Ivory Terminal

As the NYT, Slashdot, and countless enthusiast sites are reporting, the 30GB Zunes of the world have gone silent today, all refusing to boot up in unison.  The details of the problem can be read about at the links.  I am far more interested in how this happened, and whether the mass death command was an accident in the code or a hack.  There do not seem to be any people that are bringing forward working examples, so it is unlikely that the code was distributed by any kind of recent network syncing.  

It is fascinating to see a real world example of mass death of a mobile device, and this will likely lead to a screaming debate about the “kill switches” on devices like the iPhone.  In my opinion, Microsoft is lucky that this did not happen to a phone, because there would have been a virtual riot.  Judging by the outrage surrounding February’s Blackberry service outage, where the devices continued to work, they just did not sync with RIM’s servers, it would be hard to imagine the passions ignited by a mass-bricking.  During the last Blackberry outage, my service was only interrupted for a few hours, but I was very conscious of the fact that I was missing corporate e-mail.  I would have been in trouble if was unable to access my contact list and phone functionality.

The lesson learned is to back up any device, whether it is networked or not, but that is often a hard sell in a world of casual users and always-”busy” employees.  For the sake of the Zune owners, and for continued confidence about mobile devices, I hope that Microsoft is able to quickly solve the problem.  Happy new year!

 *I want to begin this post by mentioning that I have not owned and used a gaming console since the original Nintendo Entertainment System, and currently do not play any video games. Therefore I am unaware of the nuances of the gaming industry, and I also have no bias of superiority of gaming systems. I do own a PlayStation 3, however I have it for computing purposes only, and I have never played a game on the system. It is also worth mentioning that the PS3 is currently not operational. After experimenting with Linux, I ran a Folding@Home client on the system until a piece on the motherboard literally melted. I purchased the unit with a non-functioning Blu-Ray drive. My impressions about the quality are not positive.*

As 2008 comes to a close, one obvious trend in end-of-year articles is the mention of gaming consoles. There are three gaming consoles in the “current” generation: Microsoft’s Xbox 360, Nintendo’s Wii, and Sony’s PlayStation 3 (PS3). The Wii is by far the weakest hardware offering by, followed by the Xbox, with the PS3 rounding out the high end of the hardware offerings.

When the PS3 was released, it was assumed by non-gamers that it would immediately dominate the gaming world, as the PS2 had done in the previous generation. However, characteristic of Sony as of late, the PS3 arrived with significant flaws. The first is console price. The PS3 comes with top end hardware, and was initially priced more like a computer than a consumer device. Even now, at $400 in the states, the PS3 is above the impulse price threshold for a majority of recession-hampered consumers. The next flaw is the lack of blockbuster titles. The PS2 came to power through an incredible library of games.

I will explore this idea with much more detail and explanation in subsequent posts, but I feel that the Sony PS3 was “CompUSAed”. My definition of “CompUSAed” is a firm or product that refuses (or is not allowed by their investors) to specialize in a maturing market, instead attempting to appeal to the largest market possible. In my later posts, I will infer that CompUSA was brought down from two sides by competitors like the Apple Store and Best Buy slicing away at the casual market, and online vendors like Newegg and Other World Computing grabbing the enthusiasts. The PS3 was CompUSAed by the Wii on the casual side, and the Xbox from the enthusiast corner.

Nintendo deserves a commendation for vastly expanding the console gaming market, previously limited to the targeted youth and enthusiast markets. By creating a console that embraces new input devices coupled with unconventional and casual game titles, the Nintendo Wii is now competing only against itself in a newly expanded market of more mature and casual gamers. Games like the Wii Fit move the system away from the “gaming console” stereotype. If I was to break down and buy a gaming console, it would be the Wii. This is because I am at best a casual gamer, and fit in the casual market.

The Xbox serves the enthusiast end of the consumer base. As I will argue, enthusiasts are price-sensitive because they are aware of the details of the products they are buying, and all else equal, gamers will choose an able system with the cheaper price of entry. Currently in the states, an Xbox is half of the cost of a PS3, meaning that a gamer can buy the console, accessories, and games for less than the cost of the PS3 alone. For a teenage enthusiast gamer, price of entry can be even more important, as low or no wages mean that there is a significant time investment required to obtain an item the price of a console. The $200 difference in console cost can be the deciding factor when savings come slowly or parents are purchasing the system.

