Plumbing problems

As we all know, the internet is a system of tubes, and as some of us, or at least I, the “host” of this “blog”, know, it’s clogged. With virtual acres of top-quality shit. So clogged, it’s not even worth looking at some days. And I’m here to tell ya, it’s not clogged by rants, by cults, by freaks, by content farms, by videos so unwatched they may not have been made, by “blogs”, by “posts”, by “comments”. All that fell away years ago; today, it’s clogged by “innovation”.

Let’s quickly recap, U Inc. style, the three Actual Innovations That Count in the entire massive 25-ish year history of the tubes, shall we:

1. The tubes
2. Google
3. Twitter

The end. You might note the absence of the polished turd Facebook and predecessors–not from the clogging, mind you, just from the mattering–and the like absence of “mobile” and “social” and “tablets” and “apps” and “associated bullshit”. You might not; I care not. I will scream it until I die–which may be soon, at the rate of apoplexy this nonsense inspires–but whatever of the rest hasn’t failed to matter, will fail to matter soon.

So what, argue. Call me crazy, you have no idea. Play your fucking games on your fucking mobile device, and call it important. (Seriously, is anyone else upset about the iPhone/Harry Potter demographic similarities? Think it over.) Let’s just talk about it in real, real simple terms, which is how evolution looks after the fact, regardless of the bullshit angst that living through it presents as truth. The internet is the first platform, the search engine is its map, the word-of-mouth machine is the next platform. The first platform was simple, open, undefined, easily handled by a solid map that could simultaneously sell you simple, stupid print/classified ads to “pay for itself”, or whatever excuse we’re using as a definition of value this week. The second platform is messy, open, less defined, worse run, unmasterable, has no discernible value, is just getting started despite being several years old, and has thus far proven unmappable. It is much harder to explain than the first, and to people who don’t “get it”, it is worthless. This is not some paean to “early adopters”, strutting pricks that they are, but to the failure to comprehend, in the slightest, where we are going, which is along some unknown path of sentient evolution. Each step being more complex, not less.

Against which there are nine jillion more startups than there were the first time that approach failed massively, when it was just a simple platform, all claiming to Have the Answer You Must “Use”. Like any student in your average philosophy for non-majors class, they’re lousy at discussion, but fantastic as fodder. They exist merely as unrealized energy generated by the next reactor, and while they wait to burn, they and their hangers-on assault us in constant real/virtual/geo-local/mobile/social/buzzword/VC time with their promise of being that reactor. A scratch-off promise, which will reveal the dull brown fact of their just lying there like excrement between us and the world we might have lived in had we come along after someone shoveled them up and fed them to the gaping maw around the corner.

 

The grassroots investing groundswell (part 1)

Sometimes very few words can raise a massive brainstorm. Consider this simple post from the formidable Barry Ritholtz on the question of socialism, American v. European. This sort of comparison probably boils the blood of innumerable trader/libertarian/gun-toting/free-marketeer types, and though it may make me unpopular with said types to say so, he’s very right and deserves to be heard objectively. There is a lot of confusion in the U.S. over just how free our markets are, and just how much our government “interferes”, and while I’m not interested in political hair-splitting here, it is undeniable that government sponsorship of any idea is anti-free-market, and our tendency to hand out tax breaks to corporations is socialist, albeit corporate socialism. We choose to believe that stimulus spending on corporations (which is what it actually is, after all, and constitutes a sustained pattern that makes current anti-recession efforts look like an afternoon of Monopoly) has a meaningful ripple effect; Europe chooses to believe the same thing about stimulus spending on people. Merely two sides of the same coin, resulting in vastly different corporations (many of ours apparently find their home-grown tax breaks insufficiently generous), and vastly different individual lives, on either side of the divide.

This tension could spawn all kinds of posts, but for now I want to talk about one small corner of it, obscure at first so bear with me, as I give you the intersection first: the financial meltdown, the internet, and the average investor.

The northwest corner: how we melted down

I’m not going to go into too much detail on this, and I expect you might well disagree with my point of view. So be it. Here’s my stance: more than any other philosophical failure, the U.S. part of this meltdown was driven by free-market level failures, real or perceived. Parts of our national structure are free-market, while other parts are government-driven (federally, or at the state or county or municipal level), but the chief failures here were in the free-market layer. Financial services killed the socialist evil of regulation, to the extent that malfeasance was no longer illegal; they built baseless and undercapitalized derivative products because the market (as long as it was growing) would bear them (and indeed, gobble them up); and overeager borrowers at every level killed basic tenets of credit and debt (hardcore abetted by said deregulation) as an equal exercise in free-marketeering, knowing they could buy a house or run up a credit card debt because tomorrow would always pay for today. It was all aspirational, and it mistook outdated notions of anti-gravity in global free markets for the next real deal.

