Steve Jobs: Bye-bye Google?
January 20, 2010 - 7:04 pm
Brian Caulfield is a senior editor in the Silicon Valley bureau of Forbes
When Apple and Google fight Microsoft could win, and AT&T might lose. That's Oppenheimer analyst Yair Reiner's take Wednesday on reports Apple may bump Google in favor of Microsoft's Bing search service for the iPhone.
► Nexus One Makes Google $20 Billion Richer: http://blogs.forbes.com/velocity/2010/01/13/nexus-one-makes-google-20-billion-richer/
► Apple Could Take On Google With Quattro Wireless: http://blogs.forbes.com/velocity/2010/01/05/apple-could-take-on-google-with-quattro-purchase/
"Structurally, Microsoft and Google pose similar threats to Apple, but Google with the budding success of Android an Chrome, represents a more immediate danger," Yair wrote in a note to investors. "If so, Apple may at least need to contemplate the possibility that the enemy of its enemy might be its friend, even if that special someone is, gasp, Microsoft."
The result: Microsoft might be able to push its way onto the iPhone. It has already displaced Google as the search engine on Verizon's handsets in a deal worth $500 million. So Microsoft has no need to pay stupid money: "We believe MSFT will not grossly overpay," Yair writes.
The surprise loser in this: AT&T. "This move highlights the loss of control over its own customer base that the iPhone has brought," Yair wrote.
Thursday 21 January 2010
Wednesday 20 January 2010
China Details Homemade Supercomputer Plans
China Details Homemade Supercomputer Plans
The machine will use an unfashionable chip design.
By Christopher Mims
Tuesday, January 19, 2010
It's official: China's next supercomputer, the petascale Dawning 6000, will be constructed exclusively with home-grown microprocessors. Weiwu Hu, chief architect of the Loongson (also known as "Godson") family of CPUs at the Institute of Computing Technology (ICT), a division of the Chinese Academy of Sciences, also confirms that the supercomputer will run Linux. This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server.
The arrival of Dawning 6000 will be an important landmark for the Loongson processor family, which to date has been used only in inexpensive, low-power netbooks and nettop PCs. When the Dawning 5000a was initially announced, it too was meant to be built with Loongson processors, but the Dawning Information Industry Company, which built the computer, eventually went with AMD chips, citing a lack of support for Windows, and the ICT's failure to deliver a sufficiently powerful chip in time.
The Dawning 6000 will be completed by mid-2010 at the latest, says Hu, and could be up and running as early as the end of 2010. It is the second time that a representative from the ICT has promised a supercomputer built entirely using Loongson processors.
The development of Loongson 3 began in 2001 as a product of China's 10th five-year program. All of the chips in the Loongson family are based on the MIPS instruction set--originally developed in the 1980s but now out of favor in desktop and server computers, although still used in many embedded devices. Currently, the Top 500 list is dominated by x86 chips, with non-x86 CPUs powering less than 15 percent of the high-performance systems on the list.
"This is a very high-performance MIPS architecture where, when it's run in a cluster configuration, it becomes very powerful," says Art Swift, vice president of marketing at Sunnyvale, CA-based MIPS Technologies, which developed the MIPS architecture.
A paper published in 2009 proposes using Loongson 3 chips in clusters of up to 16 cores to accomplish extremely high performance. Tom Halfhill, analyst at Microprocessor Report, calculates that in this configuration, meeting the petaflop performance mark (one quadrillion operations per second) could require as few as 782 16-core chips.
Halfhill says the Loongson 3 is little different from the latest-generation chip, Loongson 2F, which is already available in consumer PCs. The main differences are that it includes hardware translation of x86 instructions (used in most of the microprocessors made by Intel and AMD), and it incorporates multiple cores--from four up to a proposed 16--each capable of processing commands independently. Conspicuously absent from the Loongson 3 is multithreading, which allows a single core to execute multiple instructions simultaneously. (Both Intel and Sun have already incorporated multithreading into some of their chips.)
Generations 2 and 3 of the Loongson use the same general-purpose core, but the Loongson 3 tethers more cores together. A quad-core Loongson 3 chip is currently in prototype, and a final, 64-nanometer version of the chip was "taped out" in late December, meaning the final description of the chip will soon be sent to the manufacturer, STMicroelectronics.
