Thursday, 21 July 2011

08:24 – Watching the antics of the German and French leaders in the hours before the euro crisis summit, I was reminded of Butch Cassidy and the Sundance Kid, when Butch and Sundance were working as payroll guards:

Butch Cassidy: I think they’re in the trees up ahead.
Sundance Kid: In the bushes on the left.
Butch Cassidy: I’m telling you they’re in the trees up ahead.
Sundance Kid: You take the trees, I’ll take the bushes.
Percy Garris: Will you two beginners cut it out.
Butch Cassidy: Well, we’re just trying to spot an ambush, Mr. Garris.
Percy Garris: Morons. I’ve got morons on my team. Nobody is going to rob us going down the mountain. We have got no money going down the mountain. When we have got the money, on the way back, then you can sweat. .

But, after seven hours of discussion, Merkel and Sarkozny apparently got some sort of agreement hashed out. Once again, one of the scenes from the movie sums it up.

Merkel: Alright. I’ll jump first.
Sarkozy: No.
Merkel: Then you jump first.
Sarkozy: No, I said.
Merkel: What’s the matter with you?
Sarkozy: I can’t swim.
Merkel: Are you crazy? The fall will probably kill you.

The early news from the conference isn’t good. Apparently, the bank tax is off the table, not that it would have done much good anyway. It seems that Eurobonds are the last option left, and I can’t see Germany, Austria, Holland, and Finland agreeing to those. The other option is boosting the EU bailout fund and allowing it to purchase junk bonds from the troubled Eurozone nations, but that’s not doable in the short term.


More lab work today.


13:32 – Oh, my. Things have already started to unravel. The main goal of the crisis summit wasn’t to save Greece. Greece is unsavable, and everyone was perfectly aware of that. The real goal was to stop the spread of “contagion” to Spain and Italy. It’s too late for that. Spain and Italy are already infected, and nothing done at the summit can change that. Spain today auctioned €1.8 billion in 10-year debt, a set-piece low face-value auction intended to demonstrate the beneficial effects of the summit. It instead demonstrated the opposite. The average yield was very close to 6%, a yield that most economists consider to be in the extremely dangerous range. Although estimates differ slightly, most would agree that 6% to 6.5% is disastrous and 7% undoubtedly fatal.

Wednesday, 20 July 2011

08:53 – In the lead-up to the EU crisis summit tomorrow, it seems that the EU authorities can do nothing but bicker about which unworkable plan each prefers. It seems that the leading candidate is now Euro bonds, which would allow unstable economies like those of Greece, Ireland, Portugal, Italy, and Spain to issue sovereign debt instruments that are backed by the creditworthiness of Germany and other stronger northern European economies. In effect, this “solution” gives Greece Germany’s credit card and allows Greece to run up essentially unlimited debt which Germany is then responsible for paying. That’s kind of like asking me to co-sign a mortgage loan for an unemployed homeless person. Why would I do that? Why would Germany? If this is the best solution the EU authorities can come up with, the Euro is doomed.

Ultimately, the problem comes down to one of authority versus responsibility. The Europeans have an economic union, but not a fiscal union or a political union. Eurozone member nations are actually not nations in the traditional sense. A nation controls its own money. Eurozone members have given up that control, which amounts to giving up sovereignty. A sovereign nation can never be forced into default on debt instruments denominated in its own currency. The US, for example, is never in danger of defaulting on dollar-denominated bonds because, if push comes to shove, the US can simply print more dollars. The same is not true for Eurozone members, who have accepted responsibility while giving up authority.

The result of all this is that we now have a cat fight, with poor, unproductive, and deeply-indebted EU nations able by their actions to destroy the common currency, and wealthier and more productive nations faced with few alternatives but to pay the huge bills that have been incurred by those profligate nations. What’s worse is that this won’t be a one-time bailout. Those poor nations will continue returning to the well, expecting the richer nations to go on subsidizing them indefinitely. Obviously, that’s unsustainable.


UPS showed up yesterday with boxes from one of my wholesalers, which contain about 20% of the components I need to assemble another 60 chemistry kits. I already had about 10% of the components in hand, and nearly all of the remainder should arrive by the end of this month, with one exception. One small item is backordered, and I can’t find another source for it. It’s due to ship by 15 August, so I’m limited to on-hand inventory for about the next four weeks. Fortunately, this is the slowest time of year for kit orders, so I shouldn’t have to backorder many kits. I hope.


