Noah Smith makes the case for Bitcoin as gold

Noah Smith makes the case for Bitcoin as a new gold. The problem recently has been that it hasn’t held value well. Perhaps there’s a future where it’s used more in transactions, once fees are decreased, giving it a resurgence in a new manner.

There are essentially three reasons Bitcoin isn’t working out as a currency — twotechnological, and one economic. Technologically, Bitcoin tends to be slow and laborious to use because it verifies transactions in small blocks. That problem isn’t particularly hard to overcome — just use bigger blocks, or use a form of temporary credit to ease the burden on the network. More ominously, Bitcoin relies on people known as miners to verify all transactions, and compensates them by creating new Bitcoins. But soon, this will stop, since the total number of Bitcoins is capped at 21 million — at that point, transaction fees will be needed to pay miners.

It’s very possible that all of these technological problems will be overcome, either by Bitcoin or by rival cryptocurrencies. Lots of smart people are working feverishly on solutions. But there’s also an economic reason why Bitcoin and other cryptocurrencies will never be useful as money. Things that are good financial investments don’t make good currencies, and vice versa.

via Bitcoin Is the New Gold at Bloomberg.com

How Amazon continues to grow

There’s no doubt that Amazon continues to grow their power in the world of ecommerce. Here’s an interesting look at how they continue to grow their role with each additional transaction.

As crowds build on either side of the platform, the middleman becomes ever more indispensable. Oh, sure, a new platform can enter the market—but until it gets access to the 480 million items Amazon sells (often at deep discounts), why should the median consumer defect to it? If I want garbage bags, do I really want to go over to Target.com to re-enter all my credit card details, create a new log-in, read the small print about shipping, and hope that this retailer can negotiate a better deal with Glad? Or do I, ala Sunstein, want a predictive shopping purveyor that intimately knows my past purchase habits, with satisfaction just a click away?

Similarly, the more online buyers and sellers are relying on Amazon to do their bidding or settle their disputes, the less power they have relative to Amazon itself. They are less like arms-length transactors with the company, than they are like subjects of a despot, whose many roles include consumer and anti-fraud protection.

While this may be an argument against the practice, there doesn’t appear to be any change coming. Until there is, there’s no reason to believe Amazon won’t continue to grow.

See the full post From territorial to functional sovereignty: the case of Amazon at openDemocracy.

Disclosure: Long AMZN

Software updates as SEC violations

Could disclosures on software updates be a securities violation? From Matt Levine in Bloomberg:

The U.S. Department of Justice and the Securities and Exchange Commission are investigating whether Apple Inc. violated securities laws concerning its disclosures about a software update that slowed older iPhone models, according to people familiar with the matter.

The government has requested information from the company, according to the people, who asked not to be named because the probe is private. The inquiry is in early stages, they cautioned, and it’s too soon to conclude any enforcement will follow. Investigators are looking into public statements made by Apple on the situation, they added.

While the slowdown has frustrated consumers, U.S. investigators are concerned that the company may have misled investors about the performance of older phones.

It is fun to imagine more extreme hypotheticals. What if Apple sold phones that it knew would explode after one year, and they all exploded and killed millions of people? And the Justice Department looked into it, examined the facts and the law, and said: “You know, this looks like securities fraud. The real victims here are Apple’s shareholders, who had no warning that the phones would explode and kill their users, and who have now lost money when the stock dropped.” If you were an alien trying to understand the U.S. legal system from cases like this one (also opioid casesclimate-change lawsuitsgun control, etc.), you might conclude that its purpose is to protect shareholders from losing money when the companies they own harm consumers. 

via Sergeant Spoof’s Time Has Passed at Bloomberg.com

Using crypto to pay viewers & other new business models

Jeremy Epstein looks at how Amazon is integrating advertising into their streaming video service, and how it could be applied to crypto-enabled business models of the future:

Let’s leave aside the legitimate fear that now Amazon has even MORE information about you, locked away in proprietary databases, and can manipulate you at will since who cares about that anyway, right?

What Amazon is now doing, better than anyone in the history of TV has ever done, is tie content viewing directly to revenue.

For every show you watch, intro you skip over, episode you quit halfway through…every single click, you are going to earn some sort of crypto-token for it.

That’s right, you will get paid to watch TV. (That’s all we need, right? At least my kids can become revenue generators now.)

Vendors will run AI algorithms on all of the data that you (and others) generate and serve even more relevant ads based on your viewing habits.

You’ll get your content for free and you will get paid to watch it.  Then, you’ll use those crypto-tokens to buy the products that advertisers put in front of you (which is paid for in the same crypto-tokens), all part of the circular economy.

It likely won’t be Amazon that will find a way to pay you, as they’ve shown they are happy to keep your data in exchange for finding ways to sell more, but there are new business models, made possible by crypto and blockchain.

via Amazon Shows How You Will Get Paid in Cryptocurrency to Watch TV at Never Stop Marketing…

Look outside public markets for true diversification

From a post on diversifying from The Humbe Dollar, based on Harry Markowitz’s 1952 research paper on the subject.

For instance, he explained that the number of stocks you hold is far less important than the number of types of stocks you own. A portfolio of 60 stocks might appear to be diversified. But if all 60 are technology stocks, there is still quite a bit of risk. Today, this might seem like commonsense, but at the time it was a major revelation.

Markowitz ultimately won a Nobel Prize for his work, and there’s no question it was brilliant. Today, however, there’s even more you can do to manage risk in your financial life. Here are five ideas to help you think more comprehensively about diversification:

Diversify your tax rates
Diversify your investment products
Diversify your financial relationships
Diversify the timing of your purchases.
Diversify the timing of your sales.