While the quad-core Loongson 3 could find applications in everything from desktop PCs to set-top boxes (the chip incorporates additional instructions designed specifically to speed up multimedia playback), an eight-core version will likely be need for the proposed petascale supercomputer. That version will incorporate four regular cores, along with four "GStera" coprocessors designed especially for mathematically intensive calculations. These coprocessors are especially significant because they are better at handling intensive mathematical calculations, including the LINPACK test, which uses linear algebra to benchmark the world's fastest supercomputers, and to determine their ranking (and their owners' bragging rights) in the Top 500 list of supercomputers.
Jack Dongarra, the computer scientist who introduced the LINPACK benchmark, says that the proposed architecture of the Dawning 6000--multi-purpose cores coupled to coprocessors for certain types of mathematical calculations--follows the standard supercomputer design.
The quad-core Loongson 3 already incorporates two 64-bit floating-point units in each of its cores. So in theory it could be used as the commodity chip in a supercomputer. However, it would require vastly more of these cores to achieve the same processing power, says Dongarra.
Intel remains unfazed by the prospect of a new, state-sponsored contender in the field of high-performance computing. "Measuring competitive impact for a product that does not exist [yet] is always problematic, and we generally refrain from doing so," says Chuck Mulloy a spokesperson for Intel. "In our entire history there has never been a time when we didn't face a competitor. We don't expect that to change--in fact we welcome it."
Dongarra cautions that it's pointless to speculate about the performance of the forthcoming Dawning 6000 until benchmarks have been run, not least because the MIPS architecture is nonstandard in high-performance computing. "While I wish them well, I see a lot of challenges to making the whole system work, " says Dongarra. These challenges include having to adapt the software that Dawning runs.
Halfhill, who has traveled to the ICT in Beijing to report on the birth of the Loongson 3, believes that whatever the performance of the system, it's only a matter of time before China builds a home-grown chip competitive with those produced in the West. "Technically there's nothing to stop them from doing world-class processors," he says. "They've got architects and computer scientists just as smart as ours."
Comments
*
Another Me-too Chinese Project
Interesting article but what a waste of good research talent! The hard reality is that any new processor that does not solve the parallel programming crisis is on a fast road to failure. No long march to victory in sight for the Loongson, sorry.
China should be trying to become a leader in this field, not just another me-too follower. There is an unprecedented opportunity to make a killing in the parallel processor industry in the years ahead. Intel may have cornered the market for now but they have an Achilles' heel: they are way too big and way too married to last century's flawed computing paradigms to change in time for the coming massively parallel computer revolution. Their x86 technology will be worthless when that happens. The trash bins of Silicon Valley will be filled with obsolete Intel chips.
Here's the problem. The computer industry is in a very serious crisis due to processor performance limitations and low programmer productivity. Going parallel is the right thing to do but the current multicore/multithreading approach to parallel computing is a disaster in the making. Using the erroneous Turing Machine-based paradigms of the last sixty years to solve this century's massive parallelism problem is pure folly. Intel knows this but they will never admit it because they've got too much invested in the old stuff. Too bad. They will lose the coming processor war. That's where China and Intel's competitors can excel if they play their cards right.
The truth is that the thread concept (on which the Loongson and Intel's processors are based) is the cause of the crisis, not the solution. There is an infinitely better way to build and program computers that does not involve threads at all. Sooner or later, an unknown startup will pop out of nowhere and blow everybody out of the water.
My advice to China, Intel, AMD and the other big dogs is this: first invest your resources into solving the parallel programming crisis. Only then will you know enough to properly tackle the embedded systems, supercomputing and cloud computing markets. Otherwise be prepared to lose a boatload of dough. When that happens, there shall be much weeping and gnashing of teeth but I'll be eating popcorn with a smirk on my face and saying "I told you so".
How to Solve the Parallel Programming Crisis:
http://rebelscience.blogspot.com/2008/07/how-to-solve-parallel-programming.html
o
Intel did tried to abandon the x84 architecture until it blow up in its face; Remember Itanium?
