dliu

Fascinating video describing the high-frequency trading and market dynamics that have kept Facebook trading at the $38 support level for much of its IPO day (11:50am  - 11:55am and 3:30pm until market close)

One of the nice things about living in SF is that it is a great biking city, hills notwithstanding.  I bought a Specialized road bike a few years ago, mostly to ride in the 100-mile century ride with Team in Training around Lake Tahoe.  I added clipless pedals to that bike (where your shoe locks in to the pedal), which is helpful in riding long distances as you get the benefit of pulling up on the pedal as well as pushing down.  Those pedals require a cleat on a biking shoe and are unwieldy for just biking around town, which led me to think about getting a new bike.

This narrative takes place over a long and winding decision process spanning last weekend.  I hope you won’t be bored by the technical details and triviality of the process (but hey, buying a good bike is important!)

My first thought was to buy an old road bike with either normal pedals or toe clips on Craiglist.  I would get a junker with a good frame that needed some fixing up, and I’d install some new components with the help of my how-to guide.  Turns out that 1) bikes on Craigslist are often stolen, and 2) adding components one-off is way more expensive than just buying a good whole bike.  So two strikes and that’s out.

I talked to my coworker who bikes and he mentioned why not get a single-speed if I don’t need to power up hills on my typical routes.  Singles speeds are much more simple to maintain as they only have one gear (eliminating the front and right derailleurs, sprockets, and shifters).  Many people confuse single-speed with a fixie, with the difference being fixies have no freewheel, meaning the bike cannot coast without spinning the pedals.  Some don’t have brakes either, with the braking component being slowing the pedals or skid-stopping.  More on this later.

I heard about this company, Republic Bikes, that sells custom fixies, track bikes, and single-speeds, at about a $400 price point.  They build and ship direct, which eliminates the bike retailer in the middle, who I’m guessing probably makes 30%+ gross margins on finished bikes and perhaps 40 - 50% on components.  I ordered myself one in a nice black, white, and aqua color scheme, and was on my way to single-speed nirvana.  Or so I thought.

The day after I ordered my bike, I went to a BBQ where I talked at length with a Mission hipster who doubled as a veritable bike snob.  When I told her about my new Republic Bike purchase, she had to do anything to keep from vomiting in her mouth.  I believe the analogy was like “buying a bike from Walmart,” although I’m sure Walmart is the largest bike retailer in the world.  But whatever, you get the point.

As far as single speed / fixie bikes go, turns out that Bianchi (pronounced “bee-ahn-KEY”, not “CHI”), is supposedly top-of-the line (they make a mean road bike as well!).  And you’ll need to get the matching teal bar tapes and throw in a $100 Brooks saddle.  And I had to get it at a reputable bike dealer, as the good bike brands don’t sell online (they want to preserve the channel relations with their all-important retailers).  Like I said, this was the height of bike snobbery.

I wanted a quality bike that would last me many years, so the next day I ventured to Pacific Bikes in SOMA.  I found a Bianchi Pista fixed-gear (remember, no brakes, no freewheel) on sale for $499.  Luckily this was not in my size; it was a 57cm and I’m probably a 58cm - 60cm (by the way, bike snobs probably talk about bike sizes more than they do shoe size or inseam, but I digress).  I say luckily it’s not in my size because a bike with no brakes is quite possibly extremely dangerous in the city; these bikes were originally meant for racing in the velodromes.  Fixies really came into popularity a few years ago, for who knows what reason, and there has been a subculture as evidenced by the below video.   Note the skid-stopping.

Needless to say, that’s probably not the smartest thing you could be doing without a helmet.  I came out of the store with a classic-looking Masi Fixed Ultimate with  modern componentry and pretty high-quality parts.  It’s a single-speed with Reynolds 525 Chromoly tubing, Brev.M pedals, dropbar, and saddle, Weinmann freewheel / rims, and Tektro 510A front and rear brakes (at this point I’m throwing out as much jargon out as I can).  I plan on riding this beauty for a good while and always welcome new biking companions!

Inspirational video of a para-soccer player in Africa.  Stricken with polio in an environment that I can only assume offers limited medical support, Austin Ishatayo still manages to turn lemons into lemonade.  A humbling reminder to always make the most of the hand that you’re dealt.

I recently visited Phoenix and was able to attend one of the A’s Cactus League games against the Cubs during spring training.  The Cactus League is made of 15 MLB teams that play in Arizona for their spring games, while the balance of the MLB teams play in the Grapefruit League in Florida.

