Just a Reminder: Reverse All Hurricane Trades As Soon as Possible

Recent experience (Irene, Snowmageddon etc.) is that the actual results don't match up to the hype.
So insurance company shorts should be bought back, sell the generator and rain boot (Wellies for our Brit friends) companies and put this in your medicine cabinet:
Print-At-Home Vaccines Vs. the Next Pandemic

"Here's One Unusual Hurricane Trade"

Not really. Last I saw the blizzardcane warnings had been pulled.
But hope springs eternal.*
From Carney at CNBC:

Traders at hedge funds frustrated by the lack of access to equities markets in the United States have been combing through the world for proxies, assets they might be able to trade that are so correlated with certain U.S. equity classes that traders can synthetically reproduce the trades they can't make in U.S. markets....

...One trader pointed me to Compass Mineral International. Earlier today (Monday), the company reported earnings that fell well below analyst estimates, with third quarter profits tumbling 73 percent.
So why is he looking to buy Compass [CMP  77.00  ---  UNCH    ] when markets eventually re-open?

Compass is a large producer of de-icing salt. You know, the stuff they spread on the streets after snow storms....MORE 

As I said in 2008's "Global Warming Investment: Winter Storms Squeeze Supplies of Road Salt":

There aren't any publicly held pure plays....

Here are the Salt Institute's members.

*If folks are betting on a snowy winter they have deeper insight than I possess.

With the ENSO vacillating (oscillating?) between La Nada and weak El Niño there are not a lot of precip. extremes in NOAA's Nov-Jan. precipitation forecast:

 

If anything it looks as if the I-35 Drought has made its way to Minnesota, a user of salt.

"Schumpeter on the Effects of College on the Willingness to Do Manual Labor"

Via the Volokh Conspiracy:

The Wall Street Journal today features a quote from Joseph Schumpeter, writing in 1942, on ways in which college education can make a person less psychologically fit and less willing to engage in manual labor, notwithstanding greater employment opportunities in manual trades:

The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work. His failure to do so may be due either to lack of natural ability—perfectly compatible with passing academic tests—or to inadequate teaching ... those who are unemployed or unsatisfactorily employed or unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals in the strict sense of the term whose numbers hence increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment. And it often rationalizes itself into that social criticism which as we have seen before is in any case the intellectual spectator’s typical attitude toward men, classes and institutions especially in a rationalist and utilitarian civilization.

Well, here we have numbers; a well-defined group situation of proletarian hue; and a group interest shaping a group attitude that will much more realistically account for hostility to the capitalist order than could the theory—itself a rationalization in the psychological sense—according to which the intellectual’s righteous indignation about the wrongs of capitalism simply represents the logical inference from outrageous facts ... Moreover our theory also accounts for the fact that this hostility increases, instead of diminishing, with every achievement of capitalist evolution.

Back when the Occupy movement was in full swing, I commented here at Volokh that it represented the fragmentation of the New Class elites into upper and lower tiers.  The upper tier, which included the bankers and those dealing directly with capital, did pretty well notwithstanding the financial crisis; though they do face a long run problem insofar as the “knowledge class” skills they brought to the global economy in the 1990s have long since spread throughout the world and become commodified, lowering their global rents.  But the long run effects have been devastating on the lower tier of the New Class – public employees, the “helping” and therapeutic  professions, those whose professions consisted essentially of mediating between upper tier New Class capitalists and the rest of the population, managing the rest of society while the globalized New Class capitalists outsourced themselves in the global economy.

As Schumpeter pointed out in 1942, an expensive university education makes it much harder to consider manual trades, even if employment opportunities are greater there....MUCH MORE

Timely: Northeast Utilities' CEO and CFO Dumped 1.25 Million Shares Last Week (NU)

Northeast is New England's largest utility with ops in CT, NH and MA.
From SEC Form 4:

Common stock purchase or sale:

