Blessed by the Potato

I’ve blown through multiple thesis timelines now. My last one I printed off I thought I’d actually make: submit my thesis on Friday the 13th of May (a nice, ominous day to submit), defend sometime in late June, spend July and August as a post-doc in my current lab while I went job hunting for September (convenient as many academic jobs line up with the academic terms). But here it is dawning on the 12th and despite my most recent string of all-nighters and a location change, I’m still not done this round of revisions — and there are still more to come after this. Forget June, I’ll be lucky to finish by July at this rate. My dad says to relax, a few more weeks/months isn’t going to hurt, and I need to take a vacation. I do need to take a vacation (that was the plan for after I submitted). And as much as I wanted to be done by June, July isn’t that much worse… but I just can’t keep slipping behind.

So the rest of the world is wide awake now and I’m still not in bed. Overall, not a particularly productive day in an absolute sense, but in a relative sense (vs. the last few weeks), quite productive indeed, even if it did end with a rousing game of chase-the-kitty. Which was hilarious because she ran like 5 steps into the bathroom then realized her mistake, trying to scramble out of there. I could totally see her going “Ahh! Not in there, it’s all dead ends and bathtubs!”

Anyway, I can’t believe how much work there was still to do on this thing. I thought when I finished the draft at the beginning of April I was in the home stretch and it would be all downhill from there.

Right up the street here is the Ivey School of Business, which has the Ben Graham Centre for Value Investing. I’ve never been in person, but they do have some good presentations by renowned value investors up on their website.

I like the most recent appearance by Prem Watsa:

“If you ask 10 chemical engineers to design a refinery. If you took the average of their designs, you’d get a pretty good refinery. If you were building a bridge and had civil engineering, or any human activity, and took the consensus, you’d get a good… whatever you were designing. But if you asked 10 oil company analysts for their opinion, and they were all positive on oil, you would not want to buy an oil stock: you’d be very disappointed. Because their opinions are already in the stock market. If one of them changes his mind, the prices come down. All of what you do in human activity, in terms of going with the consensus, does not work in investing; it works just the opposite.” [Transcribed quickly, not exact]

Just because you’re a financial blogger doesn’t necessarily mean you’re purely rational with money: Krystal from the very popular and successful Give Me Back My Five Bucks just bought a townhouse (in Vancouver at 260X rent!!), and had a 20% down payment ready to go, but then decided to pay off her 0% car loan and had to pay CMHC insurance with the smaller downpayment. As one commenter put it: she just turned a 0% loan into a 3.75% one, and paid $5k for the privilege. I’m of course more concerned by the extreme price: her own spreadsheet of costs shows that she’s spending about $200 more per month to own instead of rent, and that’s with an interest rate below 4% — what’ll happen in 5 years at renewal?

Similarly, Echo grapples with the decision of whether to take an offer of 3% below ask on his house, or turn it down and hope for more, putting at risk his ability to close on the next house (that’s already lined up). In all fairness, it is a very tough decision, and for such large amounts, a few percent here or there (indeed, if houses typically go for 1-2% under asking as he suggests in the comments it may be only a percent) can be serious money: up to $8k in his case. But I think of equities a lot, and there, a 1-3% move is just a rough day, nothing to go changing plans over.

Mike at Money Smarts gives us a walkthrough on how to optimize your PriceLine bids.

Patrick describes some of the ridiculous reversals of causation spouted by realtors. I also like the comparison at the beginning: high prices in anything but shelter are met by outrage.

