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Month: August 2011

Thursday, 11 August 2011

08:14 – Interesting article in the paper this morning about cable/dish cutters. Last quarter, cable TV and satellite companies showed a net loss of between 380,000 and 450,000 households. The article attributes most of that to people cutting back because of the poor economy, including kids who’ve moved back in with their parents no longer needing their own subscriptions. It claims that on-line viewing is a minuscule factor in the falling number of cable/satellite subscribers. Of course, it also says that people can watch TV episodes on Netflix for free.

What’s never reported is the number of people who’ve downgraded their cable/satellite subscriptions. Barbara and I fall into that category. We cut back several years ago to the minimum cable TV level, which gives us only local stations for something like $10/month. We use Netflix, both disc and streaming, for nearly all our viewing. Many of our friends have also cut back their service levels, albeit often not as dramatically as we did. But many of them who were paying $100+ per month for TV service are now paying half that or less, and using Netflix for a large percentage of their viewing. This phenomenon is probably more of a threat to cable/satellite providers and networks than those who out-and-out cut the cable.

I finally saw an article yesterday that mentioned the dirty little secret of ratings agencies. The truth is that few investors pay any attention to anything they say, particularly about sovereign and large corporate debt. In fact, many investors have made lots of money by adopting contrarian strategies, buying instead of selling when one of the Big Three ratings agencies downgrades a country or corporation. When S&P downgraded US debt, investors ignored them in droves. Investors remember that these agencies were rating junk mortgages AAA right up to the moment they collapsed, and that these agencies are paid by those who they’re rating. Even a cursory look at how the market rates sovereign debt tells you just how far from reality these agencies’ ratings are, and just how little attention the market gives the ratings.

Based on yields and the free-market price to insure sovereign debt, for example, Germany is a worse risk than the UK, which in turn is a much worse risk than the US. In fact, based on market behavior, US debt is the only major sovereign debt that should rate AAA, with Germany and the UK two or three steps below that, and France lower still.

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Wednesday, 10 August 2011

08:38 – As it turned out, all the discussion about security of digital camera images was moot. When Barbara got home yesterday, she told me that she’d removed our memory card from our DSLR and was using a memory card that belongs to her law firm.

The first 28 chemical blocks are complete, with the exception of 0.1 M IKI (iodine/potassium iodide) solution, which I’m in the process of making up. I actually have iodine and potassium iodide in inventory, so I could make up the solution directly from the two chemicals. But I’m preserving my stock of iodine crystals by working from purchased Lugol’s iodine, which is an aqueous solution of 2.2% iodine and 4% potassium iodide. To get a solution that’s 0.1 M with respect to both iodine and potassium iodide, I have to add a small amount of iodine to the Lugol’s solution and then dilute it. The problem is, it takes the iodine forever to go into solution. So I have a volumetric flask partially full of Lugol’s iodine solution to which I’ve added some iodine crystals. Every time I think about it, I give the flask a swirl. After several days, the iodine will eventually go into solution.

This is all because about three years ago the DEA reclassified iodine as a List I chemical, supposedly to combat illegal manufacture of methamphetamine. All they’ve really done is make things more difficult for people who need iodine for legal purposes. It used to be you could order iodine from any lab supplies vendor. For that matter, you could walk into the outfitter store at the mall and buy a bottle of iodine crystals. Now, anyone who wants to sell iodine has to jump through legal hoops to do so. There are all kinds of requirements, including keeping detailed paperwork on sales. And, if it turns out that the iodine you sell has been diverted to illegal use, you can be held responsible. Finally, the necessary license to sell iodine costs something like $2,500 per year, which means that most companies that used to sell iodine now find it uneconomic to do so.

The “trigger level” for iodine sales is now one bottle containing no more than one fluid ounce of a solution that contains no more than 2.2% iodine. If you go into Walgreens, you’ll find they still sell bottles of iodine solution of that size and concentration, which they can sell without restriction, as long as they sell only one per customer per transaction. But when I order one liter of 2.2% Lugol’s solution from one of my vendors, they have to record the transaction details and provide them to the federal government. In theory, the feds could show up at my door and ask me to provide details about the disposition of that liter of Lugol’s solution. In practice, that’s very unlikely to happen, but even so.

