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This is brilliant. Investors are using satellite imagery to augment their financial analysis.

As an example of how Wall Street getting in on this techhology, the UBS Investment Research issued its earnings preview for Wal-Mart's [WMT 50.68 -0.18 (-0.35%) ] second quarter, which publicly revealed that UBS [UBS 17.04 0.22 (+1.31%) ] had been using used satellite services of private-sector satellite companies to gather the comings and goings of the parking lots at Wal-Mart stores. “UBS proprietary satellite parking lot fill rate analysis points to an interesting cadence intra-quarter and potential upside to our view,” the report read.

UBS analyst Neil Currie had been looking at satellite data on Wal-Mart during each month of 2010, and he’d concluded that there was enough correlation between what he was seeing in the satellite pictures of Wal-Mart’s parking lots to the big-box chain’s quarterly earnings, that he was ready to incorporate that data into UBS’ report on Wal-Mart, which releases its earnings on Tuesday.

Currie purchased his analysis from a small two-year old Chicago-based firm called Remote Sensing Metrics LLC, which had scoured satellite images of more than 100 Wal-Mart stores chosen as a representative sample.

By counting the cars in Wal-Mart’s parking lots month in and month out, Remote Sensing Metrics analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

What industries other than retail can be scrutinized by satellite? Some possibilities:

• construction
• forestry
• trains, trucking, ports
• amusement parts
• beaches and other tourism
• car sales

What if many of today's unemployed have been rendered unemployable by changes in the economy and the advance of technology?

In one of the most thought-provoking economics books of our times, A Farewell to Alms, Gregory Clark, discusses the concern that improved machines would reduce demand for labor. The answer during the Industrial Revolution was remarkably “no”. Most unskilled workers in fact benefited hugely from the Industrial Revolution, but not all:

“there was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.” (page 286)

The U.S. has 15 million officially unemployed workers and additional tens of millions who aren’t working and aren’t looking for a job. Could these folks be the draft horses of the 21st century?

Machines will continue to displace humans. The tipping point will come before machines can do the work of an average-IQ human because there are plenty of humans with average or above-average IQ who are lazy and will be happy to let machines take over their jobs.

Megan McArdle explains that the academic tenure system damages professors, schools, and students.

The arguments for academic tenure have always struck me as pretty weak, and more to the point, transparently self-serving. The best you can say of the system is that it preserves a sort of continuity in schools that is desireable for the purposes of cultivating alumni donations. But the cost of such a system is simply staggering.

Consider what the academic job market now looks like. You have a small elite on top who have lifetime employment regardless of how little work they do. This lifetime employment commences somewhere between 35 and 40. For the ten-to-fifteen years before that, they spend their lives in pursuit of the brass ring. They live in poverty suck up to professors, and publish, for one must publish to be tenured. It's very unfortunate if you don't have anything much worth saying; you need to publish anyway, in order to improve your chances. Fortunately, for the needy tenure seeker, a bevy of journals have sprung up that will print your trivial contributions. If nothing else, they provide a nice simple model which helps introductory economics professors explain Say's Law.

At the end of the process, most of the aspirants do not have tenure; they have dropped out, or been dropped, at some point along the way. Meanwhile, the system has ripped up their lives in other ways. They've invested their whole youth, and are back on the job market near entry level at an age when most of their peers have spent ten years building up marketable skills. Many of them will have seen relationships ripped apart by the difficulties of finding not one, but two tenure-track jobs in the same area. Others will have invested their early thirties in a college town with no other industry, forcing them to move elsewhere to restart both their careers and their social lives. Or perhaps they string along adjuncting at near-poverty wages, unable to quite leave the academy that has abused them for so long.

And so forth. I was fortunate to recognize the silliness of tenure early in graduate school; I avoided most of the nonsense that typical tenure-aspirants deal with in hope of landing a tenure track job after earning their doctorate. I decided to go into industry, and am very glad that I did.

How much do online leadership and corporate leadership have in common?

Think you need expensive MBAs to rise to the top of one of the world's biggest businesses? Don't tell Starbucks CIO Stephen Gillett.

