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Author: Anu

Lover of technology, squash, sailing, reading, cooking and eating!
The real price of gold in the USA

The real price of gold in the USA

So, I have been very interested in buying some gold for investment purposes since the last year. Gold has been rallying like a crazy bull for the past year, with no correction in sight. Partly, this has been because the US dollar has been devaluing, mostly because speculators worldwide are involved in the dollar carry trade, replacing the yen carry trade. However, despite this, the price of gold has been going on up in currencies which are not pegged to the dollar, for example, the euro and the yen. Only the Australian dollar has appreciated in value respective to gold, but this is primarily because the US dollar carry trade is happening with Australian dollars (the Australians are leading the recovery and have had to increase their interest rates).

The chart below shows the price of gold in US dollars. The period before 1967 is not of interest, as the dollar was on the gold standard, thus the price of gold didn’t fluctuate much. In fact, the price of gold remained constant from 1893 to 1918 (world war I).

Price of gold in US dollars

The real question, of course, is whether this is a good time to invest in gold. I am not looking for a short-term play, but my motivation is primarily to protect myself and the family savings from another round of redistribution of wealth that will be brought upon by another round of recession, inflation or devaluation of the currency. So, I decided to compute the buying power of gold, and how that has changed in the last 30 years. For this, I compute the price of 1 lb of flour, needed to make bread. Computing the 1oz gold/1 lb flour ratio, we can see how many lbs of flour would be bought by 1 oz of gold. Luckily, we have this data for the last 30 years, but not much more. Of course, gold had surged in price following the stagflation of the 70s, so 1980 marks the highest point of this ratio, but we seem to be inching our way to those levels now. Thus, the real buying power of gold has gone up significantly, more than anything in the past 3 decades.

gold/flour ratio
Credit: Gold prices from Kitco, and flour prices from FoodTimeline.org

This is a real pickle. On one hand, this signifies that we are going to see inflation, in which case, the price of flour will increase, but so will the price of gold in terms of US dollars. The other side of the coin is that gold is overpriced, as the gold/flour ratio should be relatively constant. However, examining the lows of the ratio in 2001 gives some sense of why gold has appreciated like a raging bull in the past decade. Another fact that is not captured in the graphs is the confidence of the rest of the world in US dollars. As confidence in the dollars increases, people prefer to hold dollars as opposed to gold. A reversal in that sentiment will drive the price of gold higher. This is the reason that we are seeing central banks in India and other emerging countries emptying the gold reserves of the IMF by selling their dollars and hoarding gold instead.

Typical investment strategy says that we should invest at least 10% in gold, to protect from devaluation of the paper currency. What do you think? I would love to know in the comments.

Rails 2.3.4 and acts_as_favorite incompatibility

Rails 2.3.4 and acts_as_favorite incompatibility

Usually, I try to write about information problems, and what we can do to better parse from the myriad of information. I have been involved in gigzee, which is built in Ruby on Rails, and like everyone else, we upgraded to Rails 2.3 a few weeks ago. We also use a customized version of the acts_as_favorite plugin internally to track which artists, gigs and venues people like. So, it was very disconcerting when after the upgrade the acts_as_favorite plugin stopped working for us. Worse, since user favorites is a central theme of our website, it pretty much brought down our entire system.

After lot of looking around the web, and poking around on our servers, we figured out the problem, and are posting our solution so that other people can find it useful. The problem, as we found, is that the acts_as_favorite overloads method_missing to extend the methods for the base class, say the User model. This way, it is able to provide new methods to that class, for example user.favorite_blogs.

Unfortunately, in rails 2.3.4, the file /Library/Ruby/Gems/1.8/gems/activerecord-2.3.4/lib/active_record/associations/association_proxy.rb got changed, to include the highlighted lines. These end up raising a NoMethodError before the overloaded method_missing is called for the @target.


def method_missing(method, *args)
  if load_target
    unless @target.respond_to?(method)
      message = "undefined method `#{method.to_s}' for \"#{@target}\":#{@target.class.to_s}"
      raise NoMethodError, message
    end

    if block_given?
      @target.send(method, *args)  { |*block_args| yield(*block_args) }
    else
      @target.send(method, *args)
    end
  end
end

Instead of messing with the gem itself, and breaking who-knows-what-else, we decided to simply overload the respond_to? method for the user class.

Our code (in app/models/user.rb):


def respond_to?(method_sym)
  if method_sym.to_s =~ Regexp.new("^favorite_(\\w+)")
    return true
  elsif method_sym.to_s =~ Regexp.new("^old_favorite_(\\w+)")
    return true
  elsif method_sym.to_s =~ Regexp.new("^has_favorite_(\\w+)\\?")
    return true
  elsif method_sym.to_s =~ Regexp.new("^has_old_favorite_(\\w+)\\?")
    return true
  else
    super
  end
rescue
  super
end

This essentially goes around the problem by telling ActiveRecord that these methods do exist for the User model, and then the method_missing from the acts_as_favorite plugin is called.

