All over the world, it has become fashionable for Universities and Colleges to offer Masters degree programs in quantitative finance or financial engineering (FE), a code word meaning the solution of the Black-Scholes option pricing differential equation in as many ways as possible… The techniques taught in quantitative finance are completely standard in other fields… The BS equation was first formulated and solved by Casey Sprenkle some ten years before Black’s famous 1973 paper in the Journal of Political Economy… Statistics and numerical analysis have nothing to do with finance per se but are merely tools of financial analysis, just like accounting statements and legal opinions… Students thinking themselves financial experts simply because they can solve the BS equation in a few minutes (there is apparently no other one around) are being misled by their own mentors and teachers into the naïve belief that this amounts to finance.

Statistics and numerical analysis have nothing to do with finance per se but are merely tools of financial analysis, just like accounting statements and legal opinions… What is obvious and regrettable is that no effort is ever made to teach numerical analysis as a proper and rigorous discipline…

The consequence of all this is that today, and through no fault of their own, students with degrees in financial engineering are ill-equipped to face the rapidly changing face of finance… Someone who has never done an actual deal can hardly be expected to know how deals are done, let alone teach how to do them. Likewise, a manager who used to supervise twenty-five Ph.D.s in some research department on Wall Street has as much knowledge about deal making as an usher at Yankee Stadium has about baseball…

I suspect this job title, and the emphasis in business schools, will go the way of “portfolio insurance”.

First, it’s pretty clear the real economy is now collapsing both due to tight credit as all financial actors deleverage and as a result of a revision in growth expectations such as Keynes wrote so clearly about. Forced liquidity was not enough. An “intact” banking system and zero(!) USD interest rates are not enough. The world’s investors have decided that reduced prospects are in view; and that is a self-fulfilling forecast if held widely. Skidelsky:

The basic question Keynes asked was: How do rational people behave under conditions of uncertainty? The answer he gave was profound and extends far beyond economics. People fall back on “conventions,” which give them the assurance that they are doing the right thing. The chief of these are the assumptions that the future will be like the past… and that current prices correctly sum up “future prospects.” Above all, we run with the crowd. A master of aphorism, Keynes wrote that a “sound banker” is one who, “when he is ruined, is ruined in a conventional and orthodox way.”… But any view of the future based on what Keynes called “so flimsy a foundation” is liable to “sudden and violent changes” when the news changes. Investors do not process new information efficiently because they don’t know which information is relevant. Conventional behavior easily turns into herd behavior. Financial markets are punctuated by alternating currents of euphoria and panic.

In the “new” convention investors are placing a higher value on liquidity, expecting more defaults, and worrying more about what they don’t yet (or cannot) know. (DeLong)

Secondly, increasing numbers of people are pointing out that to the extent that current circumstances resemble the leadup to the Great Depression, and so there might be policy implications for our present predicament, it is China that now has the role of the surplus-generating USA in that prior era, and the USA has the role of an indebted Europe (all of whom defaulted on their WWI debts).

Liberally paraphrasing Yves Smith, Pettis and Setser,

Keynes not only wanted the US to run even bigger budget deficits back then, but he also said it was unreasonable for the US to expect is overconsuming, indebted trade partners such as the UK and Germany to go deeper into debt to support the US. Asian economies simply lack the scale to act as the global locomotive.

Thirdly, there is a vigorous debate this week on the relative dangers of deflation, and inflation; specifically whether it would be better to endure the latter later in order to hold off the former today.

Perhaps perversely, the attack by Willem Buiter on the ECB (and Steinbrueck) for lagging behind in it’s inflationary efforts has me now considering them the most reliable central bank, and the EUR likely to be the safest currency over the medium term.

The independence of the ECB is embedded in the Treaties. A unanimous decision by all member states is required to change the Treaty. Given this operational independence ‘on steroids’ of the ECB, it is unlikely that any Euro Area national government or coalition of governments could bully the ECB into engaging in a burst of public-debt-busting unanticipated inflation.

I’m also with London Banker in his final post, deflation is at least initially in store as investors go on strike. The damage to confidence from bungling governments is at least as severe as the underlying financial issues.

During the reckless boom years, savings collapsed in bubble economies as retail and commercial and financial actors alike chased speculative yields with greater and greater leverage. During the reckless bust years, savings will collapse further as retail and commercial and financial actors chase safety by hoarding their meagre remaining assets from further erosion by refusing to lend at negative returns and refusing to finance failed corporate and investment models that only enrich poltically-connected management and intermediaries… Each bailout further undermines the market discipline which is bedrock to a saver or investor’s decision to part with hard-earned cash by trusting it to the intermediation of the management of a bank or business… It’s this simple: I won’t invest in a country that bails out failure and punishes savers… I will know when it is safe to reinvest when policy interest rates, bank/intermediary oversight and accounting standards give me confidence I am better protected than the corporate or financial elite…

It appears that in aggregate the world is inevitably going to suffer a substantial decline in both production and consumption in 2009 and possibly 2010; and substantial losses on financial assets whose value was premised on higher values for both.

The arguments now are on allocating the pain - who, where and when. (Hint: not me, not here, and not now.)

At least these flights home were on-time, connections connected and luggage brought along. Aerolineas Argentinas is the Fawlty Towers of airlines - a farce that morphed into tragedy outbound as we spent 44 hours en-route, had to buy our own additional last-minute tickets from another airline to get from Buenos Aires to Lima in time, had no luggage for 7 days. Truly remarkable. The children (8 and 6) were heroes, as was my wife. Happily, the Amazon basin, Cuzco and Macchu Picchu were everything we had hoped, and APEC itself was a real eye opener.

