fantastic for real estate, especially since we are about to get a wave of mortgage resets.

Hope everyone locked their rates while the getting was good.

To those of you who are looking at buying a "bargain" house right now, let me just say that catching falling knives is best left to circus performers.

Needless to say, I believe we are at or near a top for the year in the equity markets, soon to punch through the year's low of 666 on the S&P 500.  Just wanted to go on the record with this since everyone is so unbelievably optimistic right now.  Those green shoots are weeds.

I continue to ponder the implications of people with rare skillsets who are capable of making huge operational impacts on companies.  Skillsets like a combination of business knowledge and predictive analytics, of which I've recently become enthralled.

One of the areas that seem to be untapped so far but with a metric ton of potential is leveraging these unique individuals by way of hosted services.

Side Note:  I'm reluctant to use the word "Leveraging", by the way, because it is often used incorrectly.  When used properly and not by somebody who is simply trying to sound smart, it means that you get more work out of something than you put in.  (Hence the word lever, duh).  When used correctly it can increase your productivity exponentially, when used incorrectly it can bankrupt you, and when used by somebody who doesn't understand what the word means it is a synonym for the verb "to use".

Anyway, the one benefit of a cloud software model is that rare commodities can be shared among many different companies for little to no additional cost (more work out than in, or "leverage").  To date I've rarely seen this done, most of the Software as a Service (SaaS) applications are simply cloud versions of their desktop cousins. 

If you have a premise-based solution then you need your own tools/technology expert as well as your domain expert, preferably in the same person.  As I wrote before, people who have mastered these synergistic (another perfectly useful word which has been banished to buzzword hell, thanks middle managers everywhere) domains are extremely rare.  Even the investment banks with billions of dollars at stake couldn't locate these people efficiently.

But boutique hosted services who can find these people with the extraordinary skillsets can offer these people to multiple customers at once.  Web 2.0 laid the groundwork for hosted solutions, and here is a perfectly compelling reason why a hosted model is much more valuable than a premise-based solution can be, by bundling expertise along with the software.  A single team of master analysts can work for many companies at the same time, providing their expertise just as easily to 100 companies as they can to 1.  Leverage.

I'm thinking, for example, of a hosted CRM application driven by a domain expert which will identify the characteristics of your most profitable customers for you.  Your products which are most likely to sell based on seasonal and historical trends could be highlighted so your salesforce can promote them more heavily.  Or your hosted source control platform could identify areas of code which tend to be bug-prone so that you could focus your time-consuming processes on those areas and let developers have freer reign (and be more productive) in other areas.

The reason I call this boutique is because in order to truly derive the maximum value from these services they should be tailored to a specific vertical.  This is the long tail in the extreme, but at the same time the value that can be derived from it probably dwarfs 95% of the rest of the tail.  This is some seriously cool stuff that can easily revolutionize entire businesses.

This idea flies in the face of recent trend toward "one size fits all" hosted applications.  It essentially says that one size can't fit all, your results will only be as good as the team that produces them.  But hosted services will allow you to hire the best teams out there by proxy.

I'm not aware of anyone out there actually doing this type of boutique service, but as I delve further into these esoteric but insanely cool technologies I'm becoming increasingly interested in them.  If anyone knows of such a firm I'd love a link and I'll be more than happy to post them up here.

By far the biggest question facing the global economy is where the money supply will come from going forward.  Money is debt, and money is really only created when consumer debt is created.  Government debt simply shuffles existing debt around.  Since the 1944 Bretton Woods agreement the U.S. consumer has been the global source of new debt, but we are tapped out.  Consumer debt is plummeting at an unheard of rate and this is causing deflation around the world.

The average U.S. consumer is now indebted for the rest of his life and current generations cannot be counted on as a reliable source of debt creation. We've had an incredible stint as the primary money creation engine of the world, what with our consumerist culture and our willingness to take on new debt to buy a Big Mac and all, but we're tapped out, and a new source of money must be found.  Our current system of compounding interest and debt-based money has been around for some 600 years and the people who own the most debt would certainly like to see it stay intact if possible.  It's a wonderful system if you own the debt, not so much if you create it like most of us do.

