Double Blind

About a year and a half ago, Verizon spun off Idearc (a yellow pages type company that is going through some financial difficulties). Shareholders got some shares based on their ownership of Verizon and I received 5 shares – too low to sell (commissions) but enough of an eyesore for me to get rid of in the portfolio. I wrote about this then and fortunately the company did a tender for odd-lot owners like me (which was a cheap way to sell the shares).

So fast forward a year and a half and Verizon spun off their landline company called Farpoint communications. They distributed 1 share for approximately every 51 shares of Verizon you owned, rounding down for fractional shares (and getting cash for the remainder).

Since I had a hundred shares of Verizon, I noticed in the mail a monstrously huge packet that was mailed outlining the details of the spinout. I barely got through the summary page to realize that I would be due some shares of some company.

So right now I have one share of Farpoint Communications sitting in my account with a total value of US$9.19. I wonder how much material I will get mailed from this company until they have their own tender offering. Maybe I should put in a shareholder resolution for their next annual general meeting requesting such a deal to cash people like me out.

Ryan has a great post for budding power Gmail users – a lot of emphasis on filtration and how to manage large volumes of email.

I tried Outlook eons ago (circa 1998) and I disliked it for email management, especially over the internet for standard POP3/SMTP type stuff. So I moved my email management system to MDaemon, a product that was unparallelled to nearly anything in the Windows universe. Its killer feature was Worldclient, an add-on that enabled web-based access to your email folder, so this allowed you to become your own Hotmail type system.

Does anybody remember when Hotmail was the first web-based email provider? Those were the days…

But anyhow, my need for Mdaemon ceased when I eventually ported all of my web services to Bluehost and I shut down my home server (which incidentally saves more in electricity costs than the webhosting fee). Now I have moved most of my mail to Gmail, so Google officially knows too much about me already when you combine my search terms, calendar, mail, reader and maps.

A site called My Science Project performs experiments of very irreverent topics, such as how to get the foamy head on a Guinness, or trying to determine how much alcohol you can put in a jello shot.

I love these types of sites, mainly because they perform real science, rather than most people that call themselves climatologists these days.

Earlier, I wrote a rant against Rail for the Valley, using a cost argument. I’m going to reverse this and say it is worth further investigation, although I will also add that Malcolm Johnson is still too evangelistic for my liking.

While I still think putting LRT down Broadway road in Vancouver is a stupid proposition, the argument that the interurban line (from Surrey to Chilliwack) should be resurrected warrants further attention.

Essentially, an analogy can be made between the West Coast Express and a future train line going through the Fraser Valley. The West Coast Express’ capital cost was not as significant as I originally thought until I digged up some numbers and if this can be replicated in a future line, it might work out. (Inspired by a Langley Politics article which I decided to do some research on). The subsidy that the West Coast Express receives is not a huge amount, especially considering the operating drain that the rest of the transit network has.

I still think the routing of a proposed Fraser Valley rail line is horrible east of Langley (just follow the train tracks on this map) which would unnecessarily increase travel times (an extra 7km of track from TWU to Abbotsford, and another 6km from Abbotsford and Chilliwack compared to road – note that a car trip from 232St/Hwy1 to Hwy11, Abbotsford is 25km and from Hwy11 to the Husky Gas Station in Chilliwack is 28km), but at least from the Surrey to Langley stretch, it would be a lot cheaper than building a Skytrain track between central city station and Langley City.

Would people use it? Who knows. Would it bankrupt Translink to try it out? Probably not. I’d get the staff to study it if I was Translink.

I know that Vancouver City Council is attempting to streamline the hot dog vendors in such a way that they can offer more “healthy product offerings”.

So apparently council is in a position to dictate what people’s needs are, and will require vendors to place “healthier alternatives” on their carts.

While this is laughable, it’s actually happened in Los Angeles – the county health department has deemed “bacon hot dogs” illegal to sell unless if you’re willing to put in a huge capital investment for safety protocols which apparently aren’t needed.

Is there a government out there that wasn’t built to interfere with public business?

Barack Obama is projected to win the North Carolina primary and I agree this will likely be the case. Correspondingly, the markets are trading around 20:1 this will happen.

Considering I think the chance is approximately 10:1 – a lot can happen in the next 12 days – there are some scenarios where Clinton could sketch out a marginal victory (we’re talking one or two percent) in the state.

This is unlikely to happen, but is still worth taking a shot on. I’ll be risking about 1% of my account equity on this outcome.

Essentially Obama is wilting under pressure – he continues to face scrutiny from forces that he’s unaccustomed to facing scrutiny from. He’s refusing to debate Clinton, and this is a sign that Obama believes that he’s got more to lose than gain. While this analysis is correct, playing the risk adverse card is not a way to KO your opponent and is likely to end up dragging this primary to the convention in August.

