Did You Miss the Lunar Eclipse? Gorgeous Photos from Eric.

I was feeling really bad on Tuesday.

A gorgeous lunar eclipse took place that was visible from most of Asia-Pacific, and even stretched to full visibility over California.  But with peak viewing at just past 3:30am, I just couldn’t make it.  One of the liabilities of having two kids under 3 and a full-time gig at a start-up, I guess.  🙂

Fortunately, Eric did stay up, and since he is an incredible photographer, I’m feeling better about it.  Tell me that these aren’t gorgeous shots:

Eric’s full post on how he took them is here.  His web gallery, where you can buy his more famous prints, is here.  Full data from NASA on the eclipse is here.

6 Terabytes (TB) of Storage in a Mac Pro. Jealous Much?

Not sure what to say here but wow.

My friend Eric has done it again.  You may remember my last post here about his efforts to get a 320GB Raid 0 array into a MacBook Pro.

Well, he recently ran out of storage on his Mac Pro, and upgraded it with six (6) 1 TB drives, for a total of 6 TB storage.  Check out this configuration:

Not only does he have 6 drives, but he has an optimized configuration, layering both RAID 1+0 over different partitions to create the optimum mix for system boot, scratch, and photo storage:

A2: 20GB partition x 6 = 120GB RAID 0 (striped) fast partition for PS3/Final Cut scratch
B2: 65GB partition x 6 = 195GB RAID 1+0 (striped over mirrored) boot partition
C2: 850GB partition x 6 = 2.5TB RAID 1+0 (striped over mirrored) data partition

For the full article, with benchmarks, click here. If you want to buy some prints of his more famous photos, go to his new web gallery.

Office 2.0 Conference & Social Computing Panel

For those of you in the city, I’ll be on a panel at the Office 2.0 conference at 1:30pm on Thursday, September 6th. The panel is on social computing, and will feature the following people:

Shiv has a post up already about the panel. I haven’t met any of the panelists before this conference, but I’m looking forward to it. You can find out more about the conference here, and more about the panel here (as it is posted). The full schedule is here.

Wow! Thomas Jefferson’s First Spouse Coin Takes Down the US Mint

9:18 am (PST): I’ve been trying for fifteen minutes to get into the US Mint website to order the Thomas Jefferson First Spouse gold coin.  Very very slow.  Most pages are not loading – I’m getting about 1 out of 10 browser windows actually serving a page.I tried calling the 800 number, but AT&T is giving me an error that says the call cannot go through.

I think that the demand today is crazy.I did actually get the first spouse coin page once… but it said it won’t be available until 12pm Aug 30th ET… of course, that was 15 minutes ago.  When I try to sign-in to the site, I get a page cannot load error.

I think the lightweight, low-end web infrastructure for the US Mint just gave up the ghost on this one.

 9:23 am PST: I’ve just managed to login… now trying to get back to the TJ first spouse page. Very slow, lots of page failures. But it feels like it’s getting better.

9:25 am PST: I’ve just managed to click “add to cart”. Let’s see if this goes through. My guess is that they started the rollout of the updated site configuration for the ordering at 12pm EST, but it took longer than expected to deploy. I don’t think the US Mint is set up for this type of “wire on” situation.

9:26am PST: I have two browser windows hitting the site now, which is helping. I’ve just clicked checkout. Since I have quick checkout configured, I’m hoping I’m close to home free.

9:29 pm PST: DRAT! The connection timed out. Lost my checkout. Trying to recover. I thought I was home free. Quick Checkout is failing… will try normal checkout.

9:31 am PST: Quick Checkout works again! I’m clicking “place order”… let’s hope this goes through. This is unbelievable.

9:33 am PST: Are you kidding me? The page is still loading. The place order has not completed. Do I stop? Do I try again? This is a surprising amount of suspense for a coin order…

9:34 am PST: The order went through. The coin is showing as backordered, but I have an order number. Crazy. I guess you have to be persistent these days to bag a first spouse coin.

Now, I have real work to do…

Now Available: Thomas Jefferson Presidential Dollar Coin Rolls

I’ve recently received two full boxes of the new Thomas Jefferson Presidential Dollar Coins. As usual, I’ve put them up for sale on eBay. These coins are actually dated June 20th, which is one of the earliest dates I have seen.

