On December 3, the noted poker author and my friend Lou Krieger died of cancer. There are so many things to be said about Lou’s contributions to the poker world and how he nurtured a new generation of poker writers. But this is what I said on Hold’em Radio’s tribute show to Lou. I want to thank Dan and Shari for letting me share my memories of Lou.

When I first started to learn poker, I of course read some of Lou’s books. But I didn’t meet him until January 2003 at Jack Binion’s World Poker Open in Tunica Mississippi. I saw him playing in a $10/$20 game. I introduced myself to him and I told him that I’d love to talk to him about a poker writing project some time. He immediately started racking up his chips. I told him to stay and play. But he smiled and said, “Naw. C’mon, let’s talk poker.” And that’s where our friendship was born — over sweet tea and bagels (clearly a regional gastronomical dichotomy).

Lou got me my first poker writing job with Canadian Poker Player Magazine. When Bluff Magazine was starting up, Lou advised them to take me on. When he first started with Hold’em Radio, he invited me to be his co-host. I told him I thought preparing for the show might take a lot of work. He burst out laughing and reminded me that we already talked about poker every week for hours on end. He said we’d do what we always did — we’d just let people listen and join in. He always believed that poker was at its best when it was shared.

I’m sure you’re going to hear from a lot of other people in the poker media with similar stories. Like me, they’ll tell you about how Lou encouraged them and gave them a helping hand. Lou was generous and kind. But I don’t think that was his only motivation for helping out writers who wanted to break into the business. Lou loved poker. He loved writing about poker. It truly made him happy. And I think he thought writing about poker would make us all happy too. And of course, he was right.

When it came to writing about poker, Lou was a master. Lou’s gift was being able to communicate complex ideas simply. He also was what I call an unselfish writer. It was never about how clever and smart a player he was — and he was. It was always about how the reader could become a clever and smarter player. Lou’s body of work will live on to serve the next generation of poker players and maybe beyond.

I got to share some great poker moments with Lou. We sat in the bleachers of Benny’s Bullpen, watching the last WSOP preliminary events that would be played down at Binions. We went to the taping of the first televised WPT Championship event — which changed how poker would be viewed by a wider audience. We spent hours on the phone as Chris Moneymaker made his final bid for the WSOP Championship. I had the profound privilege of watching the changing landscape of poker through Lou’s eyes. And it breaks my heart that those eyes have closed. I know the poker world — and I — will truly miss him.

Some people are sure the answer is “Drill Baby Drill.” Others are convinced the answer can be found in conservation. Both camps believe their approach would result in lower gasoline prices in the U.S.

I’ve got some good news and some bad news for y’all.

In the last five years, the U.S. has ramped up crude oil production. And whether its because of the flagging economy, higher unemployment, more fuel efficient cars, or the mainstream adoption of GPS (reducing the number of lost drivers unwilling to embarrass themselves by asking for directions) — the consumption of gasoline has dropped dramatically in the U.S.

We’re relatively awash in gasoline. So much so, the U.S. became a net exporter of gasoline in December 2011 — the first time in 50 years. Some analysts believe this trend will continue.

With this double whammy of increased supply and decreased demand, gasoline should practically be free. But of course it’s not. Gasoline prices are running about 8% higher than last year’s already-lofty levels. That’s because gasoline prices aren’t determined by domestic supply and demand. Gasoline prices are, by and large, set in a world market — and the world is worried about tensions in Iran and what that could potentially do to world oil and gasoline supplies.

(Pipeline map. Full size image available here)

Have you seen the commercials that portray the Keystone XL pipeline as a magical cure for unemployment and domestic energy supply. It probably would result in jobs. Folks would find some nice short-term work building the pipeline. The Keystone extension could boost refinery jobs on the Gulf Coast. And oil exporters — they’ll get some business — ’cause that Canadian oil isn’t planning on staying here.

There is adequate pipeline capacity to get that gooey tar sands oil from Canada to the U.S. market in Cushing, OK. But that’s not what Canada needs. Over 95% of Canadian crude exports end up in the U.S. market, and Canada wants to diversify its trading portfolio. At least that’s what Canada’s Minster of natural Resources said in this open letter. Canada wants its oil piped to a port (as in export).

Canada isn’t alone. Even the US producers want to escape the glut in the US market. Based on this increased demand to export, Magellan Midstream Partners just announced it would expand its pipeline capacity to the Gulf Coast — moving more West Texas oil to the port.

I’m all for a comprehensive domestic energy policy. We’ve basically been winging it for the last few decades. But its goals have to be grounded on the realities of a world market — not an appealing populist argument built on the fantasy of domestic price setting.

This January, I started contributing to Pokerati, providing a few posts a month about the poker and gaming business. I still have my investment day job. And I’ll still navel gaze here on Aimlessly. But Dan made me an offer I couldn’t refuse: an outlet to write about the wildest and whackiest sector in the world, bar none. (And an opportunity, once again, to write-off my trips to Vegas as a business expense)

I first met Dan in the summer of 2004. He and Jay Greenspan were at my starting table of the Mid-America Poker Classic media event in Tunica, Mississippi. As I recall, Dan and Jay were both ex-editors of the now-defunct All-In Magazine. (At that point in time, All-In may have burned through more editors than it had released issues.)

