Blessed by the Potato

The CBC recently ran an editorial titled “Cool science, but is it news?”

I was prepared to rant and rave and dump all over it for pages and pages, but I suspect that it’s meant to manufacture controversy.

So instead I’ll just make a few rebuttal points. The big question underlying the question in the headline is what is news? I think scientific progress definitely fits most any definition of news: it can have big (or small) impacts on society, health, and business, in addition to the esoteric impact on our understanding of the universe around us. Sports on the other hand, doesn’t: locked in a continual, meaningless struggle that will be repeated anew next monday/year/whatever. I am continually baffled by professional sports in general, but at least have some inkling of the entertainment value of watching it. Reading about it the next day seems like abnormal behaviour that should maybe get looked at by a specialist — if it weren’t for the fact that so many people do it.

On the CBC’s news website, they have one screen with a varying selection of top stories, then towards the bottom 10 boxes with different categories (business, world, Canada, politics, etc). Two of those categories are different boxes for sports. Two are ostensibly science-related: technology & health, but both tend to have much less scientific stories than what is being discussed in the editorial (the latest happenings on twitter, scandals of minors doing things that may hurt them, or the tech specs of the flashiest gadget are hardly cool science). On the mobile site, fully one third of the screen space is dedicated to sports, and even then sports stories crawl into the other two panels in the default view. Science is nowhere to be found.

Science certainly isn’t being treated as news, though in my opinion it most certainly is.

Moving past that quibble, the article goes on to lament the way science stories are reported. And I have plenty of things to gripe about there. On the first day of J-school it must be drilled into journalists’ heads that they must — must! — attempt to relate science stories to some every-day impact. “This will (eventually) lead to a cure for cancer…” “Can warp drive be far behind?” “Climate doom awaits us all!” “Bacteria found in space rocks: Can invasion be far behind?” On top of that, stories have to be written for a very lay audience: often below the high-school level. So the stories don’t get to convey much, and waste a lot of column-inches on trying to catch the reader up on basic background information. Some of that should be changed, if for no other reason than Wikipedia exists. Hyperlink the big words, and accept that a certain portion of the readership will either tune out (they probably are anyway), or, after reading enough, will have managed to refresh their memories of grade 11 and caught up to a slightly higher scientific reading level.

After all, that’s the way the other sections work. The business stories just plow on through terminology like basis points, index, or leverage, and don’t even attempt to define acronyms like CEO or EBITDA. Everyone would think the sports section dull and boring if in the midst of describing something they had to break and ensure the entire audience understood, and had to lead off with a slow insertion from some random generality:

Every year thousands of Canadian youth enrol in hockey programs to get fit, make friends, and lose teeth. These programs are supported by billions of taxpayer dollars in the form of subsidies for arenas, tax credits for kids’ programs, and direct funding of government salaried referees. It may not look like an activity that would lead to preparing our kids to become productive members of society, but these kids are in it for a different reason: to gain one of the coveted spots as a ‘professional’ hockey player.

One such professional team, the Toronto Maple Leafs, played a second team composed of paid players from Ottawa, known colloquially as the “Senators” (though there is no relation to the Senate). Vladimir passed the puck — a hard black rubber disc that is the focus of the players in hockey — to Jacques, another member of the Toronto Maple Leafs team (though peculiarly enough, neither one is actually from Toronto). Jacques then skated, which is like running but on the icy surface of the hockey rink, towards the net that was defended by the goalie from the Senators. However, before he could attempt to score a goal, an unforseen result was found in the data: the referee determined that he was offside with a confidence of 95%, 19 times out of 20.

“Offside” is a state of being that makes no sense in our conventional world, but hockey experts assure us that the implications could be far-reaching, including the beginning of a whole new hockey “trial” from the face-off area. Despite this two-steps-forward, one-step-back outcome, head coach of the Toronto Maple Leafs is excited about the work done so far. “I’m really pleased with the progress we’ve made on moving the black, rubber object across the slippery surface; or as we call it, ice. This really speaks to the dedication of the team, and the value our work has for society as a whole. It’s really just one piece of the puzzle, but it’s like that corner piece that really helps orient your worldview and re-define the problem. Now instead of trying to put the puck in the net, we’ll be working to make sure the Senators don’t get the puck out of the little circle.”

Opinions are conflicted as to the real-world benefits of last night’s hockey game, but there’s a sliver of hope that if this pattern continues in further games, there could be an increase in the supply of donor teeth to the local gummy homeless population.

And I’ll conclude by linking to a very good article that I didn’t find until after I had already finished my little rant. It tears apart the science journalism tropes even better: The Unwritten Rules of Journalism

The Ottawa Citizen had a great couple of articles on a joint NASA/NRC/CSA project to study snow storms and weather radar. While the first article about the project is not bad, what made it notable was the follow-up freedom of information release showing the ridiculous layers of bureaucracy and message massaging that had to happen before a non-answer was released. An op-ed the next day lamented the extreme information secrecy of the government.