Simple fix, and I hope it can save other people a lot of headache too.

How many people do you know who have never got a speeding ticket?

How many people do you know who have never got a speeding ticket?

speeding

When I was in graduate school, one of my roommates asserted that he planned to go through life without getting a speeding ticket. I met him a couple of months ago, and I asked him how he was doing on that plan. He had got one speeding ticket! Amazingly, even though I had never made my intentions public, I also planned to go through life without getting a parking ticket. Yet, despite my best intentions, I too got a ticket a few years ago.

I know what you are thinking. Clearly, both my friend and I should have been more careful sticking to the posted signs on the limits. And for the most part, we do. The trouble is that there is no well-defined boundary about where we are breaking the law. It is more like a gray area. If the posted speed limit is 60 mph, then the boundary lies at 60mph. If you go faster than 60mph, you are speeding and must get a parking ticket. The trouble is that most of the traffic travels at a speed greater than 60 (typically somewhere between 65 and 70mph – the “accepted” 5-10mph above the limit), making it an illegal-but-acceptable zone of 5-10mph.

This zone exists for a variety of reasons. First and foremost is the technicality of the margin of error of speed checking guns or various other devices, the calibration errors. etc. Smart lawyers try to get their clients off based on such technicalities. So, the police try to catch people outside this range of error. But this is not always so. Sometimes, the cops will catch you even if you are going only 4 mph above the posted limit (say 64 in a 60 zone). Why this discrepancy?

One way to deal with this is to always follow the posted speed limit. If the general traffic is going faster, then not only will you be the slowest car on the road, but you might also be holding up some traffic, thereby causing a more potentially dangerous situation. Furthermore, if you were following the posted limit, why should you be the one to be punished by having to spend more time for the same task that everyone else does in a shorter period of time? Law-abiding citizens should be rewarded, and not disadvantaged. If someone is traveling above the posted limit, it is the duty of the police officer in charge to issue a ticket. Every time the police officer neglects to perform his duty, he is abetting a misdoing.

I have been asking all my friends who have been driving for more than 5 years, and so far, every single one has got a speeding ticket. Some people are habitual speeders, but even the more cautious, gentler drivers have managed to be caught speeding at least once.

Do you know anyone who has been driving for a long time without ever getting a speeding ticket? Please add it in the comments, I would love to know.

Writing – original opinions or commentary?

Writing – original opinions or commentary?

writing

Ever since tools like wordpress and other blogging engines have become popular on the web, a lot of people have started writing. It is phenomenal that people, including myself, have discovered that they really wanted to write and be read. I guess there is some vanity in that, as well as pride when other people ‘follow’ one’s blog. But it seems that the majority of such writings are really not much more than a commentary on what’s going on in the world anyway. I come across a plethora of blogs that started with the intention of the author to examine a particular subject in depth, but somehow lost their focus. Instead, they turned to writing about the current news, and their opinions of the news. What is interesting is that their opinions are still not surfaced. In a majority of the cases, they simply report the news, and link to some other reporter’s original blog. However, there is a mad rush among such blogs to jump on a news item quickly.

What is striking though, is that this still instills in the authors a sense of achievement, even though they are neither responsible for the news, nor for the opinions, or even the breaking of the news itself. But if even 200 people read their blogs, it makes the author of such blogs feel a certain amount of pride. This is the result that most blogs turn away from a specific topic, and instead talk more about the various things of interest to the author. This is neither a good, nor a bad thing. The striking point here is that the author assumes that the topics of interest to himself will also be of interest to other people. And it is! As there is more and more power in the hand of the consumer, those consumers tend to go for the things of interest to them. Thus, if the blogger enjoys gardening, celtic music, and packers football, there is a great chance that someone else who is interested in gardening, but not in football will still follow the blog. In doing so, the reader is actually introduced to newer ways of looking at football, as well as a sense of belonging since someone with similar interests in gardening is also interested in football. In this sense, the blog certainly brings the world closer.

Whether authors write original opinions or commentary, there is a lot of information out there. What was considered news earlier is nothing more than opinions, either structured or unstructured. Current trends suggest that both have a place in the act of dissemination of information. However, the real challenge will be in how we can filter information effectively for a specific purpose.

Analytical or Analogical?

Analytical or Analogical?

thinker

Like most other engineers, I have prided myself as being super-analytical. We engineers keep throwing words like analytical around with a matter of pride. I have often wondered how exactly analytical I am. As per the definition, analytical means “skilled in or using analysis especially in thinking or reasoning”. Now isn’t that a confusing definition, since it means that an analytical person is skilled in using analysis. However, in general, we all seem to agree that it means ‘having to do with careful examination; good at examining things.’ Analysis then is really our ability to examine things carefully. Usually, it requires us to break a complex issue down into multiple smaller issues, which tend to be much simpler. Whether we are solving a complex problem, or simply examining an argument, the same theory applies. However, how do we actually solve these smaller, simpler problems?