I met up with Dan (pictured right) again at the 2005 WSOP — or what we all now look back on as the “Summer of Love” for poker media. It was the first year that the WSOP opened up coverage to non-traditional media outlets. And with the boom in online poker, the advertising — and hence pay for content providers — flowed like the booze at Full Tilt’s hospitality suite.

While I worked for a poker media outlet, Dan was there for his own blog, Pokerati. In the early days, Pokerati mostly chronicled the underground poker scene in Dallas. In this world, Dan cast himself as some sort of philanthropist; He viewed teaching strippers to deal poker as a jobs program. But as poker’s world widened, so did Pokerati’s.

In 2006, Dan scored a cushy job coordinating a poker blog for Party Gaming (now B.win Party). I signed on to cover the WSOP for him and the new blog in 2006. We’re not sure what Dan did that year, other than parade around in a pink Party polo shirt and his grandmother’s sunglasses (pictured below by his chips). But to his credit, he put together a great team including The Shrink, Change100, Tuscaloosa Johnny, April and more.

By the end of that year, the passage of the UIGEA had created a gaping fissure in poker’s once-lush landscape. In the spring of 2008, I went back to a day job in the investment world. And other than finishing the Matusow book, I wrote little about the world I had lived in for so long.

But I missed it. The poker and gaming space continued to fascinate me — the people, the shifting regulatory environment and the companies that struggled to rebuild themselves on uncertain terrain. And I never stopped following the business of poker and gaming, from the stoic to the absurd — from the masterful to the scandalous.

When Dan asked me if I’d consider contributing to Pokerati, it was like having Peter Pan invite you to Neverland for the weekends - an offer no Wendy could refuse.

Through the boom and the bust, Dan’s irreverent website Pokerati endured. I’m really not sure why. Compelling content? Delusion? Momentum? Sheer will? It really doesn’t matter. I’m just glad it did.

In Douglas Adams’ book Life, the Universe and Everything, the computer Deep Thought comes up with the Ultimate Answer to the Ultimate Question of Life, The Universe and Everything. The answer is 42. Unfortunately, the actual question is not known.

In the planet we inhabit, the reverse is often the case. We have questions for which there are no constant, neat and tidy, answers. We fall back on political ideologies, religious tenets, anecdotal experience, artistic genres and/or academic disciplines to give us a belief structure that we sometimes confound with fixed truths. Even when we are confronted with evidence that we aren’t wholly right — because something has changed, more information becomes available or the possible, but improbable, has occurred — it’s hard to let go of our constructed answer.

In the recent past, we’ve struggled to let go of these treasured “truths.”

Pluto is a planet

A house is a good investment

The stock market is a rational determinant of prices and a productive use of capital

Sometimes the Insignificant Isn’t

When I first started at IBM as a chemical engineer, I was responsible for a manufacturing process that was part of our semiconductor packaging line. It was a good place for a new engineer to start. The process to dispense and cure a polymer over the top of a chip and ceramic package was a mature and stable process. But one day, the polymer stopped curing.

I calibrated the curing furnace, but it was well within spec. I reviewed the polymer testing data and even had it retested, but it too was within spec. Out of desperation, I called the polymer vendor. It seems he had changed his manufacturing process. Instead of doing a two-step manufacturing process to produce materials to our specification, he developed a cheaper one-step process.

In the short-term, we specified the two-step process. In the months to come, we discovered a seemingly irrelevant chemical property that was, in fact, critical.

I chose a career in science and engineering because I liked making things work. I was drawn to an endeavor founded on “right answers.” I believed that by knowing the right answers, I had control. But as I would start to learn, controlling my small manufacturing line required more adaptation and flexibility than maintaining a static status quo.

My manufacturing line was finite compared to the stock market. With all the interrelated variables that can move the market — political, economic, financial, technological, competitive, emotional, environmental — I’m always surprised by investors’ reliance on historical relationships and the notion of fixed truths. And that’s one reason why I was anxious to read Nassim Taleb’s Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.

Sometimes the Significant Isn’t All That

Taleb, in his book and by virtue of his results, dispels a commonly held “truth” that investing in a highly probable event is safe bet. He argues that investors consistently underestimate and misprice the improbable. The revelation put forth by Taleb’s book apparently “rolled down Wall Street like a hand grenade.” While I enjoyed the book, I can’t say I was hit by the same shrapnel as some of my investment peers.

Taleb did a good job discussing the shortcomings of econometrics, the statistical tool many investors use to divine their “answers.” Econometrics is a handy tool to determine the past relationship between variables. For instance, using econometrics you might find that the share price of the two related companies traded in relative lockstep 95% of the time over a two year period. That might lead you to bet that if the share price of one were to rise, the other would soon follow.

But econometrics makes use of distributional assumptions that aren’t particularly accurate. Even if they were, the prices of the two stocks didn’t always move in lockstep — and may not. Also, econometrics is a hindsight model. What influenced a past relationship may have changed. A myriad of events — a new competitor, a new technology, a flood, a change in currency valuation, etc — could change their present/future relationship.

The case of the Nobel laureate-laden hedge fund, Long Term Capital Management stands out as a prime example. LTCM bet on econometrically established relationships between US and foreign government debt. But when Russia defaulted on its debt, historically established relationships between international debt instruments deteriorated and LTCM was out nearly $2 billion in less than a month.

