Tater’s Takes: Mother’s Day

May 11th, 2011 by Potato

It’s been another rough few weeks over here. I have revisions to make to my now-complete first draft, and though there aren’t that many, they’re taking me forever. I had hoped to be done these almost two weeks ago. I seem to have serious issues concentrating (also why there haven’t been many blog posts here), and my stress levels are once again through the roof. But it’ll be over soon (just months now!) and then I can worry about what to do with the rest of my life. To try to get my science groove on I’m even going out to give some rah-rah science! outreach talks at high schools soon, which I hope goes well.

Mother’s day seemed pretty hectic here, with dinners and brunches and last-minute shopping. I ended up getting a new pizza cutter for myself while I was at Caynes. I’m impressed enough with it that I had to give it a quick mini-review: it cuts through pizzas way better than my old ones. That might be because it’s new and sharp, but even then it seems to do a better job than they ever did: I’ve always had to go back-and-forth to get a clean cut, but this did the job in one swipe. It has a rather heavy handle (vs. the cheap plastic or wood handles of my other two), and the blade disc is held securely with no play: the other two both had fairly significant wobble in the roll of the cutter.

I was recently interviewed by a reporter from the Globe & Mail, and had a brief mention in an article as a result… but although it was my website and Potato identity that brought me to his attention, the article had no mention of either. So at least my quasi-secret identity remains safe, and I don’t have to write a tedious “welcome, G&M readers” post. However, if my understanding of comic-book lore is correct, this reporter is now in grave danger, as those who possess the information of a person’s secret identity — especially reporters with privileged sources — are abducted with uncanny regularity: whether by targeted schemes or pure evil happenstance. Fortunately, I believe the last time I updated my arch-nemesis page I selected “the geese who block the bike path by the river” and they are not the hostage-taking sort of villains.

Rob Carrick agrees with my earlier post that TD’s e-series funds are great, but hard to buy. I think it’s really weird that the fund you have to trade online requires faxing/mailing in an application to open an account, but weirder still that people like me have to write third-party user guides on how to actually manage the things.

CC weighed in before I got around to publishing this post, saying that he didn’t find the e-series that hard to set up. I don’t find it that hard from the instructions either, and have helped people set them up… but Wayfare did run into issues, mostly with the branch staff being clueless and trying to sell her on higher-MER funds, and with that conversion step not going through right away. Plus some of the other steps (like withdrawing under the HBP) are a little less clear, as Krystal found out. As much as I love the e-series funds for average investors, something’s not right when the best instruction sets and knowledgeable people are outside of TD. Anyway, I’ll repeat my best advice: use TD Waterhouse.

Deliquencies are rising in Alberta as the housing market there flattens out. I consider it more evidence that delinquencies are a trailing measure, so not very relevant in a discussion on the health of Canada’s housing market, but take it however you want (i.e.: too small to be meaningful at all is also a good way to take it).

A little article on Home Capital Group also points to some more warning signs: “He said the company is being cautious when considering loans that will go toward properties in Vancouver or downtown Toronto, because the markets are showing signs of overheating.”

Canadian Business revamped their website, breaking the RSS feeds and leading to many 404 errors for old links to their articles. The ability to comment also seems to have disappeared. But, I’ve found Larry MacDonald again, and now he seems to be moving towards believing that Vancouver at least, is in a bubble.

I’m a bit late on this, but Freddie Mac actually reported a profit this quarter. The preferreds I own (a very small speculative bet) are actually in the black now by over 30% (given the timeline though, still no better a performance relative than the index). I still don’t expect a final resolution for years yet, and this only suggests that rank insolvency is perhaps not as much of a risk — but political risk still looms large, as it didn’t look like the conservator allowed them to repay any significant portion of the bailout. Despite the recent run-up, they’re still only trading for 10 cents on the dollar, quite a reasonable discount given the return to profitability. Though I was tempted to buy more on the news, I figure I’d hold pat with my thimble-full of exposure. There’s still lots of risk here, and I don’t need to bet any more than I already have.