I went to Peru to attend the “CEO Summit” stream of the APEC (Asia-Pacific Economic Cooperation) meeting as a business delegate from New Zealand at the kind invitation (and urging) of an old friend and business associate. I’ve long been curious about what really goes on at these sorts of political/business conferences, and APEC seemed a reasonable place to start, though in the meantime I’ve also attended a shorter ASEAN meeting in Manila. I primarily wanted to hear first-hand what the various leaders had to say for themselves in the current crisis and get a feel for investment opportunities; but I also wished to develop additional professional connections — particularly in China — and to contribute my own perspective as a global long/short equity investor to backchannel debates.

The 21 members of APEC account for 41% of the world’s population, 49% of global trade and 55% of GDP. APEC has lead world growth over the last decades, and will have to form the nucleus of any recovery.

The conference extended over just two days, with three evening functions thrown in; and I have to say the organisation and agenda vastly exceeded my expectations. As in Sydney last year, Lima virtually shut down with official holidays for businesses not involved in the conference; and security was everywhere though there didn’t seem to be any unrest even outside the cordon sanitaire. My interviews throughout Peru showed people hustling to get along, conditions having much improved over the past decade, with vocal but largely intellectual dissatisfaction at the gulf between the rich and poor.

As it happened this was the very weekend that Citi almost went under and the financial crisis continued to dominate the agenda. To cut to the chase, I came away from the conference more depressed and pessimistic than I had been going in. I was looking for clear leadership in decoupling the real economy from the financial carnage, and some sense of cohesion among the emerging country bloc. Instead, leaders seemed largely to be using the forum to complain about other countries (mainly the US), urge business people to continue investing in their particular country (where everything was going just fine, thankyouverymuch), and to forswear competitive protectionism (which I now consider to be much more likely). Herewith the blow-by-blow.

President Alan Garcia of Peru set a high standard at the conference opening, his prerogative as the leader of the host country. He focussed on the need to rebuild trust in international institutions - with thinly veiled criticism of the current US administration - and is clearly putting his hopes in Asia. “China has the trust of the world.” He sees the crisis not as a breakdown, but as inevitable turmoil associated with transition; “a paper crisis” not affecting the real economy. He struck me as a pragmatic Marxist - “Peru is a mining company.”

Prime Minister John Key of New Zealand was also impressive. He was sworn in only 24 hours before his speech, having successfully formed a new government in NZ after the previous week’s elections. He was a successful financier and currency trader and clearly can get things done. In my view as a NZ citizen and resident, NZ could not be luckier than to have someone with business and financial market experience at the helm just now. This is going to be a very tricky period for a very small open economy with an independent currency. He argued for renewed emphasis on re-starting and successfully concluding the Doha round of trade talks which would dramatically help NZ’s agricultural exports; and for the need to regulate global finance without stifling investment.

President Hu Jintao of China was probably the most anticipated speech of the conference, with the large Chinese contingent on pins and needles ready to parse every phrase. I get the impression that the business community in China doesn’t have that much contact with the political leadership. In the event, he didn’t make any significant public announcements, sticking closely to a prepared script. He argued for better representation for BRIC countries in the IMF (a recurring theme), and for “people first, market socialism”. He said fiscal and monetary stimulus within China will boost consumption — but not of resources — with a goal of “scientific development” combined with “harmonius society”. He said corporates have to behave better, and the Asia Pacific should work together.

Prime Minister Kevin Rudd of Australia was certainly the driest speaker, and I had expected more. He barely lifted his eyes from the page as he droned out fairly pessimistic fare. Perhaps he had the flu. He talked about 200m being jobless in 2009, and another 60m thrown into poverty. “We’re all in this together.” AU on the other hand was solid financially - equal best in the OECD? - with positive ‘09 GDP, unemployment below 4% and lots of free trade agreements on the boil. Rudd first mentioned the logjam in trade finance, a problem he estimated at $25bn. He also brought up climate change, saying AU would move ahead with their climate initiatives and try and bring the US and China together.

President Susilo Bambang Yudhoyono of Indonesia pointed out that Indonesia is the 4th largest country in population, has GDP growth of 6.4% and is self-sufficient in rice. He equated poverty with instability, says the US sacrificed community for profit and businesses need to “share the wealth” (an Obama echo?). He’s spending 20% of the federal budget on education, and will spend more in the crisis.

President Michelle Bachelet of Chile spoke over dinner, so I don’t have the benefit of my notes though I remember being impressed. She reminded me very much of Merkel of Germany. She made no bones of her criticism of the current international order, with profits being privatised and costs being socialised.

President Lee Myung-Bak of South Korea lead off the second day. He made a point of his being a CEO for 27 years before politics. He cited South Korea’s increase from $100 to $20k per capita income since 1960, and thinks Latin America can do the same with “Asian technology and capital”.

President George W Bush of the USA was everything I had expected and less. He didn’t seem to have any idea what was going on in the world at large, felt himself to be immensely important and popular (having attended every APEC during his term), and was obviously enjoying his visit - the last overseas visit of his presidency (and perhaps for life depending on the international mood about enforcing the Hague Conventions). He didn’t listen to a word of his introduction, winked and chuckled his way through a sort of stump speech arguing for “staying the course”, and in the best Orwellian fashion called for free markets, free trade and free people (depending of course on what you mean by “free”).

Prime Minister Stephen Harper of Canada is an economist turned politician; having studied macro, political economy and economic history. “Canada’s proximity to the USA is our largest current problem.” He said the Canadian banks seem to be in relatively good shape having stuck to commercial finance, and the deficit is under control. Was very positive on free trade and NAFTA, FTA’s with Peru, Colombia. Update: On returning from Lima Harper became the first Canadian PM to suspend Parliament in order to avoid a vote that would have ended his government.

President Felipe Calderon of Mexico got straight to the point, said they were already seeing a lack of export demand and falling prices. He predicted that FDI will drop as well as remittances. He said the world must quickly correct structural imbalances and re-establish trust in institutions. He advocates bottom-up help for debtors and foreclosures, and will spend an additional 2% of GDP on infrastructure.