The price-sensitivity argument is supported as the PS3 contains superior hardware, yet the Xbox consoles are sold in much greater numbers. Since the console gaming market is matured with several competitors, Sony should have entered the market with their state of the art hardware and focused on price instead of features to recruit only the most hardcore of the gamers. Instead, intended to grab a larger share of the market, Sony added all kinds of bells and whistles intended to make their console a centerpiece in the living room. The most obvious bundled feature was the Blu-Ray drive, which increased the cost of the unit naturally and artificially. The PS3 used Blu-Ray discs, but by making the drive compatible with the video discs, Sony was forced to pay HDCP costs, and also artificially floor the cost of the console to prevent a bottoming in the lucrative Blu-Ray market (Sony and others spend piles of cash making sure Blu-Ray won the HD format war, and intended to have the costs offset by higher than necessary Blu-Ray player prices). As pointed out before, the PS3 is already build at a heavy loss, mostly due to the processing hardware, but the focus on Blu-Ray videos showed a lack of focus. Sony was not assisted by the fact that a vast majority of households had not yet purchased HD televisions at the time of the release of the PS3, making the HD graphics of the Sony console irrelevant. The PlayStation debuted at an incredibly high initial cost, with features that were not relevant to many of the potential purchasers. The PS3 was also released on a schedule that did not allow game developers to immediately release titles taking full advantage of the processing capabilities of the hardware. The Xbox allowed for similar graphics performance on standard definition televisions, offering many of the same titles on cheaper hardware.

Enthusiast consumers left with a choice of hardware have overwhelmingly chosen the Xbox console with a cheaper price of entry, despite the PS3’s superior hardware. Title choice was not significant between the consoles, HD graphics performance turned out to be secondary or tertiary to gameplay and story lines, and the PS3 commanded a 100% price premium over the Xbox.

Casual consumers would hardly consider a PS3 or Xbox over a Wii after it became clear that the Wii was simply more “fun” as a gaming machine. The more powerful consoles offered more complex games, but did not focus on casual or social games. I have seen Wiis used socially by groups of non-gamers (including myself) who were able to understand and truly enjoy the games immediately upon touching the remote. These same gamers are bored or confused by the more advanced games and consoles.

Cut off from both the casual and sensitive enthusiast bases, the Sony PS3 has failed to dominate the marketplace, and is at risk of becoming an also-ran (numbers from May, Year-End numbers coming soon) unless Sony comes up with some compelling and exclusive titles soon.

To all concerned,

When you store data on recordable optical media and reformat the original disk because you are, “scared of sound coming from the mechanical HDD”, please do not put a Post-It note directly on the surface of the back-up (actually, primary…) disc.  

Thanks and happy holidays, 

Eric

Financial Times article link.  This is one of the most ridiculous claims I have seen in quite awhile.  When you have a massive fund that does not practice due diligence, diversification, backtesting, and risk analysis you are virtually guaranteed to end up in a bad place.  This is like suing a tire maker after you get in an accident driving 140 mph in the rain in an SUV while tapping out an e-mail on a Blackberry.

I am sure this is something Fairfield almost has to do to satisfy shareholders, but in my opinion it simply highlights Fairfield’s flaws.  The Fairfield fund managers should just write an apology and tap out, because there is no coming back from their “oops”.  

It looks like 2008 is the year the quants that are too introverted to speak up get to quietly mutter, “I told you so”.  The Madoff fiasco is certainly an occasion where one benefitted from not being a socialite.

Andrew Lahde hardly had to wait to be proven correct.  The Madoff victims are probably a who’s who of his counter parties.  Back to my due diligence, diversification, backtesting, and risk analysis…

Prior to the latest Apple laptop update, I purchased a MacBook Air (I know I questioned the computer’s existence several times, but then I started walking a LOT).  One of the greatest features in my mind was the multitouch trackpad, a Fingerworks derivative that gave me hope that I would start seeing all of the Touchstream gestures in a trackpad.  So far, no dice, but there was progress!  The latest round of Apple updates introduced four-fingered gestures to the new laptops.  The now current-1 generation owners were left out in the cold by Apple, who claimed a “totally different trackpad design” (not so…) prevented an update.