A short post by Saj Karsan on learning from your history, but not letting randomness influence that. I can’t dig it up now, but Michael James had a similar idea some time ago: a good decision is not necessarily the one that lead to the correct outcome in the way things played out, but one that made the most sense given the information available at the time.

A cute tongue-in-cheek site about the benefits of coal-fired electricity.

Tater’s Takes – UBB, Copyright, and Nuclear Power

March 18th, 2011 by Potato

It’s been a tumultuous year so far, and the snow hasn’t even melted yet! The big news story has been the Japanese earthquake and tsunami, which has killed thousands of people and caused billions in dollars of damage. Oh, it also put some nuclear reactors into partial meltdown which added salt to the wounds by possibly making a few hundred more people sick, and releasing radiation into an area around the plants. But since it’s the ongoing story which will take weeks to fully play out, since people are afraid of the very word nuclear, and since fear-mongering sells papers, it’s been the headline story all week. Not that I am free of blame — I’ve re-read my radiation safety training materials and spent a lot of time brushing up on nuclear power generation this week, and have been soaking up the Fukushima stories.

While I do want to help everyone who’s going out of their minds keep perspective, I also don’t want to minimize the tragedy: the workers are being very brave while facing a terrifying situation, and are making personal sacrifices to try to minimize the damage to the rest of Japan. There have been fires, explosions, and meltdowns, leading to some radiation release (though whether the panicked mobs in Tokyo have anything to fear is an open question)…

Oh yeah, and there’s a civil war in Libya, demonstrations in Saudi Arabia, and crackdowns in Bahrain.

Joe Kelly over at Nerd Boys has a few posts on UBB up. He even tabulates the UBB fees by various ISPs.

Michael James reports that AT&T in the US has introduced UBB, which has sparked some outrage… at 1/10th the price of Canadian UBB.

Something I haven’t really drawn enough attention to is the very framework the CRTC laid out for making its decisions. They state that when congestion occurs, it should be corrected first by network infrastructure upgrades, then by economic incentives (i.e.: UBB), then by throttling and other traffic control measures. The thing is, there’s no structure to those guiding principles, leading to perverse incentives with UBB: an ISP can make more money by encouraging congestion, then charging UBB than it can by upgrading the network to stay ahead of traffic growth. Anyway, it was back in my 5-page submission if you read that, and if not, you probably want to focus on other things now.

Michael Geist, who has been debating Dan McTeague about proposed copyright reform, points out that despite calling for severe penalties for copyright infringers, Dan McTeague himself appears to fit the criteria for a repeat infringer. Zing!

Laser pulse pistol. Yes. The future is here.

On the profiteering side of the Japanese tragedy, Financial Uproar discusses investing in Tepco, which I was actually just talking about today with Netbug. I saw a lot of parallels with the BP situation there. Though there is an ADR, it trades on the pink sheets and is quite illiquid: TD Waterhouse wouldn’t let me put in a bid online, I had to call. I decided to sleep on it, but it’s now up ~20% in Tokyo tonight, so I may have missed my chance.

National Post: Language used to describe Japan’s atomic crisis borders on reckless hyperbole.

An old Scientific American article about how the emissions from coal plants are more radioactive than those from nuclear power plants. However, the mercury, particulate, and greenhouse gas emissions of the coal plants are far bigger concerns, not to mention mining issues.

And finally, I think my favourite link in the round-up: A post showing the deaths per TWh for different power generation methods. There’s lots of room to quibble about an order of magnitude here or there, but the end result is that coal is several orders of magnitude more deadly than nuclear. And coal never provided us with medical advances like radiotherapy or diagnostic nuclear medicine.

Radiological Accidents: Some History

March 16th, 2011 by Potato

There’s Chernobyl, everyone knows that one. Then a handful of other accidents involving nuclear power generation, with the most famous perhaps being Three Mile Island, though the impact of the non-Chernobyl accidents have been pretty minor.

In the early days of research, there were a fair number of accidents, especially with enriched fuel, and a bunch of military accidents.

