Blessed by the Potato

Before I get to the rest of the links, an important reminder about the Canada Learning Bond for low-income families to help fund their RESP from MSB. If your net income is below $41.5k, and your child born in 2004 or later, the government will just give you money to help fund the child’s RESP — not even a matching amount like the CESG.

Larry MacDonald reports on more wariness towards stocks by younger investors. Of course, given investor psychology, it’s probably coming at the wrong time.

Spreadsheet fever hits Preet, as he gives mutual fund investors a tool to estimate how much of their return is sucked away by fees…

The housing bubble has started to get a few more mentions, perhaps because it’s a slow news period. Including:

3 of Rob Carrick’s 12 new year tips are variations on “don’t buy a house in this ridiculous market”.

Almost all of Canada’s banks have now also started to publicly fret about the state of the housing market. “There’s no question that the warning signs around the Canadian housing market have been visible for more than a year,” Mr. Downe [BMO CEO] said. The banks have mentioned that they did a stress test of their finances if house prices declined by 25%. Ideally, they should be doing these kind of stress tests regularly for risk management reasons — but the fact that it became newsworthy may be of note.

Plus, 2 segments on BNN on Wednesday, and another on Thursday (11th and 12th of January).

Nelson of Financial Uproar infamy has a guest post (is there anywhere he doesn’t guest post?) that spends a quarter of the word count on non sequiturs and still manages to be an excellent description of how easy passive investing can be (I needed a whole book to get the concept across!).

This is why I’m focusing my job search on non-academic positions, though that hasn’t gone so well so far, either.

Otherwise, not much new with me. Weight’s holding steady (not good, but not terrible). Just barely hitting one job app per week — I really need to quit it with cover letter writer’s block. The 2nd week of flag football went well, with more of our team showing up, and a slower rate of play due to the other team constantly consulting a playbook (I thought having a playbook was supposed to speed up your planning). In fact, I got so many breaks with all our spare players for subbing in/out that I started to question even going: having no subs last week was exhausting, but having enough to only play 50% of the time didn’t feel like exercise at all, and the commute down twice as long as my on-field time.

It’s perhaps far too early to speak of bottoms, but with the news full of stories of the recent Carnival cruise ship-wreck and subsequent 16% sinking in share prices, it may be worth doing a bit of work to see at what level buying in the face of panic may be warranted.

First up, before deciding how much to discount CCL, we should have an understanding of whether it was appropriately valued to start with. At 14X P/E for a discretionary vacation provider, it was perhaps a little rich going into the mess on an earnings basis, but pro-forma book value was $30/share, giving it some support. But if we say $29 would have been a more fair starting place before the ship got grounded, then it’s clearly not bottomed yet — a 16% drop only takes it to that price.

For the current circumstances, to be conservative we should assume no insurance coverage (due to the possibility that it was an at-fault accident) and that the ship will not be able to be repaired, representing a $500M loss. It’s tough to say what the liability will be for each of the passengers (~4000), but perhaps $50k each is a good upper bound, plus another $2k for the next group of ~4000 to compensate them for having to change their trip plans/flights at the last minute, plus $1M for each death (6 confirmed with ~20 missing, call it $25M). $733M immediate hit to book value, or about $1/share.

On top of that, it’s fair to assume that people will be less likely to book cruises for the next few years, so revenue may decline by say 10% for the next 3 years. If costs are fixed (assume that they are, again to be conservative), that goes straight to a decline in earnings. So I’ll plug into my little model $1/share in earnings for each of the next 3 years, returning to $2.40/share afterwards. In fact, that appears to be a much, much larger potential hit to the value than the loss of the ship and liability from the accident, which is a shame since it’s a lot harder to estimate. Add in a healthy fudge factor, and I wouldn’t be interested until it hit something like $21-25 – a 1/3 decline from Friday’s price. Until then I think I’ll just watch.

My record is fairly spotty with this sort of thing: 1-1-1 to date (BP a clear win, the Canadian banks w/ ABCP came out all-right, and TEPCO was a disaster).

Another perpetual motion machine scheme has cropped up, this time stealing its name from a popular carnival ride, the gravitron. What made this one come to my attention was the fact that they are looking to hire a post-doc to run some calculations for them.

Now, I need a job, so I’m tempted to apply (though I have no desire to go to BC — perhaps I could work from home in Ontario?). If they’re going to waste their money to get someone to tell them precisely why their idea for a generator doesn’t obey the laws of physics, I suppose I’m as good a person as any to be the recipient of that money. On the other hand, perpetual motion machine pumpers tend to be flaky at best, and fraudulent at worst, so I’d have to negotiate for cash up front.

Their description of how it works is full of unit errors (using Watts for both power and energy, then comparing one to the other), and lots of dubious explanations. Rather than trying to work out where they’ve gone wrong on the physics (hey, they might hire me to do that!) let’s instead look at the economics. They say that it’s not a perpetual motion machine, because:

The Gravitron is not a perpetual motion machine, that is, it will not work indefinitely. The neodymium magnets that make up the magnet track will lose magnetic energy over time, and at some point will no longer have enough magnetic energy to lift the neodymium spherical magnets from the bottom to the top, at which point they will need to be replaced or remagnetized.

