Month: November 2007

2008 First Spouse Coin Designs Now Available (Elizabeth Monroe, Louisa Adams, Jackson’s Liberty, Van Buren’s Liberty)

/ Adam Nash

Interesting coins news today. Laura Bush unveiled the 2008 First Spouse coin designs today in a ceremony celebrating the release of the Dolley Madison coins, the fourth in the First Spouse series.

From the US Mint Website:

Washington, D.C. – Director of the United States Mint Ed Moy joined Mrs. Laura Bush in the White House East Room today for a ceremony celebrating the First Spouse Gold Coin Program. The collectible First Spouse Gold Coins, inaugurated this year, mark the first U.S. coin series consecutively honoring women.

The designs for the 2008 First Spouse Gold Coins were on display for the first time during today’s ceremony.The new 2008 coins will feature images of Elizabeth Monroe, Louisa Adams, Andrew Jackson’s Liberty and Martin Van Buren’s Liberty.

“This is the first time in American history that women are featured on a consecutive series of coins,” noted Director Moy.”And, it is the first time our First Ladies are gracing coins made of 24-karat gold.”

Much of today’s ceremony focused on the final coin of 2007 honoring First Lady Dolley Madison, with Dolley Madison re-enactor Lucinda Frailly of Canton, Ohio, in full costume discussing the colorful First Lady’s accomplishments.Children from two schools near Montpelier, Virginia, the home of James and Dolley Madison, attended the event.

Mrs. Bush highlighted the historical contributions made by the nation’s First Ladies. “America’s first ladies have guided, comforted and sustained our nation in times of trial and triumph. At the same time, they’ve fulfilled their other very important role-and that is the wife of the President of the United States,” she said. “The East Room is the perfect place to honor these remarkable women, especially one of America’s most beloved First Ladies: Dolley Madison.”

The following images come from The US Mint Press Room:

Elizabeth Monroe

Louisa Adams

Jackson’s Liberty

Van Buren’s Liberty

In other news, you can still get your Dolley Madison First Spouse coins from the US Mint. The proof version price has risen to $529.95, a $100 increase from the first three coins. The uncirculated version is worth $510.95.

It’s unclear whether the higher price means that the value of the previous three coins has now risen roughly $100. We’ll see the pricing on eBay as this coin enters the market.

The Traveler’s Dilemma: Irrational Choices, Altriuism, or Implicit Collusion

/ Adam Nash / 10 Comments

One of the things I love about travel is that I tend to get a chance to catch up on back issues of Scientific American.  This trip is no exception.

Over lunch, I read an article in the June 2007 issue called “The Traveler’s Dilemma”, by Kaushik Basu.  In it he explains research on why people give what seem to be irrational responses to the game called, “The Traveler’s Dilemma”.  I’m going to use the forum of this blog post to propose an alternative answer, one not suggested in his article.

First, it will help to define what “The Traveler’s Dilemma” is.  Many people are familiar with “The Prisoner’s Dilemma”, made famous by recent interest in the movie “A Beautiful Mind”, about John Nash, one of the original theorists behind Game Theory.  The Traveler’s Dilemma is defined well in the article, so I’ll quote it here:

Lucy and Pete, returning from a remote Pacific island, find that the airline has damaged the identical antiques that each had purchased. An airline manager says that he is happy to compensate them but is handicapped by being clueless about the value of these strange objects. Simply asking the travelers for the price is hopeless, he figures, for they will inflate it.

Instead he devises a more complicated scheme. He asks each of them to write down the price of the antique as any dollar integer between 2 and 100 without conferring together. If both write the same number, he will take that to be the true price, and he will pay each of them that amount. But if they write different numbers, he will assume that the lower one is the actual price and that the person writing the higher number is cheating. In that case, he will pay both of them the lower number along with a bonus and a penalty–the person who wrote the lower number will get $2 more as a reward for honesty and the one who wrote the higher number will get $2 less as a punishment. For instance, if Lucy writes 46 and Pete writes 100, Lucy will get $48 and Pete will get $44.

What numbers will Lucy and Pete write? What number would you write?

Before I give away the answer… think about what number you would guess.  For whatever reason, I didn’t recognize this game, and I immediately jumped to the answer 98 for some reason.

