Bull Market or Genius?

The recent run up of commodity prices such as wheat, corn, and oil, have made many people very wealthy. Just being long these assets has generated large returns. As one might expect, there has been an explosion in funds that specialize in commodities.

Now, given the huge expansion of commodity funds, one could reasonably assume that the average commodity fund performance has been pretty good. And given that commodity prices have risen steadily over the past 4 years, these funds must have been net long commodities, on average. Over the past 60 months, if we assumed oil should rise at the risk free rate, we experienced a 1 in 5000 event as prices have risen over 3 fold. So clearly, many fund managers in this space have merely been long, and rewarded considerably. Smart or lucky? I'm sure a little of both, but mostly the latter.

Of course, this goes not just for hedge funds, but oil and gas companies. I used to work with this guy Ryan Gilbertson (don't know him well, but he is as described in the article, quite the cowboy), who is now CFO of Northern Oil & Gas. As he told Bloomberg:

Gilbertson says he knows more about interest-only mortgage bonds than he does about oil. But he says Northern will succeed because he and Reger weren't in business during the busts of earlier decades, so they aren't gun-shy today.
When EOG hit oil, they leased as many mineral rights in Mountrail County as they could, even as prices rose.

``The fear of these busts has clouded the judgment of so many players,'' Gilbertson says. ``We just grabbed everything with both hands.''

So basically, he's saying they are successful (risen 300% in past year and a half), because they have just been more aggressive out of ignorance. This reminds me of a paper by DeLong, Shfleiffer, Summers, and Waldeman (Noise Trader risk in financial markets,1990), where less informed investors earn the highest (and lowest) rates of return on their total portfolios because they irrationally believe they have a more favorable risk-return opportunity and hence invest in securities with a higher return. In effect, their ignorance effectively diminishes their risk aversion, and in the long run allows a lucky few of them to reap the financial rewards that would accrue to the less risk averse (one could call it the ‘Forrest Gump’ effect). As opposed to speculation weeding out the irrational traders and making only the best opinions matter, the irrational can dominate the class of winners.

It's interesting model in this context. Those funds and companies, that threw risk controls out the window over the past 5 years have done the best. I think it's like the internet bubble, or any bubble. The question you have to ask is, is this 1998 (big up year ahead), or 1999 (the opposite)?

Market Doesn't Like Obama

Around 12:23-12:26pm CT, new releases (AP and Brietbart) reported that Hillary Clinton would concede tonight because Barack Obama has clinched the nomination. And the market fell about 0.6% in 9 minutes, 1.3% in an hour (note, from white vertical line). Nothing else was going on at that time.

How to Make a Nobelist Squirm

Henry Louis Gates, who, while of half European descent, considers him a spokesperson for Black America. Note how he questions James Watson in this interview

JW: Oh, Jewish intelligence, ah, the Irish will do all right. So I'm not particularly worried about the fact that we're not all the same. I'm really much more concerned with social justice, that everyone has a place in society. That's really what I'm concerned with. … If they find genes for all kinds of Jewish intelligence, I don't think it's going to affect me in the slightest.
HLG: But would it affect me?
JW: Well, it shouldn't affect you. You're very successful.
HLG: I mean me, collectively. My people.

OK, he's successful, but he is using the imperial 'we' when discussing potential adverse effects of saying Jews are intelligent.

JW: I was watching the basketball games yesterday. And I'm just trying to say, you dominate.
HLG: Oh, you mean black people?
JW: Yes.
HLG: In case you haven't noticed, I'm not exactly a basketball kind of type...I can't run. It's a good thing I was a good student because I wouldn't have made it.

So, he represents 'Black America' selectively. He baits Watson into treating him as the spokesman for Black people, but then takes the first chance he gets to note generalizations are not always true (who knew?).

I take offense at the fact that I can't take offense. I'm, male, straight, nominally Protestant, now-atheist who doesn't believe in evolution, of European descent but neither a pan-European mutt nor a pure ethnic (parents only speak English). I'm part of the aggrieved group of people who do not belong to obvious groups.

Return(Risk(Return)))

A working paper on currency risk, Common Risk Factors in Currency Markets, highlights the inanity of current academic asset pricing. The authors (Hanno Lustig, Nick Roussanov, and Adrien Verdelha), say they find risk premia in currency markets that are ‘large and time varying’. The search for risk is the snipe hunt of Business School professors, something they talk about all the time, but their students never see directly. As beta is negatively correlated with returns in equities, one would think, wow, finally, a risk-return nexus that proves all that mean-variance analysis you learn in B-school isn't total bullshit.