There were a dozen business VIP’s given a platform as well. Of these the most inspiring was Jack Ma who created Alibaba, the largest B2B network in China. He sees small business leading any recovery - “small is beautiful” - and this as a time for knowledge, passion and dreams. He want’s to use Alibaba - “nobody can stop the internet” - as a channel for SME finance, IT training and human development.

Perhaps the only substantive result of the actual leaders summit will be some action on trade finance, which is no small thing. I arrived home to find that the NZ cattle market has ground to a halt because a ship or two full of chilled beef went to Russia and was turned back due to an inability to pay for it. Thus are the excesses of Wall Street visited upon the real economy.

As I listened to these political leaders it occurred to me that markets are doing exactly what the governments won’t - insisting on transparency and refusing to kick the insolvency can down the road. The price action is thus something to be encouraged, not lamented or prevented.

Not surprisingly, researchers have established brain tissue loss in high altitude summiters. Now to study politicians.

The milk contamination saga goes on. How did so many people become involved without anyone stopping to ask whether this was ultimately a good thing? Reminds me of sub-prime.

Fifteen more Chinese dairy companies were identified Wednesday as producing milk products contaminated with the industrial chemical Melamine. Melamine, which is high in nitrogen, is used to make plastics and fertilizers and experts say some amount of the chemical may be transferred from the environment during food processing. But in China’s case, suppliers trying to boost output are believed to have diluted their milk, adding melamine because its nitrogen content can fool tests aimed at verifying protein content. Melamine can cause kidney stones, leading to kidney failure. Infants are particularly vulnerable. The contamination has been blamed for the deaths of four children and kidney ailments among 54,000 others. More than 13,000 children have been hospitalized and 27 people arrested in connection with the tainting. In the most recent tests, nine of [thirty-one] batches containing melamine were produced by the company at the center of the scandal, Sanlu, a 43 percent stake of which is owned by New Zealand dairy cooperative Fonterra. In 2007, melamine was found in pet feed manufactured in China and exported to the United States of America, and caused the death of a large number of dogs and cats due to kidney failure.

A possible breakthrough on bird flu from Indian pharma.

…researchers found that the central genes or ‘backbone’ of the H9N2 virus that infects guinea fowl can protect birds and mice against highly pathogenic strains of influenza. They modified the virus to make it less pathogenic and then used it to vaccinate mice. Three weeks after being vaccinated, the mice were infected with the potentially lethal H1N1 virus - the same virus that caused the 1918 Spanish flu pandemic. All the vaccinated mice survived with no signs of disease. Vaccinated mice also survived infection with the deadly H5N1 bird flu virus, again showing no signs of disease…

The HIV virus is much older than we thought.

Analysis of tissues preserved by doctors in the colonial-era Belgian Congo shows that the most pervasive strain of the human immunodeficiency virus (HIV) began spreading among humans at some point between 1884 and 1924. An international team of sleuths pieced together the genetic sequence of the virus and then compared it to a second sample from 1959. They found a significant divergence between the two genetic regions, and calculate that this gap must have taken around 40 years to evolve from a common viral ancestor. AIDS first came to public notice in 1981, when alert US doctors noted an unusual cluster of deaths among young homosexuals in California and New York. It has since killed at least 25 million people, and 33 million others are living with the disease or HIV, the virus that causes AIDS by destroying immune cells.

A drug extracted from the root of a Chinese herb called Astragalus is shown to boost telomerase production by Geron, possibly slowing the ageing process.

A drug extracted from a plant used in Chinese medicine has helped immune cells fight HIV and raises the possibility of slowing the ageing process in other parts of our bodies. The method hinges upon telomeres - caps of repetitive DNA found at the ends of chromosomes. These get shorter as cells age and are thought to affect the cell’s lifespan. The caps can be rebuilt with an enzyme called telomerase, and some people have suggested it might be possible to extend human life by boosting telomerase production - though this has never been tested. Now Rita Effros at the University of California in Los Angeles has used a drug that boosts telomerase to enhance the immune response to viruses. Effros and her colleagues had previously inserted part of the telomerase gene into so-called killer T-cells - immune cells that fight infections including HIV - and found that the cells had stronger anti-viral activity than normal. However, such gene therapy is not a practical way of treating the millions of people infected with HIV. In the latest work, Effros took killer T-cells from HIV-infected people and exposed them to TAT2. Developed by Geron Corporation of Menlo Park, California, TAT2 is a drug extracted from the root of a plant called Astragalus that is thought to boost telomerase production and is traditionally used in Chinese medicine as a boost for the immune system. She found that TAT2 reduced telomere shortening, increased cells’ ability to divide, and enhanced their antiviral activity.

Security

Loose flash causes rash (of security leaks).

Ministers have been forced to order an emergency shutdown of a key Government computer system to protect millions of people’s private details. The action was taken after a memory stick was found in a pub car park containing confidential passcodes to the online Government Gateway system, which covers everything from tax returns to parking tickets. An urgent investigation is now under way into how the stick, belonging to the company which runs the flagship system, came to be lost.

A Nikon Coolpix camera with MI6 data left on it was purchased on eBay.

Allegedly sold by one of the clandestine organization’s agents, the camera contained named al-Qaeda cells, names, images of suspected terrorists and weapons, fingerprint information, and log-in details for the Secret Service’s computer network, containing a “Top Secret” marking.

Chinese government caught spying on Skype.

If you’re an authoritarian government that closely monitors your citizens’ online communications, here’s a tip from Ars Technica: tell your minions not to store the logs on publicly-accessible servers. This is exactly what China has done with information pulled from the TOM-Skype network, leading a handful of researchers to discover that China is logging text messages and analyze the country’s behavior with regards to the online monitoring and censorship of citizens… full chat text messages from TOM-Skype users were found on insecure, publicly-accessible web servers along with the encryption key required to decrypt the data (TOM Online is Skype’s operating partner in China). This—along with “millions of records containing personal information” such as IP address, usernames, and landline phone numbers—were stored along with additional data detailing Skype users outside of China who have communicated with TOM-Skype users in China.

