A Derivative Podcast is Not a Financial Instrument

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The word “derivative” sprung up on Delancey Place last week. Delancey Place is a brief daily email with an interesting excerpt or quote from a book or magazine article. Reading it is a favorite daily ritual. I am constantly impressed with the quality and diversity of the excerpts. I strongly recommend subscribing. It is free and now available as an poorly publicized but full text RSS feed. You can subscribe at DelanceyPlace.com.

The word derivative can be found in many contexts and it is both a noun and an adjective. Generally it describes anything derived from, formed from or reminiscent of something else. For example penicillin, email and Hip Hop are derivatives. Penicillin is derived from mold. The term email is a portmantae derived from the words mail and electronic. Some, including Guy Davis, might say Hip Hop and Rap are derivatives of the Blues.

Mathematicians and financiers also use derivatives. According to Wolframs’s Mathworld a, “derivative of a function represents an infinitesimal change in the function with respect to whatever parameters it may have.” Wikipedia explains a mathematical derivative as, “the [instantaneous] rate of change of a quantity”. I recall that derivatives and their analogs, integrations, were the heart of undergraduate calculus. I wish my math skills were strong enough to explain that to you. Alas, I must refer you back to Wolframs’ Mathworld and Wikipedia.

As for financial derivatives, I can describe them a little better. A financial derivative is an investment or contract that derives its value from an asset. Thanks to Hillary Clinton, the most well known derivatives are probably futures. A future is a promise to buy or sell an asset on a future date for a specified price. Today, you can buy a December 2012 Crude Oil (Light) contract on the NYMEX for about $63.50. If I bought this contract today come December 2012 the seller of the contract would deliver the oil to me. Conversely I could sell the December 2012 today for about the same price. Come December 2012 I would have to deliver the oil to the buyer. In both cases the contract derives its value from the future value of the asset.

Financial derivatives are most commonly used to hedge against risk. For example a farmer could sell a September corn future today to shield himself from risk the price of corn may fall. This type of derivative can be very helpful to farmers and other commodity producers. They plant the corn today, they sell it today and they get paid today. Come September they deliver the corn. Any risk of the price of the corn crashing is borne by the person who bought the corn derivative contract, not the farmer.

In practice though the futures markets and derivative markets are used primarily by speculators. Very few investors actually take delivery or deliver the underlying asset. More frequently they buy the derivative and then sell it before it comes due. Well as long as they can find a buyer.And this brings us back to the Delancey Place excerpt. The corn and crude oil futures I mentioned earlier are exchange traded, i.e., there are central organizations that standardize the derivatives for sale and help buyers and sellers find each other. This Wall Street Journal excerpt contrasts the exchanged-traded market and the over-the-counter (“OTC”) market:

…The over-the-counter market is far larger than the exchange-traded ones. Derivatives traded in this market had a total face value of about $285 trillion at the end of 2005, up from about $94 trillion five years before, according to the Bank for International Settlements, an association of international banks based in Switzerland…In comparison, exchange- traded derivatives had a total face value of about $58 trillion at year-end, according to the bank group.”

These over-the-counter derivative are traded directly between two parties. This is a little scary because the investments are not very liquid. It isn’t too tough to find someone willing to buy corn or oil futures. Maybe not at the price you want, but you can almost certainly liquidate or sell your contracts. OTC derivatives on the other hand are often described as exotic and are specific to the buyer and seller. With a market of only one buyer or seller, an exotic derivative can be very hard to sell. Combine this with the tendency for derivative traders to borrow heavily to buy the derivatives and you have a rather volatile financial situation and hence an issue worth Wall Street Journal and Delancey Place coverage.

Price for US/Israeli Overt Air Strike against Iran (Rule 1.8 Applies) at intrade.com

If you would like to try your hand at derivatives trading without risking too much, check out InTrade.com. On InTrade.com you can buy and sell derivatives of baseball, football, World Cup games and political events including Barack Obama winning the White House in 2008. Now if you don’t care for the nuances of financial instruments fret not, Delancey Place doesn’t typically excerpt from such opaque and technical subjects.

Download the Derivative Podcast

Happy Father’s Day From Mark Twain

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Today I would like to honor fathers and especially my father, Keith, with a quote from Mark Twain:

When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years.

I love this quote because it captures the feelings I think most sons have about their fathers. During adolescence we tend to think our father don’t really know what they are talking about and certainly they don’t know what is best for us. After a few years we realize how much our father’s do know and how prescient was their earlier advice.Dad and I on the back porch

Now this doesn’t quite apply to my relationship with my father. As I grow older my respect and love for my father’s advice grows and as an adolescent, I didn’t always give his advice the weight it deserved. But, and this is where the quote doens’t apply to our relationship, I have always known and respected his broad, worldly and practical knowledge.

Happy Father’s Day Dad! Thanks for all your love, support and wisdom.

Love
Scott
Download the Happy Father’s Day Podcast


Podcasting has a symbol but it is not as ubiquitous as the trefoil

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podcast-logo.png I cannot apologize enough for the dearth of recent posts.