Sometimes the same event does not cause the same result. The oil shock in October 1973 caused drastic changes to historical relationships. When the second oil shock occurred in 1979, the reaction was similar, but muted. Basically, we weren’t as “shocked” the second time around. It’s hard to account for habituation in econometric models.

And sometimes there are statistical correlations that have no true relationship. Businessweek produced a series of graphs that make this argument. For instance, the number of parents who named their daughters Ava strongly correlated with the housing bubble. But few would argue that girls’ names had any relationship to speculation in the housing market.

Econometrics isn’t really the problem. It’s just that its limitations play into our own reductionist tendencies. When investors discover a highly correlated relationship, they often equate it to a single right answer. They tend to disregard the improbable or the relevance of other variables. If I had used econometrics to control my early manufacturing line, it would have ignored the unspecified chemical property that brought production to a standstill just as readily as I did.

Taleb Still Believes in One God

Taleb rejects econometrics. Instead, he finds comfort in Popper (frankly I preferred Leamer’s treatise, Let’s Take the “Con” Out of Econometrics ) and the use of Monte Carlo simulation. I couldn’t help but feel Taleb had just traded one statistical religion for a religion with less dogma. Monte Carlo is a better tool for understanding what you don’t know about relationships. But it, too, is limited by assumptions. Granted Taleb is probably far more skilled than I — or most — at bounding assumptions. But there are a plethora of other tools and methods of analysis that Taleb never discusses and it left me wondering why he was satisfied with just one lens to view his world.

Taleb made a handy sum betting against the probable. After all, when all the money is bet on the favorite, the payoff for the long-shot “Black Swan” can be sweet. But even here, I was left to worry about Taleb. After his book — and after the financial crisis — more investors came to appreciate “Black Swan” bets. As a result, more money is going down on the long-shot, making it harder to find lucrative payoffs for less probable events. As Black Swan bets become more crowded, I suspect Taleb will be strong enough to lose his religion before he loses his money.

Overall, I found Taleb’s book engaging. I especially appreciated the editing — or lack thereof — that enabled a more intimate voice. But I was a little surprised by how little I found surprising — especially after reading so many reviewers who were blown away it. In the end, I found it to be a compelling tale of one man’s journey to a familiar destination. And my hope was for a trip to a more exotic, thought provoking locale.

Poker’s Random Bedfellows

I found only one reviewer that felt as I did after reading “Fooled by Randomness.” Aaron Brown liked the book, but also found it a little naive, stating that “the book reads as if Taleb has never heard of nonparametric methods, data analysis, visualization tools or robust estimation.”

The strange thing is: I know Aaron Brown. He graciously acknowledged me in his book, The Poker Face of Wall Street. Coincidently, Taleb wrote the forward to the book.

I pondered why Brown and I were less fooled by randomness than other readers. Granted, both of us have studied and practiced a wider range of analytic techniques than the average investor. But I suspect the answer more likely stems from our shared passion for poker, which we both wrote about in the now-defunct Canadian Poker Player Magazine.

Poker players play thousands of hands. You can flop quads twice in a weekend and lose the hand both times, as I have done (losing once to a runner runner straight flush and once to a runner runner higher four of a kind). While most investors are shocked at the prospect of losing a bet with a 98% probability of success, poker players acknowledge that reality on a daily basis. As a result, poker players use pot odds — likely payouts based on probability — to determine the rightness or wrongness of any investment. Habituation is something poker players deal with on a daily basis. The first time we raise, we know our opponents will make an assumption about the strength of our hand and are likely to fold. But we know that the more frequently we raise, the more muted the folding reaction will become. We also understand the dangers of crowded strategies. The more frequently a strategy is adopted, the less likely the payoff. Initially, a continuation bet could stop an opponent in his or her tracks. Today, the risk of having a continuation bet reraised is far greater.

I started playing poker to improve my investment “sell side” discipline. Most investors make smart buying decisions but tend to hold on to losing propositions too long. You won’t keep your poker bankroll long if you don’t fold when the winning potential of a good starting hand wanes. In the end, poker taught me much more about investing than when to sell.

I will never as good an investor as Taleb has proven to be. I think his book was entertaining and interesting. But mere-mortal investors like myself might learn as much or more about randomness, odds, and adaptability by playing 10,000 hands of poker. Start the new year with a copy of Sklansky’s The Theory of Poker: A Professional Poker Player Teaches You How To Think Like One and poker simulation software from Wilson Software.

Shuffle Up and Deal (and Happy New Year)

Dear Herb,

I watched some of your CNBC “coverage” on unemployment insurance, where you implied that people would rather collect unemployment insurance than work. I do believe there are some people who go through the motions of a job search just to collect unemployment insurance. There is even evidence to suggest that unemployment insurance can delay workforce participation. But in this economy, your broad-brush proposition bordered on the absurd.

Had you researched this half as well as you research stocks, you might have realized that countries like Germany have much more generous unemployment benefits, yet much higher labor participations rates, than we do right now. Or maybe you would have reviewed the latest Help Wanted Index from The Conference Board and realized that a dearth of labor supply was hardly the issue.