It’s now possible to copy and modify electronic passport data with open source tools.

VonJeek’s attack makes it possible to copy, forge and modify the data so that it is still accepted as a genuine valid passport by the terminal. The weakness is in the way the system has been rolled out. The terminal accepts self-signed data.

Schneier has submitted his own entry in the NIST contest to replace the SHA hash function for US government encryption. He calls it “Skein”.

Skein is a new family of cryptographic hash functions. Its design combines speed, security, simplicity, and a great deal of flexibility in a modular package that is easy to analyze.

Android on the G1 has been hacked, giving the user/owner root access to the system.

Sustainability

Organic farming can out-produce industrial (and increasingly oil dependent) agriculture.

…research conducted by the UN Environment Programme suggests that organic, small-scale farming can deliver the increased yields which were thought to be the preserve of industrial farming, without the environmental and social damage which that form of agriculture brings with it. An analysis of 114 projects in 24 African countries found that yields had more than doubled where organic, or near-organic practices had been used. That increase in yield jumped to 128 per cent in east Africa.

ExRo Technologies has developed innovative wind generators that could harvest 50% more power.

ExRo’s new design replaces a mechanical transmission with what amounts to an electronic one… The generator works on the same principles as many ordinary generators: magnets attached to a rotating shaft create a current as they pass stationary copper coils arrayed around the shaft. In ordinary generators, all of the coils are wired together. In ExRo’s generator, in contrast, the individual coils can be turned on and off with electronic switches. At low wind speeds, only a few of the coils will switch on–just enough to efficiently harvest the small amount of energy in low-speed wind. (If more coils were active, they would provide more resistance to the revolving magnets.) At higher wind speeds, more coils will turn on to convert more energy into electricity… The ExRo generator … distributes the coils among several small-diameter generators–which the researchers call stacks–along the length of the shaft. Smaller diameters make it easier to change rotational speeds. The multiple-stack design also makes customizing the generator for a particular wind site easier.

Gore advocates for a “Repower America” stimulus plan.

Cringely looks through the recession and financial bust, and suggests some new rules for the recovery.

Prohibit the manufacture and sale of incandescent lights - 18% decrease in electrical demand… Require business to use 3-phase lighting - 2 year payback… Require all new residential construction to use 380V three-phase (like Europe)

There were close to 250 thefts of nuclear and radioactive material in a 12-month period that ended in June… However, there is not enough missing nuclear material to produce one actual atomic bomb, according to IAEA personnel and independent analysts.

We’re doomed, doomed I tells ya.

The first evidence that millions of tons of a greenhouse gas 20 times more potent than carbon dioxide is being released into the atmosphere from beneath the Arctic seabed has been discovered by scientists… Underground stores of methane are important because scientists believe their sudden release has in the past been responsible for rapid increases in global temperatures, dramatic changes to the climate, and even the mass extinction of species. Scientists aboard a research ship that has sailed the entire length of Russia’s northern coast have discovered intense concentrations of methane – sometimes at up to 100 times background levels – over several areas covering thousands of square miles of the Siberian continental shelf… Methane is about 20 times more powerful as a greenhouse gas than carbon dioxide and many scientists fear that its release could accelerate global warming in a giant positive feedback where more atmospheric methane causes higher temperatures, leading to further permafrost melting and the release of yet more methane… The amount of methane stored beneath the Arctic is calculated to be greater than the total amount of carbon locked up in global coal reserves…

iPhones are twice as reliable as Blackberries and Treos,

SquareTrade, which sells extra warranties for cell phones and other devices, looked at the failure rates of 15,000 phones covered under its plans. The malfunction rate for iPhones after one year is 5.6 percent, compared to 11.2 percent for the Blackberry and 16.2 percent for the Treo… Surprisingly, battery problems is less of an issue for the iPhone than for the other two brands. Less than 0.5 percent of iPhone malfunctions are due to the battery dying, compared to about one percent for the BlackBerry and iPhone. The iPhone also has fewer call quality problems than the other two. The biggest problem for all three phones are malfunctions involving the touch screen or keyboard.

and are outselling them as well,

Apple’s iPhone 3G topped the sales charts in the third quarter… According to NPD, the Razr V3 fell to second place behind the iPhone 3G. RIM BlackBerry Curve was third; LG Rumor was fourth; and the LG enV2 came in fifth… For its fiscal fourth quarter, Apple reported it had sold 6.9 million iPhones, more than it sold during all previous quarters combined. As a result, the company easily met its goal of selling more than 10 million during calendar year 2008… NPD also noted in its report that overall U.S. handset sales dipped 15 percent compared with a year ago. And revenue on handsets fell about 10 percent.

but global handset sales are weak.

Global mobile phone unit sales grew a disappointing 5% in the third quarter, according to research firm Strategy Analytics. It was the weakest quarter for the industry since 2002. The firm noted that four of the top six vendors grew at a 5% rate or less; Apple (AAPL) and Samsung outpaced the market… Nokia (NOK) shipped 118 million handsets, up 5%. The company lost market share in all regions, with smartphones “a major weak spot.” Samsung shipped 52 million handsets, up 22%. It’s market share reached an all-time high at 17%, up from 3% in 1998. The company was strong in North America and Western Europe, weaker in emerging markets. Sony Ericsson (SNE, ERIC) shipped 25.7 million handsets, down 1%. With a 5% sequential increase, the company passed LG and Motorola (MOT) to become the the third largest company in the industry by units. Motorola shipped 25.4 million units, down 32%. “Volume and value for Motorola remain very weak, with shipments falling faster than the previous quarter,” the research firm said. LG Electronics shipped 23 million units, down 17%. Shipments were “sluggish in most regions.” Apple shipped 6.9 million handsets in the quarter, up from 1.1 million units in the year earlier quarter, an increase of 516%. “Apple has become firmly established as a top ten vendor, with a 2% global share,” Strategy Analytics said. “We believe Apple’s next move will be into cellular-enabled laptops. We believe many operators in the USA and Western Europe would jump at the chance to cross-sell a cellular MacBook to their installed base of iPhone users, in order to stimulate ARPU.” For Q4, Strategy Analytics expects global unit sales of 345 million units, up 5% from a year earlier, with “lackluster shipments in developed regions during the holiday season to be accompanied by less buoyant demand in select emerging markets suffering from weaker consumer sentiment.” The firm puts total 2008 units at 1.23 billion, up 9%.

