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Archive for September, 2009

A Quick Note on Stock Valuations

I didn’t have any better place to go into this, so I though I’d make this post here.  I’m a follower of Steve Keens’ blog, written generally by a guy who is a Post-Keynsian and has been working to adapt Hyman Minsky‘s Financial Instability Hypothesis into mathematical models and generate a better, general economic theory.  His latest post included an essay by a thinker in the “Modern Monetarist Theory” – “Chartalism” – which laid out the fundamentals of Chartalism.  It was an interesting write-up, letting me know that I certainly was not the first to realize that government issue currency received its value by being acceptable (the only acceptable, in the case of the US) as payment for tax liability.

That blog led me to the author of the essay’s blog, whose latest entry was…about the debate spawned by his essay on Steve Keen’s blog.  I went ahead and read his responses to various comments there, and commented myself on his blog (a rare event for me).  Since I was now somewhat vested in the conversation which ensued from his blog, I continued watching.  Sadly, my little response elicited no further discussion; however, another rather talkative fellow commented numerous times.  One of his posts I felt obliged to highlight and respond to.  The relevant piece is

common stock held by the household sector is that sector’s financial asset. It is not technically a liability of the corporate sector. Nevertheless, it is a financial claim issued by the corporate sector in the sense that the owner of the stock has the right to benefit from all cash flows and valuation effects that accrue directly to the stock (dividends and marked to market stock price changes). This benefit reflects a comprehensive valuation of the operation of the issuer, including its deployment of real assets, its use of liabilities, and its ability to generate profits, etc. The point is that even though common stock is not categorized as a balance sheet liability, it is a financial claim issued by the corporate sector and a financial asset held in this case by the household sector. Common stock and equity claims in general are treated as a financial asset of the holder and a financial obligation of the issuer (cash flow and marked to market evaluated), and because of that essentially net to zero when consolidating the net financial asset position of the non government sector. The residual as a result of this equity netting includes the real assets of the issuer that are instrumental to the generation of such gross equity value. Depending on the objective of a given measurement exercise, those real assets obviously can also be valued separately from their representation as value embedded in the liability and equity structure of the issuer’s balance sheet. They are excluded from direct representation in the measure of net household worth because their implicit valuation has already been transmitted via the direct debt and equity valuation of the enterprise.

Before I get into my beef with this, let me talk about stock valuations.  I spent some time asking people and considering why stocks have the values they do.  Dividends is an improper general answer, as a variety of stocks, large and small, don’t pay dividends.  Rather, it is stock sales price.  But what is stock sales price indicative of?  There are two important notes to make here: a stock, once it has been sold into the open market, is no longer directly related to the valuation of the assets, tangible and intangible, of the company.  A corporate balance sheet describes has a “shareholder equity” entry, which is equivalent, by an accounting rule, to the remainder of the net of assets and liabilities.  However, there exists no direct causal relationship between stock prices and that “equity” chunk of the balance sheet.  This is due, again, to the fact that stocks are on the open market, divorced entirely from the company’s control.  The redemption value of a stock is not tied to the equity portion of the balance sheet in any way.  Instead, it is tied purely to what the holder thinks they can get from its sale.  The second note is that stock valuations are somewhat inappropriate, since the current exchange price (generally, I believe, the NBBO), is applicable only to the number of available stocks.  Usually, this constitutes a substnatial minority of outstanding stock.  In the event that every stock holder were to attempt to sell their stocks, the price they could command would be substantially lower than the list price at the time they attempt to sell.

Now, to my complaint with the above quote: if the value of a stock isn’t tied to the equity portion of the issuers balance sheet and if the value of a stock, when the stock is sold en masse, is some indeterminate amount lower than the market price of a small number of the stock, that price fails to be an accurate model of the outstanding equity liability of the issuer, and therefore need not net to zero.  Indeed, the concept of “irrational exuberance” in markets MUST debunk this.

Note that the commenter implicitly declares that there exists an equivalency between the value of the net assets of the company (that is assets less liability) and equity value – precisely the portion of the balance sheet labelled “shareholder equity”.  Amusingly, he also states “real assets obviously can also be valued separately from their representation as value embedded in the liability and equity structure of the issuer’s balance sheet”, which is not only true but DONE, at least by SEC regulated corporations (which, in general, is precisely those corporations on US exchanges).  If there is some inequality between the “shareholder equity” entry in the corporate balance sheet and the exchange value of stocks, then we must explain how this can occur and yet still allow for this accounting equivalency.  I don’t think such an account may properly be given.  Particularly, a balance sheet covers a particular sort of prediction of corporate value, including existing revenue and cost streams, along with valuations for assets (based on some model).  Stock prices on exchanges, however, are ultimately predicated on traders’ expectations of final sale price of the stock: that is, this corporation may, at some point in the future, prompt a final sale of stock, either because it is being purchased by another or because it is buying back its own stock (effectively removing those stocks from circulation).  Those predictions, in turn, are partially correlated to people’s expectations on what the final purchaser will think is a good price to pay for them.  They are also made on traders’ psychological games amongst each other, in attempting to find the highest marginal price that still allows the average final sale price to be in the range deemed acceptable by the final purchaser.