One development which I'm watching closely is whether China can be harnessed as the source of world money creation.  I'm now seeing the first rumblings of this as evidenced by Tim Geithner's recent trip to Beijing:

"One of the objectives of the trip . . . is the importance of laying the foundations for balanced, sustained growth in the future," the official said. "For China this involves stronger domestic demand growth. It involves shifting the structure of the Chinese economy to [spur] domestic demand."

They certainly have the population to do this with an estimated 1.3 billion people, the only question is whether their culture is as amenable to lifelong indentured servitude as ours is.

The mechanics of this will be interesting.  For example, one of the biggest questions is what currency will be used to denominate this new debt.  I would not be at all surprised to see the Dollar floated as a potential global currency since China already holds so much of it and so much of America is already indebted to China in this currency.

This bears watching as this has enormous implications for both business and our way of life.  If we see manufacturing start to shift back to the U.S. we'll know that the game is afoot.  It could be a complete reversal of the last 30 years.  If this is indeed what's happening it will require some nimble maneuvering from an investing perspective to stay in front of the new wave of money pouring out of China.

I've really been enjoying my recent study of predictive analytics and data mining.  It's provoked me to think about the nature of value, how much of it there is lying around waiting to be uncovered, and what it takes to uncover it. 

It has also caused me to gain a much deeper appreciation for people who both have expertise in an area of business and the desire and drive to learn the skill set they can use to turn that experience into something extraordinary.

One type of value which really seems to be low-hanging fruit is efficiency.  Incredible amounts of efficiency can be uncovered with proper analysis.  Making things that were previously hard easier, making time-consuming tasks quicker, or making error-prone processes run much more quickly and efficiently.  All of this adds value which is the only way to create real money.  And this is all relatively easy to do when you can see the patterns in your business.

But finding those patterns is not easy.  Experience and knowledge can get you part of the way there, and in fact it's what typically sets apart great executives and leading companies.  But it's also what data mining technology is built to do. It finds patterns in the data, lets you make accurate projections, and do what-if analysis.  It's fascinating stuff and has really made my mind spin with possibilities.

It is, however, highlighting something that has become more and more obvious to me over time--individual tools and technology can only go so far; in order to do the really cool next-generation stuff you also need people who are intimately familiar with the data and, most critically, what it means, to drive it.  

You can have people that know the tools inside and out, but if they're not familiar with the data--how it's generated, what it means, how it applies to the business--and if they aren't involved in the design and implementation of the technology side, the whole process won't add much value.  The really cool stuff like the predictive technology and so on requires that you know not just the tools, but the domain where it's being applied as well.  

In order to truly leverage both the technology and the experience you need them both in one person--or two people at the most.  I strongly believe that more than two people trying to do this function would cripple progress more than help simply because of the attention to every single detail required to pull this off successfully.  There is so much inter-dependency between the two sides that injecting a layer of middle-management or large team would simply kill the process dead.  (Or at best turn it into a multi-year project with dissappointing results.)

The dual skillset of both the technology and the business experience is a very unique one for one person, or even two people working well together as a team, to have.  Here is an area where you simply can't automate the person away, he's an essential part of the system and in fact the most important cog.

The temptation here is to find people who understand the technology but are light on the business side of things.  After all, the experienced businessman who is willing to pick up a big fat book on predictive analytics and slog through it must be a very rare breed.  And the business that is willing to pluck a statistician and insert him into the business side of the company as on-the-job training must be extremely rare as well.

Even the banks that were relying on this technology to create the derivatives market--now worth hundreds of trillions of dollars--didn't get this part right.  Paul Wilmott, a financial modeler and quant genius,  wrote last year (well before everything went totally to hell, in a display of uncanny foresight):

Part of the problem is that many of the people who produce mathematical models and write books know nothing about finance. You can see this in the abstractness of their writing, you can hear it in their voices when they lecture... Sometimes they don’t want to understand the markets, somehow they believe that pure mathematics for its own sake is better than mathematics that can actually be used. Sometimes they don’t know they don’t understand.

Banks and hedge funds employ mathematicians with no financial-market experience to build models that no one is testing scientifically for use in situations where they were not intended by traders who don’t understand them. And people are surprised by the losses!

If the banks and funds who have (had) virtually unlimited pockets could not locate these specialists, what hope does the average enterprise have?

It seems like one of the most beneficial investments a company could make would be to start a program to grow individuals with these all-important diverse skill sets.  This would require a very unique career development path, one that a company would have to actively set up and nurture.