The Euro drama continues, with France increasingly under the gun. Right now, France is desperately worried that it will lose its AAA bond rating. As well it should. If US bonds are no longer rated AAA, no other major country’s bonds should be rated AAA. Rating the bonds of France, the UK, and Germany AAA while the US rating is lower is simply ridiculous. The US is much, much less likely to default on its bonds than any of those other countries, whose economies are in much worse shape than ours. The markets themselves have shown how ridiculous S&P’s rating reduction for US debt is. Since S&P reduced the US bond rating, risk-averse investors have greatly increased their purchases of–you guessed it–US bonds. Yields on US bonds have continued to fall, indicating that the markets think US debt is the safest there is. The demand for dollars is so high that US banks literally don’t want any more dollars from foreigners, because the banks have to pay to insure those deposits. Large US banks have started charging foreigners who want to make deposits. That’s right. Negative interest.

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Tuesday, 9 August 2011

08:45 – On her way out the door this morning, Barbara asked if one of our Pentax DSLRs had any images on the memory card. She works in the IP division, where they frequently need to shoot images of clients’ products for patent and trademark documents. They’ve been using a point-and-shoot digital camera, but Barbara says they’ve been having problems with getting usable product images. She wanted to try shooting images with a better camera, so I pulled all the images files off the memory card so she could take a clean camera to work.

I assumed that she’d just bring the camera home and I’d transfer the images as usual and burn them to a disc or write them to a USB flash drive. I should have realized that was a non-starter. The stuff they do is confidential, and the images aren’t allowed to leave the law firm’s premises. So I gave her a USB cable that she could use to transfer the images and then delete them from the card. Fortunately, I remembered that the camera was set to record images in RAW format, which they’d have no way to handle, so I reconfigured it to save as JPG files.

Since they apparently need to shoot product images frequently, it seems to me that Barbara’s law firm needs to purchase a decent DSLR, a copy stand, tent, lights or slave flashes, and so on, and set themselves up an imaging station. Of course, they’re not really concerned with artistic merit. All they need is images to document the products for legal reasons, so they probably don’t care much about stuff like even lighting or controlling reflections.

Orders continue to arrive for the chemistry kits, which are currently back-ordered. We’ll complete one batch of 28 kits this weekend, which will lack only the one item that’s still back-ordered from our vendor, and start on the next batch of 28 kits. When the back-ordered item arrives here, it’ll take only a few minutes to drop it into each of the 56 pre-built kits and have 56 more kits ready to ship.

11:43 – I’m playing around a bit with the right-column layout. Given the presence of the monthly calender and the fact that I’m now naming each daily post only with the day and date, the “recent posts” section seemed superfluous. So I got rid of it and expanded the “recent comments” section from 15 to 25 comments, which should make it easier to find new comments on older posts. I’m seriously thinking about switching to a three-column theme and dedicating one of the side columns to my links.

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Monday, 8 August 2011

09:48 – I see that Spanish and Italian bond yields are down slightly because the ECB has begun buying them. That won’t last long, either the ECB buying these junk bonds or the lower yields on Spanish and Italian debt. At a very high price, the ECB has bought a few weeks at best, and more likely a few days. And the first shoe has dropped. A national political leader, the former prime minister of Finland and the current leader of the opposition party, has suggested a break-up, with the northern FANG nations splitting off from the bankrupt southern tier, a proposal that is almost certain to gain the support of Germany, the Netherlands, Austria, and Luxembourg.

Work on building more chemistry kits continues. The first batch of chemical blocks is mostly complete, and that’s the part that requires most of the work.