While this post at the Humble Dollar focuses on public market investments, diversifying can be taken much further. With easier access to alternative investments, it’s easier than ever to diversify among a large number of investment products. The trick is doing so feasibly and with proper risk management.

via Five Ways to Diversify – HumbleDollar at HumbleDollar

What would Winston Churchill say about stop losses?

Here’s a post on stop loss orders from the Abnormal Returns archives. Tadas looked at what a number of others have written about using stop loss orders, including Justin Wilcox:

He goes on to note a better way traders should frame their thoughts about stop loss orders:

One thing that has helped me immensely is to not think about stops from the view point of the exit of a trade gone bad, but to view it as simply the exit from a trade. The execution of the plan you have for the trading day should effect where your stops go more than anything else.

And Eddy Elfenbein:

The lesson for investors is that your thesis can be right but it may take a long time to see it pay off. I remember Peter Lynch saying that his stocks did best in the second or third year that he owned them.

He concludes with what Churchill may have said about stop loss orders:

No one pretends that democracy [stop loss orders are] is perfect or all-wise. Indeed, it has been said that democracy [stop loss orders are] is the worst form of government [risk management] except all those other forms that have been tried from time to time.

via Winston Churchill on stop loss orders at abnormalreturns.com

Kodak’s dubious attempt at blockchain

Here’s Kevin Roose in the New York Times on Kodak’s ‘dubious’ attempt at blockchain and their KodakCoin.

In theory, photographers will be able to upload their images to a platform called KodakOne, create a blockchain-based license for each image, and use web-crawling software to scour the internet looking for copyright violations. Instead of using dollars, photographers can have clients pay them in KodakCoins.

KodakCoin’s initial offering, scheduled for Wednesday, is expected to raise as much as $20 million. But there are few details about what that money will be used for, or why a similar system could not be built without the blockchain. There is also a more obvious question: Why would photographers want to be paid in digital tokens, rather than cash?

In several calls with KodakCoin leaders, I couldn’t get straight answers to these questions. And KodakCoin’s white paper, a technical document that details the plans for the currency, is a 40-page mishmash of marketing buzzwords and vague diagrams…

When we first heard about this project, we questioned Kodak’s ability to make this happen and don’t think any better of their chances now:

First, despite the name, KodakCoin is not actually a Kodak project. The company behind the offering, WENN Digital, is a California-based affiliate of a British photo agency that specializes in paparazzi photo licensing. Under their licensing agreement, Kodak will not receive any direct revenue from the public offering. It will receive a minority stake in WENN Digital, 3 percent of all KodakCoins issued and a royalty on future revenue.

Cameron Chell, a lead adviser to the KodakCoin project, told me that the initial offering represented a “seminal moment” for Kodak, and that the company’s interest in blockchain technology was a savvy long-term investment

Now, about those coins. You might think that a digital currency that is trying to “democratize photography and make licensing fair to artists,” in Mr. Clarke’s words, would be easily accessible. But because of regulatory requirements, KodakCoins will be available only to so-called accredited investors in the United States. An accredited investor is defined as a person with a net worth of $1 million or more, or an annual income above $200,000.

How many cryptocurrency-obsessed millionaire photographers do you know?

 

via Kodak’s Dubious Blockchain Gamble at The New York Times

Pros and cons of stop loss orders

A two-sided article written by Alex Foster and The White Coat Investor taking opposing views on the usage of stop loss orders.

Alex takes the pro-stop loss side, concluding:

Investing is a balance act of risks and rewards. Investors can reduce downside risks while maintaining the potential for rewards available by using a trailing stop ladder. The benefits of using a trailing stop ladder outweigh the negatives. While laddering out of a position with staggered trailing stops does not eliminate risks, it does reduce the size of losses significantly during a bear market.

On the other side, The White Coat Investor cites six reasons he doesn’t sue stop loss orders:

additional costs

additional taxes

additional complexity

stop loss orders are a form of market timing

beware of getting whipsawed

watch out for gapping

Alex includes a final rebuttal addressing each of the arguments. A big part of of the decision comes down to how active and disciplined you can be with your investing. If you truly believe in your investments for the long-term, there’s no need to bother. If you’re looking short-term and/or willing and capable of trading in-and-out on a consistent basis yet don’t want to watch the market all day, stop losses can be used effectively.

Read more at Stop Loss Orders – Pro/Con Series at The White Coat Investor.

Thinking of investing as a game

Graham Duncan on thinking about investing as playing a game:

One of the most important things I’ve learned in that process is what separates the great investors from the rest. The great ones view investing as a game, and they know exactly what game they’re playing. It brings to mind an observation from the philosopher Kwame Anthony Appiah: “In life the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”

One way to relocate your locus of control is to frame investing (and even life more generally) as a game. This allows you to experience luck as luck, to separate the hand you drew from the playing of that hand.

He describes five levels of the game for investors, though it seems more generally applicable:

1. Apprentice — learning the game

2. Expert — mastering the game you were taught

3. Professional — making the game you were taught fit your own strengths and weaknesses

4. Master — changing the game you play as part of your own self-expression and operating at scale

5. Steward — becoming part of the playing field itself and mentoring the next generation

 

Read the full post at The Playing Field on Medium.

Amazon enters healthcare

Amazon, Berkshire Hathaway and JPMorgan Chase announced on Tuesday that they would form an independent health care company to serve their employees in the United States.The three companies provided few details about the new entity, other than saying it would initially focus on technology to provide simplified, high-quality health care for their employees and their families, and at a reasonable cost. They said the initiative, which is in the early planning stages, would be a long-term effort “free from profit-making incentives and constraints.”

via Amazon, Berkshire Hathaway and JPMorgan Team Up to Disrupt Health Care at The New York Times