09:45 – I finally decided I had to do something about my inbox. I use it as a kind of pseudo-to-do list, marking action items as “unread” and think-about items as read. As of this morning, I had more than 600 messages in my inbox, some of them from last year. All real messages. So I just spent the last 45 minutes getting rid of the ones that were OBE (most of them), doing something about the ones that still required doing something about, and leaving the ones that require doing something about, but which will require more time than I have to devote to them at the moment. I’m now down to eight messages in my inbox.

Usually, I try hard to keep the number of messages in my inbox small enough that they don’t fill the message-list pane. When a scroll-bar appears for that pane, I know I need to do some pruning. This time, I let it get completely out of control. I’ll try to keep that from happening again.

Tuesday, 19 July 2011

08:28 – Spain auctioned a couple billion worth of short-term bonds today. They kept the face value low and the maturities short, hoping to cherry-pick low interest rates and thereby demonstrate that the market still has confidence in Spanish debt, which it doesn’t. Even with the low face value and short maturities, they ended up paying nearly a full percentage point more than they did on their last auction of similar bonds a month or so ago. That bodes very ill for future bond auctions for Spain, and particularly for Italy, which has a huge amount of debt that needs to be refinanced in the coming months. The next Spanish bond auction is set for Thursday, the same day the EU holds its crisis meeting. That auction is for long-term bonds, which are likely to sell at disastrously high interest rates, if at all.


Lab day today.


12:12 – Merkel says that nothing that happens at the summit meeting Thursday will solve the Greece crisis, and she’s right. But I think what she’s really doing is signaling that, as far as Germany is concerned, enough is enough. All of the “solutions” proposed thus far involve Germany paying the lion’s share of the costs, and Germans are tired of being sucked dry to prop up a poor southern fringe EU country that’s going to fail no matter what happens. Germans rightly consider any additional funding provided to Greece to be good money after bad.

At this point, I really don’t see any alternative to the Eurozone collapsing into fragments. Even if the Greece problem were solvable, which it isn’t, Greece is the least of the Eurozone’s problems. The gorilla in the room is Spanish and particularly Italian debt, hundreds of billions of which will need to be refinanced in the coming year. There is simply no way that Germany can fund that effort, and any money it throws down the Greek rat hole now is simply damaging its future prospects. The real question is whether Germany will opt in the relatively near future to abandon the Euro and return to the Deutschmark, or whether Germany will join with France, the Netherlands, and other relatively stronger northern economies in a new Eurozone. My guess is the former. Germany was never really happy about having a common currency, and events have proved them right.

Monday, 18 July 2011

08:34 – As expected, the Euro is getting hammered this morning. Yields on Spanish and Italian debt have jumped by about 0.2 percentage points already this morning, with worse to come. The EU authorities made a major blunder with their feel-good “stress test” results. They released the actual data, which means that investors could and did plug in their own assumptions and run them against that data. And the results aren’t pretty.

The two major phony assumptions made for the official bank test results were that no sovereign default would occur and that a 5% core capital requirement was sufficient. In reality, of course, there will be a default. In effect, Greece has defaulted already, with Portugal and Ireland teetering on the edge and Spain and Italy not far behind. Even without a default, using a more realistic 7% capital requirement puts the majority of European banks in bankruptcy and a so-called conservative 10% capital requirement puts all of them in deep, deep trouble. With a default, they’re toast.

Meanwhile, the higher yields on Spanish and Italian debt threaten their immediate solvency. For the Italians, for example, a 1% increase in yield costs them about €8.5 billion per year, so it doesn’t take much to wipe out the effects of the recent Italian so-called austerity measures. The EU authorities continue kicking the can down the road, most recently by delaying the crisis summit from last week until Thursday of this week. I was about to say that they’re running out of time, but the truth is that they’ve already run out of time. This will play out now no matter what they do Thursday.

This is devolving into a fight between the richer northern countries, which perhaps not coincidentally are all secular, and the poorer southern countries, which are all Catholic. I think a breakup of the Eurozone is a foregone conclusion, with the richer, productive northern countries refusing to continue to subsidize the poorer, unproductive southern countries. German citizens were never happy about the Euro to begin with, and there is now strong sentiment for abandoning the Euro and returning to the Deutschmark.