I think scientific communication is important — indeed, it’s something I’m hoping to make a career out of here. So it’s kind of sad to see such an epic failure of communication in this case. What makes it especially sad is the number of people involved: I counted at least 4 different people in the FoI series of emails who were dedicating time and effort to not communicate, and there were more who appeared in just one or two short snippets. I bet you could not communicate with just one person in the department, or even an unhelpful sign on the door and a voicemail message. These guys, in theory, are supposed to help translate the science for the lay people and do the communications so the scientists can do science, though with the present government the entire goal may simply to act as a firewall between the scientists and everyone else. But wouldn’t everyone have been better off if one of the scientists just did the talking for himself?

So I see this kind of thing and can’t help but think “what are they getting paid for?” Couldn’t that money be better used for the main mission: science?

Hybrids (like my Prius) contain many awesome innovations that give it that great efficiency, leading to lower fuel use (and lower expenses!). With plug-in hybrids starting to hit the market, the ways that technology provides efficiencies increase. Yet even though hybrids have been around for well over a decade, they are still very poorly understood (particularly by auto journalists).

Quick, which one innovation contributes the largest portion of the fuel savings in a hybrid like the Prius, is it:

a) regenerative braking
b) exhaust gas recirculation
c) atkinson-like cycle engine
d) electric motors and a battery to power acceleration
e) aerodynamics, including a tear-drop shape and a plastic cover for the underside to smooth airflow
f) lightweight aluminum construction
g) low rolling resistance tires
h) continuously variable transmission
i) an engine that turns off when not in use (coasting, at stops)

All of those innovations (and I’m sure a few I’ve forgotten) add to the efficiencies. Odds are good that you answered a, or d, or i, since those are the items that are the most distinctive about a hybrid, and which get the most press. And of course, none of those three are of much good when smoothly cruising on the highway, which is why auto writers keep saying stupid, easily disprovable things like “all that hybrid gear is useless on the highway.”

Yet a quick check of fuel consumption ratings shows that indeed, hybrids get fantastic highway mileage. The gap between them and a regular car isn’t as wide in the highway cycle as in city driving, but it’s still a really good improvement. So why is that?

It’s because the actual answer is (c): the atkinson-like cycle engine. Estimates vary, but something like half of the total improvement in overall mileage (and nearly all of the highway-rating boost) is because the engine is simply more efficient at turning hydrocarbons into motion (the “thermal efficiency”). All that business with the electric motors helps, and there certainly is some benefit from pairing the properties of an electric motor (which generates maximum torque at low RPM, and is great for helping to meet peak demand) with a gas engine (which needs to rev up to produce acceleration, and which has a high-density fuel source for steady-state power demands), but it’s there largely because with an Atkinson engine, you’re not going to get anything approaching an acceptable 0-60 time. That efficient engine needs help getting going.

If you wanted (e.g.: if you’re an automotive engineering student looking for a summer project), you could strip out all the electronic stuff from a hybrid and just drive around with the Atkinson engine, and you’d get a big part of the benefit. Of course, you couldn’t actually use that in traffic since it would take you forever to accelerate, but on a closed course to prove a point…

Anyway, once you’ve got the electric motor in there for the acceleration boost, you can do all the extra tricks with it to squeeze out even more efficiency, like shutting off the engine when coasting, regenerative braking, etc.

So now that you know about the importance of the Atkinson-cycle engine, you see why hybrids still rock on the highway. In fact, improved thermal efficiency is also the reason why diesels get decent fuel consumption numbers on the highway: the higher compression of a turbo diesel is also more efficient at turning hydrocarbons into motion. In terms of litres burned per hundred kilometers, diesel (like a Jetta or Golf TDI) is on par with a hybrid like the Prius; though once you factor in the higher energy density of diesel, well, you can see who the winner is (and I won’t get into the issue of city driving, too).

And of course, knowing that this is the single biggest source of efficiency is why I was so upset that GM didn’t include an Atkinson-like engine in the Volt, instead just slapping in an off-the-shelf engine, which is why its efficiency isn’t so great once the charge from the plug-in is used up.

There has been a real barrage of articles about the housing bubble in the MSM lately. Perhaps because January is both a slow news period and a slow real estate period, so it’s a good time to get it all out, or perhaps because the topping process has begun, and the awareness of the problem has started to spread from gloomy spreadsheet addicts like myself to society at large. Based on some very non-scientific mining of Google’s news search, mentions of a housing bubble started to increase about a year before the top in the US, and really were flying wild when the prices finally turned the corner. Here, stories about a Canadian housing bubble roughly doubled last year, to about 500 hits in 2011. There have been over 200 hits already in 2012 — just one month!

Alongside the stories that warn of the danger are ones that try to explain it all away, including two recent ones by Larry MacDonald (who I respect) and Mark Weisleder (who, well, let’s just say he makes these kinds of mistakes a lot). Together, they make a few basic points:

• House prices have been stable.
• Immigration.
• Interest rates are low, and even if/when they do rise, they will be accompanied by job growth.
• Recourse mortgages.
• Low foreclosures.
• High valuation metrics… but, like, so what?
• Bears only call for a bust due to recency bias, because we just saw a housing bust in the US.