Transaction & Date	Reported Date	Company	Symbol	Insider Relationship	Shares Traded	Average Price	Total Amount	Shares Ownership	Filing
2012-10-17 Sale	2012-10-19 8:55 pm	NORTHEAST UTILITIES	NU	JUDGE JAMES J (EVP & CFO)	214,325	$39.5	$8,465,492	189,060 (Direct)	View
2012-10-17- -2012-10-18 Sale(A)	2012-10-19 8:47 pm	NORTHEAST UTILITIES	NU	MAY THOMAS J (President, CEO & Trustee)	524,800	$39.55	$20,754,259	369,736 (Direct)	View
2012-10-17- -2012-10-18 Sale	2012-10-19 7:06 pm	NORTHEAST UTILITIES	NU	MAY THOMAS J (President, CEO & Trustee)	524,800	$39.55	$20,754,259	369,736 (Direct)	View
2012-10-11 Sale	2012-10-12 7:00 pm	NORTHEAST UTILITIES	NU	SHIVERY CHARLES W (Non-Exec Chmn of Bd; Trustee)	9,888	$39.04	$386,028	772,607 (Direct)	View
2012-08-10 Sale	2012-08-14 2:13 pm	NORTHEAST UTILITIES	NU	McHale David R (EVP and Chief Admin Off)	10,000	$39.42	$394,200	180,881 (Direct)	View
2012-05-15 Sale	2012-05-17 2:56 pm	NORTHEAST UTILITIES	NU	BUTH JAY S. (VP, Controller, Chief Acct Off)	750	$35.86	$26,897	15,928 (Direct)	View
2012-05-14 Sale	2012-05-16 5:53 pm	NORTHEAST UTILITIES	NU	NOLAN JOSEPH R JR (SVP-Corporate Relations)	22,336	$36.15	$807,357	10,496 (Direct)	View
2012-04-10 Sale	2012-04-12 3:35 pm	NORTHEAST UTILITIES	NU	SHIVERY CHARLES W (Non-Exec Chmn of Bd; Trustee)	17,011	$0	$0	766,818 (Direct)	View

I'm not sure if that second Tom May 524K is a double print. If it was these guys still dumped almost 740,000 shares.

"Early estimates of Sandy’s economic impact"

From FT Alphaville:

Again, we hope all of our US readers are staying safe.

Estimating the economic impact of a storm is always imprecise, even after the storm has passed. With that caveat in mind, we’ve come across a few early forecasts and thought we’d pass them along.
First from catastrophe risk modeller Eqecat, this landed in our inbox about an hour ago:

Sandy is a large storm, impacting 20 percent of the U.S. population. Economic damages are expected to be $10-20 billion dollars, insured losses are expected to be between $5-10 billion.
By comparison, the estimated economic damages for large-scale storms similar to Sandy were: Hurricane Irene at $10 billion, and Hurricane Ike in 2008, $20 billion.

From RBC Capital, which looks at the varying impacts of previous storm seasons:

Hurricane Sandy is obviously still a very fluid situation, meaning the economic impact is impossible to determine at this point. However, as we have seen in the recent past, it typically takes a storm on the scale of hurricane Katrina to move the needle in terms of economic data. But the subsequent bounce back in the hi-frequency data typically occurs in short order.

There is also the question of rebuilding, which most think of as a boon for GDP. The problem here is that while rebuilding efforts in aggregate can easily become a significant percentage of GDP, the impact is generally spread out over multiple quarters or even years, thereby diminishing the economic impact in the short-term.

Back in 2010 we looked at the impact on key economic data during two of the busier hurricane seasons of the last decade (2004 and 2005). The results were quite interesting and for your convenience we have summarized the original piece below....MUCH MORE

See also Professor Pielke, Jr's "Top 10 Damaging Hurricanes Within 50 Miles of Sandy's Landfall"
and last week's
Estimating U.S. Property Damage from Hurricane Sandy (CB; ALL; TRV)

That Which is Seen and That Which is Not Seen: Bastiat on Hurricane Sandy

From MarketBeat:

The Cold Math of Hurricane Sandy

...However, economically speaking, the clean-up is sure to generate its own visible effect on the economy. John Challenger, CEO of Challenger, Grey, put it this way:

If there is any silver lining in all the destruction the storm is expected to cause, it’s that such storms tend to provide a boost to the economy in their wake.  After the initial shocks to the economy related to lost output and productivity, we will probably see an employment surge in construction, skilled trades and other professions needed to help repair the damage.  There will also be an increase in business and consumer spending and companies and homeowners replace damaged equipment, household items, etc.  While much of it will be paid for with insurance money, the injection of money into the economy will be beneficial nonetheless....

The post is decent up to that point but it is a shame that Mr. Challenger said this in public. Back to Econ 10 with you John.

From Chapter One of Bastiat's 1850 gem That Which is Seen, and That Which is Not Seen, The Broken Window Fallacy:

I. THE BROKEN WINDOW

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not...MORE

"The money is always there, it's only the pockets that change"

-Gertrude Stein,

Also attributed to Coco Channel as:

"Money is money is money, it's only the pockets that change".

