Felix Salmon

There’s been some very interesting activity this month in the comments thread

on an old post of mine

about Summit Communications. Since I don’t expect anybody to plough through

more than 12,000 words of comments, I thought I’d summarise the discussion here.

And it really is a discussion: people pretty much are who they say they are.

I’ve got a list of their names and IP addresses after the jump if you don’t

believe me. The only time an IP address is repeated is when Marcos Melo, who

is an employee of Alvaro Llaryora, posts from the same IP address as Llaryora.

Which makes perfect sense.

Nearly all of the activity comes from employees or former employees of Summit

Communications or its sister companies. I’m not sure how or why they all seem

to have found my blog entry at the same time, but I assume there’s been some

emailing going on. In any case, the basic Summit Communications modus operandi

definitely emerges from the discussion.

It turns out that Summit Communications is a vehicle set up by a parent company

called AFA Press for the express purpose of selling advertising supplements

in the New York Times. AFA has other, similar companies for other publications:

the one for the Observer in the UK, for instance, is called Images, Words; the

one for USA Today is called United World; the one for the Daily Telegraph in

the UK is called PM Communications, and so on. The true center of operations

for all these companies is Madrid, although they’re mostly incorporated in the

UK.

The owner of all these companies is an Argentine called Alberto Llaryora –

the father of one of my commenters, Alvaro Llaryora. (In Argentine Spanish,

both "ll" and "y" are pronounced as "zh", so think

"zharzhora".)

Why does Llaryora have so many offshore companies, each with a very different

name? (Apart from any money-laundering he may or may not be doing, of course.)

The impression one gets from reading the comments is that it’s very simple:

the people working for these companies are so sleazy and unprofessional that

the governments and companies in the countries buying the advertorials are unlikely

to ever want to work with them a second time. So Llaryora simply sends a team

from a company with a name untarnished in that country instead.

And there’s another reason: the AFA sales team makes no effort whatsoever to

distingish themselves from the publication that they’re going to print the advertorial

in. The fact that each subsidiary works only for a single publication allows

them to say that they are "the exclusive partner of the New York Times"

or somesuch.

In fact, the sales technique at AFA seems to depend on their pretending to

be from the New York Times / USA Today / whoever. The AFA team always

includes a "journalist" who goes around attempting to get interviews

with senior officials and executives in the country, for a report on that country

to be published in the newspaper in question. Obviously, the fact that the report

will be an advertorial is not mentioned, and neither is the fact that the "journalist"

not an employee of, let alone a journalist for, the newspaper.

Similarly, when the advertorial is being sold, it is always sold on the basis

that the number of readers of the advertorial is the same as the number of readers

of the newspaper in question. Most advertisers who want a bound-out supplement

in the Sunday New York Times, say, are well aware that the vast majority of

readers will simply throw that supplement away unread. But AFA sales people

present themselves as selling advertising (little display units within the advertorials)

against New York Times / USA Today editorial with its enormous circulation and

readership numbers.

AFA seems to specialize in employing young, hungry sales people with no previous

experience in the media business. One of them phoned me after being given a

job offer, wanting to find out what I knew about the company; another left a

comment on my blog. The person I talked to had only sales experience well outside

the media industry, but was being offered a job as a "journalist":

writing skills, of course, were unimportant, as the only thing that matters

is making sales. These kids can make a lot of money by lying to advertisers,

and no one ever discourages them from doing so – quite the opposite. They

justify their actions by saying that they’re working in corrupt countries, and

that if you want to make money in such countries you have to be part of that

corrupt system.

Generally, it would seem, the male "journalist" will go through the

motions of interviewing the minister/executive in question; at the end of the

interview, a very pretty female "director" will then approach the

interviewee to buy some advertising against the interview. (Of course, if the

advertising isn’t bought, then the interview won’t appear, but that’s never

mentioned.) In the case of government ministers, the "director" will

ask the minister for a letter giving his "support" to the publication,

and encouraging the companies in that country to cooperate with the reporter.

The minister thinks he’s simply opening doors for the "reporter" to

be able to do his interviews, but of course the "director" helpfully

explains to the executives that in order to cooperate as the minister wants

them to do, they will have to buy advertising.

The technique works so well that former AFA employees have gone on to set up

their own companies doing exactly the same thing: see Vega Media, Impact Media,

and Media Plus, which seems to have an especially low reputation. There’s a

whole sector of these companies, it turns out: Global Press, for instance, run

by Alberto Llaryora’s brother Rodolfo Llaryora, would seem to have the Washington

Post and Fortune Magazine locked up. There certainly seems to be de facto

exclusivity: only one company ever seems to produce advertorials for any given

publication. Does Summit Communications pay the New York Times extra for being

its only advertorial provider? How else can one explain the seeming absence

of any competition in the NYT?

I’m sure that the New York Times, alongside all the other highly-regarded publications

in bed with AFA Press, spends as little time as possible asking about the genesis

of the advertorials which it prints. Just as the millions of people who eat

at McDonald’s really don’t want to know the details of how their meal is made.

This is the real difference between these publications, on the one hand, and

Euromoney, on the other: Euromoney, when it sells supplements, does so under

its own name, and in the knowledge that if the client is unhappy he’ll never

buy another one. The NYT et al don’t sell supplements, they leave that to others,

who are happier to burn their clients because they’ll likely never return to

that country anyway.

I’d be very interested to learn whether New York Times journalists working

in third-world countries ever find themselves battling ministers or executives

who think they’ve dealt with the New York Times in the past, and who have very

bad memories of the whole encounter. Maybe every time they do, they should complain

to the advertising department about the stuff which is being done in the NYT’s

name. That, in turn, might drive AFA Press and its subsidiaries to higher standards

of conduct.

More likely, an increase in the media-savvyness of third world ministers and

executives will force Llaryora and his employees to be more transparent; from

reading the comments on my original post, that might be happening already. Instead

of misleadingly selling an ad against an interview in the New York Times –

something which anybody who knows the NYT knows can never be done – AFA

might start talking more about the usefulness of newspaper supplements in terms

of turning around the image of a tarnished country. Chances are, of course,

that if the people buying into these supplements knew how effective they really

were, they would never take part. But at least some of the sleaziness in the

industry would be minimised.

Commenters and IP addresses after the jump.

Continue reading →

Vonage has had a torrid few weeks since it went public in May at $17 per share:

the stock closed today at just

$6.84. And who better to weigh in on this state of affairs than our old friend

Henry Blodget? I’ve just found a posting of his from July 6, when the stock

had fallen to $8.25, and two of the IPO’s underwriters had just put out negative

research on the company.

Blodget, of course, knows what it’s like to be a tech-stock analyst: he was

one. And he knows what it’s like to be pressured into writing positive reports

on companies that your bank does business with: because he did that, he had

to pay a whopping great fine, and is now barred from the securities industry.

So one would think that Blodget would welcome this brave new world where analysts

can turn around a month after the IPO and say without fear of being fired that

they think the stock stinks.

But, of course, one would be wrong. Blodget doesn’t

think that at all. Instead, he thinks that the firms did their clients a

disservice by not publishing the research earlier:

Let’s look at this from the perspective of an IPO buyer. Wouldn’t you have

liked to have known that these analysts thought the stock wasn’t worth $8.25

before you paid $17 for it? Or, if that was impossible, wouldn’t

you have liked to have been confident that the analyst had signed off on the

deal before it was sold to you? Don’t you feel a bit shafted that you were

sold a stock at $17 that the only real expert at the firm thinks is not even

worth $8.25?

With this kind of logical ability, it’s no wonder Blodget could persuade himself

that Amazon was worth $400 a share at the height of dotcom fever. Let’s run

through some of the assumptions here:

First, it seems that if you want an investment bank to value a company, "the

only real expert at the firm" is going to be… wait for it… a stock

analyst. Not a banker, who’s actually charged with selling the company,

but rather an analyst who’s only interested in what direction the stock is going

in. It turns out that in the World of Blodget, all the gazillionaire bankers

working in equity capital markets or mergers and acquisitions are chumps, really,

compared to their much poorer brethren poring over SEC filings and writing widely-ignored

research reports.

It seems that Blodget still doesn’t get it. Someone who’s very good at valuing

companies will not be wasted in equity research, and will become a banker quite

quickly. Someone who’s very good at arbitraging the difference between what

a company is actually worth and what the market thinks it’s worth will also

not be wasted in equity research and will instead most likely join a hedge fund.

The main skill of people in equity research is not to pinpoint the value of

a company, but rather to come up with ideas or insights which the investment

bank’s clients can then use to come to their own decision as to whether a stock

is worth buying or selling. The headline buy/sell recommendation is actually

pretty irrelevant for the majority of the people who receive the research.

(I know, I described this

view of equity analysts as "hopelessly out of date" four years ago,

but I did say that things were swinging back in that direction, and in this

particular case I think it’s true.)

Second, what on earth makes Blodget think that these analysts did

actually think the stock wasn’t worth $8.25 before the IPO? Blodget, more than

anybody, knows that buy/sell recommendations are based on where the analyst

thinks the stock is going: before the IPO, there wasn’t a month’s worth of data

showing the share price going steadily south. Blodget seems to be living in

some kind of parallel universe where a stock analyst takes a company’s books,

works out a valuation, and only then compares his own valuation to that of the

market. If his valuation is higher then he puts a "buy" rating on

the stock, and if it’s lower then he slaps on a "sell". But of course

no stock analyst actually works like this: one thing that is still true from

four years ago is that the reasons why one might want to buy a falling stock

are often very different from the reasons why one might want to buy a rising

stock.