In this way, we have ample room for stocks being, effectively, a money creator, because they are a present time valuation of the future price of an asset.  They are thus considered an asset of that value…based entirely on a crowd’s expectations.  If another party considers that expectation set trustworthy, then it may agree to exchange the stock for something else…say, bank created credit.

Here, by the way, is where a chartalist explanation of the non-government money supply fails.  When the exchanger takes on an asset of indeterminate value, marked at a certain price, they face the risk of sudden price changes in that asset.  While their balance sheet may work out (i.e. net to zero) at time of exchange, upon a consequent price fall, that balance changes, creating a bank deficit or surplus…all without the further issue of any additional liability or assets.  This also can happen, intuitively, without the government creating or destroying units of currency, simply due to a local price change.

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Games, Games, Games

Well, Aion pushed their headstart button Sunday, bringing the game officially live outside of Korea.  I was there for a while, because Aion is frankly an extraordinarily refined MMORPG in the classic vein.  The pacing during levelling is perfect, the breadth and refinement of content is large, but not overwhelming, the classes are all very distinct and well thought out, and the game has a lot of endgame in at launch (one of the bonuses to a “new” game that’s over a year old).

If you can deal with the obviously Korean aesthetic, it’s a gorgeous game.  Every character does have that anime look to them…the idle pose for males looks anatomically impossible for most human males, and the females all have something against covering their thighs, but the models are extremely high-detail and very well-rendered.  Vistas seen while levelling so far have been diverse and interesting, never outstaying their welcome before some new terrain type is introduced.

I’ve also kept up with my Champions Online play.  The game is very fun, offering a different combat feel from the stock-mmo game, and the character customization options are simply overwhelming.  I have spent many hours in the power house (the area where characters train and test new powers) trying out various options, attempting to build a solid synergy between various abilities.  With the latest patch rolling out, the economy should better support respeccing your character, hopefully addressing Lum’s complaints on the matter.

In short: so much to play, so little time.

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A New Selling Point

Really, I expect no less from the makers of Dead or Alive Xtreme Beach Volleyball.

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This speaks for itself.

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Lum has posted his thoughts on Champions Online, and I thought I’d post my own (PAX thoughts are still forthcoming, don’t worry).  I’d like to also point at this post about a lifetimer canceling their subscription and why.  Together, those cover most of what is wrong currently in CO.  So where do I stand?

Champions Online is a fun game, as I’ve expressed before.  Despite the zero-day patch snafu (which was entirely a public relations issue, as opposed to a game-mechanic problem), I’ve found myself thoroughly enjoying playing.  It may make me something of a masochist, but I was alright playing through Diablo 2 with a new character every time I wanted to try something new.  Yes, it would have made it easier if I could have simply respecced on the fly, though I’d argue that would have changed their game mechanic in a way that would have entailed changes elsewhere in the game.  The same holds for CO: levelling through content goes with surprising speed, for an MMO, making the option of simply creating a new character to toy with trivial.  Even the “tutorial” area can be cleared in less than 30 minutes.  By comparison, Aion moves with the speed of an iceberg on a calm ocean.

Additionally, the options within the powers, the synergies that are available, make for some very interesting characters.  So far, very few “flavor of the month” builds have emerged.  A variety of powers are considered viable, and can have ancillary powers built around them without worrying about completely gimping your character.  Now, that doesn’t mean they won’t give you the option to screw up: they do.  Repeatedly.  Part of that is because it plays differently from comparable games.  Movement, reaction, twitch are all meaningful gameplay elements (making lag outrageously frustrating).  Part of that is that they have very focused powers, which are good at one thing…and mean that, if you fail to insure you have the tools to deal with a variety of situations, you’ll be left up the creek without a paddle.