Goldman Sachs Weathering the Storm (GS)

From Felix Salmon at Reuters:

(Picture from Stephen Foley)

“When it comes to natural disasters,” says Rob Cox today, “there’s no such thing as too much preparation.” He then goes on to extend the analogy:

In advance of Sandy’s march through Manhattan, thousands of sandbags have been stacked in front of the downtown headquarters of Goldman Sachs. It is a picture whose metaphorical value should not be lost on regulators, policymakers, shareholders and the bankers themselves: when the flood comes, there can never be too many sandbags, or capital, to prevent a wipeout....

...MUCH MORE

Flooding Begins in Red Hook, Brooklyn

The Wall Street Journal's Metropolis blog is on the job:
In Red Hook, Waiting While the Water Rises

Carrie Melago for The Wall Street Journal

Valentino Pier in Red Hook.

As water started creeping into the Red Hook section of Brooklyn, some residents were still determine to stick out Hurricane Sandy.

“If you don’t have a sense of adventure, you shouldn’t be in Red Hook,” said Adam Slade, 49 years old, who was preparing his Van Brunt street home for the storm....MORE

Also at Metropolis:
11:52 ET
Weather Journal: What to Expect in Next Two Hours
10:43 ET
Tunnels Between Manhattan and Brooklyn to Close

Much, Much More

Smackdown: Irene 2011 vs. Sandy 2012 .gif

Via Mashable's Alex Fitzpatrick:

Irene v. Sandy GIF

"Lake Geneva 'may face tsunami risk'"

As Grandmother used to say, "If it's not one tham ding it's another".
From the Telegraph:

A million people living on the shores of Lake Geneva could be at risk from devastating tsunamis, scientists have warned. 

In the sixth century a tsunami triggered by a rockfall on the lake sent a 26ft wave crashing over 

Geneva's city walls. Photo: 4Corners Images

In the sixth century a tsunami triggered by a rockfall on the lake destroyed several villages, sent a 26ft wave crashing over Geneva's city walls, and caused many casualties.

Experts investigating the event said a similar disaster could easily happen again, and Geneva with its 200,000 inhabitants was especially vulnerable.

They argued that the threat of lake tsunamis is underestimated and should be taken more seriously.

The Lake Geneva tsunami followed a documented mountain rockfall, known as the Tauredunum event, in AD 563.

A survey, analysis of sediment cores and computer simulations suggested that the rockfall caused a huge mudslide where the river Rhone flows into the lake.

The resulting displacement of water generated large tsunami waves, including one 13 metres (42ft) high where Lausanne now lies on the lake's northern shore.

An eight metre (26ft) high wave hit Geneva 70 minutes after the initial mass movement of sediment. The city is right at the other end of the lake from the mudslide, a distance of more than 70 kilometres.

A reconstruction showed that the wave would have destroyed Geneva bridge and breached the city walls, as reported in historical records....MORE

Coming up, "10 stocks that could benefit from a Lake Geneva Tsunami". 

Low Hurricane Risk Home for Sale, Cornwall Terrace, London

Nice hood.*
Via Homes of the Rich:

This stately mansion is located at One Cornwall Terrace in London, England. It is accessed via a carriage driveway with two gated entrances and is situated on an half acre of land. It was originally designed and built in 1821-3 by renowned architect Decimus Burton, supervised by John Nash who created the master plan for the Regent’s Park....MORE

Savills has the listing.

*What the neighborhood looked like back in the day:

 

Insurers prepare for impact of Hurricane Sandy: "It's Not An End of Days Scenario" (CB; ALL; TRV)

From CNBC:

Insurers say they are making the usual preparations for a hurricane - activating claims teams, staging adjusters near the locations most likely to be affected and generally getting ready to pay for a potentially huge volume of losses.

"We plan for weather events such as this, so we feel well prepared with resources strategically positioned to quickly assist customers who may be impacted," Travelers spokesman Matthew Bordonaro said in an early Sunday e-mail.

Travelers is the third-largest insurer in New York for both personal home and auto and commercial lines of insurance, and the second-largest in Connecticut.

Bordonaro said the company had also activated continuity plans for its own employees, so it can sustain operations despite having staff clustered in New York and Hartford.

Had Sandy hit in 2011, it may have been more of a problem for the insurance industry, which dealt with record-breaking losses around the world last year, mostly from U.S. tornadoes and Asia-Pacific earthquakes.

But in 2012, most insurers' disaster losses are down substantially, leaving them with more capacity to absorb the billions of dollars in costs some expect from Hurricane Sandy.

"In terms of losses, I certainly don't think it's going to be the largest loss of the last 100 years," Tom Larsen, senior vice president of Eqecat, said in an interview late Friday. "It's not an end-of-days scenario."

Chubb Corp, another of the major insurers in the Northeast, said early Sunday that it has been working for days to move staff around so they are positioned to respond....MORE

"Historic Hurricanes from New Jersey to New England: 1634-2011"

 Originally posted August 27, 2011.