Cringely thinks the iPhone will dominate smart phone operating systems; followed by Android, followed by Symbian… No longer in the running are RIM and Windows Mobile…

In the smartphone space there are, at present, only three operating systems that are being broadly licensed on an OEM basis — Android, Symbian, and Windows Mobile. Of those three, two are free — Android and Symbian… For all its teething problems, there is a new sheriff in town and his name is iPhone. We’ll see nothing but progress and market-share gains there for at least another two product cycles or three years… Why iPhone over Android? For exactly the same reason why the iPod holds that approximate 85 position among music players, including ones using open source software.

Gizmodo channels the development community’s excitement about Android as an open alternative to iPhone, but TechCrunch says they have no choice but Apple.

High end software requires high end hardware, and their is no more capable mobile device from a hardware perspective than the iPhone 3G… Then there are the approximately fourteen million iPhones… the fact that more than 100,000,000 applications have been downloaded in the past three months… Android is exciting because it is open, but openness does not come without its tradeoffs. From a developer’s perspective this means having a free-for-all distribution system… 60 just is not robust enough for most developers to build applications for, and it does not have a solid distribution system for mobile apps. Windows mobile devices suffer from the perennial and proverbial blue screen of death, and the next generation Palm OS might very well turn out to be vaporware. The Blackberry could be a real platform if RIM ever comes up with a better way to distribute apps…

Intel is saying that ARM chips (like those in the iPhone) are not powerful enough to “run the full internet”. Apple says Intel graphics are too weak for its new MacBooks, using NVidia instead, and is using recent acquisition PA Semi to begin new iPhone designs based on the ARM.

Ceatec in Tokyo is running, with good CNET coverage and a nice cellphone concept roundup including a phone with separate screen and keyboard, which communicate with bluetooth.

Sharp phone features Dolby Mobile, 5.1-channel surround sound for the phone… The Sharp smart key cell phone, in combination with NTT Docomo and Nissan… can unlock and turn on a car… WiiWare video-on-demand service for the Nintendo Wii… Sharp’s ultrathin Aquos XS TV will be officially available, in Japan only for now, starting October 15. It’s a mere 2.28 centimeters thick, and comes in 52- and 65-inch sizes.

Citibank reports that Oct NPD Data shows the video game industry is holding up in a down economy.

Oct NPD software rev +35% Y/Y was stronger than expected (St ests +20-25%). Hardware sales, a key leading indicator for future software sales, grew a solid +10% Y/Y (with Wii and Xbox 360 sales particularly strong)… Software: Oct sales +35% Y/Y and +36% YTD. By publisher, ATVI (-33% Y/Y), ERTS (+0.4% (ex-Rock Band) Y/Y), THQI (+108% Y/Y), TTWO (+81% Y/Y). Wii sales broke a 2008 record with 802k units sold (+17% M/M, +55% Y/Y) which shows the inventory situation improving heading into the Holiday Season.

E-commerce has mixed results.

E-commerce sales growth slowed in September to 5%, the fifth consecutive month in which the growth rate has moderated… falling steadily from 15% in April… Video games, consoles, accessories: +60%; Furniture, appliances, equipment: +52%; Sports and fitness: +40%; Event tickets: +18%; Flowers, greetings, gifts: +14%; The losers: Apparel and accessories: -2%; Toys, hobbies: -3%; Jewelery, watches: -11%; Music, movies, video: -29%.

I already thought LCD panels were cheap, but apparently the could have been cheaper.

Three leading flat-screen producers — LG Display of South Korea, Sharp of Japan and Chunghwa Picture Tubes of Taiwan — pleaded guilty and agreed to pay a total of $585 million in criminal fines for their role in fixing the price of liquid-crystal display panels. LG is paying the most: a $400 million fine…

Microsoft and Google will work together on a health record system.

Microsoft Corp. is the lead developer in a partnership with the Military Health System and Google Inc. to develop a personal health record system for military health care beneficiaries. An initial version of the system is scheduled to be unveiled in December 2008.

Wireless internet got a boost from the FCC with an allocation of unused TV frequencies.

The Federal Communications Commission voted 5 to 0 to… set aside a disputed slice of radio spectrum for public use… hoping it would lead to low-cost, high-speed Internet access and new wireless devices… Commissioners said such access could be more reliable than Wi-Fi, which also uses unlicensed frequencies but does not reach as far…

The SIA reports chip sales are barely up year on year, pulled down by memory.

Worldwide chip sales rose 1.1% from August to $23 billion, an increase of 1.6% from the same month last year, according to the Semiconductor Industry Association. Sales for the first nine months were up 4% from the same period a year ago. Sales excluding memory products were up 7.8% in September versus the same month last year. Flash memory sales were down 37.5% month-over-month, while DRAMs were down 11.1%.

Netflix will work with TiVo to stream its movie library.

Netflix will place its Watch Instantly streaming-movie service on TiVo’s HD-compatible set-top boxes, furthering the technology industry’s goal of sending television shows and movies over the Internet — instead of over traditional cable and satellite networks — to ordinary TVs… There will be no extra charge for TiVo subscribers who also have one of Netflix’s unlimited subscription plans, which start at $8.99 a month… Owners of TiVo boxes can already rent or buy films and TV shows over the Internet from Amazon.com, Walt Disney Studios and Jaman.com, a provider of independent and art films, and play them on TV.