Interestingly, the boxes for the Thomas Jefferson bank roll boxes are white instead of brown. Otherwise, to my eye, they are identical to the earlier George Washington and John Adams rolls.

You can find the listing for the Thomas Jefferson rolls here on eBay.

I still have some John Adams & George Washington rolls remaining. I’ll be putting up a specific listing in case you might be interested in buying all three together.

I’ll Take 650,000 Micro-Lenses for $100, Bob.

Very cool article on the Associated Press wire tonight:

AP :$100 bill to get high-tech face lift

I was just expecting the new $5 bill news.  As you know, the US started re-designing all of the major bills a few years ago.  We’ve seen the new $100, new $50, new $20, and in 2006, the new $10.  The new $5 bill is due in early 2008, and the US Bureau of Engraving has scheduled a media event on September 20th to reveal the new $5.

Well, listen to the technology planned for the next version of the $100 bill:

A new security thread has been approved for the $100 bill, The Associated Press has learned, and the change will cause double-takes…

The operation of the new security thread looks like something straight out of the Hogwarts School of Witchcraft and Wizardry. This magic, however, relies on innovations produced from decades of development.

It combines micro-printing with tiny lenses — 650,000 for a single $100 bill. The lenses magnify the micro-printing in a truly remarkable way.

Move the bill side to side and the image appears to move up and down. Move the bill up and down and the image appears to move from side to side.

“It is a really complex optical structure on a microscopic scale. It makes for a very compelling high security device,” said Douglas Crane, a vice president at Crane & Co. The Dalton, Mass-based company has a $46 million contract to produce the new security threads.

Let’s review some of the cool points in those short paragraphs:

  1. 650,000 micro-lenses per bill.  My guess is they are using some inkjet-adapted technology to deposit these lenses on each bill.  Technology for paper-thin displays has been in development for almost a decade.  Still, the volume for currency production here, however, is amazing.
  2. Hogwarts?  For me, any article with a Harry Potter reference is the better for it.  Then again, I am a big geek that way.
  3. Next year.  The new bill will be available by the end of 2008?  Very cool.

Maybe we’ll learn more about this with the debut of the new $5 on September 20th.

Great New Features from the eBay Express Team!

It has been a while since my last eBay-related post, but this article crossed my news feed a few days ago, and I had to comment:

AuctionBytes: Shopping.com Merchants Can Opt to Post on eBay Express

Time moves fairly quickly on the web, and at this point, the last of the strategic features from our 2007 plan for eBay Express are rolling out to the site. It’s exciting to see Lara & the team bring them to life after months & months of planning & effort.

The AuctionBytes article is fairly understated, but I think it’s worth highlighting a bit of what is now possible on eBay Express:

  1. For the first time, buyers have one site where they can search & purchase, in one seamless experience, items from eBay.com, eBay Stores, Half.com, and Shopping.com. This is with 24×7 customer service, PayPal-based checkout, and 100% buyer protection.
  2. Robust Merchandising Platform. eBay Express is now delivering targeted, customizable, and in many cases, product-based merchandising through email and the site. It began with the new “Add to Cart” page that launched a few months ago, and has now been extended across the site and to regular emails to recurring buyers. More importantly, it’s a flexible platform that allows for experimentation and optimization based on the actual results the team sees from different merchandising techniques and different types of placements.

Hopefully, the eBay Express experience will deliver these in such a way that they will feel seamless and obvious to buyers. The goal is to never reveal the complexity of integrating three completely separate platforms for fixed-price items to buyers.

One last thing that is wonderful to see is the amount of experimentation that is going on with the site, as the team works to relentlessly improve buyer engagement and purchasing rates. Many people might not notice the improvements to the results set, the navigation controls on finding pages, the shopping cart presentation, eBay.com integration, and the catalog-based experience in the media categories, but I see them now live-to-site, and I know that each and every one of those small feature improvements makes the experience measurably better.

So congratulations again to the team on these feature launches. I think I may make a couple extra purchases today on the site just to celebrate.