More than you may care to know, all in one place.
From Weather Underground's Weather History:

Historic Hurricanes from New Jersey to New England: 1634-2011

A very large though not intense hurricane is bearing down on the mid-Atlantic coastline as I write this Saturday morning August 27, 2011. This blog is a review of significant hurricanes that have in the past affected the New Jersey, New York City, Long Island, and Northeastern portions of the United States. I arrange this review in a chronological order beginning with the first European settlement of the northeastern United States in 1620.

17th Century

August 1635: The Great Colonial Hurricane
David Ludlum, America’s greatest weather historian, notes that Rev. Increase Mather reported in his treatise ‘Remarkable Providences’ (1684) that he had heard “of no other storm more dismal than the great hurricane which was in August 1635”. Ludlum writes “this was the greatest meteorological event of the colonial period in New England, coming only 15 years after the settlement of Plymouth Plantation in the Massachusetts Bay Colony”. John Winthrop and William Bedford witnessed the storm. It struck on August 16, 1635 and leveled the forests of the region. The native population agreed no such storm in their lore had been so powerful.

September 1675: A hurricane said to be almost as powerful as the 1635 strikes New London, Connecticut and Boston. Ludlum notes that this storm was equal to the hurricanes to strike Massachusetts and Connecticut in 1635, 1815, 1938, and 1944.

18th Century

No significant hurricanes in the Northeast or Mid-Atlantic are on record aside from the tropical storm that struck Philadelphia on October 22, 1743; Benjamin Franklin measured it accurately using scientific weather measurements for the first time in United States history. The storm was not that significant otherwise. The most significant hurricane of in the 18th century would be the hurricane of September 1775. It “exacted a toll on human lives higher than any pervious American mainland hurricane” according to weather historian David M. Ludlum. 163 lives were lost on the North Carolina Capes and at sea off New England. The path of the storm followed one similar to Hurricane Hazel in 1954; inland over eastern Pennsylvania. Philadelphia harbor reported its highest tide on record.

Chronological list of known 17-18th Century New Jersey to New England Tropical Storms

August 1635
August 3, 1638
October 5, 1638
September 7, 1675
August 23, 1683
October 29, 1693
October 18, 1703
October 14, 1706
October 25, 1716
September 27, 1727
October 22, 1743
October 8, 1749
October 24, 1761
September 8, 1769
September 3, 1775
October 9,1783
August 19, 1788

19th Century

August 21-24, 1806: The hurricane of August 1806 was very similar to Irene. It made a short transit over Cape Hatteras and then slowly marched northeastward affecting only coastal regions (not even noticed 100 miles inland). New York City was “soundly lashed” and at least 21 sailors were lost off the New Jersey coast. Much damaged occurred on Martha’s Vineyard, Nantucket, and Cape Cod.

September 23, 1815: ‘The Great Gale’ This hurricane ranked foremost in the minds of the population in New York and New England at the time. The storm passed east of New York City but hit Long Island soundly. The storm was similar to the 1938 hurricane in that it had a forward motion of 50mph as it plowed on to Long Island. The eye moved over eastern Connecticut and Western Massachusetts. Like the great hurricane of 1938, Narragansett Bay, Rhode Isalnd was most affected. The area was sparsely populated at this time unlike 1938 and only two deaths were reported.

The Great Gale of 1815 inundates Providence, Rhode Island as depicted in this painting by John Russell Bartlett. Rhode Island Historical Society.

September 3, 1821: Last Time a Hurricane Passed Directly over New York City On September 3, 1821 the eye of a hurricane passed directly over New York City. The center crossed Long Island (where JKF Airport is now). Records indicate that this is the only MAJOR hurricane to have passed directly over the city in at least 250 years. The New York Post published this report on September 4th:...MORE

Previously:

Sedimentary evidence of hurricane strikes in western Long Island, New York
More on the Possibility of a Hurricane Striking New York City

And referenced in the Metropolis post:
THE BIG ONE 

Experts say it's only a matter of time before a major hurricane
Imagine the following: It's a beautiful Labor Day weekend. Sunny, cloudless, 80 degrees. Backyard barbecues are fired up all over the metropolitan area, and the beaches of New York City, New Jersey and southern Long Island are jam-packed with bathers. The only sign that something unusual is happening is the relatively big waves rolling up on Coney Island. It's a surfer's paradise. Mike Lee isn't enjoying the long weekend. For the last two weeks, Lee, the Director of Watch Command at New York City's Office of Emergency Management, has been observing a series of weather systems form off the western coast of Africa, organize themselves into the familiar swirling pattern of tropical storms, and line up like airplanes coming in for a landing on the Caribbean. One of those storms, a category-4 monster hurricane with sustained winds of 140 m.p.h., is violently churning the ocean 350 nautical miles off the coast of Georgia.

