Suddenly, however, internet search is becoming lively again.

TO BE NOTED: From the FT:

"Wolfram Alpha asks some searching questions of the web

By John Gapper

Published: May 22 2009 19:36 | Last updated: May 22 2009 19:36

For years, there has been little competition in the business of enabling people to find out things on the web: Google led and a bunch of its would-be rivals lagged behind. Suddenly, however, internet search is becoming lively again.

Next week, Microsoft will launch its latest effort to catch up with Google – a refreshed search engine codenamed Kumo. Meanwhile Yahoo has just shown off its own efforts to help people extract data from the internet’s millions of web pages, rather than wade through it link by link.

All this might be yawn-inducing – Microsoft and Yahoo have tried and failed to catch up with Google before – but for two things.

One is that Google, despite its 64 per cent share of search, according to the comScore research group, knows there is a gulf between what it provides and what many people want and is experimenting with making its search engine perform better.

The second is that Google faces a new challenge from an Illinois-based software group founded by Stephen Wolfram, a British scientist. This week, Wolfram Research launched Wolfram Alpha, a web application that resembles a search engine but aspires to be a digital oracle.

Wolfram Alpha will never rival Google as an entry point to the web because it serves up information from a private database, rather than the internet as a whole. But it is an intellectual slap in the face to Google because it approaches the quest for knowledge in another way.

Wolfram Alpha’s launch this week garnered a lot of hype and many people were disappointed. After receiving blank responses to queries that its software could not recognise – “Wolfram Alpha isn’t sure what to do with your input” – some gave up.

Even when it knows what to do with a query, the software is very curt on some subjects that would return thousands of web pages, videos and images on Google, and a detailed entry on Wikipedia.

Type “Barack Obama”, for example, and you are told his full name, his birth date and place, and that he is a head of state (although not of which country). The timeline of his life has no entries apart from his birth.

But it is a different story when it comes to scientific and mathematical data, or the sort of information held routinely on public databases such as the Central Intelligence Agency’s World Factbook or by the International Monetary Fund. Then Wolfram Alpha comes to life.

Enter “Halley’s Comet” and you get scientific details and a map of where it is at any moment. Enter “GDP per capita UK/GDP per capita US” and it builds a graph showing that Britons were half as rich as Americans in 1970 but approached parity by 2005.

The data are not drawn from the web but from a database that is “curated” by Wolfram Research, a company that makes most of its money by selling licences for Mathematica, a software package used in colleges. That makes it much more limited than the internet, but clean, precise and easily malleable. While search engines are a starting point in a quest to find things out, Wolfram Alpha provides complete answers.

Unlike Wikipedia, it is also tightly controlled. Its data are drawn only from sources that are edited and checked so that, at least in theory, all the information is trustworthy.

“Search engines are like traffic directions to everything, systematic and random, that is on the web. We are collecting knowledge accumulated by civilisations and making that data computable,” says Mr Wolfram.

Search engines are now trying to do something similar with the internet as a whole, but it is very difficult. “One of the hardest problems in computer science is data extraction. Can we look at the unstructured web and extract values and facts in a meaningful way?” asked Marissa Mayer, a Google executive, at a presentation last week.

Ms Mayer showed off Google Squared, an experimental new feature that would allow Google’s users quickly to assemble data about, for example, various breeds of small dogs in a form like a spreadsheet.

It would be a lot easier to achieve if data were written into web pages in a structured way. Tim Berners-Lee, one of the creators of the internet in its graphical form, has been working on a project called the “semantic web”, which encourages this approach, but progress has been slow.

That is what makes Wolfram Alpha so radical – it is a challenge not just to Google but to the internet as a whole. Instead of grappling with all the data that are theoretically discoverable on the web, Mr Wolfram has got around the difficulties by building his own black box.

Similar struggles for dominance between private databases and open information systems are common. In financial services, stock exchanges contend with “dark pools” of liquidity – private networks of banks and institutional investors that allow them to trade with each other.

So far in the history of the internet, the public has soundly defeated the private. Private networks such as the original AOL and Compuserve gave way to the internet as a whole, made comprehensible by Google.

Now that faces a challenge. If all the data on the internet are simply too messy to be analysed and structured, Google will be unable to produce a service rivalling Wolfram Alpha in clarity and reliability.

This would not spell the end for Google and other search engines. But it would mean that search itself – on which we rely to map the internet – had bumped up against its natural limits. Let the battle begin.

john.gapper@ft.com"

If the country of bare-knuckled capitalism no longer believes in it - at least temporarily - all bets are off.

John Gapper in the FT:

"Americans now distrust the free market

January 28, 2009

I started my day in Davos with Richard Edelman of the eponymous public relations company at a breakfast to launch its annual trust barometer report.

