“Lend not unto him that is mightier than thyself; for if thou lendest him, count it but lost.”

We saw a comment about this Bible quote on Dealbreaker:

"UBS cites a well-documented case from 377 BC to 373 BC to illustrate how the ancient Greeks learned that sovereign defaults occur in clusters. In that case, 11 of 13 states defaulted on loans from the Temple of Delos…"

The Dealbreaker, in turn, references a post today by The Globe and Mail.  Essentially, the blogs relate to a citation by Costa Vayenas, an emerging markets analyst based in Switzerland at UBS AG, concerning sovereign debt defaults – in that they tend to occur in clusters.

Incidentally, we have negative views on municipal and some other debt generally…and are selective on issues, if any, in which to take action.

When comic relief is needed, the likes of Goolsbee, Bernanke and Fama is fine. However, if seriousness about a task or topic is warranted, then a genetic algorithm-based bot might be more useful, thankyouverymuch.

The cover story of Wired Magazine’s January 2011 issue is about artificial intelligence (AI).  I know, this topic might conjure up HAL 9000 from the 1968 science fiction film 2001: A Space Odyssey.  I suppose that’s not unjustified to do so.

Nevertheless, the initial story relates to how Kiva Systems set up a warehouse for diapers.com.  To a typical person, the inventory layout might have appeared haphazardly arranged, perhaps even to rational and efficiency oriented professionals such as finance and economics professors.  Yet, the organization of the warehouse was not based on human logic, but rather machine logic.  And, what is becoming exceedingly apparent, machine logic is excelling in many situations.

Furthermore, the cover story continues by including brief sections about Internet companies, financial markets, music, medicine, logistics, and fraud detection – essentially, a little bit of something to appeal to just about anyone.
........................................................

Sources and further resources:

●  Asimov, Isaac. I, Robot. Hardcover ed. New York, NY: Gnome Press, 1950. Print. The book is a collection of nine science fiction short stories. Find an edition at Powell's Books.

●  Gregory, John. "Robot Law." Slaw. 24 June 2010. Web. 01 Jan. 2011. <http://www.slaw.ca/2010/06/24/robot-law/>. Note: the blog article is a partial survey of interesting questions that have been asked about robots and the law, including several offlinks.

●  Levy, Steven, Felix Salmon, and John Stokes. "The AI Revolution Is On | Magazine." Wired, Jan. 2011. Web. 27 Dec. 2010. <http://www.wired.com/magazine/2010/12/ff_ai_essay_airevolution/>.

●  Singer, PW. "PW Singer on Military Robots and the Future of War | Video on TED.com." TED: Ideas worth Spreading. Apr. 2009. Web. 01 Jan. 2011. <http://www.ted.com/talks/pw_singer_on_robots_of_war.html>. Author shows how the widespread use of robots in war is changing the realities of combat. He shows us scenarios straight out of science fiction -- that now may not be so fictitious.

●  Vaughanbell. "Seeing the Mind amidst the Numbers." Mind Hacks. 22 Sept. 2009. Web. 01 Jan. 2011. <http://mindhacks.com/2009/09/22/seeing-the-mind-amidst-the-numbers/>. Blog article is about the Netflix Challenge that awarded a prize for the best algorithm that selects video suggestions for users. It also highlights the particular technique, called singular value decomposition (SVD).

Since we shared an infographic about the non-alcoholic carbonated beverages industry this summer, it seems reasonable to share a graphic regarding the adult beverage of choice.  [Much obliged to CaféTerra.]    

For those near Cleveland we recommend the seasonal Christmas Ale from Great Lakes Brewing Company.  And, for those living in the Mid-Altantic, we can recommend the small-batch specials from Dogfish Head Craft Brewed Ales based in Milton, Delaware.

And, if the infographic doesn’t have enough information to help you reveal your inner nerd, then included below are links that address the psychological aspects of imbibing too much (it’s not necessarily the alcohol talking) and the history of alcoholic beverages:

●  McGovern, Patrick E. Uncorking the Past: the Quest for Wine, Beer, and Other Alcoholic Beverages. Berkeley: University of California, 2009. Print.  Find at Powell's Books.

●  Carey, Benedict. "When People Drink Themselves Silly, and Why." The New York Times. 8 Mar. 2008. Web. http://www.nytimes.com/2008/03/04/health/04mind.html.
............................................................

Having worked in structured finance in the caverns of Wall Street, it is known that the structured finance market of CDOs and related securities can be explained and understood in a straightforward manner.  The complexity is mostly associated with the detailed mechanics of modeling and assessing risk to counterparties and investors.