Wrong.

Mathematically, there is only one rational guess.  It’s 2.

The article also gives a great explanation of why 2 is the right answer:

To see why 2 is the logical choice, consider a plausible line of thought that Lucy might pursue: her first idea is that she should write the largest possible number, 100, which will earn her $100 if Pete is similarly greedy. (If the antique actually cost her much less than $100, she would now be happily thinking about the foolishness of the airline manager’s scheme.)

Soon, however, it strikes her that if she wrote 99 instead, she would make a little more money, because in that case she would get $101. But surely this insight will also occur to Pete, and if both wrote 99, Lucy would get $99. If Pete wrote 99, then she could do better by writing 98, in which case she would get $100. Yet the same logic would lead Pete to choose 98 as well. In that case, she could deviate to 97 and earn $99. And so on. Continuing with this line of reasoning would take the travelers spiraling down to the smallest permissible number, namely, 2. It may seem highly implausible that Lucy would really go all the way down to 2 in this fashion. That does not matter (and is, in fact, the whole point)–this is where the logic leads us.

The rest of the article dives into detail about different experiments that were executed to try and understand why people reliably do not guess the rational answer.  I won’t repeat it all here, but it was a very impressive set of empirical studies.

The one that impressed me the most was the experiment in 2002 by Tilman Becker, Michael Carter, and Jorg Naeve at the University of Hohenheim in Germany.  They actually played this game, for real money, with 51 members of the Game Theory Society – all of which who were professional game theorists!

But with real money at stake, 45 of the 51 chose a single number to play every round, and of those, only 3 chose the Nash equilibrium value (2).  10 chose 100, and 23 chose numbers between 95 and 99 (phew, I’m not completely off base).

Now, this is where I think I have some value to add.

The rest of the article theorizes that the unexplained choice of strategies of either 100 or the high 90s is based on an evaluation of altruism, an intrinsic human trait that may be hard-wired into our brains.

The author gets close to what I believe the right answer is here, in the last paragraph:

If I were to play this game, I would say to myself: “Forget game-theoretic logic. I will play a large number (perhaps 95), and I know my opponent will play something similar and both of us will ignore the rational argument that the next smaller number would be better than whatever number we choose. What is interesting is that this rejection of formal rationality and logic has a kind of meta-rationality attached to it. If both players follow this meta-rational course, both will do well. The idea of behavior generated by rationally rejecting rational behavior is a hard one to formalize. But in it lies the step that will have to be taken in the future to solve the paradoxes of rationality that plague game theory and are codified in Traveler’s Dilemma.

So close… but let me put my own words around the concept:

Implicit Collusion

What if we, as humans, are hard-wired to “collaborate”.  Collaboration, cooperation… these are nice words.  Collusion is the variant where two parties actually pool efforts to control the outcome of a situation their personal advantage.

My guess is that we are wired, either genetically or socially, to infer collusion opportunities when they present themselves.

The rational choice might be 2, but even without talking to the other person, I might guess that they know, without talking, that if we just both guess 100, we will both win.  Collusion without communication.  The fact that the price for being wrong is just “2 dollars” is a relatively low price to pay versus the gain of “98 dollars” if I’m right about the implicit collusion opportunity.  Even with loss aversion of 3:1, I’m going to guess 100.  The guesses in the high 90s are likely a slight nod to the goal of squeezing out a couple of dollars of upside, but without risking the large $90+ upside of the collusive opportunity.

In fact, I believe that the ratio of loss aversion and evaluation of the probability of silent collusion explains the guessing ranges displayed.

Loss aversion is well known, but I’ve never considered the idea of implicit collusion before.  It seems like a powerful idea to explain human behavior in games where communication between parties is prevented.

Don’t Panic About E*Trade

/ Adam Nash / 1 Comment

Wow, people are really panicked.

Here’s what happened. Yesterday, Citigroup analyst Prashant Bhatia wrote an extremely negative report on E*Trade based on their announcement of exposure to mortgage securities where he put the likelihood of bankruptcy at 15%. How he calculated this, I don’t know. Maybe he estimated their exposure and risk curve for their portfolio, and then he ran monte carlo simulations of possible futures. More likely, he squinted his eyes, held up his thumb, and said “1 in 7”.