Developing a whole new computer architecture require huge amount of resources and talent. I highly doubt ICT have the budget or staff to accomplish it. Face it, scientific program always get the short end of the stick, it's the same everywhere in the world.
You say: "Using the erroneous Turing Machine-based paradigms of the last sixty years ..." I recall learning that, based on TM, parallelizing by a factor of N can improve performance by at most a factor of N. Are you saying that there are parallel architectures that break TM paradigm and so get around this limitation?
o
Turing Machine
No. What I'm saying is that, if the Turing computing model (TCM) were the appropriate model for parallel processing, the industry would not be in the mess that it is currently in and you would not be reading this comment. Regardless of what has been claimed by the experts about universality, a Turing Machine models one thing and one thing only, a sequential computer.
The biggest problem with the TCM is that operation timing (other than the implicit sequentiality of execution) is not part of the model. What is needed is a computing model in which any two operations in a program can be unambiguously determined as being either sequential or parallel (simultaneous). This determinism is impossible with concurrent threads and therein lies the problem.
In sum, the computer industry must abandon threads altogether or resign itself to endure a lot of pain in the years ahead. The Loongson solves nothing. It's just more pain for the Chinese.
Fact Check!
"This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server."
WRONG!
As of November 2009, a Chinese system occupies the number 5 position on the TOP500 list. Tianhe-1, assembled by China’s National University of Defense Technology, attains a theoretical peak rate of 1.2 PFLOPS. It includes 2560 compute nodes, each with two quad-core Xeon processors for scalar workloads and two AMD Radeon 4870x2 GPUs for vector workloads.
The machine will use an unfashionable chip design.
By Christopher Mims
Tuesday, January 19, 2010
It's official: China's next supercomputer, the petascale Dawning 6000, will be constructed exclusively with home-grown microprocessors. Weiwu Hu, chief architect of the Loongson (also known as "Godson") family of CPUs at the Institute of Computing Technology (ICT), a division of the Chinese Academy of Sciences, also confirms that the supercomputer will run Linux. This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server.
The arrival of Dawning 6000 will be an important landmark for the Loongson processor family, which to date has been used only in inexpensive, low-power netbooks and nettop PCs. When the Dawning 5000a was initially announced, it too was meant to be built with Loongson processors, but the Dawning Information Industry Company, which built the computer, eventually went with AMD chips, citing a lack of support for Windows, and the ICT's failure to deliver a sufficiently powerful chip in time.
The Dawning 6000 will be completed by mid-2010 at the latest, says Hu, and could be up and running as early as the end of 2010. It is the second time that a representative from the ICT has promised a supercomputer built entirely using Loongson processors.
The development of Loongson 3 began in 2001 as a product of China's 10th five-year program. All of the chips in the Loongson family are based on the MIPS instruction set--originally developed in the 1980s but now out of favor in desktop and server computers, although still used in many embedded devices. Currently, the Top 500 list is dominated by x86 chips, with non-x86 CPUs powering less than 15 percent of the high-performance systems on the list.
"This is a very high-performance MIPS architecture where, when it's run in a cluster configuration, it becomes very powerful," says Art Swift, vice president of marketing at Sunnyvale, CA-based MIPS Technologies, which developed the MIPS architecture.
A paper published in 2009 proposes using Loongson 3 chips in clusters of up to 16 cores to accomplish extremely high performance. Tom Halfhill, analyst at Microprocessor Report, calculates that in this configuration, meeting the petaflop performance mark (one quadrillion operations per second) could require as few as 782 16-core chips.
Halfhill says the Loongson 3 is little different from the latest-generation chip, Loongson 2F, which is already available in consumer PCs. The main differences are that it includes hardware translation of x86 instructions (used in most of the microprocessors made by Intel and AMD), and it incorporates multiple cores--from four up to a proposed 16--each capable of processing commands independently. Conspicuously absent from the Loongson 3 is multithreading, which allows a single core to execute multiple instructions simultaneously. (Both Intel and Sun have already incorporated multithreading into some of their chips.)
Generations 2 and 3 of the Loongson use the same general-purpose core, but the Loongson 3 tethers more cores together. A quad-core Loongson 3 chip is currently in prototype, and a final, 64-nanometer version of the chip was "taped out" in late December, meaning the final description of the chip will soon be sent to the manufacturer, STMicroelectronics.