People from all over the country fly in to Phoenix to watch these games, and I can understand why.  It’s truly a great fan experience — something like $35 tickets can get you 5th row seats to watch major league players in a minor league stadium.  You can also watch the Giants one day, then drive a few miles to watch the Rangers or White Sox the next day.

The reason I was in Arizona in the first place was to look at some of our land investments in the region, made following the downturn.  Even after the mortgage crisis in 2008, it’s amazing how easily you can buy a home if you have decent credit (a big if, but nonetheless).  With a USDA home loan, people will generally ok credit scores can pay $800 a month, zero money down, for a brand new 1,500 square foot house a few miles from central Phoenix.  That’s some good living!

One of the many storylines of the Jeremy Lin saga is that earlier this month, the Knicks were considering waiving his contract which would have otherwise been guaranteed starting February 7th.  Luckily for Jeremy, his breakout appearance occurred February 4th against the New Jersey Nets and the rest is history.  Lin is owed $762,195, which is the league minimum for a player in his second year.

So that’s what Jeremy Lin cost the Knicks, but what is he worth to the Knicks?  The stock market would say $250 million, which is how much Madison Square Garden, Inc. (Nasdaq:MSG) has increased in market cap since Jeremy Lin took the court.  Shares of MSG have gone up 10% vs. S&P’s 0.5% since February 3rd — driven up perhaps due to increased prospective ticket sales, greater TV viewership, exuberant fans bidding up the price of MSG shares, and leverage in MSG’s negotiations with Time Warner Cable (TWC, one of New York’s largest cable providers, stopped carrying MSG Networks which broadcasts Knicks games due to contention over subscriber revenue rates).  Put another way, the Knicks picking Jeremy Lin off of waivers translated to a 32,700% financial gain in 1 week — a return that would make any fund manager salivate.

MSG owns the Knicks, Rangers, the namesake arena, and its regional sports network.  Or perhaps more eloquently: “In Chinatown, Asian dishes full of MSG.  In Manhattan, MSG full of Asian dishes.”

Sal Khan is probably your average guy — president of his class at MIT, double major in EECS and mathematics, product manager at Oracle, analyst at a hedge fund, MBA from Harvard, etc.  Through my brief exposure to education and the transformative opportunity that blended learning can provide, I stumbled upon Sal Khan’s Khan Academy.  What initially began as a series of YouTube videos teaching his niece math problems led to a full-fledged non-profit organization dedicated to computer-based learning.

To (perhaps unfairly) generalize, the emergence of blended learning and Khan Academy is a byproduct of the fact that under traditional teaching models, students will necessarily get left behind.  A lack of comprehensive understanding in arithmetic leads to under-performance in algebra and no shot in trigonometry.  In many underprivileged schools, it’s possible for a high school teacher to be faced with the same number of students with 9th grade proficiency as there is 4th grade proficiency — teaching to that cohort effectively using traditional methods is nearly impossible.  The use of computer-based learning can aid students by teaching a subject and working on specific problems until a concept is mastered, before moving on to the next topic.

I found Khan’s organization inspirational because not only is he passionate in the cause, but he creates the videos himself, thereby having at least topical knowledge on tons of subjects.  In one lecture he’ll talk about the concept of red shift in physics and another he’ll discuss the French invasion of Russia.  I’ll leave you with one of his videos on why we have seasons, a concept that’s probably misunderstood more often than not.

With Hostess filing for bankruptcy, many have wondered what would happen to the beloved Twinkie.  Chock full of vitamins and minerals (euphemism for fat and sugar), it’s certainly been a staple at carnivals (the deep-fried variant) and pantries around the world.

Empirical evidence would suggest that maybe it hasn’t been doing that well overall.  As consumers shift into healthier eating patterns, “legacy products” (read: heavily processed) are facing pressures as demand changes.  For the food products industry, Hostess is heavily overweight (pun) Twinkies, as its other brands are things like HoHos and DingDongs.  While those snacks get an A for alliteration, they don’t score quite as highly on capturing market share.

The graph above indicates Hostess had to continuously decrease the price of Twinkies in order to maintain share.  With 34% of the American population obese, “the demise of the Twinkie” might not be such a bad thing after all.

As the working environment gets more competitive and seemingly everyone is racing to get JDs, MBAs, and other advanced degrees, it’s easy to forget that many can’t even get a decent primary education.  A harsh truth in life is that demographics often define destiny.  While I wouldn’t hasten to comment on education reform, I think one of the interesting trends in the past two decades has been the emergence of for-profit charter schools.