Free-marketeers say the markets manage risk effectively in the present, which is pretty silly, considering that risk is the unknown and unknowable future. If the first decade of the century is clear proof of anything, it’s proof that we don’t have a fucking clue what lies ahead. What companies have the biggest risk-management divisions? Investment banks, hedge funds, insurance companies, the same companies that spent a generation creating systemic risk instead of protecting us from it, and made so much damn money off it to boot. (If you think they have stopped in the face of so much failure, by the way, you underestimate their “resourcefulness”.)

I ramble but do not digress. Contemporary manifest destiny is rooted in this kind of risk-blind aspiration, and goes a long way to explaining how we opened the door to the current disaster. One simple example, from a 2000 Time Magazine poll (citation here), indicates that 19% of Americans believe themselves to be in the richest 1% of the U.S., and another 20% believe they will be in their lifetime. No wonder we are falling behind in math and science. I would say there is a direct link between this kind of aspiration and complacency. Hope is fat and lazy, and our belief that Everyone Can Get Ahead–a notion very similar to the supposed free-market standard of endless expanding growth–has built a corporate structure that is causing us to fall behind, and an increasingly rigid class system that would depend on perpetuating that structure to avert further chaos.

The southwest corner: the internet

Fortunately, there are other forces at work these days, and none of them is bigger than technology, which I will now conveniently reduce to a very generalized view of the internet. Am I gonna attempt to characterize this massive virtual-amorphous blob in a few sentences here? Yep.

As it enters its second or third popular (read: non-geek, average-joe) iteration, the internet has introduced a new kind of aspiration, one that shows many signs of abandoning traditional tenets of capitalism and corporatism in favor of a kind of socialist subscription model. You pay into the delivery/bandwidth collective (work) and maybe look at a few ads, in return for which you get–and, I would argue, have come to expect–virtually all your content gratis (reward). You can even add your own content–for work or for leisure, it makes no difference–for a similarly low/zero price, and indeed, the model wants you to participate. A few companies have found ways to make traditional kinds of money (the perpetual-growth kind) in this model, but they are by far the exception, and pale in comparison to the number of traditional companies getting pantsed by the no-/low-cost web as we speak, from box retail to print journalism to television. The perpetual growth of the web belongs to no simple entity like a corporation, and defies the simple laws of supply and demand of a free market, because its trends and centers of interest can move much more rapidly than any one business can control or even effectively monitor.

Not that web innovators don’t have ideas for how to capitalize on the medium. The point is, as it surpasses mere medium status, rapidly becoming a parallel way of life, the internet is unravelling the old aspirational model at the seams. The young, educated American (or Chinese, or French, or Chilean, or Russian, or Nigerian) is likely to be both a person, and a node on a network, via online lap/desktop, online cell/smartphone, and up-to-the-minute online personae galore. Usage of all increasing, for work and for pleasure, and still for the price of what is essentially a utility bill or two, plus a couple very sexy toasters. FiberOptikKomputerVorker Maken Kontent Frei. It’s a kind of utility, like your electric or gas or water bill. You do not pay for light or heat for the utilities themselves, but because they allow you to keep yourself warm and read books and bake pizza and stuff. What you now push  and pull at the cost of an ISP and maybe a smartphone subscription is exponentially larger, though–the size of the entire human world, ever more virtualized, ever less like a traditional market.

So these two kinds of aspiration are now in conflict, the old-school style still creeping along, promising to rebuild itself just like it was in the good old days, while the new-school style spreads like a droughtland wildfire. The shift is profound: the internet is in many ways the sum total of its grassroots-level efforts, from its application builders to its content providers to its content pundits to its end users. It is a multiplicity of tiny aspirations, all within reach but much less vertical–a massive breadth of opportunities and options, with few moguls and no monopolies. As much as the traditional corporations want to defeat this, they have yet to find a way.

The traffic: the average investor

Blah blah blah blah blah. Is there a damn point? Yeah, there is. I swear I’m getting there. It’s complex, and you’re only spending your time (and mine), so please bear with me.

Though the landscape is shifting, a lot of the core aspirational services ministering to everyday life–health care and banking being the most noticeable–have yet to make the real leap to a technology-driven second life, controlled as they are by the old guard. One of the most obvious opportunities I see here is in investment banking. As we all know, the average investor has been fried like bacon by the current meltdown, and I personally believe that the cooktime has not fully elapsed, nor has the deserved retaliation roasting of the culprits (which I also believe will happen, after further pain) really begun. One way or the other, average investors have lost somewhere between a little of their savings and everything, and as Robert Rodriguez points out, the average investor has a long memory. They want a way to retire, and I doubt they will want it from the same institutions–who, in an impressive display of complacency, resist any effort to change their evil ways–that screwed them this time around.