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Sunday, 7 August 2011

08:53 – Mainstream European newspapers are now starting to talk about the collapse of the Euro and the breakup of the EU, not just as a possibility but as something that’s likely to occur. Of course, their timeframe is wildly optimistic. I just read one article that quoted an economist as saying he estimated only a 20% likelihood that the Euro (and therefore, inevitably, the EU itself) would last in its present form for 10 years. Ten years? Give me a break. I’d estimate there’s only a 20% probability that the Euro will last in its current form for the next 90 days, and maybe a 1% probability it’ll still be around at the end of the year. In fact, it wouldn’t surprise me if the Euro and the EU crashed by the end of this month.

Many people disagreed with me that Germany will return to the Deutschmark, or something very like it, but I still think that’s almost certain to happen. Or, if Germany decides not to go it alone, it may form a new union with Austria, Holland, Luxembourg, and Finland. I think that’s less likely than Germany going it alone, if only because Germany is now well aware of the extreme hazards of a currency union without a political union and a fiscal union, and those are not things Germans are likely to tolerate.

Work on building more chemistry kits continues. I’m filling, capping, and sealing containers and Barbara is labeling them. She can do that about twice as fast as I can do my part, so I try to get a backlog built up while she’s doing other things.

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Saturday, 6 August 2011

11:53 – Well, we’re now down to zero kits in inventory, having sold the last five yesterday. Barbara is off on a day trip with her friend Bonnie, and I’m working on more kits while I do the laundry. By far the most time-consuming part is building the chemical block, which contains 44 chemicals and 6 test tubes (packed in the foam block for safe shipping). We do them in batches of 28 because there are 28 labels per page. That’s 1,232 containers to fill and label per batch, of which 13 chemicals (364 containers per batch) have to be individually sealed with tape to meet small-quantity exemption shipping requirements.

I’ve tried using heat-shrink cap bands, but that’s actually more time-consuming than applying tape manually. While I was looking for a better way to seal caps, I happened to notice a roll of ScotchBlue masking tape that Barbara had bought for a painting project. I tried using it to seal a cap, and it worked so well that Barbara was unable to twist off the cap without first removing the tape. That’s good enough to meet shipping requirements, so that’s what we’re using now.

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Friday, 5 August 2011

08:29 – Black Friday. I suspect that when we look back upon this day, we’ll see it as the day the Euro died. And probably the EU itself. Even Barroso, the chief EU cheerleader, now concedes that the “contagion” has spread beyond the periphery. After denying, as late as Wednesday afternoon, that it would even consider doing so, Spain has now withdrawn a bond auction scheduled for later this month, in hopes that people won’t notice that its bonds are nearly worthless.

With the stock market crashes across the world yesterday and US employment numbers that are likely to be worse than everyone fears due later today, the stage is set for a real Black Friday on the markets today. And most of the EU country leaders have caught the last train for the coast, unwilling to interrupt their planned vacations. Geez.

Incidentally, for weeks news reports have been using the word “unsustainable” with regard to bond yields. I read an article this morning that reported that benchmark 10-year Spanish and Italian yields were “approaching 7%, a level that most economists consider unsustainable”. Just to be clear, there is no single rate that marks the “unsustainable” boundary. It varies from country to country, according to its own economic situation. For countries in horrible economic shape, like Spain and Italy, that rate doesn’t have to get to 7% to be unsustainable. For them, 6% is just as unsustainable, as is 5%, as is 4%. Looking at the numbers, I think 3% or even 2% is unsustainable for Spain and Italy. In fact, they’re both in such bad shape that anything much over 0% is unsustainable.

Barbara is taking the day off work today to help me build more chemistry kits. Just in time, too, because we’re down to less than half a dozen in inventory.

21:37 – Oh, my. The United States of America, which has had a AAA credit rating since before my mother was born and before my father’s father was fighting in the trenches in France, has now been downgraded by S&P to AA+. It’s ridiculous, really, and unlikely to have any real effect on US debt yields. After all, where else will investors put their money? Britain, despite its AAA rating, and Japan have higher debt loads than the US, and less dynamic economies. Switzerland is solid, but much too small to matter. The Euro is a joke. No one in his right mind would buy Asian debt. And does anyone really believe that bonds issued by Belgium, which hasn’t even had a government for the past year or so, are of the same risk level as US bonds?