Clearly, the market has looked at the valuation that Vonage’s bankers put on

the company when it went public, and decided that it doesn’t make sense. Indeed,

it’s entirely possible that any non-zero valuation for Vonage doesn’t

make sense, given that the company might well never make a profit. In any case,

the direction that the stock is headed in is unambiguous, and I daresay that

there are precious few companies which lost half their market capitalization

in the first month of trading, and then proceeded to turn around and bounce

healthily back. In other words, even if you thought that Vonage was worth, say,

$25 per share, you’d think twice before putting on a "buy" recommendation

after the stock had sunk from $17 to $8.25 in the course of its first month

trading.

Which is to say that having a stock analyst "sign off on the deal"

before it’s priced is extremely silly. What would that entail, anyway? Giving

the stock analyst veto power over whether the company can be brought to market

at any given price? Surely the market should be the main arbiter of

the price, not one analyst. I really can’t imagine what Blodget has in mind

here. Presumably he means some kind of statement from the analyst that the IPO

price is not unreasonable – but asking an analyst to provide such a statement

puts him in an impossible situation. How could he say no?

Dana Stevens is Slate’s new film critic – this is a good thing, since

Slate’s last film critic, David Edelstein, was dreadful. But can you see a pattern

emerging from her last three reviews?

You, Me and Dupree: "A

fantasy sequence, in which Carl imagines Dupree sailing on his father-in-law’s

yacht while his wife performs a striptease, points toward the movie this might

have been…"

Lady in the Water: "The

closed universe of the Cove complex (the camera never ventures outside the building’s

walls) could have been a great setting for a Rear Window-like investigation

of neighborliness gone awry. Instead…"

My Super Ex-Girlfriend: "A

less willfully misogynist movie might have made Thurman’s double identity the

starting place for an exploration of female power, super- or otherwise. What

would you do if your girlfriend not only made more money than you, but knew

how to stop an incoming missile with her bare hands? Instead…"

My local branch of

the New York Public Library is coming to the end of its Summer Book Sale, where

books which are surplus to requirements are sold off for 50 cents (paperbacks)

or $1 (hardbacks). There’s not much left on the sale table, maybe a dozen books,

but among them, unwanted even at one measly buck: I

Am Charlotte Simmons. I am so proud of my fellow Lower East Siders.

Thank You For Smoking: 5/5.

Witty, smart, hilarious. See it.

Pierre

Huyghe at the Tate: 4/5. Witty, smart, gorgeous. See it. (And I’m not even

a Pierre Huyghe fan.)

The Rem Koolhaas

pavilion at the Serpentine: 3/5. Smart, gorgeous, pointless. Worth seeing.

740 Park: 2/5. Pointless,

overlong, boring. Avoid.

The Matador: 1/5. Pointless,

boring, forgettable. Avoid.

I was in Europe for the past three weeks, hence the light posting. I travelled

around London and Germany, and although it won’t surprise anyone to hear that

the public transportation system in Germany is much better than it is in London,

even I was surprised at how much better it was.

On the one hand are the weaknesses of the London system. London has a wonderful

thing called the Oyster

card, a must-have for any London resident or visitor. (NYC is presently

trialling a weak

imitation.) You use it to tap into and out of tube stations and buses, and

it’s more or less replaced the longstanding institution of the one-day travelcard.

Rather than pay in advance for unlimited use of public transportation for the

day, you simply rack up journeys on your prepaid card as normal; Oyster will

stop charging you when your total for the day reaches 50p less than

the price of a one-day travelcard.

The problem with the Oystercard is not with the card itself, which seems to

work much better than anything else Transport for London runs. Rather, the problem

goes back to that famously misguided Tory cockup, rail privatisation. You see,

while most of London north of the river is well served by the London Underground,

London south of the river relies instead on above-ground rail services. Where

I grew up in Dulwich, for instance, it’s easy to take a train into Victoria

which takes less than 15 minutes, but there’s no tube service at all. Conversely,

Hampstead, which is the north London equivalent to Dulwich, is well served by

the Northern Line, but doesn’t have any above-ground trains.

As a result, the travelcard is designed to be platform-agnostic: whether you’re

taking the train to West Dulwich or the tube to Hampstead, the same card will

do the job. But the train companies haven’t really signed on to the program,

which results in all manner of annoyances. Because of the no-need-to-buy-a-travelcard

feature of the Oyster card, Oyster has actually made it impossible

to put a one-day travelcard onto an Oyster card. But then you decide to visit

somewhere south of the river, and you miss your train because the trains only

accept Oyster cards with travelcards on them, not the prepaid Oyster cards that

are perfectly good for travelling around the rest of the city. (It’s possible

to put a seven-day or one-month travelcard on an Oyster card, just not the one-day

version.)

Now rail privatisation postdates the construction of the rail network, which

is reasonably well integrated with the train network. But although the networks

are physically integrated, they’re now all run by different companies, which

causes loads of completely unnecessary nightmares for travellers. For instance,

flying back from Germany to London, I arrived at Stansted airport and was staying

near Herne Hill station in south London. Stansted has a good train station,

and so does Herne Hill. Could I, then, simply buy a ticket from the former to

the latter? No, that would be far too easy. Arriving at Stansted, the ticket

machines would only sell me tickets on the Stansted Express ("express"

here meaning nothing beyond the fact that it’s a train which travels from a

London terminus to a London airport, and is very expensive.) The first ticket

machine, in fact, sat on my card for ages before failing to disgorge any tickets;

the second gave me my two tickets to Liverpool Street for £30.

At Liverpool Street, you can buy tickets from the train station or tickets

from the tube station. We needed to take the tube, so we used our Oyster cards

to go three stops to Farringdon. Now at Farringdon, the tube platform where

we got off is right next to the train platform from which we were taking a train

to Herne Hill. Convenient, no? But there are two problems. Firstly, you need

to "tap out" with your Oyster card when you finish your journey, so

that the card knows whether to bill you for a little three-stop Central London

trip or for a long journey well out into the suburbs. And there’s no Oyster

station between the tube and train platforms at Farringdon, which means you

can’t "tap out" there. There’s also no ticket machine on the train

platform, so in any case there was no way of buying our ticket to Herne Hill.

And we couldn’t simply "tap out" at Herne Hill, because it’s not on

the Oyster pay-as-you-go system. So I had to take two oyster cards up to the

Farringdon exit, tap them both out, buy two train tickets with cash at the ticket

machine, and then return to the platform. If I were a tourist, the chances of

my being able to work this out would have been exactly zero.

Of course, had I been stupid enough to fly back to London on a Sunday afternoon,

maybe in order to be able to go to work on Monday morning, I would have been

out of luck, since the last train from Farringdon to Herne Hill on a Sunday

is at 16:40. (The first train from Herne Hill to Farringdon on a Sunday, incidentally,

is at 10:42, arriving 11:02. Clearly no one travels on a Sunday before 10:30

in the morning or after 4:30 in the afternoon.) Actually, if I had been stupid

enough to travel anywhere in London on a Sunday afternoon, I would

have been out of luck. Last Sunday I was at a barbecue in Highgate; even with

a lift from a friend in her car, it took us an hour and a half to get back to

Herne Hill. Nothing seemed to be working: the trains were all delayed (natch),

the tube station we wanted to use was closed for the next few months (the second

time in two days we’d run into that problem, firstly with Regents Park and then

with Lancaster Gate), the Victoria Line was dodgy all month, and seemed to be

completely closed on the Sunday north of Highbury and Islington, the whole northeastern

branch of the Northern Line was out of order, and of course Thameslink

First Capital Connect wasn’t working, it being a Sunday afternoon at all. In

a nutshell, any kind of north-south transportation, be it the Northern Line,

the Victoria Line, or the train, was buggered. It’s like the people in charge

of such things never talk to each other to coordinate things. Actually, they

probably don’t.

Meanwhile, getting around in Germany was almost comically easy. The trains

were all bang on time, fast, and clean. At somewhere like Berlin’s gleaming

new Hauptbahnhof,

the platforms for the inter-city trains sit happily side by side with the platforms

for the Berlin S-Bahn. The ticket machines were intuitive, easy to use, and

would do friendly things like print out your itinerary for you, complete with

which platform to change to. When three of us travelled from Berlin to Oebisfelde,

we didn’t get a small pile of individual tickets for various different trains:

instead, we just got one ticket for the whole journey, covering all three of

us.

Best of all, in Munich (which I think might well be the most civilised city

in the world), Deutsche Bahn actually runs not only trains but bicycles.

DB bikes are

all over town, and when you want to go somewhere you just call the number on

the bike, get a code to unlock it, get on it, and ride away for 5 cents a minute

on the extensive system of bike paths which sit between the pedestrian sidewalk

and the roadway on most Munich streets. When you get to your destination, you

lock the bike, call the number, leave a message saying where the bike is, and

leave the bike for the next person who needs it. It’s like Zipcar,

but for bicycles, and capable of being used much more impulsively. It’s genius,

but I fear it requires a level of civilisation a notch or two above anything

that New York or London is capable of.

So here’s the idea: Emily is an underemployed realtor in New Jersey, married

and about to have kids with her financial consultant husband, Steven. She then

finds out that Steven is having an affair with her best friend Laura. Coincidentally,

she started a blog just a couple

of weeks before she found out about the affair. So if you read the July archives

from the bottom up, you

get the whole story.

