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.

*************************

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.

Death/Rebirth of Capitalism in SL? Welcome back feudal era?

The economy is going to consist of mostly land, fashion, and clubbing. No more banks, no more stock exchanges or financing mechanisms in world for community development that do not have expensive real world licenses. Will it be the death of SL capitalism given the expense involved? Or is this a pre-text for something larger?

With the in-world only financial institutions out of the way, it paves the way for real legitimate institutions to move into Second Life, assuming they want to. I've heard some RL banks with limited in-world presences are having parties the day before this massive shut down event.. coincidence? .... I always have been one to say nothing is coincidental.

With the clarification and confusion that may result for people out of the way, the interface for real world business into second life will be much more clear. The question is, are people's rights being trampled? Second Life has yet to really define itself well. It exists somewhere between a game and reality. I think this decision represents a fundamental shift in the Opinion of the Lab in what they want Second Life to be. They do not want it to be as much a game as a Secondary Reality with expressive capability. But this opens other potential nightmares.

What does this decision mean to overall gaming programmers and the gaming community in Second Life? If SL finance is too risky, will Linden Lab ever decide first person shooter sims are "too violent"; for instance?

Some SL banks, which were not frauds, but had the trust of their depositors and were doing legitimate in-world business will not go without a significant cost to some in-world communities. I can't tell you how many people I know were relying on interest to pay tier. The financial cost goes far beyond the shut downs, we're looking at a large creative cost.

I do not foresee many SL banks or exchanges being able to act quickly enough to get real world banking licenses; especially with the cost involved of such licenses. And the time frame is so short that few will have enough time to import the funds to pay their depositors. One months linden purchase allowance is like 25,000 USD from my understanding. If this is true, getting enough cash in to cover the massive sums in some sl institutions is going to be neigh impossible. I hope the bank owners are getting on the horn with Linden as quickly as possible; otherwise the people most seriously hurt by this will be the ones who trusted the banks to hold their cash for them.

LL Pulling the Plug on all Virtual Banking/Trading.. etc.

Here's the policy link.

Wow, look like my blog is going to be short, brief and soon to be dated unless I cover land or fashion as it won't be long til no SL financial market will exist at all save the one in player's personal accounts. After all the rampant fraud in the SL financial community,LL has stepped in and said "sorry, no more banks". The unfortunate problem is that this mostly likely will impact depositors at those institutions far more than the bank operators themselves.

Personally, if I were LL, I would have opened a central virtual bank and regulated the markets so as to make more money off the venture and try to help improve sl communities, but that's not what happened. Of course, cost considerations had to be included so it's much easier just to say, "get rid of them all."

That said, it was a fun streak and if you knew who to invest with and did the safe smart thing you could make a profit; but most people are honestly clueless on how to judge such things in a virtual environment. It's so much more different than the real world and takes a lot of expierence so I can see where the Lab's coming from in their actions.

Anyhow, on 01/22/2007 every link and location on this blog will practically cease to exist because if you read the verbatim terminology of the disclosure anyone paying interest or offering a return on investment which is processed through an ATM for linden or any other currency would be shut down on that date; this would include any incorporated company on any sl exchange that paid a dividend. I'm even having to close up DGD, which is a bit painful, it had so much potential and the loss on investment value of the companies at liquidation cost is not a pretty picture at all. But one thing I can say, I'll be closing at higher than IPO value, and it makes me proud I can at least return some value to the SL community in less than 1 years term of operation, most real companies fail in that time.

It's a sad state of affairs that has lead to this day, but if you read my backlogs you can see that fraud is perhaps one of the most rampant dangers inside of second life. There's cheats and scams everywhere and many are not skeptical enough to dodge them all.

Hopefully things will change in time and virtual investing will become a way of the future, but for now... LL has deemed it just not plausible or viable, especially at some of the ridiculous rates promised.

If things change, of course, this blog will continue, but if it doesn't, this may be adieu.

Linden Lab instituting bank shutdown.

I just got back from a short personal holiday to discover LL is in the process of shutting down interest bearing institutions in SL that are not registered with a real world government, a bold move from being a a game to what I imagine is what LL is trying to achieve: the status of being a secondary reality existing atop our own. More news will be forthcoming with links as I uncover the details of what is hapening, but needless to say, market volatility will likely be at an all time high and as of yet, I'm not even certain the exchanges will survive.