A hurricane like this one can usually be counted on to curve eastward and die a harmless death over the Atlantic. But with a large area of high pressure hovering just off the east coast, the computer models at the National Hurricane Center in Miami are largely in agreement: This one is heading north, tracking a direct hit on New Jersey somewhere north of Atlantic City. Like the legendary "Long Island Express" of 1938, the fastest-moving hurricane ever recorded, it's moving quickly....MORE

"When the Growth Model Changes, Abandon the Correlations"

From Michael Pettis' China Financial Markets blog:

Chiwoong Lee at Goldman Sachs has a new report out (“China vs. 1970s Japan”, September 25, 2012) in which he predicts that China’s long-term growth rate will drop to 7.5-8.5%. I disagree very strongly with his forecast, of course, and expect China’s growth rate over the next decade to average less than half that number, but the point of bringing up his report is not to disagree with the details of his analysis.

I want instead to use his report to illustrate what I believe is a much more fundamental problem with these kinds of research pieces on China. The mistake I will argue he is making is one that is fairly common. It involves determining the past relationship between certain inputs and the outputs we want to forecast – say GDP growth. Once these are determined, the economist will carefully study the expected changes in the inputs, and then calculate the expected changes in the outputs, to arrive at his growth forecast.

This is pretty much the standard analysis provided by the IMF, the World Bank, and both academic and sell-side research, but, as I will argue, this methodology implicitly assumes no real change in the underlying development model – no phase shift, to use a more fashionable term. If this assumption is correct, then the analysis is useful. If however we are on the verge of a shift in the development model – perhaps, and usually, because the existing model is unsustainable and must be reversed, the analysis has no value at all.

Lee arrives at his 7.5-8.5% range by comparing China today with Japan in the early 1970s.  He considers reasonable and very plausible changes in various inputs and concluding on that basis that Chinese growth will slow from the torrid levels of the past decade, but will nonetheless exceed the roughly 5% real growth rate achieved by Japan in the two decades following the early 1970s. I assume his Chinese growth prediction is also for the next one or two decades but I was not able to determine if this is in fact the case.

What about China? Like Japan, (1) real wages and the labor share of income are rising in some areas and (2) the pace of technological advances has surpassed its peak. However, (3) while consumer durables are spreading, there is still ample room for growth, (4) the export ratio is high due to economies of scale, and (5) growth remains high despite an increase in raw material prices reminiscent of the oil crisis.

Although both potential and actual growth is expected to remain high in China, gradual decline is likely from the double-digit (%) pace of 2004-2007. Our China economics team calculates a range of 7.5~8.5% for China’s potential growth.

As the excerpt above suggests, Lee focuses on six input factors specifically: the shift from labor glut to labor shortage, the pace of technological catch-up, the spread of consumer durables, economies of scale and export structure, the impact of raw material price rises, and political stability. He compares the impact of changes in each of these on the Japanese economy as a source of the Japanese slowdown, and then estimates their comparable impact on the Chinese economy. This allows him to estimate the amount of the expected slowdown in China.

The piece is a very interesting one, and it is well worth reading for the information and insights it provides, but in my opinion it shares a fundamental problem with nearly all of the other analyses that compare China today with Japan in the 1960-70s, rather than Japan in the late 1980s. Many of these analyses are much less sophisticated reasons than Lee’s. For example the most popular reason for comparing China with Japan of the 1960-70s is that China today is much poorer than Japan in the late 1980s. Japan in the late 1980s was rich, people will say, while China is terribly poor, so there can’t be any useful comparison between Japan in the 1990s and China in the next decade.

What are the real similarities?
This, of course, is silly. If you are arguing about the consequences of imbalanced, investment-driven growth, it isn’t the nominal levels of wealth that need to be compared. After all there are rich as well as poor countries that suffered from this kind of unbalanced, investment-driven growth, and all of them ended up suffering subsequently from the same kinds of economic rebalancing.

What really matters is the extent of the underlying imbalances and the relationship between capital stock and worker productivity. In that light it is just as easy for a poor country to have excess capital stock as it is for a rich country – perhaps even more so....MORE

YCombinator's Paul Graham on "Startup = Growth"

And a "How to get rich".
From Mr. Graham's blog:

A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.

If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.