Gillett does actually have an MBA (from San Francisco State, as it happens), but according to a report in Forbes, one expert credits Gillett's time as a guild leader in leading massively-multiplayer online game World of Warcraft for his "meteoric rise."

According to Gillett's former boss John Hagel III, speaking at a leadership conference, successful guild leaders need "a high degree of influence...you have to be able to influence and persuade people--not order them to do things. Ordering people in most of these guilds doesn't get you far."

Running a guild on an online game is basically like running a large, active club in "real life". It won't be long before these kinds of online activities become more prominent on resumes outside the pure software industry.

Yeah, Jon Stewart is on a roll.

Here's a graph that illustrates how Obama's health care reform bill killed job growth before it even passed.

In case it isn't obvious at first glance, the chart shows that as soon as Obamacare was proposed at the end of October, 2009, companies immediately stopped hiring as many people and unemployment filings decreased at a much reduced rate.

Keith Hennessey offers a readable explanation of underfunded defined benefit pensions and how they compare to defined contribution pensions.

In a defined contribution (DC) pension plan, an employer commits to contributing specific dollar amounts into an employee’s pension account. The employee then makes investment decisions for the funds in his account. The employee has both the upside and downside investment risk: if he invests well, he will have more for retirement. If he invests poorly, he will have less. The employer usually contracts out to a private investment firm (like Fidelity) for the account and investment management.

In a defined benefit (DB) pension plan, an employer commits to pay the employee a specific benefit amount at retirement. The employer owns both the upside and downside investment risk.

There's a lot more at the link, along with an explanation of the three-way political tug-of-war that causes the chronic underfunding of DB pensions.

Jason Fried identifies some colorful business writing and explains how it will set your business apart from the boring competition.

Not mentioned in the article: the automobile industry is one of the most stodgy domains I've ever seen when it comes to creative copy.

Electronic high-speed trading is an area fascinates me and matches my technical expertise (artificial intelligence), but that I've never worked in professionally. Maybe someday! Meanwhile, reading about the latest advances in electronic trading algorithms makes me think that I've probably got a lot of easy ideas that haven't yet been tried in this domain.

"System and method for prioritized automated trading in an electronic trading environment" describes a software algorithm that decides the order in which to put through a list of trades when more than one of those trades would normally be triggered after a single condition is satisfied--say, that the price of a stock drops to a pre-determined level. The patent describes what might be considered a fairly basic function of all automated trading software, which is relieving the burden of prioritizing a batch of trades that were previously queued up and are waiting for the right conditions before they're sent to the exchange.

Prioritizing trades is inherently a deterministic process, unless you're trading on a so-called "dark pool" where trades are invisible the details of your trades are available more or less instantaneously to everyone watching the market. If you are moving a sufficient volume of shares and another trader can predict what your automated system is going to do next, they could swoop in and take advantage of whatever directionality you're providing in the up or down movement of a stock.

Hence a second approach, published in a patent also issued to Trading Technologies International just a few months earlier. "System and method for randomizing orders in an electronic trading environment" allows a trading strategy that is seemingly at odds with deterministic prioritization of trades. This patent describes a process that seeks to make your trades indistinguishable from the background noise of other trades so that no one can predict what you'll do next, or where the price of a stock might move as a result. If it works as advertised, there is the possibility that no one would even know you are trading that stock.

Scheduling algorithms are a huge field in artificial intelligence, and random scheduling is one of the first things you should always try. If financial software developers are just figuring that out, maybe I'm in the wrong field.

According to the Computer & Communications Industry Association, fair use generates $4.7 trillion in revenue each year.

Industries that rely on fair use exceptions to copyright law grew faster than the rest of the U.S. economy from 2002 to 2007, expanded 5 percent and accounted for 23 percent of real economic growth, according to a new economic study. The Computer & Communications Industry Association released its 2010 economic study “Fair Use in the U.S. Economy” on Capitol Hill today.