A red-laser competitor to Blu-Ray claims 100Gb disks, shipping in Q109 for DVD prices…

Google has settled with the Authors’ Guild (pdf) and Assoc of American Publishers after two years of negotiations. The agreement provides for greater access for search and preview, purchasing online access to full text, subscriptions for institutions, free access for libraries, and compensation for authors; but only for viewers within the USA.

Holders worldwide of U.S. copyrights can register their works with the Book Rights Registry and receive compensation from institutional subscriptions, book sales, ad revenues and other possible revenue models, as well as a cash payment if their works have already been digitized.

Yet another Windows(tm) version, this one for clouds.

Microsoft announced a version of Windows that runs over the Internet from inside Microsoft’s own data centers… Dubbed Windows Azure, it’s less a replacement for the operating system that runs on one’s own PC than it is an alternative for developers, intended to let them write programs that live inside Microsoft’s data centers as opposed to on the servers of a given business [in a way similar to Amazon's EC2, Salesforce.com or Google's AppEngine].

Would you like a free razor with those blades?

Reliance Communications will give away free netbooks for those who sign up for its two-year wireless Internet service. To get a free netbook, customers will need to sign up for a two-year 3G network deal at $30 per month. Other Indian vendors may jump into the fray, joining vendors from around the world like Orange Slovekia and Carphone Warehouse in offering broadband-subsidized laptops and netbooks.

The US Department of Justice has responded to new copyright legislation snuck through Congress under cover of the bailout fracas by the studios and record companies telling them to hire their own lawyers.

We strongly oppose Title I of the bill, which not only authorizes the Attorney General to pursue civil remedies for copyright infringement, but to secure “restitution” damages and remit them to the private owners of infringed copyrights. First, civil copyright enforcement has always been the responsibility and prerogative of private copyright holders, and U.S. law already provides them with effective legal tools to protect their rights… Second, Title 1’s departure from the settled framework above could result in Department of Justice prosecutors serving as pro bono lawyers for private copyright holders regardless of their resources… Third, the Department of Justice has limited resources to dedicate to particular issues, and civil enforcement actions would occur at the expense of criminal actions, which only the Department of Justice may bring…

The survivors: TechCrunch has compiled a list of startups that have recently closed more than $25m in financing. There are 22 with over $100m, led by Facebook with $455m.

A pretty sobering start-up’s view of the current environment - batten down the hatches!

Go to each of your providers and ask for 20% relief immediately or you’re leaving. Most, not all, will give it to you.

A new service popped up today called IconDial. It’s about as simple and straightforward as possible. Go to the site, which has a phone-style dial pad, and dial any phone number in the world. After a 3-5 second advertisement, your call will be put through. There is no restriction on who you can call - all countries are supported, and you can call both land lines and mobile phones.

Futures

The teaser - what do games look like on a 150″ plasma screen… it weighs 1700 lbs, and burns 7KW.

First photos of planets of other stars:

In scratchy telescope pictures released Thursday in Science Express, the online version of the journal Science, the planets appear as fuzzy dots that move slightly around their star from exposure to exposure… The new planetary systems are anchored by young bright stars more massive than our own Sun and swaddled in large disks of dust, the raw material of worlds. The three planets orbiting HR 8799 are roughly 10, 9 and 6 times the mass of Jupiter, and orbit their star in periods of 450, 180 and 100 years respectively, all counterclockwise. The Fomalhaut planet is about three times as massive as Jupiter, according to Dr. Kalas’s calculations, and is on the inner edge of a huge band of dust, taking roughly 872 years to complete a revolution of its star.

Scientists clone mice from frozen carcasses

Japanese scientists have produced clones of mice that have been dead and frozen for 16 years — a feat that could lead researchers to one day resurrect long-extinct species, such as the mammoth… Researchers at the Riken Center for Developmental Biology in Kobe, Japan, used cells from mice that had been frozen for 16 years at -20 Celsius (-4 degrees Fahrenheit). They extracted the nucleus and injected it into eggs whose DNA had been removed.

India launched an unmanned orbiter to the moon.

The Indian mission is scheduled to last two years, prepare a three-dimensional atlas of the moon and prospect the lunar surface for natural resources, including uranium… India’s ability to put satellites into orbit has already resulted in lucrative deals; for example, Israel has sent up a satellite by means of an Indian launcher…

Segway inventor Dean Kamen is pushing two low-tech ideas for developing economies - a Stirling engine generator and a water purifier.

The Deka Stirling Engine, which he called a “black box,” converts methane gas from cow dung to electricity. Methane is one of the most potent greenhouse gases, 21 times as bad for the environment as carbon dioxide… The other black box, Deka’s water purifying machine, is about 3 feet by 3 feet by 2 feet and weighs less than 300 pounds… It doesn’t use any filters, activated charcoal or chemicals and will clean “anything that looks like fluid,” Kamen said. It can serve about 100 people and needs one kilowatt of electricity to operate. Kamen envisions that the generator and water filtration machine would work together.

China walks in space.

A Chinese astronaut orbiting the earth lifted himself out of the Shenzhou VII spacecraft and performed the nation’s first spacewalk… After pulling himself fully out of the orbital module and tethering himself to the safety cords, Mr. Zhai waved a small Chinese flag… This was the country’s third human space mission in five years. Before China, only the United States and the Soviet Union, and later Russia, had sent people into space…

Subsequent Shenzhou missions are expected to focus on building a space station. Another programme, which began last October with the launch of a lunar probe called Chang’e, aims to put an unmanned rover on the surface of the moon around 2017 and return it to earth with samples.