So, to the point-by-point rebuttal machine!

Though some are shared, Mark’s arguments are obviously much weaker than Larry’s. Only he would make the point that housing has been stable and the GTA is nice, so it’s an attractive buy. Of course the converse implies that if housing does start to turn, it will turn badly because that point in favour of buying goes away, and instead becomes a point in favour of selling.

Similarly for his immigration argument: we do get a steady influx of immigrants to Canada (and the GTA in particular). Beyond just immigrants, babies will still be born, teenagers will still turn into twenty-somethings, and people will still move out of their parents’ basements. That was as true in 1992 as it is today. For that matter, it was as true in 1989 as it was in 1992. These things are all true, have been true for a long time, and mean absolutely nothing when it comes time to deciding whether now is a good time to buy a house in Toronto. It means your house won’t be completely worthless, but doesn’t mean a painful 10-35% correction isn’t in the works — as witnessed first-hand by buyers in Toronto, 1989.

The point about low interest rates is also not particularly strong. Even with the recent deals on fixed 5 and 10-year rates, you will be exposed to future rates for a long time when buying a house. After all, the typical mortgage is 25 or 30 years long. It is much better to buy at higher rates and a lower price than to scramble to buy at high prices and low rates. Think of the possible outcomes: if rates move lower, you get a gift and can pay off your mortgage faster. If rates move higher, you face a hardship. If rates are as low as they’ve ever been, the odds are this is as good as it will get, with likely hardship to follow.

Now Larry makes a point about higher rates being accompanied by higher employment, which should offset the price declines that higher financing costs would bring. But to that I simply say: invert it. Prices were up 10% in Toronto last year, and apparently the economy is still just limping along, warranting low rates. So how big of a driver is employment vs interest rates for house prices? To me, that indicates that while there may be a bit of tempering if employment and wages gain along with increases in rates, those are not going to have a large enough effect to counter the decrease in prices that will come from the higher rates. Rates trump jobs when it comes to our housing market.

Recourse mortgages is a common reason thrown around to explain why Canada may be different than the US. It’s an interesting one, too. Sure, if the bank can come after you for your other assets you’re going to be less likely to strategically default and walk away from the house. That’s going to slow the positive feedback cycle, but there’s very good evidence that it’s not realistically that big of a factor. To point out the real-world evidence, again, just look at Toronto, 1989: mortgages were recourse then, too. Didn’t stop the bust. Many US states also had recourse mortgages (including Nevada, one of the few states to escape the housing meltdown — oh, no, my mistake, it’s one of the hardest-hit).

Let’s consider that point in a little more detail. Why doesn’t the recourse action save the housing market? At the core level, the simple answer is because it doesn’t fix anything in the fundamentals: the only way for price-to-rent and price-to-income to come back into line is for price to fall or rents and incomes to rise. So having recourse mortgages may stem the tide and positive feedback cycle of strategic defaults and foreclosures, but doesn’t bring any new buyers to the market. But even then, how much of the tide does it stem?

To answer that question, we have to get an idea of how many strategic defaults there might be vs. bankruptcies. If you can’t pay the mortgage, if you’re severely underwater, and if you have very few other assets, there is really no difference between a strategic default and a bankruptcy — and we still have bankruptcy here. You give the house back to the bank and you start over with nothing. Many people — far too many — have bought in recent years with nothing down and are house poor: aside from their house (with just a thin slice of equity in that), they have very few savings and investments. So to them, there’s no difference between a strategic default and full bankruptcy. If someone has a lot of other assets, then they may have considered a strategic default, but how many of those people are there who also have so little home equity that they’d be willing to trash their credit and walk away, if only it weren’t for that damned recourse mortgage? I’d bet not terribly many. Not enough to matter anyway.

So recourse mortgages aren’t going to stop a housing bust, and are certainly no reason to go out and buy now (if anything, it should give you pause as a buyer).

Hmm, low foreclosure rate. Let’s see, prices in Toronto were up about 10% year-over-year last year. Why are there any foreclosures? Even a 5%-down buyer could sell the place, repay their mortgage, and cover all the sundry transaction fees, taxes, and penalties if they ran into financial trouble in this market. They just had to stay solvent for a year. No, foreclosures are a lagging indicator: only when the housing market is already flat or going down and people are getting into financial trouble does the rate go up, because all other options have been taken away.

Both Mark and Larry touch on valuation metrics. Part of Larry’s point is valid: they don’t tell us about when the correction will come. I’ve been bearish for years precisely because the metrics have been out of line for years. But that said, severe over-valuations like this rarely correct neatly, with a long period of modest negative real returns — “crashes” or “corrections” are the norm. Mark’s point… does Mark have a point? If you don’t like averages, fine, use medians. But don’t compare the nominal number with one method to the nominal number from another: what was the median Toronto income to the median Toronto house price historically, and what is it now? You can’t try to hand-wave the fundamental imbalance away like that Mark, I’m too perspicacious for that.

