SL as a predictive market.

I know I've not posted anything about this in a while, but it occurred to me that the February crash of the institutions of SL, partly caused by the Linden crackdown, occurred almost perfectly 4 to 6 months prior to the beginning of the most recent major market meltdowns.

I had in August of 07 stated to a few friends and in a class that due to SL being based on extra derivative income from the North American market that the in-world markets and retailing would be highly affected by an economic crisis, but I had not quite expected it to be as predictive as it has been.

In hindsight, I almost wish I had given myself more credibility in this theory and sold off my real portfolio based on those indicators. I'd be a few thousand richer.

Additionally, I once stated that the Virtual Markets probably would hold about the same level of risk as actual markets. Due to the rabid mismanagement of wall street what was a half-hearted estimation of the bureaucracy in this nation responsible for providing for corporate governance.. proved deadly accurate.

I do not expect the predictive nature of the SL markets to continue since the Linden Crackdown practically destroyed the net worth in those markets, but I'll be watching this for more correlative indicators.

Markets in a quagmire.

The markets of the past 2 months have been significantly depressed. Most issues are trading flat or lower with few shining stars and minuscule dividends and EPS results. At this point I'm unenthusiastically bull merely because if things get much worse I foresee a market wide devaluation to next to nothing. This is one of the reasons I've been relatively quiet. There's not much to be excited about and I think it's the primary symptom of how deflated these markets have become since the big February Bank Bust.

LNL is leading the charge in that regard with the recent mess and drama related to it on the CAPEX exchange. Some would say however, that it's pretty typical of the CEO of that corp to be immersed in drama of some form.

Is WSE ever going to wake up? I was told they may open in February.. It's June now. Knock Knock Luke? Anyone home? Updating SL. I may walk around and talk to a few old friends. Amazing that if you don't see the metaverse in 1-2 months and you're behind 2-3 updates. Hope to see you in game old friends.

Back, as a private investor.

Well folks. I didn't know how far that LL would take the new banking policy, but the virtual stock exchanges are still here and I still enjoy the concept of virtual commerce in virtual realms. That said, I'm back to doing business with the exchanges once again, but I'm only risking my own cash this time and on a much more limited basis. I'm also taking a far more off-hands approach. Even though day-trading in such volatility is extremely lucrative, I'm actually holding for the long term and using a dividend reinvestment method. I still intend on operating on all exchanges. Just waiting to see if WSE will ever open it's doors again. If it doesn't, it could still be the one loose card that brings all the houses down in the virtual exchanges. I hope that doesn't happen. I like this micro-market experimentation and think if it properly polices itself it could even be profitable and beneficial in the future of the SL meta-verse, but I'm not yet sold that it's fully at that point yet.

That said, if you're putting money in here, I hope it's what you can afford to risk and that you risk wisely. The old important tips apply to game-world relations.

1. Know who you play with as well as you can.
2. Keep up on what's happening with the in-world businesses you court.
3. Remember it's an intensive hobby. You can't go months without checking in on it. The market's highly volatile and a month is like a year in Second Life.

DGD officially shuts down..

http://www.freewebs.com/maelstrom79/DGDRecoveryAssessement.htm

The final closure wrap up report.

It's been a long and profitable run for those with me since IPO, we're up 25% on 9 months with a liquidation value of 1.25 from an ipo offering of 1.00. A fairly proud return on activity. Imagine if we'd gotten out at market value.

Crisis in the Private Estate sector.

Unless you're highly specialized or your sim has a special purpose, if you own your own sim for the purpose of rental there have been some major changes the past several months which have likely had significant negative impact on your business.

The amount of USD being spent in the SL economy is declining, meaning less demand for private sector estates as most folks really have a strong preference for main land unless a strong theme or high quality is maintained with a private estate. General sales of land which directly competes with Linden Lab has no hope at all. With Linden Lab persistently providing new land for newcomers to SL, the private estate market cannot be maintained without constant diligence by sim owners to induce real traffic and attract spending.

The Gambling ban destroyed a large source of revenue for many private estates. The banking ban made an already rough financing market for new private estates practically non-existent so that the few good institutions went out with the bad. With the real world economy in the main user areas, notably North America, in a spiral.. the extra spending coming from most folk's wallet for entertainment will be in severe decline if they can even afford the internet access to get on Second Life at all.