Larry MacDonald questions some housing bear logic in a Canadian Business Magazine article. As you can guess, I disagree. In particular, rent control largely doesn’t distort the price-to-rent metrics in Ontario because rent control goes away upon vacancy (and the rental amounts I use are taken from listings). All it does is strengthen the case for renting when the price-to-rent gets out of whack because you don’t need to worry too much about that measure correcting via skyrocketing rents (vs falling prices). “I must confess to feeling somewhat dismayed at hearing others trash what is one of the most important components of my and most other Canadians’ net worth.” That “most important” part is where some of my dismay comes from: real estate is too much of the balance sheet for too many Canadians these days. It’s not sacred, and it’s not risk-free. He then mentions the affordability indicator is not very out-of-line. Unfortunately, affordability indicators are to a large extent interest-rate indicators, and yes, interest rates are low. Will they stay low? Is that a bet you want to lock-into for years to come? Larry suggests that they will stay low, but that argument is based on “the Bank of Canada likely will only allow rates to rise as long as the economic recovery is progressing” i.e.: that rates will stay low as long as economic growth is poor and we’re in a near-recession state. But that contradicts the other part about previous corrections occurring in periods of higher unemployment: if our economic growth remains poor enough to keep rates low, we can’t really count on a strong economy to counter the high price-to-rent readings. Plus I highly recommend taking a look at Barry Ritholtz’s trashing of the US affordability measures: what good is a measure that, even in the midst of one of the worst housing bubbles ever, never indicated that there was an affordability problem?

A Wired sciblog entry on a measles outbreak in the US, with some requisite preaching about getting immunized.

Just days after deciding to continue to pass on RIM, it lowered guidance and plunged 14%. I’ll be watching it a little more closely now to see if sentiment gets negative enough for it to become truly cheap.

Penny Arcade linked to Good Old Games today: a direct download service offering old games at reasonable prices with no DRM. They also include “working on Windows” as one of their selling points, which is tempting: I haven’t put much effort into trying to make it work, but I can’t seem to get my MOO2 to work on Win7, so that could be tempting.

And finally a question: do you have any tips for cheap science demos for high school students in electricity? I may be doing an outreach activity in a few weeks…

Garth Turner is a very polarizing figure. He was a controversial politician, and was one of the early voices to raise a warning about a Canadian housing bubble, getting a book and blog out of the deal. Indeed, I have to credit him for first bringing the idea to my attention; of course, I went out and did my own homework to come to the same conclusion, a step that is not to be skipped. I read his blog Greater Fool pretty much every day, but yet I don’t have it linked in the blog roll on the sidebar. That’s because it’s hard to recommend him: he’s crass, vain, evasive at times, confrontational at others. I read it, but it’s certainly not for everyone. Often, I find myself providing Garth-to-English translations as he glosses over crucial details or makes up his own slang that accumulates after years of daily posts.

Garth is not a personal financial blogger, out to rationally lay out the details of a plan and analyze the ways to optimize it. He’s not some student out to cheerfully converse and debate with the denizens of the internet all hours of the night. He provides brief glimpses of possibilities, and then tells people to go get a qualified financial advisor for details. When pressed, he’s fond of various terse two-word answers: get lost, get real, grow up, come on. I remember about two years ago he had one of those open forum sessions with the Globe where readers send in questions and he answers for an hour and the whole transcript goes up on their website, and he answered someone’s question with a two-word brush-off and I was appalled: it’s one thing to do that on your own site, quite another in a Q&A with the Globe!

But that’s just who Garth is. He talks about the housing situation in emotional terms, and provides some good anecdotes from his readers, but he’s not a details guy. So earlier this week Garth suggested to one reader that he borrow against his paid-off house to invest in a “balanced portfolio (my fav is 40% fixed, 60% growth) making 8% or so […] This is called diversification. It mitigates against having the bulk of your net worth in one asset alone. […] And it’s something nine in ten Canadians would never dream of doing. Which is why only one in a hundred of us have a net worth of a million, while seven in ten own houses.”

Others jumped on this particular advice, the most prominent being Canadian Capitalist saying “This advice is so bad that I don’t even know where to begin.” In the comments, Michael James (who by now you show all recognize as another PF blogger I link to a lot and have great respect for) said: “I’m tired of hearing recommendations to leverage a house for “diversification”. After borrowing against a home to invest in other assets, the home represents exactly the same percentage of net worth that it represented before borrowing. Changes in the home’s value affect net worth in exactly the same proportions whether you have a mortgage or not. The only difference from a risk point of view is the added risk from the new assets. This may or may not be a good strategy, but it is not diversification in the sense of reducing risk.”