So, yes, the simple aspirations. People tend to work for a while, then not work. We have called this phenomenon by various names through history–from “seasonal employment” to “death”–but in the last few generations, we call it “retirement”. But to retire at your chosen standard, you need non-work income, and the structures that once provided these are no longer reliable. Since companies increasingly treat their employees like migrant workers, hiring them from sowing to harvest and dropping them at the first sign of winter, the employer-sponsored pension is dead or dying. Managed investment has pretty much imploded. And then there’s social security, but it’s not much, and not reliable going forward. Retirement is increasingly up to the would-be retiree to manage alone. We need new tools for saving.

Forget the justice there would be in abandoning Wall Street completely. Forget the problems of moral hazard and systemic risk and too big to fail. The next investment innovation will clearly not come from Wall Street, because their model is outdated, and they are too arrogant to see it, preferring to dedicate their brainpower in this technological boomtime to inventing new fee- and bonus-boosting products rather than investigating and innovating against their clients’ exposure to risk. The old aspirational retirement-saving model is broken. Enter the internets.

Did you say there was a point in here? SOMEWHERE? Jesus.

Yeah I know. Who has an attention span left? Me neither. But I really am getting at something, and here it is.

Retail investing is already on the rise, as is retail trading, via the many self-managed discount brokerage services out there. Technology has annihilated the costs and time once required to open an account, execute a trade, or fund an IRA. As for retail trading, the masterly business model of Stocktwits got this just in time; they are not only poised at the juncture, they revealed the juncture, finding an actual purpose for twitter (there will be many, ultimately, and none of them will involve you telling me you’re currently walking your dog) and are growing like a weed. Apparently a lot of average joes want to trade, and technology and abnegation of responsibility by the financial industry (and the resulting market volatility), are just stoking that fire.

There is great value on stocktwits, from real-time trade ideas to some very smart traders and thinkers, to ticker-based linkfests. But it’s all about trading, a difficult art that requires enormous amounts of time and energy to master. To average investors, those who would prefer to focus on everything else in life, or who just plain have to because of financial obligation, stocktwits must seem a geeked-out curiosity, not all that different from your average hobbyist forum or fansite or online MPRG community.

Whatever the grassroots power of new technology, these people are not going to learn the markets, micromanage their savings, or execute smart trades. Nevertheless, these investors, big and small, deserve a new model, and I think that having been badly burned by Wall Street while in many cases devoting ever more of their leisure time to the internet, they are ready for an alternative vehicle. One built on cheap, smart trade execution, just-in-time, that trusts the infinite horizontal power of the web and the minds of its best financial users and drivers.

More importantly (and, I would argue, fortunately–we don’t need a nation of daytraders), they vastly outnumber the 75,000 or so aspiring traders who have found their way to stocktwits. And they need decades of service. Brokers know this, and have in the long run abused their virtual monopoly on the dedicated-customer privilege, expensively and with zero sense of corporate responsibility, right down to the ground, leaving a massive void. It’s not about buy-and-hold or any other strategy; it’s about risk management for the client before the firm, and smart value.

The intersection of financial fuck-up, internet strength, and average investing is not far off, I predict. It’s time for the amazon.com–the internet-aspiration of the retail experience–of retail investing. It’s time for a new model, a good clean startup with demonstrated intelligence and transparently massive reserves of investing intelligence.

Further posts on this subject will get into more specifics of what this might look like, and why we may not be as close as it might seem (or as I would like). For now, I leave you with this thought: a wholly online investment bank run by a hive of geographically dispersed traders under a startup structure might seem like a regulatory and management nightmare, but so does political fundraising. You don’t have to look much further than that example to see how harnessing the new aspirationalism can trounce the old, and change an entire industry game in a very short time.

 

More or less noise

Have hardly traded the last few days. Annoyed by the continued rally, I recognized my annoyance for what it was: noise and distraction from reading and reacting efficiently. So apart from hedging a couple of ailing shorts, I raised the bar to open any new position: it had to be in the charts and the facts. Little room for anything but chasing there.

In the meantime, the shift in the tide of news I wrote about last week has more or less met my expectations. Earnings reports, analyst predictions, and reactions to their collision are excellent barometers; they are more manipulative than the most biased news, and as such are almost reaction gauges. Note the difference between the all-out ecstasy that greeted Wells Fargo’s “pre-report” April 9, vs. tepid-to-crushing reaction to Citigroup and Bank of America Friday and today. The climate of news reception is changing, and I still think the Goldman story wraps it all up in one pretty pivoting package. (And that story isn’t over, either.)

Today’s preoccupation as the tide turns is this: however influential, to some extent news is just “noise”, which can be a distraction from trading. Like “trust the tape” and “only price pays”, shutting out the noise is a maxim, and the brightest traders out there repeat it like a mantra.

