Double Blind

The positions in my account are slowly dwindling. Right now I only have two Bird Flu contracts and a very minor position for the next Canadian election.

Presently I am risking $1214 for a potential reward of $2076 if Asian H5N1 Bird Flu does not strike the USA by December 31, 2006. (Update: This has expired; my short position of 330 contracts expired at zero and I cashed this in; open interest was 1232… meaning I was about 27% of the whole market at expiration). The bulk of this bet was made back in March and April. There is also another bet that the Bird Flu will not strike the USA by March 31, 2007. This I am risking $719 for a potential reward of $640 if it does not hit. The bulk of this bet was made in June and August, which is why I received significantly worse odds.

I am currently risking less than $5 on the next Canadian election. This will change as the election comes closer and the markets become less efficient.

I have been trying to find a place to park my idle online cash (time-expiration contracts are excellent for this) but I have not had much luck other than a 4% GIC; the liquidity and risk profile of the other expiration contracts are too extreme to be properly traded. The Bird Flu has been good to me – the cash I have “parked” in that contract will yield roughly 150% on an annualized basis. I would love to invest the proceeds into something similar, but I doubt I will be able to find such inefficiently priced contracts in the near future.

I have been forced to look at other venues for more exotic type bets, but I have been unable to find anything that is not related to sports.

What does videotaping a police roadblock in St. Louis, tasering of a student in a California University (via Justin) and Saddam Hussein’s execution have in common?

The quick answer – with the prevalence of mobile audio/video capture equipment and Youtube/Google Video, it’s becoming a lot more difficult to lie.

This inevitably results in more transparency – police in roadblocks will have to be more careful in their questioning, police on university campuses will have to be more careful before they pull the triggers on their tasers, and media won’t be able to say with a straight face that Saddam Hussein went quietly (“Go to hell” were his words).

Note this couldn’t happen if we didn’t have two very different technologies converging into one service. These things are very difficult to predict, but what we’re seeing is a complete decentralization of media. As fake information starts to appear, people will have to be as vigilant as ever sorting out the wheat from the chaff.

An earlier review of mine bashed the G6 for various faults. It appears I wasn’t alone in this opinion.

I think it’s about time that I test-drove some Japanese automobiles for a change and see if they are truly any better than their American counterparts.

Noka Chocolates is a “high end” chocolate retailer based in Dallas, Texas.

The article What’s Noka Worth? from Dallasfood.org is by far, the best retail analysis I have ever read over the internet. If you want to know anything about the chocolate market, you absolutely must read the link.

There are a few lessons to be learned when reading this:

1. You can add perceived value to a product strictly through marketing efforts.
2. There is usually a high-end market that will pay through the teeth for perceived value.
3. People doing this type of research usually won’t last too long by releasing their information on the Internet – it’s just too easy to get sued even if you’re absolutely correct. This is why there is a positive bias on everything in the online and offline world – a lot of people take critical feedback personally instead of using it to improve. That said, given the quality of material that the author just cranked out, it wouldn’t surprise me if he could easily excel in a job doing research and analysis for other business operations.

Apparently the guy that runs facebook.com turned down a $1.6 billion offer from Yahoo. I remember this happening before when a grotesque amount of money was offered for Pointcast (so-called “push” software which was all the rage in those days) and this was turned down.

I think social networking sites are at the same zenith and right now Myspace, Friendster and Facebook should be doing everything they can to cash out to the majors.

At least Mark Cuban knew how to do it – reportedly when Yahoo offered $5.7 billion for the company, he quickly said yes. Now he’s busy doing other stuff – running the Dallas Mavericks, as well as other ventures.

My prediction is that Facebook, in dropping this offer, will attempt to go public, but not receive nearly the valuation they did from this reported offer from Yahoo.

Dennis Forbes talks about power consumption of various home electronic devices. Essentially to kill the power consumption of any devices you literally have to unplug them. This includes speakers and other such things which normally are turned off – you have to unplug them. A five watt load over a month costs about 25 cents. If you have enough of these devices, it really adds up.

Since my “24 hour” server is running on an 8 year old computer system, I calculated it consumes about 100 watts of power which isn’t too bad – it works out to roughly 7 bucks a month. Now you have Bluehost offering 50 gigabytes of disk space, infinitely more bandwidth and a whole bunch of other services for… 7 bucks a month. It means sooner or later I’ll probably turf the 24 hour server and keep things on Bluehost.

The other comment is that laptops are optimized to use as little power as possible – if you get rid of your desktop system and connect a laptop with a standard LCD or CRT screen, it will probably end up using less power. The only problem with laptop systems is that their hard drives are much slower than desktop systems so if you need the disk performance then you don’t have much choice.

Now is a good time of the year to figure out what you spent on things and doing some budgeting for 2007. If you don’t itemize expenses there is no way to keep track of some very interesting statistics.

I am constantly looking at a “should I look at getting rid of my car and buying a new/used one” decision since I am rather conscious about using a car that is over 18 years old. Here are some car statistics:

I spent approximately $1850 on gasoline in 2006. My initial (beginning of 2006) estimate was $1800 (1500km/month at 90 cents per litre at 9 km/litre). I actually did about 20,000km on my vehicle and this means I got 10.8 kilometers per dollar of gasoline I spent. I didn’t keep detailed stats on price per litre I paid, but eyeballing the individual entries I got about $1/litre on average, so it makes the math easy – my car got 10.8 kilometers per litre, or 9.25 litres of gas per 100km. I would estimate about 60% of that was highway/freeway style driving.