This has generated a nightmare for what was once a reasonably fair market. I expect very few non-specialized private estates to survive if any. After all, who can compete with the megalith of the content provider Linden to whom Tier for private sims is also directly paid.

Such is the power of a monopoly; that inefficiency in the markets results and the intentions of many productive individuals destroyed.

I even have a lingering worry about the survival of Second LIfe in its present format.

LL moving towards Linden being real currency.

Tell me, why is it that you need a real life bank charter.. to play with game currency?

Linden lab insists that the Linden is not real currency, yet here it is forcing numerous game world businesses to register. If the Linden is real, then LL is in violation of NUMEROUS rl securities statutes.

If it's not, how can they force these banks to get registered or stop operating in the manner they have stated including the requirement of an RL banking charter to allow them to operate?

Anyone smell a fish?

More symptoms of a coming end?

Will this economic event, lead to the fulfillment of.. this?

Here's the old article in full since it's now only on google cache:

Saturday, 22 September 2007

Oh well.. And here I was hoping confidence was coming back to this market. The second half of September has been a perfect storm for the market. With VSTEX having 3 companies simultaneously default on shareholder trust and The Bank folding. What’s the relation? All 4 entities were strongly tied to the management and directorship of one Jasper Tizzy. Fortunately, some of us had insurance on our Deposits, and if Eliale Morigi of The Rock Insurance honors the claims then DGD’s going to be saved a pinch, but I can’t help feel concern for the hundreds of other investors undoubtedly uninsured and stricken by the incident. AIG, formerly the bank that backed the old AVIX exchange, has also highly restricted and appears to be defaulting on some withdrawals. The issue is so severe AIG was delisted from CAPEX for TOS violations under the new management’s guidelines.

Since June, Second Life has been averaging 1 bank default or failure a month. Are they all frauds or is there something much larger and more sinister at play on the horizon? Maybe there is more to this than simple fraud. I’ve done some analysis of the Second Life Economy and the results are very disturbing. It may even be pointing towards the potential end of product life cycle for Second Life as an entity... or that the virtual economy is about to hit a sustained depression.

Sources:
http://secondlife.com/whatis/economy-graphs.php
http://secondlife.com/whatis/economy_stats.php

I cite those early because I wanted you to get them up and review them with me as you read. There are some numbers in there that I view as critical landmarks that indicated the start of this economic crisis and the strength of its potential for deepening.

First, on the stats page you would note that from July to August in world business owners has declined. Secondly, land sales values are in steep decline. An average .5/acre drop is a huge move and likely to continue as LL continues to add land to the system. The rate of sale has also almost halved.

On the graphs page, and this is perhaps the most disturbing of all the data. The beginning of 2007 marked the largest recorded decline, which continues, in USD$ traded on the Lindex in over a year. This means fewer people are buying lindens; less money is coming into the Second Life virtual economy. Will this reverse? That depends on how LL manages their marketing but this event can be traced back to the changes in gambling policy and to the largest bank failure (Ginko) in SL. That chart is akin to the Virtual GDP. It marks the entertainment productivity of Second Life. When it goes in reverse, business will start to struggle and the magnitude of the reversal was not small.

What does this mean for your investment portfolio? It means that you have to be much pickier than usual. It means that you must watch even the most honest CEOs as a troubling environment can encourage more desperate behavior. It means more research time to make sure you’re not ripped off. It also means if you’re not diversified you’re welcoming a bullet to your virtual finances. Diversify even among banks.. and look into insurance if you can with someone with an established reputation of trust in SL insurance. Usually insurance will only take a fraction of your returns on a bank deposit and if the bank defaults it can be worth having assuming your insurer is a reliable vendor of such protection.

Risk is higher than ever, remember to be very careful about where you put your money and whom you trust. A key point to look for to measure trust is disclosure levels. An open book is much easier to discern the content of than a closed book. Find folks willing to talk about their corporate finances, which post clear reports consistent with their business operations. Also, remember that buying at any price is a sure way to lose, be very picky about your price targets for shares if you buy stock.

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Note, at this point the situation is now so severe with the policy, I advise against buying any stock or depositing in any bank. In fact, I'm going to start disassembling my links to prevent accidental deposits or investment encouraged by me.