More coverage here in Business Week.

In any case, I’ve had a few people email me today about whether or not their money is safe at E*Trade.

Here is what I know:

1) If you have bank accounts, they are FDIC insured up to $100,000. So if E*Trade folded tomorrow, you’d be able to open up a new account elsewhere, and the FDIC would wire money in (up to $100,000) within a matter of days.

2) The brokerage accounts are protected by SIPC up to $500,000. Not sure how the re-imbursement works, but I’m guessing it’s something like an insurance claim.

3) The brokerage accounts are protected by a separate insurance policy for up to $150M per brokerage account.

None of these scenarios are likely – other brokerages & banks would be completely moronic to not buy E*Trade or it’s accounts for customer acquisition. E*Trade’s brokerage and bank business is doing quite well at this point.

In fact, here is an article suggesting that this might be a great buying opportunity for the stock.

So, unless you have more than $500K in securities at E*Trade and $100K in bank deposits at E*Trade, you are fine.

Update (11/13/2007): Wow. While E*Trade stock is now up almost $1.00 per share right now on Wall Street, I must not be the only one getting email on this issue. Look at what greeted me when I logged into E*Trade today:

Update (11/14/2007):  The following letter was updated on E*Trade today, which details the complete protection of brokerage accounts up to $150M.

To All E*TRADE Customers:

The old adage “there is no such thing as bad publicity” does not apply to E*TRADE FINANCIAL this week. Seemingly by the stroke of a pen… or a few clicks from a keyboard… a Company with a core business that has generated impressive growth quarter after quarter has been bombarded by rumored reports of its imminent demise.

Well, we want customers to know that the entire E*TRADE team has come together with resolve and commitment, taking appropriate and decisive action to manage through this issue and to ensure that E*TRADE FINANCIAL continues to deliver the best value in the marketplace for our customers.

I have spoken with scores of customers over the past week. Many of you have openly expressed your confidence in E*TRADE. It is genuinely gratifying to know that our retail customers—the heart of our business—understand the value in our model and the strength of the franchise.

Many of you have also asked me about asset protection, so to be clear—your money is safe at E*TRADE FINANCIAL. Here are the facts:

  • FDIC insures all E*TRADE Bank accounts to at least $100,000 and Extended Insurance Sweep Deposit Accounts to $500,000.
  • SIPC protects E*TRADE Securities customers up to $500,000 (including $100,000 for claims for cash).
  • Additional E*TRADE Securities protection provides up to $150 million per brokerage account, underwritten by London insurers (aggregate $600 million).
  • E*TRADE is well-capitalized by regulatory standards.

E*TRADE was founded on the concept of empowering the individual investor. This value is still at the heart of our business. We look forward to continuing to provide you with the products, pricing, service and functionality you have come to expect in order to help you manage your financial world.

We haven’t lost focus on our customers, our business or our future. The credit crunch has had a tremendous impact, but we are taking appropriate and decisive action to manage through it.

Thank you for your continued business,
Jarrett Lilien
—Jarrett Lilien
President, COO and Director, E*TRADE FINANCIAL

Dolley Madison First Spouse Coin Available at 12:00pm EST on November 19th, 2007

/ Adam Nash / 1 Comment

You heard it here first.

The US Mint website has been updated with a slight change to the release date of the Dolley Madison first spouse gold coin. Instead of being released on November 15th, like the James Madison dollar coins, Dolley will be joining us the following week.

Here is the last of the new products schedule listed on the US Mint website:

November 15 James Madison $1 Coin Bags and Rolls
November 19 Dolley Madison – First Spouse Gold Proof Coin
November 19 Dolley Madison – First Spouse Gold Uncirculated Coin
November 19 Dolley Madison – First Spouse Bronze Medal 1 5/16″
November 19 First Spouse Four-Coin Proof Presentation Case
November 19 First Spouse Four-Coin Uncirculated Presentation Case

The last First Spouse coin took much longer to sell out – I wonder if this will be the first coin to actually see a lower-than-planned mintage number? The current plan is to mint 20,000 proof and 20,000 uncirculated versions.

Update (11/17/2007):  If you are interested in buying James Madison original bank rolls, please see my post here.

