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When Smart Can Be Really Dumb!

Over the years websites have become really smart. With the use of cookies (the little trackers websites leave behind on your computer), they can track where you came from, how often you have visited, what topics you lingered on and a mind bending number of other facts. With cross site exchanges, they might even know your political persuasion, whose election you have donated to. One website knew my age and familial relationships, another traffic violations, and another showed government filings including property taxes and purchase price on homes. Yes, many websites might actually know more about your web behavior than you are aware.

There appears to be no such thing as privacy on the web, as the website creators have gotten smarter at collecting, collating and predicting individual behavior. Much as I try hard to limit the leakage of personal data into this public library, it has been a losing game.

This piece is not about the issues related to the devastating loss of privacy, or what can be done to protect oneself. Rather, its more a reflection on the amazing intelligence demonstrated by theses websites in generating such massively detailed personal databases. And yet, given how intelligent these systems are, they fail miserably at the simple stuff we should take for granted. Let me explain.

Most, if not all, websites can use your IP address (a unique identifier for your computer while you are connected to the internet), to figure out approximately where in the world you are browsing from. Why might this be useful? Well for example, the web owner might want to show you ads that are for services in your town or city. Or if you are searching for a retailer, like Walmarts, in Mapquest, then it might help find the store closest to you. This kind of smart web service might actually be quite useful. But what happens when it goes awry?

Here is an example from the Google home page:

We live in the United Arab Emirates, where Arabic is the native language. When I am browsing to Google.com, Google discovers my IP address is based in the UAE and automatically switches me to their Google.ae page (shown here) which is a great landing page if I spoke Arabic. It's kinda smart that they do that, the first time. But lets face it, if I am an arabic speaker, I probably know there is a google.ae. Why would I type google.com into the browser (if I really mean Google.ae, after all it's actually one character longer)? And why after Google has taken me to Google.ae, if I retype Google.com, it does not think I really mean the dot com site in english? Even worse, look at the Google.ae landing page. For the longest time I could not figure out where to change the language. And only much experience led me to discover the small Google.com link lower in the page written in English. Now, they have added the English link, but that still brings me to the Google.ae site, except in English. Finally, any real statistical evaluation of language used in the UAE by internet users would have suggested that the folks browsing to Google.com from the UAE are more likely to be english speakers than Arabic, and that if they type Google.com, they really mean Google.com. I shudder to think what this experience would be like if my native language was Chinese or something other than English.

The smart, dumb thinking does not end there though. It follows through on other Google sites, like News. At least they are consistent.

Again, no place for me to change the language. The only clue I have is the box with UAE and a little triangle. But I would have to be a savvy user to know that's where I can click, and then only to change the country base for the news articles, so no English UAE.

The smart dumbness isn't exclusive to Google by any means. In many ways they are the least dumb, smart websites. Here is Microsoft Bing home page:

This website is very pretty and so smart that I have not been able to figure out how to change the language yet. If I want to use the great US based Bing travel search system to check airfares in the USA, I cannot because I don't know how to get to that site. It keeps resending me to the Arabic language site. The result? I never use Bing from here!

Sometimes, one can be too smart and ignore common sense. That I think is dumb!

USA needs a turnaround!

The World Economic Forum (WEF) is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. Each year, this venerable, thoughtful and independent group, publishes the Global Competitiveness Report. The group essentially review a broad number of factors (111 this year), many objectively measured, to determine ability of each country (144 this year) to provide a good life for their citizens. This report is the closest thing we have to an objective ranking of national competitiveness on a global scale. I have found it to be thorough, unbiased and reflective of economic reality. You can access this years report here.

The USA has been declining since 2008 (when it was last ranked Number 1) to Number 7, this year!

The chart above shows the ten highest ranked countries in 2007 and follows their fortunes to the current report. You can see the top ten were USA, Switzerland, Denmark, Sweden, Germany, Finland, Singapore, Japan, United Kingdom and The Netherlands. A quick perusal of the chart highlights the following:

1. Switzerland went from Number 2 in 2009 to Number 1 in 2010 and has stayed at the top since. Singapore which started out at number 7 has improved consistently to a current Number 2 ranking. Their stories and experience are well worth exploring and learning from, for any nation that is wondering how to improve their ranking.
2. The United Kingdom, which started at Number 9 in 2007, fell off the list for three years (Number 12 in 2008, Number 13 in 2009, Number 12 in 2010), but finally remerged on the list in 2011 and is now ranked higher than they started at a current Number 8. This is a remarkable turnaround, and another worthy example to explore.
3. Denmark has declined to the point where they are no longer among the top 10. This is a story worth avoiding.
4. The USA is demonstrating a similar decline, though slower than that Denmark went through. The USA needs a turnaround to avoid the same fate!