Oh, and did I mention that as part of her scheme to get back at her husband,

Emily has bought an enormous billboard above Mercury Lounge on Houston Street?

The photos on the blog are genuine, even if both the blog and the billboard

seem to have far too little personality and far too much professionalism to

be real. The blog, especially, is structured far too much like a bad novel,

with the "before Emily finds out" posts setting us up far too neatly

for the "after Emily finds out" posts.

And if Steven is really a financial consultant for a big firm, how likely is

it that his office is in the Lower East Side?

My guess is that the whole thing is would-be viral marketing for a new book

or film. But just not done very well. If you’re going to set up a fake blog,

keep it going for more than a couple of weeks before you drop the bomb.

UPDATE: Gawker had it yesterday, when I was still on holiday, and apparently the billboard is up in LA as well. Now that’s what I call a long commute from New Jersey!

On his own site, Nick Denton calls

it "battening down", against rising costs and an entirely hypothetical

downswing in entertainment-industry advertising expenditure. In the New York

Times, Denton goes a bit further: "We are becoming a lot more like a traditional

media company," he tells

David Carr in an article which somehow manages to portray one of New York’s

most professional and assiduous networkers – Denton really does know everyone

– as "the antithesis of the schmoozer". (It almost feels churlish

to point out that Denton made his first fortune by setting up a company whose

raison d’être was to monetize schmooze.)

In any case, Gawker Media would seem to be downsizing: something Denton is

presenting as a "countercyclical move". In reality, however, I’m not

sure that Gawker Media is going to be significantly smaller after the events

of this weekend. Five bloggers are leaving: Ken Layne and Scott Ross at Sploid,

Dong Resin at Screenhead, John Biggs at Gizmodo, and Jesse Oxfeld at Gawker.

Three bloggers are arriving Joshua David Stein at Gridskipper, Alex Balk at

Gawker, and Brian Lam at Gizmodo. Gridskipper’s Chris Mohney is getting elevated

to a new managing editor spot at Gawker. So maybe payroll will have fallen a

tiny bit, but certainly not by much. And given the salary expectations of the

likes of Balk and former Condé Nast-y Lam, it might even have gone up.

(Denton: "For editorial talent, we now pay within the range of mainstream

media.")

The big news here, at least as far as the blogosphere is concerned, is the

defenestration of Oxfeld. Jossip headlined

it as "Denton Wants Mainstream Appeal," and Oxfeld seemed

to concur: "it’s all basically true; whatever direction the site

takes in the future, I won’t be along for the ride." I don’t know

Oxfeld personally, but he seems well-liked within the blogging community, and

I suspect he was well-liked within Gawker Media as well. But Nick Denton is

no sentimentalist, and my guess is that he saw Oxfeld as appealing only to a

narrow slice of New York media insiders, and therefore being unable to deliver

the traffic growth that he wants for all his sites.

Indeed, Denton might well have noticed, at his numerous parties and lunches,

that New York media types read Gawker much less now than they used to in the

days of Choire Sicha. That’s probably not because Oxfeld serves them less well

than Choire did, but rather it’s more a function of the large amount of non-media

content on Gawker these days. It’s true that when sites post more often, their

readership rises. On the other hand, it’s also true that the New York media

elite doesn’t really have the time to wade through vast amounts of general-interest

celebrity gossip in order to find the occasional media-related tidbit. So as

Gawker has grown and mainstreamed, its "influence, buzz, and significance",

to quote Lockhart

Steele, has declined.

The man charged with squaring that circle is Alex Balk. Alex is one of the

few people in New York who knows even more journalists than Denton, and his

vicious wit should be able to merge well with Jessica Coen’s, and appeal to

a nationwide audience. I’ll be interested to find out whether he’s forced into

the Gawker house style, however, or whether he’ll be able to keep, at least

sometimes, his trademark deadpan headline-is-the-punchline technique, as originated,

I believe, with Esquire’s Dubious Achievement Awards.

If Balk is the man who Denton has hired to bring the buzz back to Gawker, then

Chris Mohney, I’d guess, will have more of a managerial role. This is Gawker

growing up, and Denton giving up on his original vision

of running "sites covering categories too small to warrant dedicated print

publications, but with an appeal to advertisers sufficient to support a bare-bones

editorial operation". Gawker now has an org chart with just as many layers

as quite a few magazines I can think of: interns, editors, a managing editor,

and editorial director, and, of course, at the top, Denton himself.

Will Balk scoff, in his initial posts, at the "managing editor" role?

(Managing Editor means very different things at different publications, and

in fact can be either higher or lower than Editor: the only thing that’s constant

is that no one ever knows exactly what it means.) I can’t imagine that he or

Coen will pay much in the way of deference to Mohney.

But bossing around Balk and Coen is not Mohney’s job, in my estimation –

and sunning myself as I am in England, I’m not really inclined to find out.

I assume that Mohney is being hired largely for his managerial prowess –

that he demonstrated an ability to herd far-flung copywriters while at Gridskipper,

and that his new job will in large part be managing Gawker’s ever-growing army

of interns and freelancers. (Nearly all Gawker’s regular features are outsourced,

and not actually written by its editors.) Mohney, as I see it, will have been

charged with goosing Gawker’s traffic and turning it into a gossip franchise

which can rival the combined might of Page Six and Keith Kelly – leaving

Jessica and Alex to bring the funny and the attitude and the snark.

The way I see it, then, the New Gawker is split into three parts. Alex will

revitalize it among New York media types; Jessica will continue to write about

more general-interest gossip and maybe give Gawker an increasing amount of exposure

on TV; and Chris will be in charge of the regular features, including the skeevy

Gawker Stalker, giving the website the sheer volume of posts which seems to

be necessary, these days, for large amounts of traffic.

Denton is moving in this direction largely, I would guess, as a result of his

advertisers. His initial dream of charging premium rates for premium readers

never even began to take off, and, to his credit, he was the first blog entrepeneur

to realise that the quality of a blog’s readership was much less important than

its size. (Jason Calacanis came to the same conclusion much later than Denton:

he was still launching B2B blogs even as Denton was launching blogs devoted

to sex and Hollywood.) Denton pays his bloggers according to the readership

growth they deliver – and if that growth isn’t forthcoming (cf Oddjack,

Sploid, Screenhead) then not only the bloggers but even the blogs themselves

will go.

Two years ago, I gave Denton

grief for saying that Gawker’s readership was made up of "media junkies".

Today, he’d no longer make that claim (and I’m sure he’ll correct me if I’m

wrong here). Media junkies are still important to Gawker, just as they’re important

to the New York Post. But Gawker’s ambition is to become much bigger than that,

which means having to grow out its Condé-obsessed roots.

I’m sure that Denton is attempting to recapture some of the buzz that surrounded

Gawker in the early days. But that buzz has left not only the Gawker Media building

but indeed the entire blogosphere, and is presently to be found in the neighborhood

of Digg and MySpace. Whether it will ever return I have no idea, but in the

meantime Denton’s going to concentrate on growing traffic and making money.

The big question, of course, is what Denton’s ultimate goal is. I’ve speculated

in the past that he’d like to be the first blog company to go public, and this

latest move would be consistent with that. I’m sure that Gaby Derbyshire and

Lockhart Steele might like, at some point, to be able to monetize their equity.

But Gawker Media doesn’t need equity capital to grow, and Denton certainly doesn’t

need the cash. So for the time being, Gawker Media will become bigger and more

profitable and more Old Media-like. What Denton will ultimately do with his

baby is probably unknown even to him.

It was a long, hot and frustrating day, spent working and trying to tie up loose ends in New York. I’ve finally got my advance parole, which allows me to leave the country — which I’m doing tomorrow. Michelle left a day earlier (today), and texts me on her way to the airport that I have a package waiting for me at the FedEx depot on Leroy Street in the West Village. Since we’ll be gone for a while, I take a subway over there with the door tag (marked “Salmon”) and my driver’s license. But when I get there, I’m told that they can’t give me the package, because it’s addressed to Michelle Salmon and not Felix Salmon. Michelle Salmon, of course, doesn’t exist: if Michelle went to pick up the package, they’d tell her that she couldn’t have it either, because it was addressed to Michelle Salmon and not Michelle Vaughan. But just to rub things in, the FedEx people do divulge to me that the package contains… bread. Which means that if we ever do get the package, on our return, it will be inedible, and possibly alive. There’s nothing I can do, so I get on another subway back home. Yet another hour of my life I’ll never get back. But let this be a lesson to you all: don’t ever try to be clever when addressing packages. Make sure the name on the package is the same as the name on our photo ID, or there’s a good chance we’ll never get what you’re sending.

There are very few reasons ever to visit the western suburbs of St Louis. In

fact, I can’t think of any – or at least I couldn’t think of any, until

Wednesday night, when I had the great good fortune to dine at The

Seventh Inn.

I was lucky to have sensible parents: ones who saw little if any point in taking

children to grand restaurants. As a result, I only really started eating out

in Britain long after the cliché of the local French restaurant serving

Steak Diane and Beef Wellington had pretty much died out entirely. And insofar

as it did exist, neither of my parents nor I ever had any interest in eating

in such a place. Nowadays, of course, no one has any interest in revisiting

the height of sophisticated dining in the English suburbs of 1978.

But The Seventh Inn, in a sleepy backwater known as Ballwin, Missouri, is gloriously

immune to any developments in culinary history since its inception in 1972.

