Why I Changed the Name of this Blog

When I started this blog 6 years ago, I had a clear mission to share common sense ideas positioned to the right of many of my Chicago peers. As my bio states, I am an economist at heart and that perspective often unearths challenges with otherwise well-meaning progressive policy ideas.

Back then, the term conservative fit. It didn’t mean right winger, zealot, or evangelist. Those far right of center subscriptions each had their own labels, and conservative was a term with which I was comfortable – at least when it came to non-social issues. I still believe that the cost of big government is personal freedom, that building one’s station through personal productivity is one the clearest paths to happiness, that contemporary unions are wolves in sheep’s clothing, that history matters, and that there are just too many darned laws.

Because everything that works, happens in the center.

But the former President and his attention-drunk followers co-opted the word conservative into something else. Now it leans toward anti-maskers, isolationism, good-old-days, and social justice insensitivity – concepts just as dangerous as their left wing counterparts: hyper-maskers, pandering to our international enemies, the tyranny of woke, and defunding the police. Idiots on both sides of the spectrum are equally in need of a slap.

My gut feeling is that there has never been a more equitable, more just, and more opportunity-filled time to be an American. The foundation of society, as we come out of this rule-breaking shut-down, is more pliable than ever before. It’s an unprecedented opportunity to make changes for the better. But we’ve been through a boiler of a year and it’s bubbled a lot of nasty things to the surface. These things need to be addressed openly and without fear and I look forward to exploring them on this site.

So welcome to my site, A Card Carrying Centrist. Same content, same mission, new and improved name.

NFT Soaring Prices Explained

Did that headline hook you? Well, I was kidding. I can’t even come close to explaining the recent prices paid for NFTs. But I am pretty good at questioning what I see and can perhaps shed some light on their true values. And if you have never heard of an NFT, keep reading. I will explain them in a bit.

This whole quandary started when Nyan Cat (see image) sold for $800,000 in March. That’s right, a digital gif that was created a decade ago and until recently would have been considered absolutely worthless by everyone from a seasoned investment manager to my 9-year-old daughter, sold for nearly a million bucks. In explanation, the Wall Street Journal paraded a crypto expert who explained that much like da Vinci’s signature on the Mona Lisa guarantees its value, a digital file associated with Nyan Cat guarantees that this is the original Nyan Cat sold by the original artist and hence has value.  Many investors bought this pile of cheese. I only saw holes.

This digital file is called an NFT. It is a nonfungible token or blockchain-based digital device that is associated with an asset. This device stores the data about the asset in a permanent and noneditable ledger somewhere. That data will include originator and date of creation as well as records of subsequent ownership and information specific to the asset. The asset is generally but not necessarily digital itself.

An NFT is like a label in a sweater. It tells the manufacturer, country of origin, cleaning instructions, maybe the collection year, and if your mom is doing her job, it has your name on it. It is all valuable information, but if the label comes off, you can still wear the sweater just fine.

So the Nyan Cat sale included the original artwork as well as a permanent record of the date created and the name of the artist. Or that is what we are told. Neither of those things is fully true.

An NFT offers no guarantee that this asset was created by anyone in particular. All it purports is to know is the name of the NFT’s creator, and when the NFT was associated with the artwork. Nyan Cat’s NFT only works because it echoes the pre-existing trademark, something decidedly low-tech.

Second, the NFT offers no guarantee that this is the original Nyan Cat. “Original” is a tricky concept in digital art. Many copies are created and sent around during creation and the final original version is not the same as the one that is optimized and distributed. Furthermore, the internet is rife with authentic variations of Nyan Cat in all sorts of different costumes and situations that predate the NFT. The NFT promises to know when it was created and associated with the artwork, but not when the artwork was created or if it’s the original version.

Similarly, an NFT does not guarantee Nyan Cat’s value. To point out the problems with the WSJ’s example, the true value of the Mona Lisa is a function of the quality of the painting, the name of the artist, and the work’s importance in history, not a verified signature. Nyan Cat exhibits no artistic quality. It is cute and ironic but lacks artistic merit or conceptual depth. And the artist is certainly not as famous, nor has the cultural significance of many artists whose work sells for far less – take Salvador Dali or Frida Kahlo for example.