What happened?

The 111 factors evaluated are grouped in three categories: Basic Requirements (Including Institutions, Infrastructure, Macroeconomic environment and Health and primary education), Efficiency Enhancers (Including Higher education and training, Goods market efficiency, Labor market efficiency, Financial market development, Technological readiness and Market size), and Innovation and sophistication factors (Business sophistication and Innovation). Of these, Efficiency enhancers account for 50% of the weighting, and is a category which the USA started in 2007 ranked Number 1, and ended being ranked Number 2. This decline is not significant enough to explain the overall slide. Innovation and Sophistication factors (which accounts for 30%) saw a slide from Number 1 to Number 7, mirroring the overall shift. This is clearly an important area contributing to the decline. Finally, in the Basic requirements category (20% of the score), while the USA started with a Number 22 ranking, it had more dramatic decline to a current 33 ranking. This is also clearly a category contributing to the decline.

I have summarized below the specific factors that demonstrated the largest declines in ranking. They are worth exploring, because they are eminently fixable and demonstrate clearly the issues of a dysfunctional government and failure to address fiscal discipline int he USA:

Top 10 Decliners	2007 Rank	2013 Rank	Rank Change
Government Budget Balance, % GDP	97	140	-43
Soundness of Banks	40	80	-40
General Government Debt	102	136	-34
Total Tax Rate, % Profits	74	103	-29
Transparency of Govt. policymaking	28	56	-28
No. Procedure to start a business	19	47	-28
Burden of Govt. Regulation	50	76	-26
Cooperation in labor & Employer relations	16	42	-26
Flexibility in wage determination	10	34	-24
Mobile telephone subscriptions	51	72	-21

Hard as it is to believe, there were 14 factors where the USA was ranked below the median country reviewed. Let me repeat that, the USA is ranked lower than half of the countries in the below listed areas:

1. Imports as percentage of GDP - #142
2. Government budget balance, % GDP - #140
3. General government debt, % GDP - #136
4. Business cost of terrorism - #124
5. Gross national savings, % GDP - #114
6. Total tax rate, % profits - #103
7. HIV prevalence, % adult population - #92
8. Business impact of HIV/AIDS - #90
9. Organized crime - #87
10. Business costs of crime and violence - #86
11. Soundness of banks - #80
12. Wastefulness of government spending - #76
13. Burden of government regulation - #76
14. Mobile telephone subscriptions per 100 population - #72

Clearly, the USA has been through some significant shocks to the economy. So too did many of the other participants in the top 10. Many of them have weathered the recession or financial crisis and have gotten their economies back on track. In the case of Singapore and Switzerland, they seemed to have excelled in their handling of the crisis. The UK is also an excellent example of a country that, clearly challenged, has been repairing its competitiveness. In the meantime, the USA has continued to decline.

My hope is that the American leadership will stop trying to divide the country into parties, between those for and against particular social issue, or even between those who run businesses and the people that work for them. Rather, they should take a hard look at what the WEF have laid out, one thoughtful view as to the key issues that need to be addressed. Perhaps, if those leaders can collaborate to get America growing again, many of the personal stresses and interests in blaming someone else for the problem might disappear. Otherwise, as they say in America, it does not matter where you came from, it matters where you are going. American competitiveness is not going in the right direction, it needs a turnaround!

What do you think?

Why I Love This Time Of Year - Happy New Year 2012

"A Morning Wish" by W. R. Hunt

The sun is just rising on the morning of another day, the first day of the new year. What can I wish that this day, that this year, may bring to me?

Nothing that shall make the world of others poorer, nothing at the expense of others; but just those few things which in their coming do not stop with me but touch me rather, as they pass and gather strength:

• A few friends who understand me, and yet remain my friends.
• A work to do which has real value without which the world would feel the poorer.
• A return for such work small enough not to tax unduly anyone who pays.
• A mind unafraid to travel, even though the trail be not blazed.
• An understanding heart.
• A sight of the eternal hills and unbelting sea, and of something beautiful the individual hand has made.
• A sense of humor and the power to laugh.
• A little leisure with nothing to do.
• A few moments of quiet, silent meditation. The sense of the presence of God.
• And the patience to wait for the coming of these things, with the wisdom to know them when they come.