Accordingly, included is a fine infographic presented by MortgageRates that helps illustrate the very basics of the CDO market.  Hat tip to Felix Salmon.

And, Bailout Wednesday is read “Quantitative Easing II,” also known as printing money. 

Basically the FED creates money out of nothing and then buys assets from institutions.  Some, if not most, of these purchases may consist of distressed assets (market value is meaningfully below book value).  Taxpayers are awfully generous to enable banks and other financial institutions to indirectly dump their bad assets on them.

To wit, taxpayers are so generous they even elect their representatives and politicians who are backed by financial institutions and other lobbyists.  Fortunately, there are unlimited campaign contributions to help determine the best politicians money can buy (see link below):

Who Owns Congress? A Campaign Cash Seating Chart 

Nevertheless, in developed nations, there is a saying that a people deserves its politicians; or, the politicians are a reflection of their people.

Yet another aspect of Buffett engaging in financial shenanigans.  Instead of adhering to accepted SEC guidelines concerning marking down long term assets to their objective market values, Buffett’s Berkshire Hathaway decided to mark its assets to wishes, not unlike many of the zombie banks and firms such as Enron and others.

Accordingly, here are two articles by the irreverent Zero Hedge highlighting the progressively disturbing behavior of Berkshire Hathaway:

Berkshire Takes Accounting Rules Into Its Own Hands, Tells SEC To Stuff It

“A new just released stunner discloses the unprecedented level of hypocrisy attained by Warren Buffett, for whom apparently accounting rules are swell, except when he actually needs to follow them.”


Full Text Of Berkshire Letter Deciding To Override SEC Accounting Policies

"We eagerly await Ms. Becky Quick's reporting on this latest development.”

And, here is a link referencing an article by Michael Lewis titled “The Temptation of St. Warren.”

As one commenter stated, “Buffet was a crook as a youth; is he now being revealed as a crook at the end of his career, too?”

Comedians from the National Bureau of Economic Research (NBER) have hedge fund traders and financial bloggers snickering, including this must-read example at Mish's Global Economic Trend Analysis.

Some of their economic positions as committee members at NBER are highlighted in this Bloomberg article and summarized below:

• In April 2010, issued a statement that it was too soon to conclude the end of the recession that began December 2007 (read: a recovery has yet to occur)
• This weekend in Jackson Hole, Wyoming, stated there is between 5% and 33% chance of a double dip recession (question: doesn’t a double dip recession necessitate an end of the first recession and a subsequent recovery?)
• Forecasts 2011 second quarter GDP growth of 1.1% (question: what is their forecast of third quarter and fourth quarter 2010 GDP growth?)

Perhaps the NBER should take note regarding the hot seats on which several financial and economic advisors sit (e.g. Treasury Secretary Geithner; current and outgoing members of the Council of Economic Advisers in the Obama Administration, Summers and Romer, respectively).

Or, better yet, just hire a few brown capuchin monkeys from Associate Professor Laurie Santos, who runs the Comparative Cognition Laboratory at Yale University. 

Just saying.

-------------------------------------------------------
Further resources:
●  "Laurie R. Santos, Yale Psychology Faculty." Yale University. July 2010. Web. http://www.yale.edu/psychology/FacInfo/Santos.html.
●  Laurie Santos: A Monkey Economy as Irrational as Ours | Video on TED.com. TED: Ideas worth Spreading. July 2010. Web. http://www.ted.com/talks/laurie_santos.html.
●  Markey, Sean. "Monkey Research: Monkeys Show Sense of Justice." National Geographic News, 17 Sept. 2003. Web. http://news.nationalgeographic.com/news/2003/09/0917_030917_monkeyfairness.html.

Assistant Professor Philip H. Howard of Michigan State University concludes that approximately 89% of beverage options are controlled by three corporations. 

Many people who haven’t been sleeping under the proverbial rock can name at least two of the three corporations.  

For those who cannot, the top three companies of U.S. soft drink sales are segmented as follows:

   (1.)  42.7%: Coca-Cola’s 25 brands and 139 varieties
   (2.)  30.8%: Pepsi’s 18 brands and 163 varieties
   (3.)  15.3%: Dr. Pepper Snapple Group’s 20 brands and 109 varieties

Rounding out the top ten companies by market share (circa 2008) are the following (see beverage digest):

  (4.)   4.7%: Cott Corp.
  (5.)   2.6%: National Beverage
  (6.)   0.8%: Hansen Natural
  (7.)   0.7%: Red Bull
  (8.)   0.4%: Big Red
  (9.)   0.4%: Rockstar
  (10.) 1.6%: Private label and other

The well-presented chart porn highlights the pseudovariety, or the illusion of diversity.