While the quad-core Loongson 3 could find applications in everything from desktop PCs to set-top boxes (the chip incorporates additional instructions designed specifically to speed up multimedia playback), an eight-core version will likely be need for the proposed petascale supercomputer. That version will incorporate four regular cores, along with four "GStera" coprocessors designed especially for mathematically intensive calculations. These coprocessors are especially significant because they are better at handling intensive mathematical calculations, including the LINPACK test, which uses linear algebra to benchmark the world's fastest supercomputers, and to determine their ranking (and their owners' bragging rights) in the Top 500 list of supercomputers.
Jack Dongarra, the computer scientist who introduced the LINPACK benchmark, says that the proposed architecture of the Dawning 6000--multi-purpose cores coupled to coprocessors for certain types of mathematical calculations--follows the standard supercomputer design.
The quad-core Loongson 3 already incorporates two 64-bit floating-point units in each of its cores. So in theory it could be used as the commodity chip in a supercomputer. However, it would require vastly more of these cores to achieve the same processing power, says Dongarra.
Intel remains unfazed by the prospect of a new, state-sponsored contender in the field of high-performance computing. "Measuring competitive impact for a product that does not exist [yet] is always problematic, and we generally refrain from doing so," says Chuck Mulloy a spokesperson for Intel. "In our entire history there has never been a time when we didn't face a competitor. We don't expect that to change--in fact we welcome it."
Dongarra cautions that it's pointless to speculate about the performance of the forthcoming Dawning 6000 until benchmarks have been run, not least because the MIPS architecture is nonstandard in high-performance computing. "While I wish them well, I see a lot of challenges to making the whole system work, " says Dongarra. These challenges include having to adapt the software that Dawning runs.
Halfhill, who has traveled to the ICT in Beijing to report on the birth of the Loongson 3, believes that whatever the performance of the system, it's only a matter of time before China builds a home-grown chip competitive with those produced in the West. "Technically there's nothing to stop them from doing world-class processors," he says. "They've got architects and computer scientists just as smart as ours."
Comments
*
Another Me-too Chinese Project
Interesting article but what a waste of good research talent! The hard reality is that any new processor that does not solve the parallel programming crisis is on a fast road to failure. No long march to victory in sight for the Loongson, sorry.
China should be trying to become a leader in this field, not just another me-too follower. There is an unprecedented opportunity to make a killing in the parallel processor industry in the years ahead. Intel may have cornered the market for now but they have an Achilles' heel: they are way too big and way too married to last century's flawed computing paradigms to change in time for the coming massively parallel computer revolution. Their x86 technology will be worthless when that happens. The trash bins of Silicon Valley will be filled with obsolete Intel chips.
Here's the problem. The computer industry is in a very serious crisis due to processor performance limitations and low programmer productivity. Going parallel is the right thing to do but the current multicore/multithreading approach to parallel computing is a disaster in the making. Using the erroneous Turing Machine-based paradigms of the last sixty years to solve this century's massive parallelism problem is pure folly. Intel knows this but they will never admit it because they've got too much invested in the old stuff. Too bad. They will lose the coming processor war. That's where China and Intel's competitors can excel if they play their cards right.
The truth is that the thread concept (on which the Loongson and Intel's processors are based) is the cause of the crisis, not the solution. There is an infinitely better way to build and program computers that does not involve threads at all. Sooner or later, an unknown startup will pop out of nowhere and blow everybody out of the water.
My advice to China, Intel, AMD and the other big dogs is this: first invest your resources into solving the parallel programming crisis. Only then will you know enough to properly tackle the embedded systems, supercomputing and cloud computing markets. Otherwise be prepared to lose a boatload of dough. When that happens, there shall be much weeping and gnashing of teeth but I'll be eating popcorn with a smirk on my face and saying "I told you so".
How to Solve the Parallel Programming Crisis:
http://rebelscience.blogspot.com/2008/07/how-to-solve-parallel-programming.html
o
Intel did tried to abandon the x84 architecture until it blow up in its face; Remember Itanium?
Developing a whole new computer architecture require huge amount of resources and talent. I highly doubt ICT have the budget or staff to accomplish it. Face it, scientific program always get the short end of the stick, it's the same everywhere in the world.