This week brought the 10.5.6 update to Apple’s Leopard operating system.  The update did not bring about the trackpad upgrade, but thankfully the MacRumors community stepped in and solved the problem painlessly.  Following the advice in the thread, the trackpad update is fast and easy, opposed to the hours I spent getting it to work in 10.5.5.

So, the upgrade works.  However, that is far from the end.  I would like to know why Apple denied an easy to implement feature to a consumer base that bought their one-generation old “pro” laptops?  Their continuous claims of SarbOx preventing upgrades seems a little dubious to me.  Even so, there was no upgrade offered for the new multitouch features for any price.  When questioned, the company responded the design of the trackpad was different, and these changes were not coming.  This was a bad call after the enthusiast market had already discovered that the MacBook Air trackpad had iphone guts…  Motives aside, I hope that Apple and other manufacturers help to future-proof their products if they already contain present-generation hardware, activated or not.  In Apple’s case, the new laptops represented huge improvements, and many people have a strong incentive to upgrade, so it is hard to argue that the improvement was held back to drive up numbers (I imagine an incredibly small number of customers that upgraded who would have held off with new trackpad gestures on their current machines).  

I am happy to have added multitouch gestures, and I really looking forward to the additional ones on the way from the Fingerworks era.  That said, I just hope I do not have to hack to get them on my hardware.  Four fingers out!

(By the way Apple, bump the RAM and you will get another MBA purchase out of me.  The price, doubled SSD, and GPU are looking quite tasty, but I am running into limits regarding the RAM while everything else is humming along perfectly)

Earlier today, the Fed formally announced its “Quantitative Easing” intentions. I think that “Quantitative Ramming” might be a more fun and accurate name, but thankfully I am not in charge of policy. I was shocked that the market reacted positively to this news.

It is true that this is an exciting new direction for the Fed, and as a student of economics, I am anxious to watch a real-time experiment in macro policy, but I worry about the severity of the situation that led to the abandon of the Fed funds rate policy. In the release today, the Fed addressed the nation in much clearer language than I am accustomed to seeing growing up almost entirely in the Greenspan era. Advising someone this fall, I outlined in no uncertain terms that I would be shocked if the Fed funds rate went below a quarter of a percent. Only weeks later, 25 basis points is now the upper bound of the “target range”, and depending on the LIBOR rate reaction, I very well could end up being at least temporarily incorrect in my prediction.

The LIBOR though leads me another thought. In my time in banking, the prime rate at each bank was kind of like a vote in the electoral college; one could deviate from the “correct” candidate, but it would be considered shocking. I do not believe a difference ever reared its head in my era. Now, with a range being targeted, I am curious to see if the banks will start deviating their ranges slightly and more frequently. This could be an amazing headache for certain corners of the loan world that structure the prime rate by the day, but it would also give the US its own real-time rate. The last thing many of us need is another rate to track, but I but I could see this happening if banks begin deviating from each other within the target range and customers begin to chase rates. At very low rates, this is actually a bigger deal. A 0.06% rate is 20% higher than a 0.05% one, and 20% is a big difference when you are accounting for money. The low rate could actually cause pretty big headaches as incremental percentage change becomes a larger part relative to the whole.

I imagine this will all be unimportant as the banks and the government figure out how to reduce FF rate movement, but it is interesting hypothetical. Tomorrow will be the first day in more than a year where I have a week in front of me with no work or commitments, and I am looking forward to being able to explore the newly created financial world.

Written from a mobile:

I just got out of a macro final and found that the US is targeting a zero range FF rate and beginning quantitative easing. The market seems to think this is a good thing, but I think that is premature.
I am glad I am going to have some free time to watch this mess. More later…

Well, that was fast…  Go to bed with the Senate saying “bankrupt them” and wake up to the White House saying something will get done anyway and then by the 10:00 AM hour, the Treasury announces that all will be well.