Finally, to Larry’s point about recency bias: I disagree. I think the recency bias is not clouding the vision of the bears, but rather the bulls like Mark. The last crash in Toronto real estate was 1989, when many current first-time buyers were kids, or gametes. All they’ve known for recent history has been rapidly increasing prices with no risk.

Asides: Mark has a few other points that aren’t even remotely relevant, but I figured I’d rake him over the coals a little more.

His final bullet point about debt ratios shows how clueless he is about what these population measures are showing: for a given person, a debt-to-income ratio of 150% is nothing. Hey, a 25-year-old making $50,000/year who just bought a $400,000 house with nothing down except the closing costs would have an 800% ratio, and people still wouldn’t look at him funny. That person should be able to handle the payments and has lots of time. But what about a retired 70-year-old who has a pension of $40,000 and is $60,000 in debt? That’s only 150%, yet is clearly a much worse situation than the young guy at 800%. So the important thing with these population measures to see how they change over time. The Bank of Canada isn’t worried about one particular Joe having 150% debt-to-income, it’s worried that for a long time that ratio stood at 100% and over the last few years has climbed to 150%. I wonder how Mark would interpret a stat like the average family has 2.3 kids? He must be one of the ones envisioning whole neighbourhoods hiding kids with only a third of a body in the basement.

The closing message about the US not allowing the economy to fall apart in an election year is face-palm worthy. 2008 was an election year, Mark. The reality is that the US government, for all its nuclear missiles and predator drones, is helpless to stop a housing collapse. Ours will be even more impotent since we’ve already burned up the government mortgage guarantee, low rates, RRSP raiding, and extended amortization options.

I don’t know what to say about the disaster striking Japan. The size of the earthquake (now being reported as a 9.0) was tremendous, one of the largest earthquakes ever, and the following tsunami overwhelmed even one the countries best prepared for tsunamis.

The focus now is on the nuclear plants that are in partial meltdown. There is a lot of fear out there, and some of the coverage has been hyperbolic. The situation is still unstable, and it could of course get a lot worse from here.

As someone who supports nuclear power, who is a scientist, and who has been trained in radiological disaster management, I have to ask myself if these events would change my views, and I would have to say so far, no. I do think there could have been more done at the plants for saftey backups (e.g., the ability to run a backup turbine off the decay heat to power the cooling pumps), and that a safer (in my non-specialist and Canadian opinion) CANDU design probably should have been used in a seismically active country like Japan. But, nuclear power is one of the few options to meet the power requirements of the world, and especially countries like Japan, with high population densities and few hydroelectric options.

Plus, I think it’s important to keep in mind the scope of the problem so far. First off, this is not a separate nuclear power problem, this is a result and an extension of the one of the worst earthquakes and tsunamis ever. This is the worst-case scenario for these reactors, and these are old reactors. The death toll from the earthquake and tsunami are still being tallied, but are in the several thousand range. There are workers in the plants that will likely have health effects from radiation exposure (unclear how many at this point), but most of the general public near the plant was evacuated days ago. Radiation has been released into the environment, with the highest numbers I’ve seen peaking at 12 mSv/hr close to the plant, but generally much lower than that. A typical background dose is in the range of a few mSv per year, and a CT scan might be several mSv. The Canadian occupational limits are 20 mSv/year. So even close to the plant, a person could take their sweet time evacuating and still have no health effects.

What the ultimate outcome will be is still an open question, and it will take several days until the decay heat from the cores is gone and any further fire/explosion/breach risk dissipates. However, the actual impact of the nuclear disaster looks like it will pale in comparison to the impact of the tsunami and earthquake natural part of the disaster. Yet, already the fear is enough to compromise the development of nuclear plants around the world.

I know there must be burning questions out there, ask away and I’ll try to answer them!

Looks like the credit tightening may be taken seriously, as Mark Carney’s warnings are being widely picked up now. There are several other articles with similar themes this week, indeed it seemed to be the Globe’s major story for the week.

In one Globe round-up, the “As one economist puts it, Mark Carney’s warning on consumer debt is akin to leaving the cookie jar in plain sight but telling you not to touch.” analogy was put out there. I don’t think that’s accurate — the metaphor there implies that Carney is being hypocritical or just downright negligent in his expectations. But the children and cookies framework would be better phrased as “Those are for guests, don’t touch!” Because there is a good reason for the cookies (low rates) to be out — to stimulate the economy, capital spending, etc. But they’re not for the kids (housing market) since they’re already hyper enough. The cookies aren’t arbitrarily out, and can’t be easily put away just because the kids are getting into them.

Ed Clark of TD explains why regulation is needed: even though they recognize the problem, the banks don’t want to move first to tighten lending because it would be a competitive disadvantage to the bank that moved first (plus, systematic risk is beyond their business plan, and these loans are essentially risk-free to them thanks to CMHC). A good lesson for deregulation in lots of other areas: competition alone doesn’t always lead to a good outcome.