Or maybe you would have investigated the studies that concluded workers were more willing to rejoin the workforce only after their unemployment benefits ran out — just as carefully as you investigate a company’s balance sheet. Some of them studied time periods when labor markets were tight and the penalty for delaying a job search was minimal. But we don’t have a tight labor market today. Few people assume they can just go out and get a job tomorrow.

Other studies looked at time periods following a recession. In past recessions, jobs lagged but eventually rebounded during a recovery. It’s possible that some would-be workers waited until benefits ran out before taking up the search for employment in earnest. Maybe they were lazy. Or maybe they knew the search would be easier in a recovering job market. But maybe they didn’t wait at all. UI benefit duration and the time it took for job creation may have been highly correlated in the past. Maybe more people worked after their UI benefits ran out because there were just a ton more jobs.

In past recessions, we have seen some spiking of job participation at the cessation of UI benefits. Are we seeing that now? Some new studies, like this working paper, suggest we are not seeing worker participation rise after UI benefits end — because there are no incremental jobs. This chart from CalculatedRisk probably says it best.

But you didn’t really study much for your piece. In fact you only provided limited anecdotal data. The basis of your “report?” was that a company told you that a couple of candidates canceled their interviews when their unemployment insurance benefits were extended. Did you ask the company how many people applied for those jobs? How many people never even got the courtesy of a rejection after submitting a resume and cover letter? Twenty? A hundred?

If anecdotes persuade you, I’ve got some. I have a friend that took a low-paying job out of state, just so he could get off unemployment and support his family from afar. He lives in a shared furnished apartment in Austin while he pays the mortgage on his house in Chicago. He has been separated from his family for more than a year.

I have another friend that took a job that barely covered her childcare costs. She still wonders if she was stupid to give up unemployment insurance to end up a net loser by working. But she was willing to do it to rid herself of the label of “unemployed.” She knew from the data, the longer she was unemployed the less likely companies would be to hire her. In this recession, there are much bigger disincentives for “waiting” to find a job. (There are also studies on that too, Herb, if you’re interested) But she made a tough choice — and one that some families can’t afford to make.

I know a few people who were laid off from IBM. IBM did offer some of them jobs in emerging markets — at roughly 35% of their salaries — and less than unemployment benefits. If they didn’t take those jobs, does that support your premise that unemployment insurance destroys the incentive to work? Or does it just illustrate how one company found a way not to pay US workers US wages. (IBM turned in record profits last quarter)

I know a guy who voluntarily terminated his unemployment insurance. He no longer felt he could consistently look for another tech sector job - discouraged by unresponsive employers and by their canceled interviews. After 20 years as a software developer, he works part-time as a car mechanic now. My neighbor had to pull his kid out of college. He was willing to take any job to prevent that from happening.

I recently attended a small engineering conference. Some of the attendees were unemployed, but bore the cost of attendance so they could network.

Before the recession, there were 24.1 million contractors, freelancers and consultants in the US. They didn’t’ qualify for unemployment insurance when they lost work. They would kill for a job.

Stop drinking the Kool-Aid, Herb. Regulations and unemployment insurance benefit extensions are not hampering the economic recovery. Take a look at this chart from Business Insider. Tell me that the problem has anything to do with the inability of corporations to produce a profit or find workers. See that blue line? That’s corporate profits after taxes. See that red line? That’s civilian employment.

By the way, a lot of companies don’t believe regulations are a problem. Check out this small business survey. And companies don’t want to repatriate their offshore money. Their money is doing just fine where it is.

Tens of thousands of bank employees are scheduled to be laid off this year. How many would give up unemployment insurance for a chance to keep their jobs? My guess is every single one.

Our economic problem is demand. Consumers drive roughly 70% of the US economy. Unlike banks, they can’t borrow at near 0% interest rates - the average credit card rate is more than 14%. They have no home equity. And few corporations are hiring.

It’s not unemployment insurance, Herb. It’s unemployment.

Love,
Amy

P.S. If you’re concerned about filling jobs, why not promote CNBC’s five job openings? I bet if you gave that two minutes of air time or two tweets, CNBC would have more applications than it could handle. Or maybe it already does. At any rate, you can find them here.

P.S.S I’d also love to see a CNBC segment with Labor economists (not talking heads with opinions) on whether we are seeing more/less empirical evidence of employment spikes when UI benefits terminate in this recession.

By the way, here are some other current job listings I found this week:

The Wall Street Journal is looking for a senior editor for its new CFO Journal

If it’s entertainment you’re looking for, I can’t imagine a more perfect gig than Executive Assistant to StockTwits’ CEO. For all you San Dieagans who love the intersection of social media and investing, check it out.

I know you Austin web designers need work: I’ve read the barter section of craigslist. Spanning Backup - flush with $2million of new venture funding - has two openings right now.

Rickards said, “What strikes me now, looking back, is how nothing was changed: no lessons were applied. Even though the lessons were obvious, in 1998. […] Regulatory oversight needed to be ramped up […] The government did just the opposite. Glass-Steagall was repealed in 1999, so that banks could become hedge funds. The U.S., in effect stared near-catastrophe in the eye, with LTCM, and decided to double down.”

One bias of our capitalist system is that we believe profit is the mark of a functioning system. As a result, regulation is seldom sought to control money-making enterprises. There is an implied message: If it ain’t broke, don’t fix it.