You say: "Using the erroneous Turing Machine-based paradigms of the last sixty years ..." I recall learning that, based on TM, parallelizing by a factor of N can improve performance by at most a factor of N. Are you saying that there are parallel architectures that break TM paradigm and so get around this limitation?
o
Turing Machine
No. What I'm saying is that, if the Turing computing model (TCM) were the appropriate model for parallel processing, the industry would not be in the mess that it is currently in and you would not be reading this comment. Regardless of what has been claimed by the experts about universality, a Turing Machine models one thing and one thing only, a sequential computer.
The biggest problem with the TCM is that operation timing (other than the implicit sequentiality of execution) is not part of the model. What is needed is a computing model in which any two operations in a program can be unambiguously determined as being either sequential or parallel (simultaneous). This determinism is impossible with concurrent threads and therein lies the problem.
In sum, the computer industry must abandon threads altogether or resign itself to endure a lot of pain in the years ahead. The Loongson solves nothing. It's just more pain for the Chinese.
Fact Check!
"This is a sharp departure from China's last supercomputer, the Dawning 5000a, which debuted at number 11 on the list of the world's fastest supercomputers in 2008, and was built with AMD chips and ran Windows HPC Server."
WRONG!
As of November 2009, a Chinese system occupies the number 5 position on the TOP500 list. Tianhe-1, assembled by China’s National University of Defense Technology, attains a theoretical peak rate of 1.2 PFLOPS. It includes 2560 compute nodes, each with two quad-core Xeon processors for scalar workloads and two AMD Radeon 4870x2 GPUs for vector workloads.
Tuesday 19 January 2010
Chinese Rocket Launches New Navigation Satellite
Chinese Rocket Launches New Navigation Satellite
By Stephen Clark
posted: 18 January 2010
10:49 am ET
A Chinese Long March rocket hauled a new navigation satellite to a high-altitude perch over Earth on Saturday, marking the first space launch of the year for the world's space programs.
The Long March 3C rocket blasted off from the Xichang space center at 1612 GMT (11:12 a.m. EST) Saturday, or just after midnight Sunday morning local time, state media reported.
The 180-foot-tall booster flew east from Xichang, which is situated in Sichuan province in southwestern China. The Beidou, or Compass, navigation satellite was placed on a trajectory toward geosynchronous orbit, according to the Xinhua news agency.
The satellite is the third member of the second-generation Beidou constellation. Two spacecraft were launched to medium Earth orbit and geosynchronous orbit in 2007 and 2009, respectively.
First-generation satellites were launched between 2000 and 2007 to test the Beidou concept in space and provide limited services for China.
China eventually expects to launch 35 Beidou satellites, allowing the system to have a global reach similar to the U.S. Global Positioning System. Russia operates a fleet of Glonass navigation satellites, and Europe is developing the Galileo satellite navigation system.
Officials hope the Beidou system will provide navigation, timing and messaging services to the Asia-Pacific region by 2012, Xinhua reported.
China says Beidou services will be available at no charge to civilians with positioning accuracy of about 10 meters, or 33 feet. More precise navigation data will be given to Chinese government and military users, according to Xinhua.
By Stephen Clark
posted: 18 January 2010
10:49 am ET
A Chinese Long March rocket hauled a new navigation satellite to a high-altitude perch over Earth on Saturday, marking the first space launch of the year for the world's space programs.
The Long March 3C rocket blasted off from the Xichang space center at 1612 GMT (11:12 a.m. EST) Saturday, or just after midnight Sunday morning local time, state media reported.
The 180-foot-tall booster flew east from Xichang, which is situated in Sichuan province in southwestern China. The Beidou, or Compass, navigation satellite was placed on a trajectory toward geosynchronous orbit, according to the Xinhua news agency.
The satellite is the third member of the second-generation Beidou constellation. Two spacecraft were launched to medium Earth orbit and geosynchronous orbit in 2007 and 2009, respectively.
First-generation satellites were launched between 2000 and 2007 to test the Beidou concept in space and provide limited services for China.