Meanwhile, Greece has begun uttering threats, including floating the idea of withdrawing from the Euro. Some threat. Greece reminds me of that scene in Blazing Saddles, where Bart takes himself hostage and threatens to shoot himself in the head unless everyone backs off. It worked for Bart, but it’s not going to work for Greece.


11:10 – Here’s a fascinating graph from Calamities of Nature of GDP versus belief in evolution that makes very clear just how much an outlier the US is.


13:24 – Geez. Talk about inflation. I was ordering some chemicals from one of my suppliers, but the website was misbehaving, timing out and dumping the contents of my cart. So I emailed the purchase order to them and called to follow up. As usual, we got into a discussion about stuff unrelated to the order.

He verified that everything on my list was in stock and ready to ship, but mentioned that he was having terrible problems restocking some chemicals. One of them is silver nitrate. All of his suppliers have plenty of it, but none are willing to sell any because the price of silver just keeps going up and up. And the potassium iodide situation is nearly as bad. Back when the Japanese reactor problem occurred, you couldn’t get potassium iodide for love or money. Every bit of it was being made into KI tablets. Everyone expected sanity to return once the Japanese scare was over, but it hasn’t. Since that event, the price of potassium iodide has literally quadrupled to quintupled, and there’s no relief in sight.

None of that really surprised me, but some of the chemicals in short supply and/or experiencing major price jumps are so commonplace and cheap that I had trouble believing there is actually a shortage. For example, ammonium acetate. Ammonium acetate? Geez. You make the stuff by neutralizing glacial acetic acid with concentrated ammonia, both of which are cheap and available literally by the tanker load, and evaporate the water. There’s no possible way there should be a shortage of ammonium acetate, and yet there is.

14:15 – Oh, my. Things are suddenly even worse, with evidence that the “contagion” is now extending to France and even Germany. The price of CDSs for both nations jumped today, with France jumping from 114 to 123 basis points, and Germany from 60 to 64.

A CDS (credit default swap) is basically an insurance policy against a debtor defaulting, at which point the debt holder is paid the face value and in return signs over the (bad) debt to the CDS issuer. The premium for a CDS is specified in basis points, or one one-hundredth of 1%. Right now, Greece CDSs are at 2500+ basis points, or more than 25%. In other words, insuring €1 billion of Greek debt involves paying premium of €250 million. Does that mean that Greek debt is currently worth 75% of face value? Not at all. The CDS premium reflects the fact that CDS issuers are still expecting some sort of bailout for Greece. Absent that, the current CDS premium on Greek debt would probably be at 9000+ basis points and possibly 9900+ basis points. Essentially no one outside the EU authorities really expects Greece to survive this mess. They’re treating Greece as though it had already defaulted, and rightly so.

The scary thing right now is that CDS prices on French and German debt are increasing substantially. They’re still relatively small, at only a few percent of CDS premiums on Greek debt, but they’re increasing rapidly in percentage terms, and that indicates that investors are at least somewhat concerned about the likelihood of a French or even German default. As someone commented, if investors start looking with concern at France, it’s game over for the Euro.

Sunday, 17 July 2011

09:33 – Costco run and dinner with Mary and Paul yesterday. That was the first time we’d hit Costco on Saturday; usually we go late on a Sunday afternoon. It was noticeably busier. There were relatively few carts available when we arrived, maybe 100 or so. As usual, Barbara grabbed one cart for the general shopping, and I grabbed a second to fill up with Coke. I checked out separately, and headed for the truck to transfer the Coke. When I got back to the entrance, there were people milling around because there were zero shopping carts available.

And, speaking of real inflation, the Cokes that cost $4.19 per four-pack of 2-liter bottles the last time I bought them a month or so ago, were now $4.99, a nearly 20% bump in a month.

We had dinner at the same restaurant we’d been to the last two or three Costco runs. I was surprised to see that my standard order there was no longer on the menu. I always order the same thing at any particular restaurant, which is why I don’t like going to new restaurants; I have to order something new. When I was working for the Libertarian National Committee during the 1980 presidential campaign, there was an Arthur Treacher’s Fish & Chips restaurant on the same block as the headquarters building. I had the same order there every day for eight months.