For example, every pack of mobs you face has at least 2 members, who are at least “henchman” difficulty.  CO breaks up enemy difficulty into henchmen at the weakest, then villains, master villains, super villains, and  (I believe) cosmics.  They include tough versions of these, which hit harder and have more health.  A random mob pack is likely to have 3-4 henchmen, or 1 villain + 1-2 henchmen.  During solo play, you’re likely to be asked to take on anumber of master villains and a few super villains, though these have been tuned to be soloed.  What this means is that you’re frequently engaging more than one opponent; you’re going to need a way to mitigate the excess damage  from the pack if you wish to survive.  This can take the form of overwhelming single-target damage, aoe damage, CC, active character defense, healing, passive defense, or some combination of those.

However, because (in general) you can only have one ability active at a time, there’s a limit to how much you can focus on any one of those.  For instance, you can only use one single-target ability at a time.  Once you’ve maxed you’re best damage ability, if it’s not enough to beat them before you die, you’re out of luck.  If you can’t deal enough damage to compensate for the time spent maintaining your CC, you’re out of luck.  If you can AOE down a pack of henchmen, but can’t maintain the damage on a villain or tougher target, you’re out of luck.  The result is that you need to cherry pick powers in order to cover your deficiencies.  Even if you do focus on heavy AOE, it’s worthwhile to pick up some sort of mitigation in case things get hairy.  If you have a lot of single-target damage, CC can keep the adds off you while you focus down one target at a time.   And so on.

Honestly, this is a character package issue: a balanced character package is built around parallelism.  All the combinations above focused on maximizing one’s efficiency by keeping up parallel effects.  Consider: If I combine single-target damage with CC, I’m doing two things at once; after I knockback one thing, I’m effectively removing their damage from the equation while I deal damage to others.  If I root a melee character and run away while damaging something else, it’s the same deal.  If I focus on AOE in large groups, I am maximizing parallel damage over a single-target damager.  If I focus on healing and single-target, I can potentially invalidate a portion of their time while allowing my time dealing damage to continue.  All of these are parallelizations, taking advantage of the fact that, while I can only activate one thing at a time, effects which linger are effectively abilities I am triggering simultaneously.

That implies that certain types of abilities will synergize well with one another, and this needs to be planned for.  The more abilities that can (effectively) be active simultaneously, the better.  The more abilities which may effectively negate important options for your opponent, while keeping your own open, the better.  This means, though, that other combinations are effectively worthless: their parallelism is limited to non-existent.  That’s why Lum says “This is a necessary evil of a rich, classless skill system – the game has to let you fail.”

Fortunately, I see a saving grace on the horizon: this post from the lead CM.  If full retcons are attainable at the end of the game for doing things like raids, pvp, etc, that will effectively lower the cost to get them.  I suspect we’ll see the devs back off the “choices should MATTER and thus need to COST LOTS” mantra soon enough.  The cost of a bad decision is feeling like an idiot when you get knocked on your backside repeatedly.  Adding on a grind is just overkill…especially when you might not be able to do said grind with due to the choices you made.

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PAX

Was awesome. I spent a lot of time in the exhibit hall checking out games; expect posts with details. A quick, quick summary would be: APB, Brink, Starcraft 2, and Darksiders look awesome; Diablo 3 IS awesome. I didn’t spend time on Cataclysm because a 20 minute playsession just didn’t feel like it’d give me enough time to get a feel for the starting areas for the Goblins and Worgen. It looked good though, and the new water is much better (though it could be even cooler).

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So after the uproar broke in the forums at the strange dealings of the developers, Daeke popped in, eventually to say the following:

Hey guys,

So, I’ve finally sat down at my desk for the first time since I got here today. I’ve been spending the entirety of the morning tracking down all of the developers and asking tons of questions to make sure I’ve got the latest information on what’s going on behind-the-scenes.

Right now, we’ve got the designers tracking the data for the changes that were made in this morning’s patch. What will help us the most right now is for you to go and play the game. I understand that you’re upset over the changes that were made, but in order for us to figure out what the issue is, we want to gather hard data to support your feedback, and we can only do that with your help.

Your points have been noted. There is clear dissent amongst the ranks about the changes that were made. The feedback has come through loud and clear. So please, hop into the game and play for a while so that we can get the hard evidence for our next step.

First, this is a reasonable response that the community gets: someone talking to them, assuring them they hear their concerns, and gathering information to address those concerns.  But the sub-text is even more interesting: this may have gone right past Daeke, completely bypassing the CR team entirely.

Additionally, their Public Test Server has launched.  Hopefully this means that balance patches go to the test server first, rather than hitting live sight-unseen.

As a happy (though annoying) note, it appears that respec costs are still bugged, rather than current costs being the actual intended cost.  So hopefully that will come back down.

I’m still curious about the end-game.

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