Thomas Jefferson’s Liberty First Spouse Gold Coin Available on August 30th

The US Mint issued a press release today, announcing that the third First Spouse gold coin in the series, Thomas Jefferson’s Liberty, will be available at 12:00pm EST on August 30th.  This is two weeks later than expected, since August 16th is the official launch of the third Presidential dollar coin.

Also interesting in this release is the limit of one coin per household for the first week.  Clearly, they are trying to avoid a run on the market on the launch date similar to what happened with the first two gold first spouse coins.

Here is some detail from the press release:

The United States Mint announced today the opening of sales for Thomas Jefferson’s Liberty First Spouse Gold Coin on August 30 at 12:00 noon (ET).  Orders for both the ½-ounce proof and uncirculated versions of the 24-karat gold coin will be limited to one per option, per household for the first week of sales.  The United States Mint will reevaluate this limit after the first week, and either extend, adjust, or remove it.  Mintage of Thomas Jefferson’s Liberty First Spouse Gold Coins is limited to 20,000 for each product option.

The image selected for the coin’s obverse appeared on the Draped Bust Half-Cent coin from 1800 to 1808.  The design was originally executed by United States Mint Chief Engraver Robert Scot and re-sculpted by United States Mint Medallic Sculptor Phebe Hemphill.  Inscriptions on the obverse include Jefferson’s years of service, the year “2007,” “In God We Trust” and “Liberty.”

Thomas Jefferson’s Liberty First Spouse Gold Coin is the third coin released in the multi-year program.  Designed by United States Mint Sculptor-Engraver Charles Vickers, the coin’s reverse (tails side) depicts Thomas Jefferson’s monument, located on the grounds of his Monticello estate.  Inscribed on the coin is Jefferson’s epitaph, which he wrote near the end of his life:  “Here was buried Thomas Jefferson, author of the declaration of American independence, of the statute of Virginia for religious freedom and father of the University of Virginia.  Born April 2, 1743, O.S. Died July 4, 1826.”  Additional inscriptions on the reverse include “United States of America,” “E Pluribus Unum,” “$10,” “1/2 oz.” and “.9999 Fine Gold.”

There has yet to be any announced figures on the proportion of proof to uncirculated coins with the first two First Spouse coins.  It’s interesting to me that this press release specifies exactly 20,000 of each type of coin.  My guess is still that the “uncirculated” version will be the lower mintage and more valuable of the first two gold coins.

The Lessons of Long Term Capital Management (LTCM) and the Volatility of August 2007

I’ve been thinking a bit more about the volatility in the financial markets over the past two weeks, and I’m uncharacteristically concerned.

Normally, this would be about the time that I would write a post repeating some of my favorite personal investment staples, like:

  • Don’t try to time the market
  • Diversify your assets across multiple types of countries and classes
  • Invest for the long term

And so forth.

Something is bothering me, though, despite the fact that I am personally following all of the above guidelines (and more) with my personal investments.

I’m worried that we haven’t internalized the warning of the Long Term Capital Management bail-out in 1998.  Like the World Trade Center bombing in 1993, we may be unprepared for what that failure really signified.

As usual, Wikipedia has all the good detail on what happened with Long Term Capital Management.  A hedge fund made up of literal Nobel Laureates and masters of financial risk, it utilized incredible financial leverage to take what should have been extremely low-to-no-risk opportunities and turn them into phenomenal investment gains.  Unfortunately, in August 1998, some of those low-to-no-risk opportunities went in historically unpredictable ways, and Alan Greenspan had to orchestrate a multi-billion-dollar bailout from some of the large New York investment banks.

At the time, it wasn’t completely obvious to most people, even those who follow the markets, what the significance of an explosion of an single hedge fund really was.  In the following weeks, months, and years, it became clear that something was fundamentally troubling about what had happened.  This quote comes from Wikipedia:

The profits from LTCM’s trading strategies were generally not correlated with each other and thus normally LTCM’s highly leveraged portfolio benefited from diversification. However, the general flight to liquidity in the late summer of 1998 led to a marketwide repricing of all risk leading these positions to all move in the same direction. As the correlation of LTCM’s positions increased, the diversified aspect of LTCM’s portfolio vanished and large losses to its equity value occurred. Thus the primary lesson of 1998 and the collapse of LTCM for Value at Risk (VaR) users is not a liquidity one, but more fundamentally that the underlying Covariance matrix used in VaR analysis is not static but changes over time.