Welcome to 2008.

I sat on my couch with my wife Koudoawaia Menatep (Her SL name of course) throughout the duration of the dropping of the great ball at Time's Square watching it on MSNBC and CNBC, yes.. NBC has me cornered as a viewer. While I sat there, enjoying the warmth and coziness of her snuggled to me, I kept thinking about all the magnificent structures in New York, and how much it must have taken to build them.

Someone had to take great risks, expending monumental amounts of resources, to build the icons of that landmark. They gambled a lot on their location and the features of the land. I'm sure not a few were scammed and cheated along the way before our society matured a little more from its pre-Black Friday dreams in the 1920s. I also think about how today I can't help hearing on the news about how sorely my nation (the United States) is burdened with debt. Consumer debt, National debt, mortgage debt. What happened to the good old Wealthy United States? The ones immigrants dreamed about with streets of gold and lady liberty shining in her brightness in the harbors of New York? Are we seeing the corrosion of the American Dream just as her copper was blighted by oxides?

I can't help feel that all this is tied into the failing moral fabric of our society. Traditions abandoned, rebellion against parents and guidance gone unchecked, a general lack of discipline in all mannerisms of life in the pursuit of ultimate freedom, which is supposedly meant to make one... "feel free." Yet to me, debt is a shackle. A shackle snapped on my wrist by a lack of discipline with my wallet.

Businesses are supposed to encourage you to spend your money. Advertisers are supposed to encourage you to spend your money. Predatory lenders love it when you spend. Tax collecting political stooges are supposed to encourage you to spend money for their special pet projects that you don't care about them appending to every pork barreled bill that passes through congress. Economists encourage you to spend money for the economy's sake so their historical record looks like a boom, not a bust. Your parents are supposed to teach you to survive the baiting of all these hawks by saving enough nuts in the tree for any harsh winter that may upon you beset. What happened? I think it's obvious. Rampant divorce rates, inattentiveness of modern parents to their children due to lifestyle and business changes, the continuing strain of the average American under the slaving collars of our corporate masters who have not put the breaks on spending regardless of the fact their customers may soon well be penniless.. and then where would that leave their profit margins? (I think Goldman Sachs, Citigroup, and a few other corporate giants are finding out the hard way.)

And with National Debt at an all time high, what happens.. when the economy suddenly runs into the wall of creditworthiness? What happens when there becomes a significant risk the U.S. Treasury Bill may actually fall out of the beautiful AAA status it has set upon so long? Okay, perhaps it won't get that bad, but it sure will likely feel that way with the mint printing money to try to keep up with obligations and inflation soaring to such levels that would make pre-world war 2 Germany look like an economy's safe haven... and all this at a time when fuel prices are hitting record levels.

I've made my New Years resolution my friends. Save.. save a lot. The winter upon is dark and I don't think there'll be many of us able to entirely escape the effects of the coming years.

I hate to be gloomy on the New Year, but when I don't think of the Financial world.. I have a lot towards which to look forward. After all, I have her, and she's worth more than all of Fort Knox. (*Hugs Koudoa softly..*) There's also technology and other sectors which are promising, but what is technology if there's a shortage of financing but an exercise in futility?

To you and yours, a safe, happy, spiritually, and financially sound 2008,
Maelstrom

PS. Getting National Debt down so that way pay less interest and then in the long term can have even lower taxes is a good thing, get your local political stooge to look into it or be very concerned about long term national and global security. A nation that saves and builds great works on the savings, not debt, will outlast one which does everything on the back of future cash flows. (Ask China, they're really good at this. Scares me sometimes; to the point in fact it's how I know the Pentagon has absolutely no say in how the civilian sector really runs save for their personal votes because our spending policy is very strategically unsound.)

PSS. Find a way to do this without the unbelievable bureaucracy and partisanship of the U.S. Government getting in the way in this day and age, and I will put you on a Plateau that surpasses FDR,Ike, and Lincoln, but not George Washington, in your abilities to Govern.