I’m not too bright a trader yet, but I don’t suck at thinking, and part of the problem with the shut-out-the-noise trope as I see it is that we’re in fairly uncharted waters with current market movements. I see no need to fling stats at you, but erasing 12 years of index gains or rallying harder and faster than the markets have since 1933 is not exactly everyday market movement. To sit and study the charts and say they’re giving you the same real-time advantage, the same superior clarity over noise, following the same rules, as they would in a “normal” year, even a run-of-the-mill cyclical-bear kinda year, just seems illogical to me, unless you’re pure technical and/or day-trading only.

Don’t get me wrong, any trade must pass a chart test unless you’re just a blind gambler or a fool (full disclosure: I’ve been both, at times, and am likely to recidivate), no matter what precedents are getting hosed. But if you’re at all interested in fundamentals or momentum, or even peripherally interested in gauging overall sentiment (particularly if you believe in contrarianism), you must confront noise from markets and media both, penetrate it to get the goods. How to do that is another subject for another buncha posts, but I maintain that sharp noise can be as good a friend as the trend.

This post coincides with the Stocktwits announcement of new premium blogs from two of the aforelinked top traders. While I think Stocktwits is a fantastic tool, especially when used wisely, and while I wish them the best in their value-added ventures, it is worth pointing out, however cynically, that this is a kind of noise creation. The paid premium is meant to insure its utility, its non-noiseness, but every corner of the web, paid or not (including this one), is noise until proven signal. Not to knock experts like alphatrends or upsidetrader; Mr. U has personally learned heaps from Brian Shannon’s daily analysis videos (until today, a crazy-good gift), and following upside’s stream is as close as you get to the trading genius muscle flexing before your very eyes. I was lucky enough to get on board for free–I found them on stocktwits, of course–and learned they were well above noise immediately.

I’m aiming at a larger issue. I am obsessed with the internet’s drive to become the next internet, which I believe will be as a real-time mirror and maker of offline life. (Not that hard to imagine, but lag is everything here, the slippage between time and space.) This blog exists to discuss particular manifestations of that drive, in particular the intersection between real-time internet, market movement, and changing trader/investor behavior in an investing crisis. I find market movement and trading pretty fascinating on a lot of levels, but its significance here is as a damn good model for watching the web molt and grow at its incredible pace.

So: the internet is a noise generation machine. It simply does not reverse, always pushing forward, accumulating, piling on. This relentlessness is both its principal real-time activity, and the primary obstacle to its real-time utility, because unlike a person’s regular ol’ life, the web has no limits, and no point of view. Perhaps more importantly–and unlike the markets, also performing forward-only (they sell “futures”, why not “pasts”?)–it has a very low cost basis: 99.999% of what’s out there, new or old, from crap to crux, is  available free, to anyone with a computer, a connection, and the time to tune in. The price of following a link is the price of thinking a thought, not taking an action, not buying or selling.

This is of course the main problem. How great would it be if every link was actively valuable? If only “the good websites” hit your radar? This is the value added by the best tools, and why companies like Google and Twitter–and, for that matter, individuals like upsidetrader and alphatrends–are such game-changers. But beyond the rather limp and outdated (though recently quite lucrative) strategy of advertising–itself a distraction from and obstacle to the process at hand–no one has figured out a way to harness that active potential as a revenue source.

Enter Stocktwits Premium: capitalize on trader’s desire to know right now, in exactly the same place you’re already getting all kinds of trading ideas great and small, instantaneously and for free. From what I’ve read, this is step one toward scaling in of a broader premium platform, but I have to say that at first glance it’s not nearly as innovative as Stocktwits itself, for two reasons. Number one, there are lots of options for traders looking to buy better traders’ ideas. They are fighting for the same dollar you might legitimately fork over to Kirk or Phil or Quint or dozens of others, presumably banking on stickiness to prevail. But number two–and all the other players are wrestling with this, too–it’s an old-media style strategy, the equivalent of a newspaper or magazine subscription, with only the real-time value add to set it apart: newspapers don’t make you richer day to day in any measurable way like good training and trade tips.

Again, the goal here isn’t to criticize the move, but to observe and meditate on its implications in the ever-changing noisescape. Plus, you can’t blame them–the model has to be old because, as Clay Shirky pointed out a month back, there isn’t a new model yet. Stocktwits is taking their best shot, selling noise reduction–I predict quite successfully, despite fresh weakness in similar attempts from, say, TheStreet.com–to their exploding user base. But whatever guiding hand Stocktwits might offer, for now, the burden of how exactly to pick through the virtual landfill of noise rests on the user’s shoulders, because the subscription model deliberately erects a wall between the haves and the have-nots, no second-guessing allowed. If you don’t subscribe, you don’t know what you’re missing; if you do, you trade the time (and money) you spend in that one space for missing out poring over other noisy corners, rummaging deeper in the real-time noisemaking experiment.