The NFT doesn’t even solve a needed problem. Like an authenticated signature, Digital art has had a mechanism for guaranteeing authenticity since the late 90s (and a Sol Lewitt wall painting decades earlier). When a video painting by digital artist Jeremy Blake was purchased in 1999, it came with a certificate of authenticity signed by the artist. There are many ways to view and share his work. Some may even be available on YouTube. But only holders of the certificate of authenticity can sell the work. This is an equally faithful guarantee of the artist’s hand and the work’s origin. Unfortunately, there is no stampede to collect digital artwork with a paper certificate of authenticity (said the guy who owns several Jeremy Blakes).

Since we are running out of explanations, one might wonder if the actual NFT and its connection to a rare blockchain has value. Like how gold from an ugly piece of jewelry can be melted down and used to make a nicer one. This is a reasonable explanation until one remembers is that NFT stands for non-fungible token. Nonfungible means it cannot be exchanged, and this NFT, by intent of creation, has no other possible appropriation or value outside of its designated context. So nope.

In the end, I am pretty sure that the price realized by Nyan Cat was a function of NFTs being novel and some unwarranted purchasing momentum for crypto-based assets. In other words, it is a bubble. If you are considering jumping in, beware. Fundamentals might not be the thing that drives an investment’s price in the short-term, but they are always what drives its value in the long term. Understanding the difference is not hard but anticipating when it will pop can be.

Leveraging COVID-Created Opportunities

COVID has sucked. If you are involved in the hospitality industry, supporting workers in their offices, or in a face-to-face service role, it is likely that your position has been upended or eliminated. Many of our favorite restaurants have not been able to weather the reduction in cash flow and closed their doors. The dry-cleaning industry, only recently recovered from the impact of municipal smoking-bans, has seen 50% of its stores shutter. And elegant office buildings cannot give away office space.

A telling, if bizarre, poster hung outside one of our favorite COVID-closed restaurants.

Yet there are opportunities in COVID. Many companies are rethinking the changing needs of their customers or identified emerging markets and making clever pivots. The element that most success stories have in common is the elimination of intellectual obstacles.

The more common physical obstacle does not care about COVID. The speed of light has not changed. Trucks cannot carry any more than before. Solar and wind energy have not gotten any more efficient. And the human body still breaks down in the same ways. But obstacles that existed because people believed they should exist have been turned on their heads.

The most obvious example is the previously maligned and decades old video-meeting industry. Sales managers used to be adamant that a face-to-face meeting should never be replaced with a phone call. Executives were certain that zoom-meetings were unreliable and ineffective. Yet now both have been forced to learn, embrace, and acknowledge the efficacy and efficiency of phones and computers to conduct live meetings.

Tele-medicine is another example of an industry that has taken advantage of the removal of intellectual obstacles. The American Medical Association and government regulators consistently blocked this industry’s advance on the grounds that face-to-face medical conversations and state-specific licensing of doctors were superior and required. But both of those written-in-stone objections dissolved like Berry-Blue Jell-o in a swimming pool once it was realized that patient visits spread the disease and placed doctor and patient at risk.

Intellectual obstacles have fallen in the medical industry in the past. Once the idea of a home pregnancy test was opposed. It was well-regarded that a positive test needed to be accompanied with a conversation on prenatal health and best practices. But a private little revolution happened in the early 80s and health experts came to realize that early pregnancy detection was more important than informed pregnancy detection. Still, most tests that can be done at home are not allowed. Expect advancements in COVID home-testing to pressure the elimination of that obstacle across the field.

Another observable example of the elimination of intellectual obstacles is the relaxation of laws surrounding outdoor dining. Restaurant owners and politicians once accepted the agreement that sidewalks should never be blocked by tables, bus stations or any private business’s object of necessity. Table distance, property lines, and fencing were written into law and fiercely regulated.

But with COVID came the upset of that intellectual obstacle. Even the fiercest regulators understand that haphazard outdoor dining may be the only chance most restaurants have to survive – and they agree that their community is better off with restaurants! The creative things restaurants in my neighborhood have done would have been unthinkable a year ago. Plastic igloos completely block sidewalks sending pedestrians into the street or they sit in the street sending traffic around. Others have placed tables on land they don’t own or was inappropriate for dining. Non-code garden sheds, portable cabanas, and makeshift tents now house space heaters, picnic tables, and cute wintery decorations. In some cases (i.e., Camp Lottie’s) what restaurant entrepreneurs have come up with is better than what they had before COVID!