On the flip side, losses are frequently pinned on needless and overly aggressive regulation. No one ever wants to kick an industry while it’s down. As a result, squeaky losers generally get rewarded with deregulation.

Even when a regulatory weakness or failure leads to disaster — a la Enron, Madoff, LTCM, Lehman Brothers, and Full Tilt Poker — anti-regulatory bias, fueled by industry lobbying coffers, eventually trumps temporary populist outrage and public risk.

I’m no Ron Paul. But I’m not a member of the U.S. Federal Reserve’s fan club either. While it may have helped the financial system from collapsing in 2008, the Fed was instrumental in removing key foundation blocks that had held it in place since the Depression.

One of the Fed’s primary tasks is to regulate the banks. But as is often the case, the regulators forged a cozy bond with the regulated — and the Fed became one of the early and powerful champions of bank deregulation.

When early attempts by Congress to weaken the Glass-Steagall Act failed, the Federal Reserve unilaterally “reinterpreted” the section of the law that had restricted commercial banks from dealing in securities. Starting in the mid-1980s, the Fed voted to allow bank holding companies to derive up to five percent of their revenues from trading in a narrow range of securities. By the mid-1990s, following a series of “reinterpretations,” the Fed allowed 45 percent of bank revenues to come from dealing in a wide range of securities.

The proposed merger of Citi Bank and Travelers in 1998 — and $300 million of bank lobby money — finally enticed Congress to pass the Graham-Leach-Bliley Act in 1999, codifying the Federal Reserve’s wishes and the banking industry’s wet dream.

With a clean license to deal, the primary growth engine for banks became securitization — or the repackaging of debt, like mortgages. Fostered by both loose and unenforced regulation, the securitization market ballooned to roughly $10 trillion in the US by 2008.

I liked online poker. But I was never a fan of an unregulated or self-regulated poker industry. For one thing, its infancy was marked by a notable regulatory disaster. When the fledgling online company PokerSpot run by Dutch Boyd suffered financial difficulties, it raided players’ accounts in an attempt to stay afloat. It eventually wiped out every deposit on its journey into the abyss.

PokerSpot’s early failure was written off as a rogue fraud — but it was a regulatory harbinger.

In the early 2000s, new online poker companies blossomed and thrived. They made so much money a few of them even launched successful IPOs. With billions on the line, the new companies aligned themselves with agencies that promised regulatory cover.

Alderney, the third largest of the Channel Islands, played host to one of these regulatory bodies. In “licensing” Full Tilt Poker (FTP), the Alderney Gambling Control Commission scored a big fish. Since FTP was so profitable and big, Alderney allowed it some regulatory slack. Instead of requiring the company to segregate or “ring fence” player accounts, it allowed the company to co-mingle player accounts with the company’s business accounts.

In December 2010, it was widely known (as F-Train documents here) that the Department of Justice was investigating online poker’s payment processors. Even then, neither FTP nor Alderney did anything to insure the safety of player funds. On April 15, 2011 (Black Friday) FTP’s business accounts were seized by the Department of Justice. FTP stated it was unable to reimburse players’ money due to the seizure. Even today, it is unknown whether there are adequate funds to cover the player accounts and there are rumors of a $60 million shortfall.

On June 29, Alderney suspended Full Tilt’s gaming licenses, well after the horses had left the barn.

Michele Davis: “And what do I say when they ask me why it wasn’t regulated?”
Hank Paulson: “No one wanted to; they were making too much money.”
– From the 2011 HBO movie “Too Big to Fail”

When we all met 10 years ago - first on the internet, soon after in “real life” - it was clear we collectively had fewer years ahead of us than behind us. We weren’t young. And poker, after all, wasn’t the only vice we shared. But in an unofficial poll, Randy didn’t make anyone’s top pick in the pokerboyz’ dead pool. As someone who loved the ponies, however, Randy may have preferred to go off on long odds.

Randy was as entertaining as he was entertained by the world. He made me laugh, which is an unusual talent for an economics professor. He claimed he was socially challenged. I thought he was charming, disarming and refreshingly earnest. And I always looked forward to his company during our annual/semi-annual poker trips.

There is no denying that many social situations made Randy anxious. On a cold January morning in Biloxi, he stood out on the frigid pool deck, reluctant to get into the warm waters of the Beau Rivage’s hot tub. When asked why he didn’t jump right in, he said he wasn’t sure of the protocol of getting into a hot tub when there was only another male in the water. The fact that the male in question was his good friend “Idoru” was immaterial. We giggled uncontrollably as he tried to explain himself. He knew we would. It’s why he told us.

I once witnessed Randy interact with an obviously disturbed man on a bus. Randy listened to the man’s semi-rants and chatted patiently with him for the better part of 20 minutes. When we got off at our stop, however, Randy bolted off the bus like a yearling out of the gate and ran all the way to the hotel door. When I caught up to him, Randy said he ran because he was afraid the guy might follow him. When asked why he talked to the guy if he thought he was such a nut job, Randy lectured me on the importance of being polite.

We referred to Randy as the “grandmother” of the pokerboyz. He drank warm milk before bed. He was indeed polite and considerate. He drove like an old woman. He liked Michael Buble. Despite these milquetoast qualities, he could be an aggressive mofo at the poker table.