But after Chernobyl, most of the worst civilian radiological accidents come from the medical side. As much as people rail against nuclear energy, I don’t hear a lot of people trying to ban nuclear medicine.

The biggest cause of accidents seems to be the escape of radiation sources, with the Goiania, Brazil accident being perhaps the best example. There, a medical clinic moved, and left behind a radiotherapy device. These guys came in to the abandoned, half-demolished structure, and stole the Cesium-137 source at the heart of the machine, to sell for scrap. In dismantling the source, they got a large dose of radiation, and then later did sell the core for scrap. The scrap dealer noticed this blue glow in the material, and — I kid you not — decided it was magic.

He invited his friends and family over to check it out, made jewellery and body paint out of it, and spread this stuff all over. People were putting it on their bodies to increase sexual potency, ingesting it, and selling it. It took over two weeks before it was realized that a disaster was unfolding. 4 people died, many others got sick, and something like the equivalent of 100 transport truck containers of contaminated waste were produced.

There are also a number of cases of accidental over-exposure from radiotherapy or imaging, though those seem to be more accepted as there is always some background medical mistake risk.

Japanese Crisis & Nuclear Power

March 15th, 2011 by Potato

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!

BP and Investing

June 10th, 2010 by Potato

On the topic of BP and the environment: I meant to focus more on the horrible nature of the situation in my last post, on the Chernobyl-like precedent this tragedy might have in the public mind. How things like the deepwater drilling ban might spur us to say, tax oil a bit more to reflect the costs, or encourage better, faster implementation of crude alternatives in our power and transportation systems.

But I got on the investment thinking train, and that seemed to prove popular, so let me just continue briefly here.

First up, I’ve been trying to pay more attention to the story in the media lately. I was a little surprised to see a guest on BNN the day after I put my last post up saying almost word-for-word what I said about this disaster not killing BP outright, so at some point there must be value in the stock. He followed up by advising people to not catch the falling knife though, which is advice I have a particularly tough time following, so it’s good to hear again.

BP has now successfully cut off the top of the riser pipe down there, making for a cleaner hole. That makes it possible for them to siphon some of the oil off of the gusher and up to a surface ship. It also unfortunately allowed more oil in total to be released, which will be really bad if say a hurricane starts to form and the surface ships have to skedaddle. I thought that net-net, it was a positive move, but that may be a close thing, depending on how close to the upper end of the range we were at for the size of the gusher: if they’re collecting ~15k barrels/day, and the cut in the pipe allowed 20% more oil to escape, then that’s a losing move if the size of the leak was over 75 k barrels/day. I actually expected BP’s stock to jump on that news, but it had another horrible day today (down almost 16%). It’s now under $30, which has me making “Om Nom Nom” noises.

One thing their collection operation proves though is that the early estimates of oil flow were way, way too low. The most-reported estimates of the size of the spill are still climbing day by day in the media, but now seem to be plateauing in the lower range of what the image analysis guys were saying (i.e., in the neighbourhood of 50k barrels/day). Not all of that is making it to the surface, and there’s no way to tell yet whether or not that’s a good thing. Obviously it’s harder to skim/clean oil that for whatever reason is remaining dispersed beneath the surface, but maybe we’ll get lucky and it won’t need to be cleaned. OTOH, it may poison marine life for decades to come. No way to say just yet, I think.

Alongside the climbing volume estimates comes the climbing cost estimates, which are now closing in on my back-of-the-envelope $50B figure. At that point, I still have to think that BP is value-priced now at < $30. Some articles today raised the spectre of bankruptcy for BP, which I think is highly unlikely given the facts on the ground right now — as I said before, BP is a very profitable company, and can afford to make good on even large payments if given time (and litigation will likely give them that time). Even a $100B final price tag wouldn’t kill them if they had 5-10 years to pay out, though it would mean that the stock would have more shit left in it to get kicked out. Despite the fact that I’ve been pretty pessimistic on the scale and cost of this disaster so far, I think $100B is probably the upper-end of the range.