Still run by Else and Lee Barth, its menu

is almost aggressively conservative: if you click on "fowl", you’ll

find nothing but chicken, underneath an entire section of various Wellingtons.

That said, if you give them a little notice, they’ll be happy to serve you their

duck special, and indeed I should imagine that you could pretty much order anything

you liked from this place: while it’s extremely formal, it lives up to its Midwestern

location by somehow avoiding stuffiness.

The restaurant is located, weirdly enough, in the middle of an apartment complex,

and is not particularly easy to find. Once you do find it, you find what I can

only describe as Greek-style statuary flanking the front door, which you enter

with a certain amount of trepidation. Inside you experience a degree of sensory

overload which can be quite disconcerting to the uninitiated: an overabundance

of silk flowers, more statues, faux-Impressionist paintings, gilt everywhere,

and a maître d’ who arrives in full evening dress to escort you to your

table. You have a choice: you can opt either for the main dining room, with

full white-gloved service featuring as much tableside preparation of dishes

as you can imagine, or you can walk through the tropical-themed bar, complete

with lounge singer covering Frank Sinatra tunes, to the terrace overlooking

the lake and the fountain.

Once you’ve been seated, settle in for the long haul. First, you’ll be asked

if you want to order cocktails – and this is certainly the kind of restaurant

where you order a martini to begin. Eventually, the menus will arrive, and after

that Elsa Barth will more or less obviate the need for those menus by telling

you about pretty much everything on them in glorious detail. You’ll be asked

if you want to order an appetizer. Our party of three suspected that the portions

at The Seventh Inn would be enormous, so we went for small appetizers: a side

salad, steak tartare, and Oysters Rockefeller. At some point the wine

list will arrive: as you might expect from a 34-year-old restaurant with

five-star ambitions, it offers suitable vintages, rather than the too-young

wines which are often the only bottles younger restuarants can source.

Then, before you’ve been given the opportunity to order your main course (I

was planning on getting the swordfish stuffed with snails), the appetizers will

arrive. And they will be huge. Oysters Rockefeller – oysters! –

are a meal in and of themselves, stuffed to overflowing with spinach and bacon

and hollandaise. The steak tartare was a pile of raw beef roughly the size of

a small loaf of bread; on top, for some reason, was an anchovy. The starters

were very good, but far, far too big: we simply couldn’t order a main course

at that point, since it was clear from the size of the first courses that we

were going to have room for maybe 15% of whatever we ordered. So Elsa Barth’s

mouthwatering descriptions notwithstanding, we moved on to dessert and the bill.

Elsa was disappointed, of course, but then again the restaurant does seem to

be set up in such a way that it’s possible to duck out of the whole meal if

you’re astonished, as we were, at the size of your starters. If and when I go

back, I’ll give them a heads-up so they can get some duck, and then I’ll make

sure not to order anything to begin. But I’m sure I’ll leave the same way I

left after my first visit: grinning like an idiot, just like I was all the way

through the meal. I’m not sure why I loved the place so much, but I think it’s

something about the utter lack of irony. I’m sick to death of ironic kitsch,

but non-ironic kitsch, it turns out, if it’s also of halfways-decent

quality, can actually be a lot of fun. And the food is easily the best I’ve

had in St Louis, although admittedly that isn’t saying very much.

In any case, if you do find yourself in St Louis, I heartily recommend The

Seventh Inn. You’ll enjoy yourself immensely, you’ll have really good food,

and you won’t be eating at a chain restaurant. Tell Elsa I sent you.

Restaurant: Max

Meal ordered:

Bottle of house rose

Fennel salad

Lamb ragu

Antipasti:

My fennel salad was lightly dressed with balsamic vinegar. I could easily taste the fennel which had been finely sliced, it was refreshing and cleansed my palate.

Pasta:

The lamb ragu was gorgeous. It was tossed with a flat spaghetti. Definitely a crowd pleaser. My only complaint was that there was too much sauce and meat, which bothered me at Lavagna. The less the cooks smother the pasta with sauce, the more empty plates would return to the kitchen. I could not finish my ragu – and all I had for an

antipasti was fennel!

I must say, food at Max is very satisfying. The food is hearty, but fresh and delicious. Because I was with friends and we were sitting outside, we chose a bottle of rose. My table ordered the ravioli and lasagna – I sampled it as well. Lovely, warm, comfort food. Max is not inventive, but cooks homemade favorites that do not disappoint. My total bill was less than Lavagna – $33 rather than $47. Money well spent.

Restaurant: Il Bagatto

Meal ordered:

Muller Thurgau 2005

Heirloom tomatoes and grilled vegetables

Spaghetti with tomatoes and basil

Antipasti:

Il Bagato’s sampler of antipasti was quite tasty… pickled and grilled veggies followed by our Heirloom tomatoes… these were fresh, but not particularly flavorful.

Pasta:

My spaghetti was not fresh and the tomatoes with basil were nothing special. I wished I had ordered the pork ragu which I kept dipping into… my friend Kerry had wisely chosen something more interesting. But I decided to try something basic from the menu to see if satisfied. My conclusion was no. The pork ragu was definitely a bit better, but even then – the pasta was “imported” and not fresh. Ditto for my spaghetti. Only a couple of items on the menu featured fresh pasta.

Il Bagatto is a neighborhood favorite and East Village staple. I sat down for my meal and it just didn’t hit home. The prociutto in my heirloom tomatoes was melt-in-your-mouth yummy… but that was the only item which stood out except the whine, which was crisp on a warm summer day.

I am officially sick to death of Italian and will take a small break until further notice.

While I’m in St Louis and notblogging, Michelle’s dining in New York and finding time to write foodblogs. Here’s her first:

Right! So my nose has been in Bill Buford’s new book for over a month. My reading is incredibly slow, but I have been savoring every moment. Mr Buford’s writing on cooking in a kitchen, eating, sussing out Italian food gurus, and constantly injuring himself in the kitchen, has got me under his spell.

After texting my friend and making a plan for the evening — I carefully avoided the refrigerator. I was waiting for what I thought was going to be dinner out. My nose in the book, I continued to salivate. PASTA. FRESH PASTA MADE WITH THE PERFECT EGG. PERFECT EGG. Then I really started day dreaming: quails’ eggs, truffles, truffle oil, pasta, eggs… AAAGH!

This is bikini season! I am meant to be hustling my ass on a cardio machine — but all I could think about is the tender, light, lovliness of ribbony “00” flour mixed with egg and water to create the ultimate in carbs… it made me want to pee from excitement.

My date cancelled last minute. My disappointment was so intense that I decided to continue on with my plans regardless. This was totally unlike me, but my cravings lead to the original restaurant I had in mind:

Restaurant: Lavanga

Meal ordered:

Glass of Rioja Crianza 2001

Artichoke heart with white bean puree and cremini mushrooms

Paparadelle with braised rabbit, thyme and moroccan olives

I walked into the restaurant and panicked. It had been so long since dining by myself that I immediately placed myself at the bar. The host was pleasant and set up my dining area. The waitress handed me my menu and seemed uninspired. I reviewed it and asked the waitress if they had any specials, she said no.

Antipasti:

The artichoke was slightly tough — not tender. The beans and mushrooms were delicious, but there was too much to accompany the artichoke, so what I was left with was a rather large plate of bean puree and mushrooms which I sopped up with bread. It was tasty but there was too much on the plate — all that was needed was simple tastes with a tender artichoke heart. Less is more!

Pasta:

The rabbit paparadelle came and I asked the waitress if every pasta on the menu is fresh — she said no, except for the ravioli and paparadelle. I noticed the pasta was light, thin, and beautifully made. It spriraled around my tongue and snapped off my fork at just the right moment — telling me: “I’m fresh!” Again, there was too much rabbit in my dish, and the Morrocan olives overpowered the food. That said, the flavor of the rabbit was wonderful, partly due to being cooked with the olives. I left a pile of olives after finishing my plate. My host said, “I suppose you don’t like olives.” I confidently said, “they added to the rabbit — it was good, but the olives were too salty to eat.” This was true (I was served a bowl of olives while ordering and ate 3… seeing them for a second time during my meal turned me off, my palate sufficiently salted).

Drinking the rest of my wine, I made a promise to myself: if I went to the gym every morning this week — I would treat myself to a local Italian restaurant and find my favorite one. My logic is that I certainy won’t lose any weight — but I won’t gain a pound, and finally suss out a local Italian up to my standards where I could become a regular.

A few months ago, Jack Shafer wrote a story

whose subhed ("Spotting a bogus trend story on Page One of today’s New

York Times") could probably appear quite a few times on his Slate columns.

So I’d like to get in on the act as well: It can’t just be Shafer and Radosh

spotting bogus trends. Let the bogus-trendspotters multiply!

Anyway, here’s

the story. The headline is this:

Surge in Racist Mood Raises Concerns on Eve of World Cup

The story is 1,875 words long, which is surely enough space to actually adduce

some evidence that the "surge" of the headline exists. But I’m sure

it will come as no surprise to Shafer that the author, Jere Longman, never quite

gets around to that.

He’s good at following the standard bogus-trend template, though. He starts

off with two anecdotes, showing the problem. Then comes the nut graf:

International soccer has been plagued for years by violence among fans, including

racial incidents. But FIFA, soccer’s Zurich-based world governing body, said

there has been a recent surge in discriminatory behavior toward blacks by

fans and other players, an escalation that has dovetailed with the signing

of more players from Africa and Latin America by elite European clubs.

Did FIFA really talk about "a recent surge in discriminatory behavior"?