There was an interesting article in the paper this morning about a massive cheating scandal in the Atlanta public schools. Not students cheating. Teachers and administrators cheating. They were literally erasing wrong answers on test papers submitted by poor students and substituting the correct answers. There was also an organized effort by the teachers and administrators to arrange seating during tests to intersperse good students with poor students to allow the poor students to copy the answers from the good students. The upshot was that they ended up with students in middle school who were able to read at only a first-grade level. No surprises here. The teachers’ and administrators’ jobs depend on these poor students passing tests. NCLB strikes again.

Saturday, 16 July 2011

09:55 – The US Navy is being widely and unjustly ridiculed for its Sexual Assault Prevention Tips poster, which the Navy confirms is for real.

What no one seems to have noticed is that this poster is not targeted at potential victims, but at potential rapists. This isn’t a “how to avoid being raped” list; it’s a “how to avoid raping someone” list. As far as I know, this is the first-ever list of tips to help would-be rapists avoid raping someone. It’s ridiculous, yes. Particularly jarring are the modifications of advice usually offered to potential victims. Use the buddy system: take someone along to stop you from assaulting someone. Carry a whistle: give it to your prospective victim so that she can blow it when you start raping her. Geez. But when I tried to come up with a list for potential rapists, I couldn’t do much better.

What is particularly disturbing is that the Navy finds it necessary to issue such a list. Are there really so many Navy guys who can’t control their impulses to rape women that they need such a moron-list for guidance? “If you pull over to help someone with car problems, remember not to assault them!” Is that really something that slips the mind of Navy guys?


More lab work today, interspersed with doing laundry.

Friday, 15 July 2011

08:09 – For the third time in four years, European banks are undergoing a so-called “stress test”, the results of which are to be announced at noon EDT. No one really believes the test results will reassure anyone, although they’re hoping for the best. During the last such test, Irish banks passed with flying colors only to collapse and be taken over by the government shortly thereafter.

This test is supposed to be much more rigorous, but it’s still nowhere near rigorous enough. It assumes, for example, that Greek debt will lose 15% of its nominal value, while in reality it has already lost at least 50% of its value and will soon lose the rest. The test also assumes that none of the Eurozone countries will default, even partially. Despite the ridiculously unrealistic rosy assumptions made by this test, between 10% and 20% of the tested banks–the 91 largest Eurozone banks–are expected to fail the test and essentially go into government receivership. The problem is that if the tests were actually realistic, all or nearly all of Europe’s banks would fail and the entire Eurozone economy would quickly collapse.

The timing of the announcement is no coincidence. It will be released at 4:00 p.m. London time, after markets have closed for the weekend. When the bell rings Monday morning, I expect to see frenetic activity, and not in a good way. Next week may be remembered as the week the Euro died.


Lab day today. I have a couple dozen lab sessions for the biology book in progress, and I need various reagents and stains before I can actually run them. Actually, I already have most of those on hand, but I purchased many of them rather than making them up myself. I don’t want to use purchased reagents and stains to test the lab sessions, because they’re not necessarily the exact solutions that will be in the kit for the book. So, for example, rather than use the purchased 25 mL bottle of Gram’s iodine stain that I have on the shelf next to my microscope, I’ll make up some Gram’s iodine to a known formulation that I can reproduce later for inclusion in the kits. Actually, one lab day probably won’t be enough.


12:14 – Well, the results of the so-called “stress test” are in, and they’re pretty bad. Of the top 91 European banks, eight flunked what should have been a gimme, and another 16 barely squeaked by. That’s pretty damned pathetic, given that the test specifically excluded the stuff that would make the banks look bad. The whole purpose of this dog-and-pony show was to make the banks look as good as possible, to restore investor confidence. The result is going to be exactly the opposite. Even with training wheels, eight of the banks toppled over, and 16 more nearly did so. Investors aren’t stupid. They’ll see this charade for exactly what it is. Wait for the opening bell on Monday.


13:08 – More good sense from Pat Condell.

Thursday, 14 July 2011

08:55 – I’m still working heads-down on the biology book. Right now, I’m entirely rewriting a lab session on DNA analysis by gel electrophoresis. The original lab session was all for real: real DNA, real restriction enzymes, real agarose gel, real gel electrophoresis setup and power supply, and so on.