These examples do not just represent a few specific changes to age-old ways of doing things. They represent a change in the way business leaders should think about improving sales, efficiency, and finding new markets. Almost every rule that was once sacred is now open for discussion. 

What should you do? Question, Try, Invest.

Successful leaders will not pass on this opportunity. Look at your business model, the way you produce, and the way you sell. Where are the intellectual obstacles in your system? What rules might not matter any-more? Engage your regulators and learn where they have moved the lines. Then consider challenging them to move the lines further. Think about how once unacceptable technology interfaces or automation can be implemented.

Once you have identified potential soft spots in the metaphorical walls limiting your operation, try to pierce them. Build a cheap app that avoids face-to-face contact and coincidentally also reduces costs. Try an automation idea that prevents COVID transmission even if it displaces a job. Test the waters vertically and horizontally. Throw a picnic table onto the sidewalk. Break some rules. See what takes.

And finally, make bets on what you have learned. The successful companies are going to come out of COVID with a business model that takes them in fundamentally different directions. They will discover that once half-baked acquisitions are now clever. They will learn that the time until positive ROIs, once measured in years, can now be measured in months. 

You know that adage “change or die?” It’s never been truer. There may only be three paths forward: become a change leader, become an acquisition target, or go away. Which road should your company be taking as you navigate your way out of COVID?

If you would like assistance with your business’s strategic direction, email me. and we can set up some time to talk.

Infection Rate, Selection Bias, and Hats

We all know the famous Mark Twain line: “There are three kinds of lieslies, damned lies, and statistics.” That and the adage that one can find a statistic to prove anything may suggest that statistics are just untrustworthy.

In fact, measurement and analysis – the fundamentals of statistics – are the only honest way to understand a full story – with the caveat that the numbers and the methods for their collection are understood and sound.

Stand-alone numbers rarely help one understand an event. If I told you that 7 people in the room had hats, you would know almost nothing about the situation I describe.

A nice hat.

But ratios are more descriptive. If I told you that 7 out of 100 (7/100 or 7%) of the people in the room had hats, you would know that most people were not wearing hats. The picture is more clear.

Even better is the time series. If I told you that 7% of the people in the room were wearing hats and that at last year’s event, 14% of people wore hats, you would know that the number of people who wear hats is small and fell year to year. You would have a a story about what was happening with the hats.

But this still isn’t enough. We also need to know how the numbers were collected if we are to trust the story they tell. If the number of people in the room was measured at lunch time one year and during the heart of the event a year later, we would have little confidence in the number of people the room. Similarly, if the hats were counted on heads one year and inside the coatroom the other year, we would not have confidence in the number of hats.

Some fellows have hats. Some do not.

Furthermore, it is important to discount any data that may be biased. If our hat statisticians offered a reward to ensure participation, they likely introduced selection bias (as mentioned in yesterday’s post). They likely missed the number of hats in the room and ended up with the number of hats worn by people who liked the reward. Imagine how different the results would be if the reward was a hat pin (a bias toward those who liked hats) or a tube of sunblock (a bias toward those who do not wear hats).

Back on point, here’s a great example demonstrating how COVID Infection Rate will be impacted by selection bias. As we approach this year’s flu season the infection rate is likely to go down even though the number of people infected with COVID stays the same or increases. The reason is that flu symptom confusion will lead more people to seek out COVID testing. This bias could dramatically increase the number of tests (the denominator) leading the infection rate to fall irrespective of the number of people infected.

Summing up, the clean numbers are, fatality rate, hospital beds (available and filled), and population size. Ratios and time series that include these numbers will help us correctly analyze the situation. However, ratios that include biased numbers such as COVID Infection Rate should be avoided. No matter how often the Governor repeats it, it does not describe the picture we are seeing.

Also, hats are cool.

Before AGILE there was, well, agile

November 2019 marked the publication of a memoir by Ameritrade CEO and Founder, Joe Ricketts, The Harder You Work, The Luckier You Get. I led the internet initiative at Ameritrade to the internet and spent many hours being interviewed for this book. Chapter 10 (page 245) highlights some of that story. Following is some more detail.