So, what are the ‘risk factors’ they identified? The first is the ‘dollar risk factor’. It’s the average return to currencies relative to the US dollar. It would be the average return of an American investing, equal-weighted, in the smorgasbord of international currencies.

The second risk factor is the difference in returns between high and low interest rate currencies. Thus, a currency with a 15% interest rate would be ‘long’, and one with a 1% interest rate would be short, and this represents what an average ‘carry trade’ at a hedge fund looks like, which then is a proxy for this ‘carry risk factor’.

But the bottom line is the following scatter plot, which seems to show a nice correlation between risk on the x axis, and return on the y axis.

But, alas, that interpretation would be far too charitable. Here’s the trick: risk is defined by the return, which is then used to 'explain' returns.

Absurd! But the nattering nabobs of nihilistic empiricism say their approach is not a tautology, because, in theory, with a large number of assets, an asset merely being correlated with the return of a proxy portfolio is not necessarily referring to itself. Not necessarily, but in practice, it is, because there are so few assets. In this paper's case, you have only 15 developed countries, hardly a large sample. Further, many of these countries being very correlated due to economic entanglements (eg, Belgium, the Netherlands and Denmark). So the sample is quite small. In effect, instead of having 15 ‘different’ currencies, you really only have 5 after you adjust for the implicit correlation.

Anyway, with 5 countries, one risk factor is the average return of currencies against the dollar. Well, when the dollar is strong, all these currencies depreciate, and when it is weak, they appreciate, on average. It appears that because of trending in the dollar, you can predict that a currency correlated with the average currency vis-à-vis the dollar based on this factor. In other words, if you want to predict the yen, and the yen has been appreciating against the dollar, bet on it continuing. That is momentum.

And the ‘carry factor’, is merely those currencies correlated with the carry trade, which will tend to be those currencies in the carry trade. With 5 currencies (in effect), the high interest rate currencies will be going through similar issues and same for the low interest rate currencies. Again, correlation with the factor is tantamount to being one of the currencies used to create the factor.

A similar issue arises in equities, where a group of 25 portfolios, sorted by size and book-to-market (the Fama-French portfolios), are then ‘explained’ by the size and book-to-market factors. Who’d a thunk it?

The real question is, in what way is having a high expected return, based on a currency’s momentum and interest rate, risky? In the good old days we had a simple reason, because it was volatile. Then, with Markowitz, we said, because it was correlated with the S&P500 (a broad market, excluding diversifiable risk). Then, with the Roll critique, we said the ‘market portfolio’, which includes real estate, bonds, etc. Then, we tried the APT and ICAPM, which suggested things correlated with aggregate wealth like industrial production, labor earnings, the price of oil. We tried ‘latent’ factor models, which were statistical constructs that explain portfolio variance. None of these worked.

Then, Eugene Fama decided to embrace the anomalies. If you can’t explain the size and value anomalies, just call them risk factors, and hope no one notices how completely circular your reasoning is. Now, logically, it could be true that size and value, or the carry trade, or dollar momentum, are truly risk factors. But if that were true, one would expect these risk factors to have some generality, so that, say, a set of risk factors used to explain, say, equities, would be applicable towards currencies and vice versa. But no. ‘risk factors’ are very parochial, and only explain the particular asset under examination, which is why I think they are not risk factors, but merely a clever attempt to relabel the most conspicuous return characteristic within an asset class as ‘risk’ because by assumption risk and return are positively correlated.

Modern asset pricing theory is a sham. It explains returns based risk, which is based on returns of those very same assets.

Lawyer Ordered to Pay $9MM

As a current victim of lawsuit abuse, I really really don't like people who use the legal system the way Don Corleone used Luca Brazi. So when I read that Melvyn Weiss was sentenced to 30 months in prison, and a $9MM fine, for his role in an alleged scheme in which he and his partners used kickbacks to gain an advantage in lucrative cases, I was happy. A great picture of his 'I'm sorry face', as he said to the court, "My contrition is profound and genuine." I'm sure he is very sorry...he is going to jail for 30 months.

But the article also noted that Mr. Weiss was able to produce 275 letters in support of leniency, meaning, in effect, Mr. Weiss still has sufficient status and power to make a lot of otherwise good people to totally rationalize his reprehensible actions on account of the fact that ... he's rich, and he might be able to get my daughter an internship someday. Everyone on that list is a toady. And why shouldn't he be so respected, as from 1983 to 2005, according to a government filing in the case, Mr. Weiss's share of firm profits was about $209.9 million. Rich=Good, except when you are running for president, or writing your memoirs, when it's best to brag about your parents being from the working class.