I hope the Republican Senators really take a beating for this.  Of course, looking at layer one, no one wants to bail out anything, but there were some monsters under the bed this time.  I think that Paulson is making the right call here, through probably to keep from paying out AIG CDS contracts.

The Senate just voted down the auto bailout. You can read about that at any legit news source.

I am interested in the following:

1. If GM is actually allowed to fail, what is the total outstanding value of CDS contracts? How much of the total was originated by AIG? Will AIG have to get another emergency ~$100B around the day the GM contracts settle? The add-on to the AIG bailout around the time of the Lehman contract settlement sure did not get connected by too many in the mainstream news.
2. If TARP funds are going to be used to bail out the automakers instead, how will this be justified after Bush and Bernanke both said no? Will Paulson step out of line?
3. Which party is the bigger ass this time? The democrats refused several common-sense concessions like competitive salary reductions, but the republicans left an open door for staggering job losses and simply gave the finger to “Joe Sixpack”.
4. If GM actually does go down, what in the world is going to happen to the hundreds of thousands of people suddenly out of work at salary levels that they will never be able to replicate? What will happen to foreclosure and unemployment levels, and the attitude of the “working man” towards the republican party? Does the US have the infrastructure to absorb that many manufacturing workers?
5. What kind of haircut are the US exchanges going to take at 9:30 this morning? The futures are looking pretty bleak.
6. Will Ford actually get taken down because of pain to parts suppliers?
7. Will Sarah Palin have a shread of credibility left as the face of a republican party that bails out Citi and leaves the automakers to the wolves?

I am going to sit tight with my Ford shares (probably yelling “F!”) and patiently wait for the damage to be tallied. The answers to several of the questions above will probably indicate that actually allowing the automakers to fail will not be allowed one way or another. The dollar and unemployment costs from the fallout would simply be too massive to swallow in the current economy. I think that both sides of the Senate were playing chicken, and now that they just crashed at full-throttle, the police report will be worth a once-over. I predict the republican party is going to get stomped on for this mess. I would not be surprised if alternate government funds were distributed by market close.

Make sure you have your seatbelts on for this ride…

To the tune of “Wild Out” by the Lox:

Every time companies fail out, 

we need another bail out, 

but there is no need to pout, 

we got courtroom clout,

it’s our party baby, we’ll cry if we want to,

bet we’ll have the legislature, doing what you won’t do 

fully legal, no need for steel or crops,

we just need more help with our swaps,

Chorus

{Bail out! (…Unintelligible CDO details)

Bail out!  (…Talk about how regulation will ruin derivatives)

Bail out!  (…List of location of executive meetings post bailout)

Bail out!  (…Running total AIG bailout amount)}

We hope they clean up GM’s messes,

cause we wrote all the CDS’s,

we do not want to drive to DC,

cause they think our jets are greedy,

we were blessed with endless luck,

then our first fund broke the buck,

and we now broadcast to the nation,

with requests for regulation,

Chorus {Repeat}

Luckily our products are not understandable,

And our balance sheet; infinitely expandable,

Or we’d be back to the Treasury yet,

Answering questions about our net,

We bet on the future of industry,

And kept betting infinitely,

No position was too large,

When Greenberg was in charge,

Chorus {Repeat}

I thought I would try my hand at Weird Al’s next round of culture commentary.  This could be followed by a Warren G parody (“Regulators, mount up!”).

I can only assume that AIG sold GM swaps to anyone interested, and in this sense, bailing out the automakers could actually be an immediate bargain assuming that the swaps would be honored otherwise.  I am losing faith in many of those who watch over our financial system (although not enough to inquire about the spot price of Ameros…), and am shifting from curious to worried about how much more of the layer cake we have yet to chew on.  It still seems to me that none of the big problems are getting mentioned in any of the hearings, leading me to think that our legislature’s understanding of the issues at hand is truly as weak as it appears.  

In the cadence of Jamie Foxx’s character in “Jarhead”:  “Boo-Yah.”