China eventually expects to launch 35 Beidou satellites, allowing the system to have a global reach similar to the U.S. Global Positioning System. Russia operates a fleet of Glonass navigation satellites, and Europe is developing the Galileo satellite navigation system.
Officials hope the Beidou system will provide navigation, timing and messaging services to the Asia-Pacific region by 2012, Xinhua reported.
China says Beidou services will be available at no charge to civilians with positioning accuracy of about 10 meters, or 33 feet. More precise navigation data will be given to Chinese government and military users, according to Xinhua.
Monday 18 January 2010
Investing in irrational markets
Investing in irrational markets
Hock's Viewpoint - By Choong Khuat Hock
The financial crisis reflects the fallacy of the ‘efficient market hypothesis’
IT is amazing that economic theories still consider that markets are governed by the “efficient market hypothesis” (EMH), which assumes rational investors, an orderly market and that all available information are known.
The global financial crisis reflects the fallacy of EMH and textbooks should be revised to reflect this.
In reality, markets reflect the nature of its creators and participants – a collection of human beings who would like to think they are rational but are often enough irrational and emotional.
Quantitative models often fail to model the irrationality of human behaviour during extreme times.
Blind reliance on such models was also the reason why Long-Term Capital Management (LTCM, which had Nobel Prize-winning economists) failed as the restructuring of defaulting bonds in Russia in 1998 caused volatilities beyond what was predicted by quant models.
The extremely high leverage utilised by LTCM hastened its demise. Alan Greenspan had to engineer a rescue as the failure of LTCM threatened to damage the markets and market participants.
One way of valuing securities is to use the discounted cash flow model, which is to discount the expected future cash flows to obtain the present value.
http://biz.thestar.com.my/archives/2010/1/18/business/p6-brain.JPG
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
However, in many cases, future cash flows are difficult to predict and the discount rate used would fluctuate depending on the prevailing interest rates and the perception of risk which may vary from person to person.
This method is more useful in valuing businesses or securities with predictable cash flows like utility stocks where cash flows are stable and funding costs have been determined. Another popular valuation method is to compare securities with its peers.
Such comparisons are ingrained in the nature of human beings as we can only determine the value or utility of something by comparing it to another. Shall I buy the latest Samsung or Sony LCD TV? How does a BlackBerry compare with an iPhone?
Similarly, if the price-earnings ratio (PER) of a stock is 10 times and the sector PER is 20 times, it may be considered cheap if specific company factors are attractive.
Using sector PER as valuation anchor is fraught with danger as the sector valuation may be unreasonable.
Such comparisons may not reflect the value of potential cash flows from an investment. At the height of the dot.com bubble, valuations were based on price to sales with no consideration placed on cash flow.
The prevailing belief then was that there was a sucker willing to pay a higher price to sales for the business.
The same happened during the debt fueled property bubble in the US when rental yields from property could not cover mortgage payments.
Banks were willing to provide 100% financing to those who could not afford houses based on the assumption that property prices could only go up and mortgage loans could be repackaged into much sought after high yielding subprime securities.
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
The brain can be divided into two parts – the hypothalamus, or primal brain, (a few hundred million years old) which directs our instinctive behaviour and the neo-cortex, or new brain, (a few million years old) which facilitates logical deductions, learning from experience, language and complex social interactions.
In times of panic, the hypothalamus takes over and markets tend to overshoot on the downside due to panic selling.
Since these moves are often irrational, the movements tend to be many standard deviations more than what is predicted by a normal distribution curve, creating black swan events.
Faced with an avalanche of incomplete information, humans use heuristics, a simplification process to arrive at a decision based on their past experiences and prejudices.
In arriving at a rule of thumb valuation, anchoring is employed by imputing a fair value to the initial entry level even if the entry level is high.
Therefore, in a rising property market, anchoring may result in the belief that the price appreciation will continue.
A bubble can thus form as the herd is blinded by cognitive dissonance whereby investors pay credence only to views and opinions that reinforce their beliefs. However when the discrepancy between fantasy and reality becomes too large, the bubble bursts.
Investment is hence as much an art as it is science. In the final analysis, it is the cash flow that counts.
The science would be in accurately determining the cash flow but the art lies in determining how much investors are willing to pay for the cash flows.
Identifying periods of over pessimism and optimism would help in determining entry and exit points.