So, make $209.9 million scamming the system, pay $9MM and spend 30 months in jail. I don't think that's justice. It reminds me of this woman who made $20MM in PIPES, and was breaking the rules, selling short before she should have. Anyway, she paid $2MM in fines and was banned from the industry for 2 years. That's hardly a disincentive.

Index Additions/Deletions Make for Interesting Strategy

The New York Times did a story on an article by Jie Cai of Drexel University, and Todd Houge of the University of Iowa, "The Long-Term Impact from Russell 2000 Rebalancing”. Focusing on the Russell 2000 index they found that over the 12 months after an index reconstitution the deleted stocks outperformed their replacements by an average of 9.3 percentage points. The NYTimes article states that in the five years after reconstitution, the difference was 40.1 percentage points. This pattern was quite consistent. In 20 of the 25 years studied, the average deleted stock was ahead of the average replacement after 12 months.

This is interesting for several reasons. First, because many investors compare to benchmarks, people often replicate the benchmark's changes. An obvious question is, do all the benchmark adjustments help the Sharpe ratio, or merely help track the benchmark better? It appears the answer is there is a trade-off in the benchmark tracking error with returns, both in raw returns, and from the additional costs from extra transactions. Another issue is, what is the driver of this result? Is it, the overshooting by those targeting benchmarks, that then shows up later as a correction? A more fundamental effect would be firms added to the benchmark have obviously had a recent run of good returns, which may make them overconfident, leading to poor decisions; in contrast, deleted firms are chastened, and make salubrious changes to their strategy or management team.

I'm a bit skeptical of the current relevance of this finding, given that the temporary effect from being added to the index has changed a lot in the past few years. In that sense, it's like so many financial market anomalies: by the time academics find it, it is merely history. I remember around 2003, the investment banks were big on selling the following trade: sell stocks about to be removed from the indices, buy stocks about to be added to the indices. This was a short term trade, meant to capitalize on the 1 or 2 week boost that resulted from firms that passively benchmarked the S&P500 or some other index, front running these predictable trades (using the rules used by indexes, you could pretty well anticipate their add/deletes). But that year the effect seemed to reverse itself, and so, the following year, several investment banks suggested you 'Chinese' the trade, going short adds, and long deletes, anticipating the hedge funds anticipating the long-only funds. The effect of index add/deletes is now a muddle.

Then again, they do find a rather large cumulative effect, much bigger than what is, or was, anticipated by the initial index change. But I think the index add phenomenon highlights an important point. If more than one investment bank try to sell you on a trade idea, you can be pretty sure it will not work. If all of Deutsche Banks clients see the strategy, too many people see it. Further, Deutsche Bank themselves see the strategy as more value in generating commissions than trading directly, that's not very interesting.

Bad Ways to Die

I was reading about how seals are endangered by rogue icebergs. A seal needs oxygen, and so, if the ice plate is too large, they eventually suffocate. In the BBC series 'The Blue Earth', there's a poignant story about beluga whales living in the Artic that assiduously scrape holes for breathing with their teeth in between feeding on fish. Eventually, their teeth are scraped to nubs, they are no longer able to maintain their air hole, and so they die. Thus, every scrape that maintains the lifeline, runs down the enamel on their teeth, one step closer to death.

And then, when I went to northern Minnesota, I was listened to a ranger talk about the fate of elderly moose (mooses? meese?). It seems, as they get older, they basically have two scenarios for them. In one, as they get old and they loose their ability to rub against trees and do other things to protect themselves, so ticks eventually overwhelm them and they bleed to death. In the other scenario, they become so weak wolves overwhelm them, and they are literally disemboweled.

That makes a nursing home death seem not so bad.

98 Year Old non-Celebrity Pens Interesting Life Story

I was reading a review of Harry Bernstein's memoir, The Dream, about an immigrant who came to America in 1922. It seems very interesting, and pretty remarkable to think that a 98 year old, who is not famous, would write a story about his childhood and that other people would care. What makes it interesting is there were a lot of important decisions that would have made a huge difference in his life, and this makes his life seem so much more special, contingent. Children of immigrants invariably have these butterfly effects, because, a small change in circumstances would have meant they stayed in their home country, or died in the Holocaust, or changed their career.