It's a new day, it's a new year! In the blink of an eye, we watched 2011 disappear into the distant memories, and welcomed a brand new year, 2012.

Once again, I got to wondering what it was about this change each year that makes us all behave so differently? Indeed, it's not just the one day. Starting in November and well through the middle of January each year I notice people around me, and even in myself, a kind of reflective, thoughtful, generous sense that is not there through the rest of the year (maybe for short spurts, but not as thoroughly).

Maybe it's because Thanksgiving is celebrated in late-November in the USA. While it was originally a celebration of the harvest and a time to rejoice after much hard work, it has become more broadly a special time for families and friends to get together to give thanks for the many blessings we have received. And it's always a festive occasion!

Or maybe it's because our Jewish friends celebrate Hanukkah, during which 8 days of lighting the Menorah, they give thanks and praises for miracles, wonders and salvation! Truly a blessed occasion.

Or maybe it's because on December 2nd, 2011, we watched the youthful UAE celebrate it's 40th national day with such pride and vigor. The events celebrated independence from the United Kingdom and the eventual formation of the union that is today the UAE. And, is it ever invigorating and refreshing as we had the honor of participating in the 40 days of celebration. Visionary leadership, pride in the history and culture, and a passion for redefining what it means to be a modern Arab nation were all on display. It's really inspiring to see what can be achieved in a short time as the UAE has in just a short 40 years!

Or, maybe it's still inspiring that we celebrate some 2000 years later, the birth of a baby Jesus. The exact date of his birth is no longer meaningful, but the life and death of Jesus has made such dramatic changes to the course of civilization (both good, and in cases due to perversion of his beliefs also bad). Christmas time has grown over the years to be another occasion to reflect on blessings, to spend time with friends and family to celebrate what can be achieved, to give gifts and generally to show care. It's truly a beautiful occasion that so energize the kids, whose enthusiasm has to be infectious to every adult. I have to admit each year looking forward to opening my christmas gifts.

Maybe it's just as simple as the clock and calendar change that naturally occurs as one year fades and another starts. The amazing thing is that it happens each year, and each year it brings an opportunity to wipe the slate clean on the past, and look forward hopefully to the future (the new year). New resolutions, and the belief that we can start over, achieve more, reach farther, is truly infectious and real. I know that every year on January 1, I feel like a new person.

Maybe it's the smart commercial mavens who have figured out how to market to us so that we end up buying more cards, gift wraps, candies and assorted gifts than any other time of the year. Despite the truly commercial aspects of the season, true meaning still comes out, and as a student of economics, I am still awed by the power of demand consumption as an engine for growth. So, any excuse to be generous and spend can't be all that bad if it helps drive commercial growth and economic independence around the world.

Or, maybe it's just that a guy like me needs an excuse each year to reach out to old friends to say I am sorry we have not been in touch more frequently during the year. Thank you for being a good friend and for the part you had to play in shaping my history.

Whatever it is, it does not matter where the inspiration comes from, and I think in fact it is all of the above, it's a fabulous time to pause and take a deep breath, reach out, be generous, be appreciative, be hopeful and plan for even greater successes. I know that I have been blessed with incredible experiences, wonderful friends and beautiful family. It's hard not to look at the world and be awed by the possibilities, especially when looking back at where we have come from.

Let's pledge to make 2012 the best year yet, and I hope that many years from now, we will look back and see that 2011 was the lowest point of a series of successful adventures that followed. Happy New Year!

Why you are likely to lose money if you follow some market analysts!

There are legions of websites, blogs, newsletters and firms peddling advice on how to trade or invest better in the stock market. They are driven by fundamental analysts, stock chart technicians, behavioral analysts and a variety of others who routinely look to the past, or build models of the future, on which basis they profess some insight on the probability that their chosen investment will either go up or down. They are hard to find, but some of these are quite logical, grounded analysis and worthy of paying attention to. Yet another group sound like astrologists, not making sense, or making promises that are too good to be true. These are the easy ones to avoid. The most difficult group are those that sound quite informed and use rational analysis yet reached flawed conclusions. This latter group will make you lose money, if you confidently follow their approach or advice.