Michael James had a few good posts this week. another on index investing. I’m not a people person, so I think it’s much easier to pick stocks than to pick advisors/managers…

John Hempton has a post up about some statistics on Chinese ethanol consumption (provided by a controversial producer). There’s a discrepancy between the statistics the company provides, and what the WHO (and educated guessing) suggests is the status of alcohol consumption in China. Either the stats are wrong, or there’s a massive over-capacity building up… I’m starting to worry about stories like these. Don’t know what to do about it yet, but it’s got me thinking…

Jenn sends along this article in the economist about why doing a PhD is usually a waste of time. Speaking of finishing a PhD though, Netbug sends this inspirational video with the helpful tip: “the way to finish something on time and on budget is to ship when you run out of time or money.” Just finishing something and sending it along is the problem I’m wrestling with right now - and I’m long past out of time for sending a first draft to my committee… time to just “ship” something! :)

Jeffery Simpson has a column on misinformed people. Perhaps not surprisingly, “The people who were the most misinformed – in terms of having opinions that varied the most from verifiable facts – were those who watched Fox News almost daily.” I love learning things (I should hope so, as I’ve been a student all my life), and I like being an educator: not even necessarily as a teacher/lecturer, but even just helping to correct misinformation here on the blog. I’m deeply disappointed by (deliberate?) misinformation in the media…

Winter has arrived: last night the wind was howling and the rain was freezing. A big swing in temperature from just a few days ago. Things are just going horribly right now: I’m not even halfway towards my writing goal for my thesis this week, despite spending all kinds of time staring at the screen and wishing it was over. The diet’s been shot to hell as I run out the last of the Halloween candy. Plus last night was a new low: with the rain and the cold and the wind I didn’t feel like walking to work, but driving seemed silly considering it’s only a 10 minute walk. So, I rationalized it by driving out to pick up a pizza, and then taking that to work. Two fitness goals killed with one stone!

Do you know what I like?

Puppies.

I’m walking in to work and it’s as cold out as it will be the day in hell when I finish my thesis (i.e.: frozen over), and I’m basically freezing my nuts off and cursing the very sudden arrival of winter winds. There’s this guy walking along at a perfectly normal pace, and trailing behind him are these two tiny puppies. They’re hauling ass just trying to keep up with him, falling all over themselves if they catch up and try to jump on his leg, and just generally enjoying the hell out of life. I’m freezing, that guy is freezing, and these tiny puppies who should have no body heat left to them are just having a blast out in the wide world, just super-excited to be outside.

Conclusion: Puppies are awesome.

Sometimes, life’s little lessons are both obvious and fantastic.

The Globe had an article on travelers choosing to head to US airports to take flights, and discussed/blamed airport taxes this weekend. There are a lot of people from here that go to Detroit for flights, as it is cheaper to drive down there than take a flight out of London or Toronto most times. Significantly cheaper, since it does take gas or bus fare to get down there, as well as the hassle of crossing the border. So, is that price difference attributable to taxes as the article suggests? “Pearson, which holds the dubious distinction of charging the world’s highest fees for planes to land, paid more than $140-million in rent last year.” That sounds like a lot, but Pearson saw 30 million passengers last year. The math is simple: the airport tax amounts to less than $5 per ticket. Believe me, I’m not driving to Detroit for five bucks. The price differential is coming from somewhere else. Maybe it’s the other fees the airport is charging, rather than the government, but I suspect more blame can be pointed at Air Canada than Pearson (though the article did discuss other government subsidies in the US).

Canadian Financial DIY shows that beta is not the best measure of downside risk.

In an aptly titled article, “Priszm’s recipe for disaster”, Canadian Business magazine looks at the troubled operator of KFC restaurants in Canada. You may recall that Priszm was my single worst stock pick since I started doing my own research (yes, even my zero-or-hero bet on Freddie Mac preferreds are doing better). IMHO, Priszm’s “recipe for disaster” was two-fold. First, they didn’t have control over vital parts of the company’s budget: Yum brands (the owner of the KFC rights) did. They had the usual trick of deferring capital spending (i.e.: renovations) and claiming that since depreciation was a non-cash expense, they could pay out so much of their cashflow. Normally, that works in the trust model, if the depreciation expense you can claim doesn’t reflect the reality, so you can indeed defer/reduce capital spending. Unfortunately, it turned out that to renew the KFC franchise agreements, Priszm had to agree to renovate its locations, whether they needed it or not. That put them in a bit of a bind, not having been saving up for that all along. The second issue was that they had an interest-only loan (something I did not catch when evaluating them earlier on), and it all rolled over at once. So when lending is tough (e.g.: now) they face a liquidity crisis. I wasn’t impressed with the communication to investors about that issue, but communication issues aside, that looks to be the biggest risk facing the company right now. Either they find a new lender (and the clock is ticking — they’ve already arranged for one extension, which runs out in a month), or they could find themselves defaulting.

I think the big take-away lesson there is to avoid balloon payment schemes: it’s much easier to roll small portions of your debt, even if you have to suffer high interest rate spreads, when conditions are tight. And, if it comes to it, aggressive focus on reducing the debt could mean a company could pay off the debt as it matured, as long as the amount maturing in a given year was within its capabilities. Many lending covenants will keep companies to something like a 5 to 1 debt to earnings/EBITA ratio, so if the loan maturities are evenly spread out over 5+ years, it should be possible to become debt free by paying off the loans as they mature (by suspending dividends/capital reinvestment spending/deferring maintenance etc). Priszm’s one big loan strategy deprived them of that option.