Timber: Claymore Launches the First Global Timber ETF (CUT)

/ Adam Nash

The launch was on Friday, November 9th. According to the press release:

LISLE, Ill.–(BUSINESS WIRE)–Claymore Securities, Inc, today announced the launch of the Claymore/Clear Global Timber Index ETF (AMEX: CUT – News) on the American Stock Exchange. This is the first U.S.-listed global timber ETF to offer investors exposure to the timber asset class and is Claymore’s 35th ETF to-date.

“Timber has had a historically low correlation to traditional asset classes, which provides investors a unique diversification tool that may help reduce a portfolio’s overall volatility,” said Christian Magoon, Senior Managing Director at Claymore Securities, and head of the firm’s ETF Group. “Historically timber has been an asset class available only to institutional investors due to high capital costs. Today, with the launch of the Claymore/Clear Global Timber Index ETF, investors have an investment vehicle that seeks to provide efficient access to the global timber market.”

Claymore/Clear Global Timber Index ETF (AMEX: CUT – News) seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an equity index called the Clear Global Timber Index (the “Index”). Stocks in the Index are selected from the universe of global timber companies and defined by Clear Indexes LLC, the index provider, as firms who own or lease forested land and harvest the timber from such forested land for commercial use and sale of wood-based products, including lumber, pulp or other processed or finished goods such as paper and packaging.

My original post on investing in Timber as an asset class remains very popular on this blog, and walks through the reasons why I personally believe that it is an excellent option for diversification. That being said, owning timber as a small investor is still an evolving game, with the best proxies to date being public timber REITs and Partnerships, like Plum Creek Lumber (PCL), Rayonier (RYN), and Pope Resources (POPEZ).

I like the idea of an ETF that is more of a pure play on timber itself, but I think it would be better structured as literally owning timber like the large private partnerships, and not just an index of public companies. We have seen Gold ETFs that own the mining companies vs. the metal itself, and there is no question that the ones that own the metal do a better job of reflecting the actual financial properties of the asset class.

Seeking Alpha has an article on the new ETF, just up:

CUT tracks the Clear Global Timber Index, which includes companies that own or manage forested land and harvest the timber from it for the commercial use and sale of wood-based products such as lumber, pulp and paper products. Components must have market capitalizations of at least $300 million, and companies that do not own or manage forested land and harvest trees are excluded from the index. Individual component weights are capped at 4.5% of the index.

As of September 30, the index has 27 components from 11 countries; its top components include International Paper, Stora-Enso Oyj, Weyerhauser Corp. and MeadWestVaco Corp. The United States represents more than one-fifth of the index at 26.39%, followed by Canada at 12.25%, Japan at 11.50%, Finland at 9.00% and Brazil at 9.00%. It has a PE ratio of 14.3.

The Clear Global Timber Index has outperformed the Dow Jones World Forestry and Paper Products Index in each of the past five calendar years and is up 16.38% year-to-date through September 30, versus a 6.88% increase for the other index.

CUT has an expense ratio of 0.65%. You can read the prospectus here.

I have been debating whether to expand my exposure to PCL, or to diversify with RYN and POPEZ. This ETF offers a third option, which would be to try to get global timber exposure through this ETF.

Something tells me that we’ll see better approaches to representing timber as an asset class in the next year or two, as the demand for real assets that perform well in inflationary environments grows. So I’m not sure I’m ready to jump to invest in CUT… yet.

Update (11/11/2007): Some great detailed analysis on the breakdown of the diversification benefits of CUT on Seeking Alpha today.  Check it out.

Planes, Trains & Automobiles: MBA Version

/ Adam Nash / 1 Comment

I forgot to mention it here, but last night I began a multi-day tour of a few business school events out on the East Coast.

I began by flying out on JetBlue on the red eye to be on a panel on Social Networking at the HBS Cyberposium 2007 event in Cambridge, MA. Despite only one hour sleep on the plane, and a cat-nap this morning, the event went off without a hitch. Lots of great questions from the audience, and it’s always a pleasure to explain to people the focus & vision behind LinkedIn. I was a bit surprised at the turn out – the panel before ours on IPOs seemed to only fill about 1/4 of the seats in the large auditorium. Our panel, however, packed the room to the point of people standing in the back. Great showing.