Charter schools are open-enrollment primary and secondary schools that receive public money in lieu of tuition.  Charter schools are ‘public’ in the sense that they receive per-pupil reimbursement from the government and are not allowed to charge tuition, but ‘private’ in that the administration and management of these schools are not dictated directly by a public school board or district.  One of the practical truths of charter schools, although not mandated directly, is that they mostly serve underprivileged, low-income families.  The thought here is that to obtain a school charter, one must demonstrate educational qualifications and an ability to create value in public education; and if that’s the case, why waste efforts and talent educating the kids of lawyers and bankers where the education gap is not an issue?

The educational efficacy of charter schools is debatable.  Some studies would show that charter schools as a whole don’t perform better than demographically-adjusted public school counterparts.  However, I’m inclined to believe that a well-managed, well-performing school network such as KIPP is scalable and replicable.  Many schools are established on one-off charters from zealous parents and perhaps more likely to fail.

Financially, I think charter schools make a lot of sense.  Reimbursement rates per pupil are typically 20 - 25% lower than funding at public schools.  The idea of a for-profit school can attract investment dollars from the private sector — most likely from those who are passionate about education, aren’t looking to make a quick buck, but where the financial return can warrant an investment.

The education landscape has been shifting dramatically over the past few decades and I’m curious to see how this will all play out.

The presentation below is my attempt to capture the state of U.S. real estate following the housing bubble.  I found some of the data unnerving, but if you really think about what the economy has been through, perhaps the conclusions aren’t that surprising.

The weather in the San Francisco Bay Area has been uncharacteristically pleasant this time of year.  Wind storms in Southern California have uprooted trees and destroyed power lines, but all we got in the Bay were a couple gusts that helped clear the haze and give us 15-mile visibility to go along with sunny and 65° conditions.  I took this opportunity to visit the campus of U.C. Berkeley this past weekend with my girlfriend and roommate, primarily to take a first hand look at the remnants of a building burned down by a large fire, the new South Addition to Berkeley’s Boalt School of Law, and construction progress on California Memorial Stadium.

A large fire caused by an electrical malfunction burned for 6 hours at a popular Telegraph Ave. residential / commercial building last month.  One of the biggest shames here is the building was home to Intermezzo and Raleighs, which were two of my favorite restaurants in Berkeley.  Tragically, both restaurants are owned by the same owners, so it must’ve been a devastating loss for them.  The entire street has been blocked off and a large bulldozer sits atop the wreckage pushing the rubble around.  It’s pretty interesting to juxtapose the picture below with what the same street corner looked like a few weeks ago.

Second stop was to view the finished South Addition to Berkeley’s law school at Boalt Hall.  The pace of Berkeley’s capital improvement projects have been pretty impressive and the Berkeley Law building is just the latest installment.  Legacy Boalt Hall wasn’t very impressive nor aesthetically appealing — mostly a concrete slab built in the Brutalist style that permeated the campus in a rash of 1960s construction.  It’s no coincidence that the traditional steel and glass box skyscrapers were popularized during the 1960s as well.  Those styles, like bell-bottom jeans and perms, probably looked better at the time than it does now.  The new South Addition luckily is a departure from all that — most of the building sits two stories underground and natural light flows throughout using a series of skylights.

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In banking, excess reserves are deposits that financial institutions hold at the central bank, above and beyond the reserve requirement.  For example, if the reserve requirement were 10% of deposits, and my bank had $10 of deposits and made $7 in loans, the reserves would be $3 and the excess reserves would be $2.  Generally speaking, holding excess reserves is not economical, since it’s money that a bank could be lending out and earning interest on.  With that backdrop, take a look at the following:

Excess reserves are now at a level that is historically unprecedented (although any significant excess reserves would be unusual).  The reasons for, and implications of this phenomenon can be debated by economists in verbose policy papers, but I found the mechanics interesting and hope to summarize it in a few paragraphs.

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I’m most of the way through Walter Isaacson’s anticipated Steve Jobs biography, and am a bit torn on my critique.  The book is a character study structured as a series of vignettes that, through dutiful first-hand interviews with hundreds of acquaintances, portrays Job’s personality and dispositions.  In that sense, it does a good job of highlighting his many characteristics, which run the gamut from narcissistic to visionary.

What I felt was lacking (and perhaps I am unique in this perspective) was the limited insight and analysis into Job’s decision-making process and business complex.  While Jobs was unconventional, he crafted four fledgling companies into successes: Apple, NeXT, Pixar, and Apple again upon his return.  Even NeXT, his most unaccomplished startup, was successful in absolute terms, selling to Apple for $500M in ‘96.  Unfortunately, the book focused more on the ‘softer’ side, and to put it bluntly, it felt more like reading a series of well-written Wikipedia articles.