I wonder, if my dad didn't take that job transfer and I grew up in Los Angeles instead of Cleveland, would I be really different? What about my choice in college? These are less important than Bernstein's big life changers, but the same point. I had a brief exchange with Andrew Sullivan while he was debating Sam Harris (Sam the hard-core atheist, Andrew the ecumenical Catholic), and he said that 'contingency' is one of the main reasons for his faith in God. That is, generally, we are grateful for our lot in life. If one of innumerable things in history were different, we would all be in a different situation, with different loved ones, jobs, etc. (given the average ejaculate contain 100MM sperm, your existence is already predicated on a large improbability) It's an interesting thought, and I don't see logically why this should make a God's existence more probable, but there is something compelling about it just the same. As if, God acts within the Heisenberg uncertainty limits, and these actions make all the difference in our lives.

Several times I have had an older person tell me their life story, and damn if it wasn't very interesting. My old building supervisor told me about coming to America at 19 knowing no English, and endured a lot of intrigue navigating his local immigrant community in Chicago. He struggled with unions, which involved a lot of physical violence and intimidation back in the 50's through the 70's. And there he was, on the verge of retirement, with children who were well-adjusted, successful, with kids of their own he could enjoy. So it was a wonderful story about a guy taking all sorts of chances, enduring daily struggles, and ending up with a really happy ending. What made it so poignant was it was so real. He didn't do anything uniquely difficult, or create anything uniquely valuable, but his day-to-day integrity and hard work paid off in a way much greater than any financial lottery.

NYC Crime Unique Among Big Cities

Mark Kleiman and Heather MacDonald discuss crime policy, and though I thought this whole debate was very informative, I disagreed with the following point by Kleiman: .

Kleiman's argument is as follows: more police lowers crime irrespective of the criminal system behind it. He notes that unlike other majors cities, NYC has been lowering its crime rate while lowering its prison population. Thus, the payoff seems to be in police on the streets, not judges or prison cells.

But I think he neglects the major demographic change in New York City over the past 10 years, where basically it's too expensive for criminals to live there. Manhattan is one of the highest-income places in the United States with a population greater than 1 million. I don't see how an area, where the downtown boasts an incredible density of $200k/year households, its somehow relevant for Los Angeles, which is large, but much less dense or wealthy. In this case, NYC is the exception, not the rule. Look at the cities of Philadelphia, Cleveland, Dallas, etc., but to highlight New York, the largest collection of wealthy people in North America, is simply like using Lance Armstrong as the case study for cancer patients.

I'm not saying poor people are morally worse than rich people, merely, they commit more violent and property crime, which is what we mainly look at. Indeed, true cowardice is at least as common among the wealthy as the poor, and their ethics a bit like post-modern science: whatever is good for them, rationalized very articulately. Thus, those that use their education and intelligence to defend the indefensible, the immoral, the cruel, are more pathetic than your average whore or crack dealer, because their intellect gives them power to do more harm to more people (think of Noam Chomsky defending Pol Pot in the 1970's). But, given the issues of day-to-day mischief, noise, and violence, I'd rather live next to a hedge fund lawyer than a crack dealer even though they probably have equal chances of reaching heaven.

Why I Hate Microsoft #459

I paste a set of data from excel into Access, and always get the following sequence of nanny controls that are totally annoying and useless:

The Value you entered isn't valid for this field (ie, there are #N/As)
-hit OK
Do you want to supress further error messages telling you why records can't be pasted?
-hit Yes
You are about to paste 4689 record(s)
-hit Yes
Records that Microsoft Office Access was unable to paste have been nstered into a new table called 'Paste Errors'
-hit OK

Because the middle two are yes/no, I can't just hit enter when I hear a beep. Who in their right mind would say OK, Yes, then, when told they are about to paste 4000 records say 'no'? Why not simply ask us 100 times if we are sure, because, you never know, and it's all about protecting the user from himself. I spend more time trying to disable Microsoft protection, than fighting unauthorized users or viruses.

Simplify English

We have 42 different sounds in English, and we spell them 400 different ways. Isn't that a rather silly thing to do?
...
Many other languages have undertaken spelling reforms in the 20th century, including French, Greek, Spanish, Swedish, Irish, Japanese and Hebrew. In 1996, four German-speaking countries agreed on a comprehensive spelling reform of the language.