Ok, so let’s take that at face value: their not-a-perpetual-motion-physics-defying machine is just a really neat way to turn the energy in the magnetic field of a neodymium magnet into electricity. Well, obviously you can’t round-trip that or it’s again going to run into the perpetual motion problem, so the machine is going to extract less energy than it would take to re-magnetize the neodymium magnets when you’re done. The only way to work the machine then is to run it until you “drain” the neodymium magnets, throw those away, and buy brand new, fully-magnetized magnets to extract the energy from those anew. The question then becomes how much energy do you get, and how much does a replacement magnet cost?

Without spending too much time looking up the properties of neodymium and how to calculate the energy density of its magnetic field, Wikipedia provides this figure: an energy density of ~500 kJ/m³, or in electricity terms, 0.138 kWh per cubic meter of neodymium. A ballpark figure for the cost of electricity is 5 cents/kWh, so in order to be economical, they’d have to be able to source magnets at less than a penny per cubic meter. I don’t think so.

A former classmate says on facebook:

Here is some free advice to all inventors out there: if you have to include an explanation on your web site why your invention isn’t a perpetual motion machine, you’re probably trying to invent a perpetual motion machine.

When I told Wayfare I was thinking of applying, since hey, if nothing else I need to do some mock interviews to get some practice, she said: ‎”When I say you need to do a mock interview, I don’t mean an interview where you mock the interviewers.”

Netbug sends along this opinion piece on electric cars after discussing it with his family, saying “I’m sure the math is sound, but I think he’s missing the point… Can you refute the article articulately or am I way off base?”

I’ve only read it twice, but I’m sure he’s missing the point. Moreover, I’m not sure the math is sound. He uses a particularly bizarre way of figuring the cost/savings of EVs, and even then gets his figures wrong.

Let’s start with his assumptions about fuel economy for gas cars. Note that he does not spell them out. To maintain consistency, through most of this I’ll be using US units, figures, and data sources.

A CAFE compliant new car will offer an average fuel economy of 33.3 mpg while a CAFE compliant new light truck will offer an average fuel economy of 25.4 mpg.

Well, right off the bat, that’s untrue. CAFE is not a measure of any particular car, it’s a fleet average, and it includes the contribution of electric vehicles and hybrids (plus some voodoo about ethanol credits). Moreover, it uses a modified scale/test procedure: 33 MPG for CAFE terms is more like 25 MPG on the current EPA test, and even lower real-world. Look up the EPA ratings. I picked a Ford Focus (compact car): it’s at 28 MPG combined. Even compact cars aren’t at the numbers he’s using. According to Natural Resources Canada, the average fuel consumption of the current light vehicle fleet is just under 11 L/100km, or 21.8 MPG.

Now, there is room to quibble there: that’s for a range of cars from new to 10+ years old, whereas new cars will be slightly better. Still, your comparison car is not going to be getting 30 MPG, and especially not when you consider that you should be comparing to the city mileage since EVs are for urban settings.

At 30 mpg, the owner of a new light duty vehicle will consume about 420 gallons of gas per year

He didn’t go through his math, but let’s go backwards: 420 gallons * 30 MPG = 12600 miles/year. That’s probably a reasonable figure to use (I’ve seen 15k mi as more common, but that may just be a case of rounding to a prettier number; not sure what the figure is for those with daily driving commutes). At 22 MPG, that’s more like 572 gallons.

Then he goes to another paper, and somehow gets that electrification doubles the cost of the car (from $19k to $39k). That again is a pretty suspect analysis. For instance, a general rule-of-thumb is that the engine & transmission are 20-40% of the value of a car, yet that paper somehow found that the engine & transmission were just 13% of the cost of a gas car. Moreover, we can buy EVs on the market today that do not cost that much — the Nissan Leaf is “only” $35k (USD), the Prius plug-in has a gas engine and a plug-in battery, is larger and nicer than a $19k comparable car, and is only $32k (USD). Indeed, from looking at US manufacturer’s websites, a compact car with automatic transmission is more like $21k than $19k, and that’s still not adjusting for non-driving features.

The ultimate obscenity is that a conversion from gasoline drive to electric drive will not reduce the total amount of energy used in transportation.

This statement is unsupported by the author, and with good reason: it is patently false. Half the reason to go to electrification or hybridization is the efficiency gain: electric motors are just simply more efficient at turning chemical potential energy into kinetic energy than internal combustion engines. Plus, you can shift the source of that energy from oil to natural gas, hydro, or other renewables.

So, if we re-do his analysis with more realistic numbers (all US figures), we have that the incremental cost for an EV ($21k to $35k) is $14k. That’s saving 572 gallons of gas/year, or 14.1 bbl/yr, or 212 bbl/car lifetime. That works out to a cost of $66/bbl. Which is less than the current cost of oil. Now, this is not the method I would have chosen to make a comparison, but even using his analysis the point he’s reaching for isn’t made.

