Monday, October 30, 2006

Bricks and broadband

OK, I have to admit I've been suffering from gizmo envy for some time now. How is it that a connected guy like me has no mobile device with always-on internet and email capability? How is it that even stodgy UO administrators sport fancy BlackBerry's while a wannabe hipster tech entrepreneur has no way of checking his email at SFO without paying T Mobile for wifi access?

Well, the situation is now remedied with Sprint's EV-DO data plan. For only $15 a month I get all I can eat broadband (up to 1 mbps or so) through my new gizmo, the admittedly brick-like PPC 6700 smartphone.

So far I'm pretty happy with the phone, despite the large form factor. It has a retractable qwerty keyboard (see link above) and is very functional -- I can ssh into my server, run emacs and use gmail. I can even use Bluetooth to get my laptop online, using the phone as a modem. Urbanites in Asia probably find my giant phone very amusing, but, hey, I live in the semi-rural United States, with its patchy broadband and 3G coverage.

I admit, it does make for behavioral problems when you can check your email at all times. I'd hate to know how many times a day I do it.

Friday, October 27, 2006

It's crazy: there's no close second or third

Michael Steinhardt, one of the most successful hedge fund managers ever, is from the old school. In this WSJ interview, he has a few things to say about how things are today.

Mr. Steinhardt founded Steinhardt Fine Berkowitz in 1967 when he was 26 years old. In the next three decades his fund, later renamed Steinhardt Partners, boasted average annual returns of nearly 25%...

Now, hedge funds that make [4%] over T-bill rates are doing great. It's crazy. That's why the field of money management is today the most highly compensated field in the world times three. There's no close second. There's no close third. And I think the expectations inherent in that sort of compensation are absurdly unrealistic.

...I do think there are a lot of inexperienced mangers running hedge funds today. There are a lot of people who do not have a history of superior performance over a long period. While certainly a long period of successful performance is no guarantee for the future, it gives a reasonable amount of comfort. But the fact that you've got a lot of young people running hedge funds whom I wouldn't be comfortable with, that makes one a little bit wary.

Compare to Charlie Munger, another billionaire and Warren Buffet's longtime partner:



and Carl Fox (Martin Sheen, playing Charlie Sheen's father in Oliver Stone's Wall Street):


Monday, October 23, 2006

Does string theory predict an open universe?

New paper! See here for related discussion.

The first two pragraphs:

If, as suggested by recent results [1], string theory exhibits a landscape of over 10^500 distinct, metastable vacua, its status as a conventional scientific theory is in jeopardy. Scientific theories must make predictions which are falsifiable by experiment. Such a large diversity of vacua means that essentially any low-energy physics might be realizable from string theory. Even ultra high-energy physics experiments may not yield additional information, since scattering at trans-Planckian energies leads to black holes [2] of ever increasing size, whose subsequent behavior (evaporation) is controlled by the low-energy physics of the ambient vacuum state. If recent results are any guide, string theory will be extremely difficult to falsify.

It is therefore important to carefully consider any robust implications of the string landscape. One of these, recently elaborated in [3], is the testable prediction that our universe must be open, with negative curvature. A recent analysis combining WMAP and Sloan Digital Sky Survey data gives Omega =1.003 +- 0.010 [4], but improved future observations could yield a statistically significant central value larger than unity, implying positive curvature. Would this rule out string theory?


It has been claimed that the string landscape predicts an open universe, with negative curvature. The prediction is a consequence of a large number of metastable string vacua, and the properties of the Coleman--De Luccia instanton which describes vacuum tunneling. We examine the robustness of this claim, which is of particular importance since it seems to be string theory's sole claim to falsifiability. We find that, due to subleading tunneling processes, the prediction is sensitive to unknown properties of the landscape. Under plausible assumptions, universes like ours are as likely to be closed as open.

Sunday, October 22, 2006

Proximity, ecosystems and Silicon Valley

If you're a young tech entrepreneur, move to Silicon Valley. The Times article I've excerpted from below is not exaggerating in any way. You not only have better access to venture capital in the valley, you have access to a whole ecosystem of other startups, entrepreneurs, technologists, attorneys experienced in startup issues, and big tech companies that are your potential acquirers. Note that both Google and YouTube are Sequoia companies. The article is also correct in pointing out that, beyond proximity and the ecosystem, the entire attitude toward risk is different in the valley. There's a startup culture. People have seen startups succeed, have seen their friends get rich, and expect to be able to do it themselves. That positive attitude can make all the difference. If, instead, you're cranking away in Minneapolis or Pittsburgh or even Boston or LA, dreaming of a sweet exit, it's just that much harder to believe that it's actually going to happen.