To be completely analytical would mean that we must continue to break down the problem into its smaller simpler sub-parts, and so on. At some point, however, we must know the answer to solve the smallest unit of our problem. More likely than not, we know this answer either through experience, or through knowledge. Thus, as our own knowledge grows, we can then jump to the correct answers much faster with only a minor break-down of complex problems, trying to attain a goal of zero breakdown. This practice is evident in the game revered to be the most analytical of them all – chess. A novice chess player (like myself) needs to break down each move into the exact effect it will have on every possible square on the board, and I need to calculate the various combinations of my and my opponent’s moves. A chess grandmaster, on the other hand, is easily able to recognize patterns and ‘feel’ the position on a board, even though he might never have seen the exact same position ever before. Thus, the grandmaster is reaching into the reserves of his knowledge and drawing a parallel to a situation he has experienced, and applying it to the more complex problem at hand.

This then suggests that as we become more and more knowledgeable or experienced in solving more and more complex problems, we become less and less analytical. In fact, we start becoming more and more analogical. As per the dictionary, ‘analogy’ means ‘Similarity in some respects between things that are otherwise dissimilar’. As an example, I used chess in the above paragraph to illustrate a point which would have been way more laborious for me to get to without the use of the analogy. Personally, I have found that even for small problems, we rely so much on our own knowledge of how things work, that we constantly apply it to other similar (but new) problems all the time, irrespective of their difficulty. Maybe there is more pride in being analogical than analytical.

Why don’t online reviews work as well as they are supposed to?

Why don’t online reviews work as well as they are supposed to?

Reviews

The internet is primarily designed, and has evolved, to solve information problems. The internet cannot yet deliver experiences, except where the experience itself comprises entirely of information. The internet can only deliver information for the senses of hearing and seeing through pictures, text and video. Thus, any experience that comprises wholly of stimuli to these senses can be delivered, such as games. However, the internet cannot deliver information for the senses of touch, taste and smell. Thus, for us to experience stimuli to those senses, we must experience it in the ‘real’ world. All the internet can do is to deliver the information about those stimuli through text, and therefore, understanding. What it really means is that we receive an account of what the stimuli will comprise of, and in our minds we try to experience it. This exactly what online reviews are, and why they are becoming increasingly popular.

Everyday I come across different websites with a 5-star rating for reviews of something or the other. Even the most popular sites with reviews (yelp, youtube, etc.) do not provide a whole lot of value from the reviews, as more and more people add reviews. I am not saying that reviews are completely meaningless, but only that they do not completely encapsulate the information that they are supposed to.

However, the value of the reviews is measured by how accurately we feel those sensations that we expect to feel, when we actually do go and have that experience. Any time there is a gap between the expectation that we form in our mind versus the experience we have, the value of that information becomes suspect, and the source of that information gets discredited. In this context, the value of information can really be measured by this experience – expectation gap. It is worthwhile to note here that if that gap is positive (meaning that we end up having a better experience than expected), we are pleasantly surprised, while a negative gap induces disappointment.

Of course, this brings us to another problem, which is how to measure this difference between expectation and experience. Theoretically, the experience is captured in the description of the review, thereby contributing to the expectation. However, not all people are the same, and though the expectation from the same piece of information might be different for different people, what is more troubling is that the experience of different people varies a lot as well. An inherent assumption in the review model is that all reviewers are equal and that the set of reviewers is large enough to statistically represent the vagaries of human nature accurately. Thus, each reviewer gets an equal amount of voting power, while votes get averaged over many reviewers.

The upshot of this is that even though the amount of information contained in different reviews is different, it gets averaged over reviews to provide a more or less consistent amount of average information, which is enough to form a sort of personalized average expectation in the mind. For the present state of the internet, this is considered a fair system mostly because of a lack of a better automated and scalable system. This is the reason, however, why the average expectation for most “average” items (be it restaurants for yelp, or videos for youtube) tend to converge to ~3.5-4. The outliers are the superb (4.5-5) and the horrible (<3 stars). For the express purpose of classifying the item in one of these 3 buckets, the current review system is fine. But there is no real benefit from having the granular system of 5 stars, as the discrepancy between reviews is great. That is the reason we see a lot of websites today switching to the easier and simpler vote up/down system.

However, the truth still remains that the amount of information contained in each review is different, based upon the prior experiences and nature of the person generating the information itself. If we are able to capture this difference in a meaningful way, then the amount of information contained in a single unit of transport mechanism will greatly increase.
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