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Thursday, 4 August 2011

09:31 – I read an interesting article the other day on CNN or FoxNews about small business owners pawning their Rolexes to meet payroll, and a second article about lending being extremely tight even for those with top-notch credit ratings. Interest rates are very low, which means nothing if no bank will lend you money.

Fortunately, I don’t want to borrow money. In fact, the last thing I want is to borrow money. That may seem odd for someone who’s just starting a small business, but in my experience the two biggest causes of small business failures are borrowing money and hiring employees. When Barbara and I talked about this new business, I told her that I intended to fund it out-of-pocket and that I would not hire our first employee until Barbara and I were run ragged and also had some assurance that the hectic pace was not merely a seasonal bump in sales. And, even then, I’d almost certainly contract work out or, as a last resort, hire a temp/part-time employee.

The problem with borrowing money or hiring employees is that you give up control by doing so. As long as we avoid either, we don’t have to worry about making a loan payment or meeting payroll, which is the way I want it. Now, if only the US government would be equally careful with our money.

Inventory of the chemistry kits is getting perilously low, so Barbara is taking the day off from work tomorrow to help me build more. We have enough components to build another dozen or so kits, and all but one of the components needed to build 50 or so more beyond that first dozen. The problem is, that one component is back-ordered for about the next three weeks. So we’re going to build all of the kits, but missing that one component. That way, we can just drop in that one component when it finally arrives and have kits ready to ship.

I’m also preparing purchase orders that I can drop on a moment’s notice if kit sales pick up quickly as the new school year approaches. Making up all the chemical solutions for any arbitrary number of kits is a couple days’ work, whether I make up enough for 50 kits or 500. The really time-consuming steps are filling and labeling the containers, assembling and packaging the chemical blocks, making up the small-parts bags, and assembling the kits themselves. For 50 kits, that’s maybe three days’ work for Barbara and me working together.

The media, including most of the financial media, is putting as favorable a spin as possible on today’s Spanish bond auction, although of course the yields remain disastrously high. That WSJ article does mention one significant factor that’s being generally ignored in news reports: a large and increasing percentage of Spanish bond sales are being made to Spaniards. The latest figures the WSJ quotes are for the end of last year. I suspect the percentage of Spanish bonds being bought by non-Spaniards is much lower now. And what few of the reports mention is that Spain has to sell another €38 billion in bonds–more than ten times as much as they sold today–between now and the end of the year. Good luck selling €38 billion worth of bonds into the Spanish economy, which is already nearly saturated.

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Wednesday, 3 August 2011

08:36 – The Euro crisis is now in the end game, with everything worse than it was just before the crisis summit at the end of last month. Italian and Spanish bond yields have hit record highs, remaining above 6% all week. The Spanish government is on the way out, with early elections called for November, which is much too late to matter. Spain will have defaulted before the new government is even elected. Italy is on the verge of requesting a gigantic bailout, which the ESFS has neither the authority nor the means to grant. And tomorrow Spain will auction more of its worthless bonds, with the yields expected to be even more disastrous than those of the last couple of weeks. Meanwhile, tiny Cyprus is the latest EU country to join the Bailout Brigade, mainly because it was foolish enough to hold a lot of Greek bonds. Well, that, and the fact that it accidentally blew up its only electric power plant by improperly storing tons of explosives right next to it. Talk about shooting themselves in the foot.

Someone asked me why I keep harping on bond yields. It’s simple. The US currently pays about $200 billion per year in interest on its debt. Italy, whose population is about a fifth that of the US and whose debt is approaching $3 trillion (120%+ of GDP), has huge amounts of debt coming due in the near future. If Italy had to roll over all of that debt at current bond yields, it would be paying about the same dollar amount per year on its debt as the US is paying on its debt. In other words, at $200 billion per year, US interest payments amount to about $660 per year for every man, woman, and child. At the same level, Italian interest payments would amount to about $3,300 per year for every Italian man, woman, and child. Now, of course, not all of that debt is due to roll over soon, but enough of it is that the increased interest payments that would be required at current bond yields are sufficient to bankrupt Italy.