Did it, perhaps, characterise the extent of that "surge"? Has there,

in fact, been a marked increase in Latin and African players in European leagues

of late? Longman has no time for such practicalities, since according to the

hard and fast rules of bogus trend stories, the next graf is where he needs

to put his news hook:

This "deplorable trend," as FIFA has called it, now threatens to

embarrass the sport on its grandest stage, the World Cup, which opens June

9 for a monthlong run in 12 cities around Germany. More than 30 billion cumulative

television viewers are expected to watch part of the competition…

I’ll leave it to Radosh to debunk the "30 billion" figure, since

he did such

a good job with the Oscars. But even Longman feels the need to backpedal

on the World Cup aspect of his story just a couple of paragraphs later (although

after the jump to an entirely different section of the newspaper):

Experts and players also said they believed the racist behavior would be

more constrained at the World Cup than it was during play in various domestic

leagues around Europe, because of increased security, the international makeup

of the crowds, higher ticket prices and a sense that spectators would be generally

well behaved on soccer’s grandest stage.

So which is it to be, Jere? A surge of racism which threatens to embarrass

the sport of soccer, or a sense that spectators will be generally well behaved?

Of course, this is a bogus trend story, so we need to get anonymous "experts"

in it, preferably saying the blindingly obvious:

Racist behavior at soccer matches is primarily displayed by men and is fueled

by several factors, according to experts…

But Longman fails the bogus-trend template in that he doesn’t manage to quote

even a single anonymous "expert" in support of his main thesis, that

racism in soccer is getting worse.

He quotes Kurt Wachter of Football Against Racism in Europe saying that "we

will see some things we’re used to seeing". He talks a lot about the extent

of racism in Germany more generally, and what politicians are doing about it.

And of course he mentions the war, with a very weird verb formation:

The German government has intended to confront its Nazi past while preaching

openness and tolerance.

No, I have no idea what this means, or what it has to do with racism in soccer.

In fact, most of second two-thirds of the article seems very confused, to the

extent that one wonders if Longman himself actually believes in his own bogus

trend:

The Bundesliga in Germany is one of the world’s top professional soccer leagues,

and has not experienced widespread racism.

So if there’s no widespread racism in the Bundesliga, why is Longman so worried

it will turn up during the World Cup? Remember that earlier on in the article

he was predicting all manner of horrors:

Players and antiracism experts said they expected offensive behavior during

the tournament, including monkey-like chanting; derisive singing; the hanging

of banners that reflect neofascist and racist beliefs; and perhaps the tossing

of bananas or banana peels, all familiar occurrences during matches in Spain,

Italy, eastern Germany and eastern Europe.

But when he gets around to quoting a black member of the German team, he ends

up going back a decade to support his thesis. Even then, the match in question

was not an international match, but a club match about as deep into the former

East Germany as it is possible to get:

Gerald Asamoah, a forward on Germany’s World Cup team and a native of Ghana,

has been recounting an incident in the 1990’s when he was pelted with bananas

before a club match in Cottbus.

In fact, in the entire article, Longman comes up with not a single example

of racist behaviour during an international match, although that doesn’t prevent

him from speculating at length on the sanctions that FIFA may or may not apply

should such behaviour occur this year.

The New York Times, like the rest of the world’s media, is only just starting

on its World Cup coverage, so we have no idea whether this story is a harbinger

of how future reporting is going to turn out. But it’s pretty horrible that

the first World Cup story to hit the front page should be an ill-sourced bogus

trend story about a "surge" in racism which almost certainly doesn’t

exist.

There’s one thing we can all take comfort in, however: the New York Times will

never pass up an opportunity to demonstrate that it knows nothing about soccer.

This in the second paragraph:

Then, as he went to throw the ball inbounds, Onyewu said a fan of the opposing

team reached over a barrier and punched him in the face.

As he went to throw the ball inbounds? Sigh. That’s basketball,

Jere.

A man walks into a widget shop with the intention of buying a widget. He picks

out a nice widget for $100, but just as he’s about to take it to the counter

to pay for it, he gets an urgent phone call and rushes out of the shop, which

has a 30% profit margin on its widgets. The question is: How much has the shop

lost because of the phone call?

a) The shop has lost nothing. A man walked in, a man walked out. Where’s the

loss?

b) The shop has lost $30: the profit it would have made on the sale of the widget.

c) The shop has lost $100: the amount of money it would have received had the

man not received the phone call.

I’m inclined to go with (a) on this one. But let’s say that the shop starts

seeing a pattern: people walk in and always seem to get urgent phone calls just

before they buy their widgets. The manager of the shop calls me up, and says

"we’re losing thousands of dollars a month because of these urgent phone

calls". I can see that, too.

As long as this kind of mathematics stays on the anecdotal level, none of it

really matters. But when corporations spend millions of dollars to work out

exactly what they’re "losing", and newspapers write long articles

on the subject, then it’s worth revisiting the question of what losses, really,

are.

In case you haven’t worked out where I’m going with this, it’s my favourite

subject: counterfeiting. Today’s question (or yesterday’s, actually: we’ll get

to that in a minute) is this: if a Zippo lighter costs $25, and a counterfeiter

sells a fake Zippo for 37 cents, how much has Zippo lost?

a) Nothing. If it’s not there on the P&L, it’s not a loss.

b) $25.

c) $25 muliplied by p, where p is the probability that the

person buying the counterfeit Zippo would have bought a real Zippo were the

counterfeit Zippo not available.

d) The answer from (c), multiplied by the profit margin on a $25 Zippo. Or,

to put it another way: if Zippo makes $10 in profit on every $25 lighter, then

$10 multiplied by p.

Which brings us to yesterday’s news: two big articles fronting the Marketplace

section of the Wall Street Journal. I don’t have an online subscription, but

here’s

a link that Google says leads to a story entitled "China Policy Lets Counterfeiters

Off Lightly", and here’s

a link to the other article, entitled "Estimates of Copyright Piracy Losses

Vary Widely".

Let’s take the second article first. "Counting the losses from piracy

isn’t a science – it’s an art," says Geoffrey Fowler, who even quotes

Keith Jopling, at the International Federation of the Phonographic Industry,

saying that "we will never know 100% the exact loss". Fowler’s article

is reasonably fair: it even makes the point that some people who download music

illegally actually buy more money on legitimate music as a result.

As Sasha Frere-Jones points

out in last week’s New Yorker,

The Arctic Monkeys built their audience by playing live shows—constantly,

all over England—and by giving away its songs as MP3s on Myspace.com.

When their remarkable album, “Whatever People Say I Am, That’s

What I’m Not,” was released, in January, it sold more than three

hundred and fifty thousand copies in the first week, making it the fastest-selling

début in British history. (So much for the idea that giving away your

music hurts sales.)

Still, there’s a difference between an artist using the internet to market

their work, and a counterfeiter selling bootleg CDs. In the latter case, a criminal

is making money from selling intellectual property which he doesn’t own. But

it’s the next logical step which gives me pause: the idea that if a criminal

is making money, then somebody else must be losing money.

Theft of IP is theft, by this logic, and if you steal something from someone,

then they lose something of value.

In the case of IP, however, the owner of the IP remains the owner of the IP

even after it’s been stolen. It’s not like anybody ever steals a copyright.

So I’m not convinced that the sale of a counterfeit Zippo, or the sale of a

bootleg CD, actually causes any measurable loss at all to Zippo or to EMI.

And that’s where Fowler’s article is weak: he implies that the uncertainty

about losses due to piracy is epistemological rather than ontological. The only

question, in his mind, is over how big they are, not whether or not they exist.

But to give you an idea of how meaningless most of these numbers are, let’s

say that the MPAA is right when it reports that Hollywood studios collectively

lose $6.1 billion per year to piracy. What does that mean?

a) If there weren’t any piracy, then the profits of Hollywood studios would

be $6.1 billion greater than they are now.

b) If there weren’t any piracy, then the gross revenues of Hollywood studios

would be $6.1 billion greater than they are now.

Judging by Fowler’s article, it’s the latter: he notes at one point that "not

every pirated disc equates to lost revenue". So what would $6.1

billion in lost revenue equate to in terms of lost profit? Now there’s

an unanswerable question. But let’s use Disney’s profit margin of 8.22%: it

works out at almost exactly $500 million, which, divided among all the Hollywood

studios, seems a big but hardly enormous number. Is this really the statistic

that some studios were afraid of releasing for fear that its magnitude was so

great it might spook the markets?

And then there’s this very silly bit near the end of the article:

The Business Software Alliance’s Asia regional director, Jeff Hardee, says

the group’s studies show a nearly one-to-one ratio between decreases in piracy

and increases in legitimate sales, suggesting that, on average, people are

willing to "replace" pirate software with the real thing.

Which sounds very impressive until you stop to wonder what these "decreases

in piracy" are, and how they might be measured. It turns out that the BSA

measures piracy by a very simple method: take the retail value of all the software

installed on all the computers in the world, subtract total global software

sales, and the rest is piracy. Now I very much doubt that there’s any market

in the world which has seen the total value of software installed ever go down.

Which means that if the BSA measures a decrease in piracy, then the only way

that’s going to happen is if legitimate sales rise. No wonder there’s "a

nearly one-to-one ratio between decreases in piracy and increases in legitimate

sales"!

Now, let’s return to those Zippos, as reported by Nicholas Zamiska. The story

is this: Chinese authorities raided a factory which turned out to have 32,980

fake Zippo lighters. Here’s Zamiska:

The problem stems from the way China values seized knockoffs. Unlike many

wealthier countries, China values them at the price the counterfeiter meant

to sell them at, not at the retail price that legitimate versions go for.