These people must surely exist, and in fact I suspect that Google has several of them when I see stories like this one, where Google applies data mining technology against their employee population.  

The Internet search giant recently began crunching data from employee reviews and promotion and pay histories in a mathematical formula Google says can identify which of its 20,000 employees are most likely to quit.

Google officials are reluctant to share details of the formula, which is still being tested. The inputs include information from surveys and peer reviews, and Google says the algorithm already has identified employees who felt underused, a key complaint among those who contemplate leaving.

I can tell you with a pretty high level of confidence that they've probably run a neural network or decision tree analysis against their HR database.  I imagine they're treating it like a state secret strictly for PR reasons.  But the fact that this is big enough news for the Wall Street Journal to do a story on it speaks to how rarely this technology is being used.

I would be curious to these individuals' resumes, what their titles are, and how much these people are paid.  They must be some of the most profitable people in the entire world, and it would be interesting to try to find a way to leverage them better.

Um, that should really be Reporting ON the Future, but I thought this title was cooler :)

Anyway, what was the last thing you got really technically geeked out about?  (I'd really actually like to know, if you feel like sharing.  I dig stuff people are excited about.)

I mean, what was the last thing you saw that really made you say "wow, this is really going to change things"?

I haven't had one of those moments in a while but I'm learning something now that has me feeling that way.  You know, when you start thinking of the potential implications and it just takes things to a whole new level.

What I'm talking about is predictive analytics.  Not business intelligence, reporting, or even OLAP--but techniques for finding patterns in data.  Sounds kind of trivial, except for the fact that countless hours are spent by just about every medium-sized companies and up looking for those patterns so that they can address them.  Not just that, but you can then apply those patterns against incomplete data to literally peer into the future to some extent.  Then tweak something and see what the result will be, and so on.  It's about moving from a gut-based approach to decision-making to a vastly more informed approach that almost makes things a no-brainer.

I've always had a vague interest in this area, but I honestly never knew enough about it to fully comprehend it.  The farthest I ever really got was OLAP.  What's funny is that a lot of times OLAP is just used to feed this stuff data--that's pretty cool when you think about it.

The bottom line is that you can see into the future within a given range of probability.  Ever see that movie with Nicholas Cage where he can see 15 minutes into the future?  It feels a little like that.

What sucks is that I can easily see how such a powerful thing can be misused.  Heh, that almost sounds super-villainish if it wasn't so true.  The real estate valuation algorithms used by banks, quants, and hedge funds were built on similar technology, and what's worse is that they actually worked very well--until they didn't.  The old patterns that they had discovered stopped working.

The data was feeding on itself, and it accurately predicted rising prices.  This begat derivatives.  Derivatives begat hundreds of trillions of dollars in money which is now quite literally disintegrating.

But then the consumer debt celining was reached.  They failed to account for the fact that there wouldn't be enough money in existence to keep the patterns running.

They missed an input in their model, and it just so happened to be a doozy--the consumer debt limit.  Unfortunately when their model stopped working they levered up instead of shutting it down.  They could have turned it off when it stopped working, but got greedy.  Losing 99% of your revenue stream instantly is not an appealing proposition.

Tweak a probability threshold here, a standard deviation tolerance there, and pretty soon you've got an honest-to-goodness economic apocalypse on your hands.

Anyway, I guess the question of whether this technology truly geeks you out or not lies in whether you believe it works or not.  If you believe that things generally run in patterns, then you have to pay attention to this.  If you don't, you can safely ignore it as quackery.  I think the existence of spam pretty much puts that issue to bed for me.  If you can get people to give random Nigerians their bank account numbers, to the point where this activity is profitable for you, then there is obviously a lot of brainless activity going on out there running on autopilot.

Makes me wonder if some vertical other than finance could be so optimized like this that there's explosive growth in the sector.  The only catch is you'd really have to look out for the turn where you've reached maximum potential and not be greedy.  This would require that the technical guys watching the system be allowed to turn it off at some point without the executives who can override the decision.  I don't know if that's within the realm of possibility--at some point you'd just have to say "ok, profits are going to stop growing now, sorry.".

I'd like to talk to the teams at the investment banks who use this stuff.  I wonder if they're still like "yeah, this is really cool stuff I can't believe it works" or more like "aw crap we just ran over the economy... I told you this was a bad idea..."

Now, if only it could clean my garage...