In the end, the advantage lies in accurately predicting beforehand where the herd is heading. Understanding the animal in you and others could indeed be a profitableproposition.
# Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd.
Hock's Viewpoint - By Choong Khuat Hock
The financial crisis reflects the fallacy of the ‘efficient market hypothesis’
IT is amazing that economic theories still consider that markets are governed by the “efficient market hypothesis” (EMH), which assumes rational investors, an orderly market and that all available information are known.
The global financial crisis reflects the fallacy of EMH and textbooks should be revised to reflect this.
In reality, markets reflect the nature of its creators and participants – a collection of human beings who would like to think they are rational but are often enough irrational and emotional.
Quantitative models often fail to model the irrationality of human behaviour during extreme times.
Blind reliance on such models was also the reason why Long-Term Capital Management (LTCM, which had Nobel Prize-winning economists) failed as the restructuring of defaulting bonds in Russia in 1998 caused volatilities beyond what was predicted by quant models.
The extremely high leverage utilised by LTCM hastened its demise. Alan Greenspan had to engineer a rescue as the failure of LTCM threatened to damage the markets and market participants.
One way of valuing securities is to use the discounted cash flow model, which is to discount the expected future cash flows to obtain the present value.
http://biz.thestar.com.my/archives/2010/1/18/business/p6-brain.JPG
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
However, in many cases, future cash flows are difficult to predict and the discount rate used would fluctuate depending on the prevailing interest rates and the perception of risk which may vary from person to person.
This method is more useful in valuing businesses or securities with predictable cash flows like utility stocks where cash flows are stable and funding costs have been determined. Another popular valuation method is to compare securities with its peers.
Such comparisons are ingrained in the nature of human beings as we can only determine the value or utility of something by comparing it to another. Shall I buy the latest Samsung or Sony LCD TV? How does a BlackBerry compare with an iPhone?
Similarly, if the price-earnings ratio (PER) of a stock is 10 times and the sector PER is 20 times, it may be considered cheap if specific company factors are attractive.
Using sector PER as valuation anchor is fraught with danger as the sector valuation may be unreasonable.
Such comparisons may not reflect the value of potential cash flows from an investment. At the height of the dot.com bubble, valuations were based on price to sales with no consideration placed on cash flow.
The prevailing belief then was that there was a sucker willing to pay a higher price to sales for the business.
The same happened during the debt fueled property bubble in the US when rental yields from property could not cover mortgage payments.
Banks were willing to provide 100% financing to those who could not afford houses based on the assumption that property prices could only go up and mortgage loans could be repackaged into much sought after high yielding subprime securities.
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
The brain can be divided into two parts – the hypothalamus, or primal brain, (a few hundred million years old) which directs our instinctive behaviour and the neo-cortex, or new brain, (a few million years old) which facilitates logical deductions, learning from experience, language and complex social interactions.
In times of panic, the hypothalamus takes over and markets tend to overshoot on the downside due to panic selling.
Since these moves are often irrational, the movements tend to be many standard deviations more than what is predicted by a normal distribution curve, creating black swan events.
Faced with an avalanche of incomplete information, humans use heuristics, a simplification process to arrive at a decision based on their past experiences and prejudices.
In arriving at a rule of thumb valuation, anchoring is employed by imputing a fair value to the initial entry level even if the entry level is high.
Therefore, in a rising property market, anchoring may result in the belief that the price appreciation will continue.
A bubble can thus form as the herd is blinded by cognitive dissonance whereby investors pay credence only to views and opinions that reinforce their beliefs. However when the discrepancy between fantasy and reality becomes too large, the bubble bursts.
Investment is hence as much an art as it is science. In the final analysis, it is the cash flow that counts.
The science would be in accurately determining the cash flow but the art lies in determining how much investors are willing to pay for the cash flows.
Identifying periods of over pessimism and optimism would help in determining entry and exit points.
In the end, the advantage lies in accurately predicting beforehand where the herd is heading. Understanding the animal in you and others could indeed be a profitableproposition.
# Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd.
Sunday 17 January 2010
Alibaba says Yahoo 'reckless' on Google stance
Alibaba says Yahoo 'reckless' on Google stance
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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