Despite being a regular reader of the Wall Street Journal, New York Times, and the occasional Economist, I didn’t really understand what had happened until I read When Genius Failed, by Roger Lowenstein (one of the books I recommend in my personal finance education series).   If you haven’t read it, I highly recommend it now.

What Lowenstein explained and what I hadn’t originally appreciated is that the fundamental problem with Long Term Capital Management is a fundamental problem surrounding all of our modern portfolio theory, whether you are a small investor like me or the largest endowment.

The problem has to do with asset diversification and how it is practiced.

Portfolio diversification has become the basis of all modern investment management.  The idea is to diversify your investments across asset classes with different risk factors and returns, ensuring the highest reward for the lowest risk.

For most investors, this was as simple as the traditional mix of stocks, bonds and cash.  But that changed in the late 1990s.

In the late 1990s, all of a sudden, everyone wanted to be David Swensen.  David Swensen was the manager who guided the multi-billion dollar Yale endowment to phenomenal returns from the 1980s through the 2000s.  He even wrote a book.

David made these phenomenal gains by eschewing most traditional types of assets (public stocks & bonds).  Instead, he invested in hedge funds, arbitrage, private equity, venture capital, real assets, and others).  What David realized early was that you could think of many types of invesments as asset classes, and find great investment returns in non-traditional classes with risks that were not correlated to the public stock market.

This decade has seen an amazing boom in investment tolerance for non-traditonal asset classes.  People freely talk about how different new investment assets have a “low correlation” to the stock market.  Real estate, commodities, rare coins, art, collectibles, long/short funds, you name it.   As a result, across the world, trillions of dollars are now factored into different asset classes, prudently distributed to minimize risk and maximize reward.

This would all be fine except for one thing.  And it’s the one thing that more than anything led to LTCM’s demise.

That one thing is that all of these great measures of risk are based on historical records.  And as all mutual fund prospectus readers know, “past history is not necessarily indicative of future performance.”

You see, you can take two things that historically have not been correlated.  Asset A & Asset B.  But the minute that an investor owns both A & B, there is now a correlation that didn’t exist historically.  The investor is that correlation.

If Asset A goes down, and the investor needs to sell something, they may now turn to Asset B for liquidity.  And that means selling pressure for Asset B, based on nothing but the asset price of Asset A.  Voila, correlation.

All of those historical models don’t apply once investor behavior starts changing in mass.  Maybe stocks & gold never traded together historically because the type of investor who bought gold just wasn’t the same type who bought stocks.  But now, in the modern world of portfolio theory, everyone has balance.  Everyone has a little of everything.

OK, ok.  Not everyone.  But I’m worried that enough major players do that we have created historical correlation that didn’t previously exist.  That correlation is risk, and it’s risk that is not built into the models of all of these portfolios.

What’s worse, those historical models lead investors to believe that they have less risk on their books than they do have, which leads rational investors to introduce leverage into their portfolios.  That means when the risk shows it’s ugly head, the results get magnified by the leverage of loans.

That’s what happened to LTCM.  Their models were excellent, but they were based on historical correlation.  The minute some of their investments turned the wrong way, their incredible leverage forced pressure in previously uncorrelated investments.  What’s worse, other investors, smelling the “blood in the water”, discovered this new-found correlation, and pressed trades against them.

So, this scares me a lot, at least intellectually.  There are very good reasons why major investors like hedge funds and other asset managers can’t share their up-to-the-minute holdings.  That means, however, that no one really understands this type of “co-investment risk” that is building in mass across the markets.  Unfortunately, the only way I can imagine to properly handle this risk would be to have a universal monitoring set up to accurately reflect this new type of correlation from mass “co-investment” across assets.