The Spanish situation is a bit different. Spain has a much lower debt load than Italy, but Spain also has structural unemployment that’s optimistically stated to be 21%. In reality, of course, it’s much higher, particularly among young Spaniards. So Spain suffers a double whammy. All those unemployed people aren’t earning salaries and paying taxes, and all of them require social spending, which further hammers the poor Spanish treasury. And Spain, like Italy, can no longer borrow on the open markets because no one wants its bonds.

09:17 – This article, which focuses on one young formerly middle-class Greek family, makes clear how bad things have already gotten in Greece. The husband is a mechanical engineer who considers himself lucky to have occasional work picking fruit for €29.45 a day. His wife, a chemical engineer, finds occasional work selling toilets and flowers. They can’t afford to pay the rental for an apartment, so they’ve moved into his parents’ apartment, displacing his parents to the vacant shop next door. Even getting enough to eat is a problem. And they consider themselves lucky, because they’re in better shape than most. Greece is already well on its way to joining the third world, and it’s only going to get worse.

10:14 – As my regular readers know, I consider same-sex marriage to be a basic human right. The religious nutters would have us believe that allowing same-sex marriage would inevitably destroy society. Well, here are two married lesbians, Hege Dalen and Toril Hansen, who are rightly being acclaimed heroines in Norway. While the police dithered, these women took immediate action at severe risk to their own lives to rescue 40 of the kids on the island. They were having dinner on the mainland when they heard shooting and screams from the youth camp on the island. Most people would have called the police and considered their duty done. Not these women. They hopped in their boat, roared out to the island, and took a boatload of kids to safety. Despite the fact that their boat now had bullet holes in it, they returned to the island four more times, under fire, to haul off additional loads of kids.

If these women had been members of the US military, their actions would almost certainly have earned them the Medal of Honor, and would have made the front pages across the planet. As it is, this morning was the first I’d heard of it. Gay advocates are claiming, with apparent justification, that these women’s heroism has been downplayed because they’re gay. Well, to those who condemn gays and same-sex marriage, all I can say is fuck you and the horse you rode in on.

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Tuesday, 2 August 2011

08:19 – Wow. The vote in the House on the debt limit proves that the politicians of both parties are mostly morons. The deal pretty much gives the Democrats everything they wanted and the Republicans nothing they wanted. And yet the Democrats split evenly on the vote, and the Republicans voted overwhelmingly in favor. This bill should have failed on a party-line vote, with all Democrats voting in favor and all Republicans opposed. Morons, and with the exception of half the Democrats and a minority of Republicans, they’ve voted in favor of simply more of the same. Of course, the Democrats who voted Nay did so for all the wrong reasons, so they’re morons as well.

I suppose there is one small bright spot. As George Will commented this morning, the electorate is rapidly shifting toward a libertarian perspective, not because they’ve suddenly taken up reading political philosophy but because they realize that the Democrats and the Republicans are all insane. Let’s hope this trend continues and accelerates. If so, the 2012 elections should be interesting.

11:13 – With kids like this, there’s hope for Australia. What’s interesting is that Charlie Fine, who is 11 years old, both reasons better and writes better than his adult opponent, Fred Nile.

12:23 – The US debt deal has driven the Euro crisis off the front page, but European problems continue and accelerate. Today’s 10-year bond yields for Spanish and Italian debt are about 6.46% and 6.25%, respectively, a level that is not sustainable, and those yields are quickly headed for the disastrous 7% level, which would make bailouts almost certainly necessary. Of course, there’s no money for bailing out Spain or Italy, let alone Spain and Italy, and no prospect for finding any. And now Belgium is being mentioned in the same breath as Spain and Italy, and France itself can be expected to come under severe bond yield pressures shortly. This is going downhill fast, and there’s simply no way to put the brakes on. We’re heading for a Euro crash sooner rather than later.

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