He also forgot a lot of factors that make EVs a better choice.

Direct financial ones like: Less mainenance cost (no oil changes, spark plugs, timing belts, water pumps, brake pads, etc., etc., etc.), lower fueling costs (oil is an expensive and volatile commodity).

Plus, environmental factors like: Less total pollution (even on a 100% coal power source, an EV is arguably cleaner than a conventional car, and most places are only a fraction coal-powered); pollution shifting (no more smog in city centres!); self-reliance (you can make your own electricity if you’re a doomer, whereas refining your own gas is hard; plus, the cars are quiet and good for sneaking up on zombies). And that efficiency gain.

So right now, going with an EV is close to break-even (though maybe just one the far side). You get all the nice stuff on top of that, but it’s also new, unfamiliar technology. That’s why the subsidies come in: to help make it not only better, but cheaper, to get the ball rolling.

I’m sure the author was cautious in his conclusion, pointing out that his back-of-the-envelope paper, pencil, and calculator analysis could have some holes, that it’s a bit of a strange approach to take (cost per barrel of oil offset?) and that EVs might in fact make some sense…

Electric drive proponents are selling a house of cards based on fundamentally flawed assumptions and glittering generalities that have nothing to do with real world economics. Their elegant theories and justifications cannot withstand paper, pencil and a four function calculator. Shiny new electric vehicles from General Motors (GM), Ford (F), Nissan (NSANF.PK), Toyota (TM), Tesla Motors (TSLA) and a host of privately held wannabe’s like Fisker Motors and Koda are doomed to catastrophic failure. Their component suppliers will fare no better.

Oh wow, he really got the whole foot in there, didn’t he.

Now, as usual, I’m not saying that EVs are going to suddenly take the market by storm: there’s a lot of range anxiety to conquer. They’re not suitable for everyone. But no car is. There are about 1.5M families in the GTA alone; of those, about half have 2 or more cars. I’d estimate that something like 15% of those have (or could easily have) one car that is largely used just for commuting within the GTA — in other words, there’s potentially a market for about 100k EVs in the GTA alone. It’s a niche, but a respectably large one; one that’s worth developing. The economic argument may not be a slam-dunk on its own, but it’s a far cry from a house of cards doomed to catastrophic failure.

Wow, nothing rubs in the cruel realities of old age (or, more precisely, a lifetime of sedentary computer work and the cruel realities of carrying around 40 lbs more than is healthy) like playing flag football against a bunch of 20-year-olds.

I don’t quite know how I got roped into it, but a few friends convinced me to join them in the TSSC flag football league. We didn’t have nearly enough players to form a team on our own, so we signed up as individuals to get randomly put together with some other folks to field a team. The other two guys who showed up to play were good, but unfortunately they were the only ones who showed up — we had to forfeit due to lack of players (though the other team had to forfeit from lack of equipment, so we called it even and played anyway).

There were a few incidents that made me question the whole concept of flag football. The idea is to have a little velcroed-on flag on your body that the other team can rip off to show that you are down, to avoid the brain-damaging tackling of “real” football. The thing is, sometimes you can’t grab the flag, but can grab the player. So at one point one of our guys (one of the younger, fitter ones — obviously not me ;) had two of the opposing players hanging off him, but because they couldn’t manage to grab his flag, he just dragged them across the touch-down line. I had to wonder if that was a kosher goal: on the one hand, they didn’t get his flag, but on the other, they clearly had caught the player. I don’t know, I think if I were faced with the same situation, I’d be sportsmanlike/defeatist and give the other team the benefit of catching me once they started to pull my pants down: yes, you’ve caught me. It’s ok, I won’t get all rules-lawyery about ripping the flag off being the only way to stop the play. The point of the flags is to avoid tackling and the ambiguity of two-hand-touch, and I don’t want to encourage people to tackle someone just to get the flag off at their leisure on the ground.

Speaking of which, I unintentionally knocked someone down, just pushed them the right way below their centre of gravity in the process of grabbing the flag, and down they went. I went down on the next play myself and learned just how deceiving the fake indoor turf is: it feels soft enough under-foot (actually pretty good for running on), but it’s like steel wool to the touch. I’ve got some real nasty turf burn down my leg now, not to mention some sprains and bruises that I’m really feeling today. So I feel pretty bad about (accidentally!) knocking someone down.

In the end, I wasn’t much help to our team: I made a few good plays, but also dropped a catch that was right to me twice, and one time as QB just threw it right into the arms of an opposing player (hey, he was open!). And while I did learn that I suck at football and am out-of-shape, I also found it fun. As much as I hate leaving the house and meeting new people, and as much as I suck at football, in the end I had a good time last night. No one cared that I sucked or gave the other team the ball almost as much as my own, and everyone was friendly and sportsmanlike. I think I’m going to try to sign up for more of these sports things in the spring, since team sports always seem to be a better motivator to go and exercise than just working out is for me.