Here is the detail on the panel (from the CyberPosium 13 website):

Want to join my “Friend-Spaced-In” network? What good is social networking?

Friendster has come, and for the most part, gone. MySpace has evolved from being the hottest site for teenagers to becoming part of Rupert Murdoch´s global empire. New social networking sites focused on specific verticals pop up by the minute. Why is social networking important? What are its benefits? Additionally, social networking is catching fire all over the world. Are there any transferable lessons for global social networking entrepreneurs that will help them avoid irrelevance?

This is a quick snapshot of Spangler, which has the auditorium where I spoke today. This was the new, fancy student building on the HBS campus in 2001 when it opened.

This really surprised me – I’m not sure if it was a Turkey or a Turkey Vulture, but it was just sitting outside Spangler on a bench. I thought it was fake at first until I saw it move around.

Tomorrow is a travel day – I hop a train to Philadelphia for events at Villanova & Wharton on Monday & Tuesday. I’m so glad I don’t have to fight through the airport for that leg of the trip.

So in case you are wondering where I am, now you know. 🙂

Are You Ready for James Madison? (Presidential $1 Dollar Coin Program)

/ Adam Nash

That’s right, coin fans.  The 4th coin in the Presidential $1 Dollar Coin series will soon be available, and in banks on November 15th.  The US Mint has a blurb up now, and will have bags and coins of collector versions ready for sale at the US Mint website.

Of course, these coins are already available in proof and uncirculated versions in the annual coin sets.  I have several of the 14-coin Silver Proof sets for 2007, and the lens with the 4 Presidential $1 Dollar Coins from 2007 is really gorgeous.

As usual, I will have rolls for sale on eBay.  I actually still have rolls available for George Washington, John Adams, Thomas Jefferson.  I even have a couple 2007 Silver Proof Sets for sale.

The Writers’ Strike: Why We Fight

/ Adam Nash

Since I got some attention with my last post, here is the YouTube video put out to explain why the Writers Guild of America is striking.

The argument in the video is largely predicated on what other artists get (authors, song writers), as well as the idea that there was an agreement to raise residual rates eventually in the 1980s agreement.  Mostly, it plays to the issue of “what is fair” by making the amounts sought by the writers as really trivial (always good to show little bars vs. big bars in these type of diagrams).

It’s really well done.

Why Do Writers Get Residuals? (Writers’ Guild of America Strike)

/ Adam Nash / 12 Comments

This post was inspired by a short, two line snippet in John Lilly’s blog today.  There has been a lot of press about the current writers’ strike, and it’s impact on TV this fall.  I hadn’t originally planned to write anything about it here, but one comment in John’s blog made me think (italics are mine):

But it’s one of those things, i think. for the studios, this feels, to me, like their waterloo, their napster. we’re in a period of incredible creativity in the world, incredible connectedness. Putting down the hammer on the creatives — in other words, not letting them share fairly in the proceeds from the distribution of their work — isn’t likely to help the television and motion picture industry, in my own, admittedly uninformed opinion.

I’m an outsider to the entertainment industry, so my apologies if this question is hopelessly naive.  But there is something about this entire strike that doesn’t make sense to me, sitting up here in Silicon Valley.

So, here is my question.  A lot of this strike seems to revolve around the Writers’ Guild, and their belief that they deserve royalties (aka residuals) on versions of their content that are distributed digitally (DVDs, downloads, etc).  Apparently, this was one of the big mistakes, in their opinion, of the late 1980’s agreement with the union.

(For those of you not familiar with the term, a “residual” is a micro-payment that you are entitled to every time one of your contributing works is resold.  Just think of a book author getting a small payment every time their book sells another copy, or a music band getting a small payment every time they sell another album.  Revenue sharing.)

Now, I’ll be the first to admit – I’m not sure why you’d deserve a residual on a re-run and not on a DVD.  But my question really is more fundamental:

Why do writers get residuals at all?

I guess, to be less confrontational, let me rephrase the question this way:

Why don’t software engineers get residuals?