I was able to get a brief insight into his business acumen as an intern at Apple in 2006.  At a presentation to the intern class, I was hugely impressed by the poignancy in his remarks and the clarity and depth of his business knowledge.  I was trolling around the internet and discovered this gem of a video.  A documentary crew followed Steve Jobs and his group of NeXT employees 3 months into building the company.  I found his approach to thinking about all aspects of the young business fascinating.  Even at that young age and status as a 1st-year college dropout, I am sure that he could’ve taken any MBA to school.

As part of my job, I’m creating a comprehensive presentation on the state of the U.S. post the financial crisis.  It’s easy to be insulated from the economic malaise when sitting behind a computer screen, but even looking at the data can be shocking.  Take a look at the median duration of unemployment:

A median duration of over 20 weeks is double any other historical period, including the 1980s when the spot rate of unemployment was actually higher than it is today.  The long tail distribution skews the data when looking at averages — the mean duration of unemployment is now above 40 weeks, or 9 months!  I think this chart alone crystallizes the current period as the most economically-challenging for the U.S. since the Great Depression.

Merced, California, is a city located about halfway between Yosemite and San Jose (I had to look this up).  The city is perhaps best known as the home of the tenth University of California campus, which opened its doors in 2005.  I vaguely recall when I was a senior in high school, a few of my classmates received acceptance letters from UC Merced despite not having applied there.  I also learned that the city is the hometown for both Ray Allen and Bruce Bowen of the NBA; perhaps this explains the similarity in their appearances.

However, Merced also has the dubious distinction of being the US metropolitan area with the third-highest foreclosure rates, behind the home-loan-default powerhouses Las Vegas and Vallejo.  As with any unfortunate circumstance, there are those who turn lemons into lemonade, and in this case, the UC Merced students are the beneficiaries.  Spurred on by the lack of available on-campus housing, the students have taken advantage of fire-sale homes and dirt cheap rents.  While college living for the rest of us consists of shared rooms and cramped quarters, Merced students enjoy raised ceilings, granite countertops, and chandeliers illuminating the grand foyer.  According to the NY Times, “[Merced students] sharing a McMansion — with each getting a bedroom and often a private bath — pay $200 to $350 a month each… Gurbir Dhillon, a senior majoring in molecular cell biology, pays $70 more than his four housemates each month for the privilege of having what they enviously call “the penthouse suite” — a princely boudoir with a whirlpool tub worthy of Caesars Palace and a huge walk-in closet.”

I remember paying $1,000 a month in college for a room in a 60+ year-old second-rate apartment with perennial mildew stains, and heck, I thought that was a decent deal.  That’s not to say the students haven’t faced any problems, including the occasional squatter and thieves trying to steal copper wiring from foreclosed homes.  That, and the prune-like fingers after an hour in the jacuzzi.

I was never a fan of McDonald’s McRib sandwich, an uninspired blend of ground pig and pickles slathered in KC Masterpiece (or whatever the McDonald’s home-brew equivalent is).  Add to that mix azodicarbonamide, which I’m told is commonly found in yoga mats and shoe soles, and you have yourself a McRib.

No matter!  The sandwich has donned a cult following, helping drive seasonal sales of this particularly flighty sandwich (as well as sales of Modern Warfare, Simpler Times, and Corn Nuts by my estimation of the demographic at hand).  Willy Staley in The Awl perhaps describes this sandwich best when he proclaims: “For three decades, the sandwich has come in and out of existence, popping up in certain regional markets for short promotions, then retreating underground to its porky lair — only to be revived once again for reasons never made entirely clear.”  His reasoning is a sort of pork-futures arbitrage play by McDonald’s — an interesting theory, one that no doubt contributes to the lore of this mythical porcine treat (to be fair, his conclusion seems less arbitrage than it is introducing the McRib when pork prices are cheap).

McDonald’s executive chef, Rene Arend (also creator of the Chicken McNugget), fathered the McRib in 1981 due to chicken shortages in the popular McNugget line.  His inventiveness with expeller-pressed meat by-products, by my guess, must have earned him some sort of Nobel prize equivalent from the sausage makers of America.  The artistry that goes into the McRib is perhaps equally impressive as fake rib-bones are molded into the shape of the meat, evoking both a visceral and gastronomical aura of ribbed goodness.  For those brave enough to try this sandwich-cum-modern-artistry, the McRib indeed is back, poking its head out like a groundhog in February, only to be feasted on by the masses.  It’s here until November 14^th (my apologies for the late notice), so bon appétit!