The problem was, doing it for real is expensive, time-consuming, and takes a lot of page count to write up. It simply wasn’t worth the costs in terms of money, lab time, and page count for the educational benefits it provided. So I decided to rewrite the lab session to separate dyes rather than DNA fragments on a food-grade agar gel bed, and to use a home-made gel electrophoresis apparatus with 9V batteries instead of a $400 commercial apparatus. The concepts are the same, the learning experience is quite similar, the resulting gels are extremely colorful, and all of the specialty items needed are inexpensive enough to include in the kit.


The gloves have finally come off, with the Democrats and Republicans making it clear that they really, really hate each other’s guts, as if that wasn’t already clear to anyone who was paying attention. The Republicans refuse to budge on increasing taxes–which is bad enough; they should be insisting on reducing them–and want to make actual spending cuts, but only small ones. The Democrats insist on increasing taxes and increasing spending. They’re both our enemies, but the Republicans are slightly less our enemies, at least economically, than the Democrats.

We are currently taxing at a rate of 15% of GDP, and spending at a rate of 25% of GDP. Obama cynically promises $3 trillion in spending “cuts”, all of which are in the future, constitute reductions in proposed spending increases rather than actual cuts, and will never take place, in return for “only” $1 trillion in tax increases, all of which will certainly occur, and sooner rather than later.

The fundamental problem is that the federal government spends an incredible $125 billion per month more than it takes in. That’s more than $400/month for every man, woman, and child in the country. And when you consider that half the population pays zero (or negative) federal income taxes, that means that the average actual taxpayer’s share of federal deficit spending is probably more than $1,000 per month. Every month.

Meanwhile, Obama cynically warns that the government may not be able to pay Social Security recipients if the borrowing limit is not increased, and claims that we won’t be able to pay interest on our debt, thereby damaging our credit and setting off an economic apocalypse. The reality is that the US won’t be able to pay all of its bills, but which bills we choose not to pay are still within the control of the government. So, as usual, the government threatens not to pay the important bills. Sound familiar?

Every time money is tight, government threatens to cut spending on the things people want to spend money on, while leaving untouched the things that people don’t want to spend money on. When municipal budgets are tight, for example, the mayor and city council cut fire and police and garbage service–the things that people really want–while refusing to cut costs in areas that the taxpayers don’t much care about.

Meanwhile, the federal spending categories that should be cut with a meataxe aren’t even mentioned. Why, for example, are we wasting many billions of dollars every month on completely useless items such as the UN, foreign aid, the IMF, NATO, TSA, and so on, not to mention the huge costs of maintaining military forces in Iraq and Afghanistan?

As someone said, we don’t have a tax problem, we have a spending problem. It’s long past time that we decided how much we can afford to spend, and then prioritize what to spend it on. The problem is that it’s in neither party’s perceived interest to address the problem seriously. The Republicans want Obama and the Democrats to be crushed at the polls in 2012, so passing any kind of increase in the borrowing limit that puts off the crisis is the last thing they want to do. The Democrats can’t afford to make any serious spending cuts, because their core constituency is made up of government employees and union members, both of which will suffer badly if rational steps are taken to address the spending crisis.

This is not going to end well. So far, the war is one of mere words, but it could easily devolve into real class warfare. Both sides perceive this issue as existential. And in a fight for survival, things can get very ugly very fast.

Wednesday, 13 July 2011

08:55 – When I started using WordPress, I decided to try using topic-oriented posts for a couple of weeks to see how they worked out. As far as I’m concerned, they’re not. With my old static weekly pages, I’d often post a short update during the day, sometimes only a sentence or two. That’s awkward with topic-oriented posts, not least because it makes it difficult for readers to keep track of comments.

I thought about creating one post per week and updating it daily, but that would be extremely awkward both for me and for readers. So I decided to go to day-oriented posts, one per day, or at least one per day that I post anything at all. I’ll try this for a week or two to see how it works out. If it works better than the topic-oriented posts, I’ll just continue doing it indefinitely.


The Euro crisis continues and deepens. Overnight, Irish debt was cut to junk status, which means it’s now impossible for Ireland to sell bonds in the private markets, as they’d planned to do.