And that’s well said. It’s not diversification in the usual sense of reducing risk: borrowing against the house is not the same as selling it, you still have exposure to it if the price goes down. But, as he says, you do get exposure to the new assets, which is part way towards diversification (but with increasing risk because you’re leveraging to do it). I don’t think it’s bad advice in Al’s case, but the issues of leverage — and other details like what a balanced portfolio should be and the issue of whether it makes sense to hold bonds when borrowing to invest — are lacking from Garth’s post. It’s harsh, but not entirely unwarranted criticism.

Then in today’s post, Garth comes out swinging: “Which brings me to this. It’s a column trashing me on the wimpy MoneySense site, written by a young father of three brave enough to be anonymous.”

That brings up a very good question of what it means to be anonymous these days. Is Lady Gaga anonymous? Madonna, Mark Twain, Prince, Robin Hobb? Canadian Capitalist, first off, isn’t anonymous: Ram has had several articles written about him (which are not hard to find on his website), his actual face is his forum avatar. But even if that weren’t the case, is “Canadian Capitalist” anonymous, in this sense? Is “Potato”? Sure, we don’t use our real names, but how much would our “real names” mean, anyway? There’s definitely a distinction between the fleeting anonymity of user213 leaving a comment on Garth’s blog with a dummy email address and then disappearing into the ether never to be seen again, and the pseudo-anonymity of CC or Potato, Gabe or Tycho, Yahtzee: established personas on the intertubes, with consistent messages, accountability (at least as much as if I was blogging with my real name), the ability to be contacted and engaged in dialog with. I publish under both my real name and Potato, and I daresay I’m better known and more widely read as Potato, with a longer track record (going on what, 13 years now of BbtP?). I would be more anonymous if I used my real name.

A name-brand source of information, opinion, ranting, and hilarity.

So I don’t think the “brave enough to be anonymous” ad hominen is warranted or fair. The internet seems to be growing up and moving away from pseudo-anonymity, but it’s still there (just as it is in “real” publishing) and I think it’s important to distinguish between actual anonymity and a nom de plume.

As for the debate itself, I think by now you can see I’m somewhere in the middle: I think that with what we know about Al and his interest in leverage and diversification, borrowing against his home to invest is perhaps a good plan for him (though if he wants to move up and is concerned about a real estate correction, selling and renting a larger place would be an even better plan). Expecting 8% on a diversified portfolio is maybe a little optimistic (and past returns are no guarantee of future outcome), being able to secure a HELOC at 3% will require some good negotiating skills, and it may not make sense to include the safer spectrum of bonds while also borrowing at the same time, but nothing is out of the ballpark there. However, Garth didn’t fully discuss the risks, the limits of the diversification, what he meant by balanced portfolio, etc. Greater Fool is where you go to get the kernel of an idea, an emotional appeal about not shunning risky assets entirely for the illusory safety of a house, or a fun cautionary tale about a couple with ridiculous exposure to real estate. It’s not the place for a detailed financial plan and a rational discussion of the trade-offs involved.

And a final note: I’m generally slightly opposed to leverage, and the bizarre case of holding low-yield fixed income like a savings account or government bonds while also having debt. But it can make sense in some cases. For instance, recently one poster at CMF wanted to try to find a way to maximize her mortgage over-payments to finish it off, but noted that income could be unpredictable and needed a long amortization just in case. To me, that’s an excellent case where it’s safer to maintain the leverage of the mortgage and keep some money in a savings account: if you do run into a rough patch, it’s very difficult to get that overpayment back, you still have to make your regular mortgage payments to keep from facing foreclosure, and you can’t eat your principal. An emergency fund, even if it costs you a bit in interest spread, can be a very handy thing (and in this particular case, she was looking for an open mortgage to really go nuts with the prepayments, but a closed mortgage is so much cheaper that to keep the emergency fund and just pay it at the end wouldn’t cost anything).

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.

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!