The conclusion is that trust in chief executives and private enterprise is at an all-time low. Trust in US business fell from 58 per cent last year to 38 per cent, bringing it in line with levels similar to the other side of the Atlantic.

The statistic I found most interesting is that only 49 per cent of Americans, living in the country of capitalism and free enterprise, thought the free market should be allowed to operate independently.

As Richard put it: “America is the new Europe”.

I find that, if not surprising, quite a sobering figure. If the country of bare-knuckled capitalism no longer believes in it - at least temporarily - all bets are off.

Nick Burns, a Harvard professor and former undersecretary of state for the US, said the world was at “a hinge point in history” similar to 1919, when the public’s trust in institutions is exhausted and political change results.

I plan to write more about the issue in my FT column tomorrow.

January 28th, 2009 in Davos09 | Permalink"

Here's my reply awaiting moderation:

"The conclusion is that trust in chief executives and private enterprise is at an all-time low."

This is one big reason that I favor nationalization. The bankers are part of the panic. Leaving them in place is a panic accelerant. What people view as the free market is our system of crony and corporate capitalism, in which investors and businesses count on government largess for themselves at the expense of others. Wittgenstein said "If a lion could speak, we could not understand it". For these bankers we can say, "If a free market existed, they could not compete in it". Life is full of paradoxes. Right now, we need to take these disasters over, and spit them back out into the private realm as quickly as possible. As for the free market, I'll email you the minute I see it.

"All were looking for gains this year, and their targets at the start of the year are far above where the S&P 500 is currently trading."

This isn't fair, really, but if you're going to pretend that you can predict the future better than anyone else, it shouldn't be unexpected. I guess when you're wrong, as I told John Gapper, it's better to be gloriously wrong. From Bespoke:

"Bloomberg recently surveyed market strategists for their 2009 S&P 500 price targets, and collectively, they're looking for a gain of 21.8% from the index's current price level. As shown below, UBS is the most bullish of the group with a year-end 2009 price target of 1,300 (a 47.2% gain). UBS was the most bullish last year as well with a 2008 price target of 1,700. Goldman and Strategas are the second most bullish this year with price targets of 1,100. Credit Suisse has a target of 1,050 (for mid-year '09), Citi and HSBC are at 1,000, and Merrill Lynch is at 975. Merrill is the least bullish strategist of those surveyed, but they're still looking for a gain of 10.4% from current levels.

For those looking for direction from these strategists, their 2008 projections should be noted. All were looking for gains this year, and their targets at the start of the year are far above where the S&P 500 is currently trading.

Interested in more in-depth market analysis from Bespoke? Subscribe to Bespoke Premium and start receiving our closely followed reports today.

"It would be very hard for most hedge funds to operate Ponzi schemes, as Mr Madoff is alleged to have done."

I have to admit to being a defender of Hedge Funds, even though, like CDSs and CDOs, I wouldn't invest in them myself ( largely due to lack of resources ). Here's John Gapper in the FT with some interesting news:

"The alleged fraud of $50bn at Bernard Madoff’s investment advisory business will send a scare through the fund-of-funds that put investors’ money in hedge funds in return for a fee, but the implications for hedge funds are less obvious.

His business, although hedge fund-like, was not structured like most hedge funds, and there would have been more safeguards if it had been. It would be very hard for most hedge funds to operate Ponzi schemes, as Mr Madoff is alleged to have done.

This paradox cropped up in the New York Time story on the scandal on Friday. Early in the piece, it said:

The collapse of Mr Madoff’s firm is yet another blow in a devastating year for Wall Street and investors. While Mr. Madoff’s firm was not a hedge fund, the scope of the fraud is likely to increase pressure on hedge funds to accept greater regulation and transparency and protect their investors.

Further down, however, it added:

Mr Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JP Morgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.

Well, indeed. Long-running financial frauds often depend on the same person having control of the front and back office - not only making trades but having oversight of clearing and settlement. If Mr Madoff was engaging in fraud, as alleged, it was very helpful not to have others checking on his trades.

The problem is less for hedge funds than for funds-of-funds. Some, including Fairfield Greenwich Group and Tremont Capital Management, directed money to Mr Madoff’s fund management arm and got fees for it, but do not seem to have grasped what was going on."

I think that it's very important to be specific and accurate in using terminology. This is not a Hedge Fund Problem according to Gapper.

"I hate to disagree with Jim Surowiecki of The New Yorker": As Do All Of Us

John Gapper exercises Austinian type analysis of the concept of "bad decisions", treating us to a scalpel like incision into the meaning of the word "abysmally":

"I hate to disagree with Jim Surowiecki of The New Yorker, who is an astute commentator, but his blithe statement that the US government’s refusal to rescue Lehman Brothers was “clearly an abysmally bad decision” demands to be corrected.