Yes, that’s "the problem".

To be fair, Zamiska does report both sides of the story. He gives the Chinese

view, which seems sensible to me:

Chinese courts have defended the practice by arguing that valuing seized

goods at the prices they would fetch in developed countries would grossly

distort penalties for counterfeiters, who stand to make a pittance in comparison.

At a news conference in April, Xiong Xuan Gao, the vice president of China’s

Supreme People’s Court, brought up an example of counterfeit watches, pointing

out that even though a genuine luxury watch might be worth more than $12,500,

the vendor sells it for only about $1.25.

"The sentence of conviction and criminal punishment should be measured

by the real profits he has made for himself, from the viewpoint of social

harmfulness," Mr Xiong said, according to an official media report. "On

one hand, we should make more efforts on cracking down on the infringing upon

intellectual property rights; on the other hand, we also need to be fair on

the suspects and protect their own rights."

The main thrust of the article, however, is that this policy is extremely misguided

and harmful.

My view is that China, with its weak IP laws, is actually much better placed

to be an economic powerhouse in the 21st Century than economies which stifle

innovation with draconian copyright laws. The Zippo lighter is a design icon

because of its beauty and simplicity – in that respect it’s very similar

to the Noguchi table which

I’ve blogged about in the past. We live in a world where great simple design

can and will be brought to the masses cheaply. The successful companies of the

future will be the ones who embrace that fact; the failures will be those who

litigate against it. Law might be on their side, but history will not be.

Liberty Park is

back, and much better looking than it was, it must be said. (I know Liberty

Park is not its official name. But I’m sure it will no more be called Zuccotti

Park than Sixth Avenue is called Avenue of the Americas, or the West Side Highway

is called Joe DiMaggio Highway.)

Judging by the

photos up at Curbed, the chess players are back as well. But the real question

is whether the backgammon players will return. They left after September 11,

of course, and eventually found a new, more central venue: Bryant Park.Will

they desert midtown and its magnificent

conveniences for the memories of the windswept Liberty Park of old? In the

years before September 11, Wall Street would regularly face off against the

semiprofessional backgammon hustlers, sometimes for very large stakes indeed.

Bryant Park is probably nicer, but I suspect the pickings are better downtown.

John T Unger left a comment on my

last blog about how art makes

a terrible investment. No it doesn’t, he said:

I’ve found that art makes a great *short-term* investment. I buy what I like,

because I want to hang it, but with limited wall space I’ve often ended up selling

older work from my collection to finance and make room for newer work. So far

I’ve always enjoyed about a 400% profit or better on work sold within the first

3-4 years.

I needed to know more. So I asked, and he answered:

I make a full time living as an artist myself, but on occasion I’ve sold

or repped work by other artists to make ends meet. I tend to think back on

the story of Marcel DuChamp supporting himself during his supposed retirement

by selling Brancusi’s sculptures. For me, it’s not so much about the investment

as it is a contingency fund, but on the other hand I’ve always turned a hefty

profit when I have sold others’ work.

Because I’m in the scene (and stick to the ones I’m in), I have a fair idea

of whose star is rising, who’s being heavily promoted, which collectors are

buying what and so on. I’m in the Midwest, so most of the time the prices

are at best in the thousands rather than tens of thousands. But hey, if you

can turn $500 into $2000 without doing any real work it’s not bad. I’m playing

the market on a relatively small scale, but I suppose if I bought in greater

quantity it could be a real income.

A typical example would be four nicho sculptures I bought at an art event

by a Mexican artist who goes by Marcos. I bought the set of four for $550,

sold one for $600 a few years later and see his work bringing $1500 at Chicago’s

Ann Nathan Gallery now. Some of the sequined Haitian Vodoun flags I bought

for $200 to $400 now sell well at $1200 and up.

I mostly buy three types of work: outsider/self taught, "emerging"

artists (usually people in my own circle) and modern ethnographic art, focused

mostly on Haitian or African work. I also buy work with heavy recycled content

and some craft or design items if they’re exceptional in quality. Most of

the time I don’t expect those to appreciate in value, but it has happened

with limited run or unique pieces by artists or designers who’ve become well

known.

The emerging artists I buy are often purchased directly from the artist, though

it’s not infrequent that I’ll be dropping my own work off at a gallery and

see something I really want. On occasion, I’ll trade my own work to either

the artist or the gallery. When I lived in Chicago, I was in Pilsen, a neighborhood

that was home at the time to several hundred practicing artists at various

stages in their careers. That gave me a great opportunity to see work before

the public had a chance to view it and pick the winners. I sometimes now buy

art online, usually after seeing it reviewed in a blog. I also sometimes pick

up some of the ethnographic or craft items at festivals. In all the above

cases, my selection criteria is chiefly about liking the work or seeing something

that seems new or interesting. A few of the friends who I routinely buy work

from are also artists I promote to other collectors and galleries.

The Ethnographic pieces mostly come from curators I know who buy and import

it. Again, the advantage is being able to see the work before it reaches the

market. One of the best collectors of my own work has been Marilyn Houlberg,

who curated the Sacred Arts of Haitian Vodou exhibit.

Not only does she have access to the best contemporary flag artists in Haiti,

but she also has a pretty heavy influence on which become most successful

and coveted… so, a lot of the work I bought from her over the years

appreciated well.

Most of the work I’ve sold went to collectors I know or other artists. Sometimes

I consign work through galleries or dealers I’ve shown with or bought from

in the past. Generally, I try to sell work directly to avoid commission fees.

Every now and then, someone will drop by the studio to look at my work and

express interest in buying something from my collection. Sometimes I sell,

sometimes no.

What really works for me about re-selling work is that as my tastes change

over time, I can keep the collection fresh while constantly upscaling the

work. When something sells at higher price than I paid, it’s easier to buy

work that I couldn’t previously afford.

Actually, I used to do the same thing with books when I was a writer. I had

a good idea of the market, so I’d pick up books that were undervalued and

later re-sell them to buy first editions, etc.

I’m not 100% sure if my basic strategies would work for everyone or not. A

big part of what allows me to buy good work is that I have a behind the scenes

pass with both artists and galleries. On the other hand, the strongest part

is definitely knowing the market and having a good eye. After all, there’s

way more stuff I didn’t buy than that I did.

I replied with this:

It’s great you can do this and make a profit – but isn’t what you’re

doing here basically acting as a private art dealer? Most of the time, you’re

buying privately and you’re selling privately. And I don’t think anybody disputes

that art dealers can make money. Crucially, you have quite a lot of access to

art buyers – something that most people simply don’t: isn’t that even

more important, in many ways, than your backstage pass with galleries and artists?

With a bit of effort, anybody can cultivate galleries and artists. But finding

people to sell to: that’s where most people would come up blank.

There’s a long tradition of underpaid workers at auction houses, for instance,

supplementing their income by doing private art dealing on the side. And I suppose

you could say that art dealing is the same as "short-term investing".

But the difference in my mind is that in the former case you’re building

a market, while in the second case you’re simply buying and selling in a pre-existing

market. Which is why I suspect that given the distinction between a dealer and

a collector/investor, you’re more the former than the latter.

Or am I wrong here?

John wrote back:

It’s an interesting distinction you raise… I certainly never thought

of myself as a dealer before.

Although I have a good nose for deals and sometimes get a bit of a discount,

I’m still paying pretty much retail price for most work. Or at least, I’m

certainly not getting the work at wholesale/dealer prices. I feel the access

I have to unseen work helps me to get better quality pieces, but it doesn’t

necessarily get me a significantly better price. And when I consign pieces

to galleries for sale, I still have to pay them their standard commission.

I would think that this is more likely the deciding line between collector/dealer

than access to buyers, no?

Most of the collectors I know have a tendency to swap work out just as I do

over time. Many of the outsider and ethnographic buyers/collectors tend to

run in the same social circuits and often trade amongst themselves. I think

it’s part of the collecting sickness that they’re always looking for more,

new, better work. It’s incessant. There aren’t enough venues for acquisition

so they cannibalize each other’s collections. Seems like you’d see the same

behavior in comic collectors or any other obsessive collector culture.

Making successful short term investments in art probably requires very similar

qualities to blogging, actually. You have to be passionate about what you’re

buying. It helps to specialize in a niche that you can become expert in. It

helps to know people, and if you don’t, to get out and meet them. Finding

things first and then promoting them to other interested parties is good strategy.

It doesn’t hurt to have an outgoing, upbeat personality. etc.

As far as finding buyers for art, you have a point that not everyone would

know where to look. But my access to buyers is something that I cultivate

more to sell my own work than for the purpose of resale from the collection.

My access to the market for reselling art really was a result of my access

to the community surrounding specific art in a specific area. I knew the young

up and comers, their dealers, some collectors, and had a good in with a bunch

of importers for the ethno stuff who all knew each other. Art is a small town,

even in any city, right? You get to know the players and then you can get

in the game.

I think that if someone were to approach short term art resale as a significant

investment strategy, getting into the community and researching who buys what

would be part of the due diligence type work you’d do for any investment.

So there you have it: art can be a good investment. But you need to

be pretty serious about it, and invest a lot of time in the art community, for

it to be so. I, on the other hand, generally can’t stand the art community,

and I’m very happy never go to openings and never to meet any artists or dealers

or curators. I guess I’d make a dreadful art investor.