SpaceX’s Falcon 1 spacecraft made history as the first privately developed launch vehicle to reach earth orbit from the ground. This was their fourth attempt. Falcon 1 is a 70- foot tall two-stage, liquid oxygen and rocket grade kerosene powered launch vehicle. It lifted off from Kwajalein Atoll (Omelek Island) in the Pacific Ocean, about 8,000 miles southwest of Los Angeles.

An engine design that has a single piston sliding back and forth along a tube lined with magnets may prove a better generator for hybrids than the standard crankshaft.

Unlike in conventional engines, there is no mechanical connection between the piston and a crankshaft (hence the name free-piston). Since the design allows for improved combustion and less friction, the engines could be far more efficient in generating electricity than either conventional generators or newer fuel-cell technology… What’s more, free-piston engines don’t require expensive materials such as the platinum catalysts needed in fuel cells, so they could be cheaper too.

In short, I’m looking for signs of de-coupling of the real economy from the financial smoke and mirror factories - the ‘zombie’ Wall Street banks. I’m also looking for global triage and think it possible that we’ll see some economies (that’s you Japan, China, Brazil, India and Saudi Arabia) break away from the de-leveraging black hole and via fiscal stimulus sustain each others’ growth and credit needs in a manner similar to Malaysia’s course in the ‘98 crisis. For the time being, I’ve given up on the US (too much debt, too little industry), and Europe looks neutral at best. Iceland, of course, is toast, and the UK is wobbly.

Illargi:

Paulson throws your money at the one sector of the economy that doesn’t do anything useful, money that could have been used to support those sectors that provide your jobs and produce things that are actually useful.

Is it just me, or does the US dollar remind you of frequent flyer points that can only be spent on a rapidly dwindling catalog of increasingly shonky goods? It looks like China may be wishing to cash in some of theirs on parts for a railroad, and they should.

Comstock Partners summarises the situation for the US:

We have a budget deficit of about $455 billion this fiscal year and as we have warned in many of our weekly comments, we expect a deficit of $1 trillion or more in the next fiscal year. The incoming administration is also inheriting a $10 trillion government debt… We don´t expect the current global recession to end until the end of 2009 or beginning of 2010. The record U.S. total debt of over $50 trillion on an economy of almost $15 trillion is what we would call very onerous. For a period of about 20 years from the 1960s through 1970s it took $1.50 of increased debt to generate each additional $1 of GDP, but that ratio has trended up consistently in the last 28 years. In recent years it has taken about $3.50 of increased debt to generate an incremental $1 of GDP… Now that the deleveraging process of debt unwinding is in full swing world-wide, what do you think is going to happen to global economic conditions?

US data last week set more records:

U.S. workers drawing jobless benefits hit a 25-year high this month… Consumer spending fell 1.5 percent last month, after a 2.4 percent drop in September that was the largest since SpendingPulse started the data series in 2003… U.S. imports from China hit a record $33.1 billion in September, but imports from the European Union fell 3.8 percent and imports from the Organization of Petroleum Exporting Countries slumped 27.1 percent as the cost of imported oil fell by a record $12.41 per barrel in September… imports of consumer goods fell nearly 7.9 percent in September… U.S. exports fell at the fastest pace in seven years… U.S. goods exports fell by a record $10.4 billion, with all major categories showing a decline.

Ecinya doesn’t expect much from the G-20 conference:

The world cannot begin to resolve the systemic and economic problems that have derived from the American fiscal and monetary policy malaise UNTIL George W Bush departs the global stage. This weekend George W is hosting the G20 Summit.

Everyone has advice for the summiteers. VoxEu published a short book (pdf). Dani Rodrik had a good go at pre-drafting the inevitable communiqué as leaders agree to agree, except “The Bush administration opposes any regulatory agency with cross-border authority”. His summary:

There is no coordination in the fiscal arena, the promises made to emerging markets are vague, and even though there is a clear statement on protection and export subsidization, there is no monitoring or enforcement mechanism.

Jean-Claude Trichet (president of the European Central Bank) would like to fix three things: incentives, transparency, and pro-cyclicality.

Modern financial systems have favoured instruments and intermediaries that promise large returns in the short term. Institutions come under pressure to follow the strategies of those able to show high short-term profits. This process tends to lead to herding behaviour, in which risk controls easily become a secondary issue. We need to counter these mechanisms and establish the right incentives for achieving a balance between short-term and long-term investors and intermediaries. Incentives for market participants need to be strengthened in this respect, including through revised internal compensation schemes…

The second point concerns transparency. Despite all regulatory advances and progress in information technology, the financial system has been characterised by a lack of transparency about the ultimate allocation of risks. Two examples are the sheer complexity of structured financial products, which even sophisticated investors are not able to assess properly, and the lack of regulation for certain financial institutions. Regulators therefore need, in particular, to tighten up requirements for markets in which structured financial products are traded and strengthen reporting requirements for formerly unregulated institutions…

Finally, pro-cyclical behaviour is pronounced in financial systems. But in the present global financial system there are mechanisms that intensify fluctuations. The challenge is to preserve an efficient financial system as an engine for economic growth and at the same time ensure its stability. For example, capital regulations and provisioning rules as agreed by the Basel committee on banking supervision, and industry governance structures, especially in the area of risk management, need to restrain excessive risk-taking in upturns and discourage excessive conservatism when credit to companies and households is most needed…

Spiegel surveyed Nobel prize economists…

Lucas: The public needs a conveniently provided medium of exchange that is free of default risk or “bank runs.” The best way to achieve this would be to have a competitive banking system with government-insured deposits.

Stiglitz: To too great extent, there has been a race to the bottom in accordance with the myth that deregulation breeds innovation. Instead, the innovation was greatest when it came to getting around the regulations designed to ensure good information and a safe and sound financial system… Financial market regulators, at both the national and international level, have failed… Even countries which have done everything right — those which have managed their economy with far better regulation and better macro-economic prudence than the US — will suffer as a result of America’s mistakes… The sources of liquid funds are in Asia and the Middle East. But why should they turn their hard earned money over to an institution with a failed track record; one which pushed the deregulatory policies that have gotten the world into the mess where are in now; one which continues to advocate the asymmetric policies which contribute to global instability; and one whose governance structure is so flawed?