Looking at fueleconomy.gov, a vehicle comparable to my own would get about the same mileage. Turfing my own vehicle for fuel economy alone is not a financially viable decision. My car is really weak (fuel-wise) in city driving, but on the highway/freeway it is just as good as any other car out there. Since I expect the majority of driving in 2007 (70%, possibly 80%) will be on highways, I don’t anticipate problems there.

The other consideration is maintenance – 2006 was an unusually good year for the car in that nothing went wrong. The only expenses I have booked were for oil changes. 2005 was an expensive year, where I spent about $2000 on miscellaneous repairs. Each year I budget about $800 for this sort of stuff, since it is very difficult to predict what (if anything) will go wrong. I will also need to get certain fluids replaced. My internal “break-even” point whether I should turf the car or get a new one is about $1200/year or a significant mechanical failure (transmission or engine related).

I’ve been looking around for some sort of incentive to get my vehicle off the road and to get myself in a new car, but it appears that there’s more incentive to get rid of power-consuming fridges than there is for my vehicle at the moment. Currently, the numbers say that the only reason why I should get rid of my car is social reputation. Since I don’t have much of one to begin with, I think I’ll be keeping my car for another year. Besides, it’s really cool driving in a car knowing that if you bump into somebody else, you’ll be doing more damage to them than you’ll be doing to your own automobile. This is like having automatic right-of-way on any road, especially in a place like Richmond where every other person drives a BMW or Mercedes.

Declan posted about this earlier, but I’ll add something extra here.

Here is more evidence (or rather I’m assuming that somebody else did the homework and is correct) that pennies and nickels should be phased out – the market for base metals has increased sufficiently that the market value of the metallic content is higher than the face value of the coin.

This happened before in Canada when coinage before 1968 had a component of real silver – what was happening was that Americans were taking the Canadian currency, melting it and then selling the silver on the open market. The Canadian government eventually put a stop to that action.

It goes to say that if you were to start purchasing US nickels and taking them over the border to melt and sell the copper and zinc components, it would still be legal. In fact, even if you are over the $10,000 reporting limit, you can still report it and I’m sure Canada Customs would be perfectly happy with the excuse that you’re trying to resell the currency – as long as you charge GST to your customers.

Essentially, rounding up things to the nearest dime is so much easier – get rid of the penny, nickel and quarter and just use dimes and half dollars. As an interim solution, getting rid of the penny as a start would be fine.

Instead, what the US mint will end up doing is replacing zinc and copper with steel.

Interactive Brokers is likely the best brokerage firm you can use in Canada when it comes to non-RRSP accounts. Unfortunately, they do not support RRSP transactions (yet), but the nanosecond they do, I will be switching over. With dirt cheap commissions, it enables you to make certain transactions that you would never think of using most other brokerages. It costs US$1 to transact 200 shares on a US stock exchange, and CDN$2 to transact 200 shares on the TSX.

The only clear disadvantage I can find with Interactive Brokers is that they charge a minimum fee of US$10/month for activity and they will net this against whatever transaction volume you generate. So if you generate US$4 in commissions for the month, they will deduct US$6 from the account at the end of the month. This may sound like a rip-off if you’re a low-volume customer like I am, but this is actually a superior deal than most other brokerages if you plan on trading more than 5 times a year.

A hidden benefit is that low commissions allows a very effective layering strategy – when getting into positions, you can do so 200 shares at a time at the price decrement/increment you so desire. For example, instead of buying 400 shares at $20, you can buy 200 shares at 20 and 200 shares at $19.80 and still pay the same commission. It severely decreases execution risk (you can get partial positions at cheaper prices or sell partials for higher prices) and as a result will likely end up saving more money than just the commissions alone. In a game where 0.1% matters, this is important.

The other way that Interactive Brokers makes some money off their customers is that they give interest on their accounts using a tiered scheme. In US currency, you don’t earn anything on the first $10,000. On the next $90,000, you earn LIBOR minus 0.5%. (LIBOR is the London Interbank Offering Rate, about 5.29% right now). On money above that, they credit you LIBOR minus 0.25%.

The salient detail is the first $10,000 – you don’t earn interest on this money. This means if you hold any cash balance, you have money at work that is earning money for Interactive Brokers rather than yourself. At a risk-free 4.5%, this would work to roughly $450/year or $37.50/month.

There is a way to capture this for yourself, however. The IShares Short Term Bond Fund ETF (ticker symbol SHY) invests in short term government securities with maturities of 1-3 years. Right now it averages 1.9 years in duration, with a weighted average coupon of 3.92% and yield to maturity of 4.69%. Management expense ratio is 0.15%. In theory you should be earning around 4.5% out of this.

Because the shares trade at about US$80 a pop, you can get in and out in US$16,000 quantities for the cost of one whole US dollar. This means transactional expenses of 0.0063% per direction and you can easily see if you have excess cash in your account using Interactive Brokers that it’s very wise to dump it all into SHY until you can figure out something better to do with your money – this way you can reduce your cost of keeping cash at Interactive Brokers to an absolute minimum.

Note if you trade less than US$10/month and you do this, your marginal transactional cost of doing this is actually zero. It’s even worth it to park your cash in this sort of investment vehicle for half a month – using the example with numbers above, you can still clear about 0.175%/half-month if you bought and sold this on a regular basis, assuming your trades were spread-neutral.

One of the reason why I put up limited ads on specific articles is to see what Google deems the readers would most likely click on due to the content of the article. My previous article on degenerate gamblers resulted in the following ads:

I wonder if there is a correlation between degenerate gamblers and cocaine usage? Probably.