That is, assuming that the relief wells being drilled right now are able to stop the leak before the end of August. A 3rd-party drilling expert was interviewed on BNN the other day, and he gave me hope that this would work. Specifically he said that these kill wells have a greater than 90% chance of success, and are very good at being able to find the borehole underground. With two drills going, there’s a very good chance this will stop before the fall.

In the scenario that the kill wells fail (or to compound a tragedy, one of them blows out) then there is unfortunately no salvation for BP. If this thing leaks for the better part of a year like Ixtoc, then the Clean Water Act penalties and other settlement costs could conceivably bankrupt them. I can’t say that it won’t happen for sure, but I discount it as a very remote possibility.

On the matter of the dividend there has been a good deal of commentary. It’s a tough call. On the one hand, they do have enough cash on hand and cashflow being generated to pay for the ongoing costs of the cleanup at the moment, so a dividend cut isn’t strictly necessary. Plus, it’s a “widows and orphan” stock, especially in Britain, so there’s some pressure to continue to pay a dividend (even if a reduced one). On the other, there are the optics, which can cut both ways. They may seem callous to the situation by paying out cash to shareholders in the midst of the crisis (and powerful politicians are calling for them to cut it). To a lawyer in front of a jury though, a cut and the buildup of a reserve fund may just be a target — however much they build up, a court may reason that they should award more in damages to make the award truly punitive. Giving the cash to their limited-liability shareholders may help keep the court awards/settlements down. The dividend is pretty rich, but I’m not sure that eliminating it for a few years should really affect the investment thesis all that much — the uncertainty in the cleanup costs is much higher than that, so I don’t get the news reports saying that the stock declined on rumours of a cut. I think that they can keep it up, but will probably cut (not necessarily to zero though — probably down to 25-50% of what it was), however either way I don’t think it’s a significant enough factor to affect my value price.

So after looking at it a little closer, my back-of-the-envelope calculation doesn’t seem all that far off to me: BP is likely getting into the buy range now (under $30 for the NYSE ADR), and it might just be a matter of waiting for it to stop being sold in a panic to get in as a long-term value/recovery play. That said, it’s definitely getting detached from the fundamental issues here and trading on emotion in my opinion. It could go nowhere until the relief well connects and kills the leak; it might stay low until a decade from now when the settlement payouts stop and people see the EPS clearly again. It might spring back 15% tomorrow on no news. Some big-name analyst might pan it and it could go no-bid until the vultures start picking it up for pennies. Just no way to say in the short term. That said, the bonds may also be well worth looking at: I haven’t bothered to log into the fixed income side of my broker’s website, but the paper today said that their debt was now yielding 8% — and that was just a 3-year bond! — which plays even better into the “they won’t go bankrupt” thesis (especially if you conclude with “at least not in the next 3 years”).

Another side to the catastrophe that I haven’t seen mentioned yet is the fact that a large portion of the release appears to be methane. As we know from the snickering over cow farts, methane is a very potent greenhouse gas, and here we have a rather substantial release of the stuff going on. I have to wonder if it’s going to be enough to affect the climate records for the next 10-20 years, though I suppose that’s a problem to worry about after the spill is stopped.

One final note on government malfeasance. Some have speculated that the US will simply confiscate BP (or it’s american assets), or create legislation to penalize them post hoc. That is expressly forbidden in the US constitution. However, the US government’s actions during the financial crisis (seizing banks that were not necessarily demonstrably insolvent; arbitrarily making bondholders whole and wiping out common and preferred shareholders without the benefit of a release of their calculation arriving at such a split or orderly liquidation; their continued efforts to keep the GSE’s down with ridiculous interest payments on money that they are forcing them to borrow, which the GSE’s don’t really need — what use capital requirements when possessed and guaranteed by the government?) do not inspire continued faith in the concept of due process.

PS: note that when I say “today”, I mean June 9th (I composed this the evening of June 9th, but held off until June 10th to hit publish).