Phelps: A good life requires a rewarding workplace — one of change and challenge — and that requires some sort of well-functioning capitalism… That the banks chose to take on ever-greater levels of risk, with no end in sight until the collapse, was an effect of employee compensation: Fortunes could be made for each additional day that the bank could operate. There was no claw-back provision that would pay bonuses only for performance over the long term… Unfortunately, the banks for the most part appear to have lost the expertise to make business loans and investments, which they once had…

Samuelson (age 93!): Based on my observations of economic history, both short run and long run, I believe that there is no satisfactory alternative to market systems as a way of organizing both economically poor and economically rich populations. However, using markets is not the same thing as unregulated capitalism so beloved by libertarians. Such systems cannot regulate themselves, either micro-economically or macro-economically… President George W. Bush will figure in the history books as the worst president in the 234 years of US history…

In a sign that they are prepared to sideline the outgoing US president, Mr Medvedev backed the call from President Sarkozy for a follow-up summit in February once Barack Obama has taken over.

The world simply has to hold its breath for 60… more… days…

Martin Wolf does a good job laying out the background, since the original Bretton Woods in 1944:

…what is happening lies at the intersection between global macroeconomics – money, the exchange rate and the balance of payments – and global finance: capital flows, financial fragility and contagion…

The Bretton Woods institutions – the IMF and the World Bank – are dominated by the western powers: in the case of the Fund, the US still had 17.1 per cent of the quotas (which largely determine votes) and the European Union another 32.4 per cent in May 2007. Meanwhile, China had just 3.7 per cent and India 1.9 per cent… Mr Zoellick suggests a G14, which would add Brazil, China, India, Mexico, Russia, Saudi Arabia and South Africa.

The world needs to:

• re-organise global institutions to include the new players (eg. BRIC, Gulf)
• limit large and persistent current account surpluses
• buffer sudden changes in capital flows
• buffer swings in risk appetite

Gulf countries are getting more aggressive with calls for a currency union to provide a natural hedge against swings in USD, EUR, and JPY.

Gulf states are now hammering out details on the shape of a future joint central bank in preparation for a single currency they hope to have in place by what increasingly seems an unlikely 2010 deadline…

“If we create a GCC single currency, I have no doubt it would become a global currency,” [said Dubai International Financial Centre's chief economist, Nasser al-Saidi] “It would be a natural hedge for oil price and inflation risk. If you have it on the table, you can address global imbalances better.”

The rump Bush administration has already dismissed calls for a global financial regulator.

Ten days before the leaders of 20 countries assemble here for an emergency summit meeting on the financial crisis, the Bush administration discouraged suggestions that the gathering would create a new international market regulator with cross-border authority… Given the timing, some experts argue that the leaders should focus on issues that are more likely to win the backing of an Obama administration, like coordinating economic stimulus programs in the United States and Europe to cushion the blow of the recession.

Bush, characteristically, told him to go out and party…

‘What an awesome night for you, your family and your supporters. You are about to go on one of the great journeys of life. Congratulations and go enjoy yourself.’ - George W Bush

Luckily, Obama appears to have more of a grip on reality…

For even as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis in a century. Even as we stand here tonight, we know there are brave Americans waking up in the deserts of Iraq and the mountains of Afghanistan to risk their lives for us. There are mothers and fathers who will lie awake after the children fall asleep and wonder how they’ll make the mortgage or pay their doctors’ bills or save enough for their child’s college education. There’s new energy to harness, new jobs to be created, new schools to build, and threats to meet, alliances to repair. - Barack Obama victory speech

Other world leaders were also mindful of the serious challenges facing the new President - banking crises, falling housing prices, looming food and energy shortages, global warming, misguided military adventures, domestic healthcare reform and a recession likely to be deeper than any since WWII…

In defeat McCain was unexpectedly gracious, recalling something of his pre-2000 character, but it looks as though post-election the Republican party will split between the Palin “god, guns and gays” wing and the “fiscal conservative” wing; perhaps never to meet up again.

The final results this time were remarkably close to those forecast by reputable pollsters, despite the usual mis-information campaign. Princeton Election Consortium had the following electoral map going into the night, even picking the ‘too close to call’ states of IN, MO, NC, GA and FL and forecasting Obama with 353 electoral votes.

The final map with two as yet uncalled races - McCain up by 6,000 in MO and Obama up 12,000 in SC - shows Obama with 349, likely to be 364 if SC goes his way. Princeton got only Indiana wrong, where the Obama ‘ground game’ was worth a few unexpected points.

Obama will also end up with a popular majority (ignoring the anachronistic allocation of electoral votes) of 52.4%. These are historic majorities due to, as Krugman says, a national shift to the Democrats of about 8% across all the states. There were the usual problems with faulty electronic vote machines, underserved (poor) areas, and illegal voter barring; but these were not enough to flip either Ohio or Florida this time.

Obama and the Democrats’ victory arguably gives him enough political “capital” to act effectively with respect to the many problems facing the USA - inequality, health care, infrastructure, education, savings - as well as recover something of the historically favorable US reputation overseas. And we know from his campaign policies that he takes good advice. On the other hand, the inertia and corruption revolving around Washington DC has brought many a well-intentioned politician and political crusade to a stand-still.

McCain, to win, absolutely HAS to win Florida, Georgia, Missouri, Indiana and Montana; and almost certainly both Ohio and North Carolina.

Obama will win if he wins Colorado, and ANY of Pennsylvania, Ohio or both Virginia and Nevada.

At this point the only poll that counts is being taken in the voting booth. Now get out there and make sure your vote gets counted!

Update

The best real-time result widget is on Daily Kos.

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Update update

The final results: