Blessed by the Potato

My friend Julia tried to kill me tonight.

It was awesome.

She had the bright idea of going out to the Fanshawe Lake conservation area, where there is a ~20 km bike path around the lake. Including the biking to Fanshawe Lake and back, that was a 36 km trip for us — nearly double my last furthest ride! I figured what the hell though, I needed to get off my butt and get in better shape, the weather was awesome for it, and it sounded perfectly lovely: after all, London has a great paved trail system along the river in town. I was expecting much the same around the lake.

I was wrong.

It turned out to be The Cycle Path of Death, Awesomeness, Darkness, and Fireflies.

First off, we had a plan to leave around 6pm so we could do our trek and get home before dark (or, at worst, back to the lit city streets before dark). Unfortunately, I have to accept all the blame there as I didn’t get out of work until 6pm, and then had to have a bite to eat, change, mix up some gatorade, find my bug spray, pump up my tires… and we didn’t leave until nearly 7pm. Still, anticipating a leisurely cruise around the lake, that should have been plenty of time.

We get to the toll gate for the conservation area and find out we have to pay to get in ($5.50 per bike). I didn’t do my research and wasn’t prepared for this, but thankfully Julia spotted me. The cashier manning the gate knew nothing about the park — she had never been on the trail itself, couldn’t tell us if it was paved or gravel or what. She just gave us a map, offered to sell us a season’s pass ($77), and sent us on our merry way. Now, I’m going to be quite critical of the path through here, but we did have a lot of fun, and I think it was worth paying admission for (at least once) — but what are they doing with that money? The signage needs serious improvement in there. If I go back, I’ll be very tempted to go in with a bottle of spray paint and re-mark the damned trail myself.

So, she sends us on our merry way, and notes that today is an even day, so cyclists have to do the trail clockwise. We bike off down this nice paved two-lane road (shared by cars and bikes) and think that that was an awful strange, OCD requirement. When we do finally find the bike trail (which, BTW, involved biking around a barrier put across the entrance, presumably to keep cars out, but with no signage) we see why: it is very much a single-file bike trail. Most of the trail is just dirt and mud, with no effort made to clear out the mini-boulders and large tree roots that block the way. It was tough slogging. In some parts, the foliage was so thick and grabby that we felt like we should have been chased by a smoke monster (the passing trains in the middle distance did add the appropriate sound effects though).

There were many parts where we just had to get off the bikes and “portage” – either because of super-steep hills, or big rocks/branches/roots blocking the way. Lots of mud, too.

Perhaps needless to say, but I feel the need to say it anyway: our timeline was fucked. This was a much slower (and harder!) slog through 20 km than we had planned for. Around the 6 or 7 km mark, we ran into two guys who were turning around because they didn’t think they could make it to the end before dark. That was at 8:25 pm. At that point, it had taken nearly an hour for us to get in the first ~6 km, but we figured we still had an hour and a half of light, and that somewhere along the way (soon, we had hoped) the trail incorporated some paved sections where we could burn through the miles. We made the call to keep going around. This was also because we wanted to finish this course, and did not want to return to work the next day with the stench of failure and turning-around-in-the-face-of-darkness on us.

We were quite mad, you see.

The trail continued on, and got progressively worse (hillier, rockier, darker). The darkness was not so much due to the setting sun — which at 8:30 was still decently above the horizon, but because the damned foliage just got so thick the light couldn’t get in! I was having visions of Mirkwood from LotR (and indeed, was attacked by a spider and either a different kind of spider, or a tick). We knew from the map (and my Blackberry’s GPS) that we had to meet the road soon, but the damned trail ended at a small creek, and I didn’t know we were supposed to cross it (there was “black diamond” trail turn-off right around there too, so I thought that’s what the crossing at the creek was). So we had a little detour there down an even denser, less-well cleared path that dead-ended at the lake.

Finally, we hit the road and put on some speed. In no time we covered a good 6 km of the distance. We decided to skip over one section of the path. That part followed the water, and would have been a shorter distance, but definitely would have taken us longer. We got back on the path with a good ~5 km left to go, the sun had definitely set, and it was getting twilighty and dark out (about 9:15pm). It wasn’t bad on the road at all to see, though some giant black moths had come out to attack us on our journey. We discussed sticking to the country roads and taking the long way back home, going by the airport, but figured we could still see and it wasn’t that much further, so we got back into the woods.

These were the thickest damned woods yet, at least overhead (the path itself wasn’t too bad). It was dark in there. Even though it kept getting later as we rode through there, it was much brighter when we finally broke out of the woods. Here’s a shot of the sunset at one small break in the trees at about the 4 km point.

It was kind of surreal biking through this narrow, hazardous path through the woods at nearly-nighttime. The fireflies were out and blinking at us. At first they were on the border of the path, looking to guide us along. Then one or two flashed at me from deeper in the brush, and I nearly turned to follow them (nearly). There were only a few smatterings of fireflies though — Julia was surprised there weren’t more, figuring that they probably come into prominence later in July. I was glad to see any; they’re a neat thing to see, and I haven’t seen any for years now. If they are in abundance out there later in the summer, I may have to plan another late bike ride through there (with flashlights though!).

As it got darker, we got slower, which just made it get darker. Here’s a picture I took with about 3 km to go. After this, I wasn’t allowed to stop and take any more pictures.