Like many software development teams in the 90s, we were struggling to keep up, as the internet – rather than floppy disks – became the data delivery method of choice and previously successful development models began to break down. This new paradigm was powerful because we could just update all our clients’ software at the flip of a switch. But it was also fraught with danger as it became very inexpensive and easy to launch new code without appropriate quality control. 

The Egyptians were not Agile

 In the olden days, almost all projects were delivered following a waterfall project management process. Even the pyramids likely started with some sort of primitive blueprint which included every thought and idea that the hoping-to-be-immortalized king might have in his head. As challenges to designing crept-up during construction, they were dealt with via design compromises. As a result, end projects were almost always something less than they were initially intended – even if nonetheless cool.

As people got better at building skyscrapers, ships, and bridges, they got better at estimating the time a project would take. Estimates were created based on the average of past projects scaled up or down to match the one at hand. We can imagine the thinking of an engineer in 1890:

That last bridge took 2 years and was a mile long. This new one is 20% longer so it should take about 29 months.

As our society of builders approached the middle of the 20th century, waterfall project management was very nearly perfected for capital projects. Engineers were aware of the details, pitfalls, and requirements of their projects. They were good enough that we were able to put a man on the moon!

Old practices didn’t fit new products

But around the time of Apollo 11, a new generation was coming of age who would challenge the time-tested results of waterfall concerning software development. Capital projects had been physical-resource-based. Metal, factory space, rivets, steel, and labor had gone into building the monuments of the previous two millennia. The new monuments were to be made of information, communication protocol, mental horsepower, and electricity. They deserved a new method of project management that matched their intangible materials.

Taking cues from Japanese manufacturing, their own experiences, and the changing relationship between programmers and users, computer engineers began to advocate for smaller production cycles that were more flexible. They sought to replace the heavy process of waterfall with something lighter. They promised to increase their accountability and transparency in return for a seat at the planning table and the opportunity to honestly manage executive expectations. Enter Agile.

There is a romantic notion within the software development community that in 2001, a group of 17 computer scientists got together in Utah and invented Agile software development. But that is really not what happened. In truth, engineers all over the world had been wrestling with the problems of building software in executive-driven environments and by the 1990s were coming up with similar solutions. The birth of the internet, and the explosion of users demands, really kicked the discussion into high gear.

Ameritrade

I was in Omaha Nebraska in the 1990s. Omaha might not have much of a silicon reputation, but due to its central proximity and favorable demographics, it was an early hub for military, communications, and technology providers. My company was Ameritrade even though it was called TransTerra at the time. Our technology team was part of the greater Omaha tech community. We knew each other, met regularly to discuss issues and share a beer and traveled to the same conferences. You can always spot a traveler from Nebraska because invariably they will be wearing red or have the state name emblazoned across their chest. It helps when they get lost.

 As TransTerra changed its name to Ameritrade and its number of clients grew from thousands to millions, we were under unprecedented pressure to revamp the way we built software. At the time Amazon first bragged about $1 million days, we were already seeing $100 million days. Our development cycles were built around exploding demand, for which our capacity increasing releases were regularly inadequate. And every day we were learning how better to present our interfaces. Clearly, long, waterfall development cycles were not going to work anymore.

In the spring of 1998, following the crush of a few 80-hour/week development cycles, we put a stop to the treadmill and took a step backward. For nearly three weeks, the development team and I locked the doors, sat together, and wrote what was to be Ameritrade’s new software development process. We called it the Cooperative Software Design Process.

I wish I still had a copy of that original document, but it is long gone. What I do have is a PowerPoint simplification, dated a year later (1999), that was presented to executives and new management as part of an initiative I worked on with my buddy, Ronny Gal from Boston Consulting Group (BCG). It is interesting to review and note how many similarities there are to what we now all know as Agile.

I have attached one particularly interesting slide from that deck. Much of it will feel familiar.

  • Cooperative acknowledges that the stakeholders were part of the process.
  • Concurrent iterations allowed us to deliver features more quickly.
  • The overlapping snail-shell arrow that has come to define Agile diagrams
  • That spinning idea generator up front was our version of ongoing backlog tasks
  • The little note in the bottom of the call-out box “smaller is better”

No alt text provided for this image

We missed a lot of important Agile components too. We didn’t think of time boxing, completed software instead of status reports, or daily stand-ups, but those things probably weren’t appropriate to Ameritrade at the time. We were creating a process that allowed our business units – and subsequently the end-users – to understand that they were in control of what we were doing. In retrospect, it was quite appropriate.