Redwoods

Let's start with a distinction that should be obvious but is often overlooked: not every newly founded company is a startup. Millions of companies are started every year in the US. Only a tiny fraction are startups. Most are service businesses—restaurants, barbershops, plumbers, and so on. These are not startups, except in a few unusual cases. A barbershop isn't designed to grow fast. Whereas a search engine, for example, is.

When I say startups are designed to grow fast, I mean it in two senses. Partly I mean designed in the sense of intended, because most startups fail. But I also mean startups are different by nature, in the same way a redwood seedling has a different destiny from a bean sprout.

That difference is why there's a distinct word, "startup," for companies designed to grow fast. If all companies were essentially similar, but some through luck or the efforts of their founders ended up growing very fast, we wouldn't need a separate word. We could just talk about super-successful companies and less successful ones. But in fact startups do have a different sort of DNA from other businesses. Google is not just a barbershop whose founders were unusually lucky and hard-working. Google was different from the beginning.

To grow rapidly, you need to make something you can sell to a big market. That's the difference between Google and a barbershop. A barbershop doesn't scale.

For a company to grow really big, it must (a) make something lots of people want, and (b) reach and serve all those people. Barbershops are doing fine in the (a) department. Almost everyone needs their hair cut. The problem for a barbershop, as for any retail establishment, is (b). A barbershop serves customers in person, and few will travel far for a haircut. And even if they did the barbershop couldn't accomodate them. [1]

Writing software is a great way to solve (b), but you can still end up constrained in (a). If you write software to teach Tibetan to Hungarian speakers, you'll be able to reach most of the people who want it, but there won't be many of them. If you make software to teach English to Chinese speakers, however, you're in startup territory.

Most businesses are tightly constrained in (a) or (b). The distinctive feature of successful startups is that they're not.

Ideas

It might seem that it would always be better to start a startup than an ordinary business. If you're going to start a company, why not start the type with the most potential? The catch is that this is a (fairly) efficient market. If you write software to teach Tibetan to Hungarians, you won't have much competition. If you write software to teach English to Chinese speakers, you'll face ferocious competition, precisely because that's such a larger prize. [2]

The constraints that limit ordinary companies also protect them. That's the tradeoff. If you start a barbershop, you only have to compete with other local barbers. If you start a search engine you have to compete with the whole world.

The most important thing that the constraints on a normal business protect it from is not competition, however, but the difficulty of coming up with new ideas. If you open a bar in a particular neighborhood, as well as limiting your potential and protecting you from competitors, that geographic constraint also helps define your company. Bar + neighborhood is a sufficient idea for a small business. Similarly for companies constrained in (a). Your niche both protects and defines you....MUCH MORE

HT: Once again, Simoleon Sense 

See also:
"Frighteningly Ambitious Startup Ideas"
Venture Capital: Behind the Scenes at Y Combinator

Chuck Feeney: The Billionaire Who Is Trying To Go Broke

 More of a "How to be rich" than a "How to get rich".
From Mr. Gates' The Gates Notes blog:

On a cool summer afternoon at Dublin’s Heuston Station, Chuck Feeney, 81, gingerly stepped off a train on his journey back from the University of Limerick, a 12,000-student college he willed into existence with his vision, his influence and nearly $170 million in grants, and hobbled toward the turnstiles on sore knees. No commuter even glanced twice at the short New Jersey native, one hand holding a plastic bag of newspapers, the other grasping an iron fence for support. The man who arguably has done more for Ireland than anyone since Saint Patrick slowly limped out of the station completely unnoticed. And that’s just how Feeney likes it.

Chuck Feeney is the James Bond of philanthropy. Over the last 30 years he’s crisscrossed the globe conducting a clandestine operation to give away a $7.5 billion fortune derived from hawking cognac, perfume and cigarettes in his empire of duty-free shops. His foundation, the Atlantic Philanthropies, has funneled $6.2 billion into education, science, health care, aging and civil rights in the U.S., Australia, Vietnam, Bermuda, South Africa and Ireland. Few living people have given away more, and no one at his wealth level has ever given their fortune away so completely during their lifetime. The remaining $1.3 billion will be spent by 2016, and the foundation will be shuttered in 2020. While the business world’s titans obsess over piling up as many riches as possible, Feeney is working double time to die broke.

Feeney embarked on this mission in 1984, in the middle of a decade marked by wealth creation–and conspicuous consumption–when he slyly transferred his entire 38.75% ownership stake in Duty Free Shoppers to what became the Atlantic Philanthropies. “I concluded that if you hung on to a piece of the action for yourself you’d always be worrying about that piece,” says Feeney, who estimates his current net worth at $2 million (with an “m”). “People used to ask me how I got my jollies, and I guess I’m happy when what I’m doing is helping people and unhappy when what I’m doing isn’t helping people.”