Lucky for me Eugene is only an hour flight from the bay area. But even that hour (and having to book a flight in advance) sometimes makes scheduling meetings a nightmare compared to driving from our Oakland offices down to Palo Alto.

FIBER networks cross the world. Data bits move at light speed. The globe has been flattened, and national boundaries obliterated. Yet in Silicon Valley, the one place that is responsible more than any other for creating the network technology that supposedly renders geography irrelevant, physical distance is very much on the minds of the investors who provide venture capital.


Mr. Johnson explained that close proximity permits the investor to provide in-person guidance; initially, that may entail many meetings each week before investor and entrepreneur come to know each other well enough to rely mostly on the phone for updates. Those initial interactions are fateful. “Starting a company is like launching a rocket,” Mr. Johnson said. “If you’re a tenth of a degree off at launch, you may be 1,000 miles off downrange.”

Capital and attention are lavished on entrepreneurs in the Valley as in no other place. Ten years ago, when Dow Jones VentureOne began a quarterly survey of where venture investments landed, one-third of all deals in the country went to the San Francisco Bay Area. Since then, the same share of deals has gone to the same place, almost without variation. Most recently, in the first six months of this year, Silicon Valley still pulled in 32 percent; the region with the second-largest total, New England, was far behind, at 10 percent.





“In New York, it would be extremely difficult to find a law firm willing to defer the first $20,000 of your legal fees,” Mr. Sternberg said. “Here, we got that. It’s a pretty standard thing in Silicon Valley.”

...Predictions of the Valley’s demise have become a perennial, said Mr. Morgan, the Mayfield venture capitalist. “Every five years, Time or Newsweek runs a story: ‘Silicon Valley is Dead,’ ” he said. “But Silicon Valley is bigger and more vibrant and better at creating companies than it has ever been.”

Silicon Valley is not “bigger” in a literal sense. In fact, it remains geographically contained by the Santa Cruz Mountains on one side and San Francisco Bay on the other. The physical features of the place help explain the Valley’s vitality.

MR. JOHNSON, the venture capitalist in Palo Alto, noted that the greater Los Angeles area also has a pool of talented engineers (working at aerospace companies like Lockheed, Northrop and Hughes) and great universities (notably Caltech and U.C.L.A.) and plenty of money to invest. “But in Los Angeles,” he said, “people are scattered across a wide area; everything is more spread out.”

It’s harder for entrepreneurs to meet with one another and with investors, he added. And that means connections take longer, deals move slowly, fewer companies are formed. “Like a gas, entrepreneurship is hotter when compressed.” he said.

Thursday, October 19, 2006

Income inequality by education










Monday, October 16, 2006

Implied probabilities

I was expecting a bigger negative correction in Korea indices from the recent nuclear test. The KOSPI index trades at a price/earnings discount of a factor of about 1.5 compared to US equities (current iShares MSCI S. Korea index has a P/E of 11.3), and not so long ago the discount was a factor of 2. I thought a big chunk of that was geopolitical risk due to N. Korea, but after the recent test there was only a small 3-4 percent correction. On the other hand, it seems to be almost business as usual on the Korean peninsula, so perhaps markets knew better than me what the consequences of the test would be.

Are extreme negative events in the probability distribution (war, natural disasters, crashes in general) priced accurately by the market? In the case of S&P options, deep out of the money puts (which are essentially crash insurance) have a big premium built into their price (see here for details). Contrary to some people's folk wisdom, the derivatives market does not underestimate the probability of rare negative events. On the other hand, the utility or payoff function for ordinary fund managers probably tells them to ignore rare negative events. Insuring against such events is a drag on their performance, as they are evaluated against a benchmark that typically includes no such insurance. In the event of a catastrophe, they'll be in good company and the damage sustained by their career will probably be less than the damage to their portfolio (i.e., the investor will suffer more than the manager).

Thursday, October 12, 2006

Malware clusterbomb movie

At my startup RobotGenius, Inc., we've been building new technologies to fight malware, spyware and adware. Our "Spyberus" software installs at the driver layer between the Windows OS and the physical hard drive. It tracks all file modifications, and stores a history of all files on the system, allowing users to trace any infection back to its source (even to the web site or media it came from), and to reverse it with a few clicks.

We have an automated farm of PCs crawling the entire web, downloading, installing, and classifying all Windows executables based on their behavior. There are about a million executables on the internet, about .5% of which are malware. Soon we'll have data on every executable and a complete list of sites which distribute malware. You may see the data someday as security warnings in search results from your favorite search engine :-)

For now, you can enjoy the following movie, which shows a clusterbomb attack. The user downloads an innocuous seeming toolbar application, which initially only does a few nasty things, like modify the Windows hosts file, but after a pre-set delay starts jamming all sorts of downloaded malware code onto the machine. If Spyberus were not already installed on the machine, the user would probably have to wipe the hard drive completely and reinstall Windows. But as you can see, Spyberus allows for a quick and painless reversal of the infection.

Wednesday, October 11, 2006

The battle for brainpower

Another nice review in the Economist. I think it was Kleiner Perkins venture capitalist John Doerr who suggested that every PhD awarded in the US come with a green card attached.

IN A speech at Harvard University in 1943 Winston Churchill observed that “the empires of the future will be empires of the mind.” He might have added that the battles of the future will be battles for talent. To be sure, the old battles for natural resources are still with us. But they are being supplemented by new ones for talent—not just among companies (which are competing for “human resources”) but also among countries (which fret about the “balance of brains” as well as the “balance of power”).

The war for talent is at its fiercest in high-tech industries. The arrival of an aggressive new superpower—Google—has made it bloodier still. The company has assembled a formidable hiring machine to help it find the people it needs. It has also experimented with clever new recruiting tools, such as billboards featuring complicated mathematical problems. Other tech giants have responded by supercharging their own talent machines (Yahoo! has hired a constellation of academic stars) and suing people who suddenly leave.

...Alan Eustace, a vice-president of Google, told the Wall Street Journal that in his view one top-notch engineer is worth “300 times or more than the average”. Bill Gates says that “if it weren't for 20 key people, Microsoft wouldn't be the company it is today.”

Reversing the brain drain. 20m Indians living abroad generate income equivalent to 35% of India's GDP, making them almost 20 times more productive than their counterparts at home!

Half the Americans who won Nobel prizes in physics in the past seven years were born abroad. More than half the people with PhDs working in America are immigrants. A quarter of Silicon Valley companies were started by Indians and Chinese. Intel, Sun Microsystems and Google were all founded or co-founded by immigrants. But now India and China are sucking back their expats, and America's European competitors have woken up to the importance of retaining their talent.

...Some of the best prospects in the competition for talent are émigrés—people who have gone abroad to make their fortune but still feel the tug of their home country. Both China and India are now trying to emulate Ireland's success in wooing back the diaspora, but China is trying harder. In 1987 the Communist Party's general secretary, Zhao Ziyang, described China's brain drain as “storing brain power overseas”. Officials from every level of government have been raiding the store since, as part of a policy of “strengthening the country through human talent”.

They have introduced a mind-boggling range of enticements, from bigger apartments to access to the best schools, from chauffeur-driven cars to fancy titles. The Chinese Academy of Sciences has established a programme of generous fellowships for expats—the “hundred talents programme”. Beijing has an office in Silicon Valley, and Shanghai has established a “human talent market”. China is littered with shiny new edifices labelled “returning-student entrepreneurial building”.

All this coincides with a change in the flow of people. For decades returnees were rare. The numbers began to shoot up in 2000, when the bursting of the Silicon Valley bubble coincided with rapid growth in China. Despite doubts about the quality of some of these people, there is growing evidence that China is going in the same direction as South Korea and Taiwan—first tempting back the diaspora (see chart 4) and then beginning to compete for global talent.

India has taken a different approach. The government has relied as much on the goodwill of prominent businesspeople as it has on the wisdom of bureaucrats; it has also cast its net wider, focusing not just on luring back expats but also on putting the wealth and wisdom of the diaspora to work on behalf of the mother country. There are an estimated 20m Indians living abroad, generating an annual income equal to 35% of India's gross domestic product. The Indian government is doing what it can, in its haphazard way, to let them participate in the Indian boom, making it easier for them to invest back home and streamlining visa procedures. There is a special visa for “people of Indian origin”.

Sunday, October 08, 2006

All Things Considered

My collaborator A. Zee was interviewed about our paper Message in the Sky (see also here) on last Friday's broadcast of NPR's All Things Considered. Harris did a pretty good job of explaining the idea, but I think what most non-experts miss is that it is non-trivial to have a physical mechanism that can place an identical message so as to be readable by all advanced civilizations. Think of the causal structure of the Big Bang -- not all civilizations see the same patch of sky.

Note the pains taken to identify us as "serious" and "well-respected" physicists :^)

Scientists Propose Looking for Big Bang Messages

by Richard Harris

All Things Considered, October 7, 2006 · This year's Nobel Prize in physics went to two men who studied the afterglow of the Big Bang. Earlier this year, two very serious and well-respected physicists suggested that the afterglow should be probed even more carefully -- to see if it contains a message from a creator.

Wednesday, October 04, 2006

Recommended reading from The Economist

I have a little time to kill here at SFO, so I thought I'd make a quick post recommending three nice survey articles in recent issues of the Economist. Sorry if you can't get to some of these articles without a subscription.

Special report on virtual online worlds: Second Life, virtual economies; this is just the beginning.

Unlike other virtual worlds, which may allow players to combine artefacts found within them, Second Life provides its residents with the equivalent of atoms—small elements of virtual matter called “primitives”—so that they can build things from scratch. Cory Ondrejka, Linden Lab's product-development boss, gives the example of a piano. Using atomistic construction, a resident of Second Life might build one out of primitives, with all the colours and textures that he would like. He might add sound to the primitives representing the keys, so the piano could actually be played in Second Life. “Of course, since these are primitives, the piano could also fly or follow the resident around like a pet,” says Mr Ondrejka.

Because everything about Second Life is intended to make it an engine of creativity, Linden Lab early on decided that residents should own the intellectual property inherent in their creations. Second Life now allows creators to determine whether the stuff they conceive may be copied, modified or transferred. Thanks to these property rights, residents actively trade their creations. Of about 10m objects created, about 230,000 are bought and sold every month in the in-world currency, Linden dollars, which is exchangeable for hard currency. Linden Lab estimates that the total value (in “real” dollars) this year will be about $60m. Second Life already has about 7,000 profitable “businesses”, where avatars supplement or make their living from their in-world creativity. The top ten in-world entrepreneurs are making average profits of just over $200,000 a year.

Special report on credit markets: growth in private debt financing driven by hedge funds, credit derivatives; reduction in average vol, but systemic risk due to an untested system. Is it a classic story of risk diversification reducing vol and the cost of capital, or a gambling machine that might have a nonlinear meltdown?

Indeed, the market has changed so fast that regulators are not sure if it is spinning out of control. On one hand, innovations in the credit markets have helped to provide a remarkable period of stability in the world's financial system. In recent years, markets have lived through the end of the internet bubble, the collapse of Enron, the terror attacks of September 11th 2001, debt downgrades in the car industry and a stampede out of risky assets in May and June. Any one of these might once have triggered a financial crisis. But none did.

Cheap and liquid financing has enabled companies to make more efficient use of their balance sheets, potentially boosting returns to shareholders and allowing managers to concentrate on profits and cashflow. Despite the increased lending, banks have increased the cushions of capital that they rely on to be a safeguard.

On the other hand, as the debt and derivatives markets have grown out of all recognition, they have moved increasingly into the shadows. Regulators worry that some of the complex financial instruments conjured up around the lending and borrowing of money—worth trillions of dollars—may sow the seeds of the next financial crisis.

The credit markets are the motor for three of the big trends of the decade and some people find them unsettling. First, companies are raising more and more capital through privately issued loan instruments, as opposed to public equity—such as selling stocks or issuing bonds, which can be openly traded. Private deals are harder for regulators and ordinary investors to keep tabs on.

Second, the lending is increasingly being orchestrated from outside the regulated banking industry, by hedge funds and other credit investors that are often supervised only indirectly, if at all. These are especially big in the booming market for credit derivatives, which are also traded outside public exchanges.

Third, although some of this capital is available to public companies, such as Ferrovial, most of it is being gobbled up by leveraged buy-out firms, which use the money to buy public companies and remove them from the stockmarket.

Central bankers and supervisors increasingly worry about the risks to financial stability that may be lurking in the complex debt instruments dreamt up by the finance industry. One of their biggest concerns is how much danger there may be to regulated banks from the faceless institutions they now do much of their debt trading with: hedge funds.

Regulators are beginning to ask themselves whether hedge funds are adequately monitored through the supervision of the banking industry. Pressure is growing on the banks to deal sensibly with their trading counterparties. Equally, some question whether over-zealous supervision may have had the perverse consequence of driving business and finance away from the public eye.

Survey of world economy and emerging titans India and China. Very useful data and growth projections from Goldman. Note the difference between PPP and exchange rate comparisons of GDP; for these to converge in the next decades would require a big slide in the dollar vs. emergent currencies. Also note historic world GDP shares -- for 18 of the last 20 centuries world GDP was dominated by China and India, which accounted for (on average) 80% of the total.

LAST year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution.