Randy - known initially to me online as rggator - loved Texas Hold’em but was even better at Omaha. He would always tell people how much he detested the four card variant, which only proved he was an Omaholic to the core. Omaha players are notoriously fatalistic about their game - although maybe a little less so than lowball and seven-card stud players.

A few of Randy’s economics students noted that mentioning an affinity for poker wouldn’t hurt you when it came to grading. Many students said he was a hard teacher. Randy insisted they attend class and forbade cell phone use during lectures. The nerve, apparently. Other students mentioned Randy’s love of the subject and his willingness to spend time after school to help them.

Poker and economics appealed to Randy’s libertarian bent. They were worlds he understood: risk, odds and probability, utility, opportunity cost, and personal accountability. He loved structure and relied on routine.

But about a year ago, Randy’s tidy world changed. An accident at the gym nearly severed his foot. Instead of enjoying his daily bike rides along the beach, he toiled with reluctant insurers and lawyers. He had to opt out of our May trip to Vegas because his condition was deteriorating. (Idoru had this video made on the Vegas Strip for Randy to let him know - in pokerboyz fashion - that he was missed) Another surgery loomed. Randy began to fear he might lose his financial and physical independence.

Randy left a list of all his accounts and passwords taped to his computer. He had his ex-wife pick up his two cats for a few days. He wrote a lovely letter to his girlfriend Cherie. Randy died on June 19, 2011.

Randy was remembered by his family, girlfriend, students, co-workers and friends at a memorial service. But the pokerboyz will mark his loss in our own way.

Sometime in the coming year, Randy’s picture on a popsicle stick will travel to Vegas, Biloxi, Tunica, or some other poker Mecca. Drinks will be drunk. Stories will be retold. Cards will be shuffled up and dealt. And through the laughter and the tears, the pokerboyz will be — as we are now — inconsolable to find a seat open at our table.

“I wouldn’t dig in if I was you. Next one might be at your head. I don’t know where it’s gonna go. Swear to God

In the movie Bull Durham, veteran catcher Crash Davis advises rookie Nuke LaLoosh to bean the team’s mascot. This bluffed lack of control convinces the batter to stop crowding the plate.

Last week, the International Energy Association (IEA) announced that it would be releasing 60 million barrels of oil from the world’s strategic oil reserves. On the face of it, it was an odd move. Oil prices were already starting to move down from their spring highs. Although Libya has put less oil in the market, global oil supplies appear adequate to fuel the world’s muting economies. And 60 million barrels is not that sizeable an outflow, equating to less than one day of global demand. Yet oil prices swooned on the news.

Financial talking heads, confounded by the move, came up with the following theses: a) the IEA is stupid as all government and quasi-government agencies are, b) the economy must be in bigger trouble than we know if the IEA had to pull this kind of desperation move, or c) it was an Obama-inspired political move to marginally help the US economy and placate voters.

Someone from work stepped into my office and started spewing the “stupid” theory. I looked up and said,

“You got it wrong. The IEA beaned the mascot. They’re bluffing. And every oil trader either knows it or will figure it out in the next ten minutes.”

“If everyone knows it’s a bluff, it won’t work. They’ll just drive the price back up.”

“You’ve never played poker, apparently,” I replied.

Bluffing Works, Even when it is Obvious

People who don’t play poker have a misconception about bluffing. They assume that a bluff is intended to fool or mislead opponents. They believe that subterfuge and deception are the keys to its success. They are wrong. The reason bluffing works is because it is hard to defend against — even when a player is nearly convinced he is being bluffed. Some of the elements that make a bluff particularly hard to defend against were employed by the IEA.

Avoid Predictability

If you bluff every hand, or bluff from the cut-off every time, it won’t take long for your opponents to realize it and start to mount a defense. It signals that you are bluffing with a wider and weaker range of hands. The first time one of your opponents wakes up with a half-way decent hand, they’re going to snap you off. And they’ll keep doing it until they shut you down.

Less frequent, non-pattern, bluffing signals a stronger hand to your opponents. Even if your opponents suspect you are bluffing, it increases their uncertainty.

The IEA doesn’t have an established record of bluffing - it has called for reserve releases only three times in its history. The US has released oil from its reserves only three times in the last 20 years. Eleven million barrels were released after Hurricane Katrina. During Dessert Storm, 21 million barrels were released. Interestingly enough, non-emergency sales of 28 million barrels occurred during ‘96 and ‘97 to help pay down the deficit.

Bluff into Weakness

It is much easier to bluff someone off a weak hand than to bluff them off a strong one. And out-bluffing a bluffer is perhaps one of the most successful strategies there is.

I’ve heard people suggest that the IEA should have made its move in spring, when oil prices were at their peak. But that would have put the IEA up against a fundamentally stronger hand. Economic indicators were stronger, suggesting better odds of a continuing economic recovery and thus demand for energy. Unrest in North Africa was at a fever pitch with high uncertainty about its spread and effect on oil supplies. Few speculators would fold long positions in the wake of strategic oil releases. In fact, release of strategic reserves might have fueled more speculation.

Economic indicators around the world have since weakened. This, in turn, has weakened the thesis for higher energy demand. Oil prices had begun to drop. Although some speculative positions had come out of the market, there was still a lot of hot money riding Brent oil long. In fact in mid-June, the price spread between WTI and Brent reached a record level of nearly $21 per barrel. This wasn’t a particularly strong hand for Brent and spread speculators going forward. There was arguably much more downside risk and limited upside potential.