I’m still being a prudent investor.  I still diversify my portfolio for retirement across different assets.  Domestic & International, Large caps and small caps, stocks, real estate, commodities… even a long/short ETF.  I don’t think I’ve sold anything based on short term movements of the markets.  I’m sticking to my long term plans.

But I’m a little worried now.  Intellectually, it seems like the capital markets have potentially a major risk/reward pricing problem in them right now.  And these things tend not to resolve themselves quietly.

Let me know what you think.

BTW Many thanks to Igor, for asking me over dinner last week what I thought of the market volatility, and leading me to think more deeply about it.

Starcraft 2: Blizzard Website Updates

Quick post, but if you haven’t checked out the new Starcraft 2 website, you are missing out.   I’ve managed to successfully avoid getting roped into World of Warcraft, but I’m pretty sure this one has my number on it.  I’m not sure exactly how I’m going to find the couple hundred spare hours necessary for this one.  I think Blizzard may be the best video game company of all time.

Pixar:Computer Animation as Blizzard:Real Time Strategy Games


Fake Steve Jobs to Join Forbes.com on August 6th

The 14-month quest for the identity of Fake Steve Jobs is at an end, and the answer is somewhat of a surprise.

I won’t spoil it here, but you can read about it directly on the FSJ blog.   The announcement from Forbes.com is here.  The New York Times coverage that outed him is here.

I find the FSJ blog extremely humorous on most days.  It’s a little sad to have the illusion popped.

I feel like he deserves one of those “Real American Hero” spoof commercials for Bud Light…

So here’s to you, Mr. Fake Steve Jobs… 

New York Times Article on Silicon Valley Millionaires

I almost called this article: “The New York Times Gets the Valley… Wrong”, but I decided that there was both good & bad in the piece.

The article I’m referring to was the cover story of the New York Times, Sunday August 5th Edition:

New York Times: The Silicon Valley Rat Race

The piece is designed to be inflammatory, like a lot of media pieces. It’s meant to get people to smack their heads and go, “My goodness, this is definitely in Bubble 2.0. How could people be so misguided to not be satisfied with millions of dollars!”.

Well, the bait took. This blog fell for it.  Blogging Stocks fell for it hook, line and sinker also. Check out their piece today.

Why can’t the Silicon Valley rat racers just kick back and enjoy their lives? As the article points out, many have contemplated moving “to a small town like Elko, NV and being a ski bum or to the middle of the country and living like a prince in a spacious McMansion in the nicest neighborhood in town.” But the need to reach the top of the wealth pyramid drives them to stay in their small houses, commute long hours to and from work, and put in 70 hour work weeks.

I’m pretty sure that’s exactly the reaction the New York Times piece was looking for. Too bad that is not actually reflective of what drives & motivates most of the people in the article or in Silicon Valley as a whole.

Dave Winer wrote this piece today, basically explaining that everyone in the Valley is after the almighty dollar, and that’s why he escaped to Berkeley. (As an aside, it’s an interesting implication that Berkeley isn’t part of Silicon Valley). Sorry, Dave. I’ve been reading your commentary since the early 1990’s, when I wrote my first Lasso scripts. But I think you were so eager to jump on your point here, you missed the actual truth behind the piece.

I guess I would be reacting a bit differently here if I didn’t have some personal insight here, but I do. Not only was I born & raised here in Silicon Valley, but I happen to have met the main character of the story. I don’t know him well, mind you, but my wife did work with his wife, and we even enjoyed a wonderful going away party at their house a few years ago. These are good people, solid people, with incredibly solid values. Painting them as some sort of money-hungry Silicon Valley spoiled brats who aren’t satisfied with a few million dollars is so far off-base as to be offensive. Now mind you, I don’t think the article actually did that. But it’s clear that the article was tilted to elicit that reaction.

But, to be generous, let’s start with what this article got right:

Real estate in Silicon Valley is expensive. Incomes here might be 50% higher than the national average, but housing prices are approximately 250% higher. The average home is over $780,000 now, and that’s not for some McMansion. That’s a pretty plain-vanilla, modest home. That’s more than 10x the average household income. I know I’m not going to get any sympathy from the New York, LA or Boston crowds here, but living costs are high. What’s more, that’s nothing compared to the prices of houses in good school districts.