CCIA commissioned the study conducted using publicly available government data and World Intellectual Property Organization methodology. It found companies benefiting from limitations on copyright-holders’ exclusive rights, such as “fair use” – generated revenue of $4.7 trillion in 2007 – a 36 percent increase over 2002 revenue of $3.4 trillion. The most significant growth over this period was in Internet publishing and broadcasting, web search portals, electronic shopping, electronic auctions and other financial investment activity.

Promoters of strengthened intellectual property rights want to capture some of that revenue for themselves, but will certain destroy much of the value in the process.

(HT: The Hill and RD.)

The work experiences of a business consultant working for Boston Consulting Group in Dubai.

Analytical skills were overrated, for the simple reason that clients usually didn’t know why they had hired us. They sent us vague requests for proposal, we returned vague case proposals, and by the time we were hired, no one was the wiser as to why exactly we were there.

I got the feeling that our clients were simply trying to mimic successful businesses, and that as consultants, our earnings came from having the luck of being included in an elaborate cargo-cult ritual. In any case it fell to us to decide for ourselves what question we had been hired to answer, and as a matter of convenience, we elected to answer questions that we had already answered in the course of previous cases — no sense in doing new work when old work will do. The toolkit I brought with me from MIT was absolute overkill in this environment. Most of my day was spent thinking up and writing PowerPoint slides. Sometimes, I didn’t even need to write them — we had a service in India that could put together pretty good copy if you provided them with a sketch and some instructions.

Yeah, most business consulting is a scam. I'm not sure I completely agree with the writer's perspective on the fleecing of his clients.

What I could not get my head around was having to force-fit analysis to a conclusion. In one case, the question I was tasked with solving had a clear and unambiguous answer: By my estimate, the client’s plan of action had a net present discounted value of negative one billion dollars. Even after accounting for some degree of error in my reckoning, I could still be sure that theirs was a losing proposition. But the client did not want analysis that contradicted their own, and my manager told me plainly that it was not our place to question what the client wanted.

In theory, it was their money to lose. If they wanted a consulting report that parroted back their pre-determined conclusion, who was I to complain? I did not have any right to dictate that their money be spent differently. And yet, to not speak out was wrong. To destroy a billion dollars is to destroy an almost unimaginable amount of human well-being. Spent carefully on anti-malarial bed nets and medicine, one billion dollars could save a million lives. This was a crime, and failing to try and stop it would be as bad as committing it myself. And if I could not prevent it, then what reason was I being paid such a high salary? How could I justify my income if not by prevailing in situations such as these?

The billion dollars wasn't "destroyed" however, it was paid out to the people executing the doomed project. The wealth was reallocated away from the client's foolish shareholders and to the client's employees, contractors, and suppliers. Some wealth was possibly lost due to transaction costs, but certainly not the whole billion. In reality, it might be better to think of the wealth as being freed from the clutches of the foolish shareholders and released back into the wild!

(HT: RB.)

The Speculist writes that despite the burgeoning economic recovery many jobs may not ever come back thanks to automation.

The efficiencies that can allow a company to get by with 10% fewer staff or an economy to get by with a 10% smaller employment base are many -- better management practices, longer work hours, more highly motivated or better trained staff. But the big one has got to be automation. Historically, automation boosts productivity and reduces the need for human workers. Over the past four decades, our economy has made a massive shift to a highly automated, digitized substrate. As recently as a decade and a half or so ago, economists were still scratching their heads over when the big productivity gains would emerge from this shift. Then about five or six years ago, those productivity numbers started showing up. Some of us took this to be unambiguously good news. And, in fact, I still think it's excellent news. But it may have something to say about the future of employment, and the need for our thinking around employment to change.

Phil Bowermaster goes on to talk about how our economy will have to shift to accommodate the growing mass of ex-workers who are no longer capable of contributing anything of value to an increasingly automated workforce. Today, in 2010, anyone with an IQ of 70 or higher can do something of value, but what happens as that threshold rises? As automation "IQ equivalent" increases, the number of people displaced will grow quickly until the IQ 100 median hump is surpassed. When robots can do the work of any human with an IQ of 100, how will society adapt?