It was also probably not a coincidence that the IEA chose to time its announcement just after the US Federal Reserve lowered its economic growth estimates and after Bernanke held a press conference, highlighting the near-term challenges for the US economy.

Threaten Multiple Decisions

Novice poker players often bluff by going all-in. They erroneously believe that forcing their opponent to make a do-or-die decision gives them a position of strength. But by doing this, they are risking their tournament life on a bluff. They also give their opponent the opportunity to have to make only one difficult decision.

By betting less than your stack, you still have a high probability of getting an opponent to fold on the spot. Also, by keeping a big stack in reserve to bet in successive rounds, your opponent has to consider that they will be forced into making additional difficult decisions throughout the hand. The potential threat of future bets — and decisions - is a powerful deterrent.

The IEA bet small and left itself with a big stack. Currently US companies have an inventory of roughly 350 million barrels of oil. The US strategic reserve has approximately 730 million barrels in inventory. Although the US strategic reserve is the largest, all 28 member countries of the IEA have to maintain strategic reserves of no less that 90 days of inventory, based on their prior year’s net imports. This emergency inventory represents roughly 1.6 billion barrels of oil.

Have a Risk versus Reward Edge

The last thing you want to do is risk a lot to reap a little. Every poker player is trained to calculate the size of their raise/bet/call versus the size of the pot. The most effective bluffs are those that give an opponent a poorer risk/reward profile than your own.

Here, the IEA is in good shape. The worst thing that can happen is a quick rebound of oil prices. But even if that is the case, countries that release reserves will reap money from the sale of their oil near the market top, which will help pay down their budget deficits. In the US, the sale of 30 million barrels of oil will give the US a little more wiggle room re: the debt ceiling. Oh and the bonus? It pisses of OPEC.

The best case is that oil prices, especially the price of Brent, falls. This reduces the inflation risk across the world, giving struggling economies more time to maintain loose monetary policies in the wake of tighter fiscal policies. It gives consumers the ability to spend more money on other goods and services. And save oil companies, it will help margins and revenues for the vast majority of businesses.

For leveraged long investors, the risk reward scenario is not so good. The initial price drop triggered margin calls, which may have necessitated the liquidation of more promising hands. Going into a summer with potentially weaker economic data or subsequent reserve releases heightens liquidation risk. Even if some speculators ride it out, others will vacate the trade putting even more downward pressure on prices. With the Brent-WTI spread at a relative high, the upside potential is arguably muted, necessitating faster-than-expected economic growth or a significant disruption in oil supplies.

To the IEA: “Nice hand.”

But he really should have been recognized for his total lack of vision.

In his seminal (and I mean that for its politically incorrect connotation) 1995 work, “Bowling Alone: America’s Declining Social Capital,” Putnam bemoans the loss of community. His evidence that social capital is declining rests on eroding membership in women’s charity groups and bowling leagues. The culprits of our societal demise are women in the workforce and the advent of technology that he suspected was “driving a wedge between our individual interests and our collective interests.”

Technology, in Putnam’s view, was isolating and self-centered.

Some may try to cut Putnam some slack. After all, it was 1995 — roughly a decade before the launch of social networking sites like My Space and Facebook. But social networking was alive and well long before grandma started posting pictures on Zuckerberg’s virtual corporate walls.

Usenet groups were thriving by the time Putnam published his nostalgic whine. Predating the world wide web, niche Usenet “newsgroups” were a virtual meeting place for people with shared interests. Over time, these online communal ties often blossomed into more traditional/physical communities.

For instance, in 1992 a few members of the Usenet newsgroup rec.gambling met in Vegas for the first BARGE (Big August Rec.Gambling Excursion). By 1995, more than 100 people were showing up to play various community-sponsored poker and blackjack events. Hilarious online trip reports like Tiltboys at BARGE: Six Sidebets Out only enhanced BARGE’s attendance and reputation.

BARGE never failed to live up to its unofficial tagline: “There are no strangers at BARGE, just friends we haven’t met.” Soon BARGE was joined by regional events like MARGE (Mississippi), FARGO (Foxwoods), ESCARGOT (Southern California), etc.

Prevent Barriers and They Will Come

Putnam’s failing was rooted in his traditional definition of social structures. But even now, people confuse structural design/intent with activity. Usenet newsgroups were designed for online communities. But online communities can form by themselves — if you let them.

In 2001, I was asked to beta test poker tournament software for a new subscription poker service. The developers put in a chat room that opened a half hour prior to a beta test run. It was done as almost an afterthought — and a feature primarily added to facilitate software bug discussions. But of course, that isn’t what it was used for.

The 200 beta participants all shared a passion for poker and were early technology adopters. Within days, we were bonding in chat. Within a few months, we were a community - the last thing the company thought it was developing.

On September 11th, the first beta user entered a blank chat line. Another did the same. Empty chat line after empty chat line followed as our community shared a moment of online silence. We were separated by thousands of miles, age, race, religion, politics, gender, education and socio-economic condition. But communities unify in the face of adversity.