I don’t want to sound stupid here.  I’ve heard many reasons given for why residuals are given to writers and other creative contributors to media products.  But most of them don’t really hold water with me:

  1. Comedy is a creative enterprise, and people can go for years in between gigs.  Residuals on past success are a way of funding the down times, so great writing can happen in the down time between gigs.
  2. Historically, authors have always been paid per-copy sold, as a form of risk-sharing between the publisher and the author.  It’s a classic alignment of incentives – more books sold mean more profits for the publisher and more income for the author.  This leapt from book authors to musicians to other forms of entertainment as the industry grew.
  3. Writers deserve their “fair share” of the profits made from their work.  Residuals represent that fair  share.

I’m sure there are others, but those are the big three I’ve seen in the press.

The problem is, with the exception of (2), these reasons could just as well apply to software engineers, who in general never get paid through residuals.

Software engineering is a creative process, where people with unique talent and skill create content (code) that is protected by copyright and signed over to their employer (the company).  There are highs and lows in the industry, and rapidly changing tastes/technology that can lead to low times for an engineer as well as good times.

In software, it’s much more common for an engineer to get paid in a mix of salary, bonus, and stock.   No residuals.

  • The salary is the company recognition of the value an engineer needs to get immediately in exchange for their work.
  • The bonus is the company recognition of short term goals being hit, which allow the company to share the benefits of good performance of the individual and/or the company.
  • The stock is a way for the engineer to share in the long term upside of the product of their work.  They become part owner in the company, and so when the company makes money, they reap some of the benefit.

The stock is really the key to alignment between the owners of the company (shareholders), management, and the individual engineer.  It’s the way of saying, “If this works, we’ll all make money together.”

So, in theory, I guess you could replace the stock component with residuals.  You could argue that there are too many factors that play into stock price, and that residuals are a clean way of rewarding people for their contribution to a product with long term success.  (I’m not sure I’d ever trust the accounting behind residuals, but I guess that’s why lawyers and union leaders make a lot of money.)

Maybe the problem is that writers aren’t really treated like co-owners and long term employees at all, and residuals represent that broken trust.  Maybe studios don’t treat writers like co-owners and long term employees because the compensation system is set up to pay them like mercenaries.  Maybe there is no real concept of a studio – just an aggregation of 1000s of entertainment efforts, each with their own finances, and each writer is just a mini-shareholder of that effort.

Maybe the problem is that the entertainment industry is, for the most part, stagnant, and their isn’t sufficient growth to really provide the upside benefits provided to engineers as stock-holders.

Maybe this is the difference between a unionized approach to compensation and a non-unionized approach?

I guess I’m still at a loss to explain the difference however.  Let’s take a large company like Microsoft.  Should they be paying their engineers like writers?  Or should the studios be paying their writers like engineers?

Campfire One Video is Live (Open Social Launch)

/ Adam Nash

The video from Campfire One, the launch event for Open Social last night at the Google campus is now live.

The demo that Elliot & I give for LinkedIn is about 38:30 into the video (or 18:55 from the end, if you have the timer set up to run backwards). It’s a good thing there was a rehearsal – I’m pretty sure my demos are always better the second time. 🙂

The event was fun to do – it was really a campfire set up in the middle of Google campus. Yes, there were real fires. In fact, the smoke was a real hazard to the speakers – if the wind went the wrong way, all of sudden you’d be blinded and unable to speak. I think Marc Andreessen got the worst of it in rehearsal.

The Google site for the OpenSocial APIs is live now. The LinkedIn blog post on the topic is here.

My previous blog post on Open Social is here.

LinkedIn & Open Social. Two Great Tastes That Taste Great Together.

/ Adam Nash / 3 Comments

I think you can tell from the title why the marketing team at LinkedIn keeps a close eye on me. 🙂

This week has been extremely busy… a lot of press attention already to the LinkedIn partnership with Google on the new Open Social APIs.

Since this is my personal blog, I thought I’d just flag a few articles and posts around the web in case you are interested. The big demo is tomorrow night, and it looks like I will actually get a chance to take the stage with Elliot Shmukler to give it. Let’s hope the demo gods are kind.

It’s really wonderful to be able to talk to our community about Open Social, and about the LinkedIn platform. There are absolutely amazing people at LinkedIn working on making all of this possible, and it’s a joy to get out there and help people understand and appreciate their great work.

So, before the big event, here are a few interesting posts:

More to come on this topic, I’m sure.