Dad blogs

about the TV going away; Mum blogs

about the TV coming back. Apparently it was necessary for the World Cup,

which means the grown-ups caved before the kids forced them to. Are there no

pubs in Berkeley?

I do have a television, which is connected to a DVD player, but it’s not connected

to any TV. Which is fine by me. Watched Out

of Sight on DVD tonight. It’s kinda perfect, judged on it own merits. If

I ran a rep cinema, I’d screen it as a double feature with Ghost

Dog.

Eater has

it half right: the amazing, wonderful, fabulous, incredible, delicious Snack

Dragon Taco Shack on Avenue B and 3rd Street is no longer. The Taco Shack is

dead; long live the Taco Shack!

For yes, the Snack Dragon Taco Shack has been reborn, sexier than ever, in…

wait for it… Coney Island!

And there are plans afoot to relocate the Avenue B Shack, possibly as nearby

as across the street.

Why did the old Shack close? Yes, it did get some grief from the city, but

that was being worked out. The real reason is that the owner of the building

decided she didn’t want it there, and threatened to close down Ben’s Deli if

he didn’t evict the Shack from the premises. It’s all very sad.

Things have come to a pretty pass when Apple’s entry-level laptop (which doesn’t

even officially support Final Cut Pro and runs it in a slowed-down simulation

mode) handily

beats a dual-processor G5 desktop machine running Final Cut Pro natively.

Me, I don’t have a dual-processor G5. Nothing close. I have a single-processor

G4, which has been through the wars somewhat and is beginning to show its age.

Over the weekend, it started making nasty clicking noises and crashing, which

was a bit disconcerting. I thought about replacing it with a Mac Mini and an

external hard drive, but I don’t trust external hard drives for day-to-day work,

and in any case there’s always an annoying lag when you want something off one

and the computer has to tell the hard drive to start up again.

In the short term, I managed to fix most of the problem much more cheaply,

by buying a $9.99 can of air at my local hardware store, opening up my G4 (one

of the great things about the G4, how easily it opens up), and giving it a good

spray. No more crashes or clicking. But it still slows down especially when

I have my RSS reader open, which is a bit of a usage hog. And my scratch disk,

where I keep my pictures and music, is rapidly approaching capacity.

So in the medium term I fully expect and intend to get myself a new desktop

computer. But it certainly seems silly to get a G5, which is pretty much obsolete

already, the eye-popping

price tags notwithstanding. And if OS 10.5 Leopard comes out at WWDC in

August, then I should definitely wait until then. The question is: will Steve

Jobs finally round out the Apple product line and replace the G5 with an Intel

machine in August? And if not, how long are we going to have to wait for these

things to come out?

What’s happened to the legendary fact-checkers and copy-editing at the New Yorker? Flicking through this week’s issue, I first stumbled across a reference to USAID in a piece on telenovelas by Hanna Rosin. Now the New Yorker has a thing about acronyms: if you spell them out letter by letter, you put them in uppercase with full stops after each letter: U.S.A. But if they’re acronyms proper, and pronounced as words, as in Aids for instance, you put them in small caps. (I’m not even going to try to get small caps to work in HTML, you’ll have to imagine it.)

In the New Yorker this week, we get a complete abomination: U.S. is in uppercase, and then there’s a space, and then AID is in small caps. I see no justification for the space; the only conceivable justification for the small caps is that the name of the agency is pronounced “US Aid”.

But it isn’t. USAID is pronounced U-S-A-I-D. And so the New Yorker should have written it, New Yorker-style, U.S.A.I.D.

Shaken by this uncharacteristic lapse, we then flick further on, to the long and uninformative profile of Howard Stringer, the CEO of Sony. What do we find?

With none of Sony’s productions values, Bill Gates, the C.E.O. of Microsoft, had held forth on the same stage for an hour and a half, and his off-the-cuff responses to questions from the audience were received as if he were Yoda or the chairman of the Fed.

Notice the major cockup there? It’s the C.E.O. part, of course. The full stops are in all the right places, but, er, Bill Gates isn’t the CEO of Microsoft, he hasn’t been for over six years, and he certainly wasn’t CEO when he gave the January 2006 speech in Las Vegas that Mark Singer is writing about. Given that a major theme of Singer’s article is the competition between Sony (Playstation) and Microsoft (XBox), one would think that he could get their respective CEOs right.

Let’s say there’s a virtually unregulated business, open to all comers in the

private sector, in which a state-owned company, which receives subsidies from

the state, competes. We all know that state-owned companies are pretty inefficient,

so the private sector is likely to enter the competitive fray anyway. But once

it does, it’s a bit rich to then start complaining about how unfair it is that

the private sector has to compete with that state-owned operator.

But complain the private sector does, at

great length, especially when the British parliament is about to decide

on the rate of increase of the BBC license fee. If you want to see every "whingeing

Pom" stereotype confirmed, just read that article. Look what you find:

The BBC is experimenting with ultra-local TV reports, where areas with a population

of about 1 million get a 10-minute news report each day. Apparently, if this

takes off, then local radio stations and local newspapers will go bust, and

it will all be the fault of the BBC.

The BBC is working on its website. This could kill the internet, at least according

to Jon Gisby, media vice-president for Yahoo Europe, who says:

If implemented, the BBC’s proposals could have a big impact on products

that are already commercially available and could stifle innovation and prevent

new business models and partnerships emerging in an increasingly global market.

And the list goes on. Condé Nast complains about the BBC’s magazines.

Commercial radio stations complain about BBC radio. Music labels complain about

the BBC offering music on the BBC website. And Philippe Cayla, the chairman

of commercial TV operation Euro News, complains about BBC World:

Our view is that the BBC would do better for its licence-fee payers if it

went into partnership with Euro News rather than tried to develop BBC World

any further, especially in Europe. It would be far cheaper, and would avoid

unnecessary competition.

Ah yes. Competition is a bad thing, and should be allowed only if strictly

necessary. So remind me why Euro News is allowed to operate again?

The BBC is one of the things that Britain does really well, and its website,

in particular, is excellent. If the BBC owns an orchestra – in fact it

owns quite a few – then it makes all the sense in the world to promote

classical music by offering free downloads now and then. This is good

for the classical music industry. But of course one shouldn’t take anything

in the article at face value, since it appears in a Murdoch paper, and Rupert

Murdoch, the owner of BSkyB, is the BBC’s biggest competitor. All’s fair in

media and competition, I guess.

So Californian wines are

still the best, say the experts. That’s good news for those of us on budgets.

As Mike Steinberger notes,

This new Judgment of Paris comes at a time when a large segment of the French

wine industry is mired in crisis—a crisis that might have been mitigated

had the French not ignored the message of the first Judgment of Paris. France

is currently sitting on an ocean of unsold wine, a glut that has led to a

collapse in prices at the cheaper end of the spectrum.

When I started buying wine on a regular basis, 15 years ago, it almost never

occurred to me to buy anything French. Australia, of course. Italy, Spain, perhaps.

Argentina, South Africa, New Zealand? No problem. But French was overpriced

and fuddy-duddy and basically only good for Champagne.

When I moved to America in 1997, nothing really changed, although writing about

Latin America for a living was partly responsible for a large uptick in the

amount of Argentine and Chilean wine I bought, and occasional visits to northern

California only served to reinforce my opinion that the wines there are insanely

overpriced and that the average $8 Chilean cabernet will easily beat the average

$24 Napa cabernet.

Evidently, I was not alone in ignoring France: the French share of the American

market for imported wines fell from 26% in 1994 to 14% in 2004, according to

Steinberger.

But over the past year or so, I’ve been discovering more and more excellent,

cheap French wines. While the New World wines have slowly been creeping up in

price, French wines have got much cheaper, to the point at which they’re actually

now better value than many of their austral competitors. Not long ago I bought

a case of Les Grès de la Baronne 2001, a Vin de Pays de Hauterives, whatever

that might be. I can’t recall exactly what I paid for it, but I know it was

less than $50. Yes, for the case. And it’s delicious. I have no idea where it

comes from (except for that it’s in France somewhere), or what grape varieties

might be in it. All I know is that it’s a table wine which is probably ever

so slightly past its prime, and if I didn’t pay $4 a bottle for it then it would

probably end up with 100 million liters of other French wine, being converted

to ethanol.

Basically, there’s an enormous sale on, with wines being sold below cost, and

we consumers are the beneficiaries. So next time you’re in your local wine merchant’s,

take another look at the France section, and try something new and different.

You’ll probably be shocked at how much bang you get for your buck.

I can’t make head nor tail of the Senate

immigration bill. It’s incredibly long, incredibly complicated, and full

of references to other bills, making it to all intents and purposes incomprehensible.

So I have no idea what I think of it.

But in among the amendments and additions, it’s good to see that someone in

the Senate was keeping their priorities straight. Of all the occupations one

might expect to see singled out for special attention, I have to say I wouldn’t

have expected fashion model to be high up the list. But here it is:

SEC. 402. NONIMMIGRANT TEMPORARY WORKER.

(a) Temporary Worker Category- Section 101(a)(15)(H) (8 U.S.C. 1101(a)(15)(H))

is amended to read as follows:

`(H) an alien–

`(i)(b) subject to section 212(j)(2)–

`(aa) who is coming temporarily to the United States to perform

services (other than services described in clause (ii)(a) or subparagraph

(O) or (P)) in a specialty occupation described in section 214(i)(1)

or as a fashion model;

`(bb) who meets the requirements for the occupation specified

in section 214(i)(2) or, in the case of a fashion model,

is of distinguished merit and ability;

Unfortunately, since I’m not familiar with Section 101(a)(15)(H) (8 U.S.C.