Some people are always chasing the next “wealth” level. There are, in fact, people who are never satisfied. They want millions when they have hundreds of thousands, and they wants tens of millions when they have millions. I’ve worked with people before who were worth over $50M, but were aspiring for $100M+ where private jet ownership is realistic. These people are usually not from the Bay Area, and are rarely engineers, but they are definitely around. Fortunately, they are a relatively small minority.

A few million is not “Lifestyles of the Rich & Famous” by any stretch here. See above, but how can it be, when a fairly standard 2000 square foot house in Los Altos is over $1.5 Million? If you’ve read my other pieces about managing money in retirement, a “nest egg” of $2M might sound like a lot, but it really can only be reliably counted on for $80K – $100K of ongoing annual income. It likely guarantees a solid, middle-class lifestyle on an ongoing basis, and is something to be thankful for, to be sure. But it’s not an opulent Hollywood lifestyle by any stretch.

Now, a few thoughts on what this article go wrong:

Age matters when talking about wealth. A couple in their 20s and a couple in their 50s are in very different stages of their lives. When you talk about wealth, you can’t just compare stories from different age groups. A 20-year old with a couple million in the bank is in a very different situation than a 50-year old. Of course, both are in very good situations, but the 50-year old is likely thinking about whether or not they’ll be able to retire in 10 years in their current home, with their current lifestyle. A 20-year old has their whole career ahead of them, and likely sees the money as either a safety net or as a license to make career choices based on passion rather than money. The New York Times article throws together people from different age brackets, and thus yields misleading results. For the record, though, a 50-year old with $200K in income who is planning to retire in 15 years actually needs to have a couple million saved at that point to have a shot at maintaining their lifestyle in retirement.

Most people in Silicon Valley aren’t gunning for the next wealth level. This might be hard to believe, especially if you live in New York and you are used to seeing money in the hands of wealthy families, investment bankers, private equity partners, and hedge fund managers. But the truth is, most of the financially successful in Silicon Valley with a few million are likely engineers who worked for a company that grew tremendously in value. Thanks to the fact that Silicon Valley emphasizes a culture where employees are typically shareholders in their companies, sometimes your company grows in value 10x or even 100x or more in value. A stock option grant of 2000 shares in 1997 in Apple is now worth over $1 Million.

Most of the people who work for Silicon Valley firms are technical, and most technical people have spent a lot of time working long hours to earn degrees in engineering and the sciences. Most of these people cannot imagine anything more motivating that working on the cutting edge of technology, and creating new products and services that would have been impossible as recently as five years ago. That is the primary excitement and driver of so much of the innovation in Silicon Valley.

That is the reason why, in many cases, earning significant money, like the families in this article, doesn’t lead people to leave and rest of their laurels. In fact, for many, the money enables them to feel a little more secure about their families and their career choices. And that, ironically, it makes it easier for them to sign up to work even harder on the next opportunity.

That’s not true in all cases, of course. There are plenty of people who take their good fortune and build new lives in areas with lower costs, a slower pace, and more time. It’s common enough, but clearly not the majority case. There are also people who will never get enough, and are always looking for the next financial rung to climb. I feel like I met more of them when I was in venture capital than I do now, but they are certainly a visible minority.

Ironically, that type of drive is what makes costs in the Bay Area so high. Similar to Manhattan, you end up implicitly competing with these people for housing, services, and even restaurant prices.

Just to bring this rather length missive to a close, let me just say the following:

I recommend that people read the original New York Times piece. Despite the negative aspersions, there is a lot to be learned from a personal finance perspective by thinking about “what if” scenarios. I’ve posted here in the past about the notoriously terrible outcomes that await most lottery winners, professional athletes, and Hollywood stars who come into sudden fortunes.

Silicon Valley is no exception. People can make a lot of money here suddenly, with no real significant financial education or preparation for how to manage it. $1 Million is a lot of money, but spread over a lifetime it really doesn’t change a person’s financial position as much as you might think. In many ways, the people in Silicon Valley who make significant small fortunes and yet don’t let it fundamentally change their day-to-day lives are likely in a much better state of mind than those who treat their new found wealth like lottery winners.