So we’re picking our way through the boulders and tree roots, up hills and down hills all in the rather dark (it wasn’t completely dark, and I claimed that “we did manage to finish before it was dark!” when we got out and there was still a tiny bit of twilight left, but it was pretty damned dark in the woods). As it gets noticeably darker, I start to think about these recurring nightmares I had as a child about running through a supernaturally dark forest while being chased by wolves. I didn’t say anything out loud though, and Julia picks just that moment to ask:

“Hey, do you know what I heard lives around here?”

“The next word out of your mouth had better not be bloody wolves.”

“No, a puma actually.”

“Oh, that’s much better.”

I had turned my safety lights on around the time we were on the road. These, for the record, are not flashlights. They are weak-ass little LEDs that aren’t focused so that cars in front of me can see me approach. And it was getting dark enough for them to actually kinda work as flashlights.

Finally, the trees start thinning out, and it gets a little lighter, then we’re on a completely unmarked gravel road. We take it, since we can’t see another option (it’s possible the bike path branched there to continue along the water a little further before meeting the road again later, but if it did, we couldn’t see it!). The orange glow of sodium lamps starts peeking through the trees, and we can see the dam, our starting point not too far ahead. We made it!

From there, it was a breezy ride back along the city streets at night.

In the end, it was a lot of fun, but there was definitely a lot of adrenaline pumping as we tried to beat the darkness on our way back. Especially since the path was not as novice-rider friendly as we had hoped. Someone could have easily been hurt out there, and after we passed the two guys who chose to turn around, we were the only ones out there.

Oh, it ended up taking us about an hour and a half to finish the course, so turning around would have definitely been the faster option. But we can now say that we did it (and to be fair to me, if the path wasn’t so closed-in, there would have been plenty of light in the time we had remaining there; also, if it was better marked, we could have easily saved 15-30 minutes.

So, to sum up: this is not a path for novice cyclists. It is not a path for road bikes. I can’t recommend starting out at 7pm or later (adjust for the length of the day — in mid-June here sunset’s about as late as it’s going to get). The path is not well-marked, and the Blackberry GPS is so handy!

On the topic of the Blackberry GPS, it’s not a true GPS. For some reason Bell wants a subscription fee to activate the antenna in the device to passively receive the signal from the GPS satellites and determine my location. That’s BS. It also doesn’t have maps stored in it (though with an 8 GB SD card, I should be able to devote ~1 GB to maps of NorthAm at least). What it does, AFAIK, is the handy-dandy Google Maps app will triangulate on the cell towers the phone can pick up on and determine location that way. It’s not as accurate as GPS, and requires a signal (presumably from more than one tower), but it works as well as I need it to. I do also, of course, need a signal to load the map, since the maps aren’t stored locally. So I’m not going to use it in the complete boonies, but how often am I completely without a signal?

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).

For those that haven’t yet heard about it, head over to the Whatever to read about the Wil Wheaton and the Scalzorc fan fiction contest being run to benefit lupus research. This is going to be quite a challenge, because there is a lot going on in that picture to try to come to terms with in just 2000 words. The only thing wrong with this contest is that you can only enter once.

As an experimental scientist, I know that there is a lot you can only find out through direct experience, and more that is best learned that way. There are also a lot of questions that you really don’t want to find the answer to the hard way, such as whether there’s an afterlife, what would Stephen Harper do with an unfettered majority government, or would looking at a solar eclipse without eye protection be awesome enough to warrant the retinal damage?

To that list, I can now add: can my car withstand being kicked by a disembodied deer leg? (The answer is yes; also, deer have a lot of blood inside of them.)

PS: I’m really thankful I’m not the guy who just discovered how well his SUV took a head-on collision with a whole deer.

The mollusk eye is often used as a counter-point to intelligent design arguments. The human eye, if deliberately designed, was not designed particularly well. The layers of tissue are laid down backwards (with the photosensitive layer that actually lets you see underneath the non-transparent, thin, easily separated blood vessel layer), and the lens setup leads to failure in middle age. The mollusk eye, on the other hand, shows evidence of having evolved independently, demonstrating that not only can an eye evolve by the process of natural selection, but that it has done so more than once. The octopus eye is in many ways more advanced than our own: the layers of tissue are the right way around. The lens changes focus by moving back and forth rather than being stretched (which means you don’t have to worry about compliance changes as the lens ages and stiffens). Indeed, camera makers have long turned to the octopus eye for inspiration on how to solve problems like how to make lenses that focus clearly on large photosensitive areas.

So then it led me to wonder: maybe there is an intelligent designer, but He designed octopi. I mean, not only are their eyes superior, but they are very smart, without having these delicate spines and specialized brain regions — they are a marvel of decentralized processing. Many can change their colours, and with their highly flexible bodies (no constrictive skeletons, just muscle), they can even mimic the outlines of other animals. They are ruthless and calculating — quite capable of escaping their laboratory tanks and eating the fish in neighbouring tanks, and smart enough to go back at dawn so no one is the wiser.

That leads us to wonder: what designed the octopus? And there is only one answer:

Cthulu.

So, will octopi one day take over the world? Here’s the scary thought: 2/3 of the world’s surface is under water, and fairly poorly explored. It’s quite possible that the octopi already rule the world, and the tiny dry sliver of land we call home is just a wild frontier they haven’t yet got around to dominating yet.