The emergence of the internet changed a lot of things in the mid-90s. Companies that didn’t embrace it went away and those that did were forced to re-evaluate the way they did business. Few companies were as shaken and shaped as much as Ameritrade. Every element of the company was put into flux – but nowhere greater than what became the internet development team. We were pioneers out of necessity and lucky that the pre-Agile discussion was one of which we could be a part. These concepts helped our team progress to maturity and paved the road for Ameritrade’s growth and eventual position as one of the largest brokerages in the country.

Additional posts in this series:

Perspective.

The S&P has been rocked over the last week with value off nearly 20% as of this morning. But how far has this put the market back? The answer may surprise you.

August 26th last year.

That’s it. We have only given up the gains of the last six months. How much better or worse off were you at the end of August? I’m guessing that your answer is “pretty much the same.” Keep that in mind.

The Corona Virus is very dangerous, but not because dozens of people will die from it. Thousands of people die from the regular old flu each year. The danger is that fear of the Corona Virus will make people stay home from work, provide an excuse to skip that conference they kind of didn’t want to go to anyway, postpone starting a new deal, etc. All these seemingly one-off, innocuous, changes in behavior will add up until people start losing their jobs, their retirement savings, and their homes.

So if you want to protect yourself and your community from the real dangers of the Corona Virus, do your job, pursue opportunities, walk to Starbucks – do everything exactly like you were doing last August.

#coronavirus #markets #perspective #fear #flu 

The harder you work, the luckier you get!

Click for more info

Today marks the drop of Joe Ricketts’ memoir, The Harder You Work, The Luckier You Get, a book to which I contributed and within which I am portrayed.

Joe Ricketts is the founder of Ameritrade, and he was my boss. I was initially hired to run marketing but was quickly moved to the more historically interesting job of leading the company to the Internet (with a capital I, because back then it was spelled that way). During the creation of this book, I was interviewed several times and it’s hard to remember everything I said, but I do think the following story will be new.

In the fall of 1995, we launched the world’s first internet trading site under the brand, Aufhauser. Aufhauser was a scrappy New York based brokerage which we had recently purchased – I think largely to provide us some NY street cred which as Omaha “bumpkins”, we were in desperate need. Aufhauser had been uniquely using the internet as a platform for messaging between clients and brokers.

Understand that at this time, no one had ever traded stocks on the internet. In fact, No one had ever paid a bill on the internet, transferred money on the internet, or even viewed a statement on the internet. We were the absolute first financial services company to have a functioning website! We may have been the first to have any website, but I am not certain of that.

From a technical perspective, it wasn’t that difficult. We already had a call-and-response system (an API) created for our touch-tone phone application so we could get the information to the client’s web page. The real challenge was navigating the unexpected objections of just about everyone!

One of my favorite brouhahas from the period involved the exchanges (The New York Stock Exchange and NASDAQ), the regulators, and our compliance team. They all hated me, and I like to think Arthur Levitt, Chairman of the SEC at the time, may have even known my name (but he probably did not). The issue, which has been thoroughly eliminated since, was real-time verses delayed stock quotes.

Randolph and Mortimer Duke. Old-timey Brokers.

You see, the exchanges did not want regular-guy investors to have access to real-time stock quotes. Old-timey stockbrokers (think: Randolph and Mortimer Duke, left) were big clients of the exchanges and access to real-time quotes was one of the reasons people had brokers. Every time that phone rang, the broker had a chance to push another transaction and trade commissions were hundreds or even thousands of dollars per trade. As a result, financial service companies who wanted to share stock prices electronically did so by delaying the quotes by 20 minutes.

But the regulators – the people from the executive branch of the government who enforce laws – required that every trade be preceded by the presentation of a real-time quote. Even if an investor wanted to buy a stock and hold it for 20 years, he had to see the actual price at the time of purchase.

Previous electronic systems such as Ameritrade’s touch-tone trading and clunky Accutrade for Windows had located a compromise wherein real-time prices would be delivered at trade-time and delayed prices would be used everywhere else. This was the model we were following when we launched. Business was slow at first, but within a few months people started to take notice, and I got a call from compliance.