As noted before, I have a dog in this fight since I recommended before the event that Hank Paulson, the Treasury Secretary, refrain from bailing out Lehman. Since then the general consensus has emerged that Lehman’s failure precipitated the most extreme phase of the financial crisis.

I am not convinced that, even if Lehman had been rescued, that would have averted the problem since the weight of selling and panic would have moved on to the next financial institution and then the next. So the world would probably have ended up in the same position it is in today, with a broad financial sector bail-out.

However, even if a Lehman bail-out would have changed matters, the fact that Mr Paulson and the Federal Reserve were wrong does not make their decision “abysmally bad”. They simply made a calculated bet that failed, which is a different matter."

Here's my comment:

From the FT:

http://www.ft.com/cms/s/0/e4223c20-aad1-11dd-897c-000077b07658.html

“In the end, is Lomas surprised by the scale and complexity of what he is now dealing with? He thinks carefully. Not in terms of complexity, no. What did surprise him, though, was that Lehman’s collapse had been allowed to happen in the first place. “I was surprised that it had gone down and that authorities elsewhere in the world hadn’t found a way to avoid it going down – precisely because I could anticipate the complexity that there would be here.

“Surely others had seen just how big and ugly this was going to be?”

I think you’re on pretty thin ice here, tending towards water.

Why not just say something like the following:

I made a bad decision, and, when I make a bad decision, I’m awfully proud to say that it’s generally abysmally bad.

Posted by: Don the libertarian Democrat | November 10th, 2008 at 9:10 pm

And here:

“As noted before, I have a dog in this fight”

By the way, dog fighting is illegal over here. It’s a bit like saying, “As noted before, I inserted my knife into the body..”

Posted by: Don the libertarian Democrat | November 10th, 2008 at 9:19 pm

" The irony is that Japanese regulators were once hugely protective of retail investors"

Yves Smith on Naked Capitalism about PRDC's in Japan:

"This Times Online story is frustratingly vague about the exact nature of these complicated and risky foreign exchange products sold to Japanese retail investors. While the size of the problem ($90 billion) may seem not all that bad in comparison, say, to subprime exposures, recall that these trades are likely to be unwound in a compressed period of time when currency markets are already volatile, thus increasing the potential for havoc.

The irony is that Japanese regulators were once hugely protective of retail investors and placed tough restrictions on what products could be sold to them. That attitude clearly went out the window.

From the Times Online:"

Please read the story. Here are my posts, with Yves thrown in:

Don said...

See John Gapper on FT here:

http://blogs.ft.com/gapperblog/2008/10/mrs-watanabe-and-the-sudden-rise-of-the-yen/


"The accounts showed that it was common for Japanese retail investors to be offered leverage of 20 times or more for their cash. In other words, they could deposit the equivalent of $1,000 and take trading positions of $20,000. A lot of them had used the opportunity to buy higher-yielding foreign assets.

The trade worked fine for Japanese investors as long as currencies remained stable and they could in effect switch yen into higher-yielding assets denominated in other currencies. But the sharp rise in the yen - and comparative fall in the value of these foreign assets - is probably landing Mrs Watanabe and her friends with big losses.

Here, to expand the point, is a prescient piece from FT Alphaville a year ago."

Don the libertarian Democrat

October 30, 2008 1:05 AM

And:

Don said...

"The important thing to know about Mrs Watanabe is that, temporarily at least, she has all but stopped flapping her wings"

Who is Mrs. Watanabe?

"Mrs Watanabe is crude shorthand for Japan’s $15,000bn pool of savings, the deepest in the world and worth more than the annual economic output of the US. These vast resources are somewhat apocryphally marshalled by Japanese women, who have traditionally held a firm grip on family finances."

Let's see:

1) Rising yen
2) Lower interest rates
3) Next bubble

David Pilling in the FT:

http://www.ft.com/cms/s/0/0df30044-a5f4-11dd-9d26-000077b07658.html

"The yen carry trade has not been the only cheap source of liquidity in recent years. But Ashraf Laidi, chief currency strategist at CMC Markets, reckons it has been the biggest. He quotes figures suggesting that Japanese households alone, discounting savings mediated through life assurers and other institutions, have mobilised $500bn in outbound funds. That leaves aside speculators, who have borrowed unknowable amounts of yen to invest abroad, often on highly leveraged terms.