1101(a)(15)(H)), I don’t know what fashion models might now be able to do that

they weren’t able to do in the past. But I do look forward to reading the jurisprudence

on the subject of whether a fashion model "is of distinguished merit and

ability".

Hedge fund managers and investors in hedge funds are generally very smart and

very sophisticated. They like to talk a lot about risk-adjusted returns, and

especially about "alpha" and "beta" – central components

of the Capital Asset Pricing Model. And yet, after all that highfalutin’ talk,

the way that hedge fund managers are paid is very unsophisticated indeed. There’s

no risk adjustment there: just a percentage of the funds under management, and

a percentage of the raw profits.

It’s easy, if you’re a hedge fund, to bump up returns a lot using simple leverage.

Let’s say I think the S&P is going up, and I want to invest $1,000 so that

it returns more than the S&P. All I have to do is borrow $1,000 from the

bank, add it to the $1,000 that I have in cash, and invest $2,000 in an S&P

500 index fund. At the end of the year, let’s say the index has gone up 10%,

so my $2,000 has become $2,200. I pay off my bank loan – let’s say I borrowed

at 4%, so that’s $1,040 – and have $1,160 left: a 16% return on my original

$1,000.

Now let’s say that rather than going through that operation myself, I hired

a hedge fund manager to do it for me. I’d pay him 2% of the $1,000 – that’s

$20 – and another 20% of the $160 profits – that’s $32. So the total

fees would be $52, leaving me with $1,108. If I’d invested in the S&P 500

directly, I’d only have $1,100, so even after fees, I can tell all my friends

that my hedge fund manager has beat the market.

Of course, there’s no reason why my hedge fund manager should stop at borrowing

just one dollar for every dollar he invests. Let’s say he takes my $1,000, borrows

$4,000, and invests $5,000 in index funds. At the end of the year, he’s made

$500 in profits, and has paid $160 in interest, leaving him with a $340 or 34%

return. His investors pay fees of $20 plus $68 for every $1,000 they invest,

leaving them with total profits of $340 – $88 = $252, or more than 25%.

Whee!

In the real world, hedge funds, and their investors, are much more sophisticated

than that. They know the difference between smart investing and leveraged investing,

and they measure that difference using their beloved alpha and beta. Alpha is

an attempt to measure how smart an investor is: to work out what his returns

are after taking into account the riskiness of his investment portfolio. Beta

is simply the riskiness of the portfolio.

In my examples, the S&P 500 has a beta of 1, or 100%; the first hedge fund

manager has a beta of 2, or 200%; and the second hedge fund manager has a beta

of 5, or 500%. The riskier and more volatile the assets you’re investing in,

the higher their beta. And, of course, as you increase your leverage, you increase

your beta proportionately. What hedge fund managers are looking for is alpha,

which is return over and above whatever the beta of their portfolio

might be. So if the beta of your portfolio is one, and you manage to do better

than the S&P 500, then you’re a smart investor with positive alpha. In my

cases above, the hedge fund managers might have managed to beat the S&P

500, but they did so by increasing their beta and decreasing their alpha. In

fact, their alpha in both cases is negative.

Hedge funds, then, are always on the lookout for ways to increase their alpha.

One way to do that is to get high returns; another way to do that is to decrease

your beta. If one manager manages to get a 16% return with a beta of 110%, and

other manager gets that 16% return with a beta of 85%, then the second manager

has a much higher alpha, or risk-adjusted return, and is likely to be much more

popular with investors.

At the end of the year, however, the fees that those two hedge fund managers

charge to their investors will be identical. Hedge fund managers might spend

their lives chasing alpha, but that’s not what their pay is tied to. Their pay

is simply tied to total return.

This, I think, is the point that Jenny Anderson was trying to make in her

column on Friday. Jenny is an excellent reporter, as I said

on Tuesday. She covers the hedge fund beat for the New York Times, she has

great sources, and she’s generally dead-on in knowing who’s bullshitting her

and who isn’t. The broad thrust of her column is quite right. But the substance

of it is way off base: in order to make a perfectly valid point, she uses all

manner of erroneous arguments.

Firstly, she doesn’t seem to really understand alpha and beta: a problem, when

the headline on the column is "Hey, You Have a Problem Paying Alpha Fees

and Getting Beta Returns?". Here’s the meat of her argument:

Where are the "alpha" generators, those that are supposed to create

performance above the market? (Market returns are called beta.) From May 1

through May 19, the Standard & Poor’s 500-stock index dropped 2.9 percent.

… The GLG European Long-Short fund fell 5.13 percent through May 19, posting

a 13.70 percent gain for the year. …

To be fair, one month of data is not an indication of how closely a fund is

tied to a particular market or how that fund will perform for the year. Any

number of things can happen to turn around the performance. But the question

that many investors should be asking is: Am I getting alpha or beta? And if

the answer is beta, why the high fees?

Simply put, hedge funds that claim they are not correlated to the markets

should not be correlated to the market. In bull markets, investors do not

question correlation.

There is a lot of very confused logic here. Firstly, alpha is not the same

as "performance above the market," as we’ve seen: you can have performance

well above the market, but if your beta is high enough then your alpha can still

be negative. And beta is not a measure of "market returns": it’s a

measure of risk, or volatility. Anderson seems to be assuming here that all

hedge funds have a beta of one, before rephrasing her assumption, mildly garbling

it in the process, and then giving it to us as a definition of beta.

Anderson then spends a lot of space (I snipped out most of this) running down

a list of hedge funds and looking at how they performed over the period May

1 to May 19. What on earth is this supposed to prove? For starters, we have

no idea of these hedge funds are representative of hedge funds as a whole, or

if Anderson picked them precisely because they fell significantly in

that short time. But in any case, what point, exactly, is she trying to make

when she says that the GLG European Long-Short fund is down 5.13% in May so

far but up 13.7% over 2006 as a whole? And why is she comparing a European fund

to the performance of the S&P 500?

Looking at various hedge funds’ performance over a period of three weeks will

tell you absolutely nothing: most smart investors won’t even look at a fund

manager until he can demonstrate his performance over three years at

the minimum. Hedge funds are difficult to get in to and difficult to get out

of: the people who invest in them do so for the medium to long term. Looking

at short-term performance is something that market analysts do in order to get

a feel for where hedge fund money might be positioned. It is a very silly way

of judging hedge fund managers. Anderson admits as much with her "to be

fair" sentence, but if she really believed it, she wouldn’t have spent

the previous two paragraphs detailing a series of short-term returns.

Anderson is quite right that investors should be asking whether they’re getting

alpha or beta: whether their funds’ returns are positive, on a risk-adjusted

basis, or whether they’re simply following the market as a whole. But this isn’t

news to any investor, or to any hedge fund. While fees might be tied to total

return rather than alpha, investors tend to pull their money out of any fund

whose beta is higher than the return that they’re getting. When hedge funds

report their performance to their investors, they tend to emphasize risk-adjusted

returns over nominal returns for precisely that reason.

And none of this has anything to do with correlation. Yes, Anderson is trivially

correct that "hedge funds that claim they are not correlated to the markets

should not be correlated to the market". But neither alpha nor beta is

related to market correlation. In fact, Anderson implies that "hedge funds

that claim they are not correlated to the markets" are exactly the same

as "the ‘alpha’ generators, those that are supposed to create performance

above the market". But of course that’s impossible: if you’re not correlated

to the market, you can’t promise above-market returns.

I once wrote a profile of a large, conservative hedge fund called Elliott Associates,

which is very much one of those funds which claims that it is not correlated

to the market. The idea is to get consistent good-but-not-spectacular returns,

no matter whether the stock market is going up or down or sideways, and to do

so with a lower risk than the S&P 500 to boot. Elliott definitely promises

alpha, but it never promises to beat the market. If Elliott returns 20% with

low beta in a year when the S&P 500 returns 30% with high beta, then Elliott’s

managers will be happy. Over the long term, Elliott has outperformed the S&P

500, but not by an enormous amount: the really impressive numbers emerge when

you look at its risk-adjusted returns, since it managed to outperform the market

while taking on substantially less risk than someone who simply invested in

the market as a whole.

Anderson, on the other hand, concentrates in her column on "emerging-market,

commodity, small- and mid-cap and currency funds": hedge funds which are

specifically designed to give investors exposure to emerging markets,

commodities, etc. If I invested in Elliott Associates and it underperformed

the S&P 500 in a good year for US equities, I wouldn’t be upset, since no

one invests in Elliott Associates in order to get exposure to US equities. On

the other hand, if I invested in an emerging-market fund and it did badly in

a year which was good for emerging markets, I would be upset: investors

in such funds want correlation with those asset classes.

When hedge fund managers or investors finish reading Anderson’s column, then,

they’re likely to have less respect for Anderson personally, and for the New

York Times business section generally, than they did at the beginning. And that’s

bad for both franchises. The Times wants desperately to be taken seriously in

the financial world, and "added-value" columns like Anderson’s are

a large part of that effort. But it’s worth noting that the Wall Street Journal,

the gold standard of daily financial journalism, has precious little in the

way of journalist-written commentary. Opinion is cheap; news is expensive. If

the Times continues to emphasize the former in its own pages while outsourcing

the latter on its website, it will never join the likes of the Journal or Bloomberg

News as a respected source of financial information.