Let me give you an example of this kind of analysis:

The author of this blog has identified that this year, the day before Thanksgiving was a losing day. He then conducts an analysis to to see when that happened historically and what the market did on the following trading day. He finds 10 occasions where the day before Thanksgiving was lower, and 3 of those 10 times, the following day the market was also lower, while 7 of the 10 times, the following day the market was higher. One would surmise therefore that there is a bullish bias that this next day upcoming should also be up. After all, 7 of the 10 times when this happened in the past, the market was up the following day. He also indicates that fridays after Thanksgiving historically, not just the ones that follow a down day, have been bullish. Moreover, he circles the two instance where the day before Thanksgiving was lower by more than 1% (which occurred this year), and those suggest that the following day could be very good winners.

The analysis shows that on average, the down days were down by 0.64%, while the up days gained 0.81%. And because there were more up days than down days, the average of all the occurrences was a positive 0.35%. This 0.35% positive return is a good tradable return from a statistical expectancy point of view. But is that the right way to look at this data?

I think not. Let me use an analogy to explore the concept. Suppose you were in the business of flipping coins (the market going up or down each day is equivalent to flipping a coin since it rarely stays the same, which would be equivalent to a coin landing on the edge). And suppose I told you that on reviewing your previous pattern of coin flips, we found there were 10 days on which you had flipped 5 consecutive heads. Further that when we reviewed what happened afterwards that 7 of the 10 times after you had flipped 5 consecutive heads, on the following coin flip you also got heads, while only 3 were tails. Now we have just gone five days in a row where you have flipped 5 heads. Would you bet $2.00 to win $1.00 that the next flip is a heads? How about $1.25 to win $1.00? The pattern analysis suggests you should, if you think there is a 70% chance of winning $1.00 (flipping a head) while there is a 30% chance of losing $2.00. And if you are using that reasoning, then you should be much more amenable to the $1.25 bet. But my guess is that you probably won't take either bet.

The instinctive answer is correct, even though the rationale many people give may not be. Most people, who did not pay attention to the statistics classes, say that after they have seen a streak of five heads that it is more likely that they will see a tails. Some might even be inclined to bet $1.25 to win $1.00 that the next flip is a tails. There is some real cognitive dissonance going on here, and it goes to show why people looking at statistical data or patterns might be misled. The essence of the problem is in figuring out the likelihood of your next flip being heads, or the market going up. And the simple answer is that it is equally likely that the next coin flip will be a heads or a tails (unless of course the coin is weighted on one side more than the other). Similarly, the market is equally likely to go up the next session, as it is to go down.

So what is the likelihood that the market would be up on the day after thanksgiving when it was down the day before? 50%! And what happens to this fine analysis when we look at the expected results based on those probabilities? We know that on average it was down .64% on the losing days and up .81% on the winning days. Therefore, one might surmise that, on average, there is a 50% chance we could be up .81%, and a 50% chance we might be down .64%. The resulting expectancy is .08% up. This is an expectancy so negligible, it might not even pay for the commissions, and certainly is not trade-able.

But, that chart above, and the analysis was so compelling with so many positives and so few negatives. Just as compelling as those five heads in a row pattern should have been to you. Analysis of the past make you more or less confident about rolling a heads next time, when they should not. If the market goes up today, it will be by chance and rarely will it have anything to do with what happened yesterday or two days ago!

Why was the iPhone delayed from the typical June refresh?

Much has been written about the next version of iPhone, that was not launched in the typical Apple June refresh. Most of the articles written have been rumors and speculation about what the new phone will look like or what technology will be included. I call this the "what" stories. They include stories that evaluate purported component changes or screen saver manufacturer design changes to conjure up new apple specs such as bigger home button, different screen sizes, etc. In the meantime, the more important question (at least from an investor standpoint) goes unaddressed.

Which Version Of Myself?

I was driving in my car the other day, listening to music piped from my iPod as usual. It's set to shuffle so I always get a changing playlist. Suddenly a tune from David Byrne, an old favorite, came bursting into my consciousness. Now, for those of you too young to remember, David was the brilliant founding member of critically acclaimed "Talking Heads". He is a pure artist know for his quirky sound, mind bending lyrics and collaborations with the likes of Twyla Tharp and Brian Eno. And, if you don't know who they are, then I am afraid you missed a lot of the "New Age," experimental sound and modern dance history.

Anyway, back to my story. So David in his classical style belts out the line: "I am just an advertisement for a version of myself"!