Today I came across an interesting word in an editorial by Cory Doctorow at the New York Times. Cory’s editorial draws our attention to cheap programmable microchips that allow nearly anybody with an idea for a simple electronic device, say a whimsical watch or a feral robot dog, to produce one cheaply and in their own home.

Radiation TrefoilThe word is trefoil. Trefoil is a noun. A trefoil is any three leafed symbol. The best known trefoil is the international symbol for radiation. This is the trefoil Cory mentions in his editorial. He describes a watch he picked up in Japan that

Appears to be warning of imminent nuclear catastrophe, with a radiation trefoil that lights up to tell me that I need to add six to the number of hours in the throbbing bar on the right side.

Trefoil or “tree-foil,” it can prounced either way, comes from the latin Tre meaning three and folium meaning leaf. Which reminds me an alternate meaning of trefoil is any plant from the genera Trifolium. Obviously these plants are named for their trifoliate leafs.

Radiation trefoil image courtesy of beigephotos at flickr.com.

NYTimes article via BoingBoing

Great Poems on English Language Idiosyncrasies

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Play Over at Boing Boing, I came across a link to some great poems on the idiosyncracies of spelling and pronounciation in the English language. They don’t make for a great podcast. The joy is in reading them.

Here is my favorite:

WHY ENGLISH IS SO HARD TO LEARN
We must polish the Polish furniture.
He could lead if he would get the lead out.
The farm was used to produce produce.
The dump was so full that it had to refuse more refuse.
The soldier decided to desert in the desert.
This was a good time to present the present.
A bass was painted on the head of the bass drum.
When shot at, the dove dove into the bushes.
I did not object to the object.
The insurance was invalid for the invalid.
The bandage was wound around the wound.
There was a row among the oarsmen about how to row.
They were too close to the door to close it.
The buck does funny things when the does are present.
They sent a sewer down to stitch the tear in the sewer line.
To help with planting, the farmer taught his sow to sow.
The wind was too strong to wind the sail.
After a number of injections my jaw got number.
Upon seeing the tear in my clothes I shed a tear.
I had to subject the subject to a series of tests.
How can I intimate this to my most intimate friend?
I read it once and will read it again
I learned much from this learned treatise.
I was content to note the content of the message.
The Blessed Virgin blessed her. Blessed her richly.
It’s a bit wicked to over-trim a short wicked candle.
If he will absent himself we mark him absent.
I incline toward bypassing the incline.

Spelling Poems. (via Boing Boing)

Dell’s Inanity Is Not Insanity, Just Frustrating

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PlayI came across today’s word in David Pogue’s New York Times Circuits email newsletter. The word is inanity. When I first read it I suspected it was a typo; that Pogue meant insanity. As the author of many typos I was quite excited to find a typo in a New York Times article.

Alas, inanity is a word. It is an noun meaning total lack of meaning, or or as Merriam-Webster puts it, “the quality or state of being inane.” Something that is inane lacks a point or significance.

Pogue’s article is about the pluses and minuses of Dell’s tech support. He writes:

“And even though they’re scripted to the point of inanity, the overseas reps have twice helped me, too, resolve problems to my satisfaction (including the time my hard drive died, and Dell replaced it at no charge).

You can see how the word insanity could fit in there too. But I think Pogue’s diction is more appropriate because the tech support questions often seem unrelated not crazy.

A side note about Pogue: he suffers from carpel tunnel damage so he uses speech-to-text to avoid irritating his condition, so I should have known the only typos to be found in his work would be incorrect diction not misspellings.

No, I Have not Fallen into an Oubliette

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podcast-logo.pngOubliette, this word popped up on two sites in one day so I had to include it in a podcast.

Oubliette, as you can probably tell from the sound of oubliette is a French noun. An oubliette is a dungeon or cave with only an opening at the top. A hole in the ground could be an oubliette. A trap door in the floor may lead to an oubliette.

Of the two pages that brought oubliette to my attention, the first, at kinkless.com, used oubliette on its 404- page-not-found error page. I clicked on a broken link and was served this creative and polite prose:

Oubliette

You have fallen into a hole. You find yourself in a small stone room. The only exit appears to be the hole which you fell through, now far above you in the ceiling. There is straw scattered on the cold, cobbled floor. The darkness of this cell seems to swallow up the thin shaft of light falling from above.

A voice from the shadows says “404”. However, before you scream in terror or allow a soul destroying malaise to settle upon you like the dust of ages (what? it already has?), let me hand you a ladder. You see, I’ve rejigged this site and now the walls and doors and such are in all different places.

Kinkless.com hosts a “Getting Things Done” to do list manager. The second page is closely related, it is an article by Merlin Mann hosted at 43folders.com, a site dedicated to the “Getting Things Done” way of organizing and managing your life. The article “Dr. Contextlove or: “How I stopped worrying and learned to love iCal” describes Mr. Mann’s particular technique for using the Kinkless GTD system to organize his time and tasks. Oubliette is used by Mann to describe where the task he forgets to complete end up; in a dark hole with only one way out.

Oubliette comes from the French verb oublier meaning “to forget.” As in,”put him in oubliette and forget about him.”