From today's WSJ. There's a movement to simplify spelling. I can't agree more. This is truly egalitarian and progressive, because the current system taxes is biased towards those with higher IQs and education, who know how to spell 'diarrhea' correctly. English has a lot of inefficiencies, but if you read Olde English you see it has gotten better. At least we aren't British English, with 'colour' and pronouncing schedule as 'shedule' (fools!), or French. At Northwestern, I had this fellow student from francophone Africa who spelled his name something like Houencheconne, because that's how the French authorities spelled his name when he pronounced it for them. No teacher came close to pronouncing it correctly when they read his name. I see he changed it to Leonard Wantchekon. I know if I was Wally Szczerbiak, I would change the spelling, because I would get sick of spelling it over the phone. Falkenstein is pretty phonetic, though I guess I could change it to 'Falconstine' to make it easier to pronounce.

I switched to a Dvorak keyboard about 5 years ago. Dvorak has all the most frequently used keys on the home row, so it's easier to type. I read somewhere that it doesn't much matter, and I guess I'm a pretty good typist so my max speed is really constrained by my ability to spell in my head (I often misspell homonyms) rather than in my fingers, but I think I think less about fingering with Dvorak than before. It took me about 3 months to really get used to it, but now it's much easier. Plus, if you have a Dvorak keyboard snoopers won't download porn on your computer when you are out for lunch, because they start typing and see all this gibberish. So, I think such changes are feasible, and good.

The Importance of Being Right

Day to day, being right is not so important. Goodness knows the average bloviator in academics, talk shows, or the blogosphere is judged more on their delivery, metaphors, who they know, and the popularity of what they are arguing, rather than whether they are right. But posterity has a huge bias towards those who were right, regardless of their methods.

I read Einstein's Luck, and it goes over several prominent scientists, and how they often skewed their empirical work. We see that Pasteur, for example, had good reason to be skeptical of his theory against abiogenesis given the data he had available: he didn't publish his own experimental results contradicting his theory because he believed they were 'errors'. Gregor Mendel fudged his genetics data.

And take the famous confirmation of Einstein following WW1, which was, in some sense, a grand conspiracy. Einstein’s General Theory of Relativity was only a few years old, yet academics were eager to put the nightmare of perhaps the most pointless large war in history behind them, and show the common bond of the old adversaries. Proving a German’s theory correct was perfect for the cause. The null hypothesis, set up by standard Newtonian Physics, was that there should by a 0.85 arc-second deflection in light from stars behind the sun, while Einstein predicted a 1.7 arc-second deflection.

In 1919, an eclipse offered a chance to measure the degree to which the sun bended the rays of light from far off stars, a prediction of General Relativity. Famous English physicist Arthur Eddington was a World War I pacifist, and so had a predisposition to mend the rift between German and English academics. He made a trek to the island of Principe, off the coast of West Africa, one of the best locations for observing the eclipse.

Eddington did not get a clear view of the stars in 1919 because it was cloudy during most of the eclipse. But he used a series of complex calculations to extract the deflection estimate from the data, and came up with an estimate of 1.6 arc-seconds from his African voyage. Data from two spots in Brazil were for 1.98 and 0.93. Eddington threw out the lower measurement because he was concerned that heat had affected the mirror used in the photograph, and so the standard error too large. Thus, his efforts proved Einstein's theory was correct.

Subsequently, scientists have concluded that Eddington’s equipment was not sufficiently accurate to discriminate between the predicted effects of the rival gravitational theories. In other words, Eddington’s reported standard errors were too low, and the point estimate was too high, given the data he had. Yet for decades this experiment was cited as the proof of the General Theory, but even in the 1960’s when they tried to redo the experiment given a similar eclipse and methodology, they found they could not.

In the late 1960’s, using radio frequencies as opposed to pictures from an eclipse, Eddington’s results were, ultimately, confirmed. That is, he was right, but he still tendentiously presented his data based on his prejudices, and a true scientist without any biases would have been more skeptical of the theory that light is deflected by mass until then.

In contrast, the early works supporting the CAPM by Fama and MacBeth (1973) and Black, Jensen and Scholes (1973), were used as proof of the success of the CAPM for decades: beta was positively related to stock returns. But, with better data, more data, better empirical methods, this relationship appears now to go the other way. A true theory should become more obvious with more data. I think this suggests that, unlike Einstein, Pasteur, and Mendel, the theory here is wrong, and all the Stochastic Discount Factor and Arbitrage Pricing Theory extensions are merely prolonging the life of what will be seen as a theory built on a flawed assumption. History is forgiving of tendentious tweaks to the data when you are right, but it quickly forgets you when wrong (see exposition on the theory of why it's wrong in Why Risk is Not Related to Return, and practical implications including beta arbitrage, and minimum variance portfolios).

It is important to have correct prejudices.

surgery highlights strategy over tactics

so yesterday i had surgery on my shoulder to repair a torn labrum and rotator cuff. it is hard to do much, because i can't move my dominant arm. but what was interesting was that everyone i met when i got there, nurses 1 thru 3, anesthesiologist, etc, all asked which shoulder (right)? three people even initialed the shoulder, so we would have an evidence trail if they did the wrong one, i guess.

i told the nurse if i left with a hysterectomy, they would be in big trouble. she said if i left with a hysterectomy i would be famous.

Why FARK is a Daily Read

In a post noting that a 'Motivational speaker arrested for attempted murder, reminds us to chase our dreams', about an ex-felon who fell off the wagon in a major way, a commenter notes:

Did you realize the Chinese symbol for "alcohol- and methamphetamine-fueled shooting spree" is the same as the symbol for "opportunity"?

Memorial Day, Courage, and Risk Taking

Overcoming Bias asks, why celebrate war heroes? As Robin Hanson notes:

Yes warriors, dead and otherwise, deserve some honor, but to me this seems all out of proportion... How about warriors who died on other sides, or in other wars? How about civilians who died or sacrificed in wars? How about those who prevented wars?

I think we primarily celebrate military heroes out of a tradition of doing so, because in the past such people truly were responsible for our survival. For example, if the Mongol horde won the battle, they killed all the men and raped all the women. So guys willing to put their life on the line to prevent this were pretty important, and owed a debt of annual gratitude.

But in modern conflict, it's not so obvious. The past 200 years of fighting seem pretty silly, as our old foes, Germans and Japanese, are so much just like us today its hard to think that even if they won they would have not turned out the same through some other means. The US Civil War killed a lot of people, but Brazil and Canada were able to move on from slavery without such a mess. And the Revolutionary war with Britain, seems a lot like an adolescent chaffing under the control of a parental unit (Tony Blair gave a speech in the US congress and made a joke about the War of 1812, funny because the cause of that war has zero resonance today, seemingly pointless).

Venerating soldiers reminds us to celebrate courage, but physical courage is somewhat easy to venerate because it is so intuitive. However, I think we need to remember most of us deal with intellectual, not physical, courage, in the same way most of us today are involved in intellectual, not physical, work.

There’s an important distinction between physical and intellectual courage. Physical courage is the ability to act despite the risk of pain, injury or death. Most ancient texts on courage are examples from male warrior culture. Old Testament heroes like Joshua and David and the warriors of Greek and Roman mythology demonstrated the heart and mind that led them to persist in the face of danger or hardship. Intellectual courage, in contrast, is mainly based on facing humiliation, the thought that one’s beliefs or actions might cause a loss of reputation or status, because rash risk-taking does lower one’s status. For an intellectual the risks and challenges of advocating courageous ideas is the likelihood of feeling or looking foolish, of not being accepted by colleagues and people one respects, and reputations have a lot of inertia.

If you have objectively low alpha in what you are attempting, your willingness to attempt it will not be seen positively by your status group. They will see, based on their cues, you had no chance, and thus will be mocked for the obtuseness implied in such an objectively absurd form of risk-taking. To seriously try to dance with flair or wear a really eye-catching new outfit invites the scorn, the ridicule, of failing so bad, the joke is not the failure, but your mind-numbingly-clueless thought that you are John Travolta or Jennifer Lopez. And this holds for perverse persistence as well. An 18-year-old aspiring rock star is cool, a 43-year-old aspiring rock star is pathetic. Courage is therefore not viewed in isolation, because if it is rash or excessive it is considered merely foolhardy, not admirable. Physical courage perhaps is even more context dependent, as fighting for a dumb idea is courageous but shameful.

It should be remembered that intellectual courage is only admired ex post for those who were right, and were doing something that was unorthodox at the time. My kids all learn about civil rights heroes as examples of courage, but it should be remembered that while Ruby Bridges and other people who fought for civil rights in the 50s and early 60s were courageous, supporting civil rights today is about one of the easiest things to do. It is easy to forget that Galileo's famous observation that all objects accelerate at the same speed was not so obvious. If you push something faster, it accelerates--a heavy weight pushes harder on your hand, ergo, it should push downward faster. Add to that the observation that leaves fall to the ground more slowly than rocks, and I could see why people would assume weight is positively correlated with acceleration. Around the same time, Tycho Brahe, the man whose measurements allowed Kepler to formulate his laws of motion, did not accept the heliocentric model of the solar system, in spite of his very good data and good natured persuasion from Kepler--isn't it obvious we are at rest?

Intellectual courage in real time means the average respectable, knowledgeable person will lessen his estimation of you, like those who believe in cold fusion or intelligent design. And it will only be respected, if you turn out to have been presciently correct. Of course, this is obviously true for investing, where those who called the internet boom in 1996, or bust in 2000, are considered courageous. Those who were bearish in 1996, or bullish in 2000, however, are considered merely foolish.

Courage is very important to one’s self discovery, finding one’s niche, and making real breakthroughs, and it is only admirable in combination with other virtues, like prudence (ie, being right on scientific facts or prediction) and justice (being right on morality). If you broke conventional wisdom on something wrong, like those who fought for communism, or eliminated DDT from Africa, you were self-righteous, courageous, and also a fool whose actions created a lot of harm. We venerate physical courage of soldiers because, unlike intellectual courage, it is easier to measure, and generally presume it was for a righteous cause.

Babies are Not Smart

My baby Izzy will be sui generis someday. But right now, she's pretty much like every other 12 month old human. As The Onion noted in a seminal 1997 study, babies are cognitively challenged, totally incapable of doing the most rudimentary things for themselves. In contrast, a 12 month old octopus, despite zero parental instruction, can find its own food, avoid predators, and mate (without a 'birds and bees' talk).

We were at a neighbors having a barbecue, and Izzy was bouncing rhythmically to the music being played. Clearly, she likes music, as most babies do. She responds to touch, faces, and baby-talk of adults (high in pitch, shortened words). She does not appreciate abstract reasoning in the least, currently only accessing the medullary core of her brain. But somehow, incapable of the most elementary logical proofs, she will become a better thinker than any computer at things that really matter to people. Now, Cyc is a project to create a set of propositions (all men are mortal) and rules (men get older as time goes forward), to create a proto-human, something that could pass the Turing test, something that Izzy will do well before Cyc (see Lenet's talk here on Google tech talks). This project has been much more difficult than imagined.

It therefore seems either our sensual appreciations are necessary for creating the logic of an adult, or our sensual perceptions merely help us figure out the basics of survival, the 4 F's (fight, flight, feed, and mate), that allow us access to the next level of human thought. That is, like acquiring language, humans tap into this after certain level of functional competence has developed, and our innate sensual appreciations are only necessary for logic, irony, and other high-level human thought processes, in the sense that they keep us alive long enough to reach this reservoir [like the way the alien monolith was revealed to Earthlings in 2001: A Space Odyssey only after we had developed sufficient technology to reach the moon).

Why do Libraries Have Crappy Websites?

In this Bloggingheads link, Aaron Swartz notes that libraries have crappy websites. Swartz invented RSS and Reddit, so I think he's an authority on literature databases. It is interesting that Libraries, who should have the most pointed experts in this subject, are manifestly inferior to Google, Amazon and Netflix in creating a database that users can access to find things they want. They seem happy with the objective of merely providing information, not providing it in an efficient way (ie, it's there, if you are patient enough). I guess, 'Library Science' is a good example of the aphorism that any field with 'science' in its title is not a science. I know in my library system, there's a lot of stuff in it, but if I haven't been to the site in the past 6 months, I forget how to get access to the right pages, and I'm stuck. The search tool is terribly unforgiving if you don't put the search phrase spelled correctly, or gives you way too many items ranked arbitrarily.

It's sort of like if you found that economists were the worst investors, or psychologists the least happy people, accountants made the most tax mistakes. It tells you there's something rotten in the academic paradigm, and that for generating good ideas, science needs competition and feedback from outside the field [this is one reason why I'm skeptical of String Theory, where there are no new predictions, and it is only even understood by fellow string theorists, who clearly don't want to throw away years of specialized training by saying the field is a waste]. Cloistered, self-referential fields of study that seem to go on happily, demonstrating nothing of interest to those outside their field, are all too common, and this applies to many sub-threads in even the most successful academic fields.

Career Advice From Jenna Jameson

I saw UFC 84, which was quite good. A lot of people, like John McCain, call it human cock fighting, but it's actually less dangerous than boxing, because a hurt boxer gets more punches to the head, where a hurt fighter is pounced upon and usually submits to a choke quickly. The combination of jujitsu--with emphasizes joint locks--wrestling, and boxing, make it the most awesome sport. It takes more than just talent, because joint locks are really tricky. Brock Lesnar found this out when he was pummeling Frank Mir, who nimbly grabbed his ankle in a jujitsu hold and finished Lesnar.

BJ Penn, the headliner in this event, is truly amazing, simply a natural genius at this sport. I had a suspicion his opponent, Sean Sherk, was in for trouble when he asserted that because Penn is from a wealthy family, he is soft. Comfort without struggle—and the sense of insecurity that motivates it—leads to disproportionate amount of self destructive decadence, and presents a unique challenge to wealthy people raising children. But that's a stereotype, and just as we should override group average information when assessing an individual we know a lot about, BJ Penn has issues, but I don't think his affluence is really operative right now. To think the poor kid will beat the rich kid because 'he wants it more' is simply not true.

The card also had the last fight for Tito Ortiz in the UFC, because Tito has been continually carping about the UFC for underpaying its fighters, publicly feuding with the President of the UFC Dana White in a way that makes all bosses crazy. Tito Ortiz was the champion from 2000-03, but that was a long time ago. He's now, probably, the 10th ranked fighter and moving down. Unfortunately, his girlfriend, Jenna Jameson, is giving him career advice. Tito basically argues that as he helped create the UFC brand, and it now generates hundreds of millions in revenue a year, he wants a piece. At the press conference after the fight, Jameson was heard yelling that Ortiz should be at the top table because he's a champion. It's all kind of sad, because Ortiz lost, and he is no longer champion, and having your girlfriend yelling like that just makes for an embarrassing situation for everyone

Jameson is one of the more successful adult film stars today, as her website ClubJenna.com grosses $30 million per year, and she clearly figured out that as talent she could get a lot more as a part-owner than merely an employee. But she's a headliner, and used that Q-rating to brand her company. Ortiz was a headliner. He can't break out on his own, because no one is going to pay $40 to see the 10th ranked fighter moving down. As the head of the competing IFL stated, if he thinks the UFC doesn't pay him enough, he should understand that no other league will be able to pay him anything close. Further, say the UFC is worth $1B, should Ortiz have a piece of that? Well, no. Sure he helped build the brand, but he had a contract, and was an employee. Perhaps he should have negotiated some options, but you can't argue for them ex post. So, while I'm sure Jameson is qualified to give advice on all sorts of things, her flawed analogy between his status as 'talent' and hers, is just wrong. Bad analogies are at the bottom of every bad business decision.

But mixed martial arts is changing. Upon graduating college, Johny Hendricks and Jake Rosholt recently decided to join professional mixed martial arts, rather than international wrestling, and they were 2 and 3 time national champs, respectively. That's a big datapoint, when the best college wrestlers are dreaming of the UFC rather than the Olympics. Thus, at first you had people like Matt Hughes, Don Frye, and Randy Couture, who were merely very good college wrestlers, but the next generation will be the cream of the collegiate wrestling. This is a sport on the upswing.

Who Knew? '3' is a Really Cool Number.

Among all the numbers, 3 is right up there with 1 and 2. Did you ever consider that 3 is the first digit of Pi? The sixteenth digit of e? Well, I read The Number Three in American Culture By Professor Alan Dundes of Berkeley University, and was much informed. I am not sure if it's a joke, but the author notes the following singular cultural properties of 3:

• In folk speech one can give three cheers for someone, but not two or four. (And each cheer may consist of "Hip, Hip, Hooray.")


• The starter for a race will say "One, two, three, go." He will not count to two or four. (Cf. the three commands "On your mark, get set, go.)


• The alphabet is referred to as the ABC's; one does not speak of learning his AB's or his ABCD's.


• In jokes, there are commonly three principals: a minister, a priest, and a rabbi; or a blonde, a brunette, and a redhead.


• In horse racing the three possibilities are win, place, and show. In many American games there is more than the binary possibility of winning or losing. The third alternative, that is, drawing or tying, allows the choices win, lose, or draw.

I agree that 3 is important. I would put it way up there. Not above 2, but before 4.

Zoo with Horses

So we went to the zoo today, and I guess because it's cold in Minnesota (like Moscow), the zoos here are not so good. No lions, alligators, elephants, hippos. Instead, lots of ungulates, which simply are not the world's coolest animals. Whatever, zoos are for kids. But then we get to the 'Wild Horses' exhibit, and I just think it's lame. What's next, cats and dogs? I ask the Zoo Volunteer, what is the difference between these horses, and ones in barns across the US? The answer: 'these are wild'. OK. The 'wild horses' look just like regular horses, only a little scruffier. I get the sense it's one of those Hans Christian Andersen stories.