One thing I can say for sure: women will be the big winners. Why? Because they can carry babies more cheaply, efficiently, and reliably that any conceivable robot. Men who are of sub-robot capability will be worthless to society, but womens ability to produce children take much longer to displace.

The effect of this is obvious: women leaving the workforce more rapidly than men and turning their energies to producing and raising children. As robots become more and more capable, the predominance of males over females at the high end of the IQ curve will lead to an ever-shrinking male-dominated aristocracy consisting of the few humans who are able to contribute something of value to an economy run by robots. It's no feminist paradise, but childbearing women will be far better off than men of sub-robot intelligence who will be unable to do anything a robot can't.

(HT: Marginal Revolution.)

Sound Mind Investing has a concise explanation of why contrarian investing works.

Simply put, the 200-year track record of the chart says that stocks are likely to produce better returns than their historical long-term average until they "catch up" to the trend line. Maybe not this year, or next, or for the next 5-10 years even. But time after time those two lines have separated and then converged, and it's likely to happen again before too long. It could take a decade, but long-term investors have time on their side.

I recognize that this is difficult to accept for many people who look at the long-term challenges facing our economy and our country. But keep in mind that all of the problems we see are already known and factored into the stock market's current valuation. The stock market is a forward-looking discounting mechanism that has all that known bad news already baked in.

That forward-looking discounting, coupled with the tendency shown in the chart for the market to revert to the mean, causes the market to continually deliver the exact opposite of what most investors expect. That's why in hindsight, a time like 1999 and early 2000 can be a poor time to invest, despite the fact that the external conditions seem to look great. And it's also why hindsight may well show the current period to be a good time for long-term investors to invest, despite external conditions seeming to look poor.

Emphasis mine.

I just want to go on the record and say that I expect more job losses. When the media reports yet more "unexpected" job losses, the question to ask is: unexpected by whom?

SHOCKER: JOBLESS CLAIMS RISE “UNEXPECTEDLY” — AGAIN! And yet, every time it happens, it’s “unexpected.” Maybe it’s time to adjust the expectations. . . ?

But how can it be “unexpected” if it’s just due to an administrative backlog?

The jump was due to an “administrative” accumulation from late December and early January holidays, and did not reflect “economic” reasons, a Labor Department spokesman said.

Wouldn’t you know about these things piling up? I mean, the holidays come around every year, and you ought to know that if you’re doing your job and tracking data and stuff. . . .

I guess that if the Obama Administration said "yeah, we expect to lose bazillions of jobs every month for a while" there would be even more backlash against their nonsensical socialist agenda.

This piece about Obama's "Colossal Miscalculation On Health Care" by Charlie Cook contains two insightful factoids that I was not previously aware of. First, with regards to unemployment, most people know that the official unemployment numbers do not count people who have given up looking for work. One of the effects of this omission is that the unemployment rate can actually improve without the creation of new jobs if people get so discouraged that they begin giving up in droves. However, I hadn't fully grasped the counterpoint: just because new jobs are created doesn't mean the unemployment rate will go down!

A number of economists expect that unemployment will get worse before it gets better. Even if that prediction is wrong, some analysts estimate that Labor's household employment survey would have to show a net increase of 150,000 jobs a month for 48 straight months for the unemployment rate to drop to just 9 percent. ...

Even before December's negative jobs report, economist Robert Reich, who was Labor secretary in the Clinton administration, wrote on talkingpointsmemo.com that "the chances of unemployment being 10 percent next November are overwhelmingly high." The number of newly created jobs will be offset by discouraged workers beginning to once again seek employment, Reich predicted, resulting in little change in the overall unemployment rate.

No wonder the unemployment rate is a trailing indicator of the economy!

Second, presidents never get more popular during their second year in office.

As political analyst and data-cruncher extraordinaire Rhodes Cook noted in the December issue of The Rhodes Cook Letter, no other president in the past half-century has seen his Gallup job-approval rating drop as far as Obama's has in his first year (down 21 points), and no president in that same half-century has seen his approval rating go up, even as much as 1 point, between the end of his first year and the eve of his first midterm election.

I think Obama and the Democrats are in trouble.