Just as state bank bail-outs risk moral hazard, more recklessness and the need for future bail-outs, so the unwinding of the carry trade carries with it the danger of the next great bubble. In Japan, the central bank appears to have reacted to a rising yen and sinking stock market by contemplating the uncontemplatable: a rate cut. Even the rumour of such has provoked a mini equity rally and a weakening of the currency.

This is poison for the BoJ. It hated having to keep rates low, fearing that cheap money can cause bubbles in real estate, in capital investment and in the carry trade. Its sightings of inflationary danger everywhere provoked mirth among outside experts. But few are laughing now."

And so:
"If Japan really is about to reverse course towards zero interest rates, it will once again become the source of almost free money for anyone with an appetite to invest. Worse even than that, says Mr Laidi, is the potential for an even more dangerous dollar carry trade. The Federal Reserve has been desperately cutting rates, and lopped another half point off again on Wednesday. The nearer US interest rates approach zero, the greater the incentive to move dollars into higher-yielding assets elsewhere.

These gyrations do nothing to solve the underlying problem, which is that Asia has an excess of savers and the US and Europe an excess of spenders. Unless that is solved, the world seems condemned to repeat the swings of recent years, as capital is arbitraged between countries where money is cheap to those where it is expensive."

Problems:

1) Dollar carry trade

2) Asia saves, the West spends

3) Here we go again

Is this real?

Don the libertarian Democrat

October 30, 2008 1:27 AM

And:

Don said...

Following an earlier comment about Japan, if you have domestically:
1)Low interest rates
2)Stagnant stock market
3)Stable exchange rate
4)Low inflation
Doesn't it make sense that you would try and invest overseas? And after the tech bubble, doesn't it make sense that you would look for bonds that would provide you higher yields?
Naturally, if any of these variable change significantly, you could be in trouble. So when the story says:
"The products combine exposure to foreign exchange, interest rate differentials and domestic inflation"
it's not saying anything profound.
And when we read this:
"The PRDC's complexity disguised from the buyers the fact that they were taking on the same big foreign exchange risks as the regular carry trade but with additional exposure to global interest rate volatility."
it's a little hard to credit, since I just described the investment's worth and problems in a few short lines?

Don the libertarian Democrat

October 30, 2008 10:04 AM

And Yves:

Yves Smith said...

Don,

The shortcoming in the list above is 'stable currency". In a world of floating currencies (or mainly floating, and Japan was not one of the ones maintaining a dollar peg) the FX risk is huge, although for extended period (perhaps up to a couple of years with not too much movement) it can look low.

And if you read the stories on Japanese retail currency traders, they were as frenetic last year as day traders in the tech bubble here.

The yen was in fact cheap, so the risk was that despite the pickup in yield, you would lose far more due to a fall in the higher-yielding currency. When I was a kid, no one would EVER think of making deposits in higher-yielding currencies, everyone understood that the high yield was a big big signal that a price fall was in the cards.

October 30, 2008 6:35 PM

And me again ( the dummy ):

Don said...

Yves, Thanks. Great point. I was just about to mention these PRDC's on a post about securitization. I think that you make my case, and that we're both on the same page.

I agree that the assumptions seem crazy, my only point was that you would have thought the risks you just rightly pointed out should be easily explainable, even if the products inner workings are complex. From your comments, I was trying to understand how even you were having a hard time with them, and I now see that it's the risk as much as the complexity. I hope I've understood you now, and that my point is clearer.

Don the libertarian Democrat

PS Your blog is great. I'm learning so much from it, but I won't blame my mistakes on you. Take care

October 30, 2008 7:14 PM

"and being taken aback by the amount of buying on margin in which ordinary Japanese investors were indulging."

Japanese investors also invested in the carry trade, and the rise of the yen has caused them some problems. John Gapper in the FT:

The abrupt rise of the yen and the dollar against higher-yielding currencies seems to have been driven by hedge funds unwinding various forms of carry trade - borrowing in a low-yielding currency and investing in assets in higher-yield economies. This has caused havoc in financial markets in the past couple of weeks...

Hedge funds that invested heavily the carry trade, using leverage, are obviously in trouble to judge by the rapid changes in exchange rates...

The accounts showed that it was common for Japanese retail investors to be offered leverage of 20 times or more for their cash. In other words, they could deposit the equivalent of $1,000 and take trading positions of $20,000. A lot of them had used the opportunity to buy higher-yielding foreign assets.

The trade worked fine for Japanese investors as long as currencies remained stable and they could in effect switch yen into higher-yielding assets denominated in other currencies. But the sharp rise in the yen - and comparative fall in the value of these foreign assets - is probably landing Mrs Watanabe and her friends with big losses.

Here, to expand the point, is a prescient piece from FT Alphaville a year ago."

Pretty straightforward.