In later years, when one of the original beta testers lost her house in Hurricane Katrina, members sent cash and gift cards to tide her over. When one member was hospitalized, another member sent a laptop to help keep them connected to the community. Members married. And long after people needed the core services of the site, they stayed on to be a part of the community.

Initially blogs, portals and websites were stingy with links, blogrolls and shout outs, mistakenly believing that they would be giving away traffic. Some still believe their online space is diminished by linking out. But early poker bloggers like Iggy, Pauly and AlCan’tHang clearly understood that conversations — not monologues — built traffic and communities. Twice a year, the online poker blogger community has its own version of BARGE. In this article, I discussed some of the similarities between the World Poker Blogger Tour and ESCARGOT.

On “real money” poker sites, solitary players battle each other for their livelihoods. After Black Friday closed the largest US online poker sites, players missed far more than a job. In this Slate article , online professional Shane (Shaniac) Schelger acknowledged “Many of my closest and most trusted friendships were formed in the poker world.”

Poker is an adversarial game. You win only if others lose. Withholding information is paramount for survival.

And yet poker developed thriving online communities — even as Robert Putnam continued to receive accolades for underestimating technology’s ability to enable them.

If online poker sites were engaged in bank fraud as alleged, I’m not sure how the PPA is to blame. Maybe my expectations of the lobbying group are different than the expectations of its members. But that difference could be costly for the PPA in the near future.

The PPA purports to be a grass roots organization defending players’ rights. In reality, it is an organization fostering an agenda consistent with businesses who want to operate in a lucrative, regulated, US online poker market.

But players do matter. Player membership is key to PPA’s goal. Lobbying is made so much easier when an organization can claim X million members across every voting district in the US. No one in Congress wants to fuck with the agendas of the AARP or the NRA — too many potential votes to lose.

The PPA worked hard to gain a membership base that it deemed critical to its agenda. But membership is a means not an end. And members only stay loyal to the extent that they perceive their interests are being served.

Membership satisfaction is a problem for the PPA. Some of this is due to the business interests in play. No matter what the name implies, it represents the industry. Unrealistic membership expectations, however, may be the elephant in the room.

Players claim they want poker to be under the auspices of a legal framework. Players want justice when a site violates “the rules.” For instance, the UB/Absolute cheating scandal still rankles the online player community. Complete justice was unattainable, hindered by online poker’s jurisdictional and legal gray zone, wrapped up in a rubber stamp, self-regulatory framework.

But players don’t particularly want what may come with enhanced legal protection. If regulated, online sites will pay taxes. Rakes will be much higher. And online poker companies won’t be the only ones paying more taxes.

How many online poker players currently comply with the Foreign Bank and Financial Accounts regulations? Got more than $10K in an offshore poker account? Have you filed that information with the IRS? How many online poker players pay taxes on all the money they earn online? I call dibs on the software application that will help you record your taxable income after each and every online session.

What? You don’t want to be restricted to play on certain sites? You don’t want the only game in town to be Harrahsonlinepoker.com or MGMonlinepoker.com? That’s too bad, because for a long time, that’s probably what you’re going to get.

Casinos have a track record of regulatory compliance. Casinos also have a much longer history of successfully lobbying Congress. And if there’s anything Congress loves to do it is to please two lobbying groups with one bill (akin to killing two birds with one stone).

And unfortunately, if the bank fraud charges in the DOJ’s indictment prove true, Full Tilt and PokerStars may have effectively taken themselves out of play in a regulated US online poker market. (UB/Absolute Poker probably never had a chance.)

Rake back deals? Kind of doubt it. Player sponsorships? Maybe.

The PPA can’t produce the online poker of our dreams. It’s not their fault. I can’t envision a lobby powerful enough to beam online poker back to 2005.

But if you feel cheated, imagine how Full Tilt and PokerStars feel. They have been big contributors to the PPA. That became a sticky issue when the Reid bill was being floated. The bill, which would have penalized companies like FT and PS — companies that continued to operate in the US market after the UIGEA passed, put the PPA in the hot seat.

Sure, the PPA’s mandate is to insure online poker is legal. But how could they support a bill that would do just that while fucking over their primary financial supporters? Eventually the PPA supported the Reid bill, but the process wasn’t pretty.

The PPA Rain Made Us - But That’s What Lobbies Do

In a 2+2 thread about the PPA, ItsRainingMen brought up a great scene from The Wire. It’s the one where Stringer learns he’s been “rain made” by Senator Clay Davis.

“He rain-made you. A guy says if you pay him, he can make it rain. You pay him. If and when it rains, he takes the credit. If and when it doesn’t, he finds reasons for you to pay him more. Clay Davis rain-made you!”

But that’s what lobbyists do. They take credit for any drop of moisture, even if it came from someone else’s sweat. Any setback is a call for action — read that as a plea for more money.

Nothing gets done in Congress without a lobby. The PPA is the online poker industry’s lobby. The PPA is no worse than any other lobbying group. You probably won’t get jack shit without them. You may not like everything you get with them.

If you don’t want to send your money to the PPA, there is nothing stopping you from directly contributing to the campaign funds of those in Congress who have supported online poker’s cause. Feel free to get off your couch and work to unseat those who have screwed online poker in the past.

But if you are expecting anyone — including the PPA — to deliver 2005-era online poker, you will probably be disappointed.

Once discovered, there is no going back to Hamsterdam.

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