I earlier wrote about the “war on polycarbonate bottles“, and it seems that I was correct with my prediction of hysteria.

Health Canada has taken the step of announcing they intend to ban the import, sale, and advertising of polycarbonate baby bottles containing bisphenol A (BPA). This is despite the fact that human exposures are less than the levels deemed to be potentially unsafe.

So the upcoming results of the study failed to meet its endpoint, but “just for the margin of safety, we’ll ban it anyway.”. What’s the point of having a study when you’re just going to throw away the results?

Naturally, everybody is taking this as a confirmation that BPA is evil, deadly and must be eradicated.

Of course, politically, this is absolutely the correct decision. First, you look like that you’re a public defender of babies, and everybody loves babies. Secondly, chances are there will be some parent out there that will make the claim that their baby died or is suffering of some symptom of BPA exposure, all because the government failed to put a ban on BPA. So by taking this action, you preemptively remove the political risk of having some parent in the spotlight.

While this decision is nothing at the level of banning DDT (which directly resulted in millions of deaths due to malaria), it still is disturbing.

Once again, I say:

My hunch is that polycarbonate bottles, at least for everyday household use, are perfectly safe. My additional hunch is that when you stick polycarbonate bottles in the microwave and superheat liquids inside, you will cause leaching of plastic residue to the liquid.

This goes for a lot of things – if you overheat your Teflon frying pan to 450C on the stove, chances are you’re going to be ingesting some Teflon in your diet. It’s no different with BPA or most other containers.

I can just imagine people in the future facing worse problems in the future when they use metallic containers and start exhibiting symptoms of ingesting too much metallic byproduct as it begins to rust.

The city of Richmond has been in a rather fortune fiscal situation where they have not had to seriously downsize their spending for the last 20 years.

This has led to a culture of fiscal complacency, where any pet projects advocated by certain staff members could get pushed up the chain of command for almost guaranteed ratification of council, provided it is not too politically controversial. A good example are the city’s beautification initiatives; those plants in the road medians do add to the charm of the city. A bad example is gouging up the middle of No. 3 road for dedicated bus lanes, about 5 years before the approval of the Canada Line.

There are a couple significant decisions that have been a significant drain to the city’s resources and will continue to have ramifications in the future.

One is the decision to take 2/3rds of the costs concerning the Olympic Oval. The capital budget is scheduled to be $178 million (not including any cost overruns) of which $60 million is paid by VANOC. The rest of the money ($118M) is funded from the “royalty” proceeds of having the River Rock Casino in Richmond, and sales of land around the oval. The capital cost also does not include the cost of land where the oval itself is sitting in. The River Rock Casino revenues have not actually been earned yet – they are going to be using future expected revenues to pay for the capital expenses today.

Now, make no mistake – the Olympic Oval is a very beautiful building – it will look very good and will serve its purpose of being displayed on millions of televisions world-wide, but it is a very expensive project to undertake.

To give you an idea of how large the $118 million expense is, for the next four years (2009 to 2012), the city of Richmond’s capital budget averages $41.7 million a year.

So they essentially blew 3 years of capital budget room for a single-use fancy facility which will be used as a flat ground for future sporting events after the Olympics are done.

Even looking at the oval plan, we have the following “legacy” demonstrated by the city:

In addition to the considerable community benefits, the Richmond Olympic Oval will be a significant legacy for the 2010 Olympic and Paralympic Winter Games, the Province of BC and Government of Canada. The Richmond Olympic Oval will be:

* a signature, permanent structure on a prominent waterfront location that will showcase Olympism long after the 2010 Olympics Games conclude;

“Showcase Olympism” – I’ll have to remember this quotation for future conversation.

* a flexible, multi-sports facility with year-round opportunities for winter and summer sport athletes from “playground to podium” including ongoing capacity for speed skating;

This is likely the only legitimate purpose of the oval after the Olympics are over. I love the phrase “playground to podium”, it’s as if babies are going to be delivered in the oval and bred for sporting performance.

* a premier facility and community for athletes to train, live, work and pursue education;

I see now, the oval forms a basis for a community of athletes! Why didn’t I see this before?

* a high performance sport and community wellness centre that promote the benefits of sport and physical activity.

The Olympic oval is also a community wellness centre!

* a venue that will be a hallmark for sustainability and accessibility in a superb natural, yet urban setting;

Sustainable, accessible, and natural, but urban as well!

* a community-based facility that will benefit a broad spectrum of users locally, provincially, nationally and internationally from playground to podium; and

Did we just read this above? “Community-based”, “broad spectrum”, “playground to podium”!

