Becoming human

BecomingHuman.org is a web-based presentation on paleoanthropology. It is a great example of how interactive multimedia can be a much better learning tool than television. Of course, this also requires active engagement on the part of the user, which makes the target audience necessarily smaller. If every university department produced one introductory resource like this, the world would be a much richer place.

Edwin Khodabakchian's new blog

I wanted to point people to Edwin Khodabakchian's new blog. Edwin was the CEO of Collaxa when it was sold to Oracle back a few years: he and his team built out the first commercial BPEL implementation, which is widely recognized as being the best of breed product for service orchestration and process management. He's up to some cool, new stuff (more on that soon): this will be one of the "must subscribe" feeds in the tech field. Edwin has a unique way of looking at product development: he's one of the few people that are able to consistently blend simplicity and beauty in a software product.

Service Platforms and SOA Enablement

Demed L'Her and I wrote an article for SOA World that discusses how service platforms are emerging as key enablers for SOA. This is one of the more important trends in application integration. Demed is a Product Manager at Oracle responsible for a range of integration technologies; he's been doing a ton of work in Oracle Fusion Middleware. He's also a nice guy.

William Vambenepe joins Oracle

I'm pleased to report (or rather point to a reportrx) that William Vambenepe has joined Oracle to work in the enterprise management and SOA spaces. I worked with William a bit back at HP middleware and followed his work in the management standards space for some time; I think everyone that's worked with him is impressed by both his professionalism and smarts. It's great to see the talent inflow at Oracle continues.

Money for Nothing and Checks for Free

If you want to understand a bit more about what is happening in the markets, I highly recommend the IMF working paper "Money for Nothing and Checks for Free". If you are pressed for time, take a look at the graphic summaries throughout the paper.

Two things strike me in all of this:

1) The leveraged positions on some of these investments (in particular in hedge funds) on securities is almost an inversion of the historical norm of banks with required asset reserves for loans. The fact that these securities were not only over-valued but in some cases are unable to be valued is alarming

2) The subprime loan segment just blossomed a few years back as the economy was coming out of a recession via a major injection of money for the central bank (of course depressing interest rates); after today's rate cut, it's unclear that what Fed policy is going to look like. Could this mean things are really that bad? Obviously the equity markets didn't think so.

PS: Mauro Guillen of the Wharton School pointed me to this paper.

Oracle Coherence 3.3 released

In short order, the Oracle folks in Boston have gotten a new release of Coherence data grid software out the door. I expect that we'll see a very broad footprint for the Coherence software, both in Oracle software and with customer deployments across industries. There's a good computerworld article that discusses this in more depth.

What's the deal with Hedge Funds?

I got some recent questions from friends on how hedge funds work. There is no real answer to this question, so I thought I'd take a stab at explaining why that is. Over the weekend, I was looking around for good articles on hedge funds: somewhat to my surprise, I found that the finance information on wikipedia is not bad (to the extent it is up to date). The article on hedge funds is here.

Many people are surprised to find that many hedge funds don't actually hedge at all. Hedging is a strategy used to buffer against losses; in some sense, a diversified portfolio "hedges" against risk that can be diversified. Hedge funds often do something a bit different: they are looking to hedge against broad market risk, particularly in equity positions. But this too is somewhat misleading: some hedge funds take no equity positions at all. What really characterizes a hedge fund is that the fund is structured to avoid regulation, not its investment strategy.

Typically (as in the referenced article) you'll see that funds are targeted toward accredited investors. This is an allusion to securities regulations. Terms like "seasoned" and "accredited" basically signal that the investor has either savvy or money or both. Securities regulations allow private funds to escape many of the regulatory requirements by selling securities to accredited investors. These investors use their own judgment to determine if the risk in the fund is acceptable. Of course, they expect high returns and are willing to pay out high management fees for those returns. How the fund invests is specific to the fund and fund managers, not to "hedge funds" as a category. Hedge funds are never exempt from anti-fraud provisions of security regulations.

As you might imagine, this has all the hot button issues for controversy: "unregulated", "rich investors", "rich management", "opaque strategies". Hedge funds have been around for a long time. But let's be honest. These funds are putting a lot of pressure for efficiencies on a large scale and that has both good and bad results. As a category, it makes little sense to me to insist on special regulations or caps on management fees. Personally, I wouldn't lose sleep over hedge funds: they aren't new and they aren't sinister. Mostly they are risky bets that have the potential for big payoffs. In some cases, there are really well run funds that deserve a lot of credit. In other cases, they are disasters waiting to happen.

Bernanke versus Cramer

BusinessWeek has a good overview on how Bernanke is managing the money supply: tightening (but not tight) monetary policy to carefully control inflation. The recent OMC injection looks set to maintain existing target rates, which is a lot different than what folks caught in bad investment strategies, esp. around fixed income or housing, may want to see. This is in many ways contrary to what has been the dominant fed policy, esp. through the Greenspan years. Is this the right policy now? Well, we'll know soon enough. One of the key problems with managing the money supply to actively manage business cycles is this: different industries experience different conditions; a one size policy only makes sense under relatively uniform conditions. Mortgages and housing are awful right now, but the fallout hasn't generalized in a way one might have expected. It seems to me that the fed is being prudent at the moment. In fact, cutting rates could up long term inflation, which would drive housing problems into a worsening state.

Capital market credit crunch

I've had a bunch of friends asking me about what is going on in the capital markets over the last few days. If you have a wsj.com subscription or can get access to one, there was a very good article on how we got into the current credit market mess. Definitely worth a read.

As usual, there isn't only one element that bears the blame: much of this is a fall out of fed actions dating back to Greenspan's easy money policies after 2001; part of it is desperation for higher yields through fancy and often opaque securities that few purchasers really understand; part is the fact that hedge funds are able to avoid many securities regulations; and part is of course just short-sightedness. It is very hard to say what the ripple effects will be: my own take is that it would be very prudent to make sure you're not carrying variable rate debt and consider using a no-risk interest bearing vehicle for a chunk of liquid capital (the latter is what the CAPM would suggest anyway).

There also seems to be a lot of interest in hedge funds. I'll follow-up this weekend with a brief explanation of US securities laws and how a hedge fund avoids a lot of regulation.

Doing good, again

A friend of mine founded an innovative non-profit, which helps to supply essential supplies to areas that are currently torn by war. It's called Give to the World, and worth checking out.