Blessed by the Potato

At my local subway stop they’ve replaced all the old token/metropass gates with Presto ones. So it made sense to get a Presto card and start using that. In just one month of using it, I’ve twice been completely unable to board the subway with my brand-new and fully loaded Presto card at that entrance — yet I got charged for the tap anyway. Then when I walk an extra block to the other entrance, it would still be hit-or-miss, with up to 15 tap attempts needed to get in. I’ve seen many other people at the station having to tap multiple times or seeing declined messages on these new gates.

The good news is that Presto has refunded the extra money they charged me.

But I figure if I have to walk an extra block anyway, with the possibility of having to phone in to initiate an investigation to possibly get a refund of the extra charges, I may as well just go back to using tokens (which are now only accepted by the collector at the other entrance a block further away).

I’m amazed at how many problems the system seems to have. In addition to my personal failure rate of about 10%, I took the King streetcar the other day and watched many people try to tap their cards for transfers when it intersected north/south bus lines, only to have the machines give errors (I couldn’t see the screen, but could see people’s puzzled expressions and multiple attempts to tap). I’ve looked around online, and there are many reports of issues with Presto, from transfers not working correctly to others getting declined at fare gates and getting charged, as well as general equipment failures that are more common than they should be for a system that’s nearly fully rolled out (indeed, the TTC has indicated that in 2017 — just 7 months left now — all other forms of payment will be eliminated).

And that is hard to believe, especially as Presto really isn’t set up for the occasional TTC rider. In the terms and conditions, I was surprised to see that it takes 24 hours for a new balance to load — but that it will expire in 30 days if not used! So if you maybe sometimes take the bus or subway, for the past few decades you could pick up a few tokens and keep them just in case. But now you’ll have to know at least 24 hours in advance when you’ll be using transit, but not more than 30 days. Fortunately, I cleared up with Presto that when they say the scary word “expire” they actually meant “automatically refunded”. Phew — though that also suggests a lack of real-world testing. But still, there’s such a long way to go for all the TTC use cases, plus the reliability issues, that I find it hard to believe that in a few short months that will be the only option.

I finally figured out what the mysterious flashing yellow triangle error message on HP LaserJets means: there’s a mouse in the printer!

I heard him nomming away in there while I was trying to sleep at the cottage. Somehow I got him into a tupperware container, and took him for a little walk down by the water. Wayfare (who is unimpressed that I ran into her room going “I caught a mouse I caught a mouse! Wanna see?” at 5 in the morning) thinks I didn’t take it far enough and that it’ll just come right back in, which is not a bad bet. My parents can deal with the less-sucky more-permanent pest removal methods.

I just do tech support.

I didn’t think I’d have any internet access out here: my new computer doesn’t even have a dial-up modem, and this part of PEI has traditionally been a black hole for cell phone service (when we could pick up a signal, it was often from a New Brunswick tower across the water on a clear day). They seem to have put in a new tower because I’m getting pretty decent access via my blackberry, at least right now tonight. I tried checking this afternoon and it would work in fits and starts and many addresses wouldn’t resolve (but that may have been an unrelated problem as there was a service notice on my mail provider’s page).

The weather is still unseasonably cold, but at least it was somewhat sunny today. I finally put the bike back together and went for a little ride down the highway. I only did 10 km round-trip, but I was pretty tired at the end. Not only am I out of shape after the last few weeks of being chained to my desk, but PEI is much hillier than London, and the wind was just killer. The headwind on my way back was severe enough that I couldn’t hear cars coming up from behind at all, and at one point going uphill I swear a gust stopped me dead in my tracks for a moment despite heavy pedalling.

The colours seem impossibly vivid today. I don’t know if it’s just the late spring, or the contrast from the first sunny day after over a week of grey skies, but the soil is really red, the fields are popping green, and the sky was bright blue. Wayfare remarked that she thought it might be an anneurism, but we both thought it looked like that today. As a testament to the accumulated stretch of wet weather, when I rode my bike across the lawn to get to the laneway the ground went “splurt sploosh” underneath me, and the trench my tires pressed into the ground could still be seen at the end of the day — I think it may be permanent.

I’ve been trying to relax, play some games, enjoy the outdoors, read some books, and sleep in… but I can’t help but check my email before going to bed. It never seems to have good news these days. On the markets, I saw tonight that my Capital Power is going to be acquired at a non-existent premium ($19.40 when it was $21 just a few months ago), which I guess isn’t terrible news since I was looking for something to sell anyway (still no jobs lined up), though I really thought it was worth more than that. Also, I just got the news that Paulson has sold all his Sino-Forest, which, rightly or wrongly, is probably going to close the book on that story. Though I’ve taken my all-too-painful lumps on that one, I know at least one person took a small speculative position after the MW story broke, in part on my “analysis” of the situation.