Back to the issue of depreciation, it’s really an interesting one, and something that’s fairly important when looking at whether or not a trust’s payout is sustainable. The accounting rules provide guidelines for what depreciation figures to use — and it is important to have some kind of standard, or it would be all too easy to manipulate the books by just choosing a figure for depreciation that suits your mood. But a standard figure for depreciation is going to be perfect for almost nobody. Take computers for instance. At home we have here a powerful desktop system I use for everything from gaming to doodling to running MATlab scripts (as well as blogging, checking email, etc). The price curve of computers is such that all that power didn’t come cheap, and two years later that computer’s likely worth maybe 30% of what I paid for it, as now it just has the power of a typical mid-range desktop system. Wayfare on the other hand just has a little netbook for doing word processing and surfing the internet (and because it’s light and portable), and even though it’s also two years old now, it’s probably still worth at least half what she paid, since it’s still perfectly suited to achieving those goals. Similarly, you’ve probably seen lots of workplaces with downright ancient technology that still serves their purposes fine, even though it was long ago depreciated to zero on their balance sheets.

So, one example to think about: Canadian Helicopters (CHL.UN) is one company I like a lot - they’re paying out a decent amount of cash, and they’re earning that even under GAAP earnings. They amortize their helicopters at 4%/yr, straight-line (that is, after 25 years, the helicopters are recorded as having $0 value). I’m told though that a helicopter is far from worthless, even after 25 years. Though they didn’t say how old the helicopters were, in 2009 CHL sold 11 helicopters (plus some land) for $30 million. It’s unfortunately not spelled out how much of that was for the helicopters, or how old the units were when sold (likely fairly old since the buyer is reported to be replacing them within 2 years), but the end result was a reported one-time gain of $1.4M on the sale. Anyway, my point is that here’s a company that’s likely getting close with their amortization figures, or potentially even over-reporting depreciation (that is, their assets may be worth more than their balance sheet indicates). Though I have a “full position” in CHL at the moment, and though it’s been up a fair bit this year (I generally prefer buying stocks when they’re down), I’m thinking of getting more for this reason. The biggest issue is that its largest few clients make up a large part of their revenues, and can be fickle — Ornge took over their own operations, and for the NWS work, CHL lost out in the last round of bidding. That was offset a bit by picking up more work in Afghanistan, but now a very large part of their business is focused there.

Jim Chanos makes the case to CNN that China’s in a construction bubble. What to do about it? How will that affect the fertilizer and oil stories for China?

Michael James reminds investors that a good reason to limit trading is because of the opposition. I have to wonder if they’ve got room for another almost-PhD on their team :)

The folks at CMT report that TD’s Ed Clark supports a return to 25-year amortizations being the maximum. I’d support that: though it might be nice to have a 35-year amortization as an option for when times get tough, it’s just too tempting for enough people to make it troublesome, plus, it’s a systematic risk issue. After the first 5-year term (about the amount of time the average person goes before picking up and moving again), a person with a 35-year mortgage has only paid off about 7% of their loan. Combined with a minimum 5% down-payment, and it doesn’t take much of a move downward in house prices at all for that person to find themselves in negative equity (or effective negative equity, where their equity is not enough to allow them to sell the house and cover closing costs without finding additional funds). On a more traditional 25-year mortgage, almost 13% of the principal will be paid down in that first 5-year term. [Note that this is an interest-rate dependent calculation: I put 4% into the mortgage calculator, but higher rates result in even less principal paid down: at 6%, the paydown becomes 5% and 10% for the 35- and 25-year amortizations, respectively]

The WikiLeaks release is making waves. I know that they are themselves very secretive about where they get their information from, perhaps to protect their sources, but I have to wonder how they’re getting so much information. I also wonder if they think through what they’re doing. Scott Gilmore had an oped in the Globe examining that issue. A commenter also pointed out that these kind of full, plaintext releases may compromise cryptography. I think that modern techniques in use by governments will still be strong even with a number of cases of cryptotext and plaintext to work with, but I think it may be a question worth asking, especially if there’s a concern of a player with a long memory breaking transmissions from long ago (the news says the releases date back to 1966).

I was explaining my playlist at work today:

“This is a song about a mad scientist who is lonely, and builds himself a girlfriend.”

“This is a song about a giant squid who is lonely.”

“This one’s a love ballad from Charon to Pluto, trying to reassure and cheer up Pluto after we revoked its planet status.”

“This is a song about bedtime and how you long for the comfort of your trusty old teddy bear.”

“A whole song about Ikea! You guys all like Ikea.. for college kids and divorced men…”

“You know, sometimes, the world just wins, you know? It just fucking wins. Every. Goddamned. Time.”

“Uhh… Tater, are you trying to tell us something?”

No, I just like JoCo, ok?

Oh, fun human tricks!