* an easily accessible facility within 20-25 minutes of the Olympic Village.

Once again, it’s accessible! It’s also a 10 hour flight away from Tokyo, and a 10 minute taxi ride from YVR in case if the Japanese want to use the facility as well!

There is so much marketing and so little pragmatism in this vision that it’s very easy to see how other decisions that Richmond has made has been without any regard for its economic well-being. Instead, council is roughly divided between the people with vested interests in high-density development and the people that want to build as much politically sexy “legacy” construction (such as the oval) that they’ve more or less developed an implicit pact to help each other’s causes.

The argument of “VANOC offered us $60 million in ‘free money’ so we really had no choice but to spend $120 million for the oval!” just doesn’t cut it.

So now we fast forward a few years and discover that Richmond city council has now earmarked $10 million for “live event” (parties) during the Olympic period. Vancouver and Whistler are doing something similar, but they are getting funding from external sources as they are official “host cities”, while Richmond will be doing this solely on its own.

Now, there’s nothing necessarily wrong with throwing a bit of cash for a party (I have no idea how to value the intangible benefits from having such an event, but let’s assume it’s warranted), but essentially city council has deemed it acceptable to spend $60 per capita on a party. Asked for the justification, we have the following quotation (Richmond News, April 18, 2008):

“We made the decision ourselves to have a live site because we believe that there are significant benefits to the city for doing that in terms of generating legacy infrastructure,” said city hall spokesman Ted Townsend.

So spending $10 million on a party is about “generating legacy infrastructure”?

Does Ted Townsend have any idea what he’s talking about, or is he reading off a script sheet prepared for by Richmond’s marketing team?

Unfortunately, my bet is that after the 2008 election cycle is over, we’ll see more of the same.

Right now the cost for a litre of gasoline is roughly $1.20.

I estimate I will go through about 2400 litres of gasoline this year. My car is not the most fuel efficient – I will be getting roughly 10.5 kilometers per litre of gasoline or about 25,000km.

If I got a newer vehicle, chances are it would have a more fuel efficient engine that would increase my mileage up to about 17.5 kilometers per litre of gasoline. This would enable me to save about 950 litres of gasoline, or about $1,140 a year in operating expenses.

How much would I have to hypothetically pay for another vehicle in order for this to be a breakeven decision?

Let’s assume the gasoline savings will last for 8 years (the expected value of an effective vehicle life) and we will use a 5% required rate of return. So the factor of saved cash flow will be 6.46, which multiplied by $1,140 means that a break-even decision will be about $7,400.

This does not count the fact that a newer vehicle costs more to insure (which would also be offset by lower maintenance costs).

Of course, this analysis also does not include increases in the future price of gasoline. If gasoline is projected to double in two years (I know at least 5 cents per litre will be the carbon tax!), the break-even present purchase price increases to roughly $12,600. If we assume that gasoline prices will increase 25% per year for the next 8 years, then the break-even purchase price rises to $17,300.

It might be time to look at the used car market.

I am appropriately writing this while drinking some coffee (not Starbucks, but homemade).

Starbucks Corporation announced a rather tepid quarterly result, giving a preliminary outlook for 15 cents for the first quarter this year. Analysts had been expecting 19 cents per share.

Perhaps more importantly, management indicated that “full-year fiscal 2008 EPS to be somewhat lower than the $0.87 reported in fiscal 2007″ – and when you factor in that investors were expecting around 97 cents per share, this was sufficient to give the stock a 12% haircut in today’s trading (see the chart above) and yet again pushing multi-year low levels for share price. Anybody that has invested money in Starbucks since November 2003 has lost money in the company.

Fortunately, I don’t own shares, and never have.

That said, I am watching this very carefully for signs of a turnaround. Starbucks has incredible name brand and this is difficult to erode, even by competitors with superior coffee. Starbucks has managed to create a business that scales, and although they’re trying to “turn back the clock” in a way that can still scale, they will face some serious operational difficulties ahead.

That said, it still reminds me of what happened to McDonalds back in 2002 – they got taken back and shot for being behind the times and suffering from fatigue. There was also an intense price-cutting battle between Burger King and Wendy’s at the moment. We all know how this ended -

Essentially I think Starbucks is trying to follow the same model – going back to basics. While this will cost them significantly over the short term, in the long term it is likely the correct business decision since it will not erode their brand name. As I mentioned before, if they go around 13 bucks a share, I’ll start looking at them a little more seriously. Even at present prices I would highly suspect that investors would not be losing money over a 5 year period, but when I invest I prefer a much better cushion for error and this comes in the form of lower prices.