Meanwhile, Italy seems to have fallen off a cliff. Italy had until recently avoided the ire of the bond markets, largely because although its debt is gigantic, something like €1.8 trillion, its current deficit is relatively small. (Spain has exactly the opposite problem: its debt is relatively small, but its current deficit is huge.)

Although Italy is striving mightily to address its economic problems, the best they’ve been able to come up with in austerity measures is a proposal to reduce the current deficit by €10 billion per year for the next four years. So, they currently owe about €1,800 billion, and they propose to reduce current deficit spending by €10 billion per year? That means they’ll still be spending more than they take in, thereby increasing their total existing debt.

For Italy, the elephant in the room is that a huge chunk of its debt, more than €200 billion, comes due next year and will have to be refinanced if Italy is not to default. The chance that Italy will be able to refinance €200 billion privately is nil, which means they’ll need a government bailout. The problem is that the EU can’t afford such a massive bailout, particularly coming on the heels of bailouts for Greece, Portugal, and Ireland.


The reaction to Netflix’s massive price increase has been uniformly negative. When I read the announcement on the Netflix blog, there were something like 3,800 comments from subscribers. Reading only the first page, it seems that they’re about 98%+ negative, with most posters threatening to drop Netflix.

And do what? It’s not like there are any good alternatives. Some people threatened to return to cable TV. Yeah, right. To avoid a price jump from $10 to $16/month they’re going to sign up for cable TV? For $16/month they’ll be lucky to get basic cable.

Many mentioned Amazon Prime streaming, so I went over to take a look at what Amazon had to offer. Not much. I checked the first ten titles in our Netflix instant queue. Amazon had none of them. So I checked 11 through 20. Amazon had none of them, either.

Thinking that maybe there was little overlap between Netflix and Amazon, and that Amazon might have a bunch of titles that weren’t available on Netflix, I started checking Amazon streaming by categories. Nope. There was nothing there that we hadn’t either already watched or had in the Netflix queue. Eyeballing it, I’d estimate that Amazon has maybe 5% of the titles that Netflix does.

The only place that Amazon seemed to have some advantage was in recent movie titles, which Barbara and I pretty much don’t care about. It seems that Amazon prime must appeal to people who like watching new stuff. We prefer watching good stuff, regardless of its age.


09:30 – Boy, am I glad that I decided to use USPS instead of UPS for shipping kits. Yesterday, UPS delivered a box that was supposed to contain eight dozen Sharpie markers. It looked like the UPS truck had run over the box before it delivered it. Barbara found it when she was taking Colin out after dinner, and shouted back to me that there was a really crushed up box on the front porch.

I suppose the good news is that 92 of the 96 markers were actually in the box. The bad news is that the box was crushed and beaten to a pulp and apparently leaked four of the markers. Not surprising, since of the eight Sharpie boxes inside the shipping box, six of them were crushed open and I had maybe 30 Sharpie markers rattling around loose in the shipping box. Fortunately, the remaining markers appear undamaged.

Then this morning I got email from UPS, with the heading “UPS Exception Notification”. In the body of the message, it explained the reason:

Exception Reason: MECHANICAL FAILURE OCCURRED

In other words, the shipping box must have broken (or been torn to shreds by some UPS machine), scattering my eight dozen 9V batteries all over the floor at some UPS site.

This is by no means the first and second time UPS has done this on my shipments. It happens pretty regularly. I’m not sure why, because it almost never happens with USPS or FedEx.

Huge Netflix price increases

A couple weeks ago, I dropped our $20/month 3-discs-at-a-time-plus-unlimited-streaming plan to the $10/month 1-disc-at-a-time-plus-unlimited-streaming plan. I just got email from Netflix telling me that the cost for that plan will skyrocket by 60%, to $16/month, as of 1 September.

Our old plan will jump from $20/month to $24/month, a 20% price increase. For $20/month, we can now get streaming plus 2-discs-at-a-time, which may be what we change to. Or I may go back to the original 3-at-a-time plan.

Obviously, Netflix has decided that they really, really don’t want to be in the disc business. I just wish they had a $24/month plan for unlimited streaming of everything in their streaming and disc catalog. I’d go for that in a heartbeat.