So there’s this yoga pose that involves touching your nose to the ground without supporting yourself with your hands, and then sitting back up on your knees. It sounded impossible to me, but the girls say it’s super easy, and doesn’t require much back strength at all. So they do it: they kneel on the ground, with their bums right on their heels, then, with their hands behind their backs, lean forward and touch the ground gently with their nose, and then come back up. I’m amazed: it looks like magic, like that shouldn’t be possible. So they convince me to try it, and I realize why I think it should be impossible: because for a man, it is. My centre of gravity is high enough that when I start to lean over, it goes in front of my knees, and thud, I faceplant into the ground. Hard. A fun prank you can play on any male friend who doesn’t know better! (Or one who does, but is easily convinced to try stupid things that look like they should be impossible for him).

These Rogers bills are killing us. Ok, financially, we can afford $35/mo, but it just seems so silly to spend that much (now with HST!) for basic, analog cable. We don’t see the value in the higher TV packages, and especially not in digital. Especially now that there are so many shows offered on demand online (e.g., Jon Stewart on the Comedy Network, all of BNN’s programming). I haven’t watched TV in like 2 years now, and don’t have any kind of cable at my place in London. Wayfare, unfortunately, stipulates that she must be able to put something on in the background while she veges in the living room, and hasn’t wanted to give up cable.

For a while I was using my Xbox with TVersity to stream shows from the computer, but that was a little cumbersome because it meant the computer had to be up-and-running with TVersity going, etc. Wayfare wants something simpler.

So I was encouraged to see the Iomega ScreenPlay Plus HD Multimedia Player come up as an option. It’s cheap: $150, which includes a 1 TB hard drive, and promises to be easy to use, plugging right into the TV and playing most of the common digital video formats.

First up, right out of the box it looks well put-together: there are a few pieces of foam to shockproof the drive, and the cables are in baggies, but other than that the box is split into 2 neat compartments without a lot of wasted packaging. Best of all, none of that ridiculous hard-shell packaging crap that drives me nuts. It has a remote control for operating the player part of the system, and yes, it comes with batteries. It also comes with a (rather short) USB cable, and composite and analog AV cables. Nice.

I can hook it up to my computer just like any other external USB drive, and load it up with files.

Then, it also has another USB port on the front so you can plug in another USB drive and just use the player function: something I already know will come in handy since Wayfare was a little hesitant about downloading shows and then having to unhook the drive from the TV to load them on it. She can just download them to a key or other drive, and play from there.

The operation with the remote and viewing content on the TV is straightforward. Unfortunately, the file list is as “large tiles” where the tiles are unhelpful icons just showing that you are looking at a video file. Lots of wasted screen real estate there. Only 7-8 characters of the filename show up under the large icons, with a fuller name at the bottom. Weirdly enough, even though the name at the bottom only takes up half the screen, it still truncates after 30 characters or so. I tested a few DIVX files and they all played fine — some looked great, but others had a fair bit of graininess/artifacts to them. Not sure why the difference, but those same files I’m pretty sure showed up fine on the Xbox/TVersity combo. I may have to investigate the video quality a bit more… One file that absolutely refused to play over TVersity played the video, but not the audio, so it doesn’t look like there’s any more capability there. OGG and MKV files don’t even appear in the file list as options, just AVIs and WMVs.

With composite and HDMI outputs it does have high def capabilities, but I didn’t test those out.

So from a video player point of view, it does work out of the box, but looks like it could use a few more refinements yet. Oh, one other weird bug is that it sorts capital and lower-case letters separately (i.e.: it would order a list of shows like Alpha Delta Echo November Zulu alpha bravo delta… etc.), which is just not right.

I’m disgusted by this article in the Huffington Post. I’ve been warned about that rag and the quality of their science knowledge (worse than none) before, but it became the topic of some discussion over at PriusChat, and I had to check it out for myself. Note that I have ranted on this subject before.

The author describes her experience buying a Prius, after which she experienced headaches. She took the car back to the dealer, got a Highlander instead, and the headaches went away.

If that was all there was to it, it’d be fine: a weird anomaly, who knows why it happened, but her problem is solved so good for her.

But that wasn’t all there was to it. Because the Prius is a hybrid, she immediately jumped to the conclusion that somehow, the magnetic fields were causing her headaches. She then goes on to insinuate that these same fields caused “inflammatory” issues and a brain tumour in people she knows who happen to drive hybrids.

This is not evidence, it’s not science, it’s fearmongering of the worst sort.

To try to add weight to her arguments, she got a “meter” and tried taking some measurements of the magnetic fields on her own. And you know what, the only thing the general public fears more than magnetic fields are numbers, so you can bet that went well. She obviously did not know how the meter (or magnetic fields) work, because she only gives one number in the article.

Here’s the thing about magnetic fields: they’re kind of like sound. You have a frequency, and a strength. So to say you have a sound of 70 dB, or a magnetic field of 2 mG, doesn’t fully describe it. You’d also want to know if it was a deep bass thrum, or a middle C, or so many Hz for the magnetic field. And she doesn’t say that anywhere.

