Here's The Problem That Made The New Alleged Bitcoin Inventor A Mathematical Rock Star

This weekend, computer scientist Ted Nelson claimed that mathematician Shinichi Mochizuki was the man behind Bitcoin. 

See, while the digital currency has moved markets and attracted major investors, nobody actually knows who came up with it.

The paper describing the system was published under a pseudonym, Satoshi Nakamoto, and people are clamoring to find out who the genius behind the Bitcoin system actually is. 

And while there is a mountain of compelling evidence demonstrating that Mochizuki probably isn't Nakamoto, this is still an excellent opportunity to revisit why people are obsessed with the Japanese mathematician — namely, his rock-star status achieved after publishing a bold proof of one of the thorniest problems in Diophantine analysis: the abc conjecture. 

In short, the abc conjecture explores the relationships between prime numbers.

It's been described as the most important unsolved problem in Diophantine Analysis.

Diophantine analysis is a branch of mathematics that works with some of the most simple number systems (like ax + by = 1 or xn + yn = zn) and in doing so explores some of the deepest relationships in math.

Some of the earliest work with mathematics — we're talking ancient Greek number-crunching here — was with prime numbers, especially the relationships and frequency between them. 

The abc conjecture — a younger problem in the field, originally proposed in 1985 — is as follows.

Take three positive integers that have no common factor and where a + b = c. For instance, 5, 8, and 13.

Now take the distinct prime factors of these integers—in this case 2, 5, and 13—and multiply them to get a new number, d.

In most cases, like this one, d is larger than c. The conjecture states that in rare instances where d is smaller than c, it is usually very close to c. Most importantly, the conjecture also shows that there are a finite number of instances of a, b, and c where d is smaller than c. 

Mochizuki claims to have cracked this conjecture in a 500-page proof.

Even if you didn't catch all of that, solving this would be the necessary missing link for a dozen different, more advanced problems in Diophantine Analysis, and is also linked  to the legendary mathematical problem, Fermat's Last Theorem.

So it's not unreasonable to expect that Mochizuki — an exceedingly intelligent mathematician whom Nelson thinks had time to complete such an undertaking — has the brains to be the guy behind Bitcoin. 

But even if the evidence doesn't come together, Mochizuki should still he hailed as the guy who potentially cracked one of the most difficult problems in his field, still a huge achievement. 

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Herbalife's Stock Is Ripping

Shares of Herbalife are ripping today with the nutrition supplement seller's stock last trading up more than 8% at $48 per share.

We haven't seen any news on the stock, yet.

Herbalife is one of the most controversial stocks and it has generated a great deal of dicussion on both the long and short side.  

Back in December, hedge fund manager Bill Ackman, who runs $12 billion Pershing Square Capital Management, publicly announced that he's shorting more than 20 million shares of the stock. Ackman believes the company is a "pyramid scheme" and has a price target of $0. 

Not everyone has agreed with him, though. 

Ackman's rival Carl Icahn snapped up a massive stake in Herbalife.  Icahn owns more than 16 million shares of Herbalife.  

The stock is trading well above the level when Ackman revealed his short at a special Sohn Conference event in mid-December.  

Here's a chart: 

Yahoo! Finance

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The Gold Shorts Continue To Pile On

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Gold prices are up modestly today, but continue to be near their lows of the year.

"Downward pressure on gold continues and we are now back to levels post the mid-April selloff," said UBS's Edel Tully in a note titled Gold Shorts Dominate.  "Investor sentiment remains negative as highlighted by the persistence of ETF selling and the extension of speculative shorts to an all-time high."

Check out the chart to the right.

"The gross short position in gold now sits at a record 14.3moz, nearly double the levels at the beginning of the year," added Tully. "Meanwhile, gold gross longs declined for a fifth consecutive week to 21.3moz, representing a 21% decline year-to-date."

Here's some historical context via FinViz:

FinViz

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Security Vendor Websense Goes Private in $906 Million Deal (WBSN)

Websense has been the subject of acquisition rumors for years and it's finally found a way to cash out: a private equity deal lead by Vista Equity Partners.

The company said Monday Vista Equity Partners was acquiring the company for $24.75 per share in cash, a 29% premium over Websense's May 17 closing price of $19.23. That's also a 53% premium over Websense's average closing price over the last 60 days.

Bloomberg did the math and pegged the value of the deal at around $906 million. 

So, that looks like a good deal for Websense investors, since shares haven't traded at this level since July 26, 2011, when they closed at $25.90. Websense shares are up around 25 percent this year. 

The CEO John McCormack and all the senior management plan to stay on after the deal closes.

Websense is known for its tech that lets companies monitor how their employees use the web and block access to certain sites, like porn.

Websense has since diversified its portfolio beyond web filtering, adding email, data and mobile security offerings, forming a security threat research team, and delivering its products as cloud services.

Websense said BofA Merrill Lynch is serving as its financial advisor on the deal, and J.P. Morgan Securities LLC, RBC Capital Markets and Guggenheim Partners are providing debt financing.

This isn't the first time Websense was said to be shopping for a buyer. In 2011, The Wall Street Journal reported that Websense was working with Frank Quattrone's Qatalyst Partners to broker a deal in the $1 billion range.

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DAVID BIANCO: The Stock Market Rally Sure Looks Like Something Out Of The 1980s

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Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. Sam Ro | May 20, 2013, 11:04 AM | 2,542 | What are we to make of the current state of the stock markets and the fundamentals driving them?