On the science side, I just got an email that my paper was rejected. Again. I don’t know what I’m doing wrong with this paper. Well, I do know: I have a whole list of things from the reviewers. But I don’t know why they’re flat-out rejecting it based on that list, when all kinds of other crap gets published. Nothing there seemed like it couldn’t be fixed in revisions. Ugh.

Still no date set for my exam, either.

Anyway, I installed Portal 2 on my laptop a fair while back, and hadn’t had a chance to play it at all. Finally on vacation, I burned through it over the last two days. Good fun: the writers for that one are top-notch. There were one or two points in the gameplay where I started to get really frustrated by how particular the portal gun was about which surfaces were suitable for creating portals — and one or two where the lack of portal-able surfaces made a puzzle perhaps easier than it should have been (“well, I guess I have to put a portal there since it’s the only damned spot on that whole side of the room that’ll take a portal”).

I also brought Assassin’s Creed and Fable 2 with me, but I think the next few days will be spent with books since we brought about two dozen of those with us, and because Wayfare wants silence, and unlike my laptop, the TV doesn’t have a headphone jack. Speaking of headphones, I borrowed Wayfare’s Sony earbud ones and was really impressed with how ergonomic they were. The little straight bit sticking out of the buds for the wires is asymmetric and fits perfectly into the little gap between that little bit to the front of the ear (I keep trying to call it the preauricular point, but that’s at the base of that little projection) and the rest of the outer ear. I don’t wear headphones that often: I have the earbuds that came with my blackberry just in case I do want them at some point, but none of the 3 sizes of earbud insert stays in my ear very well, and then I also have a large set of noise-cancelling headphones that I remember to pack for plane trips, but not road trips. I may have to invest in a good set of earbuds.

And remember: while I’m gone comments are disabled. Feel free to email me though!

Arrived in Halifax in record time. That was due in part to traffic being good, with hardly any construction along the way (Montreal, of course, being the permanent exception). But it was mostly because we hardly stopped. Normally I stop about every hour for a pee and strech break on a long trip, and one or two longer breaks through the day to take my eyes off the road. But this time I just powered right through. It’s especially surprising that I made it that long without needing the washroom breaks — that never happens. I think I must have been severely dehydrated, indeed, on Friday I was so dehydrated I stopped sweating. I don’t know why, it wasn’t like I ran a marathon or anything. Just weird, but I’ll reap the benefits.

The weather here has been pretty dreadful — rainy, cold, windy. The conference has been pretty good though. The social event featured a lobster supper, and I always find that weird. When else do you get into fancy clothes just to put on a plastic bib for dinner? I always figured we somehow tricked mainlanders into eating lobster as a way to take care of our beach pest problem.

I can’t really think of any other stories to share, so here’s a little mini link round-up:

Housing bubble linked to restrictive development rules. Yes, over the last 8 years when I drove into Toronto and saw the massive developments of condos in downtown and North York, the unending and constantly expanding sea of McMansions along the 401, 403, and 400, I thought “wow, Toronto has some really restrictive development rules.”

Another article on just how crazy Vancouver’s valuation is: Vancouver primed for housing correction: BMO.

A MacLeans’ piece on the Vancouver housing market gets it right: “In short, Vancouver is increasingly being seen as a no-go zone for top talent. This is very bad. Worse arguably than if house prices crashed. As Vancouver develops a reputation as a place where only the uber-rich can afford to buy property, it could seriously undermine the economy.” So many stories suggest that a crash is a bad thing. For sure, it’s painful for the unprepared who get caught up in it, but the problem is not the crash, but the bubbly high prices in the first place. Downturns are also called “corrections” for good reason: lower house prices will mean fewer talented young people being driven away by the costs of living, fewer house poor people, fewer household balance sheet dangerously levered to the 5-year interest rate, and less rampant speculation on concrete and granite, and more investment capital for everything else that makes the world turn.

The market’s been pretty nasty, beyond Sino-Forest. Kind of glad I don’t have the time to worry about it.

And speaking of not having time, the spam levels have increased of late to the point where it’s almost 100 spam comments per day. I don’t and won’t have the time to figure out a captcha or better spam filter, and while I was home it wasn’t a big deal to clear out (most of the messages are so blatantly unreal that a quick skim is usually all it takes to find the real messages and let them through — though there have been a few false positives lost in the sweep). But now that I’m off on conference and then vacation and internet access is becoming spotty, I’m just going to turn commenting off so I don’t come home to a spam filter filled with 10,000 spam comments and 2 real ones (and that’s about the ratio). I do still welcome comments, so if you have one feel free to email me (address in the sidebar) and I’ll add your comment manually.

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).