That gets particularly important when she pulls out this mystery meter. I’ll bet you dollars-to-doughnuts she’s trying to use a cheap “trifield” type survey meter, that only has a little dial readout for showing field strength. These are meant to be used around power line fields where you know the frequency you’re dealing with in advance, and they give very screwy results when presented with fields of unknown frequency and transients. Unfortunately, all we can say about the fields present in a car is that they are highly unlikely to be 60 Hz powerline fields.

Often, these meters are induced-current based, so if you have a 1 mG 60 Hz field, it shows up as 1 on the meter. But, if you have a 1 mG 600 Hz field, it shows up as 10 on the meter. So when someone who is unskilled at science or numbers — or much of anything really — gives a number in an article, I have basically zero faith that that number represents what they think it represents. For example, she says that just turning on the Nav and AC system in her car increased the field almost as much as the hybrid drivetrain did, but that makes little to no sense, on many levels. First off, the nav and AC shouldn’t draw nearly as much power as what’s needed to move the car (though all of these are well-shielded in a hybrid), so the measurement shouldn’t have gone as it did. And even if that was the case, it would mean that the nav and AC should be just as much a cause of her headaches as the hybrid drivetrain if she believes magnetic fields are responsible. She shouldn’t be out on a crusade against hybrids, but against in-dash nav systems!

She justifies getting a nav system in her Highlander by saying that the slightly smaller Prius “compacts” the fields, again showing that she doesn’t understand how things work — the extra space in the SUV is wasted, the design constraint still puts the nav system at arm’s reach for the driver.

She then goes on to insinuate that hybrids pose a health danger, remarking that “I started to wonder about my clients who drive hybrids. Every one of them has an inflammatory issue that baffles me…” Her byline says that she’s “Yoga, health expert”. What do you want to bet that every one of her clients, no matter what they drive, has “an inflammatory issue”?

The conclusion though was the biggest tip-off for anyone remotely familiar with the FUD surrounding hybrids that she was not a source to be taken seriously: she repeats some of the nonsense about the batteries and Sudbury, that has been debunked many times (including here), clearly indicating that she has not done her homework.

Scientific articles have peer review systems to try to catch these kinds of glaring errors, and those occasionally do fail (recently, our group tore apart an article, providing 3 pages of corrections, and the other reviewer said simply “it’s fine”). But the mainstream media, which should be more careful since it deals with a more credulous audience, often has much more glaring mistakes present — perhaps because journalists are equally credulous when it comes to technical matters.

All that said, we return to the issue of her headaches. It’s been said that we can’t disagree with the fact that she experienced headaches that went away when she changed cars. I’d say that we could disagree with even that level of evidence (did she make it up to get a controversial article out that other people would cite, even if just to debunk her?), especially given how subjective and random headaches can be. But, let’s grant that her headaches did happen, and even that they went away with the change in cars. It could be that the headaches were unrelated to the car itself, and could have been due to the stress of buying a new car, worrying about finances, etc., and would have gone away in a few days/weeks anyway. But even if we grant that somehow, the headaches were due specifically to the car, that does not lead us to blame the hybrid transmission and/or magnetic fields. There simply is no evidence of that. She had an individual problem, and she solved it by changing cars, and that’s great for her. But it’s misleading to then go and blame one specific aspect of the car without any evidence. She could have been allergic to the ecoplastic used in the dash, or to a host of other things. My favourite theory revolves around the rearview mirror: the Prius is a great car and I love it, but the rearview mirror is horribly low. I’m constantly ducking my head to look under it to check for pedestrians as I make a right turn, and if she was doing the same that repetitive head-ducking motion could have given her a headache. Or, similarly, the rear spoiler splits the rear window, at just about the height most cars’ headlights fall. If she’s driving down even a moderately bumpy road, their lights would constantly strobe to her point of view as they disappear behind the spoiler and reappear above or below it.

There are numerous reasons why this car in particular could be giving her headaches, and unless she’s willing to get back in it for some experimentation, we can’t say what factor could be responsible (if any). It brings us back to the issue of placebos: for an individual person, a placebo may work to solve their problem, such as a headache. They may be willing to pay money for a placebo (e.g., a homeopathic tincture). On the individual level, that’s fine: do what you need to do to solve your individual problem. But on a societal level, we don’t want to ascribe efficacy to what we know are really just placebos and have them for sale in our pharmacies, because it’s not good science, and it’s not good policy. Likewise, we don’t want to go around banning things like cell phones and wifi and hybrids without evidence that they are indeed causing harm (and if she’s afraid of hybrids, man, wait till she sees some of the controversy over cell phones!).

Finally, a quick repeat of my note on risk vs benefits. We know that hybrid cars have demonstrable environmental and financial benefits. We know that they can reduce our individual exposure to known carcinogens (e.g.: diesel), and our societal exposure to other pollutants. We don’t have good evidence that they even do have increased magnetic fields inside of the passenger compartment, and if they did, whether those fields would be harmful. The risk-benefit right now is highly likely skewed towards there being a worthwhile benefit, but because people are so afraid of the unknown, the unknown risks are large in their minds, and lead to articles like this one.