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.

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:


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.

Real inflation

One thing I noticed in creating POs and placing orders for science kit components is that we’re experiencing serious inflation. Dollar-wise, most of my orders are to wholesalers, which generally post a price list for a calendar year and then honor those prices all year long. (I wonder how much longer that’ll last).Those orders reflected zero inflation, but of course the reality is that I’m overpaying early in the year and underpaying late in the year.

But for some smaller items it doesn’t make sense to set up an account with a wholesaler. For example, I order Sharpie markers by the dozen from a retailer. Since my last order, the price has increased from $8.76 per dozen to $8.92. That’s only about 2%, but other items are considerably higher. For example, the last time I ordered composition books from Costco, I paid $1.26 each. This time, they were $1.33 each, or a 5.6% increase.

And a lot of vendors are playing games with quantity discounts. For example, last time I ordered three dozen of one item at $0.60 each. The price dropped to $0.50 each on quantity eight dozen, and $0.40 each on quantity 50 dozen. Now, the same item is priced at $0.70 each for under eight dozen, $0.60 each for eight dozen or more, and $0.50 each for 100 dozen or more. I ordered eight dozen this time at $0.60 each, so technically the price remained the same. (Oddly, this time the shipping was actually one cent less, even through I was ordering eight dozen instead of three dozen.) But the reality is that if I’d ordered the same number, my price would have increased from $0.60 to $0.70 each, or about 16.7%.

I’m told that food prices are rising even faster, but Barbara and I don’t track those.


Ordering for more kits

As we headed for the post office this morning to ship more kits, Barbara pointed out that I’d better get off my butt and get more components ordered. So that’s what I’ve been doing this morning, ordering components for five dozen more kits.

Well, five dozen in terms of most components. In some cases, I’m buying enough for many more. For example, I just ordered $106 worth of 650 mg sodium bicarbonate tablets and 500 mg vitamin C tablets, which is enough for probably 150 kits. What the heck.  A $99+ order got me free shipping, and I’m going to need the stuff anyway.

As of now, we’re shipping four or five kits a week, which is actually a lot more than I expected at this point. Early summer is a dead time for science kit orders, and we’ve just started to get the word out. For most people, such kits aren’t impulse purchases. They need to think about it for a while, determine how it’ll fit into their curriculum, and so on. I expect the pace to pick up in mid- to late August and continue at a higher level through September and well into October. I don’t want to have to backorder, but on the other hand I don’t want to be covered up in components and assembled kits. Five dozen at a time, we can handle.

What really scares me is knowing that when the home biology book is published, we’re going to get a flood of orders for the biology kit, probably a couple hundred or more in the first couple of weeks, and possibly 100 a week or more for quite some time. I’ll talk to Barbara about that, but right now I’m thinking about pre-building at least 100 biology kits and keeping components in stock for a couple hundred more. There are obviously inventory storage and working capital issues, although fortunately nothing in the kits will have a short shelf life.

More chemistry kits

The chemistry kits are selling well enough that it’s almost time to order more components. I really don’t want to have to backorder the kits, particularly between now and September.

I dithered about how many kits’ worth to order, and settled on 56.  If that number sounds odd, I chose it because the chemical labels are printed 28 per sheet. Also, that’s a convenient number for kit assembly. We can make up all 56 chemical blocks and small-parts bags in one pass, and do final assembly of the kits in four batches of 14 each. Finally, 56 boxed kits occupy more than two cubic yards, which is about all the space I want to devote to storing finished goods inventory.

Science kits for religious versus secular homeschoolers

When we announced the CK01 homeschool chemistry kits on the MAKE blog, Geek Dad, and so on, we immediately started getting critical responses and emails about how we positioned the kits. The relevant part of the announcement was:

“The kit can be used with a religious curriculum or a secular curriculum …”

And a typical criticism started out:

“Pray tell, what religious curriculum requires a modification to a science chemistry set that would not first render all basic science moot in the first place?”

Fair enough. So I posted the following response:

“Religious home schoolers are often concerned that a secular science kit, such as this one, may include explicit or implicit criticisms of or hostility toward their religious beliefs. Although our company (and we) are secular, we wanted religious homeschoolers to know that nothing in our chemistry kit should be offensive to their religious beliefs.

As another commenter noted, this situation is particularly common with geology (and biology) materials that might contradict the religious beliefs of fundamentalist Christians, particularly Young Earth Creationists. We have many science kits planned for future release. Some of those, such as forensics and physics, are unlikely to offend anyone regardless of their religious beliefs.

Other kits, such as earth science and biology, will be secular and may indeed offend the sensibilities of some (not all) religious homeschoolers. We will flag those kits prominently to warn anyone who is concerned about their content that these kits may not be suitable for some religious homeschoolers.”

Now, as my regular readers know, I’m 100.000% secular, but they also know that I’m 99.44% pure libertarian and 100.000% pro-science. I don’t care what people choose to believe, whether it’s in Apollo or Thor or the Tooth Fairy. But I do care about as many kids as possible getting hands-on exposure to real science. And that’s what the kits are about: not ideology or politics or anything other than pure science.

In reality, none of our kits may contain anything offensive to anyone’s religion. We may or may not cover issues in earth science that Young Earth Creationists would object to. In biology, the issue is of course evolution. As the great biologist Theodosius Dobzhansky, himself a devoutly religious man, famously stated:  Nothing in Biology Makes Sense Except in the Light of Evolution. No serious scientist disputes that.

So it might seem we’re going to have a problem with our biology kits, but in fact I don’t think we will. Even religious fundamentalists acknowledge the reality of micro-evolution, which is evolution within a species. They have no choice. We can actually watch it happen. Their problem is with macro-evolution, or one species evolving into another species.

Scientists consider micro-evolution and macro-evolution to be one and the same. The former typically occurs over relatively short periods, and the latter typically over longer periods as accumulated evolutionary changes in one organism lead to speciation, or the original organism evolving into an entirely new species.

The thing is, a micro-evolution lab session is perfectly reasonable for a high-school biology course. For example, we might do a lab session on repeated culturing of a bacteria species with forced selection to develop resistance to a particular antibiotic. That won’t offend even the most fundamentalist religious parents, because everyone admits the reality of evolution on this scale. Conversely, macro-evolution is not a practical (or even possible) hands-on lab session topic for high school biology, so the issue is moot.

It would be very different if we were writing a general biology textbook for homeschoolers, because then there would be no alternative but to present evolution in all of its aspects as absolutely true beyond question, verified by millions of observations and experiments over the last 150+ years, and further confirmed by new developments such as molecular biology and DNA analysis. If we ever write that textbook, you can be sure that it will be the best science we can do, and let the chips fall where they may. But we’re not in the business of writing lecture textbooks.