Of management, exchanges, and risk.

I've been quietly pondering something the past few days. The risk of exchanges are directly tied to risk of management. Many exchanges have leaders who have a strong ideological sentiment. Sometimes these sentiments disagree and verbal barbs are traded. The problem is that over-asserting moral authority can be as devastating as letting crooks go. There's a right and a wrong way to do everything..

Do exchange heads have a right to assert their ideology? Doing so can potentially put their own exchange and assets at risk if third parties, that mainly being Linden Lab disagrees with the intent of the message and thus exposes their investors to additional potential risk.

A lot of recent argument has risen over the products SL Capex's real life company produces and the legal risks involved in that product. Some assert the Sports Arbitrage product is legal, others illegal. Though the product clearly does not list itself as a gambling instrument, its links to gambling can easily be seen. If it's not a matter decided in the courts because it has no legal grounds, does it become a moral issue? Do exchanges have a right to claim moral authority?

To me, the exchanges have been and always will be an instrument. The only real measure of "morality" is whether or not they operate a system of fair and equitable trading. To me, anything outside is external to the game; the content of real courts and greater powers. Besides, games of chance can be moral if not abused and simply a form of entertainment in some jurisdictions. The problem is the moral fabric of society is so weak that in most cases it must be illegal or severe consequences result because addictions are not overcome. Linden Labs has dictated that inside their world all gambling is illegal, but the applications in question have nothing to do with second life and in fact are sold for "information purposes" only according to the terms of service.

Do the heads of exchanges have the right to take such moral risks with their operations given they have such a great power and sway over the operation of the platform on which so many investor's investments ride?

To me the answer to all the above questions, are no.. not really. But I don't have much of a choice in the matter. Exchange heads will continue to attempt to assert "moral authority" due to competition. Exchange heads will likely to continue to sell their products despite what I may say perhaps.. or perhaps not.. to legal regret and potentially market wide regret. Personally, I don't see much coming of this discussion that will benefit market investors at all on any exchange. All I see is greater risks, even as more information is uncovered and more rhetoric is thrown about.

SL CAPEX stealing the show.

It's officially up over 20% from the past 30 days and no one else is even close to the incline. The real question, is this a long term gain? Are we seeing a capitol migration from other less savory markets or is this just a statistical burp? Time will tell. Without some solid foundations I can't begin to predict the future, but consistent dividends on many CAPEX issues may be what's the driving force in this market.

The Great Stage (the media). The War of Words. Don't be Duped.

This entire post is basically in response to this article and the basic fact that ACE and SLCAPEX are once again involved in a war for the hearts and minds of the public.

Unless you're on the inside and know something the rest of us do not, this is an examination of what you need to know about the exchanges. Lets review the facts.

1. Both exchange operators have support line access to Linden authorities. If they suspected anything that could be proven either exchange could/would have been shut down by now.

2. It's very rare for any accusations thrown at any particular exchange to have any evidence, besides a hacked up blog or sl log, to throw against the other.

3. The exchanges are enhancements to the game Second Life, they are market simulations that operate based upon businesses operating within the virtual environment and operated by third parties of which few know anything about (unless investigated) and could fail at any day.. including second life itself.

I have consistently operated under these assumptions with my fund. You should to if you want to know what's safe for your virtual wallet.

The solution to a market where risk is maximized and returns are potentially robust but also spread thin, is obviously diversification. I encourage you to ignore the press unless there's a bit more to it than snippets of blogs unless you have someone's trust. Ignore the reckless claims of giants with only the attractiveness of their trading platform's interest at stake. Investigate the companies you invest in, make sure they're real and not just digits on a board. Be wary of the ones making frivolous claims, it's often a sign of desperation and may in fact be the clearest way to decipher the risk of any individual institution.

That said, Market Dragon signing off, happy holidays all.

11/30/07 Market Report

Slow Growth amid bank carnage.

The second life equity markets seem to be stronger, even after the banking disasters. This could be because the bank that did actually fail was not directly related to the equity section of the SL Financial Community. The bank that was saved, Lindsay and Luke Bank, could have easily tanked the entire market if Linden Lab had not stepped in. I think that's the big story for this month also, Linden Lab actually moved to protect a failing institution. It makes all bank stocks a measure of a degree safer so long as you're sure their CEO is on the ball because it shows they can get help with enough persistence, diligence, and probably if they can show Linden Lab their paperwork.

That said, before depositing or investing with any bank, make sure you test their atms thoroughly to make sure they're not exposing your money. Something as simple as the withdrawing of a negative sum could tell you worlds about your levels of risk at the institution in question.

This month most exchanges have been moving relatively sluggishly. The 30 day chart on the WSE looks like the pulse of a dead man with only a slightly positive jog of 5%* which may only be temporary in realization and just by chance.. up while I'm writing this report. CAPEX has been showing some strength, it appears to be on an upward jog and has inclined by 10%* for this past 30 day period. The International Stock Exchange is in pain, losing over 18%* for the past 30 days. It makes me wonder what's going on over there that has investors in such a lackluster mood. My assumption is there was that the prices appeared briefly inflated on the ISE which is usually symptomatic of a large manipulating investor behind the scenes. That said, prices may have normalized and it may be time to evaluate for potential purchases. ACE is starting to pick up steam, offering 3 new ipos in addition to its current listing. The same concerns apply to this as with VSTEX's rapid expansion. VSTEX's index has been rising also, so most markets are flat or higher. I'd say that constitutes a pretty reasonable month. I hope they're dotting their I's and crossing their T's in security. The Dreamland Stock Exchange has also been its usual sluggish self with low volumes and mild price changes.

* % in market value changes are courtesy of http://www.slquotes.com

Launderers gone riot.

Something interesting about Dreamland Exchange, its currency converter from Entropian PED to SL Linden has been temporarily and perhaps permanently shut down due to an exploitation by money launderers. Any investment that is in PED sums is currently at risk of not being extractable within Second Life. I've been assured they're working on a resolution of this issue with the Lab and Entropian authorities. That said, it could also explain some of the lackluster behavior of the exchange in recent days. Until the shut down, I was pondering actually looking at the banks within Entropia as investment venues to help drive more revenues.

Reserved optimism.

So am I bear or bull on this coming month? Well, there's a lot of new strengths showing in the markets including a market element which has behaved in an unexpected and positive manner. I guess you could say I'm leaning towards the bull side of the fence a little but my constant conservatism inhibits me from taking aggressive action until I can see real strength. I am looking at the new IPOs on all the exchanges carefully and adding a small sum of each to my portfolio so that they can be traded and profited from.

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