What Feeney does is give big money to big problems–whether bringing peace to Northern Ireland, modernizing Vietnam’s health care system or seeding $350 million to turn New York‘s long-neglected Roosevelt Island into a technology hub. He’s not waiting to grant gifts after he’s gone nor to set up a legacy fund that annually tosses pennies at a $10 problem. He hunts for causes where he can have dramatic impact and goes all-in. “Chuck Feeney is a remarkable role model,” Bill Gates tells FORBES, “and the ultimate example of giving while living.”

For the first 15 years of this mission Feeney obsessively hid the type of donations that other tycoons employ publicists to plaster across newspapers. Many charities had no idea where the piles of money were coming from. Those that did were sworn to secrecy. “I had to convince the board of trustees that it was on the level, that there was nothing disreputable and this wasn’t Mafia money,” says Frank Rhodes, the former president of Cornell University who later chaired Atlantic Philanthropies. “That was difficult.” Eventually Feeney was outed ( in part due to FORBES), but his fervent desire for anonymity remained (until this year he had done about five interviews in his life). Now that his quest to give until nearly broke is coming to its conclusion, he’s opening up a bit. What emerges is one of strangest, most impactful lives of all time....MORE

HT: Simoleon Sense

"The Cost and Consequences of the U.S. Drought"

From Knowledge@Wharton:

The 2012 farming season may be in its waning days, but the consequences of this year’s drought, the worst of its kind in 25 years, are yet to be known.

The U.S. Department of Agriculture estimates that the drought will push retail food prices up by between 3% and 4% in 2013. That’s a higher-than-average number, but only barely: over the last 20 years, average annual increases have been between 2.5% and 3%. Next year, most of the cost increases will be centered on animal products, like eggs, beef and dairy, which were particularly affected by not only this year’s drought but a similar dry spell across cattle farm-heavy stretches of the southwestern United States in 2011.

The life cycle of American agriculture means that most drought-spurred food price increases won’t be seen until the first quarter of 2013. But the drought is already pushing up food prices globally: An August report from the World Bank recorded a 10% increase in global food prices in July compared to a month earlier. The report noted that the jump was due to the drought in the United States as well as a poor farming season in Europe.

“The United States is one of the biggest food producers in the world. This drought is not going to just impact the marketplace here; it’s also going to hit in China, Africa, everywhere,” says Z. John Zhang, a Wharton professor of marketing. “You can certainly imagine that the impact is going to be a lot bigger in developing countries than in the United States.”

Other effects of the drought are yet to be determined. Consumers will take a hit in the wallet, but that should be relatively short-lived -- and short-term food price spikes can easily be absorbed by small changes in consumer behavior. “Normally, consumers have some way to deal with a food price increase,” Zhang notes. “You can substitute for meat in your diet; you can eat a few more vegetables. As when gas prices go up, people will find a way to cope.”

But just how bad the farm industry was hit and how long it will take to shake off the drought’s effects are subjects of much concern in agribusiness circles....MUCH MORE

Le Blog de Jean-Paul Sartre

From the New Yorker:

Saturday, 11 July, 1959: 2:07 A.M.
I am awake and alone at 2 A.M.
There must be a God. There cannot be a God.
I will start a blog.

Sunday, 12 July, 1959: 9:55 A.M.
An angry crow mocked me this morning. I couldn’t finish my croissant, and fled the café in despair.
The crow descended on the croissant, squawking fiercely. Perhaps this was its plan.
Perhaps there is no plan.


Thursday, 16 July, 1959: 7:45 P.M.
When S. returned this afternoon I asked her where she had been, and she said she had been in the street.
“Perhaps,” I said, “that explains why you look ‘rue’-ful.”
Her blank stare only reinforced for me the futility of existence.

Friday, 17 July, 1959: 12:20 P.M.
When S. came through my study just now I asked her to wait a moment.
“Rueful,” I told her. “Because ‘rue’ is the French word for street.”
“What?” she said.
“From yesterday,” I said.
“Oh,” she said. “Yeah. Right.”
“And you said you had been in the street.”
“I got it,” she said.
“It was a pun,” I said.
“Got it,” she said. “Puns aren’t your thing, are they?”...

...MORE

HT: Marginal Revolution

“Makers: The New Industrial Revolution,”

From Slate:

In the title of his latest book, Wired Editor Chris Anderson is clear that he thinks the maker movement will change the world. Enabled by a swath of new technologies, the hacker culture known for tinkering with computer software is moving into the physical world, giving rise to new forms of art, manufacturing, and industrial design. And as Anderson explains in “Makers: The New Industrial Revolution,” this union of Web culture and the real world could change everything from American manufacturing to business creation to primary and secondary education.

 Anderson sat down with Slate editor David Plotz Thursday evening at a Future Tense happy hour at the Microsoft Innovation & Policy Center in Washington, DC, to discuss the power of the maker movement and celebrate the release of his new book.

 Of all the technologies driving the maker movement, few get more attention than the 3-D printer. Cheap computers, feature-rich smartphones, thriving online communities, and physical hacker spaces have all bolstered the Do It Yourself mentality, so what makes the 3-D printer so revolutionary? Makers cherish machines like MakerBot, but at the end of the day, as Plotz put it, they’re just “extruding some plastic doodad.”

“Let us not discount that extruding a plastic doodad is kind of amazing just by itself,” Anderson said. The 3-D printer follows a trend of new technology empowering individuals to create in ways they haven’t been able to before. Personal computers and desktop printers gave rise to desktop publishing in the 1980s, when anyone could write, design, and publish whatever they wanted from their home office. Then publishing moved to the Web, where centuries of printing technologies fused into a single “publish” button on a Web page.

We might not be impressed by these technologies today, but the impact they’ve had on society is undeniable, allowing bits of information to be shared more easily than ever before. The 3-D printer is the next machine to do that. It’s just that now, atoms are the new bits.

To illustrate the point, Anderson described one way his household has embraced the 3-D printer. His daughters wanted to get new furniture to put inside their dollhouse. Looking around the web, Anderson noticed that the available options were  very expensive, that choices were limited, and that it was hard to find something in the right size. So he went to Thingiverse, an online community for sharing digital design files. The furniture hunters found a design for a chair they liked and printed it out in the color and size they wanted for no more than the cost of the materials....MORE

Estimating U.S. Property Damage from Hurricane Sandy (CB; ALL; TRV)

Professor Pielke Jr. is pretty good on hurricane damage, straightforward and without the political spin we seem to be seeing more of (I'm looking at you, Munich Re) .
Here is his "Normalized Hurricane Damage in the United States: 1900–2005" via NOAA
From Roger Pielke Jr.'s blog:

ICAT on Hurricane Sandy Damage Benchmarks 

ICAT just sent out this summary (here in PDF) of an analysis using the ICAT Damage Estimator (based on our normalized hurricane loss database):

The ICAT Damage Estimator (www.icatdamageestimator.com) can be used to obtain statistics regarding historic storms that have followed similar paths to Hurricane Sandy’s current forecast path. For this analysis, the Active Storms search feature was used to select all historic storms that have made landfall within the current range of computer model forecasts. This range includes the coastline from near the MD/VA border on the DelMarVa Peninsula to the eastern edge of Long Island, NY. The ICAT Damage Estimator shows that there have been 7 damaging tropical cyclones that have made landfall along this segment of coastline since 1900. The tool shows the storm parameters, the damage at the time of landfall, and the estimated damage if the storms were to make landfall in 2012. The 2012 damage estimations are made by “normalizing” the data by adjusting for population change, inflation, and change in wealth per capita.

The most damaging storm to make landfall within the current range of computer model forecasts was the New England hurricane of 1938, which would cause an estimated ~$47B in damage today. However, this storm was a category 3 hurricane when it made landfall, while Sandy is only expected to have category 1 force winds. Of the 7 storms selected, only two made landfall as category 1 hurricanes. Hurricane Agnes of 1972 made landfall with 85 mph sustained winds near New York City and would cause an estimated $19B in damage today. Agnes initially made landfall over the FL Panhandle, then moved NE and emerged off the NC coast. As it approached New England, the storm strengthened as it underwent extratropical transition, which is also expected to occur with Hurricane Sandy. Hurricane Agnes’s impacts were felt across a very wide area of the Northeast. Hurricane Belle of 1976 also had 85 mph winds, but moved much more quickly than Agnes and was weakening as it made landfall. It is estimated that Belle would cause less than $1B in damage today....MORE

As I said in Thursday's "Stocks that May Benefit from a Hurricane Sandy Landfall (GNRC; BGG; CB)) ":

I usually just go with a "East coast landfall? Short Chubb"* approach....

... And, from a couple months ago:
"How Much Will Hurricane Isaac Cost Insurers?" (ALL)

 The insurers with the largest Gulf exposure are State Farm and Allstate. Alfa also has some market share but they're a mutual, as is State Farm, so no speculative plays.
Chubb, which is so large on the Atlantic coast has very little Gulf share....

Chubb's stock is down 4% since the Oct. 19 high despite reporting earnings on the 25th of $1.98 per share, significantly ahead of the Zacks estimate of $1.51.