Earnings growth expectations are weak, manufacturing activity is decelerating, the dollar is strengthening, commodity prices are deteriorating, and business spending is anemic.

Yet stocks have been rallying.

In a new research note titled "Remember The 80s?" Deutsche Bank's David Bianco reminds us that these dynamics are not unprecedented.

"1967, 1985-86 and 1995 have the weakest economic mid-cycle manufacturing ISM since 1960," he wrote. 

"We see 1985-86 as very similar to now: a stronger dollar and weaker commodity prices, soft business spending and weak exports. This caused 1985-86 to have the weakest non recession EPS growth. Yet, the S&P delivered strong gains as its PE expanded from about 10x in 1984 to 15-17x by 1986 as investors became more trusting that inflation risks had dissipated and accepting of secularly lower interest."

Check out how the PE surged during that period.

Deutsche Bank

All of this speaks to the nature of the stock markets, which can often appear irrational.

But don't interpret this commentary as Bianco being bullish.  His year-end and 12-month targets for the S&P 500 are both 1,625, which compares to the 1,667 level we're seeing today.  He also expects the next 5% move in the stock market to be down.

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IT'S OFFICIAL: YAHOO ANNOUNCES $1.1 BILLION TUMBLR BUY (YHOO)

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Yahoo just announced that it has acquired New York startup Tumblr for $1.1 billion.

Addressing concerns from Tumblr users that Yahoo will ruin the blog network, the press release says the companies promise "not to screw it up."

"Tumblr will be independently operated as a separate business. David Karp will remain CEO. The product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit, and commitment to empower creators." 

This is Yahoo CEO Marissa Mayer's first big acquisition since joining the company last July.

Here is her canned quote on the deal:

"Tumblr is redefining creative expression online. On many levels, Tumblr and Yahoo! couldn't be more different, but, at the same time, they couldn't be more complementary. Yahoo is the Internet's original media network. Tumblr is the Internet's fastest-growing media frenzy. Both companies are homes for brands - established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users, design, and finding surprise and inspiration amidst the everyday."

"I've long held the view that in all things art and design, you can feel the spirit and demeanor of the creator. That's why it was no surprise to me that David Karp is one of the nicest, most empathetic people I've ever met. He's also one of the most perceptive, capable entrepreneurs I've ever worked with. David's respect for Tumblr's community of creators is awesome. I'm absolutely delighted to have him join our team."

Here is Tumblr CEO David Karp's quote:

"Our team isn't changing. Our roadmap isn't changing. And our mission - to empower creators to make their best work and get it in front of the audience they deserve - certainly isn't changing. But we're elated to have the support of Yahoo! and their team who share our dream to make the Internet the ultimate creative canvas. Tumblr gets better faster with more resources to draw from."

Here is our analysis: Why Yahoo's $1.1 Billion Tumblr Buy Is A Great Idea

Here is the release:

Yahoo! Inc. and Tumblr announced today that they have reached a definitive agreement for Yahoo! to acquire Tumblr.

Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business. David Karp will remain CEO. The product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit, and commitment to empower creators.

With more than 300 million monthly unique visitors and 120,000 signups every day, Tumblr is one of the fastest-growing media networks in the world. Tumblr sees 900 posts per second (!) and 24 billion minutes spent on site each month. On mobile, more than half of Tumblr's users are using the mobile app and do an average of 7 sessions per day. Its tremendous popularity and engagement among creators, curators and audiences of all ages brings a significant new community of users to the Yahoo! network. The combination of Tumblr+Yahoo! is expected to grow Yahoo!'s audience by 50 percent to more than a billion monthly visitors, and to grow traffic by approximately 20 percent.

The deal offers unique opportunities for both companies. Tumblr can deploy Yahoo!'s personalization technology and search infrastructure to help its users discover creators, bloggers, and content they'll love. In turn, Tumblr brings 50 billion blog posts (and 75 million more arriving each day) to Yahoo!'s media network and search experiences. The two companies will also work together to create advertising opportunities that are seamless and enhance the user experience.

Total consideration is approximately $1.1 billion, substantially all of which is payable in cash.

"Tumblr is redefining creative expression online," said Yahoo! CEO Marissa Mayer. "On many levels, Tumblr and Yahoo! couldn't be more different, but, at the same time, they couldn't be more complementary. Yahoo is the Internet's original media network. Tumblr is the Internet's fastest-growing media frenzy. Both companies are homes for brands - established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users, design, and finding surprise and inspiration amidst the everyday."

"I've long held the view that in all things art and design, you can feel the spirit and demeanor of the creator. That's why it was no surprise to me that David Karp is one of the nicest, most empathetic people I've ever met. He's also one of the most perceptive, capable entrepreneurs I've ever worked with," continued Mayer. "David's respect for Tumblr's community of creators is awesome. I'm absolutely delighted to have him join our team."

David Karp, CEO of Tumblr, addressed the Tumblr community, "Our team isn't changing. Our roadmap isn't changing. And our mission - to empower creators to make their best work and get it in front of the audience they deserve - certainly isn't changing. But we're elated to have the support of Yahoo! and their team who share our dream to make the Internet the ultimate creative canvas. Tumblr gets better faster with more resources to draw from."

The transaction, which is subject to customary closing conditions, is expected to close in the second half of the year.

Conference Call

Yahoo! will host a conference call at 9:00 a.m. Eastern Time today to discuss this announcement. A live webcast of the conference call can be accessed through the company's Investor Relations website at http://yhoo.client.shareholder.com/events.cfm?CalendarID=8. In addition, an archive of the webcast will be accessible for 90 days through the same link.

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