Indeed, it is likely to be the biggest stimulus in history, because the industrial revolution fully involved only one-third of the world's population. By contrast, this new revolution covers most of the globe, so the economic gains—as well as the adjustment pains—will be far bigger. As developing countries and the former Soviet block have embraced market-friendly economic reforms and opened their borders to trade and investment, more countries are industrialising and participating in the global economy than ever before. This survey will map out the many ways in which these economic newcomers are affecting the developed world. As it happens, their influence helps to explain a whole host of puzzling economic developments, such as the record share of profits in national income, sluggish growth in real wages, high oil prices alongside low inflation, low global interest rates and America's vast current-account deficit.

...Perhaps some of these countries should be called re-emerging economies, because they are regaining their former eminence. Until the late 19th century, China and India were the world's two biggest economies. Before the steam engine and the power loom gave Britain its industrial lead, today's emerging economies dominated world output. Estimates by Angus Maddison, an economic historian, suggest that in the 18 centuries up to 1820 these economies produced, on average, 80% of world GDP (see chart 2). But they were left behind by Europe's technological revolution and the first wave of globalisation. By 1950 their share had fallen to 40%.

Tuesday, October 03, 2006

Greetings from Pasadena

I'm at Caltech for a couple of days, giving a talk at the Institute of Quantum Information (slides are here). The weather is beautiful, and, judging by the screaming on campus last night, the tradition of frosh initiation is alive and well.

The Nobel prize in physics was awarded to Mather and Smoot for COBE (measurement of temperature fluctuations in the microwave background, confirming the big bang model of cosmology). When I was a grad student I had an office across the hall from Smoot's group at LBNL. They were moved at some point and some HET postdocs (including Raman Sundrum) inherited the nice view of the bay. Smoot used to drop by all the time to look out the windows and lament his loss. He told me that, contrary to rumor, he was not the Smoot used as a unit of length by MIT students to measure the Harvard bridge. (If you don't know what I'm talking about there is always Google.)

Finally, via Dave Bacon, a hilarious history of string theory by Peter Shor (of quantum factoring fame), which appeared as a review of Smolin's book on Amazon. Now string theorists can complain about how Shor is not smart enough to have an opinion on the subject, or understand what they are doing. (See further down the same page for Lubos' review.) Oh, and as pointed out elsewhere by Wolfgang, it was not Nature scamming the string theorists, but rather Mathematics masquerading as Nature ;-)

The string theorists were scammed!, September 25, 2006
Reviewer: Peter W. Shor (Wellesley, MA USA) - See all my reviews

The part of the book I found most interesting was the part which tells how the string theorists were scammed by Nature (or Mathematics). Of course, Smolin doesn't put it exactly like this, but imagine the following conversation.

String theorists: We've got the Standard Model, and it works great, but it doesn't include gravity, and it doesn't explain lots of other stuff, like why all the elementary particles have the masses they do. We need a new, broader theory.

Nature: Here's a great new theory I can sell you. It combines quantum field theory and gravity, and there's only one adjustable parameter in it, so all you have to do is find the right value of that parameter, and the Standard Model will pop right out.

String theorists: We'll take it.

String theorists (some time later): Wait a minute, Nature, our new theory won't fit into our driveway. String theory has ten dimensions, and our driveway only has four.

Nature: I can sell you a Calabi-Yau manifold. These are really neat gadgets, and they'll fold up string theory into four dimensions, no problem.

String theorists: We'll take one of those as well, please.

Nature: Happy to help.

String theorists (some time later): Wait a minute, Nature, there's too many different ways to fold our Calabi-Yao manifold up. And it keeps trying to come unfolded. And string theory is only compatible with a negative cosmological constant, and we own a positive one.

Nature: No problem. Just let me tie this Calabi-Yao manifold up with some strings and branes, and maybe a little duct tape, and you'll be all set.

String theorists: But our beautiful new theory is so ugly now!

Nature: Ah! But the Anthropic Principle says that all the best theories are ugly.

String theorists: It does?

Nature: It does. And once you make it the fashion to be ugly, you'll ensure that other theories will never beat you in beauty contests.

String theorists: Hooray! Hooray! Look at our beautiful new theory.

Okay, I've taken a few liberties here. But according to Smolin's book, string theory did start out looking like a very promising theory. And, like a scam, as it looks less and less promising, it's hard to resist the temptation to throw good money (or research) after bad in the hope of getting something back for your return. One of the questions Smolin addresses in the rest of the book is why the theoretical physics community has kept with string theory and largely abandoned all the other approaches to quantum gravity. The short answer is that it's hard to admit that you've been scammed. The long answer is much more complicated. Another thing Smolin addresses in the book is other approaches to quantum gravity. And as could be predicted, he gives lots of space to his own approach and too little space to others, especially Alain Connes' non-commutative geometry. But overall, I found it very worthwhile and entertaining, and a good explanation as to how theoretical physics came to be in the state it is today.

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