Startling (to me) new evidence demonstrates that the government and the financial industry colluded together against American taxpayers.

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

I'm a die-hard capitalist, but this sort of collusion is not capitalistic and completely undermines the ideals of the a free market economy -- both in perception and in reality. In order for a free market to function successfully, every participant must have access to accurate information and no one can be allowed to secretly benefit from government intervention on their behalf. Everyone involved in this atrocity should be tarred, feathered, and exiled to North Korea, where the economic society may be more to their liking.

(HT: MM.)

So you think International Community isn't doing enough to police the seas and prevent piracy? Then put your booty where your mouth is and buy shares in a pirate gang!

In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate. ...

"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking," Mohammed said.

"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials ... we've made piracy a community activity."

There isn't a prospectus, but here's some testimony from an current investor!

Piracy investor Sahra Ibrahim, a 22-year-old divorcee, was lined up with others waiting for her cut of a ransom pay-out after one of the gangs freed a Spanish tuna fishing vessel.

"I am waiting for my share after I contributed a rocket-propelled grenade for the operation," she said, adding that she got the weapon from her ex-husband in alimony.

"I am really happy and lucky. I have made $75,000 in only 38 days since I joined the 'company'."

Past performance is no guarantee of future results, etc.

(HT: Tyler Cowen and Eric Crampton.)

This "Awesomeness Manifesto" by Umair Haque hinges on a rather narrow definition for "innovation" so as to draw a contrast, but lets undermine the whole thing by highlighting the most glaring weakness.

Innovation relies on obsolescence. Innovation was a concept pioneered by the great Joseph Schumpeter. And to subscribe to it requires us to accept his theory of creative destruction. Gales of innovation make yesterday's goods and services obsolete. Yet, that, in turn, means that the price of innovation is recession and depression. The business cycle might never be vanquished — but it is getting more vicious with every decade. In an interdependent world, obsolescence is what's obsolete.

Innovation dries up our seedcorn. Innovation in its purest Schumpeterian sense is undertaken by entrepreneurs. And so today, we've got an economy where everything's for sale. Yet, little fundamentally new is being created. Businesses focus obsessively on the entrepreneurial aspects of commerce: we are focused still on selling the same old toxic, industrial era junk in slightly better ways. Yet, the challenge of the 21st century isn't entrepreneurial as much as it is creative: learning to create fundamentally better stuff in the first place.

"Obsolescence is what's obsolete" means what? For nothing to ever be made obsolete, nothing new and better may be created. Haque appears to dislike the concept of creative destruction becomes some peoples' wealth is destroyed in the process of making new people wealthy... but what's the alternative? Those who are presently rich and powerful must be allowed to stay that way? Societal calcification. Stagnation. Creative destruction isn't perfect, but generally, over time, what is destroyed is less valuable than what is created. That's not a waste of our seed-corn, that's how it's supposed to be used. Seeds are consumed when you plant them, but the resulting crops are worth more than the seed. Then you collect more seed and start the next round.

Should I kick Haque while he's down by pointing out that his definition for "innovation" is so narrow as to be useless?

What is innovative often fails to delight, inspire, and enlighten — because, as we've discussed, innovation is less concerned with raw creativity. Awesomeness puts creativity front and center. Awesome stuff evokes an emotive reaction because it's fundamentally new, unexpected, and 1000x better. Just ask Steve Jobs. The iPhone and iPod were pooh-poohed by analysts, who questioned how innovative they really were — but the Steve has turned multiple industries upside down through the power of awesomeness. ...

It's the most hackneyed phrase in the corporate lexicon: adding value. Let's face it: most value is an illusion. Nokia, Motorola, and Sony tried for a decade to "add value" to their phones — yet not a single feature did.

Except that, you know, the iPhone basically copied many of these features and then repackaged them in an innovative "awesome" style.

Innovation is creativity plus business purpose. The gripes Haque has with the term seem to be based on examples where those two ingredients are missing, so it's no wonder he's disenchanted. Instead of coining a new term, however, I suggest that we simple adopt a broader and more useful understanding of "innovation".