Um, yeah…

I don’t remember who worked in compliance or who called me, but over the years I have inserted Bill Lumbergh into my recounting of the story. “Um, yeah”, drawing out that second word as long as possible, “we are going to need you to stop using real-time quotes on the internet.”

Compliance was the organization in our company – any company – that ensures that laws are being followed down to the letter but also that contracts are being adhered to. They watched our every move and scrutinized every application we built. The internet was untested territory and, although I am speculating, our recent success had been noted by brokers who were pressuring the exchanges to keep professional tools out of the hands of retail investors. The exchanges were very clear that this violation put our service with them in jeopardy. In no uncertain terms: to continue would risk our access to real-time quotes altogether and threatened our ability to stay in business.

Adhering to their request required choosing between two untenable options. We could provide delayed quotes at trade time – and be in violation of the law, or we could stop allowing trades over the internet all together. I thought hard about this before going to Joe Ricketts with my thoughts. Joe and I had a great relationship at the time. I had shown him I was capable, I had made a positive impact, and he gave me more than enough rope to hang myself and the whole company.

I returned to my team with the news. “Fuck it, we are moving forward as is.” I expect that, at the same time, Joe was on the phone warning compliance to buckle up because the next week was a bull ride worthy of a rodeo. Compliance was fighting with exchanges, exchanges were fighting with regulators, and regulators were trying to figure out how they had gotten stuck in the middle of this. I took calls from all sides, received an earful, and was called an upstart (maybe more than once). But at my core I knew that efficiency always prevails over the objections of those profiting from that efficiency. Our business depended on exactly one outcome, and I was confident it would come.

And it did. The law won out, and the exchanges agreed to allow real-time quotes in certain situations and in return for a hefty sum every time one was presented.

I remember a year following this event, Amazon announced that for the first time, they had surpassed $1 million dollars in a single day. No one called us for that story, but we had been doing 100 times that for months. According to a recent story on NBC, TD Ameritrade now processes nearly 1 million trades (and an estimated total value of $1 billion) per day.

This story started off as a classical example of the exchanges’ channel conflict – one company profiting from two clients who had competing business models. In retrospect, the resolution was the moment when the new disrupted the old, the tipping point was reached, and the paradigm shifted. When that happened, every obstacle to internet trading had been eliminated, the industry was allowed to rush forward, and it did. I am proud to have been there.

Truman’s Cleans windows and Reduces Environmental Guilt (but not much else yet)

Also: The Simpsons!

I really love this concept but question its potential without some toothy legislation to support it. Truman’s sends cleaning supplies via Fedex or UPS in a cardboard box which you refill with concentrates that they also send you – via similar albeit smaller chipping containers. I heard the product described as “only slightly more expensive than the better cleaning products you get in the store.” I will add that they are also significantly less convenient.

If the question is feeling good about our personal footprint, these green (ish) but inconvenient products may allow us, affluent societally-conscious city-dwellers, to do something and send the right message to our children, but most Americans cannot afford to pay many times more than dollar-store prices, and jump through a bunch of hoops, to attain one-percenter benefits.

On the other hand, if the question is reducing the amount of waste society creates, the right answer is to support reusability with meaningful garbage collection fees calculated by usage – in other words, charge people for what they throw away. This would require an entirely new model for waste management. Garbage cans or trucks might need scales and geometric volume scanners for calculating each house’s waste. If you throw away a lot of stuff, you are going to pay a lot of money. If you reuse and repurpose everything (don’t get me started on recycling), you could pay close to nothing. Sounds like a fun home-ec game to play with the family, and it offers real cash prizes!

Of course there are the political obstacles. The exact same politicians who would hop all over the green elements of this concept would oppose its regressive taxation appearance. Regressive taxation is one that hurts poor people and is insignificant to rich people. But that too is manageable if collection rates vary by neighborhoods with lower rates in poor neighborhoods and exorbitant rates in rich neighborhoods (similar to property taxes). The program only works if everyone feels it when they don’t comply, so it would need to feel relatively expensive to everyone across the spectrum.

I am a firm believer that government should stay out of the way of self-interest. But where government is effective and needed is in preventing people from pursuing self-interest that harms others (that’s why we have police and courts for example). I think garbage creation – as necessary as it is – can fit this category. And who knew there were so many great Simpson’s GIFs about garbage!