Irrational Exuberance Explains Google Jitters

16 Feb

Shares of Google fell 7% on February 1st this year after the firm reported that its fourth quarter earnings rose by 82% or $1.22 per share rather than the expected rate of $1.50 per share. [BBC]

Google’s stock has been priced for perfection so any minor perceived downturns extract a large price on the stock. But Google is not the only stock that is “priced for perfection” and hence suffers from catastrophic declines as a result of bare failure to meet sky-high expectations. It seems the whole stock market is besieged by nervous anxiety – ready to pounce upon companies showing any sign of weakness. The phenomenon has a name – “Irrational exuberance”, first coined by ex-Federal Reserve Chairman Alan Greenspan to describe the dot-com bubble of the late 1990s.

Robert Shiller co-opted this term, Irrational Exuberance, for the title of his book that explicates further about the phenomenon. Schiller, through his research on stock price data and earning ratios, puts forth convincing evidence that many of the stocks are absurdly over-valued and hence investors are very sensitive to any signs of weakness in a company. Schiller has also incorporated statistics on the housing prices in his book.

Markets have often been often hailed as being a great barometer to accurately judge the profit potential of a company. Schiller shows that markets are prone to error. He discusses factors like culture and high-profile coverage of Internet in media as reasons that led to the creation of a bubble. On the question of how so many people got it wrong, he uses factors like Asch conformity (named after an experiment done by Solomon Asch to show influence of peer pressure on people) to explain “how people can listen to others against their own best judgment.”

“Irrational exuberance” and resulting inflated stock prices have created a very nervous market heavily dependent on the nervous cues of analysts and the quarterly results of the companies. The reliance on those factors has made many CEOs reluctant to making any substantial changes that will affect quarterly results until of course the company’s situation is critical and the knowledge of that public. Carly Fiorina, ex-CEO of HP, has publicly lamented that the increased focus on Quarterly results prevented her from initially doing the restructuring that she had envisioned. The other major consequence of the continued stock market and housing bubble is that shareholders have become more active in ensuring the welfare of ‘their’ companies.

Of course the most important possible consequence of “irrational exuberance” is the possibility that it will lead to depression or worse. John Campbell and Robert Shiller in their paper, “Valuation Ratios and the Long-Run Market Outlook: An Update,” posted on Yale University, calculated that share prices divided by a moving average of 10 years worth of earnings reached 28 just prior to the crash of 1929 as compared to 45 on March 2000. [Wall Street, October 1929 ] A major correction to the sustained bull run on the wall-street can have major consequences.

FDA defines ‘whole grain’

16 Feb

Market shelves today are full of products claiming to be ‘whole grain’. Nearly 700 whole grain products were introduced in 2005, according to ACNielsen, a market research firm. The 700 plus whole grain products were released in 2005 for a reason – the demand is booming. In the past year, sales of foods with whole grain claims on the label have shot up nearly 8 percent, according to ACNielsen.

The heightened interest in whole grains is partly due to USDA’s new dietary guidelines released in 2005 that recommended consuming “3 or more ounce-equivalents of whole-grain products per day”. [USDA dietary guidelines]

But the guidelines over what constitutes a whole grain product were largely non-existent. “Until now, there has been no official definition of whole grains and no easy way for consumers to know that cracked wheat, stone-ground wheat, ordinary wheat flour and many other seemingly whole-grain ingredients are not the real thing.” Washington Post

Companies trying to cash in on the health food craze but with little inclination to institute large scale manufacturing changes instituted their own misleading branding for whole grain – “a good source of whole grains” etc. “For example, Cheerios and other General Mills cereals have their ‘own’ ‘whole grain’ emblem. Companies from Bruegger’s Bagels to Snyder’s of Hanover pretzels use black-and-gold labels shaped like a postage stamp saying a product is a “good source,” an “excellent source” or a “100 percent source” of whole grains.” MSNBC The companies

FDA on February 16th issued guidelines as to what constitutes whole grain. Under the new guidelines, “Cereal grains that consist of the intact, ground, cracked or flaked caryopsis, whose principal anatomical components – the starchy endosperm, germ and bran – are present in the same relative proportions as they exist in the intact caryopsis – should be considered a whole grain food.” FDA release

“The draft guidance states that although rolled and “quick oats” can be called “whole grains” because they contain all of their bran, germ and endosperm, other widely used food products may not meet the “whole grain” definition. For example, FDA does not consider products derived from legumes (soybeans), oilseeds (sunflower seeds) and roots (arrowroot) as “whole grains.” The draft guidance specifically recommends that pizza only be labeled as “whole grain” or “whole wheat” when its crust is made entirely from whole grain flours or whole wheat flour, respectively.” Food Consumer

While the FDA guidelines are a good first step towards leashing the ambiguous marketing of “whole grain” products, they don’t go far enough. The phrase “whole grain” is inextricably linked in public mind with healthy food and lifestyle and hence whole grain products with large amounts of sugar or fat can still be seen as healthy choices. There is a critical need to develop a more substantive labeling for food products that take into account the sugar and fat content. The other critical thing that is ignored is information about people with allergies to grains or people with celiac disease. Nurta Ingredients

But overall the FDA guidelines fill an important gap in standardizing labeling for an important aspect of a healthy diet.

“Restoring state authority” in Waziristan

6 Jan

Currently, a US supported (or more accurately US mandated) military campaign is underway in Pakistan to bring the tribes in Waziristan under government control and to weed out ‘insurgents’? Pakistan has deployed 12,000 military and paramilitary soldiers along with helicopter gun ships and fighter jets to prosecute the campaign. The violent campaign, being waged at the behest of US, is using, has taken over a thousand lives. Government forces have been accused of using Napalm against villages that don’t cooperate with the military.

Efforts to “restore state authority”? [Ayaz Amir, Dawn] in Waziristan are likely to backfire much like the Pakistani efforts to do the same in East Pakistan in 1970-71. The ham handed manner with which the military is going about managing the campaign is likely to create more resentment among the tribal areas, already disillusioned with Pakistan’s Punjabi-landlord dominated political scene.

The military campaign has been so under-reported in press not only because it is being fought on a difficult relatively uninhabited terrain in a third-world country but also because the area has become really dangerous for the journalists. Recently the Daily Times reported
“The Tribal Union of Journalists (TUJ) on Friday expressed “no confidence”? in the federal government’s ability to ensure the security of journalists in the Federally Administered Tribal Areas (FATA), and appealed to international media rights groups to help them (tribal journalists) arrange for a “temporary shelter”? in a third country.”

The military operations in the province being carried out at the behest of US are creating a wave of resentment against the Pakistani government and the US within the area and the country at large.
Updated 1/15:The recent US military strike killing 18 people, including 5 women and 5 children has fueled widespread protests. The “missed” strike was ostensibly launched against Ayman al-Zawahiri.

Updated 1/17: Continued controversy over US air strike. Zaffar Abbas reports on the issue for BBC.

It is a small mountainous area north-west of Pakistan and abutting Afghanistan. The region has been independently administered by tribes since 1883. Waziristan is split between North Waziristan and South Waziristan (formerly Wana). The relation between Waziristan and Pakistani government have been tense for many years with many attempts by the government to enforce more control. The relations have come under severe pressure of late with Pakistani government under pressure from US sending in repeated military parties to weed out Al-Qaeda sympathizers. Read more: Why Waziristan cannot be conquered by by A. H. Amin at Media Matters

Here’s a partial list of media reports on Pakistani military’s continuing action in Waziristan:

The ‘end of Internet’

5 Jan

Internet is under threat from network companies that are increasingly inclined to engage in ‘traffic shopping’. ‘Traffic shopping’ or prioritization of certain data (traffic) over others is creating what scholars have called a ‘two-tiered Internet’. The move to craft a tiered arrangement is largely driven by the narrow profit motives of telecommunication firms, that cross own telephone companies, which are trying to protect their revenue stream under assault from Voice Over IP (VoIP) applications like Skype and Vonage by delaying or even barring these services from their networks.

Michael Geist
, researcher in Internet and E-commerce Law at the University of Ottawa, Faculty of Law in his BBC article says –

“In the developing world, where there is frequently limited telecommunications competition, many countries have begun blocking internet telephony services in order to protect the incumbent telecoms provider.

This approach, already being followed in countries such as Panama, Oman, United Arab Emirates, and Mexico, reduces competitive choices for telecommunications services and cuts off consumers from one of the fastest growing segments of the internet.

In Europe, some ISPs have similarly begun to block access to internet telephony services. For example, this summer reports from Germany indicated that Vodafone had begun to block Voice over IP (Voip) traffic, treating the popular Skype program as “inappropriate content.”

European ISPs have also faced mounting pressure to block access to peer-to-peer systems such as BitTorrent, which are widely used to share both authorised and unauthorised content. ”

There are also reports that Hotels providing high-speed internet access are blocking VoIP. “Cable operators have already prioritized their own network data such as Internet telephony over the data of other services.” ( Read More.. )

FCC has taken on the role of good Samaritan – “As a condition of many of the recent mergers, the FCC has made sure that companies agree to observe “Net Neutrality” which argues that “owners of phone and cable networks can’t dictate how a consumer uses the internet or discriminate against any internet content, regardless of source” (WSJ).

“To drive this point home, a Bellsouth spokesman in this WSJ article complains about Google’s freeloading ways as follows: “During the Hurricanes, Google didn’t pay to have the DSL restored. We’re paying all the money.”

If like me you thought that the $30-$80 you send to your phone company every month for basic service constitutes “paying for it”, think again. What telecommunication companies want to do is start charging services like Google and Vonage big piles of money so that their content gets to consumers in a fast carpool lane while the content providers that don’t pay up (and their customers) gets stuck on a less glamorous road with more traffic, fewer lanes and perhaps a few potholes.

Telecommunication companies are also looking into other ways of generating revenue including charging for free roaming application layer applications like Google that sap network bandwidth.

Today the technology exists to actively identify, select and prioritize Internet traffic. This model of prioritizing “traffic” can have vast ramifications on application level development and overall creativity. Application level development has been fueled by the guarantee of network neutrality. “Websites, e-commerce companies, and other innovators have also relied on network neutrality, secure in the knowledge that the network treats all companies, whether big or small, equally. That approach enables those with the best products and services, not the deepest pockets, to emerge as the market winners.”? BBC: Towards a two-tiered Internet

Dr. Barbara Van Schewick, working at Center for Internet and Society, Stanford Law School, in her paper on the topic of Two-tier Internet, “Towards an Economic Framework for Network Neutrality Regulation” argues that

“calls for network neutrality regulation are justified: In the absence of network neutrality regulation, there is a real threat that network providers will discriminate against independent producers of applications, content or portals or exclude them from their network. This threat reduces the amount of innovation in the markets for applications, content and portals at significant costs to society.

While network neutrality rules remove this threat, they are not without costs: Apart from creating the costs of regulation itself, network neutrality rules reduce network providers’ incentives to innovate at the network level and to deploy network infrastructure. Thus, regulators face a trade-off. As the paper shows, due to the potentially enormous benefits of application-level innovation for economic growth, increasing the amount of application-level innovation through network neutrality regulation is more important than the costs associated with it.”

Ditty for Bush

6 Dec

Seldom has a country reached such levels of obsequiousness that Pakistan reached when officials chose to include a rhyming poem titled, The Leader, praising George W Bush in its English-language course book for 16 year-olds. The poem spells out George W Bush in addition to coming up with lines like – “Strong in his faith, refreshingly real” and “Bracing for war, but praying for peace”.

Patient and steady with all he must bear,
Ready to meet every challenge with care,
Easy in manner, yet solid as steel,
Strong in his faith, refreshingly real
Isn’t afraid to propose what is bold,
Doesn’t conform to the usual mould,
Eyes that have foresight, for hindsight won’t do,
Never backs down when he sees what is true,
Tells it all straight, and means it all too.

Going forward and knowing he’s right,
Even when doubted for why he would fight,
Over and over he makes his case clear,
Reaching to touch the ones who won’t hear.
Growing in strength he won’t be unnerved,
Ever assuring he’ll stand by his word.

Wanting the world to join his firm stand,

Bracing for war, but praying for peace,
Using his power so evil will cease,
So much a leader and worthy of trust,
Here stands a man who will do what he must.

Highway to India

5 Dec

Amy Waldman, of the New York Times, recently wrote a series of four articles about the socio-cultural impact of highways and the burgeoning number of cars.

Here are the links:

The articles include interactive features with audio commentary and slide shows. While the photographs are well shot, Waldman’s hurried narration leaves much to be desired.

Brief comments and caveats: Waldman puts far too much emphasis on the posited transformative cultural power of both the highways and the increasing number of cars. Waldman repeatedly paints the “old India” in stereotypical terms (like the land of dharma etc.) and then talks about the “transformation” that these new things are wrecking on the cultural landscape of India.

The art of reading

27 Nov

The value of reading is constrained by how one chooses to read aside from what one chooses to read.

Reading is anti-evolutionary. Neither our brains nor our eyes were designed to excitedly decipher small symbols printed on a paper. But then reading is much more than deciphering symbols. Words provide wonderful abstract worlds in which we can embody the characters that are described in the book. But to live with them, in them and empathize with them, we need to spend time with them and nurture them carefully in our minds. A character in a novel is truly subjective (it is often left deliberately open to manipulation). The emotions, the pitch of the scream, rationality of action and the sinister atmosphere are all amplified or mellowed, tampered with or abandoned in our minds. The true pleasure of reading lies in reading slowly to go over the nuances and the phraseology. Of course, not all novelists and all passages invite this cohabitation. In fact, some novelists will go out of their way to create atmospheric dread that pushes you away from the analysis but then you are living through the temporary paralysis of emotions that comes when environment overwhelms you. But then you need to pause and introspect for that is when you can empathize with the character.

Reading slowly can help one introspect and come to a better understanding of oneself and the world around us. If one chooses to look at a novel merely as a teleological progression towards the resolution of some quibble, then it merely becomes a tool for entertainment.

Perhaps a more important virtue, as compared to reading slowly, is reading critically. A novelist imposes his or her world view on you and you need to be able to critically think through the points that s/he makes, and separate out the chaff from the wheat.

The lost art

Today, reading slowly is a lost art. Leisurely reading a passage and then mulling over its contents seems archaic. Inarguably pointless drivel camouflaged as writing has taken much away from the pleasure (and motivation) for reading slowly. The other obvious villain is television with its increasingly crazed editing. Once upon a time a shot lasted 90 seconds, now it lasts for less than 6 seconds on average. The reader today needs a more action packed story that relentlessly moves across scenes, countries, and emotions – all in a hurried progression to the ‘end’. So not only are novelists concocting stories that encourage hurried reading, readers are actually reading books the same way as they watch telenovellas or sitcoms – mindlessly.

Let me end with a caveat – I am not saying that speed reading is necessarily bad. In fact, there is good reason to believe that it is a very important tool for academics and few other people who need to consume a lot of information in a very limited amount of time.

End of information hierarchy

11 Nov

Today, people have a variety of ways to explore a collection via Internet as opposed to carefully orchestrated explorations in a brick and mortar museum with a curated exhibition (Tang XXXX).

A curator comes up with a story along with other contextual information about the exhibit and arranges the exhibition so that the person exploring it has only a few chosen entry points and few ways of exploring the collection. Some of the impediments are put in deliberately while others are a result of hosting an exhibition in the real world where the design of building etc. still matter.

Cut to the online world and the user is untethered from most of curated connivances. This in turn maybe a result of the fact that people haven’t really understood how best to present a virtual museum but that is not the point I want to get into. The result of the untethered experience is that these cultural objects are seen in a twice removed setting -e.g. a pot taken from an archaeological site and then photographed and put on the Internet. So what is the result of all this? It is hard to give an objective listing but one can see that some of the “meaning” is lost in this journey of an artifact from the ground to the Internet.

What happens when information that was once tethered in a context or a story is made available virtually free of context over say Google. Is storing information in hierarchical networks or associations obsolete? How do you maintain integrity of information when context-free snippets of information are freely available?

Say of example – once upon a time people learned about history via a scholar who chose carefully the specific issues about history. Today, a teen gets his/her history by searching on the web often encountering a lot of miscellaneous information. I would argue that the person then can come away, from such a scattered exploration, with a bunch of miscellaneous trivia and no real understanding of the major issue at hand. The key idea here is that for transmission of “knowledge” – the integrity of information is of prime value.

Life expectancy in the war zone: gendered perspective

11 Nov

War is deadly for both sexes. A missile doesn’t differentiate between a man and a woman. Then, what is the role of gender in war?

Nearly all active militaries in the world have substantially more male soldier than female soldiers and far more men die on the battle fields than women. But the impact of wars is never limited to artificial battlefields. War enters civilian life through hunger, inadequate health care, decline in availability of potable water, rape, pillage, and many other ways, reducing life expectancy drastically for both men and women. For example, life expectancy in Afghanistan is 46 years (men), 46 years (women) according to UN figures. The figures hide an important fact that on an average women will generally live longer than men. These figure mean that more women are dying as a result of war than men. These figures still don’t take into account the large number of crimes like rape that are committed predominantly against women.

Facts on South Asia

19 Aug

In response to some flawed rhetoric by ‘flat-world’ Friedman, and ‘shining-India’ Advani, here are a few numbers that put South Asia’s situation into perspective. South Asia is home to one-fifth of the world’s population and about 40% of the world’s absolute poor – people living on less than $1/day. Imagine the life-style of an American earning $1/day and you will get a window into the poverty described by these figures.

India is home to nearly half of the illiterate population in the world. The adult literacy rate in South Asia (49%) is behind sub-Saharan Africa (57%) as well as that of Arab states (59%). To make matters worse, South Asia’s current annual expenditure on education is 1.9% of GNP. In contrast, military spending in the region is 3.8% of GNP and is as high as 7% in Pakistan which has 50% more soldiers than teachers. A brief zoom in on Pakistan’s education system…. what indeed are people fortunate enough to afford an education are taught? According to a report by an independent government agency, SDPI ( Sustainable Development Policy Institute. See Link at Bottom), ‘facts’ like “Hindu has always been an enemy of Islam.” and “The religion of the Hindus did not teach them good things — Hindus did not respect women…” have been included with the general objective of inculcating “Love and aspiration for Jehad, Tableegh (Prosyletization), Jehad, Shahadat (martyrdom), sacrifice, ghazi (the victor in holy wars), shaheed (martyr)”

Due process of law is often quoted as a key ingredient for a free society. With over 20 million court cases pending at the end of 2002, India doesn’t even pretend. More stark crime statistics on India include – over 1 million persons in jail waiting for trial and a conviction rate of about 1 percent.

SDPI report on Pakistan Education System (pdf)
World Literacy of Canada