“Investing and speculating are widely confused. Investing is “to allocate capital into productive activities with the anticipation of operating profit.” Speculation is “to allocate capital in order to profit from politically caused distortions in the market place.”

If you can think of any counter-examples, please let us know!

www.defeatthedebt.com

RSGSI© Update 7-31-09: 99 days annualized ROI

RSGSI© Portfolio Correlation Matrix: 45 Days Ending 7-31-09

Further Reading and Explanations

Introduction, definitions and meaning of the RocketCap Smart Grid Stock Index©

What annualization means

Overall, note how our RSGSI© has closely tracked the S&P 500 Index©, and both have been superior to the utility index PUI.

RSGSI© Update 7-24-09: 94 days annualized ROI

RSGSI© Portfolio Correlation Matrix: 45 Days Ending 7-24-09

Further Reading and Explanations

Introduction, definitions and meaning of the RocketCap Smart Grid Stock Index©

What annualization means

In the first, The Economist lead editorial sets the stage:

What went wrong with economics

It says:

“In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.” “

We almost always find Krugman’s assessment of anything remotely political off-base or wacky, but he definitely gets it right, here!

Two other articles analyze the failures of economists to detect or clearly recover from the calamity. These two focus on various aspects of economic theory itself.

The other-worldly philosophers

Efficiency and beyond

The latter article has a nice discussion of the famous Efficient Markets Hypothesis, which is obviously bogus. I love the EMH! It says. all information that could affect the price of a stock is already incorporated into the price, so over time, no one can profit from investing. Don’t you love it?

The EMH is the source of the old joke about two economist walking together down the street. One sees a $20 bill on the ground and reaches to pick it up. Then the other economist stops him, and says “Hey, don’t bother-if that was a REAL $20 bill, someone would already have picked it up!”

One of themes coursing through these articles is that economists have used some important simplifying assumptions, such as EMH, to build their models. These models have worked fairly well. But just as in engineering, one has to consider the “corner cases” before accepting a model. Clearly, economists failed to consider a variety of corner cases, any one of which would have set off alarms about calamity. (A corner case is a situation in which an assumption takes an extreme value. For example, an economic corner case: credit stops flowing completely.)

OK, here is our addition to the post-mortem about economists: Economists need to learn that just because model building is very hard, it’s not a reason to avoid numerous, dirty details. Engineers build elegant, and sometimes ugly, theories. They strive to be elegant and as simple as feasible. They like to avoid complexity. But the engineering mission is to design and build stuff that works according to spec and costs no more than spec. Thus, they do whatever it takes to handle the details of reality.

We acknowledge up front that in the real world, engineers get real feedback, so they know how well their models work. But they also know how to use computers for some of the most beastly models. Just consider the modeling required to predict tomorrow’s weather (Al Gore pay attention). Major mainframe-level facilities are commonly used. Same thing for understanding airflow over a wing design, and how to connect 2 billion transistors to make a speedy CPU.

So, the message to the economics profession is: Life is tough, deal with it! Make models of really messy reality. Just because some social systems can be much more difficult to understand than various physical systems is not an excuse to choose simplicity when brute force of simulation of ugly factors would give better results.

RSGSI© Update 7-17-09: 89 days annualized ROI

RSGSI© Portfolio Correlation Matrix: 45 Days Ending 7-17-09

Further Reading and Explanations

Introduction, definitions and meaning of the RocketCap Smart Grid Stock Index©

What annualization means

From the DriveCam, Inc, web site:

“DriveCam is the only company that focuses on improving risky driving behavior by predicting and preventing crashes. DriveCam’s exception-based video event recorder is mounted on the windshield behind the rear-view mirror and captures sights and sounds inside and outside the vehicle. Exceptional forces (e.g. hard braking, swerving, collision, etc.) cause the recorder to save the critical seconds before and after the triggered event. Saved events are downloaded, analyzed and assigned a risk score to coach drivers and improve driving behavior and assess liability in collisions.”

More recently, DriveCam now ships its event recording video cameras with 3G cellular embedded wireless modules. These modules enable real-time review of recorded events in the vehicle. The initial purpose of the real-time wireless connectivity was to rapidly reduce the time required for drivers to dump their daily recorded events into the management’s video database at end of day. The vehicles could send the events as recorded, rather than employ a mass data transfer at end of day. Of course, this led to real time event monitoring. (DriveCam was launched in February 1998, and is financed with venture capital. DriveCam has received four patents for its design with additional patents pending.)

But Vegas also uses red light cameras in most intersections around the strip, according to my cabbie. These are two examples of Surveillance Society systems deployed.

How appropriate for us to learn of these systems, since we had just heard a fascinating lecture by Dr. Milton Friedman’s son David, a law professor at Santa Clara University. Friedman was discussing private and competitive legal systems. He pointed out that while the proliferation of video surveillance could be an invasion of privacy, it had the benefit of radically reducing disputes about the facts of what happened in various street conflicts.

From the RocketCap point of view, all this is more confirmation that the video surveillance business is a strong candidate for investing. This industry is going to have enormous technology and business growth, and this includes a new eco-system.

Notably, the video/audio hardware produces far more data than humans can monitor, and so the field of “video analytics software” has emerged. This software attempts to produce automatic face and object recognition and make certain kinds of decisions based on the inflow of images and sounds. For example, facial recognition has an enormous amount of academic, goernment and industrial research, but has quite limited results. Only certain frontal face views can be recognized, and turned away faces are harder to recognize. Also, the simple determination that a perimeter has been crossed by a human is exceptionally hard for software. Was it a dog? A snow mobile? A man?

These problems will eventually be solved, but video surveillance systems are improving rapidly in performance and cost, and we see nothing fundamental in view that can slow the growth of the Surveillance Society.

RSGSI© Update 7-10-09: 84 days annualized ROI

RSGSI© Portfolio Correlation Matrix: 45 Days Ending 7-10-09

Further Reading and Explanations

Introduction, definitions and meaning of the RocketCap Smart Grid Stock Index©

What annualization means

Dr. Black Swan Urges Widespread, Systematic De-Leveraging, World Wide

He says hyperinflation is possible with the current government policies, which policies were unnecessary and driven by political fear.

The RocketCap Smart Grid Stock Index © has been updated. As usual, we display both the annualized returns for the index since inception, and the correlation matrix of the elements based on data for the trailing 45 days. It is clear that the major market draw downs this week made a big difference in the ROI.

Revised RSGSI© Update 7-02-09

RSGSI© (Revised) Portfolio Correlation Matrix: 45 Days Ending 7-02-09

Further Reading and Explanations

Introduction, definitions and meaning of the RocketCap Smart Grid Stock Index©

What annualization means