According to Wikipedia, and oubliette is also

“used to refer to ice formations over lakes or other large bodies of water. As ice crystals formed, and air was introduced in the movement of the tides, tunnels would form under the ice.”

Happy Millionth Wikipedia!

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Today, March 1st, 2006, the one millionth English article was published at Wikipedia by Ewan Macdonald.

From the Jordanhill Railway Station article:

The Jordanhill Railway Station is a suburban railway station in the Jordanhill area on the west side of Glasgow, Scotland. The station (code “JOR”), which is governed by Transport Scotland and managed by First ScotRail, lies on the Argyle Line and the North Clyde Line. It is located near the Jordanhill Campus of the University of Strathclyde and the Jordanhill School and sits atop Crow Road, an important western thoroughfare in Glasgow and the main route to the Clyde Tunnel. The station is five stops and eleven minutes journey time from Central Glasgow.

Congratulations! Wikipedia is clearly the most comprehensive English language encyclopedia. Putting questions about accuracy aside it is probably the deepest and widest research collection ever assembled in any language.

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Millionth Wikipedia Entry

Happy Mardi Gras, Enjoy Ash Wednesday!

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podcast-logo.pngHappy Mardi Gras! Today I would take a little time to discuss Mardi Gras, Ash Wednesday, Carnival and Lent.

Lent is the forty day Christian fasting season leading up to Easter. Christians, particularly Catholics, mark the period by giving up meat or some pleasure or comfort.

Carnival is the two week celebration leading up to Lent. The most famous Carnival is celebrated in Rio de Janeiro, Brazil. I am sure you have seen the photos of revelers. The last day, the culmination of Carnival is Mardi Gras.

Since Lent is a time of fasting and going without, people live it up big for the two weeks leading up to Lent. Mardi Gras is the last day to enjoy favored foods it tend so it is a day for fattening up for the long wait till Easter. Mardi Gras translates literally from the French as “Tuesday Fat.” The following day, Ash Wednesday, is the first day of Lent.

Ash Wednesday gets its name from the ashes with which the priest blesses worshipers. On Ash Wednesday Christians, again particularly Catholics, can be seen with their foreheads marked with this ash.

Equanimity in a Desperate Podcast

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I heard Felicity Huffman use the word equanimity on NPR’s All Things Considered. Felicity Huffman plays Lynette on Desperate Housewives and recently received an Oscar nomination for her staring role in Transamerica- the story of a man who becomes a woman then discovers she has a teenage son.

The interview focuses on motherhood as it applies in the movie and in Desperate Housewives. Huffman uses equanimity to summarize one of the characteristics she observes in other mothers and aspires to posses herself.

Equanimity is a calmness or evenness of mind; a balanced impartiality.

As you may have guessed it is related the word equal and comes from the latin aequanimitas- a combination of aequus, meaning even or equal and animus, meaning mind.

It is no wonder the characteristic Huffman praises just before equanimity is balance. In fact she is almost being redundant.

Serendipity on the radio, soon in a podcast

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podcast-logo.pngWelcome to the 131st Today’s Podcast. November 1st marked the one year anniversary of Today’s Podcast. This year my goal is to produce over 200 shows. Much closer to my promise of a daily show.

Today’s word is serendipity. I was reminded of this word by a recent interview with Yvon Chouinard on NPR’s Day to Day. No podcasts for Day to Day yet. But NPR does offer some podcasts.

Only a few days before the interview I was in Boston for StartUpSchool. I stayed with some friends, one of whom is getting his Ph.D.. at MIT. His field of expertise is environmental policy so I was picking his brain on the subject of U.S. foreign oil dependency and its relation to synthetic clothing. Jim was explaining to me that synthetic clothing could be made form natural polymers but at this time that process is more expensive.

Stick with me I am getting to the serendipity part.

In an off hand remark I asked Jim if he thought Patagonia would be a leader in bringing non-petroleum based synthetics to consumers in the next 50 to 100 years. He asked me if I thought Patagonia would be around in 100 years. I said I figured they would be. He didn’t. So we made a informal bet.

Back to Yvon Chouinard. He is the founder of Patagonia and he was on the radio promoting his new book “Let My People Go Surfing : The Education of a Reluctant Businessman.” During the interview he mentions he expects Patagonia to be in business 100 years from now. There is the serendipity.

Serendipity is a noun that describes the act of making fortuitous discoveries. The act of finding something useful when you weren’t looking for it.

I wasn’t looking for evidence supporting my theory or my position in the wager but just listening to the radio I stumbled upon some useful evidence.

The word serendipity was given to us by Horace Walpole in a letter of January 28, 1754. He coined the word from the title of a Persian fairy tale- “The Three Princes of Serendip.” Serendip is the ancient Persian name for Sri Lanka. Walpole wrote the following describing the story, “As their highnesses traveled, they were always making discoveries, by accidents and sagacity, of things which they were not in quest of …” That is serendipity.

Last year serendipity is was listed by, Todays Translation, as one of the ten hardest English words to translate. So to the English-as-a-second-language listeners and readers I hope I have helped.

UPDATE: Jim just dropped me an